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 THIRD QUARTER RESULTS
Net sales increase 13%, diluted EPS from continuing operations up 19%
Tightens range of 2006 guidance, introduces 2007 guidance
MELVILLE, N.Y. - November 2, 2006 - Henry Schein, Inc. (Nasdaq: HSIC), the
largest provider of healthcare products and services to office-based
practitioners in the combined North American and European markets, today
reported financial results for the quarter ended September 30, 2006.
Net sales for the third quarter of 2006 were $1.27 billion, an increase
of 13.0% from the third quarter of 2005 (See Exhibit A for details of sales
growth). This increase includes 11.6% local currency growth (5.0% internally
generated and 6.6% from acquisitions net of divestiture) and 1.4% related to
foreign currency exchange.
Net income and income from continuing operations for the third quarter
of 2006 were $39.3 million or $0.44 per diluted share. There was no impact of
discontinued operations for the current quarter. Third quarter 2006 income and
diluted earnings per share from continuing operations were up 18.0% and 18.9%,
respectively, compared with the prior-year third quarter. Effective January 1,
2006, the Company adopted the new accounting rules on expensing stock-based
compensation per Financial Accounting Standards No. 123(R) on a retrospective
basis. All periods presented have been adjusted to give effect to FAS No.
123(R), which amounted to approximately $0.03 per share in the third quarter of
2006, and $0.04 per share in the third quarter of 2005. During the third
quarter of 2006, the Company elected to change its method of assessing the
effectiveness of net investment hedges, as permitted by FAS No. 133. As a
result, the Company stopped applying hedge accounting to certain previously
existing hedging relationships which resulted in a non-recurring pre-tax gain of
approximately $2.0 million.
"We posted solid financial results during the third quarter, with
particular strength from our Dental Group. Our quarterly results were impacted
by the timing of receipt of influenza vaccine from
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manufacturers, which this year will predominantly be in the fourth quarter,"
said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein.
"We are pleased today to introduce 2007 diluted EPS guidance that represents
growth of 18% to 21% compared with the mid-point of our expected 2006 results."
For the quarter, Dental sales increased 16.4%, including 15.6% growth
in local currencies (9.8% internally generated and 5.8% from acquisitions) and
0.8% related to foreign currency exchange. Of the 15.6% local currency growth,
Dental consumable merchandise sales increased 14.2% (8.1% internally generated
and 6.1% from acquisitions) and Dental equipment sales and service revenues were
up 20.1% (15.4% internally generated and 4.7% from acquisitions).
"Our Dental Group gained significant market share during the quarter,
reporting impressive internal sales growth. This is an ongoing reflection of
the growing array of products and services we bring to our customers, as well as
effective and innovative marketing initiatives and a highly trained
field sales force," commented Mr. Bergman. "During the third quarter we saw a
continued trend toward the value-added distribution channel among various Dental
manufacturers. As a leader in the industry, Henry Schein is ideally positioned
to benefit from this trend. Further enhancing our high-technology product
offering, we signed an exclusive, multi-year agreement with Biolase Technology,
Inc. (Nasdaq: BLTI) to collaborate in the marketing, sales and service of all
professional Biolase dental laser system products, including the Waterlase(R)
MD - the industry's leading hard and soft tissue dental laser system."
Medical sales increased 8.9% during the third quarter (0.6% decline in
internal growth offset by 9.5% acquisition growth net of divestiture). "Medical
Group sales performance was impacted by lower sales of tetanus-diptheria and
influenza vaccines compared with the prior-year third quarter," explained
Mr. Bergman. "We are pleased that in early October GlaxoSmithKline PLC
(NYSE: GSK) received FDA approval to sell FluLaval(TM), and we began shipping
product soon thereafter."
For the quarter, International sales increased 12.3%, including 8.2%
growth in local currencies (3.4% internally generated and 4.8% from
acquisitions) and 4.1% related to foreign currency exchange.
Technology and Value-Added Services sales during the third quarter of
2006 were 17.3% ahead of prior year, including 16.9% growth in local currencies
(14.7% internally generated and 2.2% acquisition growth) and 0.4% related to
foreign currency exchange. Electronic claims services revenues continued a
strong double-digit growth trend, and software and financial services revenues
also posted solid gains.
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Year-to-Date Results
For the first nine months of 2006, net sales of $3.7 billion represents
an increase of 11.0% compared with the first nine months of 2005. This increase
includes 11.2% local currency growth (6.3% internally generated and 4.9% from
acquisitions net of divestiture) offset by a 0.2% decline related to foreign
currency exchange. Income from continuing operations for the first nine months
of 2006 was $120.1 million reflecting 18.3% growth compared with the prior year.
Earnings per diluted share from continuing operations of $1.34 for the first
nine months of 2006 represents 16.5% growth over the comparable period in 2005.
Stock Repurchase Plan
The Company announced that it repurchased 47,861 shares of common stock
during the third quarter at an average price of $47.24 per share. Approximately
$86 million remains authorized for future stock repurchases. The impact of the
repurchase of shares under this program on third quarter diluted EPS was
immaterial.
2006 EPS Guidance
Henry Schein provides 2006 financial guidance, as follows:
o 2006 diluted EPS is expected to be $2.11 to $2.14 including the impact
of expensing stock-based compensation per Financial Accounting
Standards No. 123(R).
o This 2006 diluted EPS guidance includes Henry Schein's expectations
that it will distribute approximately 13.5 million doses of influenza
vaccine during 2006, including product manufactured by GSK (which
includes the former ID Biomedical Corporation), Novartis AG
(NYSE: NVS), which includes the former Chiron Corporation, and the
Sanofi-Aventis Group (NYSE: SNY). This compares to the previous
expectation of 15 to 17 million doses.
o 2006 diluted EPS guidance is for current continuing operations
including completed or previously announced acquisitions, and does not
include the impact of potential future acquisitions, if any.
2007 EPS Guidance
Henry Schein introduces 2007 financial guidance, as follows:
o 2007 diluted EPS is expected to be $2.51 to $2.57. This represents an
increase of 18% to 21% compared with the mid-point of the Company's
2006 diluted EPS guidance.
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o This 2007 diluted EPS guidance includes Henry Schein's expectations
that it will distribute more than 20 million doses of influenza
vaccine during the year.
o 2007 diluted EPS guidance is for current continuing operations
including completed or previously announced acquisitions, and does not
include the impact of potential future acquisitions, if any.
Third Quarter Conference Call Webcast
The Company will hold a conference call to discuss third quarter
financial results today, beginning at 10:00 a.m. Eastern time. Individual
investors are invited to listen to the conference call over the Internet through
Henry Schein's Web site at www.henryschein.com. In addition, a replay will be
available beginning shortly after the call has ended.
About Henry Schein
Henry Schein, a Fortune 500(R) company, is recognized for its excellent
customer service and highly competitive prices. The Company's four business
groups - Dental, Medical, International and Technology - serve more than 500,000
customers worldwide, including dental practices and laboratories, physician
practices and veterinary clinics, as well as government and other institutions.
The Company operates through a centralized and automated distribution network,
which provides customers in more than 200 countries with a comprehensive
selection of more than 70,000 national and Henry Schein private-brand products
in stock, as well as over 100,000 additional products available to our customers
as special order items.
Henry Schein also offers a wide range of innovative value-added
practice solutions for healthcare professionals, such as ArubA(R), the Company's
electronic catalog and ordering system. Its leading practice-management
software solutions have been installed in more than 50,000 practices, including
DENTRIX(R) and Easy Dental(R) for dental practices, and AVImark(R) for
veterinary clinics.
Headquartered in Melville, N.Y., Henry Schein employs more than 11,000
people and has operations in 19 countries. The Company's sales reached a record
$4.6 billion in 2005. For more information, visit the Henry Schein Web site at
www.henryschein.com.
In accordance with the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we provide the following cautionary remarks
regarding important factors which, among others, could cause future results to
differ materially from the forward-looking statements, expectations and
assumptions expressed or implied herein. All forward-looking statements made by
us are subject to risks and uncertainties and are not guarantees of future
performance. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
and achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. These statements are identified by the use of such terms as
"may," "could,"
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"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.
(TABLES TO FOLLOW)
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 24, September 30, September 24,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Net sales ................................................ $ 1,272,020 $ 1,125,363 $ 3,654,161 $ 3,292,788
Cost of sales ............................................ 911,014 808,632 2,596,093 2,353,327
------------- ------------- ------------- -------------
Gross profit ...................................... 361,006 316,731 1,058,068 939,461
Operating expenses:
Selling, general and administrative .................. 298,331 258,352 857,727 760,762
------------- ------------- ------------- -------------
Operating income .................................. 62,675 58,379 200,341 178,699
Other income (expense):
Interest income ...................................... 3,503 1,942 12,028 4,469
Interest expense ..................................... (6,541) (6,976) (21,237) (18,286)
Other, net ........................................... 2,298 1,028 2,180 915
------------- ------------- ------------- -------------
Income from continuing operations before
taxes, minority interest and equity in
earnings of affiliates ........................... 61,935 54,373 193,312 165,797
Income taxes ............................................. (21,715) (19,907) (69,316) (60,979)
Minority interest in net income of subsidiaries .......... (1,181) (1,241) (4,447) (3,755)
Equity in earnings of affiliates ......................... 246 79 581 514
------------- ------------- ------------- -------------
Income from continuing operations ........................ 39,285 33,304 120,130 101,577
Discontinued operations:
Loss from operations of discontinued
components ........................................ -- (16,951) (32,279) (17,399)
Income tax benefit ................................... -- 6,948 12,911 6,953
------------- ------------- ------------- -------------
Loss from discontinued operations .................... -- (10,003) (19,368) (10,446)
------------- ------------- ------------- -------------
Net income ............................................... $ 39,285 $ 23,301 $ 100,762 $ 91,131
============= ============= ============= =============
Earnings from continuing operations per share:
Basic ................................................ $ 0.44 $ 0.38 $ 1.37 $ 1.17
============= ============= ============= =============
Diluted .............................................. $ 0.44 $ 0.37 $ 1.34 $ 1.15
============= ============= ============= =============
Loss from discontinued operations per share:
Basic ................................................ $ -- $ (0.11) $ (0.22) $ (0.12)
============= ============= ============= =============
Diluted .............................................. $ -- $ (0.11) $ (0.21) $ (0.12)
============= ============= ============= =============
Earnings per share:
Basic ................................................ $ 0.44 $ 0.27 $ 1.15 $ 1.05
============= ============= ============= =============
Diluted .............................................. $ 0.44 $ 0.26 $ 1.13 $ 1.03
============= ============= ============= =============
Weighted-average common shares outstanding:
Basic ................................................ 88,291 87,232 87,820 86,975
============= ============= ============= =============
Diluted .............................................. 90,015 88,636 89,554 88,423
============= ============= ============= =============
Note: The above prior period amounts have been restated to reflect the effects
of expensing stock-based compensation pursuant to our adoption of FAS 123(R)
using the modified retrospective application.
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, December 31,
2006 2005
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 176,070 $ 210,683
Available-for-sale securities............................................... -- 124,010
Accounts receivable, net of reserves of $41,893 and $52,308 ................ 605,058 582,617
Inventories, net ........................................................... 572,569 505,542
Deferred income taxes ...................................................... 28,629 35,505
Prepaid expenses and other ................................................. 134,324 126,052
------------- -------------
Total current assets ............................................... 1,516,650 1,584,409
Property and equipment, net .................................................... 218,154 190,746
Goodwill ....................................................................... 751,664 626,869
Other intangibles, net ......................................................... 161,423 123,204
Investments and other .......................................................... 69,729 57,892
------------- -------------
Total assets ....................................................... $ 2,717,620 $ 2,583,120
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 365,704 $ 371,392
Bank credit lines .......................................................... 2,550 2,093
Current maturities of long-term debt ....................................... 40,617 33,013
Accrued expenses:
Payroll and related ..................................................... 95,705 96,113
Taxes ................................................................... 54,345 65,070
Other ................................................................... 165,325 156,433
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Total current liabilities .......................................... 724,246 724,114
Long-term debt ................................................................. 456,487 489,520
Deferred income taxes ........................................................... 55,353 54,432
Other liabilities .............................................................. 58,260 53,547
Minority interest .............................................................. 16,497 12,353
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding ........................................................ -- --
Common stock, $.01 par value, 240,000,000 shares authorized,
88,555,830 outstanding on September 30, 2006 and
87,092,238 outstanding on December 31, 2005 ............................. 886 871
Additional paid-in capital .................................................. 610,717 559,266
Retained earnings ........................................................... 754,010 667,958
Accumulated other comprehensive income ...................................... 41,164 21,059
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Total stockholders' equity ......................................... 1,406,777 1,249,154
------------- -------------
Total liabilities and stockholders' equity ......................... $ 2,717,620 $ 2,583,120
============= =============
Note: Certain prior period amounts have been restated to reflect the effects of
our adoption of FAS 123(R) using the modified retrospective application and our
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.
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
-----------------------------
September 30, September 24,
2006 2005
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 39,285 $ 23,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. -- --
Depreciation and amortization ....................................... 16,733 14,199
Impairment from write-down of long-lived assets ..................... -- 11,928
Stock-based compensation expense .................................... 4,559 4,828
Provision for losses on trade and other accounts
receivable .................................................... 1,664 5,685
Deferred income taxes ............................................... (8,599) (5,148)
Stock issued to 401(k) plan ......................................... 3,565 3,223
Undistributed earnings of affiliates ................................ (246) (79)
Minority interest in net income of subsidiaries ..................... 1,181 1,241
Other ............................................................... (2,137) 1,056
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (6,395) (36,579)
Inventories ................................................... (4,212) 12,862
Other current assets .......................................... (770) 5,561
Accounts payable and accrued expenses ......................... 19,381 (3,187)
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Net cash provided by operating activities ...................................... 64,009 38,891
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Cash flows from investing activities:
Purchases of fixed assets ................................................. (17,273) (14,171)
Payments for business acquisitions, net of cash acquired .................. (80,945) (3,796)
Cash received from business divestiture ................................... -- --
Purchases of available-for-sale securities ................................ (16,697) (24,745)
Proceeds from sales of available-for-sale securities ...................... 117,806 --
Proceeds from maturities of available-for-sale securities ................. -- --
Proceeds from settlement of a note receivable ............................. -- 11,779
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (2,090) 8,115
Other ..................................................................... (6,769) 2,460
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Net cash used in investing activities .......................................... (5,968) (20,358)
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Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings ............................. 297 (1,472)
Principal payments for long-term debt ..................................... (24,202) (2,913)
Payments for debt issuance costs .......................................... -- --
Proceeds from issuance of stock upon exercise of stock options ............ 7,300 6,225
Payments for repurchases of common stock .................................. (2,261) (6,108)
Proceeds from excess tax benefits related to stock-based compensation ..... 3,362 2,076
Other ..................................................................... (384) (3,055)
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Net cash used in financing activities .......................................... (15,888) (5,247)
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Net change in cash and cash equivalents ........................................ 42,153 13,286
Effect of exchange rate changes on cash and cash equivalents ................... (4,417) 3,363
Cash and cash equivalents, beginning of period ................................. 138,334 187,108
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Cash and cash equivalents, end of period ....................................... $ 176,070 $ 203,757
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Nine Months Ended
-----------------------------
September 30, September 24,
2006 2005
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Cash flows from operating activities:
Net income ................................................................. $ 100,762 $ 91,131
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. 19,363 --
Depreciation and amortization ....................................... 46,891 42,547
Impairment from write-down of long-lived assets ..................... -- 11,928
Stock-based compensation expense .................................... 13,933 13,364
Provision for losses on trade and other accounts
receivable .................................................... 2,343 5,635
Deferred income taxes ............................................... (2,662) (3,663)
Stock issued to 401(k) plan ......................................... 3,565 3,223
Undistributed earnings of affiliates ................................ (581) (514)
Minority interest in net income of subsidiaries ..................... 4,447 3,755
Other ............................................................... (2,549) 1,066
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (9,418) (41,645)
Inventories ................................................... (35,967) 34,125
Other current assets .......................................... 7,376 34,118
Accounts payable and accrued expenses ......................... (82,877) (89,022)
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Net cash provided by operating activities ...................................... 64,626 106,048
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Cash flows from investing activities:
Purchases of fixed assets ................................................. (49,927) (36,204)
Payments for business acquisitions, net of cash acquired .................. (186,132) (58,548)
Cash received from business divestiture ................................... 36,527 --
Purchases of available-for-sale securities ................................ (164,037) (24,745)
Proceeds from sales of available-for-sale securities ...................... 286,767 --
Proceeds from maturities of available-for-sale securities ................. 1,280 --
Proceeds from settlement of note receivable ............................... -- 11,779
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (16,895) 23,630
Other ..................................................................... (6,604) 573
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Net cash used in investing activities .......................................... (99,021) (83,515)
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Cash flows from financing activities:
Proceeds from (payments of) bank borrowings ............................... 297 (2,888)
Principal payments for long-term debt ..................................... (30,677) (5,478)
Payments for debt issuance costs .......................................... -- (650)
Proceeds from issuance of stock upon exercise of stock options ............ 32,900 25,278
Payments for repurchases of common stock .................................. (25,700) (27,117)
Proceeds from excess tax benefits related to stock-based compensation ..... 13,150 7,534
Other ..................................................................... 1,665 (3,614)
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Net cash used in financing activities .......................................... (8,365) (6,935)
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Net change in cash and cash equivalents ........................................ (42,760) 15,598
Effect of exchange rate changes on cash and cash equivalents ................... 8,147 1,538
Cash and cash equivalents, beginning of period ................................. 210,683 186,621
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Cash and cash equivalents, end of period ....................................... $ 176,070 $ 203,757
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NOTE: The above prior period amounts have been restated to reflect the effects
of our adoption of FAS 123(R) using the modified retrospective application.
Additionally, for all periods presented, we reflected the effects of a
reclassification of variable rate demand notes from 'cash and cash equivalents'
to 'available-for-sale securities'.
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Exhibit A
Henry Schein, Inc.
2006 Third Quarter
Sales Growth Rate Summary
(unaudited)
Q3 2006 over Q3 2005
--------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 5.0% 9.8% -0.6% 3.4% 14.7%
Acquisitions, net of divestiture 6.6% 5.8% 9.5% 4.8% 2.2%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 11.6% 15.6% 8.9% 8.2% 16.9%
Foreign Currency Exchange 1.4% 0.8% -- 4.1% 0.4%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 13.0% 16.4% 8.9% 12.3% 17.3%
============ =========== ============ ============= ============
Q3 YTD 2006 over Q3 YTD 2005
----------------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal 6.3% 9.3% 2.5% 5.8% 8.6%
Acquisitions, net of divestiture 4.9% 2.3% 7.4% 6.1% 0.7%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 11.2% 11.6% 9.9% 11.9% 9.3%
Foreign Currency Exchange -0.2% 1.0% -- -2.1% 0.4%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 11.0% 12.6% 9.9% 9.8% 9.7%
============ =========== ============ ============= ============
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