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, Investor and
Public Relations
susan.vassallo@henryschein.com
FOR IMMEDIATE RELEASE (631) 843-5562
HENRY SCHEIN THIRD QUARTER NET SALES TOP $1 BILLION, UP 16%
Company introduces 2005 diluted EPS guidance
MELVILLE, N.Y. - October 26, 2004 - Henry Schein, Inc. (Nasdaq NM: 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 25, 2004.
Net sales for the third quarter of 2004 were a record $1.03 billion, an
increase of 15.8% from the third quarter of 2003 (See Exhibit A for details of
sales growth). "We are proud to report our first $1 billion quarter, marking a
major financial milestone in our company's history," said Stanley M. Bergman,
Chairman, Chief Executive Officer and President of Henry Schein. This increase
includes 14.2% local currency growth (0.6% internally generated and 13.6% from
acquisitions net of a divestiture) and 1.6% related to foreign currency
exchange. Third quarter net income was $31.5 million, and earnings per diluted
share was $0.71. Third quarter financial results were adversely impacted by the
absence of Fluvirin(R) influenza vaccine, as previously announced on October 5,
2004. On that date, Chiron Corporation (Nasdaq: CHIR) announced that it would
not supply Fluvirin(R) influenza vaccine for the current influenza season. Henry
Schein is the primary distributor of Fluvirin to the U.S. market.
Dental sales increased by 17.7%, including 17.3% growth in local
currencies (16.6% internally generated and 0.7% from acquisitions) and 0.4%
related to foreign currency exchange. Of the 17.3% local currency growth, Dental
consumable merchandise sales increased 15.5% (all internally generated) and
Dental equipment sales and service revenues were up 24.8% (21.3% internal
growth).
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"Our Dental Group's impressive internal growth rate was approximately
three times our estimate for market growth, and continues to be enhanced by the
successful introduction of the Colgate and Pentron product lines which accounted
for 7.5% of the local Dental consumable merchandise growth," explained Mr.
Bergman. "Our continued success in growing Dental sales reflects the ongoing
successful execution of our dental growth strategy."
"We are also optimistic about our prospects in the large, fast growing
and highly profitable market for dental implants. Earlier this month we
officially launched the Camlog product line in the U.S., thereby bringing a
leading product offering to our customers and furthering our corporate goal to
offer our customers an increasing number of value-added products and services,"
noted Mr. Bergman.
Medical sales declined 8.3% during the third quarter, reflecting the
absence of Fluvirin sales. Excluding $94.5 million in Fluvirin sales from the
third quarter of last year, third quarter 2004 Medical sales growth was 20.4%
(11.3% internal and 9.1% from acquisitions - See Exhibit B for details). "Our
Medical Group distributes more than 30,000 SKUs, including medical/surgical
products, equipment, specialty pharmaceuticals, and injectables and vaccines.
Market share growth in the Group's core operations during the third quarter was
excellent, as evidenced by double digit percentage growth without the Fluvirin
impact," commented Mr. Bergman.
Technology and Value-Added Services sales grew 13.1%, (all internally
generated) and International sales improved 80.5%, including 71.1% in local
currencies (5.0% internally generated and 66.1% from acquisitions net of a
divestiture) and 9.4% due to foreign currency exchange. "Third quarter
Technology and Value-Added Services sales gains were highlighted by strong
performance across the board in our software and electronic services businesses.
International Group internal sales gains in local currencies exceeded our
estimate for market growth, while total International Group sales growth was
significantly bolstered by the acquisition of the Demedis full-service
businesses in Germany and the Benelux countries, and the KRUGG direct-marketing
dental business in Italy. We look forward to further international success,
particularly in Europe, as we complete the integration of the acquired
businesses into Henry Schein," Mr. Bergman added.
The third quarter operating margin decline primarily is a reflection of
the absence of Fluvirin sales. Cash flow from operations for the third quarter
of 2004 was negative $3.2 million, compared with a negative $22.9 million for
the third quarter of 2003.
Stock Repurchase Plan
The Company announced in June 2004 a share repurchase program of up to
$100 million worth of common stock, under which 455,000 shares were repurchased
during the third quarter at an average price of $62.27 per share. The impact of
the repurchase of shares under this program on third quarter diluted EPS was not
significant.
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2004 and 2005 EPS Guidance
Based on third quarter 2004 financial performance, Henry Schein
narrowed its guidance for 2004 earnings per diluted share to $3.03 to $3.07,
compared with prior Company guidance of $3.01 to $3.07. Henry Schein also
introduced 2005 earnings per diluted share guidance. For 2005 the Company
expects diluted earnings per share in the range of $4.00 - $4.08. This
represents growth of 31% to 34% over the midpoint of the 2004 annual guidance.
This guidance reflects mid-teens diluted EPS growth over 2004 plus the
annualized impact of the Demedis Group acquisition as well as related synergies.
This also assumes (although there can be no assurance) a resumption of the
availability of Fluvirin product for 2005. Should Fluvirin not be available in
2005, in addition to lost earnings, Henry Schein will record a pre-tax one-time
charge of approximately $13 million related to the Fluvirin contract. The
Company noted that this 2004 and 2005 EPS guidance is for current operations
including completed acquisitions, and does not include the impact of potential
future acquisitions.
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 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 450,000
customers worldwide, including dental practices and laboratories, physician
practices and veterinary clinics, as well as government and other institutions.
The Company's sales reached a record $3.4 billion in 2003. The Company operates
through a centralized and automated distribution network, which provides
customers in more than 125 countries with a comprehensive selection of over
90,000 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 50,000 practices; and ArubA(R),
Henry Schein's electronic catalog and ordering system.
Headquartered in Melville, N.Y., Henry Schein employs more than 9,000
people and has operations in 17 countries. For more information, visit the Henry
Schein Web site at www.henryschein.com.
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In accordance with the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company provides 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 which may cause the Company's
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 the Company's operations and financial
condition, including factors that may affect its business and future prospects,
is contained in documents the Company has filed with the SEC and will be
contained in all subsequent periodic filings made with the SEC. These documents
identify, in detail, important risk factors that could cause the Company's
actual performance to differ materially from current expectations.
Risk factors and uncertainties which 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 the Company; financial risks associated with
the Company's international operations; fluctuations in quarterly earnings;
transitional challenges associated with acquisitions; regulatory and litigation
risks; the dependence on the Company's continued product development, technical
support and successful marketing in the technology segment; the Company's
dependence upon sales personnel and key customers; the Company's dependence on
its senior management; the Company's dependence on third parties for the
manufacture and supply of its products; possible increases in the cost of
shipping the Company's products or other service trouble with the Company's
third-party shippers; risks from rapid technological change; and risks from
potential increases in variable interest rates.
The order in which these factors appear should not be construed to
indicate their relative importance or priority. The Company cautions that these
factors may not be exhaustive and that many of these factors are beyond the
Company's ability to control or predict. Accordingly, forward-looking statements
should not be relied upon as a prediction of actual results. The Company
undertakes no duty and has no obligation to update forward-looking statements.
(TABLES TO FOLLOW)
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 25, September 27, September 25, September 27,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales ............................................... $ 1,033,625 $ 892,718 $ 2,865,946 $ 2,406,881
Cost of sales ........................................... 759,597 641,218 2,109,376 1,733,435
----------- ----------- ----------- -----------
Gross profit ..................................... 274,028 251,500 756,570 673,446
Operating expenses:
Selling, general and administrative ................. 220,873 175,100 593,530 498,811
----------- ----------- ----------- -----------
Operating income ................................. 53,155 76,400 163,040 174,635
Other income (expense):
Interest income ..................................... 1,684 2,197 6,351 6,510
Interest expense .................................... (6,251) (4,812) (12,367) (14,140)
Other, net .......................................... 120 328 451 1,255
----------- ----------- ----------- -----------
Income before taxes, minority interest,
equity in earnings of affiliates and loss
on sale of discontinued operation ............... 48,708 74,113 157,475 168,260
Taxes on income from continuing operations .............. (18,022) (27,569) (58,466) (62,982)
Minority interest in net loss (income) of subsidiaries .. 72 (363) (1,707) (1,974)
Equity in earnings of affiliates ........................ 746 178 1,331 676
----------- ----------- ----------- -----------
Net income from continuing operations ................... 31,504 46,359 98,633 103,980
Loss on sale of discontinued operation,
net of tax ........................................... -- (2,012) -- (2,012)
----------- ----------- ----------- -----------
Net income .............................................. $ 31,504 $ 44,347 $ 98,633 $ 101,968
=========== =========== =========== ===========
Earnings from continuing operations per
common share:
Basic ............................................... $ 0.72 $ 1.06 $ 2.26 $ 2.38
=========== =========== =========== ===========
Diluted ............................................. $ 0.71 $ 1.03 $ 2.20 $ 2.32
=========== =========== =========== ===========
Loss on sale of discontinued operation, net
of tax per common share:
Basic ............................................... $ -- $ (0.05) $ -- $ (0.05)
=========== =========== =========== ===========
Diluted ............................................. $ -- $ (0.04) $ -- $ (0.04)
=========== =========== =========== ===========
Earnings per common share:
Basic ............................................... $ 0.72 $ 1.02 $ 2.26 $ 2.33
=========== =========== =========== ===========
Diluted ............................................. $ 0.71 $ 0.99 $ 2.20 $ 2.27
=========== =========== =========== ===========
Weighted-average common shares outstanding:
Basic ............................................... 43,520 43,609 43,737 43,706
=========== =========== =========== ===========
Diluted ............................................. 44,495 44,885 44,884 44,896
=========== =========== =========== ===========
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 25, December 27,
2004 2003
------------ -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 72,971 $ 157,351
Accounts receivable, net of reserves of $41,037 and $43,203 .. 542,523 467,085
Inventories .................................................. 449,844 385,846
Deferred income taxes ........................................ 28,696 30,559
Prepaid expenses and other ................................... 166,219 115,643
----------- -----------
Total current assets ................................. 1,260,253 1,156,484
Property and equipment, net ...................................... 171,683 154,205
Goodwill ......................................................... 564,236 398,888
Other intangibles, net ........................................... 134,620 37,551
Investments and other ............................................ 81,479 72,242
----------- -----------
Total assets ......................................... $ 2,212,271 $ 1,819,370
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 262,083 $ 278,163
Bank credit lines ............................................ 6,824 6,059
Current maturities of long-term debt ......................... 3,896 3,253
Accrued expenses:
Payroll and related ....................................... 70,259 68,214
Taxes ..................................................... 57,234 45,969
Other ..................................................... 129,761 117,530
----------- -----------
Total current liabilities ............................ 530,057 519,188
Long-term debt ................................................... 522,767 247,100
Deferred income taxes ............................................ 66,540 32,938
Other liabilities ................................................ 22,226 4,494
Minority interest ................................................ 11,367 11,532
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 authorized,
none outstanding .......................................... -- --
Common stock, $.01 par value, 120,000,000 authorized,
43,374,760 and 43,761,973 outstanding .................... 434 438
Additional paid-in capital .................................... 445,825 445,118
Retained earnings ............................................. 590,536 533,654
Accumulated other comprehensive income ........................ 22,980 24,999
Deferred compensation ......................................... (461) (91)
----------- -----------
Total stockholders' equity ........................... 1,059,314 1,004,118
----------- -----------
Total liabilities and stockholders' equity ........... $ 2,212,271 $ 1,819,370
=========== ===========
NOTE: Certain prior period amounts have been reclassified to conform with the
current period presentation.
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Periods Ended September 25, 2004 and September 27, 2003
Three Months Ended
--------------------------
2004 2003
--------- ---------
Cash flows from operating activities of continuing operations:
Net income ............................................................. $ 31,504 $ 44,347
Loss on sale of discontinued operation, net of tax .............. -- 2,012
--------- ---------
Net income from continuing operations .................................. 31,504 46,359
Adjustments to reconcile net income to net cash provided by (used in)
operating activities of continuing operations:
Depreciation and amortization ................................... 13,247 8,841
Provision for losses on trade and other accounts receivable ..... 636 554
Deferred income taxes ........................................... (197) 3,069
Stock issued to 401(k) plan ..................................... 2,805 2,300
Undistributed earnings of affiliates ............................ (746) (178)
Minority interest in net income (loss) of subsidiaries .......... (72) 363
Other ........................................................... 3,945 144
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ....................................... (18,119) (82,095)
Inventories ............................................... 10,874 (31,937)
Other current assets ...................................... (5,135) (7,634)
Accounts payable and accrued expenses ..................... (41,906) 37,274
--------- ---------
Net cash provided by (used in) operating activities
of continuing operations ................................................ (3,164) (22,940)
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets ............................................. (10,898) (7,724)
Payments for business acquisitions, net of cash acquired .............. 26,730 (1) (1,043)
Payments related to pending business acquisitions ..................... -- --
Purchases of marketable securities .................................... -- (17,944)
Proceeds from sales of marketable securities .......................... -- 20,104
Proceeds from maturities of marketable securities ..................... -- 9,600
Other, including discontinued operation ............................... 3,034 (2,532)
--------- ---------
Net cash provided by (used in) investing activities ....................... 18,866 461
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .............................. 240,000 --
Payments for debt issuance costs ...................................... (5,154) --
Net proceeds from (payments on) bank borrowings ....................... (236,776) 1,622
Repayment of debt assumed in business acquisitions .................... (21,939) --
Principal payments on long-term debt .................................. (1,354) (2,232)
Proceeds from issuance of stock upon exercise of stock options ........ 1,375 7,049
Payments for repurchases of common stock .............................. (24,702) (11,575)
Other ................................................................. (283) (25)
--------- ---------
Net cash provided by (used in) financing activities ....................... (48,833) (5,161)
--------- ---------
Net change in cash and cash equivalents ................................... (33,131) (27,640)
Effect of exchange rate changes on cash and cash equivalents .............. (235) (664)
Cash and cash equivalents, beginning of period ............................ 106,337 121,161
--------- ---------
Cash and cash equivalents, end of period .................................. $ 72,971 $ 92,857
========= =========
Nine Months Ended
--------------------------
2004 2003
--------- ---------
Cash flows from operating activities of continuing operations:
Net income ............................................................. $ 98,633 $ 101,968
Loss on sale of discontinued operation, net of tax .............. -- 2,012
--------- ---------
Net income from continuing operations .................................. 98,633 103,980
Adjustments to reconcile net income to net cash provided by (used in)
operating activities of continuing operations:
Depreciation and amortization ................................... 33,231 25,956
Provision for losses on trade and other accounts receivable ..... 1,789 4,374
Deferred income taxes ........................................... 3,199 6,962
Stock issued to 401(k) plan ..................................... 2,805 2,300
Undistributed earnings of affiliates ............................ (1,331) (676)
Minority interest in net income (loss) of subsidiaries .......... 1,707 1,974
Other ........................................................... 4,033 (102)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ....................................... (33,052) (115,673)
Inventories ............................................... (10,276) (27,456)
Other current assets ...................................... 4,603 4,893
Accounts payable and accrued expenses ..................... (47,762) 11,559
--------- ---------
Net cash provided by (used in) operating activities
of continuing operations ................................................ 57,579 18,091
--------- ---------
Cash flows from investing activities:
Purchases of fixed assets ............................................. (24,687) (29,045)
Payments for business acquisitions, net of cash acquired .............. (152,029) (67,797)
Payments related to pending business acquisitions ..................... (13,489) --
Purchases of marketable securities .................................... -- (39,139)
Proceeds from sales of marketable securities .......................... 14,472 20,104
Proceeds from maturities of marketable securities ..................... -- 38,130
Other, including discontinued operation ............................... (2,383) (671)
--------- ---------
Net cash provided by (used in) investing activities ....................... (178,116) (78,418)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .............................. 240,000 --
Payments for debt issuance costs ...................................... (5,154) --
Net proceeds from (payments on) bank borrowings ....................... (6,081) 682
Repayment of debt assumed in business acquisitions .................... (135,718) --
Principal payments on long-term debt .................................. (3,064) (7,186)
Proceeds from issuance of stock upon exercise of stock options ........ 19,253 18,378
Payments for repurchases of common stock .............................. (70,666) (57,727)
Other ................................................................. (789) (118)
--------- ---------
Net cash provided by (used in) financing activities ....................... 37,781 (45,971)
--------- ---------
Net change in cash and cash equivalents ................................... (82,756) (106,298)
Effect of exchange rate changes on cash and cash equivalents .............. (1,624) (1,496)
Cash and cash equivalents, beginning of period ............................ 157,351 200,651
--------- ---------
Cash and cash equivalents, end of period .................................. $ 72,971 $ 92,857
========= =========
(1) Primarily reflects proceeds received from the divestiture of DentalMV GmbH
in July 2004, as previously disclosed in our Q2 2004 Form 10-Q, which was
treated as a reduction of purchase price of the Demedis Group acquired in
June 2004.
NOTE: Certain prior period amounts have been reclassified to conform with the
current period presentation.
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Exhibit A
Henry Schein, Inc.
2004 Third Quarter and Year to Date
Sales Growth Rate Summary
(unaudited)
Q3 2004 over Q3 2003
--------------------
Consolidated Dental Medical International Technology
------------ ------------ ------------ ------------ ------------
Internal 0.6% 16.6% -15.2% 5.0% 12.9%
Acquisitions 14.1% 0.7% 6.9% 69.5% -
Divestiture -0.5% - - -3.4% -
------------ ------------ ------------ ------------ ------------
Local Currency Sales Growth 14.2% 17.3% -8.3% 71.1% 12.9%
Foreign Currency Exchange 1.6% 0.4% - 9.4% 0.2%
------------ ------------ ------------ ------------ ------------
Total Sales Growth 15.8% 17.7% -8.3% 80.5% 13.1%
============ ============ ============ ============ ============
YTD Q3 2004 over YTD Q3 2003
----------------------------
Consolidated Dental Medical International Technology
------------ ------------ ------------ ------------ ------------
Internal 7.1% 12.7% 1.5% 6.5% 9.2%
Acquisitions 10.6% 3.2% 8.7% 34.2% 2.4%
Divestiture -0.8% - - -5.1% -
------------ ------------ ------------ ------------ ------------
Local Currency Sales Growth 16.9% 15.9% 10.2% 35.6% 11.6%
Foreign Currency Exchange 2.2% 0.4% - 11.8% 0.1%
------------ ------------ ------------ ------------ ------------
Total Sales Growth 19.1% 16.3% 10.2% 47.4% 11.7%
============ ============ ============ ============ ============
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Exhibit B
Henry Schein, Inc.
2004 Third Quarter
Medical Sales Growth Comparison
Net Sales by Category
(in thousands)
(unaudited)
Third Quarter % Growth
2004 2003 Total Internal Acquisition
---------- ---------- ------- -------- -----------
Medical Net Sales $ 363,660 $ 396,464 -8.3% -15.2% 6.9%
Subtract: Fluvirin Sales(1) -- 94,454
Medical Net Sales Excluding Fluvirin $ 363,660 $ 302,010 20.4% 11.3% 9.1%
(1) Third Quarter financial results were adversely impacted by the absence of
Fluvirin influenza vaccine in 2004, as previously announced.
Use of Non-GAAP Measures
The above 'Medical Sales Growth Comparison' medical net sales excluding Fluvirin
is a financial measure that is not calculated and presented in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"). The
above table reconciles medical net sales, the Company's most directly comparable
measure calculated and presented in accordance with U.S. GAAP, to medical net
sales excluding Fluvirin, as adjusted to eliminate the effect of third quarter
2003 Fluvirin sales.
Management eliminated the effect of third quarter 2003 Fluvirin sales to assist
in evaluating the underlying operational performance of the Company's medical
business, excluding Fluvirin, over the periods presented. 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 U.S. GAAP.
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