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hsic:countries hsic:claims
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
 
D.C.
 
20549
 
FORM
10-K
(Mark One)
 
ANNUAL REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 2022
 
TRANSITION REPORT PURSUANT TO
 
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
 
1934
For the transition period from ____________ to ____________
Commission file number
0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
11-3136595
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
135 Duryea Road
Melville
,
New York
(Address of principal executive offices)
11747
(Zip Code)
 
(
631
)
843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b)
 
of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.01 per share
HSIC
The Nasdaq Global Select Market
Securities registered pursuant to Section
 
12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
YES
:
 
 
NO:
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES:
 
 
NO
:
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
:
 
 
NO:
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES
:
 
 
NO:
 
 
 
Indicate by check mark whether the registrant is a
 
large accelerated filer, an
 
accelerated filer, a non-accelerated filer,
 
a smaller reporting company,
 
or an
emerging
 
growth
 
company.
 
See
 
the
 
definitions
 
of
 
“large
 
accelerated
 
filer,”
 
“accelerated
 
filer,”
 
“smaller
 
reporting
 
company,”
 
and
 
“emerging
 
growth
company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
:
 
 
Accelerated filer:
 
Non-accelerated filer:
 
Smaller reporting company:
 
Emerging
growth company:
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. YES:
 
 
NO:
 
If securities are registered pursuant to
 
Section 12(b) of the Act, indicate by
 
check mark whether the financial statements of
 
the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
 
Indicate
 
by
 
check
 
mark
 
whether
 
any
 
of
 
those
 
error
 
corrections
 
are
 
restatements
 
that
 
required
 
a
 
recovery
 
analysis
 
of
 
incentive-based
 
compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES:
 
 
NO:
 
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price as
quoted on the Nasdaq Global Select Market on June 25, 2022, was approximately $
10,463,590,000
.
 
As of February 7, 2023, there were
131,283,515
 
shares of registrant’s Common Stock, par value $.01 per share, outstanding.
Documents Incorporated by Reference:
Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year
(December 31, 2022) are incorporated by reference in Part III hereof.
3
PART
 
I
ITEM 1.
 
Business
General
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology.
 
We believe we are the world’s largest
 
provider of health care products and services primarily to
 
office-
based dental and medical practitioners, as well as alternate sites of care.
 
Our philosophy is grounded in our
commitment to help customers operate a more efficient and successful business so
 
the practitioner can provide
better clinical care.
With more than 90 years of experience distributing health care products, we have built a vast set of small,
 
mid-sized
and large customers in the dental and medical markets, serving more than one million
 
customers worldwide across
dental practices, laboratories,
 
physician practices, and ambulatory surgery centers, as well as government,
institutional health care clinics and other alternate care clinics.
 
We are headquartered in Melville, New York
 
and employ more than 22,000 people.
 
Approximately 50% of our
workforce is based in the United States and approximately 50% is based
 
outside of the United States.
 
We have
operations or affiliates in 32 countries and territories.
 
Our broad global footprint has evolved over time through our
organic success as well as through contribution from strategic acquisitions.
We offer
 
a comprehensive selection of more than 300,000 branded products
 
and Henry Schein corporate brand
products through our distribution centers.
 
Our infrastructure, including over 3.8 million square
 
feet of space in 29
strategically located distribution and 19 manufacturing facilities around
 
the world, enables us to historically provide
rapid and accurate order fulfillment, better serve our customers and increase
 
our operating efficiency.
 
This
infrastructure, together with broad product and service offerings at competitive prices,
 
and a strong commitment to
customer service, enables us to be a single source of supply for our customers’
 
needs.
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our dental
businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
 
emergency
medical technicians, dialysis centers, home health, federal and state governments
 
and large enterprises, such as
group practices
 
and integrated delivery networks, among other providers across a
 
wide range of specialties.
 
The health care distribution reportable segment, combining our global dental
 
and medical businesses, distributes
consumable products, small equipment, laboratory products, large equipment, equipment
 
repair services, branded
and generic pharmaceuticals, vaccines, surgical products, dental specialty products
 
(including implant, orthodontic
and endodontic products), diagnostic tests, infection-control products, personal
 
protective equipment products
(“PPE”) and vitamins.
 
While our primary go-to-market strategy is in our capacity
 
as a distributor, we also market
and sell under our own corporate brand portfolio of cost-effective, high-quality consumable
 
merchandise products,
and manufacture certain dental specialty products in the areas of oral
 
surgery, implants, orthodontics and
endodontics.
 
 
The technology and value-added services reportable segment provides
 
software, technology and other value-added
services to health care practitioners.
 
Henry Schein One, the largest contributor of sales to this category, offers
dental practice management solutions for dental and medical practitioners.
 
In addition, we offer dentists and
physicians a broad suite of electronic health records, patient communication
 
services including electronic marketing
and web-site design, analytics and patient demand generation.
 
Finally, our value-added practice solutions include
practice consultancy, education, integrated revenue cycle management and the facilitation of financial service
offerings (on a non-recourse basis) to help dentists and physicians operate and
 
expand their business operations.
 
We believe our hands-on consultative approach to provide solutions to support practice decision-making is a key
differentiator for our business.
 
4
Recent Developments
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent
Developments” herein for a discussion related to the COVID-19
 
pandemic and recent corporate transactions.
Industry
The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and
diverse.
 
The industry ranges from sole practitioners working out of
 
relatively small offices to mid-sized and large
group practices ranging in size from a few practitioners to several
 
hundred practices owned or operated by dental
support organizations (DSOs), medical group purchasing organizations (GPOs), hospital systems
 
or integrated
delivery networks (IDNs).
Due in part to the limited capacity of office-based health care practitioners
 
to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment
 
to office-based health care
practitioners has been characterized by frequent, small quantity orders,
 
and a need for rapid, reliable and
substantially complete order fulfillment.
 
The purchasing decisions within an office-based health care practice
 
are
typically made by the practitioner, hygienist or office manager.
 
Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
The health care distribution industry continues to experience growth due
 
to demand driven by the aging population,
increased health care awareness and the importance of preventative care,
 
an increasing understanding of the
connection between good oral health and overall health, improved access
 
to care globally, the proliferation of
medical technology and testing, new pharmacology treatments and
 
expanded third-party insurance coverage,
partially offset by the effects of unemployment on insurance coverage and technological
 
improvements, including
the advancement of software and services, prosthetic solutions and
 
telemedicine.
 
In addition, the non-acute market
continues to benefit from the shift of procedures and diagnostic
 
testing from acute care settings to alternate-care
sites, particularly physicians’ offices and ambulatory surgery centers.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking
 
to combine with larger companies that can
provide growth
 
opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
 
In addition, customer consolidation will likely lead to multiple locations
 
under common management and the
movement of more procedures from the hospital setting to the physician
 
or alternate care setting as the health care
industry is increasingly focused on efficiency and cost containment.
 
This trend has benefited distributors capable
of providing a broad array of products and services at low prices.
 
It also has accelerated the growth of health
maintenance organizations (“HMOs”), group practices, other managed care accounts
 
and collective buying groups,
which, in addition to their emphasis on obtaining products at competitive
 
prices, tend to favor distributors capable
of providing specialized management information support.
 
We believe that the trend towards cost containment has
the potential to favorably affect demand for technology solutions, including software,
 
which can enhance the
efficiency and facilitation of practice management.
Competition
 
The distribution and manufacture of health care supplies and equipment is
 
highly competitive.
 
Many of the health
care products we sell are available to our customers from a number of suppliers.
 
In addition, our competitors could
obtain exclusive rights from manufacturers to market particular products.
 
Manufacturers also could seek to sell
directly to end-users, and thereby eliminate or reduce our role and
 
that of other distributors.
 
In certain parts of the
dental end market, such as those related to dental specialty products, and
 
medical end market manufacturers already
sell directly to end customers.
In North America, we compete with other distributors, as well as several
 
manufacturers, of dental and medical
products, primarily on the basis of price, breadth of product line, e-commerce
 
capabilities, customer service and
5
value-added products and services.
 
In the dental market, our primary competitors in the U.S. are the Patterson
Dental division of Patterson Companies, Inc. and Benco Dental Supply
 
Company.
 
In addition, we compete against
a number of other distributors that operate on a national, regional and
 
local level.
 
Our primary competitors in the
U.S. medical market, which accounts for the large majority of our global medical
 
sales, are McKesson Corporation
and Medline Industries, Inc., which are national distributors.
 
We also compete with a number of regional and local
medical distributors, as well as a number of manufacturers that
 
sell directly to physicians.
 
With regard to our dental
software, we compete against numerous companies, including the
 
Patterson Dental division of Patterson
Companies, Inc., Carestream Health, Inc., Carestream Dental LLC, Centaur
 
Software Development Co Pty Ltd.
(d.b.a. dental4windows, dental4web), Open Dental Software, Inc., PlanetDDS
 
LLC, Good Methods Global Inc.
(d.b.a. CareStack) and Curve Dental, LLC.
 
In other software end markets, including revenue cycle
 
management,
patient relationship management and patient demand generation, we
 
compete with companies such as Vyne
Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.),
 
Weave Communications, Inc., and
Solutionreach, Inc.
 
The medical practice management and electronic medical
 
records market is fragmented and we
compete with numerous companies such as the NextGen division of
 
Quality Systems, Inc., eClinicalWorks,
Allscripts Healthcare Solutions, Inc. and Epic Systems Corporation.
Outside of the U.S., we believe we are the only global distributor of supplies
 
and equipment to dental practices and
our competitors are primarily local and regional companies.
 
We also face significant competition internationally,
where we compete on the basis of price and customer service against
 
several large competitors, including the
GACD Group, Proclinic SA, Lifco AB, Planmeca Oy and Billericay Dental
 
Supply Co. Ltd., as well as a large
number of other dental and medical product distributors and manufacturers
 
in international countries and territories
we serve.
Competitive Strengths
We have more than 90 years of experience in distributing products to health care practitioners resulting in strong
awareness of the Henry Schein
®
 
brand.
 
Our competitive strengths include:
A focus on meeting our customers’ unique needs
.
 
We are committed to providing customized solutions to our
customers that are driven by our understanding of the end markets we
 
serve and reflect the technology-driven
products and services best suited for their practice needs.
 
We are committed to continuing to enhance these
offerings through organic investment in our products and our teams, as well as through the acquisition
 
of new
products and services that may help us better serve our customers.
Direct sales and marketing expertise.
 
Our sales and marketing efforts are designed to establish and solidify
customer relationships through personal or virtual visits by field sales representatives,
 
frequent direct marketing and
telesales contact, emphasizing our broad product lines, including exclusive
 
distribution agreements, competitive
prices and ease of order placement,
 
particularly through our e-commerce platforms.
 
The key elements of our direct
sales and marketing efforts are:
 
Field sales consultants.
 
Our field sales consultants, including equipment sales specialists, covering
 
major
North American, European and other international markets.
 
These consultants complement our direct
marketing and telesales efforts and enable us to better market, service and support
 
the sale of more
sophisticated products and equipment.
 
Marketing.
 
We market to existing and prospective office-based health care providers through a
combination of owned, earned and paid digital channels, tradeshows, as well
 
as through catalogs, flyers,
direct mail and other promotional materials.
 
Our strategies include an emphasis on educational content
through webinars and content marketing initiatives.
 
We continue to enhance our marketing technology to
improve our targeting capability and the relevance of messaging and offers.
 
Telesales.
 
We support our direct marketing effort with inbound and outbound telesales representatives,
who facilitate order processing, generate new sales through direct and frequent
 
contact with customers and
stay abreast of market developments and the hundreds of new products,
 
services and technologies
introduced each year to educate practice personnel.
6
 
Electronic commerce solutions.
 
We provide our customers and sales teams with innovative and
competitive e-commerce solutions.
 
We continue to invest in our e-commerce platform to offer enhanced
content management so customers can more easily find the products
 
they need and to enable an engaging
purchase experience, supported by excellent customer service.
 
 
Social media.
 
Our operating entities and employees engage our customers and
 
supplier partners through
various social media platforms, which are an important element of our
 
communications and marketing
efforts.
 
We continue to expand our social media presence to raise awareness about issues, engage
customers beyond a sale and deliver services and solutions to specialized
 
audiences.
Broad product and service offerings at competitive prices.
 
We offer
 
a broad range of products and services to our
customers, at competitive prices, in the following categories:
 
 
Consumable supplies and equipment
.
 
We distribute consumable products, small equipment, laboratory
products, large equipment, equipment repair services, branded and generic pharmaceuticals,
 
vaccines, dental
specialty products, diagnostic tests, infection-control products and vitamins.
 
We offer over 300,000 branded
products, through our distribution centers, to our customers.
 
We also market and sell our own corporate
brand portfolio of cost-effective, high-quality consumable merchandise products
 
and manufacture certain
dental specialty products in the areas of implants, orthodontics and endodontics.
 
 
Technology and other value-added products and services.
 
We sell practice management, business
analytics, patient engagement and patient demand creation software solutions
 
to our dental customers.
 
Our
practice management solutions provide practitioners with electronic
 
medical records, patient treatment
history, analytics, billing, accounts receivable analyses and management, appointment calendars, electronic
claims processing and word processing programs, network and hardware
 
services, e-commerce and
electronic marketing services, sourcing third party patient payment plans,
 
transition services and training
and education programs for practitioners.
 
We also sell medical software for practice management, certified
electronic health records (“EHR”) and e-Prescribe medications and prescription
 
solutions through
MicroMD®.
 
We have technical representatives supporting customers using our practice management
solutions and services.
 
As of December 31, 2022, we had an active user base of approximately
 
110,000
practices and 380,000 consumers, including users of AxiUm, Dentally®, Dentrix
 
Ascend®, Dental
Vision®, Dentrix® Dental Systems, Dentrix® Enterprise, Easy Dental®, EndoVision®, Evolution® and
EXACT®, Gesden®, Jarvis Analytics™, Julie® Software, Oasis, OMSVision®, Orisline®, PBS Endo®,
PerioVision®, Power Practice® Px, PowerDent,
 
and Viive® and subscriptions for Demandforce®, Sesame,
and Lighthouse360® for dental practices and DentalPlans.com®
 
for dental patients; and MicroMD® for
physician practices.
 
Repair services.
 
We have over 130 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our health care customers.
 
Our technicians provide
installation and repair services for: dental handpieces,
 
dental and medical small equipment,
 
table-top
sterilizers and large dental equipment.
 
Financial services.
 
We offer our customers solutions in operating their practices more efficiently by
providing access to a number of financial services and products
 
provided by third party suppliers (including
non-recourse financing for equipment, technology and software
 
products, non-recourse practice financing
for leasehold improvements, business debt consolidation and commercial
 
real estate, non-recourse patient
financing and credit card processing) at rates that we believe are
 
generally lower than what our customers
would be able to secure independently.
 
We also provide staffing services, dental practice valuation and
brokerage services.
Commitment to superior customer service
.
 
We maintain a strong commitment to providing superior customer
service.
 
We frequently monitor our customer service through customer surveys, focus groups and statistical
reports.
 
Our customer service policy primarily focuses on:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
Exceptional order fulfillment
.
 
We ship an average of approximately 157,000 cartons daily.
 
Historically,
approximately 99% of items have been shipped without back-ordering and were
 
shipped on the same
business day the order is received.
 
Due to supply chain disruptions during the year ended December
 
31,
2022, approximately 96% of items ordered were shipped without back-ordering.
 
As supply chains continue
to stabilize, we expect our percentage of items shipped without back-ordering and
 
shipped on the same day
to return to historical levels.
 
Comprehensive ordering process
.
 
Customers may place orders 24 hours a day, 7 days a week via e-
commerce solutions, telephone, fax, e-mail and mail.
Integrated management information systems
.
 
Certain of our information systems generally allow for centralized
management of key functions, including accounts receivable, inventory, accounts payable, payroll, purchasing,
sales, order fulfillment and financial and operational reporting.
 
These systems allow us to manage our growth,
deliver superior customer service, properly target customers, manage financial
 
performance and monitor daily
operational statistics.
Cost-effective purchasing
.
 
We believe that cost-effective purchasing is a key element to maintaining and enhancing
our position as a competitively priced provider of health care products.
 
We continuously evaluate our purchase
requirements and suppliers’ offerings and prices in order to obtain products at the
 
lowest possible cost.
 
In 2022,
our top 10 health care distribution suppliers and our single largest supplier accounted for approximately
 
28% and
4%, respectively, of our aggregate purchases.
Efficient distribution
.
 
We distribute our products from our 29 strategically located distribution centers.
 
We strive
to maintain optimal inventory levels in order to satisfy customer demand
 
for prompt delivery and complete order
fulfillment.
 
These inventory levels are managed on a daily basis with
 
the aid of our management information
systems.
 
Once an order is entered, it is electronically transmitted to the distribution
 
center nearest the customer’s
location for order fulfillment.
Products and Services
The following table sets forth the percentage of consolidated net sales
 
by principal categories of products and
services offered through our health care distribution and technology and value-added services
 
reportable segments:
December 31,
December 25,
December 26,
2022
2021
2020
Health care distribution:
Dental products
(1)
59.1
%
60.8
%
58.4
%
Medical products
(2)
35.2
34.0
35.8
Total
 
health care distribution
 
94.3
94.8
94.2
Technology
 
and value-added services:
Software and related products and
 
other value-added products
(3)
5.7
5.2
5.1
Total
 
excluding Corporate TSA net sales
100.0
100.0
99.3
Corporate TSA net sales
(4)
-
-
0.7
Total
100.0
100.0
100.0
(1)
Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental implants,
gypsum, acrylics, articulators, abrasives, dental chairs, delivery units and lights, X-ray supplies and equipment, PPE products,
equipment repair and high-tech and digital restoration equipment.
(2)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray
products, equipment, PPE products and vitamins.
(3)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.
(4)
Corporate TSA net sales represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020.
 
See
 
for further
information.
8
Business Strategy
Our mission is to provide innovative, integrated health care products and
 
services; and to be trusted advisors and
consultants to our customers - enabling them to deliver the best quality patient
 
care and enhance their practice
management efficiency and profitability.
 
Our BOLD+1 Strategic Plan consists of the following:
 
Build (“B”)
Complementary software, specialty, and services businesses for high growth
 
Operationalize (“O”)
 
One Distribution to deliver exceptional customer experience, increased
 
efficiency,
and growth
 
Leverage (“L”)
 
One Schein to broaden and deepen relationships with our customers
 
Drive (“D”)
 
Drive digital transformation for our customers and for Henry Schein
 
+1
Create Value
 
for our stakeholders
To accomplish this, we apply our competitive strengths in executing the following strategies:
 
Increase penetration of our existing customer base.
 
We have over 1 million customers worldwide and we
intend to increase sales to our existing customer base and enhance our position
 
as their primary supplier.
 
We believe our offering of a broad range of products, services and support, including software solutions
that can help drive improved workflow efficiency and patient communications for
 
practices, coupled with
our full-service value proposition, helps us to retain and grow our customer
 
base.
 
Increase the number of customers we serve.
 
This strategy includes increasing the productivity of our field
sales consultants and telesales team, as well as using our customer
 
database to focus our marketing efforts
in all of our operating segments.
 
In the dental business, we provide products and services to
 
independent
practices, mid-market groups, and large DSOs as well as community health centers and government
 
sites of
care.
 
Leveraging our broad array of assets and capabilities, we offer solutions to address these
 
new
markets.
 
In the medical business, we have expanded to serve customers
 
located in settings outside of the
traditional office, such as urgent care clinics, retail, occupational health and home health settings.
 
As
settings of health care shift, we remain committed to serving these practitioners
 
and providing them with
the products and services they need.
 
Leverage our value-added products and services.
 
We continue to increase cross-selling efforts for key
product lines utilizing a consultative selling process.
 
In the dental business, we have significant cross-
selling opportunities between our dental software users and our dental customers.
 
In the medical business,
we have opportunities to expand our vaccine, injectables and other pharmaceuticals
 
sales to health care
practitioners, as well as cross-selling EHR systems and software
 
when we sell our core products.
 
Our
strategy extends to providing health systems, integrated delivery networks
 
and other large group and multi-
site health care organizations, including physician clinics, these same value added
 
products and services.
 
As physicians and health systems closely align, we have increased
 
access to opportunities for cross-
marketing and selling our product and service portfolios.
 
Pursue strategic acquisitions and joint ventures.
 
Our acquisition strategy is focused on investments in
companies that add new customers and sales teams, increase our geographic
 
footprint (whether entering a
new country, such as emerging markets, or building scale where we have already invested in businesses),
and finally, those that enable us to access new products and technologies.
Markets Served
 
Demographic trends indicate that our markets are growing, as an
 
aging U.S. population is increasingly using health
care services.
 
According to the U.S. Census Bureau’s International Database, between 2022 and 2032, the 45 and
older population is expected to grow by approximately 11%.
 
Between 2022 and 2042, this age group is expected to
grow by approximately 21%.
 
This compares with expected total U.S. population growth
 
rates of approximately 6%
between 2022 and 2032 and approximately 12% between 2022 and 2042.
 
In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45-and-older segment of
the population increases.
 
There is increasing demand for new technologies that allow
 
dentists to increase
9
productivity, and this is being driven in the U.S. by lower insurance reimbursement rates.
 
At the same time, there is
an expected increase in dental insurance coverage.
In the medical market, there continues to be a migration of procedures from
 
acute-care settings to physicians’
offices and home health settings,
 
a trend that we believe provides additional opportunities for us.
 
There also is the
continuing use of vaccines, injectables and other pharmaceuticals in alternate-care
 
settings.
 
We believe we have
established a leading position as a vaccine supplier to the office-based physician
 
practitioner.
We support our dental and medical professionals through the many SKUs that we offer, as well as through
important value-added services, including practice management software,
 
electronic claims processing, financial
services and continuing education, all designed to help maximize a practitioner’s efficiency.
 
Additionally, we seek to expand our dental full-service model and medical offerings in countries where
opportunities exist.
 
We do this through both direct sales and by partnering with local distribution and
manufacturing companies.
For information on revenues and long-lived assets by geographic area, see
of “Notes to Consolidated Financial Statements.”
 
Seasonality and Other Factors Affecting Our Business and Quarterly Results
We experience fluctuations in quarterly earnings.
 
As a result, we may fail to meet or exceed the expectations of
securities analysts and investors, which could cause our stock price
 
to decline.
Our business is subject to seasonal and other quarterly fluctuations.
 
Sales and profitability generally have been
higher in the third and fourth quarters due to the timing of sales of seasonal
 
products (including influenza vaccine)
purchasing patterns of office-based health care practitioners for certain products (including
 
equipment and
software) and year-end promotions.
 
Sales and profitability may also be impacted by the timing of
 
certain annual
and biennial dental tradeshows where equipment promotions are offered.
 
In addition, some dental practices delay
equipment purchases in the U.S. until year-end due to tax incentives.
 
We expect our historical seasonality of sales
to continue in the foreseeable future.
Governmental Regulations
 
We
strive to be compliant in all material respects with the applicable
 
laws, regulations and guidance described
below, and believe we have effective compliance programs and other controls in place to ensure substantial
compliance.
 
However, compliance is not guaranteed either now or in the future, as certain laws, regulations and
guidance may be subject to varying and evolving interpretations that could
 
affect our ability to comply, as well as
future changes, additions and enforcement approaches, including political changes.
 
When we discover situations of
non-compliance we seek to remedy them and bring the affected area back into compliance.
 
President Biden’s
administration (the “Biden Administration”) has indicated that it will be
 
more aggressive in its pursuit of alleged
violations of law, and has revoked certain guidance that would have limited governmental use of informal agency
guidance to pursue potential violations, and has stated that it is more prepared
 
to pursue individuals for corporate
law violations, including an aggressive approach to anti-corruption activities.
 
Changes to applicable laws,
regulations and guidance described below, as well as related administrative or judicial interpretations, may require
us to update or revise our operations, services, marketing practices and
 
compliance programs and controls, and may
impose additional and unforeseen costs on us, pose new or previously immaterial
 
risks to us, or may otherwise have
a material adverse effect on our business.
Government
Certain of our businesses involve the distribution, manufacturing, importation,
 
exportation, marketing and sale of,
and/or third party payment for, pharmaceuticals and/or medical devices, and in this regard, we are subject
 
to
extensive local, state, federal and foreign governmental laws and regulations,
 
including as applicable to our
wholesale distribution of pharmaceuticals and medical devices, manufacturing
 
activities, and as part of our
specialty home medical supply business that distributes and sells medical equipment
 
and supplies directly to
10
patients.
 
Federal, state and certain foreign governments have also increased enforcement
 
activity in the health care
sector, particularly in areas of fraud and abuse, anti-bribery and corruption, controlled substances handling,
 
medical
device regulations and data privacy and security standards.
Government and private insurance programs fund a large portion of the total cost of medical care,
 
and there have
been efforts to limit such private and government insurance programs, including efforts, thus far
 
unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
 
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010 (as amended,
 
the “ACA”).
 
In addition, activities to
control medical costs, including laws and regulations lowering reimbursement
 
rates for pharmaceuticals, medical
devices and/or medical treatments or services, are ongoing.
 
Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our
 
financial performance.
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse
 
effect on our business.
Operating, Security and Licensure Standards
Certain of our businesses are subject to local, state and federal governmental
 
laws and regulations relating to the
distribution of pharmaceuticals and medical devices and supplies.
 
Among the United States federal laws applicable
to us are the Controlled Substances Act, the Federal Food, Drug,
 
and Cosmetic Act, as amended (“FDC Act”),
Section 361 of the Public Health Service Act and Section 401 of the Consolidated
 
Appropriations Act of the Social
Security Act, as well as laws regulating the billing of and reimbursement
 
from government programs, such as
Medicare and Medicaid, and from commercial payers.
 
We
are also subject to comparable foreign regulations.
The FDC Act, the Controlled Substances Act, their implementing regulations,
 
and similar foreign laws generally
regulate the introduction, manufacture, advertising, marketing and promotion,
 
sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or recalling,
 
reporting, and distribution of, and
record keeping for, pharmaceuticals and medical devices shipped in interstate commerce, and states
 
may similarly
regulate such activities within the state.
 
Furthermore, Section 361 of the Public Health Service Act, which provides
authority to prevent the introduction, transmission or spread of communicable
 
diseases, serves as the legal basis for
the United States Food and Drug Administration’s (“FDA”) regulation of human cells, tissues and cellular and
tissue-based products, also known as “HCT/P products.”
The Federal Drug Quality and Security Act of 2013 brought about significant
 
changes with respect to
pharmaceutical supply chain requirements.
 
Title II of this measure, known as the Drug Supply Chain Security Act
(“DSCSA”), was first implemented in November 2014 and will be phased
 
in over a period of ten years. DSCSA is
intended to build a national electronic, interoperable system by November
 
27, 2023, that will identify and trace
certain prescription drugs as they are distributed in the United States.
 
The law’s track and trace requirements
applicable to manufacturers, wholesalers, third-party logistics providers (e.g.,
 
trading partners), repackagers and
dispensers (e.g., pharmacies) of prescription drugs took effect in January 2015, and
 
continues to be implemented.
 
The DSCSA product tracing requirements replace the former FDA drug pedigree
 
requirements and pre-empt certain
state requirements that are inconsistent with, more stringent than, or
 
in addition to, the DSCSA requirements.
The DSCSA also establishes certain requirements for the licensing and operation
 
of prescription drug wholesalers
and third-party logistics providers (“3PLs”), and includes the eventual
 
creation of national wholesaler and 3PL
licenses in cases where states do not license such entities.
 
The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping,
 
storage and handling of
prescription drugs.
 
The DSCSA requires wholesalers and 3PLs to submit annual reports
 
to the FDA, which include
information regarding each state where the wholesaler or 3PL is licensed, the name
 
and address of each facility and
contact information.
 
According to FDA guidance, states are pre-empted from imposing
 
any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered
 
by the standards established by federal
law in this area.
 
Current state licensing requirements concerning wholesalers will
 
remain in effect until the FDA
issues new regulations as directed by the DSCSA.
 
In addition, with respect to our specialty home medical supply
business, we are subject to certain state licensure laws (including state pharmacy
 
laws), and also certain
accreditation standards, including to qualify for reimbursement from
 
Medicare and other third-party payers.
11
The Food and Drug Administration Amendments Act of 2007 and
 
the Food and Drug Administration Safety and
Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate
 
regulations to implement a unique
device identification (“UDI”) system.
 
The UDI rule phased in the implementation of the UDI
 
regulations,
generally beginning with the highest-risk devices (i.e., Class III medical devices)
 
and ending with the lowest-risk
devices.
 
Most compliance dates were reached as of September 24, 2018, with
 
a final set of requirements for low
risk devices being reached on September 24, 2022, which completed the
 
phase in.
 
However, in May 2021, the
FDA issued an enforcement policy stating that it does not intend to
 
object to the use of legacy identification
numbers on device labels and packages for finished devices manufactured
 
and labeled prior to September 24, 2023.
 
The UDI regulations require “labelers” to include unique device identifiers
 
(“UDIs”), with a content and format
prescribed by the FDA and issued under a system operated by an FDA-accredited
 
issuing agency, on the labels and
packages of medical devices (including, but not limited to, certain software
 
that qualifies as a medical device under
FDA rules), and to directly mark certain devices with UDIs.
 
The UDI regulations also require labelers to submit
certain information concerning UDI-labeled devices to the FDA, much of which
 
information is publicly available
on an FDA database, the Global Unique Device Identification Database.
 
On July 22, 2022, the FDA posted the
final guidance regarding the Global Unique Device Identification Database
 
called Unique Device Identification
Policy Regarding Compliance Dates for Class I and Unclassified Devices, Direct
 
Marketing, and Global Unique
Device Identification Database Requirements for Certain Devices.
 
The UDI regulations and subsequent FDA
guidance regarding the UDI requirements provide for certain exceptions, alternatives
 
and time extensions.
 
For
example, the UDI regulations include a general exception for Class I devices
 
exempt from the Quality System
Regulation (other than record-keeping requirements and complaint files).
 
Regulated labelers include entities such
as device manufacturers, repackagers, reprocessors and relabelers that cause a
 
device’s label to be applied or
modified, with the intent that the device will be commercially distributed without
 
any subsequent replacement or
modification of the label and include certain of our businesses.
Under the Controlled Substances Act, as a distributor of controlled substances,
 
we are required to obtain and renew
annually registrations for our facilities from the United States Drug
 
Enforcement Administration (“DEA”)
permitting us to handle controlled substances.
 
We are also subject to other statutory and regulatory requirements
relating to the storage, sale, marketing, handling, reporting, record-keeping
 
and distribution of such drugs, in
accordance with the Controlled Substances Act and its implementing regulations,
 
and these requirements have been
subject to heightened enforcement activity in recent times.
 
We
are subject to inspection by the DEA.
 
Certain of
our businesses are also required to register for permits and/or licenses
 
with, and comply with operating and security
standards of, the DEA, the FDA, the United States Department of Health
 
and Human Services (“HHS”), and
various state boards of pharmacy, state health departments and/or comparable state agencies as well as comparable
foreign agencies, and certain accrediting bodies, depending on the type of
 
operations and location of product
distribution, manufacturing or sale.
 
These businesses include those that distribute, manufacture, relabel, and/or
repackage prescription pharmaceuticals and/or medical devices and/or HCT/P
 
products, or own pharmacy
operations, or install, maintain or repair equipment.
 
In addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws, impose civil
and/or criminal penalties for the transfer of certain human tissue (for example,
 
human bone products) for valuable
consideration, while generally permitting payments for the reasonable costs
 
incurred in procuring, processing,
storing and distributing that tissue.
 
We
are also subject to foreign government regulation of such products.
 
The
DEA, the FDA and state regulatory authorities have broad inspection and enforcement
 
powers, including the ability
to suspend or limit the distribution of products by our distribution centers,
 
seize or order the recall of products and
impose significant criminal, civil and administrative sanctions for violations of
 
these laws and regulations.
 
Foreign
regulations subject us to similar foreign enforcement powers.
EU Regulation of Medicinal and Dental Products
 
European Union (“EU”) member states regulate their own healthcare systems,
 
as does EU law.
 
The latter regulates
certain matters, most notably medicinal products and medical devices.
 
Medicinal products are defined, broadly, as
substances or combinations of substances having certain functionalities and
 
may not include medical devices.
 
EU
“regulations” apply in all member states, whereas “directives” are implemented
 
by the individual laws of member
states.
 
12
On medicines for humans, we are regulated under Directive No. 2001/83/EC
 
of 6 November 2001, as amended by
Directive 2003/63/EC of 25 June 2003, and EU Regulation (EC) No. 726/2004
 
of 31 March 2004.
 
These rules
provide for the authorization of products, and regulate their manufacture,
 
importation, marketing and distribution.
 
It implements requirements which may be implemented without warning, as
 
well as a national pharmacovigilance
system under which marketing authorizations may be withdrawn, and includes
 
potential sanctions for breaches of
the rules, and on other bases such as harmfulness or lack of efficacy.
 
EU Regulation No. 1223/2009 of 30 November 2009
on cosmetic products
 
requires that cosmetic products (which
includes dental products) be safe for human health when used under normal
 
or reasonably foreseeable conditions of
use and comply with certain obligations which apply to manufacturer, importer and distributor.
 
It includes market
surveillance, and non-compliance may result in the recall or withdrawal of
 
products, along with other sanctions.
 
In the EU, the EU Medical Device Regulation No. 2017/745 of 5 April 2017
 
(“EU MDR”) covers a wide scope of
our activities, from dental material to X-ray machines, and certain software.
 
It was meant to become applicable
three years after publication (i.e., May 26, 2020).
 
However, on April 23, 2020, to allow European Economic Area
(“EEA”) national authorities, notified bodies, manufacturers and other actors
 
to focus fully on urgent priorities
related to the COVID-19 pandemic, the European Council and Parliament
 
adopted Regulation 2020/561,
postponing the date of application of the EU MDR by one year (to
 
May 26, 2021).
The EU MDR significantly modifies and intensifies the regulatory compliance
 
requirements for the medical device
industry as a whole.
 
Among other things, the EU MDR:
 
strengthens the rules on placing devices on the market and reinforces surveillance
 
once they are available;
 
establishes explicit provisions on manufacturers’ responsibilities
 
for the follow-up of the quality,
performance and safety of devices placed on the market;
 
improves the traceability of medical devices throughout the supply chain to the
 
end-user or patient through
a unique identification number;
 
sets up a central database to provide patients, healthcare professionals and
 
the public with comprehensive
information on products available in the EU;
 
 
strengthens rules for the assessment of certain high-risk devices, such
 
as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
 
identifies importers and distributors and medical device products through
 
registration in a database
(EUDAMED, which is not fully functional for the time being and might
 
not be so before the end of 2024 at
the earliest; therefore, the use of this database is only possible through
 
a voluntary basis and, by a way of
consequence, is currently not mandatory).
In particular, the EU MDR imposes strict requirements for the confirmation that a product meets
 
the regulatory
requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the
distribution, marketing and sale of medical devices, including post-market
 
surveillance. Medical devices that have
been assessed and/or certified under the Directive No. 93/42/EEC of
 
14 June 1993
concerning medical devices
(“EU Medical Device Directive”) may for the moment continue to be placed
 
on the market until 2024 (or until the
expiry of their certificates, if applicable and earlier).
 
However, on January 6, 2023, the EU Commission submitted a
proposed amendment to extend the MDR transitional periods until December
 
31, 2027 for higher risk devices and
December 31, 2028, for other medical devices to ensure continued access
 
to medical devices for patients and to
allow medical devices already placed on the market in accordance with
 
the current legal framework to remain on
the market. We continue to monitor developments and whether the proposed amendment and new deadlines will be
approved by the European Parliament and Council. Nevertheless, EU MDR
 
requirements regarding the distribution,
marketing and sale including quality systems and post-market surveillance
 
have to be observed by manufacturers,
importers and distributors as of the application date (i.e., since May 26, 2021).
Other EU regulations that may apply under appropriate circumstances
 
include EU Regulation No. 1907/2006 of 18
December 2006
concerning the Registration, Evaluation, Authorisation and
 
Restriction of Chemicals
, which
requires importers to register substances or mixtures that they import
 
in the EU beyond certain quantities, and the
EU Regulation No. 1272/2008 of 16 December 2008 on classification, labelling
 
and packaging of substances and
mixtures, which sets various obligations with respect to the labelling and
 
packaging of concerned substances and
mixtures.
13
Furthermore, compliance with legal requirements has required and may in the future
 
require us to delay product
release, sale or distribution, or institute voluntary recalls of, or other corrective
 
action with respect to products we
sell, each of which could result in regulatory and enforcement actions, financial
 
losses and potential reputational
harm.
 
Our customers are also subject to significant federal, state, local
 
and foreign governmental regulation, which
may affect our interactions with customers, including the design and functionality
 
of our products.
Certain of our businesses are subject to various additional federal, state,
 
local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and
 
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
 
In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record-keeping
 
requirements in order to
substantiate claims for payment under federal, state and commercial healthcare
 
reimbursement programs.
 
One of
these businesses was suspended in October 2021 by CMS from receiving
 
payments from Medicare, although it was
permitted to continue to perform and bill for Medicare services.
 
On September 30, 2022, CMS terminated the
suspension of Medicare payments.
 
As a result of the termination of the suspension, we recognized
 
$4 million of
previously deferred revenue during the year ended December 31, 2022.
Certain of our businesses also maintain contracts with governmental agencies
 
and are subject to certain regulatory
requirements specific to government contractors.
Antitrust and Consumer Protection
The federal government of the United States, most U.S. states and many
 
foreign countries have antitrust laws that
prohibit certain types of conduct deemed to be anti-competitive, as well as consumer
 
protection laws that seek to
protect consumers from improper business practices.
 
At the U.S. federal level, the Federal Trade Commission
oversees enforcement of these types of laws, and states have similar government
 
agencies.
 
Violations of antitrust
or consumer protection laws may result in various sanctions, including criminal
 
and civil penalties.
 
Private
plaintiffs may also bring civil lawsuits against us in the United States for alleged antitrust
 
law violations, including
claims for treble damages.
 
EU law also regulates competition and provides for detailed rules protecting
 
consumers.
 
The Biden Administration has indicated increased antitrust enforcement and
 
has been more aggressive in
enforcement activities, including investigation and challenging non-compete
 
restrictions and other restrictive
contractual terms that it believes harm workers and competition.
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar
 
foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with respect to their operations.
 
Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or fraudulent
 
claims for reimbursement to
federal, state and other health care payers and programs.
 
Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce the referral
 
of a patient or ordering,
purchasing, leasing or arranging for, or recommending, ordering, purchasing or leasing of, items or services
 
that are
paid for by federal, state and other health care payers and programs.
 
Certain additional state and federal laws, such
as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other
health professionals from referring a patient to an entity with which the
 
physician (or family member) has a
financial relationship, for the furnishing of certain designated health services
 
(for example, durable medical
equipment and medical supplies), unless an exception applies.
 
Violations of Anti-Kickback Statutes or the Stark
Law may be enforced as violations of the federal False Claims Act.
The fraud and abuse laws and regulations have been subject to heightened
 
enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators” who
 
serve as whistleblowers by filing
complaints in the name of the United States (and if applicable, particular states)
 
under applicable false claims laws,
and who may receive up to 30% of total government recoveries.
 
Penalties under fraud and abuse laws may be
severe, including treble damages and substantial civil penalties under
 
the federal False Claims Act, as well as
potential loss of licenses and the ability to participate in federal and state
 
health care programs, criminal penalties,
or imposition of a corporate integrity agreement or corporate compliance
 
monitor which could have a material
adverse effect on our business.
 
Also, these measures may be interpreted or applied by a prosecutorial,
 
regulatory or
14
judicial authority in a manner that could require us to make changes
 
in our operations or incur substantial defense
and settlement expenses.
 
Even unsuccessful challenges by regulatory authorities or private
 
relators could result in
reputational harm and the incurring of substantial costs.
 
Most states have adopted similar state false claims laws,
and these state laws have their own penalties, which may be in addition
 
to federal False Claims Act penalties, as
well as other fraud and abuse laws.
 
With respect to measures of this type, the United States government (among others) has expressed concerns
 
about
financial relationships between suppliers on the one hand and physicians,
 
dentists and other healthcare
professionals on the other.
 
As a result, we regularly review and revise our marketing practices as necessary
 
to
facilitate compliance.
We
also are subject to certain United States and foreign laws and regulations
 
concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
 
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
 
books and records, which have been
the focus of increasing enforcement activity globally in recent years.
While we believe that we are substantially compliant with applicable fraud and
 
abuse laws and regulations, and
have adequate compliance programs and controls in place to ensure substantial
 
compliance, we cannot predict
whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in
response to changes in applicable law or interpretation of laws, or failure
 
to comply with applicable law, could have
a material adverse effect on our business.
Affordable Care Act and Other Insurance Reform
The ACA increased federal oversight of private health insurance plans and
 
included a number of provisions
designed to reduce Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to
provide access to increased health coverage.
 
The ACA also materially expanded the number of individuals
 
in the
United States with health insurance.
 
The ACA has faced frequent legal challenges, including litigation seeking
 
to invalidate and Congressional action
seeking to repeal some of or all of the law or the manner in which it has been
 
implemented.
 
In 2012, the United
States Supreme Court, in upholding the constitutionality of the
 
ACA and its individual mandate provision requiring
that people buy health insurance or else face a penalty, simultaneously limited ACA provisions requiring Medicaid
expansion, making such expansion a state-by-state decision.
 
In addition, one of the major political parties in the
United States remains committed to seeking the ACA’s legislative repeal, but legislative efforts to do so have
previously failed to pass both chambers of Congress.
 
Under President Trump’s administration, a number of
administrative actions were taken to materially weaken the ACA, including,
 
without limitation, by permitting the
use of less robust plans with lower coverage and eliminating “premium support”
 
for insurers providing policies
under the ACA.
 
The Tax Cuts and Jobs Act enacted in 2017, which contains a broad range of tax reform provisions
that impact the individual and corporate
 
tax rates, international tax provisions, income tax add-back provisions
 
and
deductions, also effectively repealed the ACA’s
 
individual mandate by zeroing out the penalty for non-compliance.
 
In the most recent ACA litigation, the federal Fifth Circuit Court of Appeals
 
found the individual mandate to be
unconstitutional, and returned the case to the District Court for the Northern
 
District of Texas for consideration of
whether the remainder of the ACA could survive the excision of the individual
 
mandate.
 
The Fifth Circuit’s
decision was appealed to the United States Supreme Court.
 
The Supreme Court issued a decision on June 17, 2021.
 
Without reaching the merits of the case, the Supreme Court held that the plaintiffs in the case did not have standing
to challenge the ACA.
 
Any outcomes of future cases that change the ACA, in addition
 
to future legislation,
regulation, guidance and/or Executive Orders that do the same, could have a
 
significant impact on the U.S.
healthcare industry.
 
For instance, the American Rescue Plan Act of 2021 enhanced
 
premium tax credits, which has
resulted in an expansion of the number of people covered under the ACA.
 
These changes are time-limited, with
some enhancements in place for 2021 only and others available through
 
the end of 2022.
An ACA provision, generally referred to as the Physician Payment Sunshine
 
Act or Open Payments Program (the
“Sunshine Act”), imposes annual reporting and disclosure requirements
 
for drug and device manufacturers and
distributors with regard to payments or other transfers of value made to certain
 
covered recipients (including
physicians, dentists, teaching hospitals, physician assistants, nurse practitioners,
 
clinical nurse specialists, certified
15
registered nurse anesthetists, and certified nurse midwives), and for such manufacturers
 
and distributors and for
group purchasing organizations, with regard to certain ownership interests held by covered
 
recipients in the
reporting entity.
 
The Centers for Medicare and Medicaid Services (“CMS”) publishes information
 
from these
reports on a publicly available website, including amounts transferred and physician,
 
dentist, teaching hospital, and
non-physician practitioner identities.
 
The Sunshine Act pre-empts similar state reporting laws, although we
 
or our
subsidiaries may be required to report under certain state transparency laws that
 
address circumstances not covered
by the Sunshine Act, and some of these state laws, as well as the federal
 
law, can be unclear.
 
We
are also subject to
foreign regulations requiring transparency of certain interactions between
 
suppliers and their customers.
 
In the United States, government actions to seek to increase health-related
 
price transparency may also affect our
business.
 
For example, hospitals are currently required to publish online a
 
list of their standard charges for all items
and services, including discounted cash prices and payer-specific and de-identified negotiated
 
charges, in a publicly
accessible online file. Hospitals are also required to publish a consumer-friendly
 
list of standard charges for certain
“shoppable” services (i.e., services that can be scheduled by a patient in
 
advance) and associated ancillary services
or, alternatively, maintain an online price estimator tool. CMS may impose civil monetary penalties for
noncompliance with these price transparency requirements. Additionally, the No Surprises Act (“NSA”), generally
effective January 1, 2022, imposes additional price transparency requirements.
 
The NSA is intended to reduce the
number of “out-of-network” patients.
 
This will result in fewer out-of-network payments to physicians and
 
other
providers, which may cause financial stress to those providers who
 
are dependent on higher out-of-network fees.
Another notable Medicare health care reform initiative, the Medicare Access
 
and CHIP Reauthorization Act of
2015 (“MACRA”), enacted on April 16, 2015, established a new payment framework,
 
which modified certain
Medicare payments to “eligible clinicians,” including physicians, dentists and
 
other practitioners.
 
Under MACRA,
certain eligible clinicians are required to participate in Medicare through the Merit-Based
 
Incentive Payment
System (“MIPS”) or Advanced Alternative Payment Models, through which
 
Medicare reimbursement to eligible
clinicians includes both positive and negative payment adjustments that take
 
into account quality, promoting
interoperability, cost and improvement activities.
 
Data collected in the first MIPS performance year (2017)
determined payment adjustments that began January 1, 2019.
 
MACRA standards and payment levels continue to
evolve, and reflect a fundamental change in physician reimbursement
 
that is expected to provide substantial
financial incentives for physicians to participate in risk contracts, and to increase
 
physician information technology
and reporting obligations.
 
The implications of the implementation of MACRA are uncertain and will
 
depend on
future regulatory activity and physician activity in the marketplace.
 
New state-level payment and delivery system
reform programs, including those modeled after such federal programs, are
 
also increasingly being rolled out
through Medicaid administrators, as well as through the private sector, which may further
 
alter the marketplace and
impact our business.
 
Recently, in addition to other government efforts to control health care costs, there has been increased scrutiny on
drug pricing and concurrent efforts to control or reduce drug costs by Congress, the
 
President, executive branch
agencies and various states.
 
At the state level, several states have adopted laws that require drug manufacturers
 
to
provide advance notice of certain price increases and to report information
 
relating to those price increases, while
others have taken legislative or administrative action to establish prescription
 
drug affordability boards or multi-
payer purchasing pools to reduce the cost of prescription drugs.
 
At the federal level, several related bills have been
introduced and regulations proposed which, if enacted or finalized,
 
respectively, would impact drug pricing and
related costs.
As a result of political, economic and regulatory influences, the health care distribution
 
industry in the United
States is under intense scrutiny and subject to fundamental changes.
 
We
cannot predict what further reform
proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.
EU Directive on the pricing and reimbursement of medicinal products
 
EU law provides for the regulation of the pricing of medicinal products which are
 
implemented by EU member
states (Directive No. 89/105/EC of 21 December 1988
relating to the transparency of measures regulating the
pricing of medicinal products for human use and their inclusion in the scope of national health insurance
 
systems
).
 
Member states may, subject notably to transparency conditions and to the statement of reasons based upon
objective and verifiable criteria, regulate the price charged (or its increases) for authorized
 
medicines and their level
16
of reimbursement, or they may freeze prices, place controls on the profitability
 
of persons responsible for placing
medicinal products on the market, and include or exclude the medicine on
 
the list of products covered by national
health insurance systems.
 
EU law does not expressly include provisions like those of the Sunshine Act
 
in the United States, but a growing
number of EU member states (such as France in 2011 and Italy in 2022) have enacted laws to increase
 
the
transparency of relationships in the healthcare sector.
 
The scope of these laws varies from one member state to
another and may, for example, include the relations between healthcare industry players and physicians or their
associations, students preparing for medical professions or their associations,
 
teachers, health establishments or
publishers of prescription and dispensing assistance software.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of
 
computer software and digital health
products intended for use in health care settings.
 
The 21st Century Cures Act (the “Cures Act”), signed into law on
December 13, 2016, among other things, amended the medical device definition
 
to exclude certain software from
FDA regulation, including clinical decision
 
support software that meets certain criteria.
 
On September 27, 2019,
the FDA issued a suite of guidance documents on digital health products, which
 
incorporated applicable Cures Act
standards, including regarding the types of clinical decision support tools and other
 
software that are exempt from
regulation by the FDA as medical devices, and continues to issue new guidance
 
in this area.
 
Certain of our
businesses involve the development and sale of software and related products
 
to support physician and dental
practice management, and it is possible that the FDA or foreign government
 
authorities could determine that one or
more of our products is a medical device, which could subject us or one
 
or more of our businesses to substantial
additional requirements
 
with respect to these products.
In addition, our businesses that involve physician and dental practice management
 
products, and our specialty home
medical supply business, include electronic information technology systems
 
that store and process personal health,
clinical, financial and other sensitive information of individuals.
 
These information technology systems may be
vulnerable to breakdown, wrongful intrusions, data breaches and malicious
 
attack, which could require us to
expend significant resources to eliminate these problems and address related
 
security concerns and could involve
claims against us by private parties and/or governmental agencies.
 
For example, we are directly or indirectly
subject to numerous and evolving federal, state, local and foreign laws and
 
regulations that protect the privacy and
security of personal information, such as the federal Health Insurance Portability
 
and Accountability Act of 1996,
as amended, and implementing regulations (“HIPAA”), the Controlling the Assault of Non-Solicited Pornography
and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the Federal Trade Commission
Act, the California Privacy Act (“CCPA”), and the California Privacy Rights Act (“CPRA”) that became effective
on January 1, 2023.
 
Additionally, Virginia,
 
Colorado, Connecticut and Utah recently passed comprehensive
privacy legislation, and several privacy bills have been proposed both at
 
the federal and state level that may result
in additional legal requirements that impact our business.
 
Laws and regulations relating to privacy and data
protection are continually evolving and subject to potentially differing interpretations.
 
These requirements may not
be harmonized, may be interpreted and applied in a manner that is inconsistent
 
from one jurisdiction to another or
may conflict with other rules or our practices.
 
Our businesses’ failure to comply with these laws and regulations
could expose us to breach of contract claims, substantial fines, penalties and
 
other liabilities and expenses, costs for
remediation and harm to our reputation.
 
Also, evolving laws and regulations in this area could restrict the
 
ability of
our customers to obtain, use or disseminate patient information, or could
 
require us to incur significant additional
costs to re-design our products to reflect these legal requirements, which
 
could have a material adverse effect on
our operations.
 
Also, the European Parliament and the Council of the EU adopted the pan-European
 
General Data Protection
Regulation (“GDPR”), effective from May 25, 2018, which increased privacy
 
rights for individuals (“Data
Subjects”), including individuals who are our customers, suppliers and
 
employees.
 
The GDPR extended the scope
of responsibilities for data controllers and data processors, and generally
 
imposes increased requirements and
potential penalties on companies, such as us, that are either established
 
in the EU and process personal data of Data
Subjects (regardless the Data Subject location), or that are not established
 
in the EU but that offer goods or services
to Data Subjects in the EU or monitor their behavior in the EU. Noncompliance
 
can result in penalties of up to the
greater of EUR 20 million, or 4% of global company revenues (sanction
 
that may be public), and Data Subjects
17
may seek damages.
 
Member states may individually impose additional requirements
 
and penalties regarding
certain limited matters (for which the GDPR let some room of flexibility),
 
such as employee personal data.
 
With
respect to the personal data it protects, the GDPR requires, among other things,
 
controller accountability, consents
from Data Subjects or another acceptable legal basis to process the
 
personal data, notification within 72 hours of a
personal data breach where required, data integrity and security, and fairness and transparency regarding the
storage, use or other processing of the personal data.
 
The GDPR also provides rights to Data Subjects relating
notably to information, access, rectification, erasure of the personal
 
data and
 
the right to object to the processing.
 
On August 20, 2021, China promulgated the PRC Personal Information
 
Protection Law (“PIPL”), which took effect
on November 1, 2021.
 
The PIPL imposes specific rules for processing personal information
 
and it also specifies
that the law shall also apply to personal information activities carried out
 
outside China but for the purpose of
providing products or services to PRC citizens.
 
Any non-compliance with these laws and regulations may
 
subject
us to fines, orders to rectify or terminate any actions that are deemed
 
illegal by regulatory authorities, other
penalties, as well as reputational damage or legal proceedings against us,
 
which may affect our business, financial
condition or results of operations.
 
The PIPL carries maximum penalties of CNY50 million or 5% of the
 
annual
revenue of entities that process personal data.
In the United States, the CCPA, which increases the privacy protections afforded California residents, became
effective January 1, 2020.
 
The CCPA generally requires companies, such as us, to institute additional protections
regarding the collection, use and disclosure of certain personal information
 
of California residents.
 
Compliance
with the obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them.
 
Regulations were released in August of 2020, but there remains some
 
uncertainty about how the CCPA will be
interpreted by the courts and enforced by the regulators.
 
If we fail to comply with the CCPA or if regulators assert
that we have failed to comply with the CCPA, we may be subject to certain fines or other penalties and litigation,
any of which may negatively impact our reputation, require us to expend
 
significant resources, and harm our
business.
 
Furthermore, California voters approved the CPRA on November 3,
 
2020, which amends and expands
the CCPA, including by providing consumers with additional rights with respect to their personal information, and
creating a new state agency, the California Privacy Protection Agency, to enforce the CCPA
 
and the CPRA.
 
The
CPRA came into effect on January 1, 2023, applying to information collected by
 
businesses on or after January 1,
2022.
 
Other states, as well as the federal government, have increasingly
 
considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance.
 
Virginia and Colorado were both
successful in passing privacy legislation in 2021, becoming effective on January
 
1, 2023 and July 1, 2023,
respectively.
 
In 2022, privacy legislation passed in Connecticut, effective July 1, 2023, and
 
Utah, effective
December 31, 2023.
 
While we believe we have substantially compliant programs
 
and controls in place to comply
with the GDPR, CCPA, PIPL, CPRA and state law requirements, our compliance with data privacy and
cybersecurity laws is likely to impose additional costs on us, and we cannot
 
predict whether the interpretations of
the requirements, or changes in our practices in response to new requirements
 
or interpretations of the
requirements, could have a material adverse effect on our business.
We
also sell products and services that health care providers, such as physicians
 
and dentists, use to store and
manage patient medical or dental records.
 
These customers, and we, are subject to laws, regulations and industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records, and our products may also be
 
used as part of these customers’
comprehensive data security programs, including in connection with their efforts to comply with
 
applicable privacy
and security laws.
 
Perceived or actual security vulnerabilities in our products or services,
 
or the perceived or actual
failure by us or our customers
 
who use our products or services to comply with applicable legal or
 
contractual data
privacy and security requirements, may not only cause us significant reputational
 
harm, but may also lead to claims
against us by our customers and/or governmental agencies and involve substantial
 
fines, penalties and other
liabilities and expenses and costs for remediation.
Various
 
federal initiatives involve the adoption and use by health care
 
providers of certain electronic health care
records systems and processes.
 
The initiatives include, among others, programs that incentivize
 
physicians and
dentists, through MIPS, to use EHR technology in accordance with certain
 
evolving requirements, including
regarding quality, promoting interoperability, cost and improvement activities.
 
Qualification for the MIPS
18
incentive payments requires the use of EHRs that are certified as having certain
 
capabilities designated in evolving
standards adopted by CMS and the Office of the National Coordinator for Health
 
Information Technology of HHS
(“ONC”).
 
Certain of our businesses involve the manufacture and sale of such
 
certified EHR systems and other
products linked to government supported incentive programs.
 
In order to maintain certification of our EHR
products, we must satisfy these changing governmental standards.
 
If any of our EHR systems do not meet these
standards, yet have been relied upon by health care providers to receive
 
federal incentive payments, we may be
exposed to risk, such as under federal health care fraud and abuse laws,
 
including the False Claims Act.
 
Moreover, in order to satisfy our customers, and comply with evolving legal requirements, our products
 
may need
to incorporate increasingly complex functionality, such as with respect to reporting and information blocking.
 
Although we believe we are positioned to accomplish this, the effort may involve
 
increased costs, and our failure to
implement product modifications, or otherwise satisfy applicable standards,
 
could have a material adverse effect on
our business.
Other health information standards, such as regulations under HIPAA, establish standards regarding electronic
health data transmissions and transaction code set rules for specific electronic
 
transactions, such as transactions
involving claims submissions to third party payers.
 
Failure to abide by these and other electronic health data
transmission standards could expose us to breach of contract claims,
 
substantial fines, penalties, and other liabilities
and expenses, costs for remediation and harm to our reputation.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged
 
information becomes
increasingly important.
 
As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
There may be additional legislative or regulatory initiatives in the future impacting
 
health care.
E-Commerce
Electronic commerce solutions have become an integral part of traditional health
 
care supply and distribution
relationships.
 
Our distribution business is characterized by rapid technological
 
developments and intense
competition.
 
The continuing advancement of online commerce requires
 
us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a
 
variety of new services to address the
changing demands of consumers and our customers on a timely basis, particularly
 
in response to competitive
offerings.
 
Through our proprietary, technologically-based suite of products, we offer customers a variety of competitive
alternatives.
 
We believe that our tradition of reliable service, our name recognition and large customer base built
on solid customer relationships, position us well to participate in
 
this significant aspect of the distribution business.
 
We
continue to explore ways and means to improve and expand our online
 
presence and capabilities, including our
online commerce offerings and our use of various social media outlets.
International Transactions
United States and foreign import and export laws and regulations require us to
 
abide by certain standards relating to
the importation and exportation of products.
 
We also are subject to certain laws and regulations concerning the
conduct of our foreign operations, including the U.S. Foreign Corrupt Practices
 
Act, the U.K. Bribery Act, German
anti-corruption laws and other anti-bribery laws and laws pertaining
 
to the accuracy of our internal books and
records, as well as other types of foreign requirements similar to those
 
imposed in the United States.
While we believe that we are substantially compliant with the foregoing laws
 
and regulations promulgated
thereunder and possess all material permits and licenses required for the conduct
 
of our business, there can be no
assurance that laws and regulations that impact our business or laws and
 
regulations as they apply to our customers’
practices will not have a material adverse effect on our business.
 
19
See “
” for a discussion of additional burdens, risks and regulatory developments
 
that may
affect our results of operations and financial condition.
Proprietary Rights
We hold trademarks relating to the “Henry Schein
®
” name and logo, as well as certain other trademarks.
 
We intend
to protect our trademarks to the fullest extent practicable.
 
Employees and Human Capital
Environment, Social and Governance
Henry Schein has remained steadfastly committed over our nine-decade history
 
to the core philosophy that our
purpose-driven mission of "doing good" for our stakeholders is inextricably
 
linked to our Company "doing well" in
business through our stakeholder engagement model “our Mosaic of Success”.
 
We balance the needs of our five
key stakeholders – Team Schein Members (TSMs), our Customers, our Suppliers, our Stockholders, and Society –
to continue to drive our sustainability and ESG efforts to foster a healthier planet and healthier
 
people.
 
Overseen
by the Nominating and Governance Committee of our Board of Directors with the
 
Compensation Committee also
playing a role in ESG matters related to human capital engagement and executive
 
compensation, key 2022
sustainability and ESG highlights included:
With the backdrop of the ongoing COVID-19 pandemic and the humanitarian crises in Ukraine and other
regions, we continued our efforts to drive an overall culture of wellness and engagement
 
for our TSMs as
we navigated a new hybrid work environment and ensure supply chain resiliency
 
to support our customers
and our communities.
 
Henry Schein was named Chair of the Private Sector Roundtable
 
on Global Health
Security, and continued its work across sectors to support the creation of market intelligence platforms that
enable the appropriate sharing of real-time supply chain data, including through
 
the WHO's Pandemic
Supply Chain Network and various national efforts, including the U.S. Supply Chain
 
Control Tower.
(i) Publishing our annual Corporate Social Responsibility and Sustainability
 
Report according to the Global
Reporting Initiative and Sustainability Accounting Standards Board reporting
 
standards and issuing our
first Taskforce for Climate-related Financial Disclosures report; (ii) committing to announcing our carbon
reduction goal by the end of 2023; (iii) continued initiatives and programs
 
to advance health equity efforts
to promote access to care for underserved and underrepresented communities,
 
investing in diversity for
greater health equity in partnership with health care professionals, and
 
increasing awareness of health
equity needs globally; (iv) announced the top line findings of our pay equity
 
analysis across the U.S., which
reviews compensation across gender and ethnic groups; (v) expanding our
 
Diversity and Inclusion (“D&I”)
learning journey, such as by educating global directors and vice presidents on more advanced topics of D&I
including privilege and equity, as well as offering education to all global TSMs below director level on the
importance of D&I; and (vi) continuing to drive a culture of wellness for our
 
TSMs by fostering an
environment where they can feel engaged, included and psychologically
 
safe.
At Henry Schein, our employees are our greatest asset.
 
We employ more than 22,000 people, approximately 50%
of our workforce is based in the United States and approximately 50%
 
is based outside of the United States.
 
Approximately 12% of our employees are subject to collective bargaining agreements.
 
We believe that our
relations with our employees are excellent.
We refer to our employees as Team
 
Schein Members, or “TSMs.” Our TSMs are the cornerstone
 
of the Company.
 
We have a strong values-based culture that cultivates a meaningful employee experience that is centered around
people.
 
We know our business success is built on the engagement and commitment of our team, which is dedicated
to meeting the needs of their fellow TSMs, our customers, supplier partners,
 
stockholders and society.
 
As part of
this commitment, our highlights in 2022 included:
 
20
Nurturing a connected community for a happier, more engaged, collaborative work environment.
 
We
continue to adapt to the new way of working for our TSMs by listening
 
to their needs.
 
With TSMs working
remotely, hybrid and in-person, our goal is to continue to create a collaborative community where every
TSM feels connected to our culture.
 
Through various virtual and in-person programming from our
Employee Resource Groups, Wellness Committee and Team Schein Engagement team, we continue to
bring TSMs together in a meaningful way through virtual education sessions
 
and networking events.
 
To
help create a sense of connection and belonging amongst the team, we
 
launched “TSM Experience Panels,”
which feature TSMs who share their authentic experiences and offer advice and
 
best practices on specific
topics. We offer a variety of opportunities to volunteer for team-building and engaging in their local
communities in which they live and work such as through the We Care Global Challenge, Back to School,
and Holiday Cheer. In addition, they can “help health happen” by participating in key programs and
initiatives (e.g., Gives Kids A Smile, Healthy Lifestyles, Healthy Communities
 
and Release the Pressure)
that partner with industry associations, customers, and suppliers to support
 
access to quality health care for
underserved and underrepresented communities.
 
We continue to evaluate the engagement of our team
through various listening mechanisms including roundtables, hosted
 
by our CEO and Executive
Management Committee (“EMC”), and various surveys, including The
 
Pulse, our global culture survey that
evaluates TSM engagement globally with results reviewed by senior leaders,
 
reported to the Board of
Directors (“BOD”).
 
Throughout 2022, we held 10 solutions-focused roundtables
 
hosted by our EMC
members with over 100 TSMs to dive in deeper and influence our
 
strategy on programs and processes
designed to further enhance our culture.
 
Driving a culture of wellness for our team members and society.
 
In 2020, we launched a Mental Wellness
Committee with a mission to drive a culture of wellness and empower
 
every TSM to be their best self,
mentally, emotionally and physically.
 
The Committee provides resources, guidance and support,
 
and
works across our businesses to establish enhanced workplace norms to
 
help improve and safeguard our
TSMs’ wellness.
 
We actively engage leadership, including our CEO, EMC, BOD and TSMs alike in
conversations around the importance of wellness in the workplace.
 
In 2022, we rolled-out an EMC video
series that focused on being more intentional in the way we work across
 
our business.
 
These new
workplace norms focused on meeting and technology etiquette, successful
 
calendaring, establishing and
communicating reasonable expectations and prioritization, the importance
 
of taking and respecting time
off, and the importance of making time for social connection. In addition to expanding
 
education on key
mental health topics in partnership with our employee assistance vendor, we also rolled-out manager-
specific education to provide tips on how to identify signs of burnout
 
and have conversations around
wellness with their teams.
 
With the rise of suicide rates around the world, the Wellness Committee held
seminars for the team on suicide prevention and hosted in-person community walks
 
that resulted in
donations to local suicide prevention organizations globally.
 
Being committed to enhancing our D&I initiatives.
 
We believe a diverse workforce fosters innovation and
cultivates an environment filled with unique perspectives.
 
As a result, D&I helps us meet the needs of
customers around the world and provide our TSMs an inclusive environment
 
where they feel they belong.
 
We measure our success in D&I through, among other things, our global culture survey, where results in
2021 showed D&I is our top strength out of 14 focus areas. To guide our efforts and education related to
D&I, our Diversity and Inclusion Council, with engagement from our
 
BOD and EMC, drives the
Company’s overall D&I strategy.
 
To deepen our commitment to D&I across the Company, Global
Directors and Vice Presidents each have a goal tied to their compensation to champion D&I and attend
education.
 
We continue to expand our D&I learning journey, educating global Directors and Vice
Presidents on key D&I topics including leading inclusively, bias and equity.
 
We also continue to educate
our global TSMs on the importance of D&I. Additionally, we promote engagement by utilizing our
Employee Resource Groups (“ERGs”), which we continue to expand,
 
as an inclusive and diverse vehicle
for all TSMs to share, connect, learn and develop both personally
 
and professionally.
 
Each of our ERGs
has a sponsor from our Executive Management Committee and our BOD
 
and our CEO engages directly in
many of our ERG programs.
 
While inclusion continues to remain a top priority, we also understand the
importance of ensuring our internal team reflects the diversity of our customers
 
and society.
 
In addition to
our current gender parity by 2030 goal, we announced a new goal in 2022 with
 
an enhanced focus on
21
increasing the diversity of all underrepresented groups in senior leadership
 
levels through our talent
planning, compensation and recruitment processes, in alignment with
 
our corporate strategic planning
objectives to achieve concrete results.
 
We continue to disclose additional diversity data, with frequent
reporting to the EMC and BOD.
 
In 2022, we published our United States Equal Employment Opportunity
Commission (“EEOC”) EEO-1 data for the U.S. for the first time.
 
We continue to enhance our recruiting
strategy by developing and investing in strategic hires who complement
 
our D&I mission.
 
We believe that
these efforts will serve as a critical steppingstone as we continue to strengthen our
 
D&I initiatives in an
effort to meet the evolving needs of our customers, supplier partners, TSMs, stockholders
 
and society.
 
Understanding that growth, recognition and purpose are key pillars to TSM fulfillment.
 
Personal and
professional development of our TSMs is important to us.
 
As such, we invest in our employees by
providing both formal and informal learning opportunities that are
 
focused on growing and enhancing
knowledge, skills and abilities.
 
TSMs globally are offered a broad suite of professional development
training programs targeted to specific learning opportunities based on their current
 
and potential future role
within the Company.
 
We also offer over 50 organizational and development training courses designed to
aid in the overall development and advancement of skills and competencies
 
to enable organizational
success.
 
Executive education, mentorship and coaching programs also
 
form an important part of our
development and career support initiatives.
 
Additionally, we continued to see an increase in participation
in our Organizational Development initiatives in 2022 with our TSMs reporting
 
a high utilization of skills
learned.
 
Talent planning efforts are also an integral part of our commitment to ensure a strong diverse
leadership pipeline across the organization.
 
Through a formal global process, we strategically identify and
develop talent through targeted development opportunities and intentional succession
 
plans.
 
We
continuously identify potential management successors as part
 
of our succession planning process.
 
Information derived from talent planning efforts informs curriculum design and
 
content to help focus on the
right capabilities and help ensure alignment of career development
 
efforts with the future needs of the
organization.
 
Our BOD is provided with periodic updates regarding our
 
talent and succession planning
efforts and participates in professional development activities with our TSMs.
 
We know recognition and
purpose are also key pillars to TSM engagement, so we continue to find
 
ways to recognize our TSMs
through our annual performance review process, and various recognition
 
opportunities including our Teddy
Philson Team Schein Award,
 
which highlights TSMs who exemplify our Team Schein Values.
 
In addition,
we continue to focus on ensuring every TSM understands the importance
 
in the role they play within the
organization, how they contribute to a larger purpose of creating a healthier world, as well as
 
continue to
provide opportunities for TSMs to engage in meaningful ways
 
that connect back to their own personal
purpose, such as helping the community through CSR activities.
Available Information
We make available free of charge through our Internet website, www.henryschein.com, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements
 
of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements
 
filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934
 
as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the United States Securities
 
and Exchange Commission, or
SEC.
 
Our principal executive offices are located at 135 Duryea Road, Melville, New
 
York
 
11747, and our
telephone number is (631) 843-5500.
 
Unless the context specifically requires otherwise, the terms the
 
“Company,”
“Henry Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware
 
corporation, and its consolidated
subsidiaries.
 
 
 
 
 
 
 
 
 
 
 
 
 
22
Information about our Executive Officers
The following table sets forth certain information regarding our executive
 
officers:
Name
Age
Position
Stanley M. Bergman
 
73
Chairman, Chief Executive Officer, Director
James P.
 
Breslawski
 
69
Vice Chairman, President, Director
David Brous
54
Chief Executive Officer, Strategic Business Group
Brad Connett
64
Chief Executive Officer, North America Distribution Group
Michael S. Ettinger
 
61
Executive Vice President and Chief Operating Officer
Lorelei McGlynn
 
59
Senior Vice President, Chief Human Resources Officer
Mark E. Mlotek
 
67
Executive Vice President, Chief Strategic Officer, Director
Ronald N. South
61
Senior Vice President, Chief Financial Officer
Walter Siegel
 
63
Senior Vice President and Chief Legal Officer
Stanley M. Bergman
 
has been our Chairman and Chief Executive Officer since 1989 and a director
 
since 1982.
 
Mr. Bergman held the position of President from 1989 to 2005.
 
Mr. Bergman held the position of Executive Vice
President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.
 
James P. Breslawski
 
has been our Vice Chairman since 2018, President since 2005 and a director since 1992.
 
Mr.
Breslawski was the Chief Executive Officer of our Henry Schein Global Dental
 
Group from 2005 to 2018.
 
Mr.
Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with
primary responsibility for the North American Dental Group.
 
Between 1980 and 1990, Mr. Breslawski held
various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and
Corporate Controller.
David Brous
 
has been our Chief Executive Officer, Strategic Business Group since 2021.
 
Mr. Brous joined us in
2002 and has held many positions within the organization, including President, Strategic Business
 
Units Group and
Asia Pacific & Brazil Dental, leading and managing the Corporate Business
 
Development Group and the
International Healthcare Group (managing our International Animal Health business,
 
International Medical
business and Australia / New Zealand Dental business).
Brad Connett
 
has been our Chief Executive Officer, North American Distribution Group since 2021.
 
Previously
Mr. Connett was the President of our U.S. Medical Group from 2018 to 2021.
 
Mr. Connett joined us in 1997 and
has held a number of roles of increasing responsibility at the Company.
 
Throughout his career, he has received
numerous industry honors, including the John F. Sasen Leadership Award from the Health Industry Distributors
Association (HIDA), in recognition of his service to the industry, and induction into the Medical Distribution Hall
of Fame by Repertoire Magazine.
Michael S. Ettinger
 
has been our Executive Vice President and Chief Operating Officer since July 2022.
 
Prior to
his current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs, Chief of Staff and
Secretary from 2015 to July 2022, Senior Vice President, Corporate & Legal Affairs and Secretary from 2013 to
2015, Corporate Senior Vice President, General Counsel & Secretary from 2006 to 2013, Vice President, General
Counsel and Secretary from 2000 to 2006, Vice President and Associate General Counsel from 1998 to 2000
 
and
Associate General Counsel from 1994 to 1998.
 
Before joining us, Mr. Ettinger served as a senior associate with
Bower & Gardner and as a member of the Tax Department at Arthur Andersen.
Lorelei McGlynn
 
has been our Senior Vice President, Chief Human Resources Officer since 2013.
 
Since joining
us in 1999, Ms. McGlynn has served as Vice President, Global Human Resources and Financial Operations from
2008 to 2013, Chief Financial Officer, International Group and Vice President of Global Financial Operations from
2002 to 2008 and Vice President, Finance, North America from 1999 to 2002.
 
Prior to joining us, Ms. McGlynn
served as Assistant Vice President of Finance at Adecco Corporation.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
Mark E. Mlotek
 
has been our Executive Vice President and Chief Strategic Officer since 2012.
 
Mr. Mlotek was
Senior Vice President and subsequently Executive Vice President of the Corporate Business Development Group
between 2000 and 2012.
 
Prior to that, Mr. Mlotek was Vice President, General Counsel and Secretary from 1994 to
1999 and became a director in 1995.
 
Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer
Rose LLP,
 
counsel to us, specializing in mergers and acquisitions, corporate reorganizations and tax law from
 
1989
to 1994.
Ronald N. South
 
has been our Senior Vice President
 
and Chief Financial Officer (and principal financial officer
and principal accounting officer) since April 2022.
 
Prior to holding his current position, Mr. South was our
Corporate Finance and Chief Accounting Officer from 2013 until April 2022.
 
Prior to joining us in 2008 as our
Vice President, Corporate Finance, Mr. South held leadership roles at Bristol-Myers Squibb, where he served as
Vice President, Finance, for the Cardiovascular and Metabolic business lines, as well as Vice President, Controller,
for its U.S. Pharmaceutical Division, and Vice President, Corporate General Auditor.
 
Prior to Bristol-Myers
Squibb, he served as North American Director of Corporate Audit at
 
PepsiCo, and held several roles of increasing
responsibility with PricewaterhouseCoopers LLP, where he advised clients located in the United States, Europe,
and Latin America.
 
Mr. South is a certified public accountant.
Walter Siegel
 
has been our Senior Vice President and Chief Legal Officer since 2021.
 
Previously, Mr.
 
Siegel was
our Senior Vice President and General Counsel from 2013 until 2021.
 
Prior to joining us, Mr. Siegel was employed
with Standard Microsystems Corporation, a publicly traded global semiconductor
 
company from 2005 to 2012,
holding positions of increasing responsibility, most recently as Senior Vice President, General Counsel and
Secretary.
Other Executive Management
The following table sets forth certain information regarding other Executive
 
Management:
Name
Age
Position
Andrea Albertini
52
Chief Executive Officer, International Distribution Group
Leigh Benowitz
55
Senior Vice President and Chief Global Digital Transformation Officer
 
Trinh Clark
49
Senior Vice President and Chief Global Customer Experience Officer
James Mullins
58
Senior Vice President, Global Supply Chain
Kelly Murphy
42
Senior Vice President and General Counsel
Christopher Pendergast
60
Senior Vice President and Chief Technology Officer
Michael Racioppi
 
68
Senior Vice President, Chief Merchandising Officer
René Willi, Ph.D.
55
Chief Executive Officer, Global Oral Reconstruction Group
Andrea Albertini
 
has been Chief Executive Officer, International Distribution Group since 2023.
 
Mr. Albertini
joined us in 2013 and has held several positions within the organization including
 
President, International
Distribution Group, President of our EMEA Dental Distribution Group,
 
and Vice-President of International Dental
Equipment.
 
Prior to joining Henry Schein, Mr. Albertini held leadership positions at Cefla Dental Group and
Castellini.
Leigh Benowitz
 
has been our Senior Vice President and Chief Global Digital Transformation Officer since August
2022.
 
Ms. Benowitz joined us in 2017 and has held several key positions
 
including Vice President Digital &
Customer Experience and Global eCommerce Platform Digital Transformation Officer.
 
Prior to joining Henry
Schein, Ms. Benowitz held various positions with increasing responsibilities
 
at Citi.
Trinh Clark
has been our Senior Vice President and Chief Global Customer Experience Officer since August
2022.
 
Ms. Clark joined us in 2007 and has served as Vice President, Technology Enablement, North American
Distribution Group.
 
Prior to joining Henry Schein, Ms. Clark held various positions of
 
increasing responsibilities at
eSurg.
24
James Mullins
 
has been our Senior Vice President of Global Supply Chain since 2018.
 
Mr. Mullins joined us in
1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer
Service Officer.
Kelly Murphy
 
has been our Senior Vice President and General Counsel since 2021.
 
Since joining us in 2011, Ms.
Murphy has held several key positions of increasing responsibility within
 
the legal function, most recently serving
as Deputy General Counsel.
 
Christopher Pendergast
 
has been our Senior Vice President and Chief Technology Officer since 2018.
 
Prior to
joining us, Mr. Pendergast was the employed by VSP Global from 2008 to 2018, most recently as the Chief
Technology Officer and Chief Information Officer.
 
Prior to VSP Global, Mr. Pendergast served in roles of
increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from
2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000
 
and Rohm and Haas from 1994 to 1998.
Michael Racioppi
 
has been our Senior Vice President, Chief Merchandising Officer since 2008.
 
Prior to holding
his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008 and Interim President
from 1999 to 2000, and Corporate Vice President from 1994 to 2008, with primary responsibility for the Medical
Group, Marketing and Merchandising departments.
 
Mr. Racioppi served as Senior Director, Corporate
Merchandising from 1992 to 1994.
 
Before joining us in 1992, Mr. Racioppi was employed by Ketchum
Distributors, Inc. as the Vice President of Purchasing and Marketing.
 
He currently serves on the board of National
Distribution and Contracting and previously served on the board of Health
 
Distribution Management Association
and Health Industry Distributors Association (HIDA).
René Willi, Ph.D.
 
has been our Chief Executive Officer, Global Oral Reconstruction Group since 2021.
 
Previously, Dr.
 
Willi was the President of our Global Dental Surgical Group.
 
Prior to joining Henry Schein, Dr.
Willi held senior level roles with Institut Straumann AG as Executive Vice President, Surgical Business Unit from
2005 to 2013.
 
Prior to Straumann, he held roles of increasing responsibility
 
in Medtronic Plc’s cardiovascular
division from 2003 to 2005 and with McKinsey & Company as
 
a management consultant from 2000 to 2003.
25
ITEM 1A. Risk Factors
Our business operations could be affected by factors that are not presently known
 
to us or that we currently
consider not to be material to our operations, so you should not consider
 
the risks disclosed in this section to
necessarily represent a complete statement of all risks and uncertainties.
 
The Company believes that the following
risks could have a material adverse impact on our business, reputation, financial
 
results, financial condition and/or
the trading price of our common stock.
 
The order in which these factors appear does not necessarily reflect
 
their
relative importance or priority.
 
COMPANY RISKS
Our business, results of operations, cash flows, financial condition and
 
liquidity may be negatively impacted by
the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public health
 
concerns and other
natural disasters
.
 
The COVID-19 pandemic and the responses of governments
 
to it had, and may again have, a
material adverse effect on our business, results of operations and cash flows and may result
 
in a material
adverse effect on our financial condition and liquidity.
Our business, results of operations, cash flows, financial condition and
 
liquidity may be negatively impacted by the
 
effects of disease outbreaks, epidemics, pandemics, similar wide-spread public health concerns
 
and other natural
disasters. The COVID-19 pandemic has had, and continues to have, an
 
unprecedented impact on society, worldwide
economic activity, and the health care sector (particularly, the dental market). As a global healthcare solutions
company, the COVID-19 pandemic and the governmental responses to it had, and may again have, a material
adverse effect on our business, results of operations and cash flows and may result
 
in a material adverse effect on
our financial condition and liquidity. Even after the COVID-19 pandemic has begun to subside, we may again
experience material adverse impacts to our business, results of operations
 
and cash flows as a result of, among other
things, its global economic impact, including any recession that
 
may occur in the future, or a prolonged period of
economic slowdown or the reluctance of patients to return for elective dental
 
or medical care. The impacts and
potential impacts from the COVID-19 pandemic include, but are not
 
limited to:
Significant volatility in supply, demand and selling prices for personal protective equipment (PPE), COVID-19
tests and other COVID-19 related products.
 
Available supply,
 
customer demand and selling prices for PPE,
COVID-19 tests and other COVID-19 related products
 
fluctuated in fiscal 2022 and we expect such volatility to
continue for the duration of the COVID-19 pandemic. This has resulted
 
in inventory reserves, fluctuating margins
and increased revenue related to such products.
 
The volatility in sales of COVID-19 test kits has moderated,
 
albeit
at a significantly lower level of sales compared with 2021, resulting in
 
us recording an inventory obsolescence
reserve of $17 million for COVID-19 test kits during the year
 
ended December 31, 2022 and we expect further
declines in sales volumes.
 
Our estimates for supply, demand and selling prices are inherently uncertain and if
supply, demand, selling prices or other market dynamics significantly fluctuate in the future beyond our current
assumptions, additional inventory reserves may be required, margins may be reduced and/or
 
revenue may decline
for such products, each which could materially adversely impact our business,
 
results of operations and cash flows.
Additionally, governmental policies designed to reduce the transmission of COVID-19 and variants thereof could
once again lead to the closure of dental offices or deferral of elective procedures and
 
wellness exams by medical
and dental patients. Such previous closures and restrictions impacted our
 
customers’ spending with us and had, and
if reinstated may again have, a material adverse effect on our business, results of operations
 
and cash flows.
 
Although we believe that most practices currently are able to access
 
adequate supply, we still may be unable to
supply our customers with the specific brand and/or quantity of certain PPE products,
 
COVID-19 tests and other
COVID-19 related products they demand, which may lead to our
 
customers seeking alternative sources of supply.
 
Healthcare professionals’ inability to obtain a sufficient quantity and/or brand of certain PPE, COVID-19
 
tests and
other COVID-19 related products would adversely impact our business,
 
results of operations and cash flows, and
could materially adversely affect our financial condition and liquidity;
26
Reduction in Peoples’ Ability and Willingness to be in Public.
 
Restrictions recommended by several public health
organizations, and implemented, from time to time, by federal, state and local governments,
 
to slow and limit the
transmission of COVID-19 and variants thereof has caused and may in
 
the future cause some people to be less
willing to go to elective medical and dental appointments, which could
 
again materially adversely affect demand
for our products.
 
A lengthened period of materially suppressed demand could again cause
 
material adverse impacts
on our business, results of operations and cash flows and could materially
 
adversely affect our financial condition
and liquidity;
Negative impact on our workforce and impact of adapted business practices.
 
The spread of COVID-19 and
variants thereof caused us to modify our business practices (including
 
employee travel, employee work locations,
and physical participation in meetings, events and conferences), and
 
we may take further actions as may be required
by government authorities or our customers or that we determine are in the
 
best interests of our employees. As the
COVID-19 pandemic continues to unfold, we continue to evaluate
 
appropriate actions for our business. At the onset
of the COVID-19 pandemic, many of our office-based workers shifted abruptly to
 
working remotely. As the
COVID-19 pandemic has evolved, we have modified our work
 
arrangements to implement more flexible working
arrangements for our office-based workers, including permanent work from home,
 
hybrid and office-based
arrangements. Implementing these modified business practices
 
to include remote work arrangements could have a
negative impact on employee morale, strain our business continuity plans,
 
introduce operational risk (including but
not limited to cybersecurity risks), and impair our ability
 
to efficiently operate our business;
Significant changes in political conditions.
 
Significant changes in political conditions in markets in which
 
we
purchase and distribute our products have occurred and are expected to
 
continue at least during the pendency of the
pandemic, including quarantines, governmental or regulatory actions, closures
 
or other restrictions that limit or
close our operating facilities, restrict our employees’ ability to
 
travel or perform necessary business functions, or
otherwise constrain the operations of our business partners, suppliers or
 
customers, which may materially adversely
affect our business, results of operations, cash flows, financial condition
 
and liquidity;
Volatility
 
in the financial markets.
 
Volatility
 
in the financial markets may materially adversely affect the
availability and cost of credit to us;
The impact of the COVID-19 pandemic may also exacerbate other risks discussed
 
below, any of which could have
a material adverse effect on us.
We are dependent upon third parties for the manufacture and supply of a significant volume of our products.
We obtain a significant volume of the products we distribute from third parties, with whom we generally do not
have long-term contracts.
 
While there is typically more than one source of supply, some key suppliers, in the
aggregate, supply a significant portion of the products we sell.
 
In 2022, our top 10 health care distribution suppliers
and our single largest supplier accounted for approximately 28% and 4%, respectively, of our aggregate purchases.
 
Because of our dependence upon such suppliers, our operations are
 
subject to the suppliers’ ability and willingness
to supply products in the quantities that we require, and the risks include delays
 
caused by interruption in
production based on conditions outside of our control, including
 
a supplier’s failure to comply with applicable
government requirements (which may result in product recalls and/or
 
cessation of sales) or an interruption in the
suppliers’ manufacturing capabilities.
 
In the event of any such interruption in supply, we would need to identify
and obtain acceptable replacement sources on a timely basis.
 
There is no guarantee that we would be able to obtain
such alternative sources of supply on a timely basis, if at all, and an extended
 
interruption in supply, particularly of
a high sales volume product, could result in a significant disruption
 
in our sales and operations, as well as damage
to our relationships with customers and our reputation.
 
In addition, certain of our suppliers have had their ability to
service certain markets restricted or negatively impacted because
 
of allegations of forced labor in their supply
chain.
 
Forced labor legislation affecting the supply chain has increased around the
 
world, and the United States
recently passed the Uyghur Forced Labor Prevention Act.
 
Our supply chain could be materially disrupted if our
suppliers fail to comply with, or are unable to satisfy our demand
 
for products, as a result of applicable forced labor
legislation and regulations.
27
Our
 
future
 
growth
 
(especially
 
for
 
our
 
technology
 
and
 
value-added
 
services
 
segment)
 
is
 
dependent
 
upon
 
our
ability
 
to
 
develop
 
or
 
acquire
 
and
 
maintain
 
and
 
protect
 
new
 
products
 
and
 
technologies
 
that
 
achieve
 
market
acceptance with acceptable margins.
Our future success depends on our ability to timely develop (or obtain the right
 
to sell) competitive and innovative
(particularly for our technology and value-added services segment)
 
products and services and to market them
quickly and cost-effectively.
 
Our ability to anticipate customer needs and emerging trends and develop or acquire
new products, services and technologies at competitive prices requires significant
 
resources, including employees
with the requisite skills, experience and expertise, particularly in our technology
 
segment, including dental practice
management, patient engagement and demand creation software solutions.
 
The failure to successfully address these
challenges could materially disrupt our sales and operations.
 
Additionally, our software and e-services products,
like software products generally, may contain undetected errors or bugs when introduced or as new versions are
released.
 
Any such defective software may result in increased expenses related
 
to the software and could adversely
affect our relationships with customers as well as our reputation.
 
With respect to certain software and e-services
that we develop, we rely primarily upon copyright, trademark and
 
trade secret laws, as well as contractual and
common law protections and confidentiality obligations.
 
We cannot provide assurance that such legal protections
will be available, adequate or enforceable in a timely manner to protect
 
our software or e-services products.
Risks inherent in acquisitions,
 
dispositions and joint ventures could offset the anticipated benefits.
One of our business strategies has been to expand our domestic and
 
international markets in part through
acquisitions and joint ventures and we expect to continue to make acquisitions
 
and enter into joint ventures in the
future. Such transactions require significant management attention,
 
may place significant demands on our
operations, information systems, legal, regulatory, compliance-functions and financial resources, and there is risk
that one or more may not succeed. We cannot be sure, for example, that we will achieve the benefits of revenue
growth that we expect from these acquisitions or joint ventures or
 
that we will avoid unforeseen additional costs,
taxes or expenses. Our ability to successfully implement our acquisition
 
and joint venture strategy depends upon,
among other things, the following:
the availability of suitable acquisition or joint venture candidates at
 
acceptable prices;
our ability to consummate such transactions, which could potentially
 
be prohibited due to U.S. or
foreign antitrust regulations;
the liquidity of our investments and the availability of financing on
 
acceptable terms;
our ability to retain customers or product lines of the acquired businesses or
 
joint ventures;
our ability to retain, recruit and incentivize the management of the
 
companies we acquire; and
our ability to successfully integrate these companies’ operations, services,
 
products and personnel with
our culture, management policies, legal, regulatory and compliance policies,
 
cybersecurity systems and
policies, internal procedures, working capital management, financial
 
and operational controls and
strategies.
Furthermore, some of our acquisitions and future acquisitions may give rise to
 
an obligation to make contingent
payments or to satisfy certain repurchase obligations, which payments
 
could have material adverse impacts on our
financial results individually or in the aggregate.
Additionally, when we decide to sell assets or a business, we may encounter difficulty in finding buyers or
executing alternative exit strategies on acceptable terms in a timely manner, which could delay
 
the accomplishment
of our strategic objectives. Alternatively, we may dispose of assets or a business at a price or on terms that are
 
less
than we had anticipated.
 
Dispositions may also involve continued financial involvement
 
in a divested business,
such as through transition service agreements, indemnities or other current
 
or contingent financial obligations.
Under these arrangements, performance by the acquired or divested
 
business, or other conditions outside our
control, could affect our future financial results.
Certain provisions in our governing documents and other documents to which we
 
are a party may discourage
third parties from seeking to acquire us that might otherwise result in
 
our stockholders receiving a premium
over the market price of their shares.
28
The provisions of our certificate of incorporation and by-laws may
 
make it more difficult for a third-party to
acquire us, may discourage acquisition bids and may impact the price
 
that certain investors might be willing to pay
in the future for shares of our common stock.
 
These provisions, among other things require (i) the affirmative vote
of the holders of at least 60% of the shares of common stock entitled to vote
 
to approve a merger, consolidation, or
a sale, lease, transfer or exchange of all or substantially all of our assets;
 
and (ii) the affirmative vote of the holders
of at least 66 2/3% of our common stock entitled to vote to (a) remove
 
a director; and (b) to amend or repeal our
by-laws, with certain limited exceptions.
 
In addition, certain of our employee incentive plans provide
 
for
accelerated vesting of stock options and other awards upon termination without cause
 
within two years following a
change in control, or grant the plan committee discretion to accelerate
 
awards upon a change of control.
 
Further,
certain agreements between us and our executive officers provide for increased severance
 
payments and certain
benefits if those executive officers are terminated without cause by us or if they terminate
 
for good reason, in each
case within two years following a change in control or within ninety days prior
 
to the effective date of the change in
control or after the first public announcement of the pendency of the change
 
in control.
Adverse changes in supplier rebates or other purchasing incentives
 
could negatively affect our business.
The terms
 
on which
 
we purchase
 
or sell
 
products from
 
many suppliers
 
may entitle
 
us to
 
receive a
 
rebate or
 
other
purchasing incentive based on
 
the attainment of
 
certain growth goals. Suppliers may
 
reduce or eliminate rebates
 
or
incentives
 
offered
 
under
 
their
 
programs,
 
or
 
increase
 
the
 
growth
 
goals
 
or
 
other
 
conditions
 
we
 
must
 
meet
 
to
 
earn
rebates
 
or
 
incentives
 
to
 
levels
 
that
 
we
 
cannot
 
achieve.
 
Increased
 
competition
 
either
 
from
 
generic
 
or
 
equivalent
branded products
 
could result
 
in us
 
failing to
 
earn rebates
 
or incentives
 
that are
 
conditioned upon
 
achievement of
growth goals. Additionally,
 
factors outside of
 
our control, such
 
as customer preferences,
 
consolidation of suppliers
or supply issues, can have a material impact on
 
our ability to achieve the growth goals established
 
by our suppliers,
which may reduce the amount of rebates or incentives we receive. The occurrence of any of these events
 
could have
an adverse impact on our business, financial condition or operating
 
results.
Sales of corporate brand products entail additional risks, including the risk that such sales could
 
adversely affect
our relationships with suppliers.
We
 
offer certain corporate brand products that are available exclusively from us. The sale
 
of such products subjects
us to the risks generally encountered by entities that source, market and sell corporate brand products, including but
not
 
limited to
 
potential product
 
liability risks,
 
mandatory or
 
voluntary product
 
recalls, potential
 
supply chain
 
and
distribution
 
chain
 
disruptions,
 
and
 
potential
 
intellectual
 
property
 
infringement
 
risks.
 
Any
 
failure
 
to
 
adequately
address
 
some
 
or
 
all
 
of
 
these
 
risks
 
could
 
have
 
an
 
adverse
 
effect
 
on
 
our
 
business, financial
 
condition
 
or
 
operating
results.
In
 
addition,
 
an
 
increase
 
in
 
the
 
sales
 
of
 
our
 
corporate
 
brand
 
products may
 
negatively
 
affect
 
our
 
sales
 
of
 
products
owned
 
by
 
our
 
suppliers
 
which,
 
consequently,
 
could
 
adversely
 
impact
 
certain
 
of
 
our
 
supplier
 
relationships.
 
Our
ability
 
to
 
locate
 
qualified,
 
economically
 
stable
 
suppliers
 
who
 
satisfy
 
our
 
requirements,
 
and
 
to
 
acquire
 
sufficient
products in
 
a timely
 
and effective
 
manner,
 
is critical
 
to ensuring,
 
among other
 
things, that
 
customer confidence
 
is
not diminished.
 
Any failure
 
to develop
 
sourcing relationships
 
with a
 
broad and
 
deep supplier
 
base could
 
have an
adverse effect on our business, financial condition or operating results.
 
INDUSTRY RISKS
The health care products distribution industry is highly competitive
 
(including, without limitation, competition
from third-party online commerce sites) and consolidating, and we may not
 
be able to compete successfully.
 
We compete with numerous companies, including several major manufacturers and distributors.
 
Some of our
competitors have greater financial and other resources than we do, which
 
could allow them to compete more
successfully.
 
Most of our products are available from several sources and our customers
 
tend to have relationships
with several distributors.
 
Competitors could obtain exclusive rights to market particular
 
products, which we would
then be unable to market. Manufacturers also could increase their
 
efforts to sell directly to end-users and thereby
eliminate or reduce our role in distribution.
 
Industry consolidation among health care product distributors and
manufacturers, price competition, product unavailability, whether due to our inability to gain access to products or
29
to interruptions in manufacturing supply, or the emergence of new competitors, also could increase competition.
 
Consolidation has also increased among manufacturers of health care
 
products, which could have a material
adverse effect on our margins and product availability.
 
We could be subject to charges and financial losses in the
event we fail to satisfy minimum purchase commitments contained
 
in some of our contracts. Additionally,
traditional health care supply and distribution relationships are being challenged
 
by electronic online commerce
solutions.
 
The continued advancement of online commerce by third
 
parties will require us to cost-effectively adapt
to changing technologies, to enhance existing services and to differentiate our business
 
(including with additional
value-added services) to address changing demands of consumers and
 
our customers on a timely basis.
 
The
emergence of such potential competition and our inability to anticipate and
 
effectively respond to changes on a
timely basis could have a material adverse effect on our business.
 
The repeal or judicial prohibition on implementation of the Affordable Care Act
 
could materially adversely
affect our business.
The ACA greatly expanded health insurance coverage in the United States
 
and has been the target of litigation and
Congressional reform efforts since its adoption.
 
The U.S. Supreme Court, in upholding the constitutionality of the
ACA and its individual mandate provision in 2012, simultaneously
 
limited ACA provisions requiring Medicaid
expansion, making such expansion a state-by-state decision.
 
In 2017, the U.S. Congress effectively repealed the
ACA’s
 
individual mandate provision by eliminating the financial penalty for non-compliance.
 
In the most recent
ACA litigation, a federal appeals court found the individual mandate to be unconstitutional,
 
and returned the case to
a lower federal court for consideration of whether the remainder of the ACA
 
could survive the excision of the
individual mandate.
 
This decision was appealed to the U.S. Supreme Court, and the Supreme
 
Court issued a
decision on June 17, 2021.
 
Without reaching the merits of the case, the Supreme Court held that the plaintiffs in
the case did not have standing to challenge the ACA.
 
Any outcome of future cases that change the ACA, in
addition to future legislation, regulation, guidance and/or Executive Orders
 
that do the same, could have a
significant impact on the U.S. healthcare industry.
 
For instance, the American Rescue Plan Act of 2021 enhanced
premium tax credits, which has resulted in an expansion of the number of people
 
covered under the ACA.
 
These
changes are time-limited, with some enhancements in place for 2021
 
only and others available through the end of
2022.
The health care industry is experiencing changes due to political, economic and
 
regulatory influences that could
materially adversely affect our business.
The health care industry is highly regulated and subject to changing
 
political, economic and regulatory influences.
 
In recent years, the health care industry has undergone, and is in the process of undergoing,
 
significant changes
driven by various efforts to reduce costs, including, among other factors: trends
 
toward managed care; collective
purchasing arrangements and consolidation among office-based health care practitioners;
 
and changes in
reimbursements to customers, including increased attention to value-based payment
 
arrangements, as well as
growing enforcement activities (and related monetary recoveries) by governmental
 
officials.
 
Both our profitability
and the profitability of our customers may be materially adversely affected by laws
 
and regulations reducing
reimbursement rates for pharmaceuticals, medical supplies and devices,
 
and/or medical treatments or services, or
changes to the methodology by which reimbursement levels are determined.
 
If we are unable to react effectively to
these and other changes in the health care industry, our business could be materially adversely affected.
 
Expansion of group purchasing organizations (“GPO”), dental support organizations
 
(“DSO”) or provider
networks and the multi-tiered costing structure may place us at a competitive
 
disadvantage.
The health care products industry is subject to a multi-tiered costing structure, which
 
can vary by manufacturer
and/or product.
 
Under this structure, certain institutions can obtain more favorable
 
prices for health care products
than we are able to obtain.
 
The multi-tiered costing structure continues to expand as many large integrated health
care providers and others with significant purchasing power, such as GPOs and DSOs, demand more favorable
pricing terms.
 
Additionally, the formation of provider networks, GPOs and DSOs may shift purchasing decisions
to entities or persons with whom we do not have a historical relationship
 
and may threaten our ability to compete
effectively, which could in turn negatively impact our financial results.
 
Although we are seeking to obtain similar
terms from manufacturers to access lower prices demanded by GPO and
 
DSO contracts or other contracts, and to
30
develop relationships with existing and emerging provider networks, GPOs and DSOs,
 
we cannot guarantee that
such terms will be obtained or contracts executed.
 
Increases in shipping costs or service issues with our third-party shippers
 
could harm our business.
Our ability to meet our customers’ expedited delivery expectations is an
 
integral component of our business
strategy for which our customers rely.
 
Shipping is a significant expense in the operation of our business.
 
We ship
almost all of our orders through third-party delivery services, and typically bear
 
the cost of shipment.
 
Accordingly,
any significant increase in shipping rates could have a material adverse
 
effect on our business, financial condition
or operating results.
 
While we have recently experienced increases in the cost of shipping,
 
we do not expect these
additional expenses to be material to our results.
 
However, it is possible that such costs could be material in the
future.
 
Similarly, strikes or other service interruptions by those shippers, including at transportation centers or
shipping ports, could cause our operating expenses to rise and materially
 
adversely affect our ability to deliver
products on a timely basis.
MACRO ECONOMIC AND POLITICAL RISKS
Uncertain global and domestic macro-economic and political conditions
 
could materially adversely affect our
results of operations and financial condition.
Uncertain global and domestic macro-economic and political conditions
 
that affect the economy and the economic
outlook of the United States, Europe, Asia and other parts of the
 
world could materially adversely affect our results
of operations and financial condition.
 
These uncertainties, include, among other things:
election results;
changes to laws and policies governing foreign trade (including, without
 
limitation, the United States-
Mexico-Canada Agreement (USMCA), the EU-UK Trade and Cooperation Agreement of December
2020 (that went into effect in 2021) and other international trade agreements);
greater restrictions on imports and exports;
supply chain disruptions;
changes in laws and policies governing health care or data privacy;
tariffs and sanctions;
changes to the relationship between the United States and China;
sovereign debt levels;
the inability of political institutions to effectively resolve actual or perceived
 
economic, currency or
budgetary crises or issues;
consumer confidence;
unemployment levels (and a corresponding increase in the uninsured
 
and underinsured population);
changes in regulatory and tax regulations;
interest rate fluctuations,
 
and strengthening of the dollar, which have and will continue to impact our
results of operations;
availability of capital;
increases in fuel and energy costs;
the effect of inflation on our ability to procure products and our ability to increase
 
prices over time and
pass through to our customers price increases we may receive;
changes in tax rates and the availability of certain tax deductions;
increases in labor costs;
increases in health care costs;
our aspirations, goals and disclosures related to environmental, social and
 
governance (ESG) matters;
the threat or outbreak of war, terrorism or public unrest (including, without limitation, the war in
Ukraine and the possibility of a wider European or global conflict);
 
and
 
changes in laws and policies governing manufacturing, development and
 
investment in territories and
countries where we do business.
31
Additionally, changes in government, government debt and/or budget crises may lead to reductions in government
spending in certain countries, which could reduce overall health care spending,
 
and/or higher income or corporate
taxes, which could depress spending overall.
 
Recessionary or inflationary conditions and depressed levels of
consumer and commercial spending may also cause customers to
 
reduce, modify, delay or cancel plans to purchase
our products and may cause suppliers to reduce their output or change
 
their terms of sale. We have experienced
inflationary pressures, including higher freight costs and interest expense.
 
Although inflation impacts both our
revenues and costs, the depth and breadth of our product portfolio often
 
allows us to offer lower-cost national brand
solutions or corporate brand alternatives to our more price-sensitive
 
customers who are unable to absorb price
increases, thus positioning us to protect our gross profit.
 
The strengthening of the dollar, likewise, has impacted
our revenues and costs, but neither inflation nor exchange rates have materially
 
impacted our results of operations
in fiscal year 2022.
 
We generally sell products to customers with payment terms.
 
If customers’ cash flow or
operating and financial performance deteriorate, or if they are unable to make scheduled
 
payments or obtain credit,
they may not be able to, or may delay, payment to us.
 
Likewise, for similar reasons suppliers may restrict credit or
impose different payment terms.
REGULATORY
 
AND LITIGATION RISKS
Failure to comply with existing and future regulatory requirements
 
could materially adversely affect our
business.
We strive to be compliant with the applicable laws, regulations and guidance described below in all material
respects, and believe we have effective compliance programs and other controls
 
in place to ensure substantial
compliance.
 
However, compliance is not guaranteed either now or in the future as certain laws, regulations
 
and
guidance may be subject to varying and evolving interpretations that could
 
affect our ability to comply, as well as,
future changes, additions and enforcement approaches, including in light
 
of political changes.
 
When we discover
situations of non-compliance we seek to remedy them and bring
 
the affected area back into compliance.
 
The Biden
Administration has indicated that it will be more aggressive in its pursuing
 
alleged violations of law, and it has
revoked certain guidance that would have limited governmental use of informal
 
agency guidance to pursue such
violations, as well as indicating it was more prepared to pursue individuals
 
for corporate law violations, including
an aggressive approach to anti-corruption activities.
 
Changes with respect to the applicable laws, regulations and
guidance described below may require us to update or revise our operations,
 
services, marketing practices, and
compliance programs and controls, and may impose additional and unforeseen
 
costs on us, pose new or previously
immaterial risks to us, or may otherwise have a material adverse effect on our business.
 
There can be no assurance
that current and future government regulations will not adversely
 
affect our business, and we cannot predict new
regulatory priorities, the form, content or timing of regulatory actions,
 
and their impact on the health care industry
and on our business and operations.
Global efforts toward healthcare cost containment continue to exert pressure on
 
product pricing.
 
In the United
States, in addition to other government efforts to control health care costs, there has been increased
 
scrutiny on drug
pricing and concurrent efforts to control or reduce drug costs by Congress, the President,
 
executive branch agencies
and various states.
 
At the state level, several states have adopted laws that require drug manufacturers
 
to provide
advance notice of certain price increases and to report information
 
relating to those price increases, while others
have taken legislative or administrative action to establish prescription drug
 
affordability boards or multi-payer
purchasing pools to reduce the cost of prescription drugs.
 
At the federal level, several related bills have been
introduced and regulations proposed which, if enacted or finalized,
 
respectively, would impact drug pricing and
related costs.
Under the Sunshine Act, we are required to collect and report detailed
 
information regarding certain financial
relationships we have with covered recipients, including physicians, dentists,
 
teaching hospitals, and certain other
non-physician practitioners.
 
We and our subsidiaries may be required to report information under certain state
transparency laws that address circumstances not covered by the Sunshine
 
Act, and some of these state laws, as
well as the federal law, can be unclear.
 
We are also subject to foreign regulations requiring transparency of certain
interactions between suppliers and their customers.
 
While we believe we have substantially compliant programs
and controls in place satisfying the above laws and requirements, such
 
compliance imposes additional costs on us
and the requirements are sometimes unclear.
 
In the United States, government actions to seek to increase health-
related price transparency may also affect our business.
32
Our business is subject to additional requirements under various local, state,
 
federal and international laws and
regulations applicable to the sale and distribution of, and third-party payment
 
for, pharmaceuticals and medical
devices and HCT/P products.
 
Among the federal laws with which we must comply are the Controlled Substances
Act, the FDC Act, the Federal Drug Quality and Security Act, including DSCSA,
 
Section 361 of the Public Health
Services Act and Section 401 of the Consolidated Appropriations Act
 
of the Social Security Act.
 
Among other
things, such laws, and the regulations promulgated thereunder:
 
regulate the introduction, manufacture, advertising, marketing and promotion,
 
sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or
 
recalling, reporting, and
distribution of, and record keeping for drugs, HCT/P products and
 
medical devices,
 
including
requirements with respect to unique medical device identifiers;
subject us to inspection by the FDA and DEA and similar state authorities;
regulate the storage, transportation and disposal of certain of our products
 
that are considered
hazardous materials;
require us to advertise and promote our drugs and devices in accordance
 
with applicable FDA
requirements;
require us to report average sales price (ASP) for drugs or biologicals payable
 
under Medicare Part B to
CMS with or without a Medicaid drug rebate agreement;
require registration with the FDA and the DEA and various state agencies;
require record keeping and documentation of transactions involving drug
 
products;
require us to design and operate a system to identify and report suspicious
 
orders of controlled
substances to the DEA and certain states;
require us to manage returns of products that have been recalled and subject
 
us to inspection of our
recall procedures and activities;
 
impose on us reporting requirements if a pharmaceutical, HCT/P product or
 
medical device causes
serious illness, injury or death;
require manufacturers, wholesalers, repackagers and dispensers of prescription
 
drugs to identify and
trace certain prescription drugs as they are distributed;
 
require the licensing of prescription drug wholesalers and third-party
 
logistics providers; and
 
mandate compliance with standards for the recordkeeping, storage
 
and handling of prescription drugs,
and associated reporting requirements.
The FDA has become increasingly active in addressing the regulation of
 
computer software and digital health
products intended for use in health care settings.
 
The Cures Act, signed into law on December 13, 2016, among
other things, amended the medical device definition to exclude certain software
 
from FDA regulation, including
certain clinical decision support software.
 
On September 27, 2019, the FDA issued a suite of guidance documents
on digital health products, which incorporated applicable Cures Act standards,
 
and on September 28, 2022, the
FDA subsequently finalized certain of these guidance documents, including
 
regarding the types of clinical decision
support tools and other software that are exempt from regulation by the FDA as
 
medical devices, and the FDA
continues to issue new guidance in this area.
 
Certain of our businesses involve the development and
 
sale of
software and related products to support physician and dental practice management,
 
and it is possible that the FDA
or foreign government authorities could determine that one or more of our products
 
is subject to regulation as a
medical device, which could subject us or one or more of our businesses to
 
substantial additional requirements,
costs and potential enforcement actions or liabilities for noncompliance with
 
respect to these products.
Applicable federal, state, local and foreign laws and regulations also may require
 
us to meet various standards
relating to, among other things, licensure or registration, program eligibility, procurement, third-party
reimbursement, sales and marketing practices, product integrity and
 
supply tracking to product manufacturers,
product labeling, personnel, privacy and security of health or other personal
 
information, installation, maintenance
and repair of equipment and the importation and exportation of products.
 
The FDA and DEA, as well as CMS
(including with respect to complex Medicare reimbursement requirements
 
applicable to our specialty home medical
supplies business), have recently increased their regulatory and enforcement
 
activities and, in particular, the DEA
has heightened enforcement activities due to the opioid crisis in the United States.
 
One of our businesses was
33
suspended in October 2021 by CMS from receiving payments from
 
Medicare, although it was permitted to continue
to perform and bill for Medicare services.
 
On September 30, 2022, CMS terminated the suspension of Medicare
payments.
 
As a result of the termination of the suspension, we recognized $4
 
million of previously deferred
revenue during the year ended December 31, 2022.
 
Our business is also subject to requirements of similar and
other foreign governmental laws and regulations affecting our operations abroad.
The failure to comply with any of these laws or regulations, or new interpretations
 
of existing laws and regulations,
or the imposition of any additional laws and regulations, could
 
materially adversely affect our business.
 
The costs
to us associated with complying with the various applicable statutes
 
and regulations, as they now exist and as they
may be modified, could be material.
 
Allegations by a governmental body that we have not complied with
 
these
laws could have a material adverse effect on our businesses.
 
While we believe that we are substantially compliant
with applicable laws and regulations, and believe we have adequate
 
compliance programs and controls in place to
ensure substantial compliance, if it is determined that we have not complied
 
with these laws, we are potentially
subject to warning letters, substantial civil and criminal penalties,
 
mandatory recall of product, seizure of product
and injunction, consent decrees and suspension or limitation of payments
 
to us, product sale and distribution.
 
If we
enter into settlement agreements to resolve allegations of non-compliance, we
 
could be required to make settlement
payments or be subject to civil and criminal penalties, including fines
 
and the loss of licenses.
 
Non-compliance
with government requirements could also adversely affect our ability to participate
 
in important federal and state
government health care programs, such as Medicare and Medicaid,
 
and damage our reputation.
The EU Medical Device Regulation may adversely affect our business.
 
The EU MDR, applicable since May 26, 2021, significantly modifies and intensifies
 
the regulatory compliance
requirements for the medical device industry as a whole.
 
Among other things, the EU MDR:
strengthens the rules on placing devices on the market and reinforce surveillance once
 
they are
available;
establishes explicit provisions on manufacturers’
 
responsibilities for the follow-up of the quality,
performance and safety of devices placed on the market;
improves the traceability of medical devices throughout the supply chain to the end-user
 
or patient
through a unique identification number;
sets up a central database to provide patients, healthcare professionals and
 
the public with
comprehensive information on products available in the EU;
 
strengthens rules for the assessment of certain high-risk devices, such
 
as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
identifies importers and distributors and medical device products through
 
registration in a database
(EUDAMED not due until 2024 and after as mentioned above).
 
In particular, the EU MDR imposes strict requirements for the confirmation that a product
 
meets the regulatory
requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the
distribution, marketing and sale of medical devices, including post-market surveillance.
 
Medical devices that have
been assessed and/or certified under the EU Medical Device Directive
 
may continue to be placed on the market
until 2024 (or until the expiry of their certificates, if applicable and earlier).
 
However, on January 6, 2023, the EU
Commission submitted a proposed amendment to extend the MDR transitional
 
periods until December 31, 2028,
for certain medical devices to ensure continued access to medical devices
 
for patients and to allow medical devices
already placed on the market in accordance with the current legal framework
 
to remain on the market. We continue
to monitor developments and whether the proposed amendment and
 
new deadlines will be approved by the
European Parliament and Council. Nevertheless, EU MDR requirements
 
regarding the distribution, marketing and
sale including quality systems and post-market surveillance have to be observed
 
by manufacturers, importers and
distributors as of the application date (i.e., May 26, 2021).
The modifications created by the EU MDR may have an impact on the
 
way we design and manufacture products
and the way we conduct our business in the European Economic Area.
34
If we fail to comply with laws and regulations relating to health care
 
fraud or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations,
 
which could materially
adversely affect our business.
 
Certain of our businesses are subject to federal and state (and similar
 
foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with
 
respect to their operations.
 
Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or fraudulent
 
claims for reimbursement to
federal, state and other health care payers and programs.
 
Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce the referral
 
of a patient or ordering,
purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of, items or services
 
that are
paid for by federal, state and other health care payers and programs.
 
Certain additional state and federal laws, such
as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other
health professionals from referring a patient to an entity with which the
 
physician (or family member) has a
financial relationship, for the furnishing of certain designated health services
 
(for example, durable medical
equipment and medical supplies), unless an exception applies.
 
Violations of Anti-Kickback statutes or the Stark
Law may be enforced as violations of the federal False Claims Act.
The fraud and abuse laws and regulations have been subject to heightened
 
enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators” who
 
serve as whistleblowers by filing
complaints in the name of the United States (and if applicable, particular states)
 
under applicable false claims laws,
and who may receive up to 30% of total government recoveries.
 
Penalties under fraud and abuse laws may be
severe, including treble damages and substantial civil penalties under
 
the federal False Claims Act, as well as
potential loss of licenses and the ability to participate in federal and state
 
health care programs, criminal penalties,
or imposition of a corporate compliance monitor, which could have a material adverse effect on our business.
 
Also,
these measures may be interpreted or applied by a prosecutorial, regulatory or
 
judicial authority in a manner that
could require us to make changes in our operations or incur substantial defense
 
and settlement expenses.
 
Even
unsuccessful challenges by regulatory authorities or private relators could result
 
in reputational harm and the
incurring of substantial costs.
 
Most states have adopted similar state false claims laws, and these state
 
laws have
their own penalties which may be in addition to federal False Claims
 
Act penalties, as well as other fraud and abuse
laws.
 
With respect to measures of this type, the United States government (among others) has expressed concerns
 
about
financial relationships between suppliers on the one hand and physicians,
 
dentists and other health care providers,
on the other.
 
As a result, we regularly review and revise our marketing practices
 
as necessary to facilitate
compliance.
In the EU, the Directive No. 2019/1937 of October 23, 2019,
on the protection of persons who report breaches of
Union law,
 
organizes the legal protection of whistleblowers. This Directive covers whistleblowers
 
reporting
breaches of certain EU laws, in particular as regards public health, the above-mentioned
 
Directive No. 2001/83,
Regulation No. 726/2004 or, as regards data protection, the GDPR. The Directive protects a wide range of
 
people
and includes former employees. All private companies with 50 or
 
more employees are required to create effective
internal reporting channels. Though it was required before December 17, 2021,
 
at the latest, the implementation of
this Directive by EU member states is still underway for some of
 
them. At the end of January 2023 and according
to information available on public sources, sixteen EU member states have
 
fully implemented it (France, Belgium,
Denmark, Finland, Latvia, The Netherlands, Ireland, Croatia, Cyprus, Greece, Lithuania,
 
Romania, Malta, Portugal,
Sweden and Bulgaria) while the process is ongoing in the others with varying
 
degrees of progress.
 
We also are subject to the requirements of the new Directive No. 2022/2464 on corporate sustainability reporting
("CSR Directive") adopted on December 14, 2022 and has to be
 
implemented by EU members states by July 6,
2024, at the latest. By amending Directives No. 2004/109, No. 2006/43, No.
 
2013/34 and Regulation No. 537/2014,
the CSR Directive strengthens the existing rules on non-financial
 
reporting by setting new requirements for large
companies to publish sustainability-related information and, in particular, disclose details about their
 
risks and
impacts on environmental matters.
We
also are subject to certain United States and foreign laws and regulations
 
concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
 
Act, German anti-corruption laws
35
and other anti-bribery laws and laws pertaining to the accuracy of our internal
 
books and records, which have been
the focus of increasing enforcement activity globally in recent years.
 
Our businesses are generally subject to
numerous other laws and regulations that could impact our financial
 
results, including, without limitation,
securities, antitrust, consumer protection, and marketing laws and regulations.
In the EU, both active and passive bribery are criminalized.
 
The EU Council Framework Decision 2003/568/JHA
of 22 July 2003
 
on combating corruption in the private sector
establishes more detailed rules on the liability of
legal persons and deterrent sanctions.
 
However, the liability of legal persons is regulated at a national level.
Failure to comply with fraud and abuse laws and regulations, and other
 
laws and regulations, could result in
significant civil and criminal penalties and costs, including the loss of
 
licenses and the ability to participate in
federal and state health care programs, and could have a material adverse
 
effect on our business.
 
We may
determine to enter into settlements, make payments, agree to consent decrees
 
or enter into other arrangements to
resolve such matters.
 
Intentional or unintentional failure to comply with consent decrees could
 
materially adversely
affect our business.
While we believe that we are substantially compliant with applicable fraud and
 
abuse and other laws and
regulations, and believe we have adequate compliance programs and controls
 
in place to ensure substantial
compliance, we cannot predict whether changes in applicable law, or interpretation of laws, or changes in our
services or marketing practices in response to changes in applicable law or
 
interpretation of laws, could have a
material adverse effect on our business.
If we fail to comply with laws and regulations relating to the collection,
 
storage and processing of sensitive
personal information or standards in electronic health records or transmissions,
 
we could be required to make
significant changes to our products, or incur substantial fines, penalties or
 
other liabilities.
 
Our businesses that involve physician and dental practice management
 
products, and our specialty home medical
supply business, include electronic information technology systems that
 
store and process personal health, clinical,
financial and other sensitive information of individuals.
 
These information technology systems may be vulnerable
to breakdown, wrongful intrusions, data breaches and malicious attack,
 
which could require us to expend
significant resources to eliminate these problems and address related security
 
concerns, and could involve claims
against us by private parties and/or governmental agencies.
We are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations
that protect the privacy and security of personal information, such as HIPAA, the Controlling the Assault of Non-
Solicited Pornography and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the
Federal Trade Commission Act, the CCPA, and the CPRA that becomes effective on January 1, 2023.
 
Laws and
regulations relating to privacy and data protection are continually evolving
 
and subject to potentially differing
interpretations.
 
These requirements
 
may not be harmonized, may be interpreted and applied in a
 
manner that is
inconsistent from one jurisdiction to another or may conflict with other
 
rules or our practices.
 
Our businesses’
failure to comply with these laws and regulations could expose us to breach of
 
contract claims, substantial fines,
penalties and other liabilities and expenses, costs for remediation and harm to
 
our reputation.
 
Also, evolving laws
and regulations in this area could restrict the ability of our customers to obtain,
 
use or disseminate patient
information, or could require us to incur significant additional costs to
 
re-design our products to reflect these legal
requirements, which could have a material adverse effect on our operations.
In addition, the European Parliament and the Council of the EU adopted
 
the GDPR effective from May 25, 2018,
which increased privacy rights for individuals (“Data Subjects”), including
 
individuals who are our customers,
suppliers and employees.
 
The GDPR extended the scope of responsibilities for data controllers and data
processors, and generally imposes increased requirements and potential
 
penalties on companies, such as us, that are
either established in the EU and process personal data of Data Subjects
 
(regardless the Data Subject location), or
that are not established in the EU but that offer goods or services to Data Subjects
 
in the EU or monitor their
behavior in the EU. Noncompliance can result in penalties of up to
 
the greater of EUR 20 million, or 4% of global
company revenues (sanction that may be public), and Data Subjects may
 
seek damages.
 
Member states may
individually impose additional requirements and penalties regarding certain
 
limited matters (for which the GDPR
left some room of flexibility), such as employee personal data. With respect to the personal data it protects,
 
the
36
GDPR requires, among other things, controller accountability, consents from Data Subjects or another acceptable
legal basis to process the personal data, notification within 72 hours of
 
a personal data breach where required, data
integrity and security, and fairness and transparency regarding the storage, use or other processing of the personal
data.
 
The GDPR also provides rights to Data Subjects relating notably
 
to information, access, rectification, erasure
of the personal data and the right to object to the processing.
 
On August 20, 2021, China promulgated the PIPL, which took effect on November
 
1, 2021.
 
The PIPL imposes
specific rules for processing personal information and it also specifies
 
that the law shall also apply to personal
information activities carried out outside China but for the purpose
 
of providing products or services to PRC
citizens.
 
Any non-compliance with these laws and regulations may subject
 
us to fines, orders to rectify or terminate
any actions that are deemed illegal by regulatory authorities, other penalties,
 
as well as reputational damage or legal
proceedings against us, which may affect our business, financial condition or results
 
of operations.
 
The PIPL
carries maximum penalties of CNY50 million or 5% of the annual revenue of
 
entities that process personal data.
In the United States, the CCPA, which increases the privacy protections afforded California residents, became
effective January 1, 2020.
 
The CCPA generally requires companies, such as us, to institute additional protections
regarding the collection, use and disclosure of certain personal information
 
of California residents.
 
Compliance
with the obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them.
 
Regulations were released in August of 2020, but there remains some
 
uncertainty about how the CCPA will be
interpreted by the courts and enforced by the regulators.
 
If we fail to comply with the CCPA or if regulators assert
that we have failed to comply with the CCPA, we may be subject to certain fines or other penalties and litigation,
any of which may negatively impact our reputation, require us to expend
 
significant resources, and harm our
business.
 
Furthermore, California voters approved the CPRA on November 3,
 
2020, which will amend and expand
the CCPA, including by providing consumers with additional rights with respect to their personal information, and
creating a new state agency to enforce CCPA and CPRA.
 
The CPRA came into effect on January 1, 2023, applying
to information collected by businesses on or after January 1, 2022.
Other states, as well as the federal government, have increasingly
 
considered the adoption of similarly expansive
personal privacy laws, backed
 
by significant civil penalties for non-compliance.
 
Virginia and Colorado were both
successful in passing privacy legislation in 2021, becoming effective on January
 
1, 2023 and July 1, 2023,
respectively.
 
Connecticut and Utah also passed comprehensive privacy laws
 
that will go into effect in July 1, 2023
and December 31, 2023.
 
While we believe we have substantially compliant programs and controls
 
in place to
comply with the GDPR, CCPA, PIPL and CPRA requirements, our compliance with data privacy and cybersecurity
laws is likely to impose additional costs on us, and we cannot predict whether
 
the interpretations of the
requirements, or changes in our practices in response to new requirements
 
or interpretations of the requirements,
could have a material adverse effect on our business.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records.
 
These customers and we are subject to laws, regulations and
 
industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records.
 
Our products or services may be used as part of these customers’
comprehensive data security programs, including in connection with their efforts to comply with
 
applicable data
privacy and security laws and contractual requirements.
 
Perceived or actual security vulnerabilities in our products
or services, or the perceived or actual failure by us or our customers who
 
use our products or services to comply
with applicable legal or contractual data privacy and security requirements,
 
may not only cause us significant
reputational harm, but may also lead to claims against us by our customers
 
and/or governmental agencies and
involve substantial fines, penalties and other liabilities and expenses
 
and costs for remediation.
Under the GDPR, health data belong to the category of “sensitive data” and benefit
 
from specific protections.
 
Processing of such data is generally prohibited, except for specific exceptions.
Certain of our businesses involve the manufacture and sale of EHR systems
 
and other products linked to
government supported incentive programs, where the EHR systems
 
must be certified as having certain capabilities
designated in evolving standards, such as those adopted by CMS and ONC.
 
In order to maintain certification of our
EHR products, we must satisfy the changing governmental standards.
 
If any of our EHR systems do not meet these
standards, yet have been relied upon by health care providers to receive
 
federal incentive payments, we may be
37
exposed to risk, such as under federal health care fraud and abuse
 
laws, including the False Claims Act.
 
While we
believe we are substantially in compliance with such certifications and with applicable
 
fraud and abuse laws and
regulations and that we have adequate compliance programs and controls
 
in place to ensure substantial compliance,
we cannot predict whether changes in applicable law, or interpretation of laws, or resulting changes in our, could
have a material adverse effect on our business.
 
Moreover, in order to satisfy our customers and comply with evolving legal requirements, our products
 
may need to
incorporate increasingly complex functionality, such as with respect to reporting and information blocking.
 
Although we believe we are positioned to accomplish this, the effort may involve
 
increased costs, and our failure to
implement product modifications, or otherwise satisfy applicable standards,
 
could have a material adverse effect on
our business.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged
 
information becomes
increasingly important.
 
As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
Tax legislation could materially adversely affect our financial results and tax liabilities.
 
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as
foreign jurisdictions.
 
From time to time, various legislative initiatives may be proposed
 
that could materially
adversely affect our tax positions.
 
There can be no assurance that our effective tax rate will not be
 
materially
adversely affected by legislation resulting from these initiatives.
 
In addition, tax laws and regulations are extremely
complex and subject to varying interpretations.
 
Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent,
 
there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be successful
 
in any such challenge.
We face inherent risk of exposure to product liability, intellectual property infringement and other claims in the
event that the use of the products we sell results in injury.
Our business involves a risk of product liability, intellectual property infringement and other claims in the ordinary
course of business, and from time to time we are named as a defendant
 
in cases as a result of our distribution of
products.
 
Additionally, we own interests in companies that manufacture certain dental products.
 
As a result, we
could be subject to the potential risk of product liability, intellectual property infringement or other claims relating
to the manufacture and distribution of products by those entities.
 
In addition, as our corporate brand business
continues to grow, purchasers of such products may increasingly seek recourse directly from us, rather than the
ultimate product manufacturer, for product-related claims.
 
Another potential risk we face in the distribution of our
products is liability resulting from counterfeit or tainted products infiltrating
 
the supply chain.
 
In addition, some of
the products that we transport and sell are considered hazardous materials.
 
The improper handling of such
materials or accidents involving the transportation of such materials could
 
subject us to liability or at least legal
action that could harm our reputation.
 
Customs policies or legislative import restrictions could hinder the Company’s ability to import goods necessary
to our operations on a timely basis and result in government enforcement
 
actions and/or sanctions.
Government-imposed import policies and legislation regulating the
 
import of goods and prohibiting the use of
forced labor or human trafficking could result in delays or the inability to import
 
goods in a timely manner that are
necessary to our operations, and such policies or legislation could also
 
result in financial penalties, other sanctions,
government enforcement actions and reputational harm.
 
While the Company has policies against and seeks to
avoid the import of goods that are manufactured in whole or in part by forced
 
labor or through human trafficking,
as a result of legislative and governmental policy initiatives, we may be subject
 
to increasing potential delays,
added costs, supply chain disruption and other restrictions.
38
GENERAL RISKS
Security risks generally associated with our information systems and our
 
technology products and services could
materially adversely affect our business, and our results of operations could be
 
materially adversely affected if
such products, services or systems (or third-party systems we rely on) are
 
interrupted, damaged by unforeseen
events, are subject to cyberattacks or fail for any extended period
 
of time.
We rely on information systems (IS) in our business to obtain, rapidly process, analyze, manage and store customer,
product, supplier and employee data to, among other things:
maintain and manage worldwide systems to facilitate the purchase and
 
distribution of thousands of
inventory items from numerous distribution centers;
receive, process and ship orders on a timely basis;
manage the accurate billing and collections for thousands of
 
customers;
process payments to suppliers; and
provide products and services that maintain certain of our customers’ electronic
 
medical or dental
records (including protected health information of their patients).
Information security risks have generally increased in recent years, and a cyberattack
 
that bypasses our IS security
systems (including third-party systems we rely on) causing an IS security breach
 
may lead to a material disruption
of our IS business systems (including third-party systems we rely on) and/or
 
the loss of business information, as
well as claims against us by affected parties and/or governmental agencies, and involve
 
fines and penalties, costs
for remediation, and substantial defense and settlement expenses.
 
In addition, we develop products and provide
services to our customers that are technology-based, and a cyberattack
 
that bypasses the IS security systems of our
products or services causing a security breach and/or perceived security
 
vulnerabilities in our products or services
could also cause significant loss of business and reputational harm, and actual
 
or perceived vulnerabilities may lead
to claims against us by our customers and/or governmental agencies.
 
In particular, certain of our practice
management products and services purchased by health care providers, such
 
as physicians and dentists, are used to
store and manage patient medical or dental records.
 
These customers are subject to laws and regulations which
require that they protect the privacy and security of those records, and our
 
products may be used as part of these
customers’ comprehensive data security programs, including in connection
 
with their efforts to comply with
applicable privacy and security laws.
 
Perceived or actual security vulnerabilities in our products or services,
 
or the
perceived or actual failure by us or our customers who use our products
 
to comply with applicable legal
requirements, may not only cause reputational harm and loss of business,
 
but may also lead to claims against us by
our customers and/or governmental agencies and involve damages, fines and
 
penalties, costs for remediation, and
substantial defense and settlement expenses.
 
In addition, a cyberattack on a third-party that we use to manage
 
a
portion of our information systems could result in the same effects.
 
Additionally, legislative or regulatory action
related to cybersecurity may increase our costs to develop or implement
 
new technology products and services.
 
From time to time, we have had to address immaterial security incidents
 
(“security incidents”).
 
There can be no
assurance that we will not experience material security incidents in the future. Security
 
incidents can be difficult to
detect and any delay in identifying them could increase their harm.
 
While we have implemented measures to
protect our IS systems, such measures may not prevent these events.
 
Any such security incidents could disrupt our
operations, harm our reputation or otherwise have a material adverse effect on our
 
business.
 
We have various
insurance policies, including cybersecurity insurance, covering risks and
 
in amounts that we consider adequate.
 
There can be no assurance that the insurance coverage we maintain is sufficient or
 
will be available in adequate
amounts or at a reasonable cost to cover costs and expenses related
 
to security incidents.
Furthermore, procedures and safeguards must continually evolve to meet new
 
IS challenges, and enhancing
protections, and conducting investigations and remediation, may impose additional
 
costs on us.
Finally, our business may be interrupted by shortfalls of IS systems providers engaged by our customers, such
 
as
Internet-based services upon which our customers depend to access certain of
 
our products.
 
39
Our global operations are subject to inherent risks that could materially adversely
 
affect our business.
Our global operations are subject to risks that could materially adversely affect our business.
 
The risks that our
global operations are subject to include, among other things:
 
difficulties and costs relating to staffing and managing foreign operations;
difficulties and delays inherent in sourcing products, establishing channels of distribution
 
and contract
manufacturing in foreign markets;
fluctuations in the value of foreign currencies (including, without limitation,
 
in connection with
Brexit);
uncertainties relating to the EU-UK Trade and Cooperation Agreement of December 2020, which
 
went
into effect in 2021, including for example potential implementation issues, potential
 
disputes over the
interpretation of the provisions of the Agreement and possible changes
 
to the Agreement restricting the
free movement of goods between the U.K. and the European Union;
longer payment cycles of foreign customers and difficulty of collecting receivables
 
in foreign
jurisdictions;
repatriation of cash from our foreign operations to the United States;
regulatory requirements, including,
 
without limitation, anti-bribery, anti-corruption and laws pertaining
to the accuracy of our internal books and records;
litigation risks, new or unanticipated litigation developments and
 
the status of litigation matters;
unexpected difficulties in importing or exporting our products and import/export
 
tariffs, quotas,
sanctions or penalties;
limitations on our ability under local laws to protect our intellectual property;
unexpected regulatory, legal, economic and political changes in foreign markets;
changes in tax regulations that influence purchases of capital equipment;
civil disturbances, geopolitical turmoil, including terrorism, war or political
 
or military coups;
 
risks associated with climate change, including physical risks such as
 
impacts from extreme weather
events and other potential physical consequences, regulatory and technological
 
requirements, market
developments, stakeholder expectations and reputational risk; and
public health emergencies, including COVID-19.
Our future success is substantially dependent upon our senior
 
management, and our revenues and profitability
depend on our relationships with capable sales personnel as well as
 
customers, suppliers and manufacturers of
the products that we distribute.
Our future success is substantially dependent upon the efforts and abilities of members
 
of our existing senior
management, particularly Stanley M. Bergman, Chairman and Chief Executive Officer.
 
The loss of the services of
Mr. Bergman could have a material adverse effect on our business. We have an employment agreement with Mr.
Bergman.
 
We do not currently have “key man” life insurance policies on any of our employees.
 
Competition for
senior management is intense, burnout and turn-over rates are increasing workplace
 
concerns during and after the
COVID-19 pandemic, and we may not be successful in attracting and
 
retaining key personnel.
 
Additionally, our
future revenues and profitability depend on our ability to maintain satisfactory
 
relationships with qualified sales
personnel as well as customers, suppliers and manufacturers.
 
If we fail to maintain our existing relationships with
such persons or fail to acquire relationships with such key persons in the
 
future, our business may be materially
adversely affected.
Disruptions in the financial markets may materially adversely affect the availability
 
and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with
 
respect to indebtedness will depend on
our operating and financial performance, which in turn is subject to prevailing
 
economic conditions and financial,
business and other factors beyond our control.
 
Disruptions in the financial markets may materially adversely affect
the availability and cost of credit to us.
40
Item 1B.
 
Unresolved Staff Comments
We have no unresolved comments from the staff of the SEC that were issued 180 days or more preceding the end of
our 2022 fiscal year.
ITEM 2. Properties
Within our health care distribution segment (for properties with more than 100,000 square feet) we lease
 
and/or
own approximately 5.8 million square feet of properties, consisting of distribution,
 
office, showroom,
manufacturing and sales space, in locations including the United States, Australia,
 
Austria, Belgium, Brazil,
Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan,
Liechtenstein, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland,
 
Portugal, Singapore, South
Africa, Spain, Sweden, Switzerland, Thailand,
 
United Arab Emirates and the United Kingdom.
 
Lease expirations
range from 2023 to 2041.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry on
our business.
 
We have additional operating capacity at certain distribution center facilities.
ITEM 3.
 
Legal Proceedings
 
For a discussion of Legal Proceedings, see
 
of the Notes to the
Consolidated Financial Statements included under Item 8.
ITEM 4.
 
Mine Safety Disclosures
Not applicable.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
41
PART
 
II
ITEM 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq Global Select Market tier of
 
the Nasdaq Stock Market, or Nasdaq,
under the symbol HSIC.
On February 7, 2023, there were approximately 88,000 holders of record of
 
our common stock and the last reported
sales price was $87.14.
 
A substantially greater number of holders of our common
 
stock are “street name” or
beneficial holders, whose shares are held by banks, brokers and other financial
 
institutions.
Purchases of Equity Securities by the Issuer
Our share repurchase program, announced on March 3, 2003, originally
 
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
 
stock, which represented
approximately 2.3% of the shares outstanding at the commencement
 
of the program.
 
Subsequent additional
increases totaling $4.5 billion, authorized by our Board of Directors,
 
to the repurchase program provide for a total
of $4.6 billion (including $400 million authorized on August 17, 2022) of shares
 
of our common stock to be
repurchased under this program.
As of December 31, 2022,
 
we had repurchased approximately $4.5 billion of common stock (87,180,669
 
shares)
under these initiatives, with $115 million available for future common stock share repurchases.
On February 8, 2023, our Board of Directors authorized the repurchase
 
of up to an additional $400 million in shares
of our common stock.
The following table summarizes repurchases of our common stock
 
under our stock repurchase program during the
fiscal quarter ended December 31, 2022:
Total Number
Maximum Number
Total
of Shares
of Shares
Number
Average
Purchased as Part
that May Yet
of Shares
Price Paid
of Our Publicly
Be Purchased Under
Fiscal Month
Purchased (1)
Per Share
Announced Program
Our Program (2)
9/25/2022 through 10/29/2022
-
-
-
5,703,693
10/30/2022 through 11/26/2022
1,249,083
$
76.29
1,249,083
3,741,485
11/27/2022 through 12/31/2022
2,333,467
81.30
2,333,467
1,439,841
3,582,550
3,582,550
(1)
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
 
This table excludes shares withheld from employees to satisfy minimum tax
withholding requirements for equity-based transactions.
Dividend Policy
We have not declared any cash or stock dividends on our common stock during fiscal years 2022 or 2021.
 
We
currently do not anticipate declaring any cash or stock dividends on our common
 
stock in the foreseeable future.
 
We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including
our share repurchase program.
 
Any declaration of dividends will be at the discretion of our Board of
 
Directors and
will depend upon the earnings, financial condition, capital requirements,
 
level of indebtedness, contractual
restrictions with respect to payment of dividends and other factors.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
hsic-20221231p42i0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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hsic-20221231p42i2
 
 
 
 
 
 
 
hsic-20221231p42i3
 
 
 
 
42
$50
$100
$150
$200
$250
$300
December
2017
December
2018
December
2019
December
2020
December
2021
December
2022
Henry Schein, Inc.
Dow Jones US Health Care Index
NASDAQ Composite Index
Stock Performance Graph
The graph below compares the cumulative total stockholder return
 
on $100 invested, assuming the reinvestment of
all dividends, on December 30, 2017, the last trading day before the
 
beginning of our 2018 fiscal year, through the
end of our 2022 fiscal year with the cumulative total return on $100
 
invested for the same period in the Dow Jones
U.S. Health Care Index and the Nasdaq Stock Market Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
 
RETURN
ASSUMES $100 INVESTED ON DECEMBER 30, 2017
ASSUMES DIVIDENDS REINVESTED
December 30,
December 29,
December 28,
December 26,
December 25,
December 31,
2017
2018
2019
2020
2021
2022
Henry Schein, Inc.
 
$
100.00
$
111.49
$
122.98
$
121.58
$
138.37
$
147.48
Dow Jones U.S. Health
 
Care Index
 
100.00
104.72
129.31
147.48
183.33
176.40
NASDAQ Stock Market
 
Composite Index
 
100.00
96.41
133.30
191.21
235.27
158.65
ITEM 6.
[Reserved]
43
ITEM 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of
 
Operations
Cautionary Note Regarding Forward-Looking Statements
 
In accordance with the “Safe Harbor” provisions of the Private Securities
 
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
 
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
 
expressed or implied
herein.
 
All forward-looking statements made by us are subject to
 
risks and uncertainties and are not guarantees of
future performance.
 
These forward-looking statements involve known and unknown
 
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
 
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such forward-looking
statements.
 
These statements are generally identified by the use of such
 
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
 
“to be,” “to make” or other comparable
terms.
 
Factors that could cause or contribute to such differences include, but are not limited
 
to, those discussed in
this Annual Report on Form 10-K, and in particular the risks discussed under
 
the caption “Risk Factors” in Item 1A
of this report and those that may be discussed in other documents we
 
file with the Securities and Exchange
Commission (SEC).
 
Forward looking statements include the overall impact of the Novel Coronavirus
 
Disease 2019
(COVID-19) on us, our results of operations, liquidity and financial condition
 
(including any estimates of the
impact on these items), the rate and consistency with which dental
 
and other practices resume or maintain normal
operations in the United States and internationally, expectations regarding personal protective equipment (“PPE”)
products and COVID-19 related product sales and inventory levels, whether
 
additional resurgences or variants of
the virus will adversely impact the resumption of normal operations, whether
 
supply chain disruptions will
adversely impact our business, the impact of integration and restructuring
 
programs as well as of any future
acquisitions, general economic conditions including exchange rates,
 
inflation and recession, and more generally
current expectations regarding performance in current and future periods.
 
Forward looking statements also include
the (i) our ability to have continued access to a variety of COVID-19
 
test types, expectations regarding COVID-19
test sales, demand and inventory levels, as well as the efficacy or relative efficacy of the test
 
results given that the
test efficacy has not been, or will not have been, independently verified under
 
normal FDA procedures and (ii)
potential for us to distribute the COVID-19 vaccines and ancillary supplies.
 
Risk factors and uncertainties that could cause actual results to differ materially from
 
current and historical results
include, but are not limited to: risks associated with COVID-19
 
and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns
 
and other natural disasters; our
dependence on third parties for the manufacture and supply of our products;
 
our ability to develop or acquire and
maintain and protect new products (particularly technology products) and
 
technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions,
 
dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; legal, regulatory, compliance,
cybersecurity, financial and tax risks associated with acquisitions, dispositions and joint ventures; certain provisions
in our governing documents that may discourage third-party acquisitions
 
of us; adverse changes in supplier rebates
or other purchasing incentives; risks related to the sale of corporate brand
 
products; effects of a highly competitive
(including, without limitation, competition from third-party online commerce
 
sites) and consolidating market; the
repeal or judicial prohibition on implementation of the Affordable Care Act; changes in the health
 
care industry;
risks from expansion of customer purchasing power and multi-tiered
 
costing structures; increases in shipping costs
for our products or other service issues with our third-party shippers; general
 
global and domestic macro-economic
and political conditions, including inflation, deflation, recession, fluctuations
 
in energy pricing and the value of the
U.S. dollar as compared to foreign currencies, and changes to other economic
 
indicators, international trade
agreements, potential trade barriers and terrorism; failure to comply with existing
 
and future regulatory
requirements; risks associated with the EU Medical Device Regulation; failure
 
to comply with laws and regulations
relating to health care fraud or other laws and regulations; failure to comply with
 
laws and regulations relating to
the collection, storage and processing of sensitive personal information
 
or standards in electronic health records or
transmissions; changes in tax legislation; risks related to product liability, intellectual property and other claims;
litigation risks;
 
new or unanticipated litigation developments and the status of litigation
 
matters; risks associated
with customs policies or legislative import restrictions; cyberattacks
 
or other privacy or data security breaches; risks
associated with our global operations; our dependence on our senior management,
 
employee hiring and retention,
and our relationships with customers, suppliers and manufacturers;
 
and disruptions in financial markets.
 
The order
in which these factors appear should not be construed to indicate their
 
relative importance or priority.
44
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control
or predict.
 
Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction
of actual results.
 
We undertake no duty and have no obligation to update forward-looking statements except as
required by law.
Where You
 
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
 
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created
significant volatility and disruption of global financial markets in
 
2020 and 2021.
 
The impact of COVID-19 had a
material adverse effect on our business, results of operations and cash flows in 2020.
 
During the year ended
December 25, 2021, patient traffic levels returned to levels approaching pre-pandemic
 
levels.
 
Demand for dental
products and certain medical products throughout 2021 was driven
 
by sales of PPE and COVID-19 test kits.
 
During the year ended December 31, 2022 we experienced a decrease
 
in the sales volume of PPE and COVID-19
test kits.
 
The volatility in sales of COVID-19 test kits has moderated, albeit at a significantly
 
lower level of sales
compared with 2021, resulting in us recording an inventory obsolescence
 
reserve of $17 million for COVID-19 test
kits during the year ended December 31, 2022.
While the U.S. economy has recently experienced inflationary
 
pressures and strengthening of the U.S dollar, their
impacts have not been material to our results of operations in the
 
fourth quarter or full year ended December 31,
2022, and we currently expect moderating of inflation and foreign currency
 
fluctuations.
 
Though inflation impacts
both our revenues and costs, the depth and breadth of our product portfolio
 
often allows us to offer lower-cost
national brand solutions or corporate brand alternatives to our more
 
price-sensitive customers who are unable to
absorb price increases, thus positioning us to protect our gross profit.
Our consolidated financial statements reflect estimates and assumptions
 
made by us that affect, among other things,
our goodwill, long-lived asset and definite-lived intangible asset valuation;
 
inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income
 
taxes and income tax
contingencies; the allowance for doubtful accounts; hedging activity; supplier
 
rebates; measurement of
compensation cost for certain share-based performance awards and cash
 
bonus plans; and pension plan
assumptions.
 
Due to the significant uncertainty surrounding the future impact
 
of COVID-19, our judgments
regarding estimates and impairments could change in the future.
 
There is an ongoing risk that the COVID-19
pandemic may again have a material adverse effect on our business, results of operations
 
and cash flows and may
result in a material adverse effect on our financial condition and liquidity.
 
However, the extent of the potential
impact cannot be reasonably estimated at this time.
45
Executive-Level Overview
 
Henry Schein, Inc. is a solutions company for health care professionals powered
 
by a network of people and
technology.
 
We believe we are the world’s
 
largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
 
We
serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and
 
ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics.
 
We
believe that we have a strong
brand identity due to our more than 90 years of experience distributing health
 
care products.
We are headquartered in Melville, New York,
 
employ approximately 22,000 people (of which approximately
10,700 are based outside of the United States) and have operations or
 
affiliates in 32 countries and territories.
 
Our
broad global footprint has evolved over time through our organic success as well as
 
through contribution from
strategic acquisitions.
We
have established strategically located distribution centers around
 
the world to enable us to better serve our
customers and increase our operating efficiency.
 
This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables
 
us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell under
 
our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products,
 
and manufacture certain
dental specialty products in the areas of implants, orthodontics and endodontics.
 
We
have achieved scale in these
global businesses primarily through acquisitions as manufacturers of these
 
products typically do not utilize a
distribution channel to serve customers.
We
conduct our business through two reportable segments: (i) health
 
care distribution and (ii) technology and
value-added services.
 
These segments offer different products and services to the same customer base.
 
Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools, government
 
and other
institutions.
 
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites, emergency
medical technicians, dialysis centers, home health, federal and state governments
 
and large enterprises, such as
group practices and integrated delivery networks, among other providers
 
across a wide range of specialties.
 
The health care distribution reportable segment, combining our global dental and
 
medical operating segments,
distributes consumable products, small equipment, laboratory products, large equipment, equipment
 
repair services,
branded and generic pharmaceuticals, vaccines, surgical products, dental specialty
 
products (including implant,
orthodontic and endodontic products), diagnostic tests, infection-control products,
 
PPE products and vitamins.
 
Our global technology and value-added services business provides software, technology
 
and other value-added
services to health care practitioners.
 
Our technology business offerings include practice management software
systems for dental and medical practitioners.
 
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
 
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
 
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
 
equipment sales and service and
other value-added services, allowing our customers to leverage the
 
combined value that we offer through a single
program.
 
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty
 
products and solutions (including
implant, orthodontic and endodontic products).
 
In addition, customers have access to a wide range of services,
including software and other value-added services.
 
46
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment.
 
This trend has benefited
distributors capable of providing a broad array of products and services at low
 
prices.
 
It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying
 
groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors
 
capable of providing
specialized management information support.
 
We
believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can
 
enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies
 
and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the COVID-19
 
pandemic, the current economic
environment and continued economic and public health uncertainty.
 
Since the onset of the COVID-19 pandemic in
early 2020, we have been carefully monitoring its impact on our global
 
operations and have taken appropriate steps
to minimize the risk to our employees.
 
We
have seen and expect to continue to see changes in demand trends
 
for
some of our products and services, supply chain challenges and labor
 
challenges, as rates of infection fluctuate, new
strains or variants of COVID-19 emerge and spread, governments adapt their approaches
 
to combatting the virus,
and local conditions change across geographies.
 
As a result, we expect to see continued volatility.
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse.
 
The industry ranges from sole practitioners working out of
 
relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage
 
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
 
care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid,
 
reliable and substantially complete
order fulfillment.
 
The purchasing decisions within an office-based health care practice are typically
 
made by the
practitioner or an administrative assistant.
 
Supplies and small equipment are generally purchased from more
 
than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base.
 
Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations.
 
In many cases, purchasing decisions for consolidated groups
 
are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We
believe that consolidation within the industry will continue to
 
result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to
 
combine with larger companies that can
provide growth opportunities.
 
This consolidation also may continue to result in distributors seeking
 
to acquire
companies that can enhance their current product and service offerings or provide
 
opportunities to serve a broader
customer base.
Our approach to acquisitions and joint ventures has been to expand our role as
 
a provider of products and services
to the health care industry.
 
This trend has resulted in our expansion into service areas that complement
 
our existing
operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
 
businesses.
As industry
 
consolidation continues, we believe that we are positioned to capitalize
 
on this trend, as we believe we
have the ability to support increased sales through our existing infrastructure, although
 
there can be no assurances
that we will be able to successfully accomplish this.
 
We
also have invested in expanding our sales/marketing
47
infrastructure to include a focus on building relationships with decision
 
makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible
 
candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our
 
role as a provider of products and services to
the health care industry.
 
There can be no assurance that we will be able to successfully pursue
 
any such
opportunity or consummate any such transaction, if pursued.
 
If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there
 
can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth
 
due to the aging population,
increased health care awareness, the proliferation of medical technology
 
and testing, new pharmacology treatments,
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage.
 
In addition, the physician market continues to benefit from
 
the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’
 
offices.
According to the U.S. Census Bureau’s International Database, between 2022 and 2032, the 45 and older
population is expected to grow by approximately 11%.
 
Between 2022 and 2042, this age group is expected to grow
by approximately 21%.
 
This compares with expected total U.S. population growth
 
rates of approximately 6%
between 2022 and 2032 and approximately 12% between 2022 and 2042.
According to the U.S. Census Bureau’s International Database, in 2022 there are approximately seven million
Americans aged 85 years or older, the segment of the population most in need of long-term care
 
and elder-care
services.
 
By the year 2050, that number is projected to nearly triple to approximately
 
19 million.
 
The population
aged 65 to 84 years is projected to increase by approximately 27% during
 
the same period.
As a result of these market dynamics, annual expenditures for health care services
 
continue to increase in the
United States.
 
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
 
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
 
that total national health care spending reached
approximately $4.3 trillion in 2021, or 18.3% of the nation’s gross domestic product, the benchmark
 
measure for
annual production of goods and services in the United States.
 
Health care spending is projected to reach
approximately $6.2 trillion in 2028, or 19.7% of the nation’s projected gross domestic product.
Government
 
Our businesses are generally subject to numerous laws and regulations that could
 
impact our financial performance,
and failure to comply with such laws or regulations could have a
 
material adverse effect on our business.
 
See “
” for a discussion of laws, regulations and governmental activity
that may affect our results of operations and financial condition.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
48
Results of Operations
Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in
our 2021 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results
of operations for the fiscal year 2021 compared to fiscal year 2020.
The following tables summarize the significant components of our operating
 
results and cash flows from continuing
operations:
Years
 
Ended
December 31,
December 25,
December 26,
2022
2021
2020
Operating results:
Net sales
$
12,647
$
12,401
$
10,119
Cost of sales
8,816
8,727
7,303
Gross profit
 
3,831
3,674
2,816
Operating expenses:
Selling, general and administrative
 
2,771
2,634
2,086
Depreciation and amortization
182
180
163
Restructuring and integration costs
131
8
32
Operating income
$
747
$
852
$
535
Other expense, net
 
$
(26)
$
(21)
$
(35)
Gain on sale of equity investments, net of tax
-
7
2
Net income from continuing operations
566
660
419
Income from discontinued operations, net of tax
-
-
1
Net income attributable to Henry Schein, Inc.
538
631
404
Years
 
Ended
December 31,
December 25,
December 26,
2022
2021
2020
Cash flows:
 
Net cash provided by operating activities from continuing operations
$
602
$
710
$
594
Net cash used in investing activities from continuing operations
(276)
(677)
(115)
Net cash used in financing activities from continuing operations
(315)
(333)
(182)
49
Plans of Restructuring and Integration Costs
On August 1, 2022, we committed to a restructuring plan focused on
 
funding the priorities of the strategic plan and
streamlining operations and other initiatives to increase efficiency.
 
We expect this initiative to extend through
2023.
 
We are currently unable in good faith to make a determination of an estimate of the amount or range of
amounts expected to be incurred in connection with these activities, both with
 
respect to each major type of cost
associated therewith and with respect to the total cost, or an estimate of the
 
amount or range of amounts that will
result in future cash expenditures.
During the year ended December 31, 2022, we recorded restructuring charges of $128
 
million primarily related to
severance and employee-related costs, accelerated amortization of right-of-use
 
lease assets, impairment of other
long-lived assets and lease exit costs.
 
During the three months ended December 31, 2022, in connection with our restructuring
 
plan, we vacated one of
the buildings at our corporate headquarters in Melville NY, which resulted in an accelerated amortization of right-
of-use lease asset of $34 million.
 
We also initiated the disposal of a non-profitable US business and recorded
related costs of $49 million which primarily consisted of impairment of
 
intangible assets and goodwill, inventory
impairment, and severance and employee-related costs.
 
These expenses are included in the $128 million of
restructuring charges discussed above.
 
The disposal is expected to be completed in the first quarter of 2023.
 
On August 26, 2022, we acquired Midway Dental Supply.
 
In connection with this acquisition, during the year
ended December 31, 2022, we recorded integration costs of $3 million related
 
to one-time employee and other
costs, as well as restructuring charges of $9 million, which are included in the
 
$128 million of restructuring charges
discussed above.
On November 20, 2019, we committed to a contemplated restructuring
 
initiative intended to mitigate stranded costs
associated with the spin-off of our animal health business and to rationalize operations
 
and provide expense
efficiencies.
 
These activities were originally expected to be completed by
 
the end of 2020 but we extended them to
the end of 2021 in light of the changes to the business environment brought
 
on by the COVID-19 pandemic.
 
The
restructuring activities under this prior initiative were completed
 
in 2021.