Henry Schein - 10-K annual report 2020

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Documents Incorporated by Reference:

 

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based outside the United States) and have operations or affiliates in 31 countries andterritories, including the

United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China,the Czech Republic, France, Germany,

and the United Kingdom.This broad global footprint has evolved over time through our organic success as wellas

Henry Schein One, we offer dental practice management, patient engagementand demand creation software

solutions. We also offer a broad range of financial services for our customers to help them operate and expand their

 

communicating with our solutions teams, we are investing in digital enhancementsto our e-commerce platforms

We have established over 3.5 million square feet of space in 28 strategically located distribution centers around the

world to enable us to better serve our customers and increase our operatingefficiency.Our infrastructure allows us

without back ordering and were shipped on the same business day the orderis received.Due to the significant

increase in demand for personal protective equipment (“PPE”), as a resultof the COVID-19 pandemic, during the

year ended December 26, 2020, approximately 93% of items orderedwere shipped without back ordering and 90%

infrastructure, together with broad product and service offerings at competitiveprices, and a strong commitment to

customer service, enables us to be a single source of supply for our customers’needs.

combined dental and medical segment distributes consumable products,small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals,vaccines, surgical products, diagnostic

tests, infection-control productsand vitamins.Our global dental group serves office-based dental practitioners,

dental laboratories, schools, government and other institutions.Our global medical group serves 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 integrateddelivery networks, among other

providers across a wide range of specialties.While our primary go-to-market strategy is in our capacity as a

distributor, we also manufacture certain dental specialty products in the areas of implants, orthodonticsand

endodontics. We have achieved scale in these global businesses primarily through acquisitions as manufacturers of

 

As an alternative to branded product options, we also market under our ownprivate label portfolio of cost-effective,

services to health care practitioners.Henry Schein One, the largest contributor of sales to this category, offers

software systems for dental practitioners. This segment also includes asmall medical software business known as

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent

group practices ranging in size from a few practitioners to several hundredpractices owned or operated by dental

support organizations (DSOs), hospital systems, or integrated delivery networks(IDNs).

in their offices, the distribution of health care supplies and small equipment to office-based healthcare practitioners

has been characterized by frequent, small quantity orders, and a need forrapid, reliable and substantially complete

order fulfillment.The purchasing decisions within an office-based health care practice are typicallymade by the

practitioner, hygienist or office manager.Supplies and small equipment are generally purchased frommore than

one distributor, with one generally serving as the primary supplier.

 

medical technology and testing, new pharmacology treatments andexpanded third-party insurance coverage,

the advancement of software and services, prosthetic solutions and telemedicine.In addition, the non-acute market

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, seekingto combine with larger companies that can

companies that can enhance their current product and service offerings or provideopportunities to serve a broader

customer base.

 

In addition, customer consolidation will likely lead to multiple locationsunder common management and the

movement of more procedures from the hospital setting to the physicianor 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 HMOs,

obtaining products at competitive prices, tend to favor distributors capableof providing specialized management

information support.We believe that the trend towards cost containment has the potential to favorably affect

The distribution and manufacture of health care supplies and equipment ishighly competitive.Many of the health

care products we sell are available to our customers from a number of suppliers.In addition, our competitors could

products, primarily on the basis of price, breadth of product line, e-commercecapabilities, customer service and

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 SupplyCompany.In addition, we compete against

a number of other distributors that operate on a national, regional andlocal level. Our primary competitors in the

patient relationship management and patient demand generation, wecompete with companies such as Vyne

Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.),Weave Communications,

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 suppliesand 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 againstseveral large competitors, including the

 

 

awareness of the Henry Schein

 

customers that are driven by our understanding of the end markets weserve and reflect the technology-driven

offerings through organic investment in our products and our teams, as well through asthe acquisition of new

products and services that may help us better serve our customers.

 

Direct sales and marketing expertise.

customer relationships through personal or virtual visits by field sales representatives,frequent direct marketing and

telesales contact, emphasizing our broad product lines, including exclusivedistribution agreements, competitive

prices and ease of order placement, particularly through our e-commerceplatforms.The key elements of our direct

 

covering major North American, European and other internationalmarkets.These consultants complement

 

Broad product and service offerings at competitive prices.

 

customers would be able to secure independently.We also provide consulting services, dental practice

Commitment to superior customer service

reports.Our customer service policy primarily focuses on:

 

 

Integrated management information systems

Cost-effective purchasing

our position as a competitively priced provider of health care products.We continuously evaluate our purchase

4%, respectively, of our aggregate purchases.

 

maintain optimal inventory levels in order to satisfy customer demandfor prompt delivery and complete order

fulfillment.These inventory levels are managed on a daily basis withthe aid of our management information

systems.Once an order is entered, it is electronically transmitted to the distributioncenter nearest the customer’s

 

The following table sets forth the percentage of consolidated net salesby principal categories of products offered

through our health care distribution and technology reportable segments:

 

 

 

In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45-and-older segment of

continuing education, all designed to help maximize a practitioner’s efficiency.

 

In the medical market, there continues to be a migration of procedures fromacute-care settings to physicians’

offices and home health settings,a trend that we believe provides additional opportunities for us.There also is the

 

For information on revenues and long-lived assets by geographic area, see

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 priceto decline.

 

Our business is subject to seasonal and other quarterly fluctuations.Revenues and profitability generally have been

tradeshows where equipment promotions are offered. In addition, some dental practicesdelay equipment purchases

quarter, primarily due to increased sales in the prior two quarters.We expect our historical seasonality of sales to

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We strive to be substantially compliant with the applicable laws, regulations and guidance described below, and

believe we have effective compliance programs and other controls in place to ensure substantialcompliance.

However, compliance is not guaranteedeither now or in the future, as certain laws, regulations and guidancemay

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.For example, President Biden’s

are not yet effective, as well as a review of all federal regulations issued during President Trump’s administration.

Changes with respect to the applicable laws, regulations and guidance describedbelow may require us to update or

Government

 

Certain of our businesses involve the distribution, importation, exportation,marketing and sale of, and third party

 

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

performance, including securities, antitrust, consumer protection, anti-briberyand anti-kickback, customer

interaction transparency, data privacy,data security, government contracting and other laws and regulations.

 

Certain of our businesses involve the distribution, importation, exportation,marketingand sale of, and third party

payment for, pharmaceuticals and medical devices, and in this regard we are subject to various local,state, federal

and foreign governmental laws and regulations, including as applicableto our wholesale distribution and sale of

Section 361 of the Public Health Service Act, as well as laws regulating thebilling of and reimbursement from

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 statesmay similarly

authority to prevent the introduction, transmission or spread of communicablediseases, serves as the legal basis for

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the United StatesFood 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 significantchanges 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 intendedto build a national electronic,

interoperable system to identify and trace certain prescription drugs as theyare distributed in the United States.

pharmacies) of prescription drugs took effect in January 2015, and continues to beimplemented.The DSCSA

product tracing requirements replace the former FDA drug pedigree requirementsand pre-empt certain state

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 reportsto the FDA, which include

accreditation standards, including to qualify for reimbursement fromMedicare and other third-party payers.

 

The Food and Drug Administration Amendments Act of 2007 andthe Food and Drug Administration Safety and

Innovation Act of 2012 amended the FDC Act to require the FDA to promulgateregulations to implement a unique

devices (including, but not limited to, certain software that qualifies as a medical deviceunder FDA rules), and to

directly mark certain devices with UDIs.The UDI regulations also require labelers to submit certain information

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 QualitySystem 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 subsequentreplacement or modification of

the label, and include certain of our businesses.

permitting us to handle controlled substances.We are also subject to other statutory and regulatory requirements

accordance with the Controlled Substances Act and its implementing regulations,and these requirements have been

businesses are also required to register for permits and/or licenses with, andcomply with operating and security

standards of, the DEA, the FDA, the United States Department of Healthand 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 ofoperations and location of product

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prescription pharmaceuticals and/or medical devices and/or HCT/P products, orown 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 costsincurred in procuring, processing,

storing and distributing that tissue.We are also subject to foreign government regulation of such products.The

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 ofthese laws and regulations.Foreign

EU Regulation of Medicinal and Dental Products

most notably medicinal products and medical devices. Medicinal products are defined,broadly, as substances or

combinations of substances having certain functionalities and may not includemedical devices. EU “regulations”

authorizations may be withdrawn, and includes potential sanctions for breachesof the rules, and on other bases

such as harmfulness or inefficiency.

 

EU Regulation No. 1223/2009 of 30 November 2009

years after publication (in May 2020). However, on April 23, 2020, to allow European Economic Area(“EEA”)

national authorities, notified bodies, manufacturers and other actors to focusfully on urgent priorities related to the

90/385/EEC of 20 June 1990

 

The EU MDR significantly modifies and intensifies the regulatory compliancerequirements for the medical device

industry as a whole.Once applicable, the EU MDR will among other things:

 

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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 maycontinue 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 surveillancehave to be observed by

manufacturers, importers and distributors as of the application date.

Other EU regulations that may apply under appropriate circumstancesinclude EU Regulation No. 1907/2006 of 18

December 2006

Furthermore, compliance with legal requirements has required and may in the futurerequire us to delay product

release, sale or distribution, or institute voluntary recalls of products we sell,each of which could result in

hazardous substances, and safe working conditions.In addition, certain of our businesses must operate in

compliance with a variety of burdensome and complex billing andrecord-keeping requirements in order to

substantiate claims for payment under federal, state and commercial healthcarereimbursement programs.

 

prohibit certain types of conduct deemed to be anti-competitive, as well as consumerprotection laws that seek to

protect consumers from improper business practices.At the U.S. federal level, the Federal Trade Commission

may also bring civil lawsuits against us in the United States for allegedantitrust law violations, including claims for

treble damages.EU law also regulates competition and provides for detailed rulesprotecting consumers.

 

 

Certain of our businesses are subject to federal and state (and similarforeign) health care fraud and abuse, referral

soliciting, offering, receiving or paying remuneration in order to induce the referralof a patient or ordering,

paid for by federal, state and other health care payers and programs.Certain additional state and federal laws, such

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.

 

years, and significant enforcement activity has been the result of “relators” whoserve as whistleblowers by filing

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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, and 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 couldhave 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 substantialdefense and settlement

expenses.Even unsuccessful challenges by regulatory authorities or privaterelators could result in reputational

laws have their own penalties, which may be in addition to federal False ClaimsAct penalties, as well as other

fraud and abuse laws.

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. BriberyAct, German anti-corruption laws

response to changes in applicable law or interpretation of laws, or failureto comply with applicable law, could have

a material adverse effect on our business.

 

 

The ACA has faced ongoing legal challenges, including litigation seekingto invalidate and Congressional action

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 ofthe 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

for non-compliance.In the most recent ACA litigation, the federal Fifth Circuit Courtof Appeals found the

Texas for consideration of whether the remainder of the ACA could survive the excision of the individual

argument on the appeal on November 10, 2020, and a decision is anticipated soon.Any outcome of this case that

changes the ACA, in addition to future legislation, regulation, guidanceand/or Executive Orders that do the same,

could have a significant impact on the U.S. healthcare industry.

 

“Sunshine Act”),imposes annual reporting and disclosure requirements for drugand device manufacturers and

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distributors with regard to payments or other transfers of value made to certaincovered recipients (including

physicians, dentists and teaching hospitals), and for such manufacturers and distributorsand for group purchasing

organizations, with regard to certain ownership interests held by physicians in the reportingentity.The Centers for

Medicare and Medicaid Services (“CMS”) publishes information from thesereports on a publicly available website,

including amounts transferred and physician, dentist and teaching hospitalidentities.Amendments expanded the

law to also require reporting, effective January1, 2022, of payments or other transfers of value to physician

assistants, nurse practitioners, clinical nurse specialists, certified registerednurse anesthetists, and certified nurse-

Sunshine Act pre-empts similar state reporting laws, although we or our subsidiariesmay be required to report

under certain state transparency laws that address circumstances not covered bythe Sunshine Act, and some of

 

Another notable Medicare health care reform initiative, the Medicare Accessand CHIP Reauthorization Act of

(2017) determined payment adjustments that began January 1, 2019.MACRA standards continue to evolve, and

represent a fundamental change in physician reimbursement that is expectedto provide substantial financial

incentives for physicians to participate in risk contracts, and to increase physicianinformation technology and

reporting obligations.The implications of the implementation of MACRA are uncertainand will depend on future

drug pricing and concurrent efforts to control or reduce drug costs by Congress, thePresident, executive branch

agencies and various states. At the state level, several states have adoptedlaws that require drug manufacturers to

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 distributionindustry in the United

States is under intense scrutiny and subject to fundamental changes.We cannot predict what further reform

 

states (Directive No. 89/105/EC of 21 December 1988

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 authorizedmedicines and their level

of reimbursement, or they may freeze prices, place controls on the profitabilityof persons responsible for placing

medicinal products on the market, and include or exclude the medicine onthe list of products covered by national

 

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EU law does not expressly include provisions like those of the Sunshine Act inthe United States, but a growing

number of EU member states (such as France since 2011) have enacted laws to increase the transparencyof

relationships in the healthcare sector. The scope of these laws varies from on member state to another and may, for

example, include the relations between healthcare industry players andphysicians or their associations, students

preparing for medical professions or their associations, teachers, healthestablishments or publishers of prescription

and dispensing assistance software.

 

 

The FDA has become increasingly active in addressing the regulation ofcomputer software and digital health

regulation by the FDA as medical devices, and continues to issue new guidancein this area.Certain of our

businesses involve the development and sale of software and related productsto support physician and dental

clinical, financial and other sensitive information of individuals.These information technology systems may be

vulnerable to breakdown, wrongful intrusions, data breaches and maliciousattack, which could require us to

expend significant resources to eliminate these problems and address relatedsecurity concerns and could involve

claims against us by private parties and/or governmental agencies.For example, we are directly or indirectly

evolving and subject to potentially differing interpretations. These requirementsmay not be harmonized, may be

interpreted and applied in a manner that is inconsistent from one jurisdictionto another or may conflict with other

our reputation.Also, evolving laws and regulations in this area could restrictthe ability of our customers to obtain,

use or disseminate patient information, or could require us to incur significantadditional costs to re-design our

products to reflect these legal requirements, which could have a materialadverse effect on our operations.

 

Also, the European Parliament and the Council of the European Union adoptedthe pan-European General Data

Protection Regulation (“GDPR”), effective from May 25, 2018, which increasedprivacy rights for individuals in

monitor their behavior (including by companies based outside of Europe).Noncompliance can result in penalties of

member states may individually impose additional requirements and penaltiesregarding certain matters, such as

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 transportingof the personal data.

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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 informationof California residents.Compliance

with the new obligations imposed by the CCPA depends in part on how particular regulators interpret and apply

them, and because the CCPA is relatively new,and its implementing regulations were released in August of2020,

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,

reputation, require us to expend significant resources, and harm our business.Furthermore, California voters

approved the CPRA on November 3, 2020, which will amend andexpand the CCPA, including by providing

personal privacy laws, backed by significant civil penalties for non-compliance.While we believe we have

substantially compliant programs and controls in place to comply withthe GDPR, CCPA and CPRA requirements,

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 mayalso be used as part of these customers’

comprehensive data security programs, including in connection with their efforts to comply withapplicable privacy

and security laws.Perceived or actual security vulnerabilities in our products or services,or the perceived or actual

records systems and processes.Theinitiatives include, among others, programs that incentivize physiciansand

dentists, through MIPS, to use EHR technology in accordance with certainevolving requirements, including

standards adopted by CMS and by the Office of the National Coordinator for HealthInformation Technologyof

HHS (“ONC”).Certain of our businesses involve the manufacture and saleof 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 receivefederal incentive payments, we may be

exposed to risk, such as under federal health care fraud and abuse laws,including the False Claims Act.For

Medicare and Medicaid claims for meaningful use incentive paymentsin violation of the False Claims Act.

Moreover, in order to satisfy our customers, our products may need to incorporate increasingly complex

may involve increased costs, and our failure to implement productmodifications, 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

involving claims submissions to third party payers.Failure to abide by these and other electronic health data

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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 exchangedinformation becomes

increasingly important.For example, on September 6, 2017, the FDA issued finalguidance to assist industry in

identifying specific considerations related to the ability of electronic medicaldevices to safely and effectively

those associated with an electronic interface that is incorporated into amedical device.

 

E-Commerce

relationships.Our distribution business is characterized by rapid technologicaldevelopments and intense

competition.The continuing advancement of online commerce requiresus to cost-effectively adapt to changing

on solid customer relationships, position us well to participate inthis 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.

 

records, as well as other types of foreign requirements similar to thoseimposed in the United States.

 

assurance that regulations that impact our business or customers’ practiceswill not have a material adverse effect

on our business.

 

See “

affect our results of operations and financial condition.

 

to protect our trademarks to the fullest extent practicable.

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At Henry Schein, our employees are our greatest asset.We employ more than 19,000 full-time equivalent

employees, including approximately 2,250 telesales representatives, over3,450 field sales consultants, including

equipment sales specialists, 2,000 installation and repair technicians, 3,550 warehouseemployees, 800 computer

programmers and technicians, 675 management employees and 6,300 office, clericaland administrative employees.

Approximately 49% of our workforce is based in the United States andapproximately 51% is based outside of the

that our relations with our employees are excellent.

 

commitment, we have, among other things:

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sales consultants and equipment service technicians and adopted broad work-from-homeinitiatives for

Section 13(a) and Section 16 of the Securities Exchange Act of 1934as soon as reasonably practicable after such

materials are electronically filed with, or furnished to, the United States Securitiesand Exchange Commission, or

SEC.Our principal executive offices are located at 135 Duryea Road, Melville, NewYork11747, and our

telephone number is (631) 843-5500.Unless the context specifically requires otherwise, the terms the“Company,”

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The following table sets forth certain information regarding our executive officers:

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was employed with Standard Microsystems Corporation, a publiclytraded global semiconductor company from

2005 to 2012, holding positions of increasing responsibility, most recently as Senior Vice President, General

Counsel and Secretary.

 

 

Mr. Brous joined us in 2002 and has held many positions within the organization, including leading and managing

the Corporate Business Development Group and the International Healthcare Group(managing our International

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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 2000and Rohm and Haas from 1994 to 1998.

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

René Willi, Ph.D.

joining Henry Schein, Dr. Willi held senior level roles with Institut Straumann AG as Executive Vice President,

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Our business operations could be affected by factors that are not presently knownto us or that we currently

consider not to be material to our operations, so you should not considerthe 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, financialresults, financial condition and/or

the trading price of our common stock.The order in which these factors appear does not necessarily reflecttheir

 

our financial condition and liquidity. In March and April 2020, the dental market was severely impacted by

COVID-19, with many, if not a majority, of practices being closed or open on a limited basis only. Although dental

practice openings and patient volume recovery in the United States andmany other countries have rebounded faster

than originally anticipated, patient volumes have remained below pre-COVID-19levels.Material uncertainty

limited to:

 

rescheduled wellness exams and elective procedures. Dental offices in other countriesalso experienced closures or

restricted operations, as did medical offices around the world. Such closures and restrictionsimpacted our

customers’ spending with us and had, and if reinstated may again have, a materialadverse effect on our business,

results of operations and cash flows. Although dental practice openings andpatient volume recovery have

rebounded faster than originally anticipated, capacity constraintsin offices and demand-side factors may again lead

to reductions in demand or significant volatility in demand for our products. Additionally, significant reduction in

•

scarcity in raw materials to make certain PPE. Prices for certain PPE have beenvolatile. Although we believe that

a number of factors, including the progress of the virus and efforts to combat it, westill may be unable to supply

our customers with the quantity of certain PPE products they demand,which may lead to our customers seeking

alternative sources of supply. Furthermore, healthcare professionals’ inability to obtain a sufficient quantity of

certain PPE wouldadversely impact our business, results of operations and cash flows,and could materially

year beginning in the second quarter for PPE inventory due to volatilityof pricing for PPE, and, depending upon

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the course of the pandemic, if PPE pricing or demand decreases, ourmargins and the value of certain our PPE

inventory could be further negatively impacted in future periods, whichcould result in a material adverse impact on

our business, results of operations and cash flows and our financial conditionand liquidity;

 

•

organizations, and implemented by many local governments, to slow and limit the transmissionof COVID-19

(including business closures and restrictions, stay-at-home and similar measures)were implemented and then lifted

restrictions, and the actual and potential for additional resurgences of COVID-19has in some locations and may in

other locations result in the re-imposition or tightening of governmentalsocial distancing and other restrictions,

•

products to customers with payment terms. If customers’ cashflows or operating and financial performance

 

•

contractors (including third-party shippers), banks, joint venture partnersand external business partners, to meet

rebates earned over the prior fiscal year. Our failure to satisfy such contractual provisions or renegotiatemore

favorable terms could materially adversely affect our business, results of operationsand cash flows;

to implement temporary cost reduction measures (including a payrollcost reduction plan centered around

furloughs, reduced pay and work hours, voluntary unpaid time off, suspension of Companycontributions to certain

retirement plans and job reductions), all of which have now ended (exceptfor a small number of TSMs who remain

on furlough), modify our business practices (including employeetravel, employee work locations, and cancellation

of physical participation in meetings, events and conferences), andwe may take further actions as may be required

by government authorities or that we determine are in the best interestsof our employees. As the COVID-19

negative impact on employee morale, strain our business continuity plans,introduce operational risk (including but

 

purchase and distribute our products have occurred and are expected tocontinue at least during the pendency of the

pandemic, including quarantines, governmental or regulatory actions, closuresor other restrictions that limit or

close our operating facilities, restrict our employees’ ability totravel or perform necessary business functions, or

otherwise constrain the operations of our business partners, suppliers, orcustomers, which may materially

 

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•

amendments to our material credit facilities to, among other things,extend the maturity dates and temporarily

provide additional flexibility under certain covenants, an extended negativeimpact of COVID-19 on our business,

results of operations, cash flows, financial condition and liquidity couldimpact our ability to meet our obligations

under credit facilities or outstanding long term debt, which containmaximum leverage ratios, and customary

representations, warranties and affirmative covenants;

 

availability and cost of credit to us;

 

•

employee health care costs under our self-insurance medical insurance programsif a large number of our

The impact of COVID-19 may also exacerbate other risks discussed below, any of which could have a material

adverse effect on us.

 

to supply products in the quantities that we require, and the risks include delayscaused by interruption in

production based on conditions outside of our control, includinga supplier’s failure to comply with applicable

obtain acceptable replacement sources on a timely basis. There is no guaranteethat we would be able to obtain such

alternative sources of supply on a timely basis, if at all, and an extended interruptionin supply, particularly of a

high sales volume product, could result in a significant disruption in our salesand operations, as well as damage to

our relationships with customers and our reputation.

Our future successdepends on our abilityto timely develop (orobtain the rightto sell) competitiveand innovative

quickly andcost-effectively.Our abilityto anticipatecustomer needsand emergingtrends anddevelop oracquire

with the requisite skills, experienceand expertise, particularly in ourtechnology segment, including dental practice

management, patient engagement and demand creation software solutions.The failure to successfully address these

challengescouldmateriallydisruptoursalesandoperations.Additionally,oursoftwareande-servicesproducts,

likesoftwareproducts generally,maycontainundetected errorsorbugswhen introducedorasnewversionsare

affectourrelationshipswithcustomersaswellasourreputation.Whilecertainsoftwareande-servicesthatwe

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develop are protectedunder patent law,we rely primarilyupon copyright, trademarkand trade secretlaws, as well

as contractual andcommon law protections andconfidentiality obligations. Wecannot provide assurance thatsuch

legal protections will beavailable, adequate or enforceable ina timely manner to protectour software or e-services

products.

 

One of our business strategies has been to expand our domestic andinternational markets in part through

acquisitions and joint ventures, and we expect to continue to make acquisitionsand enter into joint ventures in the

 

Furthermore, some of our acquisitions and future acquisitions may giverise to an obligation to make contingent

The provisions of our certificate of incorporation and by-laws maymake it more difficult for a third-party to

 

discretion to accelerate awards upon a change of control.Further, certain agreements between us and our executive

without cause by us or if they terminate for good reason, in each case withintwo years following a change in

announcement of the pendency of the change in control.

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We compete with numerous companies, including several major manufacturers and distributors. Some of our

competitors have greater financial and other resources than we do, whichcould allow them to compete more

with several distributors. Competitors could obtain exclusive rightsto market particular products, which we would

then be unable to market. Manufacturers also could increase theirefforts to sell directly to end-users and thereby

event we fail to satisfy minimum purchase commitments containedin some of our contracts. Additionally,

traditional health care supply and distribution relationships are being challengedby electronic online commerce

 

The U.S. Patient Protection and Affordable Care Act, as amended by the Health Care andEducation Reconciliation

individual mandate to be unconstitutional, and returned the case to a lower federalcourt for consideration of

whether the remainder of the ACA could survive the excision of the individualmandate.This decision was

significant impact on the U.S. healthcare industry and our operations.

 

The health care industry is highly regulated and subject to changingpolitical, economic and regulatory influences.

reimbursements to customers, including increased attention to value-based paymentarrangements, as well as

and the profitability of our customers may be materially adversely affected by lawsand regulations reducing

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.

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structure may place us at a competitive disadvantage.

 

The medical products industry is subject to a multi-tiered costing structure,which can vary by manufacturer and/or

product. Under this structure, certain institutions can obtain morefavorable prices for medical products than we are

able to obtain. The multi-tiered costing structure continues to expandas many large integrated health care providers

and others with significant purchasing power, such as GPOs, demand more favorable pricing terms.Additionally,

do not have a historical relationship and may threaten our ability to competeeffectively, which could in turn

negatively impact our financial results. Although we are seeking to obtain similarterms from manufacturers to

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

 

 

Uncertain global macro-economic and political conditions that affect the economyand the economic outlook of the

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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 conditions and depressedlevels 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 andfinancial performance deteriorate, or if

they are unable to make scheduled payments or obtain credit, they may notbe able to, or may delay, payment to us.

interpretations, future changes, additions, and enforcement approaches(including in light of political changes, such

as with respect to the new administration of President Biden) thataffect our ability to comply.For example,

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 onour business and operations.

 

Global efforts toward healthcare cost containment continue to exert pressure onproduct pricing.In the United

introduced and regulations proposed which, if enacted or finalized,respectively, would impact drug pricing and

related costs.

certain financial relationships we have with covered recipients, such asphysicians, dentists and teaching hospitals.

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, andsome of these state laws, as well as the

federal law, can be ambiguous.We are also subject to foreign regulations requiring transparency of certain

interactions between suppliers and their customers.While we believe we have substantially compliant programs

and controls in place satisfying the above laws and requirements,such compliance imposes additional costs on us

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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-partypayment for, pharmaceuticals and medical

devices, human cells, tissue and cellular and tissue-based products (“HCT/P products”).Among the federal laws

with which we must comply are the Controlled Substances Act,the U.S. Food, Drug, and Cosmetic Act, as

amended (“FDC Act”), the Federal Drug Quality and Security Act, includingDrug Supply Chain Security Act

(“DSCSA”), and Section 361 of the Public Health Services Act. Amongother things, such laws, and the regulations

promulgated thereunder:

December 13, 2016, among other things, amended the medical device definitionto exclude certain software from

FDA regulation, including certain clinical decision support software.Certain of our businesses involve the

subject to regulation as a medical device, which could subject us or oneor more of our businesses to substantial

additional requirements, costs, and potential enforcement actions or liabilitiesfor noncompliance with respect to

these products.

 

Applicable federal, state, local and foreign laws and regulations also may requireus to meet various standards

relating to, among other things, licensure or registration, program eligibility, procurement, third-party

(including with respect to complex Medicare reimbursement requirementsapplicable to our specialty home medical

has heightened enforcement activities due to the opioid crisis in the United States.Our business is also subject to

 

The failure to comply with any of these laws and regulations, or newinterpretations 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 applicablestatutes and regulations, as they now exist

with these laws could have a material adverse effect on our businesses.While we believe that we are substantially

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compliant with applicable laws and regulations, and believe we have adequatecompliance programs and controls in

place to ensure substantial compliance, if it is determined that we havenot complied with these laws, we are

potentially subject to penalties, including warning letters, substantial civil andcriminal penalties, mandatory recall

of product, seizure of product and injunction, consent decrees and suspensionor 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, includingfines and the loss of licenses.

Non-compliance with government requirements could also adversely affect our abilityto participate in important

 

year (to May 2021).The EU MDR significantly modifies and intensifies the regulatorycompliance requirements

for the medical device industry as a whole.Once applicable, the EU MDR will among other things:

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 maycontinue to be placed on the market

manufacturers, importers and distributors as of the application date.

 

The modifications created by the EU MDR may have an impact on theway we design and manufacture products

and the way we conduct our business in the European Economic Area.

Certain of our businesses are subject to federal and state (and similarforeign) health care fraud and abuse, referral

claims laws,” prohibit the submission or causing the submission of false or fraudulentclaims for reimbursement to

soliciting, offering, receiving or paying remuneration in order to induce the referralof a patient or ordering,

purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of, items or servicesthat 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

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financial relationship, for the furnishing of certain designated health services(for example, durable medical

equipment and medical supplies), unless an exception applies.

 

The fraud and abuse laws and regulations have been subject to heightenedenforcement activity over the past few

years, and significant enforcement activity has been the result of “relators” whoserve 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

ability to participate in federal and state health care programs, and couldhave a material adverse effect on our

business.Also, these measures may be interpreted or applied by a prosecutorial,regulatory or judicial authority in

 

With respect to measures of this type, the United States government (among others) has expressed concernsabout

December 17, 2021. This Directive covers whistleblowers reporting breachesof certain EU laws, in particular as

regards public health, the above-mentioned Directive No. 2001/83, RegulationNo. 726/2004 or, as regards data

protection, the GDPR. The Directive protects a wide range of people andincludes former employees.All private

companies with 50 or more employees are required to create effective internal reportingchannels.

securities, antitrust, consumer protection, and marketing laws and regulations.

 

legal persons and deterrent sanctions. However, the liability of legal persons is regulated at a nationallevel.

 

Failure to comply with fraud and abuse laws and regulations, and otherlaws and regulations, could result in

significant civil and criminal penalties and costs, including the loss oflicenses and the ability to participate in

federal and state health care programs, and could have a material adverseeffect on our business.We may

determine to enter into settlements, make payments, agree to consent decreesor enter into other arrangements to

While we believe that we are substantially compliant with applicable fraud andabuse and other laws and

compliance, we cannot predict whether changes in applicable law, or interpretation of laws, or changes in our

material adverse effect on our business.

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standards in electronic health records or transmissions, we couldbe required to make significant changes to our

Our businesses that involve physician and dental practice managementproducts, and our specialty home medical

supply business, include electronic information technology systems thatstore and process personal health, clinical,

financial and other sensitive information of individuals.These information technology systems may be vulnerable

significant resources to eliminate these problems and address related securityconcerns, and could involve claims

against us by private parties and/or governmental agencies.

2023.Laws and regulations relating to privacy and data protection are continuallyevolving and subject to

potentially differing interpretations. These requirements may not be harmonized,may be interpreted and applied in

 

In addition, the European Parliament and the Council of the European Unionhave adopted the GDPR, which

increases privacy rights for individuals in Europe, or “Data Subjects”,including individuals who are our customers,

suppliers and employees.The GDPR extended the scope of responsibilities for data controllersand data processors

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

them, and because the CCPA is relatively new,and its implementing regulations were released in August of2020,

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 andexpand the CCPA, including by providing

 

personal privacy laws, backed by significant civil penalties for non-compliance.While we believe we have

our compliance with these measures is likely to impose additional costson us, and we cannot predict whether the

interpretations of the requirements, or changes in our practices in responseto new requirements or interpretations of

the requirements, could have a material adverse effect on our business.

 

manage patient medical or dental records.These customers and we are subject to laws, regulations andindustry

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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 servicesmay be used as part of these customers’

comprehensive data security programs, including in connection with theirefforts 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 whouse 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 customersand/or governmental agencies and

 

Under the EU GDPR, health data belong to the category of “sensitive data”and benefit from specific protections.

National Coordinator for Health InformationTechnology of HHS (“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

 

Moreover, in order to satisfy our customers, our products may need to incorporate increasingly complexreporting

functionality.Although we believe we are positioned to accomplish this, the effort may involveincreased costs,

and our failure to implement product modifications, or otherwise satisfyapplicable standards, could have a material

 

foreign jurisdictions. From time to time, various legislative initiativesmay be proposed that could materially

adversely affect our tax positions. There can be no assurance that our effective tax rate will notbe materially

adversely affected by legislation resulting from these initiatives. In addition, taxlaws and regulations are extremely

complex and subject to varying interpretations. Although we believe that ourhistorical 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 besuccessful in any such challenge.

course of business, and from time to time we are named as a defendantin cases as a result of our distribution of

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

products that we transport and sell are considered hazardousmaterials. The improper handling of such materials or

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accidents involving the transportation of such materials could subject usto liability or at least legal action that

could harm our reputation.

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 oftime.

of our IS business systems (including third-party systems we rely on) and/orthe loss of business information, as

well as claims against us by affected parties and/or governmental agencies, and involvefines 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 cyberattackthat bypasses the IS security systems of our

customers’ comprehensive data security programs, including in connectionwith their efforts to comply with

applicable privacy and security laws. Perceived or actual security vulnerabilitiesin our products or services, or the

our customers and/or governmental agencies and involve damages, fines andpenalties, costs for remediation, and

substantial defense and settlement expenses. In addition, a cyberattackon 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 implementnew technology products and services.

 

Furthermore, procedures and safeguards must continually evolve to meet newIS challenges, and enhancing

Internet-based services upon which our customers depend to access certain ofour products.

Our global operations are subject to risks that may materially adversely affect our business. Therisks that our

global operations are subject to include, among other things:

 

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