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
Neal Goldner
Vice President, Investor Relations
neal.goldner@henryschein.com
(631) 845-2820
Susan Vassallo
Director, Corporate Communications
susan.vassallo@henryschein.com
FOR IMMEDIATE RELEASE (631) 843-5562
HENRY SCHEIN REPORTS RECORD FOURTH QUARTER AND FULL YEAR RESULTS
Fourth quarter diluted EPS from continuing operations increases 25% to $0.70
MELVILLE, N.Y. - February 21, 2007 - Henry Schein, Inc. (Nasdaq: HSIC), the
largest provider of healthcare products and services to office-based
practitioners in the combined North American and European markets, today
reported financial results for the quarter and year ended December 30, 2006.
Net sales for the fourth quarter of 2006 were $1.5 billion, an increase
of 11.6% from the fourth quarter of 2005. This increase includes 9.3% local
currency growth (2.3% internally generated and 7.0% from acquisitions net of
divestiture) and 2.3% related to foreign currency exchange. The fourth quarter
of 2006 included one less week compared with the fourth quarter of 2005, which
was part of a 53-week fiscal year. The Company estimates that the reported 2.3%
internal sales growth in local currencies was therefore, approximately 7.3%
adjusting for the extra week in the 2005 fourth quarter (See Exhibit A for
details of sales growth).
Net income and income from continuing operations for the fourth quarter
of 2006 were $63.0 million or $0.70 per diluted share. There was no impact of
discontinued operations for the current quarter. Fourth quarter 2006 income and
diluted earnings per share from continuing operations were up 27.4% and 25.0%,
respectively, compared with the prior-year fourth quarter.
Effective January 1, 2006, the Company adopted the new accounting rules
on expensing stock-based compensation per Financial Accounting Standards (FAS)
No. 123(R) on a retrospective basis. All periods presented have been adjusted
to give effect to FAS No. 123(R), which amounted to approximately $0.04 per
share in the fourth quarter of 2006 and $0.03 per share in the fourth quarter of
2005.
- more -
"Our fourth quarter results featured double-digit sales growth in each
of our business groups, when adjusting for the extra week in the 2005 fourth
quarter, with particular strength in dental equipment," said Stanley M. Bergman,
Chairman and Chief Executive Officer of Henry Schein. "As we close out a
milestone year with more than $5 billion in net sales, we enter 2007
enthusiastic about our markets, our business model and the future of Henry
Schein."
For the fourth quarter, Dental sales increased 12.9%, including 12.5%
growth in local currencies (6.0% internally generated and 6.5% from
acquisitions) and 0.4% related to foreign currency exchange. The Company
estimates that the reported 6.0% Dental internal sales growth in local
currencies was 11.5% adjusting for the extra week in the 2005 fourth quarter,
including Dental consumable merchandise growth of 5.6% and Dental equipment
sales and service growth of 26.6%.
"Continued market-share gains in our Dental Group were led by
equipment sales and service growth, which reflects robust demand for high-tech
products including our new exclusive relationships with Biolase Technology, Inc.
and Imaging Sciences International, Inc.," commented Mr. Bergman.
Medical sales increased 6.1% during the fourth quarter (3.5% decline in
internal sales growth offset by 9.6% acquisition growth net of divestiture).
The Company estimates that total Medical sales growth of 6.1% as reported was
11.1% adjusting for the extra week in the 2005 fourth quarter. The Company also
estimates that the reported Medical Group internal sales decline of 3.5% equated
to 1.5% internal sales growth adjusting for the extra week. "Excluding
pharmaceutical sales, the internal growth rate for our Medical Group, adjusting
for the extra week, was approximately equal to our estimate for market growth,"
added Mr. Bergman.
For the quarter, International sales increased 15.9%, including 7.7%
growth in local currencies (3.3% internally generated and 4.4% from
acquisitions), and 8.2% related to foreign currency exchange. The Company
estimates that reported International internal sales growth in local currencies
of 3.3% was 7.3% when adjusting for the extra week in the 2005 fourth quarter.
"Sales growth was particularly strong in Germany and Spain," commented Mr.
Bergman.
Technology and Value-Added Services sales during the fourth quarter of
2006 were 15.6% ahead of prior year, including 15.4% growth in local currencies
(9.2% internally generated and 6.2% acquisition growth) and 0.2% related to
foreign currency exchange. The Company estimates that reported Technology and
Value-Added Services internal sales growth of 9.2% was 17.7% when adjusting for
the extra week in the 2005 fourth quarter. "Our Technology and Value-Added
Services sales growth for the quarter was fueled by strong growth in software
revenues," added Mr. Bergman.
Full Year Results
For 2006, net sales of $5.15 billion represent an increase of 11.2%
compared with 2005. This increase includes 10.6% local currency growth (5.2%
internally generated and 5.4% from acquisitions
2
-more-
net of divestiture) and 0.6% related to foreign currency exchange. The Company
estimates that the reported 5.2% internal sales growth in local currencies was
approximately 6.7% adjusting for the extra week in 2005. Income from continuing
operations for 2006 was $183.1 million reflecting 21.3% growth compared with the
prior year. Earnings per diluted share from continuing operations of $2.04 for
2006 represents 19.3% growth over 2005.
Stock Repurchase Plan
Henry Schein announced that it repurchased 295,137 shares of common
stock during the fourth quarter of 2006 at an average price of $49.34 per share.
Approximately $71 million remains authorized for future common stock
repurchases. The impact of the repurchase of shares under this program on
fourth quarter diluted EPS was immaterial.
2007 EPS Guidance
Henry Schein affirms 2007 financial guidance, as follows:
o 2007 diluted EPS is expected to be $2.51 to $2.57. This represents an
increase of 23% to 26% compared with 2006 diluted EPS from continuing
operations.
o This 2007 diluted EPS guidance includes Henry Schein's expectations
that it will distribute approximately 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.
Fourth Quarter Conference Call Webcast
The Company will hold a conference call to discuss fourth quarter
financial results today, beginning at 10:00 a.m. Eastern time. Individual
investors are invited to listen to the conference call over the Internet through
Henry Schein's Web site at www.henryschein.com. In addition, a replay will be
available beginning shortly after the call has ended.
About Henry Schein
Henry Schein, a Fortune 500(R) company, is recognized for its excellent
customer service and highly competitive prices. The Company's four business
groups - Dental, Medical, International and Technology - serve more than 500,000
customers worldwide, including dental practitioners and laboratories, physician
practices and animal health clinics, as well as government and other
institutions. The Company operates through a centralized and automated
distribution network, which
3
- more -
provides customers in more than 200 countries with a comprehensive selection of
more than 70,000 national and Henry Schein private-brand products in stock, as
well as more than 100,000 additional products available as special-order items.
Henry Schein also offers a wide range of innovative value-added
practice solutions for healthcare professionals, such as ArubA(R), the Company's
electronic catalog and ordering system. Its leading practice-management
software solutions have been installed in more than 50,000 practices, including
DENTRIX(R) and Easy Dental(R) for dental practices, MicroMd(R) for physician
practices, and AVImark(R) for animal health clinics.
Headquartered in Melville, N.Y., Henry Schein employs more than 11,000
people and has operations in 19 countries. The Company's sales reached a record
$5.15 billion in 2006. For more information, visit the Henry Schein Web site at
www.henryschein.com.
In accordance with the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we provide the following cautionary remarks
regarding important factors which, among others, could cause future results to
differ materially from the forward-looking statements, expectations and
assumptions expressed or implied herein. All forward-looking statements made by
us are subject to risks and uncertainties and are not guarantees of future
performance. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
and achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. These statements are identified by the use of such terms as
"may," "could," "expect," "intend," "believe," "plan," "estimate," "forecast,"
"project," "anticipate" or other comparable terms. A full discussion of our
operations and financial condition, including factors that may affect our
business and future prospects, is contained in documents we have filed with the
SEC and will be contained in all subsequent periodic filings we make with the
SEC. These documents identify in detail important risk factors that could cause
our actual performance to differ materially from current expectations.
Risk factors and uncertainties that could cause actual results to differ
materially from current and historical results include, but are not limited to:
competitive factors; changes in the healthcare industry; changes in government
regulations that affect us; financial risks associated with our international
operations; fluctuations in quarterly earnings; our dependence on third parties
for the manufacture and supply of our products; transitional challenges
associated with acquisitions; regulatory and litigation risks; the dependence on
our continued product development, technical support and successful marketing in
the technology segment; our dependence upon sales personnel and key customers;
our dependence on our senior management; possible increases in the cost of
shipping our products or other service trouble with our third-party shippers;
risks from rapid technological change; risks from potential increases in
variable interest rates; financial risks associated with acquisitions; possible
volatility of the market price of our common stock; certain provisions in our
governing documents that may discourage third-party acquisitions of us; and
changes in tax legislation that affect us. The order in which these factors
appear should not be construed to indicate their relative importance or
priority.
We caution that these factors may not be exhaustive and that many of these
factors are beyond our ability to control or predict. Accordingly, forward-
looking statements should not be relied upon as a prediction of actual results.
We undertake no duty and have no obligation to update forward-looking
statements.
(TABLES TO FOLLOW)
4
- more -
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Years Ended
----------------------------- -----------------------------
December 30, December 31, December 30, December 31,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Net sales ................................................ $ 1,498,936 $ 1,343,141 $ 5,153,097 $ 4,635,929
Cost of sales ............................................ 1,076,949 965,666 3,673,042 3,318,993
------------- ------------- ------------- -------------
Gross profit ...................................... 421,987 377,475 1,480,055 1,316,936
Operating expenses:
Selling, general and administrative .................. 317,431 293,036 1,175,158 1,053,798
------------- ------------- ------------- -------------
Operating income .................................. 104,556 84,439 304,897 263,138
Other income (expense):
Interest income ...................................... 4,412 2,846 16,440 7,315
Interest expense ..................................... (6,563) (7,222) (27,800) (25,508)
Other, net ........................................... (115) 744 2,065 1,659
------------- ------------- ------------- -------------
Income from continuing operations before
taxes, minority interest and equity in
earnings of affiliates ........................... 102,290 80,807 295,602 246,604
Income taxes ............................................. (35,904) (29,477) (105,220) (90,456)
Minority interest in net income of subsidiaries .......... (3,643) (2,208) (8,090) (5,963)
Equity in earnings of affiliates ......................... 254 313 835 827
------------- ------------- ------------- -------------
Income from continuing operations ........................ 62,997 49,435 183,127 151,012
Discontinued operations:
Loss from operations of discontinued
components ........................................ -- (1,350) (32,279) (18,749)
Income tax benefit ................................... -- 543 12,911 7,496
------------- ------------- ------------- -------------
Loss from discontinued operations .................... -- (807) (19,368) (11,253)
------------- ------------- ------------- -------------
Net income ............................................... $ 62,997 $ 48,628 $ 163,759 $ 139,759
============= ============= ============= =============
Earnings from continuing operations per share:
Basic ................................................ $ 0.71 $ 0.57 $ 2.08 $ 1.74
============= ============= ============= =============
Diluted .............................................. $ 0.70 $ 0.56 $ 2.04 $ 1.71
============= ============= ============= =============
Loss from discontinued operations per share:
Basic ................................................ $ -- $ (0.01) $ (0.22) $ (0.13)
============= ============= ============= =============
Diluted .............................................. $ -- $ (0.01) $ (0.22) $ (0.13)
============= ============= ============= =============
Earnings per share:
Basic ................................................ $ 0.71 $ 0.56 $ 1.86 $ 1.61
============= ============= ============= =============
Diluted .............................................. $ 0.70 $ 0.55 $ 1.82 $ 1.58
============= ============= ============= =============
Weighted-average common shares outstanding:
Basic ................................................ 88,580 87,075 87,952 87,006
============= ============= ============= =============
Diluted .............................................. 90,488 88,376 89,820 88,489
============= ============= ============= =============
Note: The above prior period amounts have been restated to reflect the effects
of expensing stock-based compensation pursuant to our adoption of FAS 123(R)
using the modified retrospective application.
5
- more -
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 30, December 31,
2006 2005
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 248,647 $ 210,683
Available-for-sale securities............................................... 47,999 124,010
Accounts receivable, net of reserves of $40,536 and $52,308 ................ 610,020 582,617
Inventories, net ........................................................... 584,103 505,542
Deferred income taxes ...................................................... 28,240 35,505
Prepaid expenses and other ................................................. 125,839 126,052
------------- -------------
Total current assets ............................................... 1,644,848 1,584,409
Property and equipment, net .................................................... 225,038 190,746
Goodwill ....................................................................... 773,801 626,869
Other intangibles, net ......................................................... 161,542 123,204
Investments and other .......................................................... 75,917 57,892
------------- -------------
Total assets ....................................................... $ 2,881,146 $ 2,583,120
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 414,062 $ 371,392
Bank credit lines .......................................................... 2,528 2,093
Current maturities of long-term debt ....................................... 41,036 33,013
Accrued expenses:
Payroll and related ..................................................... 110,401 96,113
Taxes ................................................................... 59,007 65,070
Other ................................................................... 183,054 156,433
------------- -------------
Total current liabilities .......................................... 810,088 724,114
Long-term debt ................................................................. 455,806 489,520
Deferred income taxes ........................................................... 62,334 54,432
Other liabilities .............................................................. 60,209 53,547
Minority interest .............................................................. 21,746 12,353
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none outstanding ........................................................ -- --
Common stock, $.01 par value, 240,000,000 shares authorized,
88,499,321 outstanding on December 30, 2006 and
87,092,238 outstanding on December 31, 2005 ............................. 885 871
Additional paid-in capital .................................................. 614,551 559,266
Retained earnings ........................................................... 808,164 667,958
Accumulated other comprehensive income ...................................... 47,363 21,059
------------- -------------
Total stockholders' equity ......................................... 1,470,963 1,249,154
------------- -------------
Total liabilities and stockholders' equity ......................... $ 2,881,146 $ 2,583,120
============= =============
Note: Certain prior period amounts have been restated to reflect the effects of
our adoption of FAS 123(R) using the modified retrospective application and a
reclassification of variable rate demand notes from 'cash and cash equivalents'
to 'available-for-sale securities'. Also, included in the prior period amounts
are approximately $44 million of accounts receivable, net of reserves and
approximately $16 million of inventories, net of reserves, related to
discontinued operations which were sold on April 1, 2006.
6
- more -
HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
-----------------------------
December 30, December 31,
2006 2005
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 62,997 $ 48,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. -- --
Depreciation and amortization ....................................... 18,039 17,798
Impairment of long-lived asset ...................................... -- --
Stock-based compensation expense .................................... 5,531 4,885
Provision for losses on trade and other accounts
receivable .................................................... 529 889
Deferred income taxes ............................................... 3,959 (206)
Stock issued to 401(k) plan ......................................... -- --
Undistributed earnings of affiliates ................................ (254) (313)
Minority interest in net income of subsidiaries ..................... 3,643 2,208
Other ............................................................... 483 (1,290)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (287) 27,643
Inventories ................................................... (5,991) (27,641)
Other current assets .......................................... 11,048 (14,336)
Accounts payable and accrued expenses ......................... 70,994 90,463
------------- -------------
Net cash provided by operating activities ...................................... 170,691 148,728
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (17,073) (14,625)
Payments for business acquisitions, net of cash acquired .................. (13,748) (9,665)
Cash received from business divestiture ................................... -- --
Purchases of available-for-sale securities ................................ (57,999) (136,700)
Proceeds from sales of available-for-sale securities ...................... 8,000 37,434
Proceeds from maturities of available-for-sale securities ................. 2,000 --
Proceeds from settlement of note receivable ............................... -- 2,616
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (5,633) 7,188
Other ..................................................................... 3,113 (9,414)
------------- -------------
Net cash used in investing activities .......................................... (81,340) (123,166)
------------- -------------
Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings ............................. (113) (637)
Proceeds from issuance of long-term debt .................................. 1,201 --
Principal payments for long-term debt ..................................... (3,860) (3,005)
Payments for debt issuance costs .......................................... -- --
Proceeds from issuance of stock upon exercise of stock options ............ 2,722 4,222
Payments for repurchases of common stock .................................. (14,563) (25,159)
Excess tax benefits related to stock-based compensation ................... 1,700 2,831
Other ..................................................................... 4 182
------------- -------------
Net cash used in financing activities .......................................... (12,909) (21,566)
------------- -------------
Net change in cash and cash equivalents ........................................ 76,442 3,996
Effect of exchange rate changes on cash and cash equivalents ................... (3,865) 2,930
Cash and cash equivalents, beginning of period ................................. 176,070 203,757
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 248,647 $ 210,683
============= =============
Years Ended
-----------------------------
December 30, December 31,
2006 2005
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 163,759 $ 139,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. 19,363 --
Depreciation and amortization ....................................... 64,930 60,345
Impairment of long-lived asset ...................................... -- 11,928
Stock-based compensation expense .................................... 19,464 18,249
Provision for losses on trade and other accounts
receivable .................................................... 2,872 6,524
Deferred income taxes ............................................... 1,297 (3,869)
Stock issued to 401(k) plan ......................................... 3,565 3,223
Undistributed earnings of affiliates ................................ (835) (827)
Minority interest in net income of subsidiaries ..................... 8,090 5,963
Other ............................................................... (2,066) (224)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (9,705) (14,002)
Inventories ................................................... (41,958) 6,484
Other current assets .......................................... 18,424 19,782
Accounts payable and accrued expenses ......................... (11,883) 1,441
------------- -------------
Net cash provided by operating activities ...................................... 235,317 254,776
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (67,000) (50,829)
Payments for business acquisitions, net of cash acquired .................. (199,880) (68,213)
Cash received from business divestiture ................................... 36,527 --
Purchases of available-for-sale securities ................................ (222,036) (161,445)
Proceeds from sales of available-for-sale securities ...................... 294,767 37,434
Proceeds from maturities of available-for-sale securities ................. 3,280 --
Proceeds from settlement of note receivable ............................... -- 14,395
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... (22,528) 30,818
Other ..................................................................... (3,491) (8,841)
------------- -------------
Net cash used in investing activities .......................................... (180,361) (206,681)
------------- -------------
Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings ............................. 184 (3,525)
Proceeds from issuance of long-term debt .................................. 1,201 --
Principal payments for long-term debt ..................................... (34,537) (8,483)
Payments for debt issuance costs .......................................... -- (650)
Proceeds from issuance of stock upon exercise of stock options ............ 35,622 29,500
Payments for repurchases of common stock .................................. (40,263) (52,276)
Excess tax benefits related to stock-based compensation ................... 14,850 10,365
Other ..................................................................... 1,669 (3,432)
------------- -------------
Net cash used in financing activities .......................................... (21,274) (28,501)
------------- -------------
Net change in cash and cash equivalents ........................................ 33,682 19,594
Effect of exchange rate changes on cash and cash equivalents ................... 4,282 4,468
Cash and cash equivalents, beginning of period ................................. 210,683 186,621
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 248,647 $ 210,683
============= =============
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 the three months and year ended December 31, 2005, we
reflected the effects of a reclassification of variable rate demand notes from
'cash and cash equivalents' to 'available-for-sale securities'.
7
- more -
Exhibit A
Henry Schein, Inc.
Sales Growth Rate Summary
2006
Q4 2006 over Q4 2005
Consolidated Dental Medical International Technology
Internal Sales Growth 2.3% 6.0% -3.5% 3.3% 9.2%
Acquisitions, net of divestiture 7.0% 6.5% 9.6% 4.4% 6.2%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 9.3% 12.5% 6.1% 7.7% 15.4%
Foreign Currency Exchange 2.3% 0.4% -- 8.2% 0.2%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 11.6% 12.9% 6.1% 15.9% 15.6%
============ =========== ============ ============= ============
Internal Sales Growth 2.3% 6.0% -3.5% 3.3% 9.2%
Estimated Adjustment For
Additional Week in Q405 5.0% 5.5% 5.0% 4.0% 8.5%
------------ ----------- ------------ ------------- ------------
Adjusted Internal Sales Growth 7.3% 11.5% 1.5% 7.3% 17.7%
============ =========== ============ ============= ============
2006 over 2005
Consolidated Dental Medical International Technology
Internal Sales Growth 5.2% 8.4% 0.6% 5.1% 8.6%
Acquisitions, net of divestiture 5.4% 3.5% 8.2% 5.6% 2.3%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 10.6% 11.9% 8.8% 10.7% 10.9%
Foreign Currency Exchange 0.6% 0.8% -- 0.8% 0.4%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 11.2% 12.7% 8.8% 11.5% 11.3%
============ =========== ============ ============= ============
Internal Sales Growth 5.2% 8.4% 0.6% 5.1% 8.6%
Estimated Adjustment For
Additional Week in 2005 1.5% 1.5% 1.5% 1.0% 2.0%
------------ ----------- ------------ ------------- ------------
Adjusted Internal Sales Growth 6.7% 9.9% 2.1% 6.1% 10.6%
============ =========== ============ ============= ============
Use of Non-GAAP Measures:
The above information includes financial measures that are not calculated and
presented in accordance with accounting principles generally accepted in the
United States ("US GAAP"). The above table reconciles sales growth, excluding
the effects of acquisitions, net of a divestiture and foreign currency exchange,
to comparable amounts as adjusted to eliminate the effect of one additional
week's sales activity from the comparable prior-year period.
Management eliminated the effect of such prior period's additional week's sales
activity to assist in evaluating the underlying operational performance of the
Company's business on a comparable basis. Management believes that this
presentation is appropriate and facilitates such an evaluation by management,
investors and analysts. This measure should be considered supplemental to, and
not a substitute for or superior to, financial measures calculated in accordance
with US GAAP.
8
###