HENRY SCHEIN
NEWS RELEASE
Henry Schein, Inc. - 135 Duryea Road - Melville, New York 11747
FOR IMMEDIATE RELEASE
HENRY SCHEIN REPORTS THIRD QUARTER RESULTS
EPS from continuing operations increases 14% to $0.75
Company introduces 2009 guidance
MELVILLE, N.Y. (November 5, 2008) - 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 27, 2008.
Net sales for the third quarter of 2008 were $1.7 billion, an increase
of 9.6% compared with the third quarter of 2007. This increase includes 8.0%
local currency growth (2.2% internally generated and 5.8% from acquisitions) and
1.6% related to foreign currency exchange (see Exhibit A for details of sales
growth). The Company previously announced an initiative of reducing sales of
certain lower-margin pharmaceutical products. Excluding sales of those
products, internal net sales growth in local currencies was 4.5%.
Income from continuing operations for the third quarter of 2008 was
$68.4 million, or $0.75 per diluted share. These results include a pretax
charge of $4.5 million (or $0.03 per diluted share, after-tax) related to the
Lehman Brothers bankruptcy, primarily due to foreign exchange hedging contracts.
Excluding the impact of this charge, income from continuing operations for the
quarter was $71.5 million, or $0.78 per diluted share, an increase of 17.8% and
18.2%, respectively, compared with the third quarter of 2007. There was no
impact from discontinued operations on 2008 results.
"Our worldwide sales growth of almost 10% reflects the benefit of our
diversified operations," said Stanley M. Bergman, Chairman and Chief Executive
Officer of Henry Schein. "Earnings growth this quarter was highlighted by
operating margin expansion in line with our long-term financial objectives."
Dental Group sales of $645 million increased 4.5%, including 4.4%
growth in local currencies (all internally generated) and 0.1% growth related to
foreign currency exchange. Of the 4.4% internal growth in local currencies,
Dental consumable merchandise sales increased 4.8%, and Dental equipment sales
and service revenues were up 3.4%.
"As evidenced by our consumable merchandise sales growth this quarter,
dentists continue to have busy practices," commented Mr. Bergman. "We do
believe, however, that the current economic environment had an impact on our
sales of dental equipment."
Medical Group sales of $427 million declined 4.1%. Excluding sales of
certain lower-margin pharmaceutical products, noted above, internal Medical
Group sales growth was approximately 3.4%, or approximately 2% excluding sales
of influenza vaccine.
"During the third quarter we sold 10.5 million doses of influenza
vaccine," said Mr. Bergman. "We were pleased that our manufacturing partners
received early FDA approval this year, which we were able to leverage to better
serve the needs of our customers."
For the quarter, International Group sales of $538 million increased
30.7%, including 24.7% growth in local currencies (5.2% internally generated and
19.5% from acquisitions) and 6.0% related to foreign currency exchange.
"International Group results reflect solid internal sales growth in all
of our major markets, as well as the impact of certain successful strategic
acquisitions," added Mr. Bergman.
Technology and Value-Added Services Group sales of $41 million
increased 28.8% during the quarter (11.3% internally generated and 17.5%
acquisition growth).
"Results for this group reflect continued strong growth in financial
services, as equipment and practice financing transactions increased by over
30%. Sales growth also reflects last year's acquisition of Software of
Excellence, a leading supplier of innovative clinical and practice management
solutions to dentists," stated Mr. Bergman.
Year-to-Date Results
For the first nine months of 2008, net sales of $4.8 billion represent
an increase of 14.7% compared with the first nine months of 2007. This increase
includes 11.2% local currency growth (3.0% internally generated and 8.2% from
acquisitions) and 3.5% related to foreign currency exchange. Excluding sales of
certain lower-margin pharmaceutical products, noted above, year-to-date internal
net sales growth in local currencies was 5.5%.
Income from continuing operations for the first nine months of 2008 was
$186.2 million, or $2.03 per diluted share. Excluding the charge in the third
quarter of 2008 related to the Lehman Brothers bankruptcy, income from
continuing operations for the first nine months of 2008 was $189.3 million, or
$2.06 per diluted share, reflecting growth of 19.4% and 17.7%, respectively,
compared with the prior year.
Expense Reduction Initiative
To reduce costs in light of the current economic environment, Henry
Schein will be eliminating approximately 300 positions from its operations
around the world, or approximately 2.5% of its workforce, and closing several
smaller facilities. The Company expects one-time pretax costs associated with
this initiative to be $22 million to $25 million, which we expect to record in
the fourth quarter of 2008. Annual pretax cost savings from this initiative are
expected to be approximately $24 million to $27 million.
"Given the recent changes in the economic climate, we expect that the
markets Henry Schein serves will continue to grow, but at somewhat slower rates
during these challenging economic times. While we remain confident in our
ability to achieve our financial goals, we are taking these actions in
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light of our view that sales growth for 2009 may moderate somewhat from what we
have experienced over the past several years," commented Mr. Bergman. "This is
a difficult decision, but by taking these steps to reduce costs, Henry Schein
will remain well positioned to help our customers operate more successful
practices and deliver high quality care to patients."
Stock Repurchase Plan
Henry Schein repurchased 451,300 shares of common stock during the
third quarter of 2008 for a total purchase price of approximately $23 million.
The impact of the share repurchases during the third quarter was immaterial to
diluted EPS. An additional 568,410 shares have been repurchased during the
fourth quarter of 2008 for a total purchase price of approximately $28 million.
Approximately $58 million remains authorized for future common stock
repurchases.
2008 EPS Guidance
Henry Schein updates 2008 financial guidance, as follows:
o 2008 diluted EPS is expected to be $2.94 to $2.96, representing growth
of 14% to 15% compared with 2007. This 2008 guidance excludes the
charge related to the Lehman Brothers bankruptcy, as well as costs
associated with the expense reduction initiative. This compares with
previous guidance for 2008 diluted EPS to be $2.93 to $3.00.
o This 2008 diluted EPS guidance includes Henry Schein's expectation that
it will distribute approximately 4.5 million doses of influenza vaccine
during the fourth quarter.
o 2008 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.
2009 EPS Guidance
Henry Schein introduces 2009 financial guidance, as follows:
o 2009 diluted EPS is expected to be $3.27 to $3.36, representing growth
of 11% to 14% compared with the midpoint of 2008 guidance, excluding
the charge related to the Lehman Brothers bankruptcy, as well as costs
associated with the expense reduction initiative.
o This diluted EPS guidance includes Henry Schein's expectation that it
will distribute 12 million to 13 million doses of influenza vaccine
during 2009.
o 2009 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.
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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 and a member of the NASDAQ
100(R) Index, 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 550,000 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 provides customers in more than 200 countries with a
comprehensive selection of more than 90,000 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 an installed user base of more than 52,000 practices,
including DENTRIX(R), Easy Dental(R), Oasis(R) and EXACT(R) for dental
practices, MicroMD(R) for physician practices, and AVImark(R) for animal health
clinics.
Headquartered in Melville, N.Y., Henry Schein employs over 12,000
people and has operations or affiliates in 20 countries. The Company's net
sales reached a record $5.9 billion in 2007. 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 that, 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.
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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 regulatory
requirements that affect us; 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, including the failure to achieve anticipated synergies; financial
risks 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; 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, any forward-
looking statements contained herein 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 27, September 29, September 27, September 29,
2008 2007 2008 2007
------------- ------------- ------------- -------------
Net sales .................................................... $ 1,650,771 $ 1,505,575 $ 4,821,367 $ 4,202,720
Cost of sales ................................................ 1,172,190 1,076,245 3,403,138 2,968,567
------------- ------------- ------------- -------------
Gross profit .......................................... 478,581 429,330 1,418,229 1,234,153
Operating expenses:
Selling, general and administrative ...................... 363,303 332,630 1,104,367 972,880
------------- ------------- ------------- -------------
Operating income ...................................... 115,278 96,700 313,862 261,273
Other income (expense):
Interest income .......................................... 4,260 4,378 12,217 12,766
Interest expense ......................................... (7,933) (6,216) (23,040) (18,381)
Other, net (1) ........................................... (4,791) 3,917 (5,465) 4,342
------------- ------------- ------------- -------------
Income from continuing operations before
taxes, minority interest and equity in
earnings (losses) of affiliates ...................... 106,814 98,779 297,574 260,000
Income taxes ................................................. (34,713) (33,682) (99,703) (89,788)
Minority interest in net income of subsidiaries .............. (5,278) (4,247) (15,659) (11,004)
Equity in earnings (losses) of affiliates .................... 1,602 (182) 4,020 (687)
------------- ------------- ------------- -------------
Income from continuing operations ............................ 68,425 60,668 186,232 158,521
Discontinued operations:
Loss from operations of discontinued
components (including write-down of long-
lived assets of $32.7 million and a loss on
sale of discontinued operation of $1.5
million) ............................................... -- (1,742) -- (34,302)
Income tax benefit ....................................... -- 647 -- 12,685
------------- ------------- ------------- -------------
Loss from discontinued operations ........................ -- (1,095) -- (21,617)
------------- ------------- ------------- -------------
Net income ................................................... $ 68,425 $ 59,573 $ 186,232 $ 136,904
============= ============= ============= =============
Earnings from continuing operations per share:
Basic .................................................... $ 0.77 $ 0.68 $ 2.09 $ 1.79
============= ============= ============= =============
Diluted .................................................. $ 0.75 $ 0.66 $ 2.03 $ 1.75
============= ============= ============= =============
Loss from discontinued operations per share:
Basic .................................................... $ 0.00 $ (0.01) $ 0.00 $ (0.24)
============= ============= ============= =============
Diluted .................................................. $ 0.00 $ (0.01) $ 0.00 $ (0.24)
============= ============= ============= =============
Earnings per share:
Basic .................................................... $ 0.77 $ 0.67 $ 2.09 $ 1.55
============= ============= ============= =============
Diluted .................................................. $ 0.75 $ 0.65 $ 2.03 $ 1.51
============= ============= ============= =============
Weighted-average common shares outstanding:
Basic .................................................... 88,930 88,790 89,216 88,383
============= ============= ============= =============
Diluted .................................................. 91,376 91,399 91,908 90,779
============= ============= ============= =============
(1) Other, net, for the three and nine months ended September 27, 2008, includes
a $4.5 million charge related to the bankruptcy of Lehman Brothers.
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HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 27, December 29,
2008 2007
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 288,364 $ 247,590
Available-for-sale securities............................................... -- 997
Accounts receivable, net of reserves of $40,750 and $41,315 ................ 767,304 708,307
Inventories, net ........................................................... 731,514 666,786
Deferred income taxes ...................................................... 32,340 32,827
Prepaid expenses and other ................................................. 194,740 192,292
------------- -------------
Total current assets ............................................... 2,014,262 1,848,799
Property and equipment, net .................................................... 247,345 247,671
Goodwill ....................................................................... 917,258 917,194
Other intangibles, net ......................................................... 174,772 192,420
Investments and other .......................................................... 152,937 107,900
------------- -------------
Total assets ....................................................... $ 3,506,574 $ 3,313,984
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 511,655 $ 474,009
Bank credit lines .......................................................... 6,226 8,977
Current maturities of long-term debt ....................................... 153,802 24,319
Accrued expenses:
Payroll and related ..................................................... 132,000 136,291
Taxes ................................................................... 81,577 73,278
Other ................................................................... 215,438 223,765
------------- -------------
Total current liabilities .......................................... 1,100,698 940,639
Long-term debt ................................................................. 268,990 423,274
Deferred income taxes ........................................................... 86,351 80,260
Other liabilities .............................................................. 52,303 53,906
Minority interest .............................................................. 50,710 35,923
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,
89,909,757 outstanding on September 27, 2008 and
89,603,660 outstanding on December 29, 2007 ............................. 899 896
Additional paid-in capital .................................................. 712,670 673,763
Retained earnings ........................................................... 1,156,950 1,005,055
Accumulated other comprehensive income ...................................... 77,003 100,268
------------- -------------
Total stockholders' equity ......................................... 1,947,522 1,779,982
------------- -------------
Total liabilities and stockholders' equity ......................... $ 3,506,574 $ 3,313,984
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
-----------------------------
September 27, September 29,
2008 2007
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 68,425 $ 59,573
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. -- 929
Depreciation and amortization ....................................... 19,475 17,794
Stock-based compensation expense .................................... 6,844 5,995
Impairment from write-down of long-lived assets of
discontinued operations ....................................... -- --
Provision for losses on trade and other accounts receivable ......... 1,107 830
Provision for (benefit from) deferred income taxes .................. 1,600 1,958
Stock issued to 401(k) plan ......................................... 4,662 4,104
Undistributed (earnings) losses of affiliates ....................... (1,602) 182
Minority interest in net income of subsidiaries ..................... 5,278 4,247
Other ............................................................... (815) (2,300)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (59,999) (65,765)
Inventories ................................................... (63,118) (47,387)
Other current assets .......................................... (14,449) (14,310)
Accounts payable and accrued expenses ......................... 82,539 103,334
------------- -------------
Net cash provided by operating activities ...................................... 49,947 69,184
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (14,653) (11,687)
Payments for equity investment and business acquisitions,
net of cash acquired ................................................... (2,349) (82,475)
Cash received from business divestitures .................................. -- 5,061
Purchases of available-for-sale securities ................................ -- (27,065)
Proceeds from sales of available-for-sale securities ...................... 725 87,315
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... 14,142 (5,367)
Other ..................................................................... (864) (6,428)
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Net cash used in investing activities .......................................... (2,999) (40,646)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- --
Proceeds from (repayments of) bank borrowings ............................. 722 (4,273)
Principal payments for long-term debt ..................................... (24,190) (24,604)
Proceeds from issuance of stock upon exercise of stock options ............ 12,346 9,099
Payments for repurchases of common stock .................................. (23,298) --
Excess tax benefits related to stock-based compensation ................... 5,962 3,575
Other ..................................................................... (455) (422)
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Net cash used in financing activities .......................................... (28,913) (16,625)
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Net change in cash and cash equivalents ........................................ 18,035 11,913
Effect of exchange rate changes on cash and cash equivalents ................... (1,103) 4,574
Cash and cash equivalents, beginning of period ................................. 271,432 190,971
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 288,364 $ 207,458
============= =============
Nine Months Ended
-----------------------------
September 27, September 29,
2008 2007
------------- -------------
Cash flows from operating activities:
Net income ................................................................. $ 186,232 $ 136,904
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on sale of discontinued operation, net of tax .................. -- 929
Depreciation and amortization ....................................... 59,183 53,021
Stock-based compensation expense .................................... 23,060 16,720
Impairment from write-down of long-lived assets of
discontinued operations ....................................... -- 32,667
Provision for losses on trade and other accounts receivable ......... 3,711 1,062
Provision for (benefit from) deferred income taxes .................. (1,291) (16,730)
Stock issued to 401(k) plan ......................................... 4,662 4,104
Undistributed (earnings) losses of affiliates ....................... (4,020) 687
Minority interest in net income of subsidiaries ..................... 15,659 11,004
Other ............................................................... (2,132) (2,870)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (66,751) (82,521)
Inventories ................................................... (68,182) (31,941)
Other current assets .......................................... (3,494) (9,841)
Accounts payable and accrued expenses ......................... 41,927 36,730
------------- -------------
Net cash provided by operating activities ...................................... 188,564 149,925
------------- -------------
Cash flows from investing activities:
Purchases of fixed assets ................................................. (38,119) (33,023)
Payments for equity investment and business acquisitions,
net of cash acquired ................................................... (25,930) (124,298)
Cash received from business divestitures .................................. -- 5,061
Purchases of available-for-sale securities ................................ (35,925) (115,066)
Proceeds from sales of available-for-sale securities ...................... 1,572 135,315
Net proceeds from (payments for) foreign exchange forward
contract settlements ................................................... 9,090 (16,980)
Other ..................................................................... 3,707 (11,037)
------------- -------------
Net cash used in investing activities .......................................... (85,605) (160,028)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- 483
Proceeds from (repayments of) bank borrowings ............................. (5,786) (4,554)
Principal payments for long-term debt ..................................... (30,139) (42,529)
Proceeds from issuance of stock upon exercise of stock options ............ 25,041 32,719
Payments for repurchases of common stock .................................. (54,945) (30,689)
Excess tax benefits related to stock-based compensation ................... 10,635 11,597
Other ..................................................................... (1,856) (1,879)
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Net cash used in financing activities .......................................... (57,050) (34,852)
------------- -------------
Net change in cash and cash equivalents ........................................ 45,909 (44,955)
Effect of exchange rate changes on cash and cash equivalents ................... (5,135) 3,766
Cash and cash equivalents, beginning of period ................................. 247,590 248,647
------------- -------------
Cash and cash equivalents, end of period ....................................... $ 288,364 $ 207,458
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Exhibit A
Henry Schein, Inc.
2008 Third Quarter
Sales Growth Rate Summary
(unaudited)
Q3 2008 over Q3 2007
--------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal Sales Growth 2.2% 4.4% -4.2% 5.2% 11.3%
Acquisitions 5.8% 0.0% 0.1% 19.5% 17.5%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 8.0% 4.4% -4.1% 24.7% 28.8%
Foreign Currency Exchange 1.6% 0.1% 0.0% 6.0% 0.0%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 9.6% 4.5% -4.1% 30.7% 28.8%
============ =========== ============ ============= ============
Q3 YTD 2008 over Q3 YTD 2007
----------------------------
Consolidated Dental Medical International Technology
------------ ----------- ------------ ------------- ------------
Internal Sales Growth 3.0% 5.7% -5.7% 7.2% 7.8%
Acquisitions 8.2% 1.0% 0.4% 25.2% 23.1%
------------ ----------- ------------ ------------- ------------
Local Currency Sales Growth 11.2% 6.7% -5.3% 32.4% 30.9%
Foreign Currency Exchange 3.5% 0.9% 0.0% 11.4% 0.4%
------------ ----------- ------------ ------------- ------------
Total Sales Growth 14.7% 7.6% -5.3% 43.8% 31.3%
============ =========== ============ ============= ============
CONTACTS: Steven Paladino
Executive Vice President and Chief Financial Officer
steven.paladino@henryschein.com
(631) 843-5500
Investors: Neal Goldner
Vice President, Investor Relations
neal.goldner@henryschein.com
(631) 845-2820
Media: Susan Vassallo
Vice President, Corporate Communications
susan.vassallo@henryschein.com
(631) 843-5562
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