Henry Schein Reports Record Fourth Quarter and Full Year Results
Fourth Quarter Diluted EPS from Continuing Operations Increases 25% to $0.70
MELVILLE, N.Y.--(BUSINESS WIRE)--Feb. 21, 2007--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 and year ended December 30, 2006.
Net sales for the fourth quarter of 2006 were $1.5 billion, an increase of 11.6% from the fourth quarter of 2005. This increase includes 9.3% local currency growth (2.3% internally generated and 7.0% from acquisitions net of divestiture) and 2.3% related to foreign currency exchange. The fourth quarter of 2006 included one less week compared with the fourth quarter of 2005, which was part of a 53-week fiscal year. The Company estimates that the reported 2.3% internal sales growth in local currencies was therefore, approximately 7.3% adjusting for the extra week in the 2005 fourth quarter (See Exhibit A for details of sales growth).
Net income and income from continuing operations for the fourth quarter of 2006 were $63.0 million or $0.70 per diluted share. There was no impact of discontinued operations for the current quarter. Fourth quarter 2006 income and diluted earnings per share from continuing operations were up 27.4% and 25.0%, respectively, compared with the prior-year fourth quarter.
Effective January 1, 2006, the Company adopted the new accounting rules on expensing stock-based compensation per Financial Accounting Standards (FAS) No. 123R on a retrospective basis. All periods presented have been adjusted to give effect to FAS No. 123R, which amounted to approximately $0.04 per share in the fourth quarter of 2006 and $0.03 per share in the fourth quarter of 2005.
"Our fourth quarter results featured double-digit sales growth in each of our business groups, when adjusting for the extra week in the 2005 fourth quarter, with particular strength in dental equipment," said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "As we close out a milestone year with more than $5 billion in net sales, we enter 2007 enthusiastic about our markets, our business model and the future of Henry Schein."
For the fourth quarter, Dental sales increased 12.9%, including 12.5% growth in local currencies (6.0% internally generated and 6.5% from acquisitions) and 0.4% related to foreign currency exchange. The Company estimates that the reported 6.0% Dental internal sales growth in local currencies was 11.5% adjusting for the extra week in the 2005 fourth quarter, including Dental consumable merchandise growth of 5.6% and Dental equipment sales and service growth of 26.6%.
"Continued market-share gains in our Dental Group were lead by equipment sales and service growth, which reflects robust demand for high-tech products including our new exclusive relationships with Biolase Technology, Inc. and Imaging Sciences International, Inc.," commented Mr. Bergman.
Medical sales increased 6.1% during the fourth quarter (3.5% decline in internal sales growth offset by 9.6% acquisition growth net of divestiture). The Company estimates that total Medical sales growth of 6.1% as reported was 11.1% adjusting for the extra week in the 2005 fourth quarter. The Company also estimates that the reported Medical Group internal sales decline of 3.5% equated to 1.5% internal sales growth adjusting for the extra week. "Excluding pharmaceutical sales, the internal growth rate for our Medical Group, adjusting for the extra week, was approximately equal to our estimate for market growth," added Mr. Bergman.
For the quarter, International sales increased 15.9%, including 7.7% growth in local currencies (3.3% internally generated and 4.4% from acquisitions), and 8.2% related to foreign currency exchange. The Company estimates that reported International internal sales growth in local currencies of 3.3% was 7.3% when adjusting for the extra week in the 2005 fourth quarter. "Sales growth was particularly strong in Germany and Spain," commented Mr. Bergman.
Technology and Value-Added Services sales during the fourth quarter of 2006 were 15.6% ahead of prior year, including 15.4% growth in local currencies (9.2% internally generated and 6.2% acquisition growth) and 0.2% related to foreign currency exchange. The Company estimates that reported Technology and Value-Added Services internal sales growth of 9.2% was 17.7% when adjusting for the extra week in the 2005 fourth quarter. "Our Technology and Value-Added Services sales growth for the quarter was fueled by strong growth in software revenues," added Mr. Bergman.
Full Year Results
For 2006, net sales of $5.15 billion represent an increase of 11.2% compared with 2005. This increase includes 10.6% local currency growth (5.2% internally generated and 5.4% from acquisitions net of divestiture) and 0.6% related to foreign currency exchange. The Company estimates that the reported 5.2% internal sales growth in local currencies was approximately 6.7% adjusting for the extra week in 2005. Income from continuing operations for 2006 was $183.1 million reflecting 21.3% growth compared with the prior year. Earnings per diluted share from continuing operations of $2.04 for 2006 represents 19.3% growth over 2005.
Stock Repurchase Plan
Henry Schein announced that it repurchased 295,137 shares of common stock during the fourth quarter of 2006 at an average price of $49.34 per share. Approximately $71 million remains authorized for future common stock repurchases. The impact of the repurchase of shares under this program on fourth quarter diluted EPS was immaterial.
2007 EPS Guidance
Henry Schein affirms 2007 financial guidance, as follows:
- 2007 diluted EPS is expected to be $2.51 to $2.57. This represents an increase of 23% to 26% compared with 2006 diluted EPS from continuing operations.
- This 2007 diluted EPS guidance includes Henry Schein's expectations that it will distribute approximately 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.
Fourth Quarter Conference Call Webcast
The Company will hold a conference call to discuss fourth 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 practitioners and laboratories, physician practices and animal health 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 more than 100,000 additional products available 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, MicroMd(R) for physician practices, and AVImark(R) for animal health 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 $5.15 billion in 2006. 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)
Three Months Ended Years Ended
------------------------- -------------------------
December 30, December 31, December 30, December 31,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $1,498,936 $1,343,141 $5,153,097 $4,635,929
Cost of sales 1,076,949 965,666 3,673,042 3,318,993
------------ ------------ ------------ ------------
Gross profit 421,987 377,475 1,480,055 1,316,936
Operating expenses:
Selling, general
and
administrative 317,431 293,036 1,175,158 1,053,798
------------ ------------ ------------ ------------
Operating
income 104,556 84,439 304,897 263,138
Other income (expense):
Interest income 4,412 2,846 16,440 7,315
Interest expense (6,563) (7,222) (27,800) (25,508)
Other, net (115) 744 2,065 1,659
------------ ------------ ------------ ------------
Income from
continuing
operations
before taxes,
minority
interest and
equity in
earnings of
affiliates 102,290 80,807 295,602 246,604
Income taxes (35,904) (29,477) (105,220) (90,456)
Minority interest
in net income of
subsidiaries (3,643) (2,208) (8,090) (5,963)
Equity in earnings
of affiliates 254 313 835 827
------------ ------------ ------------ ------------
Income from
continuing
operations 62,997 49,435 183,127 151,012
Discontinued operations:
Loss from
operations of
discontinued
components - (1,350) (32,279) (18,749)
Income tax
benefit - 543 12,911 7,496
------------ ------------ ------------ ------------
Loss from
discontinued
operations - (807) (19,368) (11,253)
------------ ------------ ------------ ------------
Net income $ 62,997 $ 48,628 $ 163,759 $ 139,759
============ ============ ============ ============
Earnings from continuing operations per share:
Basic $ 0.71 $ 0.57 $ 2.08 $ 1.74
============ ============ ============ ============
Diluted $ 0.70 $ 0.56 $ 2.04 $ 1.71
============ ============ ============ ============
Loss from discontinued operations per share:
Basic $ - $ (0.01) $ (0.22) $ (0.13)
============ ============ ============ ============
Diluted $ - $ (0.01) $ (0.22) $ (0.13)
============ ============ ============ ============
Earnings per share:
Basic $ 0.71 $ 0.56 $ 1.86 $ 1.61
============ ============ ============ ============
Diluted $ 0.70 $ 0.55 $ 1.82 $ 1.58
============ ============ ============ ============
Weighted-average common shares outstanding:
Basic 88,580 87,075 87,952 87,006
============ ============ ============ ============
Diluted 90,488 88,376 89,820 88,489
============ ============ ============ ============
Note: The above prior period amounts have been restated to reflect the
effects of expensing stock-based compensation pursuant to our
adoption of FAS 123R using the modified retrospective application.
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 30, December 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 248,647 $ 210,683
Available-for-sale securities 47,999 124,010
Accounts receivable, net of reserves of
$40,536 and $52,308 610,020 582,617
Inventories, net 584,103 505,542
Deferred income taxes 28,240 35,505
Prepaid expenses and other 125,839 126,052
------------ ------------
Total current assets 1,644,848 1,584,409
Property and equipment, net 225,038 190,746
Goodwill 773,801 626,869
Other intangibles, net 161,542 123,204
Investments and other 75,917 57,892
------------ ------------
Total assets $2,881,146 $2,583,120
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 414,062 $ 371,392
Bank credit lines 2,528 2,093
Current maturities of long-term debt 41,036 33,013
Accrued expenses:
Payroll and related 110,401 96,113
Taxes 59,007 65,070
Other 183,054 156,433
------------ ------------
Total current liabilities 810,088 724,114
Long-term debt 455,806 489,520
Deferred income taxes 62,334 54,432
Other liabilities 60,209 53,547
Minority interest 21,746 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, 88,499,321 outstanding
on December 30, 2006 and 87,092,238
outstanding on December 31, 2005 885 871
Additional paid-in capital 614,551 559,266
Retained earnings 808,164 667,958
Accumulated other comprehensive income 47,363 21,059
------------ ------------
Total stockholders' equity 1,470,963 1,249,154
------------ ------------
Total liabilities and stockholders' equity $2,881,146 $2,583,120
============ ============
Note: Certain prior period amounts have been restated to reflect the
effects of our adoption of FAS 123R 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)
Three Months Ended Years Ended
------------------------- -------------------------
December 30, December 31, December 30, December 31,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Cash flows from operating
activities:
Net income $ 62,997 $ 48,628 $ 163,759 $ 139,759
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 18,039 17,798 64,930 60,345
Impairment of
long-lived asset - - - 11,928
Stock-based
compensation
expense 5,531 4,885 19,464 18,249
Provision for
losses on trade
and other
accounts
receivable 529 889 2,872 6,524
Deferred income
taxes 3,959 (206) 1,297 (3,869)
Stock issued to
401(k) plan - - 3,565 3,223
Undistributed
earnings of
affiliates (254) (313) (835) (827)
Minority interest
in net income of
subsidiaries 3,643 2,208 8,090 5,963
Other 483 (1,290) (2,066) (224)
Changes in operating assets
and liabilities, net of
acquisitions:
Accounts
receivable (287) 27,643 (9,705) (14,002)
Inventories (5,991) (27,641) (41,958) 6,484
Other current
assets 11,048 (14,336) 18,424 19,782
Accounts
payable and
accrued
expenses 70,994 90,463 (11,883) 1,441
------------ ------------ ------------ ------------
Net cash provided
by operating
activities 170,691 148,728 235,317 254,776
------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchases of
fixed assets (17,073) (14,625) (67,000) (50,829)
Payments for
business
acquisitions,
net of cash
acquired (13,748) (9,665) (199,880) (68,213)
Cash received
from business
divestiture - - 36,527 -
Purchases of
available-for-
sale securities (57,999) (136,700) (222,036) (161,445)
Proceeds from
sales of
available-for-
sale securities 8,000 37,434 294,767 37,434
Proceeds from
maturities of
available-for-
sale securities 2,000 - 3,280 -
Proceeds from
settlement of
note receivable - 2,616 - 14,395
Net proceeds from
(payments for)
foreign exchange
forward contract
settlements (5,633) 7,188 (22,528) 30,818
Other 3,113 (9,414) (3,491) (8,841)
------------ ------------ ------------ ------------
Net cash used in
investing
activities (81,340) (123,166) (180,361) (206,681)
------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from
(repayments of)
bank borrowings (113) (637) 184 (3,525)
Proceeds from
issuance of
long-term debt 1,201 - 1,201 -
Principal
payments for
long-term debt (3,860) (3,005) (34,537) (8,483)
Payments for debt
issuance costs - - - (650)
Proceeds from
issuance of
stock upon
exercise of
stock options 2,722 4,222 35,622 29,500
Payments for
repurchases of
common stock (14,563) (25,159) (40,263) (52,276)
Excess tax
benefits related
to stock-based
compensation 1,700 2,831 14,850 10,365
Other 4 182 1,669 (3,432)
------------ ------------ ------------ ------------
Net cash used in
financing
activities (12,909) (21,566) (21,274) (28,501)
------------ ------------ ------------ ------------
Net change in cash
and cash
equivalents 76,442 3,996 33,682 19,594
Effect of exchange
rate changes on
cash and cash
equivalents (3,865) 2,930 4,282 4,468
Cash and cash
equivalents,
beginning of
period 176,070 203,757 210,683 186,621
------------ ------------ ------------ ------------
Cash and cash
equivalents, end
of period $ 248,647 $ 210,683 $ 248,647 $ 210,683
============ ============ ============ ============
Note: The above prior period amounts have been restated to reflect the
effects of our adoption of FAS 123R using the modified retrospective
application. Additionally, for the three months and year ended
December 31, 2005, 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.
Sales Growth Rate Summary
2006
Q4 2006 over Q4 2005
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 2.3% 6.0% -3.5% 3.3% 9.2%
Acquisitions, net
of divestiture 7.0% 6.5% 9.6% 4.4% 6.2%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 9.3% 12.5% 6.1% 7.7% 15.4%
Foreign Currency
Exchange 2.3% 0.4% - 8.2% 0.2%
------------ ------ ------- ------------- ----------
Total Sales
Growth 11.6% 12.9% 6.1% 15.9% 15.6%
============ ====== ======= ============= ==========
Internal Sales
Growth 2.3% 6.0% -3.5% 3.3% 9.2%
Estimated
Adjustment For
Additional Week
in Q405 5.0% 5.5% 5.0% 4.0% 8.5%
------------ ------ ------- ------------- ----------
Adjusted Internal
Sales Growth 7.3% 11.5% 1.5% 7.3% 17.7%
============ ====== ======= ============= ==========
2006 over 2005
----------------------------------------------------------------------
Consolidated Dental Medical International Technology
------------ ------ ------- ------------- ----------
Internal Sales
Growth 5.2% 8.4% 0.6% 5.1% 8.6%
Acquisitions, net
of divestiture 5.4% 3.5% 8.2% 5.6% 2.3%
------------ ------ ------- ------------- ----------
Local Currency
Sales Growth 10.6% 11.9% 8.8% 10.7% 10.9%
Foreign Currency
Exchange 0.6% 0.8% - 0.8% 0.4%
------------ ------ ------- ------------- ----------
Total Sales
Growth 11.2% 12.7% 8.8% 11.5% 11.3%
============ ====== ======= ============= ==========
Internal Sales
Growth 5.2% 8.4% 0.6% 5.1% 8.6%
Estimated
Adjustment For
Additional Week
in 2005 1.5% 1.5% 1.5% 1.0% 2.0%
------------ ------ ------- ------------- ----------
Adjusted Internal
Sales Growth 6.7% 9.9% 2.1% 6.1% 10.6%
============ ====== ======= ============= ==========
Use of Non-GAAP Measures:
The above information includes financial measures that are not calculated and presented in accordance with accounting principles generally accepted in the United States ("US GAAP"). The above table reconciles sales growth, excluding the effects of acquisitions, net of a divestiture and foreign currency exchange, to comparable amounts as adjusted to eliminate the effect of one additional week's sales activity from the comparable prior-year period.
Management eliminated the effect of such prior period's additional week's sales activity to assist in evaluating the underlying operational performance of the Company's business on a comparable basis. Management believes that this presentation is appropriate and facilitates such an evaluation by management, investors and analysts. This measure should be considered supplemental to, and not a substitute for or superior to, financial measures calculated in accordance with US GAAP.
CONTACT: Henry Schein, Inc.
Steven Paladino, 631-843-5500
Executive Vice President and Chief Financial Officer
steven.paladino@henryschein.com
or
Neal Goldner, 631-845-2820
Vice President, Investor Relations
neal.goldner@henryschein.com
or
Susan Vassallo, 631-843-5562
Director, Corporate Communications
susan.vassallo@henryschein.com
SOURCE: Henry Schein, Inc.