Henry Schein 2014 Annual Report Download

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PRODUCTS, SERVICES AND SOLUTIONS FOR
THE CHANGING NEEDS OF HEALTH CARE
ANNUAL REPORT 2014

Table of contents

  • Page 1
    PRODUCTS, SERVICES AND SOLUTIONS FOR T H E C H A N G I N G N E E D S O F H E A LT H C A R E AN N UAL REPOR T 2014

  • Page 2
    ... *Four-year Compound Annual Growth Rate (1) Net of temporary forward inventory buy-ins of $150MM. NOTE: Operating Income and Earnings Per Diluted Share attributable to Henry Schein, Inc. for 2010, 2012, and 2013, have been adjusted to exclude certain one-time items. Refer to Non-GAAP Disclosures...

  • Page 3
    ...innovative technology solutions, including practice management software and e-commerce solutions, as well as a broad range of financial services. Headquartered in Melville, New York, Henry Schein has operations or affiliates in 29 countries. The Company's sales reached a record $10.4 billion in 2014...

  • Page 4
    HENRY SCHEIN AT A GLANCE $ BILLION DENTAL 10.4 2014 GLOBAL NET SALES Growth Opportunities 51.9% DENTAL 27.9% ANIMAL HEALTH 16.8% MEDICAL 3.4% TECHNOLOGY & VALUE-ADDED SERVICES 2014 net sales of $5.4 billion Only global dental distributor to general practitioners, specialists, and ...

  • Page 5
    HENRY SCHEIN HIGHLIGHTS (As of April 2015) OPERATIONS OR AFFILIATES IN 29 COUNTRIES 3,650 FIELD SALES CONSULTANTS 31.7MILLION DIRECT MARKETING PIECES DISTRIBUTED SERVING MORE THAN 1MILLION CUSTOMERS AVERAGE OF 1,825 TELESALES REPRESENTATIVES 199 EQUIPMENT SALES & SERVICE CENTERS 150,000 ...

  • Page 6
    HENRY SCHEIN 2014

  • Page 7
    ...solutions for our customers. We successfully added more than 30 companies and more than 2,500 Team Schein Members. We reorganized to align our interests among three global vertical business groups and strengthened our market position as the number one global dental distributor, the top global animal...

  • Page 8
    ... new, state-of-the-art facilities with our Medcare South building in the United Kingdom, our Henry Schein Animal Health building in Lexington, Kentucky, and our Henry Schein Practice Solutions headquarters in American Fork, Utah, which features a "Center of Excellence" equipped with advanced digital...

  • Page 9
    ... Henry Schein's best years are yet to come. On behalf of our Board of Directors and my Team Schein colleagues, thank you for your continued support of our Company and thank you for continuing to "Rely on Us." Sincerely, Stanley M. Bergman Chairman of the Board and Chief Executive Officer April 2015...

  • Page 10
    ... accountability by upholding ethical standards in all areas and levels of our business. Henry Schein has been a FORTUNE World's Most Admired Company for 14 years, and in 2014 and 2015 ranked first overall in the Wholesalers: Health Care industry, and first in all nine sub-categories of the list...

  • Page 11
    ...other business schools around the country. The case study focuses on Henry Schein's journey to become a highly successful, values-driven global health care company and explores the Company's culture of care and respect, deep commitment to corporate social responsibility, and unique acquisition model...

  • Page 12
    ... Vice President and General Counsel Senior Vice President and Chief Technology Officer Chairman of the Board and Chief Executive Officer President, Henry Schein, Inc., and Chief Executive Officer, Global Dental Group, Member of the Board of Directors Senior Vice President, Global Human Resources...

  • Page 13
    ...Orthodontics, Senior Vice Provost of Engineering Technology and Provost of Polytechnic Institute at New York University Chairman of the Board and Chief Executive Officer President, Henry Schein, Inc., and Chief Executive Officer, Global Dental Group Former Member of the Board of Management of Akzo...

  • Page 14
    ... and annual reports, contact our Investor Relations department at (631) 843-5611, or e-mail your request to [email protected]. Printed materials can also be requested through the Company's website. FORM 10-K Our Annual Report on Form 10-K for the fiscal year ended December 27, 2014 has...

  • Page 15
    ... 0-27078 HENRY SCHEIN, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 135 Duryea Road Melville, New York (Address of principal executive offices) 11-3136595 (I.R.S. Employer Identification No.) 11747 (Zip Code...

  • Page 16
    ... With Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ... 31 34 36 59 60 101 101 104 Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 17
    ... value-added services. These segments offer different products and services to the same customer base. The health care distribution reportable segment aggregates our global dental, animal health and medical operating segments. This segment distributes consumable products, small equipment, laboratory...

  • Page 18
    ... Services, Centaur Services Limited and Alcyon SA, as well as a large number of dental, animal health and medical product distributors and manufacturers in Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy...

  • Page 19
    ... order items. • Technology and other value-added products and services. We sell practice management software systems to our dental, animal health and medical customers. Our practice management solutions provide practitioners with electronic medical records, patient treatment history, billing...

  • Page 20
    .... We offer our customers solutions in operating their practices more efficiently by providing access to a number of financial services and products (including non-recourse financing for equipment, technology and software products; non-recourse patient financing; collection services and credit card...

  • Page 21
    ...technology reportable segments: 2014 Health care distribution: Dental products (1) ...Animal health products (2) ...Medical products (3) ...Total health care distribution ...Technology: Software and related products and other value-added products (4) ...Total ...(1) 2013 52.3 % 27.2 17.2 96.7 2012...

  • Page 22
    ... services. We continue to increase cross-selling efforts for key product lines utilizing a consultative selling process. In the dental business, we have significant cross-selling opportunities between our dental practice management software users and our dental distribution customers. In the animal...

  • Page 23
    ... us from distributing competitive products manufactured by other vendors; • loss of sales representatives; • costs related to acquisitions and/or integrations of technologies or businesses; • costs associated with our self-insured medical and dental insurance programs; • general market and...

  • Page 24
    ..., packaging, storage, handling, reporting, marketing and distribution of, and record keeping for, pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such activities within the state. Section 361 of the Public Health Service Act, which provides...

  • Page 25
    ... recent times. We are subject to inspection by the DEA. Certain of our businesses are also required to register for permits and/or licenses with, and comply with operating and security standards of, the DEA, the FDA, the United States Department of Health and Human Services, and various state boards...

  • Page 26
    ... business. Health Care Reform The United States Health Care Reform Law also included other provisions to reduce fraud and abuse and Medicare expenditures and the cost of health care generally, to increase federal oversight of private health insurance plans and to increase access to health coverage...

  • Page 27
    ... intended for use in health care settings, and has been developing policies on regulating clinical decision support tools as medical devices. Certain of our businesses involve the development and sale of software and related products to support physician and dental practice management, and it...

  • Page 28
    ... became directly subject to such rules because such businesses serve as "business associates" of HIPAA covered entities, such as health care providers. On January 17, 2013 the Office for Civil Rights of the Department of Health and Human Services released a final rule implementing the HITECH Act and...

  • Page 29
    ...use of ICD-9-CM code sets through September 30, 2015, and there is no suggestion that implementation will be further delayed. Certain of our businesses provide electronic practice management products that must meet those requirements, and while we believe that we are prepared to timely adopt the new...

  • Page 30
    ...Internet website at www.sec.gov, where the above information can be viewed. Our principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone number is (631) 843-5500. Unless the context specifically requires otherwise, the terms the "Company," "Henry Schein...

  • Page 31
    ... was Director of Materials Planning and Control. James P. Breslawski has been our President since 2005 and a director since 1992. Mr. Breslawski is also the Chief Executive Officer of our Henry Schein Global Dental Group. Mr. Breslawski held the position of Executive Vice President and President of...

  • Page 32
    ... businesses. Mr. McKinley currently serves on the Health Industry Distributors Association (HIDA) Education Foundation. Bob Minowitz has been President of Henry Schein' s International Dental Group since 2012. Up until 2012, Mr. Minowitz held various roles throughout the Company, including President...

  • Page 33
    ...Chief Executive Officer, among others. The loss of the services of Mr. Bergman could have a material adverse effect on our business. We have an employment agreement with Mr. Bergman. We do not currently have "key man" life insurance policies on any of our employees. Competition for senior management...

  • Page 34
    ... us from distributing competitive products manufactured by other vendors; • loss of sales representatives; • costs related to acquisitions and/or integrations of technologies or businesses; • costs associated with our self-insured medical and dental insurance programs; • general market and...

  • Page 35
    ... could adversely affect our results of operations and financial condition. Uncertain global macro-economic conditions that affect the economy and the economic outlook of the United States, Europe and other parts of the world could adversely affect our customers and vendors, which could adversely...

  • Page 36
    ... as the Health Care Reform Law, significantly expand health insurance coverage to uninsured Americans and changes the way health care is financed by both governmental and private payers. We expect expansion of access to health insurance to increase the demand for our products and services, but other...

  • Page 37
    ... the Public Health Services Act. Among other things, such laws, and the regulations promulgated thereunder regulate the storage and distribution, labeling, packaging, handling, reporting, record keeping, introduction, manufacturing and marketing of drugs, HCT/P products and medical devices; subject...

  • Page 38
    ... standards relating to, among other things, licensure or registration, sales and marketing practices, product integrity and supply tracking to the manufacturer of the product, personnel, privacy and security of health or other personal information, installation, maintenance and repair of equipment...

  • Page 39
    ...services or marketing practices in response to changes in applicable law or interpretation of laws, could have a material adverse effect on our business. If we fail to comply with laws and regulations relating to the confidentiality of sensitive personal information or standards in electronic health...

  • Page 40
    ...to demonstrate meaningful use was caused by its EHR vendor' s failure to timely obtain 2014 certification for its EHR technology, and extended the deadline for health care professionals to file hardship exemption applications from July 1, 2014 to November 30, 2014. On January 29, 2015, CMS announced...

  • Page 41
    ... credit markets. Our acquisitions may not result in the benefits and revenue growth we expect. We are in the process of integrating companies that we acquired and including the operations, services, products and personnel of each company within our management policies, procedures and strategies. We...

  • Page 42
    Our technology segment depends upon continued software and e-services product development, technical support and successful marketing. Competition among companies supplying practice management software and/or e-services is intense and increasing. Our future sales of practice management software and ...

  • Page 43
    ...abide by electronic health data transmission standards, could also expose us to claims, fines and penalties and costs for remediation. Additionally, legislative or regulatory action related to cyber-security may increase our costs to develop or implement new technology products and services. We also...

  • Page 44
    ... in locations including the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Poland, Portugal, Slovakia, South Africa, Spain, Switzerland...

  • Page 45
    ... a component of the NASDAQ-100 stock market index. The following table sets forth, for the periods indicated, the high and low reported sales prices of our common stock as reported on NASDAQ for each quarterly period in fiscal 2014 and 2013: High Fiscal 2014: 1st Quarter ...$ 2nd Quarter ...3rd...

  • Page 46
    ...The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the closing price of our common stock at that time. Dividend Policy We have not declared any cash or stock dividends on our common stock during fiscal years 2014 or 2013. We...

  • Page 47
    ... Health Care Index and the NASDAQ Stock Market Composite Index. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN $300 $250 $200 $150 $100 $50 December 2009 December 2010 December 2011 December 2012 December 2013 December 2014 Henry Schein, Inc. Dow Jones U.S. Health Care Index NASDAQ Stock...

  • Page 48
    ... (12,360) $ 8,939,967 2,507,513 1,873,360 15,192 618,961 (14,773) Years ended December 27, 2014 December 28, 2013 December 29, 2012 December 31, 2011 December 25, 2010 (in thousands, except per share data) $ $ 7,526,790 2,170,876 1,637,460 12,285 521,131 (19,096) 8,530,242...

  • Page 49
    ... equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. Consists of practice management software and other value-added products, which are distributed...

  • Page 50
    ...distributing health care products. We are headquartered in Melville, New York, employ more than 17,500 people (of which approximately 8,000 are based outside the United States) and have operations or affiliates in 28 countries, including the United States, Australia, Austria, Belgium, Brazil, Canada...

  • Page 51
    ... value-added services. These segments offer different products and services to the same customer base. The health care distribution reportable segment aggregates our global dental, animal health and medical operating segments. This segment distributes consumable products, small equipment, laboratory...

  • Page 52
    ..., that number is projected to nearly triple to approximately 18 million. The population aged 65 to 84 years is projected to increase over 60% during the same time period. As a result of these market dynamics, annual expenditures for health care services continue to increase in the United States. We...

  • Page 53
    ..., state, federal and foreign governmental laws and regulations applicable to the distribution of pharmaceuticals and medical devices. Additionally, government and private insurance programs fund a large portion of the total cost of medical care, and there has been an emphasis on efforts to control...

  • Page 54
    ... or paying remuneration in order to induce the referral of a patient or ordering, purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of, items or services that are paid for by federal, state and other health care payers and programs. The fraud and abuse laws and...

  • Page 55
    ... for use in health care settings, and has developed policies on regulating clinical decision support tools and other types of software as medical devices. Certain of our businesses involve the development and sale of software and related products to support physician and dental practice management...

  • Page 56
    ...use of ICD-9-CM code sets through September 30, 2015, and there is no suggestion that implementation will be further delayed. Certain of our businesses provide electronic practice management products that must meet those requirements, and while we believe that we are prepared to timely adopt the new...

  • Page 57
    ...a separate line item, "Restructuring costs" within our consolidated statements of income. During the year ended December 29, 2012, we incurred restructuring costs of approximately $15.2 million (approximately $10.5 million after taxes) consisting of employee severance pay and benefits related to the...

  • Page 58
    ... equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. Consists of practice management software and other value-added products, which are distributed...

  • Page 59
    ... our health care distribution gross profit margin reflects stable margins in each of the segment' s operating units. Technology and value-added services gross profit increased $26.4 million, or 12.9%, for the year ended December 27, 2014 compared to the prior year period. Technology and value-added...

  • Page 60
    ... our bank credit lines and our private placement facilities. Other, net increased by $2.2 million due primarily to a contractual payment from an animal health supplier in Europe related to a change to a non-exclusive sales model. Income Taxes For the year ended December 27, 2014, our effective tax...

  • Page 61
    ... equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. Consists of practice management software and other value-added products, which are distributed...

  • Page 62
    ... growth in sales within our animal health businesses, which typically include a greater percentage of lower-margin pharmaceutical products than our other operating units. Technology and value-added services gross profit increased $21.1 million, or 11.5%, for the year ended December 28, 2013 compared...

  • Page 63
    ... pay certain trade payables and provide working capital. The investment in this distributor had been fully impaired as of the end of 2012. There was no tax benefit related to the loss on this divestiture. Net Income Net income increased $48.1 million, or 11.4%, for the year ended December 28, 2013...

  • Page 64
    ... operations is dependent on the continued demand of our customers for our products and services, and access to products and services from our suppliers. Our business requires a substantial investment in working capital, which is susceptible to fluctuations during the year as a result of inventory...

  • Page 65
    ...as of December 28, 2013. During the years ended December 27, 2014 and December 28, 2013, we wrote off approximately $8.1 million and $8.3 million, respectively, of fully reserved accounts receivable against our trade receivable reserve. Our inventory turns from operations remained constant at 5.9 as...

  • Page 66
    ... a higher interest rate at HSAH during February 2013 and provided funding for working capital and general corporate purposes. The financing was structured as an asset-backed securitization program with pricing committed for up to three years. On September 22, 2014, we extended the expiration date of...

  • Page 67
    ... to use to reduce its debt, pay certain trade payables and provide working capital. The investment in this distributor had been fully impaired as of the end of 2012. There was no tax benefit related to the loss on this divestiture. Stock repurchases From June 21, 2004 through December 27, 2014, we...

  • Page 68
    ... December 29, 2014 2013 2012 Balance, beginning of period ...$ 497,539 $ 435,175 $ 402,050 Decrease in redeemable noncontrolling interests due to redemptions ...(105,383) (9,028) (23,637) Increase in redeemable noncontrolling interests due to business acquisitions ...120,220 11,542 30,935 Net income...

  • Page 69
    ... revenue from the sale of dental, animal health and medical consumable products, as well as equipment, software products and services and other sources. Provisions for discounts, rebates to customers, customer returns and other contra-revenue adjustments are recorded based upon historical data...

  • Page 70
    ... annually. Such impairment analyses for goodwill require a comparison of the fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments: health care distribution (global dental, animal health and medical) and technology and value-added services...

  • Page 71
    ...). Since February 2014, we have issued restricted stock/units that vest solely based on the recipient' s continued service over time (primarily four-year cliff vesting under our 2013 Stock Incentive Plan and primarily 13-month cliff vesting under our 1996 Non-Employee Director Stock Incentive Plan...

  • Page 72
    ... estimate the fair value of performance-based restricted stock/units based on our closing stock price at time of grant. Adjustments to the performance-based restricted stock/units targets are provided for significant events such as acquisitions, divestitures, new business ventures, share repurchases...

  • Page 73
    ...this as an accounting exposure, not an economic exposure. As of December 27, 2014, we have foreign currency exchange agreements, which expire through July 29, 2015, which include a mark-to-market gain of $1.2 million as determined by quoted market prices. A hypothetical 5% change in the value of the...

  • Page 74
    ... Supplementary Data INDEX TO FINANCIAL STATEMENTS HENRY SCHEIN, INC Consolidated Financial Statements: Page 61 Report of Independent Registered Public Accounting Firm ... Balance Sheets as of December 27, 2014 and December 28, 2013 ...Statements of Income for the years ended...

  • Page 75
    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Henry Schein, Inc. Melville, New York We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 27, 2014 and December 28, 2013 and the related consolidated statements ...

  • Page 76
    ...Property and equipment, net ...Goodwill ...Other intangibles, net ...Investments and other ...Total assets ...$ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ...$ Bank credit lines ...Current maturities of long-term debt ...Accrued expenses: Payroll and related ...Taxes...

  • Page 77
    ... Earnings per share attributable to Henry Schein, Inc.: Basic ...$ Diluted ...$ Weighted-average common shares outstanding: Basic ...Diluted ...5.53 $ 5.44 $ 84,265 85,740 5.02 $ 4.93 $ 85,926 87,622 4.44 4.32 87,499 89,823 Years Ended December 28, 2013 December 29, 2012 8,939,967 6,432,454 2,507...

  • Page 78
    HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) December 27, 2014 Net income ...$ Other comprehensive income (loss), net of tax: ...,216) 418,347 505,436 $ December 28, 2013 471,462 $ December 29, 2012 423,388 Unrealized gain (loss) from foreign currency hedging...

  • Page 79
    ... ...Pension adjustment loss, net of tax benefit of $2,781 ...Dividends paid ...Initial noncontrolling interests and adjustments related to business acquisitions ...Change in fair value of redeemable securities ...Repurchase and retirement of common stock ...(2,528,209) Stock issued upon exercise of...

  • Page 80
    ... of affiliates ...Distributions from equity affiliates ...Changes in unrecognized tax benefits ...Other ...Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ...Inventories ...Other current assets ...Accounts payable and accrued expenses ...Net cash provided...

  • Page 81
    ... We distribute health care products and services primarily to office-based health care practitioners with operations or affiliates in the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy...

  • Page 82
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 1 - Significant Accounting Policies - (Continued) Revenue derived from the sale of equipment is recognized when products are delivered to customers. Such sales typically entail ...

  • Page 83
    ... million for the years ended December 27, 2014, December 28, 2013 and December 29, 2012. Additionally, advertising and promotional costs incurred in connection with direct marketing, including product catalogs and printed material, are deferred and amortized on a straight-line basis over the period...

  • Page 84
    ... item. Acquisitions The net assets of businesses purchased are recorded at their fair value at the acquisition date and our consolidated financial statements include their results of operations from that date. Any excess of acquisition consideration over the fair value of identifiable net assets...

  • Page 85
    ... annually. Such impairment analyses for goodwill require a comparison of the fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments: health care distribution (global dental, animal health and medical) and technology and value-added services...

  • Page 86
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 1 - Significant Accounting Policies - (Continued) For the years ended December 27, 2014, December 28, 2013 and December 29, 2012, the results of our goodwill impairment analysis ...

  • Page 87
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 2 - Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed primarily under the straight-line method over ...

  • Page 88
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 3 - Goodwill and Other Intangibles, Net The changes in the carrying amount of goodwill for the years ended December 27, 2014 and December 28, 2013 were as follows: Technology and ...

  • Page 89
    ..., 2020. See Note 9 - Business Acquisitions, Divestiture and Other Transaction for additional details of the loan receivable from BioHorizons, Inc. Amortization expense related to other long-term assets for the years ended December 27, 2014, December 28, 2013 and December 29, 2012 was $5.0 million...

  • Page 90
    ... interest rate at Henry Schein Animal Health ("HSAH") during February 2013 and provided funding for working capital and general corporate purposes. The financing was structured as an asset-backed securitization program with pricing committed for up to three years. On September 22, 2014, we extended...

  • Page 91
    ... our consolidated balance sheet. Henry Schein Animal Health During February 2013, we repaid the then outstanding debt related to the HSAH (formerly Butler Schein Animal Health) transaction using our existing Credit Agreement. As part of this transaction, we recorded a onetime interest expense charge...

  • Page 92
    ... December 29, 2014 2013 2012 Balance, beginning of period ...$ 497,539 $ 435,175 $ 402,050 Decrease in redeemable noncontrolling interests due to redemptions ...(105,383) (9,028) (23,637) Increase in redeemable noncontrolling interests due to business acquisitions ...120,220 11,542 30,935 Net income...

  • Page 93
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 7 - 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 ...

  • Page 94
    ...in thousands, except per share data) Note 7 - Comprehensive Income - (Continued) The following table summarizes our total comprehensive income, net of applicable taxes as follows: December 27, 2014 Comprehensive income attributable to Henry Schein, Inc...$ Comprehensive income attributable...

  • Page 95
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 8 - Fair Value Measurements - (Continued) Derivative contracts Derivative contracts are valued using quoted market prices and significant other observable and unobservable inputs. ...

  • Page 96
    ... of our Medical Group. The physician office sales team and physician office distribution business of Cardinal Health' s Medical segment, with annual sales of more than $300 million, will be integrated into our Medical Group. Cardinal Health will provide transitional customer order fulfillment and...

  • Page 97
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 9 - Business Acquisitions and Divestiture - (Continued) Divestiture of an Equity Affiliate On July 10, 2013, we divested our investment in a dental wholesale distributor in the ...

  • Page 98
    ... - (Continued) The following table shows, by reportable segment, the amounts expensed and paid for restructuring costs that were incurred during our 2014, 2013 and 2012 fiscal years and the remaining accrued balance of restructuring costs as of December 27, 2014: Technology and Value-Added Services...

  • Page 99
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 12 - Income Taxes Income before taxes and equity in earnings of affiliates was as follows Years ended December 27, 2014 543,433 $ 165,879 709,312 $ December 28, 2013 517,950 $ ...

  • Page 100
    ...data) Note 12 - Income Taxes - (Continued) The tax effects of temporary differences that give rise to our deferred income tax asset (liability) were as follows Years Ended December 27, 2014 December 28, 2013 Current deferred income tax assets: Inventory, premium coupon redemptions and accounts...

  • Page 101
    ...tax provision at federal statutory rate ...$ State income tax provision, net of federal income tax effect ...Foreign income tax benefit ...Valuation allowance ...Interest expense related to loans ...Other ... Total income tax provision ...$ For the year ended December 27, 2014, our effective tax...

  • Page 102
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 12 - Income Taxes - (Continued) The total amount of unrecognized tax benefits as of December 27, 2014 was approximately $80.6 million, of which $60.7 million would affect the ...

  • Page 103
    ... trade receivables, our credit risk is somewhat limited due to a relatively large customer base and its dispersion across different types of health care professionals and geographic areas. No single customer accounted for more than 0.8% of our net sales in 2014. With respect to our sources of supply...

  • Page 104
    ... value-added services. These segments offer different products and services to the same customer base. The health care distribution reportable segment aggregates our global dental, animal health and medical operating segments. This segment distributes consumable products, small equipment, laboratory...

  • Page 105
    ...952 604,188 Operating Income: Health care distribution ...$ Technology and value-added services ... Total ...$ Income before taxes and equity in earnings of affiliates: Health care distribution ...$ Technology and value-added services ... Total ...$ Depreciation and Amortization...

  • Page 106
    ... as a cash inflow from financing activities for the years ended December 27, 2014, December 28, 2013 and December 29, 2012. Stock-based compensation represents the cost related to stock-based awards granted to employees and nonemployee directors. We measure stock-based compensation at the grant date...

  • Page 107
    ... The weighted-average grant date fair value of stock-based awards granted before forfeitures was $119.45, $89.97 and $73.42 per share during the years ended December 27, 2014, December 28, 2013 and December 29, 2012. Total unrecognized compensation cost related to non-vested awards as of December 27...

  • Page 108
    ... per share data) Note 16 - Employee Benefit Plans - (Continued) A summary of the stock option activity under the Plans is presented below: Years Ended December 27, 2014 Weighted Average Exercise Price December 28, 2013 Weighted Average Exercise Price December 29, 2012 Weighted Average Exercise...

  • Page 109
    ...thousands, except per share data) Note 16 - Employee Benefit Plans - (Continued) The total intrinsic value per share of restricted stock/units that vested was $119.36, $98.99 and $75.98 during the years ended December 27, 2014, December 28, 2013 and December 29, 2012. The following table summarizes...

  • Page 110
    ...828 Total minimum operating lease payments ...$ Total rental expense for the years ended December 27, 2014, December 28, 2013 and December 29, 2012 was $76.1 million, $70.8 million and $68.2 million. Capital Leases We lease certain equipment under capital leases. Future minimum annual lease...

  • Page 111
    ... one year. Purchase Commitments In our health care distribution business, we sometimes enter into long-term purchase commitments to ensure the availability of products for distribution. Future minimum annual payments for inventory purchase commitments as of December 27, 2014 were Litigation 2015...

  • Page 112
    ...34 1.56 Quarters ended March 30, June 29, September 28, December 28, 2013 (1) 2013 2013 (2) (3) 2013 Net sales ...$ Gross profit ...Operating income ...Net income ...Amounts attributable to Henry Schein, Inc.: Net income ...Earnings per share attributable to Henry Schein, Inc.: 2,293...

  • Page 113
    ... us from distributing competitive products manufactured by other vendors; • loss of sales representatives; • costs related to acquisitions and/or integrations of technologies or businesses; • costs associated with our self-insured medical and dental insurance programs; • general market and...

  • Page 114
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share data) Note 19 - Supplemental Cash Flow Information Cash paid for interest and income taxes was: Years ended December 27, December 28, December 29, 2014 2013 2012 Interest ...$ 22,285 $ 19,893...

  • Page 115
    ... reporting. During the quarter ended December 27, 2014, we completed the acquisition of a medical business in North America with approximate aggregate annual revenues of $324.0 million. In addition, post-acquisition integration related activities continued for our global dental and animal health...

  • Page 116
    ... financial reporting as of December 27, 2014 has been independently audited by BDO USA, LLP, an independent registered public accounting firm, and their attestation is included herein. Limitations of the Effectiveness of Internal Control A control system, no matter how well conceived and operated...

  • Page 117
    ... Registered Public Accounting Firm Board of Directors and Stockholders Henry Schein, Inc. Melville, New York We have audited Henry Schein, Inc.' s internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued...

  • Page 118
    ... 2015 Proxy Statement. We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Vice President of Corporate Finance and Controller. We make available free of charge through our Internet website, www.henryschein.com, under the "About Henry Schein...

  • Page 119
    ... and Related Transactions" and "Corporate Governance - Board of Directors Meetings and Committees - Independent Directors" in our definitive 2015 Proxy Statement to be filed pursuant to Regulation 14A. ITEM 14. Principal Accountant Fees and Services The information required by this item is...

  • Page 120
    ... Statements filed as a part of this report are listed on the index on page 60. 2. Financial Statement Schedules: Schedule II No other schedules are required. 3. Exhibits: The exhibits required by Item 601 of Regulation S-K and filed herewith are listed in the Exhibit List immediately preceding the...

  • Page 121
    ...principal executive officer) Date Officer and Director (principal financial and accounting officer) Director Director Director Director Director Director Director Director Director Director Director Director Director Executive Vice President, Chief Financial /s/ JAMES P. BRESLAWSKI James...

  • Page 122
    ... INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Henry Schein, Inc. Melville, New York The audits referred to in our report dated February 11, 2015 relating to the consolidated financial statements of Henry Schein, Inc., which is contained in Item 8 of this Form 10...

  • Page 123
    ... (3) Year ended December 27, 2014: Allowance for doubtful accounts, sales returns and other ...$ Year ended December 28, 2013: Allowance for doubtful accounts, sales returns and other ...$ Year ended December 29, 2012: Allowance for doubtful accounts, sales returns and...

  • Page 124
    ... Facility, dated as of February 14, 2012, by and among us, New York Life Investment Management LLC and each New York Life affiliate which becomes party thereto. (Incorporated by reference to Exhibit 4.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on February...

  • Page 125
    ... January 1, 2005. (Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2008 filed on February 24, 2009.)** Amendment Number Two to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of May 28, 2009. (Incorporated by reference...

  • Page 126
    ...for time-based restricted stock awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May 14, 2013). (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014...

  • Page 127
    ... 2005. (Incorporated by reference to Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year ended December 27, 2008 filed on February 24, 2009.)** Amendment Number Three to the Henry Schein, Inc. 1996 Non-Employee Director Stock Incentive Plan, effective as of May 10, 2010. (Incorporated...

  • Page 128
    ...2014.)** Amendment Number Three to the Henry Schein, Inc. Deferred Compensation Plan, effective as of January 1, 2014. (Incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal year ended December 28, 2013 filed on February 11, 2014.)** Henry Schein Management Team...

  • Page 129
    ... us, Burns Veterinary Supply, Inc. and Butler Animal Health Holding Company, LLC. (Incorporated by reference to Exhibit 10.45 to our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 filed on February 22, 2011.) Receivables Purchase Agreement, dated as of April 17, 2013, by and...

  • Page 130
    ... our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.) Form of Indemnification Agreement between us and certain directors and executive officers who are a party thereto (Barry J. Alperin, Gerald A. Benjamin, Stanley M. Bergman, James P. Breslawski, Paul...

  • Page 131
    ....linkedin.com/company/henry-schein You Tube: http://www.youtube.com/user/henryscheininc Google+: http://plus.google.com/+henryschein Instagram: http://instagram.com/henryschein Pinterest: https://www.pinterest.com/henryschein Henry Schein, Inc. 135 Duryea Road Melville, New York 11747 U.S.A. (631...