UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the

quarterly

 period ended

April 1, 2023

or

☐

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

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 (§232.405 of this chapter) 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

No

☒

As of May 1, 2023,

there were

131,003,202

 shares of the registrant’s common stock outstanding.

HENRY SCHEIN, INC.

INDEX

Page

3

4

5

6

7

8

8

9

10

11

12

14

16

18

19

20

21

23

23

25

26

26

27

39

39

40

40

40

41

42

See accompanying notes.

3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

April 1,

December 31,

2023

2022

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents 

$

126

$

117

Accounts receivable, net of allowances for credit losses of $

65

 and $

65

1,470

1,442

Inventories, net

1,918

1,963

Prepaid expenses and other 

438

466

Total current assets 

3,952

3,988

Property and equipment, net 

396

383

Operating lease right-of-use assets

280

284

Goodwill 

2,917

2,893

Other intangibles, net 

548

587

Investments and other

479

472

Total assets 

$

8,572

$

8,607

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND

STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 

$

855

$

1,004

Bank credit lines 

236

103

Current maturities of long-term debt 

55

6

Operating lease liabilities

73

73

Accrued expenses:

Payroll and related 

231

314

Taxes 

156

132

Other 

566

592

Total current liabilities 

2,172

2,224

Long-term debt 

1,021

1,040

Deferred income taxes 

40

36

Operating lease liabilities

274

275

Other liabilities 

368

361

Total liabilities 

3,875

3,936

Redeemable noncontrolling interests 

570

576

Commitments and contingencies 

(nil)

(nil)

Stockholders' equity:

Preferred stock, $

0.01

 par value,

1,000,000

 shares authorized,

none

 outstanding

-

-

Common stock, $

0.01

 par value,

480,000,000

 shares authorized,

131,196,783

 outstanding on April 01, 2023 and

131,792,817

 outstanding on December 31, 2022

1

1

Additional paid-in capital

-

-

Retained earnings 

3,684

3,678

Accumulated other comprehensive loss 

(213)

(233)

Total Henry Schein, Inc. stockholders' equity

3,472

3,446

Noncontrolling interests

655

649

Total stockholders' equity 

4,127

4,095

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

8,572

$

8,607

See accompanying notes.

4

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except share and per share data)

(unaudited)

Three Months Ended

April 1,

March 26,

2023

2022

Net sales 

$

3,060

$

3,179

Cost of sales 

2,094

2,206

Gross profit 

966

973

Operating expenses: 

Selling, general and administrative 

717

682

Depreciation and amortization

44

47

Restructuring costs 

30

-

Operating income 

175

244

Other income (expense): 

Interest income 

3

2

Interest expense 

(14)

(7)

Other, net 

(1)

-

Income before taxes, equity in earnings of affiliates and noncontrolling interests

163

239

Income taxes 

(39)

(57)

Equity in earnings of affiliates 

4

4

Net income 

128

186

Less: Net income attributable to noncontrolling interests 

(7)

(5)

Net income attributable to Henry Schein, Inc. 

$

121

$

181

Earnings per share attributable to Henry Schein, Inc.: 

Basic 

$

0.92

$

1.31

Diluted 

$

0.91

$

1.30

Weighted-average common shares outstanding: 

Basic 

131,365,789

137,296,581

Diluted 

133,039,886

139,237,472

See accompanying notes.

5

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions) 

(unaudited)

Three Months Ended

April 1,

March 26,

2023

2022

Net income 

$

128

$

186

Other comprehensive income, net of tax:

Foreign currency translation gain

25

3

Unrealized gain (loss) from foreign currency hedging activities 

(3)

1

Other comprehensive income, net of tax 

22

4

Comprehensive income 

150

190

Less: Comprehensive income attributable to noncontrolling interests: 

Net income 

(7)

(5)

Foreign currency translation gain

(2)

(1)

Comprehensive income attributable to noncontrolling interests 

(9)

(6)

Comprehensive income attributable to Henry Schein, Inc. 

$

141

$

184

See accompanying notes.

6

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN 

STOCKHOLDERS’ EQUITY

(in millions, except share data)

(unaudited)

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Shares

Amount

Capital

Earnings

Income / (Loss)

 Interests

Equity

Balance, December 31, 2022

131,792,817

$

1

$

-

$

3,678

$

(233)

$

649

$

4,095

Net income (excluding $

4

 attributable to redeemable

noncontrolling interests)

-

-

-

121

-

3

124

Foreign currency translation gain (excluding gain of $

2

attributable to redeemable noncontrolling interests)

-

-

-

-

23

-

23

Unrealized loss from foreign currency hedging activities,

net of tax benefit of $

1

-

-

-

-

(3)

-

(3)

Change in fair value of redeemable securities

-

-

3

-

-

-

3

Initial noncontrolling interests and adjustments related to

business acquisitions

-

-

-

-

-

3

3

Repurchases and retirement of common stock

(1,223,919)

-

(13)

(87)

-

-

(100)

Stock-based compensation expense

1,016,300

-

10

-

-

-

10

Stock issued upon exercise of stock options

10,779

-

1

-

-

-

1

Shares withheld for payroll taxes

(399,194)

-

(29)

-

-

-

(29)

Transfer of charges in excess of capital

-

-

28

(28)

-

-

-

Balance, April 1, 2023

131,196,783

$

1

$

-

$

3,684

$

(213)

$

655

$

4,127

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Shares

Amount

Capital

Earnings

Income / (Loss)

 Interests

Equity

Balance, December 25, 2021

137,145,558

$

1

$

-

$

3,595

$

(171)

$

638

$

4,063

Net income (excluding $

4

 attributable to redeemable

noncontrolling interests)

-

-

-

181

-

1

182

Foreign currency translation gain (excluding gain of $

1

attributable to redeemable noncontrolling interests)

-

-

-

-

2

-

2

Unrealized gain from foreign currency hedging activities,

net of tax of $

1

-

-

-

-

1

-

1

Purchase of noncontrolling interests

-

-

-

-

-

(7)

(7)

Change in fair value of redeemable securities

-

-

(3)

-

-

-

(3)

Stock-based compensation expense

876,161

-

12

-

-

-

12

Stock issued upon exercise of stock options

26,233

-

2

-

-

-

2

Shares withheld for payroll taxes

(336,331)

-

(28)

-

-

-

(28)

Settlement of stock-based compensation awards

(2,812)

-

-

-

-

-

-

Transfer of charges in excess of capital

-

-

17

(17)

-

-

-

Balance, March 26, 2022

137,708,809

$

1

$

-

$

3,759

$

(168)

$

632

$

4,224

See accompanying notes.

7

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

Three Months Ended

April 1,

March 26,

2023

2022

Cash flows from operating activities:

Net income 

$

128

$

186

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 

52

55

Non-cash restructuring charges

7

-

Stock-based compensation expense

10

12

Provision for losses on trade and other accounts receivable 

1

1

Provision for (benefit from) deferred income taxes

2

(3)

Equity in earnings of affiliates

(4)

(4)

Distributions from equity affiliates 

2

4

Changes in unrecognized tax benefits 

1

4

Other 

(1)

(7)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable 

(20)

16

Inventories 

63

(9)

Other current assets 

29

26

Accounts payable and accrued expenses 

(243)

(188)

Net cash provided by operating activities

27

93

Cash flows from investing activities:

Purchases of fixed assets 

(31)

(19)

Payments related to equity investments and business acquisitions,

net of cash acquired 

(1)

(5)

Proceeds from loan to affiliate

2

4

Other 

(9)

(7)

Net cash used in investing activities 

(39)

(27)

Cash flows from financing activities:

Net change in bank borrowings 

132

30

Proceeds from issuance of long-term debt 

31

-

Principal payments for long-term debt 

(1)

(53)

Proceeds from issuance of stock upon exercise of stock options 

1

2

Payments for repurchases and retirement of common stock 

(100)

-

Payments for taxes related to shares withheld for employee taxes

(30)

(26)

Distributions to noncontrolling shareholders

(4)

(5)

Acquisitions of noncontrolling interests in subsidiaries 

(8)

(10)

Net cash provided by (used in) financing activities

21

(62)

Effect of exchange rate changes on cash and cash equivalents

-

4

Net change in cash and cash equivalents

9

8

Cash and cash equivalents, beginning of period 

117

118

Cash and cash equivalents, end of period 

$

126

$

126

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

8

Note 1 – Basis of Presentation

Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our

controlled subsidiaries (“we”, “us” or “our”). All intercompany accounts and transactions are eliminated in

consolidation. Investments in unconsolidated affiliates in which we have the ability to influence the operating or

financial decisions are accounted for under the equity method. Certain prior period amounts have been reclassified

to conform to the current period presentation. These reclassifications, individually and in the aggregate, did not

have a material impact on our condensed consolidated financial condition, results of operations or cash flows.

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with

accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and

with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the

information and footnote disclosures required by U.S. GAAP for complete financial statements.

The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited

consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report

on Form 10-K for the year ended December 31, 2022 and with the information contained in our other publicly-

available filings with the Securities and Exchange Commission. The condensed consolidated financial statements

reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and

financial position for the interim periods presented. All such adjustments are of a normal recurring nature. 

The preparation of financial statements in conformity with accounting principles generally accepted in the United

States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of

operations for the three months ended April 1, 2023 are not necessarily indicative of the results to be expected for

any other interim period or for the year ending December 30, 2023.

We consolidate the results of operations and financial position of a trade accounts receivable securitization which

we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to

direct activities that most significantly affect the economic performance and have the obligation to absorb the

majority of the losses or benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as

collateral to the related debt. The creditors have recourse to us for losses on these trade accounts receivable. At

April 1, 2023 and December 31, 2022, certain trade accounts receivable that can only be used to settle obligations

of this VIE were $

555

 million and $

327

 million, respectively, and the liabilities of this VIE where the creditors

have recourse to us were $

420

 million and $

255

 million, respectively.

Our condensed 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. There is an ongoing risk that the consequences of 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

.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

9

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted and Recently Issued Accounting

Standards

Critical Accounting Policies 

There have been no material changes in our critical accounting policies during the three months ended April 1,

2023, as compared to the critical accounting policies described in Item 7 of our Annual Report on Form 10-K for

the year ended December 31, 2022.

Recently Issued Accounting Standards

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update

(“ASU”) No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance

Program Obligations,” which will increase transparency of supplier finance programs by requiring entities that use

such programs in connection with the purchase of goods and services to disclose certain qualitative and quantitative

information about such programs. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022,

including interim periods within those fiscal years, except for amended roll forward information, which is effective

for fiscal years beginning after December 15, 2023. We do not expect that the requirements of this guidance will

have a material impact on our condensed consolidated financial statements.

In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the

Sunset Date of Topic 848,” which extends the period of application of temporary optional expedients from

December 21, 2022 to December 31, 2024. We do not expect that the requirements of this guidance will have a

material impact on our condensed consolidated financial statements.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

10

Note 3 – Net Sales from Contracts with Customers

Net sales are recognized in accordance with policies disclosed in Item 8 of our Annual Report on Form 10-K for

the year ended December 31, 2022.

Disaggregation of Net Sales

The following table disaggregates our net sales by reportable segment and geographic area:

Three Months Ended 

April 1, 2023

North America

International

Global

Net sales:

Health care distribution

Dental 

$

1,144

$

754

$

1,898

Medical 

951

20

971

Total health care distribution

2,095

774

2,869

Technology and value-added services

166

25

191

Total net sales 

$

2,261

$

799

$

3,060

Three Months Ended 

March 26, 2022

North America

International

Global

Net sales:

Health care distribution

Dental 

$

1,105

$

723

$

1,828

Medical 

1,150

22

1,172

Total health care distribution

2,255

745

3,000

Technology and value-added services

156

23

179

Total net sales 

$

2,411

$

768

$

3,179

Deferred Revenue

During the three months ended April 1, 2023, we recognized in net sales $

35

 million of the amounts that were

previously deferred at December 31, 2022. At December 31, 2022, the current portion of contract liabilities of $

86

million was reported in accrued expenses: other, and $

8

 million related to non-current contract liabilities was

reported in other liabilities. At April 1, 2023, the current and non-current portion of contract liabilities were $

85

million and $

9

 million, respectively.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

11

Note 4

 –

Segment Data

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. Our

dental and medical groups serve practitioners in

32

 countries worldwide.

The health care distribution reportable segment aggregates our global dental and medical operating segments. This

segment distributes consumable products, dental specialty products, small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic

tests, infection-control products, personal protective equipment (“PPE”) and vitamins. 

Our global technology and value-added services reportable segment provides software, technology and other value-

added services to health care practitioners. Our technology 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 continuing education services for practitioners.

The following tables present information about our reportable and operating segments:

Three Months Ended

April 1,

March 26,

2023

2022

Net Sales:

Health care distribution

(1)

Dental 

$

1,898

$

1,828

Medical 

971

1,172

Total health care distribution

2,869

3,000

Technology and value-added services

(2)

191

179

Total 

$

3,060

$

3,179

(1)

Consists of 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.

(2)

Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing

education services for practitioners, consulting and other services.

Three Months Ended

April 1,

March 26,

2023

2022

Operating Income:

Health care distribution 

$

145

$

211

Technology and value-added services 

30

33

Total

$

175

$

244

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

12

Note 5

 –

Business Acquisitions

In connection with our business acquisitions, the major classes of assets and liabilities to which we generally

allocate acquisition consideration to, excluding goodwill, include identifiable intangible assets (i.e., customer

relationships and lists, trademarks and trade names, product development and non-compete agreements), inventory

and accounts receivable. The estimated fair value of identifiable intangible assets is based on critical judgments

and assumptions derived from analysis of market conditions, including discount rates, projected revenue growth

rates (which are based on historical trends and assessment of financial projections), estimated customer attrition and

projected cash flows. These assumptions are forward-looking and could be affected by future economic and market

conditions.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the

acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and

subject to refinement. As a result, within 12 months following the date of acquisition, or the measurement period,

we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill

within our condensed consolidated balance sheets. At the end of the measurement period or final determination of

the values of such assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are

recognized in our condensed consolidated statements of operations.

The accounting for certain of our acquisitions during the year ended December 31, 2022 had not been completed in

several areas, including but not limited to pending assessments of intangible assets, and contingent consideration

assets and liabilities. For the three months ended April 1, 2023 and March 26, 2022, there were no material

adjustments recorded in our condensed consolidated statements of income relating to changes in estimated values of

assets acquired, liabilities assumed and contingent consideration assets and liabilities.

2023 Acquisitions

During the three months ended April 1, 2023, we acquired the majority of a company within the health care

distribution segment. The impact of this acquisition was not considered material to our condensed consolidated

financial statements.

The following table aggregates the estimated fair value, as of the date of acquisition, of consideration paid and net

assets acquired for the acquisition during the three months ended April 1, 2023.

2023

Acquisition consideration:

Cash

$

8

Deferred consideration

1

Noncontrolling interests

2

Total consideration

$

11

Intangible assets

$

2

Total identifiable net assets

2

Goodwill

9

Total net assets acquired

$

11

The acquired goodwill is deductible for tax purposes.

During the three months ended April 1, 2023 the identifiable intangible assets acquired consisted of customer

relationships and lists of $

1

 million and trademarks and tradenames of $

1

 million. The estimated useful lives of

these intangible assets are

2 years

 and

5 years

, respectively.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

13

Acquisition Costs

During the three months ended April 1, 2023 and March 26, 2022 we incurred $

7

 million and $

1

 million,

respectively, in acquisition costs.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

14

Note 6 – Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date. The fair value hierarchy distinguishes between

(1) market participant assumptions developed based on market data obtained from independent sources (observable

inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best

information available in the circumstances (unobservable inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices

in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). 

The three levels of the fair value hierarchy are described as follows:

• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the

measurement date.

• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets;

quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted

prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by

observable market data by correlation or other means.

• Level 3— Inputs that are unobservable for the asset or liability.

The following section describes the fair values of our financial instruments and the methodologies that we used to

measure their fair values. 

Investments and notes receivable

There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable. 

Certain of our notes receivable contain variable interest rates. We believe the carrying amounts are a reasonable

estimate of fair value based on the interest rates in the applicable markets. 

Debt

The fair value of our debt (including bank credit lines, current maturities of long-term debt and long-term debt) is

classified as Level 3 within the fair value hierarchy, and as of April 1, 2023 and December 31, 2022 was estimated

at $

1,312

 million and $

1,149

 million, respectively. Factors that we considered when estimating the fair value of

our debt include market conditions, such as interest rates and credit spreads.

Derivative contracts

Derivative contracts are valued using quoted market prices and significant other observable inputs. We use

derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates. Our derivative

instruments primarily include foreign currency forward agreements related to certain intercompany loans, certain

forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a

portion of our euro-denominated foreign operations which are designated as net investment hedges and a total

return swap for the purpose of economically hedging our unfunded non-qualified supplemental executive retirement

plan and our deferred compensation plan.

The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract

rate to a published forward price of the underlying market rates, which is based on market rates for comparable

transactions and are classified within Level 2 of the fair value hierarchy. 

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

15

Total Return Swaps

The fair value for the total return swap is measured by valuing the underlying exchange traded funds of the swap

using market-on-close pricing by industry providers as of the valuation date and are classified within Level 2 of the

fair value hierarchy.

Redeemable noncontrolling interests

The values for redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy and are

based on recent transactions and/or implied multiples of earnings.

 See

 for additional information.

Assets measured on a non-recurring basis at fair value include Goodwill and Other intangibles, net, and are

classified as Level 3 within the fair value hierarchy.

The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring

basis classified under the appropriate level of the fair value hierarchy as of April 1, 2023 and December 31, 2022:

April 1, 2023

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

$

-

$

19

$

-

$

19

Derivative contracts undesignated

-

3

-

3

Total return swaps

-

1

-

1

Total assets 

$

-

$

23

$

-

$

23

Liabilities:

Derivative contracts designated as hedges

$

-

$

1

$

-

$

1

Derivative contracts undesignated

-

2

-

2

Total liabilities 

$

-

$

3

$

-

$

3

Redeemable noncontrolling interests 

$

-

$

-

$

570

$

570

December 31, 2022

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

$

-

$

23

$

-

$

23

Derivative contracts undesignated

-

4

-

4

Total assets 

$

-

$

27

$

-

$

27

Liabilities:

Derivative contracts designated as hedges

$

-

$

1

$

-

$

1

Derivative contracts undesignated

-

3

-

3

Total return swaps

-

3

-

3

Total liabilities 

$

-

$

7

$

-

$

7

Redeemable noncontrolling interests 

$

-

$

-

$

576

$

576

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

16

Note 7 – Debt

Bank Credit Lines

Bank credit lines consisted of the following:

April 1,

December 31,

2023

2022

Revolving credit agreement

$

-

$

-

Other short-term bank credit lines

236

103

Total 

$

236

$

103

Revolving Credit Agreement

On

August 20, 2021

, we entered into a $

1.0

 billion revolving credit agreement (the “Credit Agreement”). This

facility, which matures on

August 20, 2026

 replaced our $

750

 million revolving credit facility which was scheduled

to mature in April 2022. The interest rate is based on the USD LIBOR plus a spread based on our leverage ratio at

the end of each financial reporting quarter. Most LIBOR rates have been discontinued after December 31, 2021,

while the remaining LIBOR rates will be discontinued immediately after June 30, 2023. We do not expect the

discontinuation of LIBOR as a reference rate in our debt agreements to have a material adverse effect on our

financial position or to materially affect our interest expense. The Credit Agreement requires, among other things,

that we maintain certain maximum leverage ratios. Additionally, the Credit Agreement contains customary

representations, warranties and affirmative covenants as well as customary negative covenants, subject to

negotiated exceptions, on liens, indebtedness, significant corporate changes (including mergers), dispositions and

certain restrictive agreements. As of April 1, 2023 and December 31, 2022, we had

no

 borrowings under this

revolving credit facility, and there were $

9

 million and $

9

 million of letters of credit, respectively, provided to third

parties under the credit facility.

Other Short-Term Bank Credit Lines

As of April 1, 2023 and December 31, 2022, we had various other short-term bank credit lines available, with a

maximum borrowing capacity of $

404

 million and $

402

 million, respectively. As of April 1, 2023 and December

31, 2022, $

236

 million and $

103

 million, respectively, were outstanding. At April 1, 2023 and December 31, 2022,

borrowings under all of these credit lines had a weighted average interest rate of

7.55

% and

10.11

%, respectively.

Long-term debt

Long-term debt consisted of the following:

April 1,

December 31,

2023

2022

Private placement facilities 

$

699

$

699

U.S. trade accounts receivable securitization

360

330

Various collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates

ranging from

0.00

% to

3.65

% at April 1, 2023 and 

ranging from

0.00

% to

3.50

% at December 31, 2022

8

7

Finance lease obligations

9

10

Total 

1,076

1,046

Less current maturities 

(55)

(6)

Total long-term debt 

$

1,021

$

1,040

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

17

Private Placement Facilities

Our private placement facilities include

four

 insurance companies, have a total facility amount of $

1.5

 billion, and

are available on an uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from

time to time through

October 20, 2026

. The facilities allow us to issue senior promissory notes to the lenders at a

fixed rate based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each

possible issuance will be selected by us and can range from

five

 to

15 years

 (with an average life no longer than

12

years

). The proceeds of any issuances under the facilities will be used for general corporate purposes, including

working capital and capital expenditures, to refinance existing indebtedness, and/or to fund potential acquisitions. 

The agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain

restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in

ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the

applicable due dates.

The components of our private placement facility borrowings, which have a weighted average interest rate of

2.99

%, as of April 1, 2023 are presented in the following table:

Amount of

Borrowing

Borrowing 

Date of Borrowing

Outstanding

Rate

Due Date

January 20, 2012

$

50

3.45

%

January 20, 2024

December 24, 2012

50

3.00

December 24, 2024

June 16, 2017

100

3.42

June 16, 2027

September 15, 2017

100

3.52

September 15, 2029

January 2, 2018

100

3.32

January 2, 2028

September 2, 2020

100

2.35

September 2, 2030

June 2, 2021

100

2.48

June 2, 2031

June 2, 2021

100

2.58

June 2, 2033

Less: Deferred debt issuance costs

(1)

Total

$

699

U.S. Trade Accounts Receivable Securitization

We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as

an asset-backed securitization program with pricing committed for up to

three years

. This facility agreement has a

purchase limit of $

450

 million with

two

 banks as agents, expires on

December 15, 2025

.

As of April 1, 2023 and December 31, 2022, the borrowings outstanding under this securitization facility were $

360

million and $

330

 million, respectively. At April 1, 2023, the interest rate on borrowings under this facility was

based on the asset-backed commercial paper rate of

4.99

% plus

0.75

%, for a combined rate of

5.74

%. At

December 31, 2022, the interest rate on borrowings under this facility was based on the asset-backed commercial

paper rate of

4.58

% plus

0.75

%, for a combined rate of

5.33

%.

If our accounts receivable collection pattern changes due to customers either paying late or not making payments,

our ability to borrow under this facility may be reduced.

We are required to pay a commitment fee of

30

 to

35

 basis points depending upon program utilization.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

18

Note 8 – Income Taxes

For the three months ended April 1, 2023 our effective tax rate was

23.8

% compared to

24.0

% for the prior year

period. The difference between our effective tax rate and the federal statutory tax rate primarily relates to state and

foreign income taxes and interest expense as well as stock-based compensation.

The total amount of unrecognized tax benefits, which are included in “other liabilities” within our condensed

consolidated balance sheets, as of April 1, 2023 and December 31, 2022 was $

95

 million and $

94

 million,

respectively, of which $

80

 million and $

80

 million, respectively, would affect the effective tax rate if recognized. 

It is possible that the amount of unrecognized tax benefits will change in the next 12 months, which may result in a

material impact on our condensed consolidated statements of income.

All tax returns audited by the IRS are officially closed through 2018. The tax years subject to examination by the

IRS include years 2019 and forward. In addition, limited positions reported in the 2017 tax year are subject to IRS

examination. During the quarter ended December 25, 2021, we were notified by the IRS that tax year 2019 was

selected for examination.

The total amounts of interest and penalties are classified as a component of the provision for income taxes. The

amount of tax interest expense was $

1

 million for the three months ended April 1, 2023 and $

1

 million for the three

months ended March 26, 2022. The total amount of accrued interest is included in “other liabilities,” and was $

13

million as of April 1, 2023 and $

12

 million as of December 31, 2022. The amount of penalties accrued for during

the periods presented were not material to our condensed consolidated financial statements

.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

19

Note 9 – Plan of Restructuring

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 three months ended April 1, 2023, we recorded restructuring costs of $

30

 million primarily related to

severance and employee-related costs, accelerated amortization of right-of-use lease assets and fixed assets, and

other lease exit costs. This amount also includes $

1

 million related to the disposal of an unprofitable U.S. business,

initiated during 2022 and completed during the three months ended April 1, 2023.

Restructuring costs recorded for the three months ended April 1, 2023 consisted of the following (there were

no

restructuring costs for the three months ended March 26, 2022):

Three Months Ended April 1, 2023

Health-Care

Distribution

Technology and

Value-Added

Services

Total

Severance and employee-related costs

$

17

$

3

$

20

Accelerated depreciation and amortization

7

-

7

Exit and other related costs

1

1

2

Loss on disposal of a business

1

-

1

Total restructuring costs

$

26

$

4

$

30

The following table summarizes, by reportable segment, the activity related to the liabilities associated with our

restructuring initiatives for the period ended April 1, 2023. The remaining accrued balance of restructuring costs as

of April 1, 2023 is included in accrued expenses: other within our condensed consolidated balance sheet.

Technology and

Health Care

Value-Added

Distribution

Services

Total

Balance, December 31, 2022 

$

21

$

3

$

24

Restructuring costs

26

4

30

Non-cash asset impairment and accelerated

depreciation and amortization of right-of-use lease

assets and other long-lived assets

(7)

-

(7)

Cash payments and other adjustments 

(14)

(3)

(17)

Balance, April 1, 2023 

$

26

$

4

$

30

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

20

Note 10 – Legal Proceedings

Henry Schein, Inc. has been named as a defendant in multiple opioid related lawsuits (currently less than one-

hundred and seventy-five (

175

); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a

number of those cases). Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged

in a false advertising campaign to expand the market for such drugs and their own market share and that the entities

in the supply chain (including Henry Schein, Inc. and its affiliated companies) reaped financial rewards by refusing

or otherwise failing to monitor appropriately and restrict the improper distribution of those drugs. These actions

consist of some that have been consolidated within the MultiDistrict Litigation (“MDL”) proceeding In Re National

Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804) and are currently stayed, and others which

remain pending in state courts and are proceeding independently and outside of the MDL. At this time, the

following cases are set for trial: the action filed by DCH Health Care Authority, et al. in Alabama state court, which

has been designated a bellwether with

eight

 of

thirty-eight

 plaintiffs set for a jury trial on July 24, 2023; and the

action filed by Florida Health Sciences Center, Inc. (and

38

 other hospitals located throughout the State of Florida)

in Florida state court, which is currently scheduled for a jury trial in May 2025. Of Henry Schein’s 2022 net sales

of approximately $

12.6

 billion from continuing operations, sales of opioids represented less than

two-tenths

 of 1

percent. Opioids represent a negligible part of our business. We intend to defend ourselves vigorously against

these actions.

In August 2022, Henry Schein received a Grand Jury Subpoena from the United States Attorney’s Office for the

Western District of Virginia, seeking documents in connection with an investigation of possible violations of the

Federal Food, Drug & Cosmetic Act by Butler Animal Health Supply, LLC (“Butler”), a former subsidiary of

Henry Schein. The investigation relates to the sale of veterinary prescription drugs to certain customers. In

October 2022, Henry Schein received a second Grand Jury Subpoena from the United States Attorney’s Office for

the Western District of Virginia. The October Subpoena seeks documents relating to payments Henry Schein

received from Butler or Covetrus, Inc. (“Covetrus”). Butler was spun off into a separate company and became a

subsidiary of Covetrus in 2019 and is no longer owned by Henry Schein. We are cooperating with the

investigation.

From time to time, we may become a party to other legal proceedings, including, without limitation, product

liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may

in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out

of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,

in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our

consolidated financial position, liquidity or results of operations.

As of April 1, 2023, we had accrued our best estimate of potential losses relating to claims that were probable to

result in liability and for which we were able to reasonably estimate a loss. This accrued amount, as well as related

expenses, was not material to our financial position, results of operations or cash flows. Our method for

determining estimated losses considers currently available facts, presently enacted laws and regulations and other

factors, including probable recoveries from third parties.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

21

Note 11 – Stock-Based Compensation

Stock-based awards are provided to certain employees under the terms of our 2020 Stock Incentive Plan and to

non-employee directors under the terms of our 2015 Non-Employee Director Stock Incentive Plan (together, the

“Plans”). The Plans are administered by the Compensation Committee of the Board of Directors (the

“Compensation Committee”). Historically, equity-based awards to our employees have been granted solely in the

form of time-based and performance-based restricted stock units (“RSUs”) with the exception of our 2021 plan year

in which non-qualified stock options were issued in place of performance-based RSUs. In 2022, we granted time-

based and performance-based RSUs, as well as non-qualified stock options. For our 2023 plan year, we returned to

granting our employees equity-based awards solely in the form of time-based and performance-based RSUs. Our

non-employee directors receive equity-based awards solely in the form of time-based RSUs.

RSUs are stock-based awards granted to recipients with specified vesting provisions. In the case of RSUs, common

stock is delivered on or following satisfaction of vesting conditions. We issue RSUs to employees that primarily

vest (i) solely based on the recipient’s continued service over time, primarily with

four

-year cliff vesting and/or (ii)

based on achieving specified performance measurements and the recipient’s continued service over time, primarily

with

three

-year cliff vesting. RSUs granted to our non-employee directors primarily are granted with

12

-month

cliff vesting. For these RSUs, we recognize the cost as compensation expense on a straight-line basis.

With respect to time-based RSUs, we estimate the fair value based on our closing stock price on the date of

grant. With respect to performance-based RSUs, the number of shares that ultimately vest and are received by the

recipient is based upon our performance as measured against specified targets over a specified period, as

determined by the Compensation Committee. Although there is no guarantee that performance targets will be

achieved, we estimate the fair value of performance-based RSUs based on our closing stock price at time of grant.

Each of the Plans provide for certain adjustments to the performance measurement in connection with awards under

the Plans. With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such

performance measurement adjustments relate to significant events, including, without limitation, acquisitions,

divestitures, new business ventures, certain capital transactions (including share repurchases), differences in

budgeted average outstanding shares (other than those resulting from capital transactions referred to above),

restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting principles or in

applicable laws or regulations, changes in income tax rates in certain markets, foreign exchange fluctuations, the

financial impact either positive or negative, of the difference in projected earnings generated by COVID-19 test kits

(solely with respect to performance-based RSUs granted in the 2022 and 2023 plan years) and impairment charges

(solely with respect to performance-based RSUs granted in the 2023 plan year), and unforeseen events or

circumstances affecting us.

Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the

related compensation expense is adjusted upward or downward based upon our estimation of achieving such

performance targets. The ultimate number of shares delivered to recipients and the related compensation cost

recognized as an expense will be based on our actual performance metrics as defined under the Plans.

Stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price following

vesting of the stock options. Stock options were granted at an exercise price equal to our closing stock price on the

date of grant. Stock options issued in 2021 and 2022 vest

one-third

 per year based on the recipient’s continued

service, subject to the terms and conditions of the 2020 Stock Incentive Plan, are fully vested

three years

 from the

grant date and have a contractual term of

ten years

 from the grant date, subject to earlier termination of the term

upon certain events. Compensation expense for these stock options is recognized using a graded vesting method. 

We estimated the fair value of stock options using the Black-Scholes valuation model. During the three months

ended April 1, 2023 we did

no

t grant any stock options.

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

22

Our accompanying condensed consolidated statements of income reflect pre-tax share-based compensation expense

of $

10

 million ($

7

 million after-tax) and $

12

 million ($

9

 million after-tax) for the three months ended April 1, 2023

and March 26, 2022, respectively.

Total unrecognized compensation cost related to unvested awards as of April 1, 2023 was $

119

 million, which is

expected to be recognized over a weighted average period of approximately

2.7

 years.

Our accompanying condensed consolidated statements of cash flows present our stock-based compensation expense

as an adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In

the accompanying consolidated statements of cash flows, there were no benefits associated with tax deductions in

excess of recognized compensation as a cash inflow from financing activities for the three months ended April 1,

2023 and March 26, 2022, respectively.

We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in

the foreseeable future. The expected stock price volatility is based on implied volatilities from traded options on

our stock, historical volatility of our stock, and other factors. The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options. The

six

-year expected life of the options was determined using the simplified method for estimating the expected term

as permitted under SAB Topic 14. Estimates of fair value are not intended to predict actual future events or the

value ultimately realized by recipients of stock options, and subsequent events are not indicative of the

reasonableness of the original estimates of fair value made by us.

The following table summarizes the stock option activity during the three months ended April 1, 2023:

Stock Options

Weighted Average

Weighted Average

Aggregate

Exercise

Remaining Contractual 

 Intrinsic

Shares

Price

Life (in years)

 Value

Outstanding at beginning of period 

1,117,574

$

71.38

Granted 

-

-

Exercised 

(10,897)

62.71

Forfeited 

(5,911)

77.31

Outstanding at end of period 

1,100,766

$

71.44

8.3

$

13

Options exercisable at end of period 

572,132

$

68.11

Weighted Average

Weighted Average

Aggregate

Number of

Exercise

Remaining Contractual

Intrinsic

Options

Price

Life (in years)

Value

Vested or expected to vest

520,781

$

75.22

8.5

$

4

The following tables summarize the activity of our unvested RSUs for the three months ended April 1, 2023:

Time-Based Restricted Stock Units

Performance-Based Restricted Stock Units

Weighted Average 

Weighted Average 

Grant Date Fair

Intrinsic Value

Grant Date Fair

Intrinsic Value

Shares/Units

Value Per Share

Per Share

Shares/Units

Value Per Share

Per Share

Outstanding at beginning of period 

1,756,044

$

66.59

520,916

$

60.23

Granted 

395,750

77.75

465,260

79.66

Vested 

(387,302)

61.13

(627,596)

60.66

Forfeited 

(34,843)

68.16

(39,463)

74.48

Outstanding at end of period 

1,729,649

$

70.38

$

81.54

319,117

$

68.96

$

81.54

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

23

Note 12 – Redeemable Noncontrolling Interests

Some minority stockholders in certain of our subsidiaries have the right, at certain times, to require us to acquire

their ownership interest in those entities at fair value. Accounting Standards Codification Topic 480-10 is

applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the

outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put

option contained in contractual agreements. The components of the change in the redeemable noncontrolling

interests for the three months ended April 1, 2023 and the year ended December 31, 2022 are presented in the

following table:

April 1,

December 31,

2023

2022

Balance, beginning of period 

$

576

$

613

Decrease in redeemable noncontrolling interests due to acquisitions of

noncontrolling interests in subsidiaries

(8)

(31)

Increase in redeemable noncontrolling interests due to business

acquisitions

3

4

Net income attributable to redeemable noncontrolling interests 

4

21

Dividends declared 

(4)

(21)

Effect of foreign currency translation gain (loss) attributable to

redeemable noncontrolling interests 

2

(6)

Change in fair value of redeemable securities 

(3)

(4)

Balance, end of period 

$

570

$

576

Note 13 – Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income as

such amounts are recorded directly as an adjustment to stockholders’ equity. 

The following table summarizes our Accumulated other comprehensive loss, net of applicable taxes as of:

April 1,

December 31,

2023

2022

Attributable to Redeemable noncontrolling interests:

Foreign currency translation adjustment 

$

(35)

$

(37)

Attributable to noncontrolling interests:

Foreign currency translation adjustment 

$

(1)

$

(1)

Attributable to Henry Schein, Inc.:

Foreign currency translation adjustment

$

(213)

$

(236)

Unrealized gain from foreign currency hedging activities 

2

5

Pension adjustment loss 

(2)

(2)

Accumulated other comprehensive loss 

$

(213)

$

(233)

Total Accumulated other comprehensive loss 

$

(249)

$

(271)

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

24

The following table summarizes the components of comprehensive income, net of applicable taxes as follows:

Three Months Ended

April 1,

March 26,

2023

2022

Net income 

$

128

$

186

Foreign currency translation gain 

25

3

Tax effect 

-

-

Foreign currency translation gain

25

3

Unrealized gain (loss) from foreign currency hedging activities 

(4)

2

Tax effect 

1

(1)

Unrealized gain (loss) from foreign currency hedging activities 

(3)

1

Comprehensive income 

$

150

$

190

Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign

currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The

foreign currency translation gain during the three months ended April 1, 2023 and three months ended March 26,

2022 was primarily due to changes in foreign currency exchange rates of the Euro, British Pound, Australian

Dollar, Brazilian Real, New Zealand Dollar and Canadian Dollar.

The following table summarizes our total comprehensive income, net of applicable taxes as follows:

Three Months Ended

April 1,

March 26,

2023

2022

Comprehensive income attributable to

Henry Schein, Inc. 

$

141

$

184

Comprehensive income attributable to

noncontrolling interests 

3

1

Comprehensive income attributable to

Redeemable noncontrolling interests 

6

5

Comprehensive income 

$

150

$

190

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

25

Note 14

 –

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Henry Schein, Inc. by the weighted-

average number of common shares outstanding for the period. Our diluted earnings per share is computed similarly

to basic earnings per share, except that it reflects the effect of common shares issuable for presently unvested RSUs

and upon exercise of stock options using the treasury stock method in periods in which they have a dilutive effect.

A reconciliation of shares used in calculating earnings per basic and diluted share follows:

Three Months Ended

April 1,

March 26,

2023

2022

Basic 

131,365,789

137,296,581

Effect of dilutive securities:

Stock options and restricted stock units 

1,674,097

1,940,891

Diluted 

133,039,886

139,237,472

The number of antidilutive securities that were excluded from the calculation of diluted weighted average common

shares outstanding are as follows:

Three Months Ended

April 1,

March 26,

2023

2022

Stock options

422,190

76,597

Restricted stock units

18,305

70,923

Total anti-dilutive securities excluded from EPS computation

440,495

147,520

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except share and per share data)

 (unaudited

)

26

Note 15 – Supplemental Cash Flow Information 

Cash paid for interest and income taxes was:

Three Months Ended

April 1,

March 26,

2023

2022

Interest

$

13

$

8

Income taxes

21

21

During the three months ended April 1, 2023 and March 26, 2022, we had $

(4)

 million and $

2

 million of non-cash

net unrealized gains (losses) related to foreign currency hedging activities, respectively.

Note 16 – Related Party Transactions

In connection with the formation of Henry Schein One, LLC, our joint venture with Internet Brands, which was

formed on July 1, 2018, we entered into a

ten-year

 royalty agreement with Internet Brands whereby we will pay

Internet Brands approximately $

31

 million annually for the use of their intellectual property. During the three

months ended April 1, 2023 and March 26, 2022, we recorded $

8

 million and $

9

 million, respectively, in

connection with costs related to this royalty agreement. As of April 1, 2023 and December 31, 2022, Henry Schein

One, LLC had a net payable balance due to Internet Brands of $

12

 million and $

8

 million, respectively, comprised

of amounts related to results of operations and the royalty agreement. The components of this payable are recorded

within accrued expenses: other, within our condensed consolidated balance sheets.

During our normal course of business, we have interests in entities that we account for under the equity accounting

method. During the three months ended April 1, 2023 and March 26, 2022, we recorded net sales of $

8

 million and

$

12

 million, respectively, to such entities. During the three months ended April 1, 2023 and March 26, 2022, we

purchased $

2

 million and $

4

 million, respectively from such entities. At April 1, 2023 and December 31, 2022, we

had an aggregate of $

34

 million and $

36

 million, respectively, due from our equity affiliates, and $

6

 million and $

6

million, respectively, due to our equity affiliates.

Certain of our facilities related to our acquisitions are leased from employees and minority shareholders. These

leases are classified as operating leases and have a remaining lease term ranging from less than

one year

 to

9

years

. As of April 1, 2023, current and non-current liabilities associated with related party operating leases were $

4

million and $

15

 million, respectively. Related party leases represented

6.1

% and

5.6

% of the total current and non-

current operating lease liabilities. 

27

ITEM 2. 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

the documents we file with the Securities and Exchange Commission (SEC), including our Annual Report on Form

10-K. 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 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 and expectations regarding COVID-19 test sales, demand and inventory levels 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.

28

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

During the year ended December 31, 2022 we experienced a decrease in the sales of PPE and COVID-19 test kits. 

During the three months ended April 1, 2023, we continued to experience a decrease in the sales of PPE and

COVID-19 test kits compared with the same period in the prior year and we expect further decreases in sales in

2023 compared to the prior year.

The impact from inflation, including manufacturer price increases excluding PPE products, was slightly more

pronounced in Europe than in North America. 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 condensed 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. There is an ongoing risk that the consequences of 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.

29

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.