Consistent Growth, Reliable Results
Twenty Years as a Publicly Traded Company
A N N U A L R E P O R T 2 0 15
Henry Schein Financial Highlights
2011–2015
NET SALES
($ in Millions)
$10,630
$10,371
$10,000
CAGR 6%*
$9,561
$8,940
$8,000
$8,530
$6,000
$4,000
$2,000
$0
2011
2012
2013
2014
2015
ADJUSTED EARNINGS PER DILUTED SHARE
$5.00
$4.00
$3.00
$2.00
$1.00
$0
$5.96
CAGR 11%*
$5.44
$4.95
$4.44
$3.97
2011
2012
2013
2014
2015
$700
$600
$500
$400
$300
$200
$100
$0
$700
$600
$400
$300
$200
$100
$0
ADJUSTED OPERATING INCOME
($ in Millions)
$769
$715
CAGR 7%*
$677
$634
$582
2011
2012
2013
2014
2015
OPERATING CASH FLOW
AND CAPITAL EXPENDITURES
($ in Millions)
$500
$555
$664
$593
$587
$408(1)
$51
$60
$82
$72
2012
2013
2014
2015
$45
2011
OPERATING CASH FLOW
CAPITAL EXPENDITURES
*Four-year Compound Annual Growth Rate
(1) Net of temporary forward inventory buy-ins of $150MM.
NOTE:
Operating Income and Earnings Per Diluted Share attributable to Henry Schein, Inc. for 2012, 2013 and 2015 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
Henry Schein, Inc. (NASDAQ:HSIC) is the
world’s largest provider of health care products
and services to office-based dental,
animal health, and medical practitioners.
Henry Schein, Inc. (NASDAQ:HSIC) is the
world’s largest provider of health care
products and services to office-based
dental, animal health, and medical
practitioners. The Company also serves
dental laboratories, government and
institutional health care clinics, and other
alternate care sites. A Fortune 500®
Company and a member of the S&P
500® and the NASDAQ 100® indexes,
Henry Schein employs over 19,000
Team Schein Members and serves
more than one million customers.
Henry Schein offers a comprehensive
selection of products and services,
including value-added solutions for
operating efficient practices and
delivering high-quality care. Henry
Schein operates through a centralized
and automated distribution network,
with a selection of more than 110,000
branded products and Henry Schein
private-brand products in stock, as
well as more than 150,000 additional
products available as special order
items. The Company also offers
its customers exclusive, innovative
technology solutions, including practice
management software and e-commerce
solutions, as well as a broad range of
financial services. Headquartered in
Melville, New York, Henry Schein has
operations or affiliates in 33 countries.
The Company’s sales reached a
record $10.6 billion in 2015, and
have grown at a compound annual
rate of approximately 15% since
Henry Schein became a public
company in 1995.
For more information, visit Henry Schein
at www.henryschein.com.
(As of April 2016)
Twenty Years Since Our IPO
TEAM SCHEIN
MEMBERS
1995 — 2,600
2015 —19,000+
HENRY SCHEIN
CUSTOMERS
1995 — 200,000
2015 — 1,000,000+
COUNTRIES
IN WHICH
WE OPERATE
1995 — 9
2015 — 33
SALES
1995 — $616 million
2015 — $10.6 billion
ADJUSTED
DILUTED EPS
1995 — $0.34
2015 — $5.96*
*See reconciliation of GAAP and Non-GAAP measures on page 12.
1
Henry Schein at a Glance
50% DENTAL
27% ANIMAL HEALTH
20% MEDICAL
3% TECHNOLOGY & VALUE-ADDED SERVICES
2015
global net
sales of
$10.6 billion
DENTAL
Only global dental distributor to general practitioners,
specialists, and laboratories
Growth Opportunities:
• Geographic expansion
• Advancing technology solutions, including practice management
• Greater penetration of specialty markets
• Continued focus on large group practices
• Digitalization of prosthetic solutions
ANIMAL HEALTH
Only global animal health distributor
Growth Opportunities:
• Geographic expansion
• Advancing technology solutions, including practice management
• Continued focus on large group practices
• Focus on practice-building products and services
MEDICAL
A leading U.S. distributor to primary care physicians and
specialists, group practices, physician-owned labs, and
ambulatory surgery centers
Operations in certain European markets
Growth Opportunities:
• Greater penetration of U.S. market
• Continued focus on large group practices
• Select international opportunities
• Focus on specialty segments and solutions
2015
net sales of
$5.3 billion
2015
net sales of
$2.9 billion
2015
net sales of
$2.1 billion
TECHNOLOGY & VALUE-ADDED SERVICES
Only practice management software solutions provider serving dental,
animal health, and medical practitioners
Full-service provider of financial services
Growth Opportunities:
• Geographic expansion
• Ability to serve large practices
• Continued focus on facilitating financial services for technology
investments and office expansion
2015
net sales of
$359 million
2
Henry Schein Around the World
HENRY SCHEIN HIGHLIGHTS
3,725
FIELD SALES
CONSULTANTS
1,850
TELESALES
REPRESENTATIVES
84
YEARS IN
BUSINESS
19,000
OVER
TEAM SCHEIN MEMBERS
OPERATIONS OR AFFILIATES IN
33
COUNTRIES
34 MILLION
DIRECT MARKETING
PIECES DISTRIBUTED
199
EQUIPMENT SALES
& SERVICE CENTERS
61 DISTRIBUTION
CENTERS
MORE THAN
3,000
SUPPLIER
PARTNERS
(As of April 2016)
SERVING MORE THAN
1MILLION
CUSTOMERS
AVERAGE OF
165,000
CARTONS
SHIPPED DAILY
99% OF ITEMS ORDERED ARE SHIPPED
WITHOUT BACKORDERING AND SHIPPED THE
SAME BUSINESS DAY
THE ORDER IS RECEIVED
110,000
PRODUCTS IN STOCK
150,000
ADDITIONAL PRODUCTS
AS SPECIAL ORDER ITEMS
3
4
A Message from the Chairman of the Board
and Chief Executive Officer
capitalization. Since our IPO, Henry
Schein’s share price has outperformed
the S&P 500®, NASDAQ Composite and
NASDAQ 100® indexes, a testament to
our ability to drive business execution
and deliver value to our shareholders.**
During the past twenty years, we
have successfully navigated through
changing market dynamics and a global
recession, and in many ways, we led
the change. At the time of our IPO,
we had a presence in nine countries
and we served approximately 200,000
customers through what was largely a
U.S. catalog-based business supported
by telesales representatives. Our
The values established by Henry and Esther have
remained true over all these years and our entrepreneurial
culture has adapted as our business has grown.
2015 was a special year for Henry
Schein as we celebrated twenty years
as a publicly traded company.
The anniversary of our initial public
offering (IPO) was a remarkable
milestone in our evolution from the
small pharmacy founded by
Henry and Esther Schein
in 1932. They had a vision
of creating a business that
formed deep engagement
with their customers, and
they recognized that their
employees, Team Schein,
were at the heart of their
success. The values
established by Henry and
Esther have remained true over all
these years and our entrepreneurial
culture has adapted as our business
has grown.
Our success over the past twenty years
stems from a deep understanding of
industry trends in the markets we serve
as well as our ability to capitalize on
the opportunities they present. Over
that time, Henry Schein has earned a
reputation for consistency, reliability
and success.
We remain
steadfast in
our focus on a
business that
is balanced
between organic
growth and
contribution
from strategic
acquisitions
or joint
ventures, which has led to a twenty
year compound annual growth rate of
approximately 15% in net sales and in
adjusted diluted earnings per share. In
addition, Henry Schein has realized 21%
compound annual growth in our market
customers were mostly
dental practices and we
had a small foothold in
physician practices and
veterinary clinics.
Today, Henry Schein has
operations or affiliates
in 33 countries on five
continents, and we serve
more than one million
dental, animal health and
medical practitioners. We have more
than 3,700 field sales consultants,
whose role has evolved from taking
orders to becoming a trusted business
advisor. What differentiates us is our
focus on consultative services designed
to help health care professionals
operate efficient practices so they
can focus on delivering the highest
quality patient care. These field sales
consultants are supported by more
than 1,800 telesales representatives
worldwide. The number of our
distribution centers has increased from
eight in 1995 to 61 today, including 40
outside of North America. We would
note that the technology used today to
keep those centers operating efficiently
and with exceptional accuracy did not
exist twenty years ago. We are truly a
business transformed as a result of our
forward thinking, strategic focus and
solid execution.
5
A Message from the Chairman of the Board
and Chief Executive Officer
Perhaps the most fundamental change
in our go-to-market strategy over these
years has been the evolution of our
business model from pure distributor
to a value-added solutions provider
that clinicians rely on to provide better
clinical care and operate more efficient
was 8.4%. Indeed, during 2015, about
35% of our sales came from outside the
United States. Our expanding business
in Europe, Australia, New Zealand and
in emerging geographies speaks to our
ability to identify growth opportunities
and invest in companies uniquely
Our goal is to provide an integrated solutions network, which
requires strong and trustworthy relationships with our customers.
businesses. Our goal is to provide an
integrated solutions network, which
requires strong and trustworthy
relationships with our customers.
Practitioners know they can Rely on
Us™ as their long-term partner to
understand their needs and to help
them grow their practices.
Today’s health care market is rapidly
evolving. The passage of the Affordable
Care Act changed how the health care
system works and the way clinicians
practice. Delivering quality care at
lower costs requires clinicians to
embrace technological solutions that
promote better health outcomes and
deliver more efficient services. Our
extensive knowledge of the health
care market allows us to anticipate
change and develop solutions that help
our customers navigate this evolving
landscape. As trusted advisors to our
customers, we are committed to being a
valued resource for innovative solutions
across the spectrum of products,
services, technology and support.
This commitment is evident in our
2015 results. Net sales of $10.6 billion
represent 2.5% growth compared
with 2014. Throughout 2015, the U.S.
dollar strengthened against most of the
world’s major currencies, in particular
the euro, and on a constant-currency
basis, our sales growth for the year
6
positioned to benefit from attractive
demographics such as a growing
middle class and increasingly diverse
populations. This broad international
presence sets us apart from our
competition, as we are the only pan-
European distributor in the dental and
animal health markets.
Record adjusted diluted earnings per
share in 2015 of $5.96* was up nearly
10% compared with 2014. Operating
cash flow for the year of $586.8 million
exceeded adjusted net income by
$85.4 million, again achieving one of
our financial goals, and free cash flow
was $515.2 million. During the year, we
repurchased $300 million of our common
stock, or about 2.1 million shares. In
recognition of our larger market cap and
higher cash flow — and as testament
to confidence in the future — in 2015,
our Board of Directors approved an
increased authorization of $400 million in
our stock-repurchase program.
Continuing our long-standing
commitment to organic growth
complemented by strategic acquisitions,
we believe we gained market share in
each of our business groups during
2015. Dental sales reached $5.3 billion,
down 1.9% over the previous year, yet
up 5.0% in constant currencies. Animal
Health sales were $2.9 billion, up 0.8%
over 2014 and up 8.4% in constant
currencies. Medical sales were up 18.9%
and up 19.7% in constant currencies
to $2.1 billion, while Technology and
Value-Added Services sales were $359
million, up 2.8% over 2014 and up 5.3%
in constant currencies.
Acquisitions completed
during 2015 continued
to open new markets
and new geographies,
while strengthening
our current positions
and broadening our
product offerings. Henry
Schein’s acquisition
strategy focuses
on several key elements. In some
cases, we seek to further expand our
presence geographically, whether in
North America, Europe, Australia, New
Zealand, Japan or emerging markets.
We often acquire companies that are
considered fold-in acquisitions where
we are adding new customers as well
as a team of talented sales people with
strong local relationships. Finally, we
acquire companies in order to gain
access to a key product or service, for
instance, adding a software platform in
an area where we do not currently have
a technology presence.
Last year, we closed on a number of key
acquisitions, each of which furthered the
success of our worldwide acquisition
strategy. Specifically, we built upon our
existing Dental business in Italy with
the acquisition of Dental Trey; entered
the Nordic region for Animal Health
and expanded our product offering
with our acquisition of Jorgen Kruuse
A/S; expanded our Eastern European
presence in Animal Health with our
investment in Maravet; added Animal
Health diagnostics expertise with
the acquisition of scil animal care
company GmbH; and, finally, we
complemented our existing North
American Medical business following
the close of our acquisition of Cardinal
Health’s physician office business.
A Message from the Chairman of the Board
and Chief Executive Officer
In addition to acquiring this business,
we also entered into a multi-year supply
agreement with Cardinal Health. This
strategic agreement was born out of a
vision to offer a seamless solution that
supports improved care, increased
customer satisfaction and lower costs
for acute and non-acute sites of care.
We remain optimistic about our ability
to win new customers, including at
large practices where most of today’s
market growth is generated. We
believe we are uniquely positioned
to provide broad continuum of care
solutions jointly with Cardinal Health.
As we mark twenty years as a public
company, I’m reminded of a famous
quote from the Greek philosopher
Heraclitus: “Change is the only constant
in life.” While we are most pleased with
our accomplishments since becoming a
public company, we will not — indeed,
we cannot — rest on our laurels.
The pace of innovation at our supplier
partners is truly impressive, to say
nothing about the evolution and growth
of our customers and changes in the
delivery and payment of health care.
We intend to continue playing a critical
role in bringing innovative solutions to
our customers and leveraging advances
in products and services across
geographies.
There are many markets where
Henry Schein has earned a position
of leadership and others where we
see tremendous opportunity.
It is the combination of geographic
expansion, deeper market penetration,
an unmatched product offering and
an unwavering commitment to our
customers that we believe forms the
cornerstone of our future success.
We have the vision, the talent and the
capital so we are well positioned for
the future to be every bit as exciting
and potentially as rewarding as the
past twenty years have been. I would
like to thank our over 19,000 Team
Schein Members for their dedication and
tireless efforts and our manufacturing
partners for their ongoing support.
Finally, on behalf of our Board of
Directors, I thank you for your
continued support of our Company.
Sincerely,
Stanley M. Bergman
Chairman of the Board and
Chief Executive Officer
We have the vision,
the talent and the capital
so we are well positioned
for the future to be
every bit as exciting and
potentially as rewarding
as the past twenty years
have been.
(As of April 2016)
Forward-looking statements made in this
report are subject to the reservations
specified in the Safe Harbor statement noted
in the Company’s Form 10-K filing.
* See reconciliation of GAAP and Non-GAAP
measures on page 12.
** Stock performance when normalized to
compare securities/indexes by percentage
change given the same 100% base level at
initial point of measure.
Industry Recognition
#287
FORTUNE® 500
Ranking of the Largest
U.S. Corporations
A
FORTUNE®
World’s Most
Admired Company
RANKED
#1
In Wholesalers:
Health Care
Industry
An
ETHISPHERE®
INSTITUTE
World’s Most
Ethical Company
COMPONENT
OF
NASDAQ 100® and
S&P 500® Indexes
15th consecutive year.
5th consecutive year.
7
Henry Schein Cares–Helping Health Happen
Henry Schein founded our company
in 1932 based on the belief that our
success is inextricably linked to
the success of the customers and
communities we serve. Ever since, we
have pursued the ideal of “doing well
by doing good.” This spirit of corporate
citizenship is exemplified through
Henry Schein Cares, our global
corporate social responsibility program.
Through Henry Schein Cares, we
promote oral, medical and animal
health care and seek to “help health
happen” by expanding access to health
care for underserved and vulnerable
populations around the world. We
assist those with limited access to
care through three strategic priorities:
wellness, prevention, treatment and
education; emergency preparedness
and relief; and capacity building.
Central to our accomplishments is
our public-private partnership model
through which we mobilize partners
— including the health care industry,
non-governmental organizations
(NGOs), professional associations,
and Team Schein Members — to work
together as positive agents for change
in communities around the world.
8
Selected Henry Schein Cares
Accomplishments in 2015
• Alpha Omega-Henry Schein Cares Holocaust
• Henry Schein Cares/Canine Companions Puppy
Survivors Oral Health Program. Partnered with
Raiser Care Packages. Provided care packages
Alpha Omega International Dental Fraternity to
filled with essential products to volunteer puppy
launch the Alpha Omega-Henry Schein Cares
raisers who help train assistance dogs for people
Holocaust Survivors Oral Health Program,
with physical disabilities.
a three-year initiative that has provided
approximately $500,000 in care to 140
• Henry Schein Cares Medal. Launched the
low-income Holocaust survivors to date.
inaugural Henry Schein Cares Medal, which
• Back to School. Helped more than 5,000
children return to the classroom, ready to
succeed through our annual “Back to School”
program, held at 29 Henry Schein locations
in the United States, Canada, Spain, Scotland
and Australia. The program provides children
with backpacks filled with classroom supplies,
books and hygiene products donated by
Henry Schein. At many “Back to School”
locations, children also received first-day
of school outfits, personally selected and
paid for by Team Schein Members.
• Give Kids A Smile. Sponsored the American
Dental Association Foundation’s “Give Kids
A Smile” program, which the Company has
supported since the initiative’s creation
in 2003. In 2015, the national program
provided more than 350,000 underserved
children with free oral health screenings,
education and treatment.
honors excellence in the expansion of access to
care to the underserved by dental, medical and
animal health professionals.
• Holiday Cheer for Children. Spread joy to more than
1,000 children and their families identified through
local social service organization partners
for participation in Henry Schein’s 17th annual
“Holiday Cheer for Children” program. Participating
children attend a special celebration and receive
toys, clothing, games and other gifts purchased
by Team Schein Members. In addition, families
in need receive gift certificates to major
supermarket chains.
• Mission of Mercy. Committed $250,000 in
health care products to America’s Dentists
Care Foundation in support of 50 dental
Mission of Mercy events.
• Mission Rabies. Partnered with Mission Rabies
to support a canine vaccination campaign to help
• Global Supply Network for Pandemic
combat rabies in Malawi through the donation of
Preparedness and Response. Collaborated with
pharmaceuticals and other health care products
public and private sector organizations over
valued at more than $60,000.
the past year to develop a global supply-chain
framework to enhance pandemic preparedness
• Nepal Earthquake Relief. Donated $500,000 in health
and response. Once successfully launched,
care products to NGO partners AmeriCares, Direct
the network will address extraordinary
Relief, Heart to Heart International and International
public health emergencies of international
Medical Corps to support victims of the devastating
concern with vital and targeted products
and equipment necessary for a public
earthquake that struck Nepal in April 2015.
health response; strategic upstream and
• World Vision Refugee Relief. Committed $350,000
downstream logistics capacities; and a
in health care products to World Vision for refugee
network information system based on a
relief efforts, including supporting Syrian refugees
common approach designed to save lives.
living in Europe and the Middle East.
9
Executive Officers
Front Row, from Left to Right:
Walter Siegel
Senior Vice President and General Counsel
Mark E. Mlotek
Executive Vice President and Chief Strategic Officer, Member of the Board of Directors
Stanley M. Bergman
Chairman of the Board and Chief Executive Officer
James P. Breslawski
President, Henry Schein, Inc. and Chief Executive Officer, Global Dental Group, Member of the Board of Directors
James A. Harding
Senior Vice President and Chief Technology Officer
Stanley Komaroff
Senior Advisor
Second Row, from Left to Right:
David C. McKinley
President, Medical Group
Bob Minowitz
President, International Dental Group
Paul Rose
Senior Vice President, Global Supply Chain
Steven Paladino
Executive Vice President and Chief Financial Officer, Member of the Board of Directors
Lonnie Shoff
Chief Executive Officer, Global Strategic Portfolio Group
Gerald A. Benjamin
Executive Vice President and Chief Administrative Officer, Member of the Board of Directors
Peter McCarthy
President, Global Animal Health Group
Michael Racioppi
Senior Vice President and Chief Merchandising Officer
Michael S. Ettinger
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Lorelei McGlynn
Senior Vice President, Global Human Resources and Financial Operations
10
Board of Directors
Center:
Stanley M. Bergman
Chairman of the Board and Chief Executive Officer
From Left to Right:
Lawrence S. Bacow, Ph.D.
Carol Raphael
Paul Brons
Barry J. Alperin
Philip A. Laskawy
Donald J. Kabat
Leader-in-Residence, Center for Public Leadership at Harvard’s Kennedy School of Government; Member of the Harvard
Corporation, the fiduciary oversight board of Harvard University; Member of the Board of Directors of Liquidnet Holdings, Inc.
and Loews Corporation; and Member of the Board of Overseers of TIAA-CREF
Senior Advisor for Manatt Health Solutions; Former President and CEO, Visiting Nurse Service of New York; Board Chair of AARP;
and Member of the Board of Directors of the New York eHealth Collaborative
Former President of Organon International BV (4)
Retired Vice Chairman, Hasbro, Inc.; Member of the Board of Directors of Fiesta Restaurant Group, Inc., Jefferies Group LLC,
K’NEX Industries, Inc. and Weeks Marine, Inc. (1) (2) (3)
Retired Chairman, Ernst & Young, LLP (now known as EY LLP) and Member of the Board of Directors of Lazard Ltd.
and Loews Corporation (1) (3) (4)
Former Chief Financial Officer of Central Park Skaters, Inc.; Former President of D.J.K. Consulting Services, Inc.; Retired Partner,
Accenture PLC Ireland and Member of the Board of Directors for several not-for-profit organizations (1) (2)
Norman S. Matthews
Former President, Federated Department Stores, Inc.; Member of the Board of Directors of Duff & Phelps Corp.,
Spectrum Brands, Inc., Party City Holdings, Inc. and Chairman of the Board of The Children’s Place Retail Stores, Inc. (2) (4)
Bradley T. Sheares, Ph.D.
Former CEO, Reliant Pharmaceuticals and Former President of U.S. Human Health for Merck & Co.;
Member of the Board of Directors of Honeywell International and The Progressive Corporation (4)
Steven Paladino
Executive Vice President and Chief Financial Officer
E. Dianne Rekow, DDS, Ph.D.
Dean of the Dental Institute at King’s College London and Professor of Orthodontics; Former Professor of Orthodontics,
Senior Vice Provost of Engineering Technology and Provost of Polytechnic Institute at New York University
Louis W. Sullivan, M.D.
Former U.S. Secretary of Health and Human Services; Founding Dean, Director and President Emeritus of the Morehouse School
of Medicine; Member of the Board of Directors of United Therapeutics Corporation and Emergent BioSolutions Inc. (3) (4)
Mark E. Mlotek
Executive Vice President and Chief Strategic Officer
Gerald A. Benjamin
Executive Vice President and Chief Administrative Officer
James P. Breslawski
President, Henry Schein, Inc. and Chief Executive Officer, Global Dental Group
(1) Member of Audit Committee (2) Member of Compensation Committee (3) Member of Nominating and Governance Committee
(4) Member of Strategic Advisory Committee
(As of April 2016)
11
COMMON STOCK
Henry Schein Common Stock trades on the NASDAQ® Stock Market under the symbol “HSIC.”
ANNUAL MEETING OF STOCKHOLDERS
Our Annual Meeting of Stockholders will be held on May 31, 2016 at 10:30 a.m. EDT at
The Melville Marriott Long Island, located at 1350 Walt Whitman Road, Melville, New York 11747.
STOCKHOLDER REPORTS AND INVESTOR INQUIRIES
For stockholder inquiries, including requests for quarterly and annual reports, contact our Investor Relations department at
(631) 843-5611, or email your request to investor@henryschein.com. Printed materials can also be requested through the Company’s website.
FORM 10-K
Our Annual Report on Form 10-K for the fiscal year ended December 26, 2015 has been filed with the SEC and is available free of charge through our Internet
website, www.henryschein.com. Stockholders may also obtain a copy of the Form 10-K upon written request to Henry Schein, Inc., 135 Duryea Road, Melville,
New York 11747, Attn.: Investor Relations, via email at investor@henryschein.com or facsimile at (631) 843-5541. In response to such request, the Company will
furnish without charge the Form 10-K including financial statements, financial schedules and a list of exhibits.
INDEPENDENT AUDITORS
BDO USA, LLP
100 Park Avenue, New York, New York 10017
LEGAL COUNSEL
Proskauer Rose, LLP
Eleven Times Square, 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, 8th Floor, New York, New York 10004
(212) 509-4000
NON-GAAP DISCLOSURES
The following table sets forth, for the applicable periods, a reconciliation of operating income,
net income attributable to Henry Schein, Inc., and diluted earnings per share adjusted to reflect
the effects of restructuring costs and other adjustments.
USE OF NON-GAAP MEASURES:
The information (below) includes financial measures that are not calculated and presented
in accordance with accounting principles generally accepted in the United States
(“GAAP”). The table (right) 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 the items listed below.
We eliminated the effect of the items listed below to assist in evaluating the underlying
operational performance of our business, excluding such costs, over the periods
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 and are included solely for informational and comparative purposes.
NOTES:
(1) During 2015, we recorded restructuring costs of $34.9 million pre-tax ($26.2 million post-
tax). During 2012, we recorded restructuring costs of $15.2 million pre-tax ($10.5 million
post-tax). The effect that these charges had on earnings per diluted share attributable to
Henry Schein, Inc. was ($0.32) and ($0.12), respectively.
(2) During 2013, we reduced the remaining valuation allowance of $13.4 million on the deferred
tax asset associated with a net operating loss carryforward outside of the United States. The
effect that this transaction had on earnings per diluted share attributed to Henry Schein, Inc.
was $0.15.
(3) Represents a loss on divestiture in 2013 of a noncontrolling interest in a dental wholesale
distributor in the Middle East. The effect that this transaction had on earnings per diluted
share attributable to Henry Schein, Inc. was ($0.14).
(4) In February 2013, we repaid the then outstanding debt related to the Henry Schein Animal
Years Ended
December 26,
December 28,
December 29,
2015
2013
2012
(in thousands, except per share data)
Operating income, as reported
$ 733,972
$ 677,054
$ 618,961
Operating margin, as reported
6.9%
7.1%
6.9%
Adjustments:
Restructuring costs (1)
Adjusted operating income
Adjusted operating margin
Net income attributable to Henry Schein, Inc.:
As reported
Adjustments, net of tax:
Restructuring costs (1)
Foreign tax benefit
(2)
Loss on sale of equity investment
(3)
Accelerated amortization of deferred financing costs
(4)
$ 34,931
–
$ 15,192
$ 768,903
$ 677,054
7.2%
7.1%
$ 634,153
7.1%
$ 479,058
$ 431,554
$ 388,076
$
26,198
–
–
–
–
$
(13,398)
$ 10,537
–
12,535
–
$
$
2,679
–
–
(5)
One time tax benefit
$
(3,802)
–
Adjusted income attributable to Henry Schein, Inc.:
$ 501,454
$ 433,370
$ 398,613
Diluted earnings per share attributable to Henry Schein, Inc.:
As reported
Adjusted
$
5.69
$
5.96
$
$
4.93
4.95
$ 4.32
$ 4.44
Diluted weighted-average common shares outstanding:
84,125
87,622
89,823
Health, formerly Butler Schein Animal Health, transaction. As part of this transaction, we recorded a one-time interest charge of $6.2 million pre-tax ($2.7 million post-tax) related to
the accelerated amortization of deferred financing costs. The effect that this transaction had on earnings per diluted share attributed to Henry Schein, Inc. was ($0.03).
(5) Represents a one-time income tax benefit of $6,337 from a favorable tax ruling received during Q3 2015 by a subsidiary, net of noncontrolling interest of $2,535,
resulting in a net income effect of $3,802.
12
FOLLOW HENRY SCHEIN ON:
Facebook: http://www.facebook.com/henryschein
Twitter: http://twitter.com/henryschein
LinkedIn: http://www.linkedin.com/company/henry-schein
You Tube: http://www.youtube.com/user/henryscheininc
Google+: http://plus.google.com/+henryschein
Instagram: http://instagram.com/henryschein
Pinterest: https://www.pinterest.com/henryschein
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
(631) 843-5500
www.henryschein.com
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 26, 2015
__ 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 27, 2015, was approximately $12,167,497,000.
As of February 5, 2016, there were 81,942,080 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 26, 2015) 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
18
30
30
31
31
32
35
37
62
63
108
108
111
111
111
112
112
112
113
114
117
2
ITEM 1. Business
General
PART I
We believe we are the world’s largest provider of health care products and services primarily to office-based
dental, animal health and medical practitioners. We serve more than 1 million customers worldwide including
dental practitioners and laboratories, animal health clinics and physician practices, as well as government,
institutional health care clinics and other alternate care clinics. We believe that we have a strong brand identity due
to our more than 83 years of experience distributing health care products.
We are headquartered in Melville, New York, employ nearly 19,000 people (of which more than 8,500 are
based outside the United States) and have operations or affiliates in 33 countries, including the United States,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany, Hong
Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway,
Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand and the United
Kingdom.
We offer a comprehensive selection of products and services and value-added solutions for operating efficient
practices and delivering high quality care. We operate through a centralized and automated distribution network
with a selection of more than 110,000 branded products and Henry Schein private brand products in stock, as well
as more than 150,000 additional products available as special order items. We also offer our customers exclusive,
innovative technology solutions, including practice management software and e-commerce solutions, as well as a
broad range of financial services.
We have established over four million square feet of space in 61 strategically located distribution centers
around the world to enable us to better serve our customers and increase our operating efficiency. This
infrastructure, together with broad product and service offerings at competitive prices, and a strong commitment to
customer service, enables us to be a single source of supply for our customers’ needs. Our infrastructure also
allows us to provide convenient ordering and rapid, accurate and complete order fulfillment.
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services. These segments offer different products and services to the same customer base.
The health care distribution reportable segment aggregates our global dental, animal health and medical
operating segments. This segment distributes consumable products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products and vitamins. Our global dental group serves office-based dental practitioners,
dental laboratories, schools and other institutions. Our global animal health group serves animal health practices
and clinics. Our global medical group serves office-based medical practitioners, ambulatory surgery centers, other
alternate-care settings and other institutions.
Our technology and value-added services group provides software, technology and other value-added services
to health care practitioners. Our technology group offerings include practice management software systems for
dental and medical practitioners and animal health clinics. Our value-added practice solutions include financial
services on a non-recourse basis, e-services, practice technology, network and hardware services, as well as
continuing education services for practitioners.
Industry
The health care products distribution industry, as it relates to office-based health care practitioners, is
fragmented and diverse. This industry, which encompasses the dental, animal health and medical markets, was
estimated to produce revenues of approximately $45 billion in 2015 in the global 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.
3
Due in part to the inability of office-based health care practitioners to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment to office-based health care
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based health care practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
The health care products distribution industry continues to experience growth due to the aging population,
increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Competition
The distribution and manufacture of health care supplies and equipment is highly competitive. Many of the
health care 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, animal
health and medical products, primarily on the basis of price, breadth of product line, customer service and value-
added products and services. In the dental market, 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. In the animal health market, our primary
competitors are the MWI Animal Health division of AmerisourceBergen and the Patterson Veterinary division of
Patterson Companies, Inc. Our primary competitors in the medical market are McKesson Corporation and Medline
Industries, Inc., which are national distributors. We also compete against a number of regional and local animal
health and medical distributors, as well as a number of manufacturers that sell directly to veterinarians and
physicians. 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. In the animal
health practice management market, our primary competitors are IDEXX Laboratories, Inc. and the Patterson
Veterinary division of Patterson Companies, Inc. The medical practice management and electronic medical records
market is very fragmented and we compete with numerous companies such as the NextGen division of Quality
Systems, Inc., eClinicalWorks and Allscripts Healthcare Solutions, 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., Lifco AB, Planmeca
Oy, Billericay Dental Supply Co. Ltd., National Veterinary Services Limited (Patterson Veterinary division of
Patterson Companies, Inc.), Centaur Services Limited (MWI Animal Health division of AmerisourceBergen) and
Alcyon SA, as well as a large number of dental, animal health and medical product distributors and manufacturers
in Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany,
Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand,
Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand 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 83 years of experience in distributing products to health care practitioners resulting in
strong awareness of the Henry Schein® brand. Our competitive strengths include:
A focus on meeting our customers’ unique needs. We are committed to providing customized solutions to our
customers that are driven by our understanding of the market and reflect the technology-driven products and
services best suited for their practice needs.
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 3,725 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 2015, we distributed approximately 34.0 million pieces of direct marketing
material, including catalogs, flyers, order stuffers and other promotional materials to existing and
potential office-based health care customers.
• Telesales. We support our direct marketing effort with approximately 1,850 inbound and outbound
telesales representatives, who facilitate order processing and generate new sales through direct and
frequent contact with customers.
• Electronic commerce solutions. We provide our customers and sales teams with innovative and
competitive Internet, PC and mobile e-commerce solutions.
• Social media. Our operating entities and employees engage our customers and supplier partners
through various social media platforms.
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 110,000 Stock Keeping Units, or SKUs, to our
customers. Of the SKUs offered, approximately 52,000 are offered to our dental customers,
approximately 13,000 to our animal health customers and approximately 53,000 to our medical
customers. We offer over 150,000 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, animal health and medical 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 26, 2015, we had an active user base of more than 90,000
practices, including users of Dentrix® Dental Systems, Dentrix® Enterprise, Dentrix® Dental Vision®,
Dentrix Ascend®, Easy Dental®, OasisTM, Evolution® and EXACT®, Gesden®, Julie®Software,
Power Practice® Px, AxiUmTM, EndoVision®, PerioVision®, OMSVision® and Viive® for dental
practices; Advantage+TM, AVImark®, DVM Manager®, InfinityTM, SunpointTM, Triple CrownTM,
Vetech AdvantageTM, VisionVPMTM and Robovet® for animal health practices; and MicroMD® for
physician practices.
• Repair services. We have 199 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our health care customers. Our technicians provide
installation and repair services for: dental handpieces; dental, animal health and medical small
equipment; table top sterilizers; and large dental equipment.
5
• 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 our customers would be
able to secure independently. We also provide consulting services, dental practice valuation and
brokerage services.
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. We ship an average of approximately 165,000 cartons daily.
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 health care products. We continuously evaluate
our purchase requirements and suppliers’ offerings and prices in order to obtain products at the lowest
possible cost. In 2015, our top 10 health care distribution suppliers and our single largest supplier accounted
for approximately 34% and 7%, 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 health care distribution and technology reportable segments:
Health care distribution:
Dental products (1) .........................................................................
Animal health products (2) .............................................................
Medical products (3) .......................................................................
49.6 %
27.5
19.5
51.9 %
27.9
16.8
Total health care distribution ......................................................
96.6
96.6
52.3 %
27.2
17.2
96.7
2015
2014
2013
Technology:
Software and related products and
other value-added products (4) ...........................................
3.4
3.4
3.3
Total ........................................................................................................
100.0 %
100.0 %
100.0 %
(1)
Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental implants,
gypsum, acrylics, articulators, abrasives, dental chairs, delivery units and lights, X-ray supplies and equipment, equipment
repair and high-tech and digital restoration equipment.
(2)
Includes branded and generic pharmaceuticals, surgical and consumable products and services and equipment.
(3)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray products,
equipment and vitamins.
(4) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.
Business Strategy
Our objective is to continue to expand as a global value-added provider of health care products and services to
office-based dental, animal health and medical practitioners. To accomplish this, we will apply our competitive
strengths in executing the following strategies:
• Increase penetration of our existing customer base. We have over 1 million 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 in all of our
operating segments. In the dental business, we provide products and services to traditional dental practices as
well as new emerging segments, such as dental service organizations and community health
centers. Leveraging our unique assets and capabilities, we offer solutions to address these new markets. In
the medical business, we have expanded to serve customers located in settings outside of the traditional
office, such as urgent care clinics, retail and occupational health settings. As settings of health care shift, we
remain committed to serving these practitioners and providing them with the products and services they need.
• Leverage our value-added products and services. We continue to increase cross-selling efforts for key
product lines utilizing a consultative selling process. In the dental business, we have significant cross-selling
opportunities between our dental practice management software users and our dental distribution customers.
In the animal health business, we have opportunities to cross-sell practice management software and other
products. In the medical business, we have opportunities to expand our vaccine, injectables and other
pharmaceuticals sales to health care practitioners, as well as cross-selling core products and electronic health
record and practice management software. Our strategy extends to providing health systems, integrated
delivery networks and other large group and multi-site health care organizations, that include physician
clinics, these same value added products and services. As physicians and health systems closely align, we
have increased access to opportunities for cross-marketing and selling our product and service portfolios.
7
• 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
health care services. Between 2015 and 2025, the 45 and older population is expected to grow by approximately
12%. Between 2015 and 2035, this age group is expected to grow by approximately 25%. This compares with
expected total U.S. population growth rates of approximately 8% between 2015 and 2025 and approximately 15%
between 2015 and 2035.
In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45 and older segment
of the population increases. There is increasing demand for new technologies that allow dentists to increase
productivity, and this is being driven in the U.S. by lower insurance reimbursement rates. 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.
The animal health market, impacted by growing companion pet ownership and care, as well as increased focus
on safety and efficiency in livestock production, continues to provide additional growth opportunities for us. We
support the animal health practitioners we serve through the distribution of biologicals, pharmaceuticals, supplies
and equipment and by actively engaging in the development, sale and distribution of veterinary practice
management software.
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.
Additionally, we are expanding our dental full-service model, our animal health presence and 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 190 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.
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. Revenues and profitability 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 health care practitioners and year-
end promotions. Revenues and profitability 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 materially adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our suppliers;
• timing of the introduction of new products and services by our suppliers;
8
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of supplier contracts or rebate programs;
• supplier rebates based upon attaining certain growth goals;
• changes in the way suppliers introduce or deliver products to market;
• costs of developing new applications and services;
• our ability to correctly identify customer needs and preferences and predict future needs and
preferences;
• uncertainties regarding potential significant breaches of data security or disruptions of our information
technology systems;
• unexpected regulatory actions, or government regulation generally;
• exclusivity requirements with certain suppliers may prohibit us from distributing competitive products
manufactured by other suppliers;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
• costs associated with our self-insured medical and dental insurance programs;
• general market and economic conditions, as well as those specific to the health care 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 shipping costs or service issues with our third-party shippers;
• fluctuations in the value of foreign currencies;
• restructuring costs;
• the adoption or repeal of legislation; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly financial results to
fluctuate. If our financial 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 United States federal laws applicable to us are the
Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, and Section 361 of the Public
Health Service Act. We are also subject to comparable foreign regulations.
The Federal Food, Drug, and Cosmetic Act (“FDC Act”) and similar foreign laws generally regulate 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 (“FDA”) regulation of human cells, tissues and cellular and tissue-based products, also
known as “HCT/P products.”
The federal Drug Quality and Security Act of 2013 brought about significant changes with respect to
pharmaceutical supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug
Supply Chain Security Act (“DSCSA”), will be phased in over 10 years, and is intended to build a national
electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United
States. The law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers and
dispensers (e.g., pharmacies) of prescription drugs began to take effect in January 2015, subject to certain
enforcement delays by the FDA. For example, the FDA announced that in light of difficulties experienced by some
dispensers in establishing electronic systems to handle required product tracing information, it would delay to
March 1, 2016 its enforcement of certain track and trace requirements scheduled to apply to dispensers on July 1,
2015, although this delay does not affect current DSCSA requirements that apply to other trading partners, such as
manufacturers and wholesale distributors. The DSCSA product tracing requirements replace the former FDA drug
pedigree requirements and pre-empt state requirements that are inconsistent with, more stringent than, or in addition
to, the DSCSA requirements. Also in January 2015, the DSCSA required manufacturers and wholesale distributors
to have systems in place by which they can identify whether a product in their possession or control is a “suspect”
or “illegitimate” product, and handle it accordingly.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug
wholesalers and third party logistics providers (“3PLs”), and includes the creation of national wholesaler and 3PL
licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. Beginning January 1, 2015, the DSCSA required wholesalers and 3PLs to submit annual reports
to the FDA, which include information regarding each state where the wholesaler or 3PL is licensed, the name and
address of each facility and contact information. According to FDA guidance, states are pre-empted from imposing
any licensing requirements that are inconsistent with, less stringent than, directly related to, or covered by the
standards established by federal law in this area. Current state licensing requirements will likely remain in effect
until the FDA issues new regulations as directed by the DSCSA, which to date, the FDA has not yet issued.
We believe that we are substantially compliant with applicable DSCSA requirements.
The Food and Drug Administration Amendments Act of 2007 (“FDAAA”) and the Food and Drug
Administration Safety and Innovation Act of 2012 (“FDASIA”) amended the FDC Act to require the FDA to
promulgate regulations to implement a Unique Device Identification System. The FDA issued a final rule on
September 24, 2013 implementing the Unique Device Identification System, requiring the labels of most medical
devices to bear a unique device identifier (“UDI”), and prescribing the content and format of the UDI. The rule
also requires the submission of certain information concerning UDI-labeled devices to an FDA database, the Global
Unique Device Identification Database (“GUDID”). Additional FDA UDI guidance has subsequently been issued,
and the FDA’s UDI regulations are being phased in over seven years from the rule’s promulgation in September
2013, beginning with the highest-risk devices (i.e., Class III medical devices) and ending with the lowest-risk
devices. For the lowest-risk, Class I medical devices, a Universal Product Code may take the place of a UDI on the
device’s label.
10
The FDA’s UDI regulations require certain entities, referred to as “labelers,” to develop and include UDIs on
the labels of medical devices, and to directly mark certain devices with UDIs. Labelers are entities that cause a
device’s label to be applied or modified, without any subsequent replacement or modification. Typically, these
entities are device manufacturers, specification developers, single-use device reprocessors, convenience kit
assemblers, repackagers and relabelers.
Violations of the UDI regulations, including failure to include a UDI on a device’s label after the effective date
for the device type, result in the misbranding of the device. The FDC Act makes it unlawful to introduce or deliver
for introduction into interstate commerce a misbranded device. It is also unlawful to cause a device to become
misbranded.
We believe that we are substantially compliant with applicable UDI requirements.
Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and
renew annually registrations for our facilities from the United States Drug Enforcement Administration (“DEA”)
permitting us to handle controlled substances. We are also subject to other statutory and regulatory requirements
relating to the storage, sale, marketing, handling and distribution of such drugs, in accordance with the Controlled
Substances Act and its implementing regulations, and these requirements have been subject to heightened
enforcement activity in recent times. We are subject to inspection by the DEA.
Certain of our businesses are also required to register for permits and/or licenses with, and comply with
operating and security standards of, the DEA, the FDA, 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 comparable 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. We are also subject to
foreign government regulation of such products. The DEA, the FDA and state regulatory authorities have broad
inspection and 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. Foreign regulations subject us to similar foreign powers.
Furthermore, compliance with legal requirements has required and may in the future require us to institute
voluntary recalls of products we sell, which could result in financial losses and potential reputational harm. 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. There have also been increasing efforts by various levels of
government globally to regulate the pharmaceutical distribution system in order to prevent the introduction of
counterfeit, adulterated or misbranded pharmaceuticals into the distribution system.
Certain of our businesses also maintain contracts with governmental agencies and are subject to certain
regulatory requirements specific to government contractors.
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws and regulations with respect to their operations. Some of these laws, referred to as
“false claims laws,” prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws,” prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items
or services that are paid for by federal, state and other health care payers and programs.
11
The fraud and abuse laws and regulations have been subject to varying interpretations, as well as heightened
enforcement activity over the past few years, and significant enforcement activity has been the result of “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 laws. Under the federal False Claims Act relators can be entitled to
receive up to 30% of total recoveries. Also, violations of the federal 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. Most states have adopted
similar state false claims laws, and these state laws have their own penalties which may be in addition to federal
False Claims Act penalties. The Health Care Reform Law significantly strengthened the federal False Claims Act
and the federal Anti-Kickback Law provisions, which could lead to the possibility of increased whistleblower or
relator suits, and among other things made clear that a federal Anti-Kickback Law violation can be a basis for
federal False Claims Act liability.
The United States government (among others) has expressed concerns about financial relationships between
suppliers on the one hand and physicians and dentists on the other. As a result, we regularly review and revise our
marketing practices as necessary to facilitate compliance.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our
foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery
laws and laws pertaining to the accuracy of our internal books and records, which have been the focus of increasing
enforcement activity globally in recent years.
Failure to comply with fraud and abuse laws and regulations could result in significant civil and criminal
penalties and costs, including the loss of licenses and the ability to participate in federal and state health care
programs, and could have a material adverse effect on our business. Also, these measures may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory
authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition,
many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to
frequent modification and varied interpretation by prosecutorial and regulatory authorities, increasing the risk of
noncompliance.
While we believe that we are substantially compliant with applicable fraud and abuse laws and regulations, and
have adequate compliance programs and controls in place to ensure substantial compliance, we cannot predict
whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in
response to changes in applicable law or interpretation of laws, could have a material adverse effect on our
business.
Health Care Reform
The United States Health Care Reform Law adopted through the March 2010 enactment of the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act increased federal
oversight of private health insurance plans and included a number of provisions designed to reduce Medicare
expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to increased
health coverage.
The Health Care Reform Law requirements include a 2.3% excise tax on domestic sales of many medical
devices by manufacturers and importers that began in 2013 (a moratorium was imposed beginning January 1, 2016
and ending December 31, 2017 and therefore the tax does not apply to sales during that period) 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 has also materially expanded the number of individuals in the United States with health
insurance. The Health Care Reform Law has faced ongoing legal challenges, including litigation seeking to
invalidate some of or all of the law or the manner in which it has been interpreted. As a result, while upholding the
law generally, the United States Supreme Court has effectively made the Health Care Reform Law’s Medicaid
expansion voluntary for each state. There has been an effort by the political party in control of Congress to repeal
some or all of the law. The uncertain status of the Health Care Reform Law affects our ability to plan.
12
A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, has imposed new reporting and disclosure requirements for drug and device manufacturers with
regard to payments or other transfers of value made to certain practitioners (including physicians, dentists and
teaching hospitals), and for such manufacturers and for group purchasing organizations, with regard to certain
ownership interests held by physicians in the reporting entity. On February 1, 2013, the Centers for Medicare and
Medicaid Services (“CMS”) released the final rule to implement the Physician Payment Sunshine Act. Under this
rule, data collection activities began on August 1, 2013, and as required under the Physician Payment Sunshine Act,
CMS publishes information from these reports on a publicly available website, including amounts transferred and
physician, dentist and teaching hospital identities.
Under the Physician Payment Sunshine Act we are required to collect and report detailed information regarding
certain financial relationships we have with physicians, dentists and teaching hospitals, and we believe that we are
substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician Payment
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report
under certain state transparency laws that address circumstances not covered by the Physician Payment Sunshine
Act, and some of these state laws, as well as the federal law, can be ambiguous. We are also subject to foreign
regulations requiring transparency of certain interactions between suppliers and their customers. While we believe
we have substantially compliant programs and controls in place to comply with these requirements, our compliance
with these rules imposes additional costs on us.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of computer software intended for use in
health care settings, and has developed and continues to develop policies on regulating clinical decision support
tools and other types of software 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
or foreign government authorities 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.
In addition, our businesses that involve physician and dental practice management products include electronic
information technology systems that store and process personal health, clinical, financial and other sensitive
information of individuals. These information technology systems may be vulnerable to breakdown, wrongful
intrusions, data breaches and malicious attack, which could require us to expend significant resources to eliminate
these problems and address related security concerns, and could involve claims against us by private parties and/or
governmental agencies. For example, we are directly or indirectly subject to numerous and evolving federal, state,
local and foreign laws and regulations that protect the privacy and security of such information, such as the privacy
and security provisions of the federal Health Insurance Portability and Accountability Act of 1996, as amended, and
implementing regulations (“HIPAA”). HIPAA requires, 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.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers are subject to laws and regulations, such as HIPAA,
which require that they protect the privacy and security of those records, and our products may be used as part of
these customers’ comprehensive data security programs, including in connection with their efforts to comply with
applicable privacy and security laws. Perceived or actual security vulnerabilities in our products or services, or the
perceived or actual failure by us or our customers who use our products to comply with applicable legal
requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our
customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and expenses
and costs for remediation.
Federal initiatives provide a program of incentive payments available to certain health care providers involving
the adoption and use of certain electronic health care records systems and processes. The initiatives include
providing, among others, physicians and dentists, with financial incentives, if they meaningfully use certified
electronic health record technology (“EHR”) in accordance with applicable requirements. In addition, Medicare-
eligible providers that fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those
13
systems in accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement
reductions, which reductions for applicable health professionals (including physicians and dentists) began on
January 1, 2015. Qualification for the incentive payments requires the use of EHRs that have certain capabilities
for meaningful use pursuant to evolving standards adopted by CMS and by the Office of the National Coordinator
for Health Information Technology (“ONC”) of the Department of Health and Human Services
(“HHS”). Generally, initial (“Stage 1”) standards addressed criteria for periods beginning in 2011, and more
demanding “Stage 2” standards addressed criteria for periods beginning in 2014. On October 6, 2015, CMS and
ONC released comprehensive final rules with respect to the EHR program that, among other things, establish the
more challenging “Stage 3” criteria, make certain adjustments to Stage 1 and Stage 2 standards (e.g., reducing the
2015 reporting period from a full year to 90 days), and finalize 2015 edition health information technology (HIT)
certification criteria (which is now added to the existing 2014 edition HIT certification criteria, but not required
until 2018). Notably, under the new rules, compliance with Stage 3 standards will be optional for providers in
2017, and would generally be required for all eligible providers (regardless of prior participation in the EHR
incentive program) for 2018 reporting periods and subsequently. Developers and others involved in the
manufacture of EHR program technology will have this interim period to develop and certify products, and work
with customers to implement products for the 2018 EHR program period. In connection with the release of the
October 6 rules, HHS has also stated it will continue to modify applicable EHR program standards. In addition,
under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which establishes the Merit-Based
Incentive Payment System (MIPS), over the next few years the EHR program is expected to become part of a more
comprehensive federal quality measurement and incentive program, apparently with modified applicable
requirements, and CMS has indicated that it may even supplant certain Stage 3 rules with more streamlined MIPS
approaches.
Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked
to incentive programs, and therefore we must maintain compliance with, and are affected by, these changing
governmental criteria.
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. Commencing July 1, 2012,
CMS required that electronic claim submissions and related electronic transactions be conducted under a new
HIPAA transaction standard called Version 5010. CMS has required 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, called the ICD-10-CM. The ICD-10-CM standard was implemented on October 1, 2015, and claims
with dates of service of October 1, 2015 or after must be submitted using ICD-10-CM code sets. Certain of our
businesses provide electronic practice management products that must meet these requirements, and while we
believe that our products have timely adopted 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 these products.
There may be additional legislative initiatives in the future impacting health care.
International Transactions
In addition, United States and foreign 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, the
U.K. Bribery Act and other anti-bribery laws and laws pertaining to the accuracy of our internal books and records,
as well as other types of foreign 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 effect
on our business. As a result of political, economic and regulatory influences, the health care 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.
14
See “ITEM 1A. Risk Factors” for a discussion of additional burdens, risks and 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. We
intend to protect our trademarks to the fullest extent practicable.
Employees
As of December 26, 2015, we employed nearly 19,000 full-time employees, including approximately 1,850
telesales representatives, 3,725 field sales consultants, including equipment sales specialists, 3,900 warehouse
employees, 600 computer programmers and technicians, 950 management employees and 7,900 office, clerical and
administrative employees. Approximately 301, or 1.6%, 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 website, 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 website 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.
15
Executive Officers of the Registrant
The following table sets forth certain information regarding our executive officers:
Name
Age
Position
Stanley M. Bergman ................ 66
Gerald A. Benjamin ................. 63
James P. Breslawski ................. 61
Michael S. Ettinger .................. 54
James A. Harding ..................... 60
Stanley Komaroff ..................... 80
Peter McCarthy ........................ 56
Lorelei McGlynn ...................... 52
David C. McKinley .................. 63
Bob Minowitz .......................... 57
Mark E. Mlotek ........................ 60
Steven Paladino ........................ 58
Michael Racioppi ..................... 61
Paul Rose ................................. 58
Lonnie Shoff ............................ 57
Walter Siegel ............................ 56
Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
President, Henry Schein and CEO, Global Dental Group, Director
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Senior Vice President, Chief Technology Officer
Senior Advisor
President, Global Animal Health Group
Senior Vice President, Global Human Resources and Financial Operations
President, Medical Group
President, International Dental Group
Executive Vice President, Chief Strategic Officer, Director
Executive Vice President, Chief Financial Officer, Director
Senior Vice President, Chief Merchandising Officer
Senior Vice President, Global Supply Chain
CEO, Global Strategic Portfolio Group
Senior Vice President and General Counsel
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 12 years at Estée Lauder, Inc., in various management positions where his
last position was Director of Materials Planning and Control.
James P. Breslawski has been our President since 2005 and a director since 1992. Mr. Breslawski is also the
Chief Executive Officer of our Henry Schein Global Dental Group. 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 Corporate Controller.
Michael S. Ettinger has been Senior Vice President, Corporate & Legal Affairs, Chief of Staff and Secretary
since 2015. Prior to his current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs
and Secretary from 2013 to 2015, Corporate Senior Vice President, General Counsel & Secretary from 2006 to
2013, Vice President, General Counsel and Secretary from 2000 to 2006, Vice President and Associate General
Counsel from 1998 to 2000 and Associate General Counsel from 1994 to 1998. Before joining us, Mr. Ettinger
served as a senior associate with Bower & Gardner and as a member of the Tax Department at Arthur Andersen.
James A. Harding has been our Corporate 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.
16
Peter McCarthy has been President, Global Animal Health Group since 2015. Prior to holding his current
position, Mr. McCarthy was President, Henry Schein International Animal Health from 2012 to 2015 and President,
Henry Schein Animal Health, Europe from 2010 to 2012. Prior to joining us, Mr. McCarthy was employed with
Schering-Plough Animal Health (now Merck Animal Health), serving as Senior Director, Global Operations and
General Manager, China. Mr. McCarthy also worked at Wyeth/American Cyanamid for 14 years, helping to grow
the human pharmaceutical business.
Lorelei McGlynn has served as Senior Vice President, Global Human Resources and Financial Operations
since 2013. Since joining us in 1999, Ms. McGlynn has served as Vice President, Global Human Resources and
Financial Operations from 2008 to 2013, Chief Financial Officer, International Group and Vice President of Global
Financial Operations from 2002 to 2008 and Vice President, Finance, North America from 1999 to 2002. Prior to
joining us, Ms. McGlynn served as Assistant Vice President of Finance at Adecco Corporation.
David C. McKinley has been President of Henry Schein’s Medical Group since 2008. Before assuming his
current position, Mr. McKinley was President of Henry Schein Practice Solutions from 2006 to 2008 and President
of Dental Prosthetic Solutions from 2005 to 2006. Prior to joining us, Mr. McKinley served as the Group
Executive for Olympus Medical North America and as General Manager for the Bard Urology and Bard Germany
businesses. Mr. McKinley currently serves on the Health Industry Distributors Association (HIDA) Education
Foundation.
Bob Minowitz has been President of Henry Schein’s International Dental Group since 2012. Before assuming
his current position, Mr. Minowitz held a number of key roles with increasing responsibility throughout the
Company, including President, Henry Schein European Dental Group from 2009 to 2012, President, Henry Schein
Western Europe, Middle East and Pacific Regions from 2006 to 2009, Managing Director, Henry Schein U.K.
Holdings from 2004 to 2006, President Henry Schein Western Europe from 2004 to 2006 and President Henry
Schein Europe from 2001 to 2004. Prior to joining us, Mr. Minowitz was employed by Bristol-Myers Company as
a Senior Internal Auditor.
Mark E. Mlotek has been Executive Vice President and Chief Strategic Officer since 2012. Mr. Mlotek was
Senior Vice President and subsequently Executive Vice President of the Corporate Business Development Group
between 2000 and 2012. 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, with primary responsibility for the
Medical Group, Marketing and Merchandising departments. 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. He currently serves on the board of National
Distribution and Contracting and previously served on the board of Health Distribution Management Association
and Health Industry Distributors Association (HIDA).
Paul Rose has served as Senior Vice President, Global Supply Chain since 2013. Prior to holding his current
position, Mr. Rose held a number of key roles with increasing responsibility throughout the Company, including
serving as Vice President, Global Supply Chain from 2008 to 2013, Vice President, Global Inventory Management
from 2004 to 2008 and Vice President, Inventory Management, North America from 2001 to 2004. He also served
on the HIDA Supply Chain Advisory Council and as the National Wholesale Druggists’ Associations
Pharmaceutical Market Committee Chairman.
17
Lonnie Shoff has been Chief Executive Officer of the Global Strategic Portfolio Group since 2015. Prior to
holding her current position, Ms. Shoff was Chief Executive Officer of the Global Animal Health and Strategic
Partnerships Group from 2012 to 2015 and President, Global Healthcare Specialties Group from 2009 to
2012. 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 and General Manager, Applied Science.
Walter Siegel has been Senior Vice President and General Counsel since 2013. Prior to joining us, Mr. Siegel
was employed with Standard Microsystems Corporation, a publicly traded global semiconductor company from
2005 to 2012, holding positions of increasing responsibility, most recently as Senior Vice President, General
Counsel and Secretary.
ITEM 1A. Risk Factors
The risks described below could have a material adverse effect on our business, reputation, financial condition
and/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 health care products distribution industry is highly competitive and consolidating and we may not be able to
compete successfully.
We compete with numerous companies, including several major manufacturers and distributors. Some of our
competitors have greater financial and other resources than we do, which could allow them to compete more
successfully. Most of our products are available from several sources and our customers tend to have relationships
with several distributors. Competitors could obtain exclusive rights to market particular products, which we would
then be unable to market. Manufacturers also could increase their efforts to sell directly to end-users and thereby
eliminate or reduce our role and that of other distributors. Industry consolidation among health care product
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. There has also been increasing consolidation among manufacturers of health care products which
could have a material adverse effect on our margins and product availability. Additionally, in this competitive
market, some of our contracts contain minimum purchase commitments. We could be subject to charges and
financial losses in the event we fail to satisfy minimum purchase commitments. In the future, we may be unable to
compete successfully and competitive pressures may reduce our revenues and profitability.
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 parties. 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. While there is generally more than one source of supply for most of the
categories of products we sell, some key suppliers, in the aggregate, supply a significant portion of the products we
sell. Additionally, 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, including the
failure to comply with applicable government requirements. The failure of manufacturers of products regulated by
the FDA or other governmental agencies to meet these requirements could result in product recall, cessation of
sales or other market disruptions. 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, especially any
high sales volume product, could have a material adverse effect on our results of operations, which most likely
would adversely affect the value of our common stock.
18
Our revenues and profitability depend on our relationships with capable sales personnel as well as customers,
suppliers and manufacturers of the products that we distribute.
Our future revenues and profitability 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
materially 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.
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. Revenues and profitability 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 health care practitioners and year-
end promotions. Revenues and profitability 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 materially adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our suppliers;
• timing of the introduction of new products and services by our suppliers;
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of supplier contracts or rebate programs;
• supplier rebates based upon attaining certain growth goals;
• changes in the way suppliers introduce or deliver products to market;
• costs of developing new applications and services;
• our ability to correctly identify customer needs and preferences and predict future needs and
preferences;
• uncertainties regarding potential significant breaches of data security or disruptions of our information
technology systems;
• unexpected regulatory actions, or government regulation generally;
• exclusivity requirements with certain suppliers may prohibit us from distributing competitive products
manufactured by other suppliers;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
19
• costs associated with our self-insured medical and dental insurance programs;
• general market and economic conditions, as well as those specific to the health care 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 shipping costs or service issues with our third-party shippers;
• fluctuations in the value of foreign currencies;
• restructuring costs;
• the adoption or repeal of legislation; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly financial results to
fluctuate. If our financial results do not meet market expectations, our stock price may decline.
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 health care
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 financial results. Although we are seeking to obtain similar terms from
manufacturers, obtain access to lower prices demanded by GPO contracts or other contracts, and develop
relationships with provider networks and new GPOs, we cannot assure that such terms will be obtained or contracts
will be executed.
Increases in shipping costs 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 a material adverse effect on our operating results. Similarly, strikes or other service
interruptions by those shippers could cause our operating expenses to rise and materially adversely affect our ability
to deliver products on a timely basis.
20
Uncertain global macro-economic and political conditions could materially adversely affect our results of
operations and financial condition.
Uncertain global macro-economic and political 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 suppliers, which
could materially adversely affect our results of operations and financial condition. These uncertainties, including,
among other things, sovereign debt levels, the inability of political institutions to effectively resolve actual or
perceived economic, currency or budgetary crises or issues, consumer confidence, election results, unemployment
levels (and a corresponding increase in the uninsured and underinsured population), interest rates, availability of
capital, fuel and energy costs, tax rates, health care costs and the threat or outbreak of terrorism or public unrest,
could adversely impact our customers and suppliers, which could materially adversely affect us. Changes in
government, government debt and/or budget crises may lead to reductions in government spending in certain
countries, which could reduce overall health care spending, and/or higher income or corporate taxes, which could
depress spending overall. Additionally, 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
suppliers to reduce their output or change their terms of sale. 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 suppliers 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 suppliers for different payment
terms may materially adversely affect our results of operations and financial condition.
Disruptions in the financial markets may materially adversely affect the availability and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with respect to indebtedness will depend
on our operating and financial performance, which in turn is subject to prevailing economic conditions and
financial, business and other factors beyond our control. Disruptions in the financial markets may materially
adversely affect the availability and cost of credit to us.
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:
•
the publication of earnings estimates or other research reports and speculation in the press or
investment community;
• changes in our industry and competitors;
• changes in government or legislation;
• 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, issuances of 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 could have a material adverse
effect on our business.
21
The health care industry is experiencing changes that could materially adversely affect our business.
The health care industry is highly regulated and subject to changing political, economic and regulatory
influences. In recent years, the health care industry has undergone, and is in the process of undergoing, significant
changes driven by various efforts to reduce costs, including: trends toward managed care; consolidation of health
care distribution companies; consolidation of health care manufacturers; collective purchasing arrangements and
consolidation among office-based health care practitioners; and changes in reimbursements to customers, as well as
growing enforcement activities (and related monetary recoveries) by governmental officials. Both our profitability
and the profitability of our customers may be materially adversely affected by laws and regulations reducing
reimbursement rates for pharmaceuticals and/or medical treatments or services, changing the methodology by
which reimbursement levels are determined and, in the case of animal health practitioners, changes in the use of
feed additives (including, without limitation, antibiotics and growth promotants) used in the production of animal
products due to trade restrictions, animal welfare and/or government regulations; and changes in customer buying
habits (including customers purchasing animal health pharmaceuticals outside the veterinarians’ offices). If we are
unable to react effectively to these and other changes in the health care industry, our financial results could be
materially adversely affected.
The implementation of the Health Care Reform Law could materially adversely affect our business.
The United States 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
expand 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 have a material adverse effect
on our business, and the Health Care Reform Law may be invalidated, in whole or in part, or it may be repealed.
Additionally, further federal and state proposals for health care reform in the United States are likely, and foreign
government authorities may also adopt reforms of their health systems. 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.
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 many medical devices by manufacturers and importers that began in 2013, and a fee on branded
prescription drugs and biologics that was implemented in 2011, both of which may adversely affect sales and cost
of goods sold. As part of H.R. 2029 – Consolidated Appropriations Act, 2016 a moratorium was imposed on the
Medical Device Excise Tax for the period beginning January 1, 2016 and ending on December 31, 2017. As such,
the Medical Device Excise Tax does not apply to sales during that period.
The implementation of the reporting and disclosure obligations of the Physician Payment Sunshine Act
provisions of the Health Care Reform Law could adversely affect our business.
A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, imposes reporting and disclosure requirements for drug and device manufacturers with regard
to payments or other transfers of value made to certain practitioners (including physicians, dentists and teaching
hospitals), and for such manufacturers and for group purchasing organizations, with regard to certain ownership
interests held by physicians in the reporting entity. On February 1, 2013, CMS released the final rule to implement
the Physician Payment Sunshine Act. Under this rule, data collection activities (which began on August 1, 2013) as
required under the Physician Payment Sunshine Act, CMS publishes information from these reports on a publicly
available website, including amounts transferred and physician, dentist and teaching hospital identities. Under the
Physician Payment Sunshine Act we are required to collect and report detailed information regarding certain
financial relationships we have with physicians, dentists and teaching hospitals, and we believe that we are
substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician Payment
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report
under certain state transparency laws that address circumstances not covered by the Physician Payment Sunshine
Act, and some of these state laws, as well as the federal law, can be ambiguous. We are also subject to foreign
regulations requiring transparency of certain interactions between suppliers and their customers. While we believe
we have substantially compliant programs and controls in place to comply with these reporting requirements, our
compliance with these new rules imposes additional costs on us.
22
Failure to comply with existing and future regulatory requirements could materially adversely 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, and animal feed and supplements. Among the federal laws
with which we must comply are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as
amended, and Section 361 of the Public Health Services Act. Among other things, such laws, and the regulations
promulgated thereunder:
• 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 FDA and the DEA;
• regulate the storage, transportation and disposal of certain of our products that are considered
hazardous materials;
• require us to advertise and promote our drugs and devices in accordance with applicable FDA
requirements;
• require registration with the FDA and the DEA 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 DEA;
• 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 product or medical device causes serious
illness, injury or death.
Applicable federal, state, local and foreign 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 FDA and DEA 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 materially adversely 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 effect 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, consent decrees, 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 health care programs, and damage our reputation.
23
If we fail to comply with laws and regulations relating to health care fraud or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations, which could materially
adversely affect our business.
Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws and regulations with respect to their operations. Some of these laws, referred to as
“false claims laws,” prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws,” prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items
or services that are paid for by federal, state and other health care payers and programs. Health care fraud measures
may implicate, for example, our relationships with pharmaceutical manufacturers, our pricing and incentive
programs for physician and dental practices, and our dental and physician practice management products that offer
billing-related functionality.
The fraud and abuse regulations have been subject to varying interpretations, as well as heightened enforcement
activity, over the past few years, and significant enforcement activity has been the result of “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 laws. Under the federal False Claims Act relators can be entitled to receive up to 30%
of total recoveries. Also, violations of the federal 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. Most states have adopted similar state false
claims laws, and these state laws have their own penalties which may be in addition to federal False Claims Act
penalties. The Health Care Reform Law significantly strengthened the federal False Claims Act and the federal
Anti-Kickback Law provisions, which could lead to the possibility of increased whistleblower or relator suits, and
among other things made clear that a federal Anti-Kickback Law violation can be a basis for federal False Claims
Act liability.
The United States government (among others) has expressed concerns about financial relationships between
suppliers on the one hand and physicians and dentists on the other. As a result, we regularly review and revise our
marketing practices as necessary to facilitate compliance.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our
foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery
laws, anti-corruption laws, and laws pertaining to the accuracy of our internal books and records, which have been
the focus of increasing enforcement activity globally in recent years. Our businesses are generally subject to
numerous other laws and regulations that could impact our financial results, including, without limitation,
securities, antitrust and marketing laws and regulations. Failure to comply with laws or regulations could have a
material adverse effect on our business.
Failure to comply with fraud and abuse laws and regulations and other laws and regulations could result in
significant civil and criminal penalties and costs, including the loss of licenses and the ability to participate in
federal and state health care programs, and could have a material adverse effect on our business. Also, these
measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could
require us to make changes in our operations or incur substantial defense and settlement expenses. Even
unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the
incurring of substantial costs. In addition, many of these laws are vague or indefinite and have not been interpreted
by the courts, and have been subject to frequent modification and varied interpretation by prosecutorial and
regulatory authorities, increasing the risk of non-compliance. We may determine to enter into settlements, make
payments, agree to consent decrees or enter into other arrangements to resolve such matters. For example, one of
our subsidiaries recently resolved an investigation by the Federal Trade Commission (“FTC”) related to the manner
in which it advertised certain data security features of its dental practice management software, which resulted in a
consent order and fine. Failure to comply with consent decrees could materially adversely affect our business.
24
While we believe that we are substantially compliant with applicable fraud and abuse and other laws and
regulations, and believe we have adequate compliance programs and controls in place to ensure substantial
compliance, we cannot predict whether changes in applicable law, or interpretation of laws, or changes in our
services or marketing practices in response to changes in applicable law or interpretation of laws, could have a
material adverse effect on our business.
If we fail to comply with laws and regulations relating to the 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 substantial fines, penalties or other liabilities.
Our businesses that involve physician and dental practice management products include electronic information
technology systems that store and process personal health, clinical, financial and other sensitive information of
individuals. These information technology systems may be vulnerable to breakdown, wrongful intrusions, data
breaches and malicious attack, which could require us to expend significant resources to eliminate these problems
and address related security concerns, and could involve claims against us by private parties and/or governmental
agencies. For example, we are 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 HIPAA. HIPAA requires, 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 and regulations could expose us to breach of contract claims,
substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our reputation.
Also, 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 a material adverse effect 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. Commencing July 1, 2012, CMS required that
electronic claim submissions and related electronic transactions be conducted under a new HIPAA transaction
standard called Version 5010. CMS has required 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, called
the ICD-10-CM. The ICD-10-CM standard was implemented on October 1, 2015, and claims with dates of service
of October 1, 2015 or after must be submitted using ICD-10-CM code sets. Certain of our businesses provide
electronic practice management products that must meet these requirements, and while we believe that our products
have timely adopted 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 these products. 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, substantial fines, penalties and other liabilities and
expenses, costs for remediation and harm to our reputation.
In addition, federal initiatives provide a program of incentive payments available to certain health care
providers involving the adoption and use of certain electronic health care records systems and processes. The
initiatives include providing, among others, physicians and dentists, with financial incentives if they meaningfully
use certified EHR systems in accordance with applicable requirements. In addition, Medicare-eligible providers
that fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those systems in
accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement reductions,
which reductions for applicable health professionals (including physicians and dentists) began on January 1, 2015.
Qualification for the incentive payments requires the use of EHRs that have certain capabilities for meaningful use
pursuant to evolving standards adopted by CMS and ONC. Generally, initial (“Stage 1”) standards addressed
criteria for periods beginning in 2011, and more demanding “Stage 2” standards addressed criteria for periods
beginning in 2014. On October 6, 2015, CMS and ONC released comprehensive final rules with respect to the
EHR program that, among other things, establish the more challenging “Stage 3” criteria, making certain
adjustments to Stage 1 and Stage 2 standards (e.g., reducing the 2015 reporting period from a full year to 90 days),
and finalize 2015 edition health technology (HIT) certification criteria (which is now added to the existing 2014
edition HIT certification criteria, but not required until 2018). Notably, under the new rules, compliance with
25
Stage 3 standards will be optional for providers in 2017, and would generally be required for all eligible providers
(regardless of prior participation in the EHR incentive program) for 2018 reporting periods and subsequently.
Developers and others involved in the manufacture of EHR program technology will have this interim period to
develop and certify products, and work with customers to implement products for the 2018 EHR program period.
In connection with the release of the October 6 rules, HHS has also stated it will continue to modify applicable
EHR program standards. In addition, under the Medicare Access and CHIP Reauthorization Act of 2015
(MACRA), which establishes the Merit-Based Incentive Payment System (MIPS), over the next few years the EHR
program is expected to become part of a more comprehensive federal quality measurement and incentive program,
apparently with modified applicable requirements, and CMS has indicated that it may even supplant certain Stage 3
rules with more streamlined MIPS approaches. Certain of our businesses involve the manufacture and sale of
certified EHR systems and other products linked to incentive programs, and therefore we must maintain compliance
with, and are affected by, these changing governmental criteria.
Our global operations are subject to inherent risks that could materially adversely affect our business.
Global operations are subject to risks that may materially adversely affect our business. The risks that our
global operations are subject to include, among other things:
• 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;
• anti-bribery, anti-corruption and laws pertaining to the accuracy of our internal books and records;
• 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;
• changes in tax regulations that influence purchases of capital equipment;
• civil disturbances, geopolitical turmoil, including terrorism, war or political or military coups; and
• public health emergencies.
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 material adverse effects on our financial 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 a material adverse
effect on our financial results. 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;
26
• 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;
•
the liquidity of our investments and our ability to raise capital could be affected by the financial credit
markets; and
• our ability to retain, recruit, and incentivize the management of the companies we acquire.
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, and financial and
operational controls. If we fail in any of these areas, our business could be materially 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 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.
Additionally, as our private-label business continues to grow, purchasers of such products may increasingly seek
recourse directly from us, rather than the ultimate product manufacturer, for product-related claims. Another
potential risk we face in the distribution of our products is liability resulting from counterfeit or tainted products
infiltrating the supply chain. In addition, some of the products that we transport and sell are considered hazardous
materials. The improper handling of such materials or accidents involving the transportation of such materials
could subject us to liability. 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 a material adverse effect on our business and our
reputation.
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 to satisfy customer requirements; and
27
• 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 as well as our reputation. 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 experience competition from third-party online commerce sites.
Traditional health care supply and distribution relationships are being challenged by electronic online
commerce solutions. The continued advancement of online commerce by third parties will require us to cost-
effectively adapt to changing technologies, to enhance existing services and to differentiate our business (including
with additional value-added services) to address changing demands of consumers and our customers on a timely
basis. The emergence of such potential competition and our inability to anticipate and effectively respond to
changes on a timely basis could have a material adverse effect on our business.
Security risks generally associated with our information systems and our technology products and services could
materially adversely affect our business, and our results of operations could be materially adversely affected if
our information systems (or third-party systems we rely on) are interrupted, damaged by unforeseen events,
cyberattacks or fail for any extended period of time.
We rely on information systems (IS) in our business to obtain, rapidly process, analyze, manage and store 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
• provide products and services that maintain certain of our customers’ electronic medical or dental
records (including protected health information of their patients).
Information security risks have generally increased in recent years, and a cyberattack 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 a material adverse effect on our business.
In addition, we develop products and provide services to our customers that are technology-based, and a
cyberattack that bypasses the IS security systems of our products or services causing a security breach and/or
perceived security vulnerabilities in our products or services could also cause significant reputational harm, and
actual or perceived vulnerabilities may lead to claims against us by our customers and/or governmental agencies.
In particular, certain of our practice management products and services purchased by health care providers, such as
physicians and dentists, are used to store and manage patient medical or dental records. These customers are
subject to laws and regulations, such as HIPAA, which require that they protect the privacy and security of those
records, and our products may be used as part of these customers’ comprehensive data security programs, including
in connection with their efforts to comply with applicable privacy and security laws. Perceived or actual security
vulnerabilities in our products or services, or the perceived or actual failure by us or our customers who use our
products to comply with applicable legal requirements, may not only cause us significant reputational harm, but
may also lead to claims against us by our customers and/or governmental agencies and involve fines and penalties,
costs for remediation, and substantial defense and settlement expenses.
28
Regarding direct customer claims, although our customer license agreements typically contain provisions that
seek to eliminate or limit our exposure to such liability, there is no assurance these provisions will withstand legal
challenges, or that we will be able to obtain such provisions in all cases.
In addition, our information systems also utilize certain third party service organizations that manage a portion
of our information systems, and our business may be materially adversely affected if these third party service
organizations are subject to an IS security breach. Additionally, legislative or regulatory action related to
cybersecurity may increase our costs to develop or implement new technology products and services.
Risks associated with these and other IS security breaches may include, among other things:
• future results could be materially 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 information systems and subsequent
clean-up and mitigation activities;
• procedures and safeguards must continually evolve to meet new IS challenges, and enhancing
protections, and conducting investigations and remediation, may impose additional costs on us;
• we may incur claims, fines and penalties, and costs for remediation, or substantial defense and
settlement expenses; and
• negative publicity resulting in reputation or brand damage with our customers, partners or industry
peers.
We also deliver Internet-based services and, accordingly, depend on our ability and the ability of our customers
to access the Internet. In the event of any difficulties, outages and delays by Internet service providers, we may be
impeded from providing such services, which may have a material adverse effect on our business and our
reputation.
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 a material 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 2013 Stock Incentive Plan and 2015 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/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 us 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.
29
Tax legislation could materially adversely affect our financial results and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well
as foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could materially
adversely affect our tax positions. There can be no assurance that our effective tax rate will not be materially
adversely affected by legislation resulting from these initiatives. In addition, tax laws and regulations are extremely
complex and subject to varying interpretations. Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be successful in any such challenge.
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 2015 fiscal year.
ITEM 2. Properties
We own or lease the following properties with more than 100,000 square feet:
Property
Corporate Headquarters ..................
Corporate Headquarters ..................
Office and Distribution Center .......
Office and Distribution Center .......
Office and Distribution Center .......
Office and Distribution Center .......
Location
Melville, NY
Melville, NY
Reno, NV
Lyssach, Switzerland
Plymouth, MA
Tours, France
Office and Distribution Center .......
Gillingham, United Kingdom
Office and Distribution Center ....... Eastern Creek, New South Wales, Australia
Office and Distribution Center .......
Office and Distribution Center .......
Office and Distribution Center .......
Office and Distribution Center .......
Office and Distribution Center .......
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Distribution Center .........................
Langeskov, Denmark
Niagara on the Lake, Canada
Bastian, VA
West Allis, WI
Cuijk, Netherlands
Denver, PA
Indianapolis, IN
Sparks, NV
Indianapolis, IN
Grapevine, TX
Gallin, Germany
Jacksonville, FL
Heppenheim, Germany
Fort Worth, TX
Own or
Lease
Lease
Own
Lease
Lease
Lease
Own
Lease/Own
Lease
Lease
Lease
Own
Lease
Lease
Lease
Lease
Lease
Own
Lease
Own
Lease
Lease
Lease
N/A
N/A
July 2016
July 2030
Lease Expiration
Date
June 2020
June 2033
August 2021
Approximate
Square Footage
185,000
105,000
236,000 December 2020
180,000
180,000 December 2017
166,000
165,000
161,000
157,000
128,000 September 2021
108,000
106,000 October 2027
101,000
624,000 December 2021
380,000 March 2022
370,000 December 2016
287,000
242,000
215,000
212,000
February 2019
194,000 March 2030
120,000
May 2021
May 2022
July 2018
N/A
N/A
N/A
The properties listed in the table above are our principal properties primarily used by our health care
distribution segment. In addition, we lease numerous other distribution, office, showroom, manufacturing and sales
space in locations including the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech
Republic, Denmark, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain,
Sweden, Switzerland, Thailand 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.
30
ITEM 3. Legal Proceedings
In September 2015, Henry Schein, Inc. was served with a summons and complaint in an action commenced in
the United States District Court for the Eastern District of New York, entitled SourceOne Dental, Inc. v. Patterson
Companies, Inc., Henry Schein, Inc. and Benco Dental Supply Company, Civil Action No. 15-cv-05440-JMA-
GRB. Plaintiff alleges that, through its website, it markets and sells dental supplies and equipment to
dentists. Plaintiff alleges, among other things, that defendants conspired to eliminate plaintiff as a viable
competitor and to exclude plaintiff from the market for the marketing, distribution and sale of dental supplies and
equipment in the United States and that defendants unlawfully agreed with one another to boycott dentists,
manufacturers and state dental associations that deal with, or considered dealing with, plaintiff. Plaintiff asserts the
following claims: (i) unreasonable restraint of trade in violation of state and federal antitrust laws; (ii) tortious
interference with prospective business relations; (iii) civil conspiracy; and (iv) aiding and abetting the other
defendants’ ongoing tortious and anticompetitive conduct. Plaintiff seeks equitable relief, compensatory and treble
damages, jointly and severally, punitive damages, interest, and reasonable costs and expenses, including attorneys’
fees and expert fees. We intend to defend ourselves against the action vigorously.
Beginning in January 2016, class action complaints were filed against Patterson Companies, Inc., Benco Dental
Supply Co. and Henry Schein, Inc. Each of these complaints allege, among other things, that defendants conspired
to foreclose competitors by boycotting manufacturers, state dental associations, and others that deal with
defendants’ competitors. Subject to certain exclusions, these classes seek to represent all persons who purchased
dental supplies or equipment in the United States directly from any of the defendants since January 2012. Each
class action complaint asserts a single count under Section 1 of the Sherman Act, and seeks equitable relief,
compensatory and treble damages, jointly and severally, and reasonable costs and expenses, including attorneys’
fees and expert fees. We intend to defend ourselves vigorously against these actions.
From time to time, we may become a party to other legal proceedings, including, without limitation, product
liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out
of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our
financial condition or results of operations.
As of December 26, 2015, we had accrued our best estimate of potential losses relating to claims that were
probable to result in liability and for which we were able to reasonably estimate a loss. This accrued amount, as
well as related expenses, was not material to our financial position, results of operations or cash flows. Our method
for determining estimated losses considers currently available facts, presently enacted laws and regulations and
other factors, including probable recoveries from third parties.
ITEM 4. Mine Safety Disclosures
Not applicable.
31
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 2015 and
2014:
Fiscal 2015:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................
Fiscal 2014:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................
High
Low
143.89 $
146.45
149.95
160.00
120.72 $
120.99
121.00
139.15
133.77
135.80
126.17
127.16
109.68
110.99
114.54
109.34
On February 5, 2016, there were approximately 494 holders of record of our common stock and the last
reported sales price was $147.87.
32
Purchases of Equity Securities by the Issuer
Our 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 $2.0
billion, authorized by our Board of Directors, to the repurchase program provide for a total of $2.1 billion 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
April 18, 2012
November 12, 2012
December 9, 2013
December 4, 2014
November 30, 2015
100,000,000
100,000,000
100,000,000
200,000,000
200,000,000
300,000,000
300,000,000
300,000,000
400,000,000
As of December 26, 2015, we had repurchased approximately $1.7 billion of common stock (21,441,511
shares) under these initiatives, with $400 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 26, 2015:
Total
Number
of Shares
Fiscal Month
Purchased (1)
09/27/15 through 10/31/15
11/01/15 through 11/28/15
11/29/15 through 12/26/15
560,638
231,578
222,000
1,014,216
Average
Price Paid
Per Share
$
140.66
153.03
156.27
Total Number
of Shares
Purchased as Part
Maximum Number
of Shares
that May Yet
of Our Publicly
Be Purchased Under
Announced Program
560,638
231,578
222,000
1,014,216
Our Program (2)
462,423
221,641
2,546,462
(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 or stock dividends on our common stock during fiscal years 2015 or 2014. We
currently do not anticipate declaring any cash or stock dividends on our common stock in the foreseeable future.
We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including
our share repurchase program. Any declaration of dividends will be at the discretion of our Board 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.
33
Stock Performance Graph
The graph below compares the cumulative total stockholder return on $100 invested, assuming the reinvestment
of all dividends, on December 25, 2010, the last trading day before the beginning of our 2011 fiscal year, through
the end of our 2015 fiscal year with the cumulative total return on $100 invested for the same period in the Dow
Jones U.S. Health Care Index and the NASDAQ Stock Market Composite Index.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
$300
$250
$200
$150
$100
$50
December 2010
December 2011
December 2012
December 2013
December 2014
December 2015
Henry Schein, Inc.
Dow Jones U.S. Health Care Index
NASDAQ Stock Market Composite Index
ASSUMES $100 INVESTED ON DECEMBER 25, 2010
ASSUMES DIVIDENDS REINVESTED
December 25, December 31, December 29, December 28, December 27, December 26,
2010
2011
2012
2013
2014
2015
Henry Schein, Inc. .......................... $
100.00 $
103.65 $
128.64 $
184.09 $
221.03 $
252.72
Dow Jones U.S. Health
Care Index ...................................
100.00
111.00
130.76
187.54
239.04
253.27
NASDAQ Stock Market
Composite Index .........................
100.00
98.71
113.66
161.65
189.16
200.98
34
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 26, 2015, 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 26,
December 27,
December 28,
Years ended
2015
2014
2013
(in thousands, except per share data)
December 29,
2012
December 31,
2011
Income Statement Data:
Net sales ......................................................................... $
10,629,719 $
10,371,390 $
9,560,647 $
8,939,967 $
8,530,242
Gross profit .....................................................................
3,012,259
2,911,315
2,656,014
2,507,513
2,418,055
Selling, general and administrative expenses ................
2,243,356
2,196,173
1,978,960
1,873,360
1,835,906
-
582,149
(12,842)
569,307
(180,212)
15,561
-
Restructuring costs (1) ...................................................
Operating income ...........................................................
Other expense, net (2) ....................................................
34,931
733,972
(13,214)
-
715,142
(5,830)
-
677,054
(12,360)
15,192
618,961
(14,773)
Income before taxes and equity in earnings
of affiliates ................................................................
720,758
709,312
664,694
604,188
Income taxes (3) .............................................................
(211,391)
(215,610)
(190,891)
(187,858)
Equity in earnings of affiliates .......................................
14,060
11,734
Loss on sale of equity investment (4) ............................
-
-
Net income .....................................................................
523,427
505,436
10,194
(12,535)
471,462
Less: Net income attributable to
7,058
-
423,388
404,656
noncontrolling interests ..............................................
Net income attributable to Henry Schein, Inc. .............. $
(44,369)
479,058 $
(39,359)
466,077 $
(39,908)
431,554 $
(35,312)
388,076 $
(36,995)
367,661
Earnings per share attributable to
Henry Schein, Inc.:
Basic ........................................................................... $
Diluted ........................................................................
5.78 $
5.69
5.53 $
5.44
5.02 $
4.93
4.44 $
4.32
Weighted-average common shares outstanding:
Basic ...........................................................................
Diluted ........................................................................
82,844
84,125
84,265
85,740
85,926
87,622
87,499
89,823
4.08
3.97
90,120
92,620
35
December 26,
December 27,
December 28,
2015
2014
2013
December 29,
2012
December 31,
2011
Years ended
(in thousands)
Net Sales by Market Data:
Health care distribution (5):
Dental ............................................................... $
Animal health ...................................................
Medical .............................................................
Total health care distribution ........................
Technology and value-added services (6) ..........
5,276,407 $
2,921,624
2,072,915
10,270,946
358,773
5,381,215 $
2,898,612
1,742,685
10,022,512
348,878
4,997,972 $
2,599,461
1,643,167
9,240,600
320,047
Total .............................................................. $
10,629,719 $
10,371,390 $
9,560,647 $
4,774,482 $
2,321,151
1,560,921
8,656,554
283,413
8,939,967 $
4,764,898
2,010,270
1,504,454
8,279,622
250,620
8,530,242
December 26,
December 27,
December 28,
2015
2014
2013
December 29,
2012
December 31,
2011
As of
(in thousands)
Balance Sheet data:
Total assets .......................................................... $
Long-term debt ....................................................
Redeemable noncontrolling interests ..................
Stockholders' equity ............................................
6,504,740 $
463,752
542,194
2,886,814
6,138,807 $
542,776
564,527
2,816,445
5,624,636 $
450,233
497,539
2,788,001
5,333,997 $
488,121
435,175
2,615,864
4,740,144
363,524
402,050
2,433,623
(1) Restructuring costs for the year ended December 26, 2015 consist primarily of severance costs, including severance pay and benefits
of $26.7 million, facility closing costs of $5.7 million and other costs of $2.5 million. Restructuring costs for the year ended
December 29, 2012 consist primarily of severance costs, including severance pay and benefits of $12.8 million and facility closing
costs of $2.4 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)
Includes approximately $6.2 million of one-time expenses related to the refinancing of Henry Schein Animal Health debt in
2013. These expenses reflect non-cash deferred financing costs.
(3) During the third quarter of 2015, there was a $6.3 million income tax benefit related to a favorable response to a tax petition, which
has allowed us to conclude that it is more likely than not that certain unrecognized tax benefits, which had been previously reserved,
will be realized. In 2013, there was a $13.4 million reduction of our valuation allowance related to certain deferred tax assets related
to tax loss carryforwards originating outside the United States.
(4) Represents a loss on divestiture of a noncontrolling interest in a dental wholesale distributor in the Middle East in 2013.
(5) 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.
(6) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.
36
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. A full discussion of
our operations and financial condition, including factors that may affect our business and future prospects, is
contained in documents we have filed with the United States Securities and Exchange Commission, or SEC, and
will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail
important risk factors that could cause our actual performance to differ materially from current expectations.
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 and consolidating 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; increases in shipping costs for
our products or other service issues with our third-party shippers; general global macroeconomic conditions;
disruptions in financial markets; volatility of the market price of our common stock; changes in the health care
industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws;
risks associated with our global 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; increased competition by third party online commerce sites; risks from disruption to our
information systems; cyberattacks or other privacy or data security breaches; 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.
Where You Can Find Important Information
We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations page of our website (www.henryschein.com)
and the social media channels identified on the investor relations page of our website.
Executive-Level Overview
We believe we are the world’s largest provider of health care products and services primarily to office-based
dental, animal health and medical practitioners. We serve more than 1 million customers worldwide including
dental practitioners and laboratories, animal health clinics and physician practices, as well as government,
institutional health care clinics and other alternate care clinics. We believe that we have a strong brand identity due
to our more than 83 years of experience distributing health care products.
We are headquartered in Melville, New York, employ nearly 19,000 people (of which more than 8,500 are
based outside the United States) and have operations or affiliates in 33 countries, including the United States,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany, Hong
Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway,
Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand and the United
Kingdom.
37
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: (i) health care distribution and (ii) technology and
value-added services. These segments offer different products and services to the same customer base.
The health care distribution reportable segment aggregates our global dental, animal health and medical
operating segments. This segment distributes consumable products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products and vitamins. Our global dental group serves office-based dental practitioners,
dental laboratories, schools and other institutions. Our global animal health group serves animal health practices
and clinics. Our global medical group serves office-based medical practitioners, ambulatory surgery centers, other
alternate-care settings and other institutions.
Our technology and value-added services group provides software, technology and other value-added services
to health care practitioners. Our technology group offerings include practice management software systems for
dental and medical practitioners and animal health clinics. Our value-added practice solutions include financial
services on a non-recourse basis, e-services, practice technology, network and hardware services, as well as
continuing education services for practitioners.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
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 health care products distribution industry, as it relates to office-based health care practitioners, is
fragmented and diverse. This industry, which encompasses the dental, animal health and medical markets, was
estimated to produce revenues of approximately $45 billion in 2015 in the global 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 health care practitioners to store and manage large quantities of
supplies in their offices, the distribution of health care supplies and small equipment to office-based health care
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based health care practice are
typically made by the practitioner or an administrative assistant. Supplies and small equipment are generally
purchased from more than one distributor, with one generally serving as the primary supplier.
38
The trend of consolidation extends to our customer base. Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations. In many cases, purchasing decisions for consolidated groups are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.
Our trend with regard to acquisitions and joint ventures has been to expand our role as a provider of products
and services to the health care industry. This trend has resulted in our expansion into service areas that complement
our existing operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.
As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe
we have the ability to support increased sales through our existing infrastructure. We also have invested in
expanding our sales/marketing infrastructure to include a focus on building relationships with decision makers who
do not reside in the office-based practitioner setting.
As the health care industry continues to change, we continually evaluate possible candidates for merger and
joint venture or acquisition and intend to continue to seek opportunities to expand our role as a provider of products
and services to the health care industry. There can be no assurance that we will be able to successfully pursue any
such opportunity or consummate any such transaction, if pursued. If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there can be no assurance that the
integration efforts associated with any such transaction would be successful.
Aging Population and Other Market Influences
The health care products distribution industry continues to experience growth due to the aging population,
increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the effects of unemployment on insurance
coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing
from acute care settings to alternate-care sites, particularly physicians’ offices.
According to the U.S. Census Bureau’s International Data Base, in 2014 there were more than six million
Americans aged 85 years or older, the segment of the population most in need of long-term care and elder-care
services. By the year 2050, that number is projected to nearly triple to approximately 18 million. The population
aged 65 to 84 years is projected to increase over 60% during the same time period.
As a result of these market dynamics, annual expenditures for health care services continue to increase in the
United States. We believe that demand for our products and services will grow, while continuing to be impacted by
current and future operating, economic and industry conditions. The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Projections 2014-2024” indicating that total national health care
spending reached approximately $3.1 trillion in 2014, or 17.7% of the nation’s gross domestic product, the
benchmark measure for annual production of goods and services in the United States. Health care spending is
projected to reach approximately $5.4 trillion in 2024, approximately 19.6% of the nation’s gross domestic product.
39
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, and there has been an emphasis on efforts to control medical
costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical devices, and/or
medical treatments or services. Also, many of these laws and regulations are subject to change and may impact our
financial performance. In addition, our businesses are generally subject to numerous other laws and regulations
that could impact our financial performance, including securities, antitrust and other laws and regulations. Failure
to comply with law or regulations could have a material adverse effect on our business.
Health Care Reform
The United States Health Care Reform Law adopted through the March 2010 enactment of the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act increased federal
oversight of private health insurance plans and included a number of provisions designed to reduce Medicare
expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to increased
health coverage.
The Health Care Reform Law requirements include a 2.3% excise tax on domestic sales of many medical
devices by manufacturers and importers that began in 2013 (a moratorium was imposed beginning January 1, 2016
and ending on December 31, 2017 and therefore the tax does not apply to sales during that period) 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 has also materially expanded the number of individuals in the United States with health
insurance. The Health Care Reform Law has faced ongoing legal challenges, including litigation seeking to
invalidate some of or all of the law or the manner in which it has been interpreted. As a result, while upholding the
law generally, the United States Supreme Court has effectively made the Health Care Reform Law’s Medicaid
expansion voluntary for each state. There has been an effort by the political party in control of Congress to repeal
some or all of the law. The uncertain status of the Health Care Reform Law affects our ability to plan.
A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, has imposed new reporting and disclosure requirements for drug and device manufacturers with
regard to payments or other transfers of value made to certain practitioners (including physicians, dentists and
teaching hospitals), and for such manufacturers and for group purchasing organizations, with regard to certain
ownership interests held by physicians in the reporting entity. On February 1, 2013, CMS released the final rule to
implement the Physician Payment Sunshine Act. Under this rule, data collection activities began on August 1,
2013, and as required under the Physician Payment Sunshine Act, CMS publishes information from these reports
on a publicly available website, including amounts transferred and physician, dentist and teaching hospital
identities.
Under the Physician Payment Sunshine Act, we are required to collect and report detailed information
regarding certain financial relationships we have with physicians, dentists and teaching hospitals, and we believe
that we are substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician
Payment Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may be required to
report under certain state transparency laws that address circumstances not covered by the Physician Payment
Sunshine Act, and some of these state laws are also ambiguous. We are also subject to foreign regulations
requiring transparency of certain interactions between suppliers and their customers. While we believe we have
substantially compliant programs and controls in place to comply with these reporting requirements, our
compliance with these rules imposes additional costs on us.
40
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws and regulations with respect to their operations. Some of these laws, referred to as
“false claims laws,” prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws,” prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of, items
or services that are paid for by federal, state and other health care payers and programs.
The fraud and abuse laws and regulations have been subject to varying interpretations, as well as heightened
enforcement activity over the past few years, and significant enforcement activity has been the result of “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 laws. Under the federal False Claims Act relators can be entitled to
receive up to 30% of total recoveries. Also, violations of the federal 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. Most states have adopted
similar state false claims laws, and these state laws have their own penalties which may be in addition to federal
False Claims Act penalties. The Health Care Reform Law significantly strengthened the federal False Claims Act
and the federal Anti-Kickback Law provisions, which could lead to the possibility of increased whistleblower or
relator suits, and among other things made clear that a federal Anti-Kickback Law violation can be a basis for
federal False Claims Act liability.
The United States government (among others) has expressed concerns about financial relationships between
suppliers on the one hand and physicians and dentists on the other. As a result, we regularly review and revise our
marketing practices as necessary to facilitate compliance.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our
foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery
laws and laws pertaining to the accuracy of our internal books and records, which have been the focus of increasing
enforcement activity globally in recent years.
Failure to comply with fraud and abuse laws and regulations could result in significant civil and criminal
penalties and costs, including the loss of licenses and the ability to participate in federal and state health care
programs, and could have a material adverse effect on our business. Also, these measures may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory
authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition,
many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to
frequent modification and varied interpretation by prosecutorial and regulatory authorities, increasing the risk of
noncompliance.
While we believe that we are substantially compliant with applicable fraud and abuse laws and regulations, and
have adequate compliance programs and controls in place to ensure substantial compliance, we cannot predict
whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in
response to changes in applicable law or interpretation of laws, could have a material adverse effect on our
business.
Operating, Security and Licensure Standards
The Federal Food, Drug, and Cosmetic Act and similar foreign laws generally regulate 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.
The Federal Drug Quality and Security Act of 2013 brought about significant changes with respect to
pharmaceutical supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug
Supply Chain Security Act (“DSCSA”), will be phased in over 10 years, and is intended to build a national
41
electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United
States. The law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers and
dispensers (e.g., pharmacies) of prescription drugs began to take effect in January 2015, subject to certain
enforcement delays by the United States Food and Drug Administration (“FDA”). For example, the FDA
announced that in light of difficulties experienced by some dispensers in establishing electronic systems to handle
required product tracing information, it would delay to March 1, 2016 its enforcement of certain track and trace
requirements scheduled to apply to dispensers on July 1, 2015, although this delay does not affect current DSCSA
requirements that apply to other trading partners, such as manufacturers and wholesale distributors. The DSCSA
product tracing requirements replace the former FDA drug pedigree requirements and pre-empt state requirements
that are inconsistent with, more stringent than, or in addition to, the DSCSA requirements. Also in January 2015,
the DSCSA required manufacturers and wholesale distributors to have systems in place by which they can identify
whether a product in their possession or control is a “suspect” or “illegitimate” product, and handle it accordingly.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug
wholesalers and third party logistics providers (“3PLs”), and includes the creation of national wholesaler and 3PL
licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. Beginning January 1, 2015, the DSCSA required wholesalers and 3PLs to submit annual reports
to the FDA, which include information regarding each state where the wholesaler or 3PL is licensed, the name and
address of each facility and contact information. According to FDA guidance, states are pre-empted from imposing
any licensing requirements that are inconsistent with, less stringent than, directly related to, or covered by the
standards established by federal law in this area. Current state licensing requirements will likely remain in effect
until the FDA issues new regulations as directed by the DSCSA.
We believe that we are substantially compliant with applicable DSCSA requirements.
The Food and Drug Administration Amendments Act of 2007 (“FDAAA”) and the Food and Drug
Administration Safety and Innovation Act of 2012 (“FDASIA”) amended the Federal Food, Drug, and Cosmetic
Act (“FDCA”) to require the FDA to promulgate regulations to implement a Unique Device Identification
System. The FDA issued a final rule on September 24, 2013 implementing the Unique Device Identification
System, requiring the labels of most medical devices to bear a unique device identifier (“UDI”), and prescribing the
content and format of the UDI. The rule also requires the submission of certain information concerning UDI-
labeled devices to an FDA database, the Global Unique Device Identification Database (“GUDID”). Additional
FDA UDI guidance has subsequently been issued, and the FDA’s UDI regulations are being phased in over seven
years from the rule’s promulgation in September 2013, beginning with the highest-risk devices (i.e., Class III
medical devices) and ending with the lowest-risk devices. For the lowest-risk, Class I medical devices, a Universal
Product Code may take the place of a UDI on the device’s label.
The FDA’s UDI regulations require certain entities, referred to as “labelers,” to develop and include UDIs on
the labels of medical devices, and to directly mark certain devices with UDIs. Labelers are entities that cause a
device’s label to be applied or modified, without any subsequent replacement or modification. Typically, these
entities are device manufacturers, specification developers, single-use device reprocessors, convenience kit
assemblers, repackagers and relabelers.
Violations of the UDI regulations, including failure to include a UDI on a device’s label after the effective date
for the device type, result in the misbranding of the device. The FDCA makes it unlawful to introduce or deliver
for introduction into interstate commerce a misbranded device. It is also unlawful to cause a device to become
misbranded.
We believe that we are substantially compliant with applicable UDI requirements.
42
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of computer software intended for use in
health care settings, and has developed and continues to develop policies on regulating clinical decision support
tools and other types of software 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
or foreign government authorities 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.
In addition, our businesses that involve physician and dental practice management products include electronic
information technology systems that store and process personal health, clinical, financial and other sensitive
information of individuals. These information technology systems may be vulnerable to breakdown, wrongful
intrusions, data breaches and malicious attack, which could require us to expend significant resources to eliminate
these problems and address related security concerns, and could involve claims against us by private parties and/or
governmental agencies. For example, we are 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, and
implementing regulations (“HIPAA”). HIPAA requires, 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 and regulations can result in substantial penalties and other liabilities.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers are subject to laws and regulations, such as HIPAA,
which require that they protect the privacy and security of those records, and our products may be used as part of
these customers’ comprehensive data security programs, including in connection with their efforts to comply with
applicable privacy and security laws. Perceived or actual security vulnerabilities in our products or services, or the
perceived or actual failure by us or our customers who use our products to comply with applicable legal
requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our
customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and expenses
and costs for remediation.
Federal initiatives provide a program of incentive payments available to certain health care providers involving
the adoption and use of certain electronic health care records systems and processes. The initiatives include
providing, among others, physicians and dentists, with financial incentives if they meaningfully use certified
electronic health record technology (“EHR”) in accordance with applicable requirements. In addition, Medicare-
eligible providers that fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those
systems in accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement
reductions, which reductions for applicable health professionals (including physicians and dentists) began on
January 1, 2015. Qualification for the incentive payments requires the use of EHRs that have certain capabilities
for meaningful use pursuant to evolving standards adopted by CMS and by the Office of the National Coordinator
for Health Information Technology (“ONC”) of the Department of Health and Human Services
(“HHS”). Generally, initial (“Stage 1”) standards addressed criteria for periods beginning in 2011, and more
demanding “Stage 2” standards addressed criteria for periods beginning in 2014. On October 6, 2015, CMS and
ONC released comprehensive final rules with respect to the EHR program that, among other things, establish the
more challenging “Stage 3” criteria, make certain adjustments to Stage 1 and Stage 2 standards (e.g., reducing the
2015 reporting period from a full year to 90 days), and finalize 2015 edition health information technology (HIT)
certification criteria (which is now added to the existing 2014 edition HIT certification criteria, but not required
until 2018). Notably, under the new rules, compliance with Stage 3 standards will be optional for providers in
2017, and would generally be required for all eligible providers (regardless of prior participation in the EHR
incentive program) for 2018 reporting periods and subsequently. Developers and others involved in the
manufacture of EHR program technology will have this interim period to develop and certify products, and work
with customers to implement products for the 2018 EHR program period. In connection with the release of the
October 6 rules, HHS has also stated it will continue to modify applicable EHR program standards. In addition,
under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), which establishes the Merit-Based
Incentive Payment System (MIPS), over the next few years the EHR program is expected to become part of a more
43
comprehensive federal quality measurement and incentive program, apparently with modified applicable
requirements, and CMS has indicated that it may even supplant certain Stage 3 rules with more streamlined MIPS
approaches. Certain of our businesses involve the manufacture and sale of certified EHR systems and other
products linked to incentive programs, and therefore, we must maintain compliance with, and are affected by, these
changing governmental criteria.
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. Commencing July 1, 2012,
CMS required that electronic claim submissions and related electronic transactions be conducted under a new
HIPAA transaction standard, called Version 5010. CMS has required 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, called the ICD-10-CM. The ICD-10-CM standard was implemented on October 1, 2015, and claims
with dates of service of October 1, 2015 or after must be submitted using ICD-10-CM code sets. Certain of our
businesses provide electronic practice management products that must meet these requirements, and while we
believe that our products have timely adopted 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 these products.
There may be additional legislative initiatives in the future impacting health care.
E-Commerce
Electronic commerce solutions have become an integral part of traditional health care supply and distribution
relationships. Our distribution business is characterized by rapid technological developments and intense
competition. The continuing advancement of online commerce requires 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 significant aspect of the distribution
business. We continue to explore ways and means to improve and expand our Internet presence and capabilities,
including our online commerce offerings and our use of various social media outlets.
44
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 26, 2015, December 27, 2014 and December 28, 2013 (in thousands):
Years Ended
December 26, December 27,
December 28,
2015
2014
2013
Operating results:
Net sales .................................................................................................. $
Cost of sales ............................................................................................
Gross profit .........................................................................................
Operating expenses:
Selling, general and administrative .....................................................
Restructuring costs ..............................................................................
Operating income ........................................................................... $
10,629,719 $
7,617,460
3,012,259
10,371,390 $
7,460,075
2,911,315
2,243,356
34,931
733,972 $
2,196,173
-
715,142 $
9,560,647
6,904,633
2,656,014
1,978,960
-
677,054
Other expense, net ................................................................................... $
Net income ..............................................................................................
Net income attributable to Henry Schein, Inc. ........................................
(13,214) $
523,427
479,058
(5,830) $
505,436
466,077
(12,360)
471,462
431,554
Years Ended
December 26, December 27,
December 28,
2015
2014
2013
Cash flows:
Net cash provided by operating activities ............................................... $
Net cash used in investing activities ........................................................
Net cash used in financing activities .......................................................
586,841 $
(260,031)
(319,371)
592,504 $
(516,639)
(154,647)
664,175
(266,605)
(335,974)
Plans of Restructuring
On November 6, 2014, we announced a corporate initiative to rationalize our operations and provide expense
efficiencies, which was expected to be completed by the end of fiscal 2015. This initiative is expected to include
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. We have
subsequently determined that the restructuring activities under this initiative will not be completed until the first
half of fiscal 2016.
The total costs associated with the actions to complete this restructuring are expected to be in the range of $41
million to $47 million pre-tax, of which $34.9 million pre-tax were recorded during the year ended December 26,
2015. These ongoing actions will allow us to execute on our plan to reduce our cost structure to fund new
initiatives to drive future growth under our 2015 – 2017 strategic planning cycle.
On February 5, 2016, we estimated that the total remaining restructuring costs we expect to incur in connection
with the restructuring activity to be $6 million to $12 million, consisting of $5 million to $10 million in employee
severance pay and benefits and $1 million to $2 million in facility costs, representing primarily lease termination
and other facility closure related costs.
The costs associated with this restructuring are included in a separate line item, “Restructuring costs” within
our consolidated statements of income.
45
2015 Compared to 2014
Net Sales
Net sales for 2015 and 2014 were as follows (in thousands):
2015
% of
Total
2014
% of
Total
Increase/(Decrease)
%
$
Health care distribution (1):
Dental ..................................................... $
Animal health .........................................
Medical ...................................................
Total health care distribution ...............
Technology and value-added services (2) ......
Total .................................................... $
5,276,407
2,921,624
2,072,915
10,270,946
358,773
10,629,719
49.6 % $
27.5
19.5
96.6
3.4
100.0 % $
5,381,215
2,898,612
1,742,685
10,022,512
348,878
10,371,390
51.9 % $
27.9
16.8
96.6
3.4
100.0 % $
(104,808)
23,012
330,230
248,434
9,895
258,329
(1.9)%
0.8
18.9
2.5
2.8
2.5
(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 practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.
The $258.3 million, or 2.5%, increase in net sales for the year ended December 26, 2015 includes an increase of
8.4% local currency growth (5.0% increase in internally generated revenue and 3.4% growth from acquisitions)
partially offset by a decrease of 5.9% related to foreign currency exchange.
The $104.8 million, or 1.9%, decrease in dental net sales for the year ended December 26, 2015 includes an
increase of 5.0% in local currencies (4.4% increase in internally generated revenue and 0.6% growth from
acquisitions) offset by a decrease of 6.9% related to foreign currency exchange. The 5.0% increase in local
currency sales was due to increases in dental equipment sales and service revenues of 7.0% (6.4% increase in
internally generated revenue and 0.6% growth from acquisitions) and dental consumable merchandise sales growth
of 4.4% (3.8% increase in internally generated revenue and 0.6% growth from acquisitions).
The $23.0 million, or 0.8%, increase in animal health net sales for the year ended December 26, 2015 includes
an increase of 8.4% local currency growth (1.9% increase in internally generated revenue and 6.5% growth from
acquisitions) partially offset by a decrease of 7.6% related to foreign currency exchange. The growth in internally
generated animal health revenue is affected by certain products switching between agency sales and standard sales,
as well as changes to our veterinary diagnostics manufacturer relationships. When excluding the effects of these
items, internally generated revenue grew 5.6%.
The $330.2 million, or 18.9%, increase in medical net sales for the year ended December 26, 2015 includes an
increase of 19.7% local currency growth (12.2% increase in internally generated revenue and 7.5% growth from
acquisitions) partially offset by a decrease of 0.8% related to foreign currency exchange.
The $9.9 million, or 2.8%, increase in technology and value-added services net sales for the year ended
December 26, 2015 includes an increase of 5.3% local currency growth (4.9% increase in internally generated
revenue and 0.4% growth from acquisitions) partially offset by a decrease of 2.5% related to foreign currency
exchange.
46
Gross Profit
Gross profit and gross margins for 2015 and 2014 by segment and in total were as follows (in thousands):
Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $
2015
2,768,676
243,583
3,012,259
Gross
Margin %
27.0 % $
67.9
28.3
$
2014
2,680,190
231,125
2,911,315
Gross
Margin %
26.7 % $
66.2
28.1
$
Increase
$
88,486
12,458
100,944
%
3.3 %
5.4
3.5
Gross profit increased $100.9 million, or 3.5%, for the year ended December 26, 2015 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 health care
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary 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 higher 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 greater frequencies.
Health care distribution gross profit increased $88.5 million, or 3.3%, for the year ended December 26, 2015
compared to the prior year period. Health care distribution gross profit margin increased to 27.0% for the year
ended December 26, 2015 from 26.7% for the comparable prior year period. The overall increase in our health care
distribution gross profit is primarily attributable to acquisitions which contributed $98.6 million of additional gross
profit in our health care distribution segment for the year ended December 26, 2015 compared to the prior year
period. The offsetting decrease of $10.1 million in our health care distribution segment gross profit was primarily
attributable to the effects of foreign exchange.
Technology and value-added services gross profit increased $12.5 million, or 5.4%, for the year ended
December 26, 2015 compared to the prior year period. Technology and value-added services gross profit margin
increased to 67.9% for the year ended December 26, 2015 from 66.2% for the comparable prior year period.
Acquisitions accounted for $1.6 million of our gross profit increase within our technology and value-added services
segment for the year ended December 26, 2015 compared to the prior year period. The remaining increase of $10.9
million in our technology and value-added services segment gross profit was attributable to improvements in the
gross margin rate resulting from changes in product mix.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2015 and 2014 were as follows (in
thousands):
Health care distribution ............................. $
Technology and value-added services .......
Total .................................................... $
2015
2,108,213
135,143
2,243,356
% of
Respective
Net Sales
20.5 % $
37.7
21.1
$
47
% of
Respective
Net Sales
20.6 % $
36.6
21.2
$
2014
2,068,419
127,754
2,196,173
Increase
$
39,794
7,389
47,183
%
1.9 %
5.8
2.1
Selling, general and administrative expenses increased $47.2 million, or 2.1%, for the year ended December 26,
2015 from the comparable prior year period. The $39.8 million increase in selling, general and administrative
expenses within our health care distribution segment for the year ended December 26, 2015 as compared to the
prior year period was attributable to $96.9 million of additional costs from acquired companies, partially offset by a
reduction of $57.1 million of costs primarily due to the impact of foreign exchange. The $7.4 million increase in
selling, general and administrative expenses within our technology and value-added services segment for the year
ended December 26, 2015 as compared to the prior year period was attributable to $1.3 million of additional costs
from acquired companies and $6.1 million of additional operating costs. As a percentage of net sales, selling,
general and administrative expenses decreased to 21.1% from 21.2% for the comparable prior year period.
As a component of total selling, general and administrative expenses, selling expenses decreased $12.8 million,
or 0.9%, for the year ended December 26, 2015 from the comparable prior year period. As a percentage of net
sales, selling expenses decreased to 13.0% from 13.4% for the comparable prior year period.
As a component of total selling, general and administrative expenses, general and administrative expenses
increased $60.0 million, or 7.4%, for the year ended December 26, 2015 from the comparable prior year period. As
a percentage of net sales, general and administrative expenses increased to 8.2% from 7.8% for the comparable
prior year period.
Other Expense, Net
Other expense, net for the years ended 2015 and 2014 was as follows (in thousands):
Interest income .................................................................... $
Interest expense ...................................................................
Other, net .............................................................................
Other expense, net ....................................................... $
12,935 $
(26,008)
(141)
(13,214) $
13,655 $
(24,057)
4,572
(5,830) $
2015
2014
$
Variance
(720)
(1,951)
(4,713)
(7,384)
%
(5.3)%
(8.1)
(103.1)
(126.7)
Other expense, net increased $7.4 million to $13.2 million for the year ended December 26, 2015 from the
comparable prior year period. Interest income decreased $0.7 million primarily due to lower late fee income.
Interest expense increased $2.0 million primarily due to increased borrowings under our private placement facilities
and our bank credit lines. Other, net decreased by $4.7 million due primarily to a contractual payment in 2014 from
an animal health supplier in Europe related to a change to a non-exclusive sales model.
Income Taxes
For the year ended December 26, 2015, our effective tax rate was 29.3% compared to 30.4% for the prior year
period. During the third quarter of 2015, we received a favorable response to a tax petition, which has allowed us
to conclude that it is more likely than not that certain unrecognized tax benefits, which had been previously
reserved, will be realized. As a result, our provision for income taxes includes a $6.3 million income tax benefit.
Absent the effects of this income tax benefit in the third quarter of 2015, our effective tax rate for the year
ended December 26, 2015 would have been 30.2% as compared to our actual effective tax rate of 29.3%. The
remaining difference between our effective tax rate and the federal statutory tax rate for both periods primarily
relates to state and foreign income taxes and interest expense. For 2016, we expect our effective tax rate to be in
the range of 30%.
Net Income
Net income increased $18.0 million, or 3.6%, for the year ended December 26, 2015, compared to the prior
year period due to the factors noted above.
48
2014 Compared to 2013
Net Sales
Net sales for 2014 and 2013 were as follows (in thousands):
2014
% of
Total
2013
% of
Total
Increase
$
%
Health care distribution (1):
Dental ..................................................... $
Animal health .........................................
Medical ...................................................
Total health care distribution ...............
Technology and value-added services (2) ......
Total .................................................... $
5,381,215
2,898,612
1,742,685
10,022,512
348,878
10,371,390
51.9 % $
27.9
16.8
96.6
3.4
100.0 % $
4,997,972
2,599,461
1,643,167
9,240,600
320,047
9,560,647
52.3 % $
27.2
17.2
96.7
3.3
100.0 % $
383,243
299,151
99,518
781,912
28,831
810,743
7.7 %
11.5
6.1
8.5
9.0
8.5
(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 practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.
The $810.7 million, or 8.5%, increase in net sales for the year ended December 27, 2014 includes an increase of
8.6% local currency growth (4.6% increase in internally generated revenue and 4.0% growth from acquisitions) as
well as a decrease of 0.1% related to foreign currency exchange.
The $383.2 million, or 7.7%, increase in dental net sales for the year ended December 27, 2014 includes an
increase of 8.2% in local currencies (3.3% increase in internally generated revenue and 4.9% growth from
acquisitions) as well as a decrease of 0.5% related to foreign currency exchange. The 8.2% increase in local
currency sales was due to increases in dental equipment sales and service revenues of 6.8% (3.3% increase in
internally generated revenue and 3.5% growth from acquisitions) and dental consumable merchandise sales growth
of 8.7% (3.3% increase in internally generated revenue and 5.4% growth from acquisitions).
The $299.2 million, or 11.5%, increase in animal health net sales for the year ended December 27, 2014
includes an increase of 11.2% local currency growth (6.3% increase in internally generated revenue and 4.9%
growth from acquisitions) as well as an increase of 0.3% related to foreign currency exchange.
The $99.5 million, or 6.1%, increase in medical net sales for the year ended December 27, 2014 includes an
increase of 6.0% local currency growth (5.9% increase in internally generated revenue and 0.1% growth from
acquisitions) as well as an increase of 0.1% related to foreign currency exchange.
The $28.8 million, or 9.0%, increase in technology and value-added services net sales for the year ended
December 27, 2014 includes an increase of 8.8% local currency growth (5.7% increase in internally generated
revenue and 3.1% growth from acquisitions) as well as an increase of 0.2% related to foreign currency exchange.
49
Gross Profit
Gross profit and gross margins for 2014 and 2013 by segment and in total were as follows (in thousands):
Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $
2014
2,680,190
231,125
2,911,315
Gross
Margin %
26.7 % $
66.2
28.1
$
2013
2,451,334
204,680
2,656,014
Gross
Margin %
26.5 % $
64.0
27.8
$
Increase
$
228,856
26,445
255,301
%
9.3 %
12.9
9.6
Gross profit increased $255.3 million, or 9.6%, for the year ended December 27, 2014 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 health care
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary 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 higher 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 greater frequencies.
Health care distribution gross profit increased $228.9 million, or 9.3%, for the year ended December 27, 2014
compared to the prior year period. Health care distribution gross profit margin increased to 26.7% for the year
ended December 27, 2014 from 26.5% for the comparable prior year period. The slight overall increase in our
health care distribution gross profit margin reflects stable margins in each of the segment’s operating
units. Acquisitions accounted for $161.5 million of our gross profit increase within our health care distribution
segment for the year ended December 27, 2014 compared to the prior year period. The remaining increase of $67.4
million in our health care distribution segment gross profit was attributable to a $95.5 million gross profit increase
from our growth in internally generated revenue, partially offset by a $28.1 million gross profit decrease related to a
slight decline in the gross margin rate, primarily due to lower margins on our dental equipment and animal health
sales.
Technology and value-added services gross profit increased $26.4 million, or 12.9%, for the year ended
December 27, 2014 compared to the prior year period. Technology and value-added services gross profit margin
increased to 66.2% for the year ended December 27, 2014 from 64.0% for the comparable prior year period.
Acquisitions accounted for $8.7 million of our gross profit increase within our technology and value-added services
segment for the year ended December 27, 2014 compared to the prior year period. The remaining increase of $17.7
million in our technology and value-added services segment gross profit was attributable to a $12.1 million gross
profit increase from our growth in internally generated revenue and a $5.6 million gross profit increase related to
improvements in the gross margin rate primarily due to changes in the product sales mix and higher margins on our
electronic services revenues.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2014 and 2013 were as follows (in
thousands):
Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $
2014
2,068,419
127,754
2,196,173
% of
Respective
Net Sales
20.6 % $
36.6
21.2
$
50
% of
Respective
Net Sales
20.1 % $
37.0
20.7
$
2013
1,860,670
118,290
1,978,960
Increase
$
207,749
9,464
217,213
%
11.2 %
8.0
11.0
Selling, general and administrative expenses increased $217.2 million, or 11.0%, for the year ended December
27, 2014 from the comparable prior year period. The $207.7 million increase in selling, general and administrative
expenses within our health care distribution segment for the year ended December 27, 2014 as compared to the
prior year period was attributable to $145.7 million additional costs from acquired companies and $62.0 million of
additional operating costs. The $9.5 million increase in selling, general and administrative expenses within our
technology and value-added services segment for the year ended December 27, 2014 as compared to the prior year
period was attributable to $5.7 million of additional costs from acquired companies and $3.8 million of additional
operating costs. As a percentage of net sales, selling, general and administrative expenses increased to 21.2% from
20.7% for the comparable prior year period.
As a component of total selling, general and administrative expenses, selling expenses increased $118.6
million, or 9.3%, for the year ended December 27, 2014 from the comparable prior year period. As a percentage of
net sales, selling expenses increased to 13.4% from 13.3% for the comparable prior year period.
As a component of total selling, general and administrative expenses, general and administrative expenses
increased $98.6 million, or 13.9%, for the year ended December 27, 2014 from the comparable prior year period.
As a percentage of net sales, general and administrative expenses increased to 7.8% from 7.4% for the comparable
prior year period.
Other Expense, Net
Other expense, net for the years ended 2014 and 2013 was as follows (in thousands):
Interest income .................................................................... $
Interest expense ...................................................................
Other, net .............................................................................
Other expense, net ....................................................... $
13,655 $
(24,057)
4,572
(5,830) $
12,853 $
(27,538)
2,325
(12,360) $
2014
2013
$
Variance
802
3,481
2,247
6,530
%
6.2 %
12.6
96.6
52.8
Other expense, net decreased $6.5 million to $5.8 million for the year ended December 27, 2014 from the
comparable prior year period. Interest income increased $0.8 million. Interest expense decreased $3.5 million
primarily due to the $6.2 million accelerated amortization of deferred financing costs resulting from the early
repayment of our Henry Schein Animal Health (formerly Butler Schein Animal Health) (“HSAH”) debt during
February 2013, partially offset by an increase in borrowings under our bank credit lines and our private placement
facilities. Other, net increased by $2.2 million due primarily to a contractual payment from an animal health
supplier in Europe related to a change to a non-exclusive sales model.
Income Taxes
For the year ended December 27, 2014, our effective tax rate was 30.4% compared to 28.7% for the prior year
period. During the third quarter of 2013, we concluded that it is more likely than not that certain deferred tax assets
related to tax loss carryforwards originating outside the United States, which had been previously reserved, will be
realized. As a result, our provision for income taxes for the year ended December 28, 2013 included a $13.4
million reduction of the valuation allowance which was based on an estimate of future taxable income available to
be offset by the tax loss carryforwards.
Absent the effects of the reduction of this valuation allowance in the third quarter of 2013, our effective tax rate
for the year ended December 28, 2013 would have been 30.7% as compared to our actual effective tax rate of
28.7%. The remaining difference between our effective tax rates and the federal statutory tax rates for both periods
primarily relates to state and foreign income taxes and interest expense.
51
Loss on Sale of Equity Investment
On July 10, 2013, we divested our investment in a dental wholesale distributor in the Middle East that had
primarily served as an importer that distributed products largely to other distributors. The divestiture resulted in a
one-time loss of $12.5 million, or $0.14 per diluted share, in the third quarter of 2013. Pursuant to the terms of this
divestiture, we made cash payments to this distributor in the aggregate amount of $13.4 million, which it was
required to use to reduce its debt, pay certain trade payables and provide working capital. The investment in this
distributor had been fully impaired as of the end of 2012. There was no tax benefit related to the loss on this
divestiture.
Net Income
Net income increased $34.0 million, or 7.2%, for the year ended December 27, 2014 compared to the prior year
period due to the factors noted above.
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 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, and have caused 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 provided by operating activities was $586.8 million for the year ended December 26, 2015, compared
to $592.5 million for the prior year. The net change of $5.7 million was primarily attributable to unfavorable
working capital changes, partially offset by net income improvements.
Net cash used in investing activities was $260.0 million for the year ended December 26, 2015, compared to
$516.6 million for the prior year. The net change of $256.6 million was primarily due to decreased payments for
equity investments and business acquisitions and decreased purchases of fixed assets.
Net cash used in financing activities was $319.4 million for the year ended December 26, 2015, compared to
$154.6 million for the prior year. The net change of $164.8 million was primarily due to decreased net proceeds
from the issuance of long-term debt.
52
The following table summarizes selected measures of liquidity and capital resources (in thousands):
Cash and cash equivalents ................................................................................................... $
Working capital ...................................................................................................................
72,086 $
1,084,103
2015
2014
89,474
1,133,055
December 26, December 27,
Debt:
Bank credit lines ............................................................................................................. $
Current maturities of long-term debt ..............................................................................
Long-term debt ...............................................................................................................
Total debt ................................................................................................................... $
328,631 $
17,331
463,752
809,714 $
182,899
5,815
542,776
731,490
Our cash and cash equivalents consist of bank balances and investments in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations increased to 40.1 days as of December 26,
2015 from 39.9 days as of December 27, 2014. During the years ended December 26, 2015 and December 27,
2014, we wrote off approximately $8.0 million and $8.1 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations decreased to 5.5 as of December 26, 2015
from 5.9 as of December 27, 2014. Our working capital accounts may be impacted by current and future economic
conditions.
Contractual obligations
The following table summarizes our contractual obligations related to fixed and variable rate long-term debt,
including interest (assuming an average long-term rate of interest of 2.2%), as well as inventory purchase
commitments and operating and capital lease obligations as of December 26, 2015:
Payments due by period (in thousands)
< 1 year
2 - 3 years
4 - 5 years
> 5 years
Total
Contractual obligations:
Long-term debt, including interest .......................$
29,841 $
158,364 $
136,020 $
228,360 $
552,585
Inventory purchase commitments .........................
296,463
Operating lease obligations ..................................
78,716
Capital lease obligations, including interest .........
1,317
606,249
112,606
1,494
494,400
70,547
197
680,000
2,077,112
77,574
339,443
-
3,008
Total .....................................................................$
406,337 $
878,713 $
701,164 $
985,934 $
2,972,148
Bank Credit Lines
On September 12, 2012, we entered into a new $500 million revolving credit agreement (the “Credit
Agreement”) with a $200 million expansion feature, which was originally set to expire on September 12, 2017. On
September 22, 2014, we extended the expiration date of the Credit Agreement to September 22, 2019. The interest
rate is based on the USD LIBOR plus a spread based on our leverage ratio at the end of each financial reporting
quarter. The Credit Agreement provides, among other things, that we are required to maintain maximum leverage
ratios, and contains customary representations, warranties and affirmative covenants. The Credit Agreement also
contains customary negative covenants, subject to negotiated exceptions on liens, indebtedness, significant
corporate changes (including mergers), dispositions and certain restrictive agreements. As of December 26, 2015
and December 27, 2014, the borrowings outstanding on this revolving credit facility were $40.0 million and $0,
respectively. As of December 26, 2015 and December 27, 2014, there were $11.4 million and $10.1 million of
letters of credit, respectively, provided to third parties under the credit facility.
53
As of December 26, 2015 and December 27, 2014, we had various other short-term bank credit lines available,
of which $288.6 million and $182.9 million, respectively, was outstanding. At December 26, 2015 and December
27, 2014, borrowings under all of our credit lines had a weighted average interest rate of 1.21% and 1.26%,
respectively.
Private Placement Facilities
On August 10, 2010, we entered into $400 million private placement facilities with two insurance
companies. On April 30, 2012, we increased our available credit facilities by $375 million by entering into a new
agreement with one insurance company and amending our existing agreements with two insurance companies. On
September 22, 2014, we increased our available private placement facilities by $200 million to a total facility
amount of $975 million, and extended the expiration date to September 22, 2017. These facilities are available on
an uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time
through September 22, 2017. The facilities allow us to issue senior promissory notes to the lenders at a fixed rate
based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each possible
issuance will be selected by us and can range from five to 15 years (with an average life no longer than 12 years).
The proceeds of any issuances under the facilities will be used for general corporate purposes, including working
capital and capital expenditures, to refinance existing indebtedness and/or to fund potential acquisitions. The
agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain restrictions
relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in
ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings as of December 26, 2015 are presented in the
following table (in thousands):
Date of
Borrowing
September 2, 2010
January 20, 2012
January 20, 2012 (1)
December 24, 2012
June 2, 2014
Amount of
Borrowing
Outstanding
Borrowing
Rate
$
$
100,000
50,000
50,000
50,000
100,000
350,000
3.79 %
3.45
3.09
3.00
3.19
Due Date
September 2, 2020
January 20, 2024
January 20, 2022
December 24, 2024
June 2, 2021
(1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.
U.S. Trade Accounts Receivable Securitization
On April 17, 2013, we entered into a facility agreement of up to $300 million with a bank, as agent, based on
the securitization of our U.S. trade accounts receivable. This facility allowed us to replace public debt
(approximately $220 million), which had a higher interest rate at HSAH during February 2013 and provided
funding for working capital and general corporate purposes. The financing was structured as an asset-backed
securitization program with pricing committed for up to three years. On April 17, 2015, we extended the expiration
date of this facility agreement to April 15, 2018. The borrowings outstanding under this securitization facility were
$90.0 million and $150.0 million as of December 26, 2015 and December 27, 2014, respectively. At December 26,
2015, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 40
basis points plus 75 basis points, for a combined rate of 1.15%. At December 27, 2014, the interest rate on
borrowings under this facility was based on the asset-backed commercial paper rate of 20 basis points plus 75 basis
points, for a combined rate of 0.95%.
54
We are required to pay a commitment fee of 30 basis points on the daily balance of the unused portion of the
facility if our usage is greater than or equal to 50% of the facility limit or a commitment fee of 35 basis points on
the daily balance of the unused portion of the facility if our usage is less than 50% of the facility limit.
Borrowings under this facility are presented as a component of Long-term debt within our consolidated balance
sheet.
Henry Schein Animal Health
During February 2013, we repaid the then outstanding debt related to the HSAH (formerly Butler Schein
Animal Health) transaction using our existing Credit Agreement. As part of this transaction, we recorded a one-
time interest expense charge of $6.2 million related to the accelerated amortization of deferred financing costs.
Long-term debt
Long-term debt consisted of the following:
December 26, December 27,
2015
2014
Private placement facilities ............................................................................................... $
U.S. trade accounts receivable securitization ....................................................................
Notes payable to banks at a weighted-average interest rate of 8.83% ...............................
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2018 at interest rates ranging
from 2.17% to 5.07% ...............................................................................................
Capital lease obligations (see Note 17) .............................................................................
Total ..................................................................................................................................
Less current maturities ......................................................................................................
350,000 $
90,000
5
350,000
150,000
30
38,215
2,863
481,083
(17,331)
41,259
7,302
548,591
(5,815)
542,776
Total long-term debt ................................................................................................. $
463,752 $
Divestiture of an Equity Affiliate
On July 10, 2013, we divested our investment in a dental wholesale distributor in the Middle East that had
primarily served as an importer that distributed products largely to other distributors. The divestiture resulted in a
one-time loss of $12.5 million, or $0.14 per diluted share, in the third quarter of 2013. Pursuant to the terms of this
divestiture, we made cash payments to this distributor in the aggregate amount of $13.4 million, which it was
required to use to reduce its debt, pay certain trade payables and provide working capital. The investment in this
distributor had been fully impaired as of the end of 2012. There was no tax benefit related to the loss on this
divestiture.
Stock repurchases
From June 21, 2004 through December 26, 2015, we repurchased approximately $1.7 billion, or 21,441,511
shares, under our common stock repurchase programs, with $400 million available as of December 26, 2015 for
future common stock share repurchases.
55
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. Accounting Standards Codification Topic 480-10 is
applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the
outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put
option contained in contractual agreements. The components of the change in the Redeemable noncontrolling
interests for the years ended December 26, 2015, December 27, 2014 and December 28, 2013 are presented in the
following table:
December 26,
2015
December 27, December 28,
2014
2013
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 loss attributable to
redeemable noncontrolling interests ..................................................
Change in fair value of redeemable securities .......................................
Balance, end of period ............................................................................ $
564,527 $
497,539 $
435,175
(82,563)
(105,383)
(9,028)
18,936
43,588
(32,706)
(4,790)
35,202
542,194 $
120,220
38,741
(23,346)
(4,080)
40,836
564,527 $
11,542
39,430
(19,965)
(654)
41,039
497,539
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. Any adjustments to these accrual amounts are recorded in
our consolidated statement of income.
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
$93.1 million as of December 26, 2015.
56
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, animal health and medical 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 multiple element arrangements, and the related deferral of such revenue (which is
insignificant to our financial statements), is recognized as follows. When we sell software products together with
related services (i.e., training and technical support) we allocate revenue to the delivered elements using the
residual method, based upon vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered
elements, or defer it until such time as vendor-specific evidence of fair value is obtained. Multiple element
arrangements that include elements that are not considered software consist primarily of equipment and the related
installation service. We allocate revenue for such arrangements based on the relative selling prices of the elements
applying the following hierarchy: first VSOE, then third-party evidence (“TPE”) of selling price if VSOE is not
available, and finally our estimate of the selling price if neither VSOE nor TPE is available. VSOE exists when we
sell the deliverables separately and represents the actual price charged by us for each deliverable. Estimated selling
price reflects our best estimate of what the selling prices of each deliverable would be if it were sold regularly on a
standalone basis taking into consideration the cost structure of our business, technical skill required, customer
location and other market conditions. Each element that has standalone value is accounted for as a separate unit of
accounting. Revenue allocated to each unit of accounting is recognized when the service is provided or the product
is delivered.
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.
57
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.
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:
health care distribution (global dental, animal health and medical) and technology and value-added services.
Goodwill was allocated to such reporting units, for the purposes of preparing our impairment analyses, based on a
specific identification basis.
For the year ended December 26, 2015, we tested goodwill for impairment using a quantitative analysis
consisting of a two-step approach. The first step of our quantitative analysis consists of a comparison of the
carrying value of our reporting units, including goodwill, to the estimated fair value of our reporting units using a
discounted cash flow methodology. If step one results in the carrying value of the reporting unit exceeding the fair
value of such reporting unit, we would then proceed to step two which would require us to calculate the amount of
impairment loss, if any, that we would record for such reporting unit. The calculation of the impairment loss in step
two would be equivalent to the reporting unit’s carrying value of goodwill less the implied fair value of such
goodwill.
Our use of a discounted cash flow methodology includes estimates of future revenue based upon budget
projections and growth rates which take into account estimated inflation rates. We also develop estimates for future
levels of gross and operating profits and projected capital expenditures. Our methodology also includes the use of
estimated discount rates based upon industry and competitor analysis as well as other factors. The estimates that we
use in our discounted cash flow methodology involve many assumptions by management that are based upon future
growth projections.
58
For the years ended December 27, 2014 and December 28, 2013, we tested goodwill impairment under the
provisions of Accounting Standards Update 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing
Goodwill for Impairment,” which allowed 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 consider 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.
Our impairment analysis for indefinite-lived intangibles consists of a comparison of the fair value to the
carrying value of the assets. This comparison is made based on 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. For indefinite-
lived intangible assets, a present value technique, such as estimates of future cash flows, is utilized. We assessed
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.
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 26, 2015, December 27, 2014 and December 28, 2013, the results of our
goodwill and intangible impairment analysis did not result in any impairments.
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 to be 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.
59
Stock-Based Compensation
We measure stock-based compensation at the grant date, based on the estimated fair value of the award. Stock-
based awards are provided to certain employees and non-employee directors under the terms of our 2013 Stock
Incentive Plan, as amended, and our 2015 Non-Employee Director Stock Incentive Plan (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/units. Since March 2009, equity-based awards have been granted solely in the form of restricted stock/units,
with the exception of providing stock options to employees pursuant to certain pre-existing contractual obligations.
Grants of restricted stock/units are stock-based awards granted to recipients with specified vesting
provisions. In the case of restricted stock, common stock is delivered on the date of grant, subject to vesting
conditions. In the case of restricted stock units, common stock is generally delivered on or following satisfaction of
vesting conditions. We issue restricted stock/units that vest solely based on the recipient’s continued service over
time (primarily four-year cliff vesting, except for grants made under the 2015 Non-Employee Director Stock
Incentive Plan, which are primarily 12-month cliff vesting) and restricted stock/units that vest based on our
achieving specified performance measurements and the recipient’s continued service over time (primarily three-
year cliff vesting).
With respect to time-based restricted stock/units, we estimate the fair value on the date of grant based on our
closing stock price. With respect to performance-based restricted stock/units, 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/units based on our closing stock price at time of grant.
The Plans provide for adjustments to the performance-based restricted stock/units targets for significant events
such as acquisitions, divestitures, new business ventures, share repurchases and certain foreign exchange
fluctuations. 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.
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
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires deferred
tax liabilities and assets to be classified as noncurrent in the Consolidated Balance Sheet. The standard will be
effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. Early adoption is permitted for financial statements that have not been previously
issued. The ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all
periods presented. We are currently evaluating the impact of ASU 2015-17 on our consolidated financial
statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”
(“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be reported in the balance sheet as a direct
deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further,
ASU 2015-03 requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt
issuance costs and any discount or premium are considered in the aggregate when determining the effective interest
rate on the debt. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods
within those fiscal years. ASU 2015-03 must be applied retrospectively. Entities may choose to adopt the new
requirements as of an earlier date for financial statements that have not been previously issued. We do not expect
ASU 2015-03 to have a material impact on our consolidated financial statements.
60
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU
2014-09”), which supersedes nearly all existing revenue recognition guidance under accounting principles generally
accepted in United States (“U.S. GAAP”). The core principle of ASU 2014-09 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this
core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP.
In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers” (“ASU 2015-
14”) which deferred the effective date by one year to December 15, 2017 for interim and annual reporting periods
beginning after that date. Early adoption is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period.
When effective, ASU 2014-09 will use either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain
practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09
recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the
impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet
determined the method by which we will adopt the standard.
In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period
Adjustments” (“ASU 2015-16”). ASU 2015-16 removes the previous requirement for an acquiring company to
restate prior period financial results due to measurement-period adjustments. ASU 2015-16 requires that an
acquirer recognize provisional amounts that are identified during the measurement-period in the reporting period in
which the adjustment amounts are determined. ASU 2015-16 also requires presentation of the amount recorded in
current period earnings by line item, either on the face of the income statement or within the notes to financial
statements, which would have been recorded in previous reporting periods if the adjustment to the provisional
amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for annual reporting periods
beginning after December 15, 2015, including interim periods within that reporting period. The guidance is to be
applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. We
are currently evaluating the impact of ASU 2015-16 on our consolidated financial statements.
61
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks as well as changes in foreign currency exchange rates as measured against the
U.S. dollar and each other, and changes to the credit markets. We attempt to minimize these risks by primarily
using foreign currency forward contracts and by maintaining counter-party credit limits. These hedging activities
provide only limited protection against currency exchange and credit risks. Factors that could influence the
effectiveness of our hedging programs include currency markets and availability of hedging instruments and
liquidity of the credit markets. All foreign currency forward contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. We do
not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our
investments, maintaining a strong balance sheet and having multiple sources of capital.
Foreign Currency Agreements
The value of certain foreign currencies as compared to the U.S. dollar and the value of certain underlying
functional currencies of the Company, including its foreign subsidiaries, 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. A hypothetical 5% change in the average value of the U.S. dollar in 2015 compared to foreign
currencies would have changed our 2015 reported Net income attributable to Henry Schein, Inc. by approximately
$5.9 million.
As of December 26, 2015, we had foreign currency exchange agreements, which expire through January 17,
2017, which include a mark-to-market gain of $1.8 million as determined by quoted market prices. A hypothetical
5% change in the value of the U.S. dollar would change the notional value of our foreign currency exchange
agreements by $3.7 million.
Short-Term Investments
We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments,
by monitoring the credit worthiness of the financial institutions who are the 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.
Variable Interest Rate Debt
As of December 26, 2015, we had variable interest rate exposure for certain of our revolving credit facilities
and our U.S. trade accounts receivable securitization.
Our revolving credit facility which we entered into on September 22, 2014 and expires on September 22, 2019,
has an interest rate that is based on the U.S. Dollar LIBOR plus a spread based on our leverage ratio at the end of
each financial reporting quarter. As of December 26, 2015, there was $40.0 million outstanding under this
revolving credit facility. During the year ended December 26, 2015, the average outstanding balance under this
revolving credit facility was approximately $116 million. Based upon our average outstanding balance for this
revolving credit facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would
increase by $0.3 million.
Our U.S trade accounts receivable securitization, which we entered into on April 17, 2013 and which expires on
April 15, 2018, has an interest rate that is based upon the asset-backed commercial paper rate of 40 basis points
plus 75 basis points. As of December 26, 2015, we had an outstanding balance of $90.0 million under this
securitization facility. During the year ended December 26, 2015, the average outstanding balance under this
securitization facility was approximately $280 million. Based upon our average outstanding balance for this
securitization facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would
increase by $0.7 million.
62
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
Page
Report of Independent Registered Public Accounting Firm ........................................................................................
64
Consolidated Financial Statements:
Balance Sheets as of December 26, 2015 and December 27, 2014 ......................................................................
65
Statements of Income for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013 ..............................................................................................
66
Statements of Comprehensive Income for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013 ..............................................................................................
67
Statements of Changes in Stockholders’ Equity for the years ended
December 26, 2015, December 27, 2014 and December 28, 2013 .............................................................
68
Statements of Cash Flows for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013 ..............................................................................................
Notes to Consolidated Financial Statements ........................................................................................................
69
70
Report of Independent Registered Public Accounting Firm ........................................................................................
115
Schedule II - Valuation and Qualifying Accounts for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013 .......................................................................................................
116
All other schedules are omitted because the required information is either inapplicable or is included in the consolidated
financial statements or the notes thereto.
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Henry Schein, Inc.
Melville, NY
We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 26, 2015
and December 27, 2014 and the related consolidated statements of income, comprehensive income, changes in
stockholders’ equity, and cash flows for each of the three years in the period ended December 26, 2015. 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 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 26, 2015 and December 27, 2014, and the results of its
operations and its cash flows for each of the three years in the period ended December 26, 2015, 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 26, 2015, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February 10, 2016 expressed an
unqualified opinion thereon.
/s/ BDO USA, LLP
New York, NY
February 10, 2016
64
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 26,
2015
December 27,
2014
ASSETS
Current assets:
Cash and cash equivalents ................................................................................................... $
Accounts receivable, net of reserves of $77,008 and $80,671 .............................................
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 ...........................................................................................................
$
72,086
1,229,816
1,509,957
58,159
361,082
3,231,100
318,476
1,907,593
592,971
454,600
6,504,740 $
$
1,005,798
328,631
17,331
258,416
161,760
375,061
2,146,997
463,752
252,862
212,121
3,075,732
89,474
1,127,517
1,327,796
56,591
311,788
2,913,166
311,496
1,884,123
643,736
386,286
6,138,807
860,996
182,899
5,815
237,511
151,162
341,728
1,780,111
542,776
253,118
181,830
2,757,835
Redeemable noncontrolling interests .......................................................................................
Commitments and contingencies
542,194
564,527
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding .............................................................................................................
-
-
Common stock, $.01 par value, 240,000,000 shares authorized,
82,415,320 outstanding on December 26, 2015 and
84,008,537 outstanding on December 27, 2014 ..............................................................
Additional paid-in capital ....................................................................................................
Retained earnings ................................................................................................................
Accumulated other comprehensive loss ...............................................................................
Total Henry Schein, Inc. stockholders' equity .................................................................
Noncontrolling interests ......................................................................................................
Total stockholders' equity ...........................................................................................
Total liabilities, redeemable noncontrolling interests and stockholders' equity .............. $
824
207,374
2,895,997
(219,939)
2,884,256
2,558
2,886,814
6,504,740 $
840
265,363
2,642,523
(95,132)
2,813,594
2,851
2,816,445
6,138,807
See accompanying notes.
65
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Years Ended
December 26, December 27, December 28,
2015
2014
2013
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 before taxes and equity in earnings of affiliates ..................................
Income taxes ..........................................................................................................
Equity in earnings of affiliates ..............................................................................
Loss on sale of equity investment .........................................................................
Net income ............................................................................................................
Less: Net income attributable to noncontrolling interests ...................................
Net income attributable to Henry Schein, Inc. ...................................................... $
10,629,719 $
7,617,460
3,012,259
10,371,390 $
7,460,075
2,911,315
2,243,356
34,931
733,972
2,196,173
-
715,142
12,935
(26,008)
(141)
720,758
(211,391)
14,060
-
523,427
(44,369)
479,058 $
13,655
(24,057)
4,572
709,312
(215,610)
11,734
-
505,436
(39,359)
466,077 $
9,560,647
6,904,633
2,656,014
1,978,960
-
677,054
12,853
(27,538)
2,325
664,694
(190,891)
10,194
(12,535)
471,462
(39,908)
431,554
Earnings per share attributable to Henry Schein, Inc.:
Basic ................................................................................................................... $
Diluted ................................................................................................................ $
5.78 $
5.69 $
5.53 $
5.44 $
5.02
4.93
Weighted-average common shares outstanding:
Basic ...................................................................................................................
Diluted ................................................................................................................
82,844
84,125
84,265
85,740
85,926
87,622
See accompanying notes.
66
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended
December 26, December 27, December 28,
2015
2014
2013
Net income .......................................................................................................... $
523,427 $
505,436 $
471,462
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) ...........................................................
(134,035)
(157,698)
9,474
Unrealized gain (loss) from foreign currency hedging activities .....................
1,994
(2,337)
Unrealized investment gain (loss) ....................................................................
134
379
Pension adjustment gain (loss) .........................................................................
2,270
(7,441)
95
(100)
4,871
Other comprehensive income (loss), net of tax ..................................................
(129,637)
(167,097)
14,340
Comprehensive income .......................................................................................
393,790
338,339
485,802
Comprehensive income attributable to noncontrolling interests:
Net income ....................................................................................................
Foreign currency translation loss ..................................................................
(44,369)
4,830
(39,359)
4,116
(39,908)
654
Comprehensive income attributable to noncontrolling interests ................
(39,539)
(35,243)
(39,254)
Comprehensive income attributable to Henry Schein, Inc. ................................. $
354,251 $
303,096 $
446,548
See accompanying notes.
67
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS 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
Accumulated
Other
Total
Comprehensive Noncontrolling Stockholders'
Income (Loss)
Interests
Equity
2,615,864
Balance, December 29, 2012 ........................................................... 87,850,671 $
Net income (excluding $39,430 attributable to Redeemable
879 $
375,946 $
2,183,905 $
52,855 $
2,279 $
noncontrolling interests) ............................................................
Foreign currency translation gain (excluding $654
attributable to Redeemable noncontrolling interests) ...............
Unrealized gain from foreign currency hedging activities,
net of tax benefit of $26 ............................................................
Unrealized investment loss, net of tax benefit of $66 .....................
Pension adjustment gain, net of tax of $1,336 .................................
Dividends paid .................................................................................
Other adjustments ............................................................................
Initial noncontrolling interests and adjustments related to
-
-
-
-
-
-
-
-
business acquisitions .................................................................
Change in fair value of redeemable securities .................................
-
Repurchase and retirement of common stock .................................. (3,072,942)
Stock issued upon exercise of stock options,
including tax benefit of $18,410 ...............................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
743,651
349,804
(248,732)
-
Balance, December 28, 2013 ........................................................... 85,622,452 $
Net income (excluding $38,741 attributable to Redeemable
noncontrolling interests) ............................................................
Foreign currency translation loss (excluding $4,080
attributable to Redeemable noncontrolling interests) ...............
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $155 ..........................................................
Unrealized investment gain, net of tax of $250 ...............................
Pension adjustment loss, net of tax benefit of $2,781 .....................
Dividends paid .................................................................................
Initial noncontrolling interests and adjustments related to
-
-
-
-
-
-
-
business acquisitions .................................................................
Change in fair value of redeemable securities .................................
-
Repurchase and retirement of common stock .................................. (2,528,209)
Stock issued upon exercise of stock options,
including tax benefit of $11,161 ...............................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
637,014
464,124
(186,844)
-
Balance, December 27, 2014 ........................................................... 84,008,537 $
Net income (excluding $43,588 attributable to Redeemable
noncontrolling interests) ............................................................
Foreign currency translation loss (excluding $4,790
attributable to Redeemable noncontrolling interests) ...............
Unrealized gain from foreign currency hedging activities,
net of tax of $153 ......................................................................
Unrealized investment gain, net of tax of $0 ...................................
Pension adjustment gain, net of tax of $1,008 .................................
Dividends paid .................................................................................
Other adjustments ............................................................................
Initial noncontrolling interests and adjustments related to
-
-
-
-
-
-
-
-
business acquisitions .................................................................
Change in fair value of redeemable securities .................................
-
Repurchase and retirement of common stock .................................. (2,084,297)
Stock issued upon exercise of stock options,
including tax benefit of $20,802 ...............................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....
297,866
392,855
(199,641)
-
-
-
-
-
-
-
-
-
-
(31)
7
3
(2)
-
-
-
-
-
-
-
(90)
-
(41,039)
(83,028)
53,955
35,524
(22,498)
(545)
431,554
-
478
432,032
-
-
-
-
-
-
-
-
(217,192)
-
-
-
-
10,128
-
10,128
95
(100)
4,871
-
-
-
-
-
-
-
-
-
-
-
-
(487)
-
534
-
-
-
-
-
-
95
(100)
4,871
(487)
(90)
534
(41,039)
(300,251)
53,962
35,527
(22,500)
(545)
856 $
318,225 $
2,398,267 $
67,849 $
2,804 $
2,788,001
-
-
-
-
-
-
-
-
(25)
6
5
(2)
-
-
-
-
-
-
-
466,077
-
-
-
-
-
-
(153,582)
(2,337)
379
(7,441)
-
744
(40,836)
(78,143)
42,646
45,871
(22,570)
(574)
-
-
(221,821)
-
-
-
-
-
-
-
-
-
-
-
618
(36)
-
-
-
(544)
9
-
-
-
-
-
-
466,695
(153,618)
(2,337)
379
(7,441)
(544)
753
(40,836)
(299,989)
42,652
45,876
(22,572)
(574)
840 $
265,363 $
2,642,523 $
(95,132) $
2,851 $
2,816,445
-
-
-
-
-
-
-
-
-
(21)
3
4
(2)
-
-
-
-
-
-
-
222
-
(35,202)
(74,247)
35,669
44,610
(28,312)
(729)
479,058
-
-
-
-
-
-
-
(129,205)
1,994
134
2,270
-
-
-
-
(225,584)
-
-
-
-
-
-
-
-
-
-
-
781
(40)
-
-
-
(657)
(9)
(368)
-
-
-
-
-
-
479,839
(129,245)
1,994
134
2,270
(657)
213
(368)
(35,202)
(299,852)
35,672
44,614
(28,314)
(729)
Balance, December 26, 2015 ........................................................... 82,415,320 $
824 $
207,374 $
2,895,997 $
(219,939) $
2,558 $
2,886,814
See accompanying notes.
68
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
December 26,
2015
December 27, December 28,
2014
2013
Cash flows from operating activities:
Net income ....................................................................................................... $
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................................................
Accelerated amortization of deferred financing costs .............................
Loss on sale of equity investment ...........................................................
Stock-based compensation expense ........................................................
Provision for losses on trade and other accounts receivable ...................
Benefit from deferred income taxes ........................................................
Equity in earnings of affiliates ................................................................
Distributions from equity affiliates .........................................................
Changes in unrecognized tax benefits .....................................................
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 related to equity investments and business
acquisitions, net of cash acquired ................................................................
Payments related to sale of equity investment ..................................................
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 bank borrowings .......................................................................
Proceeds from issuance of long-term debt ........................................................
Debt issuance costs ...........................................................................................
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 ...................................
Net cash used in financing activities .....................................................................
523,427 $
505,436 $
471,462
159,127
-
-
44,614
3,184
(6,241)
(14,060)
18,029
11,847
7,549
(120,001)
(194,869)
(58,376)
212,611
586,841
152,238
-
-
45,876
4,619
(1,092)
(11,734)
15,727
22,597
3,303
(81,441)
(71,899)
(40,407)
49,281
592,504
128,035
6,203
12,535
35,527
5,189
(23,037)
(10,194)
16,529
10,500
10,290
(45,110)
(48,087)
15,747
78,586
664,175
(71,684)
(82,116)
(60,215)
(171,861)
-
20
-
(16,506)
(260,031)
145,173
135,000
(150)
(201,203)
14,870
(299,852)
2,199
(33,301)
(82,107)
(319,371)
(424,283)
-
-
3,250
(13,490)
(516,639)
152,641
314,787
(687)
(228,407)
31,491
(299,989)
5,886
(24,986)
(105,383)
(154,647)
(182,363)
(13,364)
-
-
(10,663)
(266,605)
2,175
678,781
(1,372)
(729,977)
35,553
(300,251)
8,141
(19,224)
(9,800)
(335,974)
4,940
66,536
122,080
188,616
Effect of exchange rate changes on cash and cash equivalents .............................
Net change in cash and cash equivalents ...............................................................
Cash and cash equivalents, beginning of period ....................................................
Cash and cash equivalents, end of period .............................................................. $
(24,827)
(17,388)
89,474
72,086 $
(20,360)
(99,142)
188,616
89,474 $
See accompanying notes.
69
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 – Significant Accounting Policies
Nature of Operations
We distribute health care products and services primarily to office-based health care practitioners with
operations or affiliates in the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech
Republic, Denmark, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain,
Sweden, Switzerland, Thailand and the United Kingdom.
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 years ended December 26, 2015, December 27, 2014 and December 28, 2013 consisted of 52
weeks.
Revenue Recognition
We generate revenue from the sale of dental, animal health and medical 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.
70
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 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 multiple element arrangements, and the related deferral of such revenue (which is
insignificant to our financial statements), is recognized as follows. When we sell software products together with
related services (i.e., training and technical support) we allocate revenue to the delivered elements using the
residual method, based upon vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered
elements, or defer it until such time as vendor-specific evidence of fair value is obtained. Multiple element
arrangements that include elements that are not considered software consist primarily of equipment and the related
installation service. We allocate revenue for such arrangements based on the relative selling prices of the elements
applying the following hierarchy: first VSOE, then third-party evidence (“TPE”) of selling price if VSOE is not
available, and finally our estimate of the selling price if neither VSOE nor TPE is available. VSOE exists when we
sell the deliverables separately and represents the actual price charged by us for each deliverable. Estimated selling
price reflects our best estimate of what the selling prices of each deliverable would be if it were sold regularly on a
standalone basis taking into consideration the cost structure of our business, technical skill required, customer
location and other market conditions. Each element that has standalone value is accounted for as a separate unit of
accounting. Revenue allocated to each unit of accounting is recognized when the service is provided or the product
is delivered.
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. Due to the short-term maturity of such investments, the carrying amounts are a reasonable
estimate of fair value. Outstanding checks in excess of funds on deposit of $54.4 million and $50.4 million,
primarily related to payments for inventory, were classified as accounts payable as of December 26, 2015 and
December 27, 2014.
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.
71
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
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.
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 were $78.6 million, $78.4 million and $69.1 million for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013.
Advertising and Promotional Costs
We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses were $19.2 million, $18.4 million and $12.2 million for the years ended December 26, 2015, December
27, 2014 and December 28, 2013. 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 26, 2015 and
December 27, 2014, we had $4.4 million and $4.6 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.
72
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
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.
Risk Management and Derivative Financial Instruments
We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates.
Our objective is to manage the impact that foreign currency exchange rate fluctuations could have on recognized
asset and liability fair values, earnings and cash flows. 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 foreign currency forward agreements related to certain
intercompany loans and certain forecasted inventory purchase commitments with foreign suppliers.
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.
73
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
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; and estimated useful lives. Some
prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash consideration if
certain financial targets are met. For the years ended December 26, 2015, December 27, 2014 and December 28,
2013, there were no material adjustments recorded in our consolidated statement of income relating to changes in
estimated contingent purchase price liabilities.
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. Their interests in these subsidiaries are classified
outside permanent equity on our consolidated balance sheets and are carried at the estimated redemption amounts.
The redemption amounts have been estimated based on expected future earnings and cash flow and, if such
earnings and cash flow are not achieved, the value of the redeemable noncontrolling interests might be impacted.
Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are reflected at
each reporting period with a corresponding adjustment to Additional paid-in capital. Future reductions in the
carrying amounts are subject to a “floor” amount that is equal to the fair value of the redeemable noncontrolling
interests at the time they were originally recorded. The recorded value of the redeemable noncontrolling interests
cannot go below the floor level. 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:
health care distribution (global dental, animal health and medical) and technology and value-added services.
Goodwill was allocated to such reporting units, for the purposes of preparing our impairment analyses, based on a
specific identification basis.
For the year ended December 26, 2015, we tested goodwill for impairment using a quantitative analysis
consisting of a two-step approach. The first step of our quantitative analysis consists of a comparison of the
carrying value of our reporting units, including goodwill, to the estimated fair value of our reporting units using a
discounted cash flow methodology. If step one results in the carrying value of the reporting unit exceeding the fair
value of such reporting unit, we would then proceed to step two which would require us to calculate the amount of
impairment loss, if any, that we would record for such reporting unit. The calculation of the impairment loss in step
two would be equivalent to the reporting unit’s carrying value of goodwill less the implied fair value of such
goodwill.
74
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
Our use of a discounted cash flow methodology includes estimates of future revenue based upon budget
projections and growth rates which take into account estimated inflation rates. We also develop estimates for future
levels of gross and operating profits and projected capital expenditures. Our methodology also includes the use of
estimated discount rates based upon industry and competitor analysis as well as other factors. The estimates that we
use in our discounted cash flow methodology involve many assumptions by management that are based upon future
growth projections.
For the years ended December 27, 2014 and December 28, 2013, we tested goodwill impairment under the
provisions of Accounting Standards Update 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing
Goodwill for Impairment,” which allowed 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 consider 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.
Our impairment analysis for indefinite-lived intangibles consists of a comparison of the fair value to the
carrying value of the assets. This comparison is made based on 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. For indefinite-
lived intangible assets, a present value technique, such as estimates of future cash flows, is utilized. We assessed
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.
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 26, 2015, December 27, 2014 and December 28, 2013, the results of our
goodwill and intangible 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 to be derived from such assets.
75
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
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 were $69.8 million, $64.5 million and $62.2 million for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013.
Comprehensive Income
Comprehensive income includes certain gains and losses that, under accounting principles generally accepted in
the United States, are excluded from net income as such amounts are recorded directly as an adjustment to
stockholders’ equity. Our comprehensive income is primarily comprised of net income, foreign currency
translation gain (loss), unrealized gain (loss) on foreign currency hedging activities, unrealized investment gain
(loss) and pension adjustment gain (loss).
Recently Issued Accounting Standards
In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires deferred
tax liabilities and assets to be classified as noncurrent in the Consolidated Balance Sheet. The standard will be
effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods
within those annual periods. Early adoption is permitted for financial statements that have not been previously
issued. The ASU may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all
periods presented. We are currently evaluating the impact of ASU 2015-17 on our consolidated financial
statements.
In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”
(“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs be reported in the balance sheet as a direct
deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further,
ASU 2015-03 requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt
issuance costs and any discount or premium are considered in the aggregate when determining the effective interest
rate on the debt. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods
within those fiscal years. ASU 2015-03 must be applied retrospectively. Entities may choose to adopt the new
requirements as of an earlier date for financial statements that have not been previously issued. We do not expect
ASU 2015-03 to have a material impact on our consolidated financial statements.
76
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 1 – Significant Accounting Policies – (Continued)
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU
2014-09”), which supersedes nearly all existing revenue recognition guidance under accounting principles generally
accepted in United States (“U.S. GAAP”). The core principle of ASU 2014-09 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this
core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP.
In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers” (“ASU 2015-
14”) which deferred the effective date by one year to December 15, 2017 for interim and annual reporting periods
beginning after that date. Early adoption is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period.
When effective, ASU 2014-09 will use either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain
practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09
recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the
impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet
determined the method by which we will adopt the standard.
In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period
Adjustments” (“ASU 2015-16”). ASU 2015-16 removes the previous requirement for an acquiring company to
restate prior period financial results due to measurement-period adjustments. ASU 2015-16 requires that an
acquirer recognize provisional amounts that are identified during the measurement-period in the reporting period in
which the adjustment amounts are determined. ASU 2015-16 also requires presentation of the amount recorded in
current period earnings by line item, either on the face of the income statement or within the notes to financial
statements, which would have been recorded in previous reporting periods if the adjustment to the provisional
amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for annual reporting periods
beginning after December 15, 2015, including interim periods within that reporting period. The guidance is to be
applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. We
are currently evaluating the impact of ASU 2015-16 on our consolidated financial statements.
77
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. Depreciation is computed primarily
under the straight-line method over the estimated useful life. Depreciation 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 26,
December 27,
2015
2014
Land ............................................................................................................................... $
Buildings and permanent improvements ........................................................................
Leasehold improvements ................................................................................................
Machinery and warehouse equipment ............................................................................
Furniture, fixtures and other ...........................................................................................
Computer equipment and software .................................................................................
Less accumulated depreciation .......................................................................................
18,762 $
117,674
89,766
117,068
114,304
339,006
796,580
(478,104)
Property and equipment, net ................................................................................... $
318,476 $
19,170
119,057
84,649
98,551
121,485
306,227
749,139
(437,643)
311,496
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
Property and equipment related depreciation expense for the years ended December 26, 2015, December 27,
2014 and December 28, 2013 was $60.2 million, $57.6 million and $52.9 million.
78
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 26, 2015 and December 27,
2014 were as follows:
Balance as of December 28, 2013 .................................................. $
Adjustments to goodwill:
Acquisitions ...........................................................................
Foreign currency translation ..................................................
Balance as of December 27, 2014 ..................................................
Adjustments to goodwill:
Health Care
Distribution
Technology and
Value-Added
Services
Total
1,479,177 $
155,828 $
1,635,005
279,400
(48,023)
1,710,554
24,457
(6,716)
173,569
303,857
(54,739)
1,884,123
Acquisitions ...........................................................................
Foreign currency translation ..................................................
66,070
(34,602)
5,464
(13,462)
71,534
(48,064)
Balance as of December 26, 2015 .................................................. $
1,742,022 $
165,571 $
1,907,593
Other intangible assets consisted of the following:
December 26, 2015
Accumulated
December 27, 2014
Accumulated
Cost
Amortization
Net
Cost
Amortization
Net
Non-compete agreements ................................$
40,898 $
(10,131) $
30,767 $
44,156 $
(10,702) $
Trademarks / trade names - definite lived .......
114,271
(41,275)
72,996
123,207
(41,301)
Trademarks / trade names - indefinite lived ....
2,963
-
2,963
3,287
-
33,454
81,906
3,287
Customer relationships and lists ......................
638,276
(236,485)
401,791
616,367
(188,335)
428,032
Other ...............................................................
127,532
(43,078)
84,454
127,383
(30,326)
97,057
Total ..........................................................$
923,940 $
(330,969) $
592,971 $
914,400 $
(270,664) $
643,736
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 4.1 years as of December 26,
2015.
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 8.4 years as of December 26, 2015. 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 10.8 years as of December 26, 2015.
Amortization expense related to definite-lived intangible assets for the years ended December 26, 2015,
December 27, 2014 and December 28, 2013 was $91.9 million, $89.6 million and $69.2 million. The annual
amortization expense expected to be recorded for existing intangibles assets for the years 2016 through 2020 is
$93.3 million, $90.0 million, $83.2 million, $75.8 million and $67.6 million.
79
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 26, December 27,
2015
2014
Investment in unconsolidated affiliates ............................................................................ $
Non-current deferred foreign, state and local income taxes .............................................
Notes receivable (1) .........................................................................................................
Capitalized costs for internally generated software for resale ..........................................
Distribution rights and exclusivity agreements, net of amortization ................................
Debt issuance costs, net of amortization ..........................................................................
Acquisition related indemnification .................................................................................
Other long-term assets ......................................................................................................
Total ........................................................................................................................ $
293,273 $
58,249
27,509
27,851
2,514
838
32,828
11,538
454,600 $
261,471
57,254
18,095
21,125
3,157
1,918
13,471
9,795
386,286
(1) Long-term notes receivable carry interest rates ranging from 1.0% to 12.0% and are due in varying installments through
December 31, 2030.
Amortization expense related to other long-term assets for the years ended December 26, 2015, December 27,
2014 and December 28, 2013 was $7.0 million, $5.0 million and $6.0 million.
Note 5 – Debt
Bank Credit Lines
On September 12, 2012, we entered into a new $500 million revolving credit agreement (the “Credit
Agreement”) with a $200 million expansion feature, which was originally set to expire on September 12, 2017. On
September 22, 2014, we extended the expiration date of the Credit Agreement to September 22, 2019. The interest
rate is based on the USD LIBOR plus a spread based on our leverage ratio at the end of each financial reporting
quarter. The Credit Agreement provides, among other things, that we are required to maintain maximum leverage
ratios, and contains customary representations, warranties and affirmative covenants. The Credit Agreement also
contains customary negative covenants, subject to negotiated exceptions on liens, indebtedness, significant
corporate changes (including mergers), dispositions and certain restrictive agreements. As of December 26, 2015
and December 27, 2014, the borrowings on this revolving credit facility were $40.0 million and $0, respectively.
As of December 26, 2015 and December 27, 2014, there were $11.4 million and $10.1 million of letters of credit,
respectively, provided to third parties under the credit facility.
As of December 26, 2015 and December 27, 2014, we had various other short-term bank credit lines available,
of which $288.6 million and $182.9 million, respectively, was outstanding. At December 26, 2015 and December
27, 2014, borrowings under all of our credit lines had a weighted average interest rate of 1.21% and 1.26%,
respectively.
80
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 5 – Debt – (Continued)
Private Placement Facilities
On August 10, 2010, we entered into $400 million private placement facilities with two insurance
companies. On April 30, 2012, we increased our available credit facilities by $375 million by entering into a new
agreement with one insurance company and amending our existing agreements with two insurance companies. On
September 22, 2014, we increased our available private placement facilities by $200 million to a total facility
amount of $975 million, and extended the expiration date to September 22, 2017. These facilities are available on
an uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time
through September 22, 2017. The facilities allow us to issue senior promissory notes to the lenders at a fixed rate
based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each possible
issuance will be selected by us and can range from five to 15 years (with an average life no longer than 12 years).
The proceeds of any issuances under the facilities will be used for general corporate purposes, including working
capital and capital expenditures, to refinance existing indebtedness and/or to fund potential acquisitions. The
agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain restrictions
relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in
ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the
applicable due dates.
The components of our private placement facility borrowings as of December 26, 2015 are presented in the
following table:
Date of Borrowing
September 2, 2010
January 20, 2012
January 20, 2012 (1)
December 24, 2012
June 2, 2014
Amount of
Borrowing
Outstanding
Borrowing
Rate
$
$
100,000
50,000
50,000
50,000
100,000
350,000
3.79 %
3.45
3.09
3.00
3.19
Due Date
September 2, 2020
January 20, 2024
January 20, 2022
December 24, 2024
June 2, 2021
(1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.
U.S. Trade Accounts Receivable Securitization
On April 17, 2013, we entered into a facility agreement of up to $300 million with a bank, as agent, based on
the securitization of our U.S. trade accounts receivable. This facility allowed us to replace public debt
(approximately $220 million), which had a higher interest rate at Henry Schein Animal Health (formerly Butler
Schein Animal Health) (“HSAH”) during February 2013 and provided funding for working capital and general
corporate purposes. The financing was structured as an asset-backed securitization program with pricing
committed for up to three years. On April 17, 2015, we extended the expiration date of this facility agreement to
April 15, 2018. The borrowings outstanding under this securitization facility were $90.0 million and
$150.0 million as of December 26, 2015 and December 27, 2014, respectively. At December 26, 2015, the interest
rate on borrowings under this facility was based on the asset-backed commercial paper rate of 40 basis points plus
75 basis points, for a combined rate of 1.15%. At December 27, 2014, the interest rate on borrowings under this
facility was based on the asset-backed commercial paper rate of 20 basis points plus 75 basis points, for a combined
rate of 0.95%.
81
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 5 – Debt – (Continued)
We are required to pay a commitment fee of 30 basis points on the daily balance of the unused portion of the
facility if our usage is greater than or equal to 50% of the facility limit or a commitment fee of 35 basis points on
the daily balance of the unused portion of the facility if our usage is less than 50% of the facility limit.
Borrowings under this facility are presented as a component of Long-term debt within our consolidated balance
sheet.
Henry Schein Animal Health
During February 2013, we repaid the then outstanding debt related to the HSAH transaction using our existing
Credit Agreement. As part of this transaction, we recorded a one-time interest expense charge of $6.2 million
related to the accelerated amortization of deferred financing costs.
Long-term debt
Long-term debt consisted of the following:
December 26, December 27,
2015
2014
Private placement facilities ............................................................................................... $
U.S. trade accounts receivable securitization ....................................................................
Notes payable to banks at a weighted-average interest rate of 8.83% ...............................
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2018 at interest rates ranging
from 2.17% to 5.07% ...............................................................................................
Capital lease obligations (see Note 17) .............................................................................
Total ..................................................................................................................................
Less current maturities ......................................................................................................
350,000 $
90,000
5
350,000
150,000
30
38,215
2,863
481,083
(17,331)
41,259
7,302
548,591
(5,815)
542,776
Total long-term debt ................................................................................................. $
463,752 $
As of December 26, 2015, the aggregate amounts of long-term debt, including capital lease obligations,
maturing in each of the next five years and thereafter are as follows:
2016 ...........................................................................$
2017 ...........................................................................
2018 ...........................................................................
2019 ...........................................................................
2020 ...........................................................................
Thereafter ..................................................................
Total ..................................................................$
17,331
14,126
120,861
7,336
107,143
214,286
481,083
82
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. Accounting Standards Codification (“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 26, 2015, December 27, 2014 and December 28, 2013 are presented in the
following table:
December 26, December 27, December 28,
2014
2015
2013
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 loss attributable to
redeemable noncontrolling interests .........................................................
Change in fair value of redeemable securities ..............................................
Balance, end of period ................................................................................... $
564,527 $
497,539 $
435,175
(82,563)
(105,383)
(9,028)
18,936
43,588
(32,706)
120,220
38,741
(23,346)
(4,790)
35,202
542,194 $
(4,080)
40,836
564,527 $
11,542
39,430
(19,965)
(654)
41,039
497,539
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.
83
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 gain (loss), unrealized gain (loss) on foreign
currency hedging activities, unrealized investment gain (loss) and pension adjustment gain (loss).
The following table summarizes our Accumulated other comprehensive income, net of applicable taxes as of:
December 26, December 27, December 28,
2014
2013
2015
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment .................................................. $
(10,373) $
(5,583) $
(1,503)
Attributable to noncontrolling interests:
Foreign currency translation adjustment .................................................. $
(76) $
(36) $
-
Attributable to Henry Schein, Inc.:
Foreign currency translation gain (loss) ....................................................... $
Unrealized gain (loss) from foreign currency hedging activities ..................
Unrealized investment loss ...........................................................................
Pension adjustment loss ................................................................................
Accumulated other comprehensive income (loss) .................................... $
(200,499) $
939
(2)
(20,377)
(219,939) $
(71,294) $
(1,055)
(136)
(22,647)
(95,132) $
82,288
1,282
(515)
(15,206)
67,849
Total Accumulated other comprehensive income (loss) ................................... $
(230,388) $
(100,751) $
66,346
The following table summarizes the components of comprehensive income, net of applicable taxes as follows:
December 26, December 27, December 28,
2014
2015
2013
Net income .................................................................................................... $
523,427 $
505,436 $
471,462
Foreign currency translation gain (loss) ........................................................
Tax effect ......................................................................................................
(134,035)
-
(157,698)
-
Foreign currency translation gain (loss) ........................................................
(134,035)
(157,698)
Unrealized gain (loss) from foreign currency hedging activities ..................
Tax effect ......................................................................................................
Unrealized gain (loss) from foreign currency hedging activities ..................
Unrealized investment gain (loss) .................................................................
Tax effect ......................................................................................................
Unrealized investment gain (loss) .................................................................
2,147
(153)
1,994
134
-
134
(2,492)
155
(2,337)
629
(250)
379
Pension adjustment gain (loss) ......................................................................
Tax effect ......................................................................................................
Pension adjustment gain (loss) ......................................................................
3,278
(1,008)
2,270
(10,222)
2,781
(7,441)
9,474
-
9,474
69
26
95
(166)
66
(100)
6,207
(1,336)
4,871
Comprehensive income ................................................................................. $
393,790 $
338,339 $
485,802
84
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 7 – Comprehensive Income – (Continued)
During the years ended December 26, 2015, December 27, 2014 and December 28, 2013, we recognized, as a
component of our comprehensive income, a foreign currency translation gain (loss) of $(134.0) million, $(157.7)
million and $9.5 million, respectively, due to changes in foreign exchange rates from the beginning of the period to
the end of the period. Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the
value of foreign currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive
income. The foreign currency translation gain (loss) during the years ended December 26, 2015 and December 27,
2014 was impacted by changes in foreign currency exchange rates as follows:
Currency
Foreign Currency
Translation
Gain (Loss)
for the
Year Ended
December 26,
2015
FX Rate in USD
December 26, December 27,
2015
2014
Euro .................................................................................................. $
Australian Dollar ..............................................................................
British Pound ....................................................................................
Canadian Dollar ...............................................................................
Brazilian Real ...................................................................................
Polish Zloty ......................................................................................
Swiss Franc ......................................................................................
All other currencies ..........................................................................
Total ............................................................................................ $
(76,754)
(19,864)
(15,404)
(10,071)
(5,942)
(3,281)
928
(3,647)
(134,035)
1.10
0.73
1.49
0.72
0.25
0.26
1.01
1.22
0.81
1.56
0.86
0.37
0.28
1.01
Currency
Foreign Currency
Translation
Loss
for the
Year Ended
December 27,
2014
FX Rate in USD
December 27, December 28,
2014
2013
Euro .................................................................................................. $
Australian Dollar ..............................................................................
British Pound ....................................................................................
Canadian Dollar ...............................................................................
Polish Zloty ......................................................................................
Swiss Franc ......................................................................................
All other currencies ..........................................................................
Total ............................................................................................ $
(93,882)
(15,710)
(19,150)
(6,891)
(7,135)
(7,154)
(7,776)
(157,698)
1.22
0.81
1.56
0.86
0.28
1.01
1.38
0.89
1.65
0.94
0.33
1.12
The foreign currency gain during the year ended December 28, 2013 was not significantly impacted by changes
in any particular foreign currency.
85
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 7 – Comprehensive Income – (Continued)
The following table summarizes our total comprehensive income, net of applicable taxes as follows:
December 26, December 27, December 28,
2014
2013
2015
Comprehensive income attributable to
Henry Schein, Inc. ............................................................................... $
Comprehensive income attributable to
noncontrolling interests .......................................................................
Comprehensive income attributable to
Redeemable noncontrolling interests ...................................................
Comprehensive income ............................................................................ $
354,251 $
303,096 $
446,548
741
582
478
38,798
393,790 $
34,661
338,339 $
38,776
485,802
Note 8 – Fair Value Measurements
ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”) provides a framework for
measuring fair value in generally accepted accounting principles.
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 fair values of our financial instruments and the methodologies that we used
to measure their fair values.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable;
however, we believe the carrying amounts are a reasonable estimate of fair value.
Debt
The fair value of our debt (including bank credit lines) as of December 26, 2015 and December 27, 2014 was
estimated at $809.7 million and $731.5 million, respectively. Factors that we considered when estimating the fair
value of our debt include market conditions, prepayment and make-whole provisions, liquidity levels in the private
placement market, variability in pricing from multiple lenders and term of debt.
86
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 8 – Fair Value Measurements – (Continued)
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 foreign currency exchange
rates. Our derivative instruments primarily include 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 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.
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. The primary factor
affecting the future value of redeemable noncontrolling interests is expected earnings and, if such earnings are not
achieved, the value of the redeemable noncontrolling interests might be impacted. 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 do 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 26, 2015 and
December 27, 2014:
Assets:
Derivative contracts ................................................... $
Total assets ............................................................ $
Liabilities:
Derivative contracts ................................................... $
Total liabilities ....................................................... $
Redeemable noncontrolling interests ............................... $
Assets:
Derivative contracts ................................................... $
Total assets ............................................................ $
Liabilities:
Derivative contracts ................................................... $
Total liabilities ....................................................... $
Redeemable noncontrolling interests ............................... $
Level 1
December 26, 2015
Level 2
Level 3
Total
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
4,289 $
4,289 $
2,477 $
2,477 $
- $
- $
- $
- $
4,289
4,289
2,477
2,477
- $
542,194 $
542,194
December 27, 2014
Level 2
Level 3
Total
2,472 $
2,472 $
1,307 $
1,307 $
- $
- $
- $
- $
2,472
2,472
1,307
1,307
- $
564,527 $
564,527
Level 1
87
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions and Divestiture
Acquisitions
The operating results of all acquisitions are reflected in our financial statements from their respective
acquisition dates.
On March 31, 2015, we completed the acquisition of scil animal care company GmbH (“scil”), a specialty
distributor of animal health laboratory and imaging diagnostic products and services to veterinarians primarily in
North America and Europe. scil had annual sales in 2014 of approximately $83 million. As a result of this
acquisition, we recorded $3.5 million of initial goodwill.
On July 10, 2015, we announced that, during the second quarter ended June 27, 2015, we made a 50% non-
consolidating ownership investment in Maravet S.A. (“Maravet”), an animal health distributor
in Romania. Maravet is a privately held company with annual sales of approximately $23 million.
On September 1, 2015, we announced the completion of the acquisition of an 85% interest in Jorgen Kruuse
A/S (“KRUUSE”), a leading distributor of veterinary supplies in Denmark, Norway and Sweden. KRUUSE had
sales in 2014 of approximately $90 million. As a result of this acquisition, we recorded $20.7 million of initial
goodwill.
On November 30, 2015, we completed the acquisition of Dental Trey (S.R.L.) (“Dental Trey”), a leading
distributor of dental consumable merchandise and equipment in Italy. Dental Trey had sales for the 12 months
ended June 30, 2015 of approximately $49 million. As a result of this acquisition, we recorded $8.5 million of
initial goodwill.
On February 5, 2016, we announced that we have entered into an agreement to acquire a majority ownership
interest in Dental Cremer S.A., a distributor of dental supplies and equipment in Brazil. Headquartered in
Blumenau, Brazil, Dental Cremer, which is the dental distribution business of Cremer S.A., had 2015 sales of
approximately $70 million.
We completed certain other acquisitions during the year ended December 26, 2015, which were immaterial to
our financial statements individually and in the aggregate and resulted in the recording of approximately $27.1
million of initial goodwill through preliminary purchase price allocations. Total acquisition transaction costs
incurred in the year ended December 26, 2015 were immaterial to our financial results.
On December 30, 2013, we completed the acquisition of approximately 60% of the equity interest in
BioHorizons, Inc., a U.S.-based manufacturer of advanced dental implants with annual revenues of approximately
$115 million. Prior to completion of the acquisition, we funded BioHorizons, Inc. $145 million, which was
recorded as a long-term loan included in Investments and Other within our consolidated balance sheet at December
28, 2013. This long-term loan was subsequently recorded as an intercompany loan upon completion of the
acquisition and has been eliminated from our consolidated balance sheet as of December 27, 2014. As a result of
this acquisition, we recorded $143.7 million of initial goodwill.
On February 3, 2014, we completed the acquisition of 100% ownership of five businesses in three European
countries from Arseus NV. The businesses combine for annual sales of approximately $97 million and include a
dental practice management software company in France and distributors of dental products in France, the
Netherlands and Belgium. As a result of this acquisition, we recorded $21.4 million of initial goodwill.
On April 2, 2014, we completed our previously announced acquisition of an 80% ownership position in
Medivet S.A., a privately held distributor of animal health products and services in Poland. Medivet has annual
sales of approximately $80 million. As a result of this acquisition, we recorded $18.7 million of initial goodwill.
88
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 9 – Business Acquisitions and Divestiture – (Continued)
On June 30, 2014, we completed our previously announced acquisition by our U.S. Animal Health business,
Butler Animal Health Supply LLC, together with our wholly-owned subsidiary, W.A. Butler Company, of a 60%
ownership position in SmartPak Equine, LLC (“SmartPak”), a privately held provider of equine supplements and
horse supplies in the United States. SmartPak had sales of approximately $105 million in 2013. As a result of this
acquisition, we recorded $59.7 million of initial goodwill.
On November 20, 2014, we entered into a long-term strategic agreement with Cardinal Health, Inc. Under the
terms of the agreement, the physician office-focused commercial organization of Cardinal Health’s Medical
segment was acquired and has been consolidated into the commercial organization of our medical group. The
physician office sales team and physician office distribution business of Cardinal Health’s medical segment, with
annual sales of more than $230 million, will be integrated into our medical group. Additionally, we have
committed to purchase Cardinal Health™ Brand products and utilize Cardinal Health as a primary source for
various medical products. There was no goodwill recorded on this transaction.
We completed certain other acquisitions during the year ended December 27, 2014, which were immaterial to
our financial statements individually and in the aggregate and resulted in the recording of approximately $16.4
million of initial goodwill through preliminary purchase price allocations.
We completed certain acquisitions during the year ended December 28, 2013, which were immaterial to our
financial statements individually and in the aggregate and resulted in the recording of approximately $14.7 million
of initial goodwill through preliminary purchase price allocations.
Divestiture of an Equity Affiliate
On July 10, 2013, we divested our investment in a dental wholesale distributor in the Middle East that had
primarily served as an importer that distributed products largely to other distributors. The divestiture resulted in a
one-time loss, which is recorded in a separate line item, “Loss on sale of equity investment” within our
consolidated statements of income and within the cash flows from operating activities section of our consolidated
statements of cash flows, of $12.5 million, or $0.14 per diluted share, in the third quarter of 2013. Pursuant to the
terms of this divestiture, we made cash payments, which are recorded in a separate line item, “Payments related to
sale of equity investment”, within the cash flows from investing activities section of our consolidated statements of
cash flows, to this distributor in the aggregate amount of $13.4 million, which it was required to use to
reduce its debt, pay certain trade payables and provide working capital. The investment in this distributor had been
fully impaired as of the end of 2012. There was no tax benefit related to the loss on this divestiture.
Note 10 – Plans of Restructuring
On November 6, 2014, we announced a corporate initiative to rationalize our operations and provide expense
efficiencies, which was expected to be completed by the end of fiscal 2015. This initiative is expected to include
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. We have
subsequently determined that the restructuring activities under this initiative will not be completed until the first
half of fiscal 2016.
The total costs associated with the actions to complete this restructuring are expected to be in the range of $41
million to $47 million pre-tax, of which $34.9 million pre-tax were recorded during the year ended December 26,
2015. These ongoing actions will allow us to execute on our plan to reduce our cost structure to fund new
initiatives to drive future growth under our 2015 – 2017 strategic planning cycle.
On February 5, 2016, we estimated that the total remaining restructuring costs we expect to incur in connection
with the restructuring activity to be $6 million to $12 million, consisting of $5 million to $10 million in employee
severance pay and benefits and $1 million to $2 million in facility costs, representing primarily lease termination
and other facility closure related costs.
89
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 10 – Plans of Restructuring – (Continued)
The costs associated with this restructuring are included in a separate line item, “Restructuring costs” within
our consolidated statements of income.
The following table shows the amounts expensed and paid for restructuring costs that were incurred during our
2015, 2014 and 2013 fiscal years and the remaining accrued balance of restructuring costs as of December 26,
2015, which is included in Accrued expenses: Other and Other liabilities within our consolidated balance sheet:
Severance
Costs
Facility
Closing
Costs
Balance, December 29, 2012 ............................... $
Provision .............................................................
Payments and other adjustments .........................
Balance, December 28, 2013 ............................... $
Provision .............................................................
Payments and other adjustments .........................
Balance, December 27, 2014 ............................... $
Provision .............................................................
Payments and other adjustments .........................
Balance, December 26, 2015 ............................... $
1,826 $
-
(1,599)
227 $
-
(107)
120 $
26,742
(17,759)
9,103 $
1,231 $
-
(747)
484 $
-
(183)
301 $
5,706
(3,856)
2,151 $
Other
Total
- $
-
-
- $
-
-
- $
2,483
(1,672)
811 $
3,057
-
(2,346)
711
-
(290)
421
34,931
(23,287)
12,065
The following table shows, by reportable segment, the amounts expensed and paid for restructuring costs that
were incurred during our 2015, 2014 and 2013 fiscal years and the remaining accrued balance of restructuring costs
as of December 26, 2015:
Health Care
Distribution
Technology and
Value-Added
Services
Total
Balance, December 29, 2012 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 28, 2013 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 27, 2014 .......................................................... $
Provision ........................................................................................
Payments and other adjustments ....................................................
Balance, December 26, 2015 .......................................................... $
3,043 $
-
(2,332)
711 $
-
(290)
421 $
33,889
(22,248)
12,062 $
14 $
-
(14)
- $
-
-
- $
1,042
(1,039)
3 $
3,057
-
(2,346)
711
-
(290)
421
34,931
(23,287)
12,065
90
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 for
presently unvested restricted stock and restricted stock units and upon exercise of stock options, using the treasury
stock method in periods in which they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and diluted share follows:
Basic ..............................................................................................................
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units ..........................
Diluted ......................................................................................................
82,844
1,281
84,125
84,265
1,475
85,740
85,926
1,696
87,622
Years Ended
December 26,
2015
December 27, December 28,
2014
2013
Note 12 – Income Taxes
Income before taxes and equity in earnings of affiliates was as follows:
Years ended
December 26,
2015
December 27,
December 28,
2014
2013
Domestic .................................................................................................$
Foreign ....................................................................................................
Total ..................................................................................................$
591,320 $
129,438
720,758 $
543,433 $
165,879
709,312 $
517,950
146,744
664,694
The provisions for income taxes were as follows:
Years ended
December 26,
December 27,
December 28,
2015
2014
2013
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 ................................................................ $
91
162,948 $
29,580
25,104
217,632
156,956 $
28,708
31,038
216,702
(3,381)
992
(3,852)
(6,241)
(2,389)
(2,682)
3,979
(1,092)
211,391 $
215,610 $
149,336
28,712
35,880
213,928
242
(5,971)
(17,308)
(23,037)
190,891
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 26,
December 27,
2015
2014
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) ....................................................................
25,403 $
10,719
15,645
51,767
Non-current deferred income tax asset (liability):
Property and equipment .........................................................................................
Stock-based compensation .....................................................................................
Intangibles amortization .........................................................................................
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) ...............................................................
(10,035)
35,942
(218,097)
(19,377)
-
37,455
(174,112)
(20,501)
(194,613)
Net deferred income tax liability .................................................................................... $
(142,846) $
31,429
10,061
10,025
51,515
(8,121)
30,837
(234,987)
(5,853)
12,763
37,133
(168,228)
(27,636)
(195,864)
(144,349)
(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 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.”
The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules
is judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood
that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent
operations. Since this evaluation requires consideration of events that may occur some years into the future, there
is an element of judgment involved. Realization of our deferred tax assets is dependent on generating sufficient
taxable income in future periods. We believe that it is more likely than not that future taxable income will be
sufficient to allow us to recover substantially all of the value assigned to our deferred tax assets. However, if future
events cause us to conclude that it is not more likely than not that we will be able to recover all of the value
assigned to our deferred tax assets, we will be required to adjust our valuation allowance accordingly.
92
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes – (Continued)
As of December 26, 2015, we had utilized federal and state net operating loss carryforwards upon filing the
2014 federal and state tax returns. We expect to utilize the remaining federal and state net operating loss
carryforwards upon filing the 2015 federal and state tax returns. As of December 26, 2015, we had foreign net
operating loss carryforwards of $7.4 million, which can be utilized against future foreign income through December
31, 2024. Additionally, as of December 26, 2015, there were foreign net operating loss carryforwards of $127.0
million that have an indefinite life.
The tax provisions differ from the amount computed using the federal statutory income tax rate as follows:
Years ended
December 26,
December 27,
December 28,
2015
2014
2013
Income tax provision at federal statutory rate ................................ $
State income tax provision, net of federal income tax effect .........
Foreign income tax provision .........................................................
Pass through noncontrolling interest ..............................................
Valuation allowance .......................................................................
Unrecognized tax benefits ..............................................................
Interest expense related to loans .....................................................
Other ..............................................................................................
Total income tax provision .................................................... $
252,265 $
14,627
(25,942)
(12,463)
(5,006)
13,867
(22,415)
(3,542)
211,391 $
248,260 $
11,381
(22,960)
(11,431)
(770)
11,501
(24,043)
3,672
215,610 $
232,644
15,003
(21,872)
(10,930)
(14,026)
7,361
(23,723)
6,434
190,891
For the year ended December 26, 2015, our effective tax rate was 29.3% compared to 30.4% for the prior year
period. During the third quarter of 2015, we received a favorable response to a tax petition, which has allowed us
to conclude that it is more likely than not that certain unrecognized tax benefits, which had been previously
reserved, will be realized. As a result, our provision for income taxes includes a $6.3 million income tax benefit,
which is included in the unrecognized tax benefits amount above.
Absent the effects of this income tax benefit in the third quarter of 2015, our effective tax rate for the year
ended December 26, 2015 would have been 30.2% as compared to our actual effective tax rate of 29.3%. The
remaining difference between our effective tax rate and the federal statutory tax rate for both periods primarily
relates to state and foreign income taxes and interest expense.
During the third quarter of 2013, we concluded that it was more likely than not that certain deferred tax assets
related to tax loss carryforwards originating outside the United States, which had been previously reserved, would
be realized. As a result, our provision for income taxes included a $13.4 million reduction of the valuation
allowance which was based on an estimate of future taxable income available to be offset by the tax loss
carryforwards.
Absent the effects of the reduction of this valuation allowance in the third quarter of 2013, our effective tax rate
for the year ended December 28, 2013 would have been 30.7% as compared to our actual effective tax rate of
28.7%. The remaining difference between our effective tax rates and the federal statutory tax rates for both periods
primarily relates to state and foreign income taxes and interest expense.
93
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 12 – Income Taxes – (Continued)
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, transfer or dispose of 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 because if we were to repatriate these
earnings, we believe there would be various methods available to us, each with different U.S. tax consequences. As
of December 26, 2015, the cumulative amount of reinvested earnings was approximately $945.0 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. In the normal
course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may
result in future tax and interest assessments by these taxing authorities for uncertain tax positions taken in respect to
certain tax matters.
The total amount of unrecognized tax benefits as of December 26, 2015 was approximately $93.1 million, of
which $72.8 million 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 $15.5 million and $0, respectively, as of December 26, 2015.
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 2009 and forward for certain states and the years 2008 and forward for certain
foreign jurisdictions. In December 2014, the IRS issued a Statutory Notice of Deficiency for 2009, 2010 and
2011. We do not expect this to have a significant effect on our consolidated financial position, liquidity or the
results of operations. During the quarter ended March 28, 2015, we filed our petition to the U.S. Tax Court
disputing the adjustments proposed by the IRS. During the quarter ended June 27, 2015, we were notified by the
IRS that our protest was transferred to the Appellate Divisions (Appeals Section) of the IRS. Based on discussions
with the IRS, it was agreed that our protest with the Appellate Division will be filed in the quarter ending March 26,
2016. It is also anticipated we will have our opening Appeals conference in the quarter ending March 26, 2016.
The following table provides a reconciliation of unrecognized tax benefits excluding the effects of deferred
taxes, interest and penalties:
December 26,
December 27,
2015
2014
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 .................................................................................................... $
65,800 $
10,400
19,600
(10,500)
(7,600)
(100)
77,600 $
43,200
13,500
13,400
(900)
(1,700)
(1,700)
65,800
94
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, 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, 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 health care professionals and geographic areas. No single customer
accounted for more than 0.8% of our net sales in 2015 or 2014. With respect to our sources of supply, our top 10
health care distribution suppliers and our single largest supplier accounted for approximately 34% and 7%,
respectively, of our aggregate purchases in 2015 and approximately 36% and 7%, respectively, of our aggregate
purchases in 2014.
Our long-term notes receivable primarily 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 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 foreign currency forward contracts and by maintaining counter-party credit limits. These hedging activities
provide only limited protection against currency exchange and credit risks. Factors that could influence the
effectiveness of our hedging programs include currency markets and availability of hedging instruments and
liquidity of the credit markets. All foreign currency forward contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. We do
not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our
investments, maintaining a strong balance sheet and having multiple sources of capital.
Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar may positively or
negatively affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed
in U.S. dollars. Where we deem it prudent, we engage in hedging programs using primarily foreign currency
forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We
purchase short-term (i.e., 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 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. Our hedging activities have
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.
95
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 15 – Segment and Geographic Data
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services. These segments offer different products and services to the same customer base.
The health care distribution reportable segment aggregates our global dental, animal health and medical
operating segments. This segment distributes consumable products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products and vitamins. Our global dental group serves office-based dental practitioners,
dental laboratories, schools and other institutions. Our global animal health group serves animal health practices
and clinics. Our global medical group serves office-based medical practitioners, ambulatory surgery centers, other
alternate-care settings and other institutions. Our global dental, animal health and medical groups serve
practitioners in 33 countries worldwide.
Our technology and value-added services group provides software, technology and other value-added services
to health care practitioners. Our technology group offerings include practice management software systems for
dental and medical practitioners and animal health clinics. Our value-added practice solutions include financial
services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.
The following tables present information about our reportable and operating segments:
Years Ended
December 26,
2015
December 27, December 28,
2014
2013
Net Sales:
Health care distribution (1):
Dental ...................................................................................... $
Animal health ..........................................................................
Medical ....................................................................................
Total health care distribution ..............................................
Technology and value-added services (2) ......................................
Total ........................................................................................ $
5,276,407 $
2,921,624
2,072,915
10,270,946
358,773
10,629,719 $
5,381,215 $
2,898,612
1,742,685
10,022,512
348,878
10,371,390 $
4,997,972
2,599,461
1,643,167
9,240,600
320,047
9,560,647
(1)
(2)
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 practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and
other services.
96
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 26,
December 27,
December 28,
2015
2014
2013
Operating Income:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Income before taxes and equity in earnings of affiliates:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Depreciation and Amortization:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Income Tax Expense:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Interest Income:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Interest Expense:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
Purchases of Fixed Assets:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
626,574 $
107,398
733,972 $
617,582 $
103,176
720,758 $
141,184 $
17,943
159,127 $
180,133 $
31,258
211,391 $
12,833 $
102
12,935 $
25,926 $
82
26,008 $
68,235 $
3,449
71,684 $
611,771 $
103,371
715,142 $
609,619 $
99,693
709,312 $
136,126 $
16,112
152,238 $
185,649 $
29,961
215,610 $
13,585 $
70
13,655 $
23,916 $
141
24,057 $
74,955 $
7,161
82,116 $
590,664
86,390
677,054
581,759
82,935
664,694
113,670
14,365
128,035
165,869
25,022
190,891
12,816
37
12,853
27,375
163
27,538
57,364
2,851
60,215
As of
December 26,
December 27,
December 28,
2015
2014
2013
Total Assets:
Health care distribution ............................................................ $
Technology and value-added services ......................................
Total ................................................................................... $
6,129,285 $
375,455
6,504,740 $
5,756,993 $
381,814
6,138,807 $
5,294,567
330,069
5,624,636
97
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 presents information about our operations by geographic area as of and for the three years
ended December 26, 2015. Net sales by geographic area are based on the respective locations of our subsidiaries.
No country, except for the United States, generated net sales greater than 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.
2015
2014
2013
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
Net Sales
Long-Lived
Assets
United States ............................ $ 6,798,847 $
Other ........................................
3,830,872
Consolidated total ............... $ 10,629,719 $
1,739,546 $
1,079,494
6,247,056 $
4,124,334
1,771,719 $ 5,813,512 $
3,747,135
1,067,636
1,272,683
1,055,343
2,819,040 $ 10,371,390 $
2,839,355 $ 9,560,647 $
2,328,026
Note 16 – Employee Benefit Plans
Stock-based Compensation
Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of
$44.6 million ($31.5 million after-tax), $45.9 million ($31.9 million after-tax) and $35.5 million ($24.6 million
after-tax) for the years ended December 26, 2015, December 27, 2014 and December 28, 2013.
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 $2.2 million, $5.9 million and $8.1 million of
benefits associated with tax deductions in excess of recognized compensation as a cash inflow from financing
activities for the years ended December 26, 2015, December 27, 2014 and December 28, 2013.
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 2013
Stock Incentive Plan, as amended, and our 2015 Non-Employee Director Stock Incentive Plan (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/units. Since March 2009, equity-based awards have been granted solely in the form of restricted stock/units,
with the exception of providing stock options to employees pursuant to certain pre-existing contractual obligations.
As of December 26, 2015, there were 31,229 shares authorized and 5,200 shares available to be granted under the
2013 Stock Incentive Plan and 900 shares authorized and 175 shares available to be granted under the 2015 Non-
Employee Director Stock Incentive Plan.
98
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
Grants of restricted stock/units are stock-based awards granted to recipients with specified vesting
provisions. In the case of restricted stock, common stock is delivered on the date of grant, subject to vesting
conditions. In the case of restricted stock units, common stock is generally delivered on or following satisfaction of
vesting conditions. We issue restricted stock/units that vest solely based on the recipient’s continued service over
time (primarily four-year cliff vesting, except for grants made under the 2015 Non-Employee Director Stock
Incentive Plan, which are primarily 12-month cliff vesting) and restricted stock/units that vest based on our
achieving specified performance measurements and the recipient’s continued service over time (primarily three-
year cliff vesting).
With respect to time-based restricted stock/units, we estimate the fair value on the date of grant based on our
closing stock price. With respect to performance-based restricted stock/units, 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/units based on our closing stock price at time of grant.
The Plans provide for adjustments to the performance-based restricted stock/units targets for significant events
such as acquisitions, divestitures, new business ventures, share repurchases and certain foreign exchange
fluctuations. 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.
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 26, 2015 primarily consisted of 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 26, 2015, we recorded a liability of $0.7 million relating to the grant date fair
value of stock-based compensation to be settled in cash, as well as an expense of $0.8 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 $140.80, $119.45 and $89.97 per share during the years ended December 26, 2015, December 27,
2014 and December 28, 2013.
Total unrecognized compensation cost related to non-vested awards as of December 26, 2015 was $82.1
million, which is expected to be recognized over a weighted-average period of approximately 2.0 years.
99
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 16 – Employee Benefit Plans – (Continued)
A summary of the stock option activity under the Plans is presented below:
December 26,
2015
Weighted
Average
Exercise
Price
Shares
Outstanding at beginning of year ...........
Granted ...................................................
Exercised ................................................
Forfeited .................................................
Outstanding at end of year .....................
684 $
-
(299)
-
385 $
53.41
-
50.09
-
56.00
Years Ended
December 27,
2014
December 28,
2013
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
1,323 $
-
(639)
-
684 $
51.53
-
49.51
-
53.41
2,138 $
-
(815)
-
1,323 $
48.61
-
43.86
-
51.53
Options exercisable at end of year .........
385 $
56.00
684 $
53.41
1,323 $
51.53
During the years ended December 26, 2015, December 27, 2014 and December 28, 2013, we did not grant any
stock options.
The following table represents the intrinsic values of:
As of
December 26,
December 27,
2015
2014
December 28,
2013
Stock options outstanding ................................................................ $
Stock options exercisable .................................................................
38,882 $
38,882
57,421 $
57,421
83,252
83,252
The total cash received as a result of stock option exercises for the years ended December 26, 2015, December
27, 2014 and December 28, 2013 was approximately $14.9 million, $31.5 million and $35.6 million. In connection
with these exercises, the tax benefits that we realized for the years ended December 26, 2015, December 27, 2014
and December 28, 2013 were $20.8 million, $11.2 million and $18.4 million. The increase in the tax benefit
amount for the year ended December 26, 2015 as compared to the comparable prior year period was primarily due
to the significant increase in the price of our common stock at the time of vesting/exercise during 2015 as compared
to the stock price at the time of grant. We settle employee stock option exercises with newly issued common
shares.
100
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 per share of restricted stock/units that vested was $143.20, $119.36 and $98.99 during
the years ended December 26, 2015, December 27, 2014 and December 28, 2013. The following table summarizes
the status of our non-vested restricted stock/units for the year ended December 26, 2015:
Time-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Value Per Share
Shares/Units
Intrinsic Value
Per Share
Outstanding at beginning of period ...........................................
Granted ......................................................................................
Vested ........................................................................................
Forfeited ....................................................................................
Outstanding at end of period .....................................................
836 $
175
(211)
(25)
775 $
83.86
140.73
71.95
104.71
99.29 $
157.09
Performance-Based Restricted Stock/Units
Weighted Average
Grant Date Fair
Value Per Share
Shares/Units
Intrinsic Value
Per Share
Outstanding at beginning of period ...........................................
Granted ......................................................................................
Vested ........................................................................................
Forfeited ....................................................................................
Outstanding at end of period .....................................................
1,127 $
130
(307)
(20)
930 $
77.19
126.42
73.70
113.46
91.33 $
157.09
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
consist of cash and were allocated entirely to the participants’ investment elections on file, subject to a 20%
allocation limit to the Henry Schein Stock Fund. Forfeitures attributable to participants whose employment
terminates prior to becoming fully vested are used to reduce our matching contributions and offset administrative
expenses of the 401(k) plans.
Assets of the 401(k) and other defined contribution plans are held in self-directed accounts enabling
participants to choose from various investment fund options. Matching contributions and administrative expenses
related to these plans charged to operations during the years ended December 26, 2015, December 27, 2014 and
December 28, 2013 amounted to $31.5 million, $28.6 million and $25.3 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 26, 2015, December 27, 2014 and December 28, 2013 amounted to $1.5 million, $1.9 million and
$4.1 million.
101
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. The amounts charged to
operations during the years ended December 26, 2015, December 27, 2014 and December 28, 2013 were
approximately $0.1 million, $0.7 million and $1.1 million, respectively.
Note 17 – Commitments and Contingencies
Operating Leases
We lease facilities and equipment under non-cancelable operating leases expiring through 2033. We expect
that in the normal course of business, leases will be renewed or replaced by other leases.
Future minimum annual rental payments under our non-cancelable operating leases as of December 26, 2015
were:
2016 ...............................................................................$
2017 ...............................................................................
2018 ...............................................................................
2019 ...............................................................................
2020 ...............................................................................
Thereafter ......................................................................
Total minimum operating lease payments ...............$
78,716
62,806
49,800
39,587
30,960
77,574
339,443
Total rental expense for the years ended December 26, 2015, December 27, 2014 and December 28, 2013 was
$76.0 million, $76.1 million and $70.8 million.
Capital Leases
We lease certain equipment under capital leases. Future minimum annual lease payments under our capital
leases together with the present value of the minimum capital lease payments as of December 26, 2015 were:
2016 ..................................................................................................$
2017 ..................................................................................................
2018 ..................................................................................................
2019 ..................................................................................................
2020 ..................................................................................................
Thereafter ..........................................................................................
Total minimum capital lease payments .............................................
Less: Amount representing interest at 0.95% to 10.68%
Total present value of minimum capital lease payments ..............$
1,317
907
587
197
-
-
3,008
(145)
2,863
102
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 health care 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 26, 2015 were:
2016 .................................................................................................$
2017 .................................................................................................
2018 .................................................................................................
2019 .................................................................................................
2020 .................................................................................................
Thereafter ........................................................................................
Total minimum inventory purchase commitment payments .......$
296,463
300,579
305,670
284,800
209,600
680,000
2,077,112
Litigation
In September 2015, Henry Schein, Inc. was served with a summons and complaint in an action commenced in
the United States District Court for the Eastern District of New York, entitled SourceOne Dental, Inc. v. Patterson
Companies, Inc., Henry Schein, Inc. and Benco Dental Supply Company, Civil Action No. 15-cv-05440-JMA-
GRB. Plaintiff alleges that, through its website, it markets and sells dental supplies and equipment to
dentists. Plaintiff alleges, among other things, that defendants conspired to eliminate plaintiff as a viable
competitor and to exclude plaintiff from the market for the marketing, distribution and sale of dental supplies and
equipment in the United States and that defendants unlawfully agreed with one another to boycott dentists,
manufacturers, and state dental associations that deal with, or considered dealing with, plaintiff. Plaintiff asserts
the following claims: (i) unreasonable restraint of trade in violation of state and federal antitrust laws; (ii) tortious
interference with prospective business relations; (iii) civil conspiracy; and (iv) aiding and abetting the other
defendants’ ongoing tortious and anticompetitive conduct. Plaintiff seeks equitable relief, compensatory and treble
damages, jointly and severally, punitive damages, interest, and reasonable costs and expenses, including attorneys’
fees and expert fees. We intend to defend ourselves against the action vigorously.
Beginning in January 2016, class action complaints were filed against Patterson Companies, Inc., Benco Dental
Supply Co. and Henry Schein, Inc. Each of these complaints allege, among other things, that defendants conspired
to foreclose competitors by boycotting manufacturers, state dental associations, and others that deal with
defendants’ competitors. Subject to certain exclusions, these classes seek to represent all persons who purchased
dental supplies or equipment in the United States directly from any of the defendants since January 2012. Each
class action complaint asserts a single count under Section 1 of the Sherman Act, and seeks equitable relief,
compensatory and treble damages, jointly and severally, and reasonable costs and expenses, including attorneys’
fees and expert fees. We intend to defend ourselves vigorously against these actions.
103
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 17 – Commitments and Contingencies – (Continued)
From time to time, we may become a party to other legal proceedings, including, without limitation, product
liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out
of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our
financial condition or results of operations.
As of December 26, 2015, we had accrued our best estimate of potential losses relating to claims that were
probable to result in liability and for which we were able to reasonably estimate a loss. This accrued amount, as
well as related expenses, was not material to our financial position, results of operations or cash flows. Our method
for determining estimated losses considers currently available facts, presently enacted laws and regulations and
other factors, including probable recoveries from third parties.
Employment, Consulting and Non-Compete Agreements
We have definite-lived employment, consulting and non-compete agreements that have varying base aggregate
annual payments for the years 2016 through 2020 and thereafter of approximately $16.3 million, $5.3 million, $1.2
million, $0.7 million, $0.6 million and $1.8 million. We also have lifetime consulting agreements that provide for
current compensation of $0.5 million per year, increasing $25 every fifth year with the next increase in 2017. In
addition, some agreements have provisions for additional incentives and compensation.
104
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 28,
2015 (1)
June 27,
2015 (1)
September 26,
2015 (1) (2)
December 26,
2015 (1)
Net sales ............................................................ $
Gross profit .......................................................
Restructuring costs ............................................
Operating income ..............................................
Net income ........................................................
2,463,646 $
713,395
6,862
161,367
111,580
2,629,320 $
750,678
7,222
183,030
129,608
2,685,835 $
748,908
8,438
188,882
141,396
2,850,918
799,278
12,409
200,693
140,843
Amounts attributable to
Henry Schein, Inc.:
Net income ........................................................
Earnings per share attributable to
Henry Schein, Inc.:
103,447
117,928
127,735
129,948
Basic ............................................................ $
Diluted .........................................................
1.24 $
1.22
1.42 $
1.40
1.54 $
1.52
1.58
1.56
Quarters ended
March 29,
2014
June 28,
2014
September 27,
2014
December 27,
2014
Net sales ............................................................ $
Gross profit .......................................................
Operating income ..............................................
Net income ........................................................
2,430,159 $
696,713
157,268
110,128
2,615,406 $
728,472
180,844
127,117
2,623,729 $
721,666
174,088
124,236
2,702,096
764,464
202,942
143,955
Amounts attributable to
Henry Schein, Inc.:
Net income ........................................................
Earnings per share attributable to
Henry Schein, Inc.:
102,099
116,236
114,776
132,966
Basic ............................................................ $
Diluted .........................................................
1.20 $
1.18
1.37 $
1.35
1.36 $
1.34
1.59
1.56
(1) See Note 10 - "Plans of Restructuring" for details of the restructuring costs incurred during the fiscal year 2015.
(2) See Note 12 - "Incomes Taxes" for details of the income tax benefit from a favorable tax ruling received by a subsidiary,
net of noncontrolling interest, during the third quarter of 2015.
105
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 financial results. 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. Revenues and profitability 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 health care practitioners and year-
end promotions. Revenues and profitability 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 materially adversely affected by a variety of other factors, including:
• timing and amount of sales and marketing expenditures;
• timing of pricing changes offered by our suppliers;
• timing of the introduction of new products and services by our suppliers;
• timing of the release of upgrades and enhancements to our technology-related products and services;
• changes in or availability of supplier contracts or rebate programs;
• supplier rebates based upon attaining certain growth goals;
• changes in the way suppliers introduce or deliver products to market;
• costs of developing new applications and services;
• our ability to correctly identify customer needs and preferences and predict future needs and preferences;
• uncertainties regarding potential significant breaches of data security or disruptions of our information
technology systems;
• unexpected regulatory actions, or government regulation generally;
• exclusivity requirements with certain suppliers may prohibit us from distributing competitive products
manufactured by other suppliers;
• loss of sales representatives;
• costs related to acquisitions and/or integrations of technologies or businesses;
• costs associated with our self-insured medical and dental insurance programs;
• general market and economic conditions, as well as those specific to the health care 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 shipping costs or service issues with our third-party shippers;
106
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)
Note 18 – Quarterly Information (Unaudited) – (Continued)
• fluctuations in the value of foreign currencies;
• restructuring costs;
• the adoption or repeal of legislation; and
• changes in accounting principles.
Any change in one or more of these or other factors could cause our annual or quarterly financial results to
fluctuate. If our financial results do not meet market expectations, our stock price may decline.
Note 19 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
Years ended
December 26,
December 27, December 28,
2015
2014
2013
Interest ............................................................................................. $
Income taxes ...................................................................................
24,033 $
180,897
22,285 $
208,272
19,893
146,593
There was approximately $5.0 million, $3.3 million and $0.1 million of debt assumed as a part of the
acquisitions for the years ended December 26, 2015, December 27, 2014 and December 28, 2013, respectively.
Debt assumed during the year ended December 26, 2015 relates to the acquisitions of scil animal care company
GmbH, Jorgen Kruuse A/S and Dental Trey (S.R.L.). Debt assumed during the year ended December 27, 2014
relates to the acquisitions of BioHorizons, Inc. and Medivet S.A.
For the years ended December 26, 2015, December 27, 2014 and December 28, 2013, we had $2.1 million,
$(2.5) million and $0.1 million of non-cash net unrealized gains (losses) related to foreign currency hedging
activities, respectively.
107
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 26, 2015 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 ended December 26, 2015 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 26, 2015, we completed the acquisition of a dental distributor in Europe
with approximate aggregate annual revenues of $54.0 million. In addition, post-acquisition integration related
activities continued for our European animal health and North American dental businesses acquired during prior
quarters, representing aggregate annual revenues of approximately $168.0 million. These acquisitions, which use
separate information and financial accounting systems, have been included in our consolidated financial statements
since their respective dates of acquisition.
Also, during the quarter ended December 26, 2015 we completed warehouse systems implementation projects
that support our European and Australian dental and animal health businesses which support aggregate annual
revenues of approximately $324.0 million. Finally, systems implementation activities were completed to integrate
a European dental business with approximate aggregate annual revenues of $11.0 million into one of our existing
ERP systems.
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 (2013), updated and reissued by the Committee of Sponsoring Organizations, or the COSO
Framework. Based on our evaluation under the COSO Framework, our management concluded that our internal
control over financial reporting was effective at a reasonable assurance level as of December 26, 2015.
108
The effectiveness of our internal control over financial reporting as of December 26, 2015 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.
109
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Henry Schein, Inc.
Melville, NY
We have audited Henry Schein, Inc.’s internal control over financial reporting as of December 26, 2015, based
on criteria established in Internal Control – Integrated Framework (2013) 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 26, 2015, 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 26, 2015 and December 27,
2014, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity,
and cash flows for each of the three years in the period ended December 26, 2015 and our report dated February 10,
2016 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
New York, NY
February 10, 2016
110
ITEM 9B. Other Information.
Plan of restructuring
On November 6, 2014, we announced a corporate initiative to rationalize our operations and provide expense
efficiencies, which was expected to be completed by the end of fiscal 2015. This initiative is expected to include
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. We have
subsequently determined that the restructuring activities under this initiative will not be completed until the first
half of fiscal 2016.
The total costs associated with the actions to complete this restructuring are expected to be in the range of $41
million to $47 million pre-tax, of which $34.9 million pre-tax were recorded during the year ended December 26,
2015. These ongoing actions will allow us to execute on our plan to reduce our cost structure to fund new
initiatives to drive future growth under our 2015 – 2017 strategic planning cycle.
On February 5, 2016, we estimated that the total remaining restructuring costs we expect to incur in connection
with the restructuring activity to be $6 million to $12 million, consisting of $5 million to $10 million in employee
severance pay and benefits and $1 million to $2 million in facility costs, representing primarily lease termination
and other facility closure related costs.
The costs associated with this restructuring are included in a separate line item, “Restructuring costs” within
our consolidated statements of income.
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 2016 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 2015 Proxy Statement
filed pursuant to Regulation 14A on April 24, 2015.
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 2016 Proxy Statement.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Vice
President of Corporate Finance and Controller. We make available free of charge through our Internet website,
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.
ITEM 11. Executive Compensation
The information required by this item is hereby incorporated by reference to the Sections entitled
“Compensation Discussion and Analysis,” “Compensation Committee Report” (which information shall be deemed
furnished in this Annual Report on Form 10-K), “Executive and Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in our definitive 2016 Proxy Statement to be filed pursuant to
Regulation 14A.
111
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. All
active plans have been approved by our stockholders. Descriptions of these plans appear in the notes to our
consolidated financial statements. The following table summarizes information relating to these plans as of
December 26, 2015:
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
Plan Category
Plans Approved by Stockholders ....................
Plans Not Approved by Stockholders .............
Total ..........................................................
384,616 $
-
384,616 $
56.00
-
56.00
5,375,157
-
5,375,157
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 2016 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 2016 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 2016 Proxy
Statement to be filed pursuant to Regulation 14A.
112
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 63.
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.
113
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 10, 2016
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/ LAWRENCE S. BACOW, PH. D.
Lawrence S. Bacow, Ph. D.
/s/ PAUL BRONS
Paul Brons
/s/ DONALD J. KABAT
Donald J. Kabat
/s/ PHILIP A. LASKAWY
Philip A. Laskawy
/s/ NORMAN S. MATTHEWS
Norman S. Matthews
/s/ CAROL RAPHAEL
Carol Raphael
/s/ E. DIANNE REKOW
E. Dianne Rekow
/s/ BRADLEY T. SHEARES, PH. D.
Bradley T. Sheares, Ph. D.
/s/ LOUIS W. SULLIVAN, MD
Louis W. Sullivan, MD
Capacity
Chairman, Chief Executive Officer
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
Director
Director
114
Date
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
February 10, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Henry Schein, Inc.
Melville, NY
The audits referred to in our report dated February 10, 2016 relating to the consolidated financial statements of
Henry Schein, Inc., which is contained in Item 8 of this Form 10-K also included the audit 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 this financial statement schedule based on
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, NY
February 10, 2016
115
Schedule II
Valuation and Qualifying Accounts
(in thousands)
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 26, 2015:
Allowance for doubtful accounts,
sales returns and other ...................... $
Year ended December 27, 2014:
Allowance for doubtful accounts,
sales returns and other ...................... $
Year ended December 28, 2013:
Allowance for doubtful accounts,
sales returns and other ...................... $
(1) Represents amounts charged to bad debt expense.
80,671 $
3,184 $
1,124 $
(7,971) $
77,008
78,298 $
4,619 $
5,828 $
(8,074) $
80,671
75,240 $
5,189 $
6,195 $
(8,326) $
78,298
(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.
116
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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Henry Schein, Inc.
dated May 15, 2012. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed
on May 16, 2012.)
3.6 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.)
3.7 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.)
3.8 Amendment to the Amended and Restated By-Laws adopted on May 15, 2012. (Incorporated by
reference to Exhibit 3.2 of our Current Report on Form 8-K filed on May 16, 2012.)
4.1 Master Note Facility, dated as of April 27, 2012, by and among us, Metropolitan Life Insurance
Company, Metlife Investment Advisors Company, LLC and each MetLife affiliate which becomes party
thereto. (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on April 30,
2012.)
4.2 Letter Agreement dated as of September 22, 2014 amending the Master Note Purchase Agreement, dated
as of April 27, 2012, by and among us, Metropolitan Life Insurance Company, MetLife Investment
Management, LLC (f/k/a MetLife Investment Advisors Company, LLC) and each MetLife affiliate which
becomes party thereto. (Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed
on September 26, 2014.)
4.3 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.)*
4.4 First Amendment 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.
(Incorporated by reference to Exhibit 4.2 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 filed on February 15, 2012.)
117
Exhibits
4.5 Second Amendment to Master Note Facility, dated as of April 27, 2012, by and among us, New York
Life Investment Management LLC and each NY Life affiliate which becomes party thereto, as amended.
(Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on April 30, 2012.)
4.6 Letter Agreement dated as of September 22, 2014 amending the Master Note Facility, dated as of August
9, 2010, by and among us, NYL Investors LLC (as successor in interest to New York Life Investment
Management LLC) and each NY Life affiliate which becomes party thereto, as amended. (Incorporated
by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on September 26, 2014.)
4.7 Private Shelf Agreement, dated as of August 9, 2010, by and among us, 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.)*
4.8 Amendment to the Private Shelf Agreement, dated as of April 27, 2012, by and among us, Prudential
Investment Management, Inc. and each Prudential affiliate which becomes party thereto. (Incorporated
by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on April 30, 2012.)
4.9 Letter Agreement dated as of September 22, 2014 amending the Private Shelf Agreement, dated as of
August 9, 2010, by and among us, Prudential Investment Management, Inc. and each Prudential affiliate
which becomes party thereto, as amended. (Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed on September 26, 2014.)
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.)**
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.)**
118
Exhibits
10.8 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.)**
10.9 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 30,
2013 filed on May 7, 2013.)**
10.10 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 30, 2013 filed on May 7, 2013.)**
10.11 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 30, 2013 filed on May 7, 2013.)**
10.12 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 30, 2013 filed on May 7, 2013.)**
10.13 Henry Schein, Inc. 2013 Stock Incentive Plan, as amended and restated effective as of May 14, 2013.
(Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on May 16, 2013.)**
10.14 Form of Restricted Stock Agreement for time-based restricted stock awards pursuant to the Henry Schein,
Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013). (Incorporated by
reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29,
2014 filed on May 6, 2014.)**
10.15 Form of Restricted Stock Agreement for performance-based restricted stock awards pursuant to the Henry
Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013).
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2014 filed on May 6, 2014.)**
10.16 Form of Restricted Stock Unit Agreement for time-based restricted stock awards pursuant to the Henry
Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013).
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2014 filed on May 6, 2014.)**
10.17 Form of Restricted Stock Unit Agreement for performance-based restricted stock awards pursuant to the
Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013).
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 2014 filed on May 6, 2014.)**
119
Exhibits
10.18 Form of 2015 Restricted Stock Agreement for time-based restricted stock awards pursuant to the Henry
Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013).
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 28, 2015 filed on May 4, 2015.)**
10.19 Form of 2015 Restricted Stock Agreement for performance-based restricted stock awards pursuant to the
Henry Schein, Inc. 2013 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.2 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2015 filed on May 4, 2015.)**
10.20 Form of 2015 Restricted Stock Unit Agreement for time-based restricted stock awards pursuant to the
Henry Schein, Inc. 2013 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.3 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 28, 2015 filed on May 4, 2015.)**
10.21 Form of 2015 Restricted Stock Unit Agreement for performance-based restricted stock awards pursuant
to the Henry Schein, Inc. 2013 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.4 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2015 filed on May 4, 2015.)**
10.22 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.)**
10.23 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.)**
10.24 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.)**
10.25 Amendment Number Four to the Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan,
effective as of February 27, 2014. (Incorporated by reference to Exhibit 10.6 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)**
10.26 Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan. (Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2015 filed on
July 29, 2015.)**
10.27 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.)**
10.28 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 May 25, 2004, January 1, 2005, May 10, 2010 and
February 27, 2014). (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for
the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)**
120
Exhibits
10.29 Form of 2015 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 May 25, 2004, January 1, 2005, May 10, 2010
and February 27, 2014). (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended March 28, 2015 filed on May 4, 2015.)**
10.30 Henry Schein, Inc. Supplemental Executive Retirement Plan, amended and restated effective as of
January 1, 2014. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2013 filed on November 5, 2013.)**
10.31 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.)**
10.32 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.)**
10.33 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.)**
10.34 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.)**
10.35 Amendment Number Four to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan, effective as of
May 14, 2013. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on
May 16, 2013.)**
10.36 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.)**
10.37 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.)**
10.38 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.)**
10.39 Amendment to the Henry Schein, Inc. Deferred Compensation Plan effective as of January 1, 2011.
(Incorporated by reference to Exhibit 10.26 to our Annual Report on Form 10-K for the fiscal year ended
December 31, 2011 filed on February 15, 2012.)**
10.40 Amendment Number Two to the Henry Schein, Inc. Deferred Compensation Plan, effective as of January
1, 2011. (Incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the fiscal
year ended December 28, 2013 filed on February 11, 2014.)**
121
Exhibits
10.41 Amendment Number Three to the Henry Schein, Inc. Deferred Compensation Plan, effective as of
January 1, 2014. (Incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K for the
fiscal year ended December 28, 2013 filed on February 11, 2014.)**
10.42 Henry Schein Management Team Performance Incentive Plan and Plan Summary, effective as of January
1, 2014. (Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the fiscal
quarter ended March 29, 2014 filed on May 6, 2014.)**
10.43 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.)**
10.44 Restricted Stock Unit Agreement between us and Stanley M. Bergman 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.)**
10.45 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.)**
10.46 Form of Amended and Restated Change in Control Agreement dated December 12, 2008 between us and
certain executive officers who are a party thereto (Gerald Benjamin, James Breslawski, Michael S.
Ettinger, Stanley Komaroff, Robert Minowitz, Mark Mlotek, Steven Paladino and Michael Racioppi,
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.)**
10.47 Form of Amendment to Amended and Restated Change in Control Agreement effective January 1, 2012
between us and certain executive officers who are a party thereto (Gerald Benjamin, James Breslawski,
Michael S. Ettinger, Stanley Komaroff, Robert Minowitz, Mark Mlotek, Steven Paladino and Michael
Racioppi, respectively). (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on January 20, 2012.)**
10.48 Credit Agreement, dated as of September 12, 2012, among us, the several lenders parties thereto,
JPMorgan Chase Bank, N.A., as administrative agent, HSBC Bank USA, National Association, as
syndication agent, and U.S. Bank National Association, The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
UniCredit Bank AG and The Bank of New York Mellon, as co-documentation agents. (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on September 13, 2012.)
10.49 First Amendment dated as of September 22, 2014 to the Credit Agreement, dated as of September 12,
2012, by and among us, the several lenders party thereto, JPMorgan Chase Bank, N.A., as administrative
agent and the other agents party thereto. (Incorporated by reference to Exhibit 10.1 to our Current Report
on Form 8-K filed on September 26, 2014.)
10.50 Omnibus Agreement, dated November 29, 2009, by and among us, 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.)
122
Exhibits
10.51 Amendment No. 1 to the Omnibus Agreement, dated December 31, 2009, by and between us 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.)
10.52 Put Rights Agreement, dated December 31, 2009, by and among us, 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.)
10.53 First Amendment dated December 1, 2010 to Put Rights Agreement among us, 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.)
10.54 Receivables Purchase Agreement, dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc.,
as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent and the various purchaser groups from time
to time party thereto. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
on April 19, 2013.)
10.55 Amendment No. 1 dated as of September 22, 2014 to the Receivables Purchase Agreement, dated as of
April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ,
LTD., New York Branch, as agent and the various purchaser groups from time to time party thereto, as
amended. (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on
September 26, 2014.)
10.56 Receivables Sale Agreement, dated as of April 17, 2013, by and among us, certain of our wholly-owned
subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit 10.2 to our Current Report
on Form 8-K filed on April 19, 2013.)
10.57 Omnibus Amendment No. 1, dated July 22, 2013, to Receivables Purchase Agreement dated as of April
17, 2013, by and among us, as servicer, HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
as agent, and the various purchaser groups from time to time party thereto and Receivables Sales
Agreement, dated as of April 17, 2013, by and among us, certain of our wholly-owned subsidiaries and
HSFR, Inc., as buyer. (Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended June 29, 2013 filed on August 6, 2013.)
10.58 Omnibus Amendment No. 2, dated April 21, 2014, to Receivables Purchase Agreement dated as of April
17, 2013, as amended, by and among us, as servicer, HSFR, Inc., as seller, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., as agent, and the various purchaser groups from time to time party thereto and
Receivables Sales Agreement, dated as of April 17, 2013, by and among us, certain of our wholly-owned
subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit 10.8 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)
10.59 Form of Indemnification Agreement between us and certain directors and executive officers who are a
party thereto (Barry J. Alperin, Lawrence S. Bacow, Ph.D., Paul Brons, Donald J. Kabat, Philip A.
Laskawy, Norman S. Matthews, Carol Raphael, E. Dianne Rekow, DDS, Ph.D., Bradley T. Sheares,
Ph.D., Louis W. Sullivan, M.D., Gerald A. Benjamin, Stanley M. Bergman, James P. Breslawski,
Michael S. Ettinger, James A. Harding, Stanley Komaroff, Peter McCarthy, Lorelei McGlynn, David
McKinley, Bob Minowitz, Mark E. Mlotek, Steven Paladino, Michael Racioppi, Paul Rose, Lonnie Shoff
and Walter Siegel, respectively). (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 2015 filed on November 4, 2015.)**
123
Exhibits
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.+
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.
124