View:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
-----------------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of
- - ---
the Securities Exchange Act of 1934
For the period ended March 30, 1996
OR
__ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-27078
HENRY SCHEIN, INC.
(Exact name of registrantas specified in its charter)
Delaware 11-3136595
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
135 Duryea Road
Melville, New York 11747
(Address of principal executives offices
Telephone Number (516) 843-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ----
As of May 10, 1996, there were 18,306,994 shares of the Registrant's Common
Stock outstanding.
HENRY SCHEIN, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
-------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
March 30, 1996 and December 30, 1995 . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
Three months ended March 30, 1996 and April 1, 1995 . . . . . . . 4
Consolidated Statements of Cash Flows
Three months ended March 30, 1996 and April 1, 1995 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 30, December 30,
1996 1995
----------- --------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents . . . . . $7,500 $7,603
Accounts receivable, less reserves
of $5,891 and $6,335, respectively
104,859 91,248
Inventories . . . . . . . . . . . . 87,897 96,515
Deferred income taxes . . . . . . . 6,715 6,896
Other . . . . . . . . . . . . . . . 18,579 19,492
----------- --------
Total current assets 225,550 221,754
Property and equipment, net of
accumulated depreciation of $35,120
and $33,904, respectively . . . . . 30,816 29,713
Goodwill and other intangibles, net
of accumulated amortization of
$2,144 and 1,795, respectively . . 26,186 24,389
Investments and other . . . . . . . . 21,181 21,011
----------- --------
$303,733 $296,867
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . $56,184 $65,105
Bank credit lines . . . . . . . . . 8,085 9,325
Accruals:
Salaries and related expenses . . 9,999 9,074
Premium coupon redemptions . . . 4,354 4,474
Other . . . . . . . . . . . . . . 19,012 26,534
Current maturities of long-term debt 3,861 3,343
----------- --------
Total current liabilities 101,495 117,855
Long-term debt . . . . . . . . . . . 51,701 30,381
Other liabilities . . . . . . . . . . 1,236 1,233
----------- --------
Total liabilities 154,432 149,469
----------- --------
Minority interest . . . . . . . . . . 4,361 4,547
----------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value,
authorized 60,000,000; issued and
outstanding 18,358,673 . . . . . 183 183
Additional paid-in capital . . . . 123,866 123,866
Retained earnings . . . . . . . . 22,210 19,746
Treasury stock, at cost, 51,679
shares . . . . . . . . . . . . . . (769) (769)
Foreign currency translation
adjustment . . . . . . . . . . . . (550) (175)
----------- --------
Total stockholders' equity . . 144,940 142,851
----------- --------
$303,733 $296,867
=========== =========
See accompanying notes to consolidated financial statements.
3
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended
-------------------
March 30, April 1,
1996 1995
-------- ---------
Net sales . . . . . . . $185,359 $136,040
Cost of sales . . . . . 130,410 95,725
-------- ---------
Gross profit . . . . 54,949 40,315
Operating expenses:
Selling, general and
administrative . . 50,245 37,329
-------- ---------
Operating income . 4,704 2,986
Other income (expense):
Interest income . . . 395 69
Interest expense . . (961) (1,288)
Other-net . . . . . . (97) 97
-------- ---------
Income before taxes
on income,
minority interest
and equity in
earnings of
affiliates . . . 4,041 1,864
Taxes on income . . . . 1,783 781
Minority interest in net
income (loss) of
subsidiaries . . . . (70) 172
Equity in earnings of
affiliates . . . . . . 136 25
-------- ---------
Net income . . . . . . $2,464 $936
========= =========
Net income per common $ .13 $ .08
========= =========
Weighted average common
and common equivalent
shares outstanding . 18,670 12,184
========= =========
See accompanying notes to consolidated financial statements.
4
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
--------------------
March 30, April 1,
1996 1995
------ ------
Cash flows from operating
activities:
Net income . . . . . . . . $2,464 $936
Adjustments to reconcile
net income to net cash
used in operating
activities:
Depreciation and
amortization 1,716 914
Provision (benefit) for
losses on accounts receivable (360) 154
Provision (benefit) for
deferred income taxes . . 168 (787)
Undistributed earnings of
affiliates . . . . . . . . (136) (25)
Minority interest in net
income (loss) of subsidiaries (70) 172
Other . . . . . . . . . . . 24 62
Changes in assets and
liabilities:
Increase in accounts
receivable . . . . . . . (11,898) (6,692)
Decrease in inventories . 10,037 5,378
Decrease in other current
assets . . . . . . . . . 1,454 2,168
Decrease in accounts
payable and accruals . . (19,435) (4,901)
------ ------
Net cash used in operating
activities . . . . . . . . . . (16,036) (2,621)
------ ------
Cash flows from investing
activities:
Capital expenditures . . . . (1,956) (1,652)
Business acquisitions, net of
cash acquired . . . . . . . . (1,925) (280)
Other . . . . . . . . . . . . 149 (488)
------ ------
Net cash used in investing
activities . . . . . . . . . . (3,732) (2,420)
------ ------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt . . . . . . . 662 269
Principal payments on long-term
debt . . . . . . . . . . . . (924) (459)
Proceeds from borrowings from
banks . . . . . . . . . . . . 23,960 6,254
Payments on borrowings from
banks . . . . . . . . . . . . (3,559) (293)
Other . . . . . . . . . . . . (474) 906
------ ------
Net cash provided by financing
activities . . . . . . . . . . 19,665 6,677
------ ------
Net increase (decrease) in cash
and cash equivalents . . . . . (103) 1,636
Cash and cash equivalents,
beginning of period . . . . . . 7,603 4,450
------ ------
Cash and cash equivalents, end
of period . . . . . . . . . . . $7,500 $6,086
====== ======
See accompanying notes to consolidated financial
statements.
5
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Henry Schein, Inc.
and its wholly-owned and majority-owned subsidiaries (collectively, the
"Company").
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the information set forth
therein. These consolidated financial statements are condensed and therefore do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 30, 1995. The Company
follows the same accounting policies in preparation of interim reports. The
results of operations for the three months ended March 30, 1996 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 28, 1996.
Note 2. Business Acquisitions
During 1995, the Company acquired fourteen healthcare distribution businesses
including the distribution business of The Veratex Corporation ("Veratex"), a
national direct marketer of medical, dental and veterinary products. Veratex
had net sales of approximately $9,927 for the three months ended April 1, 1995.
The Veratex acquisition also provides for contingent payments of up to
approximately $2,000 if certain financial targets are satisfied.
These acquisitions, except as set forth below, were accounted for using the
purchase method of accounting. One acquisition is from an affiliate and has
been accounted for using the purchase method of accounting, with carry-over of
predecessor basis with respect to the affiliate's proportionate share of net
assets. Operations of these businesses have been included in the consolidated
financial statements from their respective acquisition dates.
Acquisitions completed during the three months ended March 30, 1996 were not
material.
The excess of the acquisition costs over the fair value of identifiable net
assets acquired will be amortized on a straight-line basis over 30 years.
6
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
(unaudited)
Note 2. Business Acquisitions (cont'd)
The summarized unaudited pro forma results of operations set forth below for the
three months ended April 1, 1995 assume the 1995 acquisitions occurred as of the
beginning of the period.
Three Months
Ended
-------------
April 1, 1995
-------------
Net sales . . . . . . . . . . . . . . . . $156,873
Net income . . . . . . . . . . . . . . . 417
Net income per common share . . . . . . . $0.03
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 30, 1996 compared to
Three Months Ended April 1, 1995
Net sales increased $49.4 million, or 36.3%, to $185.4 million for the three
months ended March 30, 1996 from $136.0 million for the three months ended April
1, 1995. Of the $49.4 million increase, approximately $22.7 million represented
a 31.6% increase in the Company's dental business, $13.2 million represented a
49.1% increase in its medical business, $11.3 million represented a 45.2%
increase in its international business, $1.8 million represented a 26.9%
increase in its veterinary business and $0.4 million represented a 5.9% increase
in the Company's technology business. The dental net sales increase was
primarily the result of the Company's increased emphasis on its integrated sales
and marketing approach (which coordinates the efforts of its field sales
consultants with its direct marketing and telesales personnel), entering the
U.S. market for large dental equipment, and acquisitions. Of the approximately
$13.2 million increase in medical net sales, approximately $6.1 million, or
46.2%, represented increased net sales to renal dialysis centers, with the
effects of acquisitions and increased outbound telesales activity primarily
accounting for the balance of the increase in net sales. In the international
market, the increase in net sales was primarily due to acquisitions
and increased unit volume growth. In the veterinary market, the increase
in net sales was primarily due to increased account penetration.
Gross profit increased by $14.6 million, or 36.2%, to $54.9 million for the
three months ended March 30, 1996, from $40.3 million for the three months ended
April 1, 1995, while gross profit margin remained consistent at 29.6% for the
same period. The $14.6 million increase in gross profit was primarily due to
increased account penetration and the effects of acquisitions.
Selling, general and administrative expenses increased by $12.9 million, or
34.6%, to $50.2 million for the three months ended March 30, 1996 from $37.3
million for the three months ended April 1, 1995. Selling and shipping expenses
increased by $10.5 million, or 44.3%, to $34.2 million for the three months
ended March 30, 1996 from $23.7 million for the three months ended April 1,
1995. As a percentage of net sales, selling and shipping expenses increased 1.0%
to 18.4% for the three months ended March 30, 1996 from 17.4% for the three
months ended April 1, 1995. The increase in selling and shipping expenses as a
percentage of net sales was primarily due to an increase in the number of field
sales consultants. General and administrative expenses increased $2.4 million,
or 17.6%, to $16.0 million for the three months ended March 30, 1996 from $13.6
million for the three months ended April 1, 1995, primarily as a result of
acquisitions. As a percentage of net sales, general and administrative
expenses decreased 1.4% to 8.6% for the three months ended March 30, 1996
from 10.0% for the three months ended April 1, 1995 due primarily to the
relatively fixed nature of general and administrative expenses when compared
to the 36.3% increase in sales volume for the same period.
8
Other Income (Expense) in the aggregate decreased $0.4 million, or 36.4%, to
$0.7 million for the three months ended March 30, 1996 from $1.1 million for the
three months ended April 1, 1995. This decrease was primarily due to a
reduction in interest expense which resulted from a decline in average interest
rates to 7.2% for the three months ended March 30, 1996 from 8.0% for the three
months ended April 1, 1995 and a $10.7 million decrease in the Company's average
borrowings which primarily resulted from the availability of additional equity
capital from the Company's initial public offering in November 1995, reduced by
cash used for acquisitions.
Equity in earnings of affiliates increased by $0.1 million to $0.1 million for
the three months ended March 30, 1996. This increase in equity in earnings of
affiliates was primarily due to the acquisition of an unconsolidated affiliate
during the fourth quarter of 1995.
For the three months ended March 30, 1996, the Company's provision for taxes was
$1.8 million, while pre-tax income was $4.0 million, resulting in an effective
tax rate of 44.1%. The difference between the effective tax rate and the
Federal statutory rate relates primarily to state income taxes and currently
non-deductible net operating losses of certain foreign subsidiaries in France,
which are not included in the Company's consolidated tax return. For the three
months ended April 1, 1995, the Company's provision for taxes was $0.8 million,
while pre-tax income was $1.9 million. The effective tax rate of 41.9% for the
three months ended April 1, 1995 differed from the Federal statutory rate,
primarily due to state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (a) working
capital needs resulting from increased sales, extended payment terms on various
products and special inventory buying opportunities, (b) capital expenditures,
and (c) acquisitions. Since sales are strongest during the fourth quarter and
special inventory buying opportunities are most prevalent just before the end of
the year, the Company's working capital requirements are generally higher from
the end of the third quarter to the end of the first quarter of the following
year. The Company currently finances its business primarily through a revolving
credit facility.
Net cash used in operating activities for the three months ended March 30, 1996
of $16.0 million resulted primarily from a net increase of $19.8 million in
working capital offset by net income (adjusted for non-cash charges relating to
depreciation and amortization) of $4.2 million. The increase in working capital
was primarily due to an increase in accounts receivable resulting from increased
sales and extended payment terms, and a decrease in accounts payable partially
offset by a decrease in inventory.
Net cash used in investing activities for the three months ended March 30, 1996
of $3.7 million resulted primarily from cash outlays for acquisitions and
capital expenditures.
Net cash provided by financing activities for the three months ended March 30,
1996 of $19.7 million resulted primarily from additional bank borrowings of
$24.0 million offset in part by repayments.
In addition, with respect to the acquisitions completed during fiscal 1995, as
well as certain other acquisitions and ventures which have been completed or for
which agreements have been executed, minority shareholders have the right at
certain times to require the Company to acquire their shares
9
at either fair market value or a formula price based on earnings of the entity.
One of the acquisitions also provides for contingent consideration of up to
approximately $2.0 million if certain financial targets are satisfied.
The Company entered into its $65.0 million main revolving credit facility on
July 5, 1995. Borrowings under the facility were $39.0 million at March 30,
1996. At March 30, 1996, the Company's main revolving credit facility was
unsecured. In addition, the Company's subsidiaries have revolving credit
facilities that total approximately $13.9 million.
The Company believes that its anticipated cash flow from operations, as well as
the availability of funds under its existing credit agreements, will provide it
with liquidity sufficient to meet its ongoing capital needs for at least the
balance of its fiscal year.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This report contains forward-looking statements
based on current expectations that could be affected by the risks and
uncertainties involved in the Company's business. These risks and uncertainties
include, but are not limited to, the effect of economic and market conditions,
the impact of the consolidation of healthcare practitioners, the impact of
healthcare reform, opportunities for acquisitions and the Company's ability to
effectively integrate acquired companies, the acceptance and quality of software
products, acceptance and ability to manage operations in foreign markets,
possible disruptions in the Company's computer systems or telephone systems,
possible increases in shipping rates or interruptions in shipping service, the
level and volatility of interest rates and currency values, the impact of
current or pending legislation and regulation, as well as the risks described
from time to time in the Company's reports to the Securities and Exchange
Commission, which include the Company's Annual Report on Form 10-K for the year
ended December 30, 1995. Subsequent written or oral statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this Form 10-Q and those in the
Company's reports previously filed with the Securities and Exchange Commission.
10
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 - Computation of Earnings per Share
27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 30, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HENRY SCHEIN, INC.
(Registrant)
Dated: May 10, 1996 By: /s/ Steven Paladino
---------------------
Steven Paladino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
11.1 - Computation of Earnings per Share
27.1 - Financial Data Schedule
EXHIBIT 11.1
HENRY SCHEIN, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
Three months ended
-------------------------
March 30, April 1,
1996 1995
---------- ----------
Net income per consolidated
statements of operations (in
thousands) . . . . . . . . . . . $ 2,464 $ 936
========== ==========
Weighted average common shares
outstanding:
Shares outstanding at December 25,
1993 . . . . . . . . . . . . . 11,390,544 11,390,544
1994 issuances:
Shares issued, in part, to
extinguish liability under
long-term executive incentive
compensation plan . . . . . 489,456 489,456
Shares issued to ESOP trust in
12/94 . . . . . . . . . . . . . 128,257 128,257
Stock options granted at an
exercise price of $4.21 per
share (1) . . . . . . . . . . . 221,397 237,897
IPO Options (Class B) . . . . . . 408,400 ---
IPO Shares . . . . . . . . . . . 5,090,000 ---
1995 issuances:
Shares issued as of September 1,
1995 in connection with an
Acquisition . . . . . . . . 1,260,416 ---
---------- ----------
18,988,470 12,246,154
Less treasury stock . . . . . . (51,679) ---
---------- ----------
18,936,791 12,246,154
Less assumed repurchase of shares
under treasury stock method
based on an average price of
$27.96 per share (2):
Stock options---221,397 shares
x $4.21
--------
$932,081 /$27.96 (33,336)(3) (62,597)(4)
IPO options-----408,400 shares
x $16.00
--------
$6,534,400 / $27.96 (233,705)(3) ---
---------- ----------
Weighted average common shares
outstanding . . . . . . . . . . . . 18,669,750 12,183,557
=========== ==========
Net income per common share . . . . $ 0.13 $ 0.08
=========== ==========
___________
(1) Considered "cheap stock" and treated as outstanding since January 1, 1995.
(2) The treasury stock method was not used for the shares issued to settle the
long-term incentive plan liability and the compensatory portion of the stock
options granted because the related special compensation charges have
been/will be excluded from net income and, therefore, were not assumed to be
proceeds.
(3) Computed using the average closing value per share for the three months
ended March 30, 1996.
(4) Computed using IPO value of $16.00 per share on 237,897 Class A options.