10-Q 1 hsicform10q20210925.htm THE 3Q21 QUARTERLY 10-Q REPORT
NASDAQfalseQ30001000228P5Y--12-25none4800000000.010.011000000302052427398January 20, 2012January 20, 201233.3312/31/2019May 29, 2018September 30, 2019February 5, 20210.1we 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.------3April 30, 2022December 24, 2012June 16, 2017September 15, 2017January 2, 2018September 2, 2020June 2, 2021June 2, 2021January 20, 2022January 20, 2024December 24, 2024June 16, 2027September 15, 2029January 2, 2028September 2, 2030June 2, 2031June 2, 2033--
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.
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.
Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, personal protective equipment and vitamins.
Includes variable lease expenses.
Operating lease (credit) cost for the three months and nine months ended September 26, 2020, includes amortization of right-of-use assets of $(0.1) and $0.4 million, respectively, related to facility leases recorded in “Restructuring costs” within our consolidated statements of income.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 25, 2021

or

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

11-3136595

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

135 Duryea Road

Melville, New York

(Address of principal executive offices)

11747

(Zip Code)

 

(631) 843-5500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

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

 

Smaller reporting company

 

 

Emerging 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

No

As of October 25, 2021, there were 138,674,412 shares of the registrant’s common stock outstanding.

 


 

HENRY SCHEIN, INC.

INDEX

 

 

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Page

ITEM 1.

Consolidated Financial Statements:

 

 

 

 

 

 

 

 

 

 

Balance Sheets as of September 25, 2021 and December 26, 2020

3

 

 

 

 

 

 

 

 

 

Statements of Income for the three and nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

4

 

 

 

 

 

 

 

 

 

Statements of Comprehensive Income for the three and nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

5

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity for the three months ended

 

 

 

 

September 25, 2021 and September 26, 2020

6

 

 

 

 

 

 

 

 

 

Statement of Changes in Stockholders' Equity for the nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

7

 

 

 

 

 

 

 

 

 

Statements of Cash Flows for the nine months ended

 

 

 

 

September 25, 2021 and September 26, 2020

8

 

 

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

9

 

 

 

Note 1 – Basis of Presentation

9

 

 

 

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

 

 

 

 

and Recently Issued Accounting Standards

10

 

 

 

Note 3 – Revenue from Contracts with Customers

11

 

 

 

Note 4 – Segment Data

12

 

 

 

Note 5 – Debt

13

 

 

 

Note 6 – Leases

16

 

 

 

Note 7 – Redeemable Noncontrolling Interests

18

 

 

 

Note 8 – Comprehensive Income

18

 

 

 

Note 9 – Fair Value Measurements

20

 

 

 

Note 10 – Business Acquisitions

22

 

 

 

Note 11 – Plans of Restructuring

23

 

 

 

Note 12 – Earnings Per Share

24

 

 

 

Note 13 – Income Taxes

25

 

 

 

Note 14 – Derivatives and Hedging Activities

26

 

 

 

Note 15 – Stock-Based Compensation

27

 

 

 

Note 16 – Supplemental Cash Flow Information

29

 

 

 

Note 17 – Legal Proceedings

30

 

 

 

Note 18 – Related Party Transactions

32

 

 

 

 

 

 

 

ITEM 2.

Management's Discussion and Analysis of

 

 

 

 

Financial Condition and Results of Operations

33

 

 

 

 

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

53

 

 

 

 

 

 

 

ITEM 4.

Controls and Procedures

54

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

Legal Proceedings

55

 

 

 

ITEM 1A.

Risk Factors

55

 

 

 

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

55

 

 

 

 

 

 

ITEM 6.

Exhibits

56

 

 

 

 

Signature

57

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

September 25,

 

December 26,

 

 

 

 

 

2021

 

2020

 

 

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

119,133

 

$

421,185

 

Accounts receivable, net of reserves of $73,095 and $88,030

 

 

1,551,946

 

 

1,424,787

 

Inventories, net

 

 

1,784,050

 

 

1,512,499

 

Prepaid expenses and other

 

 

457,232

 

 

432,944

 

 

 

Total current assets

 

 

3,912,361

 

 

3,791,415

Property and equipment, net

 

 

355,675

 

 

342,004

Operating lease right-of-use assets

 

 

329,886

 

 

288,847

Goodwill

 

 

2,779,234

 

 

2,504,392

Other intangibles, net

 

 

645,832

 

 

479,429

Investments and other

 

 

397,764

 

 

366,445

 

 

 

Total assets

 

$

8,420,752

 

$

7,772,532

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

1,057,127

 

$

1,005,655

 

Bank credit lines

 

 

59,394

 

 

73,366

 

Current maturities of long-term debt

 

 

9,638

 

 

109,836

 

Operating lease liabilities

 

 

77,383

 

 

64,716

 

Accrued expenses:

 

 

 

 

 

 

 

 

Payroll and related

 

 

345,438

 

 

295,329

 

 

Taxes

 

 

157,446

 

 

138,671

 

 

Other

 

 

594,979

 

 

595,529

 

 

 

Total current liabilities

 

 

2,301,405

 

 

2,283,102

Long-term debt

 

 

705,540

 

 

515,773

Deferred income taxes

 

 

37,248

 

 

30,065

Operating lease liabilities

 

 

270,152

 

 

238,727

Other liabilities

 

 

388,211

 

 

392,781

 

 

 

Total liabilities

 

 

3,702,556

 

 

3,460,448

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests

 

 

612,582

 

 

327,699

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,

 

 

 

 

 

 

 

 

139,129,543 outstanding on September 25, 2021 and

 

 

 

 

 

 

 

 

142,462,571 outstanding on December 26, 2020

 

 

1,391

 

 

1,425

 

Additional paid-in capital

 

 

-

 

 

-

 

Retained earnings

 

 

3,594,238

 

 

3,454,831

 

Accumulated other comprehensive loss

 

 

(137,640)

 

 

(108,084)

 

 

Total Henry Schein, Inc. stockholders' equity

 

 

3,457,989

 

 

3,348,172

 

Noncontrolling interests

 

 

647,625

 

 

636,213

 

 

 

Total stockholders' equity

 

 

4,105,614

 

 

3,984,385

 

 

Total liabilities, redeemable noncontrolling interests and stockholders' equity

 

$

8,420,752

 

$

7,772,532

See accompanying notes.

 

3


HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,178,315

 

$

2,840,146

 

$

9,070,499

 

$

6,953,416

Cost of sales

 

 

2,266,170

 

 

2,085,878

 

 

6,377,752

 

 

4,998,868

 

 

Gross profit

 

 

912,145

 

 

754,268

 

 

2,692,747

 

 

1,954,548

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

701,499

 

 

559,605

 

 

2,038,292

 

 

1,572,732

 

Restructuring costs (credits)

 

 

(175)

 

 

6,992

 

 

3,360

 

 

27,713

 

 

Operating income

 

 

210,821

 

 

187,671

 

 

651,095

 

 

354,103

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,409

 

 

2,294

 

 

4,749

 

 

7,481

 

Interest expense

 

 

(6,550)

 

 

(11,111)

 

 

(19,411)

 

 

(29,409)

 

Other, net

 

 

403

 

 

(1,699)

 

 

1,066

 

 

(2,210)

 

 

Income from continuing operations before taxes,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

equity in earnings of affiliates and noncontrolling interests

 

 

206,083

 

 

177,155

 

 

637,499

 

 

329,965

Income taxes

 

 

(49,276)

 

 

(29,005)

 

 

(153,988)

 

 

(65,965)

Equity in earnings of affiliates

 

 

5,349

 

 

3,663

 

 

17,550

 

 

7,808

Gain on sale of equity investment

 

 

7,318

 

 

-

 

 

7,318

 

 

-

Net income from continuing operations

 

 

169,474

 

 

151,813

 

 

508,379

 

 

271,808

Income (loss) from discontinued operations, net of tax

 

 

-

 

 

(29)

 

 

-

 

 

274

Net income

 

 

169,474

 

 

151,784

 

 

508,379

 

 

272,082

 

Less: Net income attributable to noncontrolling interests

 

 

(7,188)

 

 

(10,087)

 

 

(24,380)

 

 

(10,921)

Net income attributable to Henry Schein, Inc.

 

$

162,286

 

$

141,697

 

$

483,999

 

$

261,161

Amounts attributable to Henry Schein Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

162,286

 

$

141,726

 

$

483,999

 

$

260,887

Discontinued operations

 

 

-

 

 

(29)

 

 

-

 

 

274

Net income attributable to Henry Schein, Inc.

 

$

162,286

 

$

141,697

 

$

483,999

 

$

261,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.00

 

$

3.44

 

$

1.83

 

Diluted

 

$

1.15

 

$

0.99

 

$

3.40

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

-

 

$

-

 

$

-

 

$

-

 

Diluted

 

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share attributable to Henry Schein, Inc.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.16

 

$

1.00

 

$

3.44

 

$

1.83

 

Diluted

 

$

1.15

 

$

0.99

 

$

3.40

 

$

1.82

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

139,377

 

 

142,362

 

 

140,661

 

 

142,553

 

Diluted

 

 

141,079

 

 

143,091

 

 

142,179

 

 

143,308

See accompanying notes.

 

4


HENRY SCHEIN, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

September 25,

 

September 26,

 

September 25,

 

September 26,

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

169,474

 

$

151,784

 

$

508,379

 

$

272,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

(39,762)

 

 

37,588

 

 

(40,105)

 

 

(17,316)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) from foreign currency hedging

 

 

 

 

 

 

 

 

 

 

 

 

 

 

activities

 

 

3,536

 

 

(7,697)

 

 

5,146

 

 

2,457

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gain (loss)

 

 

2

 

 

2

 

 

(1)

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension adjustment gain (loss)

 

 

624

 

 

(338)

 

 

1,466

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

(35,600)

 

 

29,555

 

 

(33,494)

 

 

(14,703)

Comprehensive income

 

 

133,874

 

 

181,339

 

 

474,885

 

 

257,379

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

(7,188)

 

 

(10,087)

 

 

(24,380)

 

 

(10,921)

 

 

Foreign currency translation (gain) loss

 

 

4,739

 

 

(1,636)

 

 

3,938

 

 

10,744

 

 

 

Comprehensive income attributable to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

(2,449)

 

 

(11,723)

 

 

(20,442)

 

 

(177)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Henry Schein, Inc.

 

$

131,425

 

$

169,616

 

$

454,443

 

$

257,202

See accompanying notes.

 

5


HENRY SCHEIN, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Common Stock

Additional

 

 

Other

 

 

Total

 

 

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

 

 

Shares

 

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, June 26, 2021

139,780,841

$

1,398

$

-

$

3,465,647

$

(106,779)

$

646,415

$

4,006,681

Net income (excluding $5,737 attributable to Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interests from continuing operations)

-

 

-

 

-

 

162,286

 

-

 

1,451

 

163,737

Foreign currency translation loss (excluding loss of $4,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to Redeemable noncontrolling interests)

-

 

-

 

-

 

-

 

(35,023)

 

(71)

 

(35,094)

Unrealized gain from foreign currency hedging activities,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net of tax of $1,172

-

 

-

 

-

 

-

 

3,536

 

-

 

3,536

Unrealized investment gain, net of tax of $1

-

 

-

 

-

 

-

 

2

 

-

 

2

Pension adjustment gain, net of tax of $269

-

 

-

 

-

 

-

 

624

 

-

 

624

Dividends paid

-

 

-

 

-

 

-

 

-

 

(170)

 

(170)

Change in fair value of redeemable securities

-

 

-

 

(10,884)

 

-

 

-

 

-

 

(10,884)

Repurchase and retirement of common stock

(651,289)

 

(7)

 

(6,500)

 

(43,493)

 

-

 

-

 

(50,000)

Stock-based compensation expense

11

 

-

 

27,546

 

-