UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the
quarterly
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to ____________
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(I.R.S. Employer Identification No.)
incorporation or organization)
,
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(
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Nasdaq
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
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reports), and (2) has been subject to such filing requirements for the past 90 days.
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No
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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
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No
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
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Yes
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As of April 29, 2024,
there were
HENRY SCHEIN, INC.
INDEX
Page
3
4
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8
8
9
10
11
12
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16
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21
22
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25
27
27
29
29
30
31
44
44
45
45
45
46
46
47
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)
March 30,
December 30,
2024
2023
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of allowance for credit losses of $
Inventories, net of reserves of $
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Investments and other
Total assets
$
$
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
$
Bank credit lines
Current maturities of long-term debt
Operating lease liabilities
Accrued expenses:
Payroll and related
Taxes
Other
Total current liabilities
Long-term debt (1)
Deferred income taxes
Operating lease liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
Common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(239 )
(206 )
Total Henry Schein, Inc. stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
$
(1)
Amounts presented include balances held by our consolidated variable interest entity (“VIE”). At March 30, 2024 and December
30, 2023, includes trade accounts receivable of $
$
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except share and per share data)
(unaudited)
Three Months Ended
March 30,
April 1,
2024
2023
Net sales
$
$
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Restructuring costs
Operating income
Other income (expense):
Interest income
Interest expense
(30 )
(14 )
Other, net
(1 )
Income before taxes, equity in earnings of affiliates and noncontrolling interests
Income taxes
(32 )
(39 )
Equity in earnings of affiliates, net of tax
Net income
Less: Net income attributable to noncontrolling interests
(5 )
(7 )
Net income attributable to Henry Schein, Inc.
$
$
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
$
Diluted
$
$
Weighted-average common shares outstanding:
Basic
Diluted
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
March 30,
April 1,
2024
2023
Net income
$
$
Other comprehensive income, net of tax:
Foreign currency translation gain (loss)
(54 )
Unrealized gain (loss) from hedging activities
(3 )
Other comprehensive income (loss), net of tax
(43 )
Comprehensive income
Comprehensive income attributable to noncontrolling interests:
Net income
(5 )
(7 )
Foreign currency translation loss (gain)
(2 )
Comprehensive loss (income) attributable to noncontrolling interests
(9 )
Comprehensive income attributable to Henry Schein, Inc.
$
$
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)
Equity
Balance, December 30, 2023
$
$
$
$
(206 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to Redeemable noncontrolling interests)
-
-
-
-
(44 )
-
(44 )
Unrealized gain from hedging activities,
net of tax of $
-
-
-
-
-
Change in fair value of redeemable securities
-
-
(42 )
-
-
-
(42 )
Noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
Repurchase and retirement of common stock
(998,728 )
-
(10 )
(65 )
-
-
(75 )
Stock issued upon exercise of stock options
-
-
-
-
Stock-based compensation expense
-
-
-
-
Shares withheld for payroll taxes
(103,865 )
-
(8 )
-
-
-
(8 )
Settlement of stock-based compensation awards
-
-
-
-
Transfer of charges in excess of capital
-
-
(50 )
-
-
Balance, March 30, 2024
$
$
$
$
(239 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 31, 2022
$
$
$
$
(233 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation gain (excluding gain of $
attributable to Redeemable noncontrolling interests)
-
-
-
-
-
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $
-
-
-
-
(3 )
-
(3 )
Change in fair value of redeemable securities
-
-
-
-
-
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
Repurchases and retirement of common stock
(1,223,919 )
-
(13 )
(87 )
-
-
(100 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
Shares withheld for payroll taxes
(399,194 )
-
(29 )
-
-
-
(29 )
Transfer of charges in excess of capital
-
-
(28 )
-
-
Balance, April 1, 2023
$
$
$
$
(213 )
$
$
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
March 30,
April 1,
2024
2023
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Non-cash restructuring charges
Stock-based compensation expense
Provision for losses on trade and other accounts receivable
Provision for deferred income taxes
Equity in earnings of affiliates
(3 )
(4 )
Distributions from equity affiliates
Changes in unrecognized tax benefits
Other
(6 )
(1 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(20 )
Inventories
Other current assets
Accounts payable and accrued expenses
(290 )
(243 )
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
(41 )
(31 )
Payments related to equity investments and business acquisitions,
net of cash acquired
(20 )
(1 )
Proceeds from loan to affiliate
Capitalized software costs
(9 )
(9 )
Other
(3 )
Net cash used in investing activities
(72 )
(39 )
Cash flows from financing activities:
Net change in bank credit lines
Proceeds from issuance of long-term debt
Principal payments for long-term debt
(60 )
(1 )
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(75 )
(100 )
Payments for taxes related to shares withheld for employee taxes
(7 )
(30 )
Distributions to noncontrolling shareholders
(6 )
(4 )
Acquisitions of noncontrolling interests in subsidiaries
(94 )
(8 )
Net cash provided by (used in) financing activities
(151 )
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
(12 )
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
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” and “our”). All intercompany accounts and transactions are eliminated in
consolidation. Investments in unconsolidated affiliates for which we have the ability to influence the operating or
financial decisions are accounted for under the equity method.
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 30, 2023 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 March 30, 2024 are not necessarily indicative of the results to be expected
for any other interim period or for the year ending December 28, 2024.
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.
We consolidate the results of operations and financial position of a trade accounts receivable securitization which
we consider a VIE because we are its primary beneficiary, as we have the power to direct activities that most
significantly affect its economic performance and have the obligation to absorb the majority of its losses or
benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as collateral to the related
debt. The VIE’s creditors have recourse to us for losses on these trade accounts receivable. At March 30, 2024 and
December 30, 2023, certain trade accounts receivable that can only be used to settle obligations of this VIE were
$
were $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
9
Note 2 – Significant Accounting Policies and Recently Issued Accounting Standards
Significant Accounting Policies
There have been no material changes in our significant accounting policies during the three months ended March
30, 2024, as compared to the significant accounting policies described in Item 8 of our Annual Report on Form 10-
K for the year ended December 30, 2023.
Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2023-09, “
Income Taxes (Topic 740): Improvements to Income Tax Disclosures
,” which requires public
business entities to disclose additional information in specified categories with respect to the reconciliation of the
effective tax rate to the statutory rate for federal, state and foreign income taxes. It also requires greater detail
about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a
specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires
information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state and foreign taxes
and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold.
The ASU also describes items that need to be disaggregated based on their nature, which is determined by reference
to the item’s fundamental or essential characteristics, such as the transaction or event that triggered the
establishment of the reconciling item and the activity with which the reconciling item is associated. The ASU
eliminates the historic requirement that entities disclose information concerning unrecognized tax benefits having a
reasonable possibility of significantly increasing or decreasing in the 12 months following the reporting date. This
ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual
financial statements that have not yet been issued or made available for issuance. This ASU should be applied on a
prospective basis; however, retrospective application is permitted. We are currently evaluating the impact that
ASU 2023 – 09 will have on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “
Segment Reporting (Topic 280): Improvements to Reportable
Segments
,” which aims to improve financial reporting by requiring disclosure of incremental segment information
on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial
analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable
segments. For example, a public entity is required to report a measure of segment profit or loss that the chief
operating decision maker uses to assess segment performance and make decisions about allocating resources.
Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and
depletion expense, to be disclosed under certain circumstances. The amendments in this ASU do not change or
remove those disclosure requirements and do not change how a public entity identifies its operating segments,
aggregates those operating segments or applies the quantitative thresholds to determine its reportable segments.
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years
beginning after December 15, 2024. Early adoption is permitted. We do not expect that the requirements of ASU
2023 – 07 will have a material impact on our consolidated financial statements.
In March 2024, the FASB issued ASU 2024-01, “
Compensation - Stock Compensation (Topic 718): Scope
Application of Profits Interest and Similar Awards,
” which clarifies how to determine whether a profit interest and
similar awards should be accounted for as a share-based payment arrangement under Topic 718 or within the scope
of other guidance. The ASU provides an illustrative example with multiple fact patterns and amends the structure
of paragraph 718-10-15-3 of Topic 718 to improve its clarity and operability. The guidance in ASU 2024-01
applies to all entities that issue profits interest awards as compensation to employees or nonemployees in exchange
for goods or services. Entities can apply the amendments either retrospectively to all periods presented in the
financial statements or prospectively to profits interest awards granted or modified on or after the date of adoption.
If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting
principle that resulted from the adoption of the ASU. This ASU is effective for fiscal years beginning after
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
10
December 15, 2024, including interim periods within those fiscal years. We do not expect that the requirements of
ASU 2024 – 01 will have a material impact on our consolidated financial statements.
Note 3 – Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily affected the operations of our North
American and European dental and medical distribution businesses. Henry Schein One, our practice management
software, revenue cycle management and patient relationship management solutions business, was not affected, and
our manufacturing businesses were mostly unaffected. On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which has since been remediated.
During the three months ended March 30, 2024, we continued to experience a residual impact of the cyber events
noted above relating primarily to decreased sales to episodic customers (customers that had generally registered a
less continuous level of demand pre-incident).
During the three months ended March 30, 2024, we incurred $
incident, mostly consisting of professional fees. We maintain cyber insurance, subject to certain retentions and
policy limitations. With respect to the October 2023 cyber incident, we have a $
following a $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
11
Note 4 – 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 30, 2023.
Disaggregation of Net Sales
The following table disaggregates our net sales by reportable and operating segment and geographic area:
Three Months Ended
March 30, 2024
North America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
Three Months Ended
April 1, 2023
North America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
Contract Liabilities
At March 30, 2024, December 30, 2023, and December 31, 2022, the current and non-current contract liabilities
were $
the three months ended March 30, 2024, we recognized, in net sales, $
deferred at December 30, 2023. During the three months ended April 1, 2023, we recognized in net sales $
million of the amounts that were previously deferred at December 31, 2022. Current contract liabilities are
included in accrued expenses: other and the non-current contract liabilities are included in other liabilities within
our consolidated balance sheets.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
12
Note 5
Segment Data
We conduct our business through
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
The health care distribution reportable segment aggregates our global dental and medical operating segments. This
segment distributes consumable products, dental specialty products (including implant, orthodontic and endodontic
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”) products, vitamins, and orthopedic implants.
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, continuing
education services for practitioners, practice technology, network and hardware services, and other services.
The following tables present information about our reportable and operating segments:
Three Months Ended
March 30,
April 1,
2024
2023
Net sales:
Health care distribution
(1)
Dental
$
$
Medical
Total health care distribution
Technology and value-added services
(2)
Total
$
$
(1)
Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical
products, diagnostic tests, infection-control products, PPE products, vitamins, and orthopedic implants.
(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, practice technology, network and hardware services, and other services.
Three Months Ended
March 30,
April 1,
2024
2023
Operating Income:
Health care distribution
$
$
Technology and value-added services
Total
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
13
Note 6
Business Acquisitions
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.
2024 Acquisitions
During the quarter ended March 30, 2024, we made acquisitions within the technology and value-added services
segment. Our acquired ownership interest in these companies was
%. Total consideration for these acquisitions
was $
assets. The intangible assets acquired consisted of customer relationships and lists of $
development of $
Weighted average useful lives for these acquired intangible assets were
respectively.
Goodwill is a result of the expected synergies and cross-selling opportunities that these acquisitions are expected to
provide for us, as well as the expected growth potential. The majority of the acquired goodwill is deductible for tax
purposes.
The impact of these acquisitions, individually and in the aggregate, was not considered material to our condensed
consolidated financial statements.
2023 Acquisitions
Acquisition of Shield Healthcare
On October 2, 2023 we acquired a
% voting equity interest in Shield Healthcare, Inc. (“Shield”), a supplier of
homecare medical products delivered directly to patients in their homes, for preliminary consideration of $
million (including cash paid of $
interests of $
range of products, including items such as incontinence, urology, ostomy, enteral nutrition, advanced wound care
and diabetes supplies. Additionally, Shield offers continuous glucose monitoring devices directly to patients in
their homes.
The accounting for the acquisition of Shield has not been completed in several respects, including but not limited to
finalizing valuation assessments of accounts receivable, inventory, accrued liabilities and income and non-income
based taxes. To assist in the allocation of consideration, we engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed. We will finalize the amounts recognized as
the information necessary to complete the analysis is obtained. During the quarter ended March 30, 2024, we
recorded immaterial measurement period adjustments, related primarily to operating leases.
The pro forma financial information has not been presented because the impact of the Shield acquisition was
immaterial to our consolidated financial statements.
Acquisition of S.I.N. Implant System
On July 5, 2023, we acquired a
% voting equity interest in S.I.N. Implant System (“S.I.N.”) for consideration of
$
procedures and is focused on advancing the development of value-priced dental implants. S.I.N. recently expanded
the distribution of its products into the United States and other international markets.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
14
The accounting for the acquisition of S.I.N. has not been completed in several respects, including but not limited to
finalizing valuation assessments of accounts receivable, inventory, accrued liabilities and income and non-income
based taxes. To assist in the allocation of consideration, we engaged valuation specialists to determine the fair
value of intangible and tangible assets acquired and liabilities assumed. We will finalize the amounts recognized as
the information necessary to complete the analysis is obtained. We expect to finalize these amounts as soon as
possible but no later than one year from the acquisition date. During the quarter ended March 30, 2024, we
recorded insignificant measurement period adjustments, related primarily to deferred tax adjustments.
The pro forma financial information has not been presented because the impact of the S.I.N. acquisition was
immaterial to our consolidated financial statements.
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
% voting equity interest in Biotech Dental (“Biotech Dental”), which is a
provider of dental implants, clear aligners, individualized prosthetics and innovative digital dental software based in
France. Biotech Dental has several important solutions for dental practices and dental labs, including Nemotec, a
comprehensive, integrated suite of planning and diagnostic software using open architecture that connects disparate
medical devices to create a digital view of the patient, offering greater diagnostic accuracy and an improved patient
experience. The integration of Biotech Dental’s software with Henry Schein One’s industry-leading practice
management software solutions will help customers streamline their clinical as well as administrative workflow for
the ultimate benefit of patients.
The following table aggregates the final fair value, as of the date of acquisition, of consideration paid and net assets
acquired in the Biotech Dental acquisition, including measurement period adjustments recorded through March 30,
2024:
Preliminary
Allocation as
of July 1, 2023
Measurement
Period
Adjustments
Allocation as
of March 30,
2024
Acquisition consideration:
Cash
$
$
-
$
Fair value of contributed equity share in a controlled subsidiary
-
Redeemable noncontrolling interests
-
Total consideration
$
$
-
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
$
(4 )
$
Intangible assets
Other noncurrent assets
(7 )
Current liabilities
(50 )
(10 )
(60 )
Long-term debt
(90 )
(73 )
Deferred income taxes
(38 )
(15 )
(53 )
Other noncurrent liabilities
(16 )
(4 )
(20 )
Total identifiable net assets
Goodwill
(47 )
Total net assets acquired
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
15
Goodwill is a result of expected synergies that are expected to originate from the acquisition as well as the expected
growth potential of Biotech Dental. The acquired goodwill is deductible for tax purposes. During the quarter
ended March 30, 2024 we finalized our accounting for the acquisition and recorded measurement period
adjustments related primarily to the completion of the intangibles valuation, including adjustments to intangibles,
deferred tax and certain other assets and liabilities.
The following table summarizes the identifiable intangible assets acquired as part of the acquisition of Biotech
Dental:
2023
Weighted Average Useful
Lives (in years)
Customer relationships and lists
$
Trademarks / Tradenames
Product development
Total
$
The pro forma financial information has not been presented because the impact of the Biotech Dental acquisition
was immaterial to our condensed consolidated financial statements.
Other 2023 Acquisitions
During the year ended December 30, 2023, in addition to those noted above, we acquired companies within the
health care distribution and technology and value-added services segments. Our acquired ownership interest ranged
between
% to
%. During the quarter ended March 30, 2024, we recorded an adjustment of $
within the selling, general and administrative line in our condensed consolidated statements of income, representing
a change in the fair value of contingent consideration related to a 2023 acquisition.
During the three months ended March 30, 2024 we completed accounting for certain acquisitions that occurred in
the year ended December 30, 2023. In relation to these acquisitions, we did not record material adjustments in our
condensed consolidated financial statements relating to changes in estimated values of assets acquired, liabilities
assumed and contingent consideration assets and liabilities.
The pro forma financial information for our 2023 acquisitions has not been presented because the impact of the
acquisitions was immaterial to our condensed consolidated financial statements.
Acquisition Costs
During the three months ended March 30, 2024 and April 1, 2023 we incurred $
acquisition costs, which are included in “selling, general and administrative” within our condensed consolidated
statements of income.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
16
Note 7 – 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. Our investments and notes receivable
fair value is based on Level 3 inputs within the fair value hierarchy.
Debt
The fair value of our debt (including bank credit lines, current maturities of long-term debt and long-term debt) is
based on Level 3 inputs within the fair value hierarchy, and as of March 30, 2024 and December 30, 2023 was
estimated at $
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. Our derivative
instruments primarily include foreign currency forward agreements, forecasted inventory purchase commitments,
foreign currency forward contracts, interest rate swaps and total return swaps.
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 are based on market rates for comparable
transactions that are classified within Level 2 of the fair value hierarchy.
The fair value of the interest rate swap, which is classified within Level 2 of the fair value hierarchy, is determined
by comparing our contract rate to a forward market rate as of the valuation date.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
17
The fair value of total return swaps is determined by valuing the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation date that are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are based on recent transactions and/or implied multiples of
earnings that are classified within Level 3 of the fair value hierarchy.
Assets measured on a non-recurring basis at fair value include intangibles. Inputs for measuring intangibles 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 March 30, 2024 and December 30,
2023:
March 30, 2024
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swap
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
December 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swap
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
18
Note 8 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
March 30,
December 30,
2024
2023
Revolving credit agreement
$
$
Other short-term bank credit lines
Total
$
$
Revolving Credit Agreement
On
, we entered a $
which was subsequently amended and restated on
update the interest rate provisions to reflect the current market approach for a multicurrency facility. The interest
rate on this revolving credit facility is based on Term Secured Overnight Financing Rate (“Term SOFR”) plus a
spread based on our leverage ratio at the end of each financial reporting quarter. As of March 30, 2024 the interest
rate on this revolving credit agreement was
% plus
% for a combined rate of
%. The Revolving Credit
Agreement requires, among other things, that we maintain certain maximum leverage ratios. Additionally, the
Revolving 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 March 30, 2024 and December
30, 2023, we had $
During the three months ended March 30, 2024, the average outstanding balance under the Revolving Credit
Agreement was approximately $
million and $
Agreement.
Other Short-Term Bank Credit Lines
As of March 30, 2024 and December 30, 2023, we had various other short-term bank credit lines available, in
various currencies, with a maximum borrowing capacity of $
March 30, 2024 and December 30, 2023, $
three months ended March 30, 2024, the average outstanding balances under our various other short-term bank
credit lines was approximately $
short-term bank credit lines had weighted average interest rates of
% and
%, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
19
Long-term debt
Long-term debt consisted of the following:
March 30,
December 30,
2024
2023
Private placement facilities
$
$
Term loan
U.S. trade accounts receivable securitization
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2030 at interest rates
from
% to
% at March 30, 2024 and
from
% to
% at December 30, 2023
Finance lease obligations
Total
Less current maturities
(103 )
(150 )
Total long-term debt
$
$
Private Placement Facilities
Our private placement facilities include
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
. 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
). 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
%, as of March 30, 2024 are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
December 24, 2012
$
%
December 24, 2024
June 16, 2017
June 16, 2027
September 15, 2017
September 15, 2029
January 2, 2018
January 2, 2028
September 2, 2020
September 2, 2030
June 2, 2021
June 2, 2031
June 2, 2021
June 2, 2033
May 4, 2023
May 4, 2028
May 4, 2023
May 4, 2030
May 4, 2023
May 4, 2033
May 4, 2023
May 4, 2033
Less: Deferred debt issuance costs
(1 )
Total
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
20
Term Loan
On July 11, 2023, we entered into a
three-year
Agreement”). The interest rate on this term loan is based on the Term SOFR plus a spread based on our leverage
ratio at the end of each financial reporting quarter. This term loan matures on July 11, 2026.
We are required to make quarterly payments of $
payments of $
of March 30, 2024, the borrowings outstanding under this term loan were $
interest rate under the Term Credit Agreement was
% plus
% for a combined rate of
%. As of
December 30, 2023, the borrowings outstanding under this term loan were $
the interest rate under the Term Credit Agreement was
% plus
% for a combined rate of
%. However,
we have a hedge in place that ultimately creates an effective fixed rate of
% and
% at March 30, 2024 and
December 30, 2023, respectively. The Term Credit Agreement requires, among other things, that we maintain
certain maximum leverage ratios. Additionally, the Term 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.
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on our U.S. trade accounts receivable that is structured as an asset-backed
securitization program with pricing committed for up to
. This facility agreement has a purchase limit of
$
.
As of March 30, 2024 and December 30, 2023, the borrowings outstanding under this securitization facility were
$
was based on the asset-backed commercial paper rate of
% plus
%, for a combined rate of
%. At
December 30, 2023, the interest rate on borrowings under this facility was based on the asset-backed commercial
paper rate of
% plus
%, for a combined rate of
%.
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
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
21
Note 9 – Income Taxes
For the three months ended March 30, 2024 our effective tax rate was
%, compared to
% 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.
The Organization of Economic Co-Operation and Development (OECD) issued technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses on a country-by-country basis. Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework. Future tax reform resulting
from these developments may result in changes to long-standing tax principles, which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities. As of March 30, 2024, the impact of the
Pillar Two Rules to our financial statements was immaterial. As we operate in jurisdictions which have adopted
Pillar Two, we are continuing to analyze the implications to effectively manage the impact for 2024 and beyond.
The total amount of unrecognized tax benefits, which are included in “other liabilities” within our condensed
consolidated balance sheets, as of March 30, 2024 and December 30, 2023, was $
respectively, of which $
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 2019. The tax years subject to examination by the
IRS include years 2020 and forward. In addition, limited positions reported in the 2017 tax year are subject to IRS
examination.
The amount of tax interest expense included as a component of the provision for taxes was $
million for the three months ended March 30, 2024 and April 1, 2023, respectively. The total amount of accrued
interest is included in “other liabilities,” and was $
30, 2023. 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)
)
22
Note 10 – Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on funding the priorities of the BOLD+1 strategic
plan, streamlining operations and other initiatives to increase efficiency. We revised our previous expectations of
completion and we have extended this initiative through the end of 2024. 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 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 March 30, 2024 and April 1, 2023, we recorded restructuring costs of $
and $
employee-related costs, accelerated amortization of right-of-use lease assets and fixed assets, and other lease exit
costs.
Restructuring costs recorded for the three months ended March 30, 2024 and April 1, 2023, consisted of the
following:
Three Months Ended March 30, 2024
Health Care
Distribution
Technology and
Value-Added
Services
Total
Severance and employee-related costs
$
$
$
Accelerated depreciation and amortization
Exit and other related costs
Total restructuring costs
$
$
$
Three Months Ended April 1, 2023
Health Care
Distribution
Technology and
Value-Added
Services
Total
Severance and employee-related costs
$
$
$
Accelerated depreciation and amortization
Exit and other related costs
Loss on disposal of a business
Total restructuring costs
$
$
$
The following table summarizes, by reportable segment, the activity related to the liabilities associated with our
restructuring initiatives for the three months ended March 30, 2024. The remaining accrued balance of
restructuring costs as of March 30, 2024, which primarily relates to severance and employee-related costs, is
included in accrued expenses: other within our condensed consolidated balance sheets. Liabilities related to exited
leased facilities are recorded within our current and non-current operating lease liabilities within our condensed
consolidated balance sheets.
Technology and
Health Care
Value-Added
Distribution
Services
Total
Balance, December 30, 2023
$
$
$
Restructuring costs
Non-cash accelerated depreciation and amortization
(1 )
(1 )
Cash payments and other adjustments
(11 )
(1 )
(12 )
Balance, March 30, 2024
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
23
Note 11 – Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid related lawsuits (currently less than one-
hundred and seventy-five (
); 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 subsidiaries) 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
is currently set for a jury trial on July 8, 2024; the action filed by Mobile County Board of Health, et al. in Alabama
state court, which has been set for a jury trial on August 12, 2024; and the action filed by Florida Health Sciences
Center, Inc. (and
other hospitals located throughout the State of Florida) in Florida state court, which is currently
scheduled for a jury trial in September 2025. Of Henry Schein’s 2023 net sales of approximately $
sales of opioids represented less than four-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 2022 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.
On January 18, 2024, a putative class action was filed against the Company in the U.S. District Court for the
Eastern District of New York (“EDNY”), Case No. 24-cv-387 (the “Cruz-Bermudez Action”), based on the
October 2023 cyber incident described in
.
On January 26, 2024, a second putative class
action was filed against the Company based on the cyber incident, also in the EDNY, Case No. 24-cv-550 (the
“Depperschmidt Action”). On February 12, 2024, the Depperschmidt Action was voluntarily dismissed without
prejudice. On February 16, 2024, an amended complaint was filed in the Cruz-Bermudez Action with additional
plaintiffs’ counsel from the Depperschmidt Action and an additional new plaintiff.
Plaintiffs in the Cruz-Bermudez Action seek to represent a class of all individuals whose personally identifying
information and personal health information was compromised by the incident. Plaintiffs generally claim to have
been harmed by alleged actions and/or omissions by the Company in connection with the incident and that the
Company made deceptive public statements regarding privacy and data protection. Plaintiffs assert a variety of
claims seeking monetary damages, injunctive relief, costs and attorneys’ fees, and other related relief. On March
22, 2024, plaintiffs voluntarily withdrew two of their five causes of action. On April 8, 2024, the court denied the
Company’s motion to dismiss the remaining claims. The case remains pending. We intend to defend ourselves
vigorously against this action.
Henry Schein, Inc. and its affiliate, North American Rescue, LLC (“NAR”), have been named as defendants in a
qui tam lawsuit brought under the federal False Claims Act (“FCA”), in an action entitled
Russ and Murphy ex rel.
United States v. North American Rescue, LLC et al.
; Case No. 21-cv-04238, filed in the United States District Court
for the Eastern District of Pennsylvania. The case was filed under seal in 2021 by two relators (Corey Russ and
Chris Murphy) who worked for one of NAR’s competitors. Relators also name C-A-T Resources, LLC (“CAT-R”)
as a defendant. CAT -R manufactures one of the products at issue in the case (the combat application tourniquet, or
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
24
“CAT”). After the Department of Justice declined to intervene, the case was unsealed, and Relators filed their first
amended complaint in November 2023. In response to motions to dismiss filed by Henry Schein, NAR and CAT-
R, Relators requested and obtained leave to file their Second Amended Complaint on April 24, 2024. Relators’
FCA claims are based on allegations that NAR and Henry Schein made false representations and certifications in
connection with, and sold and submitted false claims for payment to the federal government for, various medical
products that Relators contend violated certain “Buy American” laws (e.g., the Berry Amendment and Trade
Agreements Act of 1979) and/or were not properly sterilized as noted on the products’ packaging, and thus
misbranded. These products include the CAT, syringes, compressed gauze, tracheostomy kits, hypothermia
blankets, eye, ear, nose and throat kits, and trauma dressing. Relators allege Henry Schein controlled and
supervised NAR’s alleged misconduct for a period of time. Relators seek three times the amount of damages to be
proved at trial, statutory civil penalties, reasonable expenses, attorneys’ fees and costs, and prejudgment
interest. We intend to defend ourselves vigorously against this action.
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 March 30, 2024, 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)
)
25
Note 12 – Stock-Based Compensation
Stock-based awards are provided to certain employees under our 2020 Stock Incentive Plan and to non-employee
directors under our 2023 Non-Employee Director Stock Incentive Plan (formerly known as the 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 and in 2022, when 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 include
-month cliff vesting.
For these RSUs, we recognize the cost as compensation expense on a straight-line basis.
For all RSUs, we estimate the fair value based on our closing stock price on the grant date. 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, amortization expense recorded for acquisition-related intangible assets (solely with
respect to performance-based RSUs granted in the 2023 and 2024 plan years), 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 and 2024 plan years), and unforeseen events or circumstances affecting us.
Over the performance period, the number of RSUs 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 is based on our actual performance metrics as defined under the 2020 Stock Incentive Plan.
Stock options are awards that allow the recipient to purchase shares of our common stock after vesting at a fixed
price set at the time of grant. 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
grant date and have a contractual term of
term acceleration upon certain events. Compensation expense for stock options is recognized using a graded
vesting method. We estimate grant date fair value of stock options using the Black-Scholes valuation model.
During the three months ended March 30, 2024, we did
t grant any stock options.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
26
Our condensed consolidated statements of income reflect pre-tax share-based compensation expense of $
and $
Total unrecognized compensation cost related to unvested awards as of March 30, 2024 was $
expected to be recognized over a weighted-average period of approximately
Our condensed consolidated statements of cash flows present our stock-based compensation expense as a
reconciling adjustment between net income and net cash provided by operating activities for all periods presented.
There were no cash benefits associated with tax deductions in excess of recognized compensation for the three
months ended March 30, 2024 and April 1, 2023.
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 that most closely aligns to 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 Staff Accounting Bulletin Topic 14.
The following table summarizes the stock option activity for the three months ended March 30, 2024:
Stock Options
Weighted Average
Weighted Average
Aggregate
Exercise
Remaining Contractual
Shares
Price
Life (in years)
Outstanding at beginning of period
$
Granted
-
Exercised
(21,570 )
Forfeited
(897 )
Outstanding at end of period
$
$
Options exercisable at end of period
$
Weighted Average
Weighted Average
Aggregate
Number of
Exercise
Remaining Contractual
Intrinsic
Options
Price
Life (in years)
Value
Expected to vest
$
$
The following tables summarize the activity of our unvested RSUs for the three months ended March 30, 2024:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted
Weighted
Average
Intrinsic
Average
Intrinsic
Grant Date Fair
Value
Grant Date Fair
Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
$
$
Granted
Vested
(307,839 )
(6,432 )
Forfeited
(6,021 )
(6,431 )
Outstanding at end of period
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
27
Note 13 – 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 March 30, 2024 and the year ended December 30, 2023 are presented in the
following table:
March 30,
December 30,
2024
2023
Balance, beginning of period
$
$
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(94 )
(19 )
Increase in redeemable noncontrolling interests due to business
acquisitions
Net income attributable to redeemable noncontrolling interests
Distributions declared, net of capital contributions
(6 )
(19 )
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests
(10 )
Change in fair value of redeemable securities
(11 )
Balance, end of period
$
$
Note 14 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income and
are recorded directly to stockholders’ equity.
The following table summarizes our Accumulated other comprehensive loss, net of applicable taxes as of:
March 30,
December 30,
2024
2023
Attributable to redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(42 )
$
(32 )
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1 )
$
(1 )
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(232 )
$
(188 )
Unrealized loss from hedging activities
(2 )
(13 )
Pension adjustment loss
(5 )
(5 )
Accumulated other comprehensive loss
$
(239 )
$
(206 )
Total Accumulated other comprehensive loss
$
(282 )
$
(239 )
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
28
The following table summarizes the components of comprehensive income, net of applicable taxes as follows:
Three Months Ended
March 30,
April 1,
2024
2023
Net income
$
$
Foreign currency translation gain (loss)
(54 )
Tax effect
Foreign currency translation gain (loss)
(54 )
Unrealized gain (loss) from hedging activities
(4 )
Tax effect
(4 )
Unrealized gain (loss) from hedging activities
(3 )
Comprehensive income
$
$
Our financial statements are denominated in U.S. Dollars. 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 (loss) during the three months ended March 30, 2024 and three months ended April 1, 2023 was
primarily due to changes in foreign currency exchange rates of the Euro, Brazilian Real, British Pound, Australian
Dollar, Swiss Franc and Canadian Dollar.
The hedging gain (loss) during the three months ended March 30, 2024, and April 1, 2023 was attributable to a net
investment hedge.
The following table summarizes our total comprehensive income, net of applicable taxes as follows:
Three Months Ended
March 30,
April 1,
2024
2023
Comprehensive income attributable to
Henry Schein, Inc.
$
$
Comprehensive income attributable to
noncontrolling interests
Comprehensive income (loss) attributable to
Redeemable noncontrolling interests
(8 )
Comprehensive income
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
29
Note 15
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 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
March 30,
April 1,
2024
2023
Basic
Effect of dilutive securities:
Stock options and restricted stock units
Diluted
The number of antidilutive securities that were excluded from the calculation of diluted weighted average common
shares outstanding are as follows:
Three Months Ended
March 30,
April 1,
2024
2023
Stock options
Restricted stock units
Total anti-dilutive securities excluded from earnings per share computation
Note 16 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Three Months Ended
March 30,
April 1,
2024
2023
Interest
$
$
Income taxes
For the three months ended March 30, 2024 and April 1, 2023, we had $
(4 )
unrealized gains (losses) related to hedging activities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
30
Note 17 – 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
Internet Brands approximately $
months ended March 30, 2024 and April 1, 2023, we recorded $
connection with costs related to this royalty agreement. As of March 30, 2024 and December 30, 2023, Henry
Schein One, LLC had a net payable balance to Internet Brands of $
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.
We have interests in entities that we account for under the equity accounting method. In our normal course of
business, during the three months ended March 30, 2024 and April 1, 2023, we recorded net sales of $
and $
purchased $
we had an aggregate $
$
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
years. As of March 30, 2024, current and non-current liabilities associated with related party operating leases were
$
% and
% of the
total current and non-current operating lease liabilities, respectively. At December 30, 2023 related party leases
represented
% and
% of the total current and non-current operating lease liabilities, respectively.
31
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.
Risk factors and uncertainties that could cause actual results to differ materially from current and historical results
include, but are not limited to: 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, as well
as significant demands on our operations, information systems, legal, regulatory, compliance, financial and human
resources functions in connection 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; security risks associated with our
information systems and technology products and services, such as cyberattacks or other privacy or data security
breaches (including the October 2023 incident); effects of a highly competitive (including, without limitation,
competition from third-party online commerce sites) and consolidating market; 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, ongoing wars, 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; geopolitical wars; 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; risks associated with customs policies or legislative import restrictions; risks associated
with disease outbreaks, epidemics, pandemics (such as the COVID-19 pandemic), or similar wide-spread public
health concerns and other natural or man-made disasters; risks associated with our global operations; litigation
risks; new or unanticipated litigation developments and the status of litigation matters; 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.
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.
32
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 About Media Center page of our website.
Recent Developments
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. 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 unwilling 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.
Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily affected the operations of our North
American and European dental and medical distribution businesses. Henry Schein One, our practice management
software, revenue cycle management and patient relationship management solutions business, was not affected, and
our manufacturing businesses were mostly unaffected. On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which has since been remediated.
During the three months ended March 30, 2024, we continued to experience a residual impact of the cyber events
noted above relating primarily to decreased sales to episodic customers (customers that had generally registered a
less continuous level of demand pre-incident). We have a number of programs planned and underway focused on
re-establishing these customers.
We maintain cyber insurance, subject to certain retentions and policy limitations. With respect to the October 2023
cyber incident, we have a $60 million insurance policy, following a $5 million retention.
33
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 91 years of experience distributing health care products.
We are headquartered in Melville, New York, employ approximately 25,000 people (of which approximately
13,000 are based outside of the United States) and have operations or affiliates in 33 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 our own
corporate brand portfolio of cost-effective, high-quality consumable merchandise products, including in vitro
diagnostic devices, manufacture certain dental specialty products in the areas of implants, orthodontics and
endodontics, manufacture drug products, and repackage/relabel prescription drugs and/or devices.
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, vitamins and
orthopedic implants.
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.
34
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.
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
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
35
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 pharmacological
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 2024 and 2034, the 45 and older
population is expected to grow by approximately 11%. Between 2024 and 2044, this age group is expected to grow
by approximately 20%. This compares with expected total U.S. population growth rates of approximately 6%
between 2024 and 2034 and approximately 11% between 2024 and 2044.
According to the U.S. Census Bureau’s International Database, in 2024 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 20% 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
(“CMS”) published “National Health Expenditure Data” indicating that total national health care spending reached
approximately $4.5 trillion in 2022, or 17.3% 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 $7.2 trillion by 2031, or 19.6% of the nation’s projected gross domestic product.
Government
Certain of our businesses involve the distribution, manufacturing, importation, exportation, marketing, sale and
promotion of 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
businesses that distribute and sell medical equipment and supplies directly to 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 anti-corruption, controlled substances handling, medical device regulations and data
privacy and security standards.
Certain of our businesses involve pharmaceuticals and/or medical devices, including in vitro diagnostic devices,
that are paid for by third parties and must operate in compliance with a variety of burdensome and complex coding,
billing and record-keeping requirements in order to substantiate claims for payment under federal, state and
commercial healthcare reimbursement programs.
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.
Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, importation, storage, handling and disposal of hazardous or
potentially hazardous substances; “forever chemicals” such as per-and polyfluoroalkyl substances; amalgam bans;
pricing disclosures; supply chain transparency around labor practices; and safe working conditions. In addition,
activities to control medical costs, including laws and regulations lowering reimbursement rates for
36
pharmaceuticals, medical devices, medical supplies and/or medical treatments or services, are ongoing. CMS
recently released the 2024 durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”)
reimbursement schedule, which, effective January 1, 2024, reduced the DMEPOS reimbursement rates for non-
rural suppliers, such as us, by removing the Coronavirus Aid, Relief, and Economic Security (aka CARES) Act
relief rates in effect during the COVID-19 pandemic. This and other 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.
A more detailed discussion of governmental laws and regulations is included in Management’s Discussion &
Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the
fiscal year ended December 30, 2023, filed with the SEC on February 28, 2024.
Results of Operations
The following tables summarize the significant components of our operating results and cash flows for the three
months ended March 30, 2024 and April 1, 2023:
Three Months Ended
March 30,
April 1,
2024
2023
Operating results:
Net sales
$
3,172
$
3,060
Cost of sales
2,160
2,094
Gross profit
1,012
966
Operating expenses:
Selling, general and administrative
791
717
Depreciation and amortization
61
44
Restructuring costs
10
30
Operating income
$
150
$
175
Other expense, net
$
(23)
$
(12)
Net income
98
128
Net income attributable to Henry Schein, Inc.
93
121
Three Months Ended
March 30,
April 1,
2024
2023
Cash flows:
Net cash provided by operating activities
$
197
$
27
Net cash used in investing activities
(72)
(39)
Net cash provided by (used in) financing activities
(151)
21
37
Plan of Restructuring
On August 1, 2022, we committed to a restructuring plan focused on funding the priorities of the BOLD+1 strategic
plan, streamlining operations and other initiatives to increase efficiency. We revised our previous expectations of
completion and we have extended this initiative through the end of 2024. 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 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 March 30, 2024 and April 1, 2023, we recorded restructuring costs of $10 million
and $30 million, respectively. The restructuring costs for these periods primarily related to severance and
employee-related costs, accelerated amortization of right-of-use lease assets and fixed assets, and other lease exit
costs.
38
Three Months Ended March 30, 2024 Compared to Three Months Ended April 1, 2023
Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other Expense, Net; and Income Taxes are
based on actual values and may not recalculate due to rounding.
Net Sales
Net sales were as follows:
March 30,
% of
April 1,
% of
Increase
2024
Total
2023
Total
$
%
Health care distribution
(1)
Dental
$
1,914
60.3
%
$
1,898
62.0
%
$
16
0.8
%
Medical
1,041
32.9
971
31.8
70
7.3
2,955
93.2
2,869
93.8
86
3.0
Technology and value-added services
(2)
217
6.8
191
6.2
26
13.8
Total
$
3,172
100.0
%
$
3,060
100.0
%
$
112
3.7
%
The components of our sales growth were as follows:
Total Local
Currency
Growth
Foreign
Exchange
Impact
Total Sales
Growth
Local Currency Growth
Local Internal
Growth
Acquisition
Growth
Health care distribution
(1)
Dental Merchandise
(3.7)
%
3.8
%
0.1
%
0.7
%
0.8
%
Dental Equipment
0.2
-
0.2
0.6
0.8
Total Dental
(2.9)
3.0
0.1
0.7
0.8
Medical
(0.7)
8.0
7.3
-
7.3
Total Health Care Distribution
(2.1)
4.6
2.5
0.5
3.0
Technology and value-added services
(2)
3.2
10.2
13.4
0.4
13.8
Total
(1.8)
%
5.0
%
3.2
%
0.5
%
3.7
%
(1)
Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small
equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical
products, diagnostic tests, infection-control products, PPE products, vitamins, and orthopedic implants.
(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, practice technology, network and hardware services, and other services.
Global Sales
Global net sales for the three months ended March 30, 2024 increased 3.7%. The components of our sales growth
are presented in the table above.
The 1.8% decrease in our internally generated local currency sales was primarily attributable to the residual impact
of the cyber incident related to decreased sales to episodic customers (customers that had generally registered a less
continuous level of demand pre-incident) and lower sales of PPE products and COVID-19 test kits. For the three
months ended March 30, 2024, the estimated decrease in internally generated local currency sales, excluding PPE
products and COVID-19 test kits, was 1.2%.
We estimate that sales of PPE products and COVID-19 test kits were approximately $181 million and $201 million
for the three months ended March 30, 2024 and April 1, 2023, respectively, representing an estimated decrease of
$20 million, or 10.0% versus the prior year, with the $20 million net decrease year-over-year representing 0.6% of
global net sales for the three months ended March 30, 2024.
39
Dental
Dental net sales for the three months ended March 30, 2024 increased 0.8%. The components of our sales growth
are presented in the table above.
The increase in local currency sales was attributable to the acquisitions of Biotech Dental and S.I.N. during the year
ended December 30, 2023. The decrease in internally generated local currency sales for dental merchandise was
primarily attributable to the residual impact of the cyber incident. Our sales increase in internally generated local
currency for dental equipment was primarily attributable to some sales shifting into the first quarter of 2024 due to
the delay of equipment installations during the fourth quarter of 2023 resulting from the impact of the cyber
incident.
We estimate that sales of PPE products were approximately $79 million and $92 million for the three months ended
March 30, 2024 and April 1, 2023, respectively, representing an estimated decrease of $13 million, or 14.5% versus
the prior year, with the $13 million net decrease year-over-year representing 0.7% of dental net sales for the three
months ended March 30, 2024. The decrease in sales of PPE products is primarily due to lower market prices and
reduced demand following the cyber incident. The estimated decrease in internally generated local currency sales,
excluding PPE products, was 2.2%.
Medical
Medical net sales for the three months ended March 30, 2024 increased 7.3%. The components of our sales growth
are presented in the table above. The increase in local currency sales was attributable to the acquisition of Shield
Healthcare during the year ended December 30, 2023. The internally generated local currency decrease in medical
sales is primarily attributable to the residual impact of the cyber incident as well as the conversion of certain
pharmaceutical product sales to lower priced generics, partially offset by strong sales of point-of-care diagnostics
including flu and multi-assay flu/COVID combination tests.
We estimate that sales of PPE products and COVID-19 test kits were approximately $102 million and $109 million
for the three months ended March 30, 2024 and April 1, 2023, respectively, representing an estimated decrease of
$7 million, or 6.2% versus the prior year, with the $7 million net decrease year-over-year representing 0.6% of
medical net sales for the three months ended March 30, 2024. The decrease in sales of these products is primarily
due to lower market prices of PPE products. The estimated increase in internally generated local currency sales,
excluding PPE products and COVID-19 test kits, was 0.1%.
Technology and value-added services
Technology and value-added services net sales for the three months ended March 30, 2024 increased 13.8%. The
components of our sales growth are presented in the table above. The internally generated local currency increase
in technology and value-added services sales is primarily attributable to a continued increase in the number of
cloud-based users of our practice management software and an increase in revenue cycle management services. We
also experienced increased demand for our revenue cycle management solutions and our analytical products.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
March 30,
Gross
April 1,
Gross
Increase
2024
Margin %
2023
Margin %
$
%
Health care distribution
$
867
29.3
%
$
837
29.2
%
$
30
3.5
%
Technology and value-added services
145
66.8
129
67.4
16
12.7
Total
$
1,012
31.9
$
966
31.6
$
46
4.7
40
As a result of different practices of categorizing costs associated with distribution networks throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services segment than in
our health care distribution segment. These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services. The software industry typically realizes higher
gross margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary between the periods as a result of the
changes in the mix of products sold as well as changes in our customer mix. For example, sales of our corporate
brand and certain specialty products achieve gross profit margins that are higher than average total gross profit
margins of all products. With respect to customer mix, sales to our large-group customers are typically completed
at lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners, who normally purchase lower volumes.
Health care distribution gross profit for the three months ended March 30, 2024 increased compared to the prior-
year-period due to gross profit from acquisitions and gross margin expansion as a result of a favorable impact of
sales mix of higher-margin products, partially offset by the decrease in sales resulting from the residual impact of
the cyber incident and a reduction in sales of PPE products and COVID-19 test kits.
Technology and value-added services gross profit increased as a result of a higher gross profit from internally
generated sales and gross profit from acquisitions. The slight decrease in gross margin rates was primarily due to
amortization expense.
Operating Expenses
Operating expenses (consisting of selling, general and administrative expenses; depreciation and amortization; and
restructuring costs) by segment and in total were as follows:
% of
% of
March 30,
Respective
April 1,
Respective
Increase
2024
Net Sales
2023
Net Sales
$
%
Health care distribution
$
741
25.1
%
$
692
24.1
%
$
49
7.0
%
Technology and value-added services
121
55.8
99
51.6
22
23.1
Total
$
862
27.2
$
791
25.8
$
71
9.0
The net increase in operating expenses is attributable to the following:
Operating Costs
Restructuring Costs
Acquisitions
Total
Health care distribution
$
43
$
(17)
$
23
$
49
Technology and value-added services
(6)
(3)
31
22
Total
$
37
$
(20)
$
54
$
71
The increase in operating costs during the three months ended March 30, 2024 includes increases in payroll and
payroll related costs, travel, and convention expenses in both of our reportable segments and increased acquisition
expenses in our healthcare distribution segment and an increase in accrued contingent consideration related to a
2023 acquisition in our technology and value-added services segment. During the three months ended March 30,
2024, we also incurred $5 million of expenses directly related to the cyber incident, mostly consisting of
professional fees.
41
Other Expense, Net
Other expense, net was as follows:
March 30,
April 1,
Variance
2024
2023
$
%
Interest income
$
5
$
3
$
2
127.1
%
Interest expense
(30)
(14)
(16)
(114.8)
Other, net
2
(1)
3
(363.5)
Other expense, net
$
(23)
$
(12)
$
(11)
(81.5)
Interest income increased primarily due to increased interest rates. Interest expense increased primarily due to
increased borrowings and increased interest rates.
Income Taxes
Our effective tax rate was 25.6% for the three months ended March 30, 2024 compared to 23.8% for the prior year
period. The difference between our effective and federal statutory tax rates primarily relates to state and foreign
income taxes and interest expense.
The Organization of Economic Co-Operation and Development (OECD) issued technical and administrative
guidance on Pillar Two Model Rules in December 2021, which provides for a global minimum tax rate on the
earnings of large multinational businesses on a country-by-country basis. Effective January 1, 2024, the minimum
global tax rate is 15% for various jurisdictions pursuant to the Pillar Two framework. Future tax reform resulting
from these developments may result in changes to long-standing tax principles, which may adversely impact our
effective tax rate going forward or result in higher cash tax liabilities. As of March 30, 2024, the impact of the
Pillar Two Rules to our financial statements was immaterial. As we operate in jurisdictions which have adopted
Pillar Two, we are continuing to analyze the implications to effectively manage the impact for 2024 and beyond.
42
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs, purchases of fixed assets and
repurchases of common stock. Working capital requirements generally result from increased sales, special
inventory forward buy-in opportunities and payment terms for receivables and payables. Historically, sales have
tended to be stronger during the second half of the year and special inventory forward buy-in opportunities have
been most prevalent just before the end of the year, and have caused our working capital requirements to be higher
from the end of the third quarter to the end of the first quarter of the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements. Please see
operations is dependent on the continued demand of our customers for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory. We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months. Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may change. Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
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.
Net cash provided by operating activities was $197 million for the three months ended March 30, 2024, compared
to net cash provided by operating activities of $27 million for the prior year. The net change of $170 million was
primarily attributable to changes in working capital accounts, primarily accounts receivable and accounts payable
and accrued expenses; and lower cash net income. During the quarter ended March 30, 2024, the cyber incident
had several residual impacts to the operating cash flows from our working capital, net of acquisitions, including an
increase in operating cash flows from accounts receivable due to improved collection levels and decreased cash
flows from accounts payable and accrued expenses resulting from previously delayed payments.
Net cash used in investing activities was $72 million for the three months ended March 30, 2024, compared to net
cash used in investing activities of $39 million for the prior year. The net change of $33 million was primarily
attributable to increased payments for equity investments and business acquisitions, and increased purchases of
fixed assets resulting from our continued investment in our facilities and operations.
Net cash used in financing activities was $151 million for the three months ended March 30, 2024, compared to net
cash provided by financing activities of $21 million for the prior year. The net change of $172 million was
primarily due to increased net borrowings from debt to finance our investments and increased acquisitions of
noncontrolling interests in subsidiaries, partially offset by decreased repurchases of common stock.
43
The following table summarizes selected measures of liquidity and capital resources:
March 30,
December 30,
2024
2023
Cash and cash equivalents
$
159
$
171
Working capital
1,744
1,805
Debt:
Bank credit lines
$
264
$
264
Current maturities of long-term debt
103
150
Long-term debt
2,010
1,937
Total debt
$
2,377
$
2,351
Leases:
Current operating lease liabilities
$
75
$
80
Non-current operating lease liabilities
266
310
(1)
Includes $497 million and $284 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at March 30, 2024 and December 30, 2023, respectively.
Our cash and cash equivalents consist of bank balances and investments in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations increased to 50.4 days as of March 30, 2024 from
43.4 days as of April 1, 2023, which was primarily attributable to the impact of the cyber incident. During the three
months ended March 30, 2024, we wrote off approximately $2 million of fully reserved accounts receivable against
our trade receivable reserve. Our inventory turns from operations increased to 4.9 as of March 30, 2024 from 4.3 as
of April 1, 2023. Our working capital accounts may be impacted by current and future economic conditions.
Leases
We
have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles
and certain equipment. Our leases have remaining terms of less than one month to approximately 17 years, some of
which may include options to extend the leases for up to 15 years. As of March 30, 2024, our right-of-use assets
related to operating leases were $314 million and our current and non-current operating lease liabilities were $75
million and $266 million, respectively.
Stock 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.
From March 3, 2003 through March 30, 2024, we repurchased $4.8 billion, or 91,393,533 shares, under our
common stock repurchase programs, with $190 million available as of March 30, 2024 for future common stock
share repurchases.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have the right, at certain times, to require us
to acquire their ownership interest in those entities. 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. As of March 30, 2024 and April 1, 2023, our balance for redeemable noncontrolling
interests was $798 million and $864 million, respectively. Please see
44
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies and estimates from those disclosed in Item
7 of our Annual Report on Form 10-K for the year ended December 30, 2023.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted or will be adopted, see
Financial Statements included under Item 1.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk from that disclosed in Item 7A of our Annual
Report on Form 10-K for the year ended December 30, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report as such term is defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based
on this evaluation, our management, including our principal executive officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of March 30, 2024, to ensure that all
material information required to be disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and
that all such information is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and the rules of the Nasdaq stock exchange.
Changes in Internal Control over Financial Reporting
The combination of continued acquisition integrations and systems implementation activity undertaken during the
quarter and carried over from prior quarters when considered in the aggregate, represents a material change in our
internal control over financial reporting.
During the quarter ended March 30, 2024, post-acquisition integration related activities continued for our medical
and dental businesses acquired during prior quarters. These acquisitions, the majority of which utilize separate
information and financial accounting systems, have been included in our condensed consolidated financial
statements since their respective dates of acquisition.
In addition, we completed systems implementation activities related to a new ERP system for two of our dental
businesses in Brazil. Finally, we continued systems implementation activities in the US for two of our dental
businesses.
All continued acquisition integrations and systems implementation activity involve necessary and appropriate
change-management controls that are considered in our quarterly assessment of the design and operating
effectiveness of our internal control over financial reporting.
The deficiencies in internal control over financial reporting identified as of December 30, 2023 at the application
control level related to logical and user access management and segregation of duties have been the subject of
ongoing review and the development and implementation of specific remediation action plans, including the testing
and validation of control operating effectiveness, which is expected to be completed prior to year-end.
45
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the internal control system are met. Because of the inherent limitations of any internal control
system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company
have been detected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of Legal Proceedings, see
Financial Statements included under Item 1.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors disclosed in Part 1, Item 1A, of our Annual Report on
Form 10-K for the year ended December 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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 $4.9 billion, authorized by our Board of Directors, to the repurchase program provide for a total
of $5.0 billion (including $400 million authorized on February 8, 2023) of shares of our common stock to be
repurchased under this program.
As of March 30, 2024, we had repurchased approximately $4.8 billion of common stock (91,393,533 shares) under
these initiatives, with $190 million available for future common stock share repurchases.
The following table summarizes repurchases of our common stock under our stock repurchase program during the
fiscal quarter ended March 30, 2024:
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)
12/31/2023 through 2/3/2024
478,429
$
74.28
478,429
3,012,674
2/4/2024 through 3/2/2024
464,966
75.75
464,966
2,525,517
3/3/2024 through 3/30/2024
55,333
76.57
55,333
2,514,895
998,728
998,728
(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.
46
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the three months ended March 30, 2024, (i)
, the Company’s
, and (ii)
, the Company’s
,
each
adopted
intended to satisfy the affirmative defense of Exchange Act
-1(c), as well as the requirements of the
Company’s insider trading policy. Each plan is subject to an initial “cooling off” period during which there may be
no transactions between the adoption date and a date that is the later of 90 days or two business days following the
Company’s filing of its next quarterly report on Form 10-Q or Annual Report on form 10-K. On
,
Mr. Ettinger adopted the trading plan to sell a total of
a term through
. On
, Mr. Siegel adopted the trading plan to sell
a limit order at a specified price, with a term through
.
ITEM 6. EXHIBITS
101.INS
Inline XBRL Instance Document - the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
104
The cover page of Henry Schein, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended March 30, 2024, formatted in Inline XBRL (included within
Exhibit 101 attachments).+
** Indicates management contract or compensatory plan or agreement.
+ Filed or furnished herewith.
47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned thereunto duly authorized.
Henry Schein, Inc.
(Registrant)
By: /s/ Ronald N. South
Ronald N. South
Senior Vice President and
Chief Financial Officer
(Authorized Signatory and Principal Financial
and Accounting Officer)
Dated: May 7, 2024