Henry Schein Reports Record Quarterly Results; Diluted EPS of $0.87 includes $0.11 related to earlier shipments of influenza vaccine
Net sales for the third quarter of 2002 were $759.1 million, an increase of 15.1% from the third quarter of 2001 (13.8% in local currencies). Net income for the third quarter of 2002 was $39.2 million, a 55.7% increase over the prior-year quarter. Earnings per diluted share were $0.87 in the third quarter of 2002, up 50%. Compared to the prior year third quarter, Dental sales grew by 7.6% (5.5% merchandise, 16.9% equipment), Medical sales improved by 23.4%, Technology and Value-Added Services sales grew by 25.0%, and International sales improved by 11.4% (2.1% in local currencies).
In order to effectively analyze third quarter 2002 results, the Company indicated that several factors should be taken into consideration;
- Influenza vaccine sales occurred earlier this year than last year. This timing shift, between the third and fourth quarters of 2002, equated to approximately $44 million of sales which, net of related costs and expenses, accounted for approximately $0.11 of the third quarter earnings per diluted share.
- As part of our new Dental marketing initiative, MarketOne, certain technology and equipment products are now being sold directly to end-user customers rather than through resellers resulting in a higher growth rate for the Technology and Value-Added Service category. Without this change that category grew by 19.6%. Worldwide and Dental sales were immaterially affected, and the other categories were not affected.
- Third quarter Other Income included a net $1.4 million pre-tax ($890,000 after-tax) gain, or approximately $0.02 per diluted share, primarily related to settlement of a real estate transaction.
- 2002 results are reported in compliance with SFAS 142, which eliminated amortization of goodwill. Growth in net income and earnings per diluted share are 45.2% and 40.3%, respectively, if goodwill amortization were removed from 2001 results.
"Our overall third quarter financial performance was excellent by any measure, and we are proud to report another quarter of strong growth in net sales, operating income, net income and EPS," said Stanley M. Bergman, Chairman, Chief Executive Officer and President of Henry Schein. "Our Dental, Medical, and Technology and Value-Added Services business Groups reported market share gains during the third quarter. Dental sales were up nearly 8% including equipment up nearly 17%, Medical sales to our core physician and alternate-care customers without the positive timing impact of influenza vaccine sales were up 9%, and Technology and Value-Added Services sales were up about 20%."
"We are particularly happy with continued 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 Dental sales growth," stated Mr. Bergman. "At the end of the third quarter, approximately 8,000 dental customers were enrolled in our Privileges customer-loyalty program, and results indicate that these customers are purchasing at a rate significantly above our average customer."
Commenting on the Company's Medical Group, Mr. Bergman said, "We are pleased to report that our Medical Group's sales growth of approximately 9% to physician and alternate care customers, without the positive timing impact of influenza vaccine sales, is three to four percentage points above estimated market growth rates."
For the first nine months of 2002, net sales were $2.08 billion, an increase of 11.7% compared with the first nine months of 2001 (11.3% in local currencies). Net income for the first nine months of 2002 was $87.0 million, a 44.5% increase over the prior year. Earnings per diluted share for the first nine months of 2002 were $1.94, up 39.6% compared with the prior-year period. The Company noted that for analysis purposes, the third quarter factors listed above should also be taken into consideration when viewing year-to-date results.
Regarding the outlook for the remainder of 2002, based on the strength of year-to-date financial results the Company now expects full-year 2002 earnings per diluted share to increase to $2.58-$2.60.
Mr. Bergman noted that the Company looks forward to an Analyst/Investor Day on November 21, 2002, starting at 8 a.m. Eastern Time. "We will introduce 2003 financial guidance at this event, as well as provide an in-depth look at our Company and our plans," he added.
The Company welcomes professional money managers and securities analysts to attend its Analyst/Investor Day in person, and registration can be completed at www.henryschein.com. For those not attending in person, a live and 30-day archived Webcast of the entire event will be available on the Company's Website.
Third Quarter Conference Call Webcast
The Company will hold a conference call to discuss third 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 44,000 practices; and ArubA(R), Henry Schein's electronic catalog and ordering system. Headquartered in Melville, New York, Henry Schein employs over 6,700 people in 16 countries. The Company's 2001 sales reached a record $2.6 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)
(unaudited)
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 759,073 $ 659,774 $2,077,598 $1,859,954
Cost of sales 542,601 480,918 1,490,340 1,354,849
---------- ---------- ---------- ----------
Gross profit 216,472 178,856 587,258 505,105
Operating expenses:
Selling, general
and administrative 152,187 136,981 440,786 400,375
---------- ---------- ---------- ----------
Operating income 64,285 41,875 146,472 104,730
Other income
(expense):
Interest income 2,536 2,266 7,456 6,684
Interest expense (4,787) (3,843) (13,982) (14,107)
Other - net 877 87 1,017 384
---------- ---------- ---------- ----------
Income before
taxes on income,
minority
interest and
equity in
earnings of
affiliates 62,911 40,385 140,963 97,691
Taxes on income 23,468 14,942 52,528 36,146
Minority interest in
net income of
subsidiaries 337 322 1,838 1,647
Equity in earnings of
affiliates 122 74 427 339
---------- ---------- ---------- ----------
Net income $ 39,228 $ 25,195 $ 87,024 $ 60,237
========== ========== ========== ==========
Net income per
common share:
Basic $ 0.90 $ 0.59 $ 2.01 $ 1.42
========== ========== ========== ==========
Diluted $ 0.87 $ 0.58 $ 1.94 $ 1.39
========== ========== ========== ==========
Weighted average
common shares
outstanding:
Basic 43,808 42,488 43,329 42,276
========== ========== ========== ==========
Diluted 45,000 43,517 44,779 43,188
========== ========== ========== ==========
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Sept. 28, Dec. 29,
2002 2001
---------- ----------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 149,299 $ 193,367
Marketable securities 35,285 0
Accounts receivable, less reserves of $33,088
and $31,929, respectively 415,585 363,700
Inventories 314,499 291,231
Deferred income taxes 29,168 25,751
Prepaid expenses and other 63,123 52,922
---------- ----------
Total current assets 1,006,959 926,971
Property and equipment, net of accumulated
depreciation and amortization of $101,060
and $90,823, respectively 137,163 117,980
Goodwill, net 294,439 279,981
Other intangibles, net of accumulated
amortization of $4,160 and $3,348,
respectively 8,919 8,023
Investments and other 69,652 52,473
---------- ----------
$1,517,132 $1,385,428
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 260,197 $ 263,190
Bank credit lines 6,081 4,025
Accruals:
Salaries and related expenses 42,920 41,602
Merger and integration, and restructuring
costs 4,308 5,867
Acquisition earnout payments 0 26,800
Taxes and other expenses 110,470 80,355
Current maturities of long-term debt 2,665 15,223
---------- ----------
Total current liabilities 426,641 437,062
Long-term debt 242,140 242,169
Other liabilities 21,077 18,954
---------- ----------
Total liabilities 689,858 698,185
---------- ----------
Minority interest 7,067 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: 43,999,524 and
42,745,204, respectively 440 427
Additional paid-in capital 435,021 393,047
Retained earnings 399,426 312,402
Treasury stock, at cost, 62,479 shares (1,156) (1,156)
Accumulated comprehensive loss (13,277) (23,922)
Deferred compensation (247) (341)
---------- ----------
Total stockholders' equity 820,207 680,457
---------- ----------
$1,517,132 $1,385,428
========== ==========
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Cash flows from
operating activities:
Net income $ 39,228 $ 25,195 $ 87,024 $ 60,237
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and
amortization 7,077 9,193 20,086 26,249
Other (267) 9,463 1,732 9,975
Changes in assets
and liabilities
(net of purchase
acquisitions):
Increase in
accounts
receivable (53,074) (47,067) (49,003) (47,442)
(Increase)
decrease in
inventories (376) 11,691 (18,136) 24,723
(Increase)
decrease in
other current
assets (3,955) 927 (8,662) 14,701
Increase
(decrease) in
accounts payable
and accruals 63,636 40,442 32,609 (9,320)
---------- ---------- ---------- ----------
Net cash provided by
operating activities 52,269 49,844 65,650 79,123
---------- ---------- ---------- ----------
Cash flows from
investing activities:
Capital expenditures (8,140) (17,024) (36,260) (30,010)
Business acquisitions,
net of cash
acquired 0 (336) (34,887) (336)
Purchase of
marketable
securities with
maturities of more
than three months (29,654) 0 (50,293) 0
Other (2,473) (1,556) (3,047) (2,587)
---------- ---------- ---------- ----------
Net cash used in
investing activities (40,267) (18,916) (124,487) (32,933)
---------- ---------- ---------- ----------
Cash flows from
financing activities:
Proceeds from
issuance of
long-term debt 0 10,166 0 10,166
Principal payments
on long-term debt (784) (8,083) (14,388) (11,972)
Proceeds from
issuance of stock
upon exercise of
stock options by
employees 6,263 1,993 32,753 12,374
Proceeds from
borrowings from
banks 2,178 853 2,659 6,193
Payments on
borrowings from
banks 0 (1,149) (916) (12,017)
Other (2,331) (221) (2,757) (396)
---------- ---------- ---------- ----------
Net cash provided by
financing activities 5,326 3,559 17,351 4,348
---------- ---------- ---------- ----------
Net increase
(decrease) in cash
and cash equivalents 17,328 34,487 (41,486) 50,538
Effect of exchange
rate changes on cash (537) (2,480) (2,582) (1,046)
Cash and cash
equivalents,
beginning of period 132,508 75,847 193,367 58,362
---------- ---------- ---------- ----------
Cash and cash
equivalents, end of
period $ 149,299 $ 107,854 $ 149,299 $ 107,854
========== ========== ========== ==========
CONTACT: Henry Schein, Inc.
Steven Paladino, 631/843-5500
Susan Vassallo, 631/843-5562
svassa@henryschein.com
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