filings.toolsItem 8. Financial Statements and Supplementary Data
181K characters. Original on sec.gov · Markdown
Item 8. Financial Statements and Supplementary Data
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 28, 2024 and December 30, 2023
Statements of Income for the years ended December 28, 2024,
December 30, 2023 and December 31, 2022
Statements of Comprehensive Income for the years ended December 28, 2024,
December 30, 2023 and December 31, 2022
Statements of Changes in Stockholders’ Equity for the years ended
December 28, 2024, December 30, 2023 and December 31, 2022
Statements of Cash Flows for the years ended December 28, 2024,
December 30, 2023 and December 31, 2022
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation and Significant Accounting Policies
Note 3 – Net Sales from Contracts with Customers
Note 4 – Segment and Geographic Data
Note 5 – Business Acquisitions
Note 7 – Property and Equipment, Net
Note 9 – Goodwill and Other Intangibles, Net
Note 10 – Investments and Other
Note 11 – Fair Value Measurements
Note 12 – Concentrations of Risk
Note 13 – Derivatives and Hedging Activities
Note 16 – Plans of Restructuring and Integration Costs
Note 17 – Commitments and Contingencies
Note 18 – Stock-Based Compensation
Note 19 – Employee Benefit Plans
Note 20 – Redeemable Noncontrolling Interests
Note 21 – Comprehensive Income
Note 23 – Supplemental Cash Flow Information
Note 24 – Related Party Transactions
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Henry Schein, Inc.
Melville, New York
Opinion on the Consolidated Financial Statements
We
have
audited
the
accompanying
consolidated
balance
sheets
of
Henry
Schein,
Inc.
(the
“Company”)
as
of
December 28, 2024 and December 30, 2023, 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 28, 2024,
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 28, 2024 and December 30, 2023, and the results of its operations and its cash flows for each of the three
years in
the period
ended December
28, 2024,
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
28,
2024,
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 25, 2025 expressed
an unqualified 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 - Valuation of Acquired Intangible Assets
As described in Note 5 of the consolidated financial statements, the Company
acquired TriMed Inc. (“TriMed”) 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 TriMed, the Company recorded
$204 million
of identifiable intangible assets related to product development.
We identified the revenue growth rates for certain periods used in the determination of the fair value of the acquired
product development in the acquisition of TriMed as a critical audit matter. The principal consideration for our
determination was the subjective judgement required by management
in formulating these revenue growth rates.
Auditing these considerations involved especially subjective
and challenging auditor judgement due to the nature
and extent of audit effort required to address these matters.
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 product development
in the
acquisition of TriMed
by: (i) reviewing
the historical performance
of
the acquired company utilizing their
financial statements, and (ii)
assessing the revenue projections against
industry metrics for certain periods.
/s/
BDO USA,
P.C.
We have served as the Company's auditor since 1984.
New York, NY
February 25, 2025
See accompanying notes.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
December 28,
December 30,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of allowance for credit losses of $
and $
(1)
1,482
1,863
Inventories, net
1,810
1,815
Prepaid expenses and other
Total current assets
3,983
4,488
Property and equipment, net
Operating lease right-of-use assets
Goodwill
3,887
3,875
Other intangibles, net
1,023
Investments and other
Total assets
$
10,218
$
10,573
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
$
1,020
Bank credit lines
Current maturities of long-term debt
Operating lease liabilities
Accrued expenses:
Payroll and related
Taxes
Other
Total current liabilities
2,803
2,683
Long-term debt (1)
1,830
1,937
Deferred income taxes
Operating lease liabilities
Other liabilities
Total liabilities
5,381
5,420
Redeemable noncontrolling interests
Commitments and contingencies
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
0.01
par value,
1,000,000
shares authorized,
none
outstanding
-
-
Common stock, $
0.01
par value,
480,000,000
shares authorized,
124,155,884
outstanding on December 28, 2024 and
129,247,765
outstanding on December 30, 2023
Additional paid-in capital
-
-
Retained earnings
3,771
3,860
Accumulated other comprehensive loss
(379)
(206)
Total Henry Schein, Inc. stockholders' equity
3,393
3,655
Noncontrolling interests
Total stockholders' equity
4,031
4,289
Total liabilities, redeemable noncontrolling
interests and stockholders' equity
$
10,218
$
10,573
(1)
Amounts presented include balances held by our consolidated variable interest entity (“VIE”).
At December 28, 2024 and
December 30, 2023, includes trade accounts receivable of $
million and $
million, respectively, and long-term debt of $
million and $
million, respectively.
See
Note 1 – Basis of Presentation and Significant Accounting Policies
for further
information.
See accompanying notes.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
OF INCOME
(in millions, except share and per share data)
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Net sales
$
12,673
$
12,339
$
12,647
Cost of sales
8,657
8,479
8,816
Gross profit
4,016
3,860
3,831
Operating expenses:
Selling, general and administrative
3,034
2,956
2,771
Depreciation and amortization
Restructuring and integration costs
Operating income
Other income (expense):
Interest income
Interest expense
(131)
(87)
(35)
Other, net
(1)
(3)
Income before taxes, equity in earnings of affiliates and
noncontrolling interests
Income taxes
(128)
(120)
(170)
Equity in earnings of affiliates, net of tax
Net income
Less: Net income attributable to noncontrolling interests
(8)
(20)
(28)
Net income attributable to Henry Schein, Inc.
$
$
$
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
3.07
$
3.18
$
3.95
Diluted
$
3.05
$
3.16
$
3.91
Weighted-average common
shares outstanding:
Basic
126,788,997
130,618,990
136,064,221
Diluted
127,779,228
131,748,171
137,755,670
See accompanying notes.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
(in millions)
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Net income
$
$
$
Other comprehensive income, net of tax:
Foreign currency translation gain (loss)
(207)
(88)
Unrealized gain (loss) from hedging activities
(18)
Pension adjustment gain (loss)
(3)
(3)
Other comprehensive income (loss), net of tax
(197)
(69)
Comprehensive income
Comprehensive income attributable to noncontrolling interests:
Net income
(8)
(20)
(28)
Foreign currency translation loss (gain)
(5)
Comprehensive loss (income) attributable to noncontrolling interests
(25)
(21)
Comprehensive income attributable to Henry Schein, Inc.
$
$
$
See accompanying notes.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(in millions,
except share data)
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income (Loss)
Interests
Equity
Balance, December 25, 2021
137,145,558
$
$
-
$
3,595
$
(171)
$
$
4,063
Net income (excluding $
attributable to Redeemable
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to Redeemable noncontrolling interests)
-
-
-
-
(81)
(1)
(82)
Unrealized gain from hedging activities,
net of tax of $
-
-
-
-
-
Pension adjustment gain, including tax of $
-
-
-
-
-
Distributions to noncontrolling shareholders
-
-
-
-
-
(1)
(1)
Purchase of noncontrolling interests
-
-
-
-
-
(7)
(7)
Change in fair value of redeemable securities
-
-
-
-
-
Noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
Repurchase and retirement of common stock
(6,111,676)
-
(65)
(420)
-
-
(485)
Stock issued upon exercise of stock options
35,792
-
-
-
-
Stock-based compensation expense
1,102,108
-
-
-
-
Shares withheld for payroll taxes
(376,034)
-
(32)
-
-
-
(32)
Settlement of stock-based compensation awards
(2,931)
-
-
-
-
Transfer of charges in excess of capital
-
-
(35)
-
-
-
Balance, December 31, 2022
131,792,817
-
3,678
(233)
4,095
Net income (excluding $
attributable to Redeemable
noncontrolling interests)
-
-
-
-
Foreign currency translation gain (excluding gain of $
attributable to Redeemable noncontrolling interests)
-
-
-
-
-
Unrealized loss from hedging activities,
including tax benefit of $
-
-
-
-
(18)
-
(18)
Pension adjustment loss, including tax benefit of $
-
-
-
-
(3)
-
(3)
Distributions to noncontrolling shareholders
-
-
-
-
-
(27)
(27)
Change in fair value of redeemable securities
-
-
-
-
-
Noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
-
(2)
(2)
Repurchase and retirement of common stock
(3,214,136)
-
(33)
(219)
-
-
(252)
Stock issued upon exercise of stock options
21,068
-
-
-
-
Stock-based compensation expense
1,065,319
-
-
-
-
Shares withheld for payroll taxes
(416,605)
-
(34)
-
-
-
(34)
Settlement of stock-based compensation awards
(698)
-
-
-
-
Transfer of charges in excess of capital
-
-
(15)
-
-
-
Balance, December 30, 2023
129,247,765
-
3,860
(206)
4,289
Net income (excluding loss of $
attributable to Redeemable
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to Redeemable noncontrolling interests)
-
-
-
-
(183)
-
(183)
Unrealized gain from hedging activities,
including tax of $
-
-
-
-
-
Pension adjustment loss, including tax benefit of $
-
-
-
-
(3)
-
(3)
Distributions to noncontrolling shareholders
-
-
-
-
-
(6)
(6)
Purchase of noncontrolling interests
-
-
(7)
-
-
(1)
(8)
Change in fair value of redeemable securities
-
-
(119)
-
-
-
(119)
Noncontrolling interests and adjustments related to
business acquisitions
-
-
(1)
-
-
Repurchase and retirement of common stock
(5,419,649)
-
(52)
(336)
-
-
(388)
Stock issued upon exercise of stock options
98,755
-
-
-
-
Stock-based compensation expense
340,722
-
-
-
-
Shares withheld for payroll taxes
(111,815)
-
(9)
-
-
-
(9)
Settlement of stock-based compensation awards
-
-
-
-
-
-
Transfer of charges in excess of capital
-
-
(143)
-
-
-
Balance, December 28, 2024
124,155,884
$
$
-
$
3,771
$
(379)
$
$
4,031
See accompanying notes.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(in millions)
Years Ended
December 28,
December 30,
December 31,
2024
2023
2022
Cash flows from operating activities:
Net income
$
$
$
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Impairment charge on intangible assets
-
Impairment of capitalized software
-
Non-cash restructuring charges
Stock-based compensation expense
Provision for losses on trade and other accounts receivable
Benefit from deferred income taxes
(61)
(20)
(73)
Equity in earnings of affiliates
(13)
(14)
(15)
Distributions from equity affiliates
Changes in unrecognized tax benefits
Other
(27)
(3)
(20)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(327)
(7)
Inventories
(59)
(126)
Other current assets
(138)
(52)
Accounts payable and accrued expenses
(163)
(56)
(96)
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
(148)
(147)
(96)
Payments related to equity investments and business acquisitions,
net of cash acquired
(230)
(955)
(158)
Proceeds from loan to affiliate
Settlements for net investment hedges
-
-
Capitalized software costs
(39)
(40)
(32)
Other
(17)
(21)
(1)
Net cash used in investing activities
(430)
(1,135)
(276)
Cash flows from financing activities:
Net change in bank credit lines
Proceeds from issuance of long-term debt
1,368
Principal payments for long-term debt
(318)
(468)
(59)
Debt issuance costs
-
(3)
-
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(385)
(250)
(485)
Payments for taxes related to shares withheld for employee
taxes
(9)
(34)
(32)
Distributions to noncontrolling shareholders
(54)
(47)
(21)
Payments for contingent consideration
(2)
-
-
Acquisitions of noncontrolling interests in subsidiaries
(255)
(19)
(38)
Net cash provided by (used in) financing activities
(510)
(315)
Effect of exchange rate changes on cash and cash equivalents
(12)
(12)
Net change in cash and cash equivalents
(49)
(1)
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 1 – Basis of Presentation and Significant Accounting Policies
Nature of Operations
We distribute health care products and value-added services primarily to office-based dental and medical
practitioners, across dental practices, laboratories, physician practices,
and ambulatory surgery centers, as well as
government, institutional health care clinics and alternate care clinics.
We also provide software and technology
services to health care practitioners.
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.
We have operations or affiliates in the United States, Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile,
China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein,
Luxembourg, Mexico, Morocco, the Netherlands, New Zealand, Peru, Poland, Portugal, South
Africa, Spain,
Sweden, Switzerland, Thailand, United Arab Emirates and the United Kingdom.
Basis of Presentation
Our consolidated financial statements include the accounts of Henry
Schein, Inc. and all of our controlled
subsidiaries and VIE.
All intercompany accounts and transactions are eliminated
in consolidation.
Investments in
unconsolidated affiliates for which we have the ability to influence the operating or
financial decisions are
accounted for under the equity method.
Certain prior period amounts have been reclassified to conform
to the
current period presentation.
These reclassifications, individually and in the aggregate, did not
have a material
impact on our consolidated financial condition, results of operations
or cash flows.
The primary beneficiary of a VIE is required to consolidate the assets and
liabilities of the VIE.
We are deemed to
be the primary beneficiary of the VIE when we have the power to direct activities
that most significantly affect its
economic performance and have the obligation to absorb the majority
of its losses or the right to receive benefits
that could potentially be significant to the VIE.
In determining whether we are the primary beneficiary, we
consider factors such as ownership interest, debt investments, management
representation, authority to control
decisions, and contractual and substantive participating rights of each party.
For this VIE, the trade accounts
receivable transferred to the VIE are pledged as collateral to the related debt.
The VIE’s creditors have recourse to
us for losses on these trade accounts receivable.
At December 28, 2024 and December 30, 2023,
certain trade
accounts receivable that can only be used to settle obligations of this VIE
were $
million and $
million,
respectively, and the liabilities of this VIE where the creditors have recourse to us were $
million and $
million, respectively.
Fair Value
Measurements
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained
from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the
highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority
to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Level 1— Unadjusted quoted prices in active markets for identical assets
or liabilities that are accessible at the
measurement date.
Level 2— Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability,
either directly or indirectly.
Level 2 inputs include: quoted prices for similar assets or liabilities
in active markets;
quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are
derived principally from or corroborated by
observable market data by correlation or other means.
Level 3— Inputs that are unobservable for the asset or liability.
See
Note 11 – Fair Value Measurements
for additional information.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in
the United States requires us to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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 credit losses; hedging activity; supplier
rebates; measurement of compensation
cost for certain share-based performance awards and cash bonus plans; and
pension plan assumptions.
Fiscal Year
We report our results of operations and cash flows on a
or
weeks per fiscal year basis ending on the last
Saturday of December.
The year ended December 28, 2024 consisted of
weeks, and the years ended December
30, 2023 and December 31, 2022 consisted of
weeks and
weeks, respectively.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods
or services in an amount that reflects the
consideration that we expect to receive for those goods or services.
To recognize revenue, we:
identify the contract(s) with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to the performance obligations in the contract;
and
recognize revenue when, or as, we satisfy a performance obligation.
We generate revenue from the sale of dental and medical consumable products, equipment, and services such as
equipment repair and financial services (Global Distribution and Value-Added Services revenues), company-
manufactured specialty products (Global Specialty Products revenue), and software
products and related services
(Global Technology revenues).
Provisions for discounts, rebates to customers, customer
returns and other contra
revenue adjustments are included in the transaction price at contract
inception by estimating the most likely amount
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
based upon historical data and estimates and are provided for in the
period in which the related sales are
recognized.
Revenue derived from the sale of consumable products and company-manufactured
specialty products is
recognized at the point in time when control transfers to the customer, (e.g. when legal title and risks and
rewards
of ownership transfer to the customer, we have no post-shipment obligations, and we have an enforceable
right to
payment).
Sales of consumable products typically entail high-volume, low-dollar
orders shipped using third-party
common carriers.
Revenue derived from the sale of equipment is recognized when control
transfers to the customer.
This occurs
when the equipment is delivered.
Such sales typically entail scheduled deliveries of large equipment primarily
by
equipment service technicians.
Most equipment requires minimal installation, which is
typically completed at the
time of delivery.
Our merchandise and equipment products generally carry standard warranty
terms provided by the manufacturer;
however, in instances where we provide a warranty on company-manufactured products or labor services, the
warranty costs are accrued in accordance with Accounting Standards Codification
(“ASC”) Topic 460 Guarantees.
At December 28, 2024 and December 30, 2023, we had accrued approximately
$
million and $
million,
respectively, for warranty costs.
Revenue derived from the sale of software products is recognized when
products are delivered to customers or
made available electronically.
Such software is generally installed by customers and does
not require extensive
training.
Revenue derived from post-contract customer support for software,
including annual support and/or
training, is generally recognized over time using time elapsed as the input method
that best depicts the transfer of
control to the customer.
Revenue derived from software sold on a Software-as-a-Service
basis is recognized ratably
over the subscription period as control is transferred to the customer.
Revenue derived from other sources, including freight charges, equipment repairs
and financial services, is
recognized when the related product revenue is recognized or when
the services are provided.
We apply the
practical expedient to treat shipping and handling activities performed after
the customer obtains control as
fulfillment activities, rather than a separate performance obligation in the
contract.
Sales, value-add and other taxes we collect concurrent with revenue-producing
activities are excluded from
revenue.
Some of our revenue is derived from bundled arrangements that include
multiple distinct performance obligations,
which are accounted for separately.
When we sell software products together with related services (i.e.,
training
and technical support), we allocate the transaction price to each
distinct performance obligation based on the
estimated standalone selling price for each performance obligation.
Bundled arrangements that include elements
that are not considered software consist primarily of equipment and the related
installation service.
We allocate
revenue for such arrangements based on the relative selling prices of the goods
or services.
If an observable selling
price is not available (i.e., because we or others do not sell the goods or
services separately), we use one of the
following techniques to estimate the standalone selling price: adjusted
market approach; cost-plus-margin
approach; or the residual method.
There is no specific hierarchy for the use of these methods, but
the estimated
selling price reflects our best estimate of what the selling prices of each deliverable
would be if it were sold
regularly on a standalone basis taking into consideration the cost structure
of our business, technical skill required,
customer location and other market conditions.
See
Note 3 – Net Sales from Contracts with Customers
for additional disclosures of disaggregated net sales and
Note 4 – Segment and Geographic Data
for disclosures of net sales by segment and geographic data.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Sales Returns
Sales returns are recognized as a reduction of revenue by the amount
of expected returns and are recorded as refund
liability within accrued expenses-other within our consolidated balance sheets.
We estimate the sales return
liability based on historical data for specific products, adjusted as necessary
for new products.
The allowance for
returns is presented gross as a refund liability and we record a right of
return asset (and a corresponding adjustment
to cost of sales) for any products that we expect to be returned and resaleable.
Cost of Sales
The primary components of cost of sales include the cost of the product
(net of purchase discounts, supplier
chargebacks and rebates) and inbound and outbound freight charges.
Costs related to purchasing, receiving, inspections, warehousing,
internal inventory transfers and other costs of our
distribution network are included in selling, general and administrative
expenses along with other operating costs.
Total distribution network costs were $
million, $
million and $
million for the years ended December
28, 2024, December 30, 2023 and December 31, 2022, respectively.
Supplier Rebates
Supplier rebates are included as a reduction of cost of sales and are recognized
over the period they are earned.
The
factors we consider in estimating supplier rebate accruals include forecasted
inventory purchases,
sales, supplier
rebate contract terms, which generally provide for increasing rebates based
on either increased purchase or sales
volumes.
Direct Shipping and Handling Costs
Freight and other direct shipping costs are included in cost of sales.
Direct handling costs, which represent
primarily direct compensation costs of employees who pick, pack and otherwise
prepare, if necessary, merchandise
for shipment to our customers are reflected in selling, general and administrative
expenses.
Direct handling costs
were $
million, $
million and $
million for the years ended December 28, 2024, December 30, 2023
and
December 31, 2022, respectively.
Advertising and Promotional Costs
We expense advertising and promotional costs as incurred.
Total advertising and promotional expenses were $
million, $
million and $
million for the years ended December 28, 2024, December 30, 2023 and
December
31, 2022, respectively.
Stock-Based Compensation Costs
We
measure stock-based compensation at the grant date, based on the estimated
fair value of the award, and
recognize the cost (net of estimated forfeitures) as compensation expense on
a straight-line basis over the requisite
service period for time-based restricted stock units and on a graded vesting
basis for the option awards.
For
performance-based awards, at each reporting date, we reassess whether achievement
of the performance condition
is probable and accrue compensation expense when achievement of
the performance condition is probable.
Our
stock-based compensation expense is reflected in selling, general and administrative
expenses.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Employment Benefit Plans and other Postretirement Benefit Plans
Some of our employees in our international markets participate
in various noncontributory defined benefit plans.
We recognize the funded status, measured as the difference between the fair value of plan assets and the projected
benefit obligation.
Each unfunded plan is recognized as a liability and each funded
plan is recognized as either an
asset or liability based on its funded status.
We measure our plan assets and liabilities at the end of our fiscal year.
Net periodic pension costs and valuations are dependent on assumptions
used by third-party actuaries in calculating
those amounts.
These assumptions include discount rates, expected return on plan
assets, rate of future
compensation levels, retirement rates, mortality rates, and other factors.
We record the service cost component of
net pension cost in selling, general and administrative expenses within
our consolidated statements of income.
Gains and losses that result from changes in actuarial assumptions or
from actual experience that differs from
actuarial assumptions are recognized in and then amortized from Accumulated
other comprehensive income (loss).
Cash and Cash Equivalents
We consider all highly liquid short-term investments with an original maturity of three months or less to be cash
equivalents.
Due to the short-term maturity of such investments,
the carrying amounts are a reasonable estimate of
fair value.
Outstanding checks in excess of funds on deposit of $
million and $
million, primarily related to
payments for inventory, were classified as accounts payable as of December 28, 2024 and December 30, 2023.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are generally recognized when revenues are recognized.
In accordance with the “expected
credit loss” model, the carrying amount of accounts receivable is reduced
by a valuation allowance that reflects our
best estimate of the amounts that we do not expect to collect.
In addition to reviewing delinquent accounts
receivable, we consider many factors in estimating our reserve, including
types of customers and their credit
worthiness, experience and historical data adjusted for current conditions
and reasonable supportable forecasts.
We
record allowances for credit losses based upon a specific review of all
significant outstanding invoices.
For
those invoices not specifically reviewed, provisions are provided at differing rates,
based upon the age of the
receivable, the collection history associated with the geographic region
that the receivable was recorded in, current
economic trends and reasonable supportable forecasts.
We
write off a receivable and charge it against its recorded
allowance when we deem them uncollectible.
Our net accounts receivable balance was $
1,482
million, $
1,863
million, and $
1,442
million, at December 28, 2024,
December 30, 2023 and December 31, 2022, respectively.
The following table presents our allowances for credit losses:
As of
Description
December 28,
2024
December 30,
2023
December 31,
2022
Balance at beginning of year
$
$
$
Provision for credit losses
Adjustments to existing allowances for late fees, foreign currency
exchange rates, and write-offs
(19)
(8)
Balance at end of year
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Contract Assets
Contract assets include amounts related to any conditional right to consideration
for work completed but not billed
as of the reporting date.
Contract assets are transferred to accounts receivable when
the right becomes
unconditional.
The contract assets primarily relate to our bundled arrangements for
the sale of equipment and
consumables and sales of term software licenses.
Current contract assets are included in Prepaid expenses and
other and the non-current contract assets are included in investments and other
within our consolidated balance
sheets.
Current and non-current contract asset balances as of December 28,
2024 and December 30, 2023 were not
material.
Contract Liabilities
Contract liabilities are comprised of advance payments and upfront payments
for service arrangements provided
over time that are accounted for as deferred revenue amounts.
Contract liabilities are transferred to revenue once
the performance obligation has been satisfied.
Current contract liabilities are included in accrued expenses: other
and the non-current contract liabilities are included in other liabilities
within our consolidated balance sheets.
During the years ended December 28, 2024, December 30, 2023, and December
31, 2022, we recognized
substantially all of the current contract liability amounts that were previously
deferred at the beginning of each
year.
The following table presents our contract liabilities:
As of
Description
December 28,
2024
December 30,
2023
December 31,
2022
Current contract liabilities
$
$
$
Non-current contract liabilities
Total contract
liabilities
$
$
$
Inventories and Reserves
Inventories consist primarily of finished goods,
raw materials and work-in-process and are valued at the lower
of
cost or net realizable value.
Cost is determined by the weighted average method for merchandise and by
actual cost
for large equipment and high-tech equipment.
We manufacture certain of our products for our specialty businesses
(oral surgery solutions including dental implants, endodontics, and orthopedics).
In accordance with our policy for
inventory valuation, we consider many factors including the
condition and salability of the inventory, historical
sales, forecasted sales and market and economic trends.
From time to time, we adjust our assumptions for
anticipated changes in any of these or other factors expected to affect the value of inventory.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation or
amortization.
Depreciation is
computed under the straight-line method using estimated useful lives
(See
Note 7 – Property and Equipment, Net
for estimated useful lives).
Amortization of leasehold improvements is computed using the straight-line
method
over the lesser of the useful life of the assets or the remaining lease term.
Capitalized Software Development Costs
Capitalized software costs consist of costs to purchase and develop software
for internal use and for sale or use by
customers.
For software to be used solely to meet internal needs, we capitalize
costs incurred during the
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
application development stage and include such costs within property
and equipment, net within our consolidated
balance sheets.
For software to be sold, leased, or marketed to external users, we capitalize
software development
costs when technological feasibility is reached, and for cloud-based applications
used to deliver our services we
capitalize costs incurred during the application development stage,
and include such costs within investments and
other within our consolidated balance sheets.
Leases
We
determine if an arrangement contains a lease at inception.
An arrangement contains a lease if it implicitly or
explicitly identifies an asset to be used and conveys the right to control
the use of the identified asset in exchange
for consideration.
As a lessee, we include operating leases in operating lease right-of-use
(“ROU”) assets,
operating lease liabilities, and non-current operating lease liabilities in our
consolidated balance sheets.
Finance
leases are included in property and equipment, current maturities of
long-term debt, and long-term debt in our
consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease
term and lease liabilities represent our
obligation to make lease payments arising from the lease.
Operating lease ROU assets and liabilities are recognized
upon commencement of the lease based on the present value of the lease payments
over the lease term.
As most of
our leases do not provide an implicit interest rate, we generally use our incremental
borrowing rate based on the
estimated rate of interest for fully collateralized and fully amortizing borrowings
over a similar term of the lease
payments at commencement date to determine the present value of
lease payments.
When readily determinable, we
use the implicit rate.
Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option.
Lease expense for lease payments is recognized on a straight-line
basis
over the lease term.
Expenses associated with operating leases and finance leases
are included in selling, general
and administrative and interest expense, respectively within our consolidated
statement of income.
Short-term
leases with a term of 12 months or less are not capitalized.
We
have lease agreements with lease and non-lease components, which are
generally accounted for as a single
lease component, except non-lease components for leases of vehicles, which
are accounted for separately.
When a
vehicle lease contains both lease and non-lease components, we allocate the
transaction price based on the relative
standalone selling price.
Business Acquisitions
We account for business acquisitions under the acquisition method of accounting, under which the net assets of
acquired businesses are recorded at their fair value at the acquisition
date and our consolidated financial statements
include the acquired businesses’ results of operations from that date.
Some prior owners of acquired subsidiaries are eligible to receive additional
purchase price cash consideration, or
we may be entitled to recoup a portion of purchase price cash consideration
if certain financial targets are met.
We
have accrued liabilities for the estimated fair value of additional purchase
price consideration at the time of the
acquisition, using the income approach, including a probability-weighted
discounted cash flow method or an option
pricing method, where applicable.
Any adjustments to these accrual amounts are recorded
in selling, general and
administrative within our consolidated statements of income.
While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the
acquisition date, our estimates are inherently uncertain and subject
to refinement.
As a result, within
12 months
following the date of acquisition, or the measurement period, we
may record adjustments to the assets acquired and
liabilities assumed with the corresponding offset to goodwill within our consolidated balance
sheets.
At the end of
the measurement period or final determination of the values of such assets
acquired or liabilities assumed,
whichever comes first, any subsequent adjustments are recognized
in our consolidated statements of operations.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Goodwill
Any excess of acquisition consideration over the fair value of identifiable
net assets acquired is recorded as
goodwill.
Goodwill is an asset representing the future economic benefits
arising from other assets acquired in a
business combination that are not individually identified and separately
recognized, such as future customers and
technology, as well as the assembled workforce.
Goodwill represents, for acquired business, the excess of the purchase price
over the estimated fair value of the net
assets acquired, including the amount assigned to identifiable intangible
assets.
Goodwill is subject to impairment
analysis annually or more frequently if needed.
Such impairment analyses for goodwill requires a comparison
of
the fair value to the carrying value of reporting units.
We aggregate operating segments into the reportable
segments based on economic similarities, the nature of their products, customer
basis, and methods of distribution
as follows: Global Distribution and Value-Added Services; Global Specialty Products;
and Global Technology.
Goodwill was allocated to such reporting units, for the purpose of
preparing our impairment analyses, based on a
specific identification basis.
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our segment structure to align
with how our Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products;
and (iii) Global Technology.
Reporting units under the former structure were tested for
impairment, and no impairment was identified.
As a result of the realignment and the change in operating
segments, we reallocated goodwill to each of our new reporting units using
a relative fair value approach.
Based on
the impairment test under the new structure, it was determined that the
fair values of our reporting units more likely
than not exceeded their carrying values, resulting in no impairment.
For both the former and new structure
goodwill impairment tests as of September 30, 2024, the fair values of reporting
units were computed using the
methodology described above.
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 related to fair value models, the inputs and our judgments
in applying them to this analysis.
The most
significant inputs include estimation of future cash flows based on budget
expectations, and determination of
comparable companies to develop a weighted average cost of capital for each
reporting unit.
In connection with our restructuring initiatives, during the year ended
December 28, 2024, we recorded an $
million impairment of goodwill in the Global Specialty Products segment,
relating to the disposal of a portion of a
business; such impairment was calculated based on the relative fair value
of goodwill.
For the year ended
December 31, 2022, we recorded a $
million impairment of goodwill, in the Global Specialty Products segment,
relating to the disposal of an unprofitable business for which estimated
fair value was lower than carrying value.
Intangible Assets
In connection with our business acquisitions, the major classes of
assets and liabilities to which we generally
allocate acquisition consideration to, excluding goodwill, include
identifiable intangible assets (i.e., customer
relationships and lists, trademarks and trade names, product development
and non-compete agreements), inventory
and accounts receivable.
The estimated fair value of identifiable intangible assets
is based on critical judgments
and assumptions derived from analysis of market conditions, including
discount rates, projected revenue growth
rates (which are based on historical trends and assessment of financial projections),
estimated customer attrition and
projected cash flows.
We have calculated the value of these intangible assets using the multi-period excess
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
earnings method, the relief-from-royalty method, and the with and without
method, where applicable.
These
assumptions are forward-looking and could be affected by future economic and
market conditions.
Intangible assets, other than goodwill, are evaluated for impairment whenever
events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable
through the undiscounted future cash flows
expected to be derived from such asset or asset group.
Definite and indefinite-lived intangible assets primarily consist of non-compete
agreements, trademarks, trade
names, customer lists, customer relationships and product development.
For long-lived assets used in operations,
impairment losses are only recorded if the asset or asset groups carrying amount
is not recoverable through its
undiscounted future cash flows.
We measure the impairment loss based on the difference between the carrying
amount and the estimated fair value.
When an impairment exists, the related assets are written down to
fair value.
During the years ended December 28, 2024, December 30, 2023
and December 31, 2022, we recorded total
impairment charges within the selling, general and administrative line of our consolidated statements
of income on
intangible assets of $
million, $
million and $
million, respectively, as more fully discussed in
Goodwill and Other Intangibles, Net
During the years ended December 28, 2024, December 30, 2023
and
December 31, 2022, we recorded impairment charges, within the restructuring and
integration costs line of our
consolidated statements of income, of $
million, $
, million, and $
million, respectively.
See
of Restructuring and Integration Costs
for additional information.
Income Taxes
We account for income taxes under an asset and liability approach that requires the recognition of deferred income
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in our
financial statements or tax returns.
In estimating future tax consequences, we generally consider all expected
future
events other than expected enactments of changes in tax laws or rates.
The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized as income or expense in
the period that includes the enactment date.
We file a consolidated U.S. federal income tax return with our 80% or greater owned U.S. subsidiaries.
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.
Their interests in these subsidiaries are classified
outside permanent equity on our consolidated balance sheets and are
carried at the estimated redemption amounts.
The redemption amounts have been estimated based on recent transactions
and/or implied multiples of earnings
and, if such earnings and cash flows are not achieved, the value of the
redeemable noncontrolling interests might be
impacted.
Changes in the estimated redemption amounts of the noncontrolling
interests subject to put options are
reflected at each reporting period with a corresponding adjustment
to Additional paid-in capital.
Future reductions
in the carrying amounts are subject to a “floor” amount that is equal
to the fair value of the redeemable
noncontrolling interests at the time they were originally recorded.
The recorded value of the redeemable
noncontrolling interests cannot go below the floor level.
Adjustments to the carrying amount of noncontrolling
interests to reflect a fair value redemption feature do not impact the
calculation of earnings per share.
Our net
income is reduced by the portion of the subsidiaries’ net income
that is attributable to redeemable noncontrolling
interests.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Noncontrolling Interests
Noncontrolling interest represents the ownership interests of certain
minority owners of our consolidated
subsidiaries.
Our net income is reduced by the portion of the subsidiaries’
net income that is attributable to
noncontrolling interests.
Comprehensive Income
Comprehensive income includes certain gains and losses that, under accounting
principles generally accepted in the
United States, are excluded from net income as such amounts are recorded
directly as an adjustment to
stockholders’ equity.
Our comprehensive income is primarily comprised of net income,
foreign currency
translation gain (loss), unrealized gain (loss) from hedging activities
and unrealized pension adjustment gain.
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates, interest
rates, and our unfunded non-qualified supplemental retirement plan (“SERP”)
and our deferred compensation plan
(“DCP”).
Our objective is to manage the impact that foreign currency
exchange rate fluctuations could have on
recognized asset and liability fair values, earnings and cash flows, as well
as our net investments in foreign
subsidiaries, the interest rate risk on variable rate debt, and the returns on
our SERP and DCP.
Our risk
management policy requires that derivative contracts used as hedges be
effective at reducing the risks associated
with the exposure being hedged and be designated hedges at inception
of the contracts.
We do not enter into
derivative instruments for speculative purposes.
Our derivative instruments primarily include foreign currency
forward contracts, total return swaps, and interest rate swaps.
Foreign currency forward agreements related to forecasted inventory
purchase commitments with foreign suppliers,
foreign currency swaps related to foreign currency denominated debt, and
interest rate swaps related to variable rate
debt are designated as cash flow hedges.
For derivatives that are designated and qualify as cash flow hedges,
the
changes in the fair value of the derivatives are recorded as a
component of Accumulated other comprehensive
income in stockholders’ equity and subsequently reclassified into
earnings in the period(s) during which the hedged
transactions affect earnings.
We classify the cash flows related to our hedging activities in the same category in our
consolidated statements of cash flows as the cash flows related
to the hedged item.
Foreign currency forward contracts related to our euro-denominated
foreign operations are designated as net
investment hedges.
For derivatives that are designated and qualify as net investment
hedges, changes in the fair
value of the derivatives are recorded in the foreign currency translation gain
(loss) component of Accumulated
other comprehensive income in stockholders’ equity until the net
investment is sold or substantially liquidated.
Interest swap agreements are entered into for the purpose of hedging
the cash flow of our variable interest rate term
loan.
Our foreign currency forward agreements related to foreign currency
balance sheet exposure provide economic
hedges but are not designated as hedges for accounting purposes.
For agreements not designated as hedges, changes in the value of the derivative,
along with the transaction gain or
loss on the hedged item, are recorded in other, net, within our consolidated statements of income.
Total return swaps are entered into for the purpose of economically hedging our SERP and DCP.
These swaps are
expected to be renewed on an annual basis.
Changes in the fair values of these total return swaps are recorded in
selling, general, and administrative expenses within our consolidated
statements of income and offset recognized
changes in the fair values of our SERP and DCP liabilities.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Foreign Currency Translation
and Transactions
The financial position and results of operations of our foreign subsidiaries
are determined using local currencies as
the functional currencies.
Assets and liabilities of foreign subsidiaries are translated at the exchange
rate in effect at
each year-end.
Income statement accounts are translated at the average rate
of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are included
in
Accumulated other comprehensive income in stockholders’ equity.
Gains and losses resulting from foreign
currency transactions are included in earnings.
Accounting Pronouncements Adopted
During the year ended December 28, 2024, we adopted Accounting Standards
Update (“ASU”) 2023-07, “
Segment
Reporting (Topic 280): Improvements to Reportable Segments
” (“Topic 280”),
which aims to improve financial
reporting by requiring disclosure of incremental segment information on an annual
and interim basis for all public
entities to enable investors to develop more decision-useful financial analyses.
The amendments in Topic 280 do
not change how a public entity identifies its operating segments, aggregates
those operating segments, or applies
the quantitative thresholds to determine its reportable segments.
We adopted Topic
280 on a retrospective basis,
which resulted in the required additional disclosures included in our 2024
fiscal year annual consolidated financial
statements.
During the year ended December 30, 2023, we adopted ASC Topic 848,
“Reference Rate Reform” (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
which provides optional expedients
and exceptions for applying GAAP to contracts, hedging relationships and
other transactions affected by the
discontinuation of the London Interbank Offered Rate or by another reference rate
expected to be discontinued
because of reference rate reform.
The adoption of Topic 848 did not have a material impact on our consolidated
financial statements.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2024-03, “
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure
(Subtopic 220-40)
:
Disaggregation of Income Statement Expenses
,” which requires additional disclosure about the
specific expense categories in the notes to financial statements at interim and
annual reporting periods.
The
amendments in this ASU do not change or remove current expense
disclosure requirements but affect where this
information appears in the notes to financial statements.
This ASU is effective for annual reporting periods
beginning after December 15, 2026, and interim reporting periods beginning
after December 15, 2027, with early
adoption permitted.
Upon adoption, the guidance can be applied prospectively or retrospectively.
We are currently
evaluating the impact that ASU 2024-03 will have on our consolidated
financial statements.
In March 2024, the FASB issued ASU 2024-01, “
Compensation - Stock Compensation (Topic 718): Scope
Application of Profits Interest and Similar Awards,
” which clarifies how to determine whether profits interest and
similar awards should be accounted for as a share-based payment arrangement
under Topic 718 or within the scope
of other guidance.
The ASU provides an illustrative example with multiple fact patterns
and amends the structure
of paragraph 718-10-15-3 of Topic 718 to improve its clarity and operability.
The guidance in ASU 2024-01
applies to all entities that issue profits interest awards as compensation
to employees or nonemployees in exchange
for goods or services.
Entities can apply the amendments either retrospectively to
all periods presented in the
financial statements or prospectively to profits interest awards granted
or modified on or after the date of adoption.
If prospective application is elected, an entity must disclose the nature
of and reason for the change in accounting
principle that resulted from the adoption of the ASU.
This ASU is effective for fiscal years beginning after
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
December 15, 2024, including interim periods within those fiscal years.
We do not expect that the requirements of
ASU 2024-01 will have a material impact on our consolidated financial
statements.
In December 2023, the FASB issued ASU 2023-09, “
Income Taxes (Topic
740): Improvements to Income Tax
Disclosures
,” which requires public business entities to disclose additional
information in specified categories with
respect to the reconciliation of the effective tax rate to the statutory rate for federal, state and
foreign income taxes.
It also requires greater detail about individual reconciling items in
the rate reconciliation to the extent the impact of
those items exceeds a specified threshold.
In addition to new disclosures associated with the rate reconciliation,
the
ASU requires information pertaining to taxes paid (net of refunds received)
to be disaggregated for federal, state,
and foreign taxes and further disaggregated for specific jurisdictions
to the extent the related amounts exceed a
quantitative threshold.
The ASU also describes items that need to be disaggregated
based on their nature, which is
determined by reference to the item’s fundamental or essential characteristics, such as the transaction or event
that
triggered the establishment of the reconciling item and the activity with which
the reconciling item is associated.
The ASU eliminates the historic requirement that entities disclose information
concerning unrecognized tax
benefits having a reasonable possibility of significantly increasing
or decreasing in the 12 months following the
reporting date.
This ASU is effective for annual periods beginning after December 15, 2024.
Early adoption is
permitted for annual financial statements that have not yet been
issued or made available for issuance.
This ASU
should be applied on a prospective basis; however, retrospective application is permitted.
We are currently
evaluating the impact that ASU 2023-09 will have on our consolidated
financial statements.
Note 2 – Cyber Incident
In October 2023 Henry Schein experienced a cyber incident that primarily
affected the operations of our North
American and European dental and medical distribution businesses.
Henry Schein One, our practice management
software, revenue cycle management and patient relationship management
solutions business, was not affected, and
our manufacturing businesses were mostly unaffected.
On November 22, 2023, we experienced a disruption of our
ecommerce platform and related applications, which was remediated.
During the years ended December 28, 2024 and December 30, 2023, we had
a sales decrease in our dental and
medical distribution businesses, which we believe was primarily a
result of lower sales to episodic customers
following last year’s cyber incident.
During the years ended December 28, 2024 and December 30, 2023, we incurred
$
million and $
million,
respectively, of expenses directly related to the cyber incident, mostly consisting of professional fees.
We maintain
cyber insurance, subject to certain retentions and policy limitations.
With respect to the October 2023 cyber
incident, we have a $
million insurance policy, following a $
million retention.
During the years ended
December 28, 2024 we received insurance proceeds of $
million under this policy representing a partial
insurance recovery of losses related to the cyber incident, with the remaining
$
million of the claim being under
review by our insurance providers.
The expenses and insurance recoveries related to the cyber
incident are
included in the selling, general and administrative line in our consolidated
statements of income.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 3 – Net Sales from Contracts with Customers
Net sales are recognized in accordance with policies disclosed
in
Note 1 – Basis of Presentation and Significant
Disaggregation of Net Sales
As noted further in
Note 4 – Segment and Geographic Data
,
during the fourth quarter of our fiscal year ended
December 28, 2024, we revised our reportable segments to align with how
the Chairman and Chief Executive
Officer manages the business, assesses performance and allocates resources.
All prior comparative segment
information has been recast to reflect our new segment structure.
The following table disaggregates our net sales by reportable and operating segment
and geographic area:
Years
Ended
December 28,
2024
December 30,
2023
December 31,
2022
Net Sales:
Global Distribution and Value
-Added Services
Global Dental merchandise
$
4,727
$
4,787
$
4,763
Global Dental equipment
1,719
1,671
1,715
Global Value
-added services
Global Dental
6,679
6,649
6,629
Global Medical
4,081
3,912
4,346
Total Global Distribution
and Value
-Added Services
10,760
10,561
10,975
Global Specialty Products
1,446
1,331
1,273
Global Technology
Eliminations
(163)
(155)
(150)
Total
$
12,673
$
12,339
$
12,647
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 4 – Segment and Geographic Data
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our reportable segments to align
with how the Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
These segments offer different products and services to
the same customer base.
All prior comparative segment information has been recast
to reflect our new segment
structure.
We aggregate operating segments into these reportable segments based on economic similarities, the nature of their
products, customer base, and methods of distribution.
Global Distribution and Value-Added Services includes
merchandise and equipment distribution businesses that serve the global dental
and medical markets; it also
includes value-added services such as equipment repair services, financial
services on a non-recourse basis,
continuing education services for practitioners, consulting and other
services.
Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of
national brand and corporate brand merchandise, as well as equipment and related
technical services.
This segment
also includes value-added services such as financial services, continuing
education services, consulting and other
services.
This segment also markets and sells under our own corporate brand,
a portfolio of cost-effective, high-
quality consumable merchandise.
Global Specialty Products includes manufacturing, marketing and sales
of dental
implant and biomaterial products; and endodontic, orthodontic and orthopedic
products and other health care-
related products and services.
Global Technology includes development and distribution of practice management
software, e-services, and other products, which are distributed to health
care providers.
Our organizational structure also includes Corporate, which consists primarily of
income and expenses associated
with support functions and projects.
Our chief operating decision maker (“CODM”) is our Chairman
and Chief Executive Officer.
Our CODM uses
adjusted operating income as the profitability metric for purposes of making
decisions about allocation of resources
to each segment and assessing performance of each segment.
Adjusted operating income provides a measure of our
underlying segment results that is in line with our approach to risk and performance
management.
We define
adjusted operating income as operating income adjusted to exclude
(a) direct cybersecurity costs and related
insurance recovery proceeds, (b) impairment of capitalized assets, (c)
amortization of acquisition intangibles, (d)
settlement and litigation, (e) organizational restructuring expenses, (f) impairment
of intangible assets, (g) changes
in fair value of contingent consideration, and (h) costs associated with
shareholder advisory matters.
These
adjustments are either: (i) non-cash or non-recurring in nature; (ii) not allocable
or controlled by the segment; or
(iii) not tied to the operational performance of the segment.
Assets by segment are not a measure used to assess the
performance of the Company by CODM and thus are not reported in
our disclosures.
The accounting policies of the reportable segments are generally
the same as those described in
Presentation and Significant Accounting Policies.
Sales and transfers between operating segments are eliminated
in consolidation.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Segment adjusted operating income is presented in the following
table to reconcile to operating income as
presented on the consolidated statement of operations.
The reconciliation from operating income to income before
taxes and equity in earnings of affiliates is presented on our consolidated statements
of income.
Years Ended
December 28,
December 30,
December 31,
2024
2023
2022
Gross Sales:
Global Distribution and Value
-Added Services
(1)
$
10,760
$
10,561
$
10,975
Global Specialty Products
(2)
1,446
1,331
1,273
Global Technology
(3)
Total Gross Sales
12,836
12,494
12,797
Less: Eliminations:
Global Distribution and Value
-Added Services
(31)
(36)
(22)
Global Specialty Products
(132)
(119)
(128)
Total eliminations
(163)
(155)
(150)
Net Sales
Global Distribution and Value
-Added Services
10,729
10,525
10,953
Global Specialty Products
1,314
1,212
1,145
Global Technology
Total Net Sales
$
12,673
$
12,339
$
12,647
Years Ended
December 28,
December 30,
December 31,
2024
2023
2022
Operating Income
Global Distribution and Value
-Added Services
$
$
$
Global Specialty Products
Global Technology
Total Segment Operating Income
1,026
1,150
Corporate
(77)
(92)
(112)
Adjustments
(4)
(328)
(275)
(291)
Total Operating Income
$
$
$
Depreciation and Amortization
Global Distribution and Value
-Added Services
$
$
$
Global Specialty Products
Global Technology
Total
$
$
$
(1)
Global Distribution and Value
-Added Services: Includes distribution of infection-control products, handpieces, preventatives,
impression materials, composites, anesthetics, teeth, gypsum, acrylics, articulators, abrasives, PPE products, branded and generic
pharmaceuticals, vaccines, surgical products, diagnostic tests, dental chairs, delivery units and lights, digital dental laboratories, X-
ray supplies and equipment, high-tech and digital restoration equipment, equipment repair services, financial services on a non-
recourse basis, continuing education services for practitioners, consulting and other services.
This segment also markets and sells
under our own corporate brand, a portfolio of cost-effective, high-quality consumable merchandise.
(2)
Global Specialty Products: Includes manufacturing, marketing and sales of dental implant and biomaterial products; and
endodontic, orthodontic and orthopedic products and other health care-related products and services.
(3)
Global Technology: Includes development and distribution of practice management software, e-services, and other products, which
are distributed to health care providers.
(4)
Adjustments represent items excluded from segment operating income to enable comparison of financial results between periods.
The following table presents a breakdown of such adjustments:
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Years Ended
December 28,
December 30,
December 31,
2024
2023
2022
Adjustments:
Restructuring costs
$
(110)
$
(80)
$
(131)
Acquisition intangible amortization
(184)
(150)
(126)
Cyber incident-third-party advisory expenses, net of insurance
(11)
-
Changes in contingent consideration
(45)
-
-
Litigation settlements
(6)
-
-
Impairment of capitalized assets
(12)
(27)
-
Impairment of intangible assets
-
(7)
(34)
Costs associated with shareholder advisory matters
(2)
-
-
Total adjustments
$
(328)
$
(275)
$
(291)
The following table presents information about our operations by geographic
area as of and for the years ended
December 28, 2024, December 30, 2023 and December 31, 2022.
Net sales by geographic area are based on the
respective locations of our subsidiaries.
No country, except for the United States, generated net sales greater than
% of consolidated net sales.
There were no material amounts of sales or transfers among geographic
areas and
there were no material amounts of export sales.
2024
2023
2022
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
United States
$
8,803
$
3,453
$
8,641
$
3,273
$
9,197
$
2,730
Other
3,870
2,281
3,698
2,341
3,450
1,417
Consolidated total
$
12,673
$
5,734
$
12,339
$
5,614
$
12,647
$
4,147
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 5 – Business Acquisitions
Our acquisition strategy is focused on investments in companies that
add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies.
Acquisition of TriMed
On April 1, 2024, we acquired a
% voting equity interest in TriMed Inc. (“TriMed”), a global developer of
solutions for the orthopedic treatment of lower and upper extremities, headquartered
in California,
for consideration
of $
million.
This acquisition is reported in our Global Specialty Products segment.
During the year ended
December 28, 2024, we completed the accounting for this acquisition.
The following table aggregates the final fair
value, as of the date of the acquisition, of consideration paid and net
assets acquired in the TriMed acquisition:
Final Allocation
Acquisition consideration:
Cash
$
Deferred consideration
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(7)
Deferred income taxes
(62)
Other noncurrent liabilities
(6)
Total identifiable
net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of synergies that are expected to originate from the acquisition as well as
the expected growth
potential of TriMed.
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the identifiable intangible assets acquired
as part of the acquisition of TriMed:
2024
Weighted Average
Useful
Lives (in years)
Product development
$
Trademarks / Tradenames
In process research & development
Not Applicable
Total
$
Except for in-process research and development (“IPR&D”), intangible assets
acquired as a result of the TriMed
acquisition are being amortized over their estimated useful lives
using the straight-line method of amortization.
The IPR&D is accounted for as an indefinite-lived intangible asset and
is not amortized until completion or
abandonment of the associated research and development efforts.
IPR&D is tested for impairment annually or
periodically if an indicator of impairment exists during the period until completion.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Pro forma financial information and TriMed’s revenue and earnings since the acquisition date have not been
presented because the impact of the TriMed acquisition during the year ended December
28, 2024 was immaterial
to our consolidated financial statements.
Other 2024 Acquisitions
During the year ended December 28, 2024, we acquired companies within
the Global Distribution and Value-
Added Services, Global Specialty Products, and Global Technology segments.
Our acquired ownership interest in
these companies range from
% to
%.
Total consideration for these acquisitions was $
million (including
cash paid of $
million, fair value of previously held equity investment of
$
million, noncontrolling interest of
$
million, estimated fair value of contingent consideration payable of
$
million, and deferred consideration of
$
million).
Net assets acquired primarily consisted of $
million of goodwill and $
million of intangible
assets.
The intangible assets acquired consisted of customer relationships
and lists of $
million, trademarks and
tradenames of $
million, product development of $
million and non-compete agreements of $
million.
Weighted average useful lives for these acquired intangible assets were
11 years
,
7 years
,
9 years
and
5 years
,
respectively.
During the year ended December 28, 2024, we completed the accounting
for certain acquisitions that occurred in
fiscal year 2024 and we did not record any material measurement period
adjustments related to these acquisitions.
The accounting for other acquisitions in fiscal year 2024 has not been
completed in several areas, including but not
limited to pending assessment of current expected credit losses.
Goodwill is a result of the synergies and cross-selling opportunities that these acquisitions
are expected to provide
for us, as well as the expected growth potential.
The majority of the acquired goodwill is not deductible
for tax
purposes.
During the year ended December 28, 2024, in connection with an acquisition
of a controlling interest of an affiliate,
we recognized a gain of approximately $
million related to the remeasurement to fair value of our previously
held equity investment, using a discounted cash flow model based on
Level 3 inputs, as defined in
,
which was recorded in selling, general and administrative
in the consolidated statements of
income.
The impact of these acquisitions, individually and in the aggregate, was
not considered material to our consolidated
financial statements.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
2023 Acquisitions
Acquisition of Shield Healthcare
On October 2, 2023, we acquired a
% voting equity interest in Shield Healthcare, Inc. (“Shield”), a
supplier of
homecare medical products delivered directly to patients in their homes,
for consideration of $
million.
This
acquisition is reported in our Global Distribution and Value-Added Services segment.
Shield expands our existing
medical business by delivering a diverse range of products, including
items such as incontinence, urology, ostomy,
enteral nutrition, advanced wound care and diabetes supplies.
Additionally, Shield offers continuous glucose
monitoring devices directly to patients in their homes.
During the year ended December 28, 2024, we completed the accounting
for our acquisition of Shield.
The
following table aggregates the final fair value, as of the date of the acquisition,
of consideration paid and net assets
acquired in the Shield acquisition:
Final Allocation
Acquisition consideration:
Cash
$
Deferred consideration
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(24)
Deferred income taxes
(43)
Other noncurrent liabilities
(7)
Total identifiable
net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of synergies that are expected to originate from the acquisition as well as
the expected growth
potential of Shield.
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the identifiable intangible assets acquired
as part of the acquisition of Shield:
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
Trademarks / Tradenames
Total
$
Pro forma financial information and Shield’s revenue and earnings from the acquisition date have
not been presented because the impact of the Shield acquisition was
immaterial to our consolidated financial
statements.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Acquisition of S.I.N. Implant System
On July 5, 2023, we acquired a
% voting equity interest in S.I.N. Implant System (“S.I.N.”) for consideration of
$
million.
This acquisition is reported in our Global Specialty Products segment.
Based in São Paulo, S.I.N.
manufactures an extensive line of products to perform dental implant procedures
and is focused on advancing the
development of value-priced dental implants.
In 2023, S.I.N. expanded the distribution of its products into the
United States and other international markets.
During the year ended December 28, 2024, we completed the accounting
for our acquisition of S.I.N.
The
following table aggregates the final fair value, as of the date of acquisition,
of consideration paid and net assets
acquired in the S.I.N. acquisition:
Final Allocation
Acquisition consideration:
Cash
$
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(33)
Long-term debt
(22)
Deferred income taxes
(38)
Other noncurrent liabilities
(27)
Total identifiable
net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of synergies that are expected to originate from the acquisition as well as
the expected growth
potential of S.I.N.
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the identifiable intangible assets acquired
as part of the acquisition of S.I.N.:
2023
Weighted Average
Useful
Lives (in years)
Customer relationships and lists
$
Product development
Trademarks / Tradenames
Total
$
Pro forma financial information and S.I.N.’s revenue and earnings from the acquisition date have not been
presented because the impact of the S.I.N. acquisition was immaterial
to our consolidated financial statements.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
% voting equity interest in Biotech Dental, a provider of dental implants,
clear
aligners, individualized prosthetics and innovative digital dental software based
in France, for preliminary
consideration of $
million.
This acquisition is reported in our Global Specialty Products
segment.
Biotech
Dental has several important solutions for dental practices and dental
labs, including Nemotec, a comprehensive,
integrated suite of planning and diagnostic software using open architecture
that connects disparate medical devices
to create a digital view of the patient, offering greater diagnostic accuracy and an
improved patient experience.
During the year ended December 28, 2024, we completed the accounting
for our acquisition of Biotech Dental.
The following table aggregates the final fair value, as of the date of acquisition,
of consideration paid and net assets
acquired in the Biotech Dental acquisition:
Final Allocation
Acquisition consideration:
Cash
$
Fair value of contributed equity share in a controlled subsidiary
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(60)
Long-term debt
(73)
Deferred income taxes
(53)
Other noncurrent liabilities
(20)
Total identifiable
net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of synergies that are expected to originate from the acquisition as well as
the expected growth
potential of Biotech Dental.
The acquired goodwill is not deductible for tax purposes.
The following table summarizes the identifiable intangible assets acquired
as part of the acquisition of Biotech
Dental:
2023
Weighted Average
Useful
Lives (in years)
Product development
$
Customer relationships and lists
Trademarks / Tradenames
Total
$
Pro forma financial information and Biotech’s revenues and earnings from the acquisition date have not been
presented because the impact of the Biotech Dental acquisition was immaterial
to our consolidated financial
statements.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Other 2023 Acquisitions
During the year ended December 30, 2023, in addition to those noted above,
we acquired companies within the
Global Distribution and Value-Added Services, Global Specialty Products, and Global Technology segments for
total consideration of $
million.
Our acquired ownership interest ranged between
% to
%.
During the
year ended December 28, 2024, we recorded an adjustment of $
million, within selling, general and
administrative in our consolidated statements of income, representing a change
in the fair value of contingent
consideration related to a 2023 acquisition.
During the year ended December 28, 2024, we completed the accounting
for certain fiscal year 2023 acquisitions.
In relation to these acquisitions, we did not record material adjustments
in our consolidated financial statements
relating to changes in estimated values of assets acquired, liabilities
assumed and contingent consideration assets
and liabilities.
Goodwill of $
million from these acquisitions is a result of the synergies and cross-selling opportunities
that
these acquisitions are expected to provide for us, as well as the expected
growth potential.
The majority of the
acquired goodwill is deductible for tax purposes. Intangible assets of
$
million, consisting of $
million of
customer relationships and lists, $
million of trademarks and tradenames, $
million of product development, and
other of $
million are being amortized over their weighted average useful lives that
range from
two years
to
ten
years
.
Pro forma financial information for our 2023 acquisitions has not been
presented because the impact of the
acquisitions was immaterial to our consolidated financial statements.
2022 Acquisitions
During the year ended December 31, 2022, we acquired companies within
the Global Distribution and Value-
Added Services, Global Specialty Products, and Global Technology segments.
Our acquired ownership interest
ranged between
% to
%.
For the years ended December 30, 2023 and December 31, 2022,
there were no
material adjustments recorded in our financial statements relating
to acquisitions for which provisional amounts
were recorded in prior periods.
During the year ended December 28, 2024, we recorded an
adjustment of $
million, within selling, general and administrative in our consolidated statements
of income, representing a change
in the fair value of contingent consideration related to a 2022 acquisition.
Goodwill of $
million is a result of the synergies and cross-selling opportunities that these acquisitions
are
expected to provide for us, as well as the expected growth potential.
Approximately half of the acquired goodwill
is deductible for tax purposes.
Intangible assets of $
million, consisting of $
million of customer relationships
and lists, $
million of trademarks and tradenames, and other of $
million are being amortized over their weighted
average useful lives that range from
two years
to
ten years
.
Pro forma financial information for our 2022 acquisitions has not been
presented because the impact of the
acquisitions was immaterial to our consolidated financial statements.
Acquisition Costs
During the years ended December 28, 2024, December 30, 2023
and December 31, 2022 we incurred $
million,
$
million and $
million in acquisition costs, respectively.
These costs are included in selling, general and
administrative in our consolidated statements of income.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 6 – Inventories, Net
Inventories, net consisted of the following as of:
Description
December 28,
2024
December 30,
2023
Finished goods
$
1,710
$
1,724
Raw materials
Work-in process
Inventories, net
$
1,810
$
1,815
Our inventory reserve was $
million and $
million as of December 28, 2024 and December 30, 2023,
respectively.
Note 7 – Property and Equipment, Net
Property and equipment, including related estimated useful lives, consisted
of the following as of:
December 28,
December 30,
2024
2023
Land
$
$
Buildings and permanent improvements
Leasehold improvements
Machinery and warehouse equipment
Furniture, fixtures and other
Computer equipment and software
1,201
1,170
Less accumulated depreciation and amortization
(670)
(672)
Property and equipment, net
$
$
Estimated Useful
Lives (in years)
Buildings and permanent improvements
Machinery and warehouse equipment
-
Furniture, fixtures and other
-
Computer equipment and software
-
Leasehold improvements are amortized on a straight-line basis over
the lesser of the useful life of the assets or the
remaining lease term.
Property and equipment related depreciation expense for the years
ended December 28, 2024, December 30, 2023
and December 31, 2022, was $
million, $
million and $
million, respectively.
Please see
for
finance lease amounts included in property and equipment, net within our
consolidated balance sheets.
During the year ended December 30, 2023 we recorded a $
million impairment of capitalized software, within
our Global Distribution and Value-Added Services segment.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 8 – 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
years, some of
which may include options to extend the leases for up to
years.
The components of lease expense were as
follows:
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Operating lease cost:
$
$
$
Variable
lease cost
Short-term lease cost
Total operating lease cost
(1)
Finance lease cost
Total lease cost
$
$
$
(1)
Total operating lease cost for the years ended December 28, 2024, December 30, 2023 and December 31, 2022, included costs of
$
million, $
million and $
million, respectively, related to facility leases recorded in "Restructuring and integration costs"
within our consolidated statements of income.
Further, for the years ended December 28, 2024, December 30, 2023 and December 31, 2022, we recognized
a net
impairment of operating lease right-of-use assets of $
million, $
million, and $
million respectively, related to
facility leases recorded in “Restructuring and integration costs” within our consolidated
statement of income.
Supplemental balance sheet information related to leases is as follows:
Years
Ended
December 28,
December 30,
2024
2023
Operating Leases:
Operating lease right-of-use assets
$
$
Current operating lease liabilities
Non-current operating lease liabilities
Total operating lease liabilities
$
$
Finance Leases:
Property and equipment, at cost
$
$
Accumulated depreciation
(9)
(9)
Property and equipment, net of accumulated depreciation
$
$
Current maturities of long-term debt
$
$
Long-term debt
Total finance
lease liabilities
$
$
Weighted Average
Remaining Lease Term in
Years:
Operating leases
5.9
6.6
Finance leases
2.7
2.6
Weighted
Average Discount
Rate:
Operating leases
4.2
%
3.6
%
Finance leases
4.4
%
4.0
%
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Supplemental cash flow information related to leases is as follows:
Years
Ended
December 28,
December 30,
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
$
$
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
$
$
Finance leases
Maturities of lease liabilities are as follows:
December 28, 2024
Operating
Finance
Leases
Leases
2025
$
$
2026
2027
2028
2029
-
Thereafter
-
Total future
lease payments
Less imputed interest
Total
$
$
As of December 28, 2024, we have additional operating leases that have
not yet commenced with total lease
payments of $
million for buildings and vehicles.
These operating leases will commence after December 28,
2024, with lease terms of
two years
to
five years
.
Certain of our facilities related to our acquisitions are leased from
employees and minority shareholders.
These
leases are classified as operating leases and have a remaining lease term
ranging from less than a year to
13 years
.
As of December 28, 2024, current and non-current liabilities associated
with related party operating leases were $
million and $
million, respectively.
At December 28, 2024 related party leases represented
7.6
% and
7.8
% of the
total current and non-current operating lease liabilities, respectively.
As of December 30, 2023, current and non-
current liabilities associated with related party operating leases were
$
million and $
million, respectively.
At
December 30, 2023 related party leases represented
6.3
% and
7.4
% of the total current and non-current operating
lease liabilities, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 9 – Goodwill and Other Intangibles, Net
Changes in the carrying amounts
of goodwill for the years ended December 28, 2024 and December
30, 2023 were
as follows:
Global
Distribution and
Value-Added
Services
Global Specialty
Products
Global
Technology
Total
Balance as of December 31, 2022
$
1,652
$
$
$
2,893
Adjustments to goodwill:
-
-
-
Acquisitions
Foreign currency translation
Balance as of December 30, 2023
2,007
1,077
3,875
Adjustments to goodwill:
Acquisitions
-
Disposal
-
(11)
(2)
(13)
Foreign currency translation
(39)
(80)
(4)
(123)
Balance as of December 28, 2024
$
2,009
$
1,093
$
$
3,887
During the fourth quarter of our fiscal year ended December 28, 2024,
we revised our segment structure to align
with how our Chairman and Chief Executive Officer manages the business, assesses
performance and allocates
resources.
Our revised reportable segments now consist of: (i) Global Distribution
and Value
-Added Services; (ii)
Global Specialty Products; and (iii) Global Technology.
Reporting units under the former structure were tested for
impairment, and no impairment was identified.
As a result of the realignment and the change in operating
segments, we reallocated goodwill to each of our new reporting units using
a relative fair value approach.
Based on
the impairment test under the new structure, it was determined that the fair values
of our reporting units more likely
than not exceeded their carrying values, resulting in no impairment.
For both the former and new structure
goodwill impairment tests as of September 30, 2024, the fair values of reporting
units were computed using the
methodology described in
Note 1 – Basis of Presentation and Significant Accounting Policies.
In connection with our restructuring initiatives, during the year ended
December 28, 2024, we recorded an $
million impairment of goodwill in the Global Specialty Products segment,
relating to the disposal of a portion of a
business; such impairment was calculated based on the relative fair value
of goodwill.
For the year ended
December 31, 2022, in connection with our restructuring initiatives, we
recorded a $
million impairment of
goodwill, in the Global Specialty Products segment, relating to the disposal
of an unprofitable business for which
estimated fair value was lower than carrying value.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Other intangible assets consisted of the following:
December 28, 2024
Weighted Average
Accumulated
Remaining Life
Cost
Amortization
Net
(in years)
Customer relationships and lists
$
$
(356)
$
Trademarks / Tradenames
(89)
Product development
(71)
Non-compete agreements
(6)
Other
(10)
Total
$
1,555
$
(532)
$
1,023
December 30, 2023
Weighted Average
Accumulated
Remaining Life
Cost
Amortization
Net
(in years)
Customer relationships and lists
$
$
(346)
$
Trademarks / Tradenames
(69)
Product development
(62)
Non-compete agreements
(6)
Other
(18)
Total
$
1,417
$
(501)
$
Trademarks, trade names, customer lists and customer relationships were established through
business acquisitions
and are amortized on a straight-line basis over their respective asset life.
Non-compete agreements represent
amounts paid primarily to prior owners of acquired businesses and certain
sales persons, in exchange for placing
restrictions on their ability to pose a competitive risk to us.
Such amounts are amortized, on a straight-line basis
over the respective non-compete period, which generally commences upon
termination of employment or
separation from us.
Amortization expense, excluding impairment charges, related to definite-lived intangible assets
for the years ended
December 28, 2024, December 30, 2023 and December 31, 2022, was $
million, $
million and $
million,
respectively.
During the year ended December 28, 2024 we recorded $
million of impairment charges related to businesses in
our Global Distribution and Value-Added Services segment.
It included $
million of trade name impairment,
calculated using the relative fair value related to a
disposal of a business and $
million related to trade name
impairment due to business integration in connection with our restructuring
initiatives.
The remaining $
million
impairment charges related to trade names and non-compete agreements 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.
During the year ended December 30, 2023 we recorded $
million of impairment charges related to businesses in
our Global Distribution and Value-Added Services segment, consisting of $
million primarily related to customer
lists and relationships attributable to lower than anticipated operating
margins in certain businesses, and a $
million charge related to the planned exit of a business in connection with our restructuring
initiatives.
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.
During the year ended December 31, 2022 we recorded $
million of impairment charges related to businesses in
our Global Distribution and Value-Added Services segment, the components of which were a $
million charge
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
related to the disposal of an unprofitable business in connection with
our restructuring initiatives and a $
million
charge related to customer lists and relationships attributable to customer attrition
rates being higher than expected
in certain other distribution and value-added services 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
Note 16 – Plans of Restructuring and Integration Costs
for additional details.
The above intangible asset impairment charges were recorded within selling, general
and administrative expenses
and in restructuring and integration charges in our consolidated statement of income.
The annual amortization expense expected to be recorded for existing
intangibles assets for the years 2025 through
2029 is $
million, $
million, $
million, $
million and $
million.
Note 10 – Investments and Other
Investments and other consisted of the following:
December 28,
December 30,
2024
2023
Investments in unconsolidated affiliates
$
$
Non-current deferred foreign, state and local income taxes
Notes receivable
(1)
Capitalized costs for software and cloud based applications for external use
Security deposits
Acquisition-related indemnification assets
Non-current pension assets
Non-current inventory
-
Other
Total
$
$
(1)
Long-term notes receivable carry interest rates ranging from
3.0
% to
11.0
% and are due in varying installments through
November 21, 2028
.
Amortization expense, related to capitalized costs for software to be sold,
leased or marketed to external users, and
for cloud-based applications used to deliver our services, for the years
ended December 28, 2024, December 30,
2023 and December 31, 2022, was $
million, $
million and $
million, respectively, and is included in the
selling, general and administrative line within our consolidated statements
of income.
During the year ended December 28, 2024 we recorded a $
million impairment of capitalized software costs,
within our Global Technology segment.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 11 – Fair Value
Measurements
The following section describes the fair values of our financial instruments
and the methodologies that we used to
measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated
affiliates and notes receivable.
Certain of our notes receivable contain variable interest rates.
We believe the carrying amounts of the notes
receivable are a reasonable estimate of fair value based on the interest rates
in the applicable markets.
Our notes
receivable fair value is based on Level 3 inputs within the fair value
hierarchy.
Debt
The fair value of our debt (including bank credit lines, current maturities
of long-term debt and long-term debt) is
based on Level 3 inputs within the fair value hierarchy, and as of December 28, 2024 and December 30, 2023 was
estimated at $
2,536
million and $
2,351
million, respectively.
Factors that we considered when estimating the fair
value of our debt include market conditions, such as interest rates and credit
spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and
significant other observable inputs.
Our derivative
instruments primarily include foreign currency forward contracts, interest
rate swaps, and total return swaps.
The fair values for the majority of our foreign currency derivative contracts
are obtained by comparing our contract
rate to a published forward price of the underlying market rates, which
are based on market rates for comparable
transactions that are classified within Level 2 of the fair value hierarchy.
The fair value of the interest rate swap, which is classified within Level 2
of the fair value hierarchy, is determined
by comparing our contract rate to a forward market rate as of the
valuation date.
The fair value of total return swaps is determined by valuing the underlying
exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation
date that are classified within Level 2 of the
fair value hierarchy.
Redeemable noncontrolling interests
The values for redeemable noncontrolling interests are based on recent
transactions and/or implied multiples of
earnings that are classified within Level 3 of the fair value hierarchy.
See
Note 20 – Redeemable Noncontrolling
Interests for additional information
Intangible Assets
Assets measured on a non-recurring basis at fair value include intangibles.
Inputs for measuring intangibles are
classified as Level 3 within the fair value hierarchy.
See
Note 1 – Basis of Presentation and Significant Accounting
and
Note 9 – Goodwill and Other Intangibles
, Net for additional information.
Defined Benefit Plans
Assets of our defined benefit plans are measured on a recurring basis
and are classified as Level 1 within the fair
value hierarchy.
See
Note 19 – Employee Benefit Plans
for additional information.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Contingent Consideration
We estimate the fair value of contingent consideration payments as part of the acquisition price and record the
estimated fair value of contingent consideration as a liability on our
consolidated balance sheet.
For transactions
accounted for as business combinations, subsequent changes in the
estimated fair value of contingent consideration
payments are included in selling, general, and administrative expenses
in our consolidated statements of
income.
For transactions involving changes in our ownership
in subsidiaries without a change in our control,
subsequent changes in the estimated fair value of contingent consideration
payments are recognized in additional
paid-in capital in our consolidated balance sheet.
We measure contingent consideration at the fair value on a
recurring basis using significant unobservable inputs classified as
Level 3 of the fair value hierarchy.
We use
various valuation techniques, including the Monte Carlo simulation
and probability-weighted scenarios, to
determine the fair value of the contingent consideration liabilities on
the acquisition date and at each reporting
period.
Our fair value measurement inputs include expected operating
performance, discount and risk-free rates,
and credit spread.
The following table presents our assets and liabilities that are measured and
recognized at fair value on a recurring
basis classified under the appropriate level of the fair value hierarchy as of
December 28, 2024 and December 30,
2023:
December 28, 2024
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
$
-
$
Derivative contracts undesignated
-
-
Total assets
$
-
$
$
-
$
Liabilities:
Derivative contracts designated as hedges
$
-
$
$
-
$
Derivative contracts undesignated
-
-
Total return
swaps
-
-
Contingent consideration
-
-
Total liabilities
$
-
$
$
$
Redeemable noncontrolling interests
$
-
$
-
$
$
December 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
-
$
$
-
$
Derivative contracts undesignated
-
-
Total return
swap
-
-
Total assets
$
-
$
$
-
$
Liabilities:
Derivative contracts designated as hedges
$
-
$
$
-
$
Derivative contracts undesignated
-
-
Total liabilities
$
-
$
$
-
$
Redeemable noncontrolling interests
$
-
$
-
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 12 – Concentrations of Risk
Certain financial instruments potentially subject us to concentrations of credit
risk.
These financial instruments
consist primarily of cash equivalents, trade receivables, long-term investments,
notes receivable and derivative
instruments.
In all cases, our maximum exposure to loss from credit
risk equals the gross fair value of the financial
instruments.
We routinely maintain cash balances at financial institutions in excess of insured amounts.
We have
not experienced any loss in such accounts and we manage this risk through
maintaining cash deposits and other
highly liquid investments in high quality financial institutions.
We continuously assess the need for reserves for
such losses, which have been within our expectations.
We do not require collateral or other security to support
financial instruments subject to credit risk, except for long-term notes receivable.
We limit credit risk with respect to our cash equivalents, short-term and long-term investments and derivative
instruments, by monitoring the credit worthiness of the financial institutions
who are the counter-parties to such
financial instruments.
As a risk management policy, we limit the amount of credit exposure by diversifying and
utilizing numerous investment grade counterparties.
With respect to our trade receivables, credit risk is somewhat limited due to a relatively large customer base and
its
dispersion across different types of health care professionals and geographic areas.
No single customer accounted
for more than
% of our net sales in each of the years ended December 28, 2024,
December 30, 2023 or December
31, 2022.
With respect to our sources of supply, our top 10 Global Distribution and Value
-Added Services
suppliers and our single largest supplier accounted for approximately
% and
%, respectively, of our aggregate
purchases for the year ended December 28, 2024 and approximately
% and
%, respectively, of our aggregate
purchases for the year ended December 30, 2023.
Our long-term notes receivable primarily represent strategic financing arrangements
with certain affiliates.
Generally, these notes are secured by certain assets of the counterparty; however, in most cases our security is
subordinate to the rights of other commercial financial institutions.
While we have exposure to credit loss in the
event of non-performance by these counterparties, we conduct ongoing assessments
of their financial and
operational performance.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 13 – Derivatives and Hedging Activities
We are exposed to market risks and changes in foreign currency exchange rates against the U.S. dollar and each
other, and changes to the credit risk of the derivative counterparties.
We attempt to minimize these risks using
foreign currency forward contracts and by maintaining counter-party credit limits.
Our 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 are for the sole
purpose of hedging an existing or
anticipated currency exposure.
We do not enter into foreign currency forward contracts for speculative purposes
and we manage our credit risks by diversifying our counterparties,
maintaining a strong balance sheet and having
multiple sources of capital.
Our derivative instruments primarily include foreign currency forward contracts,
total
return swaps, and interest rate swaps.
During 2019 we entered foreign currency forward contracts that we designated
as net investment hedges to hedge a
portion of our euro-denominated foreign operations.
These net investment hedges offset changes in the U.S. dollar
value of our investments in certain euro-functional currency subsidiaries due
to fluctuating foreign exchange rates.
Gains and losses related to these net investment hedges are recorded
in accumulated other comprehensive loss
within our consolidated balance sheets.
Amounts excluded from the assessment of hedge effectiveness are
included
in interest expense within our consolidated statements of income.
The aggregate notional value of these net
investment hedges, which matured on
November 16, 2023
, was approximately €
million.
On November 3,
2023 we entered into new foreign currency forward contracts to
hedge a portion of our euro-denominated foreign
operations which are designated as net investment hedges.
The aggregate notional value of this net investment
hedge, which matures on
November 3, 2028
, is approximately €
million.
During the years ended December 28,
2024, December 30, 2023, and December 31, 2022, we recorded an
increase/(decrease) of $
million, $(
)
million, and $
million, respectively, within other comprehensive income related to these foreign currency forward
contracts.
See
Note 11 – Fair Value Measurements
for additional information.
On
March 20, 2020
, we entered a total return swap to economically hedge our unfunded
non-qualified SERP and
our DCP.
This swap will offset changes in our SERP and DCP liabilities.
At the swap’s inception, the notional
value of the investments in these plans was $
million.
At December 28, 2024, the notional value of the
investments in these plans was $
million.
At December 28, 2024, the financing blended rate for this swap
was
based on the Secured Overnight Financing Rate (“SOFR”) of
4.53
% plus
0.61
%, for a combined rate of
5.14
%.
For
the years ended December 28, 2024, December 30, 2023,
and December 31, 2022,
we recorded within selling,
general and administrative expenses in our consolidated statement of income,
a gain (loss) of $
million,
million, and $(
) million, respectively, net of transaction costs, related to this undesignated swap.
See
for additional information.
On July 11, 2023, we entered into interest rate swap agreements to hedge the cash flow of our variable
rate $
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 28, 2024, the
notional value of the interest rate swap agreements was $
million.
For the years ended December 28, 2024 and
December 30, 2023, we recorded, within accumulated other comprehensive
loss within our consolidated balance
sheets, a loss of $
million and $
million, respectively, related to the change in the fair value of these interest rate
swap agreements, since we have designated these swaps agreements as cash flow
hedges.
Fluctuations in the value of certain foreign currencies as compared
to the U.S. dollar 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
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of
merchandise purchases to our 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.
Amounts related to our hedging activities are recorded in prepaid
expenses and other and/or accrued
expenses: other within our consolidated balance sheets.
The following table summarizes the terms and fair value of our outstanding derivative
financial instruments as of
December 28, 2024 and December 30, 2023:
December 28, 2024
Notional
Amount
Classification
Fair
Value
Maturity Date
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
Prepaid expenses and other
$
-
October 30, 2025
Interest rate swaps
Accrued expenses, other
(3)
July 13, 2026
Derivatives used in net investment hedges:
Foreign currency forward contracts
Prepaid expenses and other
November 3, 2028
Undesignated hedging relationships:
Total return
swaps
Accrued expenses, other
(3)
December 30, 2024
Total
$
1,239
$
December 30, 2023
Notional
Amount
Classification
Fair
Value
Maturity Date
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
Accrued expenses, other
$
(1)
November 21, 2024
Interest rate swaps
Accrued expenses, other
(10)
July 13, 2026
Derivatives used in net investment hedges:
Foreign currency forward contracts
Accrued expenses, other
(6)
November 3, 2028
Undesignated hedging relationships:
Total return
swaps
Prepaid expenses and other
January 3, 2024
Total
$
1,291
$
(13)
The following table summarizes the effect of cash flow hedges and net investment hedges
on our consolidated
statements of income for the years ended December 28, 2024, December
30, 2023 and December 31, 2022:
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Derivatives used in cash flow hedges:
Foreign currency forward contracts
$
-
$
(1)
$
-
Interest rate swaps
(7)
-
Derivatives used in net investment hedges:
Foreign currency forward contracts
(10)
Total
$
$
(18)
$
The amount of gains or losses reclassified from accumulated other comprehensive
loss into income were not
material for the years ended December 28, 2024, December 30, 2023,
and December 31, 2022.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 14 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
December 28,
December 30,
2024
2023
Revolving credit agreement
$
-
$
Other short-term bank credit lines
Total
$
$
Revolving Credit Agreement
On
August 20, 2021
, we entered into a $
1.0
billion revolving credit agreement (the “Revolving Credit Agreement”)
which was subsequently amended and restated on
July 11, 2023
to extend the maturity date to
July 11, 2028
and
update the interest rate provisions to reflect the current market approach
for a multicurrency facility.
The interest
rate on this revolving credit facility is based on Term Secured Overnight Financing Rate (“
Term SOFR
”) plus a
spread based on our leverage ratio at the end of each financial reporting
quarter.
As of December 28, 2024 the
interest rate on this revolving credit facility was
4.45
% plus
1.18
% for a combined rate of
5.63
%.
As of December
30, 2023 the interest rate on this revolving credit facility was
5.36
% plus
1.00
% for a combined rate of
6.36
%.
The Revolving Credit Agreement requires, among other things, that we
maintain certain maximum leverage ratios.
Additionally, the Revolving Credit Agreement contains customary representations, warranties and affirmative
covenants as well as customary negative covenants, subject to negotiated
exceptions, on liens, indebtedness,
significant corporate changes (including mergers), dispositions and certain restrictive
agreements.
As of December
28, 2024 and December 30, 2023, we had $
million and $
million in borrowings, respectively, under this
revolving credit facility.
During the year ended December 28, 2024, the average
outstanding balance under the
Revolving Credit Agreement was approximately $
million.
As of December 28, 2024 and December 30, 2023,
there were $
million and $
million of letters of credit, respectively, provided to third parties under the
Revolving Credit Agreement.
Other Short-Term Bank Credit
Lines
As of December 28, 2024 and December 30, 2023, we had various other
short-term bank credit lines available, in
various currencies, with a maximum borrowing capacity of $
million and $
million, respectively.
As of
December 28, 2024 and December 30, 2023, $
million and $
million, respectively, were outstanding.
During
the year ended December 28, 2024, the average outstanding balances under our
various other short-term bank credit
lines was approximately $
million.
As of December 28, 2024 and December 30, 2023, borrowings
under other
short-term bank credit lines had weighted average interest rates of
5.35
% and
6.02
%, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Long-term debt
Long-term debt consisted of the following:
December 28,
December 30,
2024
2023
Private placement facilities
$
$
1,074
Term loan
U.S. trade accounts receivable securitization
Various
collateralized and uncollateralized loans payable with interest,
in varying installments through 2031 at interest rates
from
0.00
% to
9.42
% at December 28, 2024 and
from
0.00
% to
9.42
% at December 30, 2023
Finance lease obligations
Total
1,886
2,087
Less current maturities
(56)
(150)
Total long-term debt
$
1,830
$
1,937
As of December 28, 2024,
the aggregate amounts of long-term debt, including finance lease obligations
and net of
deferred debt issuance costs, maturing in each of the next five years
and thereafter are as follows:
2025
$
2026
2027
2028
2029
Thereafter
Total
$
1,886
Private Placement Facilities
Our private placement facilities provided by
four
insurance companies have a total facility amount of $
1.5
billion,
and are available on an uncommitted basis at fixed rate economic terms
to be agreed upon at the time of issuance,
from time to time through
October 20, 2026
.
The facilities allow us to issue senior promissory notes to the
lenders
at a fixed rate based on an agreed upon spread over applicable treasury
notes at the time of issuance.
The term of
each possible issuance will be selected by us and can range from
five
to
15 years
(with an average life no longer
than
12 years
).
The proceeds of any issuances under the facilities will be used
for general corporate purposes,
including working capital and capital expenditures, to refinance existing
indebtedness, and/or to fund potential
acquisitions.
The agreements provide, among other things, that we maintain
certain maximum leverage ratios, and
contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions,
disposal of assets and certain
changes in ownership.
These facilities contain make-whole provisions in the event that we
pay off the facilities
prior to the applicable due dates.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The components of our private placement facility borrowings as of December
28, 2024, which have a weighted
average interest rate of
3.70
% are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
June 16, 2017
$
3.42
%
June 16, 2027
September 15, 2017
3.52
September 15, 2029
January 2, 2018
3.32
January 2, 2028
September 2, 2020
2.35
September 2, 2030
June 2, 2021
2.48
June 2, 2031
June 2, 2021
2.58
June 2, 2033
May 4, 2023
4.79
May 4, 2028
May 4, 2023
4.84
May 4, 2030
May 4, 2023
4.96
May 4, 2033
May 4, 2023
4.94
May 4, 2033
Total
$
The components of our private placement facility borrowings as of December
30, 2023, which have a weighted
average interest rate of
3.65
% are presented in the following table:
Amount of
Date of
Borrowing
Borrowing
Borrowing
Outstanding
Rate
Due Date
January 20, 2012
$
3.45
%
January 20, 2024
December 24, 2012
3.00
December 24, 2024
June 16, 2017
3.42
June 16, 2027
September 15, 2017
3.52
September 15, 2029
January 2, 2018
3.32
January 2, 2028
September 2, 2020
2.35
September 2, 2030
June 2, 2021
2.48
June 2, 2031
June 2, 2021
2.58
June 2, 2033
May 4, 2023
4.79
May 4, 2028
May 4, 2023
4.84
May 4, 2030
May 4, 2023
4.96
May 4, 2033
May 4, 2023
4.94
May 4, 2033
Less: Deferred debt issuance costs
(1)
Total
$
1,074
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Term Loan
On July 11, 2023, we entered into a
three-year
$
million term loan credit agreement (the “Term Credit
Agreement”).
The interest rate on this term loan is based on the
Term SOFR
plus a spread based on our leverage
ratio at the end of each financial reporting quarter.
This term loan matures on
July 11, 2026
.
We are required to
make quarterly payments of $
million from September 2024 through June 2026, with the remaining
balance due in
July 2026.
Previously, we had been required to make quarterly payments of $
million from September 2023
through June 2024.
As of December 28, 2024, the borrowings outstanding under
this term loan were $
million.
At December 28, 2024, the interest rate under the Term Credit Agreement was
4.45
% plus
1.60
% for a combined
rate of
6.05
%.
As of December 30, 2023, the borrowings outstanding under
this term loan were $
million.
At
December 30, 2023, the interest rate under the Term Credit Agreement was
5.36
% plus
1.35
% for a combined rate
of
6.71
%.
However, we have a hedge in place that ultimately creates an effective fixed rate of
6.04
% and
5.79
% at
December 28, 2024 and December 30, 2023, respectively.
The Term Credit Agreement requires, among other
things, that we maintain certain maximum leverage ratios.
Additionally, the Term
Credit Agreement contains
customary representations, warranties and affirmative covenants as well as customary
negative covenants, subject
to negotiated exceptions, on liens, indebtedness, significant corporate changes
(including mergers), dispositions and
certain restrictive agreements.
U.S. Trade Accounts Receivable Securitization
We have a facility agreement based on our U.S. trade accounts receivable that is structured as an asset-backed
securitization program with pricing committed for up to
three years
.
On December 6, 2024, we extended the
expiration date of this facility agreement to
December 6, 2027
(the previous maturity date was
December 15, 2025
).
This facility agreement has a purchase limit of $
million with two banks as agents.
As of December 28, 2024 and December 30, 2023, the borrowings outstanding
under this securitization facility
were $
million and $
million, respectively.
At December 28, 2024, the interest rate on borrowings under
this facility was based on the
asset-backed commercial paper rate
of
4.73
% plus
0.75
%, for a combined rate of
5.48
%.
At December 30, 2023, the interest rate on borrowings under
this facility was based on the asset-backed
commercial paper rate of
5.67
% plus
0.75
%, for a combined rate of
6.42
%.
If our accounts receivable collection pattern changes due to customers
either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of
to
basis points depending upon program utilization.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 15 – Income Taxes
Income before taxes and equity in earnings of affiliates was as follows:
Years
ended
December 28,
December 30,
December 31,
2024
2023
2022
Domestic
$
$
$
Foreign
Total
$
$
$
The provisions for income taxes were as follows:
Years
ended
December 28,
December 30,
December 31,
2024
2023
2022
Current income tax expense:
U.S. Federal
$
$
$
State and local
Foreign
Total current
Deferred income tax expense (benefit):
U.S. Federal
(29)
(48)
State and local
(12)
(3)
(13)
Foreign
(20)
(26)
(12)
Total deferred
(61)
(20)
(73)
Total provision
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The tax effects of temporary differences that give rise to our deferred income tax asset (liability) were
as follows:
Years
Ended
December 28,
December 30,
2024
2023
Deferred income tax asset:
Net operating losses
$
$
Other carryforwards
Inventory, premium
coupon redemptions and accounts receivable
valuation allowances
Operating lease liability
Capitalization of research and development costs
Other asset
Total deferred income
tax asset
Valuation
allowance for deferred tax assets
(1)
(38)
(36)
Net deferred income tax asset
Deferred income tax liability
Intangibles amortization
(260)
(219)
Operating lease right-of-use asset
(67)
(65)
Property and equipment
(7)
(10)
Total deferred tax
liability
(334)
(294)
Net deferred income tax asset (liability)
$
(55)
$
(16)
(1)
Primarily relates to operating losses, the benefits of which are uncertain.
Any future reductions of such valuation allowances will be
reflected as a reduction of income tax expense.
The assessment of the amount of value assigned to our deferred tax assets under
the applicable accounting rules is
judgmental.
We
are required to consider all available positive and negative evidence
in evaluating the likelihood
that we will be able to realize the benefit of our deferred tax assets in the future.
Such evidence includes reversals
of deferred tax liabilities and projected future taxable income.
Since this evaluation requires consideration of
events that may occur some years into the future, there is an element of
judgment involved.
Realization of our
deferred tax assets is dependent on generating sufficient taxable income in future periods.
We
believe that it is
more likely than not that future taxable income will be sufficient to allow us to recover
substantially all of the value
assigned to our deferred tax assets.
However, if future events cause us to conclude that it is not more likely than
not that we will be able to recover the value assigned to our deferred tax assets, we
will be required to adjust our
valuation allowance accordingly.
As of December 28, 2024, we had federal, state and foreign net operating
loss carryforwards of approximately $
million, $
million and $
million, respectively.
The federal, state and foreign net operating loss carryforwards
will begin to expire in various years from 2025 through 2044.
The amounts of federal, state and foreign net
operating losses that can be carried-forward indefinitely are $
million, $
million and $
million,
respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The tax provisions differ from the amount computed using the federal statutory income
tax rate as follows:
Years
ended
December 28,
December 30,
December 31,
2024
2023
2022
Income tax provision at federal statutory rate
$
$
$
State income tax provision, net of federal income tax effect
Foreign income tax provision
Pass-through noncontrolling interest
(8)
(4)
Valuation
allowance
(3)
(2)
Unrecognized tax benefits and audit settlements
Interest expense related to loans
(14)
(13)
(12)
Effect of cross border tax laws
Other
(11)
(6)
(4)
Total income
tax provision
$
$
$
For the year ended December 28, 2024 our effective tax rate was
24.9
%, compared to
22.1
% for the prior year
period.
In 2022, our effective tax rate was
23.5
%.
The difference between our effective tax rate and the federal
statutory tax rate is primarily due to state and foreign income taxes
and interest expense.
On December 22, 2017, the U.S. government passed the Tax Cuts and Jobs Act, which requires U.S. companies to
pay a mandatory one-time transition tax on historical offshore earnings that have not
been repatriated to the U.S.
The transition tax is payable over eight years.
Within our consolidated balance sheets, transition tax of $
million
and $
million were included in accrued taxes for 2024 and 2023, respectively, and $
million was included in
other liabilities for 2023.
Due to the one-time transition tax and the imposition of the GILTI provisions, all previously unremitted earnings
will no longer be subject to U.S. federal income tax; however, there could be U.S., state and/or foreign withholding
taxes upon distribution of such unremitted earnings.
Determination of the amount of unrecognized deferred tax
liability with respect to such earnings is not practicable.
The Organization of Economic Co-Operation and Development (OECD) issued
technical and administrative
guidance on Pillar Two 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 rules.
Future tax reform resulting from these
developments may result in changes to long-standing tax principles, which
may adversely impact our effective tax
rate going forward or result in higher cash tax liabilities.
As of December 28, 2024, the impact of the Pillar Two
rules to our financial statements was immaterial.
ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in accordance with other
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.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The total amount of unrecognized tax benefits, which are included in “other
liabilities” within our consolidated
balance sheets, as of December 28, 2024 and December 30, 2023 was $
million and $
million, respectively,
of which $
million and $
million, respectively, would affect the effective tax rate if recognized.
It is
possible that the amount of unrecognized tax benefits will change in the next 12
months, which may result in a
material impact on our consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2020.
The tax years subject to examination by the
IRS include years 2021 and forward.
In addition, limited positions reported in the 2017 tax year are subject
to IRS
examination.
The amount of tax interest expense included as a component of the provision
for taxes was $
million, $
million
and $
million in 2024, 2023 and 2022, respectively.
The total amount of accrued interest is included in other
liabilities within our consolidated balance sheets, and was $
million as of December 28, 2024 and $
million as
of December 30, 2023.
The amount of penalties accrued for during the periods presented was not
material to our
consolidated financial statements.
The following table provides a reconciliation of unrecognized tax benefits:
December 28,
December 30,
December 31,
2024
2023
2022
Balance, beginning of period
$
$
$
Additions based on current year tax positions
Additions based on prior year tax positions
Reductions based on prior year tax positions
(14)
(2)
-
Reductions resulting from settlements with taxing authorities
-
(3)
(1)
Reductions resulting from lapse in statutes of limitations
(10)
(14)
(10)
Balance, end of period
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 16 – Plans of Restructuring and Integration Costs
On August 6, 2024, we committed to a new restructuring plan (the “2024
Plan”) to integrate recent acquisitions,
right-size operations and further increase efficiencies.
During the year ended December 28, 2024, we recorded
restructuring charges associated with the 2024 Plan of $
million, which primarily related to severance and
employee-related costs, accelerated amortization of right-of-use
lease assets and fixed assets, impairment of
intangible assets related to the disposal of a portion of a business
and other exit costs.
We expect to record
restructuring charges associated with the 2024 Plan in 2025; however an estimate
of the amount of these charges
has not yet been determined.
During the year ended December 28, 2024, in connection with the 2024 Plan,
we recorded an impairment of
goodwill and intangible assets of $
million related to the disposal of a portion of a business.
This impairment is
included in the $
million of restructuring charges discussed above and related to the Global Specialty Products
segment.
On August 1, 2022, we committed to a restructuring plan (the “2022
Plan”) focused on funding the priorities of the
BOLD+1 strategic plan, streamlining operations and other initiatives to
increase efficiency.
The 2022 Plan has
been completed as of July 31, 2024.
During the years ended December 28, 2024, December
30, 2023, and
December 31, 2022, in connection with our 2022 Plan, we recorded restructuring
costs of $
million, $
million,
and $
million, respectively.
The restructuring costs for these periods primarily related to
severance and
employee-related costs, accelerated amortization of right-of-use
lease assets and fixed assets, impairment of
intangible assets related to disposal of a U.S. business,
and other exit costs.
During the year ended December 30, 2023, in connection with the 2022 Plan,
we recorded an impairment of an
intangible asset of $
million related to disposal of a U.S. business.
This impairment is included in the $
million of restructuring costs discussed above and related to the Global Specialty
Products segment.
The disposal
was completed during the first quarter of 2024.
During the year ended December 31, 2022, in connection with the 2022 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 $
million.
We also initiated the disposal of a non-profitable U.S. business within the Global Specialty
Products segment and recorded related costs of $
million, which primarily consisted of impairment of intangible
assets and goodwill, inventory impairment, and severance and employee-related
costs, which are included in the
Global Specialty Products segment.
These costs are included in the $
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 $
million related to one-time employee and other
costs, as well as restructuring charges of $
million, which are included in the $
million of restructuring charges
discussed above.
The integration and restructuring costs related to Midway Dental
Supply are recorded in the
Global Distribution and Value-Added Services segment.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Restructuring and integration costs recorded during our 2024, 2023 and
2022 fiscal years consisted of the
following:
Year Ended
December 28, 2024
Global Distribution and
Value-Added Services
Global
Specialty
Products
Global
Technology
Corporate
Restructuring
Costs
Integration
Costs
Restructuring Costs
Total
2024 Plan
Severance and employee-related costs
$
$
-
$
$
$
$
Impairment and accelerated depreciation and
amortization of right-of-use lease assets and
other long-lived assets
-
-
Exit and other related costs
-
-
-
-
Loss on disposal of a business
-
-
-
-
Restructuring and integration costs-2024 Plan
$
$
-
$
$
$
$
2022 Plan
Severance and employee-related costs
$
$
-
$
$
$
-
$
Accelerated depreciation and amortization
-
-
-
(3)
Exit and other related costs
-
-
Restructuring and integration costs-2022 Plan
$
$
-
$
$
$
(1)
$
Total restructuring and integration costs
$
$
-
$
$
$
$
Year Ended
December 30, 2023
Global Distribution and
Value-Added Services
Global
Specialty
Products
Global
Technology
Corporate
Restructuring
Costs
Integration
Costs
Restructuring Costs
Total
2022 Plan
Severance and employee-related costs
$
$
-
$
$
$
$
Impairment and accelerated depreciation and
amortization of right-of-use lease assets and
other long-lived assets
-
-
-
Exit and other related costs
-
-
Loss on disposal of a business
-
-
-
-
Total restructuring and integration costs
$
$
-
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Year Ended
December 31, 2022
Global Distribution and
Value-Added Services
Global
Specialty
Products
Global
Technology
Corporate
Restructuring
Costs
Integration
Costs
Restructuring Costs
Total
2022 Plan
Severance and employee-related costs
$
$
-
$
$
$
$
Impairment and accelerated depreciation and
amortization of right-of-use lease assets and other
long-lived assets
-
-
-
Exit and other related costs
-
-
-
Loss on disposal of a business
-
-
-
-
Integration employee-related and other costs
-
-
-
-
Total restructuring and integration costs
$
$
$
$
$
$
The following table summarizes, by plan year, the activity related to the liabilities associated with
our restructuring
initiatives under the 2022 Plan and the 2024 Plan for the year ended December
28, 2024.
The remaining accrued
balance of restructuring costs as of December 28, 2024, which primarily
relates to severance and employee-related
costs, is included in accrued expenses: other within our consolidated balance
sheets.
Liabilities related to exited
leased facilities are recorded within our current and non-current operating
lease liabilities within our consolidated
balance sheets.
2022 Plan
2024 Plan
Total
Balance, December 31, 2022
$
$
-
$
Restructuring costs
-
Non-cash accelerated depreciation and amortization
(15)
-
(15)
Non-cash impairment on disposal of a business
(12)
-
(12)
Cash payments and other adjustments
(54)
-
(54)
Balance, December 30, 2023
-
Restructuring costs
Non-cash accelerated depreciation and amortization
(7)
(12)
(19)
Non-cash impairment on disposal of a business
-
(13)
(13)
Cash payments and other adjustments
(41)
(20)
(61)
Balance, December 28, 2024
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 17 – Commitments and Contingencies
Purchase Commitments
In our Global Distribution and Value-Added Services business, we sometimes enter into long-term purchase
commitments to ensure the availability of products for distribution.
Future minimum annual payments for
inventory purchase commitments as of December 28, 2024 were:
2025
$
2026
2027
-
2028
-
2029
-
Thereafter
-
Total minimum
inventory purchase commitment payments
$
Employment, Consulting and Non-Compete Agreements
We have employment, consulting and non-compete agreements that have varying base aggregate annual payments
for the years 2025 through 2029 and thereafter of approximately $
million, $
million, $
million, $
million, $
million, and $
million, respectively.
We also have lifetime consulting agreements that provide for current
compensation of
four-hundred thousand
dollars per year, with small scheduled increases every fifth year with the
next increase in 2027.
In addition, some agreements have provisions for additional
incentives and compensation.
Legal Proceedings
Henry Schein, Inc. has been named as a defendant in multiple opioid
related lawsuits (currently less than one-
hundred and seventy-five (
); one or more of Henry Schein, Inc.’s subsidiaries is also named as a defendant in a
number of those cases).
Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged
in a false advertising campaign to expand the market for such drugs and
their own market share and that the entities
in the supply chain (including Henry Schein, Inc. and its subsidiaries) reaped
financial rewards by refusing or
otherwise failing to monitor appropriately and restrict the improper distribution
of those drugs.
These actions
consist of some that have been consolidated within the MultiDistrict Litigation
(“MDL”) proceeding In Re National
Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)
and are currently stayed, and others which
remain pending in state courts and are proceeding independently and outside
of the MDL.
On January 29, 2025,
the court granted our motion for summary judgment in the action
filed by Mobile County Board of Health, et al. in
Alabama state court and dismissed all claims against Henry Schein
with prejudice.
We have settled the action filed
by DCH Health Care Authority, et al. in Alabama state court (
thirty-four
plaintiffs) for an immaterial amount and
the claims against Henry Schein have been dismissed with prejudice.
We have also settled
forty-four
cases (plus
one
case in which we were not yet named a defendant) filed by plaintiffs represented
by the Napoli Shkolnik PLLC
law firm for an immaterial amount.
Stipulations of Discontinuance with Prejudice in those cases
are pending.
At
this time, the following case is set for trial: the action filed by Florida Health Sciences
Center, Inc. (and
other
hospitals located throughout the State of Florida) in Florida state court,
which is currently scheduled for a jury trial
in September 2025.
Of Henry Schein’s 2024 net sales of approximately $
12.7
billion, sales of opioids represented
less than
four
-tenths of 1 percent.
Opioids represent a negligible part of our business.
We intend to defend
ourselves vigorously against these actions.
On January 18, 2024, a putative class action was filed against the Company
in the U.S. District Court for the
Eastern District of New York (“EDNY”), Case No. 24-cv-387 (the “Cruz-Bermudez Action”), based on the
October 2023 cyber incident described in
.
On January 26, 2024, a second putative class
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
action was filed against the Company based on the cyber incident, also
in the EDNY,
Case No. 24-cv-550 (the
“Depperschmidt Action”).
On February 12, 2024, the Depperschmidt Action was voluntarily dismissed
without
prejudice.
On February 16, 2024, an amended complaint was filed in
the Cruz-Bermudez Action with additional
plaintiffs’ counsel from the Depperschmidt Action and an additional new plaintiff.
Plaintiffs in the Cruz-Bermudez Action seek to represent a class of all individuals
whose personally identifying
information and personal health information was compromised by
the incident.
Plaintiffs generally claim to have
been harmed by alleged actions and/or omissions by the Company
in connection with the incident and that the
Company made deceptive public statements regarding privacy and data protection.
Plaintiffs assert a variety of
claims seeking monetary damages, injunctive relief, costs and attorneys’
fees, and other related relief.
On March
22, 2024, plaintiffs voluntarily withdrew two of their five causes of action.
On April 8, 2024, the court denied the
Company’s motion to dismiss the remaining claims.
On June 6, 2024, plaintiffs and the Company informed the court that they had agreed
to a term sheet for a class
action settlement of the Cruz-Bermudez Action.
Plaintiffs and the Company entered into a class action settlement
agreement on September 13, 2024, and the court preliminarily approved
the settlement on September 16,
Under the terms of the settlement, all claims in the Cruz-Bermudez
Action will be dismissed, the Cruz-
Bermudez Action will be terminated, the Company will receive a
release of claims from the class, and the
Company will pay $
2.9
million into a fund for class members.
The court has approved the settlement and entered
the final approval order on February 20, 2025.
The settlement agreement’s effective date is
35 days
after the final
approval order assuming no appeals have been filed.
From time to time, we may become a party to other legal proceedings,
including, without limitation, product
liability claims, employment matters, commercial disputes, governmental
inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent
decrees), and other matters arising out
of the ordinary course of our business.
While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently
anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of December 28, 2024, we had accrued our best estimate of potential
losses relating to claims that were probable
to result in liability and for which we were able to reasonably estimate
a loss.
This accrued amount, as well as
related expenses, was not material to our financial position, results of operations
or cash flows.
Our method for
determining estimated losses considers currently available
facts, presently enacted laws and regulations and other
factors, including probable recoveries from third parties.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 18 – Stock-Based Compensation
Stock-based awards are provided to certain employees under our 2024 Stock Incentive
Plan (formerly known as our
2020 Stock Incentive Plan) and to non-employee directors under our 2023 Non-Employee
Director Stock Incentive
Plan (together, the “Plans”).
The Plans are administered by the Compensation Committee of the Board
(the
“Compensation Committee”).
Historically, equity-based awards to our employees have been granted solely in the
form of time-based and performance-based restricted stock units (“RSUs”)
with the exception of our 2021 plan year
in which non-qualified stock options were issued in place of performance-based
RSUs and in 2022, when we
granted time-based and performance-based RSUs, as well as non-qualified
stock options.
Starting with our 2023
plan year, we returned to granting our employees equity-based awards solely in the form of
time-based and
performance-based RSUs.
Our non-employee directors receive equity-based awards solely in the form
of time-
based RSUs.
As of December 28, 2024, there were
75,742,657
shares authorized and
9,973,475
shares available to be granted
under the 2024 Stock Incentive Plan and
2,075,000
shares authorized and
361,724
shares available to be granted
under the 2023 Non-Employee Director Stock Incentive Plan.
RSUs are stock-based awards granted to recipients with specified vesting provisions.
In the case of RSUs, common
stock is delivered on or following satisfaction of vesting conditions.
We issue RSUs to employees that primarily
vest (i) solely based on the recipient’s continued service over time, primarily with
four
-year cliff vesting and/or (ii)
based on achieving specified performance measurements and the recipient’s continued service over time, primarily
with
three
-year cliff vesting.
RSUs granted to our non-employee directors primarily include
-month cliff vesting.
For these RSUs, we recognize the cost as compensation expense on a straight-line
basis.
For all RSUs, we estimate the fair value based on our closing stock
price on the grant date.
With respect to
performance-based RSUs, the number of shares that ultimately vest and
are received by the recipient is based upon
our performance as measured against specified targets over a specified period, as
determined by the Compensation
Committee.
Although there is no guarantee that performance targets will be achieved, we
estimate the fair value of
performance-based RSUs based on our closing stock price at time of grant.
Each of the Plans provide for certain adjustments to the performance measurement
in connection with awards under
the Plans.
With respect to the performance-based RSUs granted under our 2024 Stock Incentive Plan, such
performance measurement adjustments relate to significant events, including,
without limitation, acquisitions,
divestitures, new business ventures, certain capital transactions (including share
repurchases), differences in
budgeted average outstanding shares (other than those resulting from capital
transactions referred to above),
restructuring costs, if any, amortization expense recorded for acquisition-related intangible assets (solely with
respect to performance-based RSUs granted in the 2023 and 2024 plan years),
certain litigation settlements or
payments, if any, changes in accounting principles or in applicable laws or regulations, changes in income tax rates
in certain markets, foreign exchange fluctuations, the financial impact
either positive or negative, of the difference
in projected earnings generated by COVID-19 test kits (solely with respect
to performance-based RSUs granted in
the 2022 and 2023 plan years) and impairment charges (solely with respect to performance-based
RSUs granted in
the 2023 and 2024 plan years), and unforeseen events or circumstances
affecting us.
Over the performance period, the number of RSUs that will ultimately vest
and be issued and the related
compensation expense is adjusted upward or downward based upon our
estimation of achieving such performance
targets.
The ultimate number of shares delivered to recipients and the related compensation
cost recognized as an
expense is based on our actual performance against the pre-determined performance
metrics (in each case as
adjusted).
Stock options are awards that allow the recipient to purchase shares of our
common stock after vesting at a fixed
price set at the time of grant.
Stock options were granted at an exercise price equal to our
closing stock price on the
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
date of grant.
Stock options issued in 2021 and 2022 vest
one-third
per year based on the recipient’s continued
service, subject to the terms and conditions of the 2020 Stock Incentive Plan,
are fully vested
three years
from the
grant date and have a contractual term of
ten years
from the grant date, subject to earlier termination of term and
term acceleration upon certain events.
Compensation expense for stock options is recognized using
a graded
vesting method.
We estimate grant date fair value of stock options using the Black-Scholes valuation model.
During the year ended December 28, 2024, we did
no
t grant any stock options.
Our consolidated statements of income reflect pre-tax share-based compensation
expense of $
million, $
million and $
million for the years ended December 28, 2024, December 30, 2023
and December 31, 2022,
respectively.
Total unrecognized compensation cost related to unvested awards as of December 28, 2024 was $
million, which
is expected to be recognized over a weighted-average period of approximately
2.6
years.
The weighted-average grant date fair value of stock-based awards granted
was $
75.12
, $
76.43
and $
85.51
per share
during the years ended December 28, 2024, December 30, 2023 and December
31, 2022, respectively.
We
record deferred income tax assets for awards that will result in
future income tax deductions based on the
amount of compensation cost recognized and our statutory tax rate in the
jurisdiction in which we will receive a
deduction.
Our consolidated statements of cash flows present our stock-based compensation
expense as a reconciling
adjustment between net income and net cash provided by operating
activities for all periods presented.
There were
no cash benefits associated with tax deductions in excess of recognized
compensation for the years ended
December 28, 2024, December 30, 2023 and December 31, 2022.
The following weighted-average assumptions were used in determining
the most recent fair values of stock options
using the Black-Scholes valuation model:
2022
Expected dividend yield
0.00
%
Expected stock price volatility
27.80
%
Risk-free interest rate
3.62
%
Expected life of options (in years)
6.00
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future.
The expected stock price volatility is based on implied volatilities
from traded options on
our stock, historical volatility of our stock and other factors.
The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant that most closely aligns to the expected life of options.
The six-
year expected life of the options was determined using the simplified
method for estimating the expected term as
permitted under Staff Accounting Bulletin Topic 14.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The following table summarizes the stock option activity for the year
ended December 28, 2024:
Stock Options
Weighted Average
Aggregate
Weighted Average
Remaining Contractual
Intrinsic
Shares
Exercise Price
Life (in years)
Value
Outstanding at beginning of year
1,078,459
$
71.46
Granted
-
-
Exercised
(100,077)
62.71
Forfeited
(14,891)
85.18
Outstanding at end of year
963,491
$
72.16
6.6
$
Options exercisable at end of year
837,341
$
70.11
Weighted Average
Aggregate
Number of
Weighted Average
Remaining Contractual
Intrinsic
Options
Exercise Price
Life (in years)
Value
Expected to vest
126,150
$
85.77
7.2
$
-
The following tables summarize the activity of our unvested RSUs for
the year ended December 28, 2024:
Time-Based Restricted Stock Units
Performance-Based Restricted Stock Units
Weighted Average
Weighted Average
Grant Date Fair
Intrinsic Value
Grant Date Fair
Intrinsic Value
Shares/Units
Value Per Share
Per Share
Shares/Units
Value Per Share
Per Share
Outstanding at beginning of period
1,655,393
$
70.34
208,742
$
78.02
Granted
465,861
75.84
253,896
76.88
Vested
(332,084)
63.09
(8,262)
66.53
Forfeited
(103,620)
76.95
(65,265)
79.60
Outstanding at end of period
1,685,550
$
72.92
$
70.42
389,111
$
75.98
$
70.42
The fair value of time and performance RSUs that vested was $
million and $
million, respectively, for the year
ended December 28, 2024; $
million and $
million, respectively, for the year ended December 30, 2023; and
$
million and $
million, respectively, for the year ended December 31, 2022.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 19 – Employee Benefit Plans
Defined benefit plans
Certain of our employees in our international markets participate
in various noncontributory defined benefit plans.
These plans are managed to provide pension benefits to covered employees
in accordance with local regulations
and practices.
Our net unfunded liability for these plans are recorded
in accrued expenses: other; and other
liabilities within our consolidated balance sheets.
The following table presents the changes in projected benefit
obligations, plan assets, and the funded status of our defined benefit
pension plans:
Years
Ended
December 28,
December 30,
2024
2023
Obligation and funded status:
Change in benefit obligation
Projected benefit obligation, beginning of period
$
$
Service costs
Interest cost
Past service cost (credit)
(1)
Actuarial gain
Participant contributions
Settlements
(1)
(3)
Effect of foreign currency translation
(9)
Projected benefit obligation, end of period
$
$
Change in plan assets
Fair value of plan assets at beginning of period
$
$
Actual return on plan assets
Employer contributions
Plan participant contributions
Expected return on plan assets
Benefit received
Settlements
(2)
(2)
Effect of foreign currency translation
(6)
Fair value of plan assets at end of period
$
$
Unfunded status at end of period
$
$
The majority of our defined benefit plans are unfunded, with the exception
of one plan in one country where the
amount of assets exceeds the projected benefit obligation by approximately
$
million and $
million as of
December 28, 2024 and December 30, 2023, respectively.
At December 28, 2024 and December 30, 2023 the
accumulated benefit obligations were $
million and $
million, respectively.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The following table provides the amounts recognized in our consolidated
balance sheets for our defined benefit
pension plans:
Years
Ended
December 28,
December 30,
2024
2023
Non-current assets
$
$
Current liabilities
(1)
(1)
Non-current liabilities
(68)
(65)
Accumulated other comprehensive loss, pre-tax
The following table provides the components of net periodic pension cost
for our defined benefit plans:
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Service cost
$
$
$
Interest cost
Expected return on plan assets
(3)
(3)
(1)
Employee contributions
(1)
(1)
-
Amortization of prior service credit
-
-
Net periodic pension cost
$
$
$
The following tables present the weighted-average actuarial assumptions
used to determine our pension benefit
obligation and our net periodic pension cost for the periods presented:
Years
Ended
December 28,
December 30,
Pension Benefit Obligation
2024
2023
Weighted average
discount rate
2.23
%
2.71
%
Years
Ended
December 28,
December 30,
December 31,
Net Periodic Pension Cost
2024
2023
2022
Discount rate-pension benefit
1.70
%
1.50
%
1.25
%
Expected return on plan assets
1.13
%
0.51
%
0.81
%
Rate of compensation increase
1.98
%
1.64
%
1.68
%
Pension increase rate
0.63
%
0.80
%
0.61
%
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The following table presents the estimated pension benefit payments that
are payable to the plan’s participants as of
December 28, 2024:
Year
2025
$
2026
2027
2028
2029
2030 to 2034
Total
$
401(k) Plans
We offer
qualified 401(k) plans to substantially all domestic full-time employees.
As determined by our Board,
matching contributions to these plans generally do not exceed
% of the participants’ contributions up to
% of
their base compensation, subject to applicable legal limits.
Matching contributions are made in cash and are
allocated consistent with the participants’ investment elections on file, subject
to a
% allocation limit to the
Henry Schein Stock Fund.
Forfeitures attributable to participants whose employment terminates
prior to becoming
fully vested are reallocated as part of our ongoing matching contributions
and to offset administrative expenses of
the 401(k) plans.
Assets of the 401(k) and other defined contribution plans are held
in self-directed accounts enabling participants to
choose from various investment fund options.
Matching contributions related to these plans charged to operations
during the years ended December 28, 2024, December 30, 2023 and December
31, 2022 amounted to $
million,
$
million and $
million, respectively.
Within our consolidated statements of income, $
million, $
million,
and $
million, is included in selling, general and administrative; and $
million, $
million, and $
million is
included in cost of goods sold for the years ended December 28, 2024, December
30, 2023, and December 31,
2022, respectively.
Supplemental Executive Retirement Plan
We offer
an unfunded, non-qualified SERP to eligible employees.
This plan generally covers officers and certain
highly compensated employees after they have reached the maximum
IRS allowed pre-tax 401(k) contribution
limit.
Our contributions to this plan are equal to the 401(k) employee-elected
contribution percentage applied to
base compensation for the portion of the year in which such employees are
not eligible to make pre-tax
contributions to the 401(k) plan.
The amounts charged to operations during the years ended December 28, 2024,
December 30, 2023 and December 31, 2022 amounted to $
million, $
million and $
(1)
million, respectively.
The
charges are included in selling, general and administrative within our consolidated
statements of income.
Please
see
Note 13 – Derivatives and Hedging Activities
for additional information.
Deferred Compensation Plan
We
offer DCP to a select group of management or highly compensated employees
of the Company and certain
subsidiaries.
This plan allows for the elective deferral of base salary, bonus and/or commission compensation by
eligible employees.
The amounts (credited)/charged to operations during the years ended December
28, 2024,
December 30, 2023 and December 31, 2022 were approximately $
million, $
million and $
(11)
million,
respectively.
The charges are included in selling, general and administrative within our consolidated
statements of
income.
Please see
Note 13 – Derivatives and Hedging Activities
for additional information.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 20 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our subsidiaries have the right,
at certain times, to require us to acquire
their ownership interest in those entities at fair value.
ASC Topic 480-10 is applicable for noncontrolling interests
where we are or may be required to purchase all or a portion of the
outstanding interest in a consolidated subsidiary
from the noncontrolling interest holder under the terms of a put option contained
in contractual agreements.
The
components of the change in the redeemable noncontrolling interests for the
years ended December 28, 2024,
December 30, 2023 and December 31, 2022, are presented in the following table:
December 28,
December 30,
December 31,
2024
2023
2022
Balance, beginning of period
$
$
$
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
(273)
(19)
(31)
Increase in redeemable noncontrolling interests due to business
acquisitions
Net income (loss) attributable to redeemable noncontrolling interests
(1)
Distributions declared, net of capital contributions
(50)
(19)
(21)
Effect of foreign currency translation gain (loss) attributable
to
redeemable noncontrolling interests
(24)
(6)
Change in fair value of redeemable securities
(11)
(4)
Balance, end of period
$
$
$
Note 21 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S.
GAAP,
are excluded from net income and
are recorded directly to stockholders’ equity.
The following table summarizes our Accumulated other comprehensive loss, net
of applicable taxes as of:
December 28,
December 30,
December 31,
2024
2023
2022
Attributable to redeemable noncontrolling interests:
Foreign currency translation adjustment
$
(56)
$
(32)
$
(37)
Attributable to noncontrolling interests:
Foreign currency translation adjustment
$
(1)
$
(1)
$
(1)
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
$
(371)
$
(188)
$
(236)
Unrealized gain (loss) from hedging activities
-
(13)
Pension adjustment loss
(8)
(5)
(2)
Accumulated other comprehensive loss
$
(379)
$
(206)
$
(233)
Total Accumulated
other comprehensive loss
$
(436)
$
(239)
$
(271)
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
The following table summarizes the components of comprehensive income, net
of applicable taxes as follows:
December 28,
December 30,
December 31,
2024
2023
2022
Net income
$
$
$
Foreign currency translation gain (loss)
(207)
(88)
Tax effect
-
-
-
Foreign currency translation gain (loss)
(207)
(88)
Unrealized gain (loss) from hedging activities
(25)
Tax effect
(5)
(3)
Unrealized gain (loss) from hedging activities
(18)
Pension adjustment gain (loss)
(5)
(3)
Tax effect
-
(4)
Pension adjustment gain (loss)
(3)
(3)
Comprehensive income
$
$
$
Our financial statements are denominated in U.S. Dollars.
Fluctuations in the value of foreign currencies as
compared to the U.S. Dollar may have a significant impact on our
comprehensive income.
The foreign currency
translation gain (loss) during the years ended December 28, 2024, December 30,
2023 and December 31, 2022 was
primarily due to changes in foreign currency exchange rates of the Brazilian
Real, Euro, British Pound, Canadian
Dollar, Australian Dollar,
Swiss Franc, and New Zealand Dollar.
The hedging gain (loss) during the years ended December 28, 2024, December
30, 2023, and December 31, 2022
was attributable to a net investment hedge.
See
Note 11 – Derivatives and Hedging Activities
for further
information.
The following table summarizes our total comprehensive income, net of
applicable taxes as follows:
December 28,
December 30,
December 31,
2024
2023
2022
Comprehensive income attributable to
Henry Schein, Inc.
$
$
$
Comprehensive income attributable to
noncontrolling interests
Comprehensive income (loss) attributable to
Redeemable noncontrolling interests
(25)
Comprehensive income
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 22 – Earnings Per Share
Basic earnings per share is computed by dividing net income attributable
to Henry Schein, Inc. by the weighted-
average number of common shares outstanding for the period.
Our diluted earnings per share is computed similarly
to basic earnings per share, except that it reflects the effect of common shares issuable
for unvested RSUs and upon
exercise of stock options using the treasury stock method in periods
in which they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and
diluted share follows:
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Basic
126,788,997
130,618,990
136,064,221
Effect of dilutive securities:
Stock options and restricted stock units
990,231
1,129,181
1,691,449
Diluted
127,779,228
131,748,171
137,755,670
The number of antidilutive securities that were excluded from the calculation
of diluted weighted average common
shares outstanding are as follows:
Years
Ended
December 28,
December 30,
December 31,
2024
2023
2022
Stock options
406,676
424,695
342,716
Restricted stock units
9,287
15,040
19,466
Total anti-dilutive
securities excluded from earnings per share
computation
415,963
439,735
362,182
Note 23 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Years
ended
December 28,
December 30,
December 31,
2024
2023
2022
Interest
$
$
$
Income taxes
For the years ended December 28, 2024, December 30, 2023 and December
31, 2022, we had $
million, $
(25)
million and $
million of non-cash net unrealized gains (losses) related to hedging
activities, respectively.
See
Note 13 – Derivatives and Hedging Activities
for additional information related to our total return swap and
our
interest rate swap agreements.
For the year ended December 30, 2023, there was approximately $
million of debt assumed as part of the
acquisitions of Biotech Dental and S.I.N.
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(in millions, except share and per share data)
Note 24 – Related Party Transactions
In connection with the formation of Henry Schein One, LLC, our joint venture
with Internet Brands, which was
formed on July 1, 2018, we entered into a
ten-year
royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $
million annually for the use of their intellectual property.
During the years
ended December 28, 2024, December 30, 2023 and December 31, 2022, we recorded
$
million, $
million and
$
million, respectively, within selling, general and administrative in our consolidated statements of income, in
connection with costs related to this royalty agreement.
As of December 28, 2024 and December 30, 2023, Henry
Schein One, LLC had a net payable balance to Internet Brands of $
million and $
million, respectively,
comprised of amounts related to results of operations and the royalty agreement.
The components of this payable
are recorded within accrued expenses: other within our consolidated balance sheets.
We
have interests in entities that we account for under the equity accounting
method.
In our normal course of
business, during the years ended December 28, 2024, December 30, 2023
and December 31, 2022, we recorded net
sales of $
million, $
million, and $
million respectively, to such entities.
During the years ended December
28, 2024, December 30, 2023 and December 31, 2022, we purchased
$
million, $
million and $
million
respectively, from such entities.
At December 28, 2024 and December 30, 2023, we had an aggregate
$
million
and $
million, respectively, due from our equity affiliates, and $
million and $
million, respectively, due to our
equity affiliates.
Certain of our facilities related to our acquisitions are leased from employees
and minority shareholders.
Please see
for further information.
Note 25 – Subsequent Event
On January 29, 2025, Henry Schein, Inc. announced a strategic investment
by funds affiliated with KKR, a leading
global investment firm.
In addition to KKR’s current holdings, KKR will make an additional $
million
investment in the Company’s common stock.
As a result, KKR will own approximately
% of the Company’s
stock.
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.
In addition, under the agreement
between Henry Schein and KKR,
two
independent directors will join our Board of Directors.
Upon consummation
of this strategic investment,
we will issue new shares of common stock to funds affiliated with KKR for an
investment of $
million, at approximately $
76.10
per share.
As part of the agreement, KKR has also agreed to
customary voting and other provisions.
Consummation of these transactions 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.
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