Henry Schein(US:HSIC)2022-02-15 19:13Part I Business Henry Schein, Inc. provides global healthcare solutions to dental and medical practitioners through distribution and technology services - Henry Schein is the world's largest provider of health care products and services to office-based dental and medical practitioners, serving over one million customers worldwide1617 - The company operates through two reportable segments: Health Care Distribution (global dental and medical businesses) and Technology and Value-Added Services (software and other services)20 Net Sales by Principal Category (2019-2021) | Category | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Health care distribution: | | | | | Dental products | 60.8% | 58.4% | 64.2% | | Medical products | 34.0% | 35.8% | 29.8% | | Total health care distribution | 94.8% | 94.2% | 94.0% | | Technology and value-added services: | | | | | Software and related products | 5.2% | 5.1% | 5.2% | - The company's business strategy focuses on increasing sales to its existing customer base, acquiring new customers, leveraging value-added services for cross-selling, and pursuing strategic acquisitions and joint ventures49 - As of year-end 2021, the company employs over 21,600 people, with approximately half based outside the United States, including over 3,450 field sales consultants and approximately 2,100 telesales representatives1835113 Risk Factors Key risks include the COVID-19 pandemic, supply chain reliance, intense competition, regulatory compliance, data privacy, and cybersecurity threats - The COVID-19 pandemic poses a material risk, potentially impacting supply and demand for PPE and COVID-19 tests, customer payment capabilities, and workforce stability due to vaccine mandates138139141 - The company is highly dependent on third-party suppliers, with its top 10 health care distribution suppliers accounting for approximately 30% of aggregate purchases in 2021143 - The healthcare distribution industry is highly competitive, facing pressure from other major distributors, manufacturers selling directly, and the growth of third-party online commerce sites149 - Significant regulatory risks exist, including failure to comply with healthcare fraud and abuse laws (e.g., Anti-Kickback Statutes, Stark Law), which could lead to severe penalties166168 - The company is subject to numerous evolving data privacy laws such as HIPAA, GDPR, CCPA, and China's PIPL, with non-compliance potentially resulting in substantial fines and reputational harm177178179 - Cybersecurity risks are a major concern, as a breach of information systems could disrupt operations, lead to loss of business information, and result in significant financial and reputational damage192193196 Unresolved Staff Comments The company reports no unresolved SEC staff comments issued 180 days or more before the 2021 fiscal year-end - There are no unresolved staff comments from the SEC as of the end of the 2021 fiscal year205 Properties The health care distribution segment utilizes approximately 5.6 million square feet of global property, adequate for current operations - The company's health care distribution segment utilizes approximately 5.6 million square feet of property space across numerous countries for its operations206 Legal Proceedings Legal proceedings information is detailed in Note 14 of the Consolidated Financial Statements - Information regarding legal proceedings is detailed in Note 14 of the financial statements208 Mine Safety Disclosures This item is not applicable to the company - Mine safety disclosures are not applicable209 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Henry Schein's common stock trades on Nasdaq, with an active share repurchase program and no anticipated cash dividends - The company's share repurchase program, reinstated in March 2021, has a total authorization of $4.2 billion, with approximately $4.0 billion repurchased as of December 25, 2021214215216 - As of December 25, 2021, $200.0 million remained available for future common stock share repurchases under the authorized program216 - The company has not declared any cash or stock dividends in fiscal years 2021 or 2020 and does not anticipate doing so in the foreseeable future218 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 net sales grew 22.6% to $12.4 billion, driven by COVID-19 product sales and acquisitions, reflecting strong operating income and liquidity Consolidated Operating Results (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net sales | $12,401,021 | $10,119,141 | $9,985,803 | | Gross profit | $3,672,251 | $2,814,228 | $3,090,886 | | Operating income | $851,656 | $535,303 | $718,261 | | Net income attributable to Henry Schein, Inc. | $631,232 | $403,794 | $694,734 | - Net sales for 2021 increased 22.6% year-over-year, consisting of a 21.1% increase in local currency revenue (16.9% internal growth, 4.2% from acquisitions) and a 1.5% positive impact from foreign currency exchange264 - Sales of PPE and COVID-19 related products were approximately $1.74 billion in 2021, an estimated increase of 34.2% versus the prior year264 - The company completed a restructuring initiative started in 2019, incurring charges of $7.9 million in 2021, with no further separate restructuring costs expected in 2022258259260 Cash Flow Summary (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $709,580 | $593,519 | | Net cash used in investing activities | ($677,217) | ($115,019) | | Net cash used in financing activities | ($332,957) | ($181,794) | Quantitative and Qualitative Disclosures About Market Risk The company manages foreign currency and credit market risks using forward contracts and a total return swap, with variable interest rate exposure - The company uses foreign currency forward contracts to hedge against exchange rate fluctuations; a hypothetical 5% change in the average value of the U.S. dollar in 2021 would have changed net income by approximately $8.4 million319 - A total return swap is used to economically hedge the liabilities of the company's SERP and DCP, with a notional value of $88.7 million at year-end 2021321 - The company has variable interest rate exposure on its revolving credit facility and its U.S. trade accounts receivable securitization, which had an outstanding balance of $105.0 million at year-end 2021323325 Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal year 2021, including the auditor's report and detailed notes - The independent auditor, BDO USA, LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting330331 - The critical audit matter identified by the auditor relates to the significant judgment used in determining revenue growth rates for valuing customer relationships acquired in certain business combinations336337 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 25, 2021 | Dec 26, 2020 | | :--- | :--- | :--- | | Total Assets | $8,481,091 | $7,772,532 | | Total Liabilities | $3,804,587 | $3,460,448 | | Total Stockholders' Equity | $4,063,192 | $3,984,385 | - The company is a defendant in multiple lawsuits related to the distribution of prescription opioids, which it intends to defend vigorously; sales of opioids represented less than 0.2% of 2021 revenue535537 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on any accounting principles, financial disclosure, or auditing matters - There were no disagreements with accountants on accounting and financial disclosure603 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, despite changes from acquisitions and COVID-19 - Management concluded that disclosure controls and procedures were effective as of the end of the fiscal year604 - Management's report concluded that internal control over financial reporting was effective as of December 25, 2021, based on the COSO framework609 - A material change in internal control over financial reporting occurred during the quarter, driven by the integration of acquisitions and changes to operating methods due to the COVID-19 pandemic605 Part III Directors, Executive Officers and Corporate Governance Director, executive officer, and corporate governance information, including the Code of Ethics, is incorporated by reference from the 2022 Proxy Statement - Most information for this item is incorporated by reference from the forthcoming 2022 Proxy Statement623 - The company has adopted a Code of Ethics for its CEO and senior financial officers, which is available on its website626 Executive Compensation Executive compensation details, including the Compensation Discussion and Analysis, are incorporated by reference from the 2022 Proxy Statement - All information for this item is incorporated by reference from the forthcoming 2022 Proxy Statement627 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity compensation plan details and security ownership information are incorporated by reference from the 2022 Proxy Statement Equity Compensation Plan Information (as of Dec 25, 2021) | Plan Category | Number of Common Shares to be Issued Upon Exercise | Weighted-Average Exercise Price | Number of Common Shares Available for Future Issuances | | :--- | :--- | :--- | :--- | | Plans Approved by Stockholders | - | $ - | 9,597,745 | | Plans Not Approved by Stockholders | - | - | - | | Total | - | $ - | 9,597,745 | Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the 2022 Proxy Statement - All information for this item is incorporated by reference from the forthcoming 2022 Proxy Statement629 Principal Accounting Fees and Services Fees paid to the independent registered public accounting firm are incorporated by reference from the 2022 Proxy Statement - All information for this item is incorporated by reference from the forthcoming 2022 Proxy Statement630 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This item lists all financial statements, schedules (Schedule II), and exhibits filed with the 10-K report632633 Form 10-K Summary The company indicates that no Form 10-K summary is provided - No Form 10-K summary is included643