UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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quarterly
or
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As of November 13, 2023,
there were
HENRY SCHEIN, INC.
INDEX
Page
3
4
5
6
7
8
9
9
10
11
12
13
18
20
21
24
and Integration Costs
24
27
28
30
31
32
33
33
34
35
50
50
52
52
53
54
54
55
See accompanying notes.
3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
September 30,
December 31,
2023
2022
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
$
Accounts receivable, net of allowance for credit losses of $
Inventories, net
Prepaid expenses and other
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangibles, net
Investments and other
Total assets
$
$
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS 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
(nil)
(nil)
Stockholders' equity:
Preferred stock, $
Common stock, $
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
(247 )
(233 )
Total Henry Schein, Inc. stockholders' equity
Noncontrolling interests
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
$
See accompanying notes.
4
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except share and per share data)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net sales
$
$
$
$
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Restructuring and integration costs
Operating income
Other income (expense):
Interest income
Interest expense
(25 )
(8 )
(58 )
(23 )
Other, net
(2 )
(2 )
Income before taxes, equity in earnings of affiliates and
noncontrolling interests
Income taxes
(39 )
(46 )
(119 )
(155 )
Equity in earnings of affiliates
Net income
Less: Net income attributable to noncontrolling interests
(6 )
(12 )
(21 )
(24 )
Net income attributable to Henry Schein, Inc.
$
$
$
$
Earnings per share attributable to Henry Schein, Inc.:
Basic
$
$
$
$
Diluted
$
$
$
$
Weighted-average common shares outstanding:
Basic
Diluted
See accompanying notes.
5
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net income
$
$
$
$
Other comprehensive income (loss), net of tax:
Foreign currency translation loss
(45 )
(89 )
(17 )
(176 )
Unrealized gain from foreign currency hedging
activities
Pension adjustment gain
Other comprehensive loss, net of tax
(39 )
(77 )
(15 )
(155 )
Comprehensive income
Less: Comprehensive income attributable to noncontrolling
Net income
(6 )
(12 )
(21 )
(24 )
Foreign currency translation loss
Comprehensive income attributable to noncontrolling
interests
(4 )
(6 )
(20 )
(10 )
Comprehensive income attributable to Henry Schein, Inc.
$
$
$
$
See accompanying notes.
6
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, July 1, 2023
$
$
$
$
(210 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
(43 )
-
(43 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Dividends declared
-
-
-
-
-
(1 )
(1 )
Change in fair value of redeemable noncontrolling interests
-
-
-
-
-
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
(1 )
-
-
(1 )
Repurchases and retirement of common stock
(659,681 )
-
(6 )
(44 )
-
-
(50 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
-
-
Shares withheld for payroll taxes
(9,183 )
-
-
-
-
Settlement of stock-based compensation awards
-
-
-
-
Transfer of charges in excess of capital
-
-
(35 )
-
-
-
Balance, September 30, 2023
$
$
$
$
(247 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$0.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, June 25, 2022
$
$
$
$
(241 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
(83 )
-
(83 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Pension adjustment gain, net of tax of $
-
-
-
-
-
Dividends declared
-
-
-
-
-
(1 )
(1 )
Change in fair value of redeemable securities
-
-
-
-
-
Repurchases and retirement of common stock
(1,183,729 )
-
(12 )
(78 )
-
-
(90 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
-
-
Shares withheld for payroll taxes
(1,194 )
-
(1 )
-
-
-
(1 )
Settlement of stock-based compensation awards
-
-
-
-
Transfer of charges in excess of capital
-
-
(16 )
-
-
-
Balance, September 24, 2022
$
$
$
$
(312 )
$
$
See accompanying notes.
7
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(in millions, except share data)
(unaudited)
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 31, 2022
$
$
$
$
(233 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
(16 )
-
(16 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Dividends declared
-
-
-
-
-
(28 )
(28 )
Change in fair value of redeemable noncontrolling interests
-
-
-
-
-
Initial noncontrolling interests and adjustments related to
business acquisitions
-
-
-
-
(2 )
(2 )
Repurchases and retirement of common stock
(2,521,695 )
-
(26 )
(175 )
-
-
(201 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
Shares withheld for payroll taxes
(415,048 )
-
(32 )
-
-
-
(32 )
Settlement of stock-based compensation awards
(818 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(4 )
-
-
-
Balance, September 30, 2023
$
$
$
$
(247 )
$
$
Accumulated
Common Stock
Additional
Other
Total
$.01 Par Value
Paid-in
Retained
Comprehensive
Noncontrolling
Stockholders'
Shares
Amount
Capital
Earnings
Income / (Loss)
Equity
Balance, December 25, 2021
$
$
$
$
(171 )
$
$
Net income (excluding $
noncontrolling interests)
-
-
-
-
Foreign currency translation loss (excluding loss of $
attributable to redeemable noncontrolling interests)
-
-
-
-
(162 )
(1 )
(163 )
Unrealized gain from foreign currency hedging activities,
net of tax of $
-
-
-
-
-
Pension adjustment gain, net of tax of $
-
-
-
-
-
Dividends declared
-
-
-
-
-
(1 )
(1 )
Purchase of noncontrolling interests
-
-
-
-
-
(7 )
(7 )
Change in fair value of redeemable securities
-
-
-
-
-
Repurchases and retirement of common stock
(2,529,126 )
-
(28 )
(172 )
-
-
(200 )
Stock-based compensation expense
-
-
-
-
Stock issued upon exercise of stock options
-
-
-
-
Shares withheld for payroll taxes
(343,541 )
-
(30 )
-
-
-
(30 )
Settlement of stock-based compensation awards
(2,967 )
-
-
-
-
Transfer of charges in excess of capital
-
-
(8 )
-
-
-
Balance, September 24, 2022
$
$
$
$
(312 )
$
$
See accompanying notes.
8
HENRY SCHEIN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine Months Ended
September 30,
September 24,
2023
2022
Cash flows from operating activities:
Net income
$
$
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Non-cash restructuring charges
Stock-based compensation expense
Provision for losses on trade and other accounts receivable
Benefit from deferred income taxes
(4 )
(20 )
Equity in earnings of affiliates
(10 )
(12 )
Distributions from equity affiliates
Changes in unrecognized tax benefits
Other
(11 )
(25 )
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
(72 )
(93 )
Inventories
(9 )
Other current assets
(55 )
(96 )
Accounts payable and accrued expenses
(170 )
(131 )
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of fixed assets
(108 )
(67 )
Payments related to equity investments and business acquisitions,
net of cash acquired
(668 )
(127 )
Proceeds from loan to affiliate
Other
(36 )
(26 )
Net cash used in investing activities
(808 )
(211 )
Cash flows from financing activities:
Net change in bank borrowings
(98 )
Proceeds from issuance of long-term debt
Principal payments for long-term debt
(457 )
(58 )
Debt issuance costs
(3 )
Proceeds from issuance of stock upon exercise of stock options
Payments for repurchases and retirement of common stock
(200 )
(200 )
Payments for taxes related to shares withheld for employee taxes
(34 )
(30 )
Distributions to noncontrolling shareholders
(41 )
(18 )
Acquisitions of noncontrolling interests in subsidiaries
(19 )
(33 )
Net cash provided by (used in) financing activities
(121 )
Effect of exchange rate changes on cash and cash equivalents
(11 )
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
9
Note 1 – Basis of Presentation
Our condensed consolidated financial statements include the accounts of Henry Schein, Inc. and all of our
controlled subsidiaries (“we”, “us” or “our”). 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. These reclassifications, individually and in the aggregate, did not
have a material impact on our condensed consolidated financial condition, results of operations or cash flows.
Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnote disclosures required by U.S. GAAP for complete financial statements.
The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report
on Form 10-K for the year ended December 31, 2022 and with the information contained in our other publicly-
available filings with the Securities and Exchange Commission. The condensed consolidated financial statements
reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and
financial position for the interim periods presented. All such adjustments are of a normal recurring nature.
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. The results of
operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to
be expected for any other interim period or for the year ending December 30, 2023.
Our condensed 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.
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
September 30, 2023 and December 31, 2022, certain trade accounts receivable that can only be used to settle
obligations of this VIE were $
creditors have recourse to us were $
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
10
Note 2 – Critical Accounting Policies, Accounting Standard Adopted, and Recently Issued Accounting
Standards
Critical Accounting Policies
There have been no material changes in our critical accounting policies during the nine months ended September
30, 2023, as compared to the critical accounting policies described in Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2022.
Accounting Standard Adopted
During the quarter ended September 30, 2023, we adopted Accounting Standards Codification (“ASC”) Topic 848,
Reference Rate Reform (Topic 848). The adoption of Topic 848 did not have a material impact on our condensed
consolidated financial statements.
Recently Issued Accounting Standards
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance
Program Obligations,” which will increase transparency of supplier finance programs by requiring entities that use
such programs in connection with the purchase of goods and services to disclose certain qualitative and quantitative
information about such programs. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022,
including interim periods within those fiscal years, except for amended roll forward information, which is effective
for fiscal years beginning after December 15, 2023. We do not expect that the requirements of this guidance will
have a material impact on our condensed consolidated financial statements.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
11
Note 3 – Net Sales from Contracts with Customers
Net sales are recognized in accordance with policies disclosed in Item 8 of our Annual Report on Form 10-K for
the year ended December 31, 2022.
Disaggregation of Net Sales
The following table disaggregates our net sales by reportable segment and geographic area:
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2023
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
$
$
$
Three Months Ended
Nine Months Ended
September 24, 2022
September 24, 2022
North
America
International
Global
North
America
International
Global
Net sales:
Health care distribution
Dental
$
$
$
$
$
$
Medical
Total health care distribution
Technology and value-added services
Total net sales
$
$
$
$
$
$
Deferred Revenue
At September 30, 2023, the current and non-current portion of contract liabilities were $
respectively. During the nine months ended September 30, 2023, we recognized, in net sales, $
amount that was previously deferred at December 31, 2022. At December 31, 2022, the current portion of contract
liabilities of $
liabilities was reported in other liabilities.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
12
Note 4
Segment Data
We conduct our business through
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, 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. Our
dental and medical groups serve practitioners in
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 products, personal protective equipment (“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:
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Net Sales:
Health care distribution
(1)
Dental
$
$
$
$
Medical
Total health care distribution
Technology and value-added services
(2)
Total
$
$
$
$
(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 products 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.
Three Months Ended
Nine Months Ended
September 30,
September 24,
September 30,
September 24,
2023
2022
2023
2022
Operating Income:
Health care distribution
$
$
$
$
Technology and value-added services
Total
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
13
Note 5
Business Acquisitions
Our acquisition strategy is focused on investments in companies that add new customers and sales teams, increase
our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we
have already invested in businesses), and finally, those that enable us to access new products and technologies. In
connection with our business acquisitions, the major classes of assets and liabilities to which we generally allocate
acquisition consideration to, excluding goodwill, include identifiable intangible assets (i.e., customer relationships
and lists, trademarks and trade names, product development and non-compete agreements), inventory and accounts
receivable. The estimated fair value of identifiable intangible assets is based on critical judgments and assumptions
derived from analysis of market conditions, including discount rates, projected revenue growth rates (which are
based on historical trends and assessment of financial projections), estimated customer attrition and projected cash
flows. These assumptions are forward-looking and could be affected by future economic and market conditions.
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 condensed 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 condensed consolidated statements of operations.
During the nine months ended September 30, 2023 we completed accounting for certain acquisitions that occurred
in the year ended December 31, 2022. In relation to these acquisitions, we did not record material adjustments in
our condensed consolidated financial statements relating to changes in estimated values of assets acquired,
liabilities assumed and contingent consideration assets and liabilities.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
14
Acquisition of S.I.N. Implant System
On July 5, 2023 we acquired a
% voting equity interest in S.I.N. Implant System (“S.I.N.”), one of Brazil’s
leading manufacturers of dental implants. Based in São Paulo and founded in 2003, S.I.N. manufactures an
extensive line of products to perform dental implant procedures and is focused on advancing the development of
value-priced dental implants. S.I.N. recently expanded the distribution of its products into the United States and
other international markets.
The following table aggregates the preliminary estimated fair value, as of the date of acquisition, of consideration
paid and net assets acquired in the S.I.N.:
2023
Acquisition consideration:
Cash
$
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(33 )
Long-term debt
(22 )
Deferred income taxes
(55 )
Other noncurrent liabilities
(27 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of expected synergies that are expected to originate from the acquisition as well as the expected
growth potential of S.I.N. The acquired goodwill is not deductible for tax purposes.
The following table summarizes the preliminary identifiable intangible assets acquired as part of the acquisition of
S.I.N.:
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
Trademarks/ Tradenames
Non-compete agreements
Product development
Other
Total
$
The accounting for the acquisition of S.I.N. has not been completed in several areas, including but not limited to
pending assessments of accounts receivable, inventory, intangible assets, right-of-use lease assets, accrued
liabilities and income and non-income based taxes. To assist management in the allocation of consideration, we
engaged valuation specialists to determine the fair value of intangible and tangible assets acquired and liabilities
assumed.
We
will finalize the amounts recognized as the information necessary to complete the analysis is
obtained. We expect to finalize these amounts as soon as possible but no later than one year from the acquisition
date. The pro forma financial information has not been presented because the impact of the S.I.N. acquisition
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
15
during the three and nine months ended September 30, 2023 was immaterial to our condensed consolidated
financial statements.
Acquisition of Biotech Dental
On April 5, 2023, we acquired a
% voting equity interest in Biotech Dental (“Biotech Dental”), which is a
provider of dental implants, clear aligners, individualized prosthetics, and innovative digital dental software based
in France. Biotech Dental has several important solutions for dental practices and dental labs, including Nemotec, a
comprehensive, integrated suite of planning and diagnostic software using open architecture that connects disparate
medical devices to create a digital view of the patient, offering greater diagnostic accuracy and an improved patient
experience. The integration of Biotech Dental’s software with Henry Schein One’s industry-leading practice
management software solutions will help customers streamline their clinical as well as administrative workflow for
the ultimate benefit of patients.
The following table aggregates the preliminary estimated fair value, as of the date of acquisition, of consideration
paid and net assets acquired in the Biotech Dental acquisition:
2023
Acquisition consideration:
Cash
$
Fair value of contributed equity share in a controlled subsidiary
Redeemable noncontrolling interests
Total consideration
$
Identifiable assets acquired and liabilities assumed:
Current assets
$
Intangible assets
Other noncurrent assets
Current liabilities
(51 )
Long-term debt
(84 )
Deferred income taxes
(38 )
Other noncurrent liabilities
(22 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
Goodwill is a result of expected synergies that are expected to originate from the acquisition as well as the expected
growth potential of Biotech Dental. The acquired goodwill is deductible for tax purposes.
The following table summarizes the preliminary identifiable intangible assets acquired as part of the acquisition of
Biotech Dental:
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
Trademarks/ Tradenames
Non-compete agreements
Other
Total
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
16
The accounting for the acquisition of Biotech Dental has not been completed in several areas, including but not
limited to pending assessments of accounts receivable, inventory, intangible assets, right-of-use lease assets,
accrued liabilities and income and non-income based taxes. To assist management in the allocation of
consideration, we engaged valuation specialists to determine the fair value of intangible and tangible assets
acquired and liabilities assumed. We will finalize the amounts recognized as the information necessary to complete
the analysis is obtained. We expect to finalize these amounts as soon as possible but no later than one year from the
acquisition date. The pro forma financial information has not been presented because the impact of the Biotech
Dental acquisition during the three and nine months ended September 30, 2023 was immaterial to our condensed
consolidated financial statements.
Other 2023 Acquisitions
During the nine months ended September 30, 2023, we acquired companies within the health care distribution and
technology and value-added services segments. Our acquired ownership interest ranged between
% to
%.
The following table aggregates the preliminary estimated fair value, as of the date of acquisition, of consideration
paid and net assets acquired for these acquisitions during the nine months ended September 30, 2023.
2023
Acquisition consideration:
Cash
$
Deferred consideration
Estimated fair value of contingent consideration payable
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
(23 )
Deferred income taxes
(13 )
Long-term debt
(8 )
Other noncurrent liabilities
(10 )
Total identifiable net assets
Goodwill
Total net assets acquired
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
17
Goodwill is a result of the expected synergies and cross-selling opportunities that these acquisitions are expected to
provide for us, as well as the expected growth potential. Approximately half of the acquired goodwill is deductible
for tax purposes.
In connection with an acquisition of a controlling interest of an affiliate, we recognized a gain of approximately $
million related to the remeasurement to fair value of our previously held equity investment, using a discounted cash
flow model based on Level 3 inputs, as defined in
The following table summarizes the preliminary identifiable intangible assets acquired during the nine months
ended September 30, 2023 and their estimated useful lives as of the date of the acquisition:
2023
Estimated Useful Lives (in years)
Customer relationships and lists
$
-
Trademarks/ Tradenames
-
Non-compete agreements
Product development
Patents
Other
Total
$
The pro forma financial information has not been presented because the impact of the acquisitions during the three
and nine months ended September 30, 2023 was immaterial to our condensed consolidated financial statements.
Acquisition Costs
During the nine months ended September 30, 2023 and September 24, 2022 we incurred $
million, respectively, in acquisition costs, which are included in “selling, general and administrative” within our
condensed consolidated statements of income.
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
18
Note 6 – 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.
Investments and notes receivable
There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable.
Certain of our notes receivable contain variable interest rates. We believe the carrying amounts 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, current maturities of long-term debt and long-term debt) is
classified as Level 3 within the fair value hierarchy, and as of September 30, 2023 and December 31, 2022 was
estimated at $
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, hedging of the
floating interest rate to a fixed interest rate on our $
information)
, and a total return swap for the purpose of economically hedging our unfunded non-qualified
supplemental executive retirement plan (the “SERP”) and our deferred compensation plan (the “DCP”).
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
19
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.
Total Return Swaps
The fair value for the total return swap is measured by valuing the underlying exchange traded funds of the swap
using market-on-close pricing by industry providers as of the valuation date and are classified within Level 2 of the
fair value hierarchy.
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.
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 September 30, 2023 and December 31,
2022:
September 30, 2023
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total assets
$
$
$
$
Liabilities:
Derivative contracts designated as hedges
$
$
$
$
Derivative contracts undesignated
Total return swaps
Total liabilities
$
$
$
$
Redeemable noncontrolling interests
$
$
$
$
HENRY SCHEIN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
)
20
Note 7 – 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 changes to the credit risk of the derivative counterparties. We attempt to minimize these risks by
primarily using interest rate swaps, foreign currency forward contracts and by maintaining counter-party credit
limits. These hedging activities provide only limited protection against interest rate, currency exchange and credit
risks. Factors that could influence the effectiveness of our hedging programs include market interest rates, currency
markets and availability of hedging instruments and liquidity of the credit markets. All interest rate swaps and
foreign currency forward contracts that we enter into are components of hedging programs and are entered into for
the sole purpose of hedging an existing or anticipated interest rate or currency exposure. We do not enter into such
contracts for speculative purposes 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 condensed consolidated balance sheets. Amounts excluded from the assessment of
hedge effectiveness are included in interest expense within our condensed consolidated statements of income. The
aggregate notional value of this net investment hedge, which matured on
, is approximately
€
increase of $
currency forward contracts. During the nine months ended September 30, 2023 and September 24, 2022, we
recorded an increase of $
these foreign currency forward contracts.
On
, 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 liabi