ANNUAL REPORT 2011
FINANCIAL HIGHLIGHTS: 2007–2011
NET SALES
from Continuing Operations
($ in Millions)
CAGR 11%*
OPERATING INCOME
from Continuing Operations
($ in Millions)
CAGR 14%*
EARNINGS PER DILUTED SHARE
from Continuing Operations
CAGR 15%*
OPERATING CASH FLOW
AND CAPITAL EXPENDITURES
($ in Millions)
OPERATING CASH FLOW
CAPITAL EXPENDITURES
*Five-year Compound Annual Growth Rate
NOTE:
Operating Income and Earnings Per Diluted Share from Continuing Operations attributable to Henry Schein, Inc. have been adjusted to
exclude certain one-time items. Refer to Non-GAAP Disclosures on page 12. Additionally, refer to our annual consolidated financial
statements for a complete presentation of our Consolidated Statements of Cash Flows.
ABOUT HENRY SCHEIN: CELEBRATING 80 YEARS
Henry Schein, Inc. (NASDAQ: HSIC) is the world’s
selection of more than 90,000 national and Henry Schein
largest provider of health care products and services
private-brand products in stock, as well as more than
to office-based dental, medical and animal health
100,000 additional products available as special-order
practitioners. The Company also serves dental
items. The Company also offers its customers exclusive,
laboratories, government and institutional health care
innovative technology solutions, including practice
clinics, and other alternate care sites. A Fortune 500®
management software and e-commerce solutions,
Company and a member of the NASDAQ 100® Index,
as well as a broad range of financial services.
Henry Schein employs nearly 15,000 Team Schein
Members and serves approximately 775,000 customers.
Headquartered in Melville, New York, Henry Schein
has operations or affiliates in 25 countries.* The
The Company offers a comprehensive selection of
Company’s sales reached a record $8.5 billion in 2011,
products and services, including value-added solutions
and have grown at a compound annual rate of 18%
for operating efficient practices and delivering
since becoming a public company in 1995. For more
high-quality care. Henry Schein operates through a
information, visit the Henry Schein Web site at
centralized and automated distribution network, with a
www.henryschein.com.
* As of March 2012.
LEARNING FROM OUR PAST. BUILDING FOR OUR FUTURE.
Henry Schein opened his pharmacy in Queens, New York in 1932. Since then, Henry Schein, Inc. remains committed
to the values-based culture that Henry and his wife, Esther, infused in their business eight decades ago, and to serving
our customers, supplier partners, investors, society and Team Schein. Over the course of 80 years, the Company has
frequently reinvented the organization to meet customer needs, taking advantage of new technologies and tapping
into burgeoning markets. By holding fast to our historical values and focusing on our future, we believe that our best
years are yet to come.
“The Company has
frequently reinvented
the organization to
meet customer needs...”
HENRY SCHEIN ANNUAL REPORT
1
HENRY SCHEIN AT A GLANCE: BUSINESS UNITS
DENTAL*
(cid:129) 33.6% of total net sales
(cid:129) Includes Henry Schein Dental (U.S.), Henry Schein Canada and Zahn Dental Laboratory (U.S.)
(cid:129) Serves U.S. and Canadian office-based dental practices, as well as dental laboratories
MEDICAL*
(cid:129) 16.6% of total net sales
(cid:129) Includes Henry Schein Medical (U.S.)
(cid:129) Serves U.S. office-based physician practices, surgical centers and other alternate-care sites
ANIMAL HEALTH*
(cid:129) 11.6% of total net sales
(cid:129) Includes Butler Schein Animal Health (U.S.)
(cid:129) Serves U.S. animal health practices
INTERNATIONAL
(cid:129) 35.3% of total net sales
(cid:129) Serves approximately 260,000 office-based dental, medical and animal health practices
through operations or affiliates in 23 countries outside of North America
(cid:129) Schein Direct provides direct air package delivery service to practitioners in
more than 200 countries around the world
TECHNOLOGY & VALUE-ADDED SERVICES
(cid:129) 2.9% of total net sales
(cid:129) Includes Henry Schein Practice Solutions and Software of Excellence (dental);
Henry Schein Medical Systems (medical); ImproMed Software Systems and
McAllister Software Systems (animal health)
(cid:129) Practice management and electronic medical records systems active user base
(installed) of more than 70,000 dental, medical and animal health practices
(cid:129) Value-added services include: repair services through ProRepair® and COMPLETEcare; office design services;
continuing education for health care professionals; electronic health claims processing; Office Automation
Technology Solutions; 24/7 ordering capability through the ARUBA® Web-based electronic catalog; and
Financial Services such as equipment leasing and financing, patient financing and electronic credit card processing
* Dental, Medical and Animal Health practitioners in countries outside of North America are served by Henry Schein’s International Group.
2011 GLOBAL NET SALES
from Continuing Operations
$8.5 Billion
2
33.6% DENTAL
16.6% MEDICAL
11.6% ANIMAL HEALTH
35.3% INTERNATIONAL
2.9% TECHNOLOGY & VALUE-ADDED SERVICES
HENRY SCHEIN AT A GLANCE: BY THE NUMBERS
WORLDWIDE MARKETING AND OPERATIONAL EXCELLENCE
SUPPORTING OUR BUSINESS UNITS:
(cid:129) 3,200 Field Sales Consultants
(cid:129) 1,625 Telesales Representatives
(cid:129) Average of 120,000 Cartons Shipped Daily
(cid:129) 99% Order Fulfillment Rate
(cid:129) 28.1 Million Direct Marketing Pieces Distributed in 2011
(cid:129) 99% Orders Shipped Same Day
(cid:129) 194 Equipment Sales and Service Centers
(cid:129) 64 Distribution Centers
(cid:129) 99% Orders Delivered in 2 Days
(cid:129) 95% Orders Delivered Next Day
(cid:129) 4 Million Square Feet of Space in Distribution Centers
(cid:129) 99.9% Order Accuracy
25 COUNTRIES IN WHICH WE OPERATE:
AUSTRALIA
GERMANY
LUXEMBOURG
SLOVAKIA
AUSTRIA
BELGIUM
CANADA
CHINA
HONG KONG SAR
MAURITIUS
SPAIN
ICELAND
IRELAND
ISRAEL
THE NETHERLANDS
SWITZERLAND
NEW ZEALAND
TURKEY
PORTUGAL
THE UNITED KINGDOM
THE CZECH REPUBLIC
ITALY
SAUDI ARABIA
THE UNITED STATES
FRANCE
HENRY SCHEIN’S MISSION STATEMENT:
To provide innovative, integrated health care products and services; and to be trusted advisors and consultants
to our customers – enabling them to deliver the best quality patient care and enhance their practice management
efficiency and profitability.
HENRY SCHEIN ANNUAL REPORT
3
TO OUR SHAREHOLDERS: A MESSAGE FROM STANLEY BERGMAN
As we look ahead to our 80th anniversary in 2012,
we also reflect on our Company’s achievements in
2011 – another year of solid financial performance,
global expansion and sustained commitment to
our five constituencies: our supplier partners,
customers, investors, Team Schein and society.
It also was a year in which we made several
important strategic decisions to help achieve
the goal of continued growth.
We posted record net sales of $8.5
per share was 13.8% on an as-reported
Australasia’s largest distributor of
billion for 2011, an increase of 13.3%
basis. We also achieved record
veterinary products; solidified our
over 2010. Net income attributable
free cash flow of $509 million for
position as the premier provider
to Henry Schein, Inc. for 2011 was a
the year.
record $367.7 million, or $3.97 per
of practice management software
solutions for companion animal
diluted share, an increase of 10.1%
Strategic acquisitions remain one of
health clinics in the United States;
and 10.9%, respectively, compared
our key strategies for future growth,
strengthened our presence in the
with adjusted net income for 2010,
and in 2011 acquisitions represented
California physician and medical
which excludes restructuring costs
nearly 5% of our sales growth
laboratory market; and enhanced
of $12.3 million or $0.09 per diluted
for the year. Through strategic
our position in the French full-
share. Growth in diluted earnings
acquisitions in 2011, we became
service dental market.
> > > > > > > > > > > > > > > > > > > > > >
1935
1940s
1950s
1932
Henry Schein is founded by
Henry and Esther Schein
as a storefront pharmacy
in Queens, New York
Company fulfills
mail order
prescriptions
using flyers
Company introduces
private-brand dental,
medical, and
veterinary products
Henry Schein shifts
business model from
consumers to office-based
practitioners
4
“Strategic acquisitions remain one of our key strategies
for future growth, and in 2011 acquisitions represented
nearly 5% of our sales growth for the year.”
In 2011, we celebrated important
2011 also was a year of strategic
Through this customer-centric
milestones (such as the 20th
evaluation and planning for the
realignment, we will be able to better
anniversary of our operations in the
U.K.) and promising new beginnings
future. Throughout the year, leaders
from around the Company developed
meet the changing needs of our
customers worldwide with superior
(such as the opening of our new
Henry Schein’s 2012-2014 Strategic
value and experience driven by our
Henry Schein China Distribution
Plan, which included strategies to
understanding of local markets and
Center and the launch of our first
achieve our vision of our Company’s
the sharing of best practices globally.
catalog in China). It also was a
future. As part of this process, we
We will be able to better provide our
year of confidence in our future
have begun an important realignment
customers in countries around the
business prospects, as our Board of
that will provide better focus to serve
world with the technology tools
Directors authorized an additional
our health care practitioner segments,
necessary to operate more efficient
$200 million to repurchase shares of
as well as perspective and operations
and profitable practices. And we will
our common stock. We expect to
that are truly global. We are
be able to build stronger supplier
continue buying back shares during
establishing the Global Dental, Animal
partnerships, ensuring that our global
2012 and beyond as part of an
Health, Medical, and Technology &
product and service offerings remain
ongoing program.
Value-Added Services Business Groups.
unsurpassed in the markets we serve.
> > > > > > > > > > > > > > > > > > > > > > > > >
1962
1970s
1980
1989
Henry Schein
introduces
its first catalog
Company concentrates on
operational excellence
under Marvin Schein’s
leadership
Jay Schein becomes Chairman
and CEO of Henry Schein, Inc.;
Company becomes
first in the industry
to fully automate
the distribution cycle
Stanley Bergman
becomes Chairman and
CEO of Henry Schein
following the untimely
death of Jay Schein
HENRY SCHEIN ANNUAL REPORT
5
TO OUR SHAREHOLDERS: A MESSAGE FROM STANLEY BERGMAN
As part of our 2012-2014 Strategic
(cid:129) Human Capital: We will continually
(cid:129) Insights: We are committed to
Plan, we have identified six priorities
develop Team Schein Members,
knowing our customers better than
for our Company, known internally
our most valuable asset, through
our competitors do. To achieve
as “GO HSIC”:
leadership development, competitive
this we will enhance our formal
(cid:129) Global Growth: We are the global
leader by continuing to expand
through focused business
development and enhancing the
Henry Schein brand. We will continue
to improve our global reach, expand
geographically and develop global
compensation and recruiting. We
processes to gather insights on
also will enhance communication,
our customers and use these
diversity and cultural competency
insights to develop customer
throughout the organization, and
solutions.
support social responsibility
programs in our communities
around the world.
(cid:129) Customer Solutions: We will
develop and provide high value,
differentiated, integrated solutions
leadership for our Company.
(cid:129) Supplier Relationships: We are
to meet our customers’ clinical
(cid:129) Optimization: We will focus and
optimize the use of our capital and
other resources throughout the
organization. To do this, we will
continue to develop lean, streamlined
and best-in-class processes and
practices to improve efficiency
and reduce costs. We will drive
efficiencies by capitalizing on best
practices and developing key
performance metrics to measure
our progress.
determined to be an even better
and business needs, as well as
partner for our suppliers and by
innovative sales and marketing
far their most important customer.
programs for these solutions.
We will become our suppliers’
This will include specialization
distributor of choice, obtaining the
and technology leadership.
lowest cost and best value, and
We also will continue to build
continue to focus on our exclusive
and expand our global
and semi-exclusive products.
information database to
strengthen relationships with
our supplier partners, customers
and their patients.
> > > > > > > > > > > > > > > > > > > > > > > > >
1990
1995
2001
1997
Henry Schein
begins international expansion
(The Netherlands,
United Kingdom, and Spain)
Henry Schein is
listed on NASDAQ Marketplace
(HSIC), raising $72.8 million
in the initial public offering
Company enhances its
full-service distribution
business through strategic
dental, medical, and
technology acquisitions
Henry Schein Cares
global social
responsibility program
is established
66
“As we begin our 80th year, we eagerly
anticipate the new opportunities
that 2012 will bring.”
The key priorities and initiatives of
percentage of our overall sales in each
through Henry Schein Cares, our
our 2012-2014 Strategic Plan reflect
succeeding year.
how far Henry Schein has come and
recognize the size and scope of our
As we begin our 80th year, we eagerly
organization. Since becoming a
anticipate the new opportunities that
publicly traded company in 1995,
2012 will bring. We remain committed
our revenues have grown from $616
to being a trusted advisor to our
million to $8.5 billion in 2011. In
customers, and being our suppliers’
global social responsibility program.
And we remain convinced that our
best years are yet to come.
On behalf of our Board of Directors
and my Team Schein colleagues,
thank you for your continued support.
1990 we were just starting to enter
most important customer. We will
countries beyond the United States.
continue to strive to provide our
Sincerely,
Today our business outside of North
stockholders with an excellent return
America generates approximately
on investment, and ensure that Team
$3 billion in sales to practitioners in
Schein remains our most important
more than 200 countries. In the future,
asset in our values-based culture.
we expect that our international
We will sustain our efforts to expand
sales will continue to grow as a
access to care around the world
Stanley M. Bergman
Chairman and Chief Executive Officer
> > > > > > > > > > > > > > > > > > > > > > > >
2004
2012
2011
Henry Schein
debuts on
FORTUNE 500
Company becomes the largest distributor of animal
health products and services to office-based
practitioners on three continents through strategic
acquisitions in the United States, Australia/New Zealand
and Europe; Henry Schein publishes its first catalog in
China and opens its first distribution center in China
Henry Schein ranks first overall in its industry
in Fortune’s list of the “World’s Most Admired
Companies”; also ranks first for Social
Responsibility, Global Competitiveness,
Quality of Management, Quality of Products
and Services, and Long-Term Investment
“Our best years
are yet to come.”
HENRY SCHEIN ANNUAL REPORT
HENRY SCHEIN ANNUAL REPORT
7
7
HENRY SCHEIN CARES: GLOBAL SOCIAL RESPONSIBILITY PROGRAM
Since the Company’s beginnings 80
Sustainability; Ensuring Accountability;
Our technicians drive the most
years ago, one of the hallmarks of
and Expanding Access to Health Care.
fuel-efficient cargo vans available.
Through our Global Reflections
campaign, we promote products for
sale that are environmentally friendly.
ENSURING ACCOUNTABILITY
We extend ethical business practices to
all levels within Henry Schein through
our commitment to the highest
standards of corporate governance
and compliance. In the first quarter
of 2012, Henry Schein was ranked
by Ethisphere as one of the World’s
Most Ethical Companies.
EXPANDING ACCESS TO
HEALTH CARE
We seek to “help health happen” by
expanding access to care for at-risk
and underserved populations globally
through our focus on three areas:
1) wellness, prevention and treatment;
2) emergency preparedness and relief;
and 3) building capacity in the
training of professionals and the
delivery of health care services.
Henry Schein has been the belief that
we can fulfill our responsibilities as a
corporate citizen by giving back to the
industries and communities we serve.
Ever since then, we have pursued the
ideal of doing well by doing good.
Our strong commitment to global
corporate social responsibility through
Henry Schein Cares is part of our
dedication to meeting the obligations
of the five constituencies that make up
the mosaic of Henry Schein’s success:
our customers, supplier partners,
investors, Team Schein Members
and society.
This year, Henry Schein was once
again ranked first in our industry for
social responsibility on FORTUNE’s
list of the World’s Most Admired
Companies, as well as first in our
industry for Global Competitiveness,
Quality of Management, Quality of
Products/Services and Long-Term
Investment. We are proud of this
designation demonstrating that our
Company’s active commitment to
corporate social responsibility is
good business.
ENGAGING TEAM SCHEIN
MEMBERS
We actively engage and encourage
Team Schein Members to participate
in our social responsibility efforts.
Team Schein Members volunteer
thousands of personal hours for
charity work annually, working
alongside customers and suppliers.
In 2011, Team Schein Members
partnered with the Company to
furnish clothing and school supplies
to nearly 2,500 underserved children
in 16 U.S. and Canadian cities through
Henry Schein’s 14th annual Back to
School program. Team Schein
Members partnered with the
Company to brighten the holiday
season for more than 1,000 children
through Henry Schein’s 13th annual
Holiday Cheer for Children program.
PROMOTING ENVIRONMENTAL
SUSTAINABILITY
We believe in protecting the health
of our planet, and we embrace
environmental stewardship through
recycling and smarter energy use to
Henry Schein’s global corporate social
decrease the kilowatt-hours per carton
responsibility program is built on four
at distribution centers and by using
key pillars: Engaging Team Schein
many other internal initiatives
Members; Promoting Environmental
among our Team Schein Members.
8
“We seek to help health happen by expanding access to care...”
For the sixth consecutive year, Henry Schein offered its
customers a wide selection of “pink products” as part of the
Company’s “Think Pink, Practice Pink” program. A portion of
the sales of these special products—ranging from health care
consumables and practice supplies to apparel and gift items—
were donated to the American Cancer Society’s (ACS) Hope
Lodge Program.
Team Schein Members volunteer time and spend
their own money to purchase back-to-school outfits
for underserved children in local communities through
Henry Schein’s Back to School program. The program
is designed to help lift the spirits of children and
increase their confidence in the classroom.
Team Schein Members volunteer for the Holiday
Cheer for Children program by sponsoring individual
children and contributing their own time and money
to ensure that each child's holiday wishes come
true. Gifts are presented to participating children and
their families at special holiday celebrations held
at multiple Henry Schein locations.
Henry Schein’s support of the American Dental
Association’s Give Kids A Smile® program has enabled
tens of thousands of volunteer dental professionals to
provide free care to more than four million children
throughout the U.S. In 2011, the program treated nearly
400,000 children at 1,875 events.
Through Henry Schein’s Global Donation Program,
in 2011 the Company provided nearly $6 million
of product to medical, dental and veterinary
community health clinics and humanitarian
organizations that provide health care services
to underserved and at-risk populations globally.
Henry Schein’s Healthy Lifestyles, Healthy
Communities initiative promotes access to
health care, prevention and wellness for
underserved communities by providing free
medical and dental screenings. During
2011, more than 5,000 children and adults
received free health care in five cities
throughout the U.S.
Henry Schein supports outreach programs around the globe, including
Missions of Mercy; NYU - Henry Schein Cares Global Dental Student
Outreach Program; Dental Volunteers for Israel; International Health
Partners; Da Vita Bridge for Life; Youth With A Mission (YWAM) Medical
Ships; oral health care missions in Mali, Madagascar, Burkina Faso and
Senegal; the Brush Bus in the U.K.; and oral health care education for
underserved children in Shanghai, China.
HENRY SCHEIN ANNUAL REPORT
9
HENRY SCHEIN: BOARD OF DIRECTORS
Seated from left to right: Barry J. Alperin,(1) (2) (3) Retired Vice Chairman, Hasbro, Inc.; Karyn Mashima,(4) Private Consultant; Former Senior Vice President, Strategy and Technology, Avaya;
Stanley M. Bergman, Chairman and Chief Executive Officer; James P. Breslawski, President and Chief Operating Officer; Donald J. Kabat,(1) (2) Retired Partner, Accenture, Ltd.
Standing from left to right: Steven Paladino, Executive Vice President and Chief Financial Officer; Gerald A. Benjamin, Executive Vice President and Chief Administrative Officer;
Paul Brons,(4) Former Member, Board of Management, Akzo Nobel, N.V.; Louis W. Sullivan, M.D.,(3) (4) Former U.S. Secretary of Health and Human Services; Founding Dean,
Director and President Emeritus of the Morehouse School of Medicine; Mark E. Mlotek, Executive Vice President, Chief Strategic Officer; Philip A. Laskawy,(1) (3) (4) Retired Chairman,
Ernst & Young LLP; Norman S. Matthews,(2) (4) Former President, Federated Department Stores, Inc.; Bradley T. Sheares, Ph.D.,(4) Former CEO, Reliant Pharmaceuticals;
Former President of U.S. Human Health, Merck & Co.
(1) Member Audit Committee (2) Member Compensation Committee (3) Member Nominating and Governance Committee (4) Member Strategic Advisory Committee
HENRY SCHEIN: EXECUTIVE OFFICERS
Stanley M. Bergman
Chairman and
Chief Executive Officer
Gerald A. Benjamin
Executive Vice President and
Chief Administrative Officer
James P. Breslawski
President and
Chief Operating Officer
Leonard A. David
Senior Vice President and
Chief Compliance Officer
James Harding
Senior Vice President and
Chief Technology Officer
Stanley Komaroff
Senior Advisor
Mark E. Mlotek
Executive Vice President,
Chief Strategic Officer
Steven Paladino
Executive Vice President and
Chief Financial Officer
Michael Racioppi
Senior Vice President and
Chief Merchandising Officer
Lonnie Shoff
President and Chief Executive Officer,
Global Animal Health Business and
Strategic Partnership Group
Michael Zack
President,
International Group
10
CORPORATE INFORMATION
Henry Schein, Inc.
135 Duryea Road, Melville, New York 11747
U.S.A.
(631) 843-5500
www.henryschein.com
COMMON STOCK
Henry Schein Common Stock trades on the NASDAQ Stock Market® under the symbol “HSIC.”
ANNUAL SHAREHOLDERS MEETING
Our Annual Meeting of Shareholders will be held on May 15, 2012 at 10:00 a.m. EDT, at the
Melville Marriott Long Island, 1350 Old Walt Whitman Road, Melville, New York 11747.
FOLLOW HENRY SCHEIN ON
Facebook: http://www.facebook.com/henryschein
Twitter: http://twitter.com/henryschein
You Tube: http://www.youtube.com/user/henryscheininc
SHAREHOLDER REPORTS AND INVESTOR INQUIRIES
For shareholder inquiries, including requests for quarterly and annual reports, contact our Investor Relations
department at (631) 843-5611, or e-mail your request to investor@henryschein.com. Printed materials can also be
requested through the Company’s Web site.
FORM 10-K
A copy of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011, is available
without charge to shareholders upon request to the Company’s Investor Relations department. The report also is
available on the Company’s Web site.
INDEPENDENT AUDITORS
BDO USA, LLP
100 Park Avenue, New York, New York 10017
LEGAL COUNSEL
Proskauer Rose, LLP
1585 Broadway, New York, New York 10036
STOCK TRANSFER AGENT
For address changes, account cancellation, registration changes and lost stock certificates,
please contact:
Continental Stock Transfer & Trust Company
17 Battery Place, New York, New York 10004
(212) 509-4000
HENRY SCHEIN ANNUAL REPORT
11
NON-GAAP DISCLOSURES
The following table sets forth, for the applicable period, a reconciliation of operating income attributable to Henry Schein, Inc. adjusted to reflect the effects of restructuring costs.
Year ended
December 25,
2010
(in thousands, except per share data)
December 26,
2009
December 27,
2008
$ 521,131
$ 464,085
$ 419,286
6.9%
7.1%
6.6%
12,285
3,020
23,240
$ 533,416
$ 468,705
$ 442,526
7.1%
7.2%
6.9%
$ 325,789
$ 308,551
$ 247,347
8,260
2,058
15,991
Operating income, as reported
Operating margin, as reported
Adjustments:
Restructuring costs (1)
Adjusted operating income
Adjusted operating margin
Income attributable to Henry Schein, Inc.:
As reported
Adjustments, net of tax:
Restructuring costs (1)
Adjusted income attributable to Henry Schein, Inc.:
$ 334,049
$ 289,478
$ 266,383
Diluted earnings per share attributable to Henry Schein, Inc.:
As reported
Adjusted
$
$
3.49
3.58
$
$
3.41
3.20
$
$
2.71
2.92
Diluted weighted-average common shares outstanding:
93,268
90,556
91,221
USE OF NON-GAAP MEASURES:
The above information includes financial measures that are not calculated and presented in accordance with accounting principles generally accepted in the
United States (“GAAP”). The above table reconciles operating income, income attributable to Henry Schein, Inc. and diluted earnings per share attributable to Henry Schein, Inc.,
our most directly comparable measure calculated and presented in accordance with GAAP, to comparable amounts as adjusted to eliminate the effect of restructuring costs.
We eliminated the effect of restructuring costs to assist in evaluating the underlying operational performance of our business, excluding such costs, over the period
presented. We believe that this presentation is appropriate and facilitates such an evaluation by us, investors and analysts. These measures should be considered supplemental
to, and not a substitute for or superior to, financial measures calculated in accordance with GAAP.
NOTES:
(1) During 2010, we recorded restructuring costs of $12.3 million pre-tax ($8.3 million post-tax). The effect that these charges had on earnings per diluted share
attributable to Henry Schein, Inc. was ($0.09).
12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
11-3136595
(I.R.S. Employer Identification No.)
135 Duryea Road
Melville, New York
(Address of principal executive offices)
11747
(Zip Code)
(631) 843-5500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES: X NO: __
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES: __ NO: X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: __
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
YES: X NO: __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer: X Accelerated filer: __ Non-accelerated filer: __ Smaller reporting company: __
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES: __ NO: X
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing
sales price as quoted on the NASDAQ Global Select Market on June 25, 2011 was approximately $6,422,578,000.
As of February 6, 2012, there were 89,775,409 shares of registrant’s Common Stock, par value $.01 per share, outstanding.
Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the
fiscal year (December 31, 2011) are incorporated by reference in Part III hereof.
Documents Incorporated by Reference:
TABLE OF CONTENTS
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
Business ............................................................................................................................................
Risk Factors .......................................................................................................................................
Unresolved Staff Comments ..............................................................................................................
Properties ...........................................................................................................................................
Legal Proceedings ..............................................................................................................................
Mine Safety Disclosures ....................................................................................................................
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ....................................................................................
Selected Financial Data .....................................................................................................................
Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................................................................................
Quantitative and Qualitative Disclosures About Market Risk ...........................................................
Financial Statements and Supplementary Data ..................................................................................
Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure ...............................................................................................................
Controls and Procedures ....................................................................................................................
Other Information ..............................................................................................................................
Directors, Executive Officers and Corporate Governance ................................................................
Executive Compensation ...................................................................................................................
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ..................................................................................................
Certain Relationships and Related Transactions, and Director Independence ...................................
Principal Accountant Fees and Services ............................................................................................
Exhibits, Financial Statement Schedules ...........................................................................................
Signatures ..........................................................................................................................................
Exhibit Index .....................................................................................................................................
Page
Number
3
16
25
26
26
26
27
30
32
53
54
103
103
105
105
105
106
106
106
107
108
111
2
ITEM 1. Business
General
PART I
We believe we are the largest distributor of healthcare products and services primarily to office-based
healthcare practitioners. We serve nearly 775,000 customers worldwide, including dental practitioners and
laboratories, physician practices and animal health clinics, as well as government and other institutions. We believe
that we have a strong brand identity due to our more than 79 years of experience distributing healthcare products.
We are headquartered in Melville, New York, employ nearly 15,000 people (of which over 6,500 are based
outside the United States) and have operations in the United States, Australia, Austria, Belgium, Canada, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland and the United Kingdom. We also have affiliates in Iceland, Saudi
Arabia and Turkey.
We have established strategically located distribution centers to enable us to better serve our customers and
increase our operating efficiency. This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our
customers’ needs. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and
complete order fulfillment.
We conduct our business through two reportable segments: healthcare distribution and technology. These
segments offer different products and services to the same customer base. The healthcare distribution reportable
segment aggregates our dental, medical, animal health and international operating segments. This segment consists
of consumable products, small equipment, laboratory products, large dental equipment, equipment repair services,
branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and
vitamins. Our technology group provides software, technology and other value-added services to healthcare
practitioners, primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our value-
added practice solutions include practice management software systems for dental and medical practitioners and
animal health clinics. Our technology group offerings also include financial services on a non-recourse basis, e-
services and continuing education services for practitioners.
Industry
The healthcare products distribution industry, as it relates to office-based healthcare practitioners, is highly
fragmented and diverse. This industry, which encompasses the dental, medical and animal health markets, was
estimated to produce revenues of approximately $28 billion in 2011 in the combined North American, European
and Australian/New Zealand markets. The industry ranges from sole practitioners working out of relatively small
offices to group practices or service organizations ranging in size from a few practitioners to a large number of
practitioners who have combined or otherwise associated their practices.
Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of
supplies in their offices, the distribution of healthcare supplies and small equipment to office-based healthcare
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based healthcare practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
3
The healthcare products distribution industry continues to experience growth due to the aging population,
increased healthcare awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the affects of increased unemployment on
insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly physicians’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial and marketing resources, seeking to combine with larger companies that can provide
growth opportunities. This consolidation also may continue to result in distributors seeking to acquire companies
that can enhance their current product and service offerings or provide opportunities to serve a broader customer
base.
In recent years, the healthcare industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Competition
The distribution and manufacture of healthcare supplies and equipment is highly competitive. Many of the
healthcare distribution products we sell are available to our customers from a number of suppliers. In addition, our
competitors could obtain exclusive rights from manufacturers to market particular products. Manufacturers also
could seek to sell directly to end-users, and thereby eliminate or reduce our role and that of other distributors.
In North America, we compete with other distributors, as well as several manufacturers, of dental, medical and
animal health products, primarily on the basis of price, breadth of product line, customer service and value-added
products and services. In the sale of our dental products, our primary competitors are the Patterson Dental division
of Patterson Companies, Inc. and Benco Dental Supply Company. In addition, we compete against a number of
other distributors that operate on a national, regional and local level. Our primary competitors in the sale of
medical products are McKesson Corp., PSS World Medical, Inc. and Cardinal Health, Inc., which are national
distributors. In the animal health market, our primary competitors are MWI Veterinary Supply Inc. and the
Webster Veterinary division of Patterson Companies, Inc. We also compete against a number of regional and local
medical and animal health distributors, as well as a number of manufacturers that sell directly to physicians and
veterinarians. With regard to our dental practice management software, we compete against numerous companies,
including Carestream Health, Inc. and the Patterson Dental division of Patterson Companies, Inc. The medical
practice management and electronic medical records market is very fragmented and therefore we compete with
numerous companies such as NextGen Healthcare Information Systems, Inc., eClinicalWorks, Allscripts, LLC and
athenahealth, Inc. In the animal health practice management market, our primary competitors are IDEXX
Laboratories, Inc. and the Webster Veterinary division of Patterson Companies, Inc.
We also face significant competition internationally, where we compete on the basis of price and customer
service against several large competitors, including the GACD Group, Pluradent AG & Co., Planmeca Oy, Arseus
NV, Billericay Dental Supply Co. Ltd., National Veterinary Services and Alcyon SA, as well as a large number of
dental, medical and animal health product distributors and manufacturers in Australia, Austria, Belgium, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland, Turkey and the United Kingdom.
4
Significant price reductions by our competitors could result in a similar reduction in our prices. Any of these
competitive pressures may materially adversely affect our operating results.
Competitive Strengths
We have more than 79 years of experience in distributing products to healthcare practitioners resulting in strong
awareness of the “Henry Schein” brand. Our competitive strengths include:
Direct sales and marketing expertise. Our sales and marketing efforts are designed to establish and solidify
customer relationships through personal visits by field sales representatives, frequent direct marketing and
telesales contact, emphasizing our broad product lines, including exclusive distribution agreements,
competitive prices and ease of order placement. The key elements of our direct sales and marketing efforts
are:
• Field sales consultants. We have approximately 3,200 field sales consultants, including equipment
sales specialists, covering major North American, European and other international markets. These
consultants complement our direct marketing and telesales efforts and enable us to better market,
service and support the sale of more sophisticated products and equipment.
• Direct marketing. During 2011, we distributed approximately 28.1 million pieces of direct marketing
material, including catalogs, flyers, order stuffers and other promotional materials to existing and
potential office-based healthcare customers.
• Telesales. We support our direct marketing effort with approximately 1,625 inbound and outbound
telesales representatives, who facilitate order processing and generate new sales through direct and
frequent contact with customers.
Broad product and service offerings at competitive prices. We offer a broad range of products and services
to our customers, at competitive prices, in the following categories:
• Consumable supplies and equipment. We offer over 90,000 Stock Keeping Units, or SKUs, to our
customers. Of the SKUs offered, approximately 51,000 are offered to our dental customers,
approximately 38,000 to our medical customers and approximately 19,000 to our animal health
customers. We offer over 100,000 additional SKUs to our customers in the form of special order items.
• Technology and other value-added products and services. We sell practice management software
systems to our dental, medical and animal health customers. Our practice management solutions
provide practitioners with electronic medical records, patient treatment history, billing, accounts
receivable analyses and management, appointment calendars, electronic claims processing and word
processing programs. As of December 31, 2011, we have an active user base of more than 70,000
practices, including Dentrix®, Easy Dental®, Oasis® and EXACT® for dental practices, MicroMD®
for physician practices and Advantage+, AVImark®, DVM Manager®, Infinity, Sunpoint, Triple Crown
® and Vetech Advantage for animal health practices.
• Repair services. We have 194 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our healthcare customers. Our ProRepair technicians
provide installation and repair services for: dental handpieces; dental, medical and animal health small
equipment; table top sterilizers; and large dental equipment.
• Financial services. We offer our customers solutions in operating their practices more efficiently by
providing access to a number of financial services and products (including non-recourse financing for
equipment, technology and software products; non-recourse patient financing; collection services and
credit card processing) at rates that we believe are generally lower than what they would be able to
secure independently. We also provide dental practice valuation and brokerage services.
5
Commitment to superior customer service. We maintain a strong commitment to providing superior
customer service. We frequently monitor our customer service through customer surveys, focus groups and
statistical reports. Our customer service policy primarily focuses on:
• Exceptional order fulfillment. Approximately 99% of items ordered are shipped without back ordering
and are shipped on the same business day the order is received.
• Streamlined ordering process. Customers may place orders 24 hours a day, 7 days a week by mail, fax,
telephone, e-mail, Internet and by using our computerized order entry systems.
Integrated management information systems. Our information systems generally allow for centralized
management of key functions, including accounts receivable, inventory, accounts payable, payroll,
purchasing, sales and order fulfillment. These systems allow us to manage our growth, deliver superior
customer service, properly target customers, manage financial performance and monitor daily operational
statistics.
Cost-effective purchasing. We believe that cost-effective purchasing is a key element to maintaining and
enhancing our position as a competitive-pricing provider of healthcare products. We continuously evaluate
our purchase requirements and suppliers’ offerings and prices in order to obtain products at the lowest
possible cost. In 2011, our top 10 healthcare distribution suppliers and our single largest supplier accounted
for approximately 33% and 8%, respectively, of our aggregate purchases.
Efficient distribution. We distribute our products from our strategically located distribution centers. We
strive to maintain optimal inventory levels in order to satisfy customer demand for prompt delivery and
complete order fulfillment. These inventory levels are managed on a daily basis with the aid of our
management information systems. Once an order is entered, it is electronically transmitted to the
distribution center nearest the customer’s location and a packing slip for the entire order is printed for order
fulfillment.
6
Products
The following table sets forth the percentage of consolidated net sales by principal categories of products
offered through our healthcare distribution and technology reportable segments:
2011
2010
2009
Healthcare Distribution
Dental:
Consumable dental products, dental laboratory products
and small equipment (1) .....................................................
Large dental equipment (2) .........................................................
40.5 %
14.7
42.2 %
15.5
Total dental ........................................................................
Medical products (3) .......................................................................
Animal health products (4) .............................................................
Total Healthcare Distribution .....................................................
55.2
18.4
23.5
97.1
57.7
19.2
20.4
97.3
45.9 %
17.1
63.0
23.4
11.0
97.4
Technology
Software and related products and
other value-added products (5) ...........................................
2.9
2.7
2.6
Total .......................................................................................................
100.0 %
100.0 %
100.0 %
(1)
Includes X-ray products, infection-control products, handpieces, preventatives, impression materials, composites, anesthetics,
teeth, dental implants, gypsum, acrylics, articulators and abrasives.
(2)
Includes dental chairs, delivery units and lights, X-ray equipment, equipment repair and high-tech equipment.
(3)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray products,
equipment and vitamins.
(4)
Includes branded and generic pharmaceuticals, surgical and consumable products and services and equipment.
(5)
Includes software and related products and other value-added products, including financial products and continuing education.
7
Business Strategy
Our objective is to continue to expand as a value-added distributor of healthcare products and services to
office-based healthcare practitioners. To accomplish this, we will apply our competitive strengths in executing the
following strategies:
• Increase penetration of our existing customer base. We have nearly 775,000 customers worldwide and we
intend to increase sales to our existing customer base and enhance our position as their primary supplier.
• Increase the number of customers we serve. This strategy includes increasing the number and productivity of
field sales consultants, as well as using our customer database to focus our marketing efforts.
• Leverage our value-added products and services. We continue to increase cross-selling efforts for key
product lines. In the dental business, we have significant cross-selling opportunities between our dental
practice management software users and our dental distribution customers. In the medical business, we have
opportunities to expand our vaccine, injectables and other pharmaceuticals sales to medical distribution
customers, as well as cross-selling core products and practice management software with these key products.
In the animal health business, we have opportunities to cross-sell practice management software and other
products.
• Pursue strategic acquisitions and joint ventures. Our acquisition strategy includes acquiring businesses and
entering into joint ventures complementary to ours that will provide, among other things, additional sales to
be channeled through our existing distribution infrastructure, access to additional product lines and field sales
consultants and an opportunity to further expand into new geographic markets.
Markets Served
Demographic trends indicate that our markets are growing, as an aging U.S. population is increasingly using
healthcare services. Between 2011 and 2021, the 45 and older population is expected to grow by approximately
14%. Between 2011 and 2031, this age group is expected to grow by approximately 27%. This compares with
expected total U.S. population growth rates of approximately 9% between 2011 and 2021 and approximately 18%
between 2011 and 2031.
In the dental industry, there is predicted to be a rise in oral healthcare expenditures as the 45 and older segment
of the population increases. Cosmetic dentistry is another growing aspect of dental practices as new technologies
allow dentists to offer cosmetic solutions that patients seek. At the same time, there is an expected increase in
dental insurance coverage.
We support our dental professionals through the many SKUs that we offer, as well as through important value-
added services, including practice management software, electronic claims processing, financial services and
continuing education, all designed to help maximize a practitioner’s efficiency.
There continues to be a migration of procedures from acute-care settings to physicians’ offices, a trend that we
believe provides additional opportunities for us. There also is the continuing use of vaccines, injectables and other
pharmaceuticals in alternate-care settings. We believe we have established a leading position as a vaccine supplier
to the office-based physician practitioner.
We believe our international group is a leading European healthcare supplier servicing office-based dental,
medical and animal health practices. We are in the process of implementing SAP software across continental
Europe. Additionally, we are expanding our dental full-service model and our animal health presence in Europe, as
well as our medical offerings in countries where opportunities exist. Through our “Schein Direct” program, we
also have the capability to provide door-to-door air package delivery to practitioners in over 200 countries around
the world.
For information on revenues and long-lived assets by geographic area, see Note 15 of “Notes to Consolidated
Financial Statements,” which is incorporated herein by reference.
8
Seasonality and Other Factors Affecting Our Business and Quarterly Results
We experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations
of securities analysts and investors, which could cause our stock price to decline.
Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally
have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza
vaccine, equipment and software products), purchasing patterns of office-based healthcare practitioners and year-
end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to
increased sales in the prior two quarters. We expect our historical seasonality of sales to continue in the foreseeable
future. Quarterly results also may be adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our vendors;
• timing of the introduction of new products and services by our vendors;
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of vendor contracts or rebate programs;
• vendor rebates based upon attaining certain growth goals;
• changes in the way vendors introduce or deliver products to market;
• costs of developing new applications and services;
• exclusivity requirements with certain vendors may prohibit us from distributing competitive products
manufactured by other vendors;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
• costs associated with our self-insured medical insurance program;
• general economic conditions, as well as those specific to the healthcare industry and related industries;
• our success in establishing or maintaining business relationships;
• unexpected difficulties in developing and manufacturing products;
• product demand and availability or recalls by manufacturers;
• exposure to product liability and other claims in the event that the use of the products we sell results in
injury;
• increases in the cost of shipping or service issues with our third-party shippers;
• restructuring costs; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly operating results to
fluctuate. If our operating results do not meet market expectations, our stock price may decline.
9
Governmental Regulations
Operating, Security and Licensure Standards
Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we
are subject to various local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Among the federal laws applicable to us are the Controlled
Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, the Prescription Drug Marketing Act of
1987, and Section 361 of the Public Health Service Act. We are also subject to comparable foreign regulations.
The Federal Food, Drug, and Cosmetic Act generally regulates the introduction, manufacture, advertising,
labeling, packaging, storage, handling, reporting, marketing and distribution of, and record keeping for,
pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such
activities within the state. Section 361 of the Public Health Service Act, which provides authority to prevent the
spread of communicable diseases, serves as the legal basis for the United States Food and Drug Administration’s
regulation of human cells, tissues, and cellular and tissue-based products, also known as HCT/P products.
The Prescription Drug Marketing Act of 1987 (“PDMA”), which amended the Federal Food, Drug, and
Cosmetic Act, and its implementing regulations, establishes certain requirements applicable to the wholesale
distribution of prescription drugs, including the requirement that wholesale drug distributors be licensed by each
state in which they conduct business, provide certain drug pedigree information on the distribution of prescription
drugs and act in accordance with federally established guidelines on storage, handling and record maintenance.
Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and
renew annually registrations from the United States Drug Enforcement Administration permitting us to handle
controlled substances. We are also subject to other statutory and regulatory requirements relating to the sale,
marketing, handling and distribution of such drugs, in accordance with specified rules and regulations, and these
requirements have been subject to heightened enforcement activity in recent times. We are subject to inspection by
the United States Drug Enforcement Administration.
Certain of our businesses are required to register for permits and/or licenses with, and comply with operating
and security standards of, the United States Drug Enforcement Administration, the United States Food and Drug
Administration, the United States Department of Health and Human Services, and various state boards of
pharmacy, state health departments and/or comparable state agencies as well as foreign agencies, and certain
accrediting bodies depending on the type of operations and location of product distribution, manufacturing or sale.
These businesses include those that distribute, manufacture and/or repackage prescription pharmaceuticals and/or
medical devices and/or HCT/P products, or own pharmacy operations, or install, maintain or repair equipment. In
addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws, impose civil
and/or criminal penalties for the transfer of certain human tissue (for example human bone products) for valuable
consideration, while generally permitting payments for the reasonable costs incurred in procuring, processing,
storing and distributing that tissue. The United States Drug Enforcement Administration, the United States Food
and Drug Administration and state regulatory authorities have broad enforcement powers, including the ability to
suspend or limit the distribution of products by our distribution centers, seize or order the recall of products and
impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. Our
customers are also subject to significant federal, state, local and foreign governmental regulation.
Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In recent years, some states have passed or proposed laws and
regulations that are intended to protect the integrity of the medical supply channel. For example, Florida and
certain other states have implemented or are implementing drug pedigree requirements that require that prescription
drugs be distributed with records or information documenting the prior distribution of the drug, from distributors
and potentially back to the manufacturers. California has enacted a law requiring the implementation of an
electronic drug pedigree system that provides track and trace chain of custody technologies, such as radio frequency
identification, or RFID, technologies, although the effective date has been postponed until January 1, 2015 for
pharmaceutical manufacturers, and July 1, 2016 for pharmaceutical wholesalers and repackagers. There have been
increasing efforts by various levels of government to regulate the pharmaceutical distribution system in order to
prevent the introduction of counterfeit, adulterated or misbranded pharmaceuticals into the distribution system.
10
At the federal level, the United States Food and Drug Administration issued final regulations pursuant to
PDMA that became effective in December 2006. The regulations impose drug pedigree and other chain of custody
requirements that increase the costs and/or burden to us of selling our products and handling product returns. In
early December 2006, the federal District Court for the Eastern District of New York issued a preliminary
injunction enjoining the implementation of certain of the federal drug pedigree requirements, including the
requirement to identify transactions back to the manufacturer. Nonetheless, prescription drug pedigrees are
required under federal regulations and the PDMA, and the pedigree must track back to the last manufacturer or
authorized distributor of record, or ADR, that handled the drug.
The United States Food and Drug Administration Amendments Act of 2007, which went into effect on
September 27, 2007, requires the United States Food and Drug Administration to establish standards and identify
and validate effective technologies for the purpose of securing the pharmaceutical supply chain against counterfeit
drugs. These standards include any track and trace or authentication technologies, such as RFID and other
technologies. The United States Food and Drug Administration has continued to develop its policies in this area,
such as issuing a Final Guidance in 2010 regarding standardized numerical identification for prescription drug
packages, and announcing its work on developing draft regulations for unique medical device identifiers.
Certain of our businesses also maintain contracts with governmental agencies and are subject to certain
regulatory requirements specific to government contractors.
Healthcare Fraud
Certain of our businesses are subject to federal and state (and similar foreign) healthcare fraud and abuse,
referral and reimbursement laws, and regulations with respect to their operations. Such laws prohibit, among other
things, the submission or causing the submission of false or fraudulent claims for reimbursement, and soliciting,
offering, receiving or paying remuneration in order to induce the referral of a patient or ordering, purchasing,
leasing or arranging for or recommending ordering, purchasing or leasing, of items or services that are paid for by
government health care programs (known as “anti-kickback” laws). Violations of these laws could result in civil
and criminal penalties. The fraud and abuse laws and regulations have been subject to heightened enforcement
activity over the past few years, particularly through “relators,” who serve as whistleblowers by filing complaints in
the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes,
and can be entitled to receive up to 30% of total recoveries. Also, violations of the False Claims Act can result in
treble damages, and each false claim submitted can be subject to a penalty of up to $11,000 per claim. These laws
and regulations are subject to frequent modification and varied interpretation, and can have a material adverse
impact on us if a violation is found. The Patient Protection and Affordable Care Act as amended by the Health
Care and Education Reconciliation Act, each enacted in March 2010, generally known as the Health Care Reform
Law, significantly strengthened the federal False Claims Act, and the anti-kickback provisions, which could lead to
the possibility of increased whistleblower or relator suits, and among other things made clear that an anti-kickback
law violation can be a basis for False Claims Act liability.
Healthcare Reform
The Health Care Reform Law also included other provisions to reduce fraud and abuse and Medicare
expenditures and the cost of healthcare generally, to increase federal oversight of private health insurance plans and
to provide access to health coverage for an additional 32 million people, some of which impact and further regulate
some of our businesses. In addition to the foregoing, the Health Care Reform Law imposed new reporting and
disclosure requirements for pharmaceutical and device manufacturers with regard to payments or other transfers of
value made to certain practitioners, including physicians, dentists and teaching hospitals, and imposes new
reporting and disclosure requirements for pharmaceutical and device manufacturers and group purchasing
organizations with regard to certain ownership interests held by physicians in the reporting entity. Data collection
obligations were to commence in January 2012, and reporting requirements are to be implemented in 2013. On
December 14, 2011, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed regulations to
implement these provisions and sought substantial comments, thus apparently delaying the January 1, 2012 start of
information collection. These proposed regulations are broadly drafted and still subject to change, and it is possible
that when these regulations are finalized, they will treat us or one or more of our subsidiaries as an entity subject to
these reporting and disclosure requirements. In addition, through business arrangements we have with drug and
device manufacturers, we may be required to collect and report detailed information in order for these
manufacturers to comply with the new requirements.
11
A provision in the Health Care Reform Law often referred to as the “individual mandate,” which requires
individuals without health insurance to pay a penalty, was recently declared unconstitutional by certain federal
courts, while certain other federal courts have affirmed its constitutionality Appeals are pending, and the United
States Supreme Court will review this issue during its 2012 term.
Regulated Software; Electronic Health Records
The United States Food and Drug Administration has become increasingly active in addressing the regulation
of computer software intended for use in healthcare settings, and has been developing policies on regulating clinical
decision support tools as medical devices. Certain of our businesses involve the development and sale of software
and related products to support physician and dental practice management, and it is possible that the FDA could
determine that one or more of our products is a medical device, which could subject us or one or more of our
businesses to substantial additional requirements with respect to these products.
Certain of our businesses involve access to personal health, medical, financial and other information of
individuals, and are accordingly directly or indirectly subject to numerous federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, and require, among other things, the
implementation of various recordkeeping, operational, notice and other practices intended to safeguard that
information, limit its use to allowed purposes, and notify individuals in the event of privacy and security breaches.
Failure to comply with these laws can result in substantial penalties and other liabilities. As a result of the federal
Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), which was passed in
2009, some of our businesses that were previously only indirectly subject to federal Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) privacy and security rules became directly subject to such rules
because such businesses serve as “business associates” of HIPAA covered entities, such as health care providers.
Additional rules under the HITECH Act are expected to be issued in early 2012, further expanding the privacy and
security requirements applicable to some of our businesses.
In addition, the HITECH Act established a program of Medicare and Medicaid incentive payments available to
certain health care providers including, among others, physicians and dentists, if they meaningfully use certified
electronic health record technology (“EHR”). Also, eligible providers that fail to adopt certified EHR systems may
be subject to Medicare reimbursement reductions beginning in 2015. Qualification for the incentive payments
requires the use of EHRs that are certified as having certain capabilities for meaningful use pursuant to standards
adopted by the Department of Health and Human Services. While initial standards have been established, new
versions are expected to be issued over the next several years, and the content of those standards is not certain.
Certain of our businesses involve the manufacture and sale of certified EHR systems, and so must maintain
compliance with these evolving governmental criteria.
Also, HIPAA requires certain health care providers, such as physicians, to use certain transaction and code set
rules for specified electronic transactions, such as transactions involving claims submissions. As of January 1,
2012, subject to 90 days of CMS enforcement discretion, electronic claim submissions and related electronic
transactions were required to be conducted under a new HIPAA transaction standard, called Version 5010. CMS is
requiring this upgrade in connection with another new requirement applicable to the industry, the implementation
of new diagnostic code sets to be used in claims submission. The new diagnostic code sets are called the ICD-10-
CM, and are to be implemented on October 1, 2013. Certain of our businesses provide electronic practice
management products that must meet those requirements, and while we believe we are prepared to timely adopt the
new standards, it is possible that the transition to these new standards, particularly the transition to ICD-10-CM,
may result in a degree of disruption and confusion, thus potentially increasing the costs associated with supporting
this product.
International Transactions
In addition, United States and international import and export laws and regulations require us to abide by
certain standards relating to the importation and exportation of products. We also are subject to certain laws and
regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act and
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anti-bribery laws and laws pertaining to the accuracy of our internal books and records, as well as other types of
requirements similar to those imposed in the United States.
While we believe that we are substantially compliant with the foregoing laws and regulations promulgated
thereunder and possess all material permits and licenses required for the conduct of our business, there can be no
assurance that regulations that impact our business or customers’ practices will not have a material adverse impact
on our business. As a result of political, economic and regulatory influences, the healthcare distribution industry in
the United States is under intense scrutiny and subject to fundamental changes. We cannot predict what further
reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.
See “ITEM 1A. Risk Factors” for a discussion of additional regulatory developments that may affect our results
of operations and financial condition.
Proprietary Rights
We hold trademarks relating to the “Henry Schein” name and logo, as well as certain other trademarks.
Pursuant to agreements executed in connection with our reorganization in 1994, both Henry Schein, Inc. and Schein
Pharmaceutical, Inc. (which was acquired by Watson Pharmaceuticals, Inc. in 2000), a company previously
engaged in the manufacture and distribution of multi-source pharmaceutical products, are entitled to use the
“Schein” name in connection with their respective businesses, but Schein Pharmaceutical, Inc. must always use
“Schein” in combination with the word “Pharmaceutical” and is not entitled to use the name “Henry Schein” or to
use “Schein” alone or with any other word (other than “Pharmaceutical”). We intend to protect our trademarks to
the fullest extent practicable.
Employees
As of December 31, 2011, we employed nearly 15,000 full-time employees, including approximately 1,625
telesales representatives, 3,200 field sales consultants, including equipment sales specialists, 2,725 warehouse
employees, 625 computer programmers and technicians, 1,375 management employees and 5,200 office, clerical
and administrative employees. Approximately 309 or 2.1% of our employees were subject to collective bargaining
agreements. We believe that our relations with our employees are excellent.
Available Information
We make available free of charge through our Internet Web site, www.henryschein.com, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the United States Securities and Exchange Commission, or
SEC.
The above information is also available at the SEC’s Office of Investor Education and Advocacy at United
States Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-0213 or obtainable by
calling the SEC at (800) 732-0330. In addition, the SEC maintains an Internet Web site at www.sec.gov, where the
above information can be viewed.
Our principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone
number is (631) 843-5500. Unless the context specifically requires otherwise, the terms the “Company,” “Henry
Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware corporation, and its consolidated subsidiaries.
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Executive Officers of the Registrant
The following table sets forth certain information regarding our executive officers:
Name
Age
Position
Stanley M. Bergman .................
Gerald A. Benjamin ..................
James P. Breslawski ..................
Leonard A. David ......................
James Harding ...........................
Stanley Komaroff ......................
Mark E. Mlotek .........................
Steven Paladino .........................
Michael Racioppi ......................
Lonnie Shoff .............................
Michael Zack ............................
62
59
58
63
56
76
56
54
57
53
59
Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
President, Chief Operating Officer, Director
Senior Vice President, Chief Compliance Officer
Senior Vice President, Chief Technology Officer
Senior Advisor
Executive Vice President, Global Corporate Strategy, Director
Executive Vice President, Chief Financial Officer, Director
Senior Vice President, Chief Merchandising Officer
President, Global Healthcare Specialties Group
President, International Group
Stanley M. Bergman has been our Chairman and Chief Executive Officer since 1989 and a director since
1982. Mr. Bergman held the position of President from 1989 to 2005. Mr. Bergman held the position of Executive
Vice President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.
Gerald A. Benjamin has been our Executive Vice President and Chief Administrative Officer since 2000 and a
director since 1994. Prior to holding his current position, Mr. Benjamin was Senior Vice President of
Administration and Customer Satisfaction since 1993. Mr. Benjamin was Vice President of Distribution
Operations from 1990 to 1992 and Director of Materials Management from 1988 to 1990. Before joining us in
1988, Mr. Benjamin was employed for 13 years in various management positions at Estée Lauder, Inc., where his
last position was Director of Materials Planning and Control.
James P. Breslawski has been our President and Chief Operating Officer since 2005 and a director since 1992.
Mr. Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with
primary responsibility for the North American Dental Group. Between 1980 and 1990, Mr. Breslawski held
various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and
Controller.
Leonard A. David has been our Senior Vice President and Chief Compliance Officer since 2006. Mr. David
held the position of Vice President and Chief Compliance Officer from 2005 to 2006. Mr. David held the position
of Vice President of Human Resources and Special Counsel from 1995 to 2005. Mr. David held the position of
Vice President, General Counsel and Secretary from 1990 through 1994 and practiced corporate and business law
for eight years prior to joining us.
James Harding has been our Chief Technology Officer since 2005 and Senior Vice President since 2001.
Prior to holding his current position, Mr. Harding was Chief Information Officer since 2001, with primary
responsibility for worldwide information technology.
Stanley Komaroff has been our Senior Advisor since 2003. Prior to joining us, Mr. Komaroff was a partner
for 35 years in the law firm of Proskauer Rose LLP, counsel to us. He served as Chairman of that firm from 1991
to 1999.
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Mark E. Mlotek has been Executive Vice President of Global Corporate Strategy since 2004. Mr. Mlotek was
Senior Vice President of Corporate Business Development from 2000 to 2004. Prior to that, Mr. Mlotek was Vice
President, General Counsel and Secretary from 1994 to 1999 and became a director in 1995. Prior to joining us,
Mr. Mlotek was a partner in the law firm of Proskauer Rose LLP, counsel to us, specializing in mergers and
acquisitions, corporate reorganizations and tax law from 1989 to 1994.
Steven Paladino has been our Executive Vice President and Chief Financial Officer since 2000. Prior to
holding his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to
2000 and has been a director since 1992. From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer
and from 1987 to 1990 served as Corporate Controller. Before joining us, Mr. Paladino was employed in public
accounting for seven years, most recently with the international accounting firm of BDO USA, LLP. Mr. Paladino
is a certified public accountant.
Michael Racioppi has been our Senior Vice President, Chief Merchandising Officer since 2008. Prior to
holding his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008 and Interim
President from 1999 to 2000, and Corporate Vice President from 1994 to 2008. Mr. Racioppi served as Senior
Director, Corporate Merchandising from 1992 to 1994. Before joining us in 1992, Mr. Racioppi was employed by
Ketchum Distributors, Inc. as the Vice President of Purchasing and Marketing.
Lonnie Shoff has been President of the Global Healthcare Specialties Group since 2009. Prior to joining us,
Ms. Shoff was employed with Roche Diagnostics, where she held a series of positions of increasing responsibility
in the United States and Switzerland over the past 20 years, most recently as Senior Vice President General
Manager, Applied Science.
Michael Zack has been President of our International Group since 2006. Mr. Zack held the position of Senior
Vice President of our International Group from 1989 to 2006. Mr. Zack was employed by Polymer Technology (a
subsidiary of Bausch & Lomb) as Vice President of International Operations from 1984 to 1989 and by
Gruenenthal GmbH as Manager of International Subsidiaries from 1975 to 1984.
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ITEM 1A. Risk Factors
The risks described below could have a material adverse impact on our business, reputation, financial condition
or the trading price of our common stock. Although it is not possible to predict or identify all such risks and
uncertainties, they may include, but are not limited to, the factors discussed below. Our business operations could
also be affected by additional factors that are not presently known to us or that we currently consider not to be
material to our operations. You should not consider this list to be a complete statement of all risks and
uncertainties. The order in which these factors appear should not be construed to indicate their relative importance
or priority.
The healthcare products distribution industry is highly competitive and we may not be able to compete
successfully.
We compete with numerous companies, including several major manufacturers and distributors. Some of our
competitors have greater financial and other resources than we do, which could allow them to compete more
successfully. Most of our products are available from several sources and our customers tend to have relationships
with several distributors. Competitors could obtain exclusive rights to market particular products, which we would
then be unable to market. Manufacturers also could increase their efforts to sell directly to end-users and thereby
eliminate or reduce our role and that of other distributors. Industry consolidation among healthcare products
distributors, price competition, the unavailability of products, whether due to our inability to gain access to products
or to interruptions in supply from manufacturers, or the emergence of new competitors also could increase
competition. In the future, we may be unable to compete successfully and competitive pressures may reduce our
revenues.
Because substantially all of the products that we distribute are not manufactured by us, we are dependent upon
third parties for the manufacture and supply of substantially all of our products.
We obtain substantially all of our products from third-party suppliers. Generally, we do not have long-term
contracts with our suppliers committing them to supply products to us. Therefore, suppliers may not provide the
products we need in the quantities we request. Because we generally do not control the actual production of the
products we sell, we may be subject to delays caused by interruption in production based on conditions outside of
our control. In the event that any of our third-party suppliers were to become unable or unwilling to continue to
provide the products in required volumes, we would need to identify and obtain acceptable replacement sources on
a timely basis. There is no guarantee that we would be able to obtain such alternative sources of supply on a timely
basis, if at all. An extended interruption in the supply of our products, including the supply of our influenza
vaccine and any other high sales volume product, would have an adverse effect on our results of operations, which
most likely would adversely affect the value of our common stock.
Our revenues depend on our relationships with capable sales personnel as well as customers, suppliers and
manufacturers of the products that we distribute.
Our future operating results depend on our ability to maintain satisfactory relationships with qualified sales
personnel as well as customers, suppliers and manufacturers. If we fail to maintain our existing relationships with
such persons or fail to acquire relationships with such key persons in the future, our business may be adversely
affected.
Our future success is substantially dependent upon our senior management.
Our future success is substantially dependent upon the efforts and abilities of members of our existing senior
management, particularly Stanley M. Bergman, Chairman and Chief Executive Officer, among others. The loss of
the services of Mr. Bergman could have a material adverse effect on our business. We have an employment
agreement with Mr. Bergman. We do not currently have “key man” life insurance policies on any of our
employees. Competition for senior management is intense and we may not be successful in attracting and retaining
key personnel.
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We experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations of
securities analysts and investors, which could cause our stock price to decline.
Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally
have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza
vaccine, equipment and software products), purchasing patterns of office-based healthcare practitioners and year-
end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to
increased sales in the prior two quarters. We expect our historical seasonality of sales to continue in the foreseeable
future. Quarterly results may also be adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our vendors;
• timing of the introduction of new products and services by our vendors;
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of vendor contracts or rebate programs;
• vendor rebates based upon attaining certain growth goals;
• changes in the way vendors introduce or deliver products to market;
• costs of developing new applications and services;
• exclusivity requirements with certain vendors may prohibit us from distributing competitive products
manufactured by other vendors;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
• costs associated with our self-insured medical insurance program;
• general economic conditions, as well as those specific to the healthcare industry and related industries;
• our success in establishing or maintaining business relationships;
• unexpected difficulties in developing and manufacturing products;
• product demand and availability or recalls by manufacturers;
• exposure to product liability and other claims in the event that the use of the products we sell results in
injury;
• increases in the cost of shipping or service issues with our third-party shippers;
• restructuring costs; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly operating results to
fluctuate. If our operating results do not meet market expectations, our stock price may decline.
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Expansion of group purchasing organizations (“GPO”) or provider networks and the multi-tiered costing
structure may place us at a competitive disadvantage.
The medical products industry is subject to a multi-tiered costing structure, which can vary by manufacturer
and/or product. Under this structure, certain institutions can obtain more favorable prices for medical products than
we are able to obtain. The multi-tiered costing structure continues to expand as many large integrated healthcare
providers and others with significant purchasing power, such as GPOs, demand more favorable pricing terms.
Additionally, the formation of provider networks and GPOs may shift purchasing decisions to entities or persons
with whom we do not have a historical relationship. This may threaten our ability to compete effectively, which
would in turn negatively impact our results of operations. Although we are seeking to obtain similar terms from
manufacturers and obtain access to lower prices demanded by GPO contracts or other contracts and seeking to
develop relationships with provider networks and new GPOs, we cannot assure such terms will be obtained or
contracts will be executed.
Increases in the cost of shipping or service issues with our third-party shippers could harm our business.
Shipping is a significant expense in the operation of our business. We ship almost all of our orders through
third-party delivery services, and typically bear the cost of shipment. Accordingly, any significant increase in
shipping rates could have an adverse effect on our operating results. Similarly, strikes or other service interruptions
by those shippers could cause our operating expenses to rise and adversely affect our ability to deliver products on a
timely basis.
Uncertain global macro-economic conditions could adversely affect our results of operations and financial
condition.
Uncertain global macro-economic conditions that affect the economy and the economic outlook of the United
States, Europe and other parts of the world could adversely affect our customers and vendors, which could
adversely affect our results of operations and financial condition. These uncertainties, including, among other
things, sovereign debt levels, the inability of national or international political institutions to effectively resolve
economic or budgetary crises or issues, consumer confidence, unemployment levels (and a corresponding increase
in the uninsured and underinsured population), interest rates, availability of capital, fuel and energy costs, tax rates,
healthcare costs and the threat or outbreak of terrorism or public unrest, could adversely impact our customers and
vendors, which could adversely affect us. Recessionary conditions and depressed levels of consumer and
commercial spending may cause customers to reduce, modify, delay or cancel plans to purchase our products and
may cause vendors to reduce their output or change their terms of sales. We generally sell products to customers
with payment terms. If customers’ cash flow or operating and financial performance deteriorates, or if they are
unable to make scheduled payments or obtain credit, they may not be able to pay, or may delay payment to us.
Likewise, for similar reasons vendors may restrict credit or impose different payment terms. Any inability of
current and/or potential customers to pay us for our products and/or services or any demands by vendors for
different payment terms may adversely affect our results of operations and financial condition.
Approximately 28% of our total consolidated net sales for the year ended December 31, 2011 were derived
from Europe. There have been continuing concerns and uncertainties about the state of the European economies
and Europe’s political institutions. Continued difficult, and/or declining, economic conditions in Europe may
adversely affect our operations in Europe by adversely affecting our European customers and vendors in the ways
described above. Additionally, the inability of Europe’s political institutions to deal effectively with actual or
perceived currency or budget crises could increase economic uncertainty in Europe, and globally, and may have an
adverse effect on our customer’s cash flow or operating performance. Further, debt and/or budget crises in the
European countries may lead to reductions in government spending in certain countries, which could reduce overall
healthcare spending, and/or higher income or corporate taxes, which could depress spending overall. In either
event, our results of operations and financial condition could be adversely affected.
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Disruptions in the financial markets may adversely affect the availability and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with respect to indebtedness will depend
on our operating and financial performance, which in turn is subject to prevailing economic conditions and
financial, business and other factors beyond our control. Disruptions in the financial markets may adversely affect
the availability and cost of credit to us.
The market price for our common stock may be highly volatile.
The market price for our common stock may be highly volatile. A variety of factors may have a significant
impact on the market price of our common stock, including:
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the publication of earnings estimates or other research reports and speculation in the press or
investment community;
changes in our industry and competitors;
our financial condition, results of operations and cash flows and prospects;
stock repurchases;
any future issuances of our common stock, which may include primary offerings for cash, stock
splits, issuances in connection with business acquisitions, restricted stock/units and the grant or
exercise of stock options from time to time;
general market and economic conditions; and
any outbreak or escalation of hostilities in areas where we do business.
In addition, the NASDAQ Stock Market can experience extreme price and volume fluctuations that can be
unrelated or disproportionate to the operating performance of the companies listed on NASDAQ. Broad market and
industry factors may negatively affect the market price of our common stock, regardless of actual operating
performance. In the past, following periods of volatility in the market price of a company’s securities, securities
class action litigation has often been instituted against companies. This type of litigation, if instituted, could result
in substantial costs and a diversion of management’s attention and resources, which would have an adverse effect
on our business.
The healthcare industry is experiencing changes that could adversely affect our business.
The healthcare industry is highly regulated and subject to changing political, economic and regulatory
influences. In recent years, the healthcare industry has undergone significant change driven by various efforts to
reduce costs, including: trends toward managed care; consolidation of healthcare distribution companies;
consolidation of healthcare manufacturers; collective purchasing arrangements and consolidation among office-
based healthcare practitioners; and changes in reimbursements to customers. Both our own profit margins and the
profit margins of our customers may be adversely affected by laws and regulations reducing reimbursement rates
for pharmaceuticals and/or medical treatments or services or changing the methodology by which reimbursement
levels are determined. If we are unable to react effectively to these and other changes in the healthcare industry,
our operating results could be adversely affected. In addition, the enactment of significant healthcare reforms could
have a material adverse effect on our businesses.
The implementation of the Health Care Reform Law may adversely impact us.
The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation
Act, each enacted in March 2010, generally known as the Health Care Reform Law, significantly expands health
insurance coverage to uninsured Americans and changes the way health care is financed by both governmental and
private payers. We expect expansion of access to health insurance to increase the demand for our products and
services, but other provisions of the Health Care Reform Law could affect us adversely. Additionally, further
federal and state proposals for healthcare reform are likely. We cannot predict what further reform proposals, if
any, will be adopted, when they may be adopted, or what impact they may have on us.
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The Health Care Reform Law also imposes new reporting and disclosure requirements for pharmaceutical and
medical device manufacturers with regard to payments or other transfers of value made to certain practitioners,
including physicians, dentists and teaching hospitals, and imposes new reporting and disclosure requirements for
pharmaceutical and device manufacturers and group purchasing organizations with regard to certain ownership
interests held by physicians in the reporting entity. Data collection obligations were to commence in January 2012,
and reporting requirements are to be implemented in 2013. On December 14, 2011, the Centers for Medicare and
Medicaid Services issued proposed regulations to implement these provisions and sought substantial comments,
thus apparently delaying the January 1, 2012 start of information collection. These proposed regulations are
broadly drafted and still subject to change, and it is possible that when these regulations are finalized, they will treat
us or one or more of our subsidiaries as an entity subject to these reporting requirements. In addition, through
business arrangements we have with drug and device manufacturers, we may be required to collect and report
detailed information to these manufacturers in order for these manufacturers to comply with the new requirements.
In addition, several states require pharmaceutical and/or device companies to report expenses relating to the
marketing and promotion of products as well as gifts and payments to individual practitioners in the states, or
prohibit certain marketing related activities. Other states, such as California, Nevada, Massachusetts and
Connecticut, require pharmaceutical and/or device companies to implement compliance programs or marketing
codes. Wholesale distributors are covered by the laws in certain of these states. In others, it is possible that our
activities or the activities of one or more of our subsidiaries will subject us to the state’s reporting requirements and
prohibitions. Compliance activities with respect to these measures could increase our costs and adversely affect
business operations.
The Health Care Reform Law contains many provisions designed to generate the revenues necessary to fund
the coverage expansions and to reduce costs of Medicare and Medicaid, including imposing a 2.3% excise tax on
domestic sales of medical devices by manufacturers and importers beginning in 2013, and a fee on branded
prescription drugs and biologics that was implemented in 2011, both of which may affect sales. The Health Care
Reform Law also mandates pharmacy benefit manager transparency regarding rebates, discounts and price
concessions with respect to drug benefits under Medicare Part D, and in 2014 with respect to drug benefits offered
through qualified health plans offered through state exchanges, which could affect pricing and competition.
Failure to comply with existing and future regulatory requirements could negatively affect our business.
Our business is subject to requirements under various local, state, federal and international laws and regulations
applicable to the distribution of pharmaceuticals and medical devices, and human cells, tissue, and cellular and
tissue-based products, also known as HCT/P products. Among the federal laws with which we must comply are the
Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, the Prescription Drug
Marketing Act of 1987, and Section 361 of the Public Health Services Act. Among other things, such laws, and the
regulations promulgated thereunder:
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regulate the storage and distribution, labeling, packaging, handling, reporting, record keeping,
introduction, manufacturing and marketing of drugs, HCT/P products and medical devices;
subject us to inspection by the United States Food and Drug Administration and the United States
Drug Enforcement Administration;
regulate the storage, transportation and disposal of certain of our products that are considered
hazardous materials;
require registration with the United States Food and Drug Administration and the United States
Drug Enforcement Administration and various state agencies;
require record keeping and documentation of transactions involving drug products;
require us to design and operate a system to identify and report suspicious orders of controlled
substances to the United States Drug Enforcement Agency;
require us to manage returns of products that have been recalled and subject us to inspection of our
recall procedures and activities; and
impose reporting requirements if a pharmaceutical, HCT/P products or medical device causes
serious illness, injury or death.
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Applicable federal, state and local laws and regulations also may require us to meet various standards relating
to, among other things, licensure or registration, sales and marketing practices, product integrity and supply
tracking to the manufacturer of the product, personnel, privacy and security of health or other personal information,
installation, maintenance and repair of equipment, and the importation and exportation of products. Our business
also is subject to requirements of similar and other foreign governmental laws and regulations affecting our
operations abroad. The United States Food and Drug Administration and United States Drug Enforcement
Administration have recently increased their regulatory and enforcement activities.
The failure to comply with any of these regulations, or new interpretations of existing laws and regulations, or
the imposition of any additional laws and regulations, could negatively affect our business. There can be no
assurance that current government regulations will not adversely affect our business. The costs to us associated
with complying with the various applicable statutes and regulations, as they now exist and as they may be modified,
could be material. Allegations by a governmental body that we have not complied with these laws could have a
material adverse impact on our businesses. If it is determined that we have not complied with these laws, we are
potentially subject to penalties including warning letters, civil and criminal penalties, mandatory recall of product,
seizure of product and injunction, and suspension or limitation of product sale and distribution. If we enter into
settlement agreements to resolve allegations of non-compliance, we could be required to make settlement payments
or be subject to civil and criminal penalties, including fines and the loss of licenses. Non-compliance with
government requirements could adversely affect our ability to participate in federal and state government healthcare
programs, and damage our reputation. Any of the foregoing could have a material adverse impact on our
businesses. We believe that the healthcare services industry will continue to be subject to extensive domestic and
foreign government regulation and that we have adequate compliance programs and controls in place to ensure
substantial compliance with the laws and regulations.
If we fail to comply with laws and regulations relating to healthcare fraud, we could suffer penalties or be
required to make significant changes to our operations.
We are subject to extensive and frequently changing federal and state laws and regulations relating to
healthcare fraud. These measures, which focus on our relationships with pharmaceutical manufacturers and
healthcare providers, have been subject to varying interpretations, as well as heightened enforcement activity, over
the past few years. Significant enforcement activity has been the result of actions brought by “relators,” who file
complaints in the name of the United States (and if applicable, particular states) under federal and state False
Claims Act statutes and can be entitled to receive up to 30% of total recoveries. Also, violations of the False
Claims Act can result in treble damages, and each false claim submitted can be subject to a penalty of up to $11,000
per claim. These healthcare fraud laws and regulations, among other things, (i) prohibit persons from soliciting,
offering, receiving or paying any remuneration in order to induce the referral of a patient for treatment or to induce
the ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing of items or
services that are in any way paid for by government-sponsored healthcare programs and (ii) impose a number of
restrictions upon referring physicians and providers of designated health services under government healthcare
programs. While we believe that we are substantially compliant with all applicable laws, many of the regulations
applicable to us are vague or indefinite and have not been interpreted by the courts. They may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our
operations. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal penalties,
including the loss of licenses or our ability to participate in federal and state healthcare programs.
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If we fail to comply with laws and regulations relating to the confidentiality of sensitive personal information or
standards in electronic health data transmissions, we could be required to make significant changes to our
products, or incur penalties or other liabilities.
State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996,
regulate the confidentiality of sensitive personal information and the circumstances under which such information
may be released. These measures may govern the disclosure and use of confidential personal and patient medical
record information and may require the users of such information to implement specified security measures, and to
notify individuals in the event of privacy and security breaches. Evolving laws and regulations in this area could
restrict the ability of our customers to obtain, use or disseminate patient information, or could require us to incur
significant additional costs to re-design our products in a timely manner to reflect these legal requirements, either of
which could have an adverse impact on our results of operations. Other health information standards, such as
regulations under HIPAA, establish standards regarding electronic health data transmissions and transaction code
set rules for specified electronic transactions, for example transactions involving claims submissions to third party
payers. These also continue to evolve and are often unclear and difficult to apply. In addition, under the federal
Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), which was passed in
2009, some of our businesses that were previously only indirectly subject to federal HIPAA privacy and security
rules became directly subject to such rules because the businesses serve as “business associates” to our customers.
Additional rules under the HITECH Act are expected to be issued in early 2012, further expanding the privacy and
security requirements applicable to some of our businesses. Failure to maintain the confidentiality of sensitive
personal information in accordance with the applicable regulatory requirements, or to abide by electronic health
data transmission standards, could expose us to breach of contract claims, fines and penalties, costs for remediation
and harm to our reputation.
Our international operations are subject to inherent risks that could adversely affect our operating results.
International operations are subject to risks that may materially adversely affect our business, results of
operations and financial condition. The risks that our international operations are subject to include, among other
things:
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difficulties and costs relating to staffing and managing foreign operations;
difficulties in establishing channels of distribution;
fluctuations in the value of foreign currencies;
longer payment cycles of foreign customers and difficulty of collecting receivables in foreign
jurisdictions;
repatriation of cash from our foreign operations to the United States;
regulatory requirements;
unexpected difficulties in importing or exporting our products;
imposition of import/export duties, quotas, sanctions or penalties;
difficulties and delays inherent in sourcing products and contract manufacturing in foreign markets;
limitations on our ability under local laws to protect our intellectual property;
unexpected regulatory, legal, economic and political changes in foreign markets;
civil disturbances, geopolitical turmoil, including terrorism, war or political or military coups; and
public health emergencies.
22
Our expansion through acquisitions and joint ventures involves risks.
We have expanded our domestic and international markets in part through acquisitions and joint ventures, and
we expect to continue to make acquisitions and enter into joint ventures in the future. Such transactions involve
numerous risks, including possible adverse effects on our operating results or the market price of our common
stock. Some of our acquisitions and future acquisitions may also give rise to an obligation by us to make
contingent payments or to satisfy certain repurchase obligations, which payments could have an adverse effect on
our results of operations. In addition, integrating acquired businesses and joint ventures:
• may result in a loss of customers or product lines of the acquired businesses or joint ventures;
•
requires significant management attention;
• may place significant demands on our operations, information systems and financial resources; and
•
results in additional acquisition and integration expenses.
There can be no assurance that our future acquisitions or joint ventures will be successful. Our ability to
continue to successfully effect acquisitions and joint ventures will depend upon the following:
•
•
•
•
the availability of suitable acquisition or joint venture candidates at acceptable prices;
our ability to consummate such transactions, which could potentially be prohibited due to U.S. or
foreign antitrust regulations;
the availability of financing on acceptable terms, in the case of non-stock transactions; and
the liquidity of our investments and our ability to raise capital could be affected by the financial
credit markets.
Our acquisitions may not result in the benefits and revenue growth we expect.
We are in the process of integrating companies that we acquired and including the operations, services,
products and personnel of each company within our management policies, procedures and strategies. We cannot be
sure that we will achieve the benefits of revenue growth that we expect from these acquisitions or that we will not
incur unforeseen additional costs or expenses in connection with these acquisitions. To effectively manage our
expected future growth, we must continue to successfully manage our integration of these companies and continue
to improve our operational systems, internal procedures, working capital management, financial and operational
controls. If we fail in any of these areas, our business could be adversely affected.
We face inherent risk of exposure to product liability and other claims in the event that the use of the products
we sell results in injury.
Our business involves a risk of product liability and other claims in the ordinary course of business, and from
time to time we are named as a defendant in cases as a result of our distribution of pharmaceutical products,
medical devices, bone regeneration and other healthcare products. Additionally, we own interests in companies
that manufacture certain dental products. As a result, we are subject to the potential risk of product liability or other
claims relating to the manufacture and distribution of products by those entities. One of the potential risks we face
in the distribution of our products is liability resulting from counterfeit or tainted products infiltrating the supply
chain. In addition, some of the products that we transport and sell are considered hazardous materials. The
improper handling of such materials or accidents involving the transportation of such materials could subject us to
liability. We have various insurance policies, including product liability insurance, covering risks and in amounts
that we consider adequate. In many cases in which we have been sued in connection with products manufactured
by others, the manufacturer of the product provides us with indemnification. There can be no assurance that the
insurance coverage we maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that
indemnification agreements will provide us with adequate protection. A successful claim brought against us in
excess of available insurance or not covered by indemnification agreements, or any claim that results in significant
adverse publicity against us, could have an adverse effect on our business and our reputation.
23
Our technology segment depends upon continued software and e-services product development, technical
support and successful marketing.
Competition among companies supplying practice management software and/or e-services is intense and
increasing. Our future sales of practice management software and e-services will depend on, among other factors:
•
•
•
the effectiveness of our sales and marketing programs;
our ability to enhance our products and services; and
our ability to provide ongoing technical support.
We cannot be sure that we will be successful in introducing and marketing new software, software
enhancements or e-services, or that such software, software enhancements and e-services will be released on time or
accepted by the market. Our software and applicable e-services products, like software products generally, may
contain undetected errors or bugs when introduced or as new versions are released. We cannot be sure that future
problems with post-release software errors or bugs will not occur. Any such defective software may result in
increased expenses related to the software and could adversely affect our relationships with the customers using
such software. We do not have any patents on our software or e-services, and rely upon copyright, trademark and
trade secret laws, as well as contractual and common law protections. We cannot provide assurance that such legal
protections will be available or enforceable to protect our software or e-services products.
We may not be able to respond to technological change effectively.
Traditional healthcare supply and distribution relationships are being challenged by electronic online commerce
solutions. Our distribution business is characterized by rapid technological developments and intense competition.
The continued advancement of online commerce will require us to cost-effectively adapt to changing technologies,
to enhance existing services and to develop and introduce a variety of new services to address changing demands of
consumers and our clients on a timely basis, particularly in response to competitive offerings. Our inability to
anticipate and effectively respond to changes on a timely basis could have an adverse effect on our business.
Risks generally associated with our information systems could adversely affect our results of operations.
We rely on information systems (IS) in our business to obtain, rapidly process, analyze and manage data to,
among other things:
• maintain and manage worldwide systems to facilitate the purchase and distribution of thousands of
inventory items from numerous distribution centers;
•
receive, process and ship orders on a timely basis;
• manage the accurate billing and collections for thousands of customers;
•
process payments to suppliers; and
• maintain certain of our customers’ electronic medical records.
A cyber-attack that bypasses our IS security systems causing an IS security breach may lead to a material
disruption of our IS business systems and/or the loss of business information resulting in adverse business impact.
Risks may include, among other things:
•
•
•
future results could be adversely affected due to the theft, destruction, loss, misappropriation or
release of confidential data or intellectual property;
operational or business delays resulting from the disruption of IS systems and subsequent clean-up
and mitigation activities; and
negative publicity resulting in reputation or brand damage with our customers, partners or industry
peers.
Our results of operations could be adversely affected if our IS systems are interrupted, damaged by unforeseen
events, cyber-attacks or fail for any extended period of time.
24
We have various insurance policies, including cyber liability insurance, covering risks and in amounts that we
consider adequate. There can be no assurance that the insurance coverage we maintain is sufficient or will be
available in adequate amounts or at a reasonable cost. Successful claims for misappropriation or release of
confidential or personal data brought against us in excess of available insurance or fines or other penalties assessed
or any claim that results in significant adverse publicity against us, could have an adverse effect on our business and
our reputation.
Certain provisions in our governing documents and other documents to which we are a party may discourage
third-party offers to acquire us that might otherwise result in our stockholders receiving a premium over the
market price of their shares.
The provisions of our certificate of incorporation and by-laws may make it more difficult for a third party to
acquire us, may discourage acquisition bids and may limit the price that certain investors might be willing to pay in
the future for shares of our common stock. These provisions, among other things:
•
•
require the affirmative vote of the holders of at least 60% of the shares of common stock entitled to
vote to approve a merger, consolidation, or a sale, lease, transfer or exchange of all or substantially
all of our assets; and
require the affirmative vote of the holders of at least 66 2/3% of our common stock entitled to vote
to (i) remove a director; and (ii) to amend or repeal our by-laws, with certain limited exceptions.
In addition, our 1994 Stock Incentive Plan and 1996 Non-Employee Director Stock Incentive Plan provide for
accelerated vesting of stock options upon a change in control. These incentive plans also authorize the committee
under the plans to provide for accelerated vesting of other types of equity awards in connection with a change in
control at grant or thereafter, and certain other awards made under these incentive plans (such as restricted stock
and restricted stock unit awards) accelerate upon a change in control or upon certain termination events in
connection with a change in control. Further, certain agreements between us and our executive officers provide for
increased severance payments and certain benefits if those executive officers are terminated without cause by the
Company or if they terminate for good reason in each case, within two years after a change in control or within
ninety days prior to the effective date of the change in control or after the first public announcement of the
pendency of the change in control.
Tax legislation initiatives could adversely affect our net earnings and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well
as foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely
affect our tax positions. There can be no assurance that our effective tax rate will not be adversely affected by these
initiatives. In addition, tax laws and regulations are extremely complex and subject to varying interpretations.
Although we believe that our historical tax positions are sound and consistent with applicable laws, regulations and
existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities
or that we would be successful in any such challenge.
Item 1B. Unresolved Staff Comments
We have no unresolved comments from the staff of the SEC that were issued 180 days or more preceding the
end of our 2011 fiscal year.
25
ITEM 2. Properties
We own or lease the following properties:
Property
Corporate Headquarters ...................................
Corporate Headquarters ...................................
Office and Distribution Center ........................
Distribution Center ..........................................
Distribution Center ..........................................
Location
Melville, NY
Melville, NY
West Allis, WI
Denver, PA
Indianapolis, IN
Distribution Center ..........................................
Indianapolis, IN
Distribution Center ..........................................
Grapevine, TX
Distribution Center ..........................................
Gallin, Germany
Jacksonville, FL
Distribution Center ..........................................
Office and Distribution Center ........................ Niagara on the Lake, Canada
Distribution Center ..........................................
Office and Distribution Center ........................ Gillingham, United Kingdom
Office and Distribution Center ........................
Office and Distribution Center ........................
Lyssach, Switzerland
Tours, France
Sparks, NV
Own or
Lease
Lease Expiration
Approximate
Square Footage
105,000
185,000
106,000
613,000
287,000
380,000
242,000
215,000
212,000
128,000
338,000
103,000
161,000
180,000
Date
N/A
July 2020
October 2017
February 2013
N/A
February 2019
July 2013
N/A
June 2013
September 2016
February 2013
April 2020
N/A
July 2016
Own
Lease
Lease
Lease
Own
Lease
Lease
Own
Lease
Lease
Lease
Lease
Own
Lease
The properties listed in the table above are our principal properties primarily used by our healthcare distribution
segment. In addition, we lease numerous other distribution, office, showroom, manufacturing and sales space in
locations including the United States, Australia, Austria, Belgium, Canada, China, the Czech Republic, France,
Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Slovakia,
Spain, Switzerland, Turkey and the United Kingdom.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry
on our business. We have additional operating capacity at certain distribution center facilities.
ITEM 3. Legal Proceedings
From time to time, we may become a party to legal proceedings, including, without limitation, product liability
claims, employment matters, commercial disputes and other matters arising out of the ordinary course of our
business. In our opinion, pending matters will not have a material adverse effect on our financial condition or
results of operations.
We have various insurance policies, including product liability insurance, covering risks in amounts that we
consider adequate. In many cases in which we have been sued in connection with products manufactured by others,
the manufacturer provides us with indemnification. There can be no assurance that the insurance coverage we
maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification
agreements will provide us with adequate protection.
As of December 31, 2011, we had accrued our best estimate of potential losses relating to product liability and
other claims that were probable to result in a 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 external factors, including probable recoveries from third parties.
ITEM 4. Mine Safety Disclosures
Not applicable.
26
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is traded on the NASDAQ Global Select Market tier of the NASDAQ Stock Market, or
NASDAQ, under the symbol HSIC. On October 2, 2007, our common stock became a component of the
NASDAQ-100 stock market index. The following table sets forth, for the periods indicated, the high and low
reported sales prices of our common stock as reported on NASDAQ for each quarterly period in fiscal 2011 and
2010:
Fiscal 2011:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................
Fiscal 2010:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................
High
Low
69.98 $
74.48
74.98
71.13
58.50 $
62.63
57.60
62.62
61.26
67.21
58.50
58.56
51.49
53.41
50.96
55.55
On February 6, 2012, there were approximately 998 holders of record of our common stock and the last
reported sales price was $72.99.
27
Purchases of Equity Securities by the Issuer
Our current share repurchase program, announced on June 21, 2004, originally allowed us to repurchase up to
$100 million of shares of our common stock, which represented approximately 3.5% of the shares outstanding at
the commencement of the program. As summarized in the table below, subsequent additional increases totaling
$500 million, authorized by our Board of Directors, to the repurchase program provide for a total of $600 million of
shares of our common stock to be repurchased under this program.
Date of
Amount of Additional
Authorization
Repurchases Authorized
October 31, 2005
$
March 28, 2007
November 16, 2010
August 18, 2011
100,000,000
100,000,000
100,000,000
200,000,000
As of December 31, 2011, we had repurchased $500.0 million of common stock (9,819,009 shares) under these
initiatives, with $100.0 million available for future common stock share repurchases.
The following table summarizes repurchases of our common stock under our stock repurchase program during
the fiscal quarter ended December 31, 2011:
Total
Number
of Shares
Fiscal Month
Purchased (1)
09/25/11 through 10/29/11
10/30/11 through 11/26/11
11/27/11 through 12/31/11
524,112
370,000
195,377
1,089,489
Average
Price Paid
Per Share
$
61.82
62.91
60.65
Total Number
of Shares
Purchased as Part
Maximum Number
of Shares
that May Yet
of Our Publicly
Be Purchased Under
Announced Program
524,112
370,000
195,377
1,089,489
Our Program (2)
1,903,694
1,864,434
1,552,044
(1) All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.
Dividend Policy
We have not declared any cash dividends on our common stock during fiscal years 2011 or 2010. We currently
do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain
earnings to finance the expansion of our business and for general corporate purposes, including our stock
repurchase program. Any declaration of dividends will be at the discretion of our Board of Directors and will
depend upon the earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions
with respect to payment of dividends and other factors.
28
Stock Performance Graph
The graph below compares the cumulative total stockholder return on $100 invested, assuming the reinvestment
of all dividends, on December 30, 2006, the last trading day before the beginning of our 2007 fiscal year, through
the end of fiscal 2011 with the cumulative total return on $100 invested for the same period in the Dow Jones U.S.
Health Care Index and the NASDAQ Stock Market Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
$140
$130
$120
$110
$100
$90
$80
$70
$60
December 2006
December 2007
December 2008
December 2009
December 2010
December 2011
Henry Schein, Inc.
Dow Jones U.S. Health Care Index
NASDAQ Stock Market Composite Index
ASSUMES $100 INVESTED ON DECEMBER 30, 2006
ASSUMES DIVIDENDS REINVESTED
December 30, December 29, December 27, December 26, December 25, December 31,
2006
2007
2008
2009
2010
2011
Henry Schein, Inc. .......................... $
100.00 $
126.68 $
72.23 $
108.23 $
126.91 $
131.54
Dow Jones U.S. Health
Care Index ...................................
100.00
109.30
81.49
102.79
107.12
118.91
NASDAQ Stock Market
Composite Index .........................
100.00
111.03
64.44
97.23
114.59
113.16
29
ITEM 6. Selected Financial Data
The following selected financial data, with respect to our financial position and results of operations for each of
the five fiscal years in the period ended December 31, 2011, set forth below, has been derived from, should be read
in conjunction with and is qualified in its entirety by reference to, our consolidated financial statements and notes
thereto. The selected financial data presented below should also be read in conjunction with ITEM 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and ITEM 8,
“Financial Statements and Supplementary Data.”
December 31,
December 25,
December 26,
Years ended
2011
2010
2009
(in thousands, except per share data)
December 27,
2008
December 29,
2007
Income Statement Data:
Net sales ......................................................................... $
8,530,242 $
7,526,790 $
6,538,336 $
6,380,413 $
5,889,884
Gross profit .....................................................................
2,418,055
2,170,876
1,916,820
1,874,295
1,706,092
Selling, general and administrative expenses ................
1,835,906
1,637,460
1,449,715
1,431,769
1,319,153
Restructuring costs (1) ...................................................
Operating income ...........................................................
Other expense, net ..........................................................
-
582,149
(12,842)
12,285
521,131
(19,096)
3,020
464,085
(11,365)
23,240
419,286
(23,837)
-
386,939
(8,430)
Income from continuing operations before taxes,
equity in earnings (losses) of affiliates and
noncontrolling interests ..............................................
569,307
502,035
452,720
395,449
Income taxes ...................................................................
(180,212)
(160,069)
(127,521)
(131,210)
Equity in earnings (losses) of affiliates ..........................
15,561
10,165
5,243
5,037
378,509
(128,556)
(73)
Income from continuing operations ...............................
404,656
352,131
330,442
269,276
249,880
Income (loss) from discontinued
operations, net of tax (2) ............................................
-
-
2,715
(7,902)
Net income .....................................................................
404,656
352,131
333,157
261,374
Less: Net income attributable to
noncontrolling interests
Net income attributable to Henry Schein, Inc. .............. $
Amounts attributable to Henry Schein, Inc.:
(36,995)
367,661 $
(26,342)
325,789 $
(22,004)
311,153 $
(21,917)
239,457 $
(20,704)
229,176
(17,442)
211,734
Income from continuing operations ............................. $
367,661 $
325,789 $
308,551 $
247,347 $
232,529
Income (loss) from discontinued
operations, net of tax .................................................
-
-
2,602
(7,890)
Net income ................................................................... $
367,661 $
325,789 $
311,153 $
239,457 $
Earnings (loss) per share attributable to
Henry Schein, Inc.:
From continuing operations:
Basic ........................................................................... $
Diluted ........................................................................
From discontinued operations:
Basic ............................................................................ $
Diluted .........................................................................
From net income:
Basic ............................................................................ $
Diluted .........................................................................
Weighted-average common shares outstanding:
4.08 $
3.97
- $
-
4.08 $
3.97
3.62 $
3.49
- $
-
3.62 $
3.49
3.47 $
3.41
0.03 $
0.03
3.50 $
3.44
2.78 $
2.71
(0.09) $
(0.08)
2.69 $
2.63
(20,795)
211,734
2.63
2.55
(0.24)
(0.23)
2.39
2.32
Basic ............................................................................
Diluted .........................................................................
90,120
92,620
90,097
93,268
88,872
90,556
89,080
91,221
88,559
91,163
30
December 31,
December 25,
December 26,
2011
2010
2009
December 27,
2008
December 29,
2007
Years ended
(in thousands)
Net Sales by Market Data:
Healthcare distribution (3):
Dental (4) .......................................................... $
Medical (5) .......................................................
Animal health (6) .............................................
International (7) ................................................
Total healthcare distribution .........................
Technology (8) ....................................................
2,861,100 $
1,412,470
993,183
3,012,869
8,279,622
250,620
2,678,830 $
1,290,428
889,303
2,468,277
7,326,838
199,952
2,509,921 $
1,217,020
240,082
2,398,105
6,365,128
173,208
Total .............................................................. $
8,530,242 $
7,526,790 $
6,538,336 $
2,567,064 $
1,210,875
218,093
2,221,092
6,217,124
163,289
6,380,413 $
2,447,841
1,340,146
200,123
1,769,881
5,757,991
131,893
5,889,884
December 31,
December 25,
December 26,
2011
2010
2009
December 27,
2008
December 29,
2007
As of
(in thousands)
Balance Sheet data:
Total assets .......................................................... $
Long-term debt ....................................................
Redeemable noncontrolling interests ..................
Stockholders' equity ............................................
4,740,144 $
363,524
402,050
2,433,623
4,547,471 $
395,309
304,140
2,412,957
3,835,985 $
243,373
178,570
2,161,508
3,599,210 $
256,648
233,035
1,772,354
3,313,472
407,627
150,028
1,674,987
(1) Restructuring costs for the year ended December 25, 2010 consist primarily of severance costs, including severance pay and benefits
of $8.8 million, facility closing costs of $3.4 million and other professional and consulting costs of $0.1 million. Restructuring costs
for the year ended December 26, 2009 consist primarily of employee severance costs, including severance pay and benefits of $1.5
million and facility closing costs of $1.5 million. Restructuring costs for the year ended December 27, 2008 consist primarily of
employee severance costs, including severance pay and benefits of $18.6 million, facility closing costs of $3.8 million and other
professional and consulting costs of $0.8 million. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Plans of Restructuring” herein and the consolidated financial statements and related notes contained in ITEM 8.
(2) On August 5, 2009, we completed the sale of a wholesaler of dental consumables for aggregate consideration of $14.2 million, of
which $13.2 million had been received as of December 26, 2009. As a result of this sale, included in operating results from
discontinued operations for 2009 is a net gain, net of tax, of $2.6 million or $0.03 per diluted share.
During the fourth quarter of 2008, included in operating results from discontinued operations, we recorded an impairment charge of
$11.2 million ($7.3 million, net of tax), or $0.08 per diluted share, related to the exit from our wholesale ultrasound business.
During 2007, we sold substantially all of the assets of our oncology pharmaceutical and specialty pharmacy businesses, previously
reported as part of our healthcare distribution reportable segment. The aggregate sales price was $14.3 million, which was received
during the third and fourth quarters of 2007. As a result of these sales, included in the operating results from discontinued operations
for 2007 is a net gain, net of tax, of approximately $0.7 million or $0.01 per diluted share. We recorded an impairment charge to our
related long-lived assets of approximately $20.6 million, net of tax, or $(0.23) per diluted share in 2007.
On April 1, 2006, we sold substantially all of the assets of our Hospital Supply Business, previously reported as part of our
healthcare distribution reportable segment. As a result of this sale, included in the operating results from discontinued operations for
2007 is a $0.3 million ($0.2 million after-tax) expense relating to contract contingencies.
(3) Consists of consumable products, small equipment, laboratory products, large dental and medical equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
(4) Consists of products sold in the United States and Canadian dental markets.
(5) Consists of products sold in the United States’ medical market.
(6) Consists of products sold in the United States’ animal health market.
(7) Consists of products sold in the dental, medical and animal health markets, primarily in Europe, Australia and New Zealand.
(8) Consists of practice management software, financial services and other value-added products and services, which are distributed
primarily to healthcare providers in the United States, Canada, the United Kingdom, Australia and New Zealand.
31
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
In accordance with the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
provide the following cautionary remarks regarding important factors that, among others, could cause future results
to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein.
All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future
performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance and achievements or industry results to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. These
statements are identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,”
“estimate,” “forecast,” “project,” “anticipate” or other comparable terms.
Risk factors and uncertainties that could cause actual results to differ materially from current and historical
results include, but are not limited to: effects of a highly competitive market; our dependence on third parties for
the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and
manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion
of customer purchasing power and multi-tiered costing structures; possible increases in the cost of shipping our
products or other service issues with our third-party shippers; general global macro-economic conditions;
disruptions in financial markets; possible volatility of the market price of our common stock; changes in the
healthcare industry; implementation of healthcare laws; failure to comply with regulatory requirements and data
privacy laws; risks associated with our international operations; transitional challenges associated with acquisitions
and joint ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions
and joint ventures; litigation risks; the dependence on our continued product development, technical support and
successful marketing in the technology segment; risks from rapid technological change; risks from disruption to our
information systems; certain provisions in our governing documents that may discourage third-party acquisitions of
us; and changes in tax legislation. The order in which these factors appear should not be construed to indicate their
relative importance or priority.
We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to
control or predict. Accordingly, any forward-looking statements contained herein should not be relied upon as a
prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements.
Executive-Level Overview
We believe we are the largest distributor of healthcare products and services primarily to office-based
healthcare practitioners. We serve nearly 775,000 customers worldwide, including dental practitioners and
laboratories, physician practices and animal health clinics, as well as government and other institutions. We believe
that we have a strong brand identity due to our more than 79 years of experience distributing healthcare products.
We are headquartered in Melville, New York, employ nearly 15,000 people (of which over 6,500 are based
outside the United States) and have operations in the United States, Australia, Austria, Belgium, Canada, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland and the United Kingdom. We also have affiliates in Iceland, Saudi
Arabia and Turkey.
We have established strategically located distribution centers to enable us to better serve our customers and
increase our operating efficiency. This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our
customers’ needs. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and
complete order fulfillment.
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We conduct our business through two reportable segments: healthcare distribution and technology. These
segments offer different products and services to the same customer base. The healthcare distribution reportable
segment aggregates our dental, medical, animal health and international operating segments. This segment consists
of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded
and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
Our dental group serves office-based dental practitioners, schools and other institutions in the combined United
States and Canadian dental market. Our medical group serves office-based medical practitioners, surgical centers,
other alternate-care settings and other institutions throughout the United States. Our animal health group serves
animal health practices and clinics throughout the United States. Our international group serves dental, medical
and animal health practitioners in 22 countries outside of North America and is what we believe to be a leading
European healthcare supplier serving office-based practitioners.
Our technology group provides software, technology and other value-added services to healthcare practitioners,
primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our value-added practice
solutions include practice management software systems for dental and medical practitioners and animal health
clinics. Our technology group offerings also include financial services on a non-recourse basis, e-services and
continuing education services for practitioners.
Industry Overview
In recent years, the healthcare industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
healthcare industry, including consolidation of healthcare distribution companies, potential healthcare reform,
trends toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the current economic environment and
uncertainty, particularly impacting overall demand for our products and services.
Industry Consolidation
The healthcare products distribution industry, as it relates to office-based healthcare practitioners, is highly
fragmented and diverse. This industry, which encompasses the dental, medical and animal health markets, was
estimated to produce revenues of approximately $28 billion in 2011 in the combined North American, European
and Australian/New Zealand markets. The industry ranges from sole practitioners working out of relatively small
offices to group practices or service organizations ranging in size from a few practitioners to a large number of
practitioners who have combined or otherwise associated their practices.
Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of
supplies in their offices, the distribution of healthcare supplies and small equipment to office-based healthcare
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based healthcare practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
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We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial and marketing resources, seeking to combine with larger companies that can provide
growth opportunities. This consolidation also may continue to result in distributors seeking to acquire companies
that can enhance their current product and service offerings or provide opportunities to serve a broader customer
base.
Our trend with regard to acquisitions and joint ventures has been to expand our role as a provider of products
and services to the healthcare industry. This trend has resulted in expansion into service areas that complement our
existing operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe
we have the ability to support increased sales through our existing infrastructure.
As the healthcare industry continues to change, we continually evaluate possible candidates for merger or
acquisition and intend to continue to seek opportunities to expand our role as a provider of products and services to
the healthcare industry. There can be no assurance that we will be able to successfully pursue any such opportunity
or consummate any such transaction, if pursued. If additional transactions are entered into or consummated, we
would incur merger and/or acquisition-related costs, and there can be no assurance that the integration efforts
associated with any such transaction would be successful.
Aging Population and Other Market Influences
The healthcare products distribution industry continues to experience growth due to the aging population,
increased healthcare awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the affects of increased unemployment on
insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly physicians’ offices.
The U.S. Census Bureau’s “Statistical Abstract of the United States: 2011,” reports that, in 2010, more than
five million Americans were aged 85 or older, the segment of the population most in need of long-term care and
elder-care services. By the year 2050, that number is projected to more than triple to more than 19 million. The
population aged 65 to 84 years is projected to more than double in the same time period.
As a result of these market dynamics, annual expenditures for healthcare services continue to increase in the
United States. Given current operating, economic and industry conditions, we believe that demand for our products
and services will grow at slower rates. The Centers for Medicare and Medicaid Services, or CMS, published
“National Health Expenditure Projections 2010 – 2020” indicating that total national healthcare spending reached
approximately $2.6 trillion in 2010, or 17.6% of the nation’s gross domestic product, the benchmark measure for
annual production of goods and services in the United States. Healthcare spending is projected to reach
approximately $4.6 trillion in 2020, approximately 19.8% of the nation’s gross domestic product.
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Government
Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we
are subject to extensive local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Additionally, government and private insurance programs
fund a large portion of the total cost of medical care. Many of these laws and regulations are subject to change and
may impact our financial performance.
Healthcare Reform
For example, the Patient Protection and Affordable Care Act as amended by the Health Care and Education
Reconciliation Act, each enacted in March 2010, generally known as the Health Care Reform Law, increased
federal oversight of private health insurance plans and included a number of provisions designed to reduce
Medicare expenditures and the cost of healthcare generally, to reduce fraud and abuse, and to provide access to
health coverage for an additional 32 million people. The Health Care Reform Law requirements include, for
example (i) a 2.3% excise tax on domestic sales of medical devices by manufacturers and importers beginning in
2013, and a fee on branded prescription drugs and biologics that was implemented in 2011, both of which may
affect sales, and (ii) mandated pharmacy benefit manager transparency regarding rebates, discounts and price
concessions with respect to drug benefits under Medicare Part D, and in 2014 with respect to drug benefits offered
through qualified health plans offered through state exchanges, which could affect pricing and competition. A
provision in the Health Care Reform Law, often referred to as the “individual mandate,” which requires individuals
without health insurance to pay a penalty, was recently declared unconstitutional by certain federal courts, while
certain other federal courts have affirmed its constitutionality. Appeals are pending, and the United States Supreme
Court will review this issue during its 2012 term.
In addition to the foregoing, the Health Care Reform Law imposed new reporting and disclosure requirements
for pharmaceutical and device manufacturers with regard to payments or other transfers of value made to certain
practitioners, including physicians, dentists and teaching hospitals, and imposes new reporting and disclosure
requirements for pharmaceutical and device manufacturers and group purchasing organizations with regard to
certain ownership interests held by physicians in the reporting entity. Data collection obligations were to
commence in January 2012, and reporting requirements are to be implemented in 2013. On December 14, 2011,
the Centers for Medicare and Medicaid Services (“CMS”) issued proposed regulations to implement these
provisions and sought substantial comments, thus apparently delaying the January 1, 2012 start of information
collection. These proposed regulations are broadly drafted and still subject to change, and it is possible that when
these regulations are finalized, they will treat us or one or more of our subsidiaries as an entity subject to these
reporting and disclosure requirements. In addition, through business arrangements we have with drug and device
manufacturers, we may be required to collect and report detailed information to these manufactures in order for
these manufacturers to comply with the new requirements. In addition, several states require pharmaceutical and/or
device companies to report expenses relating to the marketing and promotion of products as well as gifts and
payments to individual practitioners in the states, or prohibit certain marketing related activities. Other states, such
as California, Nevada, Massachusetts and Connecticut, require pharmaceutical and/or device companies to
implement compliance programs or marketing codes. Wholesale distributors are covered by the laws in certain of
these states. In others, it is possible that our activities, including on behalf of manufacturers, or the activities of one
or more of our subsidiaries, will subject us to the state’s reporting requirements and prohibitions.
35
Healthcare Fraud
Certain of our businesses are subject to federal and state (and similar foreign) healthcare fraud and abuse,
referral and reimbursement laws, and regulations with respect to their operations. Such laws prohibit, among other
things, the submission or causing the submission of false or fraudulent claims for reimbursement, and soliciting,
offering, receiving or paying remuneration in order to induce the referral of a patient or ordering, purchasing,
leasing or arranging for or recommending ordering, purchasing or leasing, of items or services that are paid for by
government health care programs (known as “anti-kickback” laws). Violations of these laws could result in civil
and criminal penalties. The fraud and abuse laws and regulations have been subject to heightened enforcement
activity over the past few years, particularly through “relators,” who serve as whistleblowers by filing complaints in
the name of the United States (and if applicable, particular states) under federal and state False Claims Act statutes,
and can be entitled to receive up to 30% of total recoveries. Also, violations of the False Claims Act can result in
treble damages, and each false claim submitted can be subject to a penalty of up to $11,000 per claim. These laws
and regulations are subject to frequent modification and varied interpretation, and can have a material adverse
impact on us if a violation is found. The Health Care Reform Law significantly strengthened the federal False
Claims Act, and the anti-kickback provisions, which could lead to the possibility of increased whistleblower or
relator suits, and among other things made clear that an Anti-Kickback Law violation can be a basis for False
Claims Act liability. We also are subject to certain laws and regulations concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act and anti-bribery laws and laws pertaining to the
accuracy of our internal books and records, which have been the focus of increasing enforcement activity in recent
years.
Operating and Security Standards
Regulations adopted under the federal Prescription Drug Marketing Act (“PDMA”), effective December 2006,
require the identification and documentation of transactions involving the receipt and distribution of prescription
drugs, that is, drug pedigree information. These requirements include tracking sales and distribution of prescription
drug products from distributors and potentially manufacturers. In early December 2006, the federal District Court
for the Eastern District of New York issued a preliminary injunction enjoining the implementation of certain parts
of the federal drug pedigree requirements, including the requirement to identify transactions back to the
manufacturer. On July 14, 2011, the FDA published a proposed rulemaking that would remove the requirement
that a pedigree track back to the manufacturer and that certain information be identified on the pedigree. As a result
of the FDA’s intent to resolve these issues, the case was voluntarily dismissed in August 2011. FDA policies in
this area are still evolving.
Many states have implemented or are considering similar drug pedigree laws and regulations. There have been
increasing efforts by various levels of government, including state departments of health, state boards of pharmacy
and comparable agencies, to regulate the pharmaceutical distribution system in order to prevent the introduction of
counterfeit, adulterated or mislabeled pharmaceuticals into the distribution system. A number of states, including
Florida, have already implemented pedigree requirements, including drug tracking requirements, which are
intended to protect the integrity of the pharmaceutical distribution system. California has enacted a statute that,
beginning in 2015, will require manufacturers to identify each package of a prescription pharmaceutical with a
standard, machine-readable unique numerical identifier, and will require manufacturers and distributors to
participate in an electronic track-and-trace system and provide or receive an electronic pedigree for each transaction
in the drug distribution chain. Other states have passed or are reviewing the same type of requirements. Bills have
been proposed in Congress that would impose similar requirements at the federal level.
The Combat Methamphetamine Enhancement Act of 2010, which became effective in April 2011, requires
retail sellers of products containing certain chemicals, such as pseudoephedrine, to self certify to the Drug
Enforcement Administration (“DEA”) that they are in compliance with the laws and regulations regarding such
sales. The law also prohibits distributors from selling these products to retailers who are not registered with the
DEA or who have not self-certified compliance with the laws and regulations. Various states also impose
restrictions on the sale of certain products containing pseudoephedrine and other chemicals. The Secure and
Responsible Drug Disposal Act of 2010, signed by President Obama in October 2010, is intended to allow patients
to deliver unused controlled substances to designated entities to more easily and safely dispose of controlled
substances while reducing the chance of diversion. The law authorizes the DEA to promulgate regulations to allow,
but not require, designated entities to receive unused controlled substances.
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Regulated Software; Electronic Health Records
The United States Food and Drug Administration has become increasingly active in addressing the regulation
of computer software intended for use in healthcare settings, and has been developing policies on regulating clinical
decision support tools as medical devices. Certain of our businesses involve the development and sale of software
and related products to support physician and dental practice management, and it is possible that the FDA could
determine that one or more of our products is a medical device, which could subject us or one or more of our
businesses to substantial additional requirements with respect to these products.
Certain of our businesses involve access to personal health, medical, financial and other information of
individuals, and are accordingly directly or indirectly subject to numerous federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, such as the privacy and security provisions of
the federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”), and require,
among other things, the implementation of various recordkeeping, operational, notice and other practices intended
to safeguard that information, limit its use to allowed purposes, and notify individuals in the event of privacy and
security breaches. Failure to comply with these laws can result in substantial penalties and other liabilities. As a
result of the federal Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), which
was passed in 2009, some of our businesses that were previously only indirectly subject to federal HIPAA privacy
and security rules became directly subject to such rules because such businesses serve as “business associates” of
HIPAA covered entities, such as health care providers. Additional rules under the HITECH Act are expected to be
issued in early 2012, further expanding the privacy and security requirements applicable to some of our businesses.
In addition, the HITECH Act established a program of Medicare and Medicaid incentive payments available to
certain health care providers including, among others, physicians and dentists, if they meaningfully use certified
electronic health record technology (“EHR”). Also, eligible providers that fail to adopt certified EHR systems may
be subject to Medicare reimbursement reductions beginning in 2015. Qualification for the incentive payments
requires the use of EHRs that are certified as having certain capabilities for meaningful use pursuant to standards
adopted by the Department of Health and Human Services. While initial standards have been established, new
versions are expected to be issued over the next several years, and the content of those standards is not certain.
Certain of our businesses involve the manufacture and sale of certified EHR systems, and so must maintain
compliance with these evolving governmental criteria.
Also, HIPAA requires certain health care providers, such as physicians, to use certain transaction and code set
rules for specified electronic transactions, such as transactions involving claims submissions. As of January 1,
2012, subject to 90 days of CMS enforcement discretion, electronic claim submissions and related electronic
transactions were required to be conducted under a new HIPAA transaction standard, called Version 5010. CMS is
requiring this upgrade in connection with another new requirement applicable to the industry, the implementation
of new diagnostic code sets to be used in claims submission. The new diagnostic code sets are called the ICD-10-
CM, and are to be implemented on October 1, 2013. Certain of our businesses provide electronic practice
management products that must meet those requirements, and while we believe we are prepared to timely adopt the
new standards, it is possible that the transition to these new standards, particularly the transition to ICD-10-CM,
may result in a degree of disruption and confusion, thus potentially increasing the costs associated with supporting
this product.
There may be additional legislative initiatives in the future impacting healthcare.
E-Commerce
Traditional healthcare supply and distribution relationships are being challenged by electronic online commerce
solutions. Our distribution business is characterized by rapid technological developments and intense competition.
The advancement of online commerce will require us to cost-effectively adapt to changing technologies, to enhance
existing services and to develop and introduce a variety of new services to address the changing demands of
consumers and our customers on a timely basis, particularly in response to competitive offerings.
Through our proprietary, technologically-based suite of products, we offer customers a variety of competitive
alternatives. We believe that our tradition of reliable service, our name recognition and large customer base built
on solid customer relationships position us well to participate in this growing aspect of the distribution business.
We continue to explore ways and means to improve and expand our Internet presence and capabilities.
37
Results of Operations
The following tables summarize the significant components of our operating results and cash flows for each of
the three years ended December 31, 2011, December 25, 2010 and December 26, 2009 (in thousands):
Years Ended
December 31, December 25,
December 26,
2011
2010
2009
Operating results:
Net sales .................................................................................................. $
Cost of sales ............................................................................................
Gross profit .........................................................................................
Operating expenses:
Selling, general and administrative .....................................................
Restructuring costs ..............................................................................
Operating income ........................................................................... $
Other expense, net ................................................................................... $
Income from continuing operations .........................................................
Income from continuing operations attributable
8,530,242 $
6,112,187
2,418,055
7,526,790 $
5,355,914
2,170,876
1,835,906
-
582,149 $
1,637,460
12,285
521,131 $
6,538,336
4,621,516
1,916,820
1,449,715
3,020
464,085
(12,842) $
404,656
(19,096) $
352,131
(11,365)
330,442
to Henry Schein, Inc. ...........................................................................
367,661
325,789
308,551
Years Ended
December 31, December 25,
December 26,
2011
2010
2009
Cash flows:
Net cash provided by operating activities ............................................... $
Net cash used in investing activities ........................................................
Net cash used in financing activities .......................................................
554,625 $
(196,069)
(354,367)
395,480 $
(388,033)
(330,233)
398,029
(98,587)
(197,675)
Plans of Restructuring
On November 5, 2008, we announced certain actions to reduce operating costs. These actions included the
elimination of approximately 430 positions from our operations and the closing of several smaller facilities. Also,
during the first quarter of 2010, we completed an additional restructuring in order to further reduce operating
expenses. This restructuring included headcount reductions of 184 positions, as well as the closing of a number of
smaller locations.
During the years ended December 25, 2010 and December 26, 2009, we recorded restructuring costs of
approximately $12.3 million (approximately $8.3 million after taxes) and $3.0 million (approximately $2.1 million
after taxes), respectively. These costs primarily consisted of employee severance pay and benefits, facility closing
costs, representing primarily lease termination and asset write-off costs, and outside professional and consulting
fees directly related to the restructuring plans. The costs associated with these restructurings are included in a
separate line item, “Restructuring costs,” within our consolidated statements of income.
During 2012, we will be implementing a restructuring with the goal of improving profitability. We expect to
record restructuring charges of approximately $11 million to $13 million, or approximately $0.08 to $0.10 per
diluted share, during the first half of 2012 as a result of this restructuring.
38
2011 Compared to 2010
Net Sales
Net sales for 2011 and 2010 were as follows (in thousands):
Healthcare distribution (1):
Dental (2) .................................................. $
Medical (3) ................................................
Animal health (4) ......................................
International (5) .........................................
Total healthcare distribution ................
Technology (6) ...............................................
Total .................................................... $
2011
% of
Total
2010
% of
Total
Increase
$
%
2,861,100
1,412,470
993,183
3,012,869
8,279,622
250,620
8,530,242
33.6 % $
16.6
11.6
35.3
97.1
2.9
100.0 % $
2,678,830
1,290,428
889,303
2,468,277
7,326,838
199,952
7,526,790
35.6 % $
17.1
11.8
32.8
97.3
2.7
100.0 % $
182,270
122,042
103,880
544,592
952,784
50,668
1,003,452
6.8 %
9.5
11.7
22.1
13.0
25.3
13.3
(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
(2) Consists of products sold in the United States and Canadian dental markets.
(3) Consists of products sold in the United States’ medical market.
(4) Consists of products sold in the United States’ animal health market.
(5) Consists of products sold in the dental, medical and animal health markets, primarily in Europe, Australia and New Zealand.
(6) Consists of practice management software and other value-added products and services, which are distributed primarily to healthcare
providers in the United States, Canada, the United Kingdom, Australia and New Zealand.
The fiscal year ended December 31, 2011 consisted of 53 weeks as compared to the fiscal year ended
December 25, 2010, which consisted of 52 weeks.
The $1,003.5 million, or 13.3%, increase in net sales for the year ended December 31, 2011 includes an
increase of 10.9% local currency growth (4.5% increase in internally generated revenue, 1.5% impact from extra
week and 4.9% growth from acquisitions) as well as an increase of 2.4% related to foreign currency exchange.
The $182.3 million, or 6.8%, increase in dental net sales for the year ended December 31, 2011 includes an
increase of 6.3% in local currencies (3.2% increase in internally generated revenue, 2.0%, impact from extra week
and 1.1% growth from acquisitions) as well as an increase of 0.5% related to foreign currency exchange. The 6.3%
increase in local currency sales was due to increases in dental equipment sales and service revenues of 5.7% (1.3%
increase in internally generated revenue and 4.4% impact from extra week) and dental consumable merchandise
sales growth of 6.5% (3.8% increase in internally generated revenue, 1.2% impact from extra week and 1.5%
growth from acquisitions).
The $122.0 million, or 9.5%, increase in medical net sales for the year ended December 31, 2011 includes an
increase in internally generated revenue of 6.4%, 1.6% impact from extra week and acquisition growth of 1.5%.
The $103.9 million, or 11.7%, increase in animal health net sales for the year ended December 31, 2011
includes an increase in internally generated revenue of 8.8%, 1.9% impact from extra week and acquisition growth
of 1.0%.
The $544.6 million, or 22.1%, increase in international net sales for the year ended December 31, 2011 includes
sales growth of 15.2% in local currencies (3.0% internally generated revenue, 0.8% impact from extra week and
11.4% growth from acquisitions) as well as an increase of 6.9% related to foreign currency exchange.
The $50.7 million, or 25.3%, increase in technology net sales for the year ended December 31, 2011 includes
an increase of 24.4% local currency growth (9.6% internally generated growth, 1.9% impact from extra week and
12.9% growth from acquisitions) as well as an increase of 0.9% related to foreign currency exchange.
39
Gross Profit
Gross profit and gross margins for 2011 and 2010 by segment and in total were as follows (in thousands):
Healthcare distribution .............................. $
Technology ................................................
Total ..................................................... $
2011
2,253,814
164,241
2,418,055
Gross
Margin %
27.2 % $
65.5
28.3
$
2010
2,033,860
137,016
2,170,876
Gross
Margin %
27.8 % $
68.5
28.8
$
Increase
$
219,954
27,225
247,179
%
10.8 %
19.9
11.4
Gross profit increased $247.2 million, or 11.4%, for the year ended December 31, 2011 compared to the prior
year period. As a result of different practices of categorizing costs associated with distribution networks throughout
our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally,
we realize substantially higher gross margin percentages in our technology segment than in our healthcare
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.
Within our healthcare distribution segment, gross profit margins may vary from one period to the next.
Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers
affecting our gross profit margin. For example, sales of pharmaceutical products are generally at lower gross profit
margins than other products. Conversely, sales of our private label products achieve gross profit margins that are
better than average. With respect to customer mix, sales to our large-group customers are typically completed at
lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners who normally purchase lower volumes at higher frequencies.
Healthcare distribution gross profit increased $220.0 million, or 10.8%, for the year ended December 31, 2011
compared to the prior year period. Healthcare distribution gross profit margin decreased to 27.2% for the year
ended December 31, 2011 from 27.8% for the comparable prior year period. The decrease in our healthcare
distribution gross profit margin is primarily due to growth in sales within our animal health businesses, which
typically include a greater percentage of lower-margin pharmaceutical products than our other operating units. The
increase in animal health sales results from internal growth in the United States and the acquisition of Provet
Holdings Limited (see Note 9 “Business Acquisitions, Discontinued Operation and Other Transactions” within our
notes to our consolidated financial statements) at the beginning of our 2011 fiscal year.
Technology gross profit increased $27.2 million, or 19.9%, for the year ended December 31, 2011 compared to
the prior year period. Technology gross profit margin decreased to 65.5% for the year ended December 31, 2011
from 68.5% for the comparable prior year period, primarily due to changes in the product sales mix. Specifically,
revenues generated from hardware sales and installations, which generally are completed at a lower than average
gross margin, grew at a greater rate than electronic services (claims processing, statements generation, etc.) or
software sales, which typically generate higher than average gross margins.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2011 and 2010 were as follows (in
thousands):
Healthcare distribution .............................. $
Technology ................................................
Total .................................................... $
% of
Respective
Net Sales
2011
1,742,519
93,387
1,835,906
21.0 % $
37.3
21.5
$
2010
1,566,915
70,545
1,637,460
% of
Respective
Net Sales
21.4 % $
35.3
21.8
$
Increase
$
175,604
22,842
198,446
%
11.2 %
32.4
12.1
Selling, general and administrative expenses increased $198.4 million, or 12.1%, for the year ended December
31, 2011 from the comparable prior year period. As a percentage of net sales, selling, general and administrative
expenses decreased to 21.5% from 21.8% for the comparable prior year period.
40
As a component of total selling, general and administrative expenses, selling expenses increased $101.0
million, or 9.4%, for the year ended December 31, 2011 from the comparable prior year period. As a percentage of
net sales, selling expenses decreased to 13.8% from 14.3% for the comparable prior year period.
As a component of total selling, general and administrative expenses, general and administrative expenses
increased $97.4 million, or 17.5%, for the year ended December 31, 2011 from the comparable prior year period.
As a percentage of net sales, general and administrative expenses increased to 7.7% from 7.4% for the comparable
prior year period.
Other Expense, Net
Other expense, net for the years ended 2011 and 2010 was as follows (in thousands):
Interest income .................................................................... $
Interest expense ...................................................................
Other, net .............................................................................
Other expense, net ....................................................... $
15,593 $
(30,377)
1,942
(12,842) $
14,098 $
(33,641)
447
(19,096) $
2011
2010
$
Variance
1,495
3,264
1,495
6,254
%
10.6 %
9.7
334.5
32.8
Other expense, net decreased $6.3 million to $12.8 million for the year ended December 31, 2011 from the
comparable prior year period. Interest income increased $1.5 million primarily due to higher investment income
partially offset by a decrease in late fee income. Interest expense decreased $3.3 million primarily due to reduced
interest expense from the redemption of our 3% convertible contingent notes originally due in 2034 (the
“Convertible Notes”) on September 3, 2010, partially offset by increased interest expense related to borrowings
under our private placement shelf facilities, as well as interest expense related to our credit lines. Other, net
increased by $1.5 million due primarily to a gain associated with the acquisition of the remaining interest in an
equity investment and proceeds received from a litigation settlement.
Income Taxes
For the year ended December 31, 2011, our effective tax rate from continuing operations was 31.7% compared
to 31.9% for the prior year period. The net reduction in our 2011 effective tax rate results from additional tax
planning, settlements of tax audits and higher income from lower taxing countries. The difference between our
effective tax rate and the federal statutory tax rate for both periods related primarily to foreign and state income
taxes. For 2012, we expect our effective tax rate to approximate 31.0%.
Net Income
Net income increased $52.5 million, or 14.9%, for the year ended December 31, 2011, compared to the prior
year period due to the factors noted above. Excluding sales of seasonal influenza vaccines from both periods, net
income increased by approximately 16.9%.
41
2010 Compared to 2009
Net Sales
Net sales for 2010 and 2009 were as follows (in thousands):
Healthcare distribution (1):
Dental (2) .................................................. $
Medical (3) ................................................
Animal health (4) ......................................
International (5) .........................................
Total healthcare distribution ................
Technology (6) ...............................................
Total .................................................... $
2010
% of
Total
2009
% of
Total
Increase
$
%
2,678,830
1,290,428
889,303
2,468,277
7,326,838
199,952
7,526,790
35.6 % $
17.1
11.8
32.8
97.3
2.7
100.0 % $
2,509,921
1,217,020
240,082
2,398,105
6,365,128
173,208
6,538,336
38.4 % $
18.6
3.7
36.7
97.4
2.6
100.0 % $
168,909
73,408
649,221
70,172
961,710
26,744
988,454
6.7 %
6.0
270.4
2.9
15.1
15.4
15.1
(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
(2) Consists of products sold in the United States and Canadian dental markets.
(3) Consists of products sold in the United States’ medical market.
(4) Consists of products sold in the United States’ animal health market.
(5) Consists of products sold in the dental, medical and animal health markets, primarily in Europe, Australia and New Zealand.
(6) Consists of practice management software and other value-added products and services, which are distributed primarily to healthcare
providers in the United States, Canada, the United Kingdom, Australia and New Zealand.
The $988.5 million, or 15.1%, increase in net sales for the year ended December 25, 2010 includes an increase
of 15.4% local currency growth (3.1% increase in internally generated revenue and 12.3% growth from
acquisitions) offset by a decrease of 0.3% related to foreign currency exchange.
The $168.9 million, or 6.7%, increase in dental net sales for the year ended December 25, 2010 includes an
increase of 5.7% in local currencies (2.2% increase in internally generated revenue and 3.5% growth from
acquisitions) as well as an increase of 1.0% related to foreign currency exchange. The 5.7% increase in local
currency sales was due to increases in dental equipment sales and service revenues of 2.5% (2.3% increase in
internally generated revenue and 0.2% growth from acquisitions) and dental consumable merchandise sales growth
of 6.7% (2.2% increase in internally generated revenue and 4.5% growth from acquisitions).
The $73.4 million, or 6.0%, increase in medical net sales for the year ended December 25, 2010 includes an
increase in internally generated revenue of 2.3% and acquisition growth of 3.7%.
The $649.2 million, or 270.4%, increase in animal health net sales for the year ended December 25, 2010
includes acquisition growth of 269.8% due to the acquisition of a majority interest in Butler Animal Health Supply,
LLC as of December 31, 2009, as well as internally generated revenue of 0.6%.
The $70.2 million, or 2.9%, increase in international net sales for the year ended December 25, 2010 includes
sales growth of 4.9% in local currencies (4.2% internally generated revenue and 0.7% growth from acquisitions)
offset by a decrease of 2.0% related to foreign currency exchange.
The $26.7 million, or 15.4%, increase in technology net sales for the year ended December 25, 2010 includes
an increase of 14.8% local currency growth (10.4% internally generated growth and 4.4% growth from
acquisitions) as well as an increase of 0.6% related to foreign currency exchange.
42
Gross Profit
Gross profit and gross margins for 2010 and 2009 by segment and in total were as follows (in thousands):
Healthcare distribution .............................. $
Technology ................................................
Total ..................................................... $
2010
2,033,860
137,016
2,170,876
Gross
Margin %
27.8 % $
68.5
28.8
$
2009
1,792,516
124,304
1,916,820
Gross
Margin %
28.2 % $
71.8
29.3
$
Increase
$
241,344
12,712
254,056
%
13.5 %
10.2
13.3
Gross profit increased $254.1 million, or 13.3%, for the year ended December 25, 2010 compared to the prior
year period. As a result of different practices of categorizing costs associated with distribution networks throughout
our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally,
we realize substantially higher gross margin percentages in our technology segment than in our healthcare
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.
Within our healthcare distribution segment, gross profit margins may vary from one period to the next.
Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers
affecting our gross profit margin. For example, sales of pharmaceutical products are generally at lower gross profit
margins than other products. Conversely, sales of our private label products achieve gross profit margins that are
better than average. With respect to customer mix, sales to our large-group customers are typically completed at
lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners who normally purchase lower volumes at higher frequencies.
Healthcare distribution gross profit increased $241.3 million, or 13.5%, for the year ended December 25, 2010
compared to the prior year period. Healthcare distribution gross profit margin decreased to 27.8% for the year
ended December 25, 2010 from 28.2% for the comparable prior year period. The decrease in our healthcare
distribution gross profit margin is primarily due to growth in sales within our animal health businesses, which
typically include a greater percentage of lower-margin pharmaceutical products than our other operating units.
Technology gross profit increased $12.7 million, or 10.2%, for the year ended December 25, 2010 compared to
the prior year period. Technology gross profit margin decreased to 68.5% for the year ended December 25, 2010
from 71.8% for the comparable prior year period, primarily due to changes in the product sales mix. Specifically,
revenues generated from hardware sales and installations, which generally are completed at a lower than average
gross margin, grew at a greater rate than electronic services (claims processing, statements generation, etc.) or
software sales, which typically generate higher than average gross margins.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2010 and 2009 were as follows (in
thousands):
Healthcare distribution .............................. $
Technology ................................................
Total .................................................... $
% of
Respective
Net Sales
2010
1,566,915
70,545
1,637,460
21.4 % $
35.3
21.8
$
2009
1,387,581
62,134
1,449,715
% of
Respective
Net Sales
21.8 % $
35.9
22.2
$
Increase
$
179,334
8,411
187,745
%
12.9 %
13.5
13.0
Selling, general and administrative expenses increased $187.7 million, or 13.0%, for the year ended December
25, 2010 compared to the prior year period. As a percentage of net sales, selling, general and administrative
expenses decreased to 21.8% from 22.2% from the comparable prior year period.
43
As a component of total selling, general and administrative expenses, selling expenses increased $117.7
million, or 12.2%, for the year ended December 25, 2010 from the prior year period. As a percentage of net sales,
selling expenses decreased to 14.3% from 14.7% for the comparable prior year period.
As a component of total selling, general and administrative expenses, general and administrative expenses
increased $70.0 million, or 14.4%, for the year ended December 25, 2010 from the prior year period. As a
percentage of net sales, general and administrative expenses decreased to 7.4% from 7.5% for the comparable prior
year period.
Other Expense, Net
Other expense, net for the years ended 2010 and 2009 was as follows (in thousands):
Interest income .................................................................... $
Interest expense ...................................................................
Other, net .............................................................................
Other expense, net ....................................................... $
14,098 $
(33,641)
447
(19,096) $
9,979 $
(23,370)
2,026
(11,365) $
2010
2009
$
Variance
4,119
(10,271)
(1,579)
(7,731)
%
41.3 %
(43.9)
(77.9)
(68.0)
Other expense, net increased $7.7 million to $19.1 million for the year ended December 25, 2010 from the
comparable prior year period. Interest expense increased $10.3 million primarily due to debt associated with the
acquisition of a majority interest in Butler Animal Health Supply, LLC, partially offset by reduced interest expense
from the redemption of all of our Convertible Notes on September 3, 2010 and from repayment of our $130.0
million senior notes on June 30, 2009. Interest income increased $4.1 million as a result of increased late fee
income, partially offset by lower interest income on our invested funds. Other, net decreased by $1.6 million due
primarily to net proceeds received from litigation settlements in the third quarter of 2009, partially offset by the
impact of foreign currency exchange.
Income Taxes
For the year ended December 25, 2010, our effective tax rate from continuing operations was 31.9% compared
to 28.2% for the prior year period. The difference resulted primarily from the reduction of a valuation allowance in
2009 as explained below. Without the effect of the reduction of the valuation allowance described below, our
effective tax rate from continuing operations for the year ended December 26, 2009 would have been 32.8%. The
net reduction in our 2010 effective tax rate results from additional tax planning, settlements of tax audits, a
reduction of valuation allowances and higher income from lower taxing countries. The difference between our
effective tax rate and the federal statutory tax rate for both periods related primarily to foreign and state income
taxes.
During the third quarter of 2009, we substantially completed a plan of reorganization outside the United States
that allowed us to utilize tax loss carryforwards to offset taxable income beginning in 2010 in certain foreign tax
jurisdictions. As a result, we determined that it is more likely than not that a portion of deferred tax assets
previously fully reserved will be realized. Therefore, the 2009 provision for income taxes includes a $20.9 million
reduction of the valuation allowance which is based on an estimate of future taxable income available to be offset
by the tax loss carryforwards.
Loss from Discontinued Operations
During the year ended December 26, 2009, we recognized aggregate gains of $2.6 million, net of tax, related to
a discontinued operation (see Note 9 in the accompanying annual consolidated financial statements for further
discussion).
Net Income
Net income increased $19.0 million, or 5.7%, for the year ended December 25, 2010 compared to the prior year
period. The increase in net income is primarily due to increased net sales. Excluding sales of seasonal influenza
vaccines from both periods, net income increased by approximately 3.5%.
44
Liquidity and Capital Resources
Our principal capital requirements include funding of acquisitions, purchases of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs, purchases of securities and fixed
assets and repurchases of common stock. Working capital requirements generally result from increased sales,
special inventory forward buy-in opportunities and payment terms for receivables and payables. Historically, sales
have tended to be stronger during the third and fourth quarters and special inventory forward buy-in opportunities
have been most prevalent just before the end of the year, causing our working capital requirements to have been
higher from the end of the third quarter to the end of the first quarter of the following year.
We finance our business primarily through cash generated from our operations, revolving credit facilities and
debt placements. Our ability to generate sufficient cash flows from operations is dependent on the continued
demand of our customers for our products and services, and access to products and services from our suppliers.
Our business requires a substantial investment in working capital, which is susceptible to fluctuations during
the year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function
of sales activity, special inventory forward buy-in opportunities and our desired level of inventory. We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months. Funding requirements are based
on forecasted profitability and working capital needs, which, on occasion, may change. Consequently, we may
change our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity
markets, and our available funds under existing credit facilities provide us with sufficient liquidity to meet our
currently foreseeable short-term and long-term capital needs. We have no off-balance sheet arrangements.
Net cash flow provided by operating activities was $554.6 million for the year ended December 31, 2011,
compared to $395.5 million for the comparable prior year period. The net change of $159.1 million was primarily
attributable to favorable working capital changes as well as net income improvements, after taking into account
depreciation and amortization, stock-based compensation expense and deferred taxes.
Net cash used in investing activities was $196.1 million for the year ended December 31, 2011, compared to
$388.0 million for the comparable prior year period. The net change of $191.9 million was primarily due to
decreases in payments for equity investments and business acquisitions.
Net cash used by financing activities was $354.4 million for the year ended December 31, 2011, compared to
$330.2 million for the comparable prior year period. The net change of $24.2 million was primarily due to
increased repurchases of common stock and an increase in acquisitions of noncontrolling interests in subsidiaries,
partially offset by decreased net payments of debt.
We expect to invest approximately $50 million to $60 million during 2012 in capital projects to modernize and
expand our facilities and computer systems and to integrate certain operations into our existing structure.
The following table summarizes selected measures of liquidity and capital resources (in thousands):
Cash and cash equivalents ................................................................................................... $
Available-for-sale securities - long-term .............................................................................
Working capital ...................................................................................................................
2011
147,284 $
11,329
1,000,868
2010
150,348
13,367
1,001,215
December 31, December 25,
Debt:
Bank credit lines ............................................................................................................. $
Current maturities of long-term debt ..............................................................................
Long-term debt ...............................................................................................................
Total debt ................................................................................................................... $
55,014 $
22,819
363,524
441,357 $
41,508
4,487
395,309
441,304
Our cash and cash equivalents consist of bank balances and investments in money market funds representing
overnight investments with a high degree of liquidity.
45
Available-for-sale securities
As of December 31, 2011, we have approximately $12.5 million ($11.3 million net of temporary impairments)
invested in auction-rate securities (“ARS”), consisting of investments backed by student loans (backed by the
federal government) and investments in closed-end municipal bond funds. ARS are publicly issued securities that
represent long-term investments, typically 10-30 years, in which interest rates had reset periodically (typically
every 7, 28 or 35 days) through a “dutch auction” process. Our ARS portfolio is comprised of investments that are
rated investment grade by major independent rating agencies. Since the middle of February 2008, these auctions
have failed to settle due to an excess number of sellers compared to buyers. The failure of these auctions has
resulted in our inability to liquidate our ARS in the near term. We are currently not aware of any defaults or
financial conditions that would negatively affect the issuers’ ability to continue to pay interest and principal on our
ARS. We continue to earn and receive interest at contractually agreed upon rates. We believe that the current lack
of liquidity related to our ARS investments will have no impact on our ability to fund our ongoing operations and
growth opportunities. As of December 31, 2011, we have classified ARS holdings as long-term, available-for-sale
and they are included in the Investments and other line within our consolidated balance sheets.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations increased to 40.6 days as of December 31,
2011 from 40.4 days as of December 25, 2010. During the years ended December 31, 2011 and December 25,
2010, we wrote off approximately $6.2 million and $6.7 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations increased to 6.6 for the year ended
December 31, 2011 from 6.5 for the year ended December 25, 2010. Our working capital accounts may be
impacted by current and future economic conditions.
Contractual obligations
The following table summarizes our contractual obligations related to fixed and variable rate long-term debt,
including interest (assuming an average long-term rate of interest of 3.8%), as well as operating and capital lease
obligations, capital expenditure obligations and inventory purchase commitments as of December 31, 2011:
Payments due by period (in thousands)
< 1 year
2 - 3 years
4 - 5 years
> 5 years
Total
Contractual obligations:
Long-term debt, including interest .......................$
35,887 $
123,990 $
181,798 $
115,160 $
Inventory purchase commitments .........................
Operating lease obligations ..................................
Capital lease obligations, including interest .........
69,534
65,640
2,701
73,090
79,030
2,265
43,845
40,259
430
101,634
34,619
-
456,835
288,103
219,548
5,396
Total .....................................................................$
173,762 $
278,375 $
266,332 $
251,413 $
969,882
Inventory purchase commitments include obligations to purchase certain pharmaceutical products from a
manufacturer through 2013, which require us to pay a price based on the prevailing market price or formula price in
each respective year. The amounts included in the above table related to these purchase commitments were
determined using current market conditions. We also have obligations to purchase certain pharmaceutical products
from another manufacturer. Actual amounts may differ.
46
Redemption of convertible debt
On September 3, 2010, we paid approximately $240 million in cash and issued 732,422 shares of our common
stock in connection with the redemption of our $240.0 million of Convertible Notes, which were issued in 2004.
The Convertible Notes were senior unsecured obligations bearing a fixed annual interest rate of 3.0% and were
due to mature on August 15, 2034. The Convertible Notes were convertible into our common stock at a conversion
ratio of 21.58 shares per one thousand dollars of principal amount of notes, which is equivalent to a conversion
price of $46.34 per share, under the following circumstances:
•
if the price of our common stock was above 130% of the conversion price measured over a specified
number of trading days;
• during the five-business-day period following any 10-consecutive-trading-day period in which the
average of the trading prices for the Convertible Notes for that 10-trading-day period was less than
98% of the average conversion value for the Convertible Notes during that period;
•
if the Convertible Notes have been called for redemption; or
• upon the occurrence of a fundamental change or specified corporate transactions, as defined in the
Convertible Note agreement.
Credit Facilities
On September 5, 2008, we entered into a $400 million revolving credit facility with a $100 million expansion
feature. The borrowings outstanding on this revolving credit facility were $25.0 million as of December 31, 2011.
The $400 million credit line expires in September 2013. The interest rate, which was 0.75% during the year ended
December 31, 2011, is based on the USD LIBOR plus a spread based on our leverage ratio at the end of each
financial reporting quarter. As of December 31, 2011, we had various other short-term bank credit lines available,
of which approximately $30.0 million was outstanding. As of December 31, 2011, borrowings under all of our
credit lines had a weighted average interest rate of 1.29%. As of December 31, 2011, there were $9.7 million of
letters of credit provided to third parties.
Private Placement Facilities
On August 10, 2010, we entered into $400 million private placement facilities with two insurance companies.
These shelf facilities are available through August 2013 on an uncommitted basis. 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. As of December 31, 2011, we have an outstanding balance
under the facilities of $100.0 million at a fixed rate of 3.79%, which is due on September 2, 2020.
On January 20, 2012, we drew down $100.0 million from our existing private placement facilities, consisting of
$50.0 million for 12 years at 3.45% and $50.0 million for ten years with annual payments starting in 2016 at 3.09%.
47
Butler Animal Health Supply
Effective December 31, 2009, Butler Animal Health Supply, LLC (“BAHS”), a majority-owned subsidiary
whose financial information is consolidated with ours, had incurred approximately $320.0 million of debt (of which
$37.5 million was provided by Henry Schein, Inc.) in connection with our acquisition of a majority interest in
BAHS.
On May 27, 2011, BAHS refinanced the terms and amount of its debt. The refinanced debt consists of the
following three components:
• Term loan A - $100.0 million repayable in 13 quarterly installments in payment amounts ranging from $1.2
million per quarter for the period September 30, 2011 through June 30, 2012, approximately $1.8 million per
quarter for the period September 30, 2012 through June 30, 2013, $2.5 million per quarter for the period
September 30, 2013 through June 30, 2014, approximately $3.1 million for the quarter ended September 30,
2014 and a final installment of approximately $72.9 million due on December 31, 2014. Interest on the
$100.0 million term loan is charged at LIBOR plus a margin of 3%. During 2011, BAHS made a
prepayment on this loan, which resulted in a reduction to the future quarterly and final installment amounts
due. Future prepayments by BAHS, if any, will result in reductions to remaining quarterly and final
installment amounts due.
• Term loan B - $216.0 million ($55.0 million provided by Henry Schein, Inc.) repayable in 17 quarterly
installments of $530 thousand from September 30, 2011 through September 30, 2015, and a final installment
of approximately $202.9 million due on December 31, 2015. Interest on the $216.0 million term loan is
charged at LIBOR plus a margin of 3.25% with a LIBOR floor of 1.25%. During 2011, BAHS made a
prepayment on this loan, which resulted in a reduction to the future quarterly and final installment amounts
due. Future prepayments by BAHS, if any, will result in reductions to remaining quarterly and final
installment amounts due.
• Revolver of $50.0 million with interest charged at LIBOR plus a margin of 3%.
The outstanding balance of $251.7 million is reflected in our consolidated balance sheet as of December 31,
2011.
Prior to the debt refinancing discussed above, the debt incurred as part of the acquisition of BAHS was
repayable in 23 quarterly installments of $0.8 million through September 30, 2015, and a final installment of $301.6
million was due on December 31, 2015. Interest on the BAHS debt was charged at LIBOR plus a margin of 3.5%
with a LIBOR floor of 2%.
The revised debt agreement continues to provide, among other things, that BAHS maintain certain interest
coverage and maximum leverage ratios, and contains restrictions relating to subsidiary indebtedness, capital
expenditures, liens, employee and shareholder loans, disposal of businesses and certain changes in ownership. In
addition, the revised debt agreement continues to contain provisions which, under certain circumstances, require
BAHS to make prepayments based on excess cash flows of BAHS as defined in the debt agreement. The revised
debt agreement also contains provisions that require BAHS to hedge risks related to potential rising interest rates.
As a result, BAHS entered into a series of interest rate caps, for which we have elected hedge accounting
treatment, with a notional amount of $160.0 million, protecting against LIBOR interest rates rising above
3.0% through March 30, 2012.
Acquisitions
On December 31, 2010, we acquired 100% of the outstanding shares of Provet Holdings Limited (ASX: PVT),
Australasia's largest wholesale distributor of veterinary products with sales in its 2010 fiscal year of approximately
$278 million, for approximately $91 million, in a cash-for-stock exchange.
Stock repurchases
From June 21, 2004 through December 31, 2011, we repurchased $500.0 million, or 9,819,009 shares, under
our common stock repurchase programs. On August 18, 2011, our Board of Directors authorized an additional
$200.0 million for additional repurchases of our common stock, $100.0 million of which is available as of
December 31, 2011 for future common stock share repurchases.
48
Redeemable noncontrolling interests
Some minority shareholders 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 31, 2011, December 25, 2010 and December 26, 2009 are presented in the following table:
December 31,
December 25, December 26,
Balance, beginning of period ............................................................... $
Decrease in redeemable noncontrolling interests due to
redemptions .....................................................................................
Increase in redeemable noncontrolling interests due to
business acquisitions .........................................................................
Net income attributable to redeemable noncontrolling interests ..........
Dividends declared ...............................................................................
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests ................................................
Change in fair value of redeemable securities ......................................
Balance, end of period .......................................................................... $
2011
2010
2009
304,140 $
178,570 $
233,035
(160,254)
(143,988)
(71,951)
13,618
36,514
(15,212)
(889)
224,133
402,050 $
206,302
26,054
(12,360)
(2,281)
51,843
304,140 $
-
21,975
(5,973)
2,065
(581)
178,570
Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are adjusted
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. These adjustments do not impact the calculation of earnings per share.
Additionally, some prior owners of such acquired subsidiaries are eligible to receive additional purchase price
cash consideration if certain financial targets are met. For acquisitions completed prior to 2009, we accrue
liabilities that may arise from these transactions when we believe that the outcome of the contingency is
determinable beyond a reasonable doubt. For 2009 and future acquisitions, as required by ASC Topic 805,
“Business Combinations,” we have and will accrue liabilities for the estimated fair value of additional purchase
price adjustments at the time of the acquisition. Any adjustments to these accrual amounts will be recorded in our
consolidated statement of income.
On December 30, 2011, we acquired all of Oak Hill Capital Partners’ (“OHCP”) remaining direct and indirect
interests in BAHS (including its interest in W.A. Butler Company) for $155 million in cash. As a result of this
transaction, our ownership in BAHS increased to approximately 71.7%. The amount paid to OHCP for their
remaining interests in BAHS was in excess of the previously agreed upon annual limits (see Note 9. “Business
Acquisitions, Discontinued Operation and Other Transaction” within our notes to our consolidated financial
statements), but such limits were waived by all parties involved.
Unrecognized tax benefits
As more fully disclosed in Note 12 of “Notes to Consolidated Financial Statements,” we cannot reasonably
estimate the timing of future cash flows related to the unrecognized tax benefits, including accrued interest, of
$24.5 million as of December 31, 2011.
49
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and
liabilities. We base our estimates on historical data, when available, experience, industry and market trends, and on
various other assumptions that are believed to be reasonable under the circumstances, the combined results of
which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. However, by their nature, estimates are subject to various assumptions and
uncertainties. Reported results are therefore sensitive to any changes in our assumptions, judgments and estimates,
including the possibility of obtaining materially different results if different assumptions were to be applied.
We believe that the following critical accounting policies, which have been discussed with our audit committee,
affect the significant estimates and judgments used in the preparation of our financial statements:
Revenue Recognition
We generate revenue from the sale of dental, medical and animal health consumable products, as well as
equipment, software products and services and other sources. Provisions for discounts, rebates to customers,
customer returns and other contra-revenue adjustments are recorded 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 is recognized when products are shipped to customers.
Such sales typically entail high-volume, low-dollar orders shipped using third-party common carriers. We believe
that the shipment date is the most appropriate point in time indicating the completion of the earnings process
because we have no post-shipment obligations, the product price is fixed and determinable, collection of the
resulting receivable is reasonably assured and product returns are reasonably estimable.
Revenue derived from the sale of equipment is recognized when products are delivered to customers. Such
sales typically entail scheduled deliveries of large equipment primarily by equipment service technicians. Some
equipment sales require minimal installation, which is typically completed at the time of delivery.
Revenue derived from the sale of software products is recognized when products are shipped to customers.
Such software is generally installed by customers and does not require extensive training due to the nature of its
design. Revenue derived from post-contract customer support for software, including annual support and/or
training, is recognized over the period in which the services are provided.
Revenue derived from the sale of products consisting of multiple elements (i.e., hardware, software,
installation, training and technical support) is allocated to the various elements based upon vendor-specific
objective evidence of fair value or deferred until such time as vendor-specific objective evidence of fair value is
obtained.
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.
Accounts Receivable and Reserves
The carrying amount of accounts receivable is reduced by a valuation allowance that reflects our best estimate
of the amounts that will not be collected. The reserve for accounts receivable is comprised of allowance for
doubtful accounts and sales returns. In addition to reviewing delinquent accounts receivable, we consider many
factors in estimating our reserve, including historical data, experience, customer types, credit worthiness and
economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of these or
other factors expected to affect collectability. Although we believe our judgments, estimates and/or assumptions
related to accounts receivable and reserves are reasonable, making material changes to such judgments, estimates
and/or assumptions could materially affect our financial results.
50
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. 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 may adjust our assumptions for anticipated changes in any of these or other factors
expected to affect the value of inventory. Although we believe our judgments, estimates and/or assumptions related
to inventory and reserves are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect our financial results.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets (primarily trademarks) are not amortized, but are subject
to impairment analysis at least once annually. Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments
(dental, medical, animal health and international) and technology.
During the fiscal year ended December 31, 2011, we adopted the provisions of Accounting Standards Update
2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”) which
allows us to use qualitative factors to determine whether it is more likely than not that the fair values of our
reporting units are less than their carrying values. The factors that we considered in developing our qualitative
assessment included:
• Macroeconomic conditions consisting of the overall sales growth of our business and the overall sales
growth of each of our operating segments. We also considered our growth in market share in the markets
in which we compete;
• Credit markets and our ability to access debt facilities at favorable terms;
• Key personnel and management expertise, as well as our growth strategies for the next several years; and
• Our expectations of selling or disposing all, or a portion, of a reporting unit.
Prior to the adoption of ASU 2011-08, measuring fair value of a reporting unit was generally based on
valuation techniques using multiples of sales or earnings. Goodwill was allocated to such reporting units, for the
purposes of preparing our impairment analyses, based on a specific identification basis. Our impairment analysis
for indefinite-lived intangibles consists of a review of historical, current and forecasted sales and gross profit levels,
as well as a review of any factors that may indicate potential impairment. We assess the potential impairment of
goodwill and other indefinite-lived intangible assets annually (at the beginning of our fourth quarter) and on an
interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
For certain indefinite-lived intangible assets, a present value technique, such as estimates of future cash flows, is
utilized. There were no events or circumstances from the date of that assessment through December 31, 2011 that
impacted our analysis.
Some factors we consider important that could trigger an interim impairment review include:
•
•
•
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of our use of acquired assets or the strategy for our overall business
(e.g., decision to divest a business); or
significant negative industry or economic trends.
If we determine through the impairment review process that goodwill or other indefinite-lived intangible assets
are impaired, we record an impairment charge in our consolidated statements of income.
For the years ended December 31, 2011, December 25, 2010 and December 26, 2009, the results of our
goodwill impairment analysis did not result in any impairments.
51
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 and sales in
conjunction with supplier rebate contract terms which generally provide for increasing rebates based on either
increased purchase or sales volume. Although we believe our judgments, estimates and/or assumptions related to
supplier rebates are reasonable, making material changes to such judgments, estimates and/or assumptions could
materially affect our financial results.
Long-Lived Assets
Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable
through the estimated undiscounted future cash flows derived from such assets.
Definite-lived intangible assets primarily consist of non-compete agreements, trademarks, trade names,
customer lists, customer relationships and intellectual property. For long-lived assets used in operations,
impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted 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. Although we believe our judgments, estimates and/or assumptions used in estimating cash flows and
determining fair value are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect such impairment analyses and our financial results.
Stock-Based Compensation
We measure stock-based compensation at the grant date, based on the estimated fair value of the award. Prior
to March 2009, awards principally included a combination of at-the-money stock options and restricted stock
(including restricted stock units). Since March 2009, equity-based awards have been granted solely in the form of
restricted stock and restricted stock units, with the exception of stock options for certain pre-existing contractual
obligations.
We estimate the fair value of stock options using the Black-Scholes valuation model which requires us to make
assumptions about the expected life of options, stock price volatility, risk-free interest rates and dividend yields.
We issue restricted stock that vests solely based on the recipient’s continued service over time (four-year cliff
vesting) and restricted stock that vests based on our achieving specified performance measurements and the
recipient’s continued service over time (three-year cliff vesting).
With respect to time-based restricted stock, we estimate the fair value on the date of grant based on our closing
stock price. With respect to performance-based restricted stock, 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 three-year
period as determined by the Compensation Committee of the Board of Directors. Though there is no guarantee that
performance targets will be achieved, we estimate the fair value of performance-based restricted stock, based on
our closing stock price at time of grant. Adjustments to the performance-based restricted stock targets are provided
for significant events such as acquisitions, divestitures, new business ventures and share repurchases. Over the
performance period, the number of shares of common stock 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 will be based on our actual performance metrics as defined.
Although we believe our judgments, estimates and/or assumptions related to stock-based compensation are
reasonable, making material changes to such judgments, estimates and/or assumptions could materially affect our
financial results.
Recently Issued Accounting Standards
Accounting pronouncements adopted by us and recently issued accounting pronouncements not yet adopted by
us are included in “Note 1 – Significant Accounting Policies” to the consolidated financial statements in Part II,
Item 8 of this Form 10-K.
52
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, which include changes in interest rates, as well as changes in foreign currency
exchange rates as measured against the U.S. dollar and each other, and changes to the credit markets. We attempt
to minimize these risks by using an interest rate cap agreement and foreign currency forward contracts and through
maintaining counter-party credit limits. These hedging activities provide only limited protection against interest
rate and currency exchange and credit risks. Factors that could influence the effectiveness of our programs include
volatility of the interest rate and currency markets and availability of hedging instruments and liquidity of the credit
markets. All interest rate cap and foreign currency forward contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated interest rate or currency
exposure. We do not enter into such contracts for speculative purposes. We manage our credit risks by
diversifying our investments, maintaining a strong balance sheet and having multiple sources of capital.
Interest Rate Hedges
On May 27, 2011, BAHS refinanced the terms and amount of its debt into three separate components. Interest
on the refinanced debt ranges from LIBOR plus a margin of 3% to LIBOR plus a margin of 3.25%. One
component of the refinanced debt contains a provision for minimum interest to be charged at a LIBOR floor of
1.25%. The revised debt agreement contains a provision that requires BAHS to hedge risks related to potential
rising interest rates. As a result, BAHS has entered into series of interest rate caps, with a notional amount of
$160.0 million, protecting against LIBOR interest rates rising above 3% through March 30, 2012.
As of December 31, 2011, the fair value of our interest rate cap agreements recorded in current and other non-
current assets in our consolidated balance sheet was $0, which represented the amount that would be received upon
unwinding the interest rate cap agreements based on market conditions at that time. Changes in the fair value of
these interest rate cap agreements are reflected as an adjustment to current and non-current assets or liabilities with
an offsetting adjustment to Accumulated other comprehensive income since the hedge is deemed fully effective.
Foreign Currency Agreements
The value of certain foreign currencies as compared to the U.S. dollar may affect our financial results.
Fluctuations in exchange rates may positively or negatively affect our revenues, gross margins, operating expenses
and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging
programs using primarily foreign currency forward contracts aimed at limiting the impact of foreign currency
exchange rate fluctuations on earnings. We purchase short-term (i.e., 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of merchandise purchases to foreign suppliers. We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure.
As of December 31, 2011, the net fair value of our foreign currency exchange agreements, which expire
through December 27, 2012, recorded in other current liabilities was $0.8 million, as determined by quoted market
prices. A hypothetical 5% change in the value of the U.S. dollar would change the fair value of our foreign
currency exchange agreements by $(1.7) million.
Short-Term Investments
We limit our credit risk with respect to our cash equivalents, available-for-sale securities, short-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 counter-parties.
53
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
Page
Report of Independent Registered Public Accounting Firm ........................................................................................
55
Consolidated Financial Statements:
Balance Sheets as of December 31, 2011 and December 25, 2010 ......................................................................
56
Statements of Income for the years ended December 31, 2011,
December 25, 2010 and December 26, 2009 ..............................................................................................
57
Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2011, December 25, 2010 and December 26, 2009 .............................................................
58
Statements of Cash Flows for the years ended December 31, 2011,
December 25, 2010 and December 26, 2009 ..............................................................................................
Notes to Consolidated Financial Statements ........................................................................................................
59
60
Report of Independent Registered Public Accounting Firm ........................................................................................
109
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2011,
December 25, 2010 and December 26, 2009 .......................................................................................................
110
All other schedules are omitted because the required information is either inapplicable or is included in the consolidated
financial statements or the notes thereto.
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Henry Schein, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 31, 2011
and December 25, 2010 and the related consolidated statements of income, changes in stockholders’ equity and
cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Henry Schein, Inc. at December 31, 2011 and December 25, 2010, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2011, 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), Henry Schein, Inc.’s internal control over financial reporting as of December 31, 2011, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February 15, 2012 expressed an
unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
February 15, 2012
55
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
2011
December 25,
2010
ASSETS
Current assets:
Cash and cash equivalents ................................................................................................... $
Accounts receivable, net of reserves of $65,853 and $56,267 .............................................
Inventories, net ....................................................................................................................
Deferred income taxes .........................................................................................................
Prepaid expenses and other ..................................................................................................
Total current assets .....................................................................................................
Property and equipment, net .....................................................................................................
Goodwill ...................................................................................................................................
Other intangibles, net ...............................................................................................................
Investments and other ...............................................................................................................
Total assets ................................................................................................................. $
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................................................................. $
Bank credit lines ..................................................................................................................
Current maturities of long-term debt ...................................................................................
Accrued expenses:
Payroll and related ..........................................................................................................
Taxes ...............................................................................................................................
Other ...............................................................................................................................
Total current liabilities ...............................................................................................
Long-term debt .........................................................................................................................
Deferred income taxes ..............................................................................................................
Other liabilities .........................................................................................................................
Total liabilities ...........................................................................................................
$
147,284
888,248
947,849
54,970
234,157
2,272,508
262,088
1,497,108
409,612
298,828
4,740,144 $
$
621,468
55,014
22,819
191,173
121,234
259,932
1,271,640
363,524
188,739
80,568
1,904,471
150,348
885,784
870,206
48,951
214,013
2,169,302
252,573
1,424,794
405,468
295,334
4,547,471
590,029
41,508
4,487
172,746
91,581
267,736
1,168,087
395,309
190,225
76,753
1,830,374
Redeemable noncontrolling interests .......................................................................................
Commitments and contingencies ..............................................................................................
402,050
304,140
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding .............................................................................................................
Common stock, $.01 par value, 240,000,000 shares authorized,
89,928,082 outstanding on December 31, 2011 and
91,939,477 outstanding on December 25, 2010 ..............................................................
Additional paid-in capital ....................................................................................................
Retained earnings ................................................................................................................
Accumulated other comprehensive income .........................................................................
Total Henry Schein, Inc. stockholders' equity .................................................................
Noncontrolling interests ......................................................................................................
Total stockholders' equity ...........................................................................................
Total liabilities, redeemable noncontrolling interests and stockholders' equity .............. $
-
-
899
401,262
2,007,477
22,584
2,432,222
1,401
2,433,623
4,740,144 $
919
601,014
1,779,178
30,514
2,411,625
1,332
2,412,957
4,547,471
See accompanying notes.
56
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Years Ended
December 31, December 25, December 26,
2011
2010
2009
Net sales ................................................................................................................ $
Cost of sales ..........................................................................................................
Gross profit ......................................................................................................
Operating expenses:
Selling, general and administrative .....................................................................
Restructuring costs ..............................................................................................
Operating income ............................................................................................
Other income (expense):
Interest income ....................................................................................................
Interest expense ..................................................................................................
Other, net ............................................................................................................
Income from continuing operations before taxes, equity in earnings
of affiliates and noncontrolling interests ......................................................
Income taxes ..........................................................................................................
Equity in earnings of affiliates ..............................................................................
Income from continuing operations .......................................................................
Income from discontinued operation, net of tax .................................................
Net income ............................................................................................................
Less: Net income attributable to noncontrolling interests ...................................
Net income attributable to Henry Schein, Inc. ...................................................... $
8,530,242 $
6,112,187
2,418,055
7,526,790 $
5,355,914
2,170,876
1,835,906
-
582,149
15,593
(30,377)
1,942
569,307
(180,212)
15,561
404,656
-
404,656
(36,995)
367,661 $
1,637,460
12,285
521,131
14,098
(33,641)
447
502,035
(160,069)
10,165
352,131
-
352,131
(26,342)
325,789 $
6,538,336
4,621,516
1,916,820
1,449,715
3,020
464,085
9,979
(23,370)
2,026
452,720
(127,521)
5,243
330,442
2,715
333,157
(22,004)
311,153
Amounts attributable to Henry Schein, Inc.:
Income from continuing operations .................................................................... $
Income from discontinued operation, net of tax .................................................
Net income .......................................................................................................... $
367,661 $
325,789 $
-
-
367,661 $
325,789 $
308,551
2,602
311,153
Earnings per share attributable to Henry Schein, Inc.:
From continuing operations:
Basic ................................................................................................................... $
Diluted ................................................................................................................ $
4.08 $
3.97 $
3.62 $
3.49 $
From discontinued operation:
Basic ................................................................................................................... $
Diluted ................................................................................................................ $
- $
- $
- $
- $
From net income:
Basic ................................................................................................................... $
Diluted ................................................................................................................ $
4.08 $
3.97 $
3.62 $
3.49 $
3.47
3.41
0.03
0.03
3.50
3.44
Weighted-average common shares outstanding:
Basic ...................................................................................................................
Diluted ................................................................................................................
90,120
92,620
90,097
93,268
88,872
90,556
See accompanying notes.
57
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
Common Stock
$.01 Par Value
Shares
Amount
Additional
Paid-in
Capital
Retained
Earnings
894 $
560,023 $
1,181,454 $
29,721 $
262 $
Accumulated
Other
Total
Comprehensive Noncontrolling Stockholders'
Income
Interests
Equity
1,772,354
Balance, December 27, 2008 ........................................................... 89,351,849 $
Net income (excluding $21,975 attributable to Redeemable
noncontrolling interests) ............................................................
Foreign currency translation gain (excluding $2,065
attributable to Redeemable noncontrolling interests) ...............
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $3,228 .......................................................
Unrealized investment loss, net of tax benefit of $105 ...................
Pension adjustment loss, net of tax benefit of $1,086 .....................
Total comprehensive income ....................................................
-
-
-
-
-
Purchase of noncontrolling interest ..................................................
Change in fair value of redeemable securities .................................
Shares issued to 401(k) plan ............................................................
Stock issued upon exercise of stock options,
including tax benefit of $2,642 .................................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
-
-
100,778
445,916
802,068
(69,722)
-
-
-
-
-
-
-
-
1
4
8
(1)
-
-
-
-
-
-
-
581
5,300
14,508
25,916
(2,149)
(407)
311,153
-
29
311,182
-
-
-
-
-
-
-
-
-
-
-
46,364
(8,238)
(120)
(3,533)
-
-
-
-
-
-
-
-
-
-
-
(262)
-
-
-
-
-
-
46,364
(8,238)
(120)
(3,533)
345,655
(262)
581
5,301
14,512
25,924
(2,150)
(407)
Balance, December 26, 2009 ........................................................... 90,630,889 $
906 $
603,772 $
1,492,607 $
64,194 $
29 $
2,161,508
Net income (excluding $26,054 attributable to Redeemable
noncontrolling interests) ............................................................
Foreign currency translation loss (excluding $2,281
attributable to Redeemable noncontrolling interests) ...............
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $255 ..........................................................
Unrealized investment gain, net of tax of $215 ...............................
Pension adjustment loss, net of tax benefit of $1,710 .....................
Total comprehensive income ....................................................
Dividends paid .................................................................................
Reclassification of noncontrolling interest no longer
subject to redemption .................................................................
Initial noncontrolling interests and adjustments related to
-
-
-
-
-
-
-
-
business acquisitions .................................................................
-
Change in fair value of redeemable securities .................................
732,422
Stock issued upon conversion of convertible senior notes ..............
107,662
Shares issued to 401(k) plan ............................................................
Repurchase and retirement of common stock .................................. (1,005,869)
Stock issued upon exercise of stock options,
including tax benefit of $8,304 ................................................. 1,248,643
285,742
(60,012)
-
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
-
-
-
-
-
-
-
-
-
7
1
(10)
12
3
-
-
-
-
-
-
-
-
-
(22,077)
(51,843)
12,129
5,720
(18,507)
46,729
29,907
(4,260)
(556)
325,789
-
288
326,077
-
-
-
-
-
-
-
-
-
-
(39,218)
-
-
-
-
(28,303)
(885)
145
(4,637)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(501)
1,516
-
-
-
-
-
-
-
-
-
(28,303)
(885)
145
(4,637)
292,397
(501)
1,516
(22,077)
(51,843)
12,136
5,721
(57,735)
46,741
29,910
(4,260)
(556)
Balance, December 25, 2010 ........................................................... 91,939,477 $
919 $
601,014 $
1,779,178 $
30,514 $
1,332 $
2,412,957
367,661
-
481
368,142
Net income (excluding $36,514 attributable to Redeemable
noncontrolling interests) ............................................................
Foreign currency translation loss (excluding $889
attributable to Redeemable noncontrolling interests) ...............
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $94 ............................................................
Unrealized investment gain, net of tax of $215 ...............................
Pension adjustment loss, net of tax benefit of $1,534 .....................
Total comprehensive income ....................................................
Dividends paid .................................................................................
Other adjustments .............................................................................
Initial noncontrolling interests and adjustments related to
-
-
-
-
-
-
-
-
business acquisitions .................................................................
-
Change in fair value of redeemable securities .................................
Shares issued to 401(k) plan ............................................................
93,204
Repurchase and retirement of common stock .................................. (3,179,188)
Stock issued upon exercise of stock options,
including tax benefit of $7,246 .................................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
941,701
175,980
(43,092)
-
-
-
-
-
-
-
-
-
-
1
(31)
9
2
(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,155
(224,133)
5,797
(60,609)
41,756
36,930
(2,989)
(659)
-
-
-
(139,362)
-
-
-
-
(1,421)
(618)
347
(6,238)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(457)
45
-
-
-
-
-
-
-
-
(1,421)
(618)
347
(6,238)
360,212
(457)
45
4,155
(224,133)
5,798
(200,002)
41,765
36,932
(2,990)
(659)
Balance, December 31, 2011 ........................................................... 89,928,082 $
899 $
401,262 $
2,007,477 $
22,584 $
1,401 $
2,433,623
See accompanying notes.
58
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
December 31,
2011
December 25, December 26,
2010
2009
Cash flows from operating activities:
Net income ....................................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of discontinued operation, net of tax ...................................
Depreciation and amortization ................................................................
Amortization of bond discount ................................................................
Stock-based compensation expense ........................................................
Provision for losses on trade and other accounts receivable ...................
Benefit from deferred income taxes ........................................................
Stock issued to 401(k) plan ......................................................................
Equity in earnings of affiliates ................................................................
Distributions from equity affiliates ..........................................................
Other .......................................................................................................
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ............................................................................
Inventories ..........................................................................................
Other current assets ............................................................................
Accounts payable and accrued expenses ............................................
Net cash provided by operating activities ..............................................................
Cash flows from investing activities:
Purchases of fixed assets ..................................................................................
Payments for equity investments and business
acquisitions, net of cash acquired ................................................................
Cash received from business divestiture ............................................................
Purchases of available-for-sale securities .........................................................
Proceeds from sales of available-for-sale securities .........................................
Proceeds from maturities of available-for-sale securities .................................
Other .................................................................................................................
Net cash used in investing activities ......................................................................
Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings .............................................
Proceeds from issuance of long-term debt ........................................................
Principal payments for long-term debt .............................................................
Proceeds from issuance of stock upon exercise of stock options ......................
Payments for repurchases of common stock .....................................................
Excess tax benefits related to stock-based compensation .................................
Distributions to noncontrolling shareholders ....................................................
Acquisitions of noncontrolling interests in subsidiaries ...................................
Other .................................................................................................................
Net cash used in financing activities .....................................................................
404,656 $
352,131 $
333,157
-
115,896
-
36,932
6,156
(19,319)
5,798
(15,561)
14,883
6,352
36,204
(44,155)
(10,493)
17,276
554,625
-
101,214
4,007
29,910
5,564
(6,051)
5,721
(10,165)
6,606
3,702
(76,129)
(21,307)
(26,640)
26,917
395,480
(2,382)
81,493
5,990
25,924
4,747
(26,214)
5,301
(5,243)
1,139
2,373
20,445
(19,242)
375
(29,834)
398,029
(45,176)
(39,000)
(51,627)
(149,403)
-
-
2,600
-
(4,090)
(196,069)
13,316
3,101
(33,722)
34,519
(200,002)
8,765
(10,055)
(170,199)
(90)
(354,367)
(352,598)
-
(26,984)
6,000
26,984
(2,435)
(388,033)
40,500
110,000
(313,028)
38,437
(57,735)
11,292
(12,531)
(146,811)
(357)
(330,233)
(56,648)
12,716
-
9,955
-
(12,983)
(98,587)
(4,481)
-
(154,329)
11,870
-
4,680
(2,604)
(52,453)
(358)
(197,675)
101,767
(183)
369,570
471,154
Net change in cash and cash equivalents ...............................................................
Effect of exchange rate changes on cash and cash equivalents .............................
Cash and cash equivalents, beginning of period ....................................................
Cash and cash equivalents, end of period .............................................................. $
4,189
(7,253)
150,348
147,284 $
(322,786)
1,980
471,154
150,348 $
See accompanying notes.
59
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 – Significant Accounting Policies
Nature of Operations
We distribute healthcare products and services primarily to office-based healthcare practitioners with
operations in the United States, Australia, Austria, Belgium, Canada, China, the Czech Republic, France, Germany,
Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Slovakia, Spain,
Switzerland and the United Kingdom. We also have affiliates in Iceland, Saudi Arabia and Turkey.
Principles of Consolidation
Our consolidated financial statements include the accounts of Henry Schein, Inc. and all of our controlled
subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. Investments in
unconsolidated affiliates, which are greater than or equal to 20% and less than or equal to 50% owned or
investments in unconsolidated affiliates of less than 20% in which we have the ability to influence the operating or
financial decisions, are accounted for under the equity method. See Note 6 for accounting treatment of Redeemable
noncontrolling interests. Certain prior period amounts have been reclassified to conform to the current period
presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires us to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fiscal Year
We report our results of operations and cash flows on a 52-53 week basis ending on the last Saturday of
December. The year ended December 31, 2011 consisted of 53 weeks and the years ended December 25, 2010 and
December 26, 2009 consisted of 52 weeks.
Revenue Recognition
We generate revenue from the sale of dental, medical and animal health consumable products, as well as
equipment, software products and services and other sources. Provisions for discounts, rebates to customers,
customer returns and other contra-revenue adjustments are recorded 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 is recognized when products are shipped to customers.
Such sales typically entail high-volume, low-dollar orders shipped using third-party common carriers. We believe
that the shipment date is the most appropriate point in time indicating the completion of the earnings process
because we have no post-shipment obligations, the product price is fixed and determinable, collection of the
resulting receivable is reasonably assured and product returns are reasonably estimable.
Revenue derived from the sale of equipment is recognized when products are delivered to customers. Such
sales typically entail scheduled deliveries of large equipment primarily by equipment service technicians. Some
equipment sales require minimal installation, which is typically completed at the time of delivery.
60
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
Revenue derived from the sale of software products is recognized when products are shipped to customers.
Such software is generally installed by customers and does not require extensive training due to the nature of its
design. Revenue derived from post-contract customer support for software, including annual support and/or
training, is recognized over the period in which the services are provided.
Revenue derived from the sale of products consisting of multiple elements (i.e., hardware, software,
installation, training and technical support) is allocated to the various elements based upon vendor-specific
objective evidence of fair value or deferred until such time as vendor-specific evidence of fair value is obtained.
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.
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. Outstanding checks in excess of funds on deposit of $49.1 million and $44.7 million, primarily
related to payments for inventory, were classified as accounts payable as of December 31, 2011 and December 25,
2010.
Available-for-sale Securities
As of December 31, 2011, we have approximately $12.5 million ($11.3 million net of temporary impairments)
invested in auction-rate securities (“ARS”), consisting of investments backed by student loans (backed by the
federal government) and investments in closed-end municipal bond funds. ARS are publicly issued securities that
represent long-term investments, typically 10-30 years, in which interest rates had reset periodically (typically
every 7, 28 or 35 days) through a “dutch auction” process.
We determine cost of investments in available-for-sale securities on a specific identification basis. As of
December 31, 2011 and December 25, 2010, unrealized losses, which are recorded in Accumulated other
comprehensive income within the equity section of our consolidated balance sheets, on our available-for-sale
securities totaled $1.2 million and $1.7 million, respectively. Gross realized gains and losses were immaterial in all
periods presented.
Accounts Receivable and Reserves
The carrying amount of accounts receivable is reduced by a valuation allowance that reflects our best estimate
of the amounts that will not be collected. The reserve for accounts receivable is comprised of allowance for
doubtful accounts and sales returns. In addition to reviewing delinquent accounts receivable, we consider many
factors in estimating our reserve, including historical data, experience, customer types, credit worthiness and
economic trends. From time to time, we adjust our assumptions for anticipated changes in any of these or other
factors expected to affect collectability.
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. 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.
61
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
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 shipping and
handling costs from continuing operations were $62.2 million, $57.0 million and $46.6 million for the years ended
December 31, 2011, December 25, 2010 and December 26, 2009.
Advertising and Promotional Costs
We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses from continuing operations were $13.1 million, $12.7 million and $12.4 million for the years ended
December 31, 2011, December 25, 2010 and December 26, 2009. Additionally, advertising and promotional costs
incurred in connection with direct marketing, including product catalogs and printed material, are deferred and
amortized on a straight-line basis over the period which is benefited, generally not exceeding one year. As of
December 31, 2011 and December 25, 2010, we had $4.2 million and $3.5 million of deferred direct marketing
expenses included in other current assets.
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 and sales, in
conjunction with supplier rebate contract terms, which generally provide for increasing rebates based on either
increased purchase or sales volume.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation or amortization. Depreciation is
computed primarily under the straight-line method (see Note 2. 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 lease term.
Capitalized software costs consist of costs to purchase and develop software. Costs incurred during the
application development stage for software bought and further customized by outside suppliers for our use and
software developed by a supplier for our proprietary use are capitalized. Costs incurred for our own personnel who
are directly associated with software development are capitalized.
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 enactments of changes in tax laws or rates. The effect on deferred income tax assets and
liabilities of a change in tax rates will be 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.
Foreign Currency Translation and Transactions
The financial position and results of operations of our foreign subsidiaries are determined using local currency
as the functional currency. Assets and liabilities of these 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.
62
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in interest rates and foreign currency
exchange rates. Our objective is to manage the impact that interest rate and foreign currency exchange rate
fluctuations could have on recognized asset and liability fair values, earnings and cash flows. 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 as a hedge at the inception of the contract. We do not enter into
derivative instruments for speculative purposes. Our derivative instruments primarily include interest rate caps
related to our long-term floating rate debt and foreign currency forward agreements related to certain intercompany
loans and certain forecasted inventory purchase commitments with foreign suppliers.
Our interest rate cap agreements are designated as cash flow hedges. At each balance sheet date, the interest
rate caps are recorded at estimated fair value. Changes in the fair value of the cap are expected to be highly
effective in offsetting the unpredictability in expected future cash flows on floating rate indebtedness attributable to
fluctuations in interest rates. Unrealized gains and losses on the outstanding balances of the interest rate caps are
recorded as a component of Accumulated other comprehensive income. Gains and losses realized at the time of our
quarterly interest payments due to the expiration of applicable portions of the interest rate caps are reclassified to
Interest expense.
Our foreign currency forward agreements related to forecasted inventory purchase commitments are designated
as cash flow hedges. 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 earnings. For cash flow hedges, the effective portion of the changes in
the fair value of the derivative, along with any gain or loss on the hedged item, is 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 transaction affects earnings.
We classify the cash flows related to our hedging activities in the same category on our consolidated statements
of cash flows as the cash flows related to the hedged item.
Acquisitions
The net assets of businesses purchased are recorded at their fair value at the acquisition date and our
consolidated financial statements include their results of operations from that date. Any excess of acquisition
consideration over the fair value of identifiable net assets acquired is recorded as goodwill. The major classes of
assets and liabilities that we generally allocate purchase price to, excluding goodwill, include identifiable intangible
assets (i.e., trademarks and trade names, customer relationships and lists and non-compete agreements), property,
plant and equipment, deferred taxes and other current and long-term assets and liabilities. The estimated fair value
of identifiable intangible assets is based on critical estimates, judgments and assumptions derived from: analysis of
market conditions; discount rate; discounted cash flows; customer retention rates; estimated useful lives; and
multiples based on factors such as EBIT. Some prior owners of such acquired subsidiaries are eligible to receive
additional purchase price cash consideration if certain financial targets are met. For acquisitions completed prior to
2009, we accrue liabilities that may arise from these transactions when we believe that the outcome of the
contingency is determinable beyond a reasonable doubt. Starting in our 2009 fiscal year, as required by ASC Topic
805, “Business Combinations,” we have accrued liabilities for the estimated fair value of additional purchase price
adjustments at the time of the acquisition. Any adjustments to these accrual amounts will be recorded in our
consolidated statement of income. For the year ended December 31, 2011, there were no material adjustments
recorded in our consolidated statement of income relating to changes in estimated contingent purchase price
liabilities.
63
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
Redeemable Noncontrolling Interests
Some minority shareholders 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. Factors considered in determining the fair value
amounts include multiples of financial values, such as EBIT and EBITDA. Changes in the estimated redemption
amounts of the noncontrolling interests subject to put options are adjusted 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.
These adjustments do not impact the calculation of earnings per share.
Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets (primarily trademarks) are not amortized, but are subject
to impairment analysis at least once annually. Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments
(dental, medical, animal health and international) and technology.
During the fiscal year ended December 31, 2011, we adopted the provisions of Accounting Standards Update
2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”) which
allows us to use qualitative factors to determine whether it is more likely than not that the fair values of our
reporting units are less than their carrying values. The factors that we considered in developing our qualitative
assessment included:
• Macroeconomic conditions consisting of the overall sales growth of our business and the overall sales
growth of each of our operating segments. We also considered our growth in market share in the markets
in which we compete;
• Credit markets and our ability to access debt facilities at favorable terms;
• Key personnel and management expertise, as well as our growth strategies for the next several years; and
• Our expectations of selling or disposing all, or a portion, of a reporting unit.
Prior to the adoption of ASU 2011-08, measuring fair value of a reporting unit was generally based on
valuation techniques using multiples of sales or earnings. Goodwill was allocated to such reporting units, for the
purposes of preparing our impairment analyses, based on a specific identification basis. Our impairment analysis
for indefinite-lived intangibles consists of a review of historical, current and forecasted sales and gross profit levels,
as well as a review of any factors that may indicate potential impairment. We assess the potential impairment of
goodwill and other indefinite-lived intangible assets annually (at the beginning of our fourth quarter) and on an
interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
For certain indefinite-lived intangible assets, a present value technique, such as estimates of future cash flows, is
utilized. There were no events or circumstances from the date of that assessment through December 31, 2011 that
impacted our analysis.
Some factors we consider important that could trigger an interim impairment review include:
•
•
•
significant underperformance relative to expected historical or projected future operating results;
significant changes in the manner of our use of acquired assets or the strategy for our overall business
(e.g., decision to divest a business); or
significant negative industry or economic trends.
64
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
If we determine through the impairment review process that goodwill or other indefinite-lived intangible assets
are impaired, we record an impairment charge in our consolidated statements of income.
For the years ended December 31, 2011, December 25, 2010 and December 26, 2009, the results of our
goodwill impairment analysis did not result in any impairments.
Long-Lived Assets
Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable
through the estimated undiscounted future cash flows derived from such assets.
Definite-lived intangible assets primarily consist of non-compete agreements, trademarks, trade names,
customer lists, customer relationships and intellectual property. For long-lived assets used in operations,
impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted 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.
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.
As a result of different practices of categorizing costs associated with distribution networks throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies. Total distribution
network costs from continuing operations were $58.6 million, $57.1 million and $54.6 million for the years ended
December 31, 2011, December 25, 2010 and December 26, 2009.
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 adjustments, unrealized gains (losses) on hedging and investment activity and pension adjustments.
65
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
Accounting Pronouncements Adopted
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill Impairment” which is intended
to simplify goodwill impairment testing by permitting the assessment of qualitative factors to determine whether
events and circumstances lead to the conclusion that it is necessary to perform the traditional two-step impairment
test. Under this update, we are not required to calculate the fair value of our reporting units unless we conclude that
it is more likely than not (likelihood of more than 50%) that the carrying value of our reporting units is greater than
the fair value of such units based on our assessment of events and circumstances. This update is effective for fiscal
years beginning after December 15, 2011, with early adoption permitted. We have adopted the provisions of this
update at the beginning of our fourth quarter. The adoption of this provision did not have a material impact on our
consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, which contains updated accounting guidance to clarify the
acquisition date that should be used for reporting pro forma financial information when comparative financial
statements are issued. This update requires that a company should disclose revenue and earnings of the combined
entity as though the business combination(s) that occurred during the current year had occurred as of the beginning
of the comparable prior annual reporting period only. This update also requires disclosure of the nature and amount
of material, nonrecurring pro forma adjustments.
During February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855)”. The amended
guidance in ASU 2010-09 states that an entity that is an SEC filer is required to evaluate subsequent events through
the date that the financial statements are issued, but is not required to disclose the date through which subsequent
events have been evaluated.
During January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820):
Improving Disclosures about Fair Value Measurements.” ASU 2010-06 includes new disclosure requirements
related to fair value measurements, including transfers in and out of Levels 1 and 2 and information about
purchases, sales, issuances and settlements for Level 3 fair value measurements. This update also clarifies existing
disclosure requirements relating to levels of disaggregation and disclosures of inputs and valuation techniques. The
new disclosures are required in interim and annual reporting periods beginning after December 15, 2009, except the
disclosures relating to Level 3 activity, which were effective for fiscal years beginning after December 15, 2010
and for interim periods within those fiscal years. Effective December 27, 2009, we have adopted the provisions
relating to Level 1 and Level 2 disclosures and such provisions did not have a material impact on our consolidated
financial statements. Effective December 26, 2010, we adopted the provisions relating to Level 3 disclosures and
such provisions did not have a material impact on our consolidated financial statements.
During October 2009, the FASB issued ASU 2009-13 which amended guidance contained within ASC Topic
605-25 related to revenue recognition for multiple-element arrangements. The amendments in this update establish
a selling price hierarchy for determining the selling price of a deliverable. These amendments also replace the term
fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on
entity-specific assumptions rather than assumptions of a marketplace participant. The guidance in this update
requires that a vendor determine its best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone basis. We adopted the provisions of this update effective
December 26, 2010. The provisions of this update did not have a material impact on our consolidated financial
statements.
66
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
In June 2009, the FASB issued ASU No. 2009-01, “Generally Accepted Accounting Principles” (ASC Topic
105) which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”) as the official
single source of authoritative U.S. generally accepted accounting principles (“GAAP”). All existing accounting
standards are superseded. All other accounting guidance not included in the Codification will be considered non-
authoritative. The Codification also includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the Codification. Following the Codification,
the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task
Force Abstracts. Instead, it will issue Accounting Standards Updates which will serve to update the Codification,
provide background information about the guidance and provide the basis for conclusions on the changes to the
Codification.
The Codification is not intended to change GAAP, but it will change the way GAAP is organized and
presented. The Codification was effective for our third quarter 2009 financial statements and the principal impact
on our financial statements is limited to disclosures as all future references to authoritative accounting literature
will be referenced in accordance with the Codification.
In May 2009, the FASB issued guidance within Topic 855-10 relating to subsequent events. This guidance
establishes principles and requirements for subsequent events. This guidance defines the period after the balance
sheet date during which events or transactions that may occur would be required to be disclosed in a company’s
financial statements. Public entities are required to evaluate subsequent events through the date that financial
statements are issued. This guidance also provides guidelines in evaluating whether or not events or transactions
occurring after the balance sheet date should be recognized in the financial statements. This guidance requires
disclosure of the date through which subsequent events have been evaluated.
In April 2009, the FASB issued guidance within ASC Topic 825-10 concerning interim disclosures about fair
value instruments. This guidance requires that disclosures about the fair value of a company’s financial instruments
be made whenever summarized financial information for interim reporting periods is made. The provisions of this
guidance are effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance did
not have a material impact on our consolidated financial statements.
In April 2009, the FASB issued, within ASC 820, additional guidance for estimating fair value in accordance
with ASC 820 when the volume and level of activity for the asset or liability have significantly decreased. The
provisions of this additional guidance are effective for interim and annual reporting periods ending after June 15,
2009. The adoption of this additional guidance did not have a material impact on our consolidated financial
statements.
In April 2009, the FASB amended previous guidance and issued additional guidance within ASC 320 relating
to the disclosure requirements for other-than-temporary impairments for debt and equity securities. This guidance
addresses the determination as to when an investment is considered impaired, whether that impairment is other than
temporary, and the measurement of an impairment loss. The provisions of this guidance are effective for interim
and annual reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material
impact on our consolidated financial statements.
In April 2009, the FASB issued guidance within ASC Topic 805, “Business Combinations.” ASC Topic 805
amends the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets
and liabilities arising from contingencies in a business combination. This guidance is effective for assets or
liabilities arising from contingencies in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this
guidance did not have a material impact on our consolidated financial statements.
67
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
New Accounting Pronouncements Not Yet Adopted
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of
Comprehensive Income” which requires an entity to present the total of comprehensive income, the components of
net income and the components of other comprehensive income either in a single continuous statement of
comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first
statement should present total net income and its components followed consecutively by a second statement that
should present total other comprehensive income, the components of other comprehensive income and the total of
comprehensive income. This update, which should be applied retrospectively, is effective for annual and interim
periods beginning after December 15, 2011 and is thus effective for us beginning with our fiscal year ended
December 29, 2012. We are in the process of determining whether we will present other comprehensive income in
a single continuous statement of comprehensive income or in two separate but consecutive statements.
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement
and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS) of Fair Value
Measurement – Topic 820.” ASU 2011-04 is intended to provide a consistent definition of fair value and improve
the comparability of fair value measurements presented and disclosed in financial statements prepared in
accordance with U.S. GAAP and IFRS. The amendments include those that clarify the FASB’s intent about the
application of existing fair value measurement and disclosure requirements, as well as those that change a particular
principle or requirement for measuring fair value or for disclosing information about fair value measurements. This
update is effective for annual and interim periods beginning after December 15, 2011 and is thus effective for us
beginning with our fiscal year ended December 29, 2012.
68
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 2 – Property and Equipment, Net
Property and equipment are stated at cost, net of accumulated depreciation or amortization. Depreciation is
computed primarily under the straight-line method over the estimated useful life: Amortization of leasehold
improvements is computed using the straight-line method over the lesser of the useful life of the assets or the lease
term. Property and equipment, including related estimated useful lives, consisted of the following:
December 31,
December 25,
2011
2010
Land ............................................................................................................................... $
Buildings and permanent improvements ........................................................................
Leasehold improvements ................................................................................................
Machinery and warehouse equipment ............................................................................
Furniture, fixtures and other ...........................................................................................
Computer equipment and software .................................................................................
Less accumulated depreciation and amortization ...........................................................
13,238 $
104,126
64,762
64,664
93,100
229,998
569,888
(307,800)
Property and equipment, net ................................................................................... $
262,088 $
13,151
98,501
58,228
60,927
72,406
209,095
512,308
(259,735)
252,573
Estimated Useful
Lives (in years)
Buildings and permanent improvements .......................................
Machinery and warehouse equipment ...........................................
Furniture, fixtures and other ..........................................................
Computer equipment and software ................................................
40
5-10
3-10
3-10
The net carrying value of equipment held under capital leases amounted to approximately $2.7 million and $3.2
million as of December 31, 2011 and December 25, 2010. Property and equipment related depreciation expense,
from continuing operations, for the years ended December 31, 2011, December 25, 2010 and December 26, 2009
was $54.1 million, $49.1 million and $46.4 million.
69
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 3 – Goodwill and Other Intangibles, Net
The changes in the carrying amount of goodwill for the years ended December 31, 2011 and December 25,
2010 were as follows:
Healthcare
Distribution
Technology
Total
912,670 $
73,725 $
986,395
Balance as of December 26, 2009 .................................................. $
Adjustments to goodwill:
Acquisitions ...........................................................................
Foreign currency translation ..................................................
Balance as of December 25, 2010 ..................................................
Adjustments to goodwill:
445,089
(10,934)
1,346,825
Acquisitions ...........................................................................
Foreign currency translation ..................................................
52,613
(1,190)
5,530
(1,286)
77,969
20,630
261
450,619
(12,220)
1,424,794
73,243
(929)
Balance as of December 31, 2011 .................................................. $
1,398,248 $
98,860 $
1,497,108
Other intangible assets consisted of the following:
December 31, 2011
Accumulated
December 25, 2010
Accumulated
Cost
Amortization
Net
Cost
Amortization
Net
Non-compete agreements ................................$
46,327 $
(6,186) $
40,141 $
44,309 $
(6,089) $
Trademarks / trade names - definite lived .......
52,619
(18,770)
33,849
40,346
(13,666)
Trademarks / trade names - indefinite lived ....
24,850
-
24,850
25,059
-
38,220
26,680
25,059
Customer relationships and lists ......................
412,194
(135,723)
276,471
384,365
(98,906)
285,459
Other ...............................................................
48,005
(13,704)
34,301
42,309
(12,259)
30,050
Total ..........................................................$
583,995 $
(174,383) $
409,612 $
536,388 $
(130,920) $
405,468
Non-compete agreements represent amounts paid primarily to key employees and prior owners of acquired
businesses, as well as 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. The weighted-average
non-compete period for agreements currently being amortized was approximately five years as of December 31,
2011.
Trademarks, trade names, customer lists and customer relationships were established through business
acquisitions. Definite-lived trademarks and trade names are amortized on a straight-line basis over a weighted-
average period of approximately six years as of December 31, 2011. Customer relationships and customer lists are
definite-lived intangible assets that are amortized on a straight-line basis over a weighted-average period of
approximately 11 years as of December 31, 2011.
Amortization expense, attributable to continuing operations, related to definite-lived intangible assets for the
years ended December 31, 2011, December 25, 2010 and December 26, 2009 was $57.9 million, $47.2 million and
$30.6 million. The annual amortization expense expected for the years 2012 through 2016 is $58.2 million, $49.2
million, $43.3 million, $39.3 million and $34.9 million.
70
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 4 – Investments and Other
Investments and other consisted of the following:
December 31, December 25,
2011
2010
Investment in unconsolidated affiliates ............................................................................ $
Non-current deferred foreign, state and local income taxes .............................................
Notes receivable (1) .........................................................................................................
Auction rate securities, net of temporary impairment ......................................................
Distribution rights and exclusivity agreements, net of amortization ................................
Security deposits ..............................................................................................................
Debt issuance costs, net of amortization ..........................................................................
Other long-term assets ......................................................................................................
212,860 $
33,259
5,834
11,329
4,134
3,431
8,668
19,313
Total ............................................................................................................................. $
298,828 $
198,613
30,894
17,098
13,367
4,978
3,435
9,015
17,934
295,334
(1) Long-term notes receivable carry interest rates ranging from 4.72% to 12.0% and are due in varying installments through 2020.
Amortization of other long-term assets, from continuing operations, for the years ended December 31, 2011,
December 25, 2010 and December 26, 2009 was $3.9 million, $4.9 million and $4.5 million.
Note 5 – Debt
Credit Facilities
On September 5, 2008, we entered into a $400 million revolving credit facility with a $100 million expansion
feature. The borrowings outstanding on this revolving credit facility were $25.0 million as of December 31, 2011.
The $400 million credit line expires in September 2013. The interest rate, which was 0.75% during the year ended
December 31, 2011, is based on USD LIBOR plus a spread based on our leverage ratio at the end of each financial
reporting quarter. The agreement provides, among other things, that we maintain certain interest coverage and
maximum leverage ratios, and contains restrictions relating to subsidiary indebtedness, liens, employee and
shareholder loans, disposal of businesses and certain changes in ownership. As of December 31, 2011, there were
$9.7 million of letters of credit provided to third parties.
As of December 31, 2011, we had various other short-term bank credit lines available, of which approximately
$30.0 million was outstanding. As of December 31, 2011, borrowings under all of our credit facilities and lines had
a weighted average interest rate of 1.29%.
Private Placement Facilities
On August 10, 2010, we entered into $400 million private placement facilities with two insurance companies.
These shelf facilities are available through August 2013 on an uncommitted basis. 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 agreement provides, among other things, that we maintain
certain maximum leverage ratios, and contains restrictions relating to subsidiary indebtedness, liens, employee and
shareholder loans, disposal of businesses and certain changes in ownership. As of December 31, 2011, we have an
outstanding balance under the facilities of $100.0 million at a fixed rate of 3.79%, which is due on September 2,
2020.
71
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 5 – Debt – (Continued)
Butler Animal Health Supply
Effective December 31, 2009, Butler Animal Health Supply, LLC, or BAHS, a majority-owned subsidiary
whose financial information is consolidated with ours, had incurred approximately $320.0 million of debt (of which
$37.5 million was provided by Henry Schein, Inc.) in connection with our acquisition of a majority interest in
BAHS.
On May 27, 2011, BAHS refinanced the terms and amount of its debt. The refinanced debt consists of the
following three components:
• Term loan A - $100.0 million repayable in 13 quarterly installments in payment amounts ranging from $1.2
million per quarter for the period September 30, 2011 through June 30, 2012, approximately $1.8 million per
quarter for the period September 30, 2012 through June 30, 2013, $2.5 million per quarter for the period
September 30, 2013 through June 30, 2014, approximately $3.1 million for the quarter ended September 30,
2014 and a final installment of approximately $72.9 million due on December 31, 2014. Interest on the $100.0
million term loan is charged at LIBOR plus a margin of 3%. During 2011, BAHS made a prepayment on this
loan, which resulted in a reduction to the future quarterly and final installment amounts due. Future
prepayments by BAHS, if any, will result in reductions to remaining quarterly and final installment amounts
due.
• Term loan B - $216.0 million ($55.0 million provided by Henry Schein, Inc.) repayable in 17 quarterly
installments of $530 thousand from September 30, 2011 through September 30, 2015, and a final installment of
approximately $202.9 million due on December 31, 2015. Interest on the $216.0 million term loan is charged at
LIBOR plus a margin of 3.25% with a LIBOR floor of 1.25%. During 2011, BAHS made a prepayment on this
loan, which resulted in a reduction to the future quarterly and final installment amounts due. Future
prepayments by BAHS, if any, will result in reductions to remaining quarterly and final installment amounts
due.
• Revolver of $50.0 million with interest charged at LIBOR plus a margin of 3%.
The outstanding balance of $251.7 million is reflected in our consolidated balance sheet as of December 31,
2011. Borrowings incurred as part of the acquisition of BAHS are collateralized by assets of BAHS with an
aggregate net carrying value of $727.1 million.
Certain of our other subsidiaries maintain credit lines which are collateralized by assets of those subsidiaries
with an aggregate net carrying value of $144.3 million.
Prior to the debt refinancing discussed above, the debt incurred as part of the acquisition of BAHS was
repayable in 23 quarterly installments of $0.8 million through September 30, 2015, and a final installment of $301.6
million was due on December 31, 2015. Interest on the BAHS debt was charged at LIBOR plus a margin of 3.5%
with a LIBOR floor of 2%.
The revised debt agreement continues to provide, among other things, that BAHS maintain certain interest
coverage and maximum leverage ratios, and contains restrictions relating to subsidiary indebtedness, capital
expenditures, liens, employee and shareholder loans, disposal of businesses and certain changes in ownership. In
addition, the revised debt agreement continues to contain provisions which, under certain circumstances, require
BAHS to make prepayments based on excess cash flows of BAHS as defined in the debt agreement. The revised
debt agreement also contains provisions that require BAHS to hedge risks related to potential rising interest rates.
As a result, BAHS entered into a series of interest rate caps, for which we have elected hedge accounting treatment,
with a notional amount of $160.0 million, protecting against LIBOR interest rates rising above 3.0% through March
30, 2012.
72
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 5 – Debt – (Continued)
Long-term debt
Long-term debt consisted of the following:
December 31,
December 25,
Private placement debt ....................................................................................... $
Notes payable to banks (net of discount of $1.1 million and $1.3 million)
2011
2010
100,000 $
100,000
at an interest rate of 4.24% ........................................................................
262,825
279,055
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2016 at interest rates ranging
from 3.3% to 6.25% ..................................................................................
Capital lease obligations (see Note 17) ..............................................................
Total ...................................................................................................................
Less current maturities .......................................................................................
18,627
4,891
386,343
(22,819)
Total long-term debt .................................................................................. $
363,524 $
16,522
4,219
399,796
(4,487)
395,309
As of December 31, 2011, the aggregate amounts of long-term debt, including capital leases, maturing in each
of the next five years and thereafter are as follows:
2012 ...........................................................................$
2013 ...........................................................................
2014 ...........................................................................
2015 ...........................................................................
2016 ...........................................................................
Thereafter ..................................................................
Total ..................................................................$
22,819
11,691
85,730
163,471
2,632
100,000
386,343
73
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 6 – Redeemable Noncontrolling Interests
Some minority shareholders 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 31, 2011, December 25, 2010 and December 26, 2009 are presented in the following table:
December 31, December 25, December 26,
2010
2011
2009
Balance, beginning of period ........................................................................ $
Decrease in redeemable noncontrolling interests due to
redemptions ..............................................................................................
Increase in redeemable noncontrolling interests due to
business acquisitions ..................................................................................
Net income attributable to redeemable noncontrolling interests ...................
Dividends declared ........................................................................................
Effect of foreign currency translation gain (loss) attributable to
redeemable noncontrolling interests .........................................................
Change in fair value of redeemable securities ...............................................
Balance, end of period ................................................................................... $
304,140 $
178,570 $
233,035
(160,254)
(143,988)
(71,951)
13,618
36,514
(15,212)
206,302
26,054
(12,360)
(889)
224,133
402,050 $
(2,281)
51,843
304,140 $
-
21,975
(5,973)
2,065
(581)
178,570
Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are adjusted
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. These adjustments do not impact the calculation of earnings per share.
Some prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash
consideration if certain financial targets are met. For acquisitions completed prior to 2009, we accrue liabilities that
may arise from these transactions when we believe that the outcome of the contingency is determinable beyond a
reasonable doubt. Starting in our 2009 fiscal year, as required by ASC Topic 805, “Business Combinations,” we
have accrued liabilities for the estimated fair value of additional purchase price adjustments at the time of the
acquisition. Any adjustments to these accrual amounts will be recorded in our consolidated statement of income.
For the year ended December 31, 2011, there were no material adjustments recorded in our consolidated statement
of income relating to changes in estimated contingent purchase price liabilities. See Note 9. “Business
Acquisitions, Discontinued Operation and Other Transaction” for a discussion of our acquisition of additional
interests in BAHS effective December 30, 2011.
74
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 7 – Comprehensive Income
Comprehensive income includes certain gains and losses that, under U.S. GAAP, 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 adjustments, unrealized losses on hedging and
investment activity and pension adjustments.
The following table summarizes our Accumulated other comprehensive income, net of applicable taxes as of:
December 31, December 25, December 26,
2010
2009
2011
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment ................................................... $
(1,753) $
(864) $
1,417
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment ....................................................... $
Unrealized loss from foreign currency hedging activities .............................
Unrealized investment loss ............................................................................
Pension adjustment loss ................................................................................
Accumulated other comprehensive income .............................................. $
39,717 $
(1,678)
(829)
(14,626)
22,584 $
41,138 $
(1,060)
(1,176)
(8,388)
30,514 $
69,441
(175)
(1,321)
(3,751)
64,194
Total Accumulated other comprehensive income ......................................... $
20,831 $
29,650 $
65,611
The following table summarizes other comprehensive income attributable to our Redeemable noncontrolling
interests as follows:
Foreign currency translation gain (loss) ................................................... $
(889) $
(2,281) $
2,065
The following table summarizes our total comprehensive income, net of applicable taxes as follows:
December 31,
2011
December 25, December 26,
2010
2009
December 31, December 25, December 26,
2010
2009
2011
Comprehensive income attributable to
Henry Schein, Inc. ............................................................................... $
Comprehensive income attributable to
noncontrolling interests .......................................................................
Comprehensive income attributable to
Redeemable noncontrolling interests ...................................................
Comprehensive income ............................................................................ $
359,731 $
292,109 $
345,626
481
288
29
35,625
395,837 $
23,773
316,170 $
24,040
369,695
75
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 8 – Fair Value Measurements
ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”) establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures about fair value
measurements. ASC Topic 820 applies under other previously issued accounting pronouncements that require or
permit fair value measurements but does not require any new fair value measurements.
ASC Topic 820 defines fair value 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. ASC Topic 820 establishes
a fair value hierarchy that 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 under ASC Topic 820 are described as follows:
• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted
prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
• Level 3— Inputs that are unobservable for the asset or liability.
The following section describes the valuation methodologies that we used to measure different financial
instruments at fair value.
Cash equivalents and trade receivables
Due to the short-term maturity of such investments, the carrying amounts are a reasonable estimate of fair
value.
Long-term investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and long-term notes
receivable; however, we believe the carrying amounts are a reasonable estimate of fair value.
76
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 8 – Fair Value Measurements – (Continued)
Auction-rate securities
As of December 31, 2011, we have approximately $12.5 million ($11.3 million net of temporary impairments)
invested in auction-rate securities (“ARS”). These investments are backed by student loans (backed by the federal
government) and investments in closed-end municipal bond funds, which are included as part of Investments and
other within our consolidated balance sheets. ARS are publicly issued securities that represent long-term
investments, typically 10-30 years, in which interest rates had reset periodically (typically every 7, 28 or 35 days)
through a “dutch auction” process. Our ARS portfolio is comprised of investments that are rated investment grade
by major independent rating agencies. Since the middle of February 2008, ARS auctions have failed to settle due to
an excess number of sellers compared to buyers. The failure of these auctions has resulted in our inability to
liquidate our ARS in the near term. We are currently not aware of any defaults or financial conditions that would
negatively affect the issuers’ ability to continue to pay interest and principal on our ARS. We continue to earn and
receive interest at contractually agreed upon rates.
During 2011, we received approximately $2.6 million of redemptions of our ARS. As of December 31, 2011,
we have continued to classify our ARS as Level 3 within the fair value hierarchy due to the lack of observable
inputs and the absence of significant refinancing activity.
Based upon the information currently available and the use of a discounted cash flow model, including
assumptions for estimated interest rates, timing and amount of cash flows and expected holding period for the ARS
portfolio, in accordance with applicable authoritative guidance, our previously recorded cumulative temporary
impairment at December 25, 2010 of $1.7 million related to our ARS decreased by $0.6 million during the year
ended December 31, 2011. The temporary impairment has been recorded as part of Accumulated other
comprehensive income within the equity section of our consolidated balance sheet.
Accounts payable and accrued expenses
Financial liabilities with carrying values approximating fair value include accounts payable and other accrued
liabilities. The carrying value of these financial instruments approximates fair value due to their short maturities.
Debt
The fair value of our debt is estimated based on quoted market prices for our traded debt and on market prices
of similar issues for our private debt. The fair value of our debt as of December 31, 2011 and December 25, 2010
was estimated at $441.4 million and $441.3 million, respectively.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant other observable and unobservable
inputs. We use derivative instruments to minimize our exposure to fluctuations in interest rates and foreign
currency exchange rates. Our derivative instruments primarily include interest rate caps related to our long-term
floating rate debt and foreign currency forward agreements related to intercompany loans and certain forecasted
inventory purchase commitments with suppliers.
The fair values for the majority of our foreign currency and interest rate derivative contracts are obtained by
comparing our contract rate to a published forward price of the underlying market rates, which is based on market
rates for comparable transactions and are classified within Level 2 of the fair value hierarchy.
77
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 8 – Fair Value Measurements – (Continued)
Redeemable noncontrolling interests
Some minority shareholders 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 based on third-party valuations. Factors considered in
determining the fair value amounts include multiples of financial values, such as EBIT and EBITDA. The
noncontrolling interests subject to put options are adjusted to their estimated redemption amounts 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. These adjustments will not impact the calculation of earnings per share. The values for Redeemable
noncontrolling interests are classified within Level 3 of the fair value hierarchy. The details of the changes in
Redeemable noncontrolling interests are presented in Note 6.
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 31, 2011 and
December 25, 2010:
Level 1
December 31, 2011
Level 2
Level 3
Total
Assets:
Available-for-sale securities ....................................... $
Derivative contracts ...................................................
Total assets ............................................................ $
Liabilities:
Derivative contracts ................................................... $
Total liabilities ....................................................... $
Redeemable noncontrolling interests ............................... $
- $
-
- $
- $
- $
- $
- $
1,273
1,273 $
11,329 $
-
11,329 $
11,329
1,273
12,602
2,062 $
2,062 $
- $
- $
2,062
2,062
- $
402,050 $
402,050
Level 1
December 25, 2010
Level 2
Level 3
Total
Assets:
Available-for-sale securities ....................................... $
Derivative contracts ...................................................
Total assets ............................................................ $
Liabilities:
Derivative contracts ................................................... $
Total liabilities ....................................................... $
Redeemable noncontrolling interests ............................... $
- $
-
- $
- $
- $
- $
- $
1,213
1,213 $
13,367 $
-
13,367 $
13,367
1,213
14,580
2,771 $
2,771 $
- $
- $
2,771
2,771
- $
304,140 $
304,140
78
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 8 – Fair Value Measurements – (Continued)
As of December 31, 2011, we have estimated the value of our closed-end municipal bond fund ARS portfolio
and our student loan backed ARS portfolio based upon a discounted cash flow model. The assumptions used in our
valuation model include estimates for interest rates, timing and amount of cash flows and expected holding periods
for the ARS portfolio. As a result of these analyses, our previously recorded cumulative temporary impairment at
December 25, 2010 of $1.7 million was decreased by $0.6 million to $1.2 million during the year ended December
31, 2011.
The following table presents a reconciliation of our assets and liabilities measured at fair value on a recurring
basis using unobservable inputs (Level 3):
Level 3 (1)
Balance, December 27, 2008 .............................................................................................................................. $
Change in redeemable noncontrolling interests .................................................................................................
Redemptions at par .............................................................................................................................................
Gains reported in accumulated other comprehensive income ............................................................................
Balance, December 26, 2009 .............................................................................................................................. $
Change in redeemable noncontrolling interests .................................................................................................
Redemptions at par .............................................................................................................................................
Gains reported in accumulated other comprehensive income ............................................................................
Balance, December 25, 2010 .............................................................................................................................. $
Change in redeemable noncontrolling interests .................................................................................................
Redemptions at par .............................................................................................................................................
Gains reported in accumulated other comprehensive income ............................................................................
Balance, December 31, 2011 .............................................................................................................................. $
266,581
(54,465)
(13,227)
275
199,164
125,728
(7,781)
396
317,507
97,910
(2,600)
562
413,379
(1) Level 3 amounts consist of ARS that are backed by student loans (backed by the federal government) and investments in
closed-end municipal bond funds, money market fund and redeemable noncontrolling interests. See Note 6 for the components of
the changes in Redeemable noncontrolling interests.
79
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions, Discontinued Operation and Other Transaction
Acquisitions
The operating results of all acquisitions are reflected in our financial statements from their respective
acquisition dates.
On December 31, 2010, we acquired 100% of the outstanding shares of Provet Holdings Limited (ASX: PVT),
an Australasian wholesale distributor of veterinary products with sales in its 2010 fiscal year of approximately $278
million, for approximately $91 million, in a cash-for-stock exchange. As a result of the acquisition, we recorded
$27.0 million of goodwill.
In addition to the Provet Holdings Limited acquisition, we completed other acquisitions during the year ended
December 31, 2011, the operating results of which are reflected in our financial statements from their respective
acquisition dates. These other acquisitions individually and in the aggregate had an immaterial impact on our
reported operating results and resulted in the recording of approximately $38.8 million of initial goodwill through
preliminary purchase price allocations. Total acquisition transaction costs incurred in the year ended December 31,
2011 were immaterial to our financial results.
Effective December 31, 2009, we acquired a majority interest in Butler Animal Health Holding Company, LLC
(“Butler Holding”), the holding company of BAHS, a distributor of companion animal health supplies to
veterinarians. BAHS further complements our domestic and international animal health operations and accordingly
has been included in our Animal health operating segment, which is reported as part of Healthcare distribution. We
contributed certain assets and liabilities with a net book value of approximately $86.0 million related to our United
States animal health business to BAHS and paid approximately $42.0 million in cash to acquire 50.1% of the equity
interests in Butler Holding indirectly through W.A. Butler Company, a holding company that was partially owned
by Oak Hill Capital Partners (“OHCP”). As part of a recapitalization at closing, BAHS combined with our animal
health business to form Butler Schein Animal Health (“BSAH”), while incurring approximately $127.0 million in
incremental debt used primarily to finance Butler Holding stock redemptions. As a result, BSAH had incurred
$320.0 million of debt at closing, $37.5 million of which was provided by Henry Schein, Inc. and is eliminated in
the accompanying consolidated financial statements. See below for a discussion of the refinancing of debt incurred
as part of the acquisition of BAHS.
Total consideration for the acquisition of BAHS, including $96.1 million of value for noncontrolling interests,
was $351.1 million, summarized as follows:
Net cash consideration paid by Henry Schein, Inc. ............................................................................................ $
Net book value of the United States animal health operations' assets and liabilities contributed ......................
Fair value of noncontrolling interest in BAHS ...................................................................................................
Incremental debt incurred ...................................................................................................................................
Total consideration ........................................................................................................................................ $
41,990
86,048
96,110
127,000
351,148
We estimated the $96.1 million fair value of noncontrolling interest in BAHS as of the acquisition date by
applying an income approach as our valuation technique. Our income approach followed a discounted cash flow
method, which applied our best estimates of future cash flows and an estimated terminal value discounted to
present value at a rate of return taking into account the relative risk of the cash flows. To confirm the
reasonableness of the value derived from the income approach, we also analyzed the values of comparable
companies which are publicly traded.
80
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions, Discontinued Operation and Other Transaction – (Continued)
The total consideration of $351.1 million was allocated as follows:
Net assets of BAHS at fair value:
Current assets ..................................................................................................................................................... $
Intangible assets:
Trade name (useful life 3 years) ......................................................................................................................
Customer relationships (useful life 12 years) ..................................................................................................
Non-compete agreements (useful life 2 years) ................................................................................................
Goodwill .............................................................................................................................................................
Other assets ........................................................................................................................................................
Current liabilities ................................................................................................................................................
Bank indebtedness ..............................................................................................................................................
Deferred income tax liabilities ...........................................................................................................................
Net book value of our assets and liabilities contributed .....................................................................................
Total allocation of consideration ..................................................................................................................... $
164,789
10,000
140,000
2,600
270,714
14,138
(62,770)
(200,100)
(74,271)
86,048
351,148
The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of BAHS.
The goodwill is not expected to be tax deductible for income tax purposes. As a result of our contributed business
being under the control of Henry Schein, Inc. before and after the transaction, the assets and liabilities of this
business remain at their original historical accounting basis in the accompanying consolidated financial statements.
In connection with the acquisition of a majority interest in BAHS, we entered into (i) a Put Rights Agreement
with OHCP and Butler Holding (the “Oak Hill Put Rights Agreement”), and (ii) a Put Rights Agreement with Burns
Veterinary Supply, Inc. (“Burns”) and Butler Holding (the “Burns Put Rights Agreement” and together with the
Oak Hill Put Rights Agreement, the “Put Rights Agreements”), which provide each of OHCP and Burns with
certain rights to require us to purchase their respective direct and indirect ownership interests in Butler Holding at
fair value based on third-party valuations (“Put Rights”). Our maximum annual payment to OHCP under the Oak
Hill Put Rights Agreement will not exceed $125.0 million for the first year during which OHCP can exercise its put
rights, $137.5 million for the second year and $150.0 million for the third year and for each year thereafter.
Pursuant to the Burns Put Rights Agreement, Burns can exercise its Put Rights from and after December 31, 2014,
at which time Burns will be permitted to sell to us up to 20% of its closing date ownership interest in Butler
Holding each year. If OHCP still holds ownership interests in Butler Holding at the time the Burns Put Rights
begin, then the put amounts payable by us to OHCP and Burns in any year will not exceed $150.0 million in the
aggregate. As a result of the Put Right Agreements, the noncontrolling interest in BAHS has been reflected as part
of Redeemable noncontrolling interests in the accompanying consolidated balance sheet.
On December 30, 2011, we acquired all of OHCP’s remaining direct and indirect interests in BAHS (including
its interest in W.A. Butler Company) for $155 million in cash. As a result of this transaction, our ownership in
BAHS increased to approximately 71.7%. The amount paid to OHCP for their remaining interests in BAHS was in
excess of the previously agreed upon annual limits, as discussed above, but such limits were waived by all parties
involved.
On May 27, 2011, BAHS refinanced the terms and amount of its debt. The refinanced debt consists of the
following three components:
• Term loan A - $100.0 million repayable in 13 quarterly installments in payment amounts ranging from $1.2
million per quarter for the period September 30, 2011 through June 30, 2012, approximately $1.8 million per
quarter for the period September 30, 2012 through June 30, 2013, $2.5 million per quarter for the period
September 30, 2013 through June 30, 2014, approximately $3.1 million for the quarter ended September 30, 2014
and a final installment of approximately $72.9 million due on December 31, 2014. Interest on the $100.0 million
term loan is charged at LIBOR plus a margin of 3%. During 2011, BAHS made a prepayment on this loan,
which resulted in a reduction to the future quarterly and final installment amounts due. Future prepayments by
BAHS, if any, will result in reductions to remaining quarterly and final installment amounts due.
81
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions, Discontinued Operation and Other Transaction – (Continued)
• Term loan B - $216.0 million ($55.0 million provided by Henry Schein, Inc.) repayable in 17 quarterly
installments of $530 thousand from September 30, 2011 through September 30, 2015, and a final installment of
approximately $202.9 million due on December 31, 2015. Interest on the $216.0 million term loan is charged at
LIBOR plus a margin of 3.25% with a LIBOR floor of 1.25%. During 2011, BAHS made a prepayment on this
loan, which resulted in a reduction to the future quarterly and final installment amounts due. Future prepayments
by BAHS, if any, will result in reductions to remaining quarterly and final installment amounts due.
• Revolver of $50.0 million with interest charged at LIBOR plus a margin of 3%.
Prior to the debt refinancing discussed above, the debt incurred as part of the acquisition of BAHS was
repayable in 23 quarterly installments of $0.8 million through September 30, 2015, and a final installment of $301.6
million was due on December 31, 2015. Interest on the BAHS debt was charged at LIBOR plus a margin of 3.5%
with a LIBOR floor of 2%.
The revised debt agreement continues to contain provisions which, under certain circumstances, require BAHS
to make prepayments based on excess cash flows of BAHS as defined in the debt agreement. The revised debt
agreement also continues to contain provisions that require BAHS to hedge risks related to potential rising interest
rates. As a result, BAHS entered into a series of interest rate caps, for which we have elected hedge accounting
treatment, with a notional amount of $160.0 million, protecting against LIBOR interest rates rising above 3.0%
through March 30, 2012.
In addition to the BAHS acquisition, we completed certain other acquisitions during the year ended December
25, 2010, which were immaterial to our financial statements individually and in the aggregate and resulted in the
recording of approximately $162.9 million of initial goodwill through preliminary purchase price allocations.
We completed certain acquisitions during the year ended December 26, 2009, which were immaterial to our
financial statements individually and in the aggregate.
Discontinued Operation
On August 5, 2009, we completed the sale of a wholesaler of dental consumables for aggregate consideration of
$14.2 million. Prior results for this business have been presented as discontinued operations in the accompanying
consolidated statements of income. The total pretax income from discontinued operations for the year ended
December 26, 2009 was $6.5 million ($2.6 million after taxes) consisting of a $6.0 million ($2.4 million after taxes)
gain on the sale and $0.5 million ($0.2 million after taxes) income from operations.
Net sales generated by our wholesaler of dental consumables were $8.0 million for the year ended December
26, 2009.
82
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions, Discontinued Operation and Other Transaction – (Continued)
Loan and Investment Agreement
On December 12, 2008, we converted $10.4 million of loan receivables and related accrued interest into an
equity interest of 15.33% in D4D Technologies, LLC (“D4D”). Due to the conversion, we now account for our
equity interest in D4D under the equity method of accounting prospectively from the date of conversion.
In addition, under our previous agreement, if certain product specification and performance milestones
occurred, we were required to pay additional amounts (as equity contributions) to certain of D4D’s members equal
to $16.0 million. On August 3, 2009, we entered into an amendment whereby we paid certain of D4D’s members
approximately $8.0 million and agreed to make two contingent payments of up to $4.0 million each based on D4D
meeting certain financial performance criteria in 2009, 2010 and 2011. A total of $2.6 million of these amounts
have been earned, of which $1.3 million was paid during 2011 and the remaining $1.3 million will be paid upon
receipt of audited financial statements for fiscal 2011. A contingent payment with respect to fiscal 2011 of up to an
additional $2.7 million may be earned based on D4D’s financial performance. The August 3, 2009 payment of
approximately $8.0 million is included in Investments and other in our consolidated financial statements and is
being amortized over a period of 15 years. Amounts due under the amended agreement are being accounted for as
increases in the carrying value of our investment in D4D when paid or at such earlier time as the payment is
determined to be probable. Any underlying allocations to intangible assets will be determined at that time.
Note 10 – Plans of Restructuring
On November 5, 2008, we announced certain actions to reduce operating costs. These actions included the
elimination of approximately 430 positions from our operations and the closing of several smaller facilities.
For the year ended December 26, 2009, we incurred restructuring costs of approximately $3.0 million
(approximately $2.1 million after taxes) consisting of employee severance pay and benefits, facility closing costs,
representing primarily lease termination and asset write-off costs, and outside professional and consulting fees
directly related to the restructuring plan.
During the first quarter of 2010, we completed an additional restructuring in order to further reduce operating
expenses. This restructuring included headcount reductions of 184 positions, as well as the closing of a number of
smaller locations.
For the year ended December 25, 2010, we recorded restructuring costs of approximately $12.3 million
(approximately $8.3 million after taxes) consisting of employee severance pay and benefits, facility closing costs,
representing primarily lease termination and asset write-off costs, and outside professional and consulting fees
directly related to the restructuring plan.
The costs associated with these restructurings are included in a separate line item, “Restructuring costs” within
our consolidated statements of income.
83
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 10 – Plans of Restructuring – (Continued)
The following table shows the amounts expensed and paid for restructuring costs that were incurred during our
2011, 2010 and 2009 fiscal years and the remaining accrued balance of restructuring costs as of December 31,
2011, which is included in Accrued expenses: Other and Other liabilities within our consolidated balance sheet:
Severance
Costs (1)
Facility
Closing
Costs (2)
Total
Balance, December 27, 2008 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 26, 2009 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 25, 2010 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 31, 2011 .......................................................... $
14,849 $
1,568
14,150
2,267 $
8,930
9,205
1,992 $
-
1,423
569 $
(1) Represents salaries and related benefits for employees separated from the Company.
3,688 $
1,452
3,110
2,030 $
3,355
3,034
2,351 $
-
1,800
551 $
18,537
3,020
17,260
4,297
12,285
12,239
4,343
-
3,223
1,120
(2) Represents costs associated with the closing of certain smaller facilities (primarily lease termination costs) and property and
equipment write-offs.
The following table shows, by reportable segment, the restructuring costs incurred during 2011, 2010 and 2009
and the remaining accrued balance of restructuring costs as of December 31, 2011, December 25, 2010 and
December 26, 2009:
Healthcare
Distribution
Technology
Total
Balance, December 27, 2008 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 26, 2009 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 25, 2010 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 31, 2011 .......................................................... $
18,457 $
3,020
17,252
4,225 $
12,063
11,945
4,343 $
-
3,223
1,120 $
80 $
-
8
72 $
222
294
- $
-
-
- $
18,537
3,020
17,260
4,297
12,285
12,239
4,343
-
3,223
1,120
84
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 11 – 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 upon
vesting of restricted stock and upon exercise of stock options using the treasury stock method in periods in which
they have a dilutive effect.
On September 3, 2010, we redeemed all of our 3% convertible contingent notes originally due in 2034 (the
“Convertible Notes”) for approximately $240 million in cash and issued 732 shares of our common stock. For the
year ended December 25, 2010, diluted earnings per share includes the effect of common shares issuable upon
conversion of our Convertible Notes since during this period, the debt was convertible at a premium as a result of
the conditions of the debt. As a result, the amount in excess of the principal was presumed to be settled in common
shares and is reflected in our calculation of diluted earnings per share. The effect of assumed conversion of our
Convertible Notes, as it relates to the impact on diluted earnings per share, was included through September 3,
2010. For the year ended December 26, 2009, our Convertible Notes were not convertible at a premium and thus
the impact of an assumed conversion was not applicable.
A reconciliation of shares used in calculating earnings per basic and diluted share follows:
Years Ended
December 31,
2011
December 25, December 26,
2010
2009
Basic ..............................................................................................................
Effect of dilutive securities:
Stock options, restricted stock and restricted units ...................................
Effect of assumed conversion of convertible debt .........................................
Diluted ......................................................................................................
90,120
2,500
-
92,620
90,097
2,271
900
93,268
88,872
1,684
-
90,556
Weighted-average options to purchase 8, 991 and 2,738 shares of common stock at an exercise price of $69.45
and ranging from $59.89 to $62.05 and $47.31 to $62.05 per share that were outstanding during the years ended
December 31, 2011, December 25, 2010 and December 26, 2009, respectively, were excluded from the
computation of diluted earnings per share In each of these years, such options’ exercise prices exceeded the
average market price of our common stock, thereby causing the effect of such options to be anti-dilutive.
85
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes
Income from continuing operations before taxes, equity in earnings of affiliates and noncontrolling interests
was as follows:
Years ended
December 31,
2011
December 25,
December 26,
2010
2009
Domestic .................................................................................................$
Foreign ....................................................................................................
Total ..................................................................................................$
403,171 $
166,136
569,307 $
343,502 $
158,533
502,035 $
308,238
144,482
452,720
The provisions for income taxes attributable to continuing operations were as follows:
Years ended
December 31,
December 25,
December 26,
2011
2010
2009
Current income tax expense:
U.S. Federal .............................................................................. $
State and local ..........................................................................
Foreign .....................................................................................
Total current .........................................................................
Deferred income tax expense (benefit):
U.S. Federal ..............................................................................
State and local ..........................................................................
Foreign .....................................................................................
Total deferred .......................................................................
Total provision ................................................................ $
125,148 $
30,423
43,960
199,531
(12,466)
(1,782)
(5,071)
(19,319)
108,540 $
22,227
35,353
166,120
(9,096)
(1,299)
4,344
(6,051)
180,212 $
160,069 $
101,092
16,649
35,965
153,706
(5,059)
(722)
(20,404)
(26,185)
127,521
86
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes – (Continued)
The tax effects of temporary differences that give rise to our deferred income tax asset (liability) were as
follows:
Years Ended
December 31,
December 25,
2011
2010
Current deferred income tax assets:
Inventory, premium coupon redemptions and accounts receivable
valuation allowances ..................................................................................... $
Uniform capitalization adjustments to inventories .................................................
Other current assets ................................................................................................
Current deferred income tax asset (1) ....................................................................
21,960 $
7,944
23,749
53,653
Non-current deferred income tax asset (liability):
Property and equipment .........................................................................................
Stock-based compensation .....................................................................................
Other non-current liabilities ...................................................................................
Net operating losses of domestic subsidiaries ........................................................
Net operating losses of foreign subsidiaries ...........................................................
Total non-current deferred tax liability ..........................................................
Valuation allowance for non-current deferred tax assets (2) .........................
Net non-current deferred tax liability (1) ...............................................................
(12,312)
43,025
(213,459)
6,715
48,678
(127,353)
(28,136)
(155,489)
Net deferred income tax liability .................................................................................... $
(101,836) $
18,047
8,131
19,244
45,422
(13,131)
38,663
(215,162)
8,300
49,107
(132,223)
(27,108)
(159,331)
(113,909)
(1) Certain deferred tax amounts do not have a right of offset and are therefore reflected on a gross basis in current assets
and non-current liabilities in our consolidated balance sheets.
(2) Primarily relates to operating losses of acquired foreign subsidiaries, the benefits of which are uncertain. Any future reductions
of such valuation allowances will be reflected as a reduction of income tax expense in accordance with the provisions of
ASC Topic 805, “Business Combinations.”
All net deferred income tax assets are realizable as we have sufficient taxable income in prior years and
anticipate sufficient taxable income in future years to realize the tax benefit for deductible temporary differences.
As of December 31, 2011, we have federal net operating loss carryforwards of $17.4 million relating to our
domestic subsidiaries. Of such losses, $15.2 million can be utilized against future federal income through 2026,
and $2.2 million can be utilized against future federal income through 2027. We have state net operating loss
carryforwards of $7.0 million relating to our domestic subsidiaries, which can be utilized against future state
income through 2029. Foreign net operating loss carryforwards totaled $173.3 million as of December 31, 2011.
Of such losses, $0.8 million can be utilized against future foreign income through 2012, $1.4 million can be utilized
against future foreign income through 2013, $2.3 million can be utilized against future foreign income through
2014, $2.8 million can be utilized against future foreign income through 2015, $1.5 million can be utilized against
future foreign income through 2016, $1.1 million can be utilized against future foreign income through 2017, $1.0
million can be utilized against future foreign income through 2018 and $162.4 million has an indefinite life.
87
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes – (Continued)
The tax provisions from continuing operations differ from the amount computed using the federal statutory
income tax rate as follows:
Years ended
December 31,
December 25,
December 26,
2011
2010
2009
Income tax provision at federal statutory rate ................................ $
State income tax provision, net of federal income tax effect .........
Foreign income tax benefit .............................................................
Valuation allowance .......................................................................
Interest expense related to loans .....................................................
Other ..............................................................................................
Total income tax provision .................................................... $
199,256 $
18,035
(20,169)
442
(14,394)
(2,958)
180,212 $
175,713 $
13,224
(17,109)
(7,085)
(9,714)
5,040
160,069 $
158,452
10,078
(16,743)
(19,467)
(7,014)
2,215
127,521
For the year ended December 31, 2011, our effective tax rate from continuing operations was 31.7% compared
to 31.9% for the prior year period. The net reduction in our 2011 effective tax rate results from additional tax
planning, settlements of tax audits and higher income from lower taxing countries. The difference between our
effective tax rate and the federal statutory tax rate for both periods related primarily to foreign and state income
taxes.
During the third quarter of 2009, we substantially completed a plan of reorganization outside the United States
that allowed us to utilize tax loss carryforwards to offset taxable income beginning in 2010 in certain foreign tax
jurisdictions. As a result, we determined that it is more likely than not that a portion of deferred tax assets
previously fully reserved will be realized. Therefore, the 2009 provision for income taxes includes a $20.9 million
reduction of the valuation allowance which is based on an estimate of future taxable income available to be offset
by the tax loss carryforwards. For the year ended December 26, 2009, our effective tax rate from continuing
operations was 28.2%.
Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign
subsidiaries, which have been, and will continue to be reinvested. These earnings could become subject to
additional tax if they were remitted as dividends, if foreign earnings were loaned to us or a U.S. affiliate, or if we
should sell our stock in the foreign subsidiaries. It is not practicable to determine the amount of additional tax, if
any, that might be payable on the foreign earnings. As of December 31, 2011, the cumulative amount of reinvested
earnings was approximately $469.9 million.
ASC Topic 740 clarifies the accounting for uncertainty in income taxes recognized in the financial statements
in accordance with other provisions contained within this 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 is greater than 50% likely of being realized upon ultimate audit settlement.
88
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes – (Continued)
The total amount of unrecognized tax benefits as of December 31, 2011 was approximately $24.5 million, all of
which would affect the effective tax rate if recognized. It is expected that the amount of unrecognized tax benefits
will change in the next 12 months; however, we do not expect the change to have a material impact on our
consolidated financial statements.
The total amounts of interest and penalties, which are classified as a component of the provision for income
taxes, were approximately $5.3 million and $0, respectively, as of December 31, 2011. It is expected that the
amount of interest will change in the next twelve months. However, we do not expect the change to have a material
impact on our consolidated financial statements.
The tax years subject to examination by major tax jurisdictions include the years 2009 and forward by the U.S.
Internal Revenue Service, the years 1997 and forward for certain states and the years 2003 and forward for certain
foreign jurisdictions.
The following table provides a reconciliation of unrecognized tax benefits excluding the effects of deferred
taxes, interest and penalties:
December 31,
December 25,
2011
2010
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 .................................................................
Reductions resulting from settlements with taxing authorities .......................................
Reductions resulting from lapse in statutes of limitations ..............................................
Balance, end of period .................................................................................................... $
21,800 $
2,200
1,900
(700)
(5,900)
(100)
19,200 $
17,000
2,500
5,100
(700)
(2,100)
-
21,800
89
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 13 – Concentrations of Risk
Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments
consist primarily of cash equivalents, available-for-sale securities, 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 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 our credit risk with respect to our cash equivalents, available-for-sale securities, 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 counter-parties.
With respect to our trade receivables, our credit risk is somewhat limited due to a relatively large customer base
and its dispersion across different types of healthcare professionals and geographic areas. No single customer
accounted for more than 4.3% of our net sales in 2011. With respect to our sources of supply, our top 10 healthcare
distribution suppliers and our single largest supplier accounted for approximately 33% and 8%, respectively, of our
aggregate purchases in 2011.
Our long-term notes receivable represent strategic financing arrangements with certain industry affiliates and
amounts owed to us from sales of certain businesses. Generally, these notes are secured by certain assets of the
counter-party; however, in most cases our security is subordinate to other commercial financial institutions. While
we have exposure to credit loss in the event of non-performance by these counter-parties, we conduct ongoing
assessments of their financial and operational performance.
Note 14 – Derivatives and Hedging Activities
We are exposed to market risks, which include changes in interest rates, as well as changes in foreign currency
exchange rates as measured against the U.S. dollar and each other, and changes to the credit markets. We attempt
to minimize these risks by primarily using interest rate cap agreements, foreign currency forward contracts and by
maintaining counter-party credit limits. These hedging activities provide only limited protection against interest
rate, currency exchange and credit risks. Factors that could influence the effectiveness of our hedging programs
include interest rate volatility, currency markets and availability of hedging instruments and liquidity of the credit
markets. All foreign currency forward and interest rate cap contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated interest rate and currency
exposure. We do not enter into such contracts for speculative purposes and we manage our credit risks by
diversifying our investments, maintaining a strong balance sheet and having multiple sources of capital.
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 and interest rate caps contracts aimed at limiting the impact of foreign currency exchange rate and interest
rate fluctuations on earnings. We purchase short-term (i.e., 18 months or less) foreign currency forward contracts
to protect against currency exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of merchandise purchases to our foreign suppliers. We purchase interest rate caps to
protect against interest rate risk on variable rate debt payable to third parties. We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure.
The impact of our hedging activities has historically not had a material impact on our consolidated financial
statements. Accordingly, additional disclosures related to derivatives and hedging activities required by ASC Topic
815 have been omitted.
90
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 15 – Segment Data
We conduct our business through two reportable segments: healthcare distribution and technology. These
segments offer different products and services to the same customer base. The healthcare distribution reportable
segment aggregates our dental, medical, animal health and international operating segments. This segment consists
of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded
and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
Our dental group serves office-based dental practitioners, schools and other institutions in the combined United
States and Canadian dental market. Our medical group serves office-based medical practitioners, surgical centers,
other alternate-care settings and other institutions throughout the United States. Our animal health group serves
animal health practices and clinics throughout the United States. Our international group serves dental, medical
and animal health practitioners in 22 countries outside of North America.
Our technology group provides software, technology and other value-added services to healthcare practitioners,
primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our value-added practice
solutions include practice management software systems for dental and medical practitioners and animal health
clinics. Our technology group offerings also include financial services on a non-recourse basis, e-services and
continuing education services for practitioners.
The following tables present information about our business segments:
Years Months Ended
December 31,
2011
December 25, December 26,
2010
2009
Net Sales:
Healthcare distribution (1):
Dental (2) ................................................................................... $
Medical (3) ................................................................................
Animal health (4) .......................................................................
International (5) .........................................................................
Total healthcare distribution ...............................................
Technology (6) ...............................................................................
Total ........................................................................................ $
2,861,100 $
1,412,470
993,183
3,012,869
8,279,622
250,620
8,530,242 $
2,678,830 $
1,290,428
889,303
2,468,277
7,326,838
199,952
7,526,790 $
2,509,921
1,217,020
240,082
2,398,105
6,365,128
173,208
6,538,336
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.
Consists of products sold in the United States and Canadian dental markets.
Consists of products sold in the United States’ medical market.
Consists of products sold in the United States’ animal health market.
Consists of products sold in dental, medical and animal health markets, primarily in Europe, Australia and New Zealand.
Consists of practice management software and other value-added products and services, which are distributed primarily to healthcare
providers in the United States, Canada, the United Kingdom, Australia and New Zealand.
(1)
(2)
(3)
(4)
(5)
(6)
91
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 15 – Segment and Geographic Data – (Continued)
Years ended
December 31,
December 25,
December 26,
2011
2010
2009
Operating Income:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Income from continuing operations before taxes, equity in
earnings of affiliates and noncontrolling interests:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Depreciation and Amortization:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Income Tax Expense Attributable to Continuing Operations:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Interest Income:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Interest Expense:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
Purchases of Fixed Assets:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
511,295 $
70,854
582,149 $
454,882 $
66,249
521,131 $
500,467 $
68,840
569,307 $
107,284 $
8,612
115,896 $
157,390 $
22,822
180,212 $
15,531 $
62
15,593 $
30,350 $
27
30,377 $
42,751 $
2,425
45,176 $
437,971 $
64,064
502,035 $
95,267 $
5,947
101,214 $
132,785 $
27,284
160,069 $
14,088 $
10
14,098 $
33,627 $
14
33,641 $
37,158 $
1,842
39,000 $
401,915
62,170
464,085
392,431
60,289
452,720
75,290
6,203
81,493
99,000
28,521
127,521
9,929
50
9,979
23,362
8
23,370
49,282
2,345
51,627
December 31,
2011
As of
December 25,
2010
December 26,
2009
Total Assets:
Healthcare distribution ............................................................. $
Technology ...............................................................................
Total ................................................................................... $
4,567,231 $
172,913
4,740,144 $
4,429,787 $
117,684
4,547,471 $
3,725,299
110,686
3,835,985
92
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 15 – Segment and Geographic Data – (Continued)
The following table sets forth our net sales by principal categories of products offered through our healthcare
distribution and technology reportable segments:
December 31,
Years Ended
December 25, December 26,
2011
2010
2009
Healthcare Distribution
Dental:
Consumable dental products, dental laboratory products
and small equipment (1) ..................................................... $
Large dental equipment (2) .........................................................
3,449,732 $
1,257,802
3,180,366 $
1,167,934
2,994,714
1,118,500
Total dental ........................................................................
4,707,534
4,348,300
4,113,214
Medical products (3) .......................................................................
Animal health products (4) .............................................................
1,566,285
2,005,803
1,441,396
1,537,142
1,530,704
721,210
Total Healthcare Distribution .....................................................
8,279,622
7,326,838
6,365,128
Technology
Software and related products and
other value-added products (5) ...........................................
250,620
199,952
173,208
Total ....................................................................................................... $
8,530,242 $
7,526,790 $
6,538,336
(1)
Includes X-ray products, infection-control products, handpieces, preventatives, impression materials, composites, anesthetics,
teeth, dental implants, gypsum, acrylics, articulators and abrasives.
(2)
Includes dental chairs, delivery units and lights, X-ray equipment, equipment repair and high-tech equipment.
(3)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray
products, equipment and vitamins.
(4)
Includes branded and generic pharmaceuticals, surgical and consumable products and services and equipment.
(5)
Includes software and related products and other value-added products, including financial products and continuing education.
The following table presents information about our operations by geographic area as of and for the three years
ended December 31, 2011. Net sales by geographic area are based on the respective locations of our subsidiaries.
No country, except for the United States and Germany, generated net sales greater than 10% 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.
2011
2010
2009
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
United States ............................ $ 5,212,861 $
744,221
Germany ...................................
2,573,160
Other ........................................
1,279,913 $
159,231
729,664
4,777,172 $
689,159
2,060,459
1,248,837 $ 3,902,353 $
699,309
1,936,674
187,112
646,886
590,917
182,590
676,909
Consolidated total ............... $ 8,530,242 $
2,168,808 $
7,526,790 $
2,082,835 $ 6,538,336 $
1,450,416
93
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans
Stock-based Compensation
Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of
$36.9 million ($25.2 million after-tax), $29.9 million ($20.4 million after-tax) and $25.9 million ($17.5 million
after-tax) for the years ended December 31, 2011, December 25, 2010 and December 26, 2009.
Our accompanying consolidated statements of cash flows present our stock-based compensation expense as an
adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In the
accompanying consolidated statements of cash flows, we presented $8.8 million, $11.3 million and $4.7 million of
benefits associated with tax deductions in excess of recognized compensation as a cash inflow from financing
activities for the years ended December 31, 2011, December 25, 2010 and December 26, 2009.
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-
employee directors. 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. Our stock-based compensation expense is reflected in selling, general and
administrative expenses in our consolidated statements of income.
Stock-based awards are provided to certain employees and non-employee directors under the terms of our 1994
Stock Incentive Plan, as amended, and our 1996 Non-Employee Director Stock Incentive Plan, as amended
(together, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors.
Prior to March 2009, awards under the Plans principally included a combination of at-the-money stock options and
restricted stock (including restricted stock units). Since March 2009, equity-based awards have been granted solely
in the form of restricted stock and restricted stock units, with the exception of stock options for certain pre-existing
contractual obligations. As of December 31, 2011, there were 27,079 shares authorized and 4,927 shares available
to be granted under the 1994 Stock Incentive Plan and 800 shares authorized and 129 shares available to be granted
under the 1996 Non-Employee Director Stock Incentive Plan.
Stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price.
Stock options are granted at an exercise price equal to our closing stock price on the date of grant. These awards,
which generally vest 25% per year based on the recipient’s continued service subject to the terms and conditions of
the Plans, are fully vested four years from the grant date and have a contractual term of ten years from the grant
date. Additionally, recipients may not sell any shares that they acquire through exercising their stock options until
the third anniversary of the date of grant of such options. We estimate the fair value of stock options using the
Black-Scholes valuation model.
Grants of restricted stock are common stock awards granted to recipients with specified vesting provisions. We
issue restricted stock that vests solely based on the recipient’s continued service over time (four-year cliff vesting)
and restricted stock that vests based on our achieving specified performance measurements and the recipient’s
continued service over time (three-year cliff vesting).
With respect to time-based restricted stock, we estimate the fair value on the date of grant based on our closing
stock price. With respect to performance-based restricted stock, 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 three-year
period as determined by the Compensation Committee of the Board of Directors. Although there is no guarantee
that performance targets will be achieved, we estimate the fair value of performance-based restricted stock based on
our closing stock price at time of grant.
94
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
The Plans provide for adjustments to the performance-based restricted stock targets for significant events such
as acquisitions, divestitures, new business ventures and share repurchases. Over the performance period, the
number of shares of common stock 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 will be based
on our actual performance metrics as defined under the Plans.
Restricted stock units are awards that we grant to certain employees that entitle the recipient to shares of
common stock upon vesting. We grant restricted stock units with the same time-based and performance-based
vesting that we use for restricted stock. The fair value of restricted stock units is determined on the date of grant,
based on our closing stock price.
We record deferred income tax assets for awards that will result in future deductions on our income tax returns
based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will
receive a deduction. Differences between the deferred income tax assets recognized for financial reporting
purposes and the actual tax deduction reported on our income tax return are recorded in additional paid-in capital (if
the tax deduction exceeds the deferred income tax asset) or in earnings (if the deferred income tax asset exceeds the
tax deduction and no additional paid-in capital exists from previous awards).
Stock-based compensation grants for the three years ended December 31, 2011 primarily consisted of restricted
stock and restricted stock unit grants. Certain stock-based compensation granted may require us to settle in the
form of a cash payment. During the year ended December 31, 2011, we have recorded a liability of $0.7 million
relating to the grant date fair value of this stock-based compensation, as well as an expense of $0.3 million relating
to the change in the fair value of these grants. The weighted-average grant date fair value of stock-based awards
granted before forfeitures was $68.25, $55.59 and $34.35 per share during the years ended December 31, 2011,
December 25, 2010 and December 26, 2009.
Total unrecognized compensation cost related to non-vested awards as of December 31, 2011 was $62.5
million, which is expected to be recognized over a weighted-average period of approximately 2.2 years.
A summary of the stock option activity under the Plans is presented below:
December 31,
2011
Weighted
Average
Exercise
Price
Shares
Years Ended
December 25,
2010
December 26,
2009
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
Outstanding at beginning of year ...........
Granted ...................................................
Exercised ................................................
Forfeited .................................................
Outstanding at end of year .....................
5,012 $
10
(942)
(21)
4,059 $
43.05
69.45
36.84
48.35
44.53
6,295 $
10
(1,249)
(44)
5,012 $
40.66
56.03
30.84
50.12
43.05
6,792 $
42
(446)
(93)
6,295 $
39.85
38.33
26.62
48.83
40.66
Options exercisable at end of year .........
3,778 $
43.47
4,252 $
40.58
4,835 $
36.31
95
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
The following weighted-average assumptions were used in determining the fair values of stock options using
the Black-Scholes valuation model:
Expected dividend yield ...........................................................................
Expected stock price volatility .................................................................
Risk-free interest rate ...............................................................................
Expected life of options (years) ...............................................................
- %
20 %
2.13 %
4.75
- %
20 %
2.37 %
4.5
- %
28 %
1.88 %
4.5
2011
2010
2009
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 the evaluation of implied volatilities from
traded call options on our stock and from call options embedded in our convertible debt, historical volatility of our
stock and other factors. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of
grant in conjunction with considering the expected life of options. The expected life of options represents the
approximate period of time that granted options are expected to be outstanding and is based on historical data,
including, among other things, option exercises, forfeitures and cancellations. Estimates of fair value are not
intended to predict actual future events or the value ultimately realized by recipients of stock options, and
subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.
The following table represents the intrinsic values of:
As of
December 31,
December 25,
2011
2010
December 26,
2009
Stock options outstanding ................................................................ $
Stock options exercisable .................................................................
80,821 $
79,202
95,777 $
91,741
84,880
82,476
The total cash received as a result of stock option exercises for the years ended December 31, 2011, December
25, 2010 and December 26, 2009 was approximately $34.5 million, $38.4 million and $11.9 million. In connection
with these exercises, the tax benefits that we realized for the years ended December 31, 2011, December 25, 2010
and December 26, 2009 were $7.2 million, $8.3 million and $2.6 million. We settle employee stock option
exercises with newly issued common shares.
96
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
The total intrinsic value of restricted stock (including RSUs) that vested was $8.9 million, $12.3 million and
$8.7 million during the years ended December 31, 2011, December 25, 2010 and December 26, 2009. The
following table summarizes the status of our non-vested restricted shares/units for the year ended December 31,
2011:
Time-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Value
Aggregate Intrinsic
Value
Shares/Units
Outstanding at beginning of period ...........................................
Granted ......................................................................................
Vested ........................................................................................
Forfeited ....................................................................................
Outstanding at end of period .....................................................
743 $
237
(87)
(23)
870 $
34,804
16,443
(4,520)
(1,113)
45,614 $
56,070
Performance-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Value
Aggregate Intrinsic
Value
Shares/Units
Outstanding at beginning of period ...........................................
Granted ......................................................................................
Vested ........................................................................................
Forfeited ....................................................................................
Outstanding at end of period .....................................................
1,347 $
417
(46)
(20)
1,698 $
42,083
29,632
(2,768)
(949)
67,998 $
109,394
401(k) Plans
We offer qualified 401(k) plans to substantially all our domestic full-time employees. As determined by our
Board of Directors, matching contributions to these plans generally do not exceed 100% of the participants’
contributions up to 7% of their base compensation, subject to applicable legal limits. Matching contributions
include both cash and our common stock. Forfeitures attributable to participants whose employment terminates
prior to becoming fully vested are used to reduce our matching contributions.
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 and administrative expenses
related to these plans charged to operations during the years ended December 31, 2011, December 25, 2010 and
December 26, 2009 amounted to $23.0 million, $21.2 million and $18.1 million.
Supplemental Executive Retirement Plan
We offer an unfunded, non-qualified supplemental executive retirement plan 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 31, 2011, December 25, 2010 and December 26, 2009 amounted to $0.7 million, $0.6 million and
$1.9 million.
97
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
Deferred Compensation Plan
During 2011, we began to offer a deferred compensation plan to a select group of management or highly
compensated employees of the Company and certain associated companies. This plan allows for the elective
deferral of base salary, bonus and/or commission compensation by eligible employees. During 2011, the total
amount of deferrals invested in the plan was approximately $1.6 million and is recorded within Other liabilities
within our consolidated balance sheets. As of December 31, 2011, the fair market value of the funds deferred was
approximately $1.6 million.
Note 17 – Commitments and Contingencies
Operating Leases
We lease facilities and equipment under non-cancelable operating leases expiring through 2025. We expect
that in the normal course of business, leases will be renewed or replaced by other leases.
Future minimum annual rental payments under our non-cancelable operating leases as of December 31, 2011
were:
2012 ...............................................................................$
2013 ...............................................................................
2014 ...............................................................................
2015 ...............................................................................
2016 ...............................................................................
Thereafter ......................................................................
Total minimum operating lease payments ...............$
65,640
47,587
31,443
23,345
16,914
34,619
219,548
Total rental expense attributable to continuing operations for the years ended December 31, 2011, December
25, 2010 and December 26, 2009 was $65.5 million, $62.6 million and $56.1 million.
Capital Leases
We lease certain equipment under capital leases. Future minimum annual lease payments under our capital
leases together with the present value of the minimum capital lease payments as of December 31, 2011 were:
2012 ..................................................................................................$
2013 ..................................................................................................
2014 ..................................................................................................
2015 ..................................................................................................
2016 ..................................................................................................
Thereafter ..........................................................................................
Total minimum capital lease payments .............................................
Less: Amount representing interest at 0.50% to 16.44%
Total present value of minimum capital lease payments ..............$
2,701
1,491
774
308
122
-
5,396
(505)
4,891
98
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 17 – Commitments and Contingencies – (Continued)
Purchase Commitments
In our healthcare distribution 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 31, 2011 were:
2012 .................................................................................................$
2013 .................................................................................................
2014 .................................................................................................
2015 .................................................................................................
2016 .................................................................................................
Thereafter ........................................................................................
Total minimum inventory purchase commitment payments .......$
69,534
50,660
22,430
21,388
22,457
101,634
288,103
We have obligations to purchase certain pharmaceutical products from a manufacturer through 2013, which
require us to pay a price based on the prevailing market price or a formula price in each respective year. The
amounts included in the above table related to these purchase commitments were determined using current market
conditions. We also have obligations to purchase certain pharmaceutical products from another manufacturer.
Actual amounts may differ.
Litigation
From time to time, we may become a party to legal proceedings, including, without limitation, product liability
claims, employment matters, commercial disputes and other matters arising out of the ordinary course of our
business. In our opinion, pending matters will not have a material adverse effect on our financial condition or
results of operations.
We have various insurance policies, including product liability insurance, covering risks in amounts that we
consider adequate. In many cases in which we have been sued in connection with products manufactured by others,
the manufacturer provides us with indemnification. There can be no assurance that the insurance coverage we
maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification
agreements will provide us with adequate protection.
As of December 31, 2011, we had accrued our best estimate of potential losses relating to product liability and
other claims that were probable to result in a 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 external factors, including probable recoveries from third parties.
Employment, Consulting and Non-Compete Agreements
We have definite-lived employment, consulting and non-compete agreements expiring through 2016 that have
varying base aggregate annual payments of approximately $14.6 million in 2012, which decrease periodically to
approximately $1.2 million in 2016. We also have a lifetime consulting agreement that provides for current
compensation of $0.4 million per year, increasing $25 every fifth year with the next increase in 2012. In addition,
some agreements have provisions for additional incentives and compensation.
99
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 18 – Quarterly Information (Unaudited)
The following tables present certain quarterly financial data:
Quarters ended
March 26,
2011
June 25,
2011
September 24,
2011
December 31,
2011
Net sales ............................................................ $
Gross profit .......................................................
Operating income ..............................................
Net income ........................................................
1,947,761 $
565,822
124,300
82,971
2,130,640 $
612,224
151,215
105,056
2,111,693 $
587,420
143,261
100,808
2,340,148
652,589
163,373
115,821
Amounts attributable to
Henry Schein, Inc.:
Net income ........................................................
Earnings per share attributable to
Henry Schein, Inc.:
From net income:
Basic ............................................................ $
Diluted .........................................................
76,495
94,475
91,961
104,730
0.84 $
0.82
1.04 $
1.01
1.02 $
0.99
1.18
1.15
Quarters ended
March 27,
2010
June 26,
2010
September 25,
2010
December 25,
2010
Net sales ............................................................ $
Gross profit .......................................................
Operating income ..............................................
Net income ........................................................
1,760,310 $
513,033
103,759
67,252
1,849,401 $
545,644
138,006
93,163
1,893,511 $
537,456
137,368
94,490
2,023,568
574,743
141,998
97,226
Amounts attributable to
Henry Schein, Inc.:
Net income ........................................................
Earnings per share attributable to
Henry Schein, Inc.:
From net income:
Basic ............................................................ $
Diluted .........................................................
60,900
84,001
87,893
92,995
0.68 $
0.66
0.93 $
0.90
0.97 $
0.94
1.03
1.00
100
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 18 – Quarterly Information (Unaudited) – (Continued)
We experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations
of securities analysts and investors, which could cause our stock price to decline.
Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally
have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza
vaccine, equipment and software products), purchasing patterns of office-based healthcare practitioners and year-
end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to
increased sales in the prior two quarters. We expect our historical seasonality of sales to continue in the foreseeable
future. Quarterly results also may be adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our vendors;
• timing of the introduction of new products and services by our vendors;
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of vendor contracts or rebate programs;
• vendor rebates based upon attaining certain growth goals;
• changes in the way vendors introduce or deliver products to market;
• costs of developing new applications and services;
• exclusivity requirements with certain vendors may prohibit us from distributing competitive products
manufactured by other vendors;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
• costs associated with our self-insured medical insurance program;
• general economic conditions, as well as those specific to the healthcare industry and related industries;
• our success in establishing or maintaining business relationships;
• unexpected difficulties in developing and manufacturing products;
• product demand and availability or recalls by manufacturers;
• exposure to product liability and other claims in the event that the use of the products we sell results in
injury;
• increases in the cost of shipping or service issues with our third-party shippers;
• restructuring costs; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly operating results to
fluctuate. If our operating results do not meet market expectations, our stock price may decline.
101
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 19 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Years ended
December 31,
December 25, December 26,
2011
2010
2009
Interest ............................................................................................. $
Income taxes ...................................................................................
30,847 $
173,318
25,531 $
145,758
22,202
170,024
There was approximately $16.7 million, $286.3 million and $3.7 million of debt assumed as a part of the
acquisitions for the years ended December 31, 2011, December 25, 2010 and December 26, 2009, respectively.
Debt assumed during the year ended December 31, 2011 and December 25, 2010 primarily relates to the
acquisitions of Provet Holdings Limited and BAHS, respectively. On September 3, 2010, we redeemed all of our
3% Convertible Notes originally due in 2034 for approximately $240 million in cash and issued 732 shares of our
common stock. During the years ended December 31, 2011, December 25, 2010 and December 26, 2009, we had
$0.7 million, $1.1 million and $11.5 million of non-cash net unrealized losses related to foreign currency hedging
activities. During the year ended December 26, 2009, we exchanged a loan receivable from D4D in the amount of
$7.6 million for equity securities in D4D.
102
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this annual report as such term is defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on
this evaluation, our management, including our principal executive officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of December 31, 2011 to ensure that all
material information required to be disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and
that all such information is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.
Changes in Internal Control over Financial Reporting
The combination of continued acquisition activity, ongoing acquisition integrations and systems
implementations undertaken during the quarter and carried over from prior quarters, when considered in the
aggregate, represents a material change in our internal control over financial reporting.
During the quarter ended December 31, 2011, we completed system integration activities for the European
Dental, Medical and Animal Health businesses with aggregate annual revenues of approximately $744.0 million.
In addition, post-acquisition related activities continued for the International and North American Animal Health
and Medical businesses acquired during 2011, representing aggregate annual revenues of approximately $305.0
million. These acquisitions, the majority of which utilize separate information and financial accounting systems,
have been included in our consolidated financial statements. During the quarter ended December 31, 2011, we
completed the acquisitions of a North American Dental Laboratory distribution business and a Technology business
with approximate aggregate annual revenues of $9.0 million.
All acquisitions, acquisition integrations and systems implementations involved necessary and appropriate
change-management controls that are considered in our annual assessment of the design and operating effectiveness
of our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system is designed to
provide reasonable assurance to our management and Board of Directors regarding the preparation and fair
presentation of published financial statements. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the
COSO Framework. Based on our evaluation under the COSO Framework, our management concluded that our
internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2011.
The effectiveness of our internal control over financial reporting as of December 31, 2011 has been
independently audited by BDO USA, LLP, an independent registered public accounting firm, and their attestation is
included herein.
Limitations of the Effectiveness of Internal Control
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the internal control system are met. Because of the inherent limitations of any
internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any,
within a company have been detected.
103
Report of Independent Registered Public Accounting Firm
Board of Directors
Henry Schein, Inc.
Melville, New York
We have audited Henry Schein, Inc.’s internal control over financial reporting as of December 31, 2011, based
on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Henry Schein, Inc.’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal
Control Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Henry Schein, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Henry Schein, Inc. as of December 31, 2011 and December 25,
2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each
of the three years in the period ended December 31, 2011 and our report dated February 15, 2012 expressed an
unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
February 15, 2012
104
ITEM 9B. Other Information.
None.
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by this item regarding our directors and executive officers and our corporate governance
is hereby incorporated by reference to the Section entitled “Election of Directors”, with respect to directors, and the
first paragraph of the Section entitled “Corporate Governance - Board of Directors Meetings and Committees -
Audit Committee”, with respect to corporate governance, in each case in our definitive 2012 Proxy Statement to be
filed pursuant to Regulation 14A and to the Section entitled “Executive Officers of the Registrant” in Part I of this
report, with respect to executive officers.
There have been no changes to the procedures by which stockholders may recommend nominees to our Board
of Directors since our last disclosure of such procedures, which appeared in our definitive 2011 Proxy Statement
filed pursuant to Regulation 14A on April 8, 2011.
Information required by this item concerning compliance with Section 16(a) of the Securities Exchange Act of
1934 is hereby incorporated by reference to the Section entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive 2012 Proxy Statement.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and Vice
President of Corporate Finance. We make available free of charge through our Internet Web site,
www.henryschein.com, under the “About Henry Schein--Corporate Governance” caption, our Code of Ethics. We
intend to disclose on our Web site any amendment to, or waiver of, a provision of the Code of Ethics that applies to
our Chief Executive Officer, Chief Financial Officer or Vice President of Corporate Finance.
ITEM 11. Executive Compensation
The information required by this item is hereby incorporated by reference to the Section entitled
“Compensation Discussion and Analysis”, “Compensation Committee Report” (which information shall be deemed
furnished in this Annual Report on Form 10-K), “Executive and Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in our definitive 2012 Proxy Statement to be filed pursuant to
Regulation 14A.
105
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
We maintain several stock incentive plans for the benefit of certain officers, directors and employees. Certain
plans are subject to stockholder approval, while other plans have been authorized solely by the Board of Directors.
Descriptions of these plans appear in the notes to our consolidated financial statements. The following table
summarizes information relating to these plans as of December 31, 2011:
Number of Common
Shares to be Issued Upon Weighted- Average
Exercise of Outstanding
Exercise Price of
Outstanding Options
Options and Rights
Number of Common
Shares Available for
Future Issuances
Plans Approved by Stockholders ....................
Plans Not Approved by Stockholders .............
Total ..........................................................
4,059,084 $
-
4,059,084 $
44.53
-
44.53
5,055,665
-
5,055,665
The other information required by this item is hereby incorporated by reference to the Section entitled “Security
Ownership of Certain Beneficial Owners and Management” in our definitive 2012 Proxy Statement to be filed
pursuant to Regulation 14A.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is hereby incorporated by reference to the Section entitled “Certain
Relationships and Related Transactions” and “Corporate Governance – Board of Directors Meetings and
Committees – Independent Directors” in our definitive 2012 Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 14. Principal Accountant Fees and Services
The information required by this item is hereby incorporated by reference to the Section entitled “Independent
Registered Public Accounting Firm Fees and Pre-Approval Policies and Procedures” in our definitive 2012 Proxy
Statement to be filed pursuant to Regulation 14A.
106
ITEM 15. Exhibits, Financial Statement Schedules
PART IV
1. Financial Statements:
Our Consolidated Financial Statements filed as a part of this report are listed on the index on
page 54.
2. Financial Statement Schedules:
Schedule II
No other schedules are required.
3. Exhibits:
The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit
List immediately preceding the exhibits.
107
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Henry Schein, Inc.
By: /s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman and Chief Executive Officer
February 15, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
/s/ STANLEY M. BERGMAN
Stanley M. Bergman
/s/ STEVEN PALADINO
Steven Paladino
/s/ JAMES P. BRESLAWSKI
James P. Breslawski
/s/ GERALD A. BENJAMIN
Gerald A. Benjamin
/s/ MARK E. MLOTEK
Mark E. Mlotek
/s/ BARRY J. ALPERIN
Barry J. Alperin
/s/ PAUL BRONS
Paul Brons
/s/ DONALD J. KABAT
Donald J. Kabat
/s/ PHILIP A. LASKAWY
Philip A. Laskawy
/s/ KARYN MASHIMA
Karyn Mashima
/s/ NORMAN S. MATTHEWS
Norman S. Matthews
/s/ BRADLEY T. SHEARES, PH. D.
Bradley T. Sheares, Ph. D.
/s/ LOUIS W. SULLIVAN, MD
Louis W. Sullivan, MD
Capacity
Date
Chairman, Chief Executive Officer
February 15, 2012
and Director (principal executive officer)
Executive Vice President, Chief Financial
Officer and Director (principal financial and
accounting officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
108
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
February 15, 2012
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Henry Schein, Inc.
Melville, New York
The audits referred to in our report dated February 15, 2012 relating to the consolidated financial statements of
Henry Schein, Inc. which is contained in Item 8 of this Form 10-K, included the audits of the financial statement
schedule listed in the accompanying index. This financial statement schedule is the responsibility of the
Company’s management. Our responsibility is to express an opinion on the financial statement schedule based
upon our audits.
In our opinion such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ BDO USA, LLP
New York, New York
February 15, 2012
109
Schedule II
Valuation and Qualifying Accounts
Additions
Description
Balance at
beginning of
period
Charged to
statement of
income (1)
Charged to
other
accounts (2)
Balance at
Deductions (3)
end of
period
Year ended December 31, 2011:
Allowance for doubtful accounts,
sales returns and other ...................... $
Year ended December 25, 2010:
Allowance for doubtful accounts,
sales returns and other ...................... $
Year ended December 26, 2009:
Allowance for doubtful accounts,
sales returns and other ...................... $
(1) Represents amounts charged to bad debt expense.
56,267 $
6,156 $
9,665 $
(6,235) $
65,853
51,724 $
5,564 $
5,700 $
(6,721) $
56,267
42,855 $
4,747 $
10,269 $
(6,147) $
51,724
(2) Amounts charged to net sales primarily relate to increases in allowances for sales returns.
(3) Deductions primarily consist of fully reserved accounts receivable that have been written off.
110
Exhibits
3.1 Amended and Restated Certificate of Incorporation of Henry Schein, Inc. dated November 2, 1995.
(Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the fiscal year ended
December 30, 2006 filed on February 28, 2007.)
3.2 Certificate of Amendment of Certificate of Incorporation of Henry Schein, Inc. dated November 12,
1997. (Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K for the fiscal year
ended December 30, 2006 filed on February 28, 2007.)
3.3 Certificate of Amendment of Certificate of Incorporation of Henry Schein, Inc. dated June 16, 1998.
(Incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-3, Reg. No. 333-59793
filed on July 24, 1998.)
3.4 Certificate of Amendment of Certificate of Incorporation of Henry Schein, Inc. dated May 25, 2005.
(Incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended June 25, 2005 filed on August 4, 2005.)
3.5 Amended and Restated By-Laws. (Incorporated by reference to Exhibit 3.2 to our Registration Statement
on Form S-1, Reg. No. 33-96528 filed on October 10, 1995.)
3.6 Amendments to the Amended and Restated By-Laws adopted July 15, 1997. (Incorporated by reference
to Exhibit 3.3 to our Registration Statement on Form S-4, Reg. No. 33-36081 filed on September 22,
1997.)
4.1 Master Note Facility, dated as of August 9, 2010, by and among us, New York Life Investment
Management LLC and each New York Life affiliate which becomes party thereto. (Incorporated by
reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 26,
2011 filed on May 3, 2011.)*
4.2 Amendment No. 1 to Master Note Facility, dated as of February 14, 2012, by and among us, New York
Life Investment Management LLC and each New York Life affiliate which becomes party thereto.+
4.3 Private Shelf Agreement, dated as of August 9, 2010, by and among the Company, Prudential Investment
Management, Inc. and each Prudential affiliate which becomes party thereto. (Incorporated by reference
to Exhibit 4.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2011 filed on
May 3, 2011.)*
10.1 Henry Schein, Inc. 1994 Stock Incentive Plan, as amended and restated effective as of March 27, 2007.
(Incorporated by reference to Appendix A to our definitive 2007 Proxy Statement on Schedule 14A filed
on April 10, 2007.)**
10.2 Amendment Number One to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of January 1,
2005. (Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year
ended December 27, 2008 filed on February 24, 2009.)**
10.3 Amendment Number Two to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of May 28,
2009. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended June 27, 2009 filed on August 4, 2009.)**
10.4 Amendment Number Three to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of February
23, 2010. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 27, 2010 filed on May 4, 2010.)**
111
Exhibits
10.5 Amendment Number Four to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of May 18,
2011. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended June 25, 2011 filed on August 2, 2011.)**
10.6 Amendment Number Five to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of May 18,
2011. (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended June 25, 2011 filed on August 2, 2011.)**
10.7 Form of Restricted Stock Agreement for time-based restricted stock awards pursuant to the Henry Schein,
Inc. 1994 Stock Incentive Plan (as amended and restated effective as of March 27, 2007). (Incorporated
by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 27,
2010 filed on May 4, 2010.)**
10.8 Form of Restricted Stock Agreement for performance-based restricted stock awards pursuant to the Henry
Schein, Inc. 1994 Stock Incentive Plan (as amended and restated effective as of March 27, 2007).
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 27, 2010 filed on May 4, 2010.)**
10.9 Form of Restricted Stock Unit Agreement for time-based restricted stock awards pursuant to the Henry
Schein, Inc. 1994 Stock Incentive Plan (as amended and restated effective as of March 27, 2007).
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 27, 2010 filed on May 4, 2010.)**
10.10 Form of Restricted Stock Unit Agreement for performance-based restricted stock awards pursuant to the
Henry Schein, Inc. 1994 Stock Incentive Plan (as amended and restated effective as of March 27, 2007).
(Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 27, 2010 filed on May 4, 2010.)**
10.11 Form of Restricted Stock Unit Agreement for time-based restricted stock awards pursuant to the Henry
Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan (as amended and restated effective as of
April 1, 2003, and as further amended effective as of April 1, 2004 and January 1, 2005). (Incorporated
by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 27,
2010 filed on May 4, 2010.)**
10.12 Henry Schein, Inc. Supplemental Executive Retirement Plan, amended and restated effective as of
January 1, 2008. (Incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the
fiscal year ended December 27, 2008 filed on February 24, 2009.)**
10.13 Amendment Number One to the Henry Schein, Inc. Supplemental Executive Retirement Plan, amended
and restated effective as of January 1, 2008. (Incorporated by reference to Exhibit 10.3 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended June 27, 2009 filed on August 4, 2009.)**
10.14 Amendment Number Two to the Henry Schein, Inc. Supplemental Executive Retirement Plan, amended
and restated effective as of January 1, 2008. (Incorporated by reference to Exhibit 10.12 to our Annual
Report on Form 10-K for the fiscal year ended December 25, 2010 filed on February 22, 2011.)**
10.15 Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan, as amended by Amendment
Number One, effective as of May 25, 2004. (Incorporated by reference to Exhibit C to our definitive
2004 Proxy Statement on Schedule 14A filed on April 27, 2004.)**
112
Exhibits
10.16 Amendment Number Two to the Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan,
effective as of January 1, 2005. (Incorporated by reference to Exhibit 10.5 to our Annual Report on
Form 10-K for the fiscal year ended December 27, 2008 filed on February 24, 2009.)**
10.17 Amendment Number Three to the Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan,
effective as of May 10, 2010. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q for the fiscal quarter ended June 26, 2010 filed on August 2, 2010.)**
10.18 2001 Henry Schein, Inc. Section 162(m) Cash Bonus Plan effective as of June 6, 2001. (Incorporated by
reference to Appendix B to our definitive 2001 Proxy Statement on Schedule 14A filed on April 30,
2001.)**
10.19 Amendment Number One to the 2001 Henry Schein, Inc. Section 162(m) Cash Bonus Plan, effective as
of May 24, 2005. (Incorporated by reference to Exhibit B to our definitive 2005 Proxy Statement on
Schedule 14A, filed on April 22, 2005.)**
10.20 Amendment Number Two to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan, effective as of
January 1, 2007. (Incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the
fiscal year ended December 27, 2008 filed on February 24, 2009.)**
10.21 Amendment Number Three to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan effective as of
December 31, 2009. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for
the fiscal quarter ended June 27, 2009 filed on August 4, 2009.)**
10.22 Henry Schein, Inc. 2001 Non-Employee Director Incentive Plan. (Incorporated by reference to
Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2002 filed on
March 24, 2003.)**
10.23 Henry Schein, Inc. 2004 Employee Stock Purchase Plan, effective as of May 25, 2004. (Incorporated by
reference to Exhibit D to our definitive 2004 Proxy Statement on Schedule 14A, filed on April 27,
2004.)**
10.24 Henry Schein, Inc. Non-Employee Director Deferred Compensation Plan, amended and restated effective
as of January 1, 2005. (Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K
for the fiscal year ended December 27, 2008 filed on February 24, 2009.)**
10.25 Henry Schein, Inc. Deferred Compensation Plan effective as of January 1, 2011. (Incorporated by
reference to Exhibit 10.23 to our Annual Report on Form 10-K for the fiscal year ended December 25,
2010 filed on February 22, 2011.)**
10.26 Amendment to the Henry Schein, Inc. Deferred Compensation Plan effective as of January 1, 2011.+**
10.27 Henry Schein Management Team Performance Incentive Plan and Plan Summary, effective as of January
1, 2010. (Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 27, 2010 filed on May 4, 2010.)**
10.28 Amended and Restated Employment Agreement dated as of December 31, 2011 between us and Stanley
M. Bergman. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
October 11, 2011.)**
10.29 Restricted Stock Unit Agreement pursuant to the Henry Schein, Inc. 1994 Stock Incentive Plan (as
amended and restated effective as of March 27, 2007) (Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on October 11, 2011.)**
113
Exhibits
10.30 Amended and Restated Letter Agreement effective as of December 11, 2008 between us and Stanley
Komaroff. (Incorporated by reference to Exhibit 10.14 to our Annual Report on Form 10-K for the fiscal
year ended December 27, 2008 filed on February 24, 2009.)**
10.31 Form of Amended and Restated Change in Control Agreements dated December 12, 2008 between us and
certain executive officers who are a party thereto (Gerald Benjamin, James Breslawski, Leonard David,
Stanley Komaroff, Mark Mlotek, Steven Paladino, Michael Racioppi and Michael Zack, respectively).
(Incorporated by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the fiscal year ended
December 27, 2008 filed on February 24, 2009.)**
10.32 Form of Amendment to Amended and Restated Change in Control Agreements effective January 1, 2012
between us and certain executive officers who are a party thereto (Gerald Benjamin, James Breslawski,
Leonard David, Stanley Komaroff, Mark Mlotek, Steven Paladino, Michael Racioppi and Michael Zack,
respectively). (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
January 20, 2012.)**
10.33 Credit Agreement among us, the several lenders parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent and HSBC Bank USA, N.A., UniCredit Markets and Investment Banking, acting
through Bayerische Hypo- und Vereinsbank AG, New York Branch and The Bank of New York Mellon,
as co-syndication agents, dated as of September 5, 2008. (Incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 26, 2011 filed on May 3, 2011.)*
10.34 Amendment dated November 29, 2009 to the Credit Agreement among us, the several lenders parties
thereto, JPMorgan Chase Bank, N.A., as administrative agent and HSBC Bank USA, N.A., The Bank of
New York Mellon, and UniCredit Markets and Investment Banking, acting through Bayerische Hypo-
und Vereinsbank AG, New York Branch, as co-syndication agents, dated as of September 5, 2008.
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 26, 2011 filed on May 3, 2011.)*
10.35 Second Amendment dated August 9, 2010 to the Credit Agreement among us, the several lenders parties
thereto, JPMorgan Chase Bank, N.A., as administrative agent and HSBC Bank USA, N.A., The Bank of
New York Mellon, and UniCredit Markets and Investment Banking, acting through Bayerische Hypo-
und Vereinsbank AG, New York Branch, as co-syndication agents, dated as of September 5, 2008.
(Incorporated by reference to Exhibit 10.30 to our Annual Report on Form 10-K for the fiscal year ended
December 25, 2010 filed on February 22, 2011.)
10.36 Third Amendment dated October 29, 2010 to the Credit Agreement among us, the several lenders parties
thereto, JPMorgan Chase Bank, N.A., as administrative agent and HSBC Bank USA, N.A., The Bank of
New York Mellon, and UniCredit Markets and Investment Banking, acting through Bayerische Hypo-
und Vereinsbank AG, New York Branch, as co-syndication agents, dated as of September 5, 2008.
(Incorporated by reference to Exhibit 10.31 to our Annual Report on Form 10-K for the fiscal year ended
December 25, 2010 filed on February 22, 2011.)
10.37 Credit Agreement among Butler Animal Health Supply, LLC, the several lenders parties thereto, and
JPMorgan Chase Bank, N.A., as administrative agent, dated as of December 31, 2009. (Incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 26,
2011 filed on August 3, 2011.)*
114
Exhibits
10.38 First Amendment dated December 21, 2010 to the Credit Agreement among Butler Animal Health
Supply, LLC, the several lenders parties thereto, and JPMorgan Chase Bank, N.A., as administrative
agent, dated as of December 31, 2009. (Incorporated by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 26, 2011 filed on May 3, 2011.)*
10.39 Second Amendment dated May 27, 2011 to the Credit Agreement among Butler Animal Health Supply,
LLC, the several lenders parties thereto, and JPMorgan Chase Bank, N.A., as administrative agent, dated
as of December 31, 2009. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended June 25, 2011 filed on August 2, 2011.)
10.40 Omnibus Agreement, dated November 29, 2009, by and among Henry Schein, Inc., National Logistics
Services, LLC, Winslow Acquisition Company, Butler Animal Health Holding Company LLC, Butler
Animal Health Supply, LLC, Oak Hill Capital Partners II, L.P., Oak Hill Capital Management Partners II,
L.P., W.A. Butler Company, Burns Veterinary Supply, Inc. and certain other persons party thereto.
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on November 30,
2009.)
10.41 Amendment No. 1 to the Omnibus Agreement, dated December 31, 2009, by and between Henry Schein,
Inc. and Butler Animal Health Holding Company LLC. (Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed on January 4, 2010.)
10.42 Put Rights Agreement, dated December 31, 2009, by and among Henry Schein, Inc., Burns Veterinary
Supply, Inc. and Butler Animal Health Holding Company, LLC. (Incorporated by reference to Exhibit
10.3 to our Current Report on Form 8-K filed on January 4, 2010.)
10.43 First Amendment dated December 1, 2010 to Put Rights Agreement among Henry Schein, Inc., Burns
Veterinary Supply, Inc. and Butler Animal Health Holding Company, LLC. (Incorporated by reference to
Exhibit 10.45 to our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 filed on
February 22, 2011.)
21.1 List of our Subsidiaries.+
23.1 Consent of BDO USA, LLP.+
31.1 Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
31.2 Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
32.1 Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
115
Exhibits
101.INS XBRL Instance Document***
101.SCH XBRL Taxonomy Extension Schema Document***
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document***
101.DEF XBRL Taxonomy Extension Definition Linkbase Document***
101.LAB XBRL Taxonomy Extension Label Linkbase Document***
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document***
_________
+ Filed herewith.
* Pursuant to a request for confidential treatment, portions of this Exhibit have been redacted from the publicly
filed document and have been furnished separately to the Securities and Exchange Commission as required by
Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
** Indicates management contract or compensatory plan or agreement.
*** This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15
U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be
incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the
extent that the Company specifically incorporates it by reference.
116
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
(631) 843-5500
www.henryschein.com