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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2023-02-21 compared with 2022-02-15 · 105 added, 38 removed, 9 unchanged (94% of the section changed)

2 unchanged sentences

dollar and each other, and changes to the credit markets.

We attempt to minimize these risks by primarily using foreign currency forward contracts and by maintaining counter-party credit limits.

These hedging activities provide only limited protection against currency exchange and credit risks.

Factors that could influence the effectiveness of our hedging programs include currency markets and availability of hedging instruments and liquidity of the credit markets.

All foreign currency forward contracts that we enter into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure.

We do not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our investments, maintaining a strong balance sheet and having multiple sources of capital.

We attempt to minimize these risks by primarily using

foreign currency forward contracts and by maintaining counter-party credit limits.

These hedging activities provide

only limited protection against currency exchange and credit risks.

Factors that could influence the effectiveness of

our hedging programs include currency markets and availability of hedging

instruments and liquidity of the credit

All foreign currency forward contracts that we enter into are components

of hedging programs and are

entered into for the sole purpose of hedging an existing or anticipated

currency exposure.

We do not enter into such

contracts for speculative purposes and we manage our credit risks by diversifying

our investments, maintaining a

strong balance sheet and having multiple sources of capital.

Foreign Currency Agreements

The value of certain foreign currencies as compared to the U.S.

dollar and the value of certain underlying functional currencies of the Company, including its foreign subsidiaries, may affect our financial results.

Fluctuations in exchange rates may positively or negatively affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed in U.S.

Where we deem it prudent, we engage in hedging programs using primarily foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings.

We purchase short-term (i.e., generally 18 months or less) foreign currency forward contracts to protect against currency exchange risks associated with intercompany loans due from our international subsidiaries and the payment of merchandise purchases to foreign suppliers.

We do not hedge the translation of foreign currency profits into U.S.

dollars, as we regard this as an accounting exposure, not an economic exposure.

and the value of certain underlying functional

currencies of the Company, including its foreign subsidiaries, may affect our financial results.

Fluctuations in

exchange rates may positively or negatively affect our revenues, gross margins, operating expenses

earnings, all of which are

expressed in U.S.

Where we deem it prudent, we engage in hedging programs

using primarily foreign currency forward contracts aimed at limiting

the impact of foreign currency exchange rate

fluctuations on earnings.

We purchase short-term (i.e., generally 18 months or less) foreign currency forward

contracts to protect against currency exchange risks associated with intercompany

loans due from our international

subsidiaries and the payment of merchandise purchases to foreign

We do not hedge the translation of

foreign currency profits into U.S.

dollars, as we regard this as an accounting

exposure, not an economic

A hypothetical 5% change in the average value of the U.S.

dollar in 2021 compared to foreign currencies would have changed our 2021 reported Net income attributable to Henry Schein, Inc.

in 2022 compared to foreign currencies

would have changed our 2022 reported Net income attributable to Henry

by approximately $7 million.

As of December 25, 2021, we had forward foreign currency exchange agreements, which expire through November 16, 2023, which include a mark-to-market gain of $6.3 million as determined by quoted market prices.

Included in the forward foreign currency exchange agreements, Henry Schein, Inc.

had EUR/USD forward contracts notionally totaling an amount of approximately €200 million, with a reported fair value of these contracts as a net gain of $6.5 million.

A 5% increase in the value of the Euro to the USD from December 25, 2021, with all other variables held constant, would have had an unfavorable effect on the fair value of these forward contracts by decreasing the value of these instruments by $10.7 million.

Total Return Swaps

On March 20, 2020, we entered into a total return swap for the purpose of economically hedging our unfunded non-qualified supplemental retirement plan (“SERP”) and our deferred compensation plan (“DCP”).

This swap will offset changes in our SERP and DCP liabilities.

At the inception, the notional value of the investments in these plans was $43.4 million.

At December 25, 2021, the notional value of the investments in these plans was $88.7 million.

At December 25, 2021, the financing blended rate for this swap was based on LIBOR of 0.09% plus 0.46%, for a combined rate of 0.55%.

For the years ended December 25, 2021 ended and December 26, 2020, we have recorded a gain, within the selling, general and administrative line item in our consolidated statement of income, of approximately $12.1 million and $21.2 million, respectively, net of transaction costs, related to this undesignated swap.

This swap is expected to be renewed on an annual basis after its current expiration date of March 29, 2022, and is expected to result in a neutral impact to our results of operations.

As of December 31, 2022, we had forward foreign currency exchange

agreements, which expire through November

16, 2023, with a fair value of $23 million as determined by quoted market

Included in the forward foreign

currency exchange agreements, Henry Schein, Inc.

had net investment

designated EUR/USD forward contracts

with notional values of approximately €200 million, with a reported fair value

of these contracts of $20 million.

5% increase in the value of the Euro to the USD from December 31, 2022,

with all other variables held constant,

would have had an unfavorable effect on the fair value of these forward contracts

by decreasing the value of these

instruments by $10 million.

On March 20, 2020, we entered into a total return swap for the purpose

of economically hedging our unfunded non-

qualified supplemental retirement plan (“SERP”) and our deferred compensation

plan (“DCP”).

This swap will

offset changes in our SERP and DCP liabilities.

At the inception, the notional value of the investments in these

plans was $43 million.

At December 31, 2022, the notional value of the investments

in these plans was $78

At December 31, 2022, the financing blended rate for

this swap was based on LIBOR of 4.03% plus

0.55%, for a combined rate of 4.58%.

For the years ended December 31, 2022 ended and December

have recorded a gain/(loss), within the selling, general and administrative

line item in our consolidated statement of

income, of approximately $(17) million and $12 million, respectively, net of transaction costs, related to this

undesignated swap.

This swap is expected to be renewed on an annual basis after its current

expiration date of

March 31, 2023, and is expected to result in a neutral impact to our results

of operations.

Short-Term Investments

We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments, by monitoring the credit worthiness of the financial institutions who are the counterparties to such financial instruments.

As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing numerous investment grade counterparties.

Variable Interest Rate Debt

As of December 25, 2021, we had variable interest rate exposure for certain of our revolving credit facilities and our U.S.

We limit our credit risk with respect to our cash equivalents, short-term investments and derivative instruments, by

monitoring the credit worthiness of the financial institutions who are

the counterparties to such financial

As a risk management policy, we limit the amount of credit exposure by diversifying and utilizing

numerous investment grade counterparties.

Interest Rate Debt

As of December 31, 2022, we had variable interest rate exposure for certain

of our revolving credit facilities and

trade accounts receivable securitization.

Our revolving credit facility which we entered into on August 20, 2021 and expires on August 20, 2026, has an interest rate that is based on the U.S.

Dollar LIBOR plus a spread based on our leverage ratio at the end of each financial reporting quarter.

As of December 25, 2021, there was $0.0 million outstanding under this revolving credit facility.

During the year ended December 25, 2021, the average outstanding balance under this revolving credit facility was approximately $1.5 million.

Based upon our average outstanding balance for this revolving credit facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would have increased by less than $0.1 million.

Our U.S trade accounts receivable securitization, which we entered into on April 17, 2013 and expires on October 18, 2024, has an interest rate that is based upon the asset-backed commercial paper rate.

As of December 25, 2021, the commercial paper rate was 0.19% plus 0.75%, for a combined rate of 0.94%.

At December 25, 2021 the outstanding balance was $105.0 million under this securitization facility.

During the year ended December 25, 2021, the average outstanding balance under this securitization facility was approximately $44.0 million.

Based upon our average outstanding balance for this securitization facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would have increased by $0.1 million.

Our revolving credit facility which we entered into on August 20, 2021

and expires on August 20, 2026, has an

interest rate that is based on the U.S.

Dollar LIBOR plus a spread based on

our leverage ratio at the end of each

financial reporting quarter.

As of December 31, 2022, there was $0 million outstanding under this

revolving credit

During the year ended December 31, 2022, we had no borrowings under

this revolving credit facility.

Our U.S trade accounts receivable securitization, which we entered

into on April 17, 2013 and expires on

December 15, 2025, has an interest rate that is based upon the asset-backed

commercial paper rate.

December 31, 2022, the commercial paper rate was 4.58% plus 0.75%,

for a combined rate of 5.33%.

December 31, 2022 the outstanding balance was $330 million under

this securitization facility.

During the year

ended December 31, 2022, the average outstanding balance under this securitization

facility was approximately

$166 million.

Based upon our average outstanding balance for this securitization

facility, for each hypothetical

increase of 25 basis points, our interest expense thereunder would have

increased by $0.4 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk