UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 27, 2006
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HENRY SCHEIN, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-27078 11-3136595
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(State or other jurisdiction (Commission File IRS Employer
of incorporation) Number) (Identification No.)
135 DURYEA ROAD, MELVILLE, NEW YORK 11747
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (631) 843-5500
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NOT APPLICABLE
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(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition.
On July 27, 2006, Henry Schein, Inc. issued a press release reporting the
financial results for the three and six months ended July 1, 2006. The full text
of the press release is attached hereto as Exhibit 99.1 and is incorporated
herein by reference.
Item 9.01. Financial Statements and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibit 99.1 - Press Release dated July 27, 2006.
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 hereunto duly authorized.
HENRY SCHEIN, INC.
By: /s/ Steven Paladino
------------------------------------
Steven Paladino
Executive Vice President,
Chief Financial Officer and Director
(principal financial and accounting
officer)
July 27, 2006
EXHIBIT INDEX
Exhibit No. Description
99.1 Press Release dated July 27, 2006.
HENRY SCHEIN
NEWS RELEASE
Henry Schein, Inc. - 135 Duryea Road - Melville, New York 11747
FOR: Henry Schein, Inc.
CONTACT: Steven Paladino
Executive Vice President and
Chief Financial Officer
steven.paladino@henryschein.com
(631) 843-5500
Susan Vassallo
Director, Corporate Communications
susan.vassallo@henryschein.com
FOR IMMEDIATE RELEASE (631) 843-5562
HENRY SCHEIN REPORTS RECORD SECOND QUARTER RESULTS
Net sales increase 10.5% to $1.22 billion, diluted EPS from
continuing operations up 16% to $0.50
MELVILLE, N.Y. - July 27, 2006 - Henry Schein, Inc. (Nasdaq: HSIC), the largest
provider of healthcare products and services to office-based practitioners in
the combined North American and European markets, today reported financial
results for the quarter ended July 1, 2006.
Net sales for the second quarter of 2006 were $1.22 billion, an
increase of 10.5% from the second quarter of 2005 (See Exhibit A for details of
sales growth). This increase includes 10.3% local currency growth (5.9%
internally generated and 4.4% from acquisitions net of divestiture) and 0.2%
related to foreign currency exchange.
Net income and income from continuing operations for the second quarter
of 2006 were both $45.2 million or $0.50 per diluted share. There was no impact
of discontinued operations for the quarter. Second quarter 2006 income and
diluted earnings per share from continuing operations were up 19.7% and 16.3%
respectively, compared to the prior year quarter. Effective January 1, 2006,
the Company adopted the new accounting rules on expensing stock-based
compensation per Financial Accounting Standards No. 123(R) on a retrospective
basis. All periods presented have been adjusted to give effect to FAS No.
123(R), which amounted to approximately $0.04 per share in the second quarter of
2006, and $0.03 per share in the second quarter of 2005.
"Our second quarter financial results from continuing operations were
strong, with solid top-line internal growth bolstered by the contribution of
several strategic acquisitions," said Stanley M. Bergman, Chairman and Chief
Executive Officer of Henry Schein. "Internal sales growth in local currencies
exceeded our estimate for market growth, and reflects particular strength in our
Dental Group."
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For the quarter, Dental sales increased 10.8%, including 9.4% growth in
local currencies (essentially all internally generated) and 1.4% related to
foreign currency exchange. Of the 9.4% local currency growth, Dental consumable
merchandise sales increased 6.9% and Dental equipment sales and service revenues
were up 18.1%.
"Our Dental Group has posted double-digit sales growth each quarter for
the past three years. Dental sales growth reflects an ongoing commitment to
expanding the products and services we bring to our customers, as well as
effective and innovative marketing initiatives and a highly trained field sales
force," explained Mr. Bergman. "As an example of our commitment to an expanding
product offering, we were delighted to announce earlier this month that Henry
Schein was named the exclusive distributor for Imaging Sciences International's
line of 3-D diagnostic imaging technology, which previously was sold directly to
dentists." Mr. Bergman continued, "We look forward to closing our acquisition
of certain businesses of Darby Group Companies during the third quarter, which
will afford deeper penetration by our Dental and Medical divisions."
Medical sales increased 14.3% during the second quarter (3.3% internal
growth and 11.0% acquisition growth net of divestiture). "Medical Group growth
was highlighted by our acquisition of NLS Animal Health, which is performing
well in its first quarter as a Henry Schein company," said Mr. Bergman. "Our
Medical group is in the process of planning and executing our influenza vaccine
strategy for the upcoming season, and at this time pre-bookings for influenza
vaccine are strong. We continue to estimate that we will distribute
approximately 15 to 17 million doses of flu vaccine this year."
For the quarter, International sales increased 6.9%, including 8.1%
growth in local currencies (3.6% internally generated and 4.5% from
acquisitions) offset by a 1.2% decline related to foreign currency exchange.
Mr. Bergman noted that after the close of the second quarter the
company announced its acquisition of Provet AG, the leading veterinary
distribution company in Switzerland. Together with the purchase of NLS Animal
Health, Henry Schein has essentially doubled the size of its worldwide
veterinary business.
Technology and Value-Added Services sales during the second quarter of
2006 were 3.7% ahead of prior year, including 3.1% growth in local currencies
(all internal) and 0.6% related to foreign currency exchange. Electronic claims
services revenues continued a strong double-digit growth trend.
Year-to-Date Results
For the year-to-date, net sales of $2.4 billion represents an increase
of 9.9% compared to the prior year-to-date. This increase includes 10.9% local
currency growth (7.1% internally generated and 3.8% from acquisitions net of
divestiture) offset by a 1.0% decline related to foreign currency
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exchange. Income from continuing operations for the first half of 2006 was
$80.8 million reflecting 18.4% growth compared to the prior year. Earnings per
diluted share from continuing operations of $0.90 for the first half of 2006
represents 16.9% growth over the same period in the prior year.
Stock Repurchase Plan
The Company announced that 512,034 shares were repurchased during the
second quarter at an average price of $45.78 per share. Approximately $88
million remains authorized for future stock repurchases. The impact of the
repurchase of shares under this program on second quarter diluted EPS was
immaterial.
2006 EPS Guidance
Henry Schein provides 2006 financial guidance, as follows:
o 2006 diluted EPS is expected to be $2.10 to $2.16 including the impact
of expensing stock-based compensation per Financial Accounting
Standards No. 123(R).
o This represents an increase to previous guidance of $2.08 to $2.14.
The increase in guidance is related to a number of factors including
the strength of first half results, contributions from recent
acquisitions, and expansion of product portfolio.
o This 2006 diluted EPS guidance includes Henry Schein's expectations
that it will distribute approximately 15 million to 17 million doses of
influenza vaccine during 2006, including product manufactured by
GlaxoSmithKline Biologicals (which includes the former ID Biomedical),
Chiron Corporation and sanofi pasteur.
o All guidance is for current continuing operations including completed
or previously announced acquisitions, and does not include the impact
of potential future acquisitions.
Second Quarter Conference Call Webcast
The Company will hold a conference call to discuss second quarter
financial results today, beginning at 10:00 a.m. Eastern time. Individual
investors are invited to listen to the conference call over the Internet through
Henry Schein's Web site at www.henryschein.com. In addition, a replay will be
available beginning shortly after the call has ended.
About Henry Schein
Henry Schein, a Fortune 500(R) company, is recognized for its excellent
customer service and highly competitive prices. The Company's four business
groups - Dental, Medical, International and
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Technology - serve more than 500,000 customers worldwide, including dental
practices and laboratories, physician practices and veterinary clinics, as well
as government and other institutions. The Company operates through a
centralized and automated distribution network, which provides customers in more
than 200 countries with a comprehensive selection of more than 70,000 national
and Henry Schein private-brand products in stock, as well as over 100,000
additional products available to our customers as special order items.
Henry Schein also offers a wide range of innovative value-added
practice solutions for healthcare professionals, such as ArubA(R), the Company's
electronic catalog and ordering system. Its leading practice-management
software solutions have been installed in more than 50,000 practices, including
DENTRIX(R) and Easy Dental(R) for dental practices, and AVImark(R) for
veterinary clinics.
Headquartered in Melville, N.Y., Henry Schein employs nearly 11,000
people and has operations in 19 countries. The Company's sales reached a record
$4.6 billion in 2005. For more information, visit the Henry Schein Web site at
www.henryschein.com.
In accordance with the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995, we provide the following cautionary
remarks regarding important factors which, among others, could cause future
results to differ materially from the forward-looking statements, expectations
and assumptions expressed or implied herein. All forward-looking statements
made by us are subject to risks and uncertainties and are not guarantees of
future performance. These forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance and achievements, or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. These statements are identified by the use of
such terms as "may," "could," "expect," "intend," "believe," "plan," "estimate,"
"forecast," "project," "anticipate" or other comparable terms. A full
discussion of our operations and financial condition, including factors that may
affect our business and future prospects, is contained in documents we have
filed with the SEC and will be contained in all subsequent periodic filings we
make with the SEC. These documents identify in detail important risk factors
that could cause our actual performance to differ materially from current
expectations.
Risk factors and uncertainties that could cause actual results to
differ materially from current and historical results include, but are not
limited to: competitive factors; changes in the healthcare industry; changes in
government regulations that affect us; financial risks associated with our
international operations; fluctuations in quarterly earnings; our dependence on
third parties for the manufacture and supply of our products; transitional
challenges associated with acquisitions; regulatory and litigation risks; the
dependence on our continued product development, technical support and
successful marketing in the technology segment; our dependence upon sales
personnel and key customers; our dependence on our senior management; possible
increases in the cost of shipping our products or other service trouble with our
third-party shippers; risks from rapid technological change; risks from
potential increases in variable interest rates; financial risks associated with
acquisitions; possible volatility of the market price of our common stock;
certain provisions in our governing documents that may discourage third-party
acquisitions of us; and changes in tax legislation that affect us. The order
in which these factors appear should not be construed to indicate their relative
importance or priority.
We caution that these factors may not be exhaustive and that many of
these factors are beyond our ability to control or predict. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual
results. We undertake no duty and have no obligation to update forward-looking
statements.
(TABLES TO FOLLOW)
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
July 1, June 25, July 1, June 25,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales ................................................ $ 1,220,360 $ 1,104,428 $ 2,382,141 $ 2,167,425
Cost of sales ............................................ 860,900 783,092 1,685,079 1,544,695
----------- ----------- ----------- -----------
Gross profit ...................................... 359,460 321,336 697,062 622,730
Operating expenses:
Selling, general and administrative .................. 282,712 254,278 559,396 502,410
----------- ----------- ----------- -----------
Operating income .................................. 76,748 67,058 137,666 120,320
Other income (expense):
Interest income ...................................... 3,969 1,228 8,525 2,527
Interest expense ..................................... (7,302) (5,084) (14,696) (11,310)
Other, net ........................................... (339) -- (118) (113)
----------- ----------- ----------- -----------
Income from continuing operations before
taxes, minority interest and equity in
earnings of affiliates ........................... 73,076 63,202 131,377 111,424
Income taxes ............................................. (26,379) (23,211) (47,601) (41,072)
Minority interest in net income of subsidiaries .......... (1,706) (2,469) (3,266) (2,514)
Equity in earnings of affiliates ......................... 227 248 335 435
----------- ----------- ----------- -----------
Income from continuing operations ........................ 45,218 37,770 80,845 68,273
Discontinued operations:
Loss from operations of discontinued
components ........................................ -- (1,008) (32,279) (448)
Income tax benefit ................................... -- 195 12,911 5
----------- ----------- ----------- -----------
Loss from discontinued operations .................... -- (813) (19,368) (443)
----------- ----------- ----------- -----------
Net income ............................................... $ 45,218 $ 36,957 $ 61,477 $ 67,830
=========== =========== =========== ===========
Earnings from continuing operations per share:
Basic ................................................ $ 0.51 $ 0.43 $ 0.92 $ 0.79
=========== =========== =========== ===========
Diluted .............................................. $ 0.50 $ 0.43 $ 0.90 $ 0.77
=========== =========== =========== ===========
Loss from discontinued operations per share:
Basic ................................................ $ -- $ 0.00 $ (0.22) $ (0.01)
=========== =========== =========== ===========
Diluted .............................................. $ -- $ (0.01) $ (0.21) $ 0.00
=========== =========== =========== ===========
Earnings per share:
Basic ................................................ $ 0.51 $ 0.43 $ 0.70 $ 0.78
=========== =========== =========== ===========
Diluted .............................................. $ 0.50 $ 0.42 $ 0.69 $ 0.77
=========== =========== =========== ===========
Weighted-average common shares outstanding:
Basic ................................................ 88,381 86,927 87,713 86,818
=========== =========== =========== ===========
Diluted .............................................. 89,823 88,154 89,344 88,196
=========== =========== =========== ===========
Note: The above prior period amounts have been restated to reflect the effects
of our discontinued operations and the expensing of stock-based compensation
pursuant to our adoption of FAS 123(R) using the modified retrospective
application.
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
July 1, December 31,
2006 2005
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 138,334 $ 210,683
Available-for-sale securities............................................... 101,107 124,010
Accounts receivable, net of reserves of $41,648 and $52,308 ................ 579,766 582,617
Inventories ................................................................ 551,552 505,542
Deferred income taxes ...................................................... 27,868 35,505
Prepaid expenses and other ................................................. 124,113 126,052
----------- -----------
Total current assets ............................................... 1,522,740 1,584,409
Property and equipment, net .................................................... 209,876 190,746
Goodwill ....................................................................... 717,734 626,869
Other intangibles, net ......................................................... 140,270 123,204
Investments and other .......................................................... 59,433 57,892
----------- -----------
Total assets ....................................................... $ 2,650,053 $ 2,583,120
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 351,566 $ 371,392
Bank credit lines .......................................................... 2,262 2,093
Current maturities of long-term debt ....................................... 31,182 33,013
Accrued expenses:
Payroll and related ..................................................... 87,538 96,113
Taxes ................................................................... 41,414 65,070
Other ................................................................... 158,122 156,433
----------- -----------
Total current liabilities .......................................... 672,084 724,114
Long-term debt ................................................................. 486,014 489,520
Deferred income taxes ........................................................... 60,282 54,432
Other liabilities .............................................................. 59,572 53,547
Minority interest .............................................................. 17,253 12,353
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding ........................................................ -- --
Common stock, $.01 par value, 240,000,000 shares authorized,
88,160,672 outstanding on July 1, 2006 and
87,092,238 outstanding on December 31, 2005 ............................. 882 871
Additional paid-in capital .................................................. 593,120 559,266
Retained earnings ........................................................... 716,100 667,958
Accumulated other comprehensive income ...................................... 44,746 21,059
----------- -----------
Total stockholders' equity ......................................... 1,354,848 1,249,154
----------- -----------
Total liabilities and stockholders' equity ......................... $ 2,650,053 $ 2,583,120
=========== ===========
Note: Certain prior period amounts have been restated to reflect the effects of
our adoption of FAS 123(R) using the modified retrospective application and our
reclassification of variable rate demand notes from 'cash and cash equivalents'
to 'available-for-sale securities'. Also, included in the prior period amounts
are approximately $44 million of accounts receivable, net of reserves, and
approximately $16 million of inventories, net of reserves, related to
discontinued operations which were sold on April 1, 2006.
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
-----------------------------
July 1, 2006 June 25, 2005
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 45,218 $ 36,957
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. -- --
Depreciation and amortization ....................................... 15,806 15,111
Stock-based compensation expense .................................... 5,517 4,796
Provision for (recovery of) losses on trade and other
accounts receivable ........................................... 561 158
Provision (benefit) for deferred income taxes ....................... 959 (153)
Undistributed earnings of affiliates ................................ (227) (248)
Minority interest in net income of subsidiaries ..................... 1,706 2,469
Other ............................................................... 701 (1,079)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (7,622) (19,500)
Inventories ................................................... (19,274) 12,653
Other current assets .......................................... 5,003 (1,351)
Accounts payable and accrued expenses ......................... (9,731) 35,521
------------- -------------
Net cash provided by operating activities ...................................... 38,617 85,334
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (21,486) (13,895)
Payments for business acquisitions, net of cash acquired .................. (32,475) (15,706)
Cash received from business divestiture ................................... 36,527 --
Purchases of available-for-sale securities ................................ (62,919) --
Proceeds from sales of available-for-sale securities ...................... 61,930 --
Proceeds from maturities of available-for-sale securities ................. 1,200 --
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (13,644) 19,993
Other ..................................................................... (26) 415
------------- -------------
Net cash used in investing activities .......................................... (30,893) (9,193)
------------- -------------
Cash flows from financing activities:
Net payments on bank borrowings ........................................... (1,223) (1,599)
Principal payments for long-term debt ..................................... (3,830) (1,869)
Payments for establishing a new credit facility ........................... -- (650)
Proceeds from issuance of stock upon exercise of stock options ............ 8,492 8,109
Payments for repurchases of common stock .................................. (23,439) (4,699)
Proceeds from excess tax benefits related to stock-based compensation ..... 2,863 2,576
Other ..................................................................... 2,235 (158)
------------- -------------
Net cash provided by (used in) financing activities ............................ (14,902) 1,710
------------- -------------
Net change in cash and cash equivalents ........................................ (7,178) 77,851
Effect of exchange rate changes on cash and cash equivalents ................... 6,767 (5,484)
Cash and cash equivalents, beginning of period ................................. 138,745 114,741
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 138,334 $ 187,108
============= =============
Six Months Ended
-----------------------------
July 1, 2006 June 25, 2005
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 61,477 $ 67,830
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. 19,363 --
Depreciation and amortization ....................................... 30,158 28,348
Stock-based compensation expense .................................... 9,374 8,536
Provision for (recovery of) losses on trade and other
accounts receivable ........................................... 679 (50)
Provision (benefit) for deferred income taxes ....................... 5,937 1,485
Undistributed earnings of affiliates ................................ (335) (435)
Minority interest in net income of subsidiaries ..................... 3,266 2,514
Other ............................................................... (412) 10
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (3,023) (5,066)
Inventories ................................................... (31,755) 21,263
Other current assets .......................................... 8,146 28,557
Accounts payable and accrued expenses ......................... (102,258) (85,835)
------------- -------------
Net cash provided by operating activities ...................................... 617 67,157
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (32,654) (22,033)
Payments for business acquisitions, net of cash acquired .................. (105,187) (54,752)
Cash received from business divestiture ................................... 36,527 --
Purchases of available-for-sale securities ................................ (147,340) --
Proceeds from sales of available-for-sale securities ...................... 168,961 --
Proceeds from maturities of available-for-sale securities ................. 1,280 --
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (14,805) 15,515
Other ..................................................................... 165 (1,887)
------------- -------------
Net cash used in investing activities .......................................... (93,053) (63,157)
------------- -------------
Cash flows from financing activities:
Net payments on bank borrowings ........................................... -- (1,416)
Principal payments for long-term debt ..................................... (6,475) (2,565)
Payments for establishing a new credit facility ........................... -- (650)
Proceeds from issuance of stock upon exercise of stock options ............ 25,600 19,053
Payments for repurchases of common stock .................................. (23,439) (21,009)
Proceeds from excess tax benefits related to stock-based compensation ..... 9,788 5,458
Other ..................................................................... 2,049 (559)
------------- -------------
Net cash provided by (used in) financing activities ............................ 7,523 (1,688)
------------- -------------
Net change in cash and cash equivalents ........................................ (84,913) 2,312
Effect of exchange rate changes on cash and cash equivalents ................... 12,564 (1,825)
Cash and cash equivalents, beginning of period ................................. 210,683 186,621
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 138,334 $ 187,108
============= =============
NOTE: The above prior period amounts have been restated to reflect the effects
of our adoption of FAS 123(R) using the modified retrospective application.
Additionally, for the three and six months ended July 1, 2006 we reflected the
effects of a reclassification of variable rate demand notes from 'cash and cash
equivalents' to 'available-for-sale securities' retrospective to
December 31, 2005.
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Exhibit A
Henry Schein, Inc.
2006 Second Quarter
Sales Growth Rate Summary
(unaudited)
Q2 2006 over Q2 2005
--------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 5.9% 9.3% 3.3% 3.6% 3.1%
Acquisitions, net of divestiture 4.4% 0.1% 11.0% 4.5% --
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 10.3% 9.4% 14.3% 8.1% 3.1%
Foreign Currency Exchange 0.2% 1.4% -- -1.2% 0.6%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 10.5% 10.8% 14.3% 6.9% 3.7%
============ =========== ============ ============= ============
Q2 YTD 2006 over Q2 YTD 2005
----------------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 7.1% 9.2% 4.3% 7.0% 5.6%
Acquisitions, net of divestiture 3.8% 0.4% 6.2% 6.8% --
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 10.9% 9.6% 10.5% 13.8% 5.6%
Foreign Currency Exchange -1.0% 1.0% -- -5.2% 0.4%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 9.9% 10.6% 10.5% 8.6% 6.0%
============ =========== ============ ============= ============
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