Henry Schein - 10-Q quarterly report FY2022 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

(Mark One)

☒

QUARTERLY

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

OF 1934

For the

quarterly

period ended

June 25, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT

OF 1934

For the transition period from ____________ to ____________

Commission File Number:

0-27078

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

Delaware

11-3136595

(State or other jurisdiction of

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

incorporation or organization)

135 Duryea Road

Melville

New York

(Address of principal executive offices)

11747

(Zip Code)

(

631

)

843-5500

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

HSIC

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required

to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such

shorter period that the registrant was required to file such

reports), and (2) has been subject to such filing requirements for the

past 90 days.

Yes

☒

☐

Indicate by

check mark

whether the registrant

has submitted

electronically every Interactive

Data File

required to

be submitted

pursuant

Rule

405

Regulation

S-T

during

the

preceding

months

(or

for

such

shorter

period

that

the

registrant

was

required to submit such files).

Yes

☒

☐

Indicate by

check mark

whether the

registrant is

a large

accelerated filer,

an accelerated

filer,

a non-accelerated

filer,

a smaller

reporting

company,

emerging

growth

company.

See

the

definitions

“large

accelerated

filer,”

“accelerated

filer,”

“smaller reporting company,” and “emerging growth company”

in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period

for

complying with any new or revised financial accounting standards provided

pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined

in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

As of July 25, 2022,

there were

136,114,744

shares of the registrant’s common stock outstanding.

HENRY SCHEIN, INC.

INDEX

PART I. FINANCIAL INFORMATION

Page

ITEM 1.

Condensed Consolidated Financial Statements:

Condensed Balance Sheets as of June 25, 2022 and December 25, 2021

Condensed Statements of Income for the three and six months ended

June 25, 2022 and June 26, 2021

Condensed Statements of Comprehensive Income for the three and six months ended

June 25, 2022 and June 26, 2021

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

June 25, 2022 and June 26, 2021

Condensed Statement of Changes in Stockholders' Equity for the six months ended

June 25, 2022 and June 26, 2021

Condensed Statements of Cash Flows for the six months ended

June 25, 2022 and June 26, 2021

Notes to Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

and Recently Issued Accounting Standards

Note 3 – Revenue from Contracts with Customers

Note 4 – Segment Data

Note 5 – Business Acquisitions

Note 6 – Fair Value Measurements

Note 7 – Debt

Note 8 – Income Taxes

Note 9 – Legal Proceedings

Note 10 – Stock-Based Compensation

Note 11 – Redeemable Noncontrolling Interests

Note 12 – Comprehensive Income

Note 13 – Plans of Restructuring

Note 14 – Earnings Per Share

Note 15 – Supplemental Cash Flow Information

Note 16 – Related Party Transactions

ITEM 2.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

ITEM 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sales of Equity Securities and Use of Proceeds

See accompanying notes.

PART

I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions,

except share data)

June 25,

December 25,

2022

2021

(unaudited)

ASSETS

Current assets:

Cash and cash equivalents

108

118

Accounts receivable, net of reserves of $

and $

1,409

1,452

Inventories, net

1,823

1,861

Prepaid expenses and other

449

413

Total current assets

3,789

3,844

Property and equipment, net

356

366

Operating lease right-of-use assets

327

325

Goodwill

2,833

2,854

Other intangibles, net

603

668

Investments and other

416

424

Total assets

8,324

8,481

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

901

1,054

Bank credit lines

Current maturities of long-term debt

Operating lease liabilities

Accrued expenses:

Payroll and related

328

385

Taxes

124

137

Other

560

593

Total current liabilities

2,076

2,307

Long-term debt

769

811

Deferred income taxes

Operating lease liabilities

276

268

Other liabilities

357

377

Total liabilities

3,511

3,805

Redeemable noncontrolling interests

586

613

Commitments and contingencies

(nil)

Stockholders' equity:

Preferred stock, $

0.01

par value,

1,000,000

shares authorized,

none

outstanding

Common stock, $

0.01

par value,

480,000,000

shares authorized,

136,439,560

outstanding on June 25, 2022 and

137,145,558

outstanding on December 25, 2021

Additional paid-in capital

Retained earnings

3,834

3,595

Accumulated other comprehensive loss

(241)

(171)

Total Henry Schein, Inc. stockholders' equity

3,594

3,425

Noncontrolling interests

633

638

Total stockholders' equity

4,227

4,063

Total liabilities, redeemable noncontrolling

interests and stockholders' equity

8,324

8,481

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF INCOME

(unaudited, in millions, except share and per share data)

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net sales

3,030

2,967

6,209

5,892

Cost of sales

2,085

2,076

4,291

4,110

Gross profit

945

891

1,918

1,782

Operating expenses:

Selling, general and administrative

680

635

1,362

1,249

Depreciation and amortization

Restructuring costs

Operating income

220

210

464

440

Other income (expense):

Interest income

Interest expense

(9)

(7)

(16)

(13)

Other, net

Income before taxes, equity in earnings of affiliates

and noncontrolling interests

214

205

453

431

Income taxes

(52)

(47)

(109)

(104)

Equity in earnings of affiliates

Net income

167

164

353

339

Less: Net income attributable to noncontrolling interests

(7)

(8)

(12)

(17)

Net income attributable to Henry Schein, Inc.

160

156

341

322

Earnings per share attributable to Henry Schein, Inc.:

Basic

1.17

1.11

2.49

2.28

Diluted

1.16

1.10

2.46

2.26

Weighted-average common

shares outstanding:

Basic

137,350,488

140,358,428

137,323,076

141,316,258

Diluted

138,869,064

141,656,883

139,055,205

142,537,906

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF COMPREHENSIVE INCOME

(unaudited, in millions)

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net income

167

164

353

339

Other comprehensive income (loss), net of tax:

Foreign currency translation gain (loss)

(90)

(87)

Unrealized gain (loss) from foreign currency hedging

activities

(2)

Pension adjustment gain

Other comprehensive income (loss), net of tax

(82)

(78)

Comprehensive income

200

275

341

Comprehensive income attributable to noncontrolling

interests:

Net income

(7)

(8)

(12)

(17)

Foreign currency translation (gain) loss

(7)

(1)

Comprehensive (income) loss attributable to noncontrolling

interests

(15)

(4)

(18)

Comprehensive income attributable to Henry Schein, Inc.

185

271

323

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN

STOCKHOLDERS’ EQUITY

(unaudited, in millions, except share and per share data)

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, March 26, 2022

137,708,809

3,759

(168)

632

4,224

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

160

162

Foreign currency translation loss (excluding loss of $

attributable to Redeemable noncontrolling interests)

(81)

(1)

(82)

Unrealized gain from foreign currency hedging activities,

net of tax of $

Change in fair value of redeemable securities

Repurchase and retirement of common stock

(1,345,397)

(16)

(94)

(110)

Stock-based compensation expense

78,738

Stock issued upon exercise of stock options

3,594

Shares withheld for payroll taxes

(6,016)

(1)

Settlement of stock-based compensation awards

(168)

Transfer of charges in excess of

capital

(9)

Balance, June 25, 2022

136,439,560

3,834

(241)

633

4,227

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, March 27, 2021

141,310,113

3,493

(136)

639

3,997

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

156

157

Foreign currency translation gain (excluding gain of $

attributable to Redeemable noncontrolling interests)

Unrealized loss from foreign currency hedging activities,

net of tax of $

(2)

Change in fair value of redeemable securities

(87)

Initial noncontrolling interests and adjustments related to

business acquisitions

Repurchase and retirement of common stock

(1,542,315)

(15)

(97)

(112)

Stock-based compensation expense

Stock issued upon exercise of stock options

17,916

Shares withheld for payroll taxes

(4,873)

Settlement of stock-based compensation awards

(1)

Transfer of charges in excess of

capital

(86)

Balance, June 26, 2021

139,780,841

3,466

(107)

646

4,006

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENT

OF CHANGES IN

STOCKHOLDERS' EQUITY

(unaudited, in millions, except share and per share data)

Accumulated

Common Stock

Additional

Other

Total

$.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 25, 2021

137,145,558

3,595

(171)

638

4,063

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

341

344

Foreign currency translation loss (excluding loss of $

attributable to Redeemable noncontrolling interests)

(79)

(1)

(80)

Unrealized gain from foreign currency hedging activities,

net of tax of $

Purchase of noncontrolling interests

(7)

Change in fair value of redeemable securities

Repurchase and retirement of common stock

(1,345,397)

(16)

(94)

(110)

Stock-based compensation expense

954,899

Stock issued upon exercise of stock options

29,827

Shares withheld for payroll taxes

(342,347)

(29)

Settlement of stock-based compensation awards

(2,980)

Transfer of charges in excess of

capital

(8)

Balance, June 25, 2022

136,439,560

3,834

(241)

633

4,227

Accumulated

Common Stock

Additional

Other

Total

$0.01 Par Value

Paid-in

Retained

Comprehensive

Noncontrolling

Stockholders'

Amount

Capital

Earnings

Income / (Loss)

Interests

Equity

Balance, December 26, 2020

142,462,571

3,455

(108)

636

3,984

Net income (excluding $

attributable to Redeemable

noncontrolling interests)

322

325

Foreign currency translation loss (excluding gain of $

attributable to Redeemable noncontrolling interests)

(1)

Unrealized gain from foreign currency hedging activities,

net of tax of $

Pension adjustment gain, net of tax of $

Change in fair value of redeemable securities

(133)

Initial noncontrolling interests and adjustments related to

business acquisitions

Repurchase and retirement of common stock

(2,867,557)

(27)

(174)

(201)

Stock-based compensation expense

299,561

Shares withheld for payroll taxes

(113,734)

(7)

Transfer of charges in excess of

capital

137

(137)

Balance, June 26, 2021

139,780,841

3,466

(107)

646

4,006

Table of Contents

See accompanying notes.

HENRY SCHEIN, INC.

CONDENSED CONSOLIDATED STATEMENTS

OF CASH FLOWS

(unaudited, in millions)

Six Months Ended

June 25,

June 26,

2022

2021

Cash flows from operating activities:

Net income

353

339

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

108

Stock-based compensation expense

Benefit from losses on trade and other accounts receivable

(4)

Provision for (benefit from) deferred income taxes

(15)

Equity in earnings of affiliates

(9)

(12)

Distributions from equity affiliates

Changes in unrecognized tax benefits

(1)

(6)

Other

(13)

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

102

Inventories

(124)

Other current assets

(37)

(86)

Accounts payable and accrued expenses

(198)

(136)

Net cash provided by operating activities

250

222

Cash flows from investing activities:

Purchases of fixed assets

(43)

(32)

Payments related to equity investments and business

acquisitions, net of cash acquired

(7)

(296)

Proceeds from (payments for) loan to affiliate

(2)

Other

(15)

(11)

Net cash used in investing activities

(59)

(341)

Cash flows from financing activities:

Net change in bank borrowings

(5)

Proceeds from issuance of long-term debt

200

Principal payments for long-term debt

(57)

(120)

Proceeds from issuance of stock upon exercise of stock options

Payments for repurchases and retirement of common stock

(110)

(201)

Payments for taxes related to shares withheld for employee taxes

(29)

(8)

Distributions to noncontrolling shareholders

(12)

(4)

Acquisitions of noncontrolling interests in subsidiaries

(19)

(1)

Net cash used in financing activities

(195)

(139)

Effect of exchange rate changes on cash and cash equivalents

(6)

Net change in cash and cash equivalents

(10)

(254)

Cash and cash equivalents, beginning of period

118

421

Cash and cash equivalents, end of period

108

167

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

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

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.

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 25, 2021 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 six months ended June 25, 2022 are not necessarily indicative

of the results to be expected for

any other interim period or for the year ending December 31, 2022.

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.

June 25, 2022 and December 25, 2021, certain trade accounts receivable

that can only be used to settle obligations

of this VIE were $

million and $

138

million, respectively, and the liabilities of this VIE where the creditors have

recourse to us were $

million and $

105

million, respectively.

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.

Due to the significant uncertainty surrounding the future impact of

COVID-19, our judgments

regarding estimates and impairments could change in the future.

There is an ongoing risk that the COVID-19

pandemic may again have a material adverse effect on our business, results of operations

and cash flows and may

result in a material adverse effect on our financial condition and liquidity.

However, the extent of the potential

impact cannot be reasonably estimated at this time

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 2 – Critical Accounting Policies, Accounting Pronouncements Adopted

and Recently Issued Accounting

Standards

Critical Accounting Policies

There have been no material changes in our critical accounting policies

during the six months ended June 25, 2022,

as compared to the critical accounting policies described in Item 7 of our Annual

Report on Form 10-K for the year

ended December 25, 2021.

Accounting Pronouncements Adopted

December 26, 2021

we adopted Accounting Standards Update (“ASU”) No. 2021 – 08, “Accounting

for

Contract Assets and Contract Liabilities from Contracts with Customers”

(Subtopic 805), as early adoption of this

ASU was permitted.

ASU 2021 – 08 requires an acquirer to recognize and measure

contract assets and contract

liabilities acquired in a business combination in accordance with Topic 606.

At the acquisition date, an acquirer

should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts.

To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the

acquired revenue contracts.

Generally, this should result in an acquirer recognizing and measuring the acquired

contract assets and contract liabilities consistent with how

they were recognized and measured in the acquiree’s

financial statements.

Our

adoption

of ASU 2021 - 08 did not have a material impact on our consolidated

financial

statements.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate

Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides

optional expedients and exceptions for applying U.S. GAAP to contracts,

hedging relationships and other

transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or

by another

reference rate expected to be discontinued because of reference rate reform.

The guidance was effective beginning

March 12, 2020 and can be applied prospectively through December 31,

2022.

In January 2021, the FASB issued

ASU 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”).

ASU 2021-01 provides temporary

optional expedients and exceptions to certain guidance in U.S. GAAP to ease

the financial reporting burdens related

to the expected market transition from LIBOR and other interbank offered rates

to alternative reference rates, such

as the Secured Overnight Financing Rate.

The guidance is effective upon issuance, on January 7, 2021, and can be

applied through December 31, 2022.

We do not expect that the requirements of this guidance will have a material

impact on our consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value

Hedging –

Portfolio Layer Method,” which will expand companies' abilities

to hedge the benchmark interest rate risk of

portfolios of financial assets (or beneficial interests) in a fair value hedge.

This ASU expands the use of the

portfolio layer method (previously referred to as the last-of-layer

method) to allow multiple hedges of a single

closed portfolio of assets using spot starting, forward starting and amortizing-notional

swaps.

It also permits both

prepayable and non-prepayable financial assets to be included in the closed

portfolio of assets hedged in a portfolio

layer hedge.

This ASU further requires that basis adjustments not be allocated

to individual assets for active

portfolio layer method hedges, but rather be maintained on the closed portfolio

of assets as a whole.

ASU 2022 –

01 is effective for fiscal years beginning after December 15, 2022, including interim periods

within those fiscal

years.

Early adoption is permitted for any entity that has adopted the amendments

in ASU 2017-12.

We do not

expect that the requirements of this guidance will have a material impact

on our consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled

Debt Restructuring and Vintage Disclosures”.

The amendments in this ASU eliminate the accounting guidance

for

troubled debt restructurings by creditors that have adopted the Current Expected

Credit Losses model and enhance

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

the disclosure requirements for loan refinancings and restructurings

made with borrowers experiencing financial

difficulty.

In addition, the amendments require a public business entity

to disclose current-period gross write-offs

for financing receivables and net investment in leases by year of origination

in the vintage disclosures.

ASU 2022

– 02 is effective for fiscal years beginning after December 15, 2022, including

interim periods within those fiscal

years.

Early adoption is permitted for any entity that has adopted the amendments

in ASU No. 2016-13, “Financial

Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.

We do not

expect that the requirements of this guidance will have a material impact

on our consolidated financial statements.

Note 3 – Revenue from Contracts with Customers

Revenue is recognized in accordance with policies disclosed in Item 8 of our

Annual Report on Form 10-K for

the year ended December 25, 2021.

Disaggregation of Net Sales

The following table disaggregates our Net sales by reportable segment and geographic

area:

Three Months Ended

Six Months Ended

June 25, 2022

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution

Dental

1,124

729

1,853

2,229

1,452

3,681

Medical

977

996

2,127

2,168

Total health care distribution

2,101

748

2,849

4,356

1,493

5,849

Technology

and value-added services

158

181

314

360

Total revenues

2,259

771

3,030

4,670

1,539

6,209

Three Months Ended

Six Months Ended

June 26, 2021

North

America

International

Global

North

America

International

Global

Net Sales:

Health care distribution

Dental

1,129

783

1,912

2,174

1,527

3,701

Medical

875

902

1,838

1,893

Total health care distribution

2,004

810

2,814

4,012

1,582

5,594

Technology

and value-added services

131

153

255

298

Total revenues

2,135

832

2,967

4,267

1,625

5,892

At December 25, 2021, the current portion of contract liabilities of $

million was reported in Accrued expenses:

Other, and $

million related to non-current contract liabilities was reported

in Other liabilities.

During the six

months ended June 25, 2022, we recognized in net sales $

million of the amounts that were previously deferred at

December 25, 2021.

At June 25, 2022, the current and non-current portion of contract

liabilities were $

million

and $

million, respectively.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 4

–

Segment Data

We conduct our business through

two

reportable segments: (i) health care distribution and (ii) technology

and

value-added services. These segments offer different products and services to the same customer

base. Our global

dental businesses serve office-based dental practitioners, dental laboratories, schools and

other institutions. Our

global medical businesses serve office-based medical practitioners, ambulatory

surgery centers, other alternate-care

settings and other institutions. Our global dental and medical groups serve

practitioners in

countries worldwide.

The health care distribution reportable segment aggregates our global

dental and medical operating segments. This

segment distributes consumable products, dental specialty products,

small equipment, laboratory products, large

equipment, equipment repair services, branded and generic pharmaceuticals,

vaccines, surgical products, diagnostic

tests, infection-control 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

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net Sales:

Health care distribution

Dental

1,853

1,912

3,681

3,701

Medical

996

902

2,168

1,893

Total health care distribution

2,849

2,814

5,849

5,594

Technology

and value-added services

181

153

360

298

Total

3,030

2,967

6,209

5,892

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Operating Income:

Health care distribution

189

182

400

379

Technology

and value-added services

Total

220

210

464

440

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 5

–

Business Acquisitions

2022 Acquisitions

During the six months ended June 25, 2022, we made several acquisitions

within the technology and value-added

services segments.

The impact of these acquisitions

was not considered material to our condensed consolidated

financial statements.

2021 Acquisitions

We completed several acquisitions during the six months ended June 26, 2021 which were immaterial to our

financial statements.

Our acquired ownership interest ranged between approximately

% to

100

Acquisitions

within our health care distribution segment included

companies that specialize in distribution of dental products, a

provider of home medical supplies, and product kitting and sterile packaging.

Within our technology and value-

added services segment, we acquired companies that focus on dental

marketing and website solutions, practice

transition services, and business analytics and intelligence software.

The following table aggregates the estimated fair value, as of the

date of acquisition, of consideration paid and net

assets acquired for acquisitions during the six months ended June 26, 2021.

While we use our best estimates and

assumptions to accurately value those 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, during 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.

Acquisition consideration:

Cash

303

Deferred consideration

Redeemable noncontrolling interests

129

Total consideration

440

Identifiable assets acquired and liabilities assumed:

Current assets

107

Intangible assets

184

Other noncurrent assets

Current liabilities

(44)

Deferred income taxes

(17)

Other noncurrent liabilities

(37)

Total identifiable

net assets

227

Goodwill

213

Total net assets acquired

440

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

The following table summarizes the identifiable intangible assets acquired

during the six months ended June 26,

2021 and their estimated useful lives as of the date of the acquisition:

Estimated

Useful Lives

(in years)

Customer relationships and lists

124

Trademark / Tradename

Non-compete agreements

Product development

Total

184

The major classes of assets and liabilities that we generally allocate purchase

price 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, property, plant and equipment,

deferred taxes and other current and long-term assets and liabilities.

The estimated fair value of identifiable

intangible assets is based on critical estimates, judgments and assumptions

derived from analysis of market

conditions, discount rates, discounted cash flows, customer retention rates

and estimated useful lives.

Some prior owners of acquired subsidiaries are eligible to receive additional

purchase price cash consideration if

certain financial targets are met.

We have accrued liabilities for the estimated fair value of additional purchase

price consideration at the time of the acquisition.

Any adjustments to these accrual amounts are recorded in our

condensed consolidated statements of income.

For the six months ended June 25, 2022 and June 26, 2021, there

were no material adjustments recorded in our condensed consolidated statements

of income relating to changes in

estimated contingent purchase price liabilities.

During the six months ended June 25, 2022 and June 26, 2021 we

incurred $

million and $

million, respectively,

in acquisition costs.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

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;

however, we believe the carrying amounts are a reasonable estimate of fair value based on the interest rates

in the

applicable markets.

Debt

The fair value of our debt (including bank credit lines) is classified as

Level 3 within the fair value hierarchy, and

as of June 25, 2022 and December 25, 2021 was estimated at $

858

million and $

873

million, respectively.

Factors

that we considered when estimating the fair value of our debt included

market conditions, such as interest rates and

credit spreads.

Derivative contracts

Derivative contracts are valued using quoted market prices and significant

other observable inputs.

We use

derivative instruments to minimize our exposure to fluctuations in foreign

currency exchange rates.

Our derivative

instruments primarily include foreign currency forward agreements related

to certain intercompany loans, certain

forecasted inventory purchase commitments with foreign suppliers,

foreign currency forward contracts to hedge a

portion of our euro-denominated foreign operations which are designated

as net investment hedges and a total

return swap for the purpose of economically hedging our unfunded non-qualified

supplemental executive retirement

plan and our deferred compensation plan.

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.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Redeemable noncontrolling interests

The values for Redeemable noncontrolling interests are classified within

Level 3 of the fair value hierarchy and are

based on recent transactions and/or implied multiples of earnings.

See

Note 11–Redeemable Noncontrolling

Interests

for additional information.

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

June 25, 2022 and December 25, 2021:

June 25, 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

586

December 25, 2021

Level 1

Level 2

Level 3

Total

Assets:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total return

swaps

Total assets

Liabilities:

Derivative contracts designated as hedges

Derivative contracts undesignated

Total liabilities

Redeemable noncontrolling interests

613

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 7 – Debt

Bank Credit Lines

Bank credit lines consisted of the following:

June 25,

December 25,

2022

2021

Revolving credit agreement

Other short-term bank credit lines

Total

Revolving Credit Agreement

August 20, 2021

, we entered into a new $

billion revolving credit agreement (the “Credit Agreement”).

This

facility which matures on

August 20, 2026

replaced our $

750

million revolving credit facility which was scheduled

to mature in April 2022.

The interest rate is based on the USD LIBOR plus a spread based on our

leverage ratio at

the end of each financial reporting quarter.

Most LIBOR rates have been discontinued after December 31,

2021,

while the remaining LIBOR rates will be discontinued immediately

after June 30, 2023.

We do not expect the

discontinuation of LIBOR as a reference rate in our debt agreements

to have a material adverse effect on our

financial position or to materially affect our interest expense.

The Credit Agreement also requires, among other

things, that we maintain certain maximum leverage ratios.

Additionally, the Credit Agreement contains customary

representations, warranties and affirmative covenants as well as customary negative

covenants, subject to

negotiated exceptions, on liens, indebtedness, significant corporate changes

(including mergers), dispositions and

certain restrictive agreements.

As of June 25, 2022 and December 25, 2021, we had

borrowings under this

revolving credit facility.

As of June 25, 2022 and December 25, 2021, there were

million and $

million of

letters of credit, respectively, provided to third parties under the credit facility.

Other Short-Term Bank Credit

Lines

As of June 25, 2022 and December 25, 2021, we had various other short-term

bank credit lines available, of which

million and $

million, respectively, were outstanding.

At June 25, 2022 and December 25, 2021, borrowings

under all of these credit lines had a weighted average interest rate

9.90

% and

10.44

%, respectively.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Long-term debt

Long-term debt consisted of the following:

June 25,

December 25,

2022

2021

Private placement facilities

699

706

U.S. trade accounts receivable securitization

105

Various

collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates

ranging from

0.00

% to

3.50

% at June 25, 2022 and

ranging from

2.62

% to

4.27

% at December 25, 2021

Finance lease obligations

Total

773

822

Less current maturities

(4)

(11)

Total long-term debt

769

811

Private Placement Facilities

Our private placement facilities were amended on

October 20, 2021

to include

four

(previously

three

) insurance

companies, have a total facility amount of $

1.5

billion (previously $

1.0

billion), and are available on an

uncommitted basis at fixed rate economic terms to be agreed upon at

the time of issuance, from time to time

through

October 20, 2026

(previously

June 23, 2023

The facilities allow us to issue senior promissory notes to

the lenders at a fixed rate based on an agreed upon spread over applicable

treasury notes at the time of

issuance.

The term of each possible issuance will be selected by us and

can range from

five

15 years

(with an

average life no longer than

12 years

The proceeds of any issuances under the facilities will be used for

general

corporate purposes, including working capital and capital expenditures,

to refinance existing indebtedness, and/or

to fund potential acquisitions.

The agreements provide, among other things, that we maintain

certain maximum

leverage ratios, and contain restrictions relating to subsidiary indebtedness,

liens, affiliate transactions, disposal of

assets and certain changes in ownership.

These facilities contain make-whole provisions in the event that we

pay

off the facilities prior to the applicable due dates.

The components of our private placement facility borrowings as

of June 25, 2022 are presented in the following

table:

Amount of

Borrowing

Date of Borrowing

Outstanding

Rate

Due Date

January 20, 2012

3.45

January 20, 2024

December 24, 2012

3.00

December 24, 2024

June 16, 2017

100

3.42

June 16, 2027

September 15, 2017

100

3.52

September 15, 2029

January 2, 2018

100

3.32

January 2, 2028

September 2, 2020

100

2.35

September 2, 2030

June 2, 2021

100

2.48

June 2, 2031

June 2, 2021

100

2.58

June 2, 2033

Less: Deferred debt issuance costs

(1)

Total

699

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

U.S. Trade Accounts Receivable Securitization

We have a facility agreement based on the securitization of our U.S. trade accounts receivable that is structured as

an asset-backed securitization program with pricing committed for up

three years

Our current facility, which

had a purchase limit of $

350

million, was scheduled to expire on

April 29, 2022

On October 20, 2021, we

amended our U.S. trade accounts receivable securitization facility to

increase the purchase limit to $

450

million

with

two

banks as agents and extend the expiration date to

October 18, 2024

As of June 25, 2022 and December

25, 2021, the borrowings outstanding under this securitization facility were

million and $

105

million,

respectively.

At June 25, 2022, the interest rate on borrowings under this facility

was based on the asset-backed

commercial paper rate of

1.43

% plus

0.75

%, for a combined rate of

2.18

At December 25, 2021, the interest rate

on borrowings under this facility was based on the asset-backed commercial

paper rate of

0.19

% plus

0.75

%, for a

combined rate of

0.94

If our accounts receivable collection pattern changes due to customers

either paying late or not making payments,

our ability to borrow under this facility may be reduced.

We are required to pay a commitment fee of

basis points depending upon program utilization.

Note 8 – Income Taxes

For the six months ended June 25, 2022 our effective tax rate was

23.9

% compared to

24.3

% for the prior year

period.

The difference between our effective tax rate and the federal statutory tax rate for the six

months ended

June 25, 2022 primarily relates to state and foreign income taxes and

interest expense as well as share-based

compensation.

The difference between our effective tax rate and the federal statutory tax rate for the six months

ended June 26, 2021 primarily relates to state and foreign income taxes,

interest expense and tax charges and

credits associated with legal entity reorganizations.

The total amount of unrecognized tax benefits, which are included in “Other

liabilities” within our condensed

consolidated balance sheets, as of June 25, 2022 and December 25, 2021

was $

million and $

million,

respectively of which $

million and $

million, respectively, would affect the effective tax rate if recognized.

is possible that the amount of unrecognized tax benefits will change

in the next 12 months, which may result in a

material impact on our condensed consolidated statements of income.

All tax returns audited by the IRS are officially closed through 2016.

The tax years subject to examination by the

IRS include years 2017 and forward.

During the quarter ended December 25, 2021, we were notified

by the IRS

that tax year 2019 was selected for examination.

During the quarter ended September 26, 2020 we reached an agreement

with the Advanced Pricing Division on an

appropriate transfer pricing methodology for the years 2014-2025.

The objective of this resolution was to mitigate

future transfer pricing audit adjustments.

The total amounts of interest and penalties are classified as a component

of the provision for income taxes.

The

amount of tax interest expense/(credit) was $

million for the six months ended June 25, 2022, and $

(3)

million for

the six months ended June 26, 2021.

The total amount of accrued interest is included in “Other

liabilities,” and was

million as of June 25, 2022 and $

million as of December 25, 2021.

penalties were accrued for the

periods presented.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 9 – Legal Proceedings

Henry Schein, Inc. has been named as a defendant in multiple lawsuits

(currently less than one-hundred and fifty

(

150

); in less than half of those cases one or more of Henry Schein,

Inc.’s subsidiaries is also named as a

defendant).

Generally, the lawsuits allege that the manufacturers of prescription opioid drugs engaged in a false

advertising campaign to expand the market for such drugs and their own

market share and that the entities in the

supply chain (including Henry Schein, Inc and its affiliated companies) reaped financial

rewards by refusing or

otherwise failing to monitor appropriately and restrict the improper distribution

of those drugs.

These actions

consist of some that have been consolidated within the MultiDistrict Litigation

(“MDL”) proceeding In Re National

Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804)

and are currently stayed, and others which

remain pending in state courts and are proceeding independently and outside

of the MDL.

At this time, the

following cases are set for trial: the action filed by Mobile County Board

of Health, et al., in Alabama state court,

which is currently set for a jury trial on January 9, 2023; the action filed

by DCH Health Care Authority, et al. in

Alabama state court, which is currently scheduled for a jury trial on July 24, 2023;

and the action filed by Florida

Health Sciences Center, Inc. (and

other hospitals located throughout the State of Florida) in

Florida state court,

which is currently scheduled for a jury trial in October 2024.

In June 2022, we settled

twenty-six

cases filed by

hospitals in West Virginia,

and settled with

one

additional hospital, for a total amount of

three-hundred thousand

dollars.

The

twenty-six

cases have been dismissed.

Of Henry Schein’s 2021 sales of approximately $

12.4

billion,

sales of opioids represented less than

two-tenths

of 1 percent.

Opioids represent a negligible part of our business.

We intend to defend ourselves vigorously against these actions.

From time to time, we may become a party to other legal proceedings,

including, without limitation, product

liability claims, employment matters, commercial disputes, governmental

inquiries and investigations (which may

in some cases involve our entering into settlement arrangements or consent

decrees), and other matters arising out

of the ordinary course of our business.

While the results of any legal proceeding cannot be predicted with certainty,

in our opinion none of these other pending matters are currently

anticipated to have a material adverse effect on our

consolidated financial position, liquidity or results of operations.

As of June 25, 2022, we had accrued our best estimate of potential

losses relating to claims that were probable to

result in liability and for which we were able to reasonably estimate a

loss.

This accrued amount, as well as related

expenses, was not material to our financial position, results of operations

or cash flows.

Our method for

determining estimated losses considers currently available

facts, presently enacted laws and regulations and other

factors, including probable recoveries from third parties.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 10 – Stock-Based Compensation

Stock-based awards are provided to certain employees under the terms of

our 2020 Stock Incentive Plan and to

non-employee directors under the terms of our 2015 Non-Employee Director

Stock Incentive Plan (together, the

“Plans”).

The Plans are administered by the Compensation Committee of the Board

of Directors (the

“Compensation Committee”).

Historically, equity-based awards to our employees have been granted solely in the

form of time-based and performance-based restricted stock units (“RSUs”).

However, for our 2021 fiscal year, in

light of the COVID-19 pandemic, the Compensation Committee determined

it would be difficult for management

to set a meaningful three-year cumulative earnings per share target as the goal applicable

to performance-based

restricted stock unit awards as it had done in prior years.

Instead, the Compensation Committee set our equity-

based awards to employees for fiscal 2021 in the form of time-based RSUs

and non-qualified stock options which

focus on stock value appreciation and retention instead of pre-established

performance goals.

Our non-employee

directors continued to receive equity-based awards for fiscal 2021

solely in the form of time-based RSUs.

In March

2022, the Compensation Committee reinstated performance-based

RSUs for equity-based awards to employees for

fiscal 2022 and awarded grants in the form of time-based RSUs, performance-based

RSUs and non-qualified stock

options.

RSUs are stock-based awards granted to recipients with specified vesting provisions.

In the case of RSUs, common

stock is generally delivered on or following satisfaction of vesting conditions.

We issue RSUs to employees that

vest (i) solely based on the recipient’s continued service over time, primarily with

four

-year cliff vesting and/or (ii)

based on achieving specified performance measurements and the recipient’s continued service over time, primarily

with

three

-year cliff vesting.

RSUs granted under the 2015 Non-Employee Director Stock Incentive

Plan primarily

are granted with

-month cliff vesting.

For these RSUs, we recognize the cost as compensation expense on

straight-line basis.

With respect to time-based RSUs, we estimate the fair value on the date of grant based on our closing

stock price at

the time of grant.

With respect to performance-based RSUs, the number of shares that ultimately vest

and are

received by the recipient is based upon our performance as measured against

specified targets over a specified

period, as determined by the Compensation Committee.

Although there is no guarantee that performance targets

will be achieved, we estimate the fair value of performance-based RSUs

based on our closing stock price at time of

grant.

Each of the Plans provide for certain adjustments to the performance

measurement in connection with awards under

the Plans.

With respect to the performance-based RSUs granted under our 2020 Stock Incentive Plan, such

performance measurement adjustments relate to significant events, including,

without limitation, acquisitions,

divestitures, new business ventures, certain capital transactions (including share

repurchases), differences in

budgeted average outstanding shares (other than those resulting from capital

transactions referred to above),

restructuring costs, if any, certain litigation settlements or payments, if any, changes in accounting principles or in

applicable laws or regulations, changes in income tax rates in certain markets,

foreign exchange fluctuations, the

financial impact, either positive or negative, of the differences in projected earnings

generated by sales of COVID-

19 test kits (solely with respect to performance-based RSUs

granted in the 2022 plan year) and unforeseen events or

circumstances affecting us.

Over the performance period, the number of shares of common stock that will

ultimately vest and be issued and the

related compensation expense is adjusted upward or downward based upon

our estimation of achieving such

performance targets.

The ultimate number of shares delivered to recipients and the

related compensation cost

recognized as an expense will be based on our actual performance metrics

as defined under the Plans.

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Stock options are awards that allow the recipient to purchase shares of our

common stock at a fixed price following

vesting of the stock options.

Stock options are granted at an exercise price equal to our closing stock

price on the

date of grant.

Stock options issued beginning in 2021 vest

one-third

per year based on the recipient’s continued

service, subject to the terms and conditions of the 2020 Stock Incentive Plan,

are fully vested

three years

from the

grant date and have a contractual term of

ten years

from the grant date, subject to earlier termination of the term

upon certain events.

Compensation expense for these stock options is recognized

using a graded vesting method.

We estimate the fair value of stock options using the Black-Scholes valuation model.

In addition to equity-based awards granted in fiscal 2021 under the our long-term

incentive program, the

Compensation Committee granted a Special Pandemic Recognition Award under the 2020 Stock Incentive Plan to

recipients of performance-based RSUs under the 2018 long-term

incentive program.

The payout under the

performance-based restricted stock units granted under the fiscal 2018 long-term

incentive program (the “2018

LTIP”) was negatively impacted by the global COVID-19 pandemic.

Given the significance of the impact of the

pandemic on our

three-year

EPS goal under such equity awards and the contributions made by our

employees

(including those who received such awards), on March 3, 2021, the Compensation

Committee granted a Special

Pandemic Recognition Award to recipients of performance-based restricted stock units under the 2018 LTIP who

were employed by us on the grant date of the Special Pandemic

Recognition Award.

These time-based RSU

awards vest

% on the first anniversary of the grant date and

% on the second anniversary of the grant date,

based on the recipient’s continued service and subject to the terms and conditions of the 2020 Stock Incentive

Plan,

and are recorded as compensation expense using a graded vesting

method.

The combination of the

% payout

based on actual performance of the 2018 LTIP and the one-time Special Pandemic Recognition Award granted in

2021 will generate a cumulative payout of

% of each recipient’s original number of performance-based restricted

stock units awarded in 2018 if the recipient satisfies the

two-year

vesting schedule commencing on the grant date.

Our accompanying condensed consolidated statements of income reflect

pre-tax share-based compensation expense

of $

million ($

million after-tax) and $

million ($

million after-tax) for the three and six months ended

June 25, 2022, respectively.

For the three and six months ended June 26, 2021, we recorded pre-tax share-based

compensation expense of $

million ($

million after-tax) and $

million ($

million after-tax), respectively.

Total unrecognized compensation cost related to unvested awards as of June 25, 2022 was $

116

million, which is

expected to be recognized over a weighted-average period of approximately

2.4

years.

Our accompanying condensed consolidated statements of cash flows present

our stock-based compensation expense

as an adjustment to reconcile net income to net cash provided by operating

activities for all periods presented.

the accompanying condensed consolidated statements of cash flows, there were

benefits associated with tax

deductions in excess of recognized compensation as a cash inflow from

financing activities for the six months

ended June 25, 2022 and June 26, 2021, respectively.

The following weighted-average assumptions were used in determining

the most recent fair values of stock options

granted using the Black-Scholes valuation model:

2022

Expected dividend yield

0.0

Expected stock price volatility

27.40

Risk-free interest rate

3.25

Expected life of options (years)

6.00

We have not declared cash dividends on our stock in the past and we do not anticipate declaring cash dividends in

the foreseeable future.

The expected stock price volatility is based on implied volatilities

from traded options on

our stock, historical volatility of our stock, and other factors.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant in conjunction with considering the expected life of options.

The

six-year expected life of the options was determined using the simplified

method for estimating the expected term

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

as permitted under SAB Topic 14.

Estimates of fair value are not intended to predict actual future events or

the

value ultimately realized by recipients of stock options, and subsequent

events are not indicative of the

reasonableness of the original estimates of fair value made by us.

The following table summarizes stock option activity under the Plans

during the six months ended June 25, 2022:

Stock Options

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Exercise

Life in

Intrinsic

Price

Years

Value

Outstanding at beginning of period

767,717

63.24

Granted

406,443

86.16

Exercised

(29,892)

62.71

Forfeited

(9,656)

71.72

Outstanding at end of period

1,134,612

71.39

9.1

Options exercisable at end of period

219,642

62.92

Weighted

Average

Remaining

Aggregate

Number of

Exercise

Contractual

Intrinsic

Options

Price

Life (in years)

Value

Vested

or expected to vest

894,356

73.68

9.2

The following tables summarize the activity of our unvested RSUs for the six

months ended June 25, 2022:

Time-Based Restricted Stock Units

Weighted Average

Grant Date Fair

Intrinsic Value

Shares/Units

Value Per Share

Per Share

Outstanding at beginning of period

1,945,862

58.79

Granted

455,169

86.13

Vested

(501,944)

54.76

Forfeited

(28,807)

65.88

Outstanding at end of period

1,870,280

66.47

77.29

Performance-Based Restricted Stock Units

Weighted Average

Grant Date Fair

Intrinsic Value

Shares/Units

Value Per Share

Per Share

Outstanding at beginning of period

674,753

59.63

Granted

390,975

75.70

Vested

(392,001)

59.24

Forfeited

(7,724)

66.18

Outstanding at end of period

666,003

62.39

77.29

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 11 – Redeemable Noncontrolling Interests

Some minority stockholders in certain of our subsidiaries have the right,

at certain times, to require us to acquire

their ownership interest in those entities at fair value.

Accounting Standards Codification Topic 480-10 is

applicable for noncontrolling interests where we are or may be required

to purchase all or a portion of the

outstanding interest in a consolidated subsidiary from the noncontrolling

interest holder under the terms of a put

option contained in contractual agreements.

The components of the change in the redeemable noncontrolling

interests for the six months ended June 25, 2022 and the year ended December

25, 2021 are presented in the

following table:

June 25,

December 25,

2022

2021

Balance, beginning of period

613

328

Decrease in redeemable noncontrolling interests due to acquisitions of

noncontrolling interests in subsidiaries

(11)

(60)

Increase in redeemable noncontrolling interests due to business

acquisitions

189

Net income attributable to redeemable noncontrolling interests

Dividends declared

(11)

(21)

Effect of foreign currency translation loss attributable to

redeemable noncontrolling interests

(7)

(6)

Change in fair value of redeemable securities

(7)

160

Balance, end of period

586

613

Note 12 – Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S.

GAAP,

are excluded from net income as

such amounts are recorded directly as an adjustment to stockholders’

equity.

The following table summarizes our Accumulated other comprehensive loss, net of

applicable taxes as of:

June 25,

December 25,

2022

2021

Attributable to Redeemable noncontrolling interests:

Foreign currency translation adjustment

(38)

(31)

Attributable to noncontrolling interests:

Foreign currency translation adjustment

(1)

Attributable to Henry Schein, Inc.:

Foreign currency translation adjustment

(234)

(155)

Unrealized gain (loss) from foreign currency hedging activities

(2)

Pension adjustment loss

(14)

Accumulated other comprehensive loss

(241)

(171)

Total Accumulated

other comprehensive loss

(280)

(202)

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

The following table summarizes the components of comprehensive income, net

of applicable taxes as follows:

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Net income

167

164

353

339

Foreign currency translation gain (loss)

(90)

(87)

Tax effect

Foreign currency translation gain (loss)

(90)

(87)

Unrealized gain (loss) from foreign currency hedging

activities

(2)

Tax effect

(2)

(3)

(1)

Unrealized gain (loss) from foreign currency hedging

activities

(2)

Pension adjustment gain

Tax effect

Pension adjustment gain

Comprehensive income

200

275

341

The change in the unrealized gain (loss) from foreign currency hedging activities

during the three and six months

ended June 25, 2022 and June 26, 2021 was primarily attributable

to a net investment hedge that was entered into

during 2019.

Our financial statements are denominated in the U.S. Dollar currency.

Fluctuations in the value of foreign

currencies as compared to the U.S. Dollar may have a significant impact

on our comprehensive income.

The

foreign currency translation gain (loss) during the six months ended

June 25, 2022 and six months ended June 26,

2021 was primarily impacted by changes in foreign currency exchange rates

of the Euro, British Pound, Brazilian

Real, Australian Dollar and Canadian Dollar.

The following table summarizes our total comprehensive income, net of

applicable taxes, as follows:

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Comprehensive income attributable to

Henry Schein, Inc.

185

271

323

Comprehensive income attributable to

noncontrolling interests

Comprehensive income (loss) attributable to

Redeemable noncontrolling interests

(3)

Comprehensive income

200

275

341

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 13 – Plans of Restructuring

On November 20, 2019, we committed to a contemplated restructuring

initiative intended to mitigate stranded costs

associated with the spin-off of our animal health business and to rationalize operations

and to provide expense

efficiencies.

These restructuring activities were completed in 2021.

During the three and six months ended June 26, 2021, we recorded restructuring

costs of $

million and $

million,

respectively.

As of June 25, 2022 and December 25, 2021, the remaining

accrued balance for restructuring costs

was $

million and $

million, respectively.

On August 1, 2022, we committed to a restructuring plan focused on funding

the priorities of the strategic plan and

streamlining operations and other initiatives to increase efficiency.

We expect to record restructuring charges in

2022 and 2023, however an estimate of the amount of these charges has not yet been

determined.

Any restructuring

charges are expected primarily to include severance pay and facility-related costs.

Note 14

–

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable

to Henry Schein, Inc. by the weighted-

average number of common shares outstanding for the period.

Our diluted earnings per share is computed similarly

to basic earnings per share, except that it reflects the effect of common shares issuable

for presently unvested

restricted stock and RSUs and upon exercise of stock options using

the treasury stock method in periods in which

they have a dilutive effect.

A reconciliation of shares used in calculating earnings per basic and

diluted share follows:

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Basic

137,350,488

140,358,428

137,323,076

141,316,258

Effect of dilutive securities:

Stock options, restricted stock and restricted stock units

1,518,576

1,298,455

1,732,129

1,221,648

Diluted

138,869,064

141,656,883

139,055,205

142,537,906

The number of antidilutive securities that were excluded from the calculation

of diluted weighted average common

shares outstanding are as follows:

Three Months Ended

Six Months Ended

June 25,

June 26,

June 25,

June 26,

2022

2021

2022

2021

Stock options

423,786

786,691

250,226

501,648

Restricted stock units

51,453

2,621

226,203

1,653

Total anti-dilutive

securities excluded from EPS

computation

475,239

789,312

476,429

503,301

Table of Contents

HENRY SCHEIN, INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(in millions, except share and per share data)

(unaudited

)

Note 15 – Supplemental Cash Flow Information

Cash paid for interest and income taxes was:

Six Months Ended

June 25,

June 26,

2022

2021

Interest

Income taxes

165

134

During the six months ended June 25, 2022 and June 26, 2021, we had a

million and $

million of non-cash net

unrealized gains related to foreign currency hedging activities, respectively.

Note 16 – Related Party Transactions

In connection with the formation of Henry Schein One, LLC, our joint venture

with Internet Brands, which was

formed on July 1, 2018, we entered into a

ten-year

royalty agreement with Internet Brands whereby we will pay

Internet Brands approximately $

million annually for the use of their intellectual property.

During the three and

six months ended June 25, 2022, we recorded $

million and $

million, respectively in connection with costs

related to this royalty agreement.

During the three and six months ended June 26, 2021, we recorded

million

and $

million, respectively, in connection with costs related to this royalty agreement.

As of June 25, 2022 and

December 25, 2021,

Henry Schein One, LLC had a net (payable) receivable balance due

(to) from Internet Brands

of $

(6)

million and $

million, respectively, comprised of amounts related to results of operations and the royalty

agreement.

During our normal course of business, we have interests in entities that we account for under the equity accounting

method.

During the three and six months ended June 25, 2022, we recorded

net sales of $

million and $

million, respectively, to such entities.

During the three and six months ended June 26, 2021, we recorded net

sales

of $

million and $

million, respectively, to such entities.

During the three and six months ended June 25, 2022,

we purchased $

million and $

million, respectively, from such entities.

During the three and six months ended

June 26, 2021, we purchased $

million and $

million, respectively, from such entities.

At June 25, 2022 and

December 25, 2021, in the aggregate we had $

million and $

million, due from our equity affiliates, and $

million and $

million due to our equity affiliates, respectively.

Certain of our facilities related to our acquisitions are leased from employees

and minority shareholders.

These

leases are classified as operating leases and have a remaining lease term

ranging from

6 months

10 years

As of

June 25, 2022, current and non-current liabilities associated with related

party operating leases were $

million and

million, respectively.

Related party leases represented

5.4

% and

6.1

% of the total current and non-current

operating lease liabilities.

Table of Contents

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

In accordance with the “Safe Harbor” provisions of the Private Securities

Litigation Reform Act of 1995, we

provide the following cautionary remarks regarding important factors

that, among others, could cause future results

to differ materially from the forward-looking statements, expectations and assumptions

expressed or implied

herein.

All forward-looking statements made by us are subject to risks

and uncertainties and are not guarantees of

future performance.

These forward-looking statements involve known and unknown

risks, uncertainties and other

factors that may cause our actual results, performance and achievements

or industry results to be materially

different from any future results, performance or achievements expressed or implied by such

forward-looking

statements.

These statements are generally identified by the use of such

terms as “may,” “could,” “expect,”

“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate,”

“to be,” “to make” or other comparable

terms.

Factors that could cause or contribute to such differences include, but are not limited

to, those discussed in

the documents we file with the Securities and Exchange Commission (SEC),

including our Annual Report on Form

10-K. Forward looking statements include the overall impact of the Novel

Coronavirus Disease 2019 (COVID-19)

on us, our results of operations, liquidity and financial condition (including

any estimates of the impact on these

items), the rate and consistency with which dental and other practices

resume or maintain normal operations in the

United States and internationally, expectations regarding personal protective equipment (“PPE”) and COVID-19

related product sales and inventory levels, whether additional resurgences or variants

of the virus will adversely

impact the resumption of normal operations, whether vaccine mandates will

adversely impact us (by disrupting our

workforce and/or business), whether supply chain disruptions will adversely

impact our business, the impact of

restructuring programs as well as of any future acquisitions, and more generally

current expectations regarding

performance in current and future periods.

Forward looking statements also include the (i) our ability to have

continued access to a variety of COVID-19 test types, expectations regarding

COVID-19 test sales, demand and

inventory levels, as well as the efficacy or relative efficacy of the test results given that the test

efficacy has not

been, or will not have been, independently verified under normal FDA procedures

and (ii) potential for us to

distribute the COVID-19 vaccines and ancillary supplies.

Risk factors and uncertainties that could cause actual results to differ materially from current

and historical results

include, but are not limited to: risks associated with COVID-19

and any variants thereof, as well as other disease

outbreaks, epidemics, pandemics, or similar wide-spread public health concerns

and other natural disasters; our

dependence on third parties for the manufacture and supply of our products;

our ability to develop or acquire and

maintain and protect new products (particularly technology products) and

technologies that achieve market

acceptance with acceptable margins; transitional challenges associated with acquisitions,

dispositions and joint

ventures, including the failure to achieve anticipated synergies/benefits; financial

and tax risks associated with

acquisitions, dispositions and joint ventures; certain provisions in our governing

documents that may discourage

third-party acquisitions of us; effects of a highly competitive (including, without

limitation, competition from third-

party online commerce sites) and consolidating market; the repeal or judicial

prohibition on implementation of the

Affordable Care Act; changes in the health care industry; risks from expansion of

customer purchasing power and

multi-tiered costing structures; increases in shipping costs for our products

or other service issues with our third-

party shippers; general global and domestic macro-economic and political

conditions, including inflation, deflation,

fluctuations in the value of the U.S. dollar as compared to foreign currencies,

and changes to other economic

indicators, international trade agreements, potential trade barriers and

terrorism; failure to comply with existing and

future regulatory requirements; risks associated with the EU Medical

Device Regulation; failure to comply with

laws and regulations relating to health care fraud or other laws and regulations;

failure to comply with laws and

regulations relating to the collection, storage and processing of sensitive

personal information or standards in

electronic health records or transmissions; changes in tax legislation;

risks related to product liability, intellectual

property and other claims; litigation risks; new or unanticipated litigation

developments and the status of litigation

matters; risks associated with customs policies or legislative import restrictions;

cyberattacks or other privacy or

data security breaches; risks associated with our global operations;

our dependence on our senior management,

employee hiring and retention, and our relationships with customers,

suppliers and manufacturers; and disruptions

in financial markets.

The order in which these factors appear should not be construed

to indicate their relative

importance or priority.

Table of Contents

We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control

or predict.

Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction

of actual results.

We undertake no duty and have no obligation to update forward-looking statements except as

required by law.

Where You

Can Find Important Information

We may disclose important information through one or more of the following channels: SEC filings, public

conference calls and webcasts, press releases, the investor relations

page of our website (www.henryschein.com)

and the social media channels identified on the Newsroom page of our website.

Recent Developments

COVID-19 Pandemic

The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created

significant volatility and disruption of global financial markets in

2020 and 2021.

The impact of COVID-19 had a

material adverse effect on our business, results of operations and cash flows in 2020.

During the year ended

December 25, 2021, patient traffic levels returned to levels approaching pre-pandemic levels.

Demand for dental

products and certain medical products throughout 2021 was driven

by sales of PPE, COVID-19 test kits and other

COVID-19 related products.

During the three months ended March 26, 2022, with the exception of

COVID-19 test

kits, we experienced a decrease in the sales volume of PPE and COVID-19

Henry Schein - 10-Q quarterly report FY2022 Q2

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