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 THIRD QUARTER
DILUTED EPS FROM CONTINUING OPERATIONS OF $0.41
Provides updated 2005 EPS guidance and introduces guidance range for
Fluvirin vaccine business
MELVILLE, N.Y. - Oct. 25, 2005 - 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 24, 2005. The
Company announced that, during the third quarter, a decision was reached to
divest its Hospital Supply business (see below and Exhibit A for details).
Net sales from continuing operations for the third quarter of 2005 were
$1.13 billion, an increase of 13.3% from the third quarter of 2004 (See Exhibit
B for details of sales growth). This increase includes 13.1% local currency
growth (7.2% internally generated and 5.9% from acquisitions) and 0.2% related
to foreign currency exchange. Third quarter net income from continuing
operations was $36.4 million and earnings per diluted share from continuing
operations was $0.41, both representing increases of 17.1% compared with the
prior-year quarter.
"We are very pleased with the quarter's financial results, highlighted
by record third quarter net sales with particular strength in our North American
Dental and Medical businesses," commented Stanley M. Bergman, Chairman and Chief
Executive Officer of Henry Schein.
For the quarter, Dental sales increased 15.8%, including 15.3% growth
in local currencies (8.9% internally generated and 6.4% from acquisitions) and
0.5% related to foreign currency exchange. Of the 15.3% local currency growth,
Dental consumable merchandise sales increased 12.2% (5.7% internal growth, 6.5%
acquisition growth) and Dental equipment sales and service revenues were up
26.6% (20.6% internal growth, 6.0% acquisition growth).
"We are delighted to report double-digit sales growth in our Dental
Group, which we have achieved for the past nine consecutive quarters," explained
Mr. Bergman. "We continue to gain significant market share in the North
American dental market as the result of our Privileges customer loyalty program,
strategic acquisitions, expansion of our product offering, and the investments
we have made in field sales force training.
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"Our Dental business is further strengthened by our initiatives in
e-commerce and information technology, and our market leading dental practice
management software and clinical applications," continued Mr. Bergman.
Medical sales from continuing operations increased 8.4% during the
third quarter (6.8% internal growth, 1.6% acquisition growth), reflecting an
acceleration of growth from recent quarters. "Medical sales from continuing
operations for the current and prior year quarters did not include any sales of
Chiron's Fluvirin influenza vaccine," added Mr. Bergman.
The Company noted that it has entered into a three-year extension of
its agreement with Chiron Corporation (Nasdaq: CHIR). "With this agreement and
our previously announced agreement with ID Biomedical Corporation (TSX: IDB;
Nasdaq: IDBE), we estimate to have available between 10 and 15 million doses of
influenza vaccine for our customers in 2006. This will further solidify our
position as a reliable source of influenza vaccine for healthcare providers
across the country," said Mr. Bergman.
Commenting on the planned divestiture of the Hospital Supply business,
he added, "The Hospital business does not focus on our core customer, namely the
office-based practitioner, and therefore provides little or no synergies with
our core operations. This divestiture will also enhance our management team's
focus on our core businesses."
International sales increased 16.8%, including 16.7% growth in local
currencies (5.7% internally generated and 11.0% from acquisitions) and 0.1% due
to foreign currency exchange.
"Third quarter International internal growth in local currencies also
accelerated from recent quarters, and reflects particular strength in France,
Spain, Portugal, the U.K., and Australia," commented Mr. Bergman. "Total
International growth also reflects acquisitions in Australia and New Zealand, as
well as Demedis Group operations in Austria. We are pleased with our
integration accomplishments since completing the purchase of Demedis businesses
in Germany, Italy and the Benelux countries and look forward to further growth
and synergies in those markets."
Technology and Value-Added Services sales were slightly ahead of prior
year. The electronic services business continued its strong double-digit growth
trend, which was offset by lower software sales. "Our leading presence in the
practice management software arena continues to provide excellent opportunities
for sales of high-tech equipment such as digital x-ray," commented Mr. Bergman.
"These high-tech equipment sales are reported as part of our Dental equipment
sales."
Mr. Bergman noted that although the recent Gulf Coast hurricanes had a
negative impact on operations, it was estimated to be immaterial to the
Company's third quarter financial results. He added, "I am particularly proud
of the response by our Team Schein Members to the devastation across the Gulf
Coast region. As we have responded to past catastrophes, we rapidly reactivated
our disaster relief hotline for dentists, physicians and veterinarians who have
operational, logistical or financial issues. We shipped emergency medical
supplies in support of the disaster relief effort, and worked with state and
local authorities, as well as national relief agencies to expedite delivery of
these products.
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"As an example, in the Houston, Texas region, local health agencies, in
anticipation of power outages during Hurricane Rita, requested Henry Schein to
retrieve and store vaccines until the storm passed," continued Mr. Bergman. "We
were, of course, willing and able to comply; and returned the vaccines safely
once the storm had abated. We also worked closely with the Centers for Disease
Control and Prevention to get essential vaccines, such as tetanus and diphtheria
vaccines, to areas in need.
"In addition, from September 22 through October 9 'Tomorrow's Dental
Office - Today!,' our joint project with the American Dental Association, was
dispatched to Mississippi to help meet pressing dental needs of the area's
residents," said Mr. Bergman. "This is a fully-functional, technology-driven
dental office of the future that has been used in community outreach before,
typically in conjunction with major dental meetings where we can demonstrate to
dentists the value of this technology to their practices. In these
extraordinary circumstances, we are happy to see its capabilities put to such
worthwhile use."
Discontinued Operation
During the quarter, the Company reached a decision to divest its
Hospital Supply business. The Hospital Supply business accounted for
approximately $37 million in net sales and a loss from discontinued operations
of approximately $10 million or $0.12 per diluted share in the third quarter
(see Exhibit A). This loss includes a write-down of long-lived assets of
approximately $7 million or $0.08 per diluted share. The Company also expects
to report an additional loss from discontinued operations upon the completion of
a sale of the Hospital Supply business.
Stock Repurchase Plan
In June 2004 the Company announced a share repurchase program of up to
$100 million worth of common stock, under which 150,000 shares were repurchased
during the third quarter at an average price of $40.72 per share. The impact of
the repurchase of shares under this program on third quarter diluted EPS was
immaterial.
2005 EPS Guidance
Henry Schein expects 2005 diluted EPS from continuing operations in the
range of $1.75 to $1.77 excluding the impact of any Fluvirin(R) influenza
vaccine for the current influenza season from Chiron Corporation. This
represents 17%-18% growth over 2004 diluted EPS from continuing operations,
excluding the previously disclosed $0.10 one-time charge in 2004 related to the
Fluvirin contract.
In addition, Henry Schein currently estimates that it will receive
between 2 million and 4 million doses of Fluvirin during the fourth quarter. If
these doses are received, the Company expects incremental diluted EPS from sales
of Fluvirin vaccine of between $0.02 and $0.06 in the fourth quarter.
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Henry Schein notes that all 2005 guidance does not include the impact
of expensing of stock options (per Financial Accounting Standards No. 123(R)),
which has been delayed until 2006, and that all 2005 guidance is for current
continuing 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 10:00 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 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 from continuing operations reached a record $3.9 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 nearly 11,000
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.
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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 Nine Months Ended
-------------------------- --------------------------
September 24, September 25, September 24, September 25,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales ................................................ $ 1,125,363 $ 993,100 $ 3,292,788 $ 2,742,363
Cost of sales ............................................ 808,632 723,860 2,353,327 2,002,228
----------- ----------- ----------- -----------
Gross profit ...................................... 316,731 269,240 939,461 740,135
Operating expenses:
Selling, general and administrative .................. 253,593 216,505 747,608 580,630
----------- ----------- ----------- -----------
Operating income .................................. 63,138 52,735 191,853 159,505
Other income (expense):
Interest income ...................................... 1,941 1,243 4,469 4,967
Interest expense ..................................... (6,977) (6,138) (18,286) (12,014)
Other, net ........................................... 1,028 118 915 448
----------- ----------- ----------- -----------
Income from continuing operations before
taxes, minority interest and equity in
earnings of affiliates ........................... 59,130 47,958 178,951 152,906
Taxes on income .......................................... (21,580) (17,714) (65,755) (56,593)
Minority interest in net loss (income) of subsidiaries ... (1,249) 72 (3,776) (1,707)
Equity in earnings of affiliates ......................... 79 746 514 1,331
----------- ----------- ----------- -----------
Income from continuing operations ........................ 36,380 31,062 109,934 95,937
Discontinued operation:
Income (loss) from operations of discontinued
component (including write-down of long-lived
assets of $11.9 million)........................... (16,869) 750 (17,180) 4,569
Income tax benefit (expense).......................... 6,916 (308) 6,872 (1,873)
----------- ----------- ----------- -----------
Income (loss) on discontinued operation (9,953) 442 (10,308) 2,696
----------- ----------- ----------- -----------
Net Income $ 26,427 $ 31,504 $ 99,626 $ 98,633
=========== =========== =========== ===========
Earnings from continuing operations per share:
Basic ................................................ $ 0.42 $ 0.36 $ 1.26 $ 1.10
=========== =========== =========== ===========
Diluted .............................................. $ 0.41 $ 0.35 $ 1.23 $ 1.07
=========== =========== =========== ===========
Earnings (loss) from discontinued operation per share:
Basic ................................................ $ (0.12) $ 0.00 $ (0.11) $ 0.03
=========== =========== =========== ===========
Diluted .............................................. $ (0.12) $ 0.00 $ (0.11) $ 0.03
=========== =========== =========== ===========
Earnings per share:
Basic ................................................ $ 0.30 $ 0.36 $ 1.15 $ 1.13
=========== =========== =========== ===========
Diluted .............................................. $ 0.29 $ 0.35 $ 1.12 $ 1.10
=========== =========== =========== ===========
Weighted-average common shares outstanding:
Basic ................................................ 87,232 87,040 86,975 87,474
=========== =========== =========== ===========
Diluted .............................................. 89,571 88,989 89,178 89,767
=========== =========== =========== ===========
Note: The above prior period amounts from operations have been revised to
reflect the discontinued operation presentation.
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 24, December 25,
2005 2004
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 220,077 $ 186,621
Available-for-sale securities............................................... 8,425 --
Accounts receivable, net of reserves of $49,100 and $44,852 ................ 612,040 554,666
Inventories ................................................................ 483,281 486,494
Deferred income taxes ...................................................... 29,474 28,795
Prepaid expenses and other ................................................. 129,256 174,167
----------- -----------
Total current assets ............................................... 1,482,553 1,430,743
Property and equipment, net .................................................... 180,878 176,103
Goodwill ....................................................................... 630,719 627,215
Other intangibles, net ......................................................... 124,680 129,285
Investments and other .......................................................... 62,792 70,324
----------- -----------
Total assets ....................................................... $ 2,481,622 $ 2,433,670
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 343,653 $ 367,213
Bank credit lines .......................................................... 2,764 5,969
Current maturities of long-term debt ....................................... 8,047 3,906
Accrued expenses:
Payroll and related ..................................................... 86,798 89,431
Taxes ................................................................... 57,721 70,970
Other ................................................................... 136,019 156,410
----------- -----------
Total current liabilities .......................................... 635,002 693,899
Long-term debt ................................................................. 513,592 525,682
Deferred income taxes ........................................................... 69,459 66,599
Other liabilities .............................................................. 52,364 28,999
Minority interest .............................................................. 11,856 12,438
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,
87,423,700 outstanding on September 24, 2005 and
120,000,000 shares authorized, 86,650,428 outstanding on
December 25, 2004 ....................................................... 874 867
Additional paid-in capital .................................................. 475,198 445,573
Retained earnings ........................................................... 698,868 615,265
Accumulated other comprehensive income ...................................... 24,773 44,785
Deferred compensation ....................................................... (364) (437)
----------- -----------
Total stockholders' equity ......................................... 1,199,349 1,106,053
----------- -----------
Total liabilities and stockholders' equity ......................... $ 2,481,622 $ 2,433,670
=========== ===========
Note: The above includes $44.8 million of accounts receivable, net of reserves,
and $16.2 million of inventories, net of reserves, related to a discontinued
component that is held-for-sale as of September 24, 2005.
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Periods Ended September 24, 2005 and September 25, 2004
Three Months Ended
--------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net income ................................................................. $ 26,427 $ 31,504
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................................... 14,199 13,247
Impairment from write-down of long-lived assets ..................... 11,928 --
Provision for losses on trade and other accounts receivable ......... 5,685 636
Deferred income taxes ............................................... (3,456) (197)
Stock issued to 401(k) plan ......................................... 3,223 2,805
Undistributed earnings of affiliates ................................ (79) (746)
Minority interest in net income (loss) of subsidiaries .............. 1,249 (72)
Other ............................................................... 1,058 3,945
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (36,579) (18,119)
Inventories ................................................... 12,862 10,874
Other current assets .......................................... 7,637 (5,211)
Accounts payable and accrued expenses ......................... (3,187) (38,813)
----------- -----------
Net cash provided by (used in) operating activities............................. 40,967 (147)
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (14,171) (10,898)
Payments for business acquisitions, net of cash acquired .................. (3,796) 26,730 (1)
Payments related to pending business acquisitions ......................... -- --
Purchases of available-for-sale securities ................................ (8,425) --
Proceeds from sales of marketable securities .............................. -- --
Proceeds from settlement of note receivable ............................... 11,779 --
Net proceeds from (payments for) foreign exchange
forward contract settlements ............................................. 8,115 (2,538)
Other ..................................................................... 2,460 2,172
----------- -----------
Net cash provided by (used in) investing activities ............................ (4,038) 15,466
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- 240,000
Payments for debt issuance costs .......................................... -- (5,154)
Net payments for bank borrowings .......................................... (1,472) (236,776)
Repayments of debt assumed in business acquisitions ....................... -- (21,939)
Principal payments for long-term debt ..................................... (2,913) (1,354)
Proceeds from issuance of stock upon exercise of stock options ............ 6,225 1,375
Payments for repurchases of common stock .................................. (6,108) (24,702)
Other ..................................................................... (3,055) (283)
----------- -----------
Net cash provided by (used in) financing activities ............................ (7,323) (48,833)
----------- -----------
Net change in cash and cash equivalents ........................................ 29,606 (33,514)
Effect of exchange rate changes on cash and cash equivalents ................... 3,363 148
Cash and cash equivalents, beginning of period ................................. 187,108 106,337
----------- -----------
Cash and cash equivalents, end of period ....................................... $ 220,077 $ 72,971
=========== ===========
Nine Months Ended
--------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net income ................................................................. $ 99,626 $ 98,633
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ....................................... 42,547 33,231
Impairment from write-down of long-lived assets ..................... 11,928 --
Provision for losses on trade and other accounts receivable ......... 5,635 1,789
Deferred income taxes ............................................... 1,183 3,199
Stock issued to 401(k) plan ......................................... 3,223 2,805
Undistributed earnings of affiliates ................................ (514) (1,331)
Minority interest in net income (loss) of subsidiaries .............. 3,776 1,707
Other ............................................................... 1,068 4,033
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (41,645) (33,052)
Inventories ................................................... 34,125 (10,276)
Other current assets .......................................... 41,652 4,487
Accounts payable and accrued expenses ......................... (89,022) (46,756)
----------- -----------
Net cash provided by (used in) operating activities............................. 113,582 58,469
----------- -----------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (36,204) (24,687)
Payments for business acquisitions, net of cash acquired .................. (58,548) (152,029)
Payments related to pending business acquisitions ......................... -- (13,489)
Purchases of available-for-sale securities ................................ (8,425) --
Proceeds from sales of marketable securities .............................. -- 14,472
Proceeds from settlement of note receivable ............................... 11,779 --
Net proceeds from (payments for) foreign exchange
forward contract settlements ............................................. 23,630 (3,221)
Other ..................................................................... 573 (1,133)
----------- -----------
Net cash provided by (used in) investing activities ............................ (67,195) (180,087)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- 240,000
Payments for debt issuance costs .......................................... (650) (5,154)
Net payments for bank borrowings .......................................... (2,888) (6,081)
Repayments of debt assumed in business acquisitions ....................... -- (135,718)
Principal payments for long-term debt ..................................... (5,478) (3,064)
Proceeds from issuance of stock upon exercise of stock options ............ 25,278 19,253
Payments for repurchases of common stock .................................. (27,117) (70,666)
Other ..................................................................... (3,614) (789)
----------- -----------
Net cash provided by (used in) financing activities ............................ (14,469) 37,781
----------- -----------
Net change in cash and cash equivalents ........................................ 31,918 (83,837)
Effect of exchange rate changes on cash and cash equivalents ................... 1,538 (543)
Cash and cash equivalents, beginning of period ................................. 186,621 157,351
----------- -----------
Cash and cash equivalents, end of period ....................................... $ 220,077 $ 72,971
=========== ===========
NOTE: Certain prior period amounts have been reclassified to conform with the
current period presentation.
(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.
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Exhibit A
Henry Schein, Inc.
Discontinued Operation 2005 Quarterly Results
(unaudited)
Q1 Q2 Q3 YTD Q3
2005 2005 2005 2005
------------ ----------- ------------ ------------
Net Sales $ 38,413 $ 37,192 $ 37,306 $ 112,911
Income (loss) from discontinued operation (including
in Q3 a write-down of long-lived assets of $7.0
million, after tax) 407 (762) (9,953) (10,308)
Earnings (loss) from discontinued operation per share:
Basic 0.00 0.00 (0.12) (0.11)
Diluted 0.00 0.00 (0.12) (0.11)
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Exhibit B
Henry Schein, Inc.
2005 Third Quarter
Sales Growth Rate Summary
From Continuing Operations
(unaudited)
Q3 2005 over Q3 2004
--------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 7.2% 8.9% 6.8% 5.7% 0.3%
Acquisitions 5.9% 6.4% 1.6% 11.0% --
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 13.1% 15.3% 8.4% 16.7% 0.3%
Foreign Currency Exchange 0.2% 0.5% -- 0.1% 0.3%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 13.3% 15.8% 8.4% 16.8% 0.6%
============ =========== ============ ============= ============
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