filings.toolsItem 1A. Risk Factors
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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, operating
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 and
where we manufacture products, we are dependent upon third parties
for raw materials and purchased
components.
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 2024, our top 10 Global Distribution and Value-
Added Services suppliers and our single largest supplier accounted for approximately
25% and 4%, respectively, of
our aggregate purchases.
Additionally, where we are the manufacturer of certain dental specialty products we sell
in the areas of oral surgery, implants, orthodontics and endodontics, we are dependent upon third parties for raw
materials and purchased components.
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 timely identify and obtain acceptable replacement sources.
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 and/or high-margin 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 recent periods, we
have experienced increased costs and shortages of purchased components,
which has had a negative impact on our
profit margins and on our sales for certain product categories, due to our inability
to fully satisfy demand.
We may be unsuccessful in achieving our strategic growth objectives.
Our 2022 – 2024 BOLD+1 Strategic Plan is defined under “Business, Business
Strategy” above.
We expect to
continue to execute the BOLD+1 strategic priorities with the next evolution
of our strategic plan.
In particular, we
are focused on continuing to grow our Henry Schein specialty brands
and technology and value-added services
solutions both organically and inorganically, and to drive greater efficiencies.
If we are unable to effectively
implement our strategic plan, we may not achieve our desired return on our
investments through our growth
strategies.
Our business could be affected by the recently signed Strategic Partnership Agreement.
On January 29, 2025, we announced a strategic investment by
funds affiliated with KKR & Co. Inc. (“KKR”), a
leading global investment firm, and a Strategic Partnership Agreement (the “Partnership
Agreement”) with
KKR.
In addition to KKR’s current holdings, KKR will make an additional $250 million investment in the
Company’s common stock.
As a result, KKR will become the largest non-index fund stockholder of the Company
with a 12% position.
KKR will also have the ability to purchase additional shares
via open market purchases up to
a total equity stake of 14.9% of the outstanding common shares of
the Company.
Under the Partnership
Agreement, two representatives of KKR (the “Investor Designees”) will join our
Board of Directors.
Each of the
Investor Designees will also be nominated by our Board of Directors
to stand for election at our 2025 annual
meeting of stockholders for a term expiring at our 2026 annual meeting
of stockholders.
As part of the Partnership
Agreement, KKR has agreed to customary voting and other provisions.
Consummation of the transactions
contemplated by the Partnership Agreement is subject to customary
closing conditions, including the expiration or
termination of any waiting period under the Hart-Scott-Rodino Act
and certain foreign regulatory approvals.
The
Partnership Agreement may have unintended consequences, such as
uncertainty about our management, operations,
or future strategic direction, which could result in the loss of future
business opportunities or negatively impact our
ability to attract and retain qualified talent. KKR also invests in many different types of
businesses, and has or may
continue to invest in customers, suppliers, joint venture partners, or
other entities that have relationships with the
Company, or in competitors of such entities,
which may create unintended conflicts resulting in a loss of business.
Our future growth (especially for our Global Technology and Global Specialty Products segments) is dependent
upon our ability to develop or acquire and maintain and protect
new products and services and utilize new
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 Global Technology and Global Specialty Products segments) products and services and utilize
new technologies, such as artificial intelligence (“AI”) (among other emerging technologies)
and to market them
and/or utilize 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 Global 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.
We have increased and expect to continue to increase our use of AI technologies in various contexts to improve
customer and patient experiences and drive efficiencies in certain areas of our business.
While these innovations
can present benefits to the Company, they also create risks and challenges.
If investments in such emerging
technologies are less successful at attracting and retaining customers than
similar investments by our competitors,
or if we are otherwise unsuccessful at realizing the benefits of these
technological investments generally, this could
have a material adverse effect on our business, financial condition, or operating
results.
Additionally, widely
assessable generative AI that rapidly surpasses our organizational ability to understand
associated risks and
opportunities (including employees’ failure to comply with policies governing
AI usage) could endanger our
intellectual property, lead to misuse of data and cause reputational harm.
Risks inherent in acquisitions, dispositions and joint ventures could
offset the anticipated benefits.
One of our business strategies has been to expand in part through acquisitions
and joint ventures and we expect to
continue to make acquisitions and enter into joint ventures in the future.
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 transactions 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, systems,
services, products and personnel
with our culture, management policies, legal, regulatory and compliance
policies, information technology
and cybersecurity systems and policies, internal procedures, working capital
management, financial,
operational and internal 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 timely executing alternative exit strategies
on acceptable terms, which
could delay the accomplishment of our strategic objectives.
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.
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 shares of common stock entitled to vote
to approve a merger, consolidation, or
a sale, lease, transfer or exchange of all or substantially all of our assets;
and (ii) the affirmative vote of the holders
of at least 66 2/3% of our common stock entitled to vote to (a)
remove a director; and (b) to amend or repeal our
by-laws, with certain limited exceptions.
In addition, certain of our employee incentive plans provide
for
accelerated vesting of equity awards upon termination without cause within
two years following a change in
control, or grant the plan committee discretion to accelerate awards
upon a change of control.
Further, certain
agreements between us and our executive officers provide for increased severance
payments and certain benefits if
those executive officers are terminated without cause by us or if they terminate
for good reason, in each case within
two years following a change in control or within ninety days prior to the
effective date of the change in control or
after the first public announcement of the pendency of the change
in control.
Adverse changes in supplier rebates or other purchasing incentives
could negatively affect our business.
The terms on which we purchase or sell products from many suppliers may
entitle us to receive a rebate or other
purchasing incentive based on the attainment of certain growth goals.
Suppliers may reduce or eliminate rebates or
incentives offered under their programs, or increase the growth goals or other conditions
we must meet to earn
rebates or incentives to levels that we cannot achieve.
Increased competition either from generic or equivalent
branded products could result in us failing to earn rebates or incentives
that are conditioned upon achievement of
growth goals.
Additionally, factors outside of our control, such as customer preferences, consolidation of suppliers
or supply issues, can have a material impact on our ability to achieve
the growth goals established by our suppliers,
which may reduce the amount of rebates or incentives we receive.
Sales of corporate brand products and products that we manufacture
entail additional risks, including the risk
that such sales could materially adversely affect our relationships with suppliers.
We offer
certain corporate brand products that are available exclusively
from us.
The sale of such corporate brand
products and the sale of products that we manufacture subject us to
potential product liability risks, mandatory or
voluntary product recalls, potential supply chain and distribution chain
disruptions and potential intellectual
property infringement risks, among other risks.
In addition, an increase in the sales of our corporate brand products
and our own manufactured products may negatively affect our sales of products
owned by our suppliers which,
consequently, could adversely impact certain of our supplier relationships.
Our ability to locate qualified,
economically stable suppliers who satisfy our requirements, and
to acquire sufficient products in a timely and
effective manner, is critical to ensuring, among other things, that customer confidence is not diminished.
In
addition, we are exposed to the risk that our competitors or our large customers may
introduce their own private
label, generic, or low-cost products that compete with our products at
lower price points.
Such products could
capture significant market share or decrease market prices overall, eroding
our sales and margins.
Any failure to
develop sourcing relationships with a broad and deep supplier base
could have a material adverse effect on our
business, financial condition or operating results.
Our business could be affected by activist investors.
We actively engage in discussions with our stockholders.
In other cases, stockholders can engage in certain
divisive activist tactics, which can take many forms (including potential
proxy contests).
Some stockholder
activism has resulted in, and could in the future result in, substantial
costs, such as professional fees, and the
diversion of management’s and our Board of Directors’ attention and resources from our businesses and strategic
plans.
Additionally, it could cause uncertainty about our management, operations or future strategic direction,
which could result in the loss of future business opportunities or negatively
impact our ability to attract and retain
qualified talent.
Activists or other stockholders holding a large portion of our outstanding shares
could also have
the ability to exert influence on actions requiring a stockholder vote,
including the election of directors and the
approval of certain extraordinary business transactions.
These risks could cause volatility in the trading price of our
common stock based on factors other than the fundamentals of our
business.
INDUSTRY RISKS
Security risks generally associated with our information systems and our
technology products and services have
in the recent past adversely affected our business and results of operations, and could
in the future materially
adversely affect our business and our results of operations if such products, services,
or systems (or third-party
systems we rely on) are interrupted, damaged by unforeseen events, are subject
to cyberattacks or fail for any
extended period of time.
We rely on information systems (“IS”) in our business to obtain, rapidly process, analyze, manage and store
customer, product, supplier and employee data to, among other things:
maintain and manage worldwide systems to facilitate the purchase and
distribution of thousands of
inventory items from numerous distribution centers;
receive, process and ship orders on a timely basis;
manage the accurate billing and collections for our customers;
process payments to suppliers;
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.
There could be an adverse impact on our business, financial condition
or operating results if we do not maintain an
adequate information and technology infrastructure (
e.g.
, hardware, networks, software, people and processes) to
effectively protect and support the current and future information requirements of the business.
In addition to health
information in our customers’ electronic medical and dental records,
certain of our IS stores other sensitive personal
and financial information, such as health care and other information related
to our employees and individuals we
service, as well as other sensitive information such as credit card
information from our third-party business
partners, that is confidential, and in many cases subject to privacy laws.
Our IS are susceptible to, among other things, natural disasters, power
losses, telecommunication failures,
cybersecurity threats and other criminal activity.
Information security risks have significantly increased
in recent
years in part because of an overall increase in cyber incidents, their increased
sophistication and the involvement of
organized crime, hackers, terrorists and foreign state agents.
In particular, the health care industry has been
targeted by threat actors seeking to undermine companies’ cybersecurity defensive
measures.
We have processes in
place intended to ensure that our security measures keep pace with
new and emerging risks.
We regularly review,
monitor and implement multiple layers of security through technology, processes and our people.
We utilize
security technologies designed to protect and maintain the integrity of
our IS and data, and our defenses are
monitored and routinely tested internally and by external parties.
Despite these efforts, our facilities and systems
and those of our third-party service providers have been, and may in
the future be, vulnerable to privacy and
security incidents, cybersecurity attacks and data breaches, acts of vandalism
or theft, computer viruses and other
malicious code, misplaced or lost data, programming and/or human errors,
attacks or other acts undermining IS of
third party business partners including our customers, or other similar events
that could impact the security,
reliability and availability of our systems.
In addition, hardware, software or applications developed
internally or
procured from third parties may contain defects in design or manufacture
or other problems that could unexpectedly
compromise information security.
As a practical matter, so long as we depend on IS to operate our business, and
our business partners do the same, there can be no guaranty
that such measures will successfully stop any one
particular cybersecurity incident given the constantly evolving nature of
the threat.
We have incurred and may in
the future incur substantial costs as we update our cybersecurity defense
systems and our general computer controls
to meet evolving challenges, and legislative or regulatory action related
to cybersecurity may increase our costs to
develop or implement new technology products and services.
A cyberattack that bypasses or compromises our IS cybersecurity and/or
general information technology (“IT”)
controls (including third-party systems we rely on) causing an IS security breach
may lead, and has in the past led,
to a disruption of our IS business systems (including third-party systems we
rely on), interruption of operations
(including, without limitation, receiving, verifying and processing customer orders,
customer service, accounts
payable, warehouse management and shipping and systems tied
to internal controls over financial reporting), the
loss or alteration of business, financial and other protected information,
a negative impact on our financial
performance, and to an adverse impact on our financial accounting
and reporting controls.
A cyberattack that
bypasses or compromises our IS cybersecurity and/or general computer
controls or those of third parties with whom
we engage may also lead to claims against us by affected parties and/or governmental
agencies, and involve fines
and penalties, as well as substantial defense and settlement expenses.
Any of these impacts may alone, or
collectively, have a material impact on our business.
A successful cyberattack has, and may again in the future,
disrupt our business operations, adversely impact our financial accounting
and reporting of results of operations,
divert the attention of management, and adversely impact our results of
operations.
In addition, we develop products and provide services to our customers
that are technology-based, and a
cyberattack that bypasses the IS supporting our products or services causing
a security breach and/or perceived
security vulnerabilities in our products or services could also cause significant
loss of business and reputational
harm, and actual or perceived vulnerabilities may lead to claims against
us by our customers and/or governmental
agencies.
In addition, certain of our practice management products and services
purchased by health care
providers, such as physicians and dentists, are used to store and manage patient
medical or dental records, and when
cloud-based approaches are used, we may be responsible for hosting
those records.
These customers, and in some
cases, we are subject to laws and regulations which require that
they protect the privacy and security of those
records, and our products may be used as part of these customers’ comprehensive
data security programs, including
in connection with their efforts to comply with applicable privacy and security laws.
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.
The October 2023 cybersecurity incident disrupted key business
operations,
adversely impacted our financial results for the fourth quarter and full year 2023,
diverted attention of management,
and caused the Company to incur significant remediation costs.
The incident had residual impact on our financial
results in 2024, and we continue to review the effects of the incident on the Company’s business.
We have spent,
and plan to expend in the future, additional resources to continue
to protect against, or to address problems caused
by, business interruptions and data security breaches.
We also may be perceived as a more vulnerable target of the
cyber hackers as a result of the October 2023 incident.
The health care products distribution industry is highly competitive
(including, without limitation, competition
from third-party online commerce sites) and consolidating, and we may not
be able to compete successfully.
We compete with numerous companies, including several major manufacturers and distributors.
Some of our
competitors have greater financial and other resources than we do, which
could allow them to compete more
successfully.
Most of our products are available from several sources and our customers
tend to have relationships
with several distributors.
Competitors could obtain exclusive rights to market particular
products, which we would
then be unable to market.
Manufacturers also could increase their efforts to sell directly to end-users and
thereby
eliminate or reduce our role in distribution.
Industry consolidation among health care product distributors and
manufacturers, price competition, product unavailability, whether due to our inability to gain access to products or
to interruptions in manufacturing supply, or the emergence of new competitors, also could increase competition.
Consolidation has also increased among manufacturers of health care
products, which could have a material
adverse effect on our margins and product availability.
We could be subject to charges and financial losses in the
event we fail to satisfy minimum purchase commitments contained
in some of our contracts.
Additionally,
traditional health care supply and distribution relationships are being challenged
by online commerce solutions.
The continued advancement of online commerce by third parties and online
price transparency requires us to cost-
effectively adapt to changing technologies, to enhance existing services and to differentiate
our business (including
with additional value-added services) to address changing demands
of consumers and our customers.
The
emergence of such competition and our inability to anticipate and effectively respond to changes on
a timely basis
could have a material adverse effect on our business, financial condition or operating
results.
The health care industry is experiencing changes due to political, economic
and regulatory influences that could
materially adversely affect our business.
The health care industry is highly regulated and subject to changing
political, economic and regulatory influences.
In recent years, the health care industry has been undergoing significant changes driven
by various efforts to reduce
costs, including, among other factors: trends toward managed care; collective
purchasing arrangements and
consolidation among office-based health care practitioners; and changes in reimbursements
to customers, including
increased attention to value-based payment arrangements, as well as enforcement
activities (and related monetary
recoveries) by governmental officials.
Both our profitability and that of our customers may be
materially adversely
affected by laws and regulations reducing reimbursement rates for pharmaceuticals,
medical supplies and devices,
and/or medical treatments or services, or changes to the methodology
by which reimbursement levels are
determined.
If we are unable to react effectively to these and other changes in the
health care industry, our business
could be materially adversely affected.
The ACA greatly expanded health insurance coverage
in the United States
and has been the target of legal and political challenges since its adoption.
Any outcome of these challenges that
changes the ACA could have a significant impact on the U.S. health care
industry and the ability or willingness of
individuals to engage with it.
Expansion of GPOs, DSOs, MSOs or provider networks and the multi-tiered
costing structure may place us at a
competitive disadvantage.
The health care products industry is subject to a multi-tiered costing structure, which
can vary by manufacturer
and/or product.
Under this structure, certain institutions can obtain more favorable
prices for health care products
than we are able to obtain.
The multi-tiered costing structure continues to expand as many large integrated health
care providers and others with significant purchasing power, such as GPOs, DSOs and MSOs, demand
more
favorable pricing terms.
Additionally, the formation of provider networks, GPOs, DSOs and MSOs may shift
purchasing decisions to entities or persons with whom we do not have a historical
relationship and may threaten our
ability to compete effectively, which could in turn negatively impact our financial results.
In addition, such
organizations may establish direct relationships with manufacturers, thereby
either eliminating or reducing the
services historically provided by distributors.
Although we are seeking to obtain similar terms from manufacturers
to access lower prices demanded by GPO, DSO and MSO contracts or
other contracts, and to develop relationships
with existing and emerging provider networks, GPOs, DSOs and MSOs, we
cannot guarantee that such terms will
be obtained or contracts executed.
Increases in shipping costs or service issues with our third-party shippers
could harm our business.
Our ability to meet our customers’ expedited delivery expectations is an
integral component of our business
strategy for which our customers rely.
Shipping is a significant expense in the operation of our business.
We ship
almost all of our orders through third-party delivery services, and typically bear
the cost of shipment.
Accordingly,
any significant increase in shipping rates could have a material adverse
effect on our business, financial condition
or operating results.
While we have recently experienced increases in shipping costs,
we do not expect these
additional expenses to be material to our results now, however, they could be material in the future.
Similarly,
strikes or other service interruptions by those shippers, including at transportation
centers or shipping ports, could
cause our operating expenses to rise and materially adversely affect our ability
to deliver products on a timely basis.
MACRO-ECONOMIC AND POLITICAL RISKS
Uncertain global and domestic macro-economic and political conditions
could materially adversely affect our
results of operations and financial condition.
Uncertain global and domestic macro-economic and political conditions
that affect the economy and the economic
outlook of the United States, Europe, Asia and other parts of the
world could have a material adverse effect our
business, financial condition or operating results.
These uncertainties, include, among other things, those listed
under “Managements Discussion and Analysis of Financial Condition and
Results of Operations, Cautionary Note
Regarding Forward-Looking Statements.”
Additionally, changes in government, government debt and/or budget crises may lead to reductions in government
spending in certain countries, which could reduce overall health care spending
and/or lead to higher income or
corporate taxes, which could depress spending overall.
Recessionary or inflationary conditions and depressed
levels of consumer and commercial spending may also cause customers
to reduce, modify, delay,
or cancel plans to
purchase our products and may cause suppliers to reduce their output
or change their terms of sale.
We have
experienced inflationary pressures, including higher freight costs and
interest expense, and pressures resulting from
the strengthening of the dollar, which have and continue to impact our results of operations.
We generally sell
products to customers with payment terms.
If customers’ cash flow or operating and financial performance
deteriorate, or if they are unable to make scheduled payments or obtain
credit, they may not be able to, or may
delay, payment to us.
Likewise, for similar reasons suppliers may restrict credit or impose
different payment terms.
REGULATORY
AND LITIGATION RISKS
Failure to comply with existing and future regulatory requirements
could materially adversely affect our
business.
We strive to be compliant with the applicable laws, regulations and guidance described below in all material
respects, and believe we have effective compliance programs and other controls
in place to ensure substantial
compliance.
However, compliance is not guaranteed either now or in the future as certain laws, regulations
and
guidance may be subject to varying and evolving interpretations that could
affect our ability to comply, as well as
future changes, additions and enforcement approaches, including in light
of political changes.
Changes with
respect to the applicable laws, regulations and guidance described below
may require us to update or revise our
operations, services, marketing practices, and compliance programs
and controls, and may impose additional and
unforeseen costs on us, pose new or previously immaterial risks to us, or
may otherwise have a material adverse
effect on our business.
There can be no assurance that current and future government
regulations will not adversely
affect our business, and we cannot predict new regulatory priorities, the form, content
or timing of regulatory
actions, and their impact on the health care industry and on our business
and operations.
Global efforts to contain health care costs continue to exert pressure on product pricing.
In the United States, there
has been increased scrutiny on drug pricing and concurrent efforts to control or
reduce drug costs by Congress, the
President, executive branch agencies and various states.
We may be required to report drug pricing data under
federal laws and regulations.
Several U.S. states have adopted laws, that may apply to some of
our operations, that
require drug manufacturers, including re-packagers or re-labelers, to provide
advance notice of certain price
increases and to report information relating to price increases, while
others have established prescription drug
affordability boards or multi-payer purchasing pools to reduce the cost of prescription
drugs.
At the federal level,
for example, the Inflation Reduction Act of 2022, among other things,
requires drug manufacturers that raise certain
of their drug prices faster than the rate of inflation to pay rebates to Medicare,
and over time will authorize the
federal government to negotiate directly with drug manufacturers to
lower the prices of certain brand-name drugs
covered by Medicare.
These various evolving efforts create uncertainty and may adversely affect our business.
Under the Sunshine Act, we are required to collect and report detailed
information regarding certain financial
relationships we have with covered recipients (
e.g.
, physicians, dentists, teaching hospitals, other health care
practitioners).
We may be required to report information under state transparency laws that address circumstances
not covered by the Sunshine Act.
We are also subject to similar foreign transparency laws.
While we believe we
have substantially compliant programs and controls in place satisfying
the above laws and requirements, such
compliance imposes additional costs on us and the requirements
are sometimes unclear.
Our business is subject to additional requirements under various local, state,
federal and foreign laws and
regulations applicable to the sale and distribution of, and third-party payment
for, pharmaceuticals and medical
devices and HCT/P products.
Among the federal laws with which we must comply are the Controlled Substances
Act, the FDC Act, the Federal Drug Quality and Security Act, including DSCSA,
and Section 361 of the Public
Health Services Act.
Among other things, such laws and the regulations promulgated
thereunder:
regulate the introduction, manufacture, advertising, marketing, promotion,
sampling, pricing,
reimbursement, labeling, packaging, storage, handling, returning,
recalling, reporting, distribution of, and
recordkeeping for drugs, HCT/P products and medical devices, including
unique device identifiers;
subject us to inspection by the FDA, OSHA, and DEA and similar state
authorities;
regulate the storage, transportation and disposal of
hazardous materials;
require us to advertise and promote our drugs and devices in accordance
with FDA regulations;
require us to report average sales price (ASP) to CMS for drugs or biologicals
payable under Medicare Part
B with or without a Medicaid drug rebate agreement;
require registration with the FDA and the DEA and various state agencies;
require us to design and operate a system to identify and report suspicious
orders of controlled substances
to the DEA and certain states;
require us to manage returns of products that have been recalled and subject
us to inspection of our recall
procedures and activities;
impose on us reporting requirements if a pharmaceutical, HCT/P product or
medical device causes an
adverse event, serious illness, injury or death;
require manufacturers, wholesalers, re-packagers and dispensers of prescription
drugs to identify and trace
certain prescription drugs as they are distributed;
require the licensing of prescription drug wholesalers and third-party
logistics providers; and
mandate compliance with standards for the recordkeeping, storage,
handling and documentation of
transactions involving prescription drugs and associated reporting requirements.
The FDA regulates certain computer software and digital health products intended
for use in health care settings,
including, for example, AI and machine learning-enabled medical devices
and the cybersecurity of medical devices.
Certain of our businesses involve the development and sale of
software and related products to support physician
and dental practice management, and it is possible that the FDA or
foreign government authorities could determine
that one or more of our products is subject to regulation as a medical device,
which could subject our businesses to
substantial additional requirements, costs, potential enforcement actions
or liabilities for noncompliance with
respect to these products. For example, some of our imaging software is
regulated as a medical device which
subjects our businesses to substantial additional requirements, costs
and potential enforcement actions or liabilities
for noncompliance with respect to these products.
Applicable federal, state, local and foreign laws and regulations also may
require us to meet various standards
relating to, among other things, licensure, registration, program eligibility, procurement, third-party reimbursement,
sales and marketing practices, product integrity and supply
tracking to product manufacturers, product labeling,
personnel, privacy and security of health or other personal information,
installation, maintenance and repair of
equipment and the importation and exportation of products.
The FDA and DEA, as well as CMS (including with
respect to complex Medicare reimbursement requirements applicable to our
specialty home medical supplies
business) and state Medicaid agencies, have recently increased their regulatory
and enforcement activities and, in
particular, the DEA has heightened enforcement activities due to the opioid crisis in the United
States.
The failure to comply with any of these laws or regulations, or new interpretations
of them, or the imposition of any
additional laws and regulations, could materially adversely affect our business.
The costs to us associated with
complying with the various applicable statutes and regulations, as they now
exist and as they may be modified,
could be material.
Allegations by a governmental body that we have not complied
with these laws could have a
material adverse effect on our businesses.
While we believe that we are substantially compliant with
applicable
laws and regulations, and have adequate compliance programs and controls
in place to ensure substantial
compliance, if it is determined that we have not complied with these laws,
we are potentially subject to warning
letters, substantial civil and criminal penalties, mandatory recall of product,
seizure of product and injunction,
consent decrees and suspension or limitation of payments to us, product
sale and distribution.
If we enter into
settlement agreements to resolve allegations of non-compliance, we
could be required to make settlement payments
or be subject to civil and criminal penalties, including fines and
the loss of licenses.
Non-compliance with
government requirements could also adversely affect our ability to participate in
important federal and state
government health care programs, such as Medicare and Medicaid,
and damage our reputation.
The EU Medical Device Regulation (“MDR”) may adversely affect our business.
The EU MDR significantly modified the regulatory compliance requirements
for the medical device industry as a
whole.
Among other things, the EU MDR:
strengthens the rules on placing devices on the market and reinforces
surveillance thereafter;
establishes explicit provisions on manufacturers’ responsibilities
for the follow-up of the quality,
performance and safety of devices placed on the market;
improves the traceability of medical devices throughout the supply chain to
the end-user or patient through
a unique identification number;
sets up a central database (EUDAMED) to provide patients, health care
professionals and the public with
comprehensive information on devices, importers, and distributors registered
in the EU;
strengthens rules for the assessment of certain high-risk devices, such
as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
contains specific provisions in the event of interruption or discontinuation
of supply of a device.
The EU MDR imposes strict requirements for the confirmation that a
product meets the regulatory requirements,
including regarding a product’s clinical evaluation and a company’s quality systems, and for the distribution,
marketing and sale of medical devices, including post-market surveillance.
Pursuant to Regulation 2023/607 and
subject to certain conditions, medical devices that (i) obtained
a certificate under the EU Medical Device Directive
from May 25, 2017, (ii) which was still valid on May 26, 2021, and (iii)
has not been subsequently withdrawn may
continue to be placed on the market or put into service until December
31, 2027 for higher risk devices or
December 31, 2028 for medium and lower risk devices. The modifications
created by the EU MDR may have an
impact on the way we design and manufacture products and the way we
conduct our business in the EEA.
If we fail to comply with laws and regulations relating to health care
fraud or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations,
which could materially
adversely affect our business.
Certain of our businesses are subject to federal and state (and similar
foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with respect to their operations.
Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or
fraudulent claims for reimbursement to
federal, state and other health care payers and programs.
Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce or reward
the referral of a patient or
ordering, purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing
of, items or
services that are paid for by federal, state and other health care payers and programs.
Certain additional state and
federal laws, such as the federal Physician Self-Referral Law (“Stark Law”),
prohibit physicians and other health
care professionals from referring a patient to an entity with which
the physician (or family member) has a financial
relationship, for the furnishing of certain designated health services
(for example, durable medical equipment and
medical supplies), unless an exception applies.
The fraud and abuse laws and regulations have been subject to heightened
enforcement activity over the past few
years, often as the result of “relators” who serve as whistleblowers by filing
complaints in the name of the United
States (and if applicable, particular states) under applicable false claims
laws, and who may receive up to 30% of
total government recoveries.
Penalties under fraud and abuse laws may be severe, including treble damages
and
substantial civil penalties under the federal False Claims Act, as
well as potential loss of licenses and the ability to
participate in federal and state health care programs, criminal penalties,
or imposition of a corporate compliance
monitor, which could have a material adverse effect on our business.
Also, these measures may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a
manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses.
Even unsuccessful challenges by regulatory
authorities or relators could result in reputational harm and the incurring of
substantial costs.
Most states have
adopted similar state false claims acts, and these state laws have their
own penalties which may be in addition to
federal False Claims Act penalties, and other fraud and abuse laws.
The United States government (among others) has expressed concerns
about financial relationships between
suppliers or manufacturers on the one hand and physicians, dentists
and other health care providers, on the
other.
As a result, we regularly review and revise our marketing practices
as necessary to facilitate compliance.
Our aspirations, goals and disclosures related to environmental, social
and governance matters and the focus on
regulators and private litigants among other things on related claims made
by companies and funds expose us to
numerous risks, including reputational, financial, legal and other risks,
that could have an adverse impact on us.
California has adopted stringent new climate disclosure requirements, as
has the EU.
As of April 4, 2024, the SEC
has temporarily suspended implementation of its climate disclosure rules.
In the EU, Directive No. 2019/1937 of October 23, 2019,
on the protection of persons who report breaches of
Union law,
organizes the legal protection of whistleblowers.
This Directive covers whistleblowers reporting
breaches of EU laws and regulations and protects a wide range of people
including former employees.
All private
companies with 50 or more employees are required to create effective internal reporting
channels.
All EU Member
States have now implemented the Directive.
We also are subject to the requirements of Directive No. 2022/2464 on corporate sustainability reporting (“CSRD”)
that became effective on January 5, 2023.
CSRD requires in-scope companies to report on sustainability-related
information that is material from a financial risk or opportunity perspective
to their business and from an impact
perspective on the environment or society.
The materiality of sustainability matters is subjective and
may be
interpreted differently by various stakeholders.
CSRD, its transposition into national EU Member State law, and
associated guidance are evolving and reporting requirements may change,
which may further increase the costs of
complying with CSRD.
CSRD has not yet been fully implemented by all EU Member States.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
books and records.
Our businesses
are generally subject to numerous other laws and regulations that
could impact our financial results, including,
without limitation, securities, antitrust, consumer protection and marketing
laws and regulations.
In the EU, both active and passive corruption in the private sector are
criminalized.
The EU Council Framework
Decision 2003/568/JHA of 22 July 2003
on combating corruption in the private sector
establishes more detailed
rules on the liability of legal persons and deterrent sanctions.
However, the liability of legal persons is regulated at
a national level.
Failure to comply with fraud and abuse laws and regulations, and other
laws and regulations, could result in
significant civil and criminal penalties and costs, including the loss of
licenses and the ability to participate in
federal and state health care programs, and could have a material adverse
effect on our business.
We may
determine to enter into settlements, make payments, agree to consent decrees
or enter into other arrangements to
resolve such matters.
Intentional or unintentional failure to comply with settlement agreements
or consent decrees
could materially adversely affect our business.
While we believe that we are substantially compliant with applicable
laws and regulations, and believe we have
adequate compliance programs and controls in place to ensure substantial
compliance, we cannot predict whether
changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in response
to
changes in applicable law or interpretation of laws, could have a material
adverse effect on our business.
If we fail to comply with laws and regulations relating to the collection,
storage and processing of sensitive
personal information or standards in electronic health records or transmissions,
we could be required to make
significant changes to our products, or incur substantial fines, penalties, or
other liabilities.
Our businesses that involve physician and dental practice management
products, equipment and our specialty home
medical supplies businesses, and our self-funded employee benefits programs
include information technology (IT)
systems that store and process personal health, clinical, financial, and
other sensitive information of individuals.
These IT systems may be vulnerable to breakdown, wrongful intrusions, data
breaches and malicious attack, which
could require us to expend significant resources to eliminate these
problems and address related security concerns,
and could involve claims against us by private parties and/or governmental agencies.
We are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations
that protect the privacy and security of personal information (including
health data), such as HIPAA, CAN-SPAM,
TCPA, Section 5 of the FTC Act, the CCPA
and various other privacy laws that have or will soon come into
effect.
Laws and regulations relating to privacy and data protection are
continually evolving and subject to potentially
differing interpretations, including those relating to AI.
These requirements may not be harmonized, may be
interpreted and applied in a manner that is inconsistent from one jurisdiction
to another or may conflict with other
rules or our practices.
In addition, cybersecurity laws such as the federal Cyber Incident
Reporting for Critical
Infrastructure Act of 2022, proposed Federal Acquisition Regulations and
amendments to SEC reporting
requirements may require us to provide notifications about cybersecurity
incidents in limited timeframes and before
investigations are complete.
Our businesses’ failure to comply with these laws and regulations
could expose us to
breach of contract claims, substantial fines, penalties and other
liabilities and expenses, costs for remediation and
harm to our reputation.
Evolving laws and regulations in this area could restrict the
ability of our customers to
obtain, use or disseminate patient information, or could require us
to incur significant additional costs to re-design
our products to reflect these legal requirements, which could have
a material adverse effect on our operations.
In addition, the European Parliament and the Council of the EU adopted
the GDPR effective from May 25, 2018,
which increased privacy rights for Data Subjects, including individuals
who are our customers, suppliers and
employees.
The GDPR extended the scope of responsibilities for data controllers
and data processors, and
generally imposes increased requirements and potential penalties on companies,
such as us, that are either
established in the EU and process personal data of Data Subjects (regardless
the Data Subject location), or that are
not established in the EU but that offer goods or services to Data Subjects in the EU
or monitor their behavior in the
EU. Noncompliance can result in penalties of up to the greater of EUR 20
million, or 4% of global company
revenues (sanction that may be public), and Data Subjects may seek damages.
Member states may individually
impose additional requirements and penalties regarding certain limited
matters (for which the GDPR left some
room of flexibility), such as employee personal data.
With respect to the personal data it protects, the GDPR
requires, among other things, controller accountability, consents from Data Subjects or another acceptable legal
basis to process the personal data, notification within 72 hours
of a personal data breach where required, data
integrity and security, and fairness and transparency regarding the storage, use or other processing of the personal
data.
The GDPR also provides rights to Data Subjects relating notably
to information, access, rectification, erasure
of the personal data and the right to object to the processing.
Despite Brexit, the UK also has data protection laws
equivalent to the GDPR).
Switzerland enacted FADP.
Uncertainty about compliance with these data protection
laws remains, with the possibilities that data protection authorities located
in different EU Member States may
interpret GDPR differently, or requirements of national laws may vary between the EU Member States, or guidance
on GDPR and compliance practices may be often updated or otherwise revised.
Any of these events will increase
the complexity and costs of processing personal data in the European Economic
Area, UK or Switzerland or
concerning individuals located in these jurisdictions.
Effective November 1, 2021, China’s PIPL imposes specific rules for processing personal information and specifies
that the law shall also apply to personal information activities carried
out outside China but for the purpose of
providing products or services to PRC citizens.
Any non-compliance with these laws and regulations may
subject
us to fines, orders to rectify or terminate any actions that are deemed
illegal by regulatory authorities, other
penalties, reputational damage, or legal proceedings against us, which
may affect our business, financial condition
or results of operations.
The PIPL carries maximum penalties of CNY50 million or
5% of the annual revenue of
entities that process personal data.
Data protection laws in other countries are also quickly
evolving, with many
countries having updated, or are in the process of updating, their
laws to bring them more in line with the model
created by GDPR.
In the United States, the CCPA, effective January 1, 2020, establishes a privacy framework for covered businesses
such as ours by, among other things, creating an expanded definition of personal information, establishing new data
privacy rights for California residents and creating a new and potentially
severe statutory damages framework for
violations of the CCPA, as well as potentially severe statutory damages and private a right of action against
businesses that suffer a data security breach due to their violation of a duty to
implement reasonable security
procedures and practices. This private right of action may increase the
likelihood of, and risks associated with, data
breach litigation.
In addition, California voters adopted the CPRA (effective January 1, 2023)
which enhances and
strengthens regulatory requirements and individual protections that currently
exist under the CCPA.
Other states
have enacted or are considering enacting similar privacy laws, which may
subject us to additional requirements and
restrictions that could have an impact on our business.
Comprehensive privacy laws in a number of other states are
now in effect, and similarly enacted broad laws relating to privacy, data protection, and information security that
will come into effect later in 2025 and 2026, further complicating our privacy compliance
obligations through the
introduction of increasingly disparate requirements across the various
U.S. jurisdictions in which we operate.
Additionally, certain other states have enacted specific health data privacy laws and other states are considering
similar legislation.
Congress is considering legislation that may preempt some or
all of such U.S. state privacy
laws, but which may also provide a more expansive private right of action
for privacy claims than exists under
current state laws.
The evolving complexity of privacy and data security legislation in
the United States may complicate our
compliance efforts and further increase our risk of regulatory enforcement, penalties
and litigation.
While we
believe we have substantially compliant programs and controls in place
to comply with privacy laws domestically
and internationally, our compliance with data privacy and cybersecurity laws is likely to impose additional costs
on
us, and we cannot predict whether the interpretations of the requirements,
or changes in our practices in response to
new requirements or interpretations of the requirements, could have a
material adverse effect on our business.
Further, countries are applying their data and consumer protection laws to AI, particularly generative
AI, and are
considering and implementing specific legal frameworks with respect
to AI, for example the EU AI Act 2024
(which as with the GDPR, will have extra-territorial effect).
Any failure or perceived failure by us to comply with
such requirements could have an adverse impact on our business.
Anticipated further evolution of regulations and
legislation on this topic may substantially increase the penalties
to which we could be subject in the event of any
non-compliance.
Compliance with these laws is challenging, constantly evolving
and time consuming and federal
regulators, state attorneys general and plaintiff’s attorneys have been and will
likely continue to be active in this
space.
We may incur substantial expense in complying with legal obligations to be imposed by new regulations
and we may be required to make significant changes to our solutions and
expanding business operations, all of
which may adversely affect our operations.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records.
These customers and we are subject to laws, regulations and
industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records.
Our products or services may be used as part of these customers’
comprehensive data security programs, including in connection with their
efforts to comply with applicable data
privacy and security laws and contractual requirements.
Perceived or actual security vulnerabilities in our products
or services, or the perceived or actual failure by us or our customers who
use our products or services to comply
with applicable legal or contractual data privacy and security requirements,
may not only cause us significant
reputational harm, but may also lead to claims against us by our customers
and/or governmental agencies and
involve substantial fines, penalties and other liabilities and expenses
and costs for remediation.
Additionally, under
the GDPR, health data belong to the category of “sensitive data” and benefit
from specific protection.
Processing
of such data is generally prohibited, except for specific exceptions.
Certain of our businesses involve the manufacture and sale of electronic
health record (EHR) systems and other
products linked to government supported incentive programs, where
the EHR systems must be certified as having
certain capabilities designated in evolving standards, such as those adopted
by CMS and ONC.
In order to maintain
certification of our EHR products, we must satisfy the changing governmental
standards.
If any other EHR systems
do not meet these standards, yet have been relied upon by health care providers
to receive federal incentive
payments, we may be exposed to risk, such as under federal health care
fraud and abuse laws, including the False
Claims Act.
Additionally, effective September 1, 2023, the HHS-OIG issued a final rule implementing civil money
penalties for information blocking as established by the Cures Act.
OIG incorporated regulations published by
ONC as the basis for enforcing information blocking penalties.
Each information blocking violation carries a $1
million penalty.
While we believe we are substantially in compliance with such certifications
and with applicable
fraud and abuse laws and regulations and that we have adequate compliance
programs and controls in place to
ensure substantial compliance, we cannot predict whether changes in
applicable law, or interpretation of laws, or
resulting changes in our compliance programs and controls, could have a
material adverse effect on our business.
Moreover, in order to satisfy our customers and comply with evolving legal requirements, our products
may need to
incorporate increasingly complex functionality, such as reporting and information blocking.
Although we believe
we are positioned to accomplish this, the effort may involve increased costs, and
our failure to implement product
modifications, or otherwise satisfy applicable standards, could have a
material adverse effect on our business.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged
information becomes
increasingly important.
As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
Tax legislation could materially adversely affect our financial results and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as
foreign jurisdictions.
From time to time, various legislative initiatives may be proposed
that could materially
adversely affect our tax positions.
There can be no assurance that our effective tax rate will not be
materially
adversely affected by legislation resulting from these initiatives.
In addition, tax laws and regulations are extremely
complex and subject to varying interpretations.
Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent,
there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be
successful in any such challenge.
We face inherent risk of exposure to product liability, intellectual property infringement and other claims in the
event that the use of the products we sell results in injury.
Our business involves a risk of product liability, intellectual property infringement and other claims in the ordinary
course of business, and from time to time we are named as a defendant
in cases as a result of our distribution of
products.
Additionally, we own and own interests in companies that manufacture certain dental and medical
products.
As a result, we could be subject to the potential risk of product liability, intellectual property
infringement or other claims relating to the manufacture and distribution
of products by those entities.
In addition,
as our corporate brand business continues to grow, purchasers of such products may increasingly seek recourse
directly from us, rather than the ultimate product manufacturer, for product-related claims.
Another potential risk
we face in the distribution of our products is liability resulting from counterfeit
or tainted products infiltrating the
supply chain.
In addition, some of the products that we transport and sell are
considered hazardous materials.
The
improper handling of such materials or accidents involving the transportation
of such materials could subject us to
liability or at least legal action that could harm our reputation.
Customs policies or legislative import restrictions could hinder the Company’s ability to import goods necessary
to our operations on a timely basis and result in government enforcement
actions and/or sanctions.
Government-imposed import policies and legislation regulating the
import of goods and prohibiting the use of
forced labor or human trafficking could result in delays or the inability to import
goods in a timely manner that are
necessary to our operations, and such policies or legislation could also
result in financial penalties, other sanctions,
government enforcement actions and reputational harm.
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.
While
the Company has policies against and seeks to avoid the import of goods
that are manufactured in whole or in part
by forced labor or through human trafficking, as a result of legislative and governmental
policy initiatives, we may
be subject to increasing potential delays, added costs, supply chain disruption
and other restrictions.
GENERAL RISKS
Our business operations, results of operations, cash flows, financial condition
and liquidity may be negatively
impacted by the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread
public health
concerns and other natural or man-made disasters, such as terrorism, civil
unrest, fire and extreme weather
.
Our business operations, results of operations, cash flows, financial condition
and liquidity may be negatively
impacted by the effects of disease outbreaks, epidemics, pandemics, similar wide-spread
public health concerns and
other natural or man-made disasters, such as terrorism, civil unrest, fire
and extreme weather (“disasters”).
For
example, as a global health care solutions company, the COVID-19 pandemic and the governmental responses
to it
had a material adverse effect on our business, financial condition, operating results
and cash flows.
The impacts
and potential impacts from the COVID-19 pandemic included, and could include
as a result of other disasters,
adverse impacts such as significant volatility in supply, demand and selling prices, interrupted operations of
industries that use or manufacture the products we distribute for personal
protective equipment (PPE), test kits and
related products, reduction in peoples’ ability and willingness to be in
public, impact of adapted business practices,
volatility in the financial markets, and unavailability or impairment
of our manufacturing, distribution, or other
facilities, or firmwide systems such as our IS.
Our global operations are subject to inherent risks that could materially adversely
affect our business.
Our global operations are subject to risks that could materially adversely affect our business,
including, among
other things:
difficulties and costs relating to staffing and managing foreign operations;
difficulties and delays inherent in sourcing products, establishing channels of distribution
and contract
manufacturing in foreign markets;
fluctuations in the value of foreign currencies;
uncertainties relating to trade agreements and international trade relationships;
longer payment cycles of foreign customers and difficulty of collecting receivables
in foreign jurisdictions;
repatriation of cash from our foreign operations to the United States;
regulatory requirements, including, without limitation, anti-bribery, anti-corruption and laws pertaining to
the accuracy of our internal books and records;
litigation risks;
unexpected difficulties in importing or exporting our products and import/export
tariffs, quotas, sanctions
or penalties;
limitations on our ability under local laws to protect our intellectual
property;
unexpected regulatory, legal, economic and political changes in foreign markets;
changes in tax regulations that influence purchases of capital equipment;
civil disturbances, geopolitical turmoil, including terrorism, war or political
or military coups; and
risks associated with climate change, including physical risks such as
impacts from extreme weather events
and other potential physical consequences, regulatory and technological
requirements, market
developments, stakeholder expectations and reputational risk.
Our future success is substantially dependent upon our senior
management, and our revenues and profitability
depend on our relationships with capable personnel, as well as
customers, suppliers and manufacturers of the
products that we distribute.
Our future success is substantially dependent upon the efforts and abilities of
members of our existing senior
management, particularly Stanley M. Bergman, Chairman and Chief Executive Officer.
In November 2022, Mr.
Bergman’s employment agreement was extended through December 31, 2025.
Although the Company has an
internal succession plan for its senior leadership team, including Mr. Bergman, the loss of the services of Mr.
Bergman could have a material adverse effect on our business.
We do not currently have “key man” life insurance
policies on any of our employees.
Competition for senior management is intense, burnout and turn-over rates
are
increasing workplace concerns, and we may not be successful in
attracting and retaining key personnel.
Additionally, our future revenues and profitability depend on our ability to maintain satisfactory relationships with
qualified personnel, as well as customers, suppliers and manufacturers.
If we fail to maintain our existing
relationships with such persons or fail to acquire relationships with such key
persons in the future, our business may
be materially adversely affected.
Disruptions in the financial markets may materially adversely
affect the availability and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with
respect to indebtedness will depend on
our operating and financial performance, which in turn is subject to prevailing
economic conditions and financial,
business and other factors beyond our control.
Disruptions in the financial markets may materially adversely affect
the availability and cost of credit to us.
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