Henry Schein Reports Record Third Quarter Results
Net sales increase 13%, diluted EPS from continuing operations up 19%
MELVILLE, N.Y.--(BUSINESS WIRE)--Nov. 2, 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 September 30, 2006.
Net sales for the third quarter of 2006 were $1.27 billion, an increase of 13.0% from the third quarter of 2005 (See Exhibit A for details of sales growth). This increase includes 11.6% local currency growth (5.0% internally generated and 6.6% from acquisitions net of divestiture) and 1.4% related to foreign currency exchange.
Net income and income from continuing operations for the third quarter of 2006 were $39.3 million or $0.44 per diluted share. There was no impact of discontinued operations for the current quarter. Third quarter 2006 income and diluted earnings per share from continuing operations were up 18.0% and 18.9%, respectively, compared with the prior-year third 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 $0.03 per share in the third quarter of 2006, and $0.04 per share in the third quarter of 2005. During the third quarter of 2006, the Company elected to change its method of assessing the effectiveness of net investment hedges, as permitted by FAS No. 133. As a result, the Company stopped applying hedge accounting to certain previously existing hedging relationships which resulted in a non-recurring pre-tax gain of approximately $2.0 million.
"We posted solid financial results during the third quarter, with particular strength from our Dental Group. Our quarterly results were impacted by the timing of receipt of influenza vaccine from manufacturers, which this year will predominantly be in the fourth quarter," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "We are pleased today to introduce 2007 diluted EPS guidance that represents growth of 18% to 21% compared with the mid-point of our expected 2006 results."
For the quarter, Dental sales increased 16.4%, including 15.6% growth in local currencies (9.8% internally generated and 5.8% from acquisitions) and 0.8% related to foreign currency exchange. Of the 15.6% local currency growth, Dental consumable merchandise sales increased 14.2% (8.1% internally generated and 6.1% from acquisitions) and Dental equipment sales and service revenues were up 20.1% (15.4% internally generated and 4.7% from acquisitions).
"Our Dental Group gained significant market share during the quarter, reporting impressive internal sales growth. This is an ongoing reflection of the growing array of products and services we bring to our customers, as well as effective and innovative marketing initiatives and a highly trained field sales force," commented Mr. Bergman. "During the third quarter we saw a continued trend toward the value-added distribution channel among various Dental manufacturers. As a leader in the industry, Henry Schein is ideally positioned to benefit from this trend. Further enhancing our high-technology product offering, we signed an exclusive, multi-year agreement with Biolase Technology, Inc. (Nasdaq: BLTI) to collaborate in the marketing, sales and service of all professional Biolase dental laser system products, including the Waterlase(R) MD - the industry's leading hard and soft tissue dental laser system."
Medical sales increased 8.9% during the third quarter (0.6% decline in internal growth offset by 9.5% acquisition growth net of divestiture). "Medical Group sales performance was impacted by lower sales of tetanus-diptheria and influenza vaccines compared with the prior-year third quarter," explained Mr. Bergman. "We are pleased that in early October GlaxoSmithKline PLC (NYSE: GSK) received FDA approval to sell FluLaval(TM), and we began shipping product soon thereafter."
For the quarter, International sales increased 12.3%, including 8.2% growth in local currencies (3.4% internally generated and 4.8% from acquisitions) and 4.1% related to foreign currency exchange.
Technology and Value-Added Services sales during the third quarter of 2006 were 17.3% ahead of prior year, including 16.9% growth in local currencies (14.7% internally generated and 2.2% acquisition growth) and 0.4% related to foreign currency exchange. Electronic claims services revenues continued a strong double-digit growth trend, and software and financial services revenues also posted solid gains.
Year-to-Date Results
For the first nine months of 2006, net sales of $3.7 billion represents an increase of 11.0% compared with the first nine months of 2005. This increase includes 11.2% local currency growth (6.3% internally generated and 4.9% from acquisitions net of divestiture) offset by a 0.2% decline related to foreign currency exchange. Income from continuing operations for the first nine months of 2006 was $120.1 million reflecting 18.3% growth compared with the prior year. Earnings per diluted share from continuing operations of $1.34 for the first nine months of 2006 represents 16.5% growth over the comparable period in 2005.
Stock Repurchase Plan
The Company announced that it repurchased 47,861 shares of common stock during the third quarter at an average price of $47.24 per share. Approximately $86 million remains authorized for future stock repurchases. The impact of the repurchase of shares under this program on third quarter diluted EPS was immaterial.
2006 EPS Guidance
Henry Schein provides 2006 financial guidance, as follows:
-- 2006 diluted EPS is expected to be $2.11 to $2.14 including
the impact of expensing stock-based compensation per Financial
Accounting Standards No. 123(R).
-- This 2006 diluted EPS guidance includes Henry Schein's
expectations that it will distribute approximately 13.5
million doses of influenza vaccine during 2006, including
product manufactured by GSK (which includes the former ID
Biomedical Corporation), Novartis AG (NYSE: NVS), which
includes the former Chiron Corporation, and the Sanofi-Aventis
Group (NYSE: SNY). This compares to the previous expectation
of 15 to 17 million doses.
-- 2006 diluted EPS guidance is for current continuing operations
including completed or previously announced acquisitions, and
does not include the impact of potential future acquisitions,
if any.
2007 EPS Guidance
Henry Schein introduces 2007 financial guidance, as follows:
-- 2007 diluted EPS is expected to be $2.51 to $2.57. This
represents an increase of 18% to 21% compared with the
mid-point of the Company's 2006 diluted EPS guidance.
-- This 2007 diluted EPS guidance includes Henry Schein's
expectations that it will distribute more than 20 million
doses of influenza vaccine during the year.
-- 2007 diluted EPS guidance is for current continuing operations
including completed or previously announced acquisitions, and
does not include the impact of potential future acquisitions,
if any.
Third Quarter Conference Call Webcast
The Company will hold a conference call to discuss third 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 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 more than 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.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
------------------------- ------------------------
September September September September
30, 24, 30, 24,
2006 2005 2006 2005
------------ ------------ ------------ -----------
Net sales $ 1,272,020 $ 1,125,363 $ 3,654,161 $3,292,788
Cost of sales 911,014 808,632 2,596,093 2,353,327
------------ ------------ ------------ -----------
Gross profit 361,006 316,731 1,058,068 939,461
Operating expenses:
Selling, general
and
administrative 298,331 258,352 857,727 760,762
------------ ------------ ------------ -----------
Operating
income 62,675 58,379 200,341 178,699
Other income
(expense):
Interest income 3,503 1,942 12,028 4,469
Interest expense (6,541) (6,976) (21,237) (18,286)
Other, net 2,298 1,028 2,180 915
------------ ------------ ------------ -----------
Income from
continuing
operations
before taxes,
minority
interest and
equity in
earnings of
affiliates 61,935 54,373 193,312 165,797
Income taxes (21,715) (19,907) (69,316) (60,979)
Minority interest
in net income of
subsidiaries (1,181) (1,241) (4,447) (3,755)
Equity in earnings
of affiliates 246 79 581 514
------------ ------------ ------------ -----------
Income from
continuing
operations 39,285 33,304 120,130 101,577
Discontinued
operations:
Loss from
operations of
discontinued
components - (16,951) (32,279) (17,399)
Income tax
benefit - 6,948 12,911 6,953
------------ ------------ ------------ -----------
Loss from
discontinued
operations - (10,003) (19,368) (10,446)
------------ ------------ ------------ -----------
Net income $ 39,285 $ 23,301 $ 100,762 $ 91,131
============ ============ ============ ===========
Earnings from
continuing
operations per
share:
Basic $ 0.44 $ 0.38 $ 1.37 $ 1.17
============ ============ ============ ===========
Diluted $ 0.44 $ 0.37 $ 1.34 $ 1.15
============ ============ ============ ===========
Loss from
discontinued
operations per
share:
Basic $ - $ (0.11) $ (0.22) $ (0.12)
============ ============ ============ ===========
Diluted $ - $ (0.11) $ (0.21) $ (0.12)
============ ============ ============ ===========
Earnings per share:
Basic $ 0.44 $ 0.27 $ 1.15 $ 1.05
============ ============ ============ ===========
Diluted $ 0.44 $ 0.26 $ 1.13 $ 1.03
============ ============ ============ ===========
Weighted-average
common shares
outstanding:
Basic 88,291 87,232 87,820 86,975
============ ============ ============ ===========
Diluted 90,015 88,636 89,554 88,423
============ ============ ============ ===========
Note: The above prior period amounts have been restated to reflect the
effects of expensing stock-based compensation pursuant to our
adoption of FAS 123(R) using the modified retrospective application.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, December 31,
2006 2005
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 176,070 $ 210,683
Available-for-sale securities - 124,010
Accounts receivable, net of reserves
of $41,893 and $52,308 605,058 582,617
Inventories, net 572,569 505,542
Deferred income taxes 28,629 35,505
Prepaid expenses and other 134,324 126,052
------------- -------------
Total current assets 1,516,650 1,584,409
Property and equipment, net 218,154 190,746
Goodwill 751,664 626,869
Other intangibles, net 161,423 123,204
Investments and other 69,729 57,892
------------- -------------
Total assets $ 2,717,620 $ 2,583,120
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 365,704 $ 371,392
Bank credit lines 2,550 2,093
Current maturities of long-term debt 40,617 33,013
Accrued expenses:
Payroll and related 95,705 96,113
Taxes 54,345 65,070
Other 165,325 156,433
------------- -------------
Total current liabilities 724,246 724,114
Long-term debt 456,487 489,520
Deferred income taxes 55,353 54,432
Other liabilities 58,260 53,547
Minority interest 16,497 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,
88,555,830 outstanding on September
30, 2006 and 87,092,238 outstanding
on December 31, 2005 886 871
Additional paid-in capital 610,717 559,266
Retained earnings 754,010 667,958
Accumulated other comprehensive income 41,164 21,059
------------- -------------
Total stockholders' equity 1,406,777 1,249,154
------------- -------------
Total liabilities and
stockholders' equity $ 2,717,620 $ 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 a 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.
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended Nine Months Ended
--------------------- ----------------------
September September September September
30, 24, 30, 24,
2006 2005 2006 2005
---------- ---------- ----------- ----------
Cash flows from operating
activities:
Net income $ 39,285 $ 23,301 $ 100,762 $ 91,131
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 16,733 14,199 46,891 42,547
Impairment from
write-down of
long-lived assets - 11,928 - 11,928
Stock-based
compensation
expense 4,559 4,828 13,933 13,364
Provision for
losses on trade
and other accounts
receivable 1,664 5,685 2,343 5,635
Deferred income
taxes (8,599) (5,148) (2,662) (3,663)
Stock issued to
401(k) plan 3,565 3,223 3,565 3,223
Undistributed
earnings of
affiliates (246) (79) (581) (514)
Minority interest
in net income of
subsidiaries 1,181 1,241 4,447 3,755
Other (2,137) 1,056 (2,549) 1,066
Changes in
operating assets
and liabilities,
net of
acquisitions:
Accounts
receivable (6,395) (36,579) (9,418) (41,645)
Inventories (4,212) 12,862 (35,967) 34,125
Other current
assets (770) 5,561 7,376 34,118
Accounts payable
and accrued
expenses 19,381 (3,187) (82,877) (89,022)
---------- ---------- ----------- ----------
Net cash provided by
operating activities 64,009 38,891 64,626 106,048
---------- ---------- ----------- ----------
Cash flows from investing
activities:
Purchases of fixed
assets (17,273) (14,171) (49,927) (36,204)
Payments for business
acquisitions, net of
cash acquired (80,945) (3,796) (186,132) (58,548)
Cash received from
business divestiture - - 36,527 -
Purchases of
available-for-sale
securities (16,697) (24,745) (164,037) (24,745)
Proceeds from sales of
available-for-sale
securities 117,806 - 286,767 -
Proceeds from
maturities of
available-for-sale
securities - - 1,280 -
Proceeds from
settlement of note
receivable - 11,779 - 11,779
Net proceeds from
(payments for)
foreign exchange
forward contract
settlements (2,090) 8,115 (16,895) 23,630
Other (6,769) 2,460 (6,604) 573
---------- ---------- ----------- ----------
Net cash used in
investing activities (5,968) (20,358) (99,021) (83,515)
---------- ---------- ----------- ----------
Cash flows from financing
activities:
Proceeds from
(repayments of) bank
borrowings 297 (1,472) 297 (2,888)
Principal payments for
long-term debt (24,202) (2,913) (30,677) (5,478)
Payments for debt
issuance costs - - - (650)
Proceeds from issuance
of stock upon
exercise of stock
options 7,300 6,225 32,900 25,278
Payments for
repurchases of common
stock (2,261) (6,108) (25,700) (27,117)
Proceeds from excess
tax benefits related
to stock-based
compensation 3,362 2,076 13,150 7,534
Other (384) (3,055) 1,665 (3,614)
---------- ---------- ----------- ----------
Net cash used in
financing activities (15,888) (5,247) (8,365) (6,935)
---------- ---------- ----------- ----------
Net change in cash and
cash equivalents 42,153 13,286 (42,760) 15,598
Effect of exchange rate
changes on cash and cash
equivalents (4,417) 3,363 8,147 1,538
Cash and cash
equivalents, beginning
of period 138,334 187,108 210,683 186,621
---------- ---------- ----------- ----------
Cash and cash
equivalents, end of
period $ 176,070 $ 203,757 $ 176,070 $ 203,757
========== ========== =========== ==========
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 all periods presented,
we reflected the effects of a reclassification of variable rate
demand notes from 'cash and cash equivalents' to 'available-for-sale
securities'.
Exhibit A
Henry Schein, Inc.
2006 Third Quarter
Sales Growth Rate Summary
(unaudited)
Q3 2006 over Q3 2005
--------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 5.0% 9.8% -0.6% 3.4% 14.7%
Acquisitions, net
of divestiture 6.6% 5.8% 9.5% 4.8% 2.2%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 11.6% 15.6% 8.9% 8.2% 16.9%
Foreign Currency
Exchange 1.4% 0.8% - 4.1% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 13.0% 16.4% 8.9% 12.3% 17.3%
============ ====== ======= ============= ==========
Q3 YTD 2006 over Q3 YTD 2005
----------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal 6.3% 9.3% 2.5% 5.8% 8.6%
Acquisitions, net
of divestiture 4.9% 2.3% 7.4% 6.1% 0.7%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 11.2% 11.6% 9.9% 11.9% 9.3%
Foreign Currency
Exchange -0.2% 1.0% - -2.1% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 11.0% 12.6% 9.9% 9.8% 9.7%
============ ====== ======= ============= =========
CONTACT: Henry Schein, Inc.
Steven Paladino, 631-843-5500
Executive Vice President and
Chief Financial Officer
steven.paladino@henryschein.com
or
Susan Vassallo, 631-843-5562
Director, Corporate Communications
susan.vassallo@henryschein.com
SOURCE: Henry Schein, Inc.