BOLDLY CREATING VALUE
FOR OUR STAKEHOLDERS
A N N U A L R E P O R T 2 0 2 1
A MESSAGE FROM THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
To My Fellow Stakeholders,
As we enter the 90th year of the
history of our Company, we are
energized by the extraordinary
effort of Team Schein to help our
customers and our business recover
from the challenges of the past two
years, pleased by
the resulting financial
achievements, and
enthusiastic and
optimistic for our
future.
Even as the global
supply chain
remained unsettled
in 2021, Henry
Schein delivered for
our stakeholders.
As vaccines and
other infection-
control measures
allowed society to
begin resuming
normal activities, we
recorded net sales in 2021 of $12.4
billion, up 22.6% compared with
2020. GAAP diluted EPS for 2021
increased 58.4%, or an increase
of 52.2%* on a non-GAAP basis,
largely reflecting a rebound in patient
traffic from the early days of the
pandemic and elevated demand for
our products and services, including
personal protective equipment (PPE)
and COVID-related products. We
delivered full-year operating cash flow
from continuing operations of $709.6
million versus $593.5 million in 2020,
and we invested $570.6 million in
acquisitions and $401.2 million in
stock repurchases. Our strategy
of supporting organic growth with
acquisitions remained a key element
of our success, with acquisitions
representing 4.2% of 2021’s total
revenue increase.
In 2021, Henry Schein continued
to increase our exposure to
faster-growing and higher-margin
products and services through
organic growth and acquisitions.
Our portfolio of complementary
software and specialty products, as
well as services offerings, represent
an ever-increasing percentage of
Henry Schein’s operating margin and
total operating income, generating
full-year revenue of $928.6 million,
a 27.2% increase in local currencies.
This offering includes
what we refer to
as Dental Specialty
Products, which
encompasses oral
surgery, implant and
bone regeneration
products as well
as endodontic and
orthodontic products,
plus our Technology
& Value-Added
Services, including
Henry Schein
One, a provider of
integrated software
and services to the
dental profession. In 2021, growth
was strong in each of our three
Dental Specialty Product categories.
Our BOLD+1 Strategy Positions
Us for the Future
Our optimism for the future stems
in large part from the many actions
our Company took in 2021 to further
position Henry Schein for growth
and profitability. Two of these actions
are especially meaningful – the
development of our 2022–2024
BOLD+1 Strategic Plan, a key goal of
which is to expand our faster-growing,
higher-margin software and specialty
products, and services offerings,
while investing for growth in our
core distribution businesses, and the
implementation of a new leadership
structure for our distribution
businesses to support the plan.
In 2021, we established the North
America Distribution Group and the
International Distribution Group,
representing an evolution of our
“One Distribution” strategy to more
tightly integrate the management of
our Dental and Medical distribution
businesses. The new structure is
designed to better leverage functions,
talent, processes, and systems
across Henry Schein’s distribution
businesses to enhance our customer
experience and maximize efficiency
and performance, thereby driving
growth in sales and related operating
income in absolute terms.
Our operating model provides the
basis for us to leverage a “One
Schein” offering to customers, who
increasingly rely upon Henry Schein’s
comprehensive network of innovative
solutions and services, along with our
distribution capabilities, to provide
an exceptional experience that helps
make their practices more successful
and improve patient outcomes.
Together, we make the world
healthier.
In short, our 2022–2024 BOLD+1
Strategic Plan positions our Company
to BUILD (“B”) complementary
software, specialty, and services
businesses for high growth;
OPERATIONALIZE (“O”) One
Distribution to deliver exceptional
customer experience, increased
efficiency, and growth; LEVERAGE
(“L”) One Schein to broaden and
deepen relationships with our
customers; and DRIVE (“D”) digital
transformation for our customers and
for Henry Schein.
+1 = Pursuing Profits and Purpose
Our BOLD+1 strategy is driven by
our long-standing belief in the
intersection of profits and purpose.
We carefully balance the goals of
our five constituencies (the “+1”) –
Team Schein, customers, suppliers,
investors, and society – through
Henry Schein’s management
philosophy, the “Mosaic of Success.”
By giving back to society in concert
with our team, customers, and
suppliers, we strive to generate
greater value for our investors.
3
In 2021, we once again took
numerous steps toward fulfi lling our
commitment to the constituents we
serve within the context of what is
now known as the Environmental,
Social & Governance (ESG)
movement. Here, in brief, is a
summary of the work we pursued in
2021 to advance our ESG approach
to business.
Addressing climate change and
ensuring a healthy environment
are among our generation’s most
diffi cult and important challenges,
and within this eff ort Henry Schein
can and will play a meaningful role
where opportunity for impact exists.
For example, we signed the Business
Ambition for 1.5⁰C Initiative and
joined the Race to Zero. We are also
a member of the World Economic
Forum (WEF) Alliance of CEO Climate
Leaders and the National Academy
of Medicine Action Collaborative on
Decarbonization of the Health Care
Sector. Through these initiatives, we
are working to reduce the climate
impact of our own operations and
within the wider health care industry
supply chain.
The “Social” pillar of the ESG
movement is where Henry Schein is
actively advocating for the equitable
distribution of health care services to
underserved and underrepresented
populations is a core tenet of
our health equity work as well as
emergency health care response. In
2021, we committed to donating at
least $50 million in cash and product
through Henry Schein Cares and the
Henry Schein Cares Foundation, Inc.
by 2025 to advance health equity.
In the area of diversity and inclusion,
we are focused on increasing the
representation of women and other
underrepresented groups in senior
operating roles and promoting
inclusivity training and education
to elevate and support a diverse
network of TSMs, fostering an
environment where all TSMs can
thrive individually and collectively.
4
In 2021, we added to our existing roster
of Employee Resource Groups (ERGs)
with the establishment of COLEGAS,
for our Hispanic and Latin American
TSMs, and announced the formation
of ERGs for our Pan-Asian, Military
Veteran, and Disabled communities.
All of our ERGs are open to all TSMs.
Additionally, Henry Schein has a
long record of advancing diversity in
the professions we serve, including
our support of the American Dental
Association’s Institute for Diversity
in Leadership and the National
Dental Association, among other
organizations and initiatives.
We also strengthened our investment
this year in what we believe is our
greatest competitive advantage—our
Team Schein Members. In these
challenging times, we increased
our emphasis on mental wellness
and stress management as part of a
broader eff ort to recruit and retain
the extraordinary individuals who
comprise Team Schein.
Underlying our ESG eff orts is a
commitment to ethical corporate
governance, which starts with our
largely independent and diverse
Board of Directors, including fi ve
Board Committees, and governed
by our Nominating and Governance
Committee. Through our Sustainability
Committee, a cross-functional team
of senior and middle management
that reviews our progress regularly,
we continue to steadily advance our
sustainability work.
As of this writing, the world is
witnessing a rise in geopolitical
instability of a magnitude not seen
since 1945. As with prior humanitarian
crises – in Haiti, Syria, Libya, Yemen,
Sudan, and other parts of the world
– Team Schein is committed to
responding to the health care needs
of the Ukrainian people and other
refugees, working in partnership with
philanthropic partners, customers,
and suppliers. In moments such as
these, we more fully appreciate the
role we can play to help alleviate the
suff ering of those in need, and we
have committed at least $1 million in
cash and products in this regard.
Our ability to give back to society
in times of crisis is a direct result
of our business success, and that
success refl ects the extraordinary
commitment, hard work, and
dedication of Team Schein. For
90 years, this Company has been
blessed with a team that rises to
every challenge and pulls together
to overcome any obstacle. I am
overwhelmed with gratitude.
Finally, to ensure public
accountability for each of these
activities, we committed to providing
reporting in 2022 in accordance
with the Global Reporting Initiative
and the Sustainability Accounting
Standards Board, along with issuing
our initial Task Force on Climate-
Related Financial Disclosures report
in 2022.
Boldly Creating Value for Our
Stakeholders
The 2022–2024 BOLD+1 Strategic
Plan builds on our previous strategic
plans by focusing on those markets
and geographies where Henry
Schein can make a real diff erence for
the ultimate benefi t of our customers
and their patients. And in doing so,
we will enable our customers to
become more successful and
improve patient outcomes while
creating value for our stakeholders—
that’s BOLD+1.
We intend to advance the seamless,
unifi ed integration of our suite of
products and service solutions while
demonstrating a deep commitment
to giving back to society. These
activities are mutually reinforcing
and benefi t all of our stakeholders.
The theme of this year’s annual
report – Boldly Creating Value for
Our Stakeholders – brings together
all the individual elements of our new
strategic plan.
Gratitude for Our People and
Performance
I would like to take special note
of the bittersweet retirements of
Steve Paladino, Gerry Benjamin,
and Barry Alperin.
At the end of April 2022, our
Chief Financial Offi cer, Steven
Paladino, will retire after 35 years of
dedicated service at Henry Schein,
including 29 years as CFO. Steven
joined Henry Schein in our fi nance
department in 1987 when the
business generated approximately
$125 million in revenue, and our
success since then refl ects the
considerable contributions made
by Steven. We are pleased Steven
will remain a member of our
Board of Directors and an adviser
to Henry Schein. Succeeding
Steven is Ronald N. South, Henry
Schein’s Vice President, Corporate
Finance, since 2008 and Chief
Accounting Offi cer since 2013, who
will become the Company’s Senior
Vice President and Chief Financial
Offi cer. Olga Timoshkina, who joined
Henry Schein this past September
as Vice President, Corporate
Controller, will succeed Ron as Vice
President, Corporate Finance and
Chief Accounting Offi cer, while
Graham Stanley was appointed as
Vice President, Investor Relations
and Strategic Financial Project
Offi cer on September 15, 2021. We
implemented this succession plan to
complement our talented group of
corporate senior fi nance leaders and
business unit CFOs.
Company’s initial public off ering.
Joining our Board in 2021 were
Mohamad Ali, Deborah Derby,
Dr. Reed V. Tuckson, and Scott
Serota, who will undoubtedly
provide valuable perspectives to
the Company.
Additionally, Gerry Benjamin, our
Executive Vice President and Chief
Administrative Offi cer since 2000,
is retiring on July 1, 2022, after 34
years with the Company. Gerry
joined Henry Schein in 1988 and led
the continuous transformation of our
Global Services Group to meet the
needs of each of our constituencies
as we grew from being a private,
domestic mail-order business
into an international, full-service,
publicly traded company with nearly
22,000 Team Schein Members
and operations in 32 countries.
His leadership was instrumental
in maintaining the operational
excellence for our customers over
the years. We are pleased that
Gerry will continue to be an
adviser to Henry Schein following
his retirement.
Succeeding Gerry is Michael
Ettinger, who has been promoted
to Executive Vice President and
Chief Operating Offi cer. Mr. Ettinger
joined the Company in 1994 and
has been Senior Vice President,
Corporate Aff airs since 2013. Prior
to his current position, Michael
served as General Counsel for the
Company. The Global Services
leadership team reporting to
Michael includes Lorelei McGlynn,
Senior Vice President, Chief Human
Resources Offi cer, Jim Mullins,
Senior Vice President, Global Supply
Chain, Chris Pendergast, Senior Vice
President and Chief Technology
Offi cer, and Shirley Taylor, Vice
President, Global Chief Security
and Safety Offi cer.
Barry Alperin will retire from our
Board of Directors after 26 years of
exceptional service, having joined
our board in 1996, shortly after the
We wish Steven, Gerry, and Barry
the very best in their retirement
and thank them for their many
contributions to the Company.
Along with the entire Henry Schein
Board of Directors, I would like to
express my utmost confi dence in
Henry Schein’s strategy, leadership,
and Team Schein. I again off er my
sincerest thanks to our Team Schein
Members across the globe for their
dedication, and also thank our
customers, supplier partners, and
investors for their continued trust.
We intend to reward your faith in us.
Sincerely,
Stanley M. Bergman
Chairman of the Board
and Chief Executive Offi cer
March 2022
Forward-looking statements made in this
report are subject to the risks specifi ed in the
Safe Harbor statement in the Company’s Form
10-K fi ling.
*See reconciliation of GAAP and non-GAAP
measures on page 6.
5
NON-GAAP DISCLOSURES
The following table sets forth, for the applicable periods, a reconciliation of accounting
principles generally accepted in the United States (“GAAP”) operating income, net income
from continuing operations attributable to Henry Schein, Inc., and diluted earnings per share
from continuing operations adjusted to reflect the effects of restructuring costs, litigation
settlement, and other adjustments.
USE OF NON-GAAP MEASURES
The information in the table includes financial measures that are not calculated and
presented in accordance with GAAP. The table reconciles differences between each of
operating income from continuing operations, net income from continuing operations
attributable to Henry Schein, Inc., and diluted earnings per share from continuing operations
attributable to Henry Schein, Inc., each as presented in accordance with GAAP, and
comparable non-GAAP 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.
Management believes that non-GAAP financial measures provide investors with useful
supplemental information about the financial performance of our business, enable
comparison of financial results between periods where certain items may vary independent
of business performance and allow for greater transparency with respect to key metrics used
by management in operating our business. These non-GAAP financial measures are presented
solely for informational and comparative purposes and should not be regarded as a
replacement for corresponding, similarly captioned, GAAP measures.
NOTES
(1) During 2021, we recorded restructuring costs of $7.9 million, pre-tax ($6.0 million net of
tax). During 2020, we recorded restructuring costs of $32.1 million pre-tax ($24.1 million
net of tax). During 2019, we recorded restructuring costs of $14.7 million pre-tax ($11.0
million net of tax). The effect that these charges had on earnings per diluted share from
continuing operations attributable to Henry Schein, Inc. was ($0.04), ($0.17) and ($0.07),
respectively.
(2) Represents a 2021 pre-tax charge of $15.8 million, net of $1.5 million of noncontrolling
interests, related to settlement and litigation costs, net of a tax benefit of $3.6 million,
resulting in a net after-tax charge of $10.7 million. The effect that this charge had on
earnings per diluted share from continuing operations attributed to Henry Schein, Inc.
was ($0.08).
(3) In 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy
resulting in the recognition of an additional after-tax gain of $7.3 million. Represents net
after-tax gains on the sale of equity investments recorded during 2020 and 2019. The
effect that these transactions had on earnings per diluted share from continuing
operations attributed to Henry Schein, Inc. for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019 was $0.05, $0.01 and $1.25, respectively.
(4) Represents a change in estimate to income tax expense as a result of a reorganization of
legal entities completed in preparation for the Animal Health spin-off, which was completed
on February 7, 2019. The effect this change had on earnings per diluted share from continuing
operations attributed to Henry Schein, Inc. was $0.01.
Year Ended
December 25,
2021
Year Ended
December 26,
2020
Year Ended
December 28,
2019
(in thousands, except per share data)
Operating income from continuing operations
Operating margin from continuing operations
$ 851,656
6.9%
$ 535,303
5.3%
$ 718,261
7.2%
Adjustments:
Restructuring costs (1)
Litigation settlement (2)
Adjusted operating income
from continuing operations
Adjusted operating margin
from continuing operations
$
$
7,939
15,750
$ 32,093
$
--
$
$
14,705
--
$ 875,345
$ 567,396
$ 732,966
7.1%
5.6%
7.3%
Net income from continuing operations attributable
to Henry Schein, Inc.:
$ 631,232
$ 402,808
$ 700,691
Adjustments, net of tax:
Restructuring costs (1)
Litigation settlement (2)
Net gain on sale of equity investments (3)
Tax credit related to
Animal Health spin-off (4)
Adjusted net income from continuing
operations attributable to Henry Schein, Inc.:
Diluted earnings per share from continuing
operations attributable to Henry Schein, Inc.:
Adjusted diluted earnings per share from continuing
operations attributable to Henry Schein, Inc.:
Diluted weighted-average
common shares outstanding:
$
$
$
5,954
10,705
(7,318)
$ 24,070
$
11,029
--
--
$
(1,572)
$ (186,769)
--
--
$
(1,333)
$ 640,573
$ 425,306
$ 523,618
$
$
4.45
4.52
$
$
2.81
2.97
$
$
4.69
3.51
141,773
143,404
149,257
6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware
(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:
Trading Symbol(s)
HSIC
Securities registered pursuant to Section 12(g) of the Act: None
Title of each class
Common Stock, par value $.01 per share
Name of each exchange on which registered
The Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES: ☒ NO: ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES: ☐ NO: ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: ☒ NO: ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES: ☒ NO: ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer: ☒ Accelerated filer: ☐ Non-accelerated filer: ☐
growth company: ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. YES: ☒ NO: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES: ☐ NO: ☒
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price as
quoted on the Nasdaq Global Select Market on June 26, 2021, was approximately $10,405,142,000.
As of February 7, 2022, there were 137,172,800 shares of registrant’s Common Stock, par value $.01 per share, outstanding.
Smaller reporting company: ☐ Emerging
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 25, 2021) 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.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5.
Market for Registrant's Common Equity, Related Stockholder Matters
ITEM 6.
ITEM 7.
and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition
and Results of Operations
ITEM 7A.
ITEM 8.
ITEM 9.
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
ITEM 9A.
ITEM 9B.
ITEM 9C.
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
PART III
ITEM 10.
ITEM 11.
ITEM 12.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
ITEM 13.
ITEM 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV.
ITEM 15.
ITEM 16.
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Page
Number
3
24
38
39
39
39
40
41
42
57
59
114
114
117
117
117
117
118
118
118
118
125
126
2
ITEM 1. Business
General
PART I
Henry Schein, Inc. is a solutions company for health care professionals powered by a network of people and
technology. We believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care. Our philosophy is grounded in our
commitment to help customers operate a more efficient and successful business so the practitioner can provide
better clinical care.
With more than 89 years of experience distributing health care products, we have built a vast set of small, mid-sized
and large customers in the dental and medical markets, serving more than one million customers worldwide across
dental practices, laboratories, physician practices, and ambulatory surgery centers, as well as government,
institutional health care clinics and other alternate care clinics.
We are headquartered in Melville, New York, employ more than 21,600 people (of which approximately 10,700 are
based outside the United States) and have operations or affiliates in 32 countries and territories. Our broad global
footprint has evolved over time through our organic success as well as through contribution from strategic
acquisitions.
We offer a comprehensive selection of more than 120,000 branded products and Henry Schein private brand
products in stock, as well as more than 180,000 additional products available as special-order items. Our
infrastructure, including over 3.8 million square feet of space in 27 strategically located distribution centers around
the world, enables us to historically provide rapid and accurate order fulfillment, better serve our customers and
increase our operating efficiency. This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our
customers’ needs.
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services. These segments offer different products and services to the same customer base. Our dental
businesses serve office-based dental practitioners, dental laboratories, schools, government and other
institutions. Our medical businesses serve physician offices, urgent care centers, ambulatory care sites, emergency
medical technicians, dialysis centers, home health, federal and state governments and large enterprises, such as
group practices and integrated delivery networks, among other providers across a wide range of specialties.
The health care distribution reportable segment, combining our global dental and medical businesses, distributes
consumable products, dental specialty products, small equipment, laboratory products, large equipment, equipment
repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control
products and vitamins. While our primary go-to-market strategy is in our capacity as a distributor, we also market
and sell under our own private label portfolio of cost-effective, high-quality consumable merchandise products, and
manufacture certain dental specialty products in the areas of implants, orthodontics and endodontics.
The technology and value-added services reportable segment provides software, technology and other value-added
services to health care practitioners. Henry Schein One, the largest contributor of sales to this category, offers
dental practice management solutions for dental and medical practitioners. In addition, we offer dentists and
physicians a broad suite of electronic health records, integrated revenue cycle management, patient communication
services including electronic marketing and web-site design, analytics and patient demand generation. Finally, our
value-added practice solutions include practice consultancy, education, and the facilitation of financial service
offerings (on a non-recourse basis) to help dentists and physicians operate and expand their business operations.
We believe our hands-on consultative approach to provide solutions to support practice decision-making is a key
differentiator for our business.
3
Recent Developments
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent
Developments” herein for a discussion related to the COVID-19 pandemic and recent corporate transactions.
Industry
The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and
diverse. The industry ranges from sole practitioners working out of relatively small offices to mid-sized and large
group practices ranging in size from a few practitioners to several hundred practices owned or operated by dental
support organizations (DSOs), medical group purchasing organizations (GPOs), hospital systems or integrated
delivery networks (IDNs).
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, hygienist or office manager. Supplies and small equipment are generally purchased from more than
one distributor, with one generally serving as the primary supplier.
The health care distribution industry continues to experience growth due to demand driven by the aging population,
increased health care awareness and the importance of preventative care, an increasing understanding of the
connection between good oral health and overall health, improved access to care globally, the proliferation of
medical technology and testing, new pharmacology treatments and expanded third-party insurance coverage,
partially offset by the effects of unemployment on insurance coverage and technological improvements, including
the advancement of software and services, prosthetic solutions and telemedicine. In addition, the non-acute market
continues to benefit from the shift of procedures and diagnostic testing from acute care settings to alternate-care
sites, particularly physicians’ offices and ambulatory surgery centers.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.
In addition, customer consolidation will likely lead to multiple locations under common management and the
movement of more procedures from the hospital setting to the physician or alternate care setting as the health care
industry is increasingly focused on efficiency and cost containment. This trend has benefited distributors capable
of providing a broad array of products and services at low prices. It also has accelerated the growth of health
maintenance organizations (“HMOs”), group practices, other managed care accounts and collective buying groups,
which, in addition to their emphasis on obtaining products at competitive prices, tend to favor distributors capable
of 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 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 certain parts of the
dental end market, such as those related to dental specialty products, and medical end market manufacturers already
sell directly to end customers.
In North America, we compete with other distributors, as well as several manufacturers, of dental and medical
products, primarily on the basis of price, breadth of product line, e-commerce capabilities, customer service and
4
value-added products and services. In the dental market, our primary competitors in the U.S. are the Patterson
Dental division of Patterson Companies, Inc. and Benco Dental Supply Company. In addition, we compete against
a number of other distributors that operate on a national, regional and local level. Our primary competitors in the
U.S. medical market, which accounts for the large majority of our global medical sales, are McKesson Corporation
and Medline Industries, Inc., which are national distributors. We also compete with a number of regional and local
medical distributors, as well as a number of manufacturers that sell directly to physicians. With regard to our dental
software, we compete against numerous companies, including the Patterson Dental division of Patterson
Companies, Inc., Carestream Health, Inc., Open Dental Software, Inc., PlanetDDS LLC, Good Methods Global Inc.
(d.b.a. CareStack) and Curve Dental, LLC. In other software end markets, including revenue cycle management,
patient relationship management and patient demand generation, we compete with companies such as Vyne
Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.), Weave Communications,
Inc., Solutionreach, Inc., ZocDoc, Inc., LocalMed Inc. and Prosites Inc. The medical practice management and
electronic medical records market is fragmented and we compete with numerous companies such as the NextGen
division of Quality Systems, Inc., eClinicalWorks, Allscripts Healthcare Solutions, Inc. and Epic Systems
Corporation.
Outside of the U.S., we believe we are the only global distributor of supplies and equipment to dental practices and
our competitors are primarily local and regional companies. 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, Proclinic SA, Lifco AB, Planmeca Oy and Billericay Dental Supply Co. Ltd., as well as a large
number of other dental and medical product distributors and manufacturers in international countries and territories
we serve.
Competitive Strengths
We have more than 89 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 end markets we serve and reflect the technology-driven
products and services best suited for their practice needs. We are committed to continuing to enhance these
offerings through organic investment in our products and our teams, as well as through the acquisition of new
products and services that may help us better serve our customers.
Direct sales and marketing expertise. Our sales and marketing efforts are designed to establish and solidify
customer relationships through personal or virtual 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, particularly through our e-commerce platforms. The key elements of our direct
sales and marketing efforts are:
• Field sales consultants. We have over 3,450 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.
• Marketing. During 2021, we marketed to existing and prospective office-based health care providers
through a combination of owned, earned and paid digital channels, as well as through catalogs, flyers,
direct mail and other promotional materials. Our strategies included an emphasis on educational content
through webinars and content marketing initiatives. We continue to enhance our marketing technology to
improve our targeting capability and the relevance of messaging and offers.
• Telesales. We support our direct marketing effort with approximately 2,100 inbound and outbound
telesales representatives, who facilitate order processing, generate new sales through direct and frequent
contact with customers and stay abreast of market developments and the hundreds of new products,
services and technologies introduced each year to educate practice personnel.
5
• Electronic commerce solutions. We provide our customers and sales teams with innovative and
competitive e-commerce solutions. We continue to invest in our e-commerce platform to offer enhanced
content management so customers can more easily find the products they need and to enable an engaging
purchase experience, supported by excellent customer service.
• Social media. Our operating entities and employees engage our customers and supplier partners through
various social media platforms, which are an important element of our communications and marketing
efforts. We continue to expand our social media presence to raise awareness about issues, engage
customers beyond a sale and deliver services and solutions to specialized audiences.
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 distribute consumable products, small equipment, laboratory
products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, dental
specialty products, diagnostic tests, infection-control products and vitamins. We offer over 120,000 Stock Keeping
Units, or SKUs, to our customers. We offer over 180,000 additional SKUs to our customers in the form of special
order items. We also market and sell our own private label portfolio of cost-effective, high-quality consumable
merchandise products and manufacture certain dental specialty products in the areas of implants, orthodontics and
endodontics.
• Technology and other value-added products and services. We sell practice management, business
analytics, patient engagement and patient demand creation software solutions to our dental customers. Our
practice management solutions provide practitioners with electronic medical records, patient treatment
history, analytics, billing, accounts receivable analyses and management, appointment calendars, electronic
claims processing and word processing programs, network and hardware services, e-commerce and
electronic marketing services, sourcing third party patient payment plans, transition services and training
and education programs for practitioners. We also sell medical software for practice management, certified
electronic health records (“EHR”) and e-Prescribe medications and prescription solutions through
MicroMD®. We have approximately 950 technical representatives supporting customers using our
practice management solutions and services. As of December 25, 2021, we had an active user base of
approximately 95,700 practices and 400,000 consumers, including users of AxiUm, Dentally®, Dentrix
Ascend®, Dental Vision®, Dentrix® Dental Systems, Dentrix® Enterprise, Easy Dental®, EndoVision®,
Evolution® and EXACT®, Gesden®, Jarvis Analytics™, Julie® Software, Oasis, OMSVision®,
Orisline®, PBS Endo®, PerioVision®, Power Practice® Px, PowerDent, and Viive® and subscriptions for
Demandforce®, Sesame, and Lighthouse360® for dental practices and DentalPlans.com® for dental
patients; and MicroMD® for physician practices.
• Repair services. We have over 140 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our health care customers. Our over 2,175 technicians provide
installation and repair services for: dental handpieces; dental and medical small equipment; table-top
sterilizers and large dental equipment.
• Financial services. We offer our customers solutions in operating their practices more efficiently by
providing access to a number of financial services and products provided by third party suppliers (including
non-recourse financing for equipment, technology and software products, non-recourse practice financing
for leasehold improvements, business debt consolidation and commercial real estate, non-recourse patient
financing 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 staffing 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:
6
• Exceptional order fulfillment. We ship an average of approximately 156,000 cartons daily. Historically,
approximately 99% of items have been shipped without back ordering and were shipped on the same
business day the order is received. Due to the significant increase in demand for personal protective
equipment (“PPE”), as a result of COVID-19, during the year ended December 25, 2021, approximately
96% of items ordered were shipped without back ordering. As the demand for PPE stabilizes, we expect
our percentage of items shipped without back-ordering and shipped on the same day to return to historical
levels.
• Comprehensive ordering process. Customers may place orders 24 hours a day, 7 days a week via e-
commerce solutions, telephone, fax, e-mail and mail.
Integrated management information systems. Our information systems generally allow for centralized management
of key functions, including accounts receivable, inventory, accounts payable, payroll, purchasing, sales, order
fulfillment and financial and operational reporting. 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 competitively priced 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 2021,
our top 10 health care distribution suppliers and our single largest supplier accounted for approximately 30% and
4%, 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 for order fulfillment.
Products and Services
The following table sets forth the percentage of consolidated net sales by principal categories of products and
services offered through our health care distribution and technology and value-added services reportable segments:
Health care distribution:
Dental products (1)
Medical products (2)
Total health care distribution
Technology and value-added services:
Software and related products and
other value-added products (3)
Total excluding Corporate TSA revenues
Corporate TSA revenues (4)
Total
December 25,
December 26,
2021
2020
December 28,
2019
60.8 %
34.0
94.8
5.2
100.0
-
100.0
58.4 %
35.8
94.2
5.1
99.3
0.7
100.0
64.2 %
29.8
94.0
5.2
99.2
0.8
100.0
(1)
(2)
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, PPE, equipment
repair and high-tech and digital restoration equipment.
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray
products, equipment, PPE and vitamins.
(3) 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.
(4) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020. See Note-23 Related Party Transactions for further
information.
7
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 and medical practitioners by increasing their efficiency and success. To accomplish this, we
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.
We believe our offering of a broad range of products, services and support, including software solutions
that can help drive improved workflow efficiency and patient communications for practices, coupled with
our full-service value proposition, helps us to retain and grow our customer base.
• Increase the number of customers we serve. This strategy includes increasing the productivity of our field
sales consultants and telesales team, 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 independent
practices, mid-market groups, and large DSOs as well as community health centers and government sites of
care. Leveraging our broad array of 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, occupational health and home 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 software users and our dental distribution customers. 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 EHR systems and software when we sell our core
products. Our strategy extends to providing health systems, integrated delivery networks and other large
group and multi-site health care organizations, including 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.
• Pursue strategic acquisitions and joint ventures. Our acquisition strategy is focused on investments in
companies that add new customers and sales teams, increase our geographic footprint (whether entering a
new country, such as emerging markets, or building scale where we have already invested in businesses),
and finally, those that enable us to access new products and technologies.
Markets Served
Demographic trends indicate that our markets are growing, as an aging U.S. population is increasingly using health
care services. According to the U.S. Census Bureau’s International Database, between 2021 and 2031, the 45 and
older population is expected to grow by approximately 11%. Between 2021 and 2041, this age group is expected to
grow by approximately 22%. This compares with expected total U.S. population growth rates of approximately 7%
between 2021 and 2031 and approximately 12% between 2021 and 2041.
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.
In the medical market, there continues to be a migration of procedures from acute-care settings to physicians’
offices and home health settings, 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.
8
We support our dental and medical 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.
Additionally, we seek to expand our dental full-service model and medical offerings in countries where
opportunities exist. We do this through both direct sales and by partnering with local distribution companies.
For information on revenues and long-lived assets by geographic area, see Note 3 – Segment and Geographic Data
of “Notes to Consolidated Financial Statements.”
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. Sales and profitability generally have been
higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza vaccine)
purchasing patterns of office-based health care practitioners for certain products (including equipment and
software) and year-end promotions. Sales and profitability may also be impacted by the timing of certain annual
and biennial dental tradeshows where equipment promotions are offered. In addition, some dental practices delay
equipment purchases in the U.S. until year-end due to tax incentives. We expect our historical seasonality of sales
to continue in the foreseeable future.
Governmental Regulations
We strive to be compliant with the applicable laws, regulations and guidance described below, and believe we have
effective compliance programs and other controls in place to ensure substantial compliance. However, compliance
is not guaranteed either now or in the future, as certain laws, regulations and guidance may be subject to varying
and evolving interpretations that could affect our ability to comply, as well as future changes, additions and
enforcement approaches, including political changes. President Biden’s administration (the “Biden
Administration”) has indicated that it will be more aggressive in its pursuit of alleged violations of law, and it has
revoked certain guidance that would have limited governmental use of informal agency guidance to pursue
potential violations, as well as that it was more prepared to pursue individuals for corporate law violations,
including an aggressive approach to anti-corruption activities. Changes to applicable laws, regulations and
guidance described below, as well as related administrative or judicial interpretations, may require us to update or
revise our operations, services, marketing practices and compliance programs and controls, and may impose
additional and unforeseen costs on us, pose new or previously immaterial risks to us, or may otherwise have a
material adverse effect on our business.
Government
Certain of our businesses involve the distribution, importation, exportation, marketing and sale of, and third party
payment for, pharmaceuticals and medical devices, and in this regard, we are subject to extensive local, state,
federal and foreign governmental laws and regulations, including as applicable to our wholesale distribution of
pharmaceuticals and medical devices, and as part of our specialty home medical supply business that distributes and
sells medical equipment and supplies directly to patients. The federal government and state governments have also
increased enforcement activity in the health care sector, particularly in areas of fraud and abuse, anti-bribery and
corruption, controlled substances handling, medical device regulations and data privacy and security standards.
Government and private insurance programs fund a large portion of the total cost of medical care, and there have
been efforts to limit such private and government insurance programs, including efforts, thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010, (as amended, the “ACA”). In addition, activities to
control medical costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical
devices and/or medical treatments or services, are ongoing. Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our financial performance.
9
Our businesses are also generally subject to numerous other laws and regulations that could impact our financial
performance, including securities, antitrust, consumer protection, anti-bribery and anti-kickback, customer
interaction transparency, data privacy, data security, government contracting, price gouging and other laws and
regulations.
Failure to comply with laws, rules or regulations could have a material adverse effect on our business.
Operating, Security and Licensure Standards
Certain of our businesses are subject to local, state and federal governmental laws and regulations relating to the
distribution of pharmaceuticals and medical devices and supplies. Among the United States federal laws applicable
to us are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended (“FDC Act”), and
Section 361 of the Public Health Service Act, as well as laws regulating the billing of and reimbursement from
government programs, such as Medicare and Medicaid, and from commercial payers. We are also subject to
comparable foreign regulations.
The FDC Act, the Controlled Substances Act, their implementing regulations, and similar foreign laws generally
regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or recalling, reporting, 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. Furthermore, Section 361 of the Public Health Service Act, which provides
authority to prevent the introduction, transmission or 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. Title II of this measure, known as the Drug Supply Chain Security Act
(“DSCSA”), is being phased in over a period of ten years, and is intended to build a national electronic,
interoperable system by November 27, 2023, that will 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 took effect in January 2015, and continues to be
implemented. The DSCSA product tracing requirements replace the former FDA drug pedigree requirements and
pre-empt certain state requirements that are inconsistent with, more stringent than, or in addition to, the DSCSA
requirements.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug wholesalers
and third-party logistics providers (“3PLs”), and includes the eventual 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. The DSCSA requires 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 concerning wholesalers will remain in effect until the FDA
issues new regulations as directed by the DSCSA. In addition, with respect to our specialty home medical supply
business, we are subject to certain state licensure laws (including state pharmacy laws), and also certain
accreditation standards, including to qualify for reimbursement from Medicare and other third-party payers.
The Food and Drug Administration Amendments Act of 2007 and the Food and Drug Administration Safety and
Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate regulations to implement a unique
device identification (“UDI”) system. The UDI rule phased in the implementation of the UDI regulations,
generally beginning with the highest-risk devices (i.e., Class III medical devices) and ending with the lowest-risk
devices. Most compliance dates were reached as of September 24, 2018, with a final set of requirements for low
risk devices being reached on September 24, 2022, which will complete the phase in. However, in May 2021, the
FDA issued an enforcement policy stating that it does not intend to object to the use of legacy identification
numbers on device labels and packages for finished devices manufactured and labeled prior to September 24, 2023.
10
The UDI regulations require “labelers” to include unique device identifiers (“UDIs”), with a content and format
prescribed by the FDA and issued under a system operated by an FDA-accredited issuing agency, on the labels and
packages of medical devices (including, but not limited to, certain software that qualifies as a medical device under
FDA rules), and to directly mark certain devices with UDIs. The UDI regulations also require labelers to submit
certain information concerning UDI-labeled devices to the FDA, much of which information is publicly available
on an FDA database, the Global Unique Device Identification Database. The UDI regulations and subsequent FDA
guidance regarding the UDI requirements provide for certain exceptions, alternatives and time extensions. For
example, the UDI regulations include a general exception for Class I devices exempt from the Quality System
Regulation (other than record-keeping requirements and complaint files). Regulated labelers include entities such
as device manufacturers, repackagers, reprocessors and relabelers that cause a device’s label to be applied or
modified, with the intent that the device will be commercially distributed without any subsequent replacement or
modification of the label and include certain of our businesses.
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, reporting, record-keeping 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 (“HHS”), 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 enforcement powers.
EU Regulation of Medicinal and Dental Products
European Union (“EU”) member states regulate their own healthcare systems, as does EU law. The latter regulates
certain matters, most notably medicinal products and medical devices. Medicinal products are defined, broadly, as
substances or combinations of substances having certain functionalities and may not include medical devices. EU
“regulations” apply in all Member States, whereas “directives” are implemented by the individual laws of member
states.
On medicines for humans, we are regulated under Directive No. 2001/83/EC of 6 November 2001, as amended by
Directive 2003/63/EC of 25 June 2003, and EU Regulation (EC) No. 726/2004 of 31 March 2004. These rules
provide for the authorization of products, and regulate their manufacture, importation, marketing and distribution.
It implements requirements which may be implemented without warning, as well as a national pharmacovigilance
system under which marketing authorizations may be withdrawn, and includes potential sanctions for breaches of
the rules, and on other bases such as harmfulness or inefficiency.
EU Regulation No. 1223/2009 of 30 November 2009 on cosmetic products requires that cosmetic products (which
includes dental products) be safe for human health when used under normal or reasonably foreseeable conditions of
use and comply with certain obligations which apply to manufacturer, importer and distributor. It includes market
surveillance, and non-compliance may result in the recall or withdrawal of products, along with other sanctions.
11
In the EU, the EU Medical Device Regulation No. 2017/745 of 5 April 2017 (“EU MDR”) covers a wide scope of
our activities, from dental material to X-ray machines, and certain software. It was meant to become applicable
three years after publication (i.e., May 26, 2020). However, on April 23, 2020, to allow European Economic Area
(“EEA”) national authorities, notified bodies, manufacturers and other actors to focus fully on urgent priorities
related to the COVID-19 pandemic, the European Council and Parliament adopted Regulation 2020/561,
postponing the date of application of the EU MDR by one year (to May 26, 2021).
The EU MDR significantly modifies and intensifies the regulatory compliance requirements for the medical device
industry as a whole. Among other things, the EU MDR:
strengthens the rules on placing devices on the market and reinforces surveillance once they are available;
•
• establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality,
•
•
•
•
performance and safety of devices placed on the market;
improves the traceability of medical devices throughout the supply chain to the end-user or patient through
a unique identification number;
sets up a central database to provide patients, healthcare professionals and the public with comprehensive
information on products available in the EU;
strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
identifies importers and distributors and medical device products through registration in a database
(EUDAMED not due until May 26, 2022 and after).
In particular, the EU MDR imposes stricter requirements for the confirmation that a product meets the regulatory
requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the
distribution, marketing and sale of medical devices, including post-market surveillance. Medical devices that have
been assessed and/or certified under the EU Medical Device Directive may continue to be placed on the market
until 2024 (or until the expiry of their certificates, if applicable and earlier); however, requirements regarding the
distribution, marketing and sale including quality systems and post-market surveillance have to be observed by
manufacturers, importers and distributors as of the application date.
Other EU regulations that may apply under appropriate circumstances include EU Regulation No. 1907/2006 of 18
December 2006 concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals, which
requires importers to register substances or mixtures that they import in the EU beyond certain quantities, and the
EU Regulation No. 1272/2008 of 16 December 2008 on classification, labelling and packaging of substances and
mixtures, which sets various obligations with respect to the labelling and packaging of concerned substances and
mixtures.
Furthermore, compliance with legal requirements has required and may in the future require us to delay product
release, sale or distribution, or institute voluntary recalls of, or other corrective action with respect, to products we
sell, each of which could result in regulatory and enforcement actions, financial losses and potential reputational
harm. Our customers are also subject to significant federal, state, local and foreign governmental regulation, which
may affect our interactions with customers, including the design and functionality of our products.
Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and record-keeping requirements in order to
substantiate claims for payment under federal, state and commercial healthcare reimbursement programs. One of
these businesses was recently suspended by CMS from receiving payments from Medicare, although it is permitted
to continue to perform and bill for Medicare services. The amounts billed are being deposited in an escrow account
pending resolution of an audit. The Company has not recognized revenue for these services and has currently
deferred slightly over $4 million in revenue.
Certain of our businesses also maintain contracts with governmental agencies and are subject to certain regulatory
requirements specific to government contractors.
12
Antitrust and Consumer Protection
The federal government of the United States, most U.S. states and many foreign countries have antitrust laws that
prohibit certain types of conduct deemed to be anti-competitive, as well as consumer protection laws that seek to
protect consumers from improper business practices. At the U.S. federal level, the Federal Trade Commission
oversees enforcement of these types of laws, and states have similar government agencies. Violations of antitrust
or consumer protection laws may result in various sanctions, including criminal and civil penalties. Private
plaintiffs may also bring civil lawsuits against us in the United States for alleged antitrust law violations, including
claims for treble damages. EU law also regulates competition and provides for detailed rules protecting consumers.
The Biden Administration has indicated increased antitrust enforcement and has been more aggressive in
enforcement activities.
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. Certain additional state and federal laws, such
as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other
health professionals from referring a patient to an entity with which the physician (or family member) has a
financial relationship, for the furnishing of certain designated health services (for example, durable medical
equipment and medical supplies), unless an exception applies. Violations of Anti-Kickback Statutes or the Stark
Law may be enforced as violations of the federal False Claims Act.
The fraud and abuse laws and regulations have been subject to 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 applicable false claims laws,
and who may receive up to 30% of total government recoveries. Penalties under fraud and abuse laws may be
severe, including treble damages and substantial civil penalties under the federal False Claims Act, as well as
potential loss of licenses and the ability to participate in federal and state health care programs, criminal penalties,
or imposition of a corporate compliance monitor which could have a material adverse effect on our business. Also,
these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that
could require us to make changes in our operations or incur substantial defense and settlement expenses. Even
unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the
incurring of substantial costs. 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, as well as other fraud and
abuse laws.
With respect to measures of this type, 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, German anti-corruption laws
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.
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, or failure to comply with applicable law, could have
a material adverse effect on our business.
13
Affordable Care Act and Other Insurance Reform
The ACA 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 ACA also materially expanded the number of individuals in the
United States with health insurance.
The ACA has faced frequent legal challenges, including litigation seeking to invalidate and Congressional action
seeking to repeal some of or all of the law or the manner in which it has been implemented. In 2012, the United
States Supreme Court, in upholding the constitutionality of the ACA and its individual mandate provision requiring
that people buy health insurance or else face a penalty, simultaneously limited ACA provisions requiring Medicaid
expansion, making such expansion a state-by-state decision. In addition, one of the major political parties in the
United States remains committed to seeking the ACA’s legislative repeal, but legislative efforts to do so have
previously failed to pass both chambers of Congress. Under President Trump’s administration, a number of
administrative actions were taken to materially weaken the ACA, including, without limitation, by permitting the
use of less robust plans with lower coverage and eliminating “premium support” for insurers providing policies
under the ACA. The Tax Cuts and Jobs Act enacted in 2017, which contains a broad range of tax reform provisions
that impact the individual and corporate tax rates, international tax provisions, income tax add-back provisions and
deductions, also effectively repealed the ACA’s individual mandate by zeroing out the penalty for non-compliance.
In the most recent ACA litigation, the federal Fifth Circuit Court of Appeals found the individual mandate to be
unconstitutional, and returned the case to the District Court for the Northern District of Texas for consideration of
whether the remainder of the ACA could survive the excision of the individual mandate. The Fifth Circuit’s
decision was appealed to the United States Supreme Court. The Supreme Court issued a decision on June 17, 2021.
Without reaching the merits of the case, the Supreme Court held that the plaintiffs in the case did not have standing
to challenge the ACA. Any outcomes of future cases that change the ACA, in addition to future legislation,
regulation, guidance and/or Executive Orders that do the same, could have a significant impact on the U.S.
healthcare industry. For instance, the American Rescue Plan Act of 2021 enhanced premium tax credits, which has
resulted in an expansion of the number of people covered under the ACA. These changes are time-limited, with
some enhancements in place for 2021 only and others available through the end of 2022.
An ACA provision, generally referred to as the Physician Payment Sunshine Act or Open Payments Program (the
“Sunshine Act”), imposes annual reporting and disclosure requirements for drug and device manufacturers and
distributors with regard to payments or other transfers of value made to certain covered recipients (including
physicians, dentists, teaching hospitals, physician assistants, nurse practitioners, clinical nurse specialists, certified
registered nurse anesthesiologist assistants, and certified nurse midwives), and for such manufacturers and
distributors and for group purchasing organizations, with regard to certain ownership interests held by covered
recipients in the reporting entity. The Centers for Medicare and Medicaid Services (“CMS”) publishes information
from these reports on a publicly available website, including amounts transferred and physician, dentist, teaching
hospital, and non-physician practitioner identities. The 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 Sunshine Act, and some of these state laws, as well as the federal law, can be
unclear. We are also subject to foreign regulations requiring transparency of certain interactions between suppliers
and their customers.
In the United States, government actions to seek to increase health-related price transparency may also affect our
business.
Another notable Medicare health care reform initiative, the Medicare Access and CHIP Reauthorization Act of
2015 (“MACRA”), enacted on April 16, 2015, established a new payment framework, which modified certain
Medicare payments to “eligible clinicians,” including physicians, dentists and other practitioners. Under MACRA,
certain eligible clinicians are required to participate in Medicare through the Merit-Based Incentive Payment
System (“MIPS”) or Advanced Alternative Payment Models, through which Medicare reimbursement to eligible
clinicians includes both positive and negative payment adjustments that take into account quality, promoting
interoperability, cost and improvement activities. Data collected in the first MIPS performance year (2017)
determined payment adjustments that began January 1, 2019. MACRA standards and payment levels continue to
evolve, and reflect a fundamental change in physician reimbursement that is expected to provide substantial
14
financial incentives for physicians to participate in risk contracts, and to increase physician information technology
and reporting obligations. The implications of the implementation of MACRA are uncertain and will depend on
future regulatory activity and physician activity in the marketplace. New state-level payment and delivery system
reform programs, including those modeled after such federal programs, are also increasingly being rolled out
through Medicaid administrators, as well as through the private sector, which may further alter the marketplace and
impact our business.
Recently, in addition to other government efforts to control health care costs, there has been increased scrutiny on
drug pricing and concurrent efforts to control or reduce drug costs by Congress, the President, executive branch
agencies and various states. At the state level, several states have adopted laws that require drug manufacturers to
provide advance notice of certain price increases and to report information relating to those price increases, while
others have taken legislative or administrative action to establish prescription drug affordability boards or multi-
payer purchasing pools to reduce the cost of prescription drugs. At the federal level, several related bills have been
introduced and regulations proposed which, if enacted or finalized, respectively, would impact drug pricing and
related costs.
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.
EU Directive on the pricing and reimbursement of medicinal products
EU law provides for the regulation of the pricing of medicinal products which are implemented by EU member
states (Directive No. 89/105/EC of 21 December 1988 relating to the transparency of measures regulating the
pricing of medicinal products for human use and their inclusion in the scope of national health insurance systems).
Member states may, subject notably to transparency conditions and to the statement of reasons based upon
objective and verifiable criteria, regulate the price charged (or its increases) for authorized medicines and their level
of reimbursement, or they may freeze prices, place controls on the profitability of persons responsible for placing
medicinal products on the market, and include or exclude the medicine on the list of products covered by national
health insurance systems.
EU law does not expressly include provisions like those of the Sunshine Act in the United States, but a growing
number of EU member states (such as France since 2011) have enacted laws to increase the transparency of
relationships in the healthcare sector. The scope of these laws varies from one member state to another and may,
for example, include the relations between healthcare industry players and physicians or their associations, students
preparing for medical professions or their associations, teachers, health establishments or publishers of prescription
and dispensing assistance software.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of computer software and digital health
products intended for use in health care settings. The 21st Century Cures Act (the “Cures Act”), signed into law on
December 13, 2016, among other things, amended the medical device definition to exclude certain software from
FDA regulation, including clinical decision support software that meets certain criteria. On September 27, 2019,
the FDA issued a suite of guidance documents on digital health products, which incorporated applicable Cures Act
standards, including regarding the types of clinical decision support tools and other software that are exempt from
regulation by the FDA as medical devices, and continues to issue new guidance in this area. 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, and our specialty home
medical supply business, 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
15
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 personal information, such as the federal Health Insurance Portability and Accountability Act of 1996,
as amended, and implementing regulations (“HIPAA”), the Controlling the Assault of Non-Solicited Pornography
and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the Federal Trade Commission
Act, the California Privacy Act (“CCPA”), and the California Privacy Rights Act (“CPRA”) that becomes effective
on January 1, 2023. Laws and regulations relating to privacy and data protection are continually evolving and
subject to potentially differing interpretations. These requirements may not be harmonized, may be interpreted and
applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our
practices. Our businesses’ failure to comply with these laws and regulations could expose us to breach of contract
claims, substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our
reputation. 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
to reflect these legal requirements, which could have a material adverse effect on our operations.
Also, the European Parliament and the Council of the EU adopted the pan-European General Data Protection
Regulation (“GDPR”), effective from May 25, 2018, which increased privacy rights for individuals in the EU or
EEA (“Data Subjects”), including individuals who are our customers, suppliers and employees. The GDPR
extended the scope of responsibilities for data controllers and data processors, and generally imposes increased
requirements and potential penalties on companies, such as us, that offer goods or services to Data Subjects or
monitor their behavior (including by companies based outside of Europe). Noncompliance can result in penalties of
up to the greater of EUR 20 million, or 4% of global company revenues, and Data Subjects may seek damages.
Member states may individually impose additional requirements and penalties regarding certain matters, such as
employee personal data. With respect to the personal data it protects, the GDPR requires, among other things,
company accountability, consents from Data Subjects or other acceptable legal basis to process the personal data,
breach notifications within 72 hours, data integrity and security, and fairness and transparency regarding the
storage, use or other processing of the personal data. The GDPR also provides rights to Data Subjects relating
notably to information, access, modification, erasure and transporting of the personal data.
On August 20, 2021, China promulgated the PRC Personal Information Protection Law (“PIPL”), which took effect
on November 1, 2021. The PIPL imposes specific rules for processing personal information and it also specifies
that the law shall also apply to personal information activities carried out outside China but for the purpose of
providing products or services to PRC citizens. Any non-compliance with these laws and regulations may subject
us to fines, orders to rectify or terminate any actions that are deemed illegal by regulatory authorities, other
penalties, as well as reputational damage or legal proceedings against us, which may affect our business, financial
condition or results of operations. The PIPL carries maximum penalties of CNY50 million or 5% of the annual
revenue of entities that process personal data.
In the United States, the CCPA, which increases the privacy protections afforded California residents, became
effective January 1, 2020. The CCPA generally requires companies, such as us, to institute additional protections
regarding the collection, use and disclosure of certain personal information of California residents. Compliance
with the new obligations imposed by the CCPA depends in part on how particular regulators interpret and apply
them. Regulations were released in August of 2020, but there remains some uncertainty about how the CCPA will
be interpreted by the courts and enforced by the regulators. If we fail to comply with the CCPA or if regulators
assert that we have failed to comply with the CCPA, we may be subject to certain fines or other penalties and
litigation, any of which may negatively impact our reputation, require us to expend significant resources, and harm
our business. Furthermore, California voters approved the CPRA on November 3, 2020, which will amend and
expand the CCPA, including by providing consumers with additional rights with respect to their personal
information, and creating a new state agency to enforce the CCPA and the CPRA. The CPRA will come into effect
on January 1, 2023, applying to information collected by businesses on or after January 1, 2022.
Other states, as well as the federal government, have increasingly considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance. Virginia and Colorado were both
successful in passing privacy legislation in 2021, becoming effective on January 1, 2023 and July 1, 2023
respectively. While we believe we have substantially compliant programs and controls in place to comply with the
16
GDPR, CCPA, PIPL, and CPRA requirements, our compliance with data privacy and cybersecurity laws is likely to
impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in
our practices in response to new requirements or interpretations of the requirements, could have a material adverse
effect on our business.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers, and we, are subject to laws, regulations and industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records, and our products may also 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 or services to comply with applicable legal or contractual data
privacy and security requirements, may not only cause us significant reputational harm, but may also lead to claims
against us by our customers and/or governmental agencies and involve substantial fines, penalties and other
liabilities and expenses and costs for remediation.
Various federal initiatives involve the adoption and use by health care providers of certain electronic health care
records systems and processes. The initiatives include, among others, programs that incentivize physicians and
dentists, through MIPS, to use EHR technology in accordance with certain evolving requirements, including
regarding quality, promoting interoperability, cost and improvement activities. Qualification for the MIPS
incentive payments requires the use of EHRs that are certified as having certain capabilities designated in evolving
standards adopted by CMS and the Office of the National Coordinator for Health Information Technology of HHS
(“ONC”). Certain of our businesses involve the manufacture and sale of such certified EHR systems and other
products linked to government supported incentive programs. In order to maintain certification of our EHR
products, we must satisfy these changing governmental standards. If any of our EHR systems do not meet these
standards, yet have been relied upon by health care providers to receive federal incentive payments, we may be
exposed to risk, such as under federal health care fraud and abuse laws, including the False Claims Act.
Moreover, in order to satisfy our customers, and comply with evolving legal requirements, our products may need
to incorporate increasingly complex functionality, such as with respect to reporting and information blocking.
Although we believe we are positioned to accomplish this, the effort may involve increased costs, and our failure to
implement product modifications, or otherwise satisfy applicable standards, could have a material adverse effect on
our business.
Other health information standards, such as regulations under HIPAA, establish standards regarding electronic
health data transmissions and transaction code set rules for specific electronic transactions, such as transactions
involving claims submissions to third party payers. Failure to abide by these and other 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.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged information becomes
increasingly important. As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
There may be additional legislative or regulatory 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.
17
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.
International Transactions
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, German
anti-corruption laws 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 laws and regulations that impact our business or laws and regulations as they apply to our customers’
practices will not have a material adverse effect on our business.
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 and Human Capital
At Henry Schein, our employees are our greatest asset. We employ more than 21,600 full-time equivalent
employees, including approximately 2,100 telesales representatives, over 3,450 field sales consultants, including
equipment sales specialists, 2,175 installation and repair technicians, 3,750 warehouse employees, 950 computer
programmers and technicians, 825 management employees and 8,400 office, clerical and administrative employees.
Approximately 50% of our workforce is based in the United States and approximately 50% is based outside of the
United States. Approximately 13% of our employees are subject to collective bargaining agreements. We believe
that our relations with our employees are excellent.
We refer to our employees as Team Schein Members, or “TSMs.” Our TSMs are the cornerstone of the Company.
Our success is built on the engagement and commitment of our team, which is dedicated to meeting the needs of
our customers, supplier partners, fellow TSMs, stockholders and society. We are committed to supporting the
personal and professional development of our TSMs, as well as providing competitive benefits and a safe, inclusive
workplace, and believe that these measures help us to retain our TSMs and attract new TSMs. As part of this
commitment, among other things we:
• Maintain a strong collaborative workplace culture. We believe our TSMs’ ability to effectively
communicate and cooperate across functional and departmental teams positively impacts our performance.
Each TSM’s performance is evaluated annually, based on a measure of Team Schein values. Our team’s
performance as a whole is evaluated via a culture survey, conducted every two years, distributed to all
TSMs, which, among other things, addresses collaboration. The results from our global culture surveys are
reviewed by senior leaders, reported to the Board of Directors and used to implement programs and
processes designed to further enhance our culture. Our most recent results in 2021 showed a meaningful
increase in our collaboration scores from our prior survey. We are currently in the process of further
developing our collaborative culture by, among other things, strengthening our existing commitment to
diversity and inclusion, as further described below.
18
• Are committed to enhancing our Diversity and Inclusion (“D&I”) initiatives. We believe a diverse
workforce fosters innovation and cultivates an environment filled with unique perspectives. As a result,
D&I helps us meet the needs of customers around the world and provide our TSMs an inclusive
environment that encourages them to be their authentic selves. We collect feedback through hosting
roundtables where our senior leaders actively listen to our TSMs on topics related to D&I, and the insights
learned are used to guide our efforts to support a diverse and inclusive environment. We measure our
success in D&I through, among other things, our global culture survey, where results in 2021 showed D&I
is our top strength out of 14 focus areas. To guide our efforts and education related to D&I, our Diversity
and Inclusion Council, with engagement from our Board of Directors and Executive Management
Committee, drives the Company’s overall D&I strategy. We continue to enhance our D&I learning
journey, educating global managers on key D&I topics including unconscious bias, leading inclusively,
privilege and equity. We also continue to educate our global TSMs on the importance of D&I.
Additionally, we promote engagement by utilizing our Employee Resource Groups (“ERGs”) as an
inclusive and diverse vehicle for all TSMs to share, connect, learn and develop both personally and
professionally. Each of our ERGs has a sponsor from our Executive Management Committee and our
Board of Directors and our CEO engages directly in many of our ERG programs. We believe that these
efforts will serve as a critical steppingstone as we continue to strengthen our D&I initiatives in an effort to
meet the evolving needs of our customers, supplier partners, TSMs, stockholders and society.
•
Strive to create a culture of wellness. In 2020, we launched a Mental Wellness Committee with a mission
to empower every TSM to be their best self, mentally, emotionally and physically. The Committee
provides resources, guidance and support, and works across our businesses to establish enhanced workplace
norms to help improve and preserve our TSMs’ wellness. We actively engage leadership, including our
CEO, Executive Management Committee, Board of Directors, and TSMs alike in conversations around the
importance of wellness in the workplace. Our Mental Wellness Committee’s four main areas of focus
include (i) culture (with a focus to create recommendations and rules of engagement to prioritize wellness),
(ii) education (with a focus to ensure we are delivering relevant education sessions around the importance
of mental wellness), (iii) resources (to ensure we are continuously reviewing the resources available to
support our TSMs’ wellbeing and ensure they are easily accessible on an internal microsite), and (iv)
communications (to help remove the stigma around mental health and raise awareness of the importance of
wellness as a whole).
• Are committed to the professional development of our TSMs. Personal and professional development of our
TSMs is important to us. As such, we invest in our employees by providing both formal and informal
learning opportunities that are focused on growing and enhancing knowledge, skills and abilities. TSMs
globally are offered a broad suite of professional development training programs targeted to specific
learning opportunities based on their current and potential future role within the Company. We also offer
over 50 organizational and development training courses designed to aid in the overall development and
advancement of skills and competencies to enable organizational success. Executive education and
mentorship and coaching programs also form an important part of our development and career support
initiatives. Additionally, we measure growth and development as part of our global culture survey, where
results in 2021 showed a meaningful increase in our score from our prior survey with respect to our work to
foster the professional growth of our TSMs.
•
Support talent development and succession planning. Talent planning efforts are an integral part of our
commitment to ensure a strong leadership pipeline across the organization. Through a formal global
process, we strategically identify and develop talent leads through targeted development opportunities and
intentional succession plans. We continuously identify a group of potential management successors as part
of our succession planning process. Information derived from talent planning efforts informs curriculum
design and content to help focus on the right capabilities and help ensure alignment of career development
efforts with the future needs of the organization. Our Board of Directors is provided with periodic updates
regarding our talent and succession planning efforts, participates in professional development activities
with our TSMs and receives formal documentation on these topics annually.
19
•
Support TSM health and safety. We offer competitive health and wellness programs and other benefits to
eligible TSMs. In addition to employee health and wellness benefits, we are committed to providing a safe
and secure work environment for all TSMs. In connection with the COVID-19 pandemic, we continue to
update our policies and procedures, as appropriate, to implement health and safety protocols to help protect
our TSMs and customers. While TSMs at our manufacturing and distribution facilities, as well as field
sales consultants and equipment service technicians, have continued to work onsite or in the field to
provide vital services to our customers, most TSMs in administrative office-based functions have
effectively worked remotely since the start of the pandemic. We continue to stay up-to-date with the
federal, state and local mandates, and CDC and WHO guidelines to help ensure we are implementing
proper health and safety protocols for all TSMs. We communicate such updates to our TSMs. The team
also continues to hold virtual Global Town Halls for all TSMs to focus on critical business updates.
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. 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.
20
Information about our Executive Officers
The following table sets forth certain information regarding our executive officers:
Name
Age
Position
Stanley M. Bergman
Gerald A. Benjamin
James P. Breslawski
David Brous
Brad Connett
Michael S. Ettinger
Lorelei McGlynn
Mark E. Mlotek
Steven Paladino
Walter Siegel
72
69
68
53
63
60
58
66
64
62
Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
Vice Chairman, President, Director
Chief Executive Officer, Strategic Business Group
Chief Executive Officer, North American Distribution Group
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Senior Vice President, Chief Human Resources Officer
Executive Vice President, Chief Strategic Officer, Director
Executive Vice President, Chief Financial Officer, Director
Senior Vice President and Chief Legal Officer
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 Vice Chairman since 2018, President since 2005 and a director since 1992. Mr.
Breslawski was the Chief Executive Officer of our Henry Schein Global Dental Group from 2005 to 2018. 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.
David Brous has been our Chief Executive Officer, Strategic Business Group since 2021. Mr. Brous joined us in
2002 and has held many positions within the organization, including President, Strategic Business Units Group and
Asia Pacific & Brazil Dental, leading and managing the Corporate Business Development Group and the
International Healthcare Group (managing our International Animal Health business, International Medical
business and Australia / New Zealand Dental business).
Brad Connett has been our Chief Executive Officer, North American Distribution Group since 2021. Previously
Mr. Connett was the President of our U.S. Medical Group from 2018 to 2021. Mr. Connett joined us in 1997 and
has held a number of roles of increasing responsibility at the Company. Throughout his career, he has received
numerous industry honors, including the John F. Sasen Leadership Award from the Health Industry Distributors
Association (HIDA), in recognition of his service to the industry, and induction into the Medical Distribution Hall
of Fame by Repertoire Magazine.
Michael S. Ettinger has been our 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.
21
Lorelei McGlynn has been our Senior Vice President, Chief Human Resources Officer 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.
Mark E. Mlotek has been our 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. On January 5, 2022, the Company announced that Mr. Paladino will retire as Executive
Vice President and Chief Financial Officer of the Company, effective April 29, 2022. Mr. Paladino will remain as
a member of the Company’s Board of Directors, and is expected to stand for reelection at the Company’s annual
meeting of stockholders to be held in May of 2022. Mr. Paladino will advise the Company as a consultant
following his retirement.
Walter Siegel has been our Senior Vice President and Chief Legal Officer since 2021. Previously, Mr. Siegel was
our Senior Vice President and General Counsel from 2013 until 2021. 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.
Other Executive Management
The following table sets forth certain information regarding other Executive Management:
Name
Age
Position
Andrea Albertini
James Mullins
Kelly Murphy
Christopher Pendergast
Michael Racioppi
Ronald N. South
René Willi, Ph.D.
51
57
41
59
67
60
54
President, International Distribution Group
Senior Vice President, Global Supply Chain
Senior Vice President and General Counsel
Senior Vice President and Chief Technology Officer
Senior Vice President, Chief Merchandising Officer
Vice President, Corporate Finance and Chief Accounting Officer
Chief Executive Officer, Global Oral Reconstruction Group
Andrea Albertini has been President, International Distribution Group since 2021. Mr. Albertini joined us in 2013
and has held several positions within the organization including President of our EMEA Dental Distribution Group,
and Vice-President of International Dental Equipment. Prior to joining Henry Schein, Mr. Albertini held leadership
positions at Cefla Dental Group and Castellini.
James Mullins has been our Senior Vice President of Global Supply Chain since 2018. Mr. Mullins joined us in
1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer
Service Officer.
22
Kelly Murphy has been our Senior Vice President and General Counsel since 2021. Since joining us in 2011, Ms.
Murphy has held several key positions of increasing responsibility within the legal function, most recently serving
as Deputy General Counsel.
Christopher Pendergast has been our Senior Vice President and Chief Technology Officer since 2018. Prior to
joining us, Mr. Pendergast was the employed by VSP Global from 2008 to 2018, most recently as the Chief
Technology Officer and Chief Information Officer. Prior to VSP Global, Mr. Pendergast served in roles of
increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from
2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000 and Rohm and Haas from 1994 to 1998.
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).
Ronald N. South has been our Vice President, Corporate Finance and Chief Accounting Officer since 2013. Prior
to joining us in 2008 as our Vice President, Corporate Finance, Mr. South held leadership roles at Bristol-Myers
Squibb, where he served as Vice President, Finance, for the Cardiovascular and Metabolic business lines, as well as
Vice President, Controller, for its U.S. Pharmaceutical Division, and Vice President, Corporate General Auditor.
Prior to Bristol-Myers Squibb, he served as North American Director of Corporate Audit at PepsiCo, and held
several roles of increasing responsibility with PricewaterhouseCoopers LLP, where he advised clients located in the
United States, Europe, and Latin America. Mr. South is a certified public accountant. On January 4, 2022, the
Company’s Board of Directors appointed Mr. South to succeed Mr. Paladino as Senior Vice President and Chief
Financial Officer of the Company, effective upon Mr. Paladino’s retirement on April 29, 2022, and Mr. South will
replace Mr. Paladino as the Company’s principal financial officer and principal accounting officer.
René Willi, Ph.D. has been our Chief Executive Officer, Global Oral Reconstruction Group since 2021.
Previously, Dr. Willi was the President of our Global Dental Surgical Group. Prior to joining Henry Schein, Dr.
Willi held senior level roles with Institut Straumann AG as Executive Vice President, Surgical Business Unit from
2005 to 2013. Prior to Straumann, he held roles of increasing responsibility in Medtronic Plc’s cardiovascular
division from 2003 to 2005 and with McKinsey & Company as a management consultant from 2000 to 2003.
23
ITEM 1A. Risk Factors
Our business operations could be affected by factors that are not presently known to us or that we currently
consider not to be material to our operations, so you should not consider the risks disclosed in this section to
necessarily represent a complete statement of all risks and uncertainties. The Company believes that the following
risks could have a material adverse impact on our business, reputation, financial results, financial condition and/or
the trading price of our common stock. The order in which these factors appear does not necessarily reflect their
relative importance or priority.
COMPANY RISKS
Our business, results of operations, cash flows, financial condition and liquidity may be negatively impacted by
the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public health concerns and other
natural disasters. The COVID-19 pandemic and the responses of governments to it had, and may again have, a
material adverse effect on our business, results of operations and cash flows and may result in a material
adverse effect on our financial condition and liquidity.
Our business, results of operations, cash flows, financial condition and liquidity may be negatively impacted by the
effects of disease outbreaks, epidemics, pandemics, similar wide-spread public health concerns and other natural
disasters. The COVID-19 pandemic has had, and continues to have, an unprecedented impact on society, worldwide
economic activity, and the health care sector (particularly, the dental market). As a global healthcare solutions
company, the COVID-19 pandemic and the governmental responses to it had, and may again have, a material
adverse effect on our business, results of operations and cash flows and may result in a material adverse effect on
our financial condition and liquidity. Even after the COVID-19 pandemic has begun to subside, we may again
experience material adverse impacts to our business, results of operations and cash flows as a result of, among other
things, its global economic impact, including any recession that may occur in the future, or a prolonged period of
economic slowdown or the reluctance of patients to return for elective dental or medical care. The impacts and
potential impacts from the COVID-19 pandemic include, but are not limited to:
• Significant volatility in supply, demand and selling prices for personal protective equipment (PPE), COVID-19
tests and other COVID-19 related products. Available supply, customer demand and selling prices for PPE,
COVID-19 tests and other COVID-19 related products fluctuated in fiscal 2021 and we expect such volatility to
continue for the duration of the COVID-19 pandemic. This has resulted in inventory reserves, fluctuating margins
and increased revenue related to such products. Although we have experienced significant growth in sales volumes
for PPE, COVID-19 tests and other COVID-19 related products during the COVID-19 pandemic, there can be no
assurance that such growth in sales volumes will be maintained during or following the COVID-19 pandemic. Our
estimates for supply, demand and selling prices are inherently uncertain and if supply, demand, selling prices or
other market dynamics significantly fluctuate in the future beyond our current assumptions, additional inventory
reserves may be required, margins may be reduced and/or revenue may decline for such products, each which could
materially adversely impact our business, results of operations and cash flows. Additionally, governmental policies
designed to reduce the transmission of COVID-19 and variants thereof could once again lead to the closure of
dental offices or deferral of elective procedures and wellness exams by medical and dental patients. Such previous
closures and restrictions impacted our customers’ spending with us and had, and if reinstated may again have, a
material adverse effect on our business, results of operations and cash flows. Although we believe that most
practices currently are able to access adequate supply, we still may be unable to supply our customers with the
specific brand and/or quantity of certain PPE products, COVID-19 tests and other COVID-19 related products they
demand, which may lead to our customers seeking alternative sources of supply. Healthcare professionals’ inability
to obtain a sufficient quantity and/or brand of certain PPE, COVID-19 tests and other COVID-19 related products
would adversely impact our business, results of operations and cash flows, and could materially adversely affect
our financial condition and liquidity;
24
• Reduction in Peoples’ Ability and Willingness to be in Public. Restrictions recommended by several public health
organizations, and implemented, from time to time, by federal, state and local governments, to slow and limit the
transmission of COVID-19 and variants thereof has caused and may in the future cause some people to be less
willing to go to elective medical and dental appointments, which could again materially adversely affect demand
for our products. A lengthened period of materially suppressed demand could again cause material adverse impacts
on our business, results of operations and cash flows and could materially adversely affect our financial condition
and liquidity;
• Potential delays in customer payments, or defaults on our customer credit arrangements. We generally sell
products to customers with payment terms. If customers’ cash flows or operating and financial performance
deteriorate due to the impact of the COVID-19 pandemic, 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 more stringent payment terms. The inability of current and/or potential customers to pay us
for our products and/or services or any demands by suppliers for more stringent payment terms may materially
adversely affect our business, results of operations, cash flows, financial condition and liquidity and may limit the
amounts we can borrow under our trade accounts receivable securitization;
• Impact on third parties’ ability to meet their obligations to us; impact on our ability to meet obligations to third
parties. Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors,
contractors (including third-party shippers), joint venture partners and external business partners, to meet their
obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or
operational difficulties, travel restrictions and border closures and/or other domestic and global supply chain
disruptions, may materially adversely affect our business, results of operations, cash flows, financial condition and
liquidity. Certain of our contracts with supply partners contain minimum purchase requirements or include rebate
provisions if we satisfy certain sales or purchasing targets that, in certain cases we have not been able to satisfy and
in other cases we may not be able to fully satisfy, due to the impact of the COVID-19 pandemic. Our failure to
satisfy such contractual provisions or renegotiate more favorable terms could materially adversely affect our
business, results of operations and cash flows;
• Negative impact on our workforce and impact of adapted business practices. The spread of COVID-19 and
variants thereof caused us to modify our business practices (including employee travel, employee work locations,
and physical participation in meetings, events and conferences), and we may take further actions as may be required
by government authorities or our customers or that we determine are in the best interests of our employees. As the
COVID-19 pandemic continues to unfold, we will continue to evaluate appropriate actions for our business. Many
of our employees shifted abruptly to working remotely and our office-based workers who are able to work from
home continue to do so. An extended period of modified business practices and remote work arrangements could
have a negative impact on employee morale, strain our business continuity plans, introduce operational risk
(including but not limited to cybersecurity risks), and impair our ability to efficiently operate our business;
• Significant changes in political conditions. Significant changes in political conditions in markets in which we
purchase and distribute our products have occurred and are expected to continue at least during the pendency of the
pandemic, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or
close our operating facilities, restrict our employees’ ability to travel or perform necessary business functions, or
otherwise constrain the operations of our business partners, suppliers or customers, which may materially adversely
affect our business, results of operations, cash flows, financial condition and liquidity;
• Potential impact on our ability to meet obligations under credit facilities. An extended negative impact from the
COVID-19 pandemic on our business, results of operations, cash flows, financial condition and liquidity could
impact our ability to meet our obligations under credit facilities or outstanding long term debt, which contain
maximum leverage ratios, and customary representations, warranties and affirmative covenants;
• Volatility in the financial markets. Volatility in the financial markets may materially adversely affect the
availability and cost of credit to us;
25
• Refocusing management resources to mitigate effects of the COVID-19 pandemic. Our management is focused on
mitigating the effects of the COVID-19 pandemic, which has required, and may continue to require for the duration
of the pandemic, a large investment of time and resources across the Company, and may delay certain strategic and
other plans, which could materially adversely affect our business;
• Potential increased costs associated with our self-insured medical insurance programs. We may incur significant
employee health care costs under our self-insurance medical insurance programs if a large number of our
employees and/or their covered family members become ill from COVID-19 and variants thereof;
• Vaccination or testing mandates. The imposition of government or customer mandated vaccination or testing
mandates may impact our ability to retain current employees, attract new employees and retain certain product and
service contracts. It is possible that a significant number of our employees have not been vaccinated, and in the
event of a vaccine mandate some of those employees may seek exemptions or otherwise resist vaccination. The
imposition of vaccine mandates could potentially cause labor shortages if employees refuse to get vaccinated and
their employment is terminated, either voluntarily or involuntarily. Such labor shortages could also affect our
ability to retain certain specific contracts to which the mandates may apply, reduce our sales and/or affect our
ability to fulfill customer orders, impacting our revenue and profitability. Furthermore, managing and tracking
vaccination status and ongoing testing for exempt and/or unvaccinated employees could potentially increase our
costs, as could addressing inconsistent mandates. COVID-19 vaccine mandates and similar regulations have the
potential to materially adversely affect our business, as the scope, nature and effect of such mandates are uncertain
at this time; and
• Reputational risk associated with response to the COVID-19 pandemic. If we do not respond appropriately to the
COVID-19 pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our
reputation and our brands, which could materially adversely affect our business.
The impact of the COVID-19 pandemic may also exacerbate other risks discussed below, any of which could have
a material adverse effect on us.
We are dependent upon third parties for the manufacture and supply of substantially all of our products.
We obtain substantially all of the products we distribute from third parties, with whom we generally do not have
long-term contracts. While there is typically more than one source of supply, some key suppliers, in the aggregate,
supply a significant portion of the products we sell. In 2021, our top 10 health care distribution suppliers and our
single largest supplier accounted for approximately 30% and 4%, respectively, of our aggregate purchases.
Because of our dependence upon such suppliers, our operations are subject to the suppliers’ ability and willingness
to supply products in the quantities that we require, and the risks include delays caused by interruption in
production based on conditions outside of our control, including a supplier’s failure to comply with applicable
government requirements (which may result in product recalls and/or cessation of sales) or an interruption in the
suppliers’ manufacturing capabilities. In the event of any such interruption in supply, we would need to identify
and obtain acceptable replacement sources on a timely basis. There is no guarantee that we would be able to obtain
such alternative sources of supply on a timely basis, if at all, and an extended interruption in supply, particularly of
a high sales volume product, could result in a significant disruption in our sales and operations, as well as damage
to our relationships with customers and our reputation. In addition, certain of our suppliers have had their ability to
service certain markets restricted or negatively impacted because of allegations of forced labor in their supply
chain. Forced labor legislation affecting the supply chain has increased around the world, and the United States
recently passed the Uyghur Forced Labor Prevention Act. Our supply chain could be materially disrupted if our
suppliers fail to comply with, or are unable to satisfy our demand for products, as a result of applicable forced labor
legislation and regulations.
26
Our future growth (especially for our technology and value-added services segment) is dependent upon our
ability to develop or acquire and maintain and protect new products and technologies that achieve market
acceptance with acceptable margins.
Our future success depends on our ability to timely develop (or obtain the right to sell) competitive and innovative
(particularly for our technology and value-added services segment) products and services and to market them
quickly and cost-effectively. Our ability to anticipate customer needs and emerging trends and develop or acquire
new products, services and technologies at competitive prices requires significant resources, including employees
with the requisite skills, experience and expertise, particularly in our technology segment, including dental practice
management, patient engagement and demand creation software solutions. The failure to successfully address these
challenges could materially disrupt our sales and operations. Additionally, our software and e-services products,
like software products generally, may contain undetected errors or bugs when introduced or as new versions are
released. Any such defective software may result in increased expenses related to the software and could adversely
affect our relationships with customers as well as our reputation. With respect to certain software and e-services
that we develop, we rely primarily upon copyright, trademark and trade secret laws, as well as contractual and
common law protections and confidentiality obligations. We cannot provide assurance that such legal protections
will be available, adequate or enforceable in a timely manner to protect our software or e-services products.
Our expansion through acquisitions and joint ventures involves risks and may not result in the benefits and
revenue growth we expect.
One of our business strategies has been to expand our domestic and international markets in part through
acquisitions and joint ventures and we expect to continue to make acquisitions and enter into joint ventures in the
future. Such transactions require significant management attention, may place significant demands on our
operations, information systems and financial resources, and there is risk that one or more may not succeed. We
cannot be sure, for example, that we will achieve the benefits of revenue growth that we expect from these
acquisitions or joint ventures or that we will avoid unforeseen additional costs or expenses. Our ability to
successfully implement our acquisition and joint venture strategy depends upon, among other things, the following:
•
•
•
•
•
•
the availability of suitable acquisition or joint venture candidates at acceptable prices;
our ability to consummate such transactions, which could potentially be prohibited due to U.S. or
foreign antitrust regulations;
the liquidity of our investments and the availability of financing on acceptable terms;
our ability to retain customers or product lines of the acquired businesses or joint ventures;
our ability to retain, recruit and incentivize the management of the companies we acquire; and
our ability to successfully integrate these companies’ operations, services, products and personnel with
our culture, management policies, internal procedures, working capital management, financial and
operational controls and strategies.
Furthermore, some of our acquisitions and future acquisitions may give rise to an obligation to make contingent
payments or to satisfy certain repurchase obligations, which payments could have material adverse impacts on our
financial results individually or in the aggregate.
Certain provisions in our governing documents and other documents to which we are a party may discourage
third parties from seeking to acquire us that might otherwise result in our stockholders receiving a premium
over the market price of their shares.
The provisions of our certificate of incorporation and by-laws may make it more difficult for a third-party to
acquire us, may discourage acquisition bids and may impact the price that certain investors might be willing to pay
in the future for shares of our common stock. These provisions, among other things require (i) the affirmative vote
of the holders of at least 60% of the shares of common stock entitled to vote to approve a merger, consolidation, or
a sale, lease, transfer or exchange of all or substantially all of our assets; and (ii) the affirmative vote of the holders
of at least 66 2/3% of our common stock entitled to vote to (a) remove a director; and (b) to amend or repeal our
by-laws, with certain limited exceptions. In addition, certain of our employee incentive plans provide for
accelerated vesting of stock options and other awards upon termination without cause within two years following a
change in control, or grant the plan committee discretion to accelerate awards upon a change of control. Further,
27
certain agreements between us and our executive officers provide for increased severance payments and certain
benefits if those executive officers are terminated without cause by us or if they terminate for good reason, in each
case within two years following a change in control or within ninety days prior to the effective date of the change in
control or after the first public announcement of the pendency of the change in control.
INDUSTRY RISKS
The health care products distribution industry is highly competitive (including, without limitation, competition
from third-party online commerce sites) and consolidating, and we may not be able to compete successfully.
We compete with numerous companies, including several major manufacturers and distributors. Some of our
competitors have greater financial and other resources than we do, which could allow them to compete more
successfully. Most of our products are available from several sources and our customers tend to have relationships
with several distributors. Competitors could obtain exclusive rights to market particular products, which we would
then be unable to market. Manufacturers also could increase their efforts to sell directly to end-users and thereby
eliminate or reduce our role in distribution. Industry consolidation among health care product distributors and
manufacturers, price competition, product unavailability, whether due to our inability to gain access to products or
to interruptions in manufacturing supply, or the emergence of new competitors, also could increase competition.
Consolidation has also increased among manufacturers of health care products, which could have a material
adverse effect on our margins and product availability. We could be subject to charges and financial losses in the
event we fail to satisfy minimum purchase commitments contained in some of our contracts. Additionally,
traditional health care supply and distribution relationships are being challenged by 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.
The repeal or judicial prohibition on implementation of the Affordable Care Act could materially adversely
affect our business.
The ACA greatly expanded health insurance coverage in the United States and has been the target of litigation and
Congressional reform efforts since its adoption. The U.S. Supreme Court, in upholding the constitutionality of the
ACA and its individual mandate provision in 2012, simultaneously limited ACA provisions requiring Medicaid
expansion, making such expansion a state-by-state decision. In 2017, the U.S. Congress effectively repealed the
ACA’s individual mandate provision by eliminating the financial penalty for non-compliance. In the most recent
ACA litigation, a federal appeals court found the individual mandate to be unconstitutional, and returned the case to
a lower federal court for consideration of whether the remainder of the ACA could survive the excision of the
individual mandate. This decision was appealed to the U.S. Supreme Court, and the Supreme Court issued a
decision on June 17, 2021. Without reaching the merits of the case, the Supreme Court held that the plaintiffs in
the case did not have standing to challenge the ACA. Any outcome of future cases that change the ACA, in
addition to future legislation, regulation, guidance and/or Executive Orders that do the same, could have a
significant impact on the U.S. healthcare industry. For instance, the American Rescue Plan Act of 2021 enhanced
premium tax credits, which has resulted in an expansion of the number of people covered under the ACA. These
changes are time-limited, with some enhancements in place for 2021 only and others available through the end of
2022.
The health care industry is experiencing changes due to political, economic and regulatory influences that could
materially adversely affect our business.
The health care industry is highly regulated and subject to changing political, economic and regulatory influences.
In recent years, the health care industry has undergone, and is in the process of undergoing, significant changes
driven by various efforts to reduce costs, including, among other factors: trends toward managed care; collective
purchasing arrangements and consolidation among office-based health care practitioners; and changes in
reimbursements to customers, including increased attention to value-based payment arrangements, as well as
growing enforcement activities (and related monetary recoveries) by governmental officials. Both our profitability
28
and the profitability of our customers may be materially adversely affected by laws and regulations reducing
reimbursement rates for pharmaceuticals, medical supplies and devices, and/or medical treatments or services, or
changes to the methodology by which reimbursement levels are determined. If we are unable to react effectively to
these and other changes in the health care industry, our business could be materially adversely affected.
Expansion of group purchasing organizations (“GPO”), dental support organizations (“DSO”) or provider
networks and the multi-tiered costing structure may place us at a competitive disadvantage.
The health care products industry is subject to a multi-tiered costing structure, which can vary by manufacturer
and/or product. Under this structure, certain institutions can obtain more favorable prices for health care products
than we are able to obtain. The multi-tiered costing structure continues to expand as many large integrated health
care providers and others with significant purchasing power, such as GPOs and DSOs, demand more favorable
pricing terms. Additionally, the formation of provider networks, GPOs and DSOs may shift purchasing decisions
to entities or persons with whom we do not have a historical relationship and may threaten our ability to compete
effectively, which could in turn negatively impact our financial results. Although we are seeking to obtain similar
terms from manufacturers to access lower prices demanded by GPO and DSO contracts or other contracts, and to
develop relationships with existing and emerging provider networks, GPOs and DSOs, we cannot guarantee that
such terms will be obtained or contracts executed.
Increases in shipping costs or service issues with our third-party shippers could harm our business.
Our ability to meet our customers’ expedited delivery expectations is an integral component of our business
strategy for which our customers rely. Shipping is a significant expense in the operation of our business. We ship
almost all of our orders through third-party delivery services, and typically bear the cost of shipment. Accordingly,
any significant increase in shipping rates could have a material adverse effect on our business, financial condition
or operating results. Similarly, strikes or other service interruptions by those shippers, including at transportation
centers or shipping ports, could cause our operating expenses to rise and materially adversely affect our ability to
deliver products on a timely basis.
MACRO ECONOMIC AND POLITICAL RISKS
Uncertain global 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, Asia and other parts of the world could materially adversely affect our results of operations
and financial condition. These uncertainties, include, among other things:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
election results;
changes to laws and policies governing foreign trade (including, without limitation, the United States-
Mexico-Canada Agreement (USMCA), the EU-UK Trade and Cooperation Agreement of December
2020 and other international trade agreements);
greater restrictions on imports and exports;
supply chain disruptions;
changes in laws and policies governing health care or data privacy;
tariffs and sanctions;
changes to the relationship between the United States and China;
sovereign debt levels;
the inability of political institutions to effectively resolve actual or perceived economic, currency or
budgetary crises or issues;
consumer confidence;
unemployment levels (and a corresponding increase in the uninsured and underinsured population);
changes in regulatory and tax regulations;
interest rate fluctuations;
availability of capital;
29
•
•
•
•
•
•
increases in fuel and energy costs;
the effect of inflation on our ability to procure products and our ability to increase prices over time and
pass through to our customers price increases we may receive;
changes in tax rates and the availability of certain tax deductions;
increases in health care costs;
the threat or outbreak of war, terrorism or public unrest (including, without limitation, the possibility of
war in the Ukraine and a wider European or global conflict); and
changes in laws and policies governing manufacturing, development and investment in territories and
countries where we do business.
Additionally, changes in government, government debt and/or budget crises may lead to reductions in government
spending in certain countries, which could reduce overall health care spending, and/or higher income or corporate
taxes, which could depress spending overall. Recessionary or inflationary conditions and depressed levels of
consumer and commercial spending may also cause customers to reduce, modify, delay or cancel plans to purchase
our products and may cause suppliers to reduce their output or change their terms of sale. We generally sell
products to customers with payment terms. If customers’ cash flow or operating and financial performance
deteriorate, or if they are unable to make scheduled payments or obtain credit, they may not be able to, or may
delay, payment to us. Likewise, for similar reasons suppliers may restrict credit or impose different payment terms.
REGULATORY AND LITIGATION RISKS
Failure to comply with existing and future regulatory requirements could materially adversely affect our
business.
We strive to be compliant with the applicable laws, regulations and guidance described below, and believe we have
effective compliance programs and other controls in place to ensure substantial compliance. However, compliance
is not guaranteed either now or in the future as certain laws, regulations and guidance may be subject to varying and
evolving interpretations that could affect our ability to comply, as well as, future changes, additions and
enforcement approaches, including in light of political changes. The Biden Administration has indicated that it will
be more aggressive in its pursuing alleged violations of law, and it has revoked certain guidance that would have
limited governmental use of informal agency guidance to pursue such violations, as well as indicating it was more
prepared to pursue individuals for corporate law violations, including an aggressive approach to anti-corruption
activities. Changes with respect to the applicable laws, regulations and guidance described below may require us to
update or revise our operations, services, marketing practices, and compliance programs and controls, and may
impose additional and unforeseen costs on us, pose new or previously immaterial risks to us, or may otherwise have
a material adverse effect on our business. There can be no assurance that current and future government regulations
will not adversely affect our business, and we cannot predict new regulatory priorities, the form, content or timing
of regulatory actions, and their impact on the health care industry and on our business and operations.
Global efforts toward healthcare cost containment continue to exert pressure on product pricing. In the United
States, in addition to other government efforts to control health care costs, there has been increased scrutiny on drug
pricing and concurrent efforts to control or reduce drug costs by Congress, the President, executive branch agencies
and various states. At the state level, several states have adopted laws that require drug manufacturers to provide
advance notice of certain price increases and to report information relating to those price increases, while others
have taken legislative or administrative action to establish prescription drug affordability boards or multi-payer
purchasing pools to reduce the cost of prescription drugs. At the federal level, several related bills have been
introduced and regulations proposed which, if enacted or finalized, respectively, would impact drug pricing and
related costs.
Under the Physician Payment Sunshine Act, we are required to collect and report detailed information regarding
certain financial relationships we have with covered recipients, including physicians, dentists, teaching hospitals,
and certain other non-physician practitioners. We or our subsidiaries may be required to report information 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 unclear. 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 satisfying the above laws and requirements, such
30
compliance imposes additional costs on us and the requirements are sometimes unclear. In the United States,
government actions to seek to increase health-related price transparency may also affect our business.
Our business is subject to additional requirements under various local, state, federal and international laws and
regulations applicable to the sale and distribution of, and third-party payment for, pharmaceuticals and medical
devices and HCT/P products. Among the federal laws with which we must comply are the Controlled Substances
Act, the FDC Act, the Federal Drug Quality and Security Act, including DSCSA, and Section 361 of the Public
Health Services Act. Among other things, such laws, and the regulations promulgated thereunder:
•
•
•
•
•
•
•
•
•
•
regulate the introduction, manufacture, advertising, marketing and promotion, sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or recalling, reporting, and
distribution of, and record keeping for drugs, HCT/P products and medical devices, including
requirements with respect to unique medical device identifiers;
subject us to inspection by the FDA and DEA and similar state authorities;
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;
impose on us reporting requirements if a pharmaceutical, HCT/P product or medical device causes
serious illness, injury or death;
require manufacturers, wholesalers, repackagers and dispensers of prescription drugs to identify and
trace certain prescription drugs as they are distributed;
require the licensing of prescription drug wholesalers and third-party logistics providers; and
•
• mandate compliance with standards for the recordkeeping, storage and handling of prescription drugs,
and associated reporting requirements.
The FDA has become increasingly active in addressing the regulation of computer software and digital health
products intended for use in health care settings. The Cures Act, signed into law on December 13, 2016, among
other things, amended the medical device definition to exclude certain software from FDA regulation, including
certain clinical decision support software. On September 27, 2019, the FDA issued a suite of guidance documents
on digital health products, which incorporated applicable Cures Act standards, including regarding the types of
clinical decision support tools and other software that are exempt from regulation by the FDA as medical devices,
and continues to issue new guidance in this area. Certain of our businesses involve the development and sale of
software and related products to support physician and dental practice management, and it is possible that the FDA
or foreign government authorities could determine that one or more of our products is subject to regulation as a
medical device, which could subject us or one or more of our businesses to substantial additional requirements,
costs and potential enforcement actions or liabilities for noncompliance with respect to these products.
Applicable federal, state, local and foreign laws and regulations also may require us to meet various standards
relating to, among other things, licensure or registration, program eligibility, procurement, third-party
reimbursement, sales and marketing practices, product integrity and supply tracking to product manufacturers,
product labeling, personnel, privacy and security of health or other personal information, installation, maintenance
and repair of equipment and the importation and exportation of products. The FDA and DEA, as well as CMS
(including with respect to complex Medicare reimbursement requirements applicable to our specialty home medical
supplies business), have recently increased their regulatory and enforcement activities and, in particular, the DEA
has heightened enforcement activities due to the opioid crisis in the United States. One of our businesses was
recently suspended by CMS from receiving payments from Medicare, although it is permitted to continue to
perform and bill for Medicare services. The amounts billed are being deposited in an escrow account pending
resolution of an audit. The Company has not recognized revenue for these services and has currently deferred
31
slightly over $4 million in revenue. Our business is also subject to requirements of similar and other foreign
governmental laws and regulations affecting our operations abroad.
The failure to comply with any of these laws or regulations, or new interpretations of existing laws and regulations,
or the imposition of any additional laws and regulations, could materially adversely affect our business. The costs
to us associated with complying with the various applicable statutes and regulations, as they now exist and as they
may be modified, could be material. Allegations by a governmental body that we have not complied with these
laws could have a material adverse effect on our businesses. While we believe that we are substantially compliant
with applicable laws and regulations, and believe we have adequate compliance programs and controls in place to
ensure substantial compliance, if it is determined that we have not complied with these laws, we are potentially
subject to penalties, including warning letters, substantial 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 also adversely affect our ability to participate in important federal
and state government health care programs, such as Medicare and Medicaid, and damage our reputation.
The EU Medical Device Regulation may adversely affect our business.
The EU MDR, applicable since May 26, 2021, significantly modifies and intensifies the regulatory compliance
requirements for the medical device industry as a whole. Among other things, the EU MDR:
•
•
•
•
•
•
strengthens the rules on placing devices on the market and reinforce surveillance once they are
available;
establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality,
performance and safety of devices placed on the market;
improves the traceability of medical devices throughout the supply chain to the end-user or patient
through a unique identification number;
sets up a central database to provide patients, healthcare professionals and the public with
comprehensive information on products available in the EU;
strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
identifies importers and distributors and medical device products through registration in a database
(EUDAMED not due until May 26, 2022 and after).
In particular, the EU MDR imposes stricter requirements for the confirmation that a product meets the regulatory
requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the
distribution, marketing and sale of medical devices, including post-market surveillance. Medical devices that have
been assessed and/or certified under the EU Medical Device Directive may continue to be placed on the market
until 2024 (or until the expiry of their certificates, if applicable and earlier); however, requirements regarding the
distribution, marketing and sale including quality systems and post-market surveillance have to be observed by
manufacturers, importers and distributors as of the application date.
The modifications created by the EU MDR may have an impact on the way we design and manufacture products
and the way we conduct our business in the European Economic Area.
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
32
paid for by federal, state and other health care payers and programs. Certain additional state and federal laws, such
as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other
health professionals from referring a patient to an entity with which the physician (or family member) has a
financial relationship, for the furnishing of certain designated health services (for example, durable medical
equipment and medical supplies), unless an exception applies. Violations of Anti-Kickback statutes or the Stark
Law may be enforced as violations of the federal False Claims Act.
The fraud and abuse laws and regulations have been subject to 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 applicable false claims laws,
and who may receive up to 30% of total government recoveries. Penalties under fraud and abuse laws may be
severe, including treble damages and substantial civil penalties under the federal False Claims Act, as well as
potential loss of licenses and the ability to participate in federal and state health care programs, criminal penalties,
or imposition of a corporate compliance monitor, which could have a material adverse effect on our business. Also,
these measures may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that
could require us to make changes in our operations or incur substantial defense and settlement expenses. Even
unsuccessful challenges by regulatory authorities or private relators could result in reputational harm and the
incurring of substantial costs. 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, as well as other fraud and abuse
laws.
With respect to measures of this type, the United States government (among others) has expressed concerns about
financial relationships between suppliers on the one hand and physicians, dentists and other health care providers,
on the other. As a result, we regularly review and revise our marketing practices as necessary to facilitate
compliance.
In the EU, the Directive No. 2019/1937 of 23 October 2019 on the protection of persons who report breaches of
Union law, which was to be implemented by EU member states by December 17, 2021, organizes the legal
protection of whistleblowers. This Directive covers whistleblowers reporting breaches of certain EU laws, in
particular as regards public health, the above-mentioned Directive No. 2001/83, Regulation No. 726/2004 or, as
regards data protection, the GDPR. The Directive protects a wide range of people and includes former employees.
All private companies with 50 or more employees are required to create effective internal reporting channels. The
implementation of this Directive by EU member states is still underway for many of them. As of mid-January
2022, only five EU Member States have fully implemented it (Denmark, Lithuania, Malta, Portugal and Sweden)
while the process is ongoing in the others but with varying degrees of progress.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal books and records, 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, consumer protection, and marketing laws and regulations.
In the EU, both active and passive bribery are criminalized. The EU Council Framework Decision 2003/568/JHA
of 22 July 2003 on combating corruption in the private sector establishes more detailed rules on the liability of
legal persons and deterrent sanctions. However, the liability of legal persons is regulated at a national level.
Failure to comply with fraud and abuse laws and regulations, and other laws and regulations, could result in
significant civil and criminal penalties and costs, including the loss of licenses and the ability to participate in
federal and state health care programs, and could have a material adverse effect on our business. We may
determine to enter into settlements, make payments, agree to consent decrees or enter into other arrangements to
resolve such matters. Intentional or unintentional failure to comply with consent decrees could materially adversely
affect our business.
33
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 collection, storage and processing of sensitive
personal information or standards in electronic health records or transmissions, we could be required to make
significant changes to our products, or incur substantial fines, penalties or other liabilities.
Our businesses that involve physician and dental practice management products, and our specialty home medical
supply business, 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.
We are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations
that protect the privacy and security of personal information, such as HIPAA, the Controlling the Assault of Non-
Solicited Pornography and Marketing Act, the Telephone Consumer Protection Act of 1991, Section 5 of the
Federal Trade Commission Act, the CCPA, and the CPRA that becomes effective on January 1, 2023. Laws and
regulations relating to privacy and data protection are continually evolving and subject to potentially differing
interpretations. These requirements may not be harmonized, may be interpreted and applied in a manner that is
inconsistent from one jurisdiction to another or may conflict with other rules or our practices. Our businesses’
failure to comply with these laws and regulations could expose us to breach of contract claims, substantial fines,
penalties and other liabilities and expenses, costs for remediation and harm to our reputation. 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 to reflect these legal
requirements, which could have a material adverse effect on our operations.
In addition, the European Parliament and the Council of the EU have adopted the GDPR, which increases privacy
rights for individuals in the EU or EEA, or “Data Subjects”, including individuals who are our customers, suppliers
and employees. The GDPR extended the scope of responsibilities for data controllers and data processors and
generally imposes increased requirements and potential penalties on companies, such as us, that offer goods or
services to Data Subjects or monitor their behavior (including by companies based outside of Europe).
Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of global company revenues.
Data Subjects also have the right to seek compensation for damages. Member states may individually impose
additional requirements and penalties regarding certain matters, such as employee personal data. With respect to
the personal data it protects, the GDPR requires, among other things, company accountability, consents from Data
Subjects or other acceptable legal basis to process the personal data, breach notifications within 72 hours, data
integrity and security, and fairness and transparency regarding the storage, use or other processing of the personal
data. The GDPR also provides rights to Data Subjects relating notably to information, access, modification, erasure
and transporting of the personal data.
On August 20, 2021, China promulgated the PIPL, which took effect on November 1, 2021. The PIPL imposes
specific rules for processing personal information and it also specifies that the law shall also apply to personal
information activities carried out outside China but for the purpose of providing products or services to PRC
citizens. Any non-compliance with these laws and regulations may subject us to fines, orders to rectify or terminate
any actions that are deemed illegal by regulatory authorities, other penalties, as well as reputational damage or legal
proceedings against us, which may affect our business, financial condition or results of operations. The PIPL
carries maximum penalties of CNY50 million or 5% of the annual revenue of entities that process personal data.
In the United States, the CCPA, which increases the privacy protections afforded California residents, became
effective January 1, 2020. The CCPA generally requires companies, such as us, to institute additional protections
regarding the collection, use and disclosure of certain personal information of California residents. Compliance
with the obligations imposed by the CCPA depends in part on how particular regulators interpret and apply them.
34
Regulations were released in August of 2020, but there remains some uncertainty about how the CCPA will be
interpreted by the courts and enforced by the regulators. If we fail to comply with the CCPA or if regulators assert
that we have failed to comply with the CCPA, we may be subject to certain fines or other penalties and litigation,
any of which may negatively impact our reputation, require us to expend significant resources, and harm our
business. Furthermore, California voters approved the CPRA on November 3, 2020, which will amend and expand
the CCPA, including by providing consumers with additional rights with respect to their personal information, and
creating a new state agency to enforce CCPA and CPRA. The CPRA will come into effect on January 1, 2023,
applying to information collected by businesses on or after January 1, 2022.
Other states, as well as the federal government, have increasingly considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance. Virginia and Colorado were both
successful in passing privacy legislation in 2021, becoming effective on January 1, 2023 and July 1, 2023
respectively. While we believe we have substantially compliant programs and controls in place to comply with the
GDPR, CCPA, PIPL and CPRA requirements, our compliance with data privacy and cybersecurity laws is likely to
impose additional costs on us, and we cannot predict whether the interpretations of the requirements, or changes in
our practices in response to new requirements or interpretations of the requirements, could have a material adverse
effect on our business.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers and we are subject to laws, regulations and industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records. Our products or services may be used as part of these customers’
comprehensive data security programs, including in connection with their efforts to comply with applicable data
privacy and security laws and contractual requirements. Perceived or actual security vulnerabilities in our products
or services, or the perceived or actual failure by us or our customers who use our products or services to comply
with applicable legal or contractual data privacy and security requirements, may not only cause us significant
reputational harm, but may also lead to claims against us by our customers and/or governmental agencies and
involve substantial fines, penalties and other liabilities and expenses and costs for remediation.
Under the GDPR, health data belong to the category of “sensitive data” and benefit from specific protections.
Processing of such data is generally prohibited, except for specific exceptions.
Certain of our businesses involve the manufacture and sale of EHR systems and other products linked to
government supported incentive programs, where the EHR systems must be certified as having certain capabilities
designated in evolving standards, such as those adopted by CMS and ONC. In order to maintain certification of our
EHR products, we must satisfy the changing governmental standards. If any of our EHR systems do not meet these
standards, yet have been relied upon by health care providers to receive federal incentive payments, we may be
exposed to risk, such as under federal health care fraud and abuse laws, including the False Claims Act. While we
believe we are substantially in compliance with such certifications and with applicable fraud and abuse laws and
regulations and that we have adequate compliance programs and controls in place to ensure substantial compliance,
we cannot predict whether changes in applicable law, or interpretation of laws, or resulting changes in our, could
have a material adverse effect on our business.
Moreover, in order to satisfy our customers and comply with evolving legal requirements, our products may need to
incorporate increasingly complex functionality, such as with respect to reporting and information blocking.
Although we believe we are positioned to accomplish this, the effort may involve increased costs, and our failure to
implement product modifications, or otherwise satisfy applicable standards, could have a material adverse effect on
our business.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged information becomes
increasingly important. As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
35
Tax legislation could materially adversely affect our financial results and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as
foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could materially
adversely affect our tax positions. There can be no assurance that our effective tax rate will not be materially
adversely affected by legislation resulting from these initiatives. In addition, tax laws and regulations are extremely
complex and subject to varying interpretations. Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent, there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be successful in any such challenge.
We face inherent risk of exposure to product liability, intellectual property infringement and other claims in the
event that the use of the products we sell results in injury.
Our business involves a risk of product liability, intellectual property infringement and other claims in the ordinary
course of business, and from time to time we are named as a defendant in cases as a result of our distribution of
products. Additionally, we own interests in companies that manufacture certain dental products. As a result, we
could be subject to the potential risk of product liability, intellectual property infringement or other claims relating
to the manufacture and distribution of products by those entities. In addition, as our 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 or at least legal
action that could harm our reputation.
Customs policies or legislative import restrictions could hinder the Company’s ability to import goods necessary
to our operations on a timely basis and result in government enforcement actions and/or sanctions
Government-imposed import policies and legislation regulating the import of goods and prohibiting the use of
forced labor or human trafficking could result in delays or the inability to import goods in a timely manner that are
necessary to our operations, and such policies or legislation could also result in financial penalties, other sanctions,
government enforcement actions and reputational harm. While the Company has policies against and seeks to
avoid the import of goods that are manufactured in whole or in part by forced labor or through human trafficking,
as a result of legislative and governmental policy initiatives, we may be subject to increasing potential delays,
added costs, supply chain disruption and other restrictions.
GENERAL RISKS
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
such products, services or systems (or third-party systems we rely on) are interrupted, damaged by unforeseen
events, are subject to cyberattacks or fail for any extended period of time.
We rely on information systems (IS) in our business to obtain, rapidly process, analyze, manage and store customer,
product, supplier and employee data to, among other things:
• maintain and manage worldwide systems to facilitate the purchase and distribution of thousands of
inventory items from numerous distribution centers;
receive, process and ship orders on a timely basis;
•
• manage the accurate billing and collections for 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).
36
Information security risks have generally increased in recent years, and a cyberattack that bypasses our IS security
systems (including third-party systems we rely on) causing an IS security breach may lead to a material disruption
of our IS business systems (including third-party systems we rely on) and/or the loss of business information, as
well as claims against us by affected parties and/or governmental agencies, and involve fines and penalties, costs
for remediation, and substantial defense and settlement expenses. 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 loss of business and reputational harm, and actual or perceived vulnerabilities may lead
to claims against us by our customers and/or governmental agencies. In 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 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 reputational harm and loss of business, but may also lead to claims against us by
our customers and/or governmental agencies and involve damages, fines and penalties, costs for remediation, and
substantial defense and settlement expenses. In addition, a cyberattack on a third-party that we use to manage a
portion of our information systems could result in the same effects. Additionally, legislative or regulatory action
related to cybersecurity may increase our costs to develop or implement new technology products and services.
From time to time, we have had to address non-material security incidents (“security incidents”). There can be no
assurance that we will not experience security incidents in the future. Security incidents can be difficult to detect
and any delay in identifying them could increase their harm. While we have implemented measures to protect our
IS systems, such measures may not prevent these events. Any such security incidents could disrupt our operations,
harm our reputation or otherwise have a material adverse effect on our business. We have various insurance
policies, including cybersecurity 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 to cover costs and expenses related to security incidents.
Furthermore, 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.
Finally, our business may be interrupted by shortfalls of IS systems providers engaged by our customers, such as
Internet-based services upon which our customers depend to access certain of our products.
Our global operations are subject to inherent risks that could materially adversely affect our business.
Our 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 and delays inherent in sourcing products, establishing channels of distribution and contract
manufacturing in foreign markets;
fluctuations in the value of foreign currencies (including, without limitation, in connection with
Brexit);
uncertainties relating to the EU-UK Trade and Cooperation Agreement of December 2020, including
for example potential implementation problems such as border delays, as well as potential changes to
the U.K. regulatory scheme to replace EU requirements;
longer payment cycles of foreign customers and difficulty of collecting receivables in foreign
jurisdictions;
repatriation of cash from our foreign operations to the United States;
regulatory requirements, including without limitation, anti-bribery, anti-corruption and laws pertaining
to the accuracy of our internal books and records;
litigation risks, new or unanticipated litigation developments and the status of litigation matters;
37
•
•
•
•
•
•
•
unexpected difficulties in importing or exporting our products and import/export tariffs, quotas,
sanctions or penalties;
limitations on our ability under local laws to protect our intellectual property;
unexpected regulatory, legal, economic and political changes in foreign markets;
changes in tax regulations that influence purchases of capital equipment;
civil disturbances, geopolitical turmoil, including terrorism, war or political or military coups;
risks associated with climate change, including physical risks such as impacts from extreme weather
events and other potential physical consequences, regulatory and technological requirements, market
developments, stakeholder expectations and reputational risk; and
public health emergencies, including COVID-19.
Our future success is substantially dependent upon our senior management, and 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 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. 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, burnout and turn-over rates are increasing workplace concerns during the COVID-19
pandemic, and we may not be successful in attracting and retaining key personnel. Additionally, our future
revenues and profitability depend on our ability to maintain satisfactory relationships with qualified 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.
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.
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 2021 fiscal year.
38
ITEM 2. Properties
Within our health care distribution segment (for properties with more than 100,000 square feet) we lease and/or
own approximately 5.6 million square feet of properties, consisting of distribution, office, showroom,
manufacturing and sales space, in locations including the United States, Australia, Austria, Belgium, Brazil,
Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan,
Liechtenstein, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Poland, Portugal, Singapore, South
Africa, Spain, Sweden, Switzerland, Thailand, United Arab Emirates and the United Kingdom. Lease expirations
range from 2023 to 2041.
We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry on
our business. We have additional operating capacity at certain distribution center facilities.
ITEM 3. Legal Proceedings
For a discussion of Legal Proceedings, see Note 14 – Commitments and Contingencies of the Notes to the
Consolidated Financial Statements included under Item 8.
ITEM 4. Mine Safety Disclosures
Not applicable.
39
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 February 7, 2022, there were approximately 90,000 holders of record of our common stock and the last reported
sales price was $76.28. A substantially greater number of holders of our common stock are “street name” or
beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Purchases of Equity Securities by the Issuer
Our share repurchase program, announced on March 3, 2003, originally allowed us to repurchase up to two million
shares pre-stock splits (eight million shares post-stock splits) of our common stock, which represented
approximately 2.3% of the shares outstanding at the commencement of the program. Subsequent additional
increases totaling $4.1 billion, authorized by our Board of Directors, to the repurchase program provide for a total
of $4.2 billion (including $400 million authorized on May 13, 2021) of shares of our common stock to be
repurchased under this program.
On March 8, 2021, we announced the reinstatement of our share repurchase program, which was previously
suspended in April 2020 as a result of the COVID-19 pandemic.
As of December 25, 2021, we had repurchased approximately $4.0 billion of common stock (81,068,993 shares)
under these initiatives, with $200.0 million available for future common stock share repurchases.
The following table summarizes repurchases of our common stock under our stock repurchase program during the
fiscal quarter ended December 25, 2021:
Total
Number
of Shares
Fiscal Month
Purchased (1)
9/26/2021 through 10/30/2021
10/31/2021 through 11/27/2021
11/28/2021 through 12/25/2021
638,645 $
-
1,348,213
1,986,858
Average
Price Paid
Per Share
78.29
-
74.17
Total Number
of Shares
Purchased as Part
of Our Publicly
Maximum Number
of Shares
that May Yet
Be Purchased Under
Announced Program
Our Program (2)
638,645
-
1,348,213
1,986,858
3,929,275
4,073,875
2,669,160
(1) All repurchases were executed in the open market under our existing publicly announced authorized program.
(2)
The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time. This table excludes shares withheld from employees to satisfy minimum tax
withholding requirements for equity-based transactions.
Dividend Policy
We have not declared any cash or stock dividends on our common stock during fiscal years 2021 or 2020. 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.
40
Stock Performance Graph
The graph below compares the cumulative total stockholder return on $100 invested, assuming the reinvestment of
all dividends, on December 31, 2016, the last trading day before the beginning of our 2017 fiscal year, through the
end of our 2021 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
$350
$300
$250
$200
$150
$100
$50
December
2016
December
2017
December
2018
December
2019
December
2020
December
2021
Henry Schein, Inc.
Dow Jones US Health Care Index
NASDAQ Composite Index
ASSUMES $100 INVESTED ON DECEMBER 31, 2016
ASSUMES DIVIDENDS REINVESTED
December 31, December 30, December 29, December 28, December 26, December 25,
2016
100.00
2017
92.12
2018
102.72
2019
113.33
$
$
$
2020
112.05
2021
127.54
$
$
$
Henry Schein, Inc.
Dow Jones U.S. Health
Care Index
100.00
122.84
128.65
158.85
181.17
225.21
NASDAQ Stock Market
Composite Index
100.00
129.64
124.98
172.81
247.88
304.99
ITEM 6.
[Reserved]
41
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 generally identified by the use of such terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to make” or other comparable
terms. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in
this Annual Report on Form 10-K, and in particular the risks discussed under the caption “Risk Factors” in Item 1A
of this report and those that may be discussed in other documents we file with the Securities and Exchange
Commission (SEC). Forward looking statements include the overall impact of the Novel Coronavirus Disease 2019
(COVID-19) on the Company, its results of operations, liquidity and financial condition (including any estimates of
the impact on these items), the rate and consistency with which dental and other practices resume or maintain
normal operations in the United States and internationally, expectations regarding personal protective equipment
(“PPE”) and COVID-19 related product sales and inventory levels, whether additional resurgences or variants of
the virus will adversely impact the resumption of normal operations, whether vaccine mandates will adversely
impact the Company (by disrupting our workforce and/or business), whether supply chain disruptions will
adversely impact our business, the impact of restructuring programs as well as of any future acquisitions, and more
generally current expectations regarding performance in current and future periods. Forward looking statements
also include the (i) ability of the Company to have continued access to a variety of test types, expectations
regarding COVID-19 test sales, demand and inventory levels, as well as the efficacy or relative efficacy of the test
results given that the test efficacy has not been, or will not have been, independently verified under normal FDA
procedures and (ii) potential for the Company to distribute the COVID-19 vaccines and ancillary supplies.
Risk factors and uncertainties that could cause actual results to differ materially from current and historical results
include, but are not limited to: risks associated with COVID-19 and any variants thereof, as well as other disease
outbreaks, epidemics, pandemics, or similar wide-spread public health concerns and other natural disasters; our
dependence on third parties for the manufacture and supply of our products; our ability to develop or acquire and
maintain and protect new products (particularly technology products) and technologies that achieve market
acceptance with acceptable margins; transitional challenges associated with acquisitions, dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; financial and tax risks associated with
acquisitions, dispositions and joint ventures; certain provisions in our governing documents that may discourage
third-party acquisitions of us; effects of a highly competitive (including, without limitation, competition from third-
party online commerce sites) and consolidating market; the repeal or judicial prohibition on implementation of the
Affordable Care Act; changes in the health care industry; risks from expansion of customer purchasing power and
multi-tiered costing structures; increases in shipping costs for our products or other service issues with our third-
party shippers; general global macro-economic and political conditions, including international trade agreements,
potential trade barriers and terrorism; failure to comply with existing and future regulatory requirements; risks
associated with the EU Medical Device Regulation; failure to comply with laws and regulations relating to health
care fraud or other laws and regulations; failure to comply with laws and regulations relating to the collection,
storage and processing of sensitive personal information or standards in electronic health records or transmissions;
changes in tax legislation; risks related to product liability, intellectual property and other claims; litigation
risks; new or unanticipated litigation developments and the status of litigation matters; risks associated with
customs policies or legislative import restrictions; cyberattacks or other privacy or data security breaches; risks
associated with our global operations; our dependence on our senior management, employee hiring and retention,
and our relationships with customers, suppliers and manufacturers; and disruptions in financial markets. The order
in which these factors appear should not be construed to indicate their relative importance or priority.
42
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 Newsroom page of our website.
Recent Developments
COVID-19 Pandemic
In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic
negatively impacted the global economy, disrupted global supply chains and created significant volatility and
disruption of global financial markets. In response, many countries implemented business closures and restrictions,
stay-at-home and social distancing ordinances and similar measures to combat the pandemic, which significantly
impacted global business and dramatically reduced demand for dental products and certain medical products in the
second quarter of 2020. Demand increased in the second half of 2020 and continued throughout 2021 resulting in
growth over the prior year driven by sales of PPE, COVID-19 tests and other COVID-19 related products.
Our consolidated financial statements reflect estimates and assumptions made by us that affect, among other things,
our goodwill, long-lived asset and definite-lived intangible asset valuation; inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax
contingencies; the allowance for doubtful accounts; hedging activity; supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus plans; and pension plan
assumptions. Due to the significant uncertainty surrounding the future impact of COVID-19, our judgments
regarding estimates and impairments could change in the future. In addition, the impact of COVID-19 pandemic
had a material adverse effect on our business, results of operations and cash flows in the second quarter of 2020. In
the latter half of the second quarter of 2020, dental and medical practices began to re-open worldwide, and
continued to do so during the second half of 2020. During the year ended December 25, 2021, patient traffic levels
returned to levels approaching pre-pandemic levels. There is an ongoing risk that the COVID-19 pandemic may
again have a material adverse effect on our business, results of operations and cash flows and may result in a
material adverse effect on our financial condition and liquidity. However, the extent of the potential impact cannot
be reasonably estimated at this time.
Policies, rules and regulations relating to vaccine mandates currently vary by jurisdiction and by customer. In the
United States, the vaccine mandate requiring that all federal contractors be vaccinated was stayed in December
2021 and is currently pending litigation. In addition, in January 2022, the United States Supreme Court blocked a
federal mandate that would require businesses with more than 100 employees to make their employees receive a
COVID-19 vaccination or undergo weekly COVID-19 testing. In addition, state governments and some customers
have also issued vaccine requirements for workers in their jurisdictions or who may service their accounts, and
some state regulations contradict the contemplated federal vaccine mandates. Also, various international
jurisdictions have, or may in the future impose vaccine mandates or additional COVID-19 regulations. The
imposition of government or customer mandated vaccination or testing mandates may impact our ability to retain
current employees, attract new employees and retain certain product and service contracts. It is possible that a
significant number of our employees have not been vaccinated, and in the event of a vaccine mandate some of those
employees may seek exemptions or otherwise resist vaccination. The implementation of vaccine mandates could
potentially cause labor shortages if employees refuse to get vaccinated and their employment is terminated, either
voluntarily or involuntarily. Such labor shortages could also affect our ability to retain certain specific contracts to
which the mandates may apply, reduce our sales and/or affect our ability to fulfill customer orders, impacting our
revenue and profitability. Furthermore, managing and tracking vaccination status and ongoing testing for exempt
and/or unvaccinated employees could potentially increase our costs, as could addressing inconsistent
mandates. COVID-19 vaccine mandates and similar regulations have the potential to significantly adversely affect
our business, as the nature and effect of such mandates are uncertain at this time.
43
Corporate Transactions
During the fourth quarter of 2019, we sold an equity investment in Hu-Friedy Mfg. Co., LLC (“Hu-Friedy”), a
manufacturer of dental instruments and infection prevention solutions. Our investment was non-controlling, we
were not involved in running the business and had no representation on the board of directors. During the fourth
quarter of 2019, we also sold certain other equity investments. In the aggregate, the sales of these investments
resulted in a pre-tax gain in 2019 of approximately $250.2 million and an after-tax gain of approximately $186.8
million. During 2020 and 2021, we received contingent proceeds of $2.1 million and $9.8 million from the 2019
sale of Hu-Friedy resulting in the recognition of additional after-tax gains of $1.6 million and $7.3 million,
respectively.
On February 7, 2019 (the “Distribution Date”), we completed the separation (the “Separation”) and subsequent
merger of our animal health business (the “Henry Schein Animal Health Business”) with Direct Vet Marketing, Inc.
(d/b/a Vets First Choice, “Vets First Choice”) (the “Merger”). This was accomplished by a series of transactions
among us, Vets First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc. “Covetrus”), a wholly owned subsidiary of ours
prior to the Distribution Date, and HS Merger Sub, Inc., a wholly owned subsidiary of Covetrus (“Merger
Sub”). In connection with the Separation, we contributed, assigned and transferred to Covetrus certain applicable
assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health
Business. On the Distribution Date, we received a tax-free distribution of $1,120 million from Covetrus pursuant to
certain debt financing incurred by Covetrus. On the Distribution Date and prior to the Animal Health Spin-off,
Covetrus issued shares of Covetrus common stock to certain institutional accredited investors (the “Share Sale
Investors”) for $361.1 million (the “Share Sale”). The proceeds of the Share Sale were paid to Covetrus and
distributed to us. Subsequent to the Share Sale, we distributed, on a pro rata basis, all of the shares of the common
stock of Covetrus held by us to our stockholders of record as of the close of business on January 17, 2019 (the
“Animal Health Spin-off”). After the Share Sale and Animal Health Spin-off, Merger Sub consummated the
Merger whereby it merged with and into Vets First Choice, with Vets First Choice surviving the Merger as a
wholly owned subsidiary of Covetrus. Immediately following the consummation of the Merger, on a fully diluted
basis, (i) approximately 63% of the shares of Covetrus common stock were (a) owned by our stockholders and the
Share Sale Investors, and (b) held by certain employees of the Henry Schein Animal Health Business (in the form
of certain equity awards), and (ii) approximately 37% of the shares of Covetrus common stock were (a) owned by
stockholders of Vets First Choice immediately prior to the Merger, and (b) held by certain employees of Vets First
Choice (in the form of certain equity awards). After the Separation and the Merger, we no longer beneficially
owned any shares of Covetrus common stock and, following the Distribution Date, will not consolidate the
financial results of Covetrus for the purpose of our financial reporting. Following the Separation and the Merger,
Covetrus was an independent, publicly traded company on the Nasdaq Global Select Market.
Executive-Level Overview
Henry Schein, Inc. is a solutions company for health care professionals powered by a network of people and
technology. We believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care. We serve more than one million customers
worldwide including dental practitioners, laboratories, physician practices, and ambulatory surgery centers, as well
as government, institutional health care clinics and other alternate care clinics. We believe that we have a strong
brand identity due to our more than 89 years of experience distributing health care products.
We have established strategically located distribution centers around the world to enable us to better serve our
customers and increase our operating efficiency. This infrastructure, together with broad product and service
offerings at competitive prices, and a strong commitment to customer service, enables us to be a single source of
supply for our customers’ needs.
While our primary go-to-market strategy is in our capacity as a distributor, we also manufacture certain dental
specialty products and solutions in the areas of implants, orthodontics and endodontics. We have achieved scale in
these global businesses primarily through acquisitions as manufacturers of these products typically do not utilize a
distribution channel to serve customers.
44
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services. These segments offer different products and services to the same customer base. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools and other institutions. Our
global medical businesses serve office-based medical practitioners, ambulatory surgery centers, other alternate-care
settings and other institutions.
The health care distribution reportable segment aggregates our global dental and medical operating segments. This
segment distributes consumable products, dental specialty products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, dental
specialty products (including implant, orthodontic and endodontic products), diagnostic tests, infection-control
products, PPE and vitamins.
Our global technology and value-added services business provides software, technology and other value-added
services to health care practitioners. Our technology business offerings include practice management software
systems for dental and medical practitioners. Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse basis, e-services, practice
technology, network and hardware services, as well as consulting, and continuing education services for
practitioners.
A key element to grow closer to our customers is our One Schein initiative, which is a unified go-to-market
approach that enables practitioners to work synergistically with our supply chain, equipment sales and service and
other value-added services, allowing our customers to leverage the combined value that we offer through a single
program. Specifically, One Schein provides customers with streamlined access to our comprehensive offering of
national brand products, our private label products and proprietary specialty products and solutions (including
implant, orthodontic and endodontic products). In addition, customers have access to a wide range of services,
including software and other value-added services.
Industry Overview
In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited
distributors capable of providing a broad array of products and services at low prices. It also has accelerated the
growth of HMOs, group practices, other managed care accounts and collective buying groups, which, in addition to
their emphasis on obtaining products at competitive prices, tend to favor distributors capable of providing
specialized management information support. We believe that the trend towards cost containment has the potential
to favorably affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that we
undertook to expand our business, domestically and internationally, in part to address significant changes in the
health care industry, including consolidation of health care distribution companies, health care reform, trends
toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the COVID-19 pandemic, the current economic
environment and continued economic and public health uncertainty. Since the onset of the COVID-19 pandemic in
early 2020, we have been carefully monitoring its impact on our global operations and have taken appropriate steps
to minimize the risk to our employees. We have seen and expect to continue to see changes in demand trends for
some of our products and services, supply chain challenges and labor challenges, as rates of infection fluctuate, new
strains or variants of COVID-19 emerge and spread, vaccine uptake and mandates increase and change,
governments adapt their approaches to combatting the virus (including without limitation, vaccine mandates), and
local conditions change across geographies. For example, vaccine mandates affecting our workforce, whether
imposed through government regulations or contracts with governmental authorities or other customers, could
potentially cause staffing shortages if employees choose not to comply as well as other consequences to our
business or operations, managing and tracking vaccination status and ongoing testing for exempt employees could
potentially increase our costs, as could addressing inconsistent COVID-19 vaccination mandates. As a result, we
expect to see continued volatility through at least the duration of the pandemic.
45
Industry Consolidation
The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented
and diverse. The industry ranges from sole practitioners working out of relatively small offices to group practices
or service organizations ranging in size from a few practitioners to a large number of practitioners who have
combined or otherwise associated their practices.
Due in part to the inability of office-based health care practitioners to store and manage large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health care practitioners
has been characterized by frequent, small quantity orders, and a need for rapid, reliable and substantially complete
order fulfillment. The purchasing decisions within an office-based health care practice are typically made by the
practitioner or an administrative assistant. Supplies and small equipment are generally purchased from more than
one distributor, with one generally serving as the primary supplier.
The trend of consolidation extends to our customer base. Health care practitioners are increasingly seeking to
partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations. In many cases, purchasing decisions for consolidated groups are made at a centralized or
professional staff level; however, orders are delivered to the practitioners’ offices.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.
Our 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, although there can be no assurances
that we will be able to successfully accomplish this. We also have invested in expanding our sales/marketing
infrastructure to include a focus on building relationships with decision makers who do not reside in the office-
based practitioner setting.
As the health care industry continues to change, we continually evaluate possible candidates for joint venture or
acquisition and intend to continue to seek opportunities to expand our role as a provider of products and services to
the health care industry. There can be no assurance that we will be able to successfully pursue any such
opportunity or consummate any such transaction, if pursued. If additional transactions are entered into or
consummated, we would incur merger and/or acquisition-related costs, and there can be no assurance that the
integration efforts associated with any such transaction would be successful. In response to the COVID-19
pandemic, we had taken a range of actions to preserve cash, including the temporary suspension of significant
acquisition activity. During the second half of 2020, as global conditions improved, we resumed our acquisition
strategy.
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.
46
According to the U.S. Census Bureau’s International Database, in 2021 there were more than six and a half million
Americans aged 85 years or older, the segment of the population most in need of long-term care and elder-care
services. By the year 2050, that number is projected to nearly triple to approximately 19 million. The population
aged 65 to 84 years is projected to increase by approximately 32% during the same period.
As a result of these market dynamics, annual expenditures for health care services continue to increase in the
United States. We believe that demand for our products and services will grow while continuing to be impacted by
current and future operating, economic, and industry conditions. The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Data” indicating that total national health care spending reached
approximately $4.1 trillion in 2020, or 19.7% 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 $6.2 trillion in 2028, approximately 19.7% of the nation’s projected gross domestic product. The
latest projections begin after the latest historical year 2018 and go through 2028. These projections do not take into
account the impacts of COVID-19 because of the timing of the report and the highly uncertain nature of the
pandemic.
Government
Our businesses are generally subject to numerous laws and regulations that could impact our financial performance,
and failure to comply with such laws or regulations could have a material adverse effect on our business.
See “Item 1. Business – Governmental Regulations” for a discussion of laws, regulations and governmental activity
that may affect our results of operations and financial condition.
47
Results of Operations
Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in
our 2020 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results
of operations for the fiscal year 2020 compared to fiscal year 2019.
The following tables summarize the significant components of our operating results and cash flows from continuing
operations (in thousands):
Operating results:
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring costs
Operating income
Other expense, net
Gain on sale of equity investments, net of tax
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income attributable to Henry Schein, Inc.
Years Ended
December 25, December 26,
2021
2020
December 28,
2019
$
12,401,021 $
8,728,770
3,672,251
10,119,141 $
7,304,913
2,814,228
$
$
2,812,656
7,939
851,656 $
2,246,832
32,093
535,303 $
(21,108) $
7,318
660,526
-
631,232
(35,408) $
1,572
418,437
986
403,794
9,985,803
6,894,917
3,090,886
2,357,920
14,705
718,261
(37,954)
186,769
725,461
(6,323)
694,734
Years Ended
December 25, December 26,
2021
2020
December 28,
2019
Cash flows:
Net cash provided by operating activities from continuing operations $
Net cash used in investing activities from continuing operations
Net cash used in financing activities from continuing operations
709,580 $
(677,217)
(332,957)
593,519 $
(115,019)
(181,794)
820,478
(422,309)
(363,351)
Plans of Restructuring
On November 20, 2019, we committed to a contemplated restructuring initiative intended to mitigate stranded costs
associated with the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies. These
activities were originally expected to be completed by the end of 2020. In light of the changes to the business
environment brought on by the COVID-19 pandemic, we extended such activities to the end of 2021.
During the years ended December 25, 2021, December 26, 2020, and December 28, 2019 we recorded restructuring
charges of $7.9 million, $32.1 million and $14.7 million, respectively. The restructuring costs for these periods
included costs for severance benefits and facility exit costs. The costs associated with these restructurings are
included in a separate line item, “Restructuring costs” within our consolidated statements of income.
Our restructuring activities under this initiative are now complete and we do not expect to report any restructuring
costs separately in 2022.
48
2021 Compared to 2020
Net Sales
Net sales were as follows (in thousands):
Health care distribution (1)
Dental
Medical
$
Total health care distribution
Technology and value-added services (2)
Total excluding Corporate TSA revenues
Corporate TSA revenues (3)
Total
$
2021
% of
Total
2020
% of
Total
Increase / (Decrease)
%
$
7,541,950
4,218,175
11,760,125
640,896
12,401,021
-
12,401,021
60.8 % $
34.0
94.8
5.2
100.0
-
100.0
$
5,912,593
3,617,017
9,529,610
514,258
10,043,868
75,273
10,119,141
58.4 % $
35.8
94.2
5.1
99.3
0.7
100.0
$
1,629,357
601,158
2,230,515
126,638
2,357,153
(75,273)
2,281,880
27.6 %
16.6
23.4
24.6
23.5
-
22.6
(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE and vitamins.
(2) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
(3) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020. See Note-23 Related Party Transactions for further
information.
The 22.6% increase in net sales consists of an increase of 21.1% in local currency revenue (16.9% increase in
internally generated revenue and 4.2% growth from acquisitions) and an increase of 1.5% related to foreign
currency exchange. Excluding sales of products under the transition services agreement with Covetrus, our net
sales increased 23.5%, consisting of an increase in local currency revenue of 22.0% (17.8% increase in internally
generated revenue and 4.2% growth from acquisitions) and an increase of 1.5% related to foreign currency
exchange. We estimate that sales for the year ended December 25, 2021 of PPE and COVID-19 related products
were approximately $1,744.2 million, an estimated increase of 34.2% versus the prior year. Excluding PPE and
COVID-19 related products, the estimated increase in internally generated local currency sales excluding Corporate
TSA revenues was 16.7%.
The 27.6% increase in dental net sales consists of an increase of 25.2% in local currency revenue (20.7% increase
in internally generated revenue and 4.5% growth from acquisitions) and an increase of 2.4% related to foreign
currency exchange. The 25.2% increase in local currency sales was attributable to an increase in dental consumable
merchandise revenue of 26.2% (20.6% increase in internally generated revenue and 5.6% growth from
acquisitions), and an increase in dental equipment sales and service revenues of 21.9% (21.1% increase in internally
generated revenue and 0.8% growth from acquisitions). The COVID-19 pandemic began to adversely impact our
worldwide dental revenue beginning in mid-March of 2020 as many dental offices progressively closed or began
seeing a limited number of patients. However, in the second half of the quarter ended June 27, 2020 and continuing
through the year ended December 25, 2021, patient traffic stabilized and approached pre-pandemic levels. The
growth in dental revenues reflects this recovery. Additionally, we estimate that global dental sales for the year
ended December 25, 2021 of PPE and COVID-19 related products were approximately $680.9 million, an
estimated increase of 38.2% versus the prior year. Excluding PPE and COVID-19 related products, the estimated
increase in internally generated local currency dental sales was 21.3%.
The 16.6% increase in medical net sales is attributable to an increase of 16.5% in local currency growth (13.7%
increase in internally generated revenue and 2.8% growth from acquisitions) and an increase of 0.1% related to
foreign currency exchange. Our medical business has continued to have strong sales of PPE, such as masks, gowns
and face shields, and other COVID-19 related products, such as diagnostic kits. Globally, we estimate our medical
business recorded sales of approximately $1,063.3 million of such PPE and other COVID-19 related products for
the year ended December 25, 2021, an increase of approximately 31.8% compared to the prior year. Excluding
PPE and other COVID-19 related products, the estimated increase in internally generated local currency medical
sales was 8.7%.
49
The 24.6% increase in technology and value-added services net sales is attributable to an increase of 23.5% in local
currency revenue (13.0% increase in internally generated revenue and 10.5% growth from acquisitions) and 1.1%
related to foreign currency exchange. The closure of dental and medical offices beginning in mid-March of 2020
due to the COVID-19 pandemic resulted in lower technology and value-added services revenues in 2020, especially
in the second quarter of that year. The growth in revenues in 2021 reflects the recovery of activity approaching pre-
pandemic levels in our practice management business, as well as strong financial services revenue, which benefitted
from dental equipment sales growth.
Gross Profit
Gross profit and gross margin percentages by segment and in total were as follows (in thousands):
Health care distribution
Technology and value-added services
Total excluding Corporate TSA revenues
Corporate TSA revenues
Total
$
$
Gross
Margin %
Gross
Margin %
2021
3,240,608
431,643
3,672,251
-
3,672,251
27.6 % $
67.3
29.6
-
29.6
$
2020
2,448,876
363,245
2,812,121
2,107
2,814,228
Increase / (Decrease)
%
32.3 %
18.8
30.6
-
30.5
$
791,732
68,398
860,130
(2,107)
858,023
25.7 % $
70.6
28.0
2.8
27.8
$
As a result of different practices of categorizing costs associated with distribution networks throughout our
industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally, we
realize substantially higher gross margin percentages in our technology and value-added services segment than in
our health care distribution segment. These higher gross margins result from being both the developer and seller of
software products and services, as well as certain financial services. The software industry typically realizes higher
gross margins to recover investments in development.
During December 2020, our transition services agreement with Covetrus, in connection with the completion of the
Animal-Health Spin-off, concluded. Under this agreement, Covetrus had agreed to purchase certain products from
us at a mark-up that ranged from 3% to 6% of our product cost to cover handling costs.
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 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 $791.7 million, or 32.3% primarily due to the increase in net sales
discussed above. Health care distribution gross profit margin increased to 27.6% from 25.7%. Although we
recorded significant adjustments to inventory in 2021, primarily related to PPE inventory, these adjustments were
less than in 2020 and contributed to the improved gross profit margin. Such adjustments to inventory may recur
and adversely impact gross profit margins in future periods, although we do not expect further significant inventory
adjustments. The increase in the health care distribution gross profit margin is also attributable to an increase in
supplier rebates during 2021 due to increased purchase volumes. The overall increase in our health care
distribution gross profit is attributable to a $500.7 million increase in internally generated revenue, $176.9 million
in gross profit due to the increase in the gross margin rates and $114.1 million additional gross profit from
acquisitions.
Technology and value-added services gross profit increased $68.4 million, or 18.8%, due to an increase of $50.9
million in internally generated revenue and $31.6 million additional gross profit from acquisitions, partially offset
by a $14.1 million decrease due to the lower gross profit margin. Technology and value-added services gross profit
margin decreased to 67.3% from 70.6% primarily due to lower gross margins of recently acquired companies in the
business services sector and certain transactions with the U.S. federal government.
50
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total were as follows (in thousands):
Health care distribution
Technology and value-added services
Total
$
$
% of
Respective
Net Sales
2021
2,512,567
308,028
2,820,595
21.4 % $
48.1
22.7
$
2020
2,014,810
264,115
2,278,925
% of
Respective
Net Sales
21.1 % $
51.4
22.5
$
Increase
$
497,757
43,913
541,670
%
24.7 %
16.6
23.8
Selling, general and administrative expenses (including restructuring costs) increased $541.7 million, or 23.8%. In
the prior year, there were significant cost-saving measures taken in response to the COVID-19 pandemic. These
cost-saving measures were temporary and substantially ended during the third quarter of 2020.
The $497.8 million increase in selling, general and administrative expenses within our health care distribution
segment was attributable to an increase of $411.5 million of operating costs and an increase of $111.3 million of
additional costs from acquired companies, partially offset by a decrease of $25.0 million in restructuring costs. The
$43.9 million increase in selling, general and administrative expenses within our technology and value-added
services segment was attributable to an increase of $28.8 million of additional costs from acquired companies, an
increase of $14.3 million of operating costs and an increase of $0.8 million in restructuring costs.
As a component of total selling, general and administrative expenses, selling expenses increased $294.8 million, or
21.7% to $1,655.6 million, primarily due to an increase in payroll and payroll related costs. As a percentage of net
sales, selling expenses decreased to 13.4% from 13.5%.
As a component of total selling, general and administrative expenses, general and administrative expenses
increased $246.9 million, or 26.9% to $1,165.0 million, primarily due to an increase in payroll and payroll related
costs. As a percentage of net sales, general and administrative expenses increased to 9.4% from 9.1%.
Other Expense, Net
Other expense, net was as follows (in thousands):
Interest income
Interest expense
Other, net
Other expense, net
2021
2020
$
$
$
6,451 $
(27,600)
41
(21,108) $
9,842 $
(41,377)
(3,873)
(35,408) $
Variance
(3,391)
13,777
3,914
14,300
%
(34.5) %
33.3
(101.1)
40.4
Interest expense decreased $13.8 million primarily due to reduced credit line borrowings.
Income Taxes
For the year ended December 25, 2021, our effective tax rate was 23.8% compared to 19.1% for the prior year
period. In 2021, our effective tax rate was primarily impacted by state and foreign income taxes and interest
expense. In 2020, our effective tax rate was primarily impacted by the agreement with the U.S Internal Revenue
Service on our Advanced Pricing Agreement (APA), other audit resolutions, and state and foreign income taxes and
interest expense.
Gain on Sale of Equity Investment
In the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy
resulting in the recognition of an additional after-tax gain of $7.3 million. We also received contingent proceeds in
2020 of $2.1 million resulting in the recognition of an additional gain of $1.6 million after-tax. No further proceeds
are expected from this sale.
51
Liquidity and Capital Resources
Our principal capital requirements have included funding of acquisitions, purchases of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs, purchases of fixed assets and
repurchases of common stock (which had been temporarily suspended in April 2020, but were resumed in early
March 2021). Working capital requirements generally result from increased sales, special inventory forward buy-in
opportunities and payment terms for receivables and payables. Historically, sales have tended to be stronger during
the second half of the year and special inventory forward buy-in opportunities have been most prevalent just before
the end of the year, and have caused our working capital requirements to be higher from the end of the third quarter
to the end of the first quarter of the following year.
The pandemic and the governmental responses to it had a material adverse effect on our cash flows in the second
quarter of 2020. In the latter half of the second quarter of 2020 and continuing through 2021, dental and medical
practices began to re-open worldwide. During 2021, patient traffic levels returned to levels approaching pre-
pandemic levels. There is an ongoing risk that the COVID-19 pandemic may again have a material adverse effect
on our business, results of operations and cash flows and may result in a material adverse effect on our financial
condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this time.
We finance our business primarily through cash generated from our operations, revolving credit facilities and debt
placements. Please see Note 12 – Debt for further information. Our ability to generate sufficient cash flows from
operations is dependent on the continued demand of our customers for our products and services, and access to
products and services from our suppliers.
Our business requires a substantial investment in working capital, which is susceptible to fluctuations during the
year as a result of inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of
sales activity, special inventory forward buy-in opportunities and our desired level of inventory. We anticipate
future increases in our working capital requirements.
We finance our business to provide adequate funding for at least 12 months. Funding requirements are based on
forecasted profitability and working capital needs, which, on occasion, may change. Consequently, we may change
our funding structure to reflect any new requirements.
We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,
and our available funds under existing credit facilities provide us with sufficient liquidity to meet our currently
foreseeable short-term and long-term capital needs.
Net cash from continuing operations provided by operating activities was $709.6 million for the year ended
December 25, 2021, compared to net cash from continuing operations provided by operating activities of $593.5
million for the prior year. The net change of $116.1 million was primarily attributable to higher net income,
partially offset by increased working capital requirements, specifically an increase in inventories due to ongoing
stocking of PPE and COVID-19 related products, and reduced accounts payable and accrued expenses. These
working capital increases were partially offset by lower growth in accounts receivable as days sales outstanding
were lower than in the prior year.
Net cash from continuing operations used in investing activities was $677.2 million for the year ended December
25, 2021, compared to $115.0 million for the prior year. The net change of $562.2 million was primarily
attributable to increased payments for equity investments and business acquisitions.
Net cash from continuing operations used in financing activities was $333.0 million for the year ended December
25, 2021, compared to net cash used in financing activities of $181.8 million for the prior year. The net change of
$151.2 million was primarily due to increased repurchases of common stock partially offset by decreased net
proceeds from bank borrowings.
52
The following table summarizes selected measures of liquidity and capital resources (in thousands):
Cash and cash equivalents
Working capital (1)
Debt:
Bank credit lines
Current maturities of long-term debt
Long-term debt
Total debt
Leases:
Current operating lease liabilities
Non-current operating lease liabilities
December 25,
2021
December 26,
2020
$
$
$
$
117,965
1,537,521
50,530
10,640
811,346
872,516
76,393
267,772
$
$
$
$
421,185
1,508,313
73,366
109,836
515,773
698,975
64,716
238,727
(1) Includes $138.0 million and $0.0 million of certain accounts receivable which serve as security for U.S. trade accounts receivable
securitization at December 25, 2021 and December 26, 2020, respectively.
Our cash and cash equivalents consist of bank balances and investments in money market funds representing
overnight investments with a high degree of liquidity.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations decreased to 41.8 days as of December 25, 2021
from 46.0 days as of December 26, 2020. During the years ended December 25, 2021 and December 26, 2020, we
wrote off approximately $8.5 million and $7.8 million, respectively, of fully reserved accounts receivable against
our trade receivable reserve. Our inventory turnover from operations was 5.2 as of December 25, 2021 and 5.1 as
of December 26, 2020. Our working capital accounts may be impacted by current and future economic conditions.
Contractual obligations
The following table summarizes our contractual obligations related to fixed and variable rate long-term debt and
finance lease obligations, including interest (assuming a weighted average interest rate of 3.2%), as well as
inventory purchase commitments and operating lease obligations as of December 25, 2021:
Payments due by period (in thousands)
< 1 year
2 - 3 years
4 - 5 years
> 5 years
Total
Contractual obligations:
Long-term debt, including interest
$
29,560 $
252,916 $
35,340 $
653,623 $
Inventory purchase commitments
Operating lease obligations
Transition tax obligations
Finance lease obligations, including interest
111,696
82,920
14,142
3,303
488
106,053
42,426
2,768
-
-
73,694
113,667
-
740
-
576
971,439
112,184
376,334
56,568
7,387
Total
$
241,621 $
404,651 $
109,774 $
767,866 $
1,523,912
For information relating to our debt please see Note 12 – Debt.
53
Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles,
and certain equipment. Our leases have remaining terms of less than one year to approximately 20 years, some of
which may include options to extend the leases for up to 10 years. As of December 25, 2021, our right-of-use
assets related to operating leases were $325.0 million and our current and non-current operating lease liabilities
were $76.4 million and $267.8 million, respectively. Please see Note 6 – Leases for further information.
Stock Repurchases
On March 8, 2021, we announced the reinstatement of our share repurchase program, which had been temporarily
suspended in April of 2020.
From June 21, 2004 through December 25, 2021, we repurchased $4.0 billion, or 81,068,993 shares, under our
common stock repurchase programs, with $200.0 million available as of December 25, 2021 for future common
stock share repurchases.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have the right, at certain times, to require us
to acquire their ownership interest in those entities. Accounting Standards Codification (“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. As of December 25, 2021 and December 26, 2020 our balance for
redeemable noncontrolling interests was $613.3 million and $327.7 million, respectively. Please see Note 17 –
Redeemable Noncontrolling Interests for further information.
Unrecognized tax benefits
As more fully disclosed in Note 13 – Income Taxes 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 $83.5 million as of December 25, 2021.
Critical Accounting Policies and Estimates
Our accounting policies are more fully described in Note 1 – Basis of Presentation and Significant Accounting
Policies of the consolidated financial statements. The preparation of consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures of contingent assets and liabilities. We base our estimates on historical data, when available,
experience, industry and market trends, and on various other assumptions that are believed to be reasonable under
the circumstances, the combined results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us at the time that these
estimates, judgments and assumptions are made. However, by their nature, estimates are subject to various
assumptions and uncertainties. Therefore, reported results may differ from estimates and any such differences may
be material to our consolidated financial statements.
We believe that the following critical accounting policies, which have been discussed with the Audit Committee of
our Board of Directors, affect the significant estimates and judgments used in the preparation of our financial
statements:
54
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at the lower of cost or net realizable value. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. In estimating carrying value of inventory, we consider many factors including the condition and
salability of the inventory by reviewing on-hand quantities, historical sales, forecasted sales and market and
economic trends. Certain of our products, specifically PPE and COVID-19 related items have experienced changes
in net realizable value, due to volatility of pricing and changes in demand for these products.
Business Combinations
The estimated fair value of acquired identifiable intangible assets (trademarks and trade names, customer
relationships and lists, non-compete agreements and product development) is based on critical estimates, judgments
and assumptions derived from: analysis of market conditions; discount rates; projected cash flows; customer
retention rates; and estimated useful lives. Please see Note 4 – Business Acquisitions and Divestitures for further
discussion of our acquisitions.
Goodwill
Goodwill is subject to impairment analysis at least once annually as of the first day of our fourth quarter, or if an
event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying value. 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: global dental, global
medical, and technology and value-added services. Goodwill is allocated to such reporting units, for the purposes
of preparing our impairment analyses, based on a specific identification basis.
Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities that are considered shared services to the reporting units, and ultimately the
determination of the fair value of each reporting unit. The fair value of each reporting unit is calculated by
applying the discounted cash flow methodology and confirming with a market approach. There are inherent
uncertainties, however, related to fair value models, the inputs and our judgments in applying them to this analysis.
The most significant inputs include estimation of detailed future cash flows based on budget expectations, and
determination of comparable companies to develop a weighted average cost of capital for each reporting unit.
On an annual basis, we prepare annual and medium-term financial projections. These projections are based on
input from our leadership and are presented annually to our Board of Directors. Influences on this year's forecasted
financial information and the fair value model include: the impact of planned strategic initiatives, the continued
integration of recent acquisitions and overall market conditions. The estimates used to calculate the fair value of a
reporting unit change from year to year based on operating results, market conditions, and other factors.
Our third-party valuation specialists provide inputs into our determination of the discount rate. The rate is
dependent on a number of underlying assumptions, including the risk-free rate, tax rate, equity risk premium, debt
to equity ratio and pre-tax cost of debt.
Long-term growth rates are applied to our estimation of future cash flows. The long-term growth rates are tied to
growth rates we expect to achieve beyond the years for which we have forecasted operating results. We also
consider external benchmarks, and other data points which we believe are applicable to our industry and the
composition of our global operations.
Based on our quantitative assessment, we believe the fair value of each of our reporting units sufficiently exceeds
the carrying values. As part of our analysis, we performed a sensitivity analysis on the discount rate and long-term
growth rate assumptions. The sensitivities led us to the same conclusion that no impairment exists.
55
Definite-Lived Intangible Assets
Annually, definite-lived intangible assets such as non-compete agreements, trademarks, trade names, customer
relationships and lists, and product development are reviewed for impairment indicators. If any impairment
indicators exist, quantitative testing is performed on the asset.
The quantitative impairment model is a two-step test under which we first calculate the recoverability of the
carrying value by comparing the undiscounted, probability-weighted value of the projected cash flows associated
with the asset or asset group, including its estimated residual value, to the carrying amount. If the cash flows
associated with the asset or asset group are less than the carrying value, we would perform a fair value assessment
of the asset, or asset group. If the carrying amount is found to be greater than the fair value, we record an
impairment loss for the excess of book value over the fair value. In addition, in all cases of an impairment review,
we re-evaluate the remaining useful lives of the assets and modify them, as appropriate. Although we believe our
judgments, estimates and/or assumptions used in estimating cash flows and determining fair value are reasonable,
making material changes to such judgments, estimates and/or assumptions could materially affect such impairment
analyses and our financial results.
During the years ended December 25, 2021 and December 26, 2020, we recorded total impairment charges on
definite-lived intangible assets of approximately $0.7 and $20.3 million respectively, nearly all of which was
recorded in our technology and value-added services segment.
Income Tax
When determining if the realization of the deferred tax asset is likely by assessing the need for a valuation
allowance, estimates and judgement are required. We consider all available evidence, both positive and negative,
including estimated future taxable earnings, ongoing planning strategies, future reversals of existing temporary
differences and historical operating results. Additionally, changes to tax laws and statutory tax rates can have an
impact on our determination. Our intention is to evaluate the realizability of our deferred tax assets quarterly.
ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in the financial statements in
accordance with 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 of certain
tax matters. Please see Note 13 – Income Taxes for further discussion.
Accounting Standards Update
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please see
Note 1 – Basis of Presentation and Significant Accounting Policies included under Item 8.
56
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., generally 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of merchandise purchases to foreign suppliers. We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic
exposure. A hypothetical 5% change in the average value of the U.S. dollar in 2021 compared to foreign currencies
would have changed our 2021 reported Net income attributable to Henry Schein, Inc. by approximately $8.4
million.
As of December 25, 2021, we had forward foreign currency exchange agreements, which expire through November
16, 2023, which include a mark-to-market gain of $6.3 million as determined by quoted market prices. Included in
the forward foreign currency exchange agreements, Henry Schein, Inc. had EUR/USD forward contracts notionally
totaling an amount of approximately €200 million, with a reported fair value of these contracts as a net gain of $6.5
million. A 5% increase in the value of the Euro to the USD from December 25, 2021, with all other variables held
constant, would have had an unfavorable effect on the fair value of these forward contracts by decreasing the value
of these instruments by $10.7 million.
Total Return Swaps
On March 20, 2020, we entered into a total return swap for the purpose of economically hedging our unfunded non-
qualified supplemental retirement plan (“SERP”) and our deferred compensation plan (“DCP”). This swap will
offset changes in our SERP and DCP liabilities. At the inception, the notional value of the investments in these
plans was $43.4 million. At December 25, 2021, the notional value of the investments in these plans was $88.7
million. At December 25, 2021, the financing blended rate for this swap was based on LIBOR of 0.09% plus
0.46%, for a combined rate of 0.55%. For the years ended December 25, 2021 ended and December 26, 2020, we
have recorded a gain, within the selling, general and administrative line item in our consolidated statement of
income, of approximately $12.1 million and $21.2 million, respectively, net of transaction costs, related to this
undesignated swap. This swap is expected to be renewed on an annual basis after its current expiration date of
March 29, 2022, and is expected to result in a neutral impact to our results of operations.
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 counterparties to such financial
instruments. As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing
numerous investment grade counterparties.
57
Variable Interest Rate Debt
As of December 25, 2021, 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 August 20, 2021 and expires on August 20, 2026, 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 25, 2021, there was $0.0 million outstanding under this revolving
credit facility. During the year ended December 25, 2021, the average outstanding balance under this revolving
credit facility was approximately $1.5 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 have
increased by less than $0.1 million.
Our U.S trade accounts receivable securitization, which we entered into on April 17, 2013 and expires on October
18, 2024, has an interest rate that is based upon the asset-backed commercial paper rate. As of December 25, 2021,
the commercial paper rate was 0.19% plus 0.75%, for a combined rate of 0.94%. At December 25, 2021 the
outstanding balance was $105.0 million under this securitization facility. During the year ended December 25,
2021, the average outstanding balance under this securitization facility was approximately $44.0 million. Based
upon our average outstanding balance for this securitization facility, for each hypothetical increase of 25 basis
points, our interest expense thereunder would have increased by $0.1 million.
58
ITEM 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; New York, NY; PCAOB ID#243)
Consolidated Financial Statements:
Balance Sheets as of December 25, 2021 and December 26, 2020
Statements of Income for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019
Statements of Comprehensive Income for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019
Statements of Changes in Stockholders’ Equity for the years ended
December 25, 2021, December 26, 2020 and December 28, 2019
Statements of Cash Flows for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019
Notes to Consolidated Financial Statements
Note 1 – Basis of Presentation and Significant Accounting Policies
Note 2 – Revenue from Contracts with Customers
Note 3 – Segment and Geographic Data
Note 4 – Business Acquisitions and Divestitures
Note 5 – Property and Equipment, Net
Note 6 – Leases
Note 7 – Goodwill and Other Intangibles, Net
Note 8 – Investments and Other
Note 9 – Fair Value Measurements
Note 10 – Concentrations of Risk
Note 11 – Derivatives and Hedging Activities
Note 12 – Debt
Note 13 – Income Taxes
Note 14 – Commitments and Contingencies
Note 15 – Stock-Based Compensation
Note 16 – Employee Benefit Plans
Note 17 – Redeemable Noncontrolling Interests
Note 18 – Comprehensive Income
Note 19 – Discontinued Operations
Note 20 – Plans of Restructuring
Note 21 – Earnings Per Share
Note 22 – Supplemental Cash Flow Information
Note 23 – Related Party Transactions
Schedule II - Valuation and Qualifying Accounts for the years ended December 25, 2021,
December 26, 2020 and December 28, 2019
Page
Number
60
62
63
64
65
66
67
67
76
77
79
82
83
85
86
86
89
89
91
94
98
100
103
106
107
109
111
112
112
113
127
All other schedules are omitted because the required information is either inapplicable or is included in the consolidated
financial statements or the notes thereto.
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Henry Schein, Inc.
Melville, NY
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. (the “Company”) as of
December 25, 2021 and December 26, 2020, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 25, 2021, the related
notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company on
December 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the three
years in the period ended December 25, 2021, in conformity with accounting principles generally accepted in the
United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the Company's internal control over financial reporting as of December 25, 2021,
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 15, 2022
expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the Audit Committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements; and (2) involved our
especially challenging, subjective or complex judgments. The communication of the critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
60
Revenue growth rates utilized in the determination of the fair values of acquired customer relationships for
certain acquisitions
As described in Note 4 of the consolidated financial statements, the Company acquired several companies in the
current year. As a result of the acquisitions, management was required to determine estimated fair values of the
assets acquired and liabilities assumed, including certain identifiable intangible assets. In some instances,
management utilized third-party valuation specialists to assist in the preparation of the valuation of certain
identifiable intangible assets. Management exercised significant judgment to develop and select revenue growth
rates in the measurement of the fair value of the customer relationships.
We identified the revenue growth rates utilized in the determination of the fair values of acquired customer
relationships for certain acquisitions, as a critical audit matter. The principal considerations for our determination
included the following: (i) management utilizes significant unobservable inputs and assumptions in determining
the projected revenue growth rates and (ii) changes in the revenue growth rates could have a significant impact on
the fair value of acquired customer relationships for certain acquisitions. Auditing these elements involved
especially subjective auditor judgment due to the nature and extent of audit effort required to address these
matters.
The primary procedures we performed to address this critical audit matter included:
• Assessing the design and implementation of controls over the development of projected revenue
growth rates used to determine the fair values of certain customer relationships.
• Assessing the reasonableness of the projected revenue growth rates through: (i) evaluating historical
performance, (ii) comparing historical revenue growth rates to audited financial statements, and (iii)
assessing financial projections against industry metrics and peer-group companies.
/s/ BDO USA, LLP
We have served as the Company's auditor since 1984.
New York, NY
February 15, 2022
61
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 25,
December 26,
2021
2020
$
$
$
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of reserves of $67,168 and $88,030
Inventories, net
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets, 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
Operating lease liabilities
Accrued expenses:
Payroll and related
Taxes
Other
Total current liabilities
Long-term debt
Deferred income taxes
Operating lease liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized,
none outstanding
Common stock, $0.01 par value, 480,000,000 shares authorized,
137,145,558 outstanding on December 25, 2021 and
142,462,571 outstanding on December 26, 2020
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
$
See accompanying notes.
62
$
117,965
1,451,829
1,861,138
413,103
3,844,035
366,456
324,950
2,854,150
667,626
423,874
8,481,091 $
$
1,053,934
50,530
10,640
76,393
385,376
136,919
592,722
2,306,514
811,346
42,283
267,772
376,672
3,804,587
421,185
1,424,787
1,512,499
432,944
3,791,415
342,004
288,847
2,504,392
479,429
366,445
7,772,532
1,005,655
73,366
109,836
64,716
295,329
138,671
595,529
2,283,102
515,773
30,065
238,727
392,781
3,460,448
613,312
327,699
-
-
1,371
-
3,595,233
(171,478)
3,425,126
638,066
4,063,192
8,481,091 $
1,425
-
3,454,831
(108,084)
3,348,172
636,213
3,984,385
7,772,532
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Years Ended
December 25, December 26, December 28,
2020
2019
2021
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Restructuring costs
Operating income
Other income (expense):
Interest income
Interest expense
Other, net
Income from continuing operations before taxes, equity in
earnings of affiliates and noncontrolling interests
Income taxes
Equity in earnings of affiliates
Gain on sale of equity investments
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net Income
Less: Net income attributable to noncontrolling interests
Plus: Net loss attributable to noncontrolling interests
from discontinued operations
Net income attributable to Henry Schein, Inc.
Amounts attributable to Henry Schein Inc.:
Continuing operations
Discontinued operations
Net income attributable to Henry Schein, Inc.
Earnings per share from continuing operations attributable to
Henry Schein, Inc.:
Basic
Diluted
Earnings (loss) per share from discontinued operations attributable to
Henry Schein, Inc.:
Basic
Diluted
Earnings per share attributable to Henry Schein, Inc.:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
$
12,401,021 $
8,728,770
3,672,251
10,119,141 $
7,304,913
2,814,228
2,812,656
7,939
851,656
6,451
(27,600)
41
830,548
(197,349)
20,009
7,318
660,526
-
660,526
(29,294)
2,246,832
32,093
535,303
9,842
(41,377)
(3,873)
499,895
(95,374)
12,344
1,572
418,437
986
419,423
(15,629)
-
-
$
631,232 $
403,794 $
9,985,803
6,894,917
3,090,886
2,357,920
14,705
718,261
15,757
(50,792)
(2,919)
680,307
(159,515)
17,900
186,769
725,461
(6,323)
719,138
(24,770)
366
694,734
$
$
$
$
$
$
$
$
631,232 $
402,808 $
-
986
631,232 $
403,794 $
700,691
(5,957)
694,734
4.51 $
4.45 $
2.83 $
2.81 $
4.74
4.69
- $
- $
0.01 $
0.01 $
(0.04)
(0.04)
4.51 $
4.45 $
2.83 $
2.82 $
4.70
4.65
140,091
141,773
142,504
143,404
147,817
149,257
See accompanying notes.
63
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Years Ended
December 25, December 26, December 28,
2021
2020
2019
Net income
$
660,526 $
419,423 $
719,138
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)
Unrealized gain (loss) from foreign currency hedging activities
Unrealized investment gain (loss)
Pension adjustment gain (loss)
Other comprehensive income (loss), net of tax
Comprehensive income
Comprehensive income attributable to noncontrolling interests:
Net income
Foreign currency translation loss
Comprehensive income attributable to noncontrolling interests
(83,841)
9,442
(9)
5,186
(69,222)
591,304
(29,294)
5,828
(23,466)
63,094
(7,456)
(5)
143
55,776
475,199
(15,629)
3,513
(12,116)
Comprehensive income attributable to Henry Schein, Inc.
$
567,838 $
463,083 $
(4,070)
(3,876)
12
(5,924)
(13,858)
705,280
(24,404)
1,848
(22,556)
682,724
See accompanying notes.
64
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
Common Stock
$.01 Par Value
Shares
151,401,668
-
Amount
1,514
-
Additional
Paid-in
Capital
Balance, December 29, 2018
Cumulative impact of adopting new accounting standards
Net income (excluding $14,838 attributable to Redeemable
noncontrolling interests from continuing operations
and ($366 ) from discontinued operations)
Foreign currency translation loss (excluding loss of $2,335
attributable to Redeemable noncontrolling interests
and $592 gain from discontinued operations)
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $1,035
Unrealized investment gain, net of tax of $2
Pension adjustment loss, net of tax benefit of $1,806
Dividends paid
Other adjustments
Change in fair value of redeemable securities
Noncontrolling interests and adjustments related to
business acquisitions
Adjustment for Animal Health Spin-off
Repurchase and retirement of common stock
Stock issued upon exercise of stock options
Stock-based compensation expense
Shares withheld for payroll taxes
Settlement of stock-based compensation awards
Share Sale related to Animal Health business
Separation of Animal Health business
Transfer of charges in excess of capital
Balance, December 28, 2019
Cumulative impact of adopting new accounting standards
Net income (excluding $13,363 attributable to Redeemable
noncontrolling interests from continuing operations)
Foreign currency translation gain (excluding loss of $4,279
attributable to Redeemable noncontrolling interests)
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $2,768
Unrealized investment loss, net of tax benefit of $1
Pension adjustment gain, including tax benefit of $676
Dividends paid
Purchase of noncontrolling interests
Change in fair value of redeemable securities
Noncontrolling interests and adjustments related to
business acquisitions
Repurchase and retirement of common stock
Stock-based compensation expense
Shares withheld for payroll taxes
Settlement of stock-based compensation awards
Separation of Animal Health business
Transfer of charges in excess of capital
Balance, December 26, 2020
Net income (excluding $23,358 attributable to Redeemable
noncontrolling interests from continuing operations)
Foreign currency translation gain (loss) (excluding loss of $6,005
attributable to Redeemable noncontrolling interests)
Unrealized gain from foreign currency hedging activities,
net of tax of $3,275
Unrealized investment loss, net of tax benefit of $3
Pension adjustment gain, including tax of $2,426
Dividends paid
Change in fair value of redeemable securities
Noncontrolling interests and adjustments related to
business acquisitions
Repurchase and retirement of common stock
Stock-based compensation expense
Shares withheld for payroll taxes
Settlement of stock-based compensation awards
Transfer of charges in excess of capital
Balance, December 25, 2021
-
-
-
-
-
-
-
-
-
87,629
(8,173,912)
2,526
215,408
(179,860)
-
-
-
-
143,353,459
-
-
-
-
-
-
-
-
-
-
(1,200,000)
545,864
(236,752)
-
-
-
142,462,571
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
(82)
-
2
(1)
-
-
-
-
1,434
-
-
-
-
-
-
-
-
-
-
(12)
5
(2)
-
-
-
1,425
-
-
-
-
-
-
-
-
(5,505,704)
303,643
(114,952)
-
-
137,145,558
-
(55)
3
(2)
-
-
1,371
Accumulated
Other
Total
Retained
Earnings
Comprehensive Noncontrolling Stockholders'
Income (Loss)
Interests
Equity
3,208,589
(274)
(248,771)
-
580,456
-
3,541,788
(274)
694,734
-
9,932
704,666
-
-
-
-
-
-
-
-
-
(445,133)
-
-
-
-
-
(543,158)
201,457
3,116,215
(412)
(2,222)
(105)
(2,327)
(3,876)
12
(5,924)
-
-
-
-
-
-
-
-
-
-
-
93,408
-
(167,373)
-
-
-
-
(535)
-
-
42,345
-
-
-
-
-
-
-
-
-
632,093
-
(3,876)
12
(5,924)
(535)
(3)
7,300
42,345
1
(525,000)
34
45,245
(10,845)
160
361,090
(523,720)
-
3,630,137
(412)
403,794
-
2,266
406,060
-
-
-
-
-
-
-
-
(62,828)
-
-
-
-
(1,938)
3,454,831
66,607
(7,456)
(5)
143
-
-
-
-
-
-
-
-
-
-
(108,084)
766
67,373
-
-
-
(1,086)
(701)
-
2,875
-
-
-
-
-
-
636,213
(7,456)
(5)
143
(1,086)
(2,298)
(32,842)
2,875
(73,789)
8,788
(14,477)
(275)
1,649
-
3,984,385
631,232
-
5,936
637,168
-
-
-
-
-
-
-
(347,606)
-
-
-
(143,224)
3,595,233
(78,013)
177
(77,836)
9,442
(9)
5,186
-
-
-
-
-
-
-
-
(171,478)
-
-
-
(11,226)
-
6,966
-
-
-
-
-
638,066
9,442
(9)
5,186
(11,226)
(160,279)
6,966
(401,211)
78,415
(7,639)
(170)
-
4,063,192
-
-
-
-
-
-
-
-
(3)
7,300
-
-
(79,785)
34
45,243
(10,844)
160
361,090
(73,970)
(201,457)
47,768
-
-
-
-
-
-
-
(1,597)
(32,842)
-
(10,949)
8,783
(14,475)
(275)
1,649
1,938
-
-
-
-
-
-
-
(160,279)
-
(53,550)
78,412
(7,637)
(170)
143,224
-
See accompanying notes.
65
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
December 25,
Years Ended
December 26,
December 28,
2021
2020
2019
$
660,526 $
-
660,526
209,528
713
(9,757)
78,415
(7,748)
(10,985)
(20,009)
17,762
(1,947)
(9,717)
4,162
(295,131)
9,060
84,708
709,580
-
709,580
419,423 $
986
418,437
185,538
20,275
(2,096)
8,788
35,137
(52,977)
(12,344)
16,002
(24,881)
5,012
(189,349)
(31,817)
(6,479)
224,273
593,519
5,391
598,910
719,138
(6,323)
725,461
184,942
-
(250,167)
44,920
12,612
(4,057)
(17,900)
71,469
1,941
5,684
(72,689)
14,702
(57,291)
160,851
820,478
(166,391)
654,087
(79,015)
(48,829)
(76,219)
(570,558)
9,757
(4,090)
(33,311)
(677,217)
-
(677,217)
(18,408)
305,000
(122,270)
(2,893)
-
-
(401,211)
(7,471)
-
-
(25,464)
(60,240)
-
(332,957)
-
(332,957)
(2,626)
-
(303,220)
-
421,185
117,965 $
(60,173)
14,020
(1,243)
(18,794)
(115,019)
-
(115,019)
45,082
501,421
(611,216)
(3,879)
(401)
-
(73,789)
(14,299)
-
-
(7,886)
(19,538)
2,711
(181,794)
(5,391)
(187,185)
18,382
-
315,088
-
106,097
421,185 $
(655,879)
307,251
16,713
(14,175)
(422,309)
(2,064)
(424,373)
(927,912)
741
(260,944)
(391)
-
34
(525,000)
(10,814)
1,120,000
361,090
51,498
(2,358)
(169,295)
(363,351)
147,371
(215,980)
14,394
(2,240)
49,212
(23,324)
56,885
106,097
Cash flows from operating activities:
Net income
Income (loss) from discontinued operations
Income from continuing operations
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Impairment charge on intangible assets
Gain on sale of equity investments
Stock-based compensation expense
Provision for (benefits from) 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 from continuing operations
Net cash provided by (used in) operating activities from discontinued operations
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
Proceeds from sale of equity investment
Proceeds from (repayments to) loan to affiliate
Other
Net cash used in investing activities from continuing operations
Net cash used in investing activities from discontinued operations
Net cash used in investing activities
Cash flows from financing activities:
Net change in bank borrowings
Proceeds from issuance of long-term debt
Principal payments for long-term debt
Debt issuance costs
Debt extinguishment costs
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases of common stock
Payments for taxes related to shares withheld for employee taxes
Distribution received related to Animal Health Spin-off
Proceeds related to Animal Health Share Sale
Proceeds from (distributions to) noncontrolling shareholders
Acquisitions of noncontrolling interests in subsidiaries
Proceeds from (payments) to Henry Schein Animal Health Business
Net cash used in financing activities from continuing operations
Net cash provided by (used in) financing activities from discontinued operations
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents from continuing operations
Effect of exchange rate changes on cash and cash equivalents from discontinued operations
Net change in cash and cash equivalents from continuing operations
Net change in cash and cash equivalents from discontinued operations
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
See accompanying notes.
66
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 1 –Basis of Presentation and Significant Accounting Policies
Nature of Operations
We distribute health care products and services primarily to office-based dental and medical practitioners, across
dental practices, laboratories, physician practices, and ambulatory surgery centers, as well as government,
institutional health care clinics and alternate care clinics. We also provide software, technology and other value-
added services to health care practitioners. Our dental businesses serve office-based dental practitioners, dental
laboratories, schools, government and other institutions. Our medical businesses serve physician offices, urgent
care centers, ambulatory care sites, emergency medical technicians, dialysis centers, home health, federal and state
governments and large enterprises, such as group practices and integrated delivery networks, among other providers
across a wide range of specialties.
We have operations or affiliates in the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg,
Malaysia, Mexico, the Netherlands, New Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden,
Switzerland, Thailand, United Arab Emirates 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 in which we have the ability to influence the operating or financial decisions, are
accounted for under the equity method. Certain prior period amounts have been reclassified to conform to the
current period presentation.
We consolidate the results of operations and financial position of a trade accounts receivable securitization which
we consider a Variable Interest Entity (“VIE”) because we are the primary beneficiary, and we have the power to
direct activities that most significantly affect the economic performance and have the obligation to absorb the
majority of the losses or benefits. For this VIE, the trade accounts receivable transferred to the VIE are pledged as
collateral to the related debt. The creditors have recourse to us for losses on these trade accounts receivable. At
December 25, 2021 and December 26, 2020, certain trade accounts receivable that can only be used to settle
obligations of this VIE were $138.0 million and $0.0 million, respectively and the liabilities of this VIE where the
creditors have recourse to us were $105.0 million and $0.0 million, respectively.
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.
In March 2020, the World Health Organization declared Novel Coronavirus Disease 2019 (“COVID-19”) a
pandemic. The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and
created significant volatility and disruption of global financial markets. In response, many countries implemented
business closures and restrictions, stay-at-home and social distancing ordinances and similar measures to combat
the pandemic, which significantly impacted global business and dramatically reduced demand for dental products
and certain medical products in the second quarter of 2020. Demand increased in the second half of 2020 and
continued throughout 2021 resulting in growth over the prior year.
67
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Our consolidated financial statements reflect estimates and assumptions made by us that affect, among other things,
our goodwill, long-lived asset and definite-lived intangible asset valuation; inventory valuation; equity investment
valuation; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax
contingencies; the allowance for doubtful accounts; hedging activity; supplier rebates; measurement of
compensation cost for certain share-based performance awards and cash bonus plans; and pension plan
assumptions. Due to the significant uncertainty surrounding the future impact of COVID-19, our judgments
regarding estimates and impairments could change in the future and may result in a material adverse effect on our
financial condition and liquidity. However, the extent of the potential impact cannot be reasonably estimated at this
time.
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 25, 2021, December 26, 2020 and December 28, 2019 consisted of 52 weeks.
Revenue Recognition
Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the
consideration that we expect to receive for those goods or services. To recognize revenue, we do the following:
• identify the contract(s) with a customer;
• identify the performance obligations in the contract;
• determine the transaction price;
• allocate the transaction price to the performance obligations in the contract; and
• recognize revenue when, or as, the entity satisfies a performance obligation.
We generate revenue from the sale of dental and medical consumable products, equipment (Health care distribution
revenues), software products and services and other sources (Technology and value-added services revenues).
Provisions for discounts, rebates to customers, customer returns and other contra revenue adjustments are included
in the transaction price at contract inception by estimating the most likely amount 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 at a point in time when control transfers to the
customer. 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 control has transferred to the
customer because we have no post-shipment obligations and this is when legal title and risks and rewards of
ownership transfer to the customer and the point at which we have an enforceable right to payment.
Revenue derived from the sale of equipment is recognized when control transfers to the customer. This occurs
when the equipment is delivered. Such sales typically entail scheduled deliveries of large equipment primarily by
equipment service technicians. Most equipment requires minimal installation, which is typically completed at the
time of delivery. Our product generally carries standard warranty terms provided by the manufacturer, however, in
instances where we provide warranty labor services, the warranty costs are accrued in accordance with Accounting
Standards Codification (“ASC”) 460 “Guarantees”. At December 25, 2021 and December 26, 2020, we had
accrued approximately $8.1 million and $6.9 million, respectively, for warranty costs.
68
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Revenue derived from the sale of software products is recognized when products are delivered to customers or
made available electronically. Such software is generally installed by customers and does not require extensive
training due to the nature of its design. Revenue derived from post-contract customer support for software,
including annual support and/or training, is generally recognized over time using time elapsed as the input method
that best depicts the transfer of control to the customer. Revenue derived from software sold on Software-as-a -
Service basis is recognized ratably over the subscription period as control is transferred to the customer.
Revenue derived from other sources, including freight charges, equipment repairs and financial services, is
recognized when the related product revenue is recognized or when the services are provided. We apply the
practical expedient to treat shipping and handling activities performed after the customer obtains control as
fulfillment activities, rather than a separate performance obligation in the contract.
Sales, value-add and other taxes we collect concurrent with revenue-producing activities are excluded from
revenue.
Certain of our revenue is derived from bundled arrangements that include multiple distinct performance obligations,
which are accounted for separately. When we sell software products together with related services (i.e., training
and technical support), we allocate revenue to software using the residual method, using an estimate of the
standalone selling price to estimate the fair value of the undelivered elements. Bundled arrangements that include
elements that are not considered software consist primarily of equipment and the related installation service. We
allocate revenue for such arrangements based on the relative selling prices of the goods or services. If an
observable selling price is not available (i.e., we do not sell the goods or services separately), we use one of the
following techniques to estimate the standalone selling price: adjusted market approach; cost-plus approach; or the
residual method. There is no specific hierarchy for the use of these methods, but the estimated selling price reflects
our best estimate of what the selling prices of each deliverable would be if it were sold regularly on a standalone
basis taking into consideration the cost structure of our business, technical skill required, customer location and
other market conditions.
See Note 2 – Revenue from Contracts with Customers for additional disclosures of disaggregated net sales and
Note 3 – Segment and Geographic Data for disclosures of net sales by segment and geographic data.
Cost of Sales
The primary components of cost of sales include the cost of the product (net of purchase discounts, supplier
chargebacks and rebates) and inbound and outbound freight charges.
Costs related to purchasing, receiving, inspections, warehousing, internal inventory transfers and other costs of our
distribution network are included in selling, general and administrative expenses along with other operating costs.
Total distribution network costs were $89.2 million, $71.7 million and $72.3 million for the years ended December
25, 2021, December 26, 2020 and December 28, 2019.
Sales Returns
Sales returns are recognized as a reduction of revenue by the amount of expected returns and are recorded as refund
liability within current liabilities. We estimate the amount of revenue expected to be reversed to calculate the sales
return liability based on historical data for specific products, adjusted as necessary for new products. The
allowance for returns is presented gross as a refund liability and we record an inventory asset (and a corresponding
adjustment to cost of sales) for any products that we expect to be returned.
69
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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.
Direct Shipping and Handling Costs
Freight and other direct shipping costs are included in cost of sales. Direct handling costs, which represent
primarily direct compensation costs of employees who pick, pack and otherwise prepare, if necessary, merchandise
for shipment to our customers are reflected in selling, general and administrative expenses. Direct handling costs
were $96.7 million, $79.2 million and $73.8 million for the years ended December 25, 2021, December 26, 2020
and December 28, 2019.
Advertising and Promotional Costs
We generally expense advertising and promotional costs as incurred. Total advertising and promotional expenses
were $45.9 million, $30.8 million and $25.2 million for the years ended December 25, 2021, December 26, 2020
and December 28, 2019.
Stock Compensation Costs
We measure stock-based compensation at the grant date, based on the estimated fair value of the award, and
recognize the cost (net of estimated forfeitures) as compensation expense on a straight-line basis over the requisite
service period for time-based restricted stock units and on a graded vesting basis for the option awards. For
performance-based awards, the Company reassesses at each reporting date whether achievement of the performance
condition is probable and accrues compensation expense when achievement of the performance condition is
probable. Our stock-based compensation expense is reflected in selling, general and administrative expenses.
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 $2.0 million and $1.3 million, primarily related to
payments for inventory, were classified as accounts payable as of December 25, 2021 and December 26, 2020.
Contract Balances
Contract balances represent amounts presented in our consolidated balance sheets when either we have transferred
goods or services to the customer or the customer has paid consideration to us under the contract. These contract
balances include accounts receivable, contract assets and contract liabilities.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are generally recognized when health care distribution and technology and value-added
services revenues are recognized. In accordance with the “expected credit loss” model, the carrying amount of
accounts receivable is reduced by a valuation allowance that reflects our best estimate of the amounts that we do
not expect to collect. In addition to reviewing delinquent accounts receivable, we consider many factors in
estimating our reserve, including types of customers and their credit worthiness, experience and historical data
adjusted for current conditions and reasonable supportable forecasts.
70
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
We record allowances for credit losses based upon a specific review of all significant outstanding invoices. For
those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the
receivable, the collection history associated with the geographic region that the receivable was recorded in, current
economic trends and reasonable supportable forecasts. We write-off a receivable and charge it against its recorded
allowance when we deem them uncollectible.
Contract Assets
Contract assets include amounts related to any conditional right to consideration for work completed but not billed
as of the reporting date and generally represent amounts owed to us by customers, but not yet billed. Contract
assets are transferred to accounts receivable when the right becomes unconditional. The contract assets primarily
relate to our bundled arrangements for the sale of equipment and consumables and sales of term software licenses.
Current contract assets are included in Prepaid expenses and other and the non-current contract assets are included
in investments and other within our consolidated balance sheets. Current and non-current contract asset balances as
of December 25, 2021 and December 26, 2020 were not material.
Contract Liabilities
Contract liabilities are comprised of advance payments and upfront payments for service arrangements provided
over time that are accounted for as deferred revenue amounts. Contract liabilities are transferred to revenue once
the performance obligation has been satisfied. Current contract liabilities are included in accrued expenses: other
and the non-current contract liabilities are included in other liabilities within our consolidated balance sheets. At
December 26, 2020, the current portion of contract liabilities of $71.5 million was reported in accrued expenses:
other, and $8.2 million related to non-current contract liabilities were reported in other liabilities. During the year
ended December 25, 2021, we recognized substantially all of the current contract liability amounts that were
previously deferred at December 26, 2020. At December 25, 2021, the current and non-current portion of contract
liabilities were $89.2 million and $9.7 million, respectively.
Inventories and Reserves
Inventories consist primarily of finished goods and are valued at the lower of cost or net realizable value. Cost is
determined by the first-in, first-out method for merchandise 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.
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 5 – 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 Development Costs
Capitalized internal-use software costs consist of costs to purchase and develop software. For software to be used
solely to meet internal needs and cloud-based applications used to deliver our services, we capitalize costs incurred
during the application development stage and include such costs within property and equipment, net within our
consolidated balance sheets. For software to be sold, leased, or marketed to external users, we capitalize software
development costs when technological feasibility is reached and include such costs in Investments and other within
our consolidated balance sheets.
71
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Leases
We determine if an arrangement contains a lease at inception. An arrangement contains a lease if it implicitly or
explicitly identifies an asset to be used and conveys the right to control the use of the identified asset in exchange
for consideration. As a lessee, we include operating leases in operating lease right-of-use (“ROU”) assets,
operating lease liabilities, and non-current operating lease liabilities in our consolidated balance sheets. Finance
leases are included in property and equipment, current maturities of long-term debt, and long-term debt in our
consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized
upon commencement of the lease based on the present value of the lease payments over the lease term. As most of
our leases do not provide an implicit interest rate, we generally use our incremental borrowing rate based on the
estimated rate of interest for fully collateralized and fully amortizing borrowings over a similar term of the lease
payments at commencement date to determine the present value of lease payments. When readily determinable, we
use the implicit rate. Our lease terms may include options to extend or terminate the lease when it is reasonably
certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis
over the lease term. Expenses associated with operating leases and finance leases are included in “selling, general
and administrative” and “interest expense”, respectively within our consolidated statement of income. Short-term
leases with a term of 12 months or less are not capitalized. During the years ended December 25, 2021, December
26, 2020, and December 28, 2019, such short-term lease expense was $3.9 million, $1.9 million, and $0.9 million,
respectively.
We have lease agreements with lease and non-lease components, which are generally accounted for as a single
lease component, except non-lease components for leases of vehicles, which are accounted for separately. When a
vehicle lease contains both lease and non-lease components, we allocate the transaction price based on the relative
standalone selling price.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired,
including the amount assigned to identifiable intangible assets. Goodwill is subject to impairment analysis annually
or more frequently if needed. Such impairment analyses for goodwill requires a comparison of the fair value to the
carrying value of reporting units. We regard our reporting units to be our operating segments: global dental; global
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 years ended December 25, 2021 and December 26, 2020 we tested goodwill for impairment, on the first day
of the fourth quarter, using a quantitative analysis comparing 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 the fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired. Conversely, impairment loss would be equivalent to the excess of a reporting unit’s carrying value over
its fair value limited to the total amount of goodwill allocated to that reporting unit.
Application of the goodwill impairment test requires judgment, including the identification of reporting units,
assignment of assets and liabilities that are considered shared services to the reporting units, and ultimately the
determination of the fair value of each reporting unit. The fair value of each reporting unit is calculated by
applying the discounted cash flow methodology and confirming with a market approach. There are inherent
uncertainties, however, related to fair value models, the inputs and our judgments in applying them to this analysis.
The most significant inputs include estimation of future cash flows based on budget expectations, and
determination of comparable companies to develop a weighted average cost of capital for each reporting unit.
72
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
For the years ended December 25, 2021 and December 26, 2020, the results of our goodwill impairment analysis
did not result in any impairments.
Intangible Assets
Intangible assets, other than goodwill, are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through the 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 product development. 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.
During the years ended December 25, 2021 and December 26, 2020, we recorded total impairment charges, within
selling, general and administrative expenses, on intangible assets of approximately $0.7 million and $20.3 million,
nearly all of which was recorded in our technology and value-added services segment.
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 is recognized as income or expense in the period that includes the enactment date.
We file a consolidated U.S. federal income tax return with our 80% or greater owned U.S. subsidiaries. In
February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220), which allows the reclassification
of stranded income tax effects, resulting from U.S. tax reform, from accumulated other comprehensive income
(AOCI) to retained earnings. The adoption of this ASU in the first quarter of 2019 did not have a material impact
on our consolidated financial statements. We applied an individual item basis approach for releasing income tax
effects from AOCI.
Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have the right, at certain times, to require us
to acquire their ownership interest in those entities at fair value. Their interests in these subsidiaries are classified
outside permanent equity on our consolidated balance sheets and are carried at the estimated redemption amounts.
The redemption amounts have been estimated based on 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. Adjustments to the carrying amount of a noncontrolling interests to
reflect a fair value redemption feature do not impact the calculation of earnings per share. Our net income is
reduced by the portion of the subsidiaries’ net income that is attributable to redeemable noncontrolling interests.
73
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Noncontrolling Interests
Non-controlling interest represents the ownership interests of certain minority owners of our consolidated
subsidiaries. Our net income is reduced by the portion of the subsidiaries net income that is attributable to
noncontrolling interests.
Comprehensive Income
Comprehensive income includes certain gains and losses that, under accounting principles generally accepted in the
United States, are excluded from net income as such amounts are recorded directly as an adjustment to
stockholders’ equity. Our comprehensive income is primarily comprised of net income, foreign currency
translation gain (loss), unrealized gain (loss) from foreign currency hedging activities, unrealized investment gain
(loss) and pension adjustment gain (loss).
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, as well as our net investments in foreign subsidiaries. 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, certain forecasted inventory purchase commitments with
foreign suppliers and foreign currency forward contracts to hedge a portion of our euro-denominated foreign
operations which are designated as net investment hedges.
Foreign currency forward agreements related to forecasted inventory purchase commitments with foreign suppliers
and foreign currency swaps related to foreign currency denominated debt are designated as cash flow hedges. For
derivatives that are designated and qualify as cash flow hedges, the changes in the fair value of the derivative 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.
Foreign currency forward contracts related to our euro-denominated foreign operations are designated as net
investment hedges. For derivatives that are designated and qualify as net investment hedges, the changes in the fair
value of the derivative is recorded in the foreign currency translation gain (loss) component of Accumulated other
comprehensive income in stockholders’ equity until the net investment is sold or substantially liquidated.
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.
Total return swaps are entered into for the purpose of economically hedging our unfunded non-qualified
supplemental retirement plan (“SERP”) and our deferred compensation plan (“DCP”). This swap will offset
changes in our SERP and DCP liabilities. This swap is expected to be renewed on an annual basis.
74
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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.
Accounting Pronouncements Adopted
On December 27, 2020 we adopted ASU No. 2019-12, “Income Taxes” (Topic 740): Simplifying the Accounting
for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740. The amendments also improve consistent application of and
simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. Our adoption of
ASU 2019-12 did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Standards
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting” which provides optional expedients and exceptions for
applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the
London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of
reference rate reform. The guidance was effective beginning March 12, 2020 and can be applied prospectively
through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic
848): Scope (“ASU 2021-01”). ASU 2021-01 provides temporary optional expedients and exceptions to certain
guidance in U.S. GAAP to ease the financial reporting burdens related to the expected market transition from
LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing
Rate. The guidance is effective upon issuance, on January 7, 2021, and can be applied through December 31, 2022.
We do not expect that the requirements of this guidance will have a material impact on our consolidated financial
statements.
In October 2021, the FASB issued ASU No. 2021 – 08, “Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers” (Subtopic 805). ASU 2021 – 08 requires an acquirer to recognize and measure
contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the
acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it
had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to
determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer
recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were
recognized and measured in the acquiree’s financial statements. ASU 2021 – 08 is effective for fiscal year
beginning after December 15, 2022. Early adoption is permitted. We expect to adopt this ASU on December 26,
2021. We do not expect that the requirements of this ASU will have a material impact on our consolidated
financial statements.
75
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 2 – Revenue from Contracts with Customers
Revenue (Net sales) is recognized in accordance with the policies discussed in Note 1 – Basis of Presentation and
Significant Accounting Policies.
Disaggregation of Net sales
The following table disaggregates our Net sales by reportable segment and geographic area:
Revenues:
Health care distribution
Dental
Medical
Total health care distribution
Technology and value-added services
Total excluding Corporate TSA revenues (1)
Corporate TSA revenues (1)
Total revenues
Revenues:
Health care distribution
Dental
Medical
Total health care distribution
Technology and value-added services
Total excluding Corporate TSA revenues (1)
Corporate TSA revenues (1)
Total revenues
Revenues:
Health care distribution
Dental
Medical
Total health care distribution
Technology and value-added services
Total excluding Corporate TSA revenues (1)
Corporate TSA revenues (1)
Total revenues
North America
Year Ended
December 25, 2021
International
Global
4,504,243 $
4,115,240
8,619,483
554,123
9,173,606
-
9,173,606 $
3,037,707 $
102,935
3,140,642
86,773
3,227,415
-
3,227,415 $
7,541,950
4,218,175
11,760,125
640,896
12,401,021
-
12,401,021
North America
Year Ended
December 26, 2020
International
Global
3,471,521 $
3,514,670
6,986,191
446,830
7,433,021
-
7,433,021 $
2,441,072 $
102,347
2,543,419
67,428
2,610,847
75,273
2,686,120 $
5,912,593
3,617,017
9,529,610
514,258
10,043,868
75,273
10,119,141
North America
Year Ended
December 28, 2019
International
Global
3,911,746 $
2,894,137
6,805,883
445,317
7,251,200
4,098
7,255,298 $
2,504,119 $
79,449
2,583,568
69,768
2,653,336
77,169
2,730,505 $
6,415,865
2,973,586
9,389,451
515,085
9,904,536
81,267
9,985,803
$
$
$
$
$
$
(1) Corporate TSA revenues represents sales of certain animal health products to Covetrus under the transition services agreement
entered into in connection with the Animal Health Spin-off, which ended in December 2020.
76
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 3 – 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. Our global
dental businesses serve office-based dental practitioners, dental laboratories, schools and other institutions. Our
global medical businesses serve office-based medical practitioners, ambulatory surgery centers, other alternate-care
settings and other institutions. Our global dental and medical groups serve practitioners in 32 countries worldwide.
The health care distribution reportable segment aggregates our global dental and medical operating segments. This
segment distributes consumable products, dental specialty products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control product, PPE and vitamins.
Our global technology and value-added services reportable segment provides software, technology and other value-
added services to health care practitioners. Our technology offerings include practice management software
systems for dental and medical practitioners. Our value-added practice solutions include practice consultancy,
education, revenue cycle management and financial services on a non-recourse basis, e-services, practice
technology, network and hardware services, as well as continuing education services for practitioners.
The following tables present information about our reportable and operating segments:
Net Sales:
Health care distribution (1)
Dental
Medical
Total health care distribution
Technology and value-added services (2)
Total excluding Corporate TSA revenues
Corporate TSA revenues (3)
Total
Years Ended
December 25,
2021
December 26, December 28,
2020
2019
$
7,541,950 $
4,218,175
11,760,125
640,896
12,401,021
-
$
12,401,021 $
5,912,593 $
3,617,017
9,529,610
514,258
10,043,868
75,273
10,119,141 $
6,415,865
2,973,586
9,389,451
515,085
9,904,536
81,267
9,985,803
(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic
products), diagnostic tests, infection-control products, PPE and vitamins.
(2) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
practice consultancy, education, revenue cycle management and financial services on a non-recourse basis, e-services, continuing
education services for practitioners, consulting and other services.
(3) Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health Spin-off, which ended in December 2020. See Note-23 Related Party Transactions for further
information.
77
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
December 25,
Years ended
December 26,
December 28,
2021
2020
2019
Operating Income:
Health care distribution
Technology and value-added services
Total
Income from continuing operations 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
Interest Income:
Health care distribution
Technology and value-added services
Total
Interest Expense:
Health care distribution
Technology and value-added services
Total
Income Tax Expense:
Health care distribution
Technology and value-added services
Total
Purchases of Fixed Assets:
Health care distribution
Technology and value-added services
Total
Total Assets:
Health care distribution
Technology and value-added services
Total
$
$
$
$
$
$
$
$
$
$
$
$
$
$
728,041 $
123,615
851,656 $
436,173 $
99,130
535,303 $
591,404
126,857
718,261
706,874 $
123,674
830,548 $
400,343 $
99,552
499,895 $
156,333 $
53,195
209,528 $
142,712 $
42,826
185,538 $
6,384 $
67
6,451 $
9,736 $
106
9,842 $
27,554 $
46
27,600 $
41,307 $
70
41,377 $
553,181
127,126
680,307
146,960
37,982
184,942
15,352
405
15,757
50,666
126
50,792
167,584 $
29,765
197,349 $
71,206 $
24,168
95,374 $
129,381
30,134
159,515
74,021 $
4,994
79,015 $
43,511 $
5,318
48,829 $
69,095
7,124
76,219
As of
December 25,
December 26,
December 28,
2021
2020
2019
$
$
7,157,025 $
1,324,066
8,481,091 $
6,503,089 $
1,269,443
7,772,532 $
5,821,468
1,329,633
7,151,101
78
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The following table presents information about our operations by geographic area as of and for the three years
ended December 25, 2021. 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.
2021
2020
2019
United States
$
8,722,223 $
Net Sales
Long-Lived
Assets
2,980,765 $
Net Sales
7,090,206 $
Long-Lived
Assets
2,362,823 $
Net Sales
6,876,194 $
Long-Lived
Assets
2,400,733
Other
Consolidated total
3,678,798
1,232,417
3,028,935
1,251,849
3,109,609
1,195,947
$ 12,401,021 $
4,213,182 $ 10,119,141 $
3,614,672 $
9,985,803 $
3,596,680
Note 4 – Business Acquisitions and Divestitures
Acquisitions
We account for business acquisitions and combinations under the acquisition method of accounting, where the net
assets of acquired businesses 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. Goodwill is an asset presenting the future
economic benefits arising from other assets acquired in a business combination that are not individually identified
and separately recognized, such as future customers and technology, as well as the assembled workforce.
Excluding goodwill, the major classes of assets and liabilities to which we generally allocate acquisition
consideration include identifiable intangible assets (i.e., customer relationships and lists, trademarks and trade
names, product development, and non-compete agreements), inventory and accounts receivable. The estimated fair
value of identifiable intangible assets is based on critical judgments and assumptions derived from analysis of
market conditions, including discount rates, projected revenue growth rates (which are based on historical trends
and assessment of financial projections), estimated customer attrition and projected cash flows. These assumptions
are forward-looking and could be affected by future economic and market conditions.
If certain financial targets are met after the date of acquisition, certain prior owners of acquired subsidiaries are
eligible to receive additional purchase price cash consideration, or we may be entitled to recoup a portion of
purchase price cash consideration if certain financial targets are met. We accrue the estimated fair value of such
contingent consideration at the time of the acquisition, using the income approach, including a probability-weighted
discounted cash flow method or an option pricing method, where applicable.
While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the
acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and
subject to refinement. As a result, within 12 months following the date of acquisition, or the measurement period,
we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill
within our consolidated balance sheets. At the end of the measurement period or final determination of the values
of such assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in
our consolidated statements of operations.
We completed acquisitions during the year ended December 25, 2021, which were immaterial to our financial
statements individually, and in which our ownership interests ranged from approximately 51% to 100%.
Acquisitions within our health care distribution segment included companies that specialize in the distribution and
manufacturing of dental and medical products, a provider of home medical supplies, and a provider of product
kitting and sterile packaging. Within our technology and value-added services segment, we acquired companies
that focus on dental marketing and website solutions, practice transition services, revenue cycle management, and
79
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
business analytics and intelligence software. Approximately half of the acquired goodwill is deductible for tax
purposes.
The following table aggregates the estimated fair value, as of the date of acquisition, of consideration paid and net
assets acquired for acquisitions during the year ended December 25, 2021.
Acquisition consideration:
Cash
Deferred consideration
Estimated fair value of contingent consideration receivable
Fair value of previously held equity method investment
Redeemable noncontrolling interests
Total consideration
Identifiable assets acquired and liabilities assumed:
Current assets
Intangible assets
Other noncurrent assets
Current liabilities
Deferred income taxes
Other noncurrent liabilities
Total identifiable net assets
Goodwill
Total net assets acquired
$
$
$
$
578,819
11,233
(4,900)
7,500
181,236
773,888
195,479
316,855
51,244
(93,492)
(25,929)
(46,480)
397,677
376,211
773,888
The following table summarizes the identifiable intangible assets acquired during the year ended December 25,
2021 and their estimated useful lives as of the date of the acquisition:
Trademark / Tradename
Non-compete agreements
Customer relationships and lists
Product development
Other
Estimated
Useful Lives
(in years)
$
58,208
4,688
220,454
19,274
14,231
5-12
3-5
5-12
5-10
18
$
316,855
At December 25, 2021 we have recorded a contingent consideration receivable of $4.9 million relating to the timing
of government approval of a certain product.
The accounting for certain of our acquisitions during the year ended December 25, 2021 has not been completed in
several areas, including but not limited to pending assessments of accounts receivable, inventory, operating leases,
accrued and contingent liabilities and income and non-income based taxes.
The pro forma financial information has not been presented because the impact of the acquisitions during the year
ended December 25, 2021 to our consolidated financial statements was immaterial.
80
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
We completed acquisitions during the year ended December 26, 2020, which were immaterial to our financial
statements individually. In the aggregate, these transactions resulted in consideration of $57.8 million in 2020
related to business combinations, for net assets amounting to $32.8 million. As of December 26, 2020, we had
recorded $36.9 million of identifiable intangibles, $23.9 million of goodwill and $26.4 million of non-controlling
interest, related to these acquisitions.
We completed acquisitions during the year ended December 28, 2019, which were immaterial to our financial
statements individually. In the aggregate, these transactions resulted in consideration of $652.9 million in 2019
related to business combinations, for net assets amounting to $19.7 million. As of December 28, 2019, we had
recorded $310.4 million identifiable intangibles, $395.3 million of goodwill and $72.5 million of non-controlling
interest, related to these acquisitions.
For the years ended December 25, 2021, December 26, 2020 and December 28, 2019, there were no material
adjustments recorded in our consolidated balance sheets relating to accounting for acquisitions incomplete in prior
periods, or in our consolidated statements of income relating to changes in estimated contingent consideration
assets or liabilities.
During the years ended December 25, 2021, December 26, 2020, and December 28, 2019 we incurred $6.6 million,
$5.9 million and $4.5 million in acquisition costs reported within income from continuing operations.
Divestitures
During the fourth quarter of 2019, we sold an equity investment in Hu-Friedy Mfg. Co., LLC, a manufacturer of
dental instruments and infection prevention solutions. Our investment was non-controlling, we were not involved
in running the business and had no representation on the board of directors. During the fourth quarter of 2019, we
also sold certain other equity investments. In the aggregate, the sales of these investments resulted in a pre-tax gain
of approximately $250.2 million, net of taxes of approximately $63.4 million.
In the third quarter of 2021 we received contingent proceeds of $9.8 million from the 2019 sale of Hu-Friedy
resulting in the recognition of an additional after-tax gain of $7.3 million. During the fourth quarter of 2020 we
received contingent proceeds of $2.1 million from the 2019 sale of Hu-Friedy resulting in the recognition of an
additional after-tax gain of $1.6 million. For the year ended December 28, 2019 we recognized approximately $6.0
million of equity in earnings from these affiliates. We do expect to receive any additional proceeds from the sale of
Hu-Friedy.
81
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 5 – Property and Equipment, Net
Property and equipment, including related estimated useful lives, consisted of the following:
Land
Buildings and permanent improvements
Leasehold improvements
Machinery and warehouse equipment
Furniture, fixtures and other
Computer equipment and software
Less accumulated depreciation
Property and equipment, net
Buildings and permanent improvements
Machinery and warehouse equipment
Furniture, fixtures and other
Computer equipment and software
December 25,
December 26,
2021
2020
20,297
145,160
107,753
142,437
108,041
344,494
868,182
(526,178)
342,004
$
21,115 $
140,062
97,909
152,952
119,693
385,011
916,742
(550,286)
$
366,456 $
Estimated Useful
Lives (in years)
40
5-10
3-10
3-10
Amortization of leasehold improvements is computed using the straight-line method over the lesser of the useful
life of the assets or the lease term.
Property and equipment related depreciation expense for the years ended December 25, 2021, December 26, 2020
and December 28, 2019 was $70.4 million, $64.3 million and $64.4 million. Please see Note 6 – Leases for finance
lease amounts included in property and equipment, net within our consolidated balance sheets.
82
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 6 – Leases
We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles,
and certain equipment. Our leases have remaining terms of less than one year to approximately 20 years, some of
which may include options to extend the leases for up to 10 years. The components of lease expense were as
follows:
Operating lease cost: (1) (2)
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
(1) Includes variable lease expenses.
December 25,
2021
Years Ended
December 26,
December 28,
2020
2019
$
103,459
$
86,800
$
88,246
2,882
114
2,996
$
2,209
115
2,324
$
1,154
131
1,285
$
(2) Operating lease cost for the years ended December 25, 2021, December 26, 2020, and December 28, 2019, include amortization of
right-of-use assets of $0.0 million, $0.6 million, and $0.6 million, respectively, related to facility leases recorded in “Restructuring
costs” within our consolidated statements of income.
Supplemental balance sheet information related to leases is as follows:
Years Ended
December 25,
December 26,
2021
2020
$
324,950 $
288,847
76,393
267,772
344,165 $
64,716
238,727
303,443
12,580 $
(5,325)
7,255 $
3,216 $
3,960
7,176 $
10,683
(4,277)
6,406
2,420
3,541
5,961
$
$
$
$
$
7.3
3.6
2.4 %
1.7 %
7.5
4.3
2.8 %
1.9 %
Operating Leases:
Operating lease right-of-use assets
Current operating lease liabilities
Non-current operating lease liabilities
Total operating lease liabilities
Finance Leases:
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net of accumulated depreciation
Current maturities of long-term debt
Long-term debt
Total finance lease liabilities
Weighted Average Remaining Lease Term in Years:
Operating leases
Finance leases
Weighted Average Discount Rate:
Operating leases
Finance leases
83
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Supplemental cash flow information related to leases is as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Maturities of lease liabilities are as follows:
2022
2023
2024
2025
2026
Thereafter
Total future lease payments
Less imputed interest
Total
Years Ended
December 25, December 26,
2021
2020
$
$
$
$
85,123
95
2,602
120,732
3,868
76,985
101
2,148
120,148
2,947
December 25, 2021
Operating
Leases
Finance
Leases
82,920
60,061
45,992
40,880
32,814
113,667
376,334
(32,169)
344,165
$
$
3,303
1,815
953
432
308
576
7,387
(211)
7,176
As of December 25, 2021, we have additional operating leases with total lease payments of $7.3 million for
buildings and vehicles that have not yet commenced. These operating leases will commence subsequent to
December 25, 2021, with lease terms of two years to five years.
Certain of our facilities related to our acquisitions are leased from employees and minority shareholders. These
leases are classified as operating leases and have a remaining lease term ranging from 6 months to 10 years. The
present value of lease payments under these related party leases is not material to our consolidated financial
statements.
84
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 7 – Goodwill and Other Intangibles, Net
The changes in the carrying amount of goodwill for the years ended December 25, 2021 and December 26, 2020
were as follows:
Balance as of December 28, 2019
Adjustments to goodwill:
Acquisitions
Foreign currency translation
Balance as of December 26, 2020
Adjustments to goodwill:
Acquisitions
Foreign currency translation
Balance as of December 25, 2021
Health Care
Distribution
Technology and
Value-Added
Services
Total
$
1,476,719 $
985,776 $
2,462,495
14,230
9,888
1,500,837
12,101
5,678
1,003,555
359,093
(29,343)
1,830,587 $
24,252
(4,244)
1,023,563 $
$
26,331
15,566
2,504,392
383,345
(33,587)
2,854,150
Other intangible assets consisted of the following:
Customer relationships and lists
Trademarks / trade names - definite lived
Product Development
Non-compete agreements
Other
Total
December 25, 2021
Accumulated
Amortization
Cost
$
$
852,689 $
129,061
113,777
25,364
28,303
1,149,194 $
(353,457) $
(43,921)
(70,316)
(5,987)
(7,887)
(481,568) $
December 26, 2020
Accumulated
Amortization
Cost
652,605 $
95,382
94,216
30,993
14,188
887,384 $
(283,469) $
(50,893)
(54,451)
(11,480)
(7,662)
(407,955) $
Net
369,136
44,489
39,765
19,513
6,526
479,429
Net
499,232 $
85,140
43,461
19,377
20,416
667,626 $
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 25, 2021. Customer lists and customer relationships are definite-lived
intangible assets that are amortized on a straight-line basis over a weighted-average period of approximately 10.0
years as of December 25, 2021. Product development is a definite-lived intangible asset that is amortized on a
straight-line basis over a weighted-average period of approximately 7.9 years as of December 25, 2021.
Non-compete agreements represent amounts paid primarily to 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 5.2 years as of December 25, 2021.
Amortization expense related to definite-lived intangible assets for the years ended December 25, 2021, December
26, 2020 and December 28, 2019 was $123.8 million, $105.9 million and $108.3 million. During the years ended
December 25, 2021 and December 26, 2020, we recorded total impairment charges on intangible assets of
approximately $0.7 million and $20.3 million, respectively. The annual amortization expense expected to be
recorded for existing intangibles assets for the years 2022 through 2026 is $122.8 million, $114.5 million, $91.5
million, $80.1 million and $63.4 million.
85
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 8 – Investments and Other
Investments and other consisted of the following:
Investment in unconsolidated affiliates
Non-current deferred foreign, state and local income taxes
Notes receivable (1)
Capitalized costs for software to be sold, leased or marketed to external users
Security deposits
Acquisition-related indemnification
Other long-term assets
Total
December 25, December 26,
2021
2020
$
168,118 $
169,382
34,607
35,748
65,349
2,225
65,638
52,189
42,594
34,760
47,650
1,752
49,401
20,906
$
423,874 $
366,445
(1) Long-term notes receivable carry interest rates ranging from 3.0% to 14.2% and are due in varying installments through
September 30, 2027.
Amortization expense, primarily related to capitalized costs for software to be sold, leased, or marketed to external
users, for the years ended December 25, 2021, December 26, 2020 and December 28, 2019 was $15.3 million,
$15.3 million and $12.3 million.
Note 9 – Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from independent sources (observable
inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs).
The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described as follows:
• 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.
86
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 based on the interest rates in the
applicable markets.
Debt
The fair value of our debt (including bank credit lines) is classified as Level 3 within the fair value hierarchy as of
December 25, 2021 and December 26, 2020 was estimated at $872.5 million and $699.0 million, respectively.
Factors that we considered when estimating the fair value of our debt include market conditions, such as interest
rates and credit spreads.
Derivative contracts
Derivative contracts are valued using quoted market prices and significant other observable inputs. 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 certain intercompany loans, certain
forecasted inventory purchase commitments with foreign suppliers, foreign currency forward contracts to hedge a
portion of our euro-denominated foreign operations which are designated as net investment hedges and a total
return swap for the purpose of economically hedging our unfunded non-qualified SERP and our DCP.
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. See Note 11-Derivatives and Hedging
Activities for further information.
Redeemable noncontrolling interests
The values for Redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy and are
based on recent transactions and/or implied multiples of earnings. See Note 17 – Redeemable Noncontrolling
Interests for additional information.
87
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 25, 2021 and December 26,
2020:
Level 1
Level 2
Level 3
Total
December 25, 2021
Assets:
Derivative contracts designated as hedges
Derivative contracts undesignated
Total return swap
Total assets
Liabilities:
Derivative contracts designated as hedges
Derivative contracts undesignated
Total liabilities
Redeemable noncontrolling interests
Assets:
Derivative contracts designated as hedges
Derivative contracts undesignated
Total return swap
Total assets
Liabilities:
Derivative contracts designated as hedges
Derivative contracts undesignated
Total liabilities
Redeemable noncontrolling interests
$
$
$
$
$
$
$
$
$
$
- $
-
-
- $
- $
-
- $
- $
7,859 $
640
1,404
9,903 $
650 $
1,503
2,153 $
- $
-
-
- $
- $
-
- $
7,859
640
1,404
9,903
650
1,503
2,153
- $
613,312 $
613,312
Level 1
Level 2
Level 3
Total
December 26, 2020
- $
-
-
- $
- $
-
- $
- $
453 $
1,415
1,565
3,433 $
10,880 $
885
11,765 $
- $
-
-
- $
- $
-
- $
453
1,415
1,565
3,433
10,880
885
11,765
- $
327,699 $
327,699
88
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 10 – Concentrations of Risk
Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments
consist primarily of cash equivalents, trade receivables, long-term investments, notes receivable and derivative
instruments. In all cases, our maximum exposure to loss from credit risk equals the gross fair value of the financial
instruments. We routinely maintain cash balances at financial institutions in excess of insured amounts. We have
not experienced any loss in such accounts and we manage this risk through maintaining cash deposits and other
highly liquid investments in high quality financial institutions. We continuously assess the need for reserves for
such losses, which have been within our expectations. We do not require collateral or other security to support
financial instruments subject to credit risk, except for long-term notes receivable.
We limit 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. For each of the years ended
December 25, 2021, and December 26, 2020, two customers accounted for approximately 3% of our net sales.
With respect to our sources of supply, our top 10 health care distribution suppliers and our single largest supplier
accounted for approximately 30% and 4%, respectively, of our aggregate purchases in each of the years ended
December 25, 2021 and December 26, 2020.
Our long-term notes receivable primarily represent strategic financing arrangements with certain affiliates.
Generally, these notes are secured by certain assets of the counterparty; however, in most cases our security is
subordinate to 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 11 – 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 risk of the derivative counterparties. 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 counterparties, maintaining a strong balance sheet and having multiple sources of capital.
During 2019 we entered into foreign currency forward contracts to hedge a portion of our euro-denominated
foreign operations which are designated as net investment hedges. These net investment hedges offset the change
in the U.S. dollar value of our investment in certain euro-functional currency subsidiaries due to fluctuating foreign
exchange rates. Gains and losses related to these net investment hedges are recorded in accumulated other
comprehensive loss within our consolidated balance sheets. Amounts excluded from the assessment of hedge
effectiveness are included in interest expense within our consolidated statements of income. The aggregate
notional value of this net investment hedge, which matures on November 16, 2023, is approximately €200 million.
During the years ended December 25, 2021 and December 26, 2020, we recorded gains (losses) of ($11.4) million
and $13.9 million, respectively, within other comprehensive income related to these foreign currency forward
contracts. See Note 9 – Fair Value Measurements for additional information.
89
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
On March 20, 2020, we entered into a total return swap for the purpose of economically hedging our unfunded non-
qualified SERP and our DCP. This swap will offset changes in our SERP and DCP liabilities. At the inception, the
notional value of the investments in these plans was $43.4 million. At December 25, 2021, the notional value of
the investments in these plans was $88.7 million. At December 25, 2021, the financing blended rate for this swap
was based on LIBOR of 0.09% plus 0.46%, for a combined rate of 0.55%. For the years ended December 25, 2021
ended and December 26, 2020, we have recorded a gain, within selling, general and administrative in our
consolidated statement of income, of approximately $12.1 million and $21.2 million, respectively, net of
transaction costs, related to this undesignated swap. During the years ended December 25, 2021 and December 26,
2020, the swap resulted in a neutral impact to our results of operations. This swap is expected to be renewed on an
annual basis after its current expiration date of March 29, 2022, and is expected to result in a neutral impact to our
results of operations. See Note 16 – Employee Benefit Plans for additional information.
Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar may positively or negatively
affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed in U.S.
dollars. Where we deem it prudent, we engage in hedging programs using primarily foreign currency forward
contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase
short-term (i.e., generally 18 months or less) foreign currency forward contracts to protect against currency
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. Amounts related to our
hedging activities are recorded in prepaid expenses and other and/or accrued expenses: other within our
consolidated balance sheets. 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 815 have been omitted.
90
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 12 – Debt
Bank Credit Lines
Bank credit lines consisted of the following:
Revolving credit agreement
Other short-term bank credit lines
Total
Revolving Credit Agreement
December 25,
December 26,
2021
2020
$
$
-
$
50,530
50,530
$
-
73,366
73,366
On August 20, 2021, we entered into a new $1 billion revolving credit agreement (the “Credit Agreement”). This
facility, which matures on August 20, 2026, replaced our $750 million revolving credit facility, which was
scheduled to mature in April 2022. 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. We expect most LIBOR rates to be discontinued
immediately after December 31, 2021, while the remaining LIBOR rates will be discontinued immediately after
June 30, 2023. We do not expect the discontinuation of LIBOR as a reference rate in our debt agreements to have a
material adverse effect on our financial position or to materially affect our interest expense. The Credit Agreement
also requires, among other things, that we maintain certain maximum leverage ratios. Additionally, the Credit
Agreement contains customary representations, warranties and affirmative covenants as well as customary negative
covenants, subject to negotiated exceptions, on liens, indebtedness, significant corporate changes (including
mergers), dispositions and certain restrictive agreements. As of December 25, 2021, and December 26, 2020, we
had no borrowings under this revolving credit facility. As of December 25, 2021, and December 26, 2020, there
were $9.1 million and $9.5 million of letters of credit, respectively, provided to third parties under the credit
facility.
364-Day Credit Agreement
On March 4, 2021, we repaid the outstanding obligations and terminated the lender commitments under our $700
million 364-day credit agreement, which was entered into on April 17, 2020. This facility was originally scheduled
to mature on April 16, 2021.
Other Short-Term Credit Lines
As of December 25, 2021 and December 26, 2020, we had various other short-term bank credit lines available, of
which $50.5 million and $73.4 million, respectively, were outstanding. At December 25, 2021 and December 26,
2020, borrowings under all of these credit lines had a weighted average interest rate of 10.44% and 4.14%,
respectively.
91
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Long-term debt
Long-term debt consisted of the following:
Private placement facilities
U.S. trade accounts receivable securitization
Note payable due in 2025 with an interest rate of 3.1%
at December 26, 2020
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2023 at interest rates
ranging from 2.45% to 4.27% at December 25, 2021 and
ranging from 2.62% to 4.27% at December 26, 2020
Finance lease obligations (see Note 6)
Total
Less current maturities of long-term debt
Total long-term debt
Private Placement Facilities
December 25, December 26,
2021
2020
$
706,186 $
105,000
613,498
-
-
1,554
3,624
7,176
821,986
(10,640)
811,346 $
4,596
5,961
625,609
(109,836)
515,773
$
Our private placement facilities were amended on October 20, 2021, to include four (previously three) insurance
companies, have a total facility amount of $1.5 billion (previously $1.0 billion), and are available on an
uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time
through October 20, 2026 (previously June 23, 2023). 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.
On March 5, 2021, we amended the private placement facilities to, among other things, (a) modify the financial
covenant from being based on a net leverage ratio to a total leverage ratio and (b) restore the maximum
maintenance total leverage ratio to 3.25x and remove the 1.00% interest rate increase triggered if the net leverage
ratio were to exceed 3.0x.
92
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The components of our private placement facility borrowings as of December 25, 2021 are presented in the
following table (in thousands):
Date of
Borrowing
January 20, 2012 (1)
January 20, 2012
December 24, 2012
June 16, 2017
September 15, 2017
January 2, 2018
September 2, 2020
June 2, 2021
June 2, 2021
Less: Deferred debt issuance costs
$
$
Amount of
Borrowing
Outstanding
Borrowing
Rate
7,143
50,000
50,000
100,000
100,000
100,000
100,000
100,000
100,000
(957)
706,186
3.09 %
3.45
3.00
3.42
3.52
3.32
2.35
2.48
2.58
(1) Annual repayments of approximately $7.1 million for this borrowing commenced on January 20, 2016.
U.S. Trade Accounts Receivable Securitization
Due Date
January 20, 2022
January 20, 2024
December 24, 2024
June 16, 2027
September 15, 2029
January 2, 2028
September 2, 2030
June 2, 2031
June 2, 2033
We have a facility agreement, based on the securitization of our U.S. trade accounts receivable that is structured as
an asset-backed securitization program with pricing committed for up to three years. Our current facility, which
had a purchase limit of $350 million, was scheduled to expire on April 29, 2022. On October 20, 2021, we
amended our U.S. trade accounts receivable securitization facility to increase the purchase limit to $450 million
with two banks as agents and extend the expiration date to October 18, 2024. As of December 25, 2021 and
December 26, 2020, the borrowings outstanding under this securitization facility were $105 million and $0,
respectively. At December 25, 2021, the interest rate on borrowings under this facility was based on the asset-
backed commercial paper rate of 0.19% plus 0.75%, for a combined rate of 0.94%. At December 26, 2020, the
interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of 0.22% plus
0.95%, for a combined rate of 1.17%.
If our accounts receivable collection pattern changes due to customers either paying late or not making payments,
our ability to borrow under this facility may be reduced.
We are required to pay a commitment fee of 30 to 35 basis points depending upon program utilization.
As of December 25, 2021, the aggregate amounts of long-term debt, including finance lease obligations and net of
deferred debt issuance costs of $1.0 million, maturing in each of the next five years and thereafter are as follows:
2022
2023
2024
2025
2026
Thereafter
Total
$
$
10,640
5,108
205,924
412
295
599,607
821,986
93
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 13 – Income Taxes
Income before taxes and equity in earnings of affiliates was as follows:
Domestic
Foreign
Total
The provisions for income taxes were as follows:
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
Years ended
December 25,
December 26,
December 28,
2021
2020
2019
$
$
593,137 $
237,411
830,548 $
430,838 $
69,057
499,895 $
507,003
173,304
680,307
December 25,
Years ended
December 26,
December 28,
2021
2020
2019
$
128,328 $
37,255
42,751
208,334
(12,115)
(2,567)
3,697
(10,985)
82,912 $
24,640
40,799
148,351
(18,032)
(4,889)
(30,056)
(52,977)
$
197,349 $
95,374 $
93,418
28,150
42,004
163,572
5,633
1,597
(11,287)
(4,057)
159,515
94
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The tax effects of temporary differences that give rise to our deferred income tax asset (liability) were as follows:
Deferred income tax asset:
Net operating losses and other carryforwards
Inventory, premium coupon redemptions and accounts receivable
valuation allowances
Stock-based compensation
Uniform capitalization adjustment to inventories
Operating lease right of use asset
Other asset
Total deferred income tax asset
Valuation allowance for deferred tax assets (1)
Net deferred income tax asset
Deferred income tax liability
Intangibles amortization
Operating lease liability
Property and equipment
Total deferred tax liability
Years Ended
December 25,
December 26,
2021
2020
$
54,651 $
64,297
46,219
12,543
10,422
78,719
41,090
243,644
(35,982)
207,662
(134,023)
(73,952)
(7,363)
(215,338)
56,668
4,858
6,895
74,674
42,966
250,358
(40,496)
209,862
(118,165)
(71,343)
(7,820)
(197,328)
12,534
Net deferred income tax asset (liability)
$
(7,676) $
(1) Primarily relates to operating losses, the benefits of which are uncertain. Any future reductions of such valuation allowances will be
reflected as a reduction of income tax expense.
The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules is
judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood
that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes 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.
As of December 25, 2021, we had federal, state, and foreign net operating loss carryforwards of approximately
$32.7 million, $35.6 million and $170.7 million, respectively. The federal, state and foreign net operating loss
carryforwards will begin to expire in various years from 2024 through 2039. The amounts of state and foreign net
operating losses that can be carried forward indefinitely are $9.5 million and $169.6 million, respectively.
95
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The tax provisions differ from the amount computed using the federal statutory income tax rate as follows:
Years ended
December 25,
December 26,
December 28,
2021
2020
2019
Income tax provision at federal statutory rate
$
174,415 $
104,977 $
State income tax provision, net of federal income tax effect
Foreign income tax provision (benefit)
Pass-through noncontrolling interest
Valuation allowance
Unrecognized tax benefits and audit settlements
Interest expense related to loans
Tax on global intangible low-taxed income ("GILTI")
Tax benefit related to legal entity reorganization outside the U.S.
Tax credit related to reorganization of legal entities
completed in preparation for the Animal Health spin-off
21,245
5,669
(4,479)
(5,533)
6,981
(10,917)
4,895
-
Other
Total income tax provision
5,073
$
197,349 $
13,015
(428)
(2,681)
659
(17,722)
(11,098)
2,365
(5,823)
-
12,110
95,374 $
142,865
16,539
(4,580)
(3,931)
(79)
3,671
(5,498)
3,917
-
(1,333)
7,944
159,515
For the year ended December 25, 2021, our effective tax rate was 23.8% compared to 19.1% for the prior year
period. In 2021, our effective tax rate was primarily impacted by state and foreign income taxes and interest
expense. In 2020, our effective tax rate of 19.1% was primarily impacted by an Advance Pricing Agreement with
the U.S Internal Revenue Service (the “IRS”) in the U.S., other audit resolutions, state and foreign income taxes
and interest expense. In 2019, our effective tax rate of 23.4% was primarily impacted by state and foreign income
taxes and interest expense.
The American Rescue Plan Act of 2021 (“ARPA”) was signed into law on March 11, 2021. The ARPA included a
corporate income tax provision to further limit the deductibility of compensation under Section 162(m) for tax
years starting after December 31, 2026. Section 162(m) generally limits the deductibility of compensation paid to
covered employees of publicly held corporations. Covered employees include the CEO, CFO and the three highest
paid officers. The ARPA expands the group of covered employees to additionally include five of the highest paid
employees.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in
response to the COVID-19 pandemic. The CARES Act includes, but is not limited to, certain income tax
provisions that modify the Section 163(j) limitation of business interest and net operating loss carryover and
carryback rules. The modifications to Section 163(j) increase the allowable business interest deduction from 30%
of adjusted taxable income to 50% of adjusted taxable income for years beginning in 2019 and 2020. The CARES
Act eliminated the NOL income limitation for years beginning before 2021 and it extended the carryback period to
five years for losses incurred in 2018, 2019 and 2020. We have analyzed the income tax provisions of the CARES
Act and have accounted for the impact in the year ended December 26, 2020, which did not have a material impact
on our consolidated financial statements. There are certain other non-income tax benefits available to us under the
CARES Act that require further clarification or interpretation that may affect our consolidated financial statements
in the future. On December 27, 2020, the Consolidated Appropriations Act was enacted into law and extended
certain non-income tax benefits under the CARES Act.
On July 20, 2020, the IRS issued final regulations related to the Tax Cuts and Jobs Act enacted in 2017 (the
“Act”). The final regulations concern the global intangible low-taxed income (“GILTI”) and subpart F income
provisions of the Tax Act. To provide flexibility to taxpayers, the IRS is permitting the application of these final
96
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
regulations to prior tax years, if the taxpayer elects to do so. We have analyzed the final regulations, which do not
have a material impact to our consolidated financial statements.
On December 22, 2017, the U.S. government passed the Tax Act, which requires U.S. companies to pay a
mandatory one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. The
transition tax is payable over eight years. Within our consolidated balance sheets, transition tax of $14.1 million
and $9.9 million were included in “accrued taxes” for 2021 and 2020, respectively, and $42.4 million and $74.5
million were included in “other liabilities” for 2021 and 2020, respectively.
The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity
can make an accounting policy election to either recognize deferred taxes for temporary differences expected to
reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. We
elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. We recorded a current
tax expense for the GILTI provision of $4.9 million, $2.4 million, and $3.9 million for 2021, 2020, and 2019,
respectively.
Due to the one-time transition tax and the imposition of the GILTI provisions, all previously unremitted earnings
will no longer be subject to U.S. federal income tax; however, there could be U.S., state, and/or foreign withholding
taxes upon distribution of such unremitted earnings. Determination of the amount of unrecognized deferred tax
liability with respect to such earnings is not practicable.
ASC 740 prescribes 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, which are included in “other liabilities” within our consolidated
balance sheets, as of December 25, 2021 and December 26, 2020 was approximately $83.5 million and $84.0
million, respectively of which $69.0 million and $70.1 million, respectively would affect the effective tax rate if
recognized. It is possible that the amount of unrecognized tax benefits will change in the next 12 months, which
may result in a material impact on our consolidated statements of income.
All tax returns audited by the IRS are officially closed through 2016. The tax years subject to examination by the
IRS include years 2017 and forward. During the quarter ended December 25, 2021, we were notified by the IRS
that tax year 2019 was selected for examination. During the quarter ended June 26, 2021 we reached a resolution
with the Appellate Division for all remaining outstanding issues for 2012 and 2013.
Regarding transfer pricing matters, in the quarter ended December 28, 2019, we reached a settlement with the U.S.
Competent Authority to resolve transfer pricing matters related to 2012 and 2013. During the quarter ended
September 26, 2020 we reached an agreement with the Advanced Pricing Division on an appropriate transfer
pricing methodology for the years 2014-2025. The objective of this resolution was to mitigate future transfer
pricing audit adjustments.
In the fourth quarter of 2020, we reached a resolution with the IRS for the 2014-2016 audit cycle.
97
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The total amounts of interest and penalties are classified as a component of the provision for income taxes. The
amount of tax interest expense (credit) was approximately $(0.4) million, $(3.3) million, and $2.2 million in 2021,
2020 and 2019, respectively. The total amount of accrued interest is included in “other liabilities”, and was
approximately $12.4 million as of December 25, 2021 and $14.0 million as of December 26, 2020. No penalties
were accrued for the periods presented.
The following table provides a reconciliation of unrecognized tax benefits:
December 25,
December 26,
December 28,
2021
2020
2019
Balance, beginning of period
$
70,000 $
91,100 $
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
3,300
10,800
(1,000)
(9,500)
(2,500)
4,900
7,900
(1,000)
(18,600)
(14,300)
Balance, end of period
$
71,100 $
70,000 $
77,800
4,900
17,300
(1,000)
(4,200)
(3,700)
91,100
Note 14 – Commitments and Contingencies
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 25, 2021 were:
2022
2023
Total minimum inventory purchase commitment payments
Employment, Consulting and Non-Compete Agreements
$
$
111,696
488
112,184
We have employment, consulting and non-compete agreements that have varying base aggregate annual payments
for the years 2022 through 2026 and thereafter of approximately $24.6 million, $4.7 million, $0.9 million, $0.8
million, $0.8 million, and $0.0 million, respectively. We also have lifetime consulting agreements that provide for
current compensation of $0.4 million per year, increasing $25 every fifth year with the next increase in 2022. In
addition, some agreements have provisions for additional incentives and compensation.
Litigation
Henry Schein has been named as a defendant in multiple lawsuits (currently less than one-hundred and seventy-five
(175); in less than half of those cases one or more of Schein’s affiliated companies is also named as a defendant),
which allege that manufacturers of prescription opioid drugs engaged in a false advertising campaign to expand the
market for such drugs and their own market share and that the entities in the supply chain (including Henry Schein,
Inc.) reaped financial rewards by refusing or otherwise failing to monitor appropriately and restrict the improper
distribution of those drugs. These actions consist of some that have been consolidated within the MultiDistrict
Litigation (“MDL”) proceeding In Re National Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-
2804) and are currently abated for discovery purposes, and others which remain pending in state courts and are
proceeding independently and outside of the MDL. At this time, the only cases set for trial are: the action filed by
Mobile County Board of Health, et al., in Alabama state court, which is currently set for a jury trial on January 9,
98
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
2023; and the action filed by DCH Health Care Authority, et al. in Alabama state court, which is currently
scheduled for a jury trial on March 20, 2023. The court for the pending cases filed by hospitals in West Virginia
has indicated it intends to set trials for all defendants in 2022. However, as of this filing, the West Virginia hospital
cases against Henry Schein have not been set for trial. Of Henry Schein’s 2021 revenue of approximately $12.4
billion from continuing operations, sales of opioids represented less than two-tenths of 1 percent. Opioids represent
a negligible part of our business. We intend to defend ourselves vigorously against these actions.
On February 5, 2021, Jack Garnsey filed a putative shareholder derivative action on behalf of Covetrus, Inc. in the
U.S. District Court for the Eastern District of New York, naming as defendants Benjamin Shaw, Christine T.
Komola, Steven Paladino, Betsy Atkins, Deborah G. Ellinger, Sandra L. Helton, Philip A. Laskaway, Mark J.
Manoff, Edward M. McNamara, Ravi Sachdev, David E. Shaw, Benjamin Wolin, and Henry Schein, Inc., with
Covetrus, Inc. named as a nominal defendant. The complaint alleges that the individual defendants breached their
fiduciary duties under state law in connection with the same allegations asserted in the City of Hollywood securities
class action described in our prior filings with the SEC and further alleges that Henry Schein aided and abetted such
breaches. The complaint also asserts claims for contribution under the federal securities laws against Henry Schein
and other defendants, also arising out of the allegations in the City of Hollywood lawsuit. The complaint seeks
declaratory, injunctive, and monetary relief. A second similar complaint, Stegmann v. Wolin, was filed in the same
court on March 30, 2021, which did not name the Company as a defendant. Plaintiffs agreed to dismiss Henry
Schein from the consolidated amended complaint without prejudice; and the court “so ordered” the stipulation
dismissing Henry Schein as a defendant on December 13, 2021.
From time to time, we may become a party to other legal proceedings, including, without limitation, product
liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out
of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our
consolidated financial position, liquidity or results of operations.
As of December 25, 2021, 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.
99
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 15 – Stock-Based Compensation
Stock-based awards are provided to certain employees and non-employee directors under the terms of our 2020
Stock Incentive Plan 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 (the “Compensation
Committee”). Historically, equity-based awards have been granted solely in the form of time-based and
performance-based restricted stock units (“RSUs”). However, beginning in 2021, our equity-based awards have
been granted in the form of time-based RSUs and non-qualified stock options. As of December 25, 2021, there
were 70,943 shares authorized and 9,368 shares available to be granted under the 2020 Stock Incentive Plan and
1,893 shares authorized and 229 shares available to be granted under the 2015 Non-Employee Director Stock
Incentive Plan.
Grants of RSUs are stock-based awards granted to recipients with specified vesting provisions. In the case of
RSUs, common stock is generally delivered on or following satisfaction of vesting conditions. We issue RSUs 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 RSUs that vest based on our achieving specified performance measurements and the recipient’s continued
service over time (primarily three-year cliff vesting). For these RSUs, we recognize the cost as compensation
expense on a straight-line basis.
With respect to time-based RSUs, we estimate the fair value on the date of grant based on our closing stock price at
time of grant. With respect to performance-based RSUs, the number of shares that ultimately vest and are received
by the recipient is based upon our performance as measured against specified targets over a specified period, as
determined by the Compensation Committee. Although there is no guarantee that performance targets will be
achieved, we estimate the fair value of performance-based RSUs based on our closing stock price at time of grant.
The Plans provide for adjustments to the performance-based RSU targets for significant events, including, without
limitation, acquisitions, divestitures, new business ventures, certain capital transactions (including share
repurchases), restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting
principles or in applicable laws or regulations, changes in income tax rates in certain markets and 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.
During the three months ended March 27, 2021, as a result of the continuing economic risk and uncertainty
resulting from the ongoing COVID-19 pandemic, the Compensation Committee decided to adjust the form of
awards granted under our 2021 long-term incentive program for our 2021 fiscal year in a manner that focuses on
our long-term value by granting non-qualified stock options and time-based RSUs rather than performance-based
RSUs. Stock options are awards that allow the recipient to purchase shares of our common stock at a fixed price
following vesting of the stock options. Stock options are granted at an exercise price equal to our closing stock
price on the date of grant. Stock options issued during 2021 vest one-third per year based on the recipient’s
continued service, subject to the terms and conditions of the Plans, are fully vested three years from the grant date
and have a contractual term of ten years from the grant date, subject to earlier termination of the term upon certain
events. Compensation expense for these stock options is recognized using a graded vesting method. We estimate
the fair value of stock options using the Black-Scholes valuation model.
100
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
In addition to equity-based awards under the 2021 long-term incentive program under the 2020 Stock Incentive
Plan, the Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive
Plan to recipients of performance-based RSUs under the 2018 long-term incentive program. These time-based
RSU awards vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant
date, based on the recipient’s continued service and subject to the terms and conditions of the Plans, and are
recorded as compensation expense using a graded vesting method.
Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of $78.4
million ($59.8 million after-tax), $8.8 million ($7.1 million after-tax) and $44.9 million ($34.4 million after-tax) for
the years ended December 25, 2021, December 26, 2020 and December 28, 2019.
Total unrecognized compensation cost related to non-vested awards as of December 25, 2021 was $79.8 million,
which is expected to be recognized over a weighted-average period of approximately 2.0 years.
The weighted-average grant date fair value of stock-based awards granted before forfeitures was $62.72, $60.23
and $56.83 per share during the years ended December 25, 2021, December 26, 2020 and December 28, 2019.
Certain stock-based compensation granted may require us to settle in the form of a cash payment. During the year
ended December 25, 2021, we recorded a liability of $0.9 million relating to the grant date fair value of stock-based
compensation to be settled in cash.
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.
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, there were no benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing activities for the years ended December 25,
2021, December 26, 2020 and December 28, 2019.
The following weighted-average assumptions were used in determining the most recent fair values of stock options
using the Black-Scholes valuation model:
Expected dividend yield
Expected stock price volatility
Risk-free interest rate
Expected life of options (years)
2021
0.0 %
27.10 %
1.33 %
6.00
We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in
the foreseeable future. The expected stock price volatility is based on implied volatilities from traded options on
our stock, historical volatility of our stock, and other factors. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options. The
six-year expected life of the options was determined using the simplified method for estimating the expected term
as permitted under SAB Topic 14. Estimates of fair value are not intended to predict actual future events or the
value ultimately realized by recipients of stock options, and subsequent events are not indicative of the
reasonableness of the original estimates of fair value made by us.
101
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The following table summarizes the stock option activity for the year ended December 25, 2021:
Outstanding at beginning of year
Granted
Forfeited
Outstanding at end of year
Options exercisable at end of year
Weighted
Average
Exercise
Price
-
63.21
62.75
63.24
62.71
Shares
- $
817
(50)
767 $
1 $
Stock Options
Weighted Average
Remaining Contractual
Life in Years
Aggregate
Intrinsic
Value
9.2
6.1
$9,027
$8
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (in years)
$
63.26
9.2 $
Aggregate
Intrinsic
Value
(in thousands)
8,642
Number of
Options
(in thousands)
736
Vested or expected to vest
The following tables summarize the activity of our unvested RSUs for the year ended December 25, 2021:
Outstanding at beginning of period
Granted
Vested
Forfeited
Outstanding at end of period
Outstanding at beginning of period
Granted
Vested
Forfeited
Outstanding at end of period
Time-Based Restricted Stock Units
Weighted Average
Grant Date Fair
Value Per Share
Intrinsic Value
Per Share
Shares/Units
1,459 $
843
(269)
(87)
1,946 $
57.61
63.38
66.85
60.55
58.79 $
74.93
Performance-Based Restricted Stock Units
Shares/Units
Weighted Average
Grant Date Fair
Value Per Share
Intrinsic Value
Per Share
136 $
669
(84)
(46)
675 $
53.52
59.29
52.49
59.72
59.63 $
74.93
The total intrinsic value per share of RSUs that vested was $73.99, $61.49 and $64.31 during the years ended
December 25, 2021, December 26, 2020 and December 28, 2019.
102
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 16 – Employee Benefit Plans
Defined benefit plans
Certain of our employees in our international markets participate in various noncontributory defined benefit plans.
These plans are managed to provide pension benefits to covered employees in accordance with local regulations
and practices. Our unfunded liability for these plans are recorded in accrued expenses: other and other liabilities
within our consolidated balance sheets. The following table presents the changes in projected benefit obligations,
plan assets, and the funded status of our defined benefit pension plans:
Obligation and funded status:
Change in benefit obligation
Projected benefit obligation, beginning of period
$
Service costs
Interest cost
Past service cost
Actuarial gain (loss)
Benefits (paid) received (1)
Participant contributions
Settlements
Effect of foreign currency translation
Projected benefit obligation, end of period
Change in plan assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Plan participant contributions
Expected return on plan assets
Benefit (paid) received (1)
Settlements
Effect of foreign currency translation
Fair value of plan assets at end of period
Unfunded status at end of period
$
$
$
$
Years Ended
December 25,
2021
December 26,
2020
$
130,095
3,692
421
5,348
(5,451)
422
936
(2,256)
(5,011)
128,196 $
64,708 $
5,091
1,713
936
3,988
1,990
(2,256)
(1,111)
75,059 $
120,622
3,186
518
-
569
(3,685)
839
(2,143)
10,189
130,095
60,090
1,772
1,545
839
987
(1,988)
(2,143)
3,606
64,708
53,137 $
65,387
(1)
Includes regular benefit payments and amounts transferred in by new participants.
The majority of our defined benefit plans are unfunded, with the exception of one plan in one country where the
amount of assets exceeds the projected benefit obligation by approximately $5.8 million.
103
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The following table provides the amounts recognized in our consolidated balance sheets for our defined benefit
pension plans:
Years Ended
December 25,
2021
December 26,
2020
Current liabilities
Non-Current liabilities
Accumulated other comprehensive loss, pre-tax
$
991 $
52,146
20,456
1,031
64,356
29,798
The following table provides the net periodic pension cost for our defined benefit plans:
December 25,
2021
Years Ended
December 26,
2020
December 28,
2019
Service cost
Interest cost
Expected return on plan assets
Employee contributions
Amortization of prior service credit
Recognized net actuarial loss
Settlements
Net periodic pension cost
$
$
3,692 $
421
(451)
(483)
871
252
98
4,400 $
$
3,186
518
(421)
(371)
785
447
155
4,299 $
1,655
899
(337)
-
300
92
373
2,982
The following tables present the weighted-average actuarial assumptions used to determine our pension benefit
obligation and our net periodic pension cost for the periods presented:
Pension Benefit Obligation
Weighted average discount rate
Years Ended
December 25,
2021
December 26,
2020
0.87 %
0.54 %
Net Periodic Pension Cost
Discount rate-pension benefit
Expected return on plan assets
Rate of compensation increase
Pension increase rate
December 25,
2021
Years Ended
December 26,
2020
December 28,
2019
0.56 %
0.71 %
1.95 %
0.72 %
0.51 %
0.87 %
1.97 %
0.67 %
1.14 %
0.87 %
2.20 %
0.77 %
104
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
The following table presents the estimated pension benefit payments that are payable to the plan’s participants as of
December 25, 2021:
$
Year
2022
2023
2024
2025
2026
2027 to 2031
Total
$
401(k) Plans
5,503
6,109
5,837
5,174
5,162
32,857
60,642
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. Due to the impact of COVID-19, as part of our initiative to generate cash savings, we
suspended the matching contribution for the second half of 2020. The matching contribution has been reinstated
for 2021. 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 related to these plans charged to operations
during the years ended December 25, 2021, December 26, 2020 and December 28, 2019 amounted to $37.5 million,
$20.5 million and $35.4 million, respectively.
Supplemental Executive Retirement Plan
We offer an unfunded, non-qualified SERP to eligible employees. This plan generally covers officers and certain
highly compensated employees after they have reached the maximum IRS allowed pre-tax 401(k) contribution
limit. Our contributions to this plan are equal to the 401(k) employee-elected contribution percentage applied to
base compensation for the portion of the year in which such employees are not eligible to make pre-tax
contributions to the 401(k) plan. Due to the impact of COVID-19, as part of our initiative to generate cash savings,
we suspended contributions under the SERP for the second half of 2020. Contributions to the SERP were restored
in 2021. The amounts charged to operations during the years ended December 25, 2021, December 26, 2020 and
December 28, 2019 amounted to $2.4 million, $2.8 million and $4.0 million, respectively. Please see Note 11 –
Derivatives and Hedging Activities for additional information.
Deferred Compensation Plan
During 2011, we began to offer DCP to a select group of management or highly compensated employees of the
Company and certain subsidiaries. This plan allows for the elective deferral of base salary, bonus and/or
commission compensation by eligible employees. The amounts charged to operations during the years ended
December 25, 2021, December 26, 2020 and December 28, 2019 were approximately $8.4 million, $7.8 million and
$8.3 million, respectively. Please see Note 11 – Derivatives and Hedging Activities for additional information.
105
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 17 – Redeemable Noncontrolling Interests
Some minority stockholders in certain of our consolidated subsidiaries have the right, at certain times, to require us
to acquire their ownership interest in those entities at fair value. ASC 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 25, 2021, December 26, 2020 and December 28, 2019 are presented in the following table:
December 25, December 26, December 28,
2020
2021
2019
Balance, beginning of period
Decrease in redeemable noncontrolling interests due to acquisitions of
noncontrolling interests in subsidiaries
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
$
327,699 $
287,258 $
219,724
(60,240)
(17,241)
(2,270)
188,977
23,358
(20,756)
28,387
13,363
(12,631)
(6,005)
160,279
613,312 $
(4,279)
32,842
327,699 $
$
74,865
14,838
(10,264)
(2,335)
(7,300)
287,258
106
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 18 – 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.
The following table summarizes our Accumulated other comprehensive loss, net of applicable taxes as of:
December 25, December 26, December 28,
2020
2021
2019
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment
Attributable to noncontrolling interests:
Foreign currency translation adjustment
Attributable to Henry Schein, Inc.:
Foreign currency translation adjustment
Unrealized loss from foreign currency hedging activities
Unrealized investment gain (loss)
Pension adjustment loss
Accumulated other comprehensive loss
$
(30,622) $
(24,617) $
(20,338)
$
$
$
412 $
235 $
(531)
(154,578) $
(2,046)
(8)
(14,846)
(171,478) $
(76,565) $
(11,488)
1
(20,032)
(108,084) $
(143,172)
(4,032)
6
(20,175)
(167,373)
Total Accumulated other comprehensive loss
$
(201,688) $
(132,466) $
(188,242)
The following table summarizes the components of comprehensive income, net of applicable taxes as follows:
December 25, December 26, December 28,
2020
2021
2019
Net income
$
660,526
$
419,423 $
719,138
Foreign currency translation gain (loss)
Tax effect
Foreign currency translation gain (loss)
(83,841)
63,094
(4,070)
-
-
-
(83,841)
63,094
(4,070)
Unrealized gain (loss) from foreign currency hedging activities
Tax effect
Unrealized gain (loss) from foreign currency hedging activities
12,717
(3,275)
9,442
(10,224)
2,768
(7,456)
Unrealized investment gain (loss)
Tax effect
Unrealized investment gain (loss)
Pension adjustment gain (loss)
Tax effect
Pension adjustment gain (loss)
(12)
3
(9)
7,612
(2,426)
5,186
(6)
1
(5)
(533)
676
143
(4,911)
1,035
(3,876)
14
(2)
12
(7,730)
1,806
(5,924)
Comprehensive income
$
591,304 $
475,199 $
705,280
107
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
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 25, 2021, December 26, 2020 and
December 28, 2019 was primarily impacted by changes in foreign currency exchange rates of the Euro, Brazilian
Real, New Zealand Dollar, British Pound, Canadian Dollar, and Australian Dollar. The foreign currency translation
gain (loss) during the years ended December 25, 2021, December 26, 2020 and December 28, 2019, was also
attributable to a net investment hedge that was entered into during 2019. See Note 11-Derivatives and Hedging
Activities for further information.
The following table summarizes our total comprehensive income, net of applicable taxes as follows:
December 25, December 26, December 28,
2020
2019
2021
Comprehensive income attributable to
Henry Schein, Inc.
Comprehensive income attributable to
noncontrolling interests
Comprehensive income attributable to
Redeemable noncontrolling interests
Comprehensive income
$
567,838 $
463,083 $
682,724
6,113
3,032
9,827
$
17,353
591,304 $
9,084
475,199 $
12,729
705,280
108
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 19 – Discontinued Operations
Animal Health Spin-off
On February 7, 2019 (the “Distribution Date”), we completed the separation (the “Separation”) and subsequent
merger (“Merger”) of our animal health business (the “Henry Schein Animal Health Business”) with Direct Vet
Marketing, Inc. (d/b/a Vets First Choice, “Vets First Choice”). This was accomplished by a series of transactions
among us, Vets First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc. “Covetrus”), a wholly owned subsidiary of ours
prior to the Distribution Date, and HS Merger Sub, Inc., a wholly owned subsidiary of Covetrus (“Merger
Sub”). In connection with the Separation, we contributed, assigned and transferred to Covetrus certain applicable
assets, liabilities and capital stock or other ownership interests relating to the Henry Schein Animal Health
Business. On the Distribution Date, we received a tax-free distribution of $1,120 million from Covetrus pursuant to
certain debt financing incurred by Covetrus. On the Distribution Date and prior to the Animal Health Spin-off,
Covetrus issued shares of Covetrus common stock to certain institutional accredited investors (the “Share Sale
Investors”) for $361.1 million (the “Share Sale”). The proceeds of the Share Sale were paid to Covetrus and
distributed to us. Subsequent to the Share Sale, we distributed, on a pro rata basis, all of the shares of the common
stock of Covetrus held by us to our stockholders of record as of the close of business on January 17, 2019 (the
“Animal Health Spin-off”). After the Share Sale and Animal Health Spin-off, Merger Sub consummated the
Merger whereby it merged with and into Vets First Choice, with Vets First Choice surviving the Merger as a
wholly owned subsidiary of Covetrus. Immediately following the consummation of the Merger, on a fully diluted
basis, (i) approximately 63% of the shares of Covetrus common stock were (a) owned by our stockholders and the
Share Sale Investors, and (b) held by certain employees of the Henry Schein Animal Health Business (in the form
of certain equity awards), and (ii) approximately 37% of the shares of Covetrus common stock were (a) owned by
stockholders of Vets First Choice immediately prior to the Merger, and (b) held by certain employees of Vets First
Choice (in the form of certain equity awards). After the Separation and the Merger, we no longer beneficially
owned any shares of Covetrus common stock and, following the Distribution Date, will not consolidate the
financial results of Covetrus for the purpose of our financial reporting. Following the Separation and the Merger,
Covetrus was an independent, publicly traded company on the Nasdaq Global Select Market.
In connection with the completion of the Animal Health Spin-off, we entered into a transition services agreement,
which ended in December 2020, with Covetrus under which we agreed to provide certain transition services for up
to twenty-four months in areas such as information technology, finance and accounting, human resources, supply
chain, and real estate and facility services.
As a result of the Separation, the financial position and results of operations of the Henry Schein Animal Health
Business are presented as discontinued operations and have been excluded from continuing operations and segment
results for all periods presented. The accompanying notes to the consolidated financial statements have been
revised to reflect the effect of the Separation and all prior year balances have been revised accordingly to reflect
continuing operations only. The historical statements of Comprehensive Income (Loss) and Shareholders' Equity
have not been revised to reflect the Separation and instead reflect the Separation as an adjustment to the balances at
December 26, 2020.
In February 2019, we completed the Animal Health Spin-off. During the years ended December 26, 2020 and
December 28, 2019, we incurred $0.1 million and $23.6 million in transaction costs associated with this transaction.
All transaction costs related to the Animal Health Spin-off have been included in results from discontinued
operations.
109
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Summarized financial information for our discontinued operations is as follows:
Net sales
Cost of goods sold
Gross profit
Selling, general and administrative
Operating loss
Income tax benefit
Income (loss) from discontinued operations
Net loss attributable to noncontrolling interests
Net income (loss) from discontinued operations
attributable to Henry Schein, Inc.
$
Years Ended
December 26,
2020
December 28,
2019
- $
-
-
2,347
(2,347)
(3,333)
986
-
986
319,522
260,097
59,425
68,919
(9,494)
(2,181)
(6,323)
366
(5,957)
The operating loss from discontinued operations for the year ended December 26, 2020 was primarily attributable
to costs directly related to the Animal Health Spin-off. See Note 23 – Related Party Transactions for additional
information.
The net income from discontinued operations for the year ended December 26, 2020 was primarily attributable to a
reduction in a liability for tax indemnification and a tax refund received during 2020 by a holding company
previously part of our Animal Health legal structure and other favorable tax resolutions.
The financial information above, for the year ended December 28, 2019, represents activity of the discontinued
operations during year-to-date through the Distribution Date. The loss from discontinued operations for the year
ended December 28, 2019 was primarily attributable to the inclusion of the transaction costs directly related to the
Animal Health Spin-off.
110
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 20 – Plans of Restructuring
On November 20, 2019, we committed to a contemplated restructuring initiative intended to mitigate stranded costs
associated with the Animal Health Spin-off and to rationalize operations and to provide expense efficiencies. These
activities were originally expected to be completed by the end of 2020. In light of the changes to the business
environment brought on by the COVID-19 pandemic, we extended such activities to the end of 2021.
During the years ended December 25, 2021, December 26, 2020, and December 28, 2019 we recorded restructuring
charges of $7.9 million, $32.1 million and $14.7 million, respectively. The restructuring costs for these periods
included costs for severance benefits and facility exit costs. The costs associated with these restructurings are
included in a separate line item, “Restructuring costs” within our consolidated statements of income.
Our restructuring activities under this initiative are now complete and we do not expect to report any restructuring
costs separately in 2022.
The following table shows the net amounts expensed and paid for restructuring costs that were incurred during our
2021, 2020 and 2019 fiscal years and the remaining accrued balance of restructuring costs as of December 25,
2021, which is included in accrued expenses: other within our consolidated balance sheets:
Balance, December 29, 2018
Provision
Payments and other adjustments
Balance, December 28, 2019
Provision
Payments and other adjustments
Balance, December 26, 2020
Provision
Payments and other adjustments
Balance, December 25, 2021
Severance
Costs
Facility
Closing
Costs
$
$
$
$
29,964 $
13,741
(30,794)
12,911 $
25,855
(26,152)
12,614 $
7,717
(16,072)
4,259 $
1,603 $
937
(1,714)
826 $
5,878
(6,309)
395 $
(111)
(226)
58 $
Other
Total
158 $
27
(112)
73 $
360
(329)
104 $
333
(434)
3 $
31,725
14,705
(32,620)
13,810
32,093
(32,790)
13,113
7,939
(16,732)
4,320
The following table shows, by reportable segment, the amounts expensed and paid for restructuring costs that were
incurred during our 2021, 2020 and 2019 fiscal years and the remaining accrued balance of restructuring costs as of
December 25, 2021:
Balance, December 29, 2018
Provision
Payments and other adjustments
Balance, December 28, 2019
Provision
Payments and other adjustments
Balance, December 26, 2020
Provision
Payments and other adjustments
Balance, December 25, 2021
Health Care
Distribution
Technology and
Value-Added
Services
Total
$
$
$
$
30,291 $
13,935
(30,853)
13,373 $
30,935
(31,484)
12,824 $
5,939
(15,692)
3,071 $
1,434 $
770
(1,767)
437 $
1,158
(1,306)
289 $
2,000
(1,040)
1,249 $
31,725
14,705
(32,620)
13,810
32,093
(32,790)
13,113
7,939
(16,732)
4,320
111
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 21 – 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 RSUs and upon exercise of stock options using the treasury stock method in periods in which
they have a dilutive effect.
A reconciliation of shares used in calculating earnings per basic and diluted share follows:
Years Ended
December 25, December 26, December 28,
2020
2021
2019
Basic
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units
Diluted
Note 22 – Supplemental Cash Flow Information
Cash paid for interest and income taxes was:
140,091
142,504
147,817
1,682
141,773
900
143,404
1,440
149,257
Interest
Income taxes
December 25,
2021
Years ended
December 26,
2020
December 28,
2019
$
29,455 $
241,887
43,123 $
206,796
54,685
177,277
For the years ended December 25, 2021, December 26, 2020 and December 28, 2019, we had $12.7 million,
$(10.2) million and $(4.9) million of non-cash net unrealized gains (losses) related to foreign currency hedging
activities, respectively.
112
HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
Note 23 – Related Party Transactions
In connection with the completion of the Animal Health Spin-off during our 2019 fiscal year, we entered into a
transition services agreement with Covetrus under which we agreed to provide certain transition services for up to
twenty-four months in areas such as information technology, finance and accounting, human resources, supply
chain, and real estate and facility services. (see Note 19 – Discontinued Operations for additional details).
For the years ended December 26, 2020 and December 28, 2019, we recorded approximately $13.0 million and
$17.5 million of fees for these services, respectively. Pursuant to the transition services agreement, Covetrus
purchased certain products from us. During the years ended December 26, 2020 and December 28, 2019, net sales
to Covetrus under the transition services agreement were approximately $75.3 million and $81.3 million,
respectively. Sales to Covetrus under the transition services agreement ended in December 2020. At December 26,
2020 we had $0.3 million payable to Covetrus under this transition services agreement.
In connection with the formation of Henry Schein One, LLC, our joint venture with Internet Brands, which was
formed on July 1, 2018, we entered into a ten-year royalty agreement with Internet Brands whereby we will pay
Internet Brands approximately $31.0 million annually for the use of their intellectual property. During 2021, 2020,
and 2019, we recorded $31.0 million, $31.0 million, and $31.0 million, respectively in connection with costs related
to this royalty agreement. As of December 25, 2021 and December 26, 2020, Henry Schein One, LLC had a net
receivable balance due from Internet Brands of $9.2 million and $7.7 million, respectively, comprised of amounts
related to results of operations and the royalty agreement. The components of this net receivable are recorded with
prepaid and other and accrued expenses: other within our consolidated balance sheets.
During our normal course of business, we have interests in entities that we account for under the equity accounting
method. During our fiscal years ended 2021, 2020, and 2019, we recorded net sales of $66.6 million, $54.5 million,
and $88.3 respectively, to such entities. During our fiscal years ended 2021, 2020 and 2019, we purchased $21.8
million, $17.2 million, and $11.8 million respectively, from such entities. At December 25, 2021 and December
26, 2020, we had in aggregate $44.7 million and $36.4 million, due from our equity affiliates, and $9.0 million and
$8.6 million due to our equity affiliates, respectively.
Certain of our facilities related to our acquisitions are leased from employees and minority shareholders. Please see
Note 6 – Leases for further information.
113
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 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 25, 2021, 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 acquisitions and continued acquisition integrations undertaken during the quarter and carried
over from prior quarters, as well as changes to the operating methods of some of our internal controls over financial
reporting due to the COVID-19 pandemic, when considered in the aggregate, represents a material change in our
internal control over financial reporting.
During the quarter ended December 25, 2021, we completed the acquisition of a dental business in North America
with annual revenues of approximately $62 million. In addition, post-acquisition integration related activities
continued for our medical and dental businesses acquired during prior quarters, representing aggregate annual
revenues of approximately $429 million. These acquisitions, the majority of which utilize separate information and
financial accounting systems, have been included in our consolidated financial statements since their respective
dates of acquisition.
All acquisitions and continued acquisition integrations involve necessary and appropriate change-management
controls that are considered in our quarterly assessment of the design and operating effectiveness of our internal
control over financial reporting.
In addition, as a result of a combination of continued government imposed and Company directed closures of some
of our facilities due to the COVID-19 pandemic, we have had to maintain a number of changes to the operating
methods of some of our internal controls. For example, moving from manual sign-offs and in-person meetings to
electronic sign-offs and electronic communications such as email and telephonic or video conference due to out-of-
office working arrangements. However, the design of our internal control framework and objectives over financial
reporting remains unchanged and we do not believe that these changes have materially affected, or are reasonably
likely to materially affect, the 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 25, 2021.
114
The effectiveness of our internal control over financial reporting as of December 25, 2021, 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.
115
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Henry Schein, Inc.
Melville, NY
Opinion on Internal Control over Financial Reporting
We have audited Henry Schein, Inc.’s (the “Company’s”) internal control over financial reporting as of December
25, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 25, 2021,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 25, 2021 and
December 26, 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity,
and cash flows for each of the three years in the period ended December 25, 2021, and the related notes and
schedule and our report dated February 15, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ BDO USA, LLP
New York, NY
February 15, 2022
116
ITEM 9B. Other Information
Not applicable.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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 2022 Proxy Statement to be
filed pursuant to Regulation 14A and to the Section entitled “Information about our Executive Officers” in Part I of
this report, with respect to executive officers.
There have been no changes to the procedures by which stockholders may recommend nominees to our Board of
Directors since our last disclosure of such procedures, which appeared in our definitive 2021 Proxy Statement filed
pursuant to Regulation 14A on March 30, 2021.
Information required by this item concerning compliance with Section 16(a) of the Securities Exchange Act of
1934 is hereby incorporated by reference to the Section entitled “Delinquent Section 16(a) Reports” in our
definitive 2022 Proxy Statement to be filed pursuant to Regulation 14A, to the extent responsive disclosure is
required.
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer and Controller. We make available free of charge through our Internet website,
www.henryschein.com, under the “About Henry Schein--Corporate Governance Highlights” caption, our Code of
Ethics. We intend to disclose on our Web site any amendment to, or waiver of, a provision of the Code of Ethics.
ITEM 11. Executive Compensation
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 2022 Proxy Statement to be filed pursuant to Regulation 14A.
117
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 25, 2021:
Number of Common
Plan Category
Plans Approved by Stockholders
Plans Not Approved by Stockholders
Total
Shares to be Issued Upon Weighted- Average Number of Common
Shares Available for
Exercise of Outstanding
Future Issuances
Options and Rights
Exercise Price of
Outstanding Options
-
-
- $
-
- $
-
9,597,745
-
9,597,745
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 2022 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 2022 Proxy Statement to be filed pursuant to Regulation
14A.
ITEM 14. Principal Accounting Fees and Services
The information required by this item is hereby incorporated by reference to the Section entitled “Independent
Registered Public Accounting Firm Fees and Pre-Approval Policies and Procedures” in our definitive 2022 Proxy
Statement to be filed pursuant to Regulation 14A.
ITEM 15. Exhibits, Financial Statement Schedules
(a)
List of Documents Filed as a Part of This Report:
PART IV
1. Financial Statements:
Our Consolidated Financial Statements filed as a part of this report are listed on the index on
Page 59.
2. Financial Statement Schedules:
Schedule II – Valuation of Qualifying Accounts
No other schedules are required.
3.
Index to Exhibits:
See exhibits listed under Item 15(b) below.
118
(b) Exhibits
2.1
Contribution and Distribution Agreement, dated as of April 20, 2018, by and
among us, HS Spinco, Inc., Direct Vet Marketing, Inc. and Shareholder
Representative Services LLC. (Incorporated by reference to Exhibit 2.1 to our
Current Report on Form 8-K filed on April 23, 2018 (film no. 18767875).)*
2.2
Agreement and Plan of Merger, dated as of April 20, 2018, by and among us, HS
Spinco, Inc, HS Merger Sub, Inc., Direct Vet Marketing, Inc. and Shareholder
Representative Services LLC. (Incorporated by reference to Exhibit 2.2 to our
Current Report on Form 8-K filed on April 23, 2018 (film no. 18767875).)*
2.3 Letter Agreement, Amendment No. 1 to Contribution and Distribution Agreement
and Amendment No. 1 to Agreement and Plan of Merger, dated as of September
14, 2018, by and among us, HS Spinco, Inc., HS Merger Sub, Inc., Direct Vet
Marketing, Inc. and Shareholder Representative Services LLC.( Incorporated by
reference to Exhibit 2.3 to our Annual Report on Form 10-K for the fiscal year
ended December 29, 2018 filed on February 20, 2019.)
2.4 Letter Agreement and Amendment No. 2 to Contribution and Distribution
Agreement, dated as of November 30, 2018, by and among us, HS Spinco, Inc.,
Direct Vet Marketing, Inc. and Shareholder Representative Services LLC.
(Incorporated by reference to Exhibit 2.4 to our Annual Report on Form 10-K for
the fiscal year ended December 29, 2018 filed on February 20, 2019.)
2.5 Letter Agreement and Amendment No. 3 to Contribution and Distribution
Agreement and Amendment No. 2 to Agreement and Plan of Merger, dated as of
December 25, 2018, by and among us, HS Spinco, Inc., HS Merger Sub, Inc.,
Direct Vet Marketing, Inc. and Shareholder Representative Services
LLC.(Incorporated by reference to Exhibit 2.5 to our Annual Report on Form 10-K
for the fiscal year ended December 29, 2018 filed on February 20, 2019.)
2.6 Letter Agreement and Amendment No. 4 to Contribution and Distribution
Agreement, dated as of January 15, 2019, by and among us, HS Spinco, Inc., Direct
Vet Marketing, Inc. and Shareholder Representative Services LLC.(Incorporated
by reference to Exhibit 2.6 to our Annual Report on Form 10-K for the fiscal year
ended December 29, 2018 filed on February 20, 2019.)
3.1 Second Amended and Restated Certificate of Incorporation of Henry Schein, Inc.
(Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed
on June 1, 2018.)
3.2 Third Amended and Restated By-Laws of the Company, effective May 13, 2021.
(Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed
on May 17, 2021.)
4.1 Third Amended and Restated Multicurrency Master Note Purchase Agreement,
dated as of October 20, 2021, by and among us, Metropolitan Life Insurance
Company, MetLife Investment Management, LLC and each MetLife affiliate
which becomes party thereto. (Incorporated by reference to Exhibit 4.4 to our
Current Report on Form 8-K filed on October 21, 2021.)
119
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4
10.5
10.6
Third Amended and Restated Master Note Facility, dated as of October 20, 2021,
by and among us, NYL Investors LLC and each New York Life affiliate which
becomes party thereto. (Incorporated by reference to Exhibit 4.3 to our Current
Report on Form 8-K filed on October 21, 2021.)
Third Amended and Restated Multicurrency Private Shelf Agreement, dated as of
October 20, 2021, by and among us, PGIM, Inc. and each Prudential affiliate which
becomes party thereto. (Incorporated by reference to Exhibit 4.2 to our Current
Report on Form 8-K filed on October 21, 2021.)
Multicurrency Private Shelf Agreement, dated as of October 20, 2021, by and
among us, AIG Asset Management (U.S.), LLC and each AIG affiliate which
becomes party thereto. (Incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K filed on October 21, 2021.)
Description of Securities.+
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.)**
Form of 2018 Restricted Stock Unit Agreement for time-based restricted stock unit
awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended
and restated effective as of May 14, 2013). (Incorporated by reference to Exhibit
10.4 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2018 filed on May 8, 2018.)**
Form of 2019 Restricted Stock Unit Agreement for time-based restricted stock unit
awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended
and restated effective as of May 14, 2013). (Incorporated by reference to Exhibit
10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30,
2019 filed on May 7, 2019.)**
Form of 2019 Restricted Stock Unit Agreement for performance-based restricted
stock unit awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as
amended and restated effective as of May 14, 2013). (Incorporated by reference to
Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
March 30, 2019 filed on May 7, 2019.)**
Henry Schein, Inc. 2020 Stock Incentive Plan, as amended and restated effective as
of May 21, 2020. (Incorporated by reference to Exhibit 10.1 to our Current Report
on Form 8-K filed on May 26, 2020.)**
Form of 2021 Stock Option Agreement pursuant to the Henry Schein, Inc. 2020
Stock Incentive Plan (as amended and restated effective as of May 21, 2020).
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed
on March 8, 2021.)**
120
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Form of 2021 Special Pandemic Recognition Award Restricted Stock Unit
Agreement for time-based restricted stock unit awards pursuant to the Henry
Schein, Inc. 2020 Stock Incentive Plan (as amended and restated effective as of
May 21, 2020). (Incorporated by reference to Exhibit 10.2 to our Quarterly Report
on Form 10-Q for the fiscal quarter ended March 27, 2021 filed on May 4,
2021.)**
Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan.
(Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended June 27, 2015 filed on July 29, 2015.)**
Form of 2018 Restricted Stock Unit Agreement for time-based restricted stock unit
awards pursuant to the Henry Schein, Inc. 2015 Non-Employee Director Stock
Incentive Plan (as amended and restated effective as of June 22, 2015).
(Incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2018 filed on May 8, 2018.)**
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.)**
Amendment Number One to the Henry Schein, Inc. Supplemental Executive
Retirement Plan, amended and restated effective as of January 1, 2014.
(Incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K for
the fiscal year ended December 28, 2020 filed on February 20, 2020.)**
Amendment Number Two to the Henry Schein, Inc. Supplemental Executive
Retirement Plan, amended and restated effective as of January 1, 2014.
(Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended March 28, 2020 filed on May 5, 2020.)**
Amendment Number Three to the Henry Schein, Inc. Supplemental Executive
Retirement Plan, amended and restated effective as of January 1, 2014.
(Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended September 26, 2020 filed on November 2, 2020.)**
Henry Schein, Inc. 2004 Employee Stock Purchase Plan, effective as of May 25,
2004. (Incorporated by reference to Exhibit D to our definitive 2004 Proxy
Statement on Schedule 14A, filed on April 27, 2004.)**
Henry Schein, Inc. 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.)**
Henry Schein, Inc. Deferred Compensation Plan. (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.)**
121
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.25
10.28
10.29
10.30
Amendment to the Henry Schein, Inc. Deferred Compensation Plan. (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.)**
Amendment Number Two to the Henry Schein, Inc. Deferred Compensation
Plan. (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.)**
Amendment Number Three to the Henry Schein, Inc. Deferred Compensation Plan.
(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.)**
Amendment Number Four to the Henry Schein, Inc. Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.46 to our Annual Report on Form 10-K for
the fiscal year ended December 31, 2016 filed on February 21, 2017.)**
Amendment Number Five to the Henry Schein, Inc. Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.32 to our Annual Report on Form 10-K for
the fiscal year ended December 28, 2020 filed on February 20, 2020.)**
Amendment Number Six to the Henry Schein, Inc. Deferred Compensation Plan.
(Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended March 28, 2020 filed on May 5, 2020.)**
Henry Schein Management Team Performance Incentive Plan and Plan Summary,
effective as of January 1, 2014. (Incorporated by reference to Exhibit 10.7 to our
Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 filed
on May 6, 2014.)**
Amended and Restated Employment Agreement dated as of August 8, 2019, by and
between Henry Schein, Inc. and Stanley M. Bergman. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on August 9, 2019.)**
Form of Performance-Based RSU Award Agreement for Stanley M. Bergman
Pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as Amended and
Restated as of May 14, 2013). (Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on August 9, 2019.)**
Form of Time-Based RSU Award Agreement for Stanley M. Bergman Pursuant to
the Henry Schein, Inc. 2013 Stock Incentive Plan (as Amended and Restated as of
May 14, 2013). (Incorporated by reference to Exhibit 10.3 to our Current Report
on Form 8-K filed on August 9, 2019.)**
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, Mark Mlotek and Steven
Paladino, 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.)**
122
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
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, Mark Mlotek
and Steven Paladino, respectively). (Incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed on January 20, 2012.)**
Form of Change in Control Agreement between us and certain executive officers
who are a party thereto (Walter Siegel). (Incorporated by reference to Exhibit 10.3
to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2019
filed on May 7, 2019.)**
Amended and Restated Revolving Credit Agreement, dated as of August 20, 2021,
among us, the several lenders parties thereto, and JPMorgan Chase Bank, N.A., as
administrative agent. (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed on August 23, 2021.)
Receivables Purchase Agreement, dated as of April 17, 2013, by and among us, as
servicer, HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent
and the various purchaser groups from time to time party thereto. (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 19,
2013.)
Amendment No. 1 dated as of September 22, 2014 to the Receivables Purchase
Agreement, dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc.,
as seller, The Bank of Tokyo-Mitsubishi UFJ, LTD., New York Branch, as agent
and the various purchaser groups from time to time party thereto. (Incorporated by
reference to Exhibit 10.2 to our Current Report on Form 8-K filed on September
26, 2014.)
Amendment No. 2 dated as of April 17, 2015 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as performance guarantor, HSFR,
Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as
agent and the various purchaser groups party thereto. (Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2016 filed on August 4, 2016.)
Amendment No. 3 dated as of June 1, 2016 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as performance guarantor, HSFR,
Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as
agent and the various purchaser groups party thereto. (Incorporated by reference to
Exhibit 10.2 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 25, 2016 filed on August 4, 2016.)
Amendment No. 4 dated as of July 6, 2017 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as performance guarantor, HSFR,
Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as
agent and the various purchaser groups party thereto. (Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2017 filed on November 6, 2017.)
123
10.39
10.40
10.41
10.42
10.43
10.44
Amendment No. 5 dated as of May 13, 2019 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as performance guarantor, HSFR,
Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as
agent and the various purchaser groups party thereto. (Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 29, 2019 filed on August 6, 2019.)
Limited Waiver dated as of May 22, 2020 to Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller,
lender, as agent and the various purchaser groups from time to time party thereto,
as amended. (Incorporated by reference to Exhibit 10.7 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended June 27, 2020 filed on August 4, 2020.)
Amendment No. 6 dated as of June 22, 2020 to the Receivables Purchase
Agreement, dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc.,
as seller, lender, as agent and the various purchaser groups from time to time party
thereto. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed on June 25, 2020.)
Amendment No. 7 dated as of October 20, 2021 to Receivables Purchase
Agreement, dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc.,
as seller, lender, as agent and the various purchaser groups from time to time party
thereto. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed on October 21, 2021.)
Omnibus Amendment No. 1, dated July 22, 2013, to Receivables Purchase
Agreement dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as
seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent, and the various
purchaser groups from time to time party thereto and Receivables Sales Agreement,
dated as of April 17, 2013, by and among us, certain of our wholly-owned
subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit 10.5
to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2013
filed on August 6, 2013.)
Omnibus Amendment No. 2, dated April 21, 2014, to Receivables Purchase
Agreement dated as of April 17, 2013, as amended, by and among us, as servicer,
HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent, and the
various purchaser groups from time to time party thereto and Receivables Sales
Agreement, dated as of April 17, 2013, by and among us, certain of our wholly-
owned subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit
10.8 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29,
2014 filed on May 6, 2014.)
10.45
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.)
124
10.46
Form of Indemnification Agreement between us and certain directors and executive
officers who are a party thereto (Mohamed Ali, Barry J. Alperin, Ph.D., Deborah
Derby, Joseph L. Herring, Kurt P. Kuehn, Philip A. Laskawy, Anne H. Margulies,
Carol Raphael, E. Dianne Rekow, DDS, Ph.D., Scott P. Serota, Bradley T. Sheares,
Ph.D., Reed V. Tuckson, M.D., FACP, Gerald A. Benjamin, Stanley M. Bergman,
James P. Breslawski, Brad Connett, Michael S. Ettinger, Lorelei McGlynn, Mark
E. Mlotek, Steven Paladino 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.)**
21.1
List of our Subsidiaries.+
23.1
Consent of BDO USA, LLP.+
31.1
31.2
32.1
Certification of our Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.+
Certification of our Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.+
Certification of our Chief Executive Officer and Chief Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.+
101.INS
Inline XBRL Instance Document - the instance document does not
appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document.+
101.SCH
Inline XBRL Taxonomy Extension Schema Document+
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document+
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document+
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document+
101.PRE
104
Inline XBRL Taxonomy Extension Presentation Linkbase Document+
The cover page of Henry Schein, Inc.’s Annual Report on Form 10-K
for the year ended December 25, 2021, formatted in Inline XBRL
(included within Exhibit 101 attachments).+
_________
+ Filed or furnished herewith.
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby agrees to furnish supplementally a copy of any of the omitted schedules and exhibits upon request
by the U.S. Securities and Exchange Commission.
** Indicates management contract or compensatory plan or agreement.
ITEM 16. Form 10-K Summary
None.
125
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Henry Schein, Inc.
By: /s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman and Chief Executive Officer
February 15, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Capacity
/s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman, Chief Executive Officer
and Director (principal executive officer)
Date
February 15, 2022
Executive Vice President, Chief Financial Officer
and Director (principal financial and accounting officer)
February 15, 2022
Vice Chairman, President and Director
February 15, 2022
/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/ MOHAMAD ALI
Mohamad Ali
/s/ BARRY J. ALPERIN
Barry J. Alperin
/s/ DEBORAH DERBY
Deborah Derby
/s/ JOSEPH L. HERRING
Joseph L. Herring
/s/ KURT P. KUEHN
Kurt P. Kuehn
/s/ PHILIP A. LASKAWY
Philip A. Laskawy
/s/ ANNE H. MARGULIES
Anne H. Margulies
/s/ CAROL RAPHAEL
Carol Raphael
/s/ E. DIANNE REKOW
E. Dianne Rekow, DDS, Ph.D.
/s/ SCOTT SEROTA
Scott Serota
/s/ BRADLEY T. SHEARES, PH. D.
Bradley T. Sheares, Ph. D.
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
/s/ REED V. TUCKSON, M.D., FACP
Reed V. Tuckson, M.D., FACP
Director
126
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
February 15, 2022
Schedule II
Valuation and Qualifying Accounts
(in thousands)
Charged
Balance at
(credited) to
beginning of statement of
Additions (Reductions)
Charged
(credited) to
other
Description
period
income (1)
accounts (2) Deductions (3)
Balance at
end of
period
Year ended December 25, 2021:
Allowance for doubtful accounts
and other
Year ended December 26, 2020:
Allowance for doubtful accounts
and other
Year ended December 28, 2019:
Allowance for doubtful accounts
and other
$
88,030 $
(7,748) $
(4,624)
$
(8,490) $
67,168
$
60,002 $
35,137 $
730
$
(7,839) $
88,030
$
53,121 $
12,612 $
134
$
(5,865) $
60,002
(1) Represents amounts charged (credited) to bad debt expense.
Amounts charged (credited) to other accounts primarily relate to provision for late fees and the impact of foreign currency exchange rates and
the adoption of ASU No. 2016-13 effective December 29, 2019.
(2)
(3) Deductions primarily consist of fully reserved accounts receivable that have been written off.
127
COMMON STOCK
FORM 10-K
LEGAL COUNSEL
Henry Schein Common Stock trades on the
Nasdaq® Stock Market under the symbol “HSIC.”
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 e-mail
your request to investor@henryschein.com.
Printed materials can also be requested through
the Company’s Website.
Our Annual Report on Form 10-K for the fiscal
year ended December 25, 2021 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 request via email at investor@
henryschein.com. 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
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
1 State Street, 30th Floor
New York, New York 10004
(212) 509-4000
EXECUTIVE MANAGEMENT
Stanley M. Bergman*
Andrea Albertini
Gerald A. Benjamin*
Chairman of the Board and
Chief Executive Officer
President,
International Distribution Group
Executive Vice President,
Chief Administrative Officer,
Member of the Board of Directors
James P. Breslawski*
Vice Chairman of the Board and President
David Brous*
Brad Connett*
Michael S. Ettinger*
Lorelei McGlynn*
Mark E. Mlotek*
James Mullins
Kelly Murphy
Steven Paladino*
Christopher Pendergast
Michael Racioppi
Walter Siegel*
Ronald N. South
René Willi, Ph.D.
*Executive Officers
Chief Executive Officer,
Strategic Business Group
Chief Executive Officer,
North America Distribution Group
Senior Vice President,
Corporate & Legal Affairs and
Chief of Staff, Secretary
Senior Vice President,
Chief Human Resources Officer
Executive Vice President,
Chief Strategic Officer,
Member of the Board of Directors
Executive Vice President,
Chief Financial Officer,
Member of the Board of Directors
Senior Vice President
and Chief Technology Officer
Senior Vice President,
Chief Merchandising Officer
Senior Vice President
and Chief Legal Officer
Vice President, Corporate Finance
and Chief Accounting Officer
Chief Executive Officer,
Global Oral Reconstruction Group
BOARD OF DIRECTORS
Stanley M. Bergman
Mohamad Ali
Barry J. Alperin
Gerald A. Benjamin
James P. Breslawski
Deborah Derby
Joseph L. Herring
Kurt P. Kuehn
Philip A. Laskawy
Anne H. Margulies
Mark E. Mlotek
Steven Paladino
Carol Raphael
Scott Serota
Bradley T. Sheares, Ph.D.
Chairman of the Board and Chief Executive Officer
Chief Executive Officer, International Data Group, Inc.
Retired Vice Chairman, Hasbro, Inc.
Executive Vice President,
Chief Administrative Officer
Vice Chairman of the Board and President
Former President, Horizon Group USA, Inc.
Former Chief Executive Officer, Covance, Inc.
Former Chief Financial Officer,
United Parcel Service, Inc.
Lead Director, Henry Schein, Inc.;
Retired Chairman and Chief Executive Officer,
Ernst & Young, LLP (now known as EY LLP)
Former Vice President and
Chief Information Officer, Harvard University
Executive Vice President,
Chief Strategic Officer
Executive Vice President,
Chief Financial Officer
Senior Advisor, Manatt Health Solutions;
Former President and Chief Executive Officer,
Visiting Nurse Service of New York
Professor Emeritus and Fellow, King’s College
London; Former Executive Dean and Professor
of Orthodontics, King’s College Dental Institute;
Former Senior Vice Provost of Engineering
Technology and Provost of Polytechnic Institute
at New York University
Former President and Chief Executive Officer,
Blue Cross Blue Shield Association
Former Chief Executive Officer, Reliant
Pharmaceuticals, Inc.; Former President
of U.S. Human Health, Merck & Co.
Reed V. Tuckson, M.D., FACP Managing Director of Tuckson
Health Connections, LLC; Founder,
Black Coalition Against COVID-19
Senior Vice President, Global Supply Chain
Senior Vice President and General Counsel
E. Dianne Rekow, DDS, Ph.D.
FOLLOW HENRY SCHEIN ON
Facebook: http://www.facebook.com/henryschein
Twitter: http://twitter.com/henryschein
Instagram: http://instagram.com/henryschein
LinkedIn: http://www.linkedin.com/company/henry-schein
You Tube: http://www.youtube.com/user/henryscheininc
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
(631) 843-5500
www.henryschein.com
22KS6419