Item 1A. Risk Factors
” for a discussion of additional burdens, risks and regulatory developments
that may
affect our results of operations and financial condition.
Proprietary Rights
We hold trademarks relating to the “Henry Schein
” name and logo, as well as certain other trademarks.
Additionally, certain of our manufacturing businesses hold patents on certain of our products.
We believe that we
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have taken necessary steps to protect our proprietary rights, but no assurance
can be given that we will be able to
successfully enforce or protect our rights in the event that they are infringed
upon by a third party.
Employees and Human Capital
At Henry Schein, we have long recognized that as a purpose-driven company, our commitment to creating shared
value drives positive societal and environmental impact while supporting long-term
business success.
Building
trusted relationships with the key stakeholders who make up our Mosaic of
Success - Team Schein Members
(TSMs), customers, suppliers, stockholders, and society, helps drive our Company’s sustained growth, amplifies
our collective strengths, and brings to life our vision of making the world healthier, together.
Overseen by the
Nominating and Governance Committee of our Board of Directors (“Board”)
with the Compensation Committee
also playing a role in environmental, social, and governance matters related
to human capital engagement and
executive compensation, some key 2025 highlights related to human capital
matters include:
Continuing to compensate employees based on role, experience, and
performance, consistent with fair
pay practices and competitive outcomes across the workforce;
Expanding our learning journey by educating TSMs on multiple components
of our culture and values,
creating an understanding of how to sustain a meaningful, inclusive, and learning
oriented culture; and
Continuing to drive a connected and caring community for our TSMs
by fostering an environment
where they can feel a sense of inclusion, belonging, and purpose.
At Henry Schein, our employees continue to be one of our greatest assets.
employ more than 25,000 people,
with approximately 48% of our workforce based in the United States and approximately
52% based outside of the
United States.
Approximately 14% of our employees are subject to collective bargaining agreements.
believe
that our relations with our employees are excellent.
TSMs are the cornerstone of our Company.
provide a connected and caring community that invests
in the
career journey of our TSMs and encourages their contribution to our
mission of making the world healthier.
Our
TSM experience strategy is centered around our Team Schein Values
under the pillars of Community, Caring, and
Career.
know our business success is built on the engagement and commitment
of our team, which is dedicated
to meeting the needs of their fellow TSMs, our customers, supplier partners, stockholders,
and society.
recognize the changes in how and where we work, and that a continued
connection to our long-standing values
is important for our team members as we evolve our culture.
Throughout 2025, we continued listening to our team
through our continuous listening program, including The Pulse Global Culture
Survey, quarterly Pulse surveys, and
TSM roundtables, to garner feedback from our TSMs on their employee experience.
believe that a great
employee experience also drives a great customer experience.
want all our TSMs to pursue their ambitions,
deliver within our value-driven culture, and enjoy a rewarding career enabled
by great people leaders.
Our recent listening efforts show that our Team Schein Values
and TSM community remain our top strengths, and
that overall TSM engagement is driven by a small set of people-centric factors,
led by how supported, well, and
connected TSMs feel, with communication and culture acting as amplifiers of
trust and inclusion.
Day-to-day
experience varies across teams, particularly during periods of change, shaping how
workload, pace, and priorities
are experienced.
The greatest opportunity lies in strengthening consistency and clarity around
direction and
expectations, so teams feel better supported as we continue to evolve.
The feedback from our listening efforts is
shared with our Executive Management Committee and Board, both of whom are
committed to addressing
identified opportunities.
Additionally, in 2025 we conducted our second Corporate Citizenship Barometer
quantify stakeholder perceptions of the Company’s environmental and social priorities, commitments, and impacts.
As part of this commitment, some highlights from 2025 included:
Community:
Provide opportunities for TSMs to have fun while contributing to an inclusive team that
respects and supports one another.
Continued our focus on creating an inclusive environment where TSMs
feel a sense of belonging;
notably, in 2025 for the fourth time, our top strength identified in The Pulse Global Culture Survey was
our Company’s inclusive culture.
To deepen our commitment to inclusion across the Company, Global
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Directors and Vice Presidents and U.S. Managers are responsible for attending educational training
focused on developing our culture.
continue to expand our learning journey, educating TSMs on
key topics that help us develop a culture of inclusion and understanding.
Completed our second year of Henry Schein Games, a global virtual platform
that drives community
and engagement and offers field-day type in-person events at various global locations
that brought
TSMs together through friendly competition by earning points for their team
by engaging in cultural-
related activities and posting photos.
Expanded the number of Connection Days throughout the globe at Henry Schein
facilities, which were
designed to boost team morale by bringing TSMs together to participate
in team building activities at
least once per quarter.
Continued focus on our Employee Resource Groups (“ERGs”), a vehicle
for all TSMs to share,
connect, learn, and develop both personally and professionally.
Each of our ERGs has a sponsor from
our Executive Management Committee and our Board.
Our Chief Executive Officer (“CEO”) engages
directly in many of our ERG programs.
Launched Functional Resource Groups (“FRGs”), a vehicle for TSMs to
learn, collaborate, and
problem-solve – bridging gaps and uniting global TSMs within similar functions
across departments,
regions, and work models.
Launched MySchein Reels and Community Explorer –pages on our internal intranet
that drive
awareness of various connection opportunities throughout the Company.
Piloted an enhanced workplace technology tool that offers functionality for collaboration by
allowing
teams to see when others are working in an office, seamless booking of spaces both at
Henry Schein
facilities and on-demand spaces, and a Company events calendar.
Certified an additional 100 TSMs through our Culture Ambassador Program,
which educates TSMs on
our culture and certifies TSMs as mentors to new hires during their first 90 days
to ensure new TSMs
understand how we live our values day to day, and how they can engage in the Team Schein Culture.
Caring:
Build a world we want to live in by supporting each other and the communities
in which we live
and work.
Continued to offer a variety of opportunities to volunteer to drive purpose and engage
in local
communities in which TSMs live and work, such as through Carry the Load, the
Care Global
Challenge, Back to School, and Holiday Cheer.
Continued to strengthen our strategic partnerships with industry associations, customers,
and suppliers
that support access to quality health care through various key programs and
initiatives (e.g., S.M.I.L.E.
Healthcare Pathway Program, Gives Kids A Smile, Cares Package Program, Global
Student Outreach
Program, and Prepare to Care).
In 2025, we shipped nearly 2,500 Henry Schein CARES packages to over 200
grant recipients.
These
packages contained donated products enabling health care heroes across
the globe to support screening,
restorative, and educational events.
Developed the Stan’s Service Award
program to honor Stanley M. Bergman’s legacy that aims to
celebrate TSMs who embody the philosophy of “doing well by doing good.” This
program awards a
limited number of cash grants to non-profit organizations globally where TSMs volunteer
their time.
Expanded our global and highly rated Steps for Suicide Prevention campaign,
which brings TSMs
together to walk for a cause and provide education, partnering with the American
Foundation for
Suicide Prevention, Suicide Awareness and Remembrance (for Veterans),
and other local
organizations.
also understand the importance of driving a culture of wellness
for our own team members through
our Mental Wellness Committee, which is supported by our CEO, Executive Management Committee,
and Board.
In 2025, we launched an “Intrinsic Motivation” campaign to help TSMs
understand what
drives them at work and how they can get more involved in initiatives that
align to that motivator to
help TSMs find work that is more meaningful, energizing, and fulfilling.
Career:
Provide opportunities for TSMs to develop personally and professionally with an emphasis on
embodying our values to achieve our collective goals with excellence
and integrity.
Launched The HELIX Network,
a leadership development program that cultivates high-performing
TSMs to represent Henry Schein with external partners.
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Implemented globally the Core Leadership Capabilities (CLCs) for all TSMs
that highlights the
leadership capabilities that all TSMs are expected to demonstrate for career
success.
The CLCs are a
common language and foundational step to developing and refining the tools,
processes, and programs
which support the evolution of a TSM’s career,
including enhancing skills and career development,
leading to enhanced career pathing and internal mobility.
Launched Career Explorer, a centralized hub for TSMs to access the tools and resources needed to
support their career journey.
The hub provides access to the Career & Leadership Opportunities page
which markets internal roles and assignments across the company to support
internal movement;
directs TSMs to the Global Talent & Development page for support in the talent, performance,
learning, and assessment space; highlights career stories from fellow TSMs
for inspiration; and details
our Core Leadership Capabilities, which provide transparency of the leadership
capabilities that all
TSMs are expected to demonstrate for career success.
Continued investment in our employees by providing both formal and
informal learning opportunities
focused on growing and enhancing knowledge, skills, and abilities through a broad
suite of professional
development training programs for current and future roles.
In 2025, we continued to add new
workshops that enabled TSMs to build the skills they need for today and for the
future.
Continued expansion of our Leadership Development programs, inclusive of
our formal mentorship
and coaching programs.
Continued roll-out of talent planning efforts designed to ensure a strong leadership
pipeline across the
organization by strategically identifying and developing talent through targeted development
opportunities and intentional succession plans.
Information derived from talent planning efforts
informs curriculum design and content to help focus on the right
capabilities and help ensure alignment
of career development efforts with the future needs of the organization.
Our Board is provided with
periodic updates regarding our talent and succession planning efforts and participates
in professional
development activities with our TSMs.
Enhanced company-wide recognitions, including our Teddy Philson Team Schein Award,
which was
redesigned in 2023 to provide more visibility and meaningful
recognition to TSMs who exemplify our
Team Schein Values,
as well as other programs including service awards which highlight TSMs who
exemplify our Team Schein Values.
In 2025, we recognized 16 award winners around the world at our
Global Directors and Vice Presidents Management Meeting.
Available Information
We make available free of charge through our website, www.henryschein.com,
our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, statements
of beneficial ownership of securities on
Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished
pursuant to Section 13(a) and
Section 16 of the Securities Exchange Act of 1934 as soon as reasonably
practicable after such materials are
electronically filed with, or furnished to, the United States Securities and
Exchange Commission, or SEC.
Our
principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone number
Unless the context specifically requires otherwise, the terms
the “Company,” “Henry Schein,”
“we,” “us” and “our” mean Henry Schein, Inc., a Delaware corporation,
and its consolidated subsidiaries.
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Information about our Executive Officers
The following table sets forth certain information regarding our executive
officers as of February 24, 2026:
Name
Age
Position
Stanley M. Bergman
Chairman, Chief Executive Officer, Director
Andrea Albertini
Chief Executive Officer, Global Distribution and Technology
Michael S. Ettinger
Executive Vice President and Chief Operating Officer
Mark E. Mlotek
Executive Vice President, Chief Strategic Officer
Tom Popeck
Chief Executive Officer, Henry Schein Products
Christine Sheehy
Senior Vice President, Chief Human Resources Officer
Ronald N. South
Senior Vice President, Chief Financial Officer
Stanley M. Bergman
has been our Chairman and Chief Executive Officer since 1989 and a director
since 1982.
Mr. Bergman held the position of President from 1989 to 2005.
Mr. Bergman held the position of Executive Vice
President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.
Mr. Bergman
is a South African Chartered Accountant and a Certified Public Accountant.
Mr. Bergman will retire as Chief
Executive Officer on March 1, 2026, following which Mr. Bergman will remain as Chairman of the Board.
Andrea Albertini
has been Chief Executive Officer, Global Distribution Group and Technology Group since
January 2025.
In this role, Mr. Albertini is responsible for our Global Distribution and Value-Added Services
segment and our Global Technology segment.
Mr. Albertini joined us in 2013 and has held several positions within
the organization including Chief Executive Officer, International Distribution Group, President, International
Distribution Group, President of our EMEA Dental Distribution Group,
and Vice-President of International Dental
Equipment.
Prior to joining Henry Schein, Mr. Albertini held leadership positions at Cefla Dental Group and
Castellini.
Michael S. Ettinger
has been our Executive Vice President and Chief Operating Officer since 2022.
Prior to his
current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs, Chief of Staff and
Secretary from 2015 to 2022, Senior Vice President, Corporate & Legal Affairs and Secretary from 2013 to 2015,
Corporate Senior Vice President, General Counsel & Secretary from 2006 to 2013, Vice President, General
Counsel and Secretary from 2000 to 2006, Vice President and Associate General Counsel from 1998 to 2000
and
Associate General Counsel from 1994 to 1998.
Before joining us, Mr. Ettinger served as a senior associate with
Bower & Gardner and as a member of the Tax Department at Arthur Andersen.
Mark E. Mlotek
has been our Executive Vice President and Chief Strategic Officer since 2012.
Mr. Mlotek was a
director from 1995 to May 2025.
Prior to his current role, Mr. Mlotek was Senior Vice President and subsequently
Executive Vice President of the Corporate Business Development Group between 2000 and 2012.
Prior to that, Mr.
Mlotek was Vice President, General Counsel and Secretary from 1994 to 1999 and became a director in
Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer Rose LLP, counsel to us,
specializing in mergers and acquisitions, corporate reorganizations and tax law from 1989 to 1994.
Tom
Popeck
has been our Chief Executive Officer, Henry Schein Products Group since January 2025.
In this role,
Mr. Popeck is responsible for our Global Specialty Products segment.
Since joining us in 2019, Mr. Popeck has
held several key positions including Chief Executive Officer, Healthcare Specialties Group, and President of our
Healthcare Specialties Group.
Prior to joining Henry Schein, Mr. Popeck held various sales leadership and general
management executive positions at Stryker.
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Christine Sheehy
has been our Senior Vice President, Chief Human Resources Officer since November 2024.
Sheehy joined us in 2019 and has held several key positions with increasing
responsibility, including Vice
President
of the Human Resources Business Partner function for our North America
Distribution Group, Healthcare
Specialties Group, several Global Oral Reconstruction businesses, and our
Corporate Functions.
Prior to joining
Henry Schein, Ms. Sheehy held various leadership positions at Standard Chartered
Bank and Banco Real.
Ronald N. South
has been our Senior Vice President
and Chief Financial Officer (and principal financial officer
and principal accounting officer) since 2022.
Prior to holding his current position, Mr. South was our Vice
President Corporate Finance since 2008, and Chief Accounting Officer from 2013 until 2022.
Prior to joining us in
2008 as our Vice President, Corporate Finance, Mr. South held leadership roles at Bristol-Myers Squibb and
PepsiCo, and held several roles of increasing responsibility with PricewaterhouseCoopers
LLP,
where he advised
clients located in the United States, Europe, and Latin America.
Mr. South is a Certified Public Accountant.
Other Executive Management
The following table sets forth certain information regarding other Executive
Management as of February 24, 2026:
Name
Age
Position
R. Steven Boggan
Chief Executive Officer, Global Oral Reconstruction Group, Americas
David Kochman
Senior Vice President, Chief Corporate Affairs Officer
James Mullins
Senior Vice President, Global Supply Chain
Kelly Murphy
Senior Vice President and General Counsel
Christopher Pendergast
Senior Vice President and Chief Technology Officer
R. Steven Boggan
has been our Chief Executive Officer, Global Oral Reconstruction Group since July 2025.
CEO of our Global Oral Reconstruction Group, which is part of our Global
Specialty Products segment, Mr.
Boggan leads commercial operations in the Americas, global marketing,
and R&D.
Mr. Boggan joined Henry
Schein, as the President and CEO of BioHorizons, which we acquired in
Mr. Boggan joined BioHorizons in
1995 and was promoted to President and CEO in 2000.
Prior to BioHorizons, Mr. Boggan was employed at Dow
Corning Wright and Wright Medical Technology
from 1989 until 1995.
David Kochman
has been our Senior Vice President, Chief Corporate Affairs Officer since January 2025.
Kochman joined us in 2015 and has held roles of increasing responsibility, including Vice President, Chief
Corporate Affairs Officer, and Vice
President, Corporate Affairs & Deputy Chief of Staff, Office of the CEO.
Prior
to joining Henry Schein, Mr. Kochman served as General Counsel and Corporate Development Officer for a
privately held company and was previously a Partner at the law firm Reed Smith
LLP.
James Mullins
has been our Senior Vice President of Global Supply Chain since 2018.
Mr. Mullins joined us in
1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer
Service Officer.
Kelly Murphy
has been our Senior Vice President and General Counsel since 2021.
In 2025, in addition to her
global legal responsibilities, her role expanded to include leadership of
our Regulatory and Compliance functions.
Since joining us in 2011, Ms. Murphy has held several key positions of increasing responsibility within
the legal
function, most recently serving as Deputy General Counsel.
Christopher Pendergast
has been our Senior Vice President and Chief Technology Officer since 2018.
Prior to
joining us, Mr. Pendergast was employed by VSP Global from 2008 to 2018, most recently as the Chief
Technology Officer and Chief Information Officer.
Prior to VSP Global, Mr. Pendergast served in roles of
increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from
2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000
and Rohm and Haas from 1994 to 1998.
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ITEM 1A. Risk Factors
Our business operations could be affected by factors that are not presently known
to us or that we currently
consider not to be material to our operations, so you should not consider
the risks disclosed in this section to
necessarily represent a complete statement of all risks and uncertainties.
The Company believes that the following
risks could have a material adverse impact on our business, reputation, operating
results, financial condition and/or
the trading price of our common stock.
The order in which these factors appear does not necessarily reflect
their
relative importance or priority.
COMPANY RISKS
We are dependent upon third parties for the manufacture/supply of a significant volume of our products and
where we manufacture products, we are dependent upon third parties
for raw materials/purchased components.
We obtain a significant volume of the products we distribute from third parties, with whom we generally do not
have long-term contracts.
While there is typically more than one source of supply, some key suppliers, in the
aggregate, supply a significant portion of the products we sell.
In 2025, our top 10 Global Distribution and Value-
Added Services suppliers and our single largest supplier accounted for approximately
24% and 4%, respectively, of
our aggregate purchases.
Additionally, where we are the manufacturer of products for our speciality business (
dental implants, endodontics, and orthopedics), we are dependent upon third parties
for raw materials and
purchased components.
Although no single supplier is material, because of our dependence
upon such suppliers,
our operations are subject to the suppliers’ ability and willingness to supply
products in the quantities that we
require, and the risks include delays caused by interruption in production
based on conditions outside of our
control, including a supplier’s failure to comply with applicable government
requirements (which may result in
product recalls, product detentions, and/or cessation of sales) or an interruption
in the suppliers’ manufacturing
capabilities.
In the event of any such interruption in supply, we would need to timely identify and obtain acceptable
replacement sources.
There is no guarantee that we would be able to obtain such alternative
sources of supply on a
timely basis, if at all, and an extended interruption in supply, particularly of a high-sales volume and/or high-
margin product, could result in a significant disruption in our sales and operations,
as well as damage to our
relationships with customers and our reputation.
We may be unsuccessful in achieving our strategic growth objectives.
Our 2025 – 2027 BOLD+1 Strategic Plan is defined under “Business, Business
Strategy” above.
In particular, we
are focused on continuing to grow our Henry Schein specialty brands
and technology and value-added services
solutions both organically and inorganically, and to drive greater efficiencies.
If we are unable to effectively
implement our strategic plan, we may not achieve our desired return on our
investments through our growth
strategies.
Our business could be affected by the Strategic Partnership Agreement with KKR.
On January 29, 2025, we announced a strategic investment by
funds affiliated with KKR & Co. Inc. (“KKR”), a
leading global investment firm, and a Strategic Partnership Agreement (the “Partnership
Agreement”) with KKR.
Under the Partnership Agreement, two independent directors, Max Lin and
William K. “Dan” Daniel, joined our
Board of Directors.
On May16, 2025, we issued 3,285,151 shares of common stock
to funds affiliated with KKR
for an investment of $250 million, at approximately $76.10 per share.
Pursuant to the Partnership Agreement, KKR
also has the ability to purchase additional shares via open market purchases
up to a total equity stake of 14.9% of
the outstanding shares of common stock of the Company.
On November 4, 2025, the Company and KKR entered
into an amendment to the Partnership Agreement that increased the beneficial ownership
limit from 14.9% to19.9%
of the outstanding shares of the Company’s common stock that KKR is permitted to acquire during the
standstill
period.
The standstill provisions, including the increased ownership limit,
continue in effect for a period of six
months following the later of the expiration of the term of the Partnership Agreement
and the date on which no
KKR director appointed pursuant to the Partnership Agreement is serving on
the Company’s Board of Directors.
On December 7, 2025, pursuant to the Partnership Agreement, KKR notified
the Company of its election to
exercise the Extension Election (as defined in the Partnership Agreement) whereby
the Company’s Board of
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Directors will renominate KKR’s designees, Max Lin and William K. “Dan” Daniel, to stand for election at the
Company’s 2026 annual meeting of stockholders for a term expiring at the Company’s 2027 annual meeting of
stockholders. The Partnership Agreement may have unintended consequences,
such as uncertainty about our
management, operations, or future strategic direction, which could
result in the loss of future business opportunities
or negatively impact our ability to attract and retain qualified talent.
KKR also invests in many different types of
businesses, and has or may continue to invest in customers, suppliers,
joint venture partners, or other entities that
have relationships with the Company, or in competitors of such entities, which may create unintended conflicts
resulting in a loss of business.
Our future growth (especially for our Global Technology and Global Specialty Products segments) is dependent
upon our ability to develop or acquire and maintain and protect
new products and services and utilize new
technologies that achieve market acceptance with acceptable margins.
Our future success depends on our ability to timely develop (or obtain the right
to sell) competitive and innovative
(particularly for our Global Technology and Global Specialty Products segments) products and services and utilize
new technologies, such as artificial intelligence (“AI”) (among other emerging technologies)
and to market them
and/or utilize them quickly and cost-effectively.
Our ability to anticipate customer needs and emerging trends and
develop or acquire new products, services and technologies at competitive
prices requires significant resources,
including employees with the requisite skills, experience and expertise, particularly
in our Global Technology
segment, including dental practice management, patient engagement
and demand creation software solutions.
The
failure to successfully address these challenges could materially disrupt
our sales and operations.
We have increased and expect to continue to increase our use of AI technologies in various contexts to improve
customer and patient experiences and drive efficiencies in certain areas of our business,
including, without
limitation, making AI features available within our practice management
systems, which, among other things, helps
dentists and clinical staff detect caries.
While these innovations can present benefits to the Company, they also
create risks and challenges.
The use of AI in healthcare offerings poses certain clinical risks resulting
from
potential misdiagnosis or misinformation provided from AI applications, diminishing
critical judgment, or loss of
interpersonal care from clinicians.
These deficiencies could undermine the decisions, predictions,
or analysis AI
applications produce, as well as their adoption, subjecting us to competitive
harm, legal liability (including under
new proposed legislation regulating AI in jurisdictions such as the EU
or new applications of existing data
protection, privacy, intellectual property, and other laws), regulatory actions, and reputational harm.
In addition,
some AI scenarios, such as using AI applications to generate patient data
(including, without limitation, using AI to
capture and summarize patient interactions, and voice-activated perio charting),
present ethical, privacy, or other
social issues, risking reputational harm and/or reduced market demand
or acceptance of AI solutions.
The
safeguards we have designed to promote the ethical implementation
of AI may not be sufficient to protect us
against negative outcomes.
All of these risks are amplified by the critical nature of healthcare decisions
and the
sensitivity of health-related information, and the occurrence of any of
the above could have a material adverse
effect on our business, financial condition or operating results.
Additionally, if investments in emerging
technologies are less successful at attracting and retaining customers than
similar investments by our competitors,
or if we are otherwise unsuccessful at realizing the benefits of these
technological investments generally, this could
have a material adverse effect on our business, financial condition, or operating
results.
Additionally, widely
accessible generative AI that rapidly surpasses our organizational ability to understand
associated risks and
opportunities (including employees’ failure to comply with principles,
policies and processes governing AI usage)
could endanger our intellectual property, lead to misuse or loss of data and cause reputational harm and other fines,
penalties or losses.
Risks inherent in acquisitions, dispositions and joint ventures could
offset the anticipated benefits.
One of our business strategies has been to expand in part through acquisitions
and joint ventures and we expect to
continue to make acquisitions and enter into joint ventures in the future.
There is risk that one or more may not
succeed.
We cannot be sure, for example, that we will achieve the benefits of revenue growth that we expect from
these transactions or that we will avoid unforeseen additional costs, taxes,
or expenses.
Our ability to successfully
implement our acquisition and joint venture strategy depends upon,
among other things, the following:
the availability of suitable acquisition or joint venture candidates at
acceptable prices;
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our ability to consummate such transactions, which could potentially
be prohibited due to U.S. or
foreign antitrust regulations;
the liquidity of our investments and the availability of financing on
acceptable terms;
our ability to retain customers or product lines of the acquired businesses or
joint ventures;
our ability to retain, recruit and incentivize the management of the
companies we acquire; and
our ability to successfully integrate these companies’ operations, systems,
services, products and
personnel with our culture, management policies, legal, regulatory and compliance
policies,
information technology and cybersecurity systems and policies,
internal procedures, working capital
management, financial, operational and internal controls and strategies.
Furthermore, some of our acquisitions and future acquisitions may give
rise to an obligation to make contingent
payments or to satisfy certain repurchase obligations, which payments
could have material adverse impacts on our
financial results individually or in the aggregate.
Additionally, when we decide to sell assets or a business, we may
encounter difficulty in finding buyers or timely executing alternative exit strategies
on acceptable terms, which
could delay the accomplishment of our strategic objectives.
Dispositions may also involve continued financial
involvement in a divested business, such as through transition service agreements,
indemnities or other current or
contingent financial obligations.
Certain provisions in our governing documents and other documents to
which we are a party may discourage
third parties from seeking to acquire us that might otherwise result
in our stockholders receiving a premium
over the market price of their shares.
The provisions of our certificate of incorporation and by-laws may
make it more difficult for a third-party to
acquire us, may discourage acquisition bids and may impact the price
that certain investors might be willing to pay
in the future for shares of our common stock.
These provisions, among other things require (i) the affirmative vote
of the holders of at least 60% of the shares of common stock entitled to vote
to approve a merger, consolidation, or
a sale, lease, transfer or exchange of all or substantially all of our assets;
and (ii) the affirmative vote of the holders
of at least 66 2/3% of our common stock entitled to vote to (a)
remove a director; and (b) to amend or repeal our
by-laws, with certain limited exceptions.
In addition, certain of our employee incentive plans provide
for
accelerated vesting of equity awards upon termination without cause within
two years following a change in
control, or grant the plan committee discretion to accelerate awards
upon a change of control.
Further, certain
agreements between us and our executive officers provide for increased severance
payments and certain benefits if
those executive officers are terminated without cause by us or if they terminate
for good reason, in each case within
two years following a change in control or within ninety days prior to the
effective date of the change in control or
after the first public announcement of the pendency of the change
in control.
Adverse changes in supplier rebates or other purchasing incentives
could negatively affect our business.
The terms on which we purchase or sell products from many suppliers may
entitle us to receive a rebate or other
purchasing incentive based on the attainment of certain growth goals.
Suppliers may reduce or eliminate rebates or
incentives offered under their programs, or increase the growth goals or other conditions
we must meet to earn
rebates or incentives to levels that we cannot achieve.
Increased competition either from generic or equivalent
branded products could result in us failing to earn rebates or incentives
that are conditioned upon achievement of
growth goals.
Additionally, factors outside of our control, such as customer preferences, consolidation of suppliers
or supply issues, can have a material impact on our ability to achieve
the growth goals established by our suppliers,
which may reduce the amount of rebates or incentives we receive.
Sales of corporate brand products and products that we manufacture
entail additional risks, including the risk
that such sales could materially adversely affect our relationships with suppliers.
We offer
certain corporate brand products that are available exclusively
from us.
The sale of such corporate brand
products and the sale of products that we manufacture subject us to
potential product liability risks, mandatory or
voluntary product recalls, potential supply chain and distribution chain
disruptions and potential intellectual
property infringement risks, among other risks.
In addition, an increase in the sales of our corporate brand products
and our own manufactured products may negatively affect our sales of products
owned by our suppliers which,
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consequently, could adversely impact certain of our supplier relationships.
Our ability to locate qualified,
economically stable suppliers who satisfy our requirements, and
to acquire sufficient products in a timely and
effective manner, are critical to ensuring, among other things, that customer confidence is not diminished.
addition, we are exposed to the risk that our competitors or our large customers may
introduce their own private
label, generic, or low-cost products that compete with our products at
lower price points.
Such products could
capture significant market share or decrease market prices overall, eroding
our sales and margins.
Any failure to
develop sourcing relationships with a broad and deep supplier base
could have a material adverse effect on our
business, financial condition or operating results.
Our business could be affected by activist investors.
We actively engage in discussions with our stockholders.
In other cases, stockholders can engage in certain
divisive activist tactics, which can take many forms (including potential
proxy contests).
Some stockholder
activism has resulted in, and could in the future result in, substantial
costs, such as professional fees, and the
diversion of management’s and our Board of Directors’ attention and resources from our business and strategic
plans.
Additionally, it could cause uncertainty about our management, operations or future strategic direction,
which could result in the loss of future business opportunities or negatively
impact our ability to attract and retain
qualified talent.
Activists or other stockholders holding a large portion of our outstanding shares
could also exert
influence on actions requiring a stockholder vote, including the election of directors
and the approval of certain
extraordinary business transactions.
These risks could cause volatility in the trading price of our common
stock
based on factors other than the fundamentals of our business.
INDUSTRY RISKS
Security risks generally associated with our information systems and our
technology products and services have
in the recent past adversely affected our business and results of operations, and could
in the future materially
adversely affect our business and our results of operations if such products, services,
or systems (or third-party
systems we rely on) are interrupted, damaged by unforeseen events, are subject
to cyberattacks or fail for any
extended period of time.
We rely on information systems (“IS”) in our business to obtain, rapidly process, analyze, manage and store
customer, product, supplier and employee data to, among other things:
maintain and manage worldwide systems to facilitate the purchase and
distribution of thousands of
inventory items from numerous distribution centers;
receive, process and ship orders on a timely basis;
manage the accurate billing and collections for our customers;
process payments to suppliers;
provide products and services that maintain certain of our customers’ electronic
medical or dental
records (including protected health information of their patients); and
maintain and manage global human resources, compensation and payroll
systems.
There could be an adverse impact on our business, financial condition
or operating results if we do not maintain an
adequate information and technology infrastructure (
, hardware, networks, software, people and processes) to
effectively protect and support the current and future information requirements of the business.
In addition to
health information in our customers’ electronic medical and dental records, certain
of our IS store other sensitive
personal and financial information, such as health care and other information
related to our employees and
individuals we service, as well as other sensitive information such as
credit card information from our third-party
business partners, that is confidential, and in many cases subject to privacy
laws.
Our IS are susceptible to, among other things, natural disasters, power
losses, telecommunication failures,
cybersecurity threats and other criminal activity.
Information security risks have significantly increased
in recent
years in part because of an overall increase in cyber incidents, their increased
sophistication and the involvement of
organized crime, hackers, terrorists and foreign state agents.
The health care industry has been targeted by threat
actors seeking to undermine companies’ cybersecurity defensive
measures.
Moreover, cyberattacks have become
more difficult to detect and respond to.
They increasingly exploit AI and machine learning techniques,
such as
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generative AI-phishing, deepfake impersonations, automated vulnerability
discovery, adaptive malware and large-
scale credential-stuffing campaigns.
New subsidiaries that we acquire and non-integrated subsidiaries have
been,
and may continue to be, targets to cyberattacks as we update their defensive measures
to meet our standards.
have processes in place intended to ensure that our security measures
keep pace with new and emerging risks.
regularly review, monitor and implement multiple layers of security through technology, processes and our people.
We utilize security technologies designed to protect and maintain the integrity of our IS and data, and our defenses
are monitored and routinely tested internally and by external parties.
Despite these efforts, our facilities and
systems and those of our third-party service providers have been, and
may in the future be, vulnerable to privacy
and security incidents, cybersecurity attacks and data breaches, acts of
vandalism or theft, computer viruses and
other malicious code, misplaced or lost data, programming and/or human
errors, attacks or other acts undermining
IS of third party business partners including our customers, or other similar
events that could impact the security,
reliability and availability of our systems.
In addition, hardware, software or applications developed
internally or
procured from third parties may contain defects in design or manufacture
or other problems that could unexpectedly
compromise information security.
As a practical matter, so long as we depend on IS to operate our business, and
our business partners do the same, there can be no guaranty
that such measures will successfully stop any one
particular cybersecurity incident given the constantly evolving nature of
the threat.
We have incurred, continue to
incur, and may in the future incur substantial costs as we update our cybersecurity defense systems
and our general
computer controls to meet evolving challenges, and legislative or regulatory
action related to cybersecurity which
may increase our costs to develop or implement new technology products
and services.
A cyberattack that bypasses or compromises our, or our vendors’, IS cybersecurity and/or general
information
technology (“IT”) controls (including third-party systems we rely on)
causing an IS security breach may lead, and
has in the past led, to a disruption of our, or our vendors’, IS business systems (including third-party systems
rely on), interruption of operations (including, without limitation, receiving,
verifying and processing customer
orders, customer service, accounts payable, warehouse management and
shipping and systems tied to internal
controls over financial reporting), the loss or alteration of business,
financial and other protected information, a
negative impact on our financial performance, and to an adverse
impact on our financial accounting and reporting
controls.
A cyberattack that bypasses or compromises our IS cybersecurity
and/or general computer controls or
those of third parties with whom we engage may also lead to claims against
us by affected parties and/or
governmental agencies, and involve fines and penalties, as well as substantial
defense and settlement expenses.
Any of these impacts may alone, or collectively, have a material impact on our business.
A successful cyberattack
has, and may again in the future, disrupt our business operations, adversely
impact our financial accounting and
reporting of results of operations, divert the attention of management,
and adversely impact our results of
operations.
In addition, we develop products and provide services to our customers
that are technology-based, and a
cyberattack that bypasses the IS supporting our products or services causing
a security breach and/or perceived
security vulnerabilities in our products or services could also cause significant
loss of business and reputational
harm, and actual or perceived vulnerabilities may lead to claims against
us by our customers and/or governmental
agencies.
In addition, certain of our practice management products and services
purchased by health care
providers, such as physicians and dentists, are used to store and manage patient
medical or dental records, and when
cloud-based approaches are used, we may be responsible for hosting
those records.
These customers, and in some
cases, we are subject to laws and regulations which require that
they protect the privacy and security of those
records, and our products may be used as part of these customers’ comprehensive
data security programs, including
in connection with their efforts to comply with applicable privacy and security laws.
In addition to immaterial and unrelated incidents at certain of our subsidiaries,
in October 2023 Henry Schein
experienced a cybersecurity incident that primarily affected the operations of our
North American and European
dental and medical distribution businesses.
Henry Schein One, our practice management software, revenue
cycle
management and patient relationship management solutions business was
not affected, and our manufacturing
businesses were mostly unaffected.
Nevertheless, the October 2023 cybersecurity incident disrupted
key business
operations, adversely impacted our financial results for the fourth quarter
and full year 2023, diverted attention of
management, and caused the Company to incur significant remediation
costs.
The incident had residual impact on
our financial results in 2024.
We have spent, and plan to expend in the future, additional resources to continue to
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protect against, or to address problems caused by, business interruptions and data security breaches.
We also may
be perceived as a more vulnerable target of the cyber hackers as a result of the October
2023 incident.
The health care products distribution industry is highly competitive
(including, without limitation, competition
from third-party online commerce sites) and consolidating, and we may not
be able to compete successfully.
We compete with numerous companies, including several major manufacturers and distributors.
Some of our
competitors have greater financial and other resources than we do, which
could allow them to compete more
successfully.
Most of our products are available from several sources and our customers
tend to have relationships
with several distributors.
Competitors could obtain exclusive rights to market particular
products, which we would
then be unable to market.
Manufacturers also could increase their efforts to sell directly to end-users and
thereby
eliminate or reduce our role in distribution.
Industry consolidation among health care product distributors and
manufacturers, price competition, product unavailability, whether due to our inability to gain access to products or
to interruptions in manufacturing supply, or the emergence of new competitors, also could increase competition.
Consolidation has also increased among manufacturers of health care
products, which could have a material
adverse effect on our margins and product availability.
We could be subject to charges and financial losses in the
event we fail to satisfy minimum purchase commitments contained
in some of our contracts.
Additionally,
traditional health care supply and distribution relationships are being challenged
by online commerce solutions.
The continued advancement of online commerce by third parties and online
price transparency requires us to cost-
effectively adapt to changing technologies, to enhance existing services and to differentiate
our business (including
with additional value-added services) to address changing demands
of consumers and our customers.
The
emergence of such competition and our inability to anticipate and effectively respond to changes on
a timely basis
could have a material adverse effect on our business, financial condition or operating
results.
The health care industry is experiencing changes due to political, economic
and regulatory influences that could
materially adversely affect our business.
The health care industry is highly regulated and subject to changing
political, economic and regulatory influences.
Uncertainty surrounding possible changes to the health care environment,
including changes to regulatory
enforcement priorities, may directly or indirectly adversely affect us.
In recent years, the health care industry has
been undergoing significant changes driven by various efforts to reduce costs, including, among
other factors:
trends toward managed care; collective purchasing arrangements and
consolidation among office-based health care
practitioners; and changes in reimbursements to customers, including increased
attention to value-based payment
arrangements, as well as enforcement activities (and related
monetary recoveries) by governmental officials.
Both
our profitability and that of our customers may be materially adversely
affected by laws and regulations reducing
reimbursement rates for pharmaceuticals, medical supplies and devices,
and/or medical treatments or services,
changes to the methodology by which reimbursement levels are determined,
or regulating pricing, contracting and
discounting practices with respect to medical products and services.
It is possible that the adoption of the One Big
Beautiful Bill Act could impact eligibility for participation in Medicare
and Medicaid programs, resulting in a
change in utilization of the health care system.
In addition, a number of states are considering and enacting laws
regulations to expand their oversight of health care transactions, which
may impact the financial stability and
strategic opportunities of certain of our customers.
If we are unable to react effectively to these and other changes
in the health care industry, our business could be materially adversely affected.
The ACA greatly expanded health
insurance coverage in the United States and has been the target of legal and political
challenges since its adoption.
Any outcome of these challenges that changes the ACA could have
a significant impact on the U.S. health care
industry and the ability or willingness of individuals to engage with it.
Expansion of GPOs, DSOs, MSOs or provider networks and the
multi-tiered costing structure may place us at a
competitive disadvantage.
The health care products industry is subject to a multi-tiered costing structure, which
can vary by manufacturer
and/or product.
Under this structure, certain institutions can obtain more favorable
prices for health care products
than we are able to obtain.
The multi-tiered costing structure continues to expand as many large integrated health
care providers and others with significant purchasing power, such as GPOs, DSOs and MSOs, demand
more
favorable pricing terms.
Additionally, the formation of provider networks, GPOs, DSOs and MSOs may shift
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purchasing decisions to entities or persons with whom we do not have a historical
relationship and may threaten our
ability to compete effectively, which could in turn negatively impact our financial results.
In addition, such
organizations may establish direct relationships with manufacturers, thereby
either eliminating or reducing the
services historically provided by distributors.
Although we are seeking to obtain similar terms from manufacturers
to access lower prices demanded by GPO, DSO and MSO contracts or
other contracts, and to develop relationships
with existing and emerging provider networks, GPOs, DSOs and MSOs, we
cannot guarantee that such terms will
be obtained or contracts executed.
Increases in shipping costs or service issues with our third-party shippers
could harm our business.
Our ability to meet our customers’ expedited delivery expectations is an
integral component of our business
strategy for which our customers rely.
Shipping is a significant expense in the operation of our business.
We ship
almost all of our orders through third-party delivery services, and typically bear
the cost of shipment.
Accordingly,
any significant increase in shipping rates could have a material adverse
effect on our business, financial condition
or operating results.
While we have recently experienced increases in shipping costs,
we do not expect these
additional expenses to be material to our results now, however they could become material in a future fiscal period.
Similarly, strikes or other service interruptions by those shippers, including at transportation centers or shipping
ports, could cause our operating expenses to rise and materially adversely
affect our ability to deliver products on a
timely basis.
MACRO-ECONOMIC AND POLITICAL RISKS
Uncertain global and domestic macro-economic and political conditions
could materially adversely affect our
results of operations and financial condition.
Uncertain global and domestic macro-economic and political conditions
that affect the economy and the economic
outlook of the United States, Europe, Asia and other parts of the
world could have a material adverse effect on our
business, financial condition or operating results.
These uncertainties, include, among other things, those listed
under “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Cautionary
Note
Regarding Forward-Looking Statements.”
Additionally, changes in government, government debt and/or budget crises may lead to reductions in government
spending in certain countries, which could reduce overall health care spending
and/or lead to higher income or
corporate taxes, which could depress spending overall.
Recessionary or inflationary conditions and depressed
levels of consumer and commercial spending may also cause customers
to reduce, modify, delay,
or cancel plans to
purchase our products and may cause suppliers to reduce their output
or change their terms of sale.
We have
experienced inflationary pressures, including higher freight costs and
interest expense, and pressures resulting from
the strengthening of the dollar, which have and continue to impact our results of operations.
We generally sell
products to customers with payment terms.
If customers’ cash flow or operating and financial performance
deteriorate, or if they are unable to make scheduled payments or obtain
credit, they may not be able to, or may
delay, payment to us.
Likewise, for similar reasons suppliers may restrict credit or impose
different payment terms.
REGULATORY
AND LITIGATION RISKS
Failure to comply with existing and future regulatory requirements
could materially adversely affect our
business.
We strive to be compliant with the applicable laws, regulations and guidance described below in all material
respects, and believe we have effective compliance programs and other controls
in place to ensure substantial
compliance.
However, compliance is not guaranteed either now or in the future as certain laws, regulations
and
guidance may be subject to varying and evolving interpretations that could
affect our ability to comply, as well as
future changes, additions and enforcement approaches, including in light
of political changes.
Changes with
respect to the applicable laws, regulations and guidance described below
may require us to update or revise our
operations, services, marketing practices, and compliance programs
and controls, and may impose additional and
unforeseen costs on us, pose new or previously immaterial risks to us, or
may otherwise have a material adverse
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effect on our business.
There can be no assurance that current and future government
regulations will not adversely
affect our business, and we cannot predict new regulatory priorities, the form, content
or timing of regulatory
actions, and their impact on the health care industry and on our business
and operations.
Global efforts to contain health care costs continue to exert pressure on product pricing.
In the United States, there
has been increased scrutiny on drug pricing and concurrent efforts to control or
reduce drug costs by Congress, the
President, executive branch agencies and various states.
We may be required to report drug pricing data under
federal laws and regulations.
Several U.S. states have adopted laws, that may apply to some of
our operations, that
require drug manufacturers, including re-packagers or re-labelers, to provide
advance notice of certain price
increases and to report information relating to price increases, while
others have established prescription drug
affordability boards or multi-payer purchasing pools to reduce the cost of prescription
drugs.
At the federal level,
for example, the Inflation Reduction Act of 2022, among other things,
requires drug manufacturers that raise certain
of their drug prices faster than the rate of inflation to pay rebates to Medicare,
and over time will authorize the
federal government to negotiate directly with drug manufacturers to
lower the prices of certain brand-name drugs
covered by Medicare.
These various evolving efforts create uncertainty and may adversely affect our business.
Under the Sunshine Act, we are required to collect and report detailed
information regarding certain financial
relationships we have with covered recipients (
, physicians, dentists, teaching hospitals, other health care
practitioners) as well as physician ownership or investment interest.
We may be required to report information
under state transparency laws that address circumstances not covered
by the Sunshine Act.
We are also subject to
similar foreign transparency laws.
While we believe we have substantially compliant programs and controls
place satisfying the above laws and requirements, such compliance imposes
additional costs on us and the
requirements are sometimes unclear.
Our business is subject to additional requirements under various local, state,
federal and foreign laws and
regulations applicable to the sale and distribution of, and third-party payment
for, pharmaceuticals and medical
devices and HCT/P products.
Among the federal laws with which we must comply are the Controlled Substances
Act, the Food, Drug & Cosmetic Act, the Federal Drug Quality and Security
Act, including the Drug Supply Chain
Security Act, and Section 361 of the Public Health Services Act.
Among other things, such laws and the
regulations promulgated thereunder:
regulate the introduction, manufacture, advertising, marketing, promotion,
sampling, pricing,
reimbursement, labeling, packaging, storage, handling, returning,
recalling, reporting, distribution of,
disposal, and recordkeeping for drugs, HCT/P products and medical devices,
including unique device
identifiers;
subject us to inspection by the FDA, OSHA, and DEA and similar state
authorities;
regulate the storage, transportation and disposal of hazardous materials;
require us to advertise and promote our drugs and devices in accordance
with FDA regulations;
require us to report average sales price (ASP) to CMS for drugs or biologicals
payable under Medicare
Part B with or without a Medicaid drug rebate agreement;
require registration with the FDA and the DEA and various state agencies;
require us to design and operate a system to identify and report suspicious
orders of controlled
substances to the DEA and certain states;
require us to manage returns of products that have been recalled and subject
us to inspection of our
recall procedures and activities;
impose on us reporting requirements if a pharmaceutical, HCT/P product or
medical device causes an
adverse event, serious illness, injury or death;
require manufacturers, wholesalers, re-packagers and dispensers of prescription
drugs to identify and
trace certain prescription drugs as they are distributed;
require the licensing of prescription drug wholesalers and third-party
logistics providers; and
mandate compliance with standards for the recordkeeping, storage,
handling and documentation of
transactions involving prescription drugs and devices and associated
reporting requirements.
The FDA regulates certain computer software and digital health products intended
for use in health care settings,
including, for example, AI and machine learning-enabled medical devices
and the cybersecurity of medical devices.
Certain of our businesses involve the development and sale of
software and related products to support physician
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and dental practice management, and it is possible that the FDA or
foreign government authorities could determine
that one or more of our products is subject to regulation as a medical device,
which could subject our businesses to
substantial additional requirements, costs, potential enforcement actions
or liabilities for noncompliance with
respect to these products.
For example, some of our imaging software is regulated
as a medical device which
subjects our businesses to substantial additional requirements, costs
and potential enforcement actions or liabilities
for noncompliance with respect to these products.
Applicable federal, state, local and foreign laws and regulations also may
require us to meet various standards
relating to, among other things, licensure, registration, program eligibility, procurement, third-party reimbursement,
sales and marketing practices, product integrity and supply
tracking to product manufacturers, product labeling,
personnel, privacy and security of health or other personal information,
installation, maintenance and repair of
equipment and the importation and exportation of products.
The FDA, DEA, OCR, and state privacy regulators, as
well as CMS (including with respect to complex Medicare reimbursement
requirements applicable to our specialty
home medical supplies business) and state Medicaid agencies, have
recently increased their regulatory and
enforcement activities and, in particular, the DEA has heightened enforcement activities due to the
opioid crisis in
the United States.
The failure to comply with any of these laws or regulations, or new interpretations
of them, or the imposition of any
additional laws and regulations, could materially adversely affect our business.
The costs to us associated with
complying with the various applicable statutes and regulations, as they now
exist and as they may be modified,
could be material.
Allegations by a governmental body that we have not complied
with these laws could have a
material adverse effect on our businesses.
While we believe that we are substantially compliant with
applicable
laws and regulations, and have adequate compliance programs and controls
in place to ensure substantial
compliance, if it is determined that we have not complied with these laws,
we are potentially subject to warning
letters, substantial civil and criminal penalties, mandatory recall of product,
seizure of product and injunction,
consent decrees and suspension or limitation of payments to us, product
sale and distribution.
If we enter into
settlement agreements to resolve allegations of non-compliance, we
could be required to make settlement payments
or be subject to civil and criminal penalties, including fines and
the loss of licenses.
Non-compliance with
government requirements could also adversely affect our ability to participate in
important federal and state
government health care programs, such as Medicare and Medicaid,
and damage our reputation.
The EU Medical Device Regulation (“MDR”) may adversely affect our business.
The EU MDR significantly modified the regulatory compliance requirements
for the medical device industry as a
whole.
Among other things, as mentioned above, the EU
MDR:
strengthens the rules on placing devices on the market and reinforces
surveillance thereafter;
establishes explicit provisions on manufacturers’ responsibilities
for the follow-up of the quality,
performance and safety of devices placed on the market;
improves the traceability of medical devices throughout the supply chain to
the end-user or patient
through a unique identification number;
sets up a central database (EUDAMED) to provide patients, health care
professionals and the public
with comprehensive information on devices, importers, and distributors
registered in the EU;
strengthens rules for the assessment of certain high-risk devices, such
as implants, which may have to
undergo an additional check by experts before they are placed on the market; and
contains specific provisions in the event of interruption or discontinuation
of supply of a device.
The EU MDR imposes strict requirements for the confirmation that a
product meets the regulatory requirements,
including regarding a product’s clinical evaluation and a company’s quality systems, and for the distribution,
marketing and sale of medical devices, including post-market surveillance.
Pursuant to Regulation 2023/607 and
subject to certain conditions, medical devices that (i) obtained
a certificate under the EU Medical Device Directive
from May 25, 2017, (ii) which was still valid on May 26, 2021, and (iii)
has not been subsequently withdrawn may
continue to be placed on the market or put into service until December
31, 2027 for higher risk devices or
December 31, 2028 for medium and lower risk devices.
The modifications created by the EU MDR may have an
impact on the way we design and manufacture products and the way we
conduct our business in the EEA.
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If we fail to comply with laws and regulations relating to health care
fraud or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations,
which could materially
adversely affect our business.
Certain of our businesses are subject to federal and state (and similar
foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with respect to their operations.
Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or
fraudulent claims for reimbursement to
federal, state and other health care payers and programs.
Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce or reward
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.
Certain additional state and
federal laws, such as the federal Physician Self-Referral Law (“Stark Law”),
prohibit physicians and other health
care professionals from referring a patient to an entity with which
the physician (or family member) has a financial
relationship, for the furnishing of certain designated health services
(for example, durable medical equipment and
medical supplies), unless an exception applies.
The fraud and abuse laws and regulations have been subject to heightened
enforcement activity over the past few
years, often as the result of “relators” who serve as whistleblowers by filing
complaints in the name of the United
States (and if applicable, particular states) under applicable false claims
laws, and who may receive up to 30% of
total government recoveries.
Penalties under fraud and abuse laws may be severe, including treble damages
and
substantial civil penalties under the federal False Claims Act, as
well as potential loss of licenses and the ability to
participate in federal and state health care programs, criminal penalties,
or imposition of a corporate compliance
monitor, which could have a material adverse effect on our business.
Also, these measures may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a
manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses.
Even unsuccessful challenges by regulatory
authorities or relators could result in reputational harm and the incurring of
substantial costs.
Most states have
adopted similar state false claims acts, and these state laws have their
own penalties which may be in addition to
federal False Claims Act penalties, and other fraud and abuse laws.
The U.S. government and industry trade associations (among others) have expressed
concerns about financial
relationships between suppliers or manufacturers on the one hand and
physicians, dentists and other health care
providers, on the other.
As a result, we regularly review and revise our marketing
practices as necessary to
facilitate compliance.
Our aspirations, goals and disclosures related to environmental, social
and governance matters and the focus on
regulators and private litigants among other things on related claims made
by companies and funds expose us to
numerous risks, including reputational, financial, legal and other risks,
that could have an adverse impact on us.
California has adopted stringent new climate disclosure requirements, as
has the EU.
We are subject to Directive (EU) 2022/2464 on corporate sustainability reporting (“CSRD”) which became
effective on January 5, 2023.
CSRD requires in-scope companies to report sustainability-related information
that is
material from both a financial risk or opportunity and an environmental
or social impact perspective, and the
assessment of materiality is inherently subjective.
Furthermore, Directive No. 2025/794 of 14 April 2025, the
“Omnibus” Directive, amended Directive 2022/2464 by introducing a
two-year postponement of the sustainability
reporting requirements for financial years beginning on or after 1
January 2025 and on or after 1
January 2026.
This “Omnibus” legislative package amending the CSRD alters the scope,
thresholds, timing and contents of
reporting obligations, which may increase our costs.
CSRD is being transposed into national law across EU
Member States, and further legislative or implementation changes may
also increase our costs.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
books and records.
Our businesses
are generally subject to numerous other laws and regulations that
could impact our financial results, including,
without limitation, securities, antitrust, consumer protection and marketing
laws and regulations.
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In the EU, Directive No. 2019/1937 of October 23, 2019,
on the protection of persons who report breaches of
Union law,
organizes the legal protection of whistleblowers.
This Directive covers whistleblowers reporting
breaches of EU laws and regulations and protects a wide range of people,
including former employees.
All private
companies with 50 or more employees are required to create effective internal reporting
channels.
All EU Member
States have now implemented the Directive.
In the EU, both active and passive corruption in the private sector are
criminalized.
The EU Council Framework
Decision 2003/568/JHA of 22 July 2003
on combating corruption in the private sector
establishes more detailed
rules on the liability of legal persons and deterrent sanctions.
However, the liability of legal persons is regulated at
a national level.
Failure to comply with fraud and abuse laws and regulations, and other
laws and regulations, could result in
significant civil and criminal penalties and costs, including the loss of
licenses and the ability to participate in
federal and state health care programs, and could have a material adverse
effect on our business.
We may
determine to enter into settlements, make payments, agree to consent decrees
or enter into other arrangements to
resolve such matters.
Intentional or unintentional failure to comply with settlement agreements
or consent decrees
could materially adversely affect our business.
While we believe that we are substantially compliant with applicable
laws and regulations, and believe we have
adequate compliance programs and controls in place to ensure substantial
compliance, we cannot predict whether
changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in response
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 collection,
storage and processing of sensitive
personal information or standards in electronic health records or transmissions,
we could be required to make
significant changes to our products, or incur substantial fines, penalties, or
other liabilities.
Our businesses that involve physician and dental practice management
products, equipment and our specialty home
medical supplies businesses, and our self-funded employee benefits programs
include information technology (IT)
systems that store and process personal health, clinical, financial, and
other sensitive information of individuals.
These IT systems may be vulnerable to breakdown, wrongful intrusions, data
breaches and malicious attack, which
could require us to expend significant resources to eliminate these
problems and address related security concerns,
and could involve claims against us by private parties and/or governmental agencies.
We are directly or indirectly subject to numerous and evolving federal, state, local and foreign laws and regulations
that protect the privacy and security of personal information (including
health data), such as HIPAA, CAN-SPAM,
TCPA, Section 5 of the FTC Act, the CCPA/CPRA
and various other privacy laws that have or will soon come
into
effect.
Laws and regulations relating to privacy and data protection
are continually evolving and subject to
potentially differing interpretations, including those relating to AI.
These requirements may not be harmonized,
may be interpreted and applied in a manner that is inconsistent from one
jurisdiction to another or may conflict with
other rules or our practices.
In addition to state-specific data breach notification laws (which exist in
all U.S. states
and territories), cybersecurity laws such as the federal Cyber Incident
Reporting for Critical Infrastructure Act of
2022, proposed Federal Acquisition Regulations and amendments to SEC
reporting requirements may require us to
provide notifications about cybersecurity incidents in limited timeframes and
before investigations are complete.
Our businesses’ failure to comply with these laws and regulations could expose
us to breach of contract claims,
substantial fines, penalties and other liabilities and expenses, costs
for remediation and harm to our reputation.
Evolving laws and regulations in this area could restrict the ability
of our customers to obtain, use or disseminate
patient information, or could require us to incur significant additional
costs to re-design our products to reflect these
legal requirements, which could have a material adverse effect on our operations.
In addition, the European Parliament and the Council of the EU adopted
the GDPR that has been effective since
May 25, 2018, which increased privacy rights for Data Subjects in
the European Economic Area (EEA), including
individuals who are our customers, suppliers and employees.
The GDPR extended the scope of responsibilities for
data controllers and data processors, and generally imposes increased
requirements and potential penalties on
companies, such as us, that are either established in the EU and process personal
data of Data Subjects (regardless
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the Data Subject location), or that are not established in the EU but
that offer goods or services to Data Subjects in
the EU or monitor their behavior in the EU. Noncompliance can result
in penalties of up to the greater of EUR 20
million, or 4% of global company revenues (sanction that may be public),
and Data Subjects may seek damages.
Member states may individually impose additional requirements and penalties
regarding certain limited matters (for
which the GDPR left some room of flexibility), such as employee personal data.
With respect to the personal data
it protects, the GDPR requires, among other things, controller accountability, consents from Data Subjects or
another acceptable legal basis to process the personal data, notification
within 72 hours of a personal data breach
where required, data integrity and security, and fairness and transparency regarding the storage, use or other
processing of the personal data.
The GDPR also provides rights to Data Subjects relating notably
to information,
access, rectification, erasure of the personal data and the right to object to
the processing.
Despite Brexit, the UK
also has data protection laws equivalent to the GDPR and has implemented
further data protection related
legislation.
Switzerland enacted FADP.
Data protection authorities located in different EU Member States may
interpret GDPR differently, or requirements of national laws may vary between the EU Member States, UK and
Switzerland, or guidance on GDPR and related laws and compliance practices
may be often updated or otherwise
revised.
Any of these events will increase the complexity and costs of
processing personal data in the European
Economic Area, UK or Switzerland or concerning individuals located
in these jurisdictions.
Effective November 1, 2021, China’s PIPL imposes specific rules for processing personal information and specifies
that the law shall also apply to personal information activities carried
out outside China but for the purpose of
providing products or services to PRC citizens.
Any non-compliance with these laws and regulations may
subject
us to fines, orders to rectify or terminate any actions that are deemed
illegal by regulatory authorities, other
penalties, reputational damage, or legal proceedings against us, which
may affect our business, financial condition
or results of operations.
The PIPL carries maximum penalties of CNY50 million or
5% of the annual revenue of
entities that process personal data.
Data protection laws in other countries, such as Brazil, are
also quickly
evolving, with many countries having updated, or are in the process
of updating, their laws to bring them more in
line with the model created by GDPR.
In the United States, the CCPA, effective January 1, 2020, establishes a privacy framework for covered businesses
such as ours by, among other things, creating an expanded definition of personal information, establishing new data
privacy rights for California residents and creating a new and potentially
severe statutory damages framework for
violations of the CCPA, as well as potentially severe statutory damages and a private right of action against
businesses that suffer a data security breach due to their violation of a duty to
implement reasonable security
procedures and practices.
This private right of action may increase the likelihood of, and risks associated
with, data
breach litigation.
In addition, California voters adopted the CPRA (effective January 1, 2023)
which enhances and
strengthens regulatory requirements and individual protections that currently
exist under the CCPA.
Effective as of
January 1, 2026, the CCPA/CPRA regulatory framework includes expanded requirements.
Other states have
enacted or are considering enacting similar privacy laws, which may subject
us to additional requirements and
restrictions that could have an impact on our business.
As of January 1, 2026, comprehensive privacy laws are now
in effect in 20 states, further complicating our privacy compliance obligations through
the introduction of
increasingly disparate requirements across the various U.S. jurisdictions
in which we operate.
Additionally, certain
states have enacted specific health data privacy laws and other states
are considering similar legislation.
Congress
is considering legislation that may preempt some or all of such U.S. state
privacy laws, but which may also provide
a more expansive private right of action for privacy claims than exists under
current state laws.
The evolving complexity of privacy and data security legislation in
the U.S. and other jurisdictions globally may
complicate our compliance efforts and further increase our risk of regulatory enforcement,
penalties and litigation.
While we believe we have substantially compliant programs and controls
in place to comply with privacy laws
domestically and internationally, our compliance with data privacy and cybersecurity laws is likely to impose
additional costs on us, and we cannot predict whether the interpretations
of the requirements, or changes in our
practices in response to new requirements/interpretations, could have
a material adverse effect on our business.
Our products and services utilize new technologies, such as AI.
The regulatory landscape for AI is changing
rapidly, with both domestic and international activity.
While there is currently no comprehensive federal legislation
in the U.S. concerning the use, development or deployment of AI, regulators
pursue AI-related enforcement actions
under existing federal consumer protection laws and have issued related
guidance.
Further, state privacy, consumer
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protection and AI-specific laws are proliferating and may be applicable to our
business.
Other countries are also
applying their data and consumer protection laws to AI, particularly
generative AI, and are considering and
implementing specific legal frameworks with respect to AI.
Regulation (EU) 2024/1689 on harmonized rules on
artificial intelligence (the EU AI Act), for example, establishes a comprehensive
regulatory framework for AI that
became law in August 2024 with implementation phased through
into 2027.
As with the GDPR, it has extra-
territorial effect.
Any failure or perceived failure by us to comply with such requirements
could have an adverse
impact on our business.
Anticipated further evolution of regulations and legislation
on this topic may substantially
increase the penalties to which we could be subject in the event of any
non-compliance.
Compliance with these
laws is challenging, constantly evolving and time consuming and federal
regulators, state attorneys general and
plaintiff’s attorneys have been and will likely continue to be active in this space.
We may incur substantial expense
in complying with legal obligations to be imposed by new regulations
and we may be required to make significant
changes to our solutions and expanding business operations, all of which
may adversely affect our operations.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records.
These customers and we are subject to laws, regulations and
industry
standards, such as HIPAA and the Payment Card Industry (PCI) Data Security Standards, which require the
protection of the privacy and security of those records.
Our products or services may be used as part of these
customers’ comprehensive data security programs, including in connection
with their efforts to comply with
applicable data privacy and security laws and contractual requirements.
Perceived or actual security vulnerabilities
in our products or services, or the perceived or actual failure by us
or our customers who use our products or
services to comply with applicable legal or contractual data privacy and
security requirements, may not only cause
us significant reputational harm, but may also lead to claims against us by our
customers and/or governmental
agencies and involve substantial fines, penalties and other liabilities and
expenses and costs for remediation.
Additionally, under the GDPR (and equivalent laws) and U.S. state privacy laws, health data belong to the category
of “sensitive data” and benefit from specific protection.
Processing of such data is generally prohibited, except for
specific exceptions.
Certain of our businesses involve the manufacture and sale of electronic
health record (EHR) systems and other
products linked to government supported incentive programs, where
the EHR systems must be certified as having
certain capabilities designated in evolving standards, such as those adopted
by CMS and ONC.
In order to maintain
certification of our EHR products, we must satisfy the changing governmental
standards.
If any other EHR systems
do not meet these standards, yet have been relied upon by health care providers
to receive federal incentive
payments, we may be exposed to risk, such as under federal health care
fraud and abuse laws, including the False
Claims Act.
Additionally, effective September 1, 2023, the HHS-OIG issued a final rule implementing civil money
penalties for information blocking as established by the Cures Act.
OIG incorporated regulations published by
ONC as the basis for enforcing information blocking penalties.
Each information blocking violation carries a $1
million penalty.
While we believe we are substantially in compliance with such certifications
and with applicable
fraud and abuse laws and regulations and that we have adequate compliance
programs and controls in place to
ensure substantial compliance, we cannot predict whether changes in
applicable law, or interpretation of laws, or
resulting changes in our compliance programs and controls, could have a
material adverse effect on our business.
Moreover, in order to satisfy our customers and comply with evolving legal requirements, our products
may need to
incorporate increasingly complex functionality, such as reporting and information blocking.
Although we believe
we are positioned to accomplish this, the effort may involve increased costs, and
our failure to implement product
modifications, or otherwise satisfy applicable standards, could have a
material adverse effect on our business.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged
information becomes
increasingly important.
As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.
Tax legislation could materially adversely affect our financial results and tax liabilities.
We are subject to the tax laws and regulations of the United States federal, state and local governments, as well as
foreign jurisdictions.
From time to time, various legislative initiatives may be proposed
that could materially
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adversely affect our tax positions.
There can be no assurance that our effective tax rate will not be
materially
adversely affected by legislation resulting from these initiatives.
In addition, tax laws and regulations are extremely
complex and subject to varying interpretations.
Although we believe that our historical tax positions are sound and
consistent with applicable laws, regulations and existing precedent,
there can be no assurance that our tax positions
will not be challenged by relevant tax authorities or that we would be
successful in any such challenge.
We face inherent risk of exposure to product liability, intellectual property infringement and other claims in the
event that the use of the products we sell results in injury.
Our business involves a risk of product liability, intellectual property infringement and other claims in the ordinary
course of business, and from time to time we are named as a defendant
in cases as a result of our distribution of
products.
Additionally, we own and own interests in companies that manufacture certain dental and medical
products.
As a result, we could be subject to the potential risk of product liability, intellectual property
infringement or other claims relating to the manufacture and distribution
of products by those entities.
In addition,
as our corporate brand business continues to grow, purchasers of such products may increasingly seek recourse
directly from us, rather than the ultimate product manufacturer, for product-related claims.
Another potential risk
we face in the distribution of our products is liability resulting from counterfeit
or tainted products infiltrating the
supply chain.
In addition, some of the products that we transport and sell are
considered hazardous materials.
The
improper handling of such materials or accidents involving the transportation
of such materials could subject us to
liability or at least legal action that could harm our reputation.
Customs policies or legislative import restrictions could hinder the Company’s ability to import goods necessary
to our operations on a timely basis and result in government enforcement
actions and/or sanctions.
Government-imposed import policies and legislation regulating the
import of goods and prohibiting the use of
forced labor or human trafficking could result in delays or the inability to import
goods in a timely manner that are
necessary to our operations, and such policies or legislation could also
result in financial penalties, other sanctions,
government enforcement actions and reputational harm.
Certain of our suppliers have had their ability to service
certain markets restricted or negatively impacted because of allegations
of forced labor in their supply chain.
While
the Company has policies against and seeks to avoid the import of goods
that are manufactured in whole or in part
by forced labor or through human trafficking, as a result of legislative and governmental
policy initiatives, we may
be subject to increasing potential delays, added costs, supply chain disruption
and other restrictions.
GENERAL RISKS
Our business operations, results of operations, cash flows, financial condition
and liquidity may be negatively
impacted by the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public
health
concerns and other natural or man-made disasters, such as terrorism, civil
unrest, fire and extreme weather
Our business operations, results of operations, cash flows, financial condition
and liquidity may be negatively
impacted by the effects of disease outbreaks, epidemics, pandemics, similar wide-spread
public health concerns and
other natural or man-made disasters, such as terrorism, civil unrest, fire
and extreme weather (“disasters”).
For
example, as a global health care solutions company, the COVID-19 pandemic and the governmental responses
had a material adverse effect on our business, financial condition, operating results
and cash flows.
The impacts
and potential impacts from the COVID-19 pandemic included, and could include
as a result of other disasters,
adverse impacts such as significant volatility in supply, demand and selling prices, interrupted operations of
industries that use or manufacture the products we distribute for personal
protective equipment (PPE), test kits and
related products, reduction in peoples’ ability and willingness to be in
public, impact of adapted business practices,
volatility in the financial markets, and unavailability or impairment
of our manufacturing, distribution, or other
facilities, or firmwide systems such as our IS.
Our global operations are subject to inherent risks that could materially
adversely affect our business.
Our global operations are subject to risks that could materially adversely affect our business,
including, among
other things:
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difficulties and costs relating to staffing and managing foreign operations;
difficulties and delays inherent in sourcing products, establishing channels of distribution
and contract
manufacturing in foreign markets;
fluctuations in the value of foreign currencies;
uncertainties relating to trade agreements and international trade relationships;
longer payment cycles and difficulty of collecting receivables in foreign jurisdictions;
repatriation of cash from our foreign operations to the United States;
regulatory requirements, including, without limitation, anti-bribery, anti-corruption and laws pertaining
to the accuracy of our internal books and records;
litigation risks;
unexpected difficulties in importing or exporting our products and import/export
tariffs, quotas,
sanctions or penalties;
limitations on our ability under local laws to protect our intellectual
property;
unexpected regulatory, legal, economic and political changes in foreign markets;
changes in tax regulations that influence purchases of capital equipment;
civil disturbances, geopolitical turmoil, including terrorism, war or political
or military coups; and
risks associated with climate change, including physical risks such as
impacts from extreme weather
events and other potential physical consequences, regulatory and technological
requirements, market
developments, stakeholder expectations and reputational risk.
Our future success is substantially dependent upon our senior
management, and our revenues and profitability
depend on our relationships with capable personnel, as well as
customers, suppliers and manufacturers of the
products that we distribute.
On July 15, 2025, the Company announced that Mr. Bergman will retire as the Company’s CEO on December 31,
2025 (which date was extended to March 1, 2026), and that Mr. Bergman will continue to serve as Chairman of the
Board of Directors of the Company following his retirement.
On January 12, 2026, the Company announced the
appointment of Frederick M. Lowery as its next CEO, effective March 2, 2026, at
which time he will join the
Company’s Board of Directors.
Our future success is substantially dependent upon the efforts and abilities of
members of our senior management.
Competition for senior management is intense, burnout and turn-over rates
are increasing workplace concerns,
transitions among senior level officers can present challenges as well as opportunities,
and we may not be
successful in attracting and retaining key personnel, or transitioning to
new personnel following departures.
Additionally, our future revenues and profitability depend on our ability to maintain satisfactory relationships with
qualified personnel, as well as customers, suppliers and manufacturers.
If we fail to maintain our existing
relationships with such persons or fail to acquire relationships with such key
persons in the future, our business may
be materially adversely affected.
Disruptions in the financial markets may materially adversely
affect the availability and cost of credit to us.
Our ability to make scheduled payments or refinance our obligations with
respect to indebtedness will depend on
our operating and financial performance, which in turn is subject to prevailing
economic conditions and financial,
business and other factors beyond our control.
Disruptions in the financial markets may materially adversely affect
the availability and cost of credit to us.
