Henry Schein Reports Fourth Quarter EPS up 18%; Dental Sales Increase 11%, Operating Cash Flow Exceeds $69 Million
Net sales for the fourth quarter of 2002 were $747.4 million, an increase of 7.0% from the fourth quarter of 2001 (12.8 % on a comparable basis -- See Exhibit A for details of comparable basis sales growth comparisons). In local currencies, net sales increased 5.4% (11.2% on a comparable basis). Sales growth for the quarter was essentially all internal. Dental sales increased by 11.1% (10.7% on a comparable basis), Medical sales declined by 0.8% (increased 14.5% on a comparable basis), Technology and Value-Added Services sales grew by 33.0% (17.2% on a comparable basis), and International sales improved by 13.3% (2.8% in local currencies).
Net income for the fourth quarter of 2002 was $31.0 million, or $0.69 per diluted share, representing increases of 14.1% and 11.3% compared with the fourth quarter of 2001, respectively. On a comparable basis, net income grew by 21.5% and diluted EPS increased by 18.2%. (See Exhibit B for details of comparable basis income statement growth comparisons.)
For the year 2002, net sales were a record $2.83 billion, an increase of 10.4% compared with 2001 (10.3% on a comparable basis). In local currencies, net sales increased 9.7% (9.5% on a comparable basis). Sales growth for the full year was essentially all internal. Net income for the year was a record $118.0 million, or $2.63 per diluted share, representing increases of 35.0% and 30.8% compared with 2001, respectively. On a comparable basis, net income grew by 22.9% and diluted EPS increased by 19.4%. Operating cash flow for 2002 was $134.7 million.
"Net sales growth for the quarter exceeding 11% in local currencies on a comparable basis is approximately twice our estimated consolidated growth rate of the markets we serve," said Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein. "Our fourth quarter financial results cap off a year of strong market share gains, essentially all of which was internal. For the quarter, Dental sales were up 11% on a comparable basis, including merchandise sales up 6% and equipment sales up 28%. Medical sales to our core physician and alternate-care customers were up 14%, and Technology and Value-Added Services sales were up 17%, both on a comparable basis. European Dental sales increased by 6% in local currencies, slightly ahead of our estimated market growth rate. We are proud to report continued healthy growth in net sales, net income and earnings per share, as well as operating cash flow of over $69 million for the quarter."
"While Dental merchandise sales growth continues to outpace market growth rate, we again posted very strong gains in our Dental equipment sales and service revenues, which is a direct result of investments made in this segment of our business and is a positive indicator for future growth in our Dental business," stated Mr. Bergman. "Enrollment of dental practices in our Privileges customer-loyalty program continues to increase, and at the end of 2002 over 10,000 dental customers were participating in this innovative program. Results continue to indicate that these customers are increasing their business with us at a rate significantly above our average customer."
Commenting on the Company's Medical Group, Mr. Bergman remarked, "With quarterly net sales up approximately 15% on a comparable basis, sales growth in our core physician and alternate care business is two to three times greater than our estimated market growth rate."
"Our financial results for 2002 reflect the power of our business model," commented Mr. Bergman. "For the year, we posted internal net sales growth of over 9%, a rate that is 80% above the estimated 5% consolidated growth rate of the markets we serve. And in turn, we grew operating income, net income and diluted EPS each by around 20%, a rate double our top-line growth, while generating operating cash flow in excess of net income."
Regarding financial guidance for 2003, the Company expects full year earnings per diluted share to be $2.95 to $2.98, reflecting fourth quarter 2002 performance and representing a growth rate of 14% to 15% compared with 2002 results, excluding a $0.02 one-time gain in each of the third and fourth quarters. The Company noted that this 2003 EPS guidance is for current operations, and does not include the impact of potential acquisitions.
Fourth Quarter Conference Call Webcast
The Company will hold a conference call to discuss fourth quarter financial results today, beginning at 10 a.m. Eastern Time. Individual investors are invited to listen to the conference call over the Internet through Henry Schein's Website at www.henryschein.com. In addition, a replay will be available for 30 days beginning shortly after the call has ended.
Henry Schein, Inc. is the largest distributor of healthcare products and services to office-based healthcare practitioners in the combined North American and European markets. Recognized for its excellent customer service and low prices, the Company serves more than 400,000 customers worldwide, including dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions.
The Company operates its four business groups - Dental, Medical, International and Technology - through a centralized and automated distribution network, which provides customers in more than 125 countries with a comprehensive selection of over 80,000 national and Henry Schein private-brand products. Henry Schein also offers a wide range of innovative value-added practice solutions, including such leading practice management software systems as DENTRIX(R) and Easy Dental(R) for dental practices, and AVImark(R) for veterinary clinics, which are installed in over 48,000 practices; and ArubA(R), Henry Schein's electronic catalog and ordering system. Headquartered in Melville, New York, Henry Schein employs over 6,900 people in 16 countries. The Company's 2002 sales reached a record $2.8 billion. For more information, visit the Henry Schein Website at www.henryschein.com.
Certain information contained herein includes information that is forward-looking. The matters referred to in forward-looking statements may be affected by the risks and uncertainties involved in the Company's business. These forward-looking statements are qualified in their entirety by the cautionary statements contained in the Company's Securities and Exchange Commission filings.
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Twelve Months Ended
(unaudited) (audited)
--------------------- ----------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 747,403 $ 698,289 $2,825,001 $2,558,243
Cost of sales 539,757 504,070 2,030,097 1,858,919
---------- ---------- ---------- ----------
Gross profit 207,646 194,219 794,904 699,324
Operating expenses:
Selling, general and
administrative 157,849 151,199 598,635 551,574
Merger, integration
and restructuring
costs (734) 0 (734) 0
---------- ---------- ---------- ----------
Operating income 50,531 43,020 197,003 147,750
Other income (expense):
Interest income 2,990 3,394 10,446 10,078
Interest expense (3,978) (3,217) (17,960) (17,324)
Other - net (77) (537) 940 (153)
---------- ---------- ---------- ----------
Income before taxes
on income,
minority interest
and equity in
earnings of
affiliates 49,466 42,660 190,429 140,351
Taxes on income 17,982 15,784 70,510 51,930
Minority interest in
net income (loss) of
subsidiaries 753 (185) 2,591 1,462
Equity in earnings
of affiliates 232 75 659 414
---------- ---------- ---------- ----------
Net income $ 30,963 $ 27,136 $ 117,987 $ 87,373
========== ========== ========== ==========
Net income per common
share:
Basic $ 0.70 $ 0.64 $ 2.71 $ 2.06
========== ========== ========== ==========
Diluted $ 0.69 $ 0.62 $ 2.63 $ 2.01
========== ========== ========== ==========
Weighted average common
shares outstanding:
Basic 43,956 42,637 43,489 42,366
========== ========== ========== ==========
Diluted 45,101 43,729 44,872 43,545
========== ========== ========== ==========
Adjusted net income:
Net income $ 30,963 $ 27,136 $ 117,987 $ 87,373
Merger, integration
and restructuring
costs (734) 0 (734) 0
Tax effect 0 0 0 0
---------- ---------- ---------- ----------
Adjusted net income $ 30,229 $ 27,136 $ 117,253 $ 87,373
========== ========== ========== ==========
Adjusted net income per
common share:
Basic $ 0.69 $ 0.64 $ 2.70 $ 2.06
========== ========== ========== ==========
Diluted $ 0.67 $ 0.62 $ 2.61 $ 2.01
========== ========== ========== ==========
Comparable basis
information (Exhibit B):
Comparable basis net
income $ 35,183 $ 28,960 $ 116,363 $ 94,669
========== ========== ========== ==========
Comparable basis net
income per diluted
share $ 0.78 $ 0.66 $ 2.59 $ 2.17
========== ========== ========== ==========
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(audited)
Dec. 28, Dec. 29,
2002 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 200,651 $ 193,367
Marketable securities 31,209 0
Accounts receivable, less reserves of
$36,200 and $31,929, respectively 368,263 363,700
Inventories 323,080 291,231
Deferred income taxes 29,919 25,751
Prepaid expenses and other 74,407 52,922
---------- ----------
Total current assets 1,027,529 926,971
Property and equipment, net of accumulated
depreciation and amortization of $101,519 and
$90,823, respectively 142,532 117,980
Goodwill, net 302,687 279,981
Other intangibles, net of accumulated
amortization of $4,151 and $3,348, respectively 7,661 8,023
Investments and other 77,643 52,473
---------- ----------
$1,558,052 $1,385,428
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 243,166 $ 263,190
Bank credit lines 4,790 4,025
Accruals:
Salaries and related expenses 53,954 41,602
Merger and integration, and restructuring
costs 3,044 5,867
Acquisition earnout payments 1,460 26,800
Taxes and other expenses 114,254 80,355
Current maturities of long-term debt 2,662 15,223
---------- ----------
Total current liabilities 423,330 437,062
Long-term debt 242,561 242,169
Other liabilities 24,196 18,954
---------- ----------
Total liabilities 690,087 698,185
---------- ----------
Minority interest 6,748 6,786
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, authorized
1,000,000, issued and outstanding: 0 and 0,
respectively 0 0
Common stock, $.01 par value, authorized
120,000,000, issued: 44,041,591 and
42,745,204, respectively 440 427
Additional paid-in capital 436,554 393,047
Retained earnings 430,389 312,402
Treasury stock, at cost, 62,479 shares (1,156) (1,156)
Accumulated comprehensive loss (4,794) (23,922)
Deferred compensation (216) (341)
---------- ----------
Total stockholders' equity 861,217 680,457
---------- ----------
$1,558,052 $1,385,428
========== ==========
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended Twelve Months Ended
(unaudited) (audited)
---------------------- ----------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Cash flows from
operating activities:
Net income $ 30,963 $ 27,136 $ 117,987 $ 87,373
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization 8,186 9,393 28,272 35,642
Other 6,182 8,645 7,914 18,620
Changes in assets and
liabilities (net of
purchase
acquisitions):
Decrease (increase)
in accounts
receivable 46,980 50,636 (2,023) 3,194
Increase in
inventories (4,939) (42,573) (23,075) (17,850)
(Increase) decrease
in other current
assets (9,783) (5,893) (18,445) 8,808
(Decrease) increase
in accounts
payable and
accruals (8,570) 64,444 24,039 55,124
---------- ---------- ---------- ----------
Net cash provided by
operating activities 69,019 111,788 134,669 190,911
---------- ---------- ---------- ----------
Cash flows from
investing activities:
Capital expenditures (11,283) (16,117) (47,543) (46,127)
Business acquisitions,
net of cash acquired (1,337) (8,252) (36,224) (8,588)
Purchase of marketable
securities with
maturities of more
than three months (4,918) 0 (55,211) 0
Other (733) 2,232 (3,780) (355)
---------- ---------- ---------- ----------
Net cash used in
investing activities (18,271) (22,137) (142,758) (55,070)
---------- ---------- ---------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of long-term debt 0 0 0 10,166
Principal payments on
long-term debt (553) (1,070) (14,941) (13,042)
Proceeds from issuance
of stock upon
exercise of stock
options by employees 1,369 1,781 34,122 14,155
Net (payments on)
proceeds from
borrowings from banks (1,349) (4,928) 394 (10,752)
Other 1,865 240 (892) (156)
---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities 1,332 (3,977) 18,683 371
---------- ---------- ---------- ----------
Net increase in cash
and cash equivalents 52,080 85,674 10,594 136,212
Effect of exchange rate
changes on cash
and cash equivalents (728) (161) (3,310) (1,207)
Cash and cash
equivalents, beginning
of period 149,299 107,854 193,367 58,362
---------- ---------- ---------- ----------
Cash and cash
equivalents, end of
period $ 200,651 $ 193,367 $ 200,651 $ 193,367
========== ========== ========== ==========
Exhibit A
Henry Schein Inc.
2002 Fourth Quarter and Full Year
Details of "Comparable Basis" Growth Comparison
Net Sales by Category
(unaudited)
Fourth Quarter % Full Year %
--------------- -------------------
2002 2001 Growth 2002 2001 Growth
Net Sales as reported
---------------------------------------------------------------------
Dental 324,991 292,485 11.1% 1,227,273 1,121,394 9.4%
Medical 282,322 284,700 -0.8% 1,093,956 982,569 11.3%
International 121,043 106,787 13.3% 437,046 398,071 9.8%
Technology 19,047 14,317 33.0% 66,726 56,209 18.7%
Total 747,403 698,289 7.0% 2,825,001 2,558,243 10.4%
---------------------------------------------------------------------
Add: Influenza sales timing (1)
Dental - - - -
Medical 43,748 - - -
International - - - -
Technology - - - -
Total 43,748 - - -
Add: Technology Sales Methodology (2)
Dental - 965 - 1,337
Medical - - - -
International - - - -
Technology - 1,930 - 2,682
Total - 2,895 - 4,019
Net Sales on a Comparable basis
---------------------------------------------------------------------
Dental 324,991 293,450 10.7% 1,227,273 1,122,731 9.3%
Medical 326,070 284,700 14.5% 1,093,956 982,569 11.3%
International 121,043 106,787 13.3% 437,046 398,071 9.8%
Technology 19,047 16,247 17.2% 66,726 58,891 13.3%
Total 791,151 701,184 12.8% 2,825,001 2,562,262 10.3%
---------------------------------------------------------------------
(1) Influenza vaccine sales occurred earlier this year than last
year, as discussed in detail when reporting third quarter 2002
financial results. This timing shift, into the third quarter
from the fourth quarter of 2002, had no impact on full year
2002 results.
(2) As part of the Company's new Dental marketing initiative,
MarketOne, certain technology and equipment products are now
being sold directly to end-user customers rather than through
resellers. This had no impact on net income since the increase
in net sales was directly offset by an increase in commission
expense.
Exhibit B
Henry Schein Inc.
2002 Fourth Quarter and Full Year
Details of "Comparable Basis" Growth Comparison
Income Statement Summary
(unaudited)
Fourth Quarter % Full Year %
---------------- -------------------
2002 2001 Growth 2002 2001 Growth
As Reported
----------------------------------------------------------------------
Net Sales 747,403 698,289 7.0% 2,825,001 2,558,243 10.4%
Operating Income 50,531 43,020 17.5% 197,003 147,750 33.3%
Operating Margin 6.8% 6.2% 60 bp 7.0% 5.8% 120 bp
Net Income 30,963 27,136 14.1% 117,987 87,373 35.0%
Diluted EPS 0.69 0.62 11.3% 2.63 2.01 30.8%
----------------------------------------------------------------------
Add: Influenza Sales Timing
Net Sales 43,748 - - -
Operating Income 7,944 - - -
Net Income 4,954 - - -
Diluted EPS 0.11 - - -
Add: Technology Sales Methodology
Net Sales - 2,895 - 4,019
Operating Income - - - -
Net Income - - - -
Diluted EPS - - - -
Add: Goodwill Amortization (1)
Net Sales - - - -
Operating Income - 2,894 - 11,579
Net Income - 1,824 - 7,296
Diluted EPS - 0.04 - 0.16
Subtract: Restructuring Accrual Reversal (2)
Net Sales - - - -
Operating Income (734) - (734) -
Net Income (734) - (734) -
Diluted EPS (0.02) - (0.02) -
Subtract: Gain on Real Estate Transaction (3)
Net Sales - - - -
Operating Income - - - -
Net Income - - (890) -
Diluted EPS - - (0.02) -
Comparable Basis
----------------------------------------------------------------------
Net Sales 791,151 701,184 12.8% 2,825,001 2,562,262 10.3%
Operating Income 57,741 45,914 25.8% 196,269 159,329 23.2%
Operating Margin 7.3% 6.5% 75 bp 6.9% 6.2% 73 bp
Net Income 35,183 28,960 21.5% 116,363 94,669 22.9%
Diluted EPS 0.78 0.66 18.2% 2.59 2.17 19.4%
----------------------------------------------------------------------
(1) 2002 results are reported in compliance with SFAS 142, which
eliminates amortization of goodwill.
(2) In the fourth quarter of 2002, the Company recorded a net
credit related to a reversal of previously accrued merger,
integration, and restructuring costs.
(3) In the third quarter of 2002, the Company recorded a net non-
recurring gain primarily related to a real estate transaction.
CONTACT: Henry Schein, Inc.
Steven Paladino, 631/843-5500
or
Susan Vassallo, 631/843-5562
svassa@henryschein.com
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