filings.toolsHenry Schein 10-K 2023-12-30
Filed 2024-02-28. 24 sections, 499K characters. Original on sec.gov · Markdown · JSON
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 30, 2023
☐
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:
☐
NO
:
☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
:
☒
NO:
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES
:
☒
NO:
☐
Indicate by check mark whether the registrant is a
large accelerated filer, an
accelerated filer, a non-accelerated filer,
a smaller reporting company,
or an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
:
☒
Accelerated filer:
☐
Non-accelerated filer:
☐
Smaller reporting company:
☐
Emerging growth company:
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant 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.
☒
If securities are registered pursuant to
Section 12(b) of the Act, indicate by
check mark whether the financial statements of
the registrant included in the
filing reflect the correction of an error to previously issued financial statements.
☐
Indicate
by
check
mark
whether
any
of
those
error
corrections
are
restatements
that
required
a
recovery
analysis
of
incentive-based
compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 July 1, 2023, was approximately $
10,506,752,000
.
As of February 20, 2024, there were
128,505,719
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 30, 2023) are incorporated by reference in Part III hereof.
TABLE OF CONTENTS
Page
Number
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Management's Discussion and Analysis of Financial Condition
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
PART
I
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 91 years of experience distributing health care products, we have built a vast set of small,
mid-sized
and large customers in the dental and medical markets, serving more than one million
customers worldwide across
dental practices, laboratories,
physician practices, and ambulatory surgery centers, as well as government,
institutional health care clinics and other alternate care clinics.
We are headquartered in Melville, New York
and employ more than 25,000 people.
Approximately 55% of our
workforce is based in the United States and approximately 45% is based outside
of the United States.
We 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 stock a comprehensive selection of more than 300,000 branded products and Henry Schein corporate brand
products through our main distribution centers.
Our infrastructure, including over 5.3 million square feet of space
in 36 strategically located distribution and 22 manufacturing facilities around
the world, enables us to historically
provide rapid and accurate order fulfillment, better serve our customers and
increase our operating efficiency.
This
infrastructure, together with broad product and service offerings at competitive
prices, and a strong commitment to
customer service, enables us to be a single source of supply for our customers’
needs.
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services.
These segments offer different products and services to the same customer base.
Our dental
businesses serve office-based dental practitioners, dental laboratories, schools, government
and other
institutions.
Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,
emergency
medical technicians, dialysis centers, home health, federal and state governments
and large enterprises, such as
group practices and integrated delivery networks, among other providers
across a wide range of specialties.
The health care distribution reportable segment, combining our global dental
and medical 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,
personal protective equipment
products (“PPE”) and vitamins.
While our primary go-to-market strategy is in our capacity as a
distributor, we also
market and sell under our own corporate brand portfolio of cost-effective, high-quality consumable
merchandise
products, and manufacture certain dental specialty products in the areas of oral
surgery, implants, orthodontics and
endodontics.
The technology and value-added services reportable segment provides
software, technology and other value-added
services to health care practitioners.
Henry Schein One, the largest contributor of sales to this category, offers
dental practice management solutions for dental and medical practitioners.
In addition, we offer dentists and
physicians a broad suite of electronic health records, patient communication
services including electronic marketing
and website design, analytics and patient demand generation.
Our value-added practice solutions include practice
consultancy, education, integrated revenue cycle management and the facilitation of financial service offerings (on
a non-recourse basis) to help dentists and physicians operate and expand
their business operations,
e-services,
practice technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
We believe our hands-on consultative approach to provide solutions to support practice decision-
making is a key differentiator for our business.
Recent Developments
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent
Developments” herein for a discussion related to recent Company developments.
Industry
The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and
diverse.
The industry ranges from sole practitioners working out of
relatively small offices to mid-sized and large
group practices ranging in size from a few practitioners to several
hundred practices owned or operated by dental
support organizations (“DSOs”), medical group purchasing organizations (“GPOs”), hospital
systems or integrated
delivery networks.
Due in part to the limited capacity of office-based health care practitioners
to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment
to office-based health care
practitioners has been characterized by frequent, small quantity orders,
and a need for rapid, reliable and
substantially complete order fulfillment.
The purchasing decisions within an office-based health care practice
are
typically made by the practitioner, hygienist or office manager.
Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
The health care distribution industry continues to experience growth due
to demand driven by the aging population,
increased health care awareness and the importance of preventative care,
an increasing understanding of the
connection between good oral health and overall health, improved access
to care globally, the proliferation of
medical technology and testing, new pharmacology treatments and
expanded third-party insurance coverage,
partially offset by the effects of unemployment on insurance coverage and technological
improvements, including
the advancement of software and services, prosthetic solutions and telemedicine.
In addition, the non-acute market
continues to benefit from the shift of procedures and diagnostic
testing from acute care settings to alternate-care
sites, particularly physicians’ offices and ambulatory surgery centers.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking
to combine with larger companies that can
provide growth opportunities.
This consolidation also may continue to result in distributors seeking
to acquire
companies that can enhance their current product and service offerings or provide
opportunities to serve a broader
customer base.
In addition, customer consolidation will likely lead to multiple locations
under common management and the
movement of more procedures from the hospital setting to the physician
or alternate care setting as the health care
industry is increasingly focused on efficiency and cost containment.
This trend has benefited distributors capable
of providing a broad array of products and services at low prices.
It also has accelerated the growth of health
maintenance organizations (“HMOs”), group practices, other managed care accounts
and collective buying groups,
which, in addition to their emphasis on obtaining products at competitive
prices, tend to favor distributors capable
of
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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
We are dependent upon third parties for the manufacture and supply of a significant volume of our products.
We obtain a significant volume of the products we distribute from third parties, with whom we generally do not
have long-term contracts.
While there is typically more than one source of supply, some key suppliers, in the
aggregate, supply a significant portion of the products we sell.
In 2023, our top 10 health care distribution suppliers
and our single largest supplier accounted for approximately 25% and 4%, respectively, of our aggregate purchases.
Because of our dependence upon such suppliers, our operations are
subject to the suppliers’ ability and willingness
to supply products in the quantities that we require, and the risks include delays
caused by interruption in
production based on conditions outside of our control, including
a supplier’s failure to comply with applicable
government requirements (which may result in product recalls and/or
cessation of sales) or an interruption in the
suppliers’ manufacturing capabilities.
In the event of any such interruption in supply, we would need to identify
and obtain acceptable replacement sources on a timely basis.
There is no guarantee that we would be able to obtain
such alternative sources of supply on a timely basis, if at all, and an extended
interruption in supply, particularly of
a high-sales volume product, could result in a significant disruption in our
sales and operations, as well as damage
to our relationships with customers and our reputation.
In addition, certain of our suppliers have had their ability to
service certain markets restricted or negatively impacted because
of allegations of forced labor in their supply
chain.
Forced labor legislation affecting the supply chain has increased around
the world, and the United States
recently passed the Uyghur Forced Labor Prevention Act.
Our supply chain could be materially disrupted if our
suppliers fail to comply with, or are unable to satisfy our demand
for products, as a result of applicable forced labor
legislation and regulations.
Our
future
growth
(especially
for
our
technology
and
value-added
services
segment)
is
dependent
upon
our
ability
to
develop
or
acquire
and
maintain
and
protect
new
products
and
technologies
that
achieve
market
acceptance with acceptable margins.
Our future success depends on our ability to timely develop (or obtain the right
to sell) competitive and innovative
(particularly for our technology and value-added services segment)
products and services and to market them
quickly and cost-effectively.
Our ability to anticipate customer needs and emerging trends and develop or acquire
new products, services and technologies at competitive prices requires significant
resources, including employees
with the requisite skills, experience and expertise, particularly in our
technology segment, including dental practice
management, patient engagement and demand creation software solutions.
The failure to successfully address these
challenges could materially disrupt our sales and operations.
Additionally, our software and e-services products,
like software products generally, may contain undetected errors or bugs when introduced or as new versions are
released.
Any such defective software may result in increased expenses
related to the software and could adversely
affect our relationships with customers as well as our reputation.
With respect to certain software and e-services
that we develop, we rely primarily upon copyright, trademark and
trade secret laws, as well as contractual and
common law protections and confidentiality obligations.
We cannot provide assurance that such legal protections
will be available, adequate or enforceable in a timely manner to protect
our software or e-services products.
Risks inherent in acquisitions, dispositions and joint ventures could
offset the anticipated benefits.
One of our business strategies has been to expand our domestic and
international markets in part through
acquisitions and joint ventures and we expect to continue to make acquisitions
and enter into joint ventures in the
future.
Such transactions require significant management attention,
may place significant demands on our
operations, information systems, legal, regulatory, compliance, financial, and human resources functions, and
there
is risk that one or more may not succeed.
We cannot be sure, for example, that we will achieve the benefits of
revenue growth that we expect from these acquisitions or joint ventures
or that we will avoid unforeseen additional
costs, taxes, or expenses.
Our ability to successfully implement our acquisition and joint venture
strategy depends
upon, among other things, the following:
the availability of suitable acquisition or joint venture candidates at
acceptable prices;
our ability to consummate such transactions, which could potentially
be prohibited due to U.S. or
foreign antitrust regulations;
the liquidity of our investments and the availability of financing on
acceptable terms;
our ability to retain customers or product lines of the acquired businesses or
joint ventures;
our ability to retain, recruit and incentivize the management of the
companies we acquire; and
our ability to successfully integrate these companies’ operations, services,
products and personnel with
our culture, management policies, legal, regulatory, and compliance policies, cybersecurity systems and
policies, internal procedures, working capital management, financial,
and operational controls and
strategies.
Furthermore, some of our acquisitions and future acquisitions may give
rise to an obligation to make contingent
payments or to satisfy certain repurchase obligations, which payments
could have material adverse impacts on our
financial results individually or in the aggregate.
Additionally, when we decide to sell assets or a business, we may encounter difficulty in finding buyers or
executing alternative exit strategies on acceptable terms in a timely manner, which could delay
the accomplishment
of our strategic objectives.
Alternatively, we may dispose of assets or a business at a price or on terms that are less
than we had anticipated.
Dispositions may also involve continued financial involvement
in a divested business,
such as through transition service agreements, indemnities or other current
or contingent financial obligations.
Under these arrangements, performance by the acquired or divested
business, or other conditions outside our
control, could affect our future financial results.
Certain provisions in our governing documents and other documents to
which we are a party may discourage
third parties from seeking to acquire us that might otherwise result in
our stockholders receiving a premium
over the market price of their shares.
The provisions of our certificate of incorporation and by-laws may
make it more difficult for a third-party to
acquire us, may discourage acquisition bids and may impact the price
that certain investors might be willing to pay
in the future for shares of our common stock.
These provisions, among other things require (i) the affirmative vote
of the holders of at least 60% of the
Showing the first 8K of 71K characters. Open the full section
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 2023 fiscal year.
Item 1C. Cybersecurity
Cybersecurity
We rely on information systems in our business to obtain, rapidly process, analyze, manage and store customer,
product, supplier and employee data to, among other things: maintain
and manage multiple information systems
worldwide to facilitate the purchase and distribution of thousands of
inventory items from numerous distribution
centers; receive, process and ship orders on a timely basis; manage the
accurate billing and collections for
thousands of customers; process payments to suppliers and vendors; provide
products and services that maintain
certain of our customers’ electronic medical or dental records (including
protected health information of their
patients) and maintain and manage global human resources, compensation
and payroll systems.
For these purposes,
we define “information systems” in a manner consistent with the definition
contained in the new rules recently
adopted by the SEC to mean “electronic information resources, owned or used
by the registrant, including physical
or virtual infrastructure controlled by such information resources, or components
thereof, organized for the
collection, processing, maintenance, use, sharing, dissemination, or disposition
of the registrant's information to
maintain or support the registrant's operations.”
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk mitigation strategy intended to protect our information
systems.
Our cybersecurity risk mitigation strategy is designed
so that the Company’s cybersecurity program is
aligned with generally accepted cybersecurity standards and frameworks,
in particular the NIST Cybersecurity
Framework, or “NIST CSF,” and our Company is externally audited, or certified, with ISO27001 partial scope.
We maintain an Office of Cybersecurity (“OCS”), led by our Chief Information Security Officer (“CISO”), which
oversees the operations of our cyber risk mitigation strategy.
The OCS is a cross-functional, enterprise-wide
management team, which continuously evaluates our global cybersecurity
program’s effectiveness and is focused
on maintaining and protecting our information systems.
In overseeing the operations of our cyber risk mitigation
strategy, the OCS partners with our Global Technology Solutions team, which is led by our Chief Technology
Officer (“CTO”) and is comprised of over one hundred professionals that support our information
systems and
operations.
Our cyber risk mitigation strategy includes monitoring for
and addressing risks that materialize within
the Company’s information systems, as well as at our third-party vendors, suppliers and other third-party business
partners.
Our CISO reports to our CTO.
Our CTO,
who also serves as Senior Vice President,
has more than 30 years of
experience leading large-scale global IT organizations and received a Bachelor of Business Administration
in
Business Computer Information Systems and a Master of Business Administration
from Hofstra University.
See
also
Item 1. Business, Other Executive Management
Our Vice President, Global CISO, who also serves as Vice
President and Head of the Office of Cyber Security, is a National Security Agency Certified Information Systems
Securities Engineer, has nearly 30 years of experience leading global cybersecurity programs, and received
a BS,
Electrical Engineering and Computer Science from Lafayette College,
and a Master of Science, Business,
Information Technology Management from Johns Hopkins University.
The cybersecurity risk mitigation strategy
is also overseen by senior managers who are members of our Executive
Steering Committee, comprised of the
Company’s most senior technology, legal and internal auditing officers.
Our CEO is regularly briefed on issues,
incidents, and developments, and our Board oversees our risk mitigation
strategy principally through its Audit
Committee and Regulatory, Compliance and Cybersecurity Committee, as described in more detail below.
Our cybersecurity risk management program includes, among other
elements:
●
risk assessments designed to help identify material cybersecurity risks
to our information systems;
●
a security team principally responsible for managing our (i) cybersecurity
risk assessment processes, and
(ii) defining cybersecurity control standards;
●
the use of expert external service providers to assess, test or otherwise assist
with aspects of our
cybersecurity controls, and to respond to specific cybersecurity threats;
●
the review and assessment of past cybersecurity incidents with a view to learning
from those events to
further strengthen our cyber risk mitigation strategy;
●
a written cybersecurity incident response plan that includes procedures
for responding to cybersecurity
incidents; and
●
a Global Information Security Policy, together with more detailed information security policies,
procedures, standards, and guidelines.
In addition, all employees with systems access are required to participate
in mandatory annual cybersecurity and
anti-phishing courses, along with compliance programs.
Our employees who perform financial gatekeeper roles
also receive additional mandatory annual data security training specific
to spoofing, phishing and similar data
security threats.
Per written Company policies, employees are also required
to safeguard confidential information.
Our cybersecurity risk strategy is integrated into our overall enterprise
risk management program, and our
cybersecurity team is supported by and connected with the enterprise risk
management team.
Prior Cybersecurity Incidents
In addition to immaterial and unrelated prior incidents at certain of
our subsidiaries, in October 2023 Henry Schein
experienced a cybersecurity 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. Once we became aware of the issue, we took steps
to assess, contain and
remediate this incident.
We restored affected systems and applications, our distribution operations resumed and we
reactivated our ecommerce platform.
We also notified law enforcement and our employees, customers, suppliers
and investors, informing them of both the incident and management’s efforts to mitigate its impact on our daily
operations and data maintained on the Company’s systems.
Subsequently, on or about November 8, 2023, we
determined that the threat actor obtained personal and sensitive information
maintained on our systems belonging to
certain third parties and since that date we have notified affected and potentially affected parties
as appropriate.
The scope of personal and sensitive data impacted is still under investigation.
On November 22, 2023, we
experienced a related disruption to our ecommerce platform and related
applications, which has since been
remediated.
As described in “Management’s Discussion & Analysis – 2023 Compared to 2022, the incident
adversely impacted our financial results for the fourth quarter and full year 2023.
We also expect some short-term
residual impact on our financial results in 2024.
It is part of the mission of our cybersecurity risk mitigation strategy to constantly
evolve our cybersecurity defenses
to adapt to evolving risks, and to learn from prior incidents, and we
have evaluated and continue to evaluate the
incident with the assistance of third-party expert consultants.
Members of the Audit Committee and Regulatory,
Compliance and Cybersecurity Committee of our Board of Directors are
conducting a review of the October 2023
cybersecurity incident, including the measures undertaken in response to the incident.
Cybersecurity Governance
Our Board has a Regulatory, Compliance and Cybersecurity Committee that focuses on cybersecurity oversight,
together with other board committees, principally the Audit Committee.
The purpose of the Regulatory,
Compliance and Cybersecurity Committee is to assist the Board by providing
guidance to, and oversight of, the
Company’s senior management responsible for assessing and managing Company-wide regulatory, corporate
compliance and cybersecurity risk management programs.
The primary responsibilities of the Regulatory,
Compliance and Cybersecurity Committee are to (i) discuss cybersecurity
strategic decisions, issues, challenges and
opportunities relating thereto, (ii) provide expertise to guide assessment
and monitoring of Company-wide
regulatory, corporate compliance and cybersecurity risk management budgeting, spending and capital investment,
(iii) monitor progress and status of the Company’s regulatory, corporate compliance and cybersecurity risk
management programs, (iv) review and evaluate major regulatory, corporate compliance and cybersecurity risk
management initiatives to identify emerging and future opportunities for synergy or to
leverage regulatory,
corporate compliance and cybersecurity risk management investments
more effectively and cost efficiently,
(v) report to the Audit Committee on regulatory, corporate compliance and cybersecurity risk management matters
reviewed by the Regulatory, Compliance and Cybersecurity Committee that may impact the Company’s financial
reporting and (vi) be generally available to, and communicate with,
the Company’s senior management, and to
inform the Board in the areas described above.
Our CISO and CTO, along with other key executives who are part of our Executive
Steering Committee, review
strategy, policy,
program effectiveness, standards, enforcement and cybersecurity issue management
with the
Board’s Regulatory,
Compliance and Cybersecurity Committee on at least a quarterly basis and
with the Audit
Committee on at least a bi-annual basis.
Our CTO meets with Board members outside of the formal meetings on a
regular basis as well as in connection with specific cybersecurity issues or
threats.
Item 2. Properties
Properties
Within our health care distribution segment (for properties with more than 100,000 square feet) we lease
and/or
own approximately 5.7 million square feet of properties, consisting of distribution,
office, showroom,
manufacturing and sales space, in locations including the United States, Australia,
Austria, Belgium, Brazil,
Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan,
Liechtenstein, Luxembourg, Malaysia, Mexico, Morocco, the Netherlands, New Zealand,
Poland, Portugal,
Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, United
Arab Emirates and the United Kingdom.
Lease expirations range from 2024 to 2041.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry on
our business.
We have additional operating capacity at certain distribution center facilities.
Item 3. Legal Proceedings
Legal Proceedings
For a discussion of Legal Proceedings, see
Note 16 – Commitments and Contingencies
of the Notes to the
Consolidated Financial Statements included under Item 8.
Item 4. Mine Safety Disclosures
Mine Safety Disclosures
Not applicable.
PART
II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the Nasdaq Global Select Market tier of
the Nasdaq Stock Market, or Nasdaq,
under the symbol HSIC.
On February 20, 2024, there were approximately 107,000 holders
of record of our common stock and the last
reported sales price was $75.64.
A substantially greater number of holders of our common stock are “street
name”
or beneficial holders, whose shares are held by banks, brokers and other financial
institutions.
Purchases of Equity Securities by the Issuer
Our share repurchase program, announced on March 3, 2003, originally
allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common
stock, which represented
approximately 2.3% of the shares outstanding at the commencement
of the program.
Subsequent additional
increases totaling $4.9 billion, authorized by our Board, 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 December 30, 2023,
we had repurchased approximately $4.7 billion of common stock (90,394,805
shares)
under these initiatives, with $265 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 December 30, 2023:
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)
10/1/2023 through 11/4/2023
-
-
-
5,048,074
11/5/2023 through 12/2/2023
-
-
-
4,529,764
12/3/2023 through 12/30/2023
692,441
$
72.32
692,441
3,499,205
692,441
692,441
(1)
All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
This table excludes shares withheld from employees to satisfy minimum tax
withholding requirements for equity-based transactions.
Dividend Policy
We have not declared any cash or stock dividends on our common stock during fiscal years 2023 or 2022.
We
currently do not anticipate declaring any cash or stock dividends on our common
stock in the foreseeable future.
We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including
our share repurchase program.
Any declaration of dividends will be at the discretion of our Board and
will depend
upon the earnings, financial condition, capital requirements, level
of indebtedness, contractual restrictions with
respect to payment of dividends and other factors.
$50
$100
$150
$200
$250
$300
December
2018
December
2019
December
2020
December
2021
December
2022
December
2023
Henry Schein, Inc.
Dow Jones US Health Care Index
NASDAQ Composite Index
Stock Performance Graph
The graph below compares the cumulative total stockholder return
on $100 invested, assuming the reinvestment of
all dividends, on December 29, 2018, the last trading day before the
beginning of our 2019 fiscal year, through the
end of our 2023 fiscal year with the cumulative total return on $100
invested for the same period in the Dow Jones
U.S. Health Care Index and the Nasdaq Stock Market Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
RETURN
ASSUMES $100 INVESTED ON DECEMBER 29, 2018
ASSUMES DIVIDENDS REINVESTED
December 29,
December 28,
December 26,
December 25,
December 31,
December 30,
2018
2019
2020
2021
2022
2023
Henry Schein, Inc.
$
100.00
$
110.31
$
109.05
$
124.11
$
132.28
$
125.37
Dow Jones U.S. Health
Care Index
100.00
123.48
140.83
175.06
168.44
171.61
NASDAQ Stock Market
Composite Index
100.00
138.27
198.34
244.03
164.56
238.01
Item 6. [Reserved]
[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities
Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors
that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions
expressed or implied
herein.
All forward-looking statements made by us are subject to
risks and uncertainties and are not guarantees of
future performance.
These forward-looking statements involve known and unknown
risks, uncertainties and other
factors that may cause our actual results, performance and achievements
or industry results to be materially
different from any future results, performance or achievements expressed or implied by such
forward-looking
statements.
These statements are generally identified by the use of such
terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”
“to be,” “to make” or other comparable
terms.
Factors that could cause or contribute to such differences include, but are not limited
to, those discussed in
this Annual Report on Form 10-K, and in particular the risks discussed under
the caption “Risk Factors” in Item 1A
of this report and those that may be discussed in other documents we
file with the Securities and Exchange
Commission (“SEC”).
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.
Where You
Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations
page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.
Recent Developments
During the years ended December 30, 2023 and December 31, 2022 we
continued to experience a decrease in the
sales of PPE and COVID-19 test kits as compared to the comparable
prior-year periods, primarily due to lower
market pricing of PPE and lower market demand for COVID-19
test kits.
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 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.
Cybersecurity Incident
In addition to immaterial and unrelated prior incidents at certain of
our subsidiaries, in October 2023 Henry Schein
experienced a cybersecurity 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. Once we became aware of the issue, we took steps
to assess, contain and
remediate this incident.
We restored affected systems and applications, our distribution operations resumed and we
reactivated our ecommerce platform.
We also notified law enforcement and our employees, customers, suppliers
and investors, informing them of both the incident and management’s efforts to mitigate its impact on our daily
operations and data maintained on the Company’s systems.
Subsequently, on or about November 8, 2023, we
determined that the threat actor obtained personal and sensitive information
maintained on our systems belonging to
certain third parties and since that date we have notified affected and potentially affected parties
as appropriate.
The scope of personal and sensitive data impacted is still under investigation.
On November 22, 2023, we
experienced a related disruption to our ecommerce platform and related
applications, which has since been
remediated.
As described in “Management’s Discussion & Analysis – 2023 Compared to 2022, the incident
adversely impacted our financial results for the fourth quarter and full year 2023.
We also expect some short-term
residual impact on our financial results in 2024.
We maintain cybersecurity insurance, subject to certain retentions and policy limitations.
With respect to the
October 2023 cybersecurity incident, we have a $60 million insurance policy, following a $5 million retention.
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
11,500 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 and vitamins.
Our global technology and value-added services business provides software, technology
and other value-added
services to health care practitioners.
Our technology business offerings include practice management software
systems for dental and medical practitioners.
Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse
basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which
is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain,
equipment sales and service and
other value-added services, allowing our customers to leverage the
combined value that we offer through a single
program.
Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our corporate brand products and proprietary specialty
products and solutions (including
implant, orthodontic and endodontic products).
In addition, customers have access to a wide range of services,
including software and other value-added services.
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
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 2023
and 2033, the 45 and older
population is expected to grow by approximately 11%.
Between 2023 and 2043, this age group is expected to grow
by approximately 21%.
This compares with expected total U.S. population growth
rates of approximately 6%
between 2023 and 2033
and approximately 11% between 2023 and 2043.
According to the U.S. Census Bureau’s International Database, in 2023
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 23% during
the same period.
As a result of these market dynamics, annual expenditures for health
care services continue to increase in the
United States.
We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions.
The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating
that total national health care spending reached
approximately $4.5 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
Our businesses are generally subject to numerous laws and regulations that could
impact our financial performance,
and failure to comply with such laws or regulations could have a
material adverse effect on our business.
See “
Item 1. Business – Governmental Regulations
” for a discussion of laws, regulations and governmental activity
that may affect our results of operations and financial condition.
Results of Operations
Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
in
our 2022 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results
of operations for the fiscal year 2022 compared to fiscal year 2021.
The following tables summarize the significant components of our operating
results and cash flows:
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Operating results:
Net sales
$
12,339
$
12,647
$
12,401
Cost of sales
8,478
8,816
8,727
Gross profit
3,861
3,831
3,674
Operating expenses:
Selling, general and administrative
2,956
2,771
2,634
Depreciation and amortization
Restructuring and integration costs
Operating income
$
$
$
Other expense, net
$
(73)
$
(26)
$
(21)
Gain on sale of equity investment
-
-
Net income
Net income attributable to Henry Schein, Inc.
Years
Ended
December 30,
December 31,
December 25,
2023
2022
2021
Cash flows:
Net cash provided by operating activities
$
$
$
Net cash used in investing activities
(1,135)
(276)
(677)
Net cash provided by (used in) financing activities
(315)
(333)
Plans of Restructuring and Integration Costs
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 years ended December 30, 2023, December 31, 2022, and December
25, 2021, we recorded
restructuring costs of $80 million, $128 million, and $8 million, respectively.
The restructuring costs for these
periods primarily related to severance and employee-related costs,
impairment of intangible assets, accelerated
amortization of right-of-use lease assets and fixed assets, other lease exit
costs, and certain business exit costs
discussed below.
During the year ended December 30, 2023, in connection with our restructuring
plan, we recorded an impairment of
an intangible asset of $12 million related to a planned disposal of a non-U.S.
business.
The disposal is expected to
be completed in 2024.
This impairment is included in the $80 million of restructuring
charges discussed above.
During the year ended December 31, 2022, in connection with our
restructuring plan, we vacated one of the
buildings at our corporate headquarters in Melville, New York, which resulted in an accelerated amortization of a
right-of-use lease asset of $34 million.
We also initiated the disposal of a non-profitable U.S. business and
recorded related costs of $49 million, which primarily consisted of
impairment of intangible assets and goodwill,
inventory impairment, and severance and employee-related costs.
These expenses are included in the $128 million
of restructuring charges discussed above.
The disposal was completed during the first quarter of 2023.
On August 26, 2022, we acquired Midway Dental Supply.
In connection with this acquisition, during the year
ended December 31, 2022, we recorded integration costs of $3 million
related to one-time employee and other
costs, as well as restructuring charges of $9 million, which are included in the
$128 million of restructuring charges
discussed above.
On November 20, 2019, we committed to a contemplated restructuring
initiative intended to mitigate stranded costs
associated with the spin-off of our animal health business and to rationalize operations
and provide expense
efficiencies.
These activities were originally expected to be completed by
the end of 2020 but we extended them to
the end of 2021 in light of the changes to the business environment brought
on by the COVID-19 pandemic.
The
restructuring activities under this prior initiative were completed
in 2021.
2023 Compared to 2022
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:
% of
% of
Increase / (Decrease)
2023
Total
2022
Total
$
%
Health care distribution
(1)
Dental
$
7,539
61.1
%
$
7,473
59.1
%
$
0.9
%
Medical
3,994
32.4
4,451
35.2
(457)
(10.3)
Total health care distribution
11,533
93.5
11,924
94.3
(391)
(3.3)
Technology and value-added services
(2)
6.5
5.7
11.4
Total
$
12,339
100.0
$
12,647
100.0
$
(308)
(2.4)
The components of our sales growth were as follows:
Local Currency Growth/(Decline)
Total Local
Currency
Growth/(Decline)
Foreign
Exchange
Impact
Total Sales
Growth/(Decline)
Local Internal
Growth
Acquisition
Growth
Extra Week
Impact
Health care distribution
(1)
Dental Merchandise
(1.6)
%
4.2
%
(1.0)
%
1.6
%
0.1
%
1.7
%
Dental Equipment
(0.9)
1.1
(2.1)
(1.9)
-
(1.9)
Total Dental
(1.4)
3.4
(1.3)
0.7
0.2
0.9
Medical
(11.2)
2.2
(1.3)
(10.3)
-
(10.3)
Total Health Care Distribution
(5.1)
2.9
(1.2)
(3.4)
0.1
(3.3)
Technology and value-added services
(2)
7.2
5.0
(0.8)
11.4
-
11.4
Total
(4.4)
3.1
(1.2)
(2.5)
0.1
(2.4)
(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 and vitamins.
(2)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
Global Sales
We report our results of operations on a 52 or 53 weeks per fiscal year basis ending on the last Saturday of
December.
The year ended December 30, 2023, consisted of 52 weeks,
and the year ended, December 31, 2022
consisted of 53 weeks,
resulting in an extra week of sales.
Global net sales for the year ended December 30, 2023 decreased 2.4%.
The components of our sales growth are
presented in the table above.
The 4.4% decrease in our internally generated local currency sales was primarily
attributable to a decrease in sales
of PPE products and COVID-19 test kits.
For the nine months ended September 30, 2023, the estimated
increase in
internally generated local currency sales, excluding PPE products
and COVID-19 test kits, was 3.5%.
However, as
a result of the adverse impact of the cybersecurity incident during the quarter
ended December 30, 2023, our
internally generated local currency sales, excluding sales of PPE products
and COVID-19 test kits, on a full year
basis were flat compared to the prior year.
In addition, we estimate that sales of PPE products and COVID-19
test kits were approximately $713 million and
$1,245 million for the years ended December 30, 2023 and December 31,
2022, respectively, representing an
estimated decrease of $532 million or 42.7%
versus the prior year, with the $532 million net decrease year-over-
year representing 4.2%
of global net sales for the year ended December 30, 2023.
Dental
Dental net sales for the year ended December 30, 2023 increased 0.9%.
The components of our sales growth are
presented in the table above.
Our decrease in internally generated local currency sales for dental
merchandise was
primarily attributable to the negative impact of the cybersecurity incident.
Our sales decrease in internally
generated local currency for dental equipment was also primarily attributable
to the impact of the cybersecurity
incident.
We estimate that sales of PPE products were approximately $338 million and $448 million for the years ended
December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease of $110 million or
24.5% versus the prior year, with the $110 million net decrease year-over-year representing 1.5% of dental net sales
for the year ended December 30, 2023.
The decrease in sales of PPE products is primarily due to lower
market
prices and loss of demand during the cybersecurity incident.
Our estimated internally generated local currency
sales, excluding PPE products were flat compared to the prior year.
Medical
Medical net sales for the year ended December 30, 2023 decreased 10.3%.
The components of our sales growth are
presented in the table above.
The internally generated local currency decrease in medical sales
is primarily
attributable to the impact of the cybersecurity incident that occurred
during the fourth quarter of the year ended
December 30, 2023 and to lower sales of PPE products and COVID-19
test kits and other point-of-care diagnostic
products.
We estimate that sales of PPE products and COVID-19 test kits were approximately $375 million and $797 million
for the years ended December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease
of
$422 million or 52.9% versus the prior year, with the $422 million net decrease year-over-year representing 10.6%
of medical net sales for the year ended December 30, 2023.
The decrease in sales of these products is primarily due
to lower market prices of PPE, lower market demand of COVID-19
test kits, and loss of sales of both product
categories during the cybersecurity incident.
The estimated decrease in internally generated local currency
sales,
excluding PPE products and COVID-19 test kits was 2.2%.
Technology and value-added services
Technology and value-added services net sales for the year ended December 30, 2023 increased 11.4%.
The
components of our sales growth are presented in the table above.
During the year ended December 30, 2023, the
trend for sales of practice management software growth remains
strong as we continued to increase the number of
cloud-based users.
We also experienced increased demand for our revenue cycle management solutions and our
analytical products.
The increase in sales during the year ended December 30, 2023
was partially offset by the
expiration, during the year ended December 31, 2022, of a modestly profitable
government contract in one of our
value-added services businesses.
This segment of our business was largely unaffected by the cybersecurity incident
in the fourth quarter.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows:
Gross
Gross
Increase / (Decrease)
2023
Margin %
2022
Margin %
$
%
Health care distribution
$
3,312
28.7
%
$
3,357
28.2
%
$
(45)
(1.3)
%
Technology and value-added services
68.0
65.5
15.7
Total
$
3,861
31.3
$
3,831
30.3
$
0.8
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 year ended December 30, 2023
decreased compared to the prior-year-
period due to the decrease in sales resulting from the cybersecurity
incident and a reduction in sales of PPE
products and COVID-19 test kits, partially offset by gross profit from acquisitions
and gross margin expansion as a
result of a favorable impact of sales mix of higher-margin products.
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, as well as an increase
in gross margin rates primarily due to
product mix and increases in productivity.
Operating Expenses
Operating expenses (consisting of selling, general and administrative
expenses; depreciation and amortization,
restructuring and integration costs) by segment and in total were as follows:
% of
% of
Respective
Respective
Increase
2023
Net Sales
2022
Net Sales
$
%
Health care distribution
$
2,842
24.6
%
$
2,738
23.0
%
$
3.8
%
Technology and value-added services
50.1
47.8
16.8
Total
$
3,246
26.3
%
$
3,084
24.4
%
$
5.3
%
The net increase in operating expenses is attributable to the following:
Operating Costs
Restructuring and
Integration Costs
Acquisitions
Total
Health care distribution
$
$
(55)
$
$
Technology and value-added services
Total
$
$
(51)
$
$
The increase in operating costs during the year ended December 30, 2023 includes
increases in payroll and payroll
related costs, travel, convention and consulting expenses in both of our reportable
segments and increased
acquisition expenses in our healthcare distribution segment.
During the year ended December 30, 2023, our
operating expenses were favorably impacted by the recognition of
a remeasurement gain of $18 million following
an acquisition of a controlling interest of a previously held equity
investment, and were negatively impacted by
restructuring, an impairment of capitalized costs of $27 million and impairment
of intangible assets of $7 million
within our health care distribution segment.
During the year ended December 30, 2023, we also incurred $11
million of direct costs, primarily professional fees, for the remediation of
the cybersecurity incident.
The
restructuring and integration costs are primarily related to severance and
employee-related costs, accelerated
amortization of right-of-use lease assets and fixed assets, and other lease exit
costs.
Other Expense, Net
Other expense, net was as follows:
Variance
2023
2022
$
%
Interest income
$
$
$
125.1
%
Interest expense
(87)
(35)
(52)
(148.7)
Other, net
(3)
(4)
n/a
Other expense, net
$
(73)
$
(26)
$
(47)
(172.9)
%
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 22.1% for the year ended December 30, 2023 compared to 23.5%
for the prior year.
In
each year, 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 we operate in jurisdictions which have
adopted Pillar 2, we are continuing to analyze the implications to effectively manage
the impact for 2024 and
beyond.
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
for further information.
Our ability to generate sufficient cash flows from
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.
As
part of our BOLD+1 Strategic Plan, including pursuing focused mergers and acquisitions,
during the year ended
December 30, 2023 we have announced acquisitions of companies specializing
in implant systems, clear aligners,
homecare medical products delivered directly to patients, and dental practice
transition services.
Net cash provided by operating activities was $500 million for the
year ended December 30, 2023, compared to net
cash provided by operating activities of $602 million for the prior year.
The net change of $102 million was
primarily attributable to lower cash net income.
During the quarter ended December 30, 2023, the cybersecurity
incident had several offsetting impacts to the operating cash flows from our working
capital, net of acquisitions,
including a decrease in operating cash flows from accounts receivable
due to delayed timing of billings and limited
collection efforts resulting from the impact of the cybersecurity incident, and an increase
in operating cash flows
resulting from reduced inventory purchases.
Net cash used in investing activities was $1,135 million for the
year ended December 30, 2023, compared to net
cash used in investing activities of $276 million for the prior year.
The net change of $859 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 provided by financing activities was $701 million for the year
ended December 30, 2023, compared to net
cash used in financing activities of $315 million for the prior year.
The net change of $1,016 million was primarily
due to increased net borrowings from debt
to finance our investments, partially offset by decreased repurchases of
common stock.
The following table summarizes selected measures of liquidity and capital
resources:
December 30,
December 31,
2023
2022
Cash and cash equivalents
$
$
Working
capital
(1)
1,805
1,764
Debt:
Bank credit lines
$
$
Current maturities of long-term debt
Long-term debt
1,937
1,040
Total debt
$
2,351
$
1,149
Leases:
Current operating lease liabilities
$
$
Non-current operating lease liabilities
(1)
Includes $284 million and $327 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitizations at December 30, 2023 and December 31, 2022, 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 46.2 days as of December 30, 2023
from 41.9 days as of December 31, 2022 due to delays in billings
leading to limited collections in the quarter ended
December 30, 2023 as a result of the cybersecurity incident.
During the years ended December 30, 2023 and
December 31, 2022, we wrote off approximately $16 million and $10 million, respectively, of fully reserved
accounts receivable against our trade receivable reserve.
Our inventory turns from operations was 4.5 as of
December 30, 2023 and 4.7 as of December 31, 2022.
Our working capital accounts may be impacted by current
and future economic conditions.
Contractual obligations
The following table summarizes our contractual obligations related
to fixed and variable rate long-term debt and
finance lease obligations, including interest (assuming a weighted
average interest rate of 4.8%), as well as
inventory purchase commitments and operating lease obligations
as of December 30, 2023:
Payments due by period
< 1 year
2 - 3 years
4 - 5 years
> 5 years
Total
Contractual obligations:
Long-term debt, including interest
$
$
1,097
$
$
$
2,469
Inventory purchase commitments
-
Operating lease obligations
Transition tax obligations
-
-
Finance lease obligations, including interest
-
Total
$
$
1,273
$
$
$
2,968
For information relating to our debt please see
.
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 year to
approximately 18 years, some of
which may include options to extend the leases for up to 15 years.
As of December 30, 2023, our right-of-use
assets related to operating leases were $325 million and our current and non-current
operating lease liabilities were
$80 million and $310 million, respectively.
Please see
for further information.
Stock Repurchases
On February 8, 2023, our Board authorized the repurchase of up
to an additional $400 million in shares of our
common stock.
From March 3, 2003 through December 30, 2023, we repurchased $4.7
billion, or 90,394,805 shares, under our
common stock repurchase programs, with $265 million available
as of December 30, 2023 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 December 30, 2023 and December 31, 2022,
our balance for redeemable
noncontrolling interests was $864 million and $576 million, respectively.
Please see
for further information.
Unrecognized tax benefits
As more fully disclosed in
of “Notes to Consolidated Financial Statements,” we cannot
reasonably estimate the timing of future cash flows related to our unrecognized
tax benefits, including accrued
interest, of $115 million as of December 30, 2023.
Critical Accounting Estimates
Our accounting policies are more fully described in
Note 1 – Basis of Presentation and Significant Accounting
of the consolidated financial statements.
The preparation of consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and
related disclosures of contingent assets and liabilities.
We base our estimates on historical data, when available,
experience, industry and market trends, and on various other assumptions
that are believed to be reasonable under
the circumstances, the combined results of which form the basis for
making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources.
We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information
available to us at the time that these
estimates, judgments and assumptions are made.
However, by their nature, estimates are subject to various
assumptions and uncertainties.
Therefore, reported results may differ from estimates and any such differences may
be material to our consolidated financial statements.
We believe that the following critical accounting estimates, which have been discussed with the Audit Committee
of our Board, affect the significant estimates and judgments used in the preparation
of our consolidated financial
statements:
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at
the lower of cost or net realizable value.
Cost is
determined by the first-in, first-out method for merchandise and actual cost
for large equipment and high tech
equipment.
In estimating carrying value of inventory, we consider many factors including the condition and
salability of the inventory by reviewing on-hand quantities, historical sales,
forecasted sales and market and
economic trends.
Certain of our products, specifically PPE and COVID-19 test kits, have experienced
changes in
net realizable value, due to volatility of pricing and changes in demand
for these products.
Business Combinations
The estimated fair value of acquired identifiable intangible assets (i.e., customer
relationships and lists, trademarks
and trade names, product development and non-compete agreements)
is based on critical judgments and
assumptions derived from analysis of market conditions, including discount
rates, projected revenue growth rates
(which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
These assumptions are forward-looking and could be affected by future economic
and market
conditions.
Please see
Note 5 – Business Acquisitions and Divestitures
for further discussion of our acquisitions.
Goodwill
Goodwill is subject to impairment analysis at least once annually as
of the first day of our fourth quarter, or if an
event occurs or circumstances change that would more likely than
not reduce a reporting unit’s fair value below
carrying value.
We regard our reporting units to be our operating segments: our global dental and medical
businesses, and technology and value-added services.
Goodwill is allocated to such reporting units, for the
purposes of preparing our impairment analyses, based on a specific identification
basis.
Application of the goodwill impairment test requires judgment, including
the identification of reporting units,
assignment of assets and liabilities that are considered shared services
to the reporting units, and ultimately the
determination of the fair value of each reporting unit.
The fair value of each reporting unit is calculated by
applying the discounted cash flow methodology and confirming with
a market approach.
There are inherent
uncertainties, however, related to fair value models, the inputs and our judgments in applying them
to this analysis.
The most significant inputs include estimation of detailed future cash flows based
on budget expectations, and
determination of comparable companies to develop a weighted average
cost of capital for each reporting unit.
On an annual basis, we prepare financial projections.
These projections are based on input from our leadership and
are presented annually to our Board.
Influences on this year's forecasted financial information and
the fair value
model include: the impact of planned strategic initiatives, the continued
integration of recent acquisitions and
overall market conditions.
The estimates used to calculate the fair value of a reporting unit change
from year to
year based on operating results, market conditions, and other factors.
Our third-party valuation specialists provide inputs into our determination
of the discount rate.
The rate is
dependent on a number of underlying assumptions, including the risk-free rate,
tax rate, equity risk premium, debt
to equity ratio and pre-tax cost of debt.
Long-term growth rates are applied to our estimation of future cash flows.
The long-term growth rates are tied to
growth rates we expect to achieve beyond the years for which we have
forecasted operating results.
We also
consider external benchmarks, and other data points which we believe are
applicable to our industry and the
composition of our global operations.
For the years ended December 30, 2023 and December 25, 2021, we believe
the fair value of each of our reporting
units sufficiently exceeds the carrying values and thus we did not record any amount
for goodwill impairment.
Based on our quantitative assessment for the year ended December 31, 2022,
we recorded a $20 million impairment
of goodwill relating to the disposal of an unprofitable business for which
estimated fair value was lower than
carrying value.
As part of our analysis for the rest of the goodwill balance, we performed
a sensitivity analysis on
the discount rate and long-term growth rate assumptions.
The sensitivities did not result in any additional
impairment charges.
Definite-Lived Intangible Assets
Annually or if we identify an impairment indicator,
definite-lived intangible assets such as non-compete
agreements, trademarks, trade names, customer relationships and lists, and
product development are reviewed for
impairment indicators.
If any impairment indicators exist, quantitative testing
is performed on the asset.
The quantitative impairment model is a two-step test under which we
first calculate the recoverability of the
carrying value by comparing the undiscounted projected cash flows associated
with the asset or asset group,
including its estimated residual value, to the carrying amount.
If the cash flows associated with the asset or asset
group are less than the carrying value, we perform a fair value assessment
of the asset, or asset group.
If the
carrying amount is found to be greater than the fair value, we record an
impairment loss for the excess of book
value over the fair value.
In addition, in all cases of an impairment review, we re-evaluate the remaining useful
lives of the assets and modify them, as appropriate.
Although we believe our judgments, estimates and/or
assumptions used in estimating cash flows and determining fair value
are reasonable, making material changes to
such judgments, estimates and/or assumptions could materially affect such impairment
analyses and our financial
results.
During the year ended December 30, 2023 we recorded $19 million of
impairment charges related to businesses in
our health care distribution segment, the components of which were
$7 million primarily related to customer lists
and relationships attributable to lower than anticipated operating
margins in certain businesses, and a $12 million
charge related to the planned exit of a business.
These impairment charges were calculated as the differences
between the carrying values and the estimated fair values of the impaired
intangible assets, using a discounted
estimate of future cash flows.
Please see
Note 15 – Plans of Restructuring and Integration Costs
for additional
details.
During the year ended December 31, 2022 we recorded $49 million of
impairment charges related to businesses in
our health care distribution segment, the components of which were
a $15 million charge related to the disposal of
an unprofitable business and a $34 million charge related to customer lists and relationships
attributable to
customer attrition rates being higher than expected in certain other
health care distribution businesses.
These
impairment charges were calculated as the differences between the carrying values and the
estimated fair values of
the impaired intangible assets, using a discounted estimate of future
cash flows.
Please see
Restructuring and Integration Costs
for additional details.
During the year ended December 25, 2021, we recorded a $1 million
impairment charge related ratably to a
business within our health care distribution segment and a business within
our technology and value-added services
segment.
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 at fair value.
The redemption amounts have been estimated
based on recent transactions, expected future earnings and cash flows
and, if such earnings and cash flows are not
achieved, the value of the redeemable noncontrolling interests might be impacted.
See
Presentation and Significant Accounting Policies
and
Note 19 – Redeemable Noncontrolling Interests
for additional
information.
Income Tax
When determining if the realization of a deferred tax asset is likely to assess
the need to record a valuation
allowance, estimates and judgement are required.
We
consider all available evidence, both positive and negative,
including estimated future taxable earnings, ongoing planning strategies,
future reversals of existing temporary
differences and historical operating results.
Additionally, changes to tax laws and statutory tax rates can have an
impact on our determination.
Our intention is to evaluate the realizability of our deferred tax assets quarterly.
ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with provisions contained within its guidance.
This topic prescribes a recognition threshold and a
measurement attribute for the financial statement recognition and measurement
of tax positions taken or expected to
be taken in a tax return.
For those benefits to be recognized, a tax position must be more
likely than not to be
sustained upon examination by the taxing authorities.
The amount recognized is measured as the largest amount of
benefit that has a greater than 50% likelihood of being realized upon ultimate
audit settlement.
In the normal
course of business, our tax returns are subject to examination by various
taxing authorities.
Such examinations may
result in future tax and interest assessments by these taxing authorities for uncertain
tax positions taken in respect of
certain tax matters.
Please see
for further discussion.
The Financial Accounting Standards Board Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-
Taxed Income (“GILTI”),
states that an entity can make an accounting policy election to
either recognize deferred
taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related
to GILTI in the year the tax is incurred.
We have elected to recognize the tax on GILTI as a period expense in the
period the tax is incurred.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted
or will be adopted in the future, please see
Note 1 – Basis of Presentation and Significant Accounting Policies
included under Item 8.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, interest rate risks as well as changes in foreign currency exchange rates as
measured against the U.S. dollar and each other, and changes to the credit markets.
We attempt to minimize these
risks primarily by using foreign currency forward contracts and by
maintaining counter-party credit limits.
These
hedging activities provide only limited protection against currency exchange
and credit risks.
Factors that could
influence the effectiveness of our hedging programs include currency markets and
availability of hedging
instruments and liquidity of the credit markets.
All foreign currency forward contracts that we enter into are
components of hedging programs and are entered into for the sole purpose
of hedging an existing or anticipated
currency exposure.
We do not enter into such contracts for speculative purposes and we manage our credit risks by
diversifying our investments, maintaining a strong balance sheet and having
multiple sources of capital.
Foreign Currency
The value of certain foreign currencies compared to the U.S. dollar may
affect our financial results.
Fluctuations in
exchange rates may positively or negatively affect our revenues, gross margins, operating expenses
and retained
earnings, all of which are expressed in U.S. dollars.
Where we deem it prudent, we engage in hedging programs
using primarily foreign currency forward contracts aimed at limiting
the impact of foreign currency exchange rate
fluctuations on earnings.
We purchase short-term (i.e., generally 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany
loans due from our international
subsidiaries and the payment of merchandise purchases to foreign
suppliers.
We do not hedge the translation of
foreign currency profits into U.S. dollars, as we consider foreign
currency translation to be an accounting exposure,
not an economic exposure.
A hypothetical 5% change in the average value of the U.S. dollar in 2023 compared
to
foreign currencies would have changed our 2023 reported Net income
attributable to Henry Schein, Inc. by
approximately $5 million.
As of December 30, 2023, our forward foreign currency exchange agreements,
which expire through November 3,
2028, had a fair value of $(8) million as determined by quoted market prices.
Included in the forward foreign
currency exchange agreements, Henry Schein, Inc. had net investment
designated EUR/USD forward contracts
with notional values of approximately €300 million and reported fair values
of $(7) million.
A 5% increase in the
value of the Euro to the USD from December 30, 2023 would decrease the fair
value of these forward contracts by
$18 million.
Total
Return Swaps
On March 20, 2020, we entered into a total return swap for the purpose
of economically hedging our unfunded non-
qualified supplemental retirement plan and our deferred compensation plan obligation.
At inception, the notional value of the investments in these plans was $43
million.
At December 30, 2023, the
notional value of the investments in these plans was $96 million.
At December 30, 2023, the financing blended rate
for this swap was based on the Secured Overnight Financing Rate (“SOFR”)
of 5.33%
plus 0.52%, for a combined
rate of 5.85%.
For the years ended December 30, 2023, December 31, 2022, and
December 25, 2021 we have
recorded a gain/(loss), within selling, general and administrative expense,
of approximately $10 million, $(17)
million and $12 million, respectively, net of transaction costs, related to this undesignated swap.
This swap is
expected to be renewed on an annual basis and is expected to result
in a neutral impact to our results of operations.
Credit Risk Monitoring
We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments, by
monitoring the credit worthiness of the financial institutions who are
the counterparties to such financial
instruments.
As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing
numerous investment grade counterparties.
Interest Rate Risk
As of December 30, 2023, we had variable interest rate exposure for certain
of our revolving credit facilities and
our U.S. trade accounts receivable securitization.
Our revolving credit facility which we entered into on July 11,
2023 and expires on July 11, 2028,
has a variable
interest rate that is based on the SOFR plus a spread based on our leverage
ratio at the end of each financial
reporting quarter.
As of December 30, 2023, there was $200 million outstanding under
this revolving credit
facility.
During the year ended December 30, 2023, the average outstanding
balance was approximately $61
million.
Based upon our average outstanding balances, for each hypothetical
increase of 25 basis points, our
interest expense thereunder would have increased by $0.2 million.
Our U.S. trade accounts receivable securitization, which we entered
into on April 17, 2013 and expires on
December 15, 2025, has a variable interest rate that is based upon the asset-backed
commercial paper rate.
As of
December 30, 2023, the commercial paper rate was 5.67% plus 0.75%,
for a combined rate of 6.42%,
and the
outstanding balance under this securitization facility was $210 million.
During the year ended December 30, 2023,
the average outstanding balance was approximately $238 million.
Based upon our average outstanding balances,
for each hypothetical increase of 25 basis points, our interest expense thereunder
would have increased by $1
million.
On July 11, 2023, we entered into interest rate swap agreements to hedge the cash flow of our variable
rate $750
million floating debt term loan facility, with three years maturity, effectively changing the floating rate portion of
our obligation to a fixed rate.
Under the terms of the interest rate swap agreements, we receive variable
interest
payments based on the one-month Term SOFR rate and pay interest at a fixed rate.
As of December 30, 2023, the
notional value of the interest rate swap agreements was $741
million.
This term loan matures on July 11, 2026.
At December 30, 2023, the interest on this Term Credit Agreement was 5.36% plus 1.35% for a combined rate of
6.71%.
However, we have a hedge in place (see
Note 12 – Derivatives and Hedging Activities
for additional
information) that ultimately creates an effective fixed rate of 5.79%.
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
Page
Number
Report of Independent Registered Public Accounting Firm
(BDO USA, P.C.;
New York,
NY; PCAOB
ID#
)
Consolidated Financial Statements
Balance Sheets as of December 30, 2023 and December 31, 2022
Statements of Income for the years ended December 30, 2023,
December 31, 2022 and December 25, 2021
Statements of Comprehensive Income for the years ended December 30, 2023,
December 31, 2022 and December 25, 2021
Statements of Changes in Stockholders’ Equity for the years ended
December 30, 2023, December 31, 2022 and December 25, 2021
Statements of Cash Flows for the years ended December 30, 2023,
December 31, 2022 and December 25, 2021
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation and Significant Accounting Policies
Note 2 – Cybersecurity Incident
Note 3 – Net Sales from Contracts with Customers
Note 4 – Segment and Geographic Data
Note 5 – Business Acquisitions and Divestiture
Note 6 – Property and Equipment, Net
Note 8 – Goodwill and Other Intangibles, Net
Note 9 – Investments and Other
Note 10 – Fair Value Measurements
Note 11 – Concentrations of Risk
Note 12 – Derivatives and Hedging Activities
Note 15 – Plans of Restructuring and Integration Costs
Note 16 – Commitments and Contingencies
Note 17 – Stock-Based Compensation
Note 18 – Employee Benefit Plans
Note 19 – Redeemable Noncontrolling Interests
Note 20 – Comprehensive Income
Note 22 – Supplemental Cash Flow Information
Note 23 – Related Party Transactions
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Henry Schein, Inc.
Melville, NY
Opinion on the Consolidated Financial Statements
We
have
audited
the
accompanying
consolidated
balance
sheets
of
Henry
Schein,
Inc.
(the
“Company”)
as
of
December 30, 2023 and December 31, 2022, the related consolidated statements of income, comprehensive income,
changes in stockholders’ equity,
and cash flows for each of
the three years in the period
ended December 30, 2023,
and
the
related
notes
(collectively
referred
to
as
the
“consolidated
financial
statements”).
In
our
opinion,
the
consolidated financial
statements present
fairly,
in
all material
respects, the
financial position
of
the
Company at
December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the three
years in
the period
ended December
30, 2023,
in conformity
with accounting
principles generally
accepted in
the
United States of America.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States)
(“PCAOB”),
the
Company's
internal
control
over
financial
reporting
as
of
December
30,
2023,
based
on
criteria
established
in
Internal
Control
–
Integrated
Framework
(2013)
issued
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(“COSO”)
and
our
report
dated
February
28,
2024
expressed an adverse opinion thereon.
Basis for Opinion
These consolidated financial statements are
the responsibility of the
Company’s management. Our
responsibility is
to
express
an
opinion
on
the
Company’s
consolidated
financial
statements
based
on
our
audits.
We
are
a
public
accounting
firm
registered
with
the
PCAOB
and
are
required
to
be
independent
with
respect
to
the
Company
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations
of
the
Securities
and
Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
consolidated
financial
statements
are
free
of
material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether
due to
error or
fraud, and
performing procedures
that respond
to those
risks. Such
procedures
included examining,
on a
test basis,
evidence regarding
the amounts
and disclosures
in the
consolidated financial
statements.
Our audits
also included
evaluating the
accounting principles
used
and significant
estimates made
by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical
audit matter
communicated below is
a matter
arising from
the current period
audit of
the consolidated
financial statements
that was
communicated or
required to
be communicated to
the Audit
Committee and that:
(1)
relates
to
accounts
or
disclosures that
are
material
to
the
consolidated
financial statements;
and
(2)
involved
our
especially challenging,
subjective or
complex judgments.
The communication
of the
critical audit
matter does
not
alter
in
any
way
our
opinion
on
the
consolidated
financial
statements,
taken
as
a
whole,
and
we
are
not,
by
communicating the
critical audit
matter below,
providing a
separate opinion
on the
critical audit
matter or
on the
accounts or disclosures to which it relates.
Business Acquisition
As
described
in
Note
of
the
consolidated
financial
statements,
the
Company
acquired
Shield
Healthcare,
Inc.,
(“Shield”)
in
As
a
result
of
this
acquisition,
management
was
required
to
determine
the
fair
values
of
the
identifiable
assets
acquired
and
liabilities
assumed.
In
connection
with
the
acquisition
of
Shield,
the
Company
recorded $156 million of identifiable intangible assets related to
customer relationships and lists.
We
identified management’s
judgements used to
determine the
revenue growth rates
and discount
rate used
in the
determination
of
the
fair
value
of
the
acquired
customer
relationships
and
lists
in
the
acquisition
of
Shield
as
a
critical audit matter.
The principal considerations
for our determination
were the subjective
judgement required by
management in formulating the
revenue growth rates and
assessing the appropriateness of the
discount rate used in
developing
the
fair
values
of
the
applicable
acquired identifiable
intangible
assets.
Auditing
these
considerations
involved
especially
subjective
and
challenging
auditor
judgement
due
to
the
nature
and
extent
of
audit
effort
required to address these matters, including the extent of specialized
skill or knowledge needed.
The primary procedures we performed to address this critical audit matter
included:
●
Evaluating the reasonableness of the revenue growth rates used in the determination
of the fair values of the
acquired
customer
relationships
and
lists
in
the
acquisition
of
Shield
by:
(i)
reviewing
the
historical
performance of
the
acquired company
using
their
audited financial
statements, and
(ii)
assessing revenue
projections against industry metrics and peer-group companies.
●
Utilizing
personnel
with
specialized
knowledge
and
skill
in
valuation
to
assist
in:
(i)
testing
the
source
information underlying
the determination
of the
discount rate,
and (ii)
de
Showing the first 8K of 171K characters. Open the full section
Item 9. Changes in and Disagreements with Accountants on Accounting and
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
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 annual 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 December 30,
2023, 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
During the quarter ended December 30, 2023, we acquired a 90% voting
equity interest in Shield, a supplier of
homecare medical products headquartered in California.
The full integration of this acquisition, as well as our
previously reported acquisitions of S.I.N and Biotech Dental, extended
beyond year-end and, therefore, we
excluded Shield, Biotech Dental, and S.I.N., which together represent
less than 1.5% of our total net sales, from our
annual assessment of internal control over financial reporting as of December
30, 2023, as permitted by SEC staff
interpretive guidance for newly acquired businesses.
Post-acquisition integration related activities for other dental and
medical businesses acquired during 2023 across
the U.S., Europe, Brazil, Australia, and China were included in
our annual assessment of internal control over
financial reporting as of December 30, 2023.
These acquisitions, the majority of which utilize separate information
and financial accounting systems, have been included in our consolidated financial
statements since their respective
dates of acquisition.
Finally, we continued systems implementation activities in the U.S. for two of our dental businesses.
The combination of acquisitions (including Shield, S.I.N., and Biotech
Dental), continued acquisition integrations
and systems implementation activities 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, all acquisitions, continued acquisition integrations and systems implementation activities
involve necessary and appropriate change-management controls
that are considered in our quarterly assessment of
changes in our internal control over financial reporting.
In October 2023, we experienced a cybersecurity incident that primarily
affected the operations of our North
American and European dental and medical distribution businesses.
Once we became aware of the issue, as part of
the Company’s incident response plan, we took precautionary actions to contain the incident including shutting
down connectivity to networks and key business, operating and financial
accounting systems globally.
In addition
to notifying affected and potentially affected third parties and all relevant law enforcement
authorities, we engaged
external cyber-security experts to support our assessment of the cyber-incident’s impact as well as sanitize, rebuild
and restore our affected systems and applications.
We also notified law enforcement and our employees,
customers, suppliers and investors, informing them of both the incident and
management’s efforts to mitigate its
impact on our daily operations and data maintained on the Company’s systems.
Subsequently, on or about November 8, 2023, we determined that the threat actor obtained personal and sensitive
information maintained on our systems belonging to certain third parties and
since that date we have notified
affected parties and potentially affected parties as appropriate.
The scope of personal and sensitive data impacted is
still under investigation.
On November 22, 2023, we experienced a related disruption to our
ecommerce platform and related applications,
which has since been remediated.
In order to mitigate the impact of this disruption on our systems and on our
ability to service customers, alternative
procedures and controls were temporarily implemented.
Management’s
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f).
Our internal control system is designed to provide
reasonable assurance to our management and Board regarding the preparation
and fair presentation of published
financial statements.
Under the supervision and with the participation of our management,
including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control-Integrated
Framework (2013), updated
and reissued by the Committee of Sponsoring Organizations, or the COSO Framework.
Based on our evaluation
under the COSO Framework, our management concluded that our
internal control over financial reporting was
effective at a reasonable assurance level as of December 30, 2023.
The effectiveness of our internal control over financial reporting as of December 30,
2023, has been independently
audited by BDO USA, P.C., an independent registered public accounting firm, and their attestation is included
herein. The evaluation of internal controls involves judgment.
Our external auditor has concluded that the
Company has a material weakness resulting from the aggregation of certain
control deficiencies at the application
control level related to logical and user access management and segregation of
duties.
The Company agrees that
there are control deficiencies that our external auditor has identified, all of which
either have been addressed or are
being addressed. The Company’s management has considered the control deficiencies identified by our
external
auditor, and believes that, individually and in aggregate, they do not result in a material weakness.
A material
weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that
there is a reasonable possibility that a material misstatement of the
company’s financial statements will not be
prevented or detected on a timely basis.
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.
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Henry Schein, Inc.
Melville, NY
Opinion on Internal Control over Financial Reporting
We
have audited Henry
Schein, Inc.’s
(the “Company’s”)
internal control over
financial reporting as
of December
30, 2023, based on
criteria established in Internal Control
– Integrated Framework (2013) issued
by the Committee
of Sponsoring Organizations of the Treadway Commission (the
“COSO criteria”). In our opinion, the Company did
not maintain,
in all
material respects,
effective internal
control over
financial reporting
as of
December 30,
2023,
based on the COSO criteria.
We
do
not
express
an
opinion
or
any
other
form
of
assurance
on
management’s
statements
referring
to
any
corrective actions taken by the Company after the date of management’s assessment.
We
also
have
audited,
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States)
(“PCAOB”),
the
consolidated
balance
sheets
of
the
Company
as
of
December
30,
2023
and
December
31,
2022,
the
related
consolidated
statements
of
income,
comprehensive
income,
changes
in
stockholders’ equity,
and cash
flows for
each of
the three
years in
the
period ended
December 30,
2023, and
the
related
notes
(collectively
referred
to
as
“the
financial
statements”)
and
our
report
dated
February
28,
2024
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s
management is
responsible for
maintaining effective
internal control
over financial
reporting and
for
its
assessment of
the
effectiveness
of
internal control
over financial
reporting, included
in
the
accompanying,
“Item 9A, Management’s
Report on Internal
Control over Financial Reporting”. Our
responsibility is to express
an
opinion on the
Company’s internal
control over financial
reporting based on
our audit. We
are a public
accounting
firm
registered
with
the
PCAOB and
are
required
to
be
independent
with
respect
to
the
Company in
accordance
with
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations
of
the
Securities
and
Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require
that we plan
and perform the
audit to
obtain reasonable assurance
about whether effective
internal
control
over
financial
reporting
was
maintained
in
all
material
respects.
Our
audit
included
obtaining
an
understanding
of
internal
control
over
financial
reporting,
assessing
the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk.
Our
audit also included performing
such other procedures as we
considered necessary in the
circumstances. We
believe
that our audit provides a reasonable basis for our opinion.
A material
weakness is
a deficiency,
or a
combination of
deficiencies, in
internal control
over financial
reporting,
such
that
there
is
a
reasonable
possibility
that
a
material
misstatement
of
the
Company’s
annual
or
interim
consolidated
financial
statements
will
not
be
prevented
or
detected
on
a
timely
basis.
We
have
identified
the
following material weakness
that has not
been identified as
a material weakness
in management’s
assessment. The
material weakness in
internal control over
financial reporting is
related to logical
and user access
management and
segregation
of
duties,
at
the
application
control
level,
in
certain
information
technology
environments
at
certain
components.
There
is
a
reasonable
possibility
that
a
material
misstatement
of
the
Company’s
annual
or
interim
consolidated
financial
statements
with
respect
to
these
matters
would
not
have
been
prevented
or
detected
on
a
timely
basis.
This
material
weakness
was
considered
in
determining
the
nature,
timing,
and
extent
of
audit
tests
applied in
our audit
of the
2023 consolidated
financial statements,
and this
report does
not affect
our report
dated
February 28, 2024, on those consolidated financial statements.
As indicated in
the accompanying “Item
9A, Management’s
Report on Internal
Control over Financial
Reporting”,
management’s assessment of and conclusion on the effectiveness of internal control
over financial reporting did not
include
the
internal
controls
of
Shield
Healthcare,
Inc.,
S.I.N.
Implant
System,
and
Biotech
Dental,
which
were
acquired
during
the
year
ended
December
30,
2023,
and
are
included
in
the
consolidated
balance
sheet
of
the
Company
as
of
December
30,
2023,
and
the
related
consolidated
statements
of
income,
comprehensive
income,
changes
in
stockholders’
equity,
and
cash
flows
for
the
year
then
ended.
Shield
Healthcare,
Inc.,
S.I.N.
Implant
System, and
Biotech Dental,
together represent
less than
1.5% of
total net
sales for
the year
ended December
30,
- Management did not assess the effectiveness of internal control over financial reporting of Shield Healthcare,
Inc.,
S.I.N.
Implant
System,
or
Biotech
Dental
because
of
the
timing
of
the
acquisitions
which
were
completed
during the
year ended
December 30,
- Our
audit of
internal control
over financial
reporting of
the Company
also did
not include
an evaluation
of the
internal control
over financial
reporting of
Shield Healthcare,
Inc., S.I.N.
Implant System, or Biotech Dental.
Definition and Limitations of Internal Control over Financial Reporting
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding the
reliability of
financial reporting
and the
preparation of
financial statements
for external
purposes in
accordance
with
generally
accepted
accounting
principles.
A
company’s
internal
control
over
financial
reporting
includes
those
policies
and
procedures
that
(1)
pertain
to
the
maintenance
of
records
that,
in
reasonable
detail,
accurately and
fairly reflect
the transactions
and dispositions
of the
assets of
the company;
(2) provide
reasonable
assurance
that
transactions
are
recorded
as
necessary
to
permit
preparation
of
financial
statements
in
accordance
with generally
accepted accounting
principles, and
that receipts
and expenditures
of the
company are
being made
only
in
accordance with
authorizations of
management and
directors of
the
company; and
(3) provide
reasonable
assurance
regarding
prevention
or
timely
detection
of
unauthorized
acquisition,
use,
or
disposition
of
the
company’s assets that could have a material effect on the financial statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections
of
any
evaluation
of
effectiveness
to
future
periods
are
subject
to
the
risk
that
controls
may
become
inadequate
because
of
changes
in
conditions,
or
that
the
degree
of
compliance
with
the
policies or procedures may deteriorate.
/s/ BDO USA, P.C.
New York
,
NY
February 28, 2024
Item 9B. Other Information
Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART
III
Item 10. Directors, Executive Officers and Corporate Governance
Directors, Executive Officers and Corporate Governance
Information required by this item regarding our directors and executive
officers and our corporate governance is
hereby incorporated by reference to the Section entitled “Election of Directors,”
with respect to directors, and the
first paragraph of the Section entitled “Corporate Governance - Board
of Directors Meetings and Committees -
Audit Committee,” with respect to corporate governance, in each case
in our definitive 2024 Proxy Statement to be
filed pursuant to Regulation 14A and to the Section entitled “Information
about our Executive Officers” in Part I of
this report, with respect to executive officers.
There have been no changes to the procedures by which stockholders
may recommend nominees to our Board since
our last disclosure of such procedures, which appeared in our definitive
2023 Proxy Statement filed pursuant to
Regulation 14A on April 11, 2023.
Information required by this item concerning compliance with Section
16(a) of the Securities Exchange Act of
1934 is hereby incorporated by reference to the Section entitled
“Delinquent Section 16(a) Reports” in our
definitive 2024 Proxy Statement to be filed pursuant to Regulation 14A,
to the extent responsive disclosure is
required.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer and Controller.
We make available free of charge through our Internet website,
under the “About Henry Schein--Corporate Governance
Highlights” caption, our Code of
Ethics.
We intend to disclose on our Web
site any amendment to, or waiver of, a provision of the Code
of Ethics.
Item 11. Executive Compensation
Executive Compensation
The information required by this item is hereby incorporated by reference
to the Sections
entitled “Compensation
Discussion and Analysis,” “Compensation Committee Report” (which
information shall be deemed furnished in
this Annual Report on Form 10-K), “Executive and Director Compensation” and
“Compensation Committee
Interlocks and Insider Participation” in our definitive 2024 Proxy Statement
to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder
Matters
We maintain several stock incentive plans for the benefit of certain officers, directors and employees.
All active
plans have been approved by our stockholders.
Descriptions of these plans appear in the notes to our consolidated
financial statements.
The following table summarizes information relating to these plans as
of December 30, 2023:
Number of Common
Shares to be Issued Upon
Weighted-
Average
Number of Common
Exercise of Outstanding
Exercise Price of
Shares Available
for
Plan Category
Options and Rights
Outstanding Options
Future Issuances
Plans Approved by Stockholders
-
$
-
7,166,543
Plans Not Approved by Stockholders
-
-
-
Total
-
$
-
7,166,543
The other information required by this item is hereby incorporated by
reference to the Section entitled “Security
Ownership of Certain Beneficial Owners and Management” in our definitive
2024 Proxy Statement to be filed
pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions, and Director Independence
The information required by this item is hereby incorporated by reference
to the Section entitled “Certain
Relationships and Related Transactions” and “Corporate Governance – Board of Directors Meetings and
Committees – Independent Directors” in our definitive 2024 Proxy Statement
to be filed pursuant to Regulation
14A.
Item 14. Principal Accounting Fees and Services
Principal Accounting Fees and Services
The information required by this item is hereby incorporated by reference
to the Section entitled “Independent
Registered Public Accounting Firm Fees and Pre-Approval Policies and
Procedures” in our definitive 2024 Proxy
Statement to be filed pursuant to Regulation 14A.
PART
IV
Item 15. Exhibits, Financial Statement Schedules
Exhibits, Financial Statement Schedules
(a)
List of Documents Filed as a Part of This Report:
Financial Statements:
Our Consolidated Financial Statements filed as a part of this report
are listed on the index on
Page 62.
Index to Exhibits:
See exhibits listed under Item 15(b) below.
(b) Exhibits
Second Amended and Restated Certificate of Incorporation of Henry Schein, Inc.
(Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June
Fourth Amended and Restated By-Laws of Henry Schein, Inc., effective March 23, 2023.
(Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on
Third Amended and Restated Multicurrency Master Note Purchase Agreement, dated as of
October 20, 2021, by and among us, Metropolitan Life Insurance Company, MetLife
Investment Management, LLC and each MetLife affiliate which becomes party thereto.
(Incorporated by reference to Exhibit 4.4 to our Current Report on Form 8-K filed on
Third Amended and Restated Master Note Facility, dated as of October 20, 2021, by and
among us, NYL Investors LLC and each New York Life affiliate which becomes party
thereto. (Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed
Third Amended and Restated Multicurrency Private Shelf Agreement, dated as of October
20, 2021, by and among us, PGIM, Inc. and each Prudential affiliate which becomes party
thereto. (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed
Multicurrency Private Shelf Agreement, dated as of October 20, 2021, by and among us,
AIG Asset Management (U.S.), LLC and each AIG affiliate which becomes party thereto.
(Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on
Description of Securities. (Incorporated by reference to Exhibit 4.5 to our Annual Report
on Form 10-K for the fiscal year ended December 25, 2021 filed on February 15, 2022.)
Henry Schein, Inc. 2013 Stock Incentive Plan, as amended and restated effective as of May
14, 2013. (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K
Form of 2019 Restricted Stock Unit Agreement for performance-based restricted stock unit
awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and
restated effective as of May 14, 2013). (Incorporated by reference to Exhibit 10.2 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2019 filed on May
Form of 2019 Restricted Stock Unit Agreement for time-based restricted stock unit awards
pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated
effective as of May 14, 2013). (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2019 filed on May 7, 2019.)**
Henry Schein, Inc. 2020 Stock Incentive Plan, as amended and restated effective as of May
21, 2020. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
Form of 2021 Stock Option Agreement pursuant to the Henry Schein, Inc. 2020 Stock
Incentive Plan (as amended and restated effective as of May 21, 2020). (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 8, 2021.)**
Form of 2022 Restricted Stock Unit Agreement for time-based restricted stock unit awards
pursuant to the Henry Schein, Inc. 2020 Stock Incentive Plan (as amended and restated
effective as of May 21, 2020). (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 26, 2022 filed on May 3, 2022.)**
Form of 2022 Restricted Stock Unit Agreement for performance-based restricted stock unit
awards pursuant to the Henry Schein, Inc. 2020 Stock Incentive Plan (as amended and
restated effective as of May 21, 2020). (Incorporated by reference to Exhibit 10.2 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2022 filed on May
Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan. (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 27, 2015 filed on July 29, 2015.)**
Form of 2018 Restricted Stock Unit Agreement for time-based restricted stock unit awards
pursuant to the Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan (as
amended and restated effective as of June 22, 2015). (Incorporated by reference to Exhibit
10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018
Henry Schein, Inc. 2023 Non-Employee Director Stock Incentive Plan, as
restated effective as of May 23, 2023. (Incorporated by reference
Current Report on Form 8-K filed on May 25, 2023
Henry Schein, Inc. Supplemental Executive Retirement Plan, amended and restated
effective as of January 1, 2014. (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 28, 2013 filed on November
Amendment Number One to the Henry Schein, Inc. Supplemental Executive Retirement
Plan, amended and restated effective as of January 1, 2014. (Incorporated by reference to
Exhibit 10.18 to our Annual Report on Form 10-K for the fiscal year ended December 28,
2019 filed on February 20, 2020.)**
Amendment Number Two to the Henry Schein, Inc. Supplemental Executive Retirement
Plan, amended and restated effective as of January 1, 2014. (Incorporated by reference to
Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28,
Amendment Number Three to the Henry Schein, Inc. Supplemental Executive Retirement
Plan, amended and restated effective as of January 1, 2014. (Incorporated by reference to
Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 2020 filed on November 2, 2020.)**
Amendment Number Four to the Henry Schein, Inc. Supplemental Executive Retirement
Plan, amended and restated effective as of January 1, 2014. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on December 18, 2023.)**
Henry Schein, Inc. 2004 Employee Stock Purchase Plan, effective as of May 25, 2004.
(Incorporated by reference to Exhibit D to our definitive 2004 Proxy Statement on
Schedule 14A, filed on April 27, 2004.)**
Henry Schein, Inc. 2023 Non-Employee Director Stock Incentive Plan, amended and
restated effective as of May 23, 2023. (Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on May 25, 2023.)**
Henry Schein, Inc. Deferred Compensation Plan, as amended and restated effective as of
November 14, 2023. (Incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on November 16, 2023.)**
Henry Schein Management Team Performance Incentive Plan and Plan Summary,
effective as of January 1, 2014. (Incorporated by reference to Exhibit 10.7 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)**
Amended and Restated Employment Agreement dated as of November 28, 2022, by and
between Henry Schein, Inc. and Stanley M. Bergman. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on November 29, 2022.)**
Letter Agreement dated November 11, 2021 between Henry Schein, Inc. and Brad Connett
(Incorporated by reference to Exhibit 10.27 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2022 filed on February 21, 2023.)**
Agreement dated November 11, 2021 between Henry Schein, Inc. and Brad Connett
(Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2022 filed on February 21, 2023.)**
Special Incentive Plan dated May 24, 2021 between Henry Schein, Inc. and Brad Connett
(Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K for the
fiscal year ended December 31, 2022 filed on February 21, 2023.)**
Form of Amended and Restated Change in Control Agreement dated December 12, 2008
between us and certain executive officers who are a party thereto (James Breslawski,
Michael S. Ettinger, and Mark Mlotek, respectively). (Incorporated by reference to Exhibit
10.15 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2008
filed on February 24, 2009.)**
Form of Amendment to Amended and Restated Change in Control Agreement effective
January 1, 2012 between us and certain executive officers who are a party thereto (James
Breslawski, Michael S. Ettinger, and Mark Mlotek, respectively). (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January 20, 2012.)**
Form of Change in Control Agreement between us and certain executive officers who are a
party thereto (Walter Siegel). (Incorporated by reference to Exhibit 10.3 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2019 filed on May 7, 2019.)
**
Henry Schein, Inc. Executive Change in Control Plan, effective as of May 2, 2022 between
us and certain executive officers who are a party thereto (Ronald N. South, Brad Connett,
and Lorelei McGlynn). (Incorporated by reference to Exhibit 10.3 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 26, 2022 filed on May 3, 2022.)**
Form of Indemnification Agreement between us and certain directors and executive
officers who are a party thereto (Mohamed Ali, Deborah Derby, Carole T. Faig, Joseph L.
Herring, Kurt P. Kuehn, Philip A. Laskawy, Anne H. Margulies, Steven Paladino, Carol
Raphael, Scott P. Serota, Bradley T. Sheares, Ph.D., Reed V. Tuckson, M.D., FACP,
Stanley M. Bergman, James P. Breslawski, Brad Connett, Michael S. Ettinger, Lorelei
McGlynn, Mark E. Mlotek, Walter Siegel and Ronald N. South, respectively).
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 26, 2015 filed on November 4, 2015.)**
Second Amended and Restated Revolving Credit Agreement, dated as of July 11, 2023,
among us, the several lenders parties thereto, and JPMorgan Chase Bank, N.A., as
administrative agent, U.S. Bank National Association, as syndication agent, and TD Bank,
N.A., Bank of America, N.A., UniCredit Bank, A.G., the Bank of New York Mellon, ING
Bank, N.V. and HSBC Bank USA, N.A., as co-documentation agents. (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K filed on July 13, 2023.)
Term Loan Credit Agreement, dated as of July 11, 2023, among us, the several lenders
parties thereto, JPMorgan Chase Bank, N.A., as administrative agent,
U.S. Bank National Association, as syndication agent, and TD Bank, N.A.,
Bank of America, N.A. and UniCredit Bank, A.G., as co-documentation agents.
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
Receivables Purchase Agreement, dated as of April 17, 2013, by and among us, as
servicer, HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent and the
various purchaser groups from time to time party thereto. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 19, 2013.)
Amendment No. 1 dated as of September 22, 2014 to the Receivables Purchase
Agreement, dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller,
The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as agent and the various
purchaser groups from time to time party thereto. (Incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on September 26, 2014.)
Amendment No. 2 dated as of April 17, 2015 to Receivables Purchase Agreement, dated as
of April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The
Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various
purchaser groups party thereto. (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 25, 2016 filed on August 4, 2016.)
Amendment No. 3 dated as of June 1, 2016 to Receivables Purchase Agreement, dated as
of April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The
Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various
purchaser groups party thereto. (Incorporated by reference to Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 25, 2016 filed on August 4, 2016.)
Amendment No. 4 dated as of July 6, 2017 to Receivables Purchase Agreement, dated as
of April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The
Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various
purchaser groups party thereto. (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2017 filed on November
Amendment No. 5 dated as of May 13, 2019 to Receivables Purchase Agreement, dated as
of April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The
Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various
purchaser groups party thereto. (Incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 29, 2019 filed on August 6, 2019.)
Limited Waiver dated as of May 22, 2020 to Receivables Purchase Agreement, dated as of
April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as agent and the
various purchaser groups from time to time party thereto, as amended. (Incorporated by
reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 27, 2020 filed on August 4, 2020.)
Amendment No. 6 dated as of June 22, 2020 to the Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as
agent and the various purchaser groups from time to time party thereto. (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on June 25, 2020.)
Amendment No. 7 dated as of October 20, 2021 to Receivables Purchase Agreement, dated
as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as agent
and the various purchaser groups from time to time party thereto. (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on October 21, 2021.)
Amendment No. 8 dated as of December 15, 2022 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as
agent and the various purchaser groups from time to time party thereto. (Incorporated by
reference to Exhibit 10.45 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2022 filed on February 21, 2023.)
Omnibus Amendment No. 1, dated July 22, 2013, to Receivables Purchase Agreement
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, The Bank
of Tokyo-Mitsubishi UFJ, Ltd., as agent, and the various purchaser groups from time to
time party thereto and Receivables Sales Agreement, dated as of April 17, 2013, by and
among us, certain of our wholly-owned subsidiaries and HSFR, Inc., as
buyer. (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended June 29, 2013 filed on August 6, 2013.)
Omnibus Amendment No. 2, dated April 21, 2014, to Receivables Purchase Agreement
dated as of April 17, 2013, as amended, by and among us, as servicer, HSFR, Inc., as
seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent, and the various purchaser
groups from time to time party thereto and Receivables Sales Agreement, dated as of April
17, 2013, by and among us, certain of our wholly-owned subsidiaries and HSFR, Inc., as
buyer. (Incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)
Receivables Sale Agreement, dated as of April 17, 2013, by and among us, certain of our
wholly-owned subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on April 19, 2013.)
Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Certification of our Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.+
Henry Schein, Inc. Dodd-Frank Clawback Policy, effective as of December 1, 2023.**+
Limited Waiver dated November 10, 2023 to the Multicurrency Private Shelf Agreement,
dated as of October 20, 2021, by and among us, AIG Asset Management (U.S.), LLC and
each AIG affiliate which becomes party thereto.+
Limited Waiver dated November 10, 2023 to the Third Amended and Restated
Multicurrency Master Note Purchase Agreement, dated as of October 20, 2021, by and
among us, Metropolitan Life Insurance Company, MetLife Investment Management, LLC
and each MetLife affiliate which becomes party thereto.+
Limited Waiver dated November 10, 2023 to the Third Amended and Restated Master
Note Facility, dated as of October 20, 2021, by and among us, NYL Investors LLC and
each New York Life affiliate which becomes party thereto.+
Limited Waiver dated November 10, 2023 to the Third Amended and Restated
Multicurrency Private Shelf Agreement, dated as of October 20, 2021, by and among us,
PGIM, Inc. and each Prudential affiliate which becomes party thereto.+
Limited Waiver dated as of November 10, 2023 to the Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as
agent and the various purchaser groups from time to time party thereto, as amended.+
Limited Waiver dated as of November 10, 2023 to the Second Amended and Restated
Revolving Credit Agreement, dated as of July11, 2023, among us, the several lenders from
time to time party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, and
the other parties from time to time party thereto.+
Limited Waiver dated as of November 10, 2023 to the Term Loan Credit Agreement, dated
as of July 11, 2023, among us, the several lenders from time to time party thereto,
JPMorgan Chase Bank, N.A., as administrative agent, and the other parties from time to
Amendment No. 9 dated as of December 20, 2023 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as
agent and the various purchaser groups from time to time party thereto.+
Amendment No. 10 dated as of February 23, 2024 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, lender, as
agent and the various purchaser groups from time to time party thereto.+
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+
The cover page of Henry Schein, Inc.’s Annual Report on Form 10-K for the year ended
December 30, 2023, formatted in Inline XBRL (included within Exhibit 101
attachments).+
Filed or furnished herewith.
**
Indicates management contract or compensatory plan or agreement.
Certain identified information has been excluded from the exhibit because
it is both not material and is the type
that the registrant treats as private or confidential.
Item 16. Form 10-K Summary
Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman and Chief Executive Officer
February 28, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature
Capacity
Date
/s/ STANLEY M. BERGMAN
Chairman, Chief Executive Officer
February 28, 2024
Stanley M. Bergman
and Director (principal executive officer)
/s/ RONALD N. SOUTH
Senior Vice President, Chief
Financial Officer
February 28, 2024
Ronald N. South
(principal financial and accounting officer)
/s/ JAMES P.
BRESLAWSKI
Vice Chairman, President
and Director
February 28, 2024
James P.
Breslawski
/s/ MARK E. MLOTEK
Executive Vice President,
Chief Strategic Officer and
Director
February 28, 2024
Mark E. Mlotek
/s/ MOHAMAD ALI
Director
February 28, 2024
Mohamad Ali
/s/ DEBORAH DERBY
Director
February 28, 2024
Deborah Derby
/s/ CAROLE T. FAIG
Director
February 28, 2024
Carole T. Faig
/s/ JOSEPH L. HERRING
Director
February 28, 2024
Joseph L. Herring
/s/ KURT P.
KUEHN
Director
February 28, 2024
Kurt P.
Kuehn
/s/ PHILIP A. LASKAWY
Director
February 28, 2024
Philip A. Laskawy
/s/ ANNE H. MARGULIES
Director
February 28, 2024
Anne H. Margulies
/s/ STEVEN PALADINO
Director
February 28, 2024
Steven Paladino
/s/ CAROL RAPHAEL
Director
February 28, 2024
Carol Raphael
/s/ SCOTT SEROTA
Director
February 28, 2024
Scott Serota
/s/ BRADLEY T. SHEARES,
PH.D.
Director
February 28, 2024
Bradley T. Sheares,
Ph.D.
/s/ REED V.
TUCKSON, M.D., FACP
Director
February 28, 2024
Reed V.
Tuckson, M.D., FACP