Henry Schein Reports Second Quarter Results; Net Income of $17.0 Million, Operating Cash Flow of $56.5 Million; Announces Restructuring Plan to Increase Profitability
MELVILLE, N.Y.--(BUSINESS WIRE)--August 1, 2000--Henry Schein, Inc. (Nasdaq: HSIC), the world's largest provider of healthcare supplies to office-based practitioners in the combined North American and European markets, today announced financial results for the second quarter of 2000.
For the three months ended June 24, 2000, net sales increased to $568 million, from $559 million in the second quarter of last year. Excluding merger and integration costs related to the recently announced acquisition of Integra Medical, Inc., adjusted net income rose to $17.0 million, or $0.41 per diluted share, compared with adjusted net income of $16.4 million, or $0.40 per diluted share, in the second quarter of 1999.
Cash flow from operations was $56.5 million for the second quarter of 2000, compared with $18.5 million in the second quarter of last year. Operating cash flow for the first half of 2000 was $65.3 million, compared to $5.3 million in the first half of 1999. As a result of its improved cash flow, the Company paid down approximately $26.5 million in debt during the second quarter of 2000.
"We are especially pleased with this dramatic increase in operating cash flow, which is largely a result of our ongoing focus on improving working capital and asset management," said Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein.
Year-to-date adjusted net income was $28.4 million, or $0.69 per diluted share, compared to $27.7 million, or $0.67 per diluted share, in the prior year.
The Company reported second quarter Dental sales of $265 million, approximately 2% above the same period in the prior year. Net sales in the Company's Dental equipment sales and services business were approximately equal to the prior year's second quarter, following three consecutive quarters of declining sales in this category. Dental merchandise sales were up 2% for the second quarter of 2000, compared to the second quarter of 1999.
Henry Schein's Medical and Veterinary businesses continued to outpace market growth rates, rising 7% and 6%, respectively. Medical sales to the Company's core physician office and alternate care markets grew by 12%. International sales for the second quarter were approximately 6% below the second quarter of 1999, while in local currencies sales grew by 3%. International results were impacted by sales erosion from combining similar businesses in the United Kingdom; however, the consolidation of these businesses has resulted in operating expense efficiencies.
Technology and Value-Added Services sales in the second quarter of 2000 were 5% below the same period in the prior year. This decline was due to lower sales of non-software related value-added services. Excluding value-added services, sales in the 2000 second quarter from the Company's practice management software and related technologies business were 7% above last year.
Restructuring Program Underway to Reduce Costs by $15 Million
Henry Schein also announced the implementation of a comprehensive restructuring plan designed to improve customer service and increase profitability by maximizing the Company's infrastructure. This worldwide initiative includes the elimination of approximately 300 positions, or about 5% of the total workforce, throughout the organization and at all levels.
Estimated annual cost savings from the restructuring are expected to be approximately $15 million on a pre-tax basis ($9 million after taxes), equating to about $0.22 per diluted share. These savings are in addition to those expected from the previously announced Dental rightsizing plan, now estimated at $5 million pre-tax annually ($3 million after tax), equating to about $0.07 per diluted share. Total pre-tax cost savings from both initiatives are estimated at $20 million annually ($12 million after taxes), or $0.29 per diluted share.
The restructuring plan will be implemented over the balance of 2000 and, like the Dental rightsizing plan, will be completed by year-end. The Company expects to record a one-time restructuring charge of approximately $14 million pre-tax ($8.4 million after tax), or $0.20 per diluted share, during the second half of 2000. This restructuring charge primarily includes severance pay, facility closing costs, and outside professional and consulting fees directly related to the restructuring plan.
Mr. Bergman stated, "The restructuring plan will result in a worldwide organization that is aligned with our current level of sales, and enables us to leverage our infrastructure to springboard future improvements in profitability. The resulting organizational structure will be significantly streamlined and flattened to ensure maximum efficiency and improved customer support. This restructuring plan will allow us to better serve our customers with the highest quality service in the most cost efficient manner.
"A reduction in our workforce is not undertaken lightly, especially by a Company such as Henry Schein which considers Team Schein to be its greatest asset. We will offer full severance packages and outplacement assistance to the affected individuals."
Mr. Bergman concluded, "We are committed to delivering superior financial returns to our shareholders, and this restructuring plan is consistent with that goal. I remain confident in our future success."
The Company will hold a conference call to discuss these results today, beginning at 10:00 a.m. Eastern Time. Individual investors are invited to listen to the conference call over the Internet through Vcall, a service of the Investor Broadcast Network, at www.vcall.com. To listen to the live call, please go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. In addition, a replay will be available 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. Customers include dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions. The Company, recognized for its excellent customer service and low prices, serves more than 400,000 customers worldwide.
Headquartered in Melville, New York, the Company employs over 6,500 people in 15 countries. Sales in 1999 were $2.3 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. -0-
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HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
--------------------------
June 24, June 26,
2000 1999
------------ -----------
Net sales $ 568,174 $ 559,310
Cost of sales 385,443 385,260
----------- -----------
Gross profit 182,731 174,050
Operating expenses:
Selling, general and
administrative 151,164 142,001
Merger and integration
costs 585 5,271
----------- -----------
Operating income 30,982 26,778
Other income (expense):
Interest income 924 1,488
Interest expense (4,847) (5,316)
Other - net (495) 297
----------- -----------
Income before taxes on
income, minority interest
and equity in earnings
(losses) of affiliates 26,564 23,247
Taxes on income 9,774 8,958
Minority interest in net income
of subsidiaries 549 322
Equity in earnings (losses)
of affiliates 140 (630)
----------- -----------
Net income $ 16,381 $ 13,337
=========== ===========
Adjusted net income:
Net income $ 16,381 $ 13,337
Adjustments:
Merger and integration
costs 585 5,271
Tax effect on merger and
integration costs 0 (2,163)
----------- -----------
Adjusted net income $ 16,966 $ 16,445
=========== ===========
Adjusted net income per
common share:
Basic $ 0.41 $ 0.41
=========== ===========
Diluted $ 0.41 $ 0.40
=========== ===========
Weighted average shares:
Basic 41,204 40,491
=========== ===========
Diluted 41,702 41,547
=========== ===========
Six Months Ended
------------------------------
June 24, June 26,
2000 1999
--------------- -------------
Net sales $ 1,121,984 $ 1,095,645
Cost of sales 770,049 758,178
----------- -----------
Gross profit 351,935 337,467
Operating expenses:
Selling, general and
administrative 296,891 281,770
Merger and integration
costs 585 7,474
----------- -----------
Operating income 54,459 48,223
Other income (expense):
Interest income 2,020 3,821
Interest expense (10,699) (11,040)
Other - net (646) 108
----------- -----------
Income before taxes on
income, minority interest
and equity in earnings
(losses) of affiliates 45,134 41,112
Taxes on income 16,552 16,085
Minority interest in net income
of subsidiaries 1,037 919
Equity in earnings (losses)
of affiliates 234 (858)
----------- -----------
Net income $ 27,779 $ 23,250
=========== ===========
Adjusted net income:
Net income $ 27,779 $ 23,250
Adjustments:
Merger and integration
costs 585 7,474
Tax effect on merger and
integration costs 0 (3,022)
----------- -----------
Adjusted net income $ 28,364 $ 27,702
=========== ===========
Adjusted net income per
common share:
Basic $ 0.69 $ 0.68
=========== ===========
Diluted $ 0.69 $ 0.67
=========== ===========
Weighted average shares:
Basic 40,959 40,456
=========== ===========
Diluted 41,401 41,621
=========== ===========
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 24, Dec. 25,
2000 1999
(unaudited) (audited)
------------ ----------
ASSETS
Current assets:
Cash and cash equivalents $ 45,900 $ 26,019
Accounts receivable, less
reserves of $21,685 and
$20,391, respectively 357,215 388,063
Inventories 274,668 285,590
Deferred income taxes 18,435 15,520
Prepaid expenses and other 62,109 63,617
---------- ---------
Total current assets 758,327 778,809
Property and equipment, net of
accumulated depreciation
and amortization of $67,196 and
$60,702, respectively 87,489 86,627
Goodwill and other intangibles,
net of accumulated
amortization of $37,937 and $31,356,
respectively 283,389 295,113
Investments and other 41,702 43,553
------------ ----------
$ 1,170,907 $ 1,204,102
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 183,586 $ 198,983
Bank credit lines 37,730 41,527
Accruals:
Salaries and related expenses 32,650 31,188
Merger and integration costs 6,729 10,093
Other 64,136 64,710
Current maturities of
long-term debt 5,484 3,879
------------ ------------
Total current liabilities 330,315 350,380
Long-term debt 280,128 318,218
Other liabilities 11,855 9,782
------------ ------------
Total liabilities 622,298 678,380
------------ ------------
Minority interest 8,324 7,855
------------ ------------
Stockholders' equity:
Common stock, $.01 par value,
authorized 120,000,000;
issued and outstanding 41,276,794
and 40,768,306, respectively 413 407
Additional paid-in capital 362,529 361,757
Retained earnings 196,060 167,809
Treasury stock, at cost
(62,479 shares) (1,156) (1,156)
Accumulated comprehensive income (17,032) (10,359)
Deferred compensation (529) (591)
------------- ------------
Total stockholders' equity 540,285 517,867
------------- ------------
$ 1,170,907 $ 1,204,102
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CONTACT: Henry Schein, Inc., Melville
Steven Paladino
Executive Vice President and
Chief Financial Officer
631/843-5500
or
Susan Vassallo
Manager, Investor and Public Relations
631/843-5562
svassa@henryschein.com