Henry Schein Reports Record First Quarter Results

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 March 31, 2007. Net sales for the first quarter of 2007 were $1.3 billion, an increase of 14.8% from the first quarter of 2006. This increase includes 12.4% local currency growth (4.2% internally generated and 8.2% from acquisitions net of divestiture) and 2.4% related to foreign currency exchange. (See Exhibit A for details of sales growth.) Net income and income from continuing operations for the first quarter of 2007 were $43.5 million or $0.48 per diluted share. First quarter 2007 income and diluted earnings per share from continuing operations were up 22.1% and 20.0%, respectively, compared with the prior-year first quarter. There was no impact of discontinued operations in the current quarter. "Once again our quarterly results featured double-digit sales growth in each of our business groups as we continued to gain market share across the board,” said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "Also, operating margin expanded as we continue to leverage a growing top line across our established infrastructure and focus on selling higher-margin products.” For the first quarter, Dental sales increased 16.7%, including 16.9% growth in local currencies (9.9% internally generated and 7.0% from acquisitions) offset by a 0.2% decline related to foreign currency exchange. Of the 16.9% local currency growth, Dental consumable merchandise sales increased 14.6% (6.2% internal growth and 8.4% acquisition growth) and Dental equipment sales and service revenues were up 25.6% (23.5% internal growth and 2.1% acquisition growth). "Strong market-share gains in our Dental Group were led by equipment sales and service growth, which reflects continued strength in basic equipment sales and strong demand for high-tech products as dentists strive for greater practice efficiencies and patient satisfaction,” commented Mr. Bergman. "The dental markets we serve remain strong, based on our positive experience with customers and manufacturers at two large dental trade shows during the quarter.” Medical sales increased 11.3% during the first quarter (1.9% decline in internal sales growth offset by 13.2% acquisition growth net of divestiture). The Company estimates that its Medical Group internal sales growth, excluding sales of all pharmaceutical products, represents a market share gain for the quarter. "In April we combined our major physician brands under the Henry Schein Medical brand, with the goal of leveraging our unique strengths in field sales, telesales, telemarketing and direct marketing,” added Mr. Bergman. "While we are confident in the long-term benefit of this initiative to our customers and to our Company, Medical Group results over the next several quarters will reflect the elimination of duplicate costs and may reflect some sales erosion as well.” For the quarter, International sales increased 15.1%, including 6.1% growth in local currencies (1.1% internally generated and 5.0% from acquisitions), and 9.0% related to foreign currency exchange. "International sales growth was negatively impacted by the timing of the International Dental Show (IDS) in Germany, the world’s largest dental trade show which was held near the end of the first quarter, among other factors,” commented Mr. Bergman. Technology and Value-Added Services sales increased 24.6% during the first quarter of 2007, including 24.7% growth in local currencies (17.7% internally generated and 7.0% acquisition growth) offset by a 0.1% decline related to foreign currency exchange. "Our Technology and Value-Added Services sales growth for the quarter was fueled by strong growth in electronic services, software and financial services revenues,” stated Mr. Bergman. Stock Repurchase Plan Henry Schein announced that it repurchased 639,100 shares of common stock during the first quarter of 2007 at an average price of $48.02 per share. Approximately $140 million remains authorized for future common stock repurchases. The impact of the repurchase of shares under this program on first quarter diluted EPS was immaterial. 2007 EPS Guidance Henry Schein affirms 2007 financial guidance, as follows: 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. This 2007 diluted EPS guidance includes Henry Schein's expectations that it will distribute approximately 20 million doses of influenza vaccine during the year. We expect mid-teens diluted EPS growth in the second quarter of 2007. 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. First Quarter Conference Call Webcast The Company will hold a conference call to discuss first 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® 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 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®, 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® and Easy Dental® for dental practices, MicroMd® for physician practices, and AVImark® 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 net 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; 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, 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. HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited)   Three Months Ended March 31, April 1,   2007    2006      Net sales $ 1,334,143  $ 1,161,781  Cost of sales   941,170    824,179  Gross profit 392,973  337,602  Operating expenses: Selling, general and administrative   319,074    276,684  Operating income 73,899  60,918  Other income (expense): Interest income 4,138  4,556  Interest expense (6,004) (7,394) Other, net   (117)   221  Income from continuing operations before taxes, minority interest and equity in earnings of affiliates   71,916  58,301  Income taxes (25,530) (21,222) Minority interest in net income of subsidiaries (2,915) (1,560) Equity in earnings of affiliates   23    108  Income from continuing operations 43,494  35,627    Discontinued operations: Loss from operations of discontinued components -  (32,279) Income tax benefit   -    12,911  Loss from discontinued operations   -    (19,368) Net income $ 43,494  $ 16,259    Earnings from continuing operations per share: Basic $ 0.49  $ 0.41  Diluted $ 0.48  $ 0.40    Loss from discontinued operations per share: Basic $ -  $ (0.22) Diluted $ -  $ (0.22)   Earnings per share: Basic $ 0.49  $ 0.19  Diluted $ 0.48  $ 0.18    Weighted-average common shares outstanding: Basic   87,911    87,310  Diluted   89,984    89,242  HENRY SCHEIN, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)   March 31, December 30,   2007    2006  (unaudited) ASSETS Current assets: Cash and cash equivalents $ 154,456  $ 248,647  Available-for-sale securities 47,499  47,999  Accounts receivable, net of reserves of $40,379 and $40,536 617,427  610,020  Inventories, net 583,236  584,103  Deferred income taxes 29,992  28,240  Prepaid expenses and other   119,169    125,839  Total current assets 1,551,779  1,644,848  Property and equipment, net 221,234  225,038  Goodwill 787,018  773,801  Other intangibles, net 157,874  161,542  Investments and other   97,487    75,917  Total assets $ 2,815,392  $ 2,881,146    LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 343,491  $ 414,062  Bank credit lines 2,359  2,528  Current maturities of long-term debt 37,495  41,036  Accrued expenses: Payroll and related 96,994  110,401  Taxes 52,720  59,007  Other   165,113    183,054  Total current liabilities 698,172  810,088  Long-term debt 457,318  455,806  Deferred income taxes 67,551  62,334  Other liabilities 61,291  60,209    Minority interest 21,926  21,746  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, 88,806,126 outstanding on March 31, 2007 and 88,499,321 outstanding on December 30, 2006   888  885  Additional paid-in capital 629,051  614,551  Retained earnings 833,376  808,164  Accumulated other comprehensive income   45,819    47,363  Total stockholders' equity   1,509,134    1,470,963  Total liabilities and stockholders' equity $ 2,815,392  $ 2,881,146  HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)   Three Months Ended March 31, April 1,   2007    2006    Cash flows from operating activities: Net income $ 43,494  $ 16,259  Adjustments to reconcile net income to net cash used in operating activities:   Loss on sale of discontinued operation, net of tax -  19,363  Depreciation and amortization 17,557  14,352  Stock-based compensation expense 4,117  3,857  Provision for losses on trade and other accounts receivable 231  118  Deferred income taxes (6,855) 4,978  Undistributed earnings of affiliates (23) (108) Minority interest in net income of subsidiaries 2,915  1,560  Other (721) (1,113) Changes in operating assets and liabilities, net of acquisitions:   Accounts receivable (3,947) 4,599  Inventories 3,936  (12,481) Other current assets 11,882  3,143  Accounts payable and accrued expenses   (106,488)   (92,527) Net cash used in operating activities   (33,902)   (38,000)   Cash flows from investing activities: Purchases of fixed assets (8,933) (11,168) Payments for equity investment and business acquisitions, net of cash acquired (27,432) (72,712) Purchases of available-for-sale securities (17,500) (84,421) Proceeds from sales of available-for-sale securities 18,000  107,031  Proceeds from maturities of available-for-sale securities -  80  Net payments for foreign exchange forward contract settlements (3,921) (1,161) Other   (5,262)   191  Net cash used in investing activities   (45,048)   (62,160)   Cash flows from financing activities: Proceeds from issuance of long-term debt 428  -  Proceeds from (repayments of) bank borrowings (255) 1,223  Principal payments for long-term debt (457) (2,645) Proceeds from issuance of stock upon exercise of stock options 10,691  17,108  Payments for repurchases of common stock (30,689) -  Excess tax benefits related to stock-based compensation 5,853  6,925  Other   (736)   (186) Net cash provided by (used in) financing activities   (15,165)   22,425    Net change in cash and cash equivalents (94,115) (77,735) Effect of exchange rate changes on cash and cash equivalents (76) 5,797  Cash and cash equivalents, beginning of period   248,647    210,683  Cash and cash equivalents, end of period $ 154,456  $ 138,745  Note: The prior period amounts have been restated to reflect the effects of a reclassification of variable-rate demand notes from 'cash and cash equivalents' to 'available-for-sale securities' retrospective to December 31, 2005. Exhibit A   Henry Schein, Inc. 2007 First Quarter Sales Growth Rate Summary (unaudited)     Q1 2007 over Q1 2006 --------------------     Consolidated Dental Medical International Technology   Internal Sales Growth 4.2% 9.9% -1.9% 1.1% 17.7%   Acquisitions, net of divestiture 8.2% 7.0% 13.2% 5.0% 7.0%   Local Currency Sales Growth 12.4% 16.9% 11.3% 6.1% 24.7%   Foreign Currency Exchange 2.4% -0.2% -  9.0% -0.1%   Total Sales Growth 14.8% 16.7% 11.3% 15.1% 24.6%