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 FIRST QUARTER RESULTS
Net sales increase 24%; diluted EPS up 19%
MELVILLE, N.Y. - May 3, 2005 - 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 March 26, 2005.
Net sales for the first quarter of 2005 were $1.1 billion, an increase
of 24.2% from the first quarter of 2004 (See Exhibit A for details of sales
growth). This increase includes 23.1% local currency growth (7.5% internally
generated and 15.6% from acquisitions) and 1.1% related to foreign currency
exchange. Operating margin for the first quarter of 2005 was 5.2%, consistent
with the prior-year quarter. First quarter net income was $33.2 million, an
increase of 17.0% compared with the first quarter of 2004. Earnings per diluted
share of $0.37 represents an increase of 19.4% compared with the prior-year
quarter.
"Our financial results for the first quarter of 2005 were strong,
featuring first quarter records for sales, net income, and earnings per share,"
said Stanley M. Bergman, Chairman, Chief Executive Officer and President of
Henry Schein. "Internal growth in local currencies once again exceeded our
estimate for market growth and reflected particular strength from our Dental
Group."
For the quarter, Dental sales increased by 21.9%, including 21.4%
growth in local currencies (14.2% internally generated and 7.2% from
acquisitions) and 0.5% related to foreign currency exchange. Of the 21.4% local
currency growth, Dental consumable merchandise sales increased 18.9% (12.6%
internal growth, 6.3% acquisition growth) and Dental equipment sales and service
revenues were up 32.1% (21.2% internal growth, 10.9% acquisition growth). Sales
of the Colgate and Pentron product lines introduced in 2004 accounted for about
5.2% of the local internal Dental consumable merchandise growth.
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"The first quarter marks the seventh consecutive quarter of double-
digit sales growth in our Dental Group as we continue to gain market share. The
investments we have made in training for our field sales force, the Privileges
customer loyalty program, and new product introductions were the key drivers of
our impressive Dental sales performance," explained Mr. Bergman.
"Integration of the Ash Temple Limited acquisition with our existing
Canadian operations is underway and proceeding according to plan. We have now
significantly strengthened our position in Canada, doubling our field sales
force, enhancing our Dental equipment business and gaining a strong presence in
the Dental laboratory market," he added.
Medical sales increased 3.6% during the first quarter (all internal),
reflecting the impact of shedding a number of lower margin and nominally
profitable pharmaceutical and veterinary customers. Despite this impact, the
core physician and alternate-care business, which represents more than 80% of
Medical sales, grew by 6.7% and continues to exceed the Company's estimate for
market growth.
"Medical Group sales growth during the quarter reflects the
implementation of strategic decisions made in support of the Company's operating
margin expansion goals," commented Mr. Bergman.
International sales increased 72.3%, including 67.5% in local
currencies (0.9% internally generated and 66.6% from acquisitions) and 4.8% due
to foreign currency exchange. Technology and Value-Added Services sales
grew 8.1% (all internal), or 7.8% in local currencies during the quarter.
"International Group internal sales growth in local currencies reflects
continued government reimbursement issues in Germany. We also believe that
manufacturer incentives, related to the IDS Dental trade show in Cologne, may
have delayed dental equipment purchases to the second quarter. 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. The integration of those
businesses is continuing in a highly effective manner, and we remain confident
in our estimate of $2-$3 million of pre-tax cost savings due to synergies in
2005. Growth in Technology and Value-Added Services revenues was fueled by
particularly strong performance in the electronic services business," Mr.
Bergman added.
Stock Repurchase Plan
In June 2004, the Company announced a share repurchase program of up to
$100 million worth of common stock, under which 445,500 shares were repurchased
during the first quarter at an average price of $36.61 per share. The impact of
the repurchase of shares under this program on first quarter diluted EPS was not
meaningful. To date under this program, 1,614,310 shares have been repurchased
at an average price of $32.56 per share.
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2005 EPS Guidance
On April 27, 2005, in conjunction with issuing its first quarter 2005
financial results, Chiron Corporation (Nasdaq NM: CHIR) reported a projected
capacity to produce 25 to 30 million doses of Fluvirin(R) for the 2005 influenza
season. Although Chiron stated that there can be no assurances that they will
successfully complete their remediation efforts in time to re-enter the market
this season, Henry Schein believes this to be a positive development with
respect to its ability to receive Fluvirin in 2005. At this time, there is
uncertainty about the number of doses of influenza vaccine that Chiron will
produce, how many will be available in the United States, or the amount Henry
Schein will receive, if any, for 2005. In addition, although end user pricing
for influenza vaccine is expected to increase this year, there remains
uncertainty regarding specific pricing at this time, and Henry Schein has not
yet announced influenza vaccine pricing to its customers for 2005. Since we do
not have reasonable certainty with respect to these matters, we are not
providing specific guidance at this time should Chiron re-enter the influenza
vaccine market in 2005.
However, Henry Schein affirms that it expects 2005 diluted EPS in the
range of $1.73 to $1.77 if Chiron is unable to re-enter the influenza vaccine
market this year. This represents mid-teens percentage diluted EPS growth over
2004, excluding the $0.10 one-time charge related to the Fluvirin contract.
This guidance assumes no significant increase in sales of influenza vaccine
products from other manufacturers over 2004 levels. Henry Schein affirms its
expectation of low-single-digit diluted EPS growth in the second quarter of 2005
due to expenses associated with relocation to a new corporate headquarters
building, seasonality changes and integration costs, among other items, with
growth accelerating during the second half of the year. This guidance does not
include the impact of expensing of stock options (per Financial Accounting
Standards No. 123(R)), which has been delayed until 2006. The Company notes
that all 2005 guidance is for current operations including completed
acquisitions, and does not include the impact of potential future acquisitions.
First Quarter Conference Call Webcast
The Company will hold a conference call to discuss first 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.
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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 475,000
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 $4.1 billion in 2004. The Company operates
through a centralized and automated distribution network, which provides
customers in more than 125 countries with a comprehensive selection of over
160,000 national and Henry Schein private-brand products.
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. Our leading practice management
software solutions have been installed in more than 50,000 practices --
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 10,000
people and has operations in 19 countries. 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, 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 that 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 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 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.
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(TABLES TO FOLLOW)
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended
--------------------------
March 26, March 27,
2005 2004
----------- -----------
Net sales ............................................ $ 1,101,410 $ 886,631
Cost of sales ........................................ 795,223 655,804
----------- -----------
Gross profit .................................. 306,187 230,827
Operating expenses:
Selling, general and administrative .............. 248,982 184,527
----------- -----------
Operating income .............................. 57,205 46,300
Other income (expense):
Interest income .................................. 2,028 2,216
Interest expense ................................. (6,371) (3,002)
Other, net ....................................... (341) 151
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Income before taxes, minority interest
and equity in earnings of affiliates ......... 52,521 45,665
Taxes on income ...................................... (19,432) (17,032)
Minority interest in net income of subsidiaries....... (51) (525)
Equity in earnings of affiliates ..................... 187 285
----------- -----------
Net income ........................................... $ 33,225 $ 28,393
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Earnings per share:
Basic ............................................ $ 0.38 $ 0.32
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Diluted .......................................... $ 0.37 $ 0.31
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Weighted-average common shares outstanding:
Basic ............................................ 86,679 87,572
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Diluted .......................................... 88,800 90,219
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 26, December 25,
2005 2004
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 114,741 $ 186,621
Accounts receivable, net of reserves of $43,261 and $44,852 ................ 550,262 554,666
Inventories ................................................................ 495,574 486,494
Deferred income taxes ...................................................... 30,901 28,795
Prepaid expenses and other ................................................. 137,169 174,167
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Total current assets ............................................... 1,328,647 1,430,743
Property and equipment, net .................................................... 175,315 176,103
Goodwill ....................................................................... 633,965 627,215
Other intangibles, net ......................................................... 133,307 129,285
Investments and other .......................................................... 68,908 70,324
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Total assets ....................................................... $ 2,340,142 $ 2,433,670
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 304,487 $ 367,213
Bank credit lines .......................................................... 6,066 5,969
Current maturities of long-term debt ....................................... 3,786 3,906
Accrued expenses:
Payroll and related ..................................................... 70,131 89,431
Taxes ................................................................... 57,764 70,970
Other ................................................................... 129,832 156,410
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Total current liabilities .......................................... 572,066 693,899
Long-term debt ................................................................. 517,093 525,682
Deferred income taxes ........................................................... 69,899 66,599
Other liabilities .............................................................. 39,595 28,999
Minority interest .............................................................. 13,037 12,438
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding ........................................................ -- --
Common stock, $.01 par value, 120,000,000 shares authorized,
86,773,322 and 86,650,428 outstanding ................................... 868 867
Additional paid-in capital .................................................. 454,359 445,573
Retained earnings ........................................................... 639,016 615,265
Accumulated other comprehensive income ...................................... 34,622 44,785
Deferred compensation ....................................................... (413) (437)
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Total stockholders' equity ......................................... 1,128,452 1,106,053
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Total liabilities and stockholders' equity ......................... $ 2,340,142 $ 2,433,670
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
--------------------------
March 26, March 27,
2005 2004
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Cash flows from operating activities:
Net income ................................................................. $ 33,225 $ 28,393
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization ....................................... 13,237 9,642
Provision for (recovery of) losses on trade
and other accounts receivable ................................. (208) 409
Deferred income taxes ............................................... 3,020 565
Undistributed earnings of affiliates ................................ (187) (285)
Minority interest in net income of subsidiaries ..................... 51 525
Other ............................................................... 1,089 144
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... 14,434 (6,815)
Inventories ................................................... 8,610 (23,109)
Other current assets .......................................... 32,790 22,395
Accounts payable and accrued expenses ......................... (121,356) (45,305)
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Net cash used in operating activities........................................... (15,295) (13,441)
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Cash flows from investing activities:
Purchases of fixed assets ................................................. (8,138) (5,654)
Payments for business acquisitions, net of cash acquired .................. (39,046) (4,401)
Payments related to pending business acquisitions ......................... -- (86,031)
Proceeds from sales of marketable securities .............................. -- 14,472
Net payments for foreign exchange forward contract settlements............. (4,478) (4,045)
Other...................................................................... (2,302) (8,607)
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Net cash used in investing activities .......................................... (53,964) (94,266)
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Cash flows from financing activities:
Net proceeds from bank borrowings ......................................... 183 24,417
Principal payments on long-term debt ...................................... (696) (262)
Proceeds from issuance of stock upon exercise of stock options ............ 10,944 12,683
Payments for repurchases of common stock .................................. (16,310) (11,054)
Other ..................................................................... (401) (346)
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Net cash (used in) provided by financing activities ............................ (6,280) 25,438
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Net change in cash and cash equivalents ........................................ (75,539) (82,269)
Effect of exchange rate changes on cash and cash equivalents ................... 3,659 (1,996)
Cash and cash equivalents, beginning of period ................................. 186,621 157,351
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Cash and cash equivalents, end of period ....................................... $ 114,741 $ 73,086
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NOTE: Certain prior period amounts have been reclassified to conform with the
current period presentation.
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Exhibit A
Henry Schein, Inc.
2005 First Quarter
Sales Growth Rate Summary
(unaudited)
Q1 2005 over Q1 2004
--------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 7.5% 14.2% 3.6% 0.9% 7.8%
Acquisitions 15.6% 7.2% -- 66.6% --
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 23.1% 21.4% 3.6% 67.5% 7.8%
Foreign Currency Exchange 1.1% 0.5% -- 4.8% 0.3%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 24.2% 21.9% 3.6% 72.3% 8.1%
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