Henry Schein 2020 10-K Annual Report

HSIC · CIK 1000228 · Form 10-K · Fiscal year ended December 26, 2020 · Filed February 17, 2021

22 sections, 514K characters. Original on sec.gov · Markdown · JSON

Risk Factors Business MD&A Financial Statements What changed vs 2019

Cover and table of contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,

D.C.

20549

FORM

10-K

(Mark One)

☒

ANNUAL REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 26, 2020

☐

TRANSITION REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from ____________ to ____________

Commission file number

0-27078

HENRY SCHEIN, INC

(Exact name of registrant as specified in its charter)

Delaware

11-3136595

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

135 Duryea Road

Melville

New York

(Address of principal executive offices)

11747

(Zip Code)

(

)

843-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b)

of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

Securities registered pursuant to Section

12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES

☒

NO:

☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES:

☐

☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934

during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing

requirements for the past 90 days.

YES

☒

NO:

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of

Regulation S-T

during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES

☒

NO:

☐

Indicate by check mark whether the registrant is a

large accelerated filer, an

accelerated filer, a non-accelerated filer,

a smaller reporting company,

or an

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller

reporting

company,”

and

“emerging

growth

company” in Rule 12b-2

of the Exchange Act.

Large accelerated filer

☒

Accelerated filer:

☐

Non-accelerated filer:

☐

Smaller reporting company:

☐

Emerging

growth company:

☐

If an

emerging growth

company,

indicate by

check mark

if the

registrant has

elected not

to use the

extended transition

period for

complying with

any

new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal

control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared

or issued its audit report. YES:

☒

NO:

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2

of the Exchange Act).

YES:

☐

NO:

☒

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price as

quoted on the Nasdaq Global Select Market on June 27, 2020, was approximately $

7,932,914,000

As of February 8, 2021, there were

142,464,090

shares of registrant’s Common Stock, par value $.01 per share, outstanding.

Documents Incorporated by Reference:

Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year

(December 26, 2020) are incorporated by reference in Part III hereof.

TABLE OF CONTENTS

Page

Number

Unresolved Staff Comments

Mine Safety Disclosures

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters

and Issuer Purchases of Equity Securities

ITEM 6.

Selected Financial Data

ITEM 7.

Management's Discussion and Analysis of Financial Condition

and Results of Operations

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

ITEM 8.

Financial Statements and Supplementary Data

ITEM 9.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure

ITEM 9A.

Controls and Procedures

Directors, Executive Officers and Corporate Governance

ITEM 11.

Executive Compensation

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

ITEM 14.

Principal Accounting Fees and Services

PART IV.

ITEM 15.

Exhibits,

Financial Statement Schedules

PART

Item 1. Business

Business

General

Henry Schein, Inc. is a solutions company for health care professionals powered

by a network of people and

technology. We

believe we are the world’s largest provider of health care products and services primarily to office-

based dental and medical practitioners, as well as alternate sites of care.

Our philosophy is grounded in our

commitment to help customers operate a more efficient and successful business so

the practitioner can provide

better clinical care.

With more than 88 years of experience distributing health care products, we have built a vast set of small,

mid-sized

and large customers in the dental and medical markets, serving more than one

million customers worldwide across

dental practices and laboratories and physician practices, as well as government,

institutional health care clinics and

other alternate care clinics.

We are headquartered in Melville, New York,

employ more than 19,000 people (of which approximately 9,800 are

based outside the United States) and have operations or affiliates in 31 countries and

territories, including the

United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China,

the Czech Republic, France, Germany,

Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New

Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,

Thailand, United Arab Emirates

and the United Kingdom.

This broad global footprint has evolved over time through our organic success as well

through contribution from strategic acquisitions.

Our business extends far beyond our supply chain capabilities across

the globe. We provide a wide breadth

of products, value-added solutions and support to customers, including

consumables and equipment. Through

Henry Schein One, we offer dental practice management, patient engagement

and demand creation software

solutions. We also offer a broad range of financial services for our customers to help them operate and expand their

business operations. We believe our hands-on consultative approach to support practice decision-making is a key

differentiator for our business.

We offer

a comprehensive selection of more than 120,000 branded products

and Henry Schein private brand

products in stock, as well as more than 180,000 additional products

available as special-order items.

As the market continues to evolve toward solutions that offer ease and convenience for

ordering products and

communicating with our solutions teams, we are investing in digital enhancements

to our e-commerce platforms

and our web capabilities.

We have established over 3.5 million square feet of space in 28 strategically located distribution centers around the

world to enable us to better serve our customers and increase our operating

efficiency.

Our infrastructure allows us

to provide rapid and accurate order fulfillment. Historically, approximately 99% of items have been shipped

without back ordering and were shipped on the same business day the order

is received.

Due to the significant

increase in demand for personal protective equipment (“PPE”), as a result

of the COVID-19 pandemic, during the

year ended December 26, 2020, approximately 93% of items ordered

were shipped without back ordering and 90%

were shipped on the same business day the order was received.

As the demand for PPE stabilizes, we expect our

percentage of items shipped without back ordering and shipped on the

same day to return to historic levels.

This

infrastructure, together with broad product and service offerings at competitive

prices, and a strong commitment to

customer service, enables us to be a single source of supply for our customers’

needs.

We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and

value-added services.

These segments offer different products and services to the same customer base.

The health care distribution reportable segment aggregates our global

dental and medical operating segments.

This

combined dental and medical segment distributes consumable products,

small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals,

vaccines, surgical products, diagnostic

tests, infection-control products

and vitamins.

Our global dental group serves office-based dental practitioners,

dental laboratories, schools, government and other institutions.

Our global medical group serves 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.

While our primary go-to-market strategy is in our capacity as a

distributor, we also manufacture certain dental specialty products in the areas of implants, orthodontics

and

endodontics. We have achieved scale in these global businesses primarily through acquisitions as manufacturers of

these products typically do not utilize a distribution channel to serve customers.

As an alternative to branded product options, we also market under our own

private label portfolio of cost-effective,

high-quality consumable merchandise products for our dental and medical customers.

Sales of our private label

products generally achieve gross profit margins that are higher than the average margin on the other

products we

sell.

Our global technology and value-added services group provides software,

technology and other value-added

services to health care practitioners.

Henry Schein One, the largest contributor of sales to this category, offers

software systems for dental practitioners. This segment also includes a

small medical software business known as

MicroMD. In addition, we offer physicians a broad suite of electronic health records,

integrated revenue cycle

management, and patient communication services. Finally, our value-added practice solutions include financial

service offerings, which include practice finance solutions such as credit card billing

and facilitation of customer

loans (on a non-recourse basis) to acquire equipment and technology, as well as solutions to broker dental practice

transitions. We do not take on the liability of such loans but instead receive an origination fee for coordinating

loans between practice customers and third-party banking groups.

Recent Developments

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent

Developments” herein for a discussion related to the COVID-19

pandemic and recent corporate transactions.

Industry

The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and

diverse.

The industry ranges from sole practitioners working out of

relatively small offices to mid-sized and large

group practices ranging in size from a few practitioners to several hundred

practices owned or operated by dental

support organizations (DSOs), hospital systems, or integrated delivery networks

(IDNs).

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, hygienist or office manager.

Supplies and small equipment are generally purchased from

more than

one distributor, with one generally serving as the primary supplier.

The health care distribution industry continues to experience growth due

to demand dri

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Item 1A. Risk Factors

Our business operations could be affected by factors that are not presently known

to us or that we currently

consider not to be material to our operations, so you should not consider

the risks disclosed in this section to

necessarily represent a complete statement of all risks and uncertainties.

The Company believes that the following

risks could have a material adverse impact on our business, reputation, financial

results, financial condition and/or

the trading price of our common stock.

The order in which these factors appear does not necessarily reflect

their

relative importance or priority.

COMPANY RISKS

Our business, results of operations, cash flows, financial condition and

liquidity may be negatively impacted by

the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public

health concerns and other

natural disasters

The COVID-19 pandemic and the responses of governments

to it had, and may again have, a

material adverse effect on our business, results of operations and cash flows and may

result in a material

adverse effect on our financial condition and liquidity.

Our business, results of operations, cash flows, financial condition and

liquidity may be negatively impacted by the

effects of disease outbreaks, epidemics, pandemics, similar wide-spread public health concerns,

and other natural

disasters. The COVID-19 pandemic has had, and continues to have,

an unprecedented impact on society, worldwide

economic activity, and the health care sector (particularly, the dental market). As a global healthcare solutions

company, the COVID-19 pandemic and the governmental responses to it had, and may again have, a material

adverse effect on our business, results of operations and cash flows and may result in a

material adverse effect on

our financial condition and liquidity. In March and April 2020, the dental market was severely impacted by

COVID-19, with many, if not a majority, of practices being closed or open on a limited basis only. Although dental

practice openings and patient volume recovery in the United States and

many other countries have rebounded faster

than originally anticipated, patient volumes have remained below pre-COVID-19

levels.

Material uncertainty

remains and the potential for additional significant resurgences of COVID-19

could cause a significant reduction in

dental practice openings and patient volume recovery, or further delay the return to normal operations. Even

after

COVID-19 has subsided, we may again experience material adverse

impacts to our business, results of operations

and cash flows as a result of, among other things, its global economic

impact, including any recession that may

occur in the future, or a prolonged period of economic slowdown or the

reluctance of patients to return for elective

dental or medical care. The impacts and potential impacts from

the COVID-19 pandemic include, but are not

limited to:

Significant reductions in demand or significant volatility in demand for certain of our products.

For example, in

March and April 2020, many dental offices in the United States performed only emergency procedures,

and

rescheduled wellness exams and elective procedures. Dental offices in other countries

also experienced closures or

restricted operations, as did medical offices around the world. Such closures and restrictions

impacted our

customers’ spending with us and had, and if reinstated may again have, a material

adverse effect on our business,

results of operations and cash flows. Although dental practice openings and

patient volume recovery have

rebounded faster than originally anticipated, capacity constraints

in offices and demand-side factors may again lead

to reductions in demand or significant volatility in demand for our products. Additionally, significant reduction in

demand for certain of our products or customers’ decisions to delay

the purchase of large equipment may result in

us having increased inventory;

Shortage of Certain Personal Protective Equipment (PPE

). Supply chain disruptions for PPE and an increased

demand for these products has resulted, and may continue to result,

in backorders of certain PPE and a potential

scarcity in raw materials to make certain PPE. Prices for certain PPE have been

volatile. Although we believe that

most practices currently are able to access adequate supply, with some exceptions in certain markets depending on

a number of factors, including the progress of the virus and efforts to combat it, we

still may be unable to supply

our customers with the quantity of certain PPE products they demand,

which may lead to our customers seeking

alternative sources of supply. Furthermore, healthcare professionals’ inability to obtain a sufficient quantity of

certain PPE would

adversely impact our business, results of operations and cash flows,

and could materially

adversely affect our financial condition and liquidity. Conversely, we recorded significant charges throughout the

year beginning in the second quarter for PPE inventory due to volatility

of pricing for PPE, and, depending upon

the course of the pandemic, if PPE pricing or demand decreases, our

margins and the value of certain our PPE

inventory could be further negatively impacted in future periods, which

could result in a material adverse impact on

our business, results of operations and cash flows and our financial condition

and liquidity;

Reduction in Peoples’ Ability and Willingness to be in Public.

Restrictions recommended by several public health

organizations, and implemented by many local governments, to slow and limit the transmission

of COVID-19

(including business closures and restrictions, stay-at-home and similar measures)

were implemented and then lifted

or partially lifted in some locations and reinstituted in others. Ongoing

social distancing ordinances and similar

restrictions, and the actual and potential for additional resurgences of COVID-19

has in some locations and may in

other locations result in the re-imposition or tightening of governmental

social distancing and other restrictions,

and/or cause people to be less willing to go to elective medical and dental

appointments, which could again

materially adversely affect demand for our products. A lengthened period of materially

suppressed demand could

again cause material adverse impacts on our business, results of operations

and cash flows and could materially

adversely affect our financial condition and liquidity;

Potential delays in customer payments, or defaults on our customer credit arrangements.

We generally sell

products to customers with payment terms. If customers’ cash

flows or operating and financial performance

deteriorate due to the impact of COVID-19, or if they are unable to make scheduled

payments or obtain credit, they

may not be able to pay, or may delay payment to us. Likewise, for similar reasons, suppliers may restrict credit or

impose more stringent payment terms. The inability of current and/or

potential customers to pay us for our products

and/or services or any demands by suppliers for more stringent payment terms

may materially adversely affect our

business, results of operations, cash flows, financial condition and

liquidity and may limit the amounts we can

borrow under our trade accounts receivable securitization;

Impact on third parties’ ability to meet their obligations to us; impact on our ability to meet obligations

to third

parties.

Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors,

contractors (including third-party shippers), banks, joint venture partners

and external business partners, to meet

their obligations to us, or significant disruptions in their ability to do

so, which may be caused by their own

financial or operational difficulties, or by travel restrictions and

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Item 1B. Unresolved Staff Comments

Unresolved Staff Comments

We have no unresolved comments from the staff of the SEC that were issued 180 days or more preceding the end of

our 2020 fiscal year.

Item 2. Properties

Properties

We own or lease the following properties with more than 100,000 square feet:

Own or

Approximate

Lease Expiration

Property

Location

Lease

Square Footage

Date

Corporate Headquarters

Melville, NY

Lease

185,000

July 2036

Corporate Headquarters

Melville, NY

Own

105,000

N/A