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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
---------
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934
For the period ended September 28, 1996
OR
___ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number: 0-27078
HENRY SCHEIN, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3136595
(State or other jurisdiction of (I.R.S. Employer
incorporation or Identification No.)
organization)
135 Duryea Road
Melville, New York 11747
(Address of principal executive offices)
Telephone Number (516) 843-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes |X| No |_|
As of November 11, 1996, there were 22,096,851 shares of the Registrant's
Common Stock outstanding.
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<PAGE>
HENRY SCHEIN, INC.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets
September 28, 1996 and December 30, 1995......................... 3
Consolidated Statements of Operations
Three and nine months ended September 28, 1996 and
September 30, 1995............................................... 4
Consolidated Statements of Cash Flows
Nine months ended September 28, 1996 and September 30, 1995....... 5
Notes to Consolidated Financial Statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................... 13
Signature .......................................................... 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 28, December 30,
1996 1995
------------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ........................ $ 48,905 $ 7,603
Accounts receivable, less reserves of $6,329
and $6,335, respectively ....................... 135,095 91,248
Inventories ...................................... 105,790 96,515
Deferred income taxes ............................ 7,097 6,896
Other ............................................ 24,506 19,492
--------- ---------
Total current assets ........................... 321,393 221,754
Property and equipment, net of accumulated
depreciation of $38,301 and $33,904,
respectively ..................................... 35,637 29,713
Goodwill and other intangibles, net of
accumulated amortization of $3,100 and
1,795, respectively .............................. 50,829 24,389
Investments and other .............................. 26,157 21,011
--------- ---------
$ 434,016 $ 296,867
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 71,794 $ 65,105
Bank credit lines ................................ 7,946 9,325
Accruals:
Salaries and related expenses .................. 10,512 9,074
Premium coupon redemptions ..................... 3,323 4,474
Other .......................................... 22,898 26,534
Current maturities of long-term debt ............. 5,968 3,343
--------- ---------
Total current liabilities ...................... 122,441 117,855
Long-term debt ..................................... 24,837 30,381
Other liabilities .................................. 1,353 1,233
--------- ---------
Total liabilities .............................. 148,631 149,469
Minority interest .................................. 4,987 4,547
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized
60,000,000; issued and outstanding
22,154,455 and 18,358,673, respectively ......... 222 183
Additional paid-in capital ....................... 250,080 123,866
Retained earnings ................................ 31,714 19,746
Treasury stock, at cost, 57,604 and 51,679
shares, respectively ............................ (977) (769)
Foreign currency translation adjustment .......... (641) (175)
Total stockholders' equity ..................... 280,398 142,851
--------- ---------
$ 434,016 $ 296,867
========= =========
See accompanying notes to consolidated financial statements.
3
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- -----------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ............................ $ 212,529 $ 156,667 $ 592,610 $ 432,460
Cost of sales ........................ 150,585 108,577 417,787 301,948
--------- --------- --------- ---------
Gross profit ....................... 61,944 48,090 174,823 130,512
Operating expenses:
Selling, general and administrative 54,323 42,902 156,028 117,649
Special management compensation .... -- -- -- 15,497
--------- --------- --------- ---------
Operating income (loss) .......... 7,621 5,188 18,795 (2,634)
Other income (expense):
Interest income .................... 577 24 1,720 163
Interest expense ................... (736) (1,646) (3,045) (4,327)
Other-net .......................... 101 (185) 83 (10)
--------- --------- --------- ---------
Income (loss) before taxes
on income, minority interest and
equity in earnings of affiliates 7,563 3,381 17,553 (6,808)
Taxes on income ...................... 2,888 1,373 6,711 3,669
Minority interest in net income (loss)
of subsidiaries ..................... (1) 209 (15) 505
Equity in earnings of affiliates ..... 614 294 1,111 580
--------- --------- --------- ---------
Net income (loss) .................... $ 5,290 $ 2,093 $ 11,968 $ (10,402)
========= ========= ========= =========
Net income per common share........... $ .24 $ .17 $ .60
========= ========= =========
Weighted average common and common
equivalent shares outstanding........ 22,504 12,585 20,091
========= ========= =========
Pro forma:
Historical net loss................ $ (10,402)
Pro forma adjustments:
Special management compensation... 15,497
---------
Pro forma net income.................. $ 5,095
=========
Pro forma net income per common share $ .41
=========
Pro forma weighted average common and
common equivalent shares outstanding. 12,319
=========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
-----------------------------
September 28, September 30,
1996 1995
------------- -------------
Cash flows from operating activities:
Net income (loss) ............................. $ 11,968 $(10,402)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization ............... 5,685 4,173
Provision (benefit) for losses on accounts
receivable ................................. (296) 263
Benefit for deferred income taxes ........... (20) (52)
Special management compensation ............. -- 15,497
Stock issued to ESOP trust ................. 820 --
Undistributed earnings of affiliates ........ (1,111) (580)
Minority interest in net income (loss)
of subsidiaries ............................ (15) 505
Other ....................................... 20 86
Changes in assets and liabilities:
Increase in accounts receivable ............. (36,258) (25,631)
(Increase) decrease in inventories .......... (4,553) 7,527
(Increase) decrease in other current assets . (5,189) 54
Increase (decrease) in accounts payable and
accruals ................................... (4,209) 3,491
--------- --------
Net cash used in operating activities ........... (33,158) (5,069)
--------- --------
Cash flows from investing activities:
Capital expenditures .......................... (8,565) (5,327)
Business acquisitions, net of cash acquired ... (30,635) (11,129)
Other ......................................... (3,042) (4,553)
--------- --------
Net cash used in investing activities ........... (42,242) (21,009)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ...... 1,340 1,294
Principal payments on long-term debt .......... (3,937) (1,369)
Proceeds from issuance of stock ............... 124,070 --
Proceeds from borrowings from banks ........... 4,606 26,603
Payments on borrowings from banks ............. (8,879) --
Purchase of treasury stock .................... (208) --
Other ......................................... (290) 487
--------- --------
Net cash provided by financing activities ....... 116,702 27,015
--------- --------
Net increase in cash and cash equivalents ....... 41,302 937
Cash and cash equivalents, beginning of period .. 7,603 4,450
--------- --------
Cash and cash equivalents, end of period ........ $ 48,905 $ 5,387
========= ========
See accompanying notes to consolidated financial statements.
5
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Henry Schein, Inc.
and its wholly-owned and majority-owned subsidiaries (collectively, the
"Company").
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the information set forth
therein. These consolidated financial statements are condensed and therefore do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 30, 1995. The Company
follows the same accounting policies in preparation of interim reports. The
results of operations for the nine months ended September 28, 1996 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 28, 1996.
Note 2. Business Acquisitions
During 1995, the Company acquired fourteen healthcare distribution businesses
including, on July 7, 1995, the distribution business of The Veratex Corporation
("Veratex"), a national direct marketer of medical, dental and veterinary
products. Veratex had net sales of approximately $19,853 for the six months
ended July 1, 1995.
The 1995 acquisitions, except as set forth below, were accounted for using the
purchase method of accounting. One acquisition was from an affiliate and has
been accounted for using the purchase method of accounting, with carry-over of
predecessor basis with respect to the affiliate's proportionate share of net
assets. Operations of these businesses have been included in the consolidated
financial statements from their respective acquisition dates.
The Company has completed ten acquisitions during the nine months ended
September 28, 1996. These acquisitions included three medical supply
distributors, five domestic dental supply distributors and two international
dental supply distributors. These acquisitions were accounted for using the
purchase method of accounting and had net sales for the nine months ended
September 30, 1995 of approximately $67,000. The total amount of cash paid and
the value of the shares of common stock issued in connection with the 1996
acquisitions was approximately $30,635 and $1,363, respectively. No single
acquisition was material.
The excess of the acquisition costs over the fair value of identifiable net
assets acquired will be amortized on a straight-line basis over a period not to
exceed 30 years.
6
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
(unaudited)
Note 2. Business Acquisitions (cont'd)
The summarized unaudited pro forma results of operations set forth below for the
nine months ended September 28, 1996 and September 30, 1995 assume the
acquisitions occurred as of the beginning of each of these periods.
Nine Months Ended
-----------------------------
September 28, September 30,
1996 1995
------------- -------------
Net sales ........................................ $640,573 $ 532,230
Net income (loss) ................................ 12,327 (9,122)
Pro forma net income, reflecting adjustment for
special management compensation ................ -- 6,375
Pro forma net income per common share ............ 0.61 0.52
Pro forma net income per common share, including acquisitions, may not be
indicative of actual results, primarily because the pro forma earnings include
historical results of operations of acquired entities and do not reflect any
cost savings that may result from the Company's integration efforts.
Note 3. Public Offering
On June 21, 1996, the Company sold 3,734,375 shares and certain of its
stockholders sold 2,812,000 shares of Common Stock of the Company in a public
offering (the "Offering") at a price to the public of $35.00 per share, netting
proceeds to the Company, after underwriting discounts and expenses, of
approximately $124,070. Proceeds from the Offering were used to (i) repay
$34,600 outstanding under the Company's revolving credit agreement, (ii) finance
1996 acquisitions totaling $30,635 and (iii) repay a $2.4 million note payable
incurred in connection with a 1995 acquisition; the remaining proceeds have been
and will continue to be used for working capital needs and for general corporate
purposes, including financing possible additional acquisitions.
Note 4. Supplemental Net Income per Share
Supplemental net income per share for the nine months ended September 28, 1996
was $0.60. For this calculation, the weighted average number of common shares
includes the shares assumed to provide the proceeds, at the Offering price (see
Note 3), needed to retire average revolving credit borrowing and other debt for
the period from the beginning of the year (or the date the debt was incurred) to
the respective retirement date. The supplemental net income excludes financing
and interest expenses of the debt.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 28, 1996 compared to
Three Months Ended September 30 ,1995
Net sales increased $55.8 million, or 35.6%, to $212.5 million for the three
months ended September 28, 1996 from $156.7 million for the three months ended
September 30, 1995. The Company estimates that approximately 19.1% of the net
sales growth was due to internal growth, while the remaining 16.5% was due to
acquisitions. Of the $55.8 million increase, approximately $25.5 million
represented a 30.0% increase in the Company's dental business, $20.9 million
represented a 63.0% increase in its medical business, $8.7 million represented a
33.9% increase in its international business, and $1.4 million represented a
17.7% increase in the Company's veterinary business. Technology net sales
decreased $0.7 million, or 14.3%. The increase in dental net sales was primarily
the result of the effectiveness of the Company's integrated sales and marketing
approach (which coordinates the efforts of its field sales consultants with its
direct marketing and telesales personnel), acquisitions, continued success in
the Company's target marketing programs and increased sales in the large dental
equipment market, which was favorably effected by the Company's introduction of
its new Empire line of Schein Brand equipment. The increase in medical net sales
was primarily due to acquisitions, increased net sales to renal dialysis centers
and net sales to customers enrolled in the AMA Purchase Link program. In the
international market, 22.6% of the increase in net sales was due to
acquisitions, with the balance attributable to increased unit volume growth. In
the veterinary market, the increase in net sales was primarily due to increased
account penetration. In the technology market, the enhancement to the Company's
Easy Dental(R) for Windows product, which was scheduled to be released in
September, is expected to be released in the fourth quarter of this year. Had
the enhancement been released in September, the Company believes the technology
sales would have been comparable with 1995 net sales for the same period. The
Company believes that for the balance of 1996, technology net sales will be
below the 1995 net sales level.
Gross profit increased by $13.8 million, or 28.7%, to $61.9 million for the
three months ended September 28, 1996 from $48.1 million for the three months
ended September 30, 1995, while gross profit margin decreased to 29.1% from
30.7%. The $13.8 million increase in gross profit was primarily due to increased
sales volume and acquisitions. The decrease in gross profit margin was primary
due to lower technology sales as a percentage of total net sales and other sales
mix changes.
Selling, general and administrative expenses increased by $11.4 million, or
26.6%, to $54.3 million for the three months ended September 28, 1996 from $42.9
million for the three months ended September 30, 1995. Selling and shipping
expenses increased by $10.1 million, or 35.9%, to $38.2 million for the three
months ended September 28, 1996 from $28.1 million for the three months ended
September 30, 1995. As a percentage of net sales, selling and shipping expenses
increased 0.1% to 18.0% for the three months ended September 28, 1996 from 17.9%
for the three months ended September 30, 1995. General and administrative
expenses increased $1.3 million, or 8.8%, to $16.1 million for the three months
ended September 28, 1996 from $14.8 million for the three months ended September
30, 1995, primarily as a result of acquisitions. As a percentage of net sales,
general and administrative expenses decreased 1.8% to 7.6% for the three months
ended September 28, 1996 from 9.4% for the three months ended September 30, 1995
due primarily to the relatively fixed nature of general and administrative
expenses when compared to the 35.6% increase in net sales volume for the same
period and the Company's ability to leverage its core infrastructure.
8
<PAGE>
Other income (expense) decreased by $1.7 million, or 94.4%, to $0.1 million for
the three months ended September 28, 1996 from $1.8 million for the three months
ended September 30, 1995. This decrease was primarily due to a decrease in
average borrowings, which were partially paid off with proceeds from the
Company's initial public offering in November 1995 and its follow-on offering in
June 1996, as well as an increase in interest income on short-term investments.
Equity in earnings of affiliates increased by $0.3 million, or 100.0%, to $0.6
million for the three months ended September 28, 1996 from $0.3 million for the
three months ended September 30, 1995. This increase was primarily due to two
acquisitions which occurred during the fourth quarter of 1995.
For the three months ended September 28, 1996, the Company's provision for taxes
was $2.9 million, while pre-tax income was $7.6 million, resulting in an
effective tax rate of 38.2%. The difference between the effective tax rate and
the Federal statutory rate is primarily the result of state income taxes. For
the three months ended September 30, 1995, the Company's provision for taxes was
$1.4 million, while pre-tax income was $3.4 million resulting in an effective
tax rate of 41.2%. The difference between the 1995 effective tax rate and the
Federal statutory rate relates primarily to state income taxes and
non-deductible net losses of certain foreign subsidiaries which, at that time,
were not included in the Company's consolidated tax return.
Nine Months Ended September 28, 1996 compared to
Nine Months Ended September 30, 1995
Net sales increased $160.1 million, or 37.0%, to $592.6 million for the nine
months ended September 28, 1996 from $432.5 million for the nine months ended
September 30, 1995. The Company estimates that approximately 20.2% of the net
sales growth represented internal growth, while the remaining 16.8% was due to
acquisitions. Of the $160.1 million increase, approximately $80.6 million
represented a 35.0% increase in the Company's dental business, $47.3 million
represented 53.6% increase in its medical business, $27.7 million represented a
36.3% increase in its international business and $4.9 million represented a
22.4% increase in the Company's veterinary business. Technology net sales
decreased $0.4 million, or 2.5%. The increase in the dental net sales was
primarily the result of the effectiveness of the Company's integrated sales and
marketing approach (which coordinates the efforts of its field sales consultants
with its direct marketing and telesales personnel), acquisitions and increased
sales in the large dental equipment market. The increase in the medical net
sales was primarily due to the effects of acquisitions, increased net sales to
renal dialysis centers and increased net sales to customer enrolled in the AMA
Purchase Link program. In the international market, 23.4% of the increase in net
sales was due to acquisitions and the balance was due to increased unit volume
growth. In the veterinary market, the increase in net sales was primarily due to
increased account penetration. In the technology market, the Company has
experienced a lengthening of the sales cycle for migrating "DOS" customers to a
Windows product, and a delay in the release of the enhancement to the Company's
Easy Dental(R) for Windows product causing net sales to decrease slightly from
last year's level. The Company expects to release the enhancement to the
Company's Easy Dental (R) for Windows product in the fourth quarter of this
year. The Company believes that for the balance of 1996, technology net sales
will be below the 1995 net sales levels.
9
<PAGE>
Gross profit increased by $44.3 million, or 33.9% to $174.8 million for the nine
months ended September 28, 1996 from $130.5 million for the nine months ended
September 30, 1995, while gross profit margin decreased to 29.5% from 30.2%. The
$44.3 million increase in gross profit was primarily due to increased sales
volume and acquisitions. The decrease in gross profit margin was primary due to
lower technology sales as a percentage of total net sales and other sales mix
changes.
Selling, general and administrative expenses increased by $38.4 million, or
32.7%, to $156.0 million for the nine months ended September 28, 1996 from
$117.6 million for the nine months ended September 30, 1995. Selling and
shipping expenses increased by $31.1 million, or 41.0%, to $107.0 million for
the nine months ended September 28, 1996 from $75.9 million for the nine months
ended September 30, 1995. As a percentage of net sales, selling and shipping
expenses increased 0.6% to 18.1% for the nine months ended September 28, 1996
from 17.5% for the nine months ended September 30, 1995. The increase in selling
and shipping expenses as a percentage of net sales was primarily due to an
increase in the number of field sales consultants and equipment sales and
service centers. General and administrative expenses increased $7.3 million, or
17.5%, to $49.0 million for the nine months ended September 28, 1996 from $41.7
million for the nine months ended September 30, 1995 primarily as a result of
acquisitions. As a percentage of net sales, general and administrative expenses
decreased 1.3% to 8.3% for the nine months ended September 28, 1996 from 9.6%
for the nine months ended September 30, 1995 due primarily to the relatively
fixed nature of general and administrative expenses when compared to the 37.0%
increase in net sales volume for the same period.
Other income (expense) decreased by $3.0 million, or 71.4%, to $1.2 million for
the nine months ended September 28, 1996 from $4.2 million for the nine months
ended September 30, 1995. The decrease was primarily due to a decrease in
average borrowings which were partially paid off with proceeds from the
Company's initial public offering in November 1995 and its follow-on offering in
June 1996, as well as an increase in interest income on short-term investments
and the recognition of imputed interest resulting from certain customers'
extended payment terms.
Equity in earnings of affiliates increased by $0.5 million to $1.1 million for
the nine months ended September 28, 1996 from $0.6 million for the nine months
ended September 30, 1995. This increase was primarily due to two acquisitions
which occurred during the fourth quarter of 1995.
For the nine months ended September 28, 1996, the Company's provision for taxes
was $6.7 million, while pre-tax income was $17.6 million, resulting in an
effective tax rate of 38.1%. The difference between the effective tax rate and
the Federal statutory rate is primarily a result of state income taxes. For the
nine months ended September 30, 1995, the Company's provision for taxes was $3.7
million, while the pre-tax loss was $6.8 million. The difference between the tax
provision and the amount that would have been recoverable by applying the
statutory rate to the pre-tax loss was attributable substantially to the
non-deductibility for income tax purposes of the $15.5 million appreciation in
the value of the stock issued to senior management. On a pro-forma basis,
pre-tax income was $8.7 million, resulting in a pro-forma effective tax rate of
42.5%. The difference between the pro-forma effective tax rate and the Federal
statutory rate relates primarily to state income taxes and non-deductible net
losses of certain foreign subsidiaries which were not included in the Company's
consolidated tax return.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (a) working
capital needs resulting from increased sales, extended payment terms on various
products and special inventory buying opportunities, (b) capital expenditures,
and (c) acquisitions. Since sales have traditionally been strongest during the
fourth quarter and special inventory buying opportunities have traditionally
been most prevalent just before the end of the year, the Company's working
capital requirements are generally higher from the end of the third quarter to
the end of the first quarter of the following year. The Company has financed its
business primarily through revolving credit facilities and stock issuances.
Net cash used in operating activities for the nine months ended September 28,
1996 of $33.2 million resulted primarily from a net increase in working capital
of $50.2 million offset in part by net income, adjusted for non-cash charges
relating primarily to depreciation and amortization, of $17.0 million. The
increase in working capital was primarily due to (i) a $36.3 million increase in
accounts receivable resulting from increased sales and extended payment terms,
(ii) a $4.6 million increase in inventory, (iii) a $5.2 million increase in
other current assets, and (iv) a decrease in accounts payable and other accrued
expenses of $4.2 million. The Company anticipates future increases in working
capital as a result of its continued sales growth.
Net cash used in investing activities for the nine months ended September 28,
1996 of $42.2 million resulted primarily from cash used to make acquisitions of
$30.6 million and capital expenditures of $8.6 million. The increased amount of
capital expenditures over the comparable prior year period was due to the
development of new order entry and accounts receivable systems, as well as
expenditures for additional operating facilities. The Company expects that it
will continue to incur capital expenditures for the development of its new order
entry and accounts receivable systems.
Net cash provided by financing activities for the nine months ended September
28, 1996 of $116.7 million resulted primarily from the net cash proceeds of a
public offering of its common stock (completed on June 21, 1996) of $124.1
million, partially offset by net debt repayments of approximately $6.9 million.
A balloon payment of approximately $3.7 million is due on October 31, 1997 under
a term loan associated with a foreign acquisition.
In addition, with respect to certain acquisitions and joint ventures, holders of
minority interest in the acquired entities or ventures have the right at certain
times to require the Company to acquire their interest at either fair market
value or a formula price based on earnings of the entity.
The Company's cash and cash equivalents as of September 28, 1996 of $48.9
million are invested primarily in short-term tax exempt securities rated AAA by
Moodys (or an equivalent rating). These investments have staggered maturity
dates and have a high degree of liquidity since the securities are actively
traded in public markets.
The Company entered into a $65.0 million, four-year revolving credit facility on
July 5, 1995. Borrowings under the facility were $14.5 million at September 28,
1996. At September 28, 1996, this facility was unsecured. In addition, the
Company's subsidiaries have revolving credit facilities that total approximately
$11.1 million.
11
<PAGE>
The Company believes that its cash and cash equivalents of $48.9 million as of
September 28, 1996, its anticipated cash flow from operations, its ability to
access public debt and equity markets, and the availability of funds under its
existing credit agreements will provide it with liquidity sufficient to meet its
capital needs for at least the forthcoming year.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This report contains forward-looking statements
based on current expectations that could be affected by the risks and
uncertainties involved in the Company's business. These risks and uncertainties
include, but are not limited to, the effect of economic and market conditions,
the impact of the consolidation of health care practitioners, the impact of
health care reform, opportunities for acquisitions and the Company's ability to
effectively integrate acquired companies, the acceptance and quality of software
products, acceptance and ability to manage operations in foreign markets,
possible disruptions in the Company's computer systems or telephone systems,
possible increases in shipping rates or interruptions in shipping service, the
level and volatility of interest rates and currency values, the impact of
current or pending legislation and regulation, as well as the risks described
from time to time in the Company's reports to the Securities and Exchange
Commission, which include the Company's Annual Report on Form 10-K for the year
ended December 30, 1995. Subsequent written or oral statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this Form 10-Q and those in the
Company's reports previously filed with the Securities and Exchange Commission.
12
<PAGE>
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits.
11.1 - Computation of Earnings per Share
27.1 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 28, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HENRY SCHEIN, INC.
(Registrant)
Dated: November 11, 1996 By: /s/ Steven Paladino
Steven Paladino
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
13
EXHIBIT 11.1
HENRY SCHEIN, INC. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------------- --------------------------------
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Pro forma net income per consolidated statements of
operations (in thousands) ............................ $ 5,290 $ 2,093 $ 11,968 $ 5,095
============ ============ ============ ============
Pro forma weighted average common shares outstanding:
Shares outstanding at December 25, 1993 .............. 11,390,544 11,390,544 11,390,544 11,390,544
1994 issuances:
Shares issued, in part, to extinguish
liability under long-term executive
incentive compensation plan ...................... 489,456 489,456 489,456 489,456
Shares issued to ESOP trust in 12/94 ............... 128,257 128,257 128,257 128,257
Stock options granted and to be granted in 1995
at an exercise price of $4.21 per share (1) ...... 221,397 237,897 221,397 237,897
IPO Options (Class B) .............................. 408,400 -- 408,400 --
1995 issuances:
IPO Shares ......................................... 5,090,000 -- 5,090,000 --
Shares issued as of September 1, 1995 in ........... 135,323
connection with one of the Acquisitions ......... 1,260,416 401,507 1,260,416 135,323
------------ ------------ ------------ ------------
18,988,470 12,647,661 18,988,470 12,381,477
Less treasury stock ................................ (56,479) -- (54,109) --
------------ ------------ ------------ ------------
18,931,991 12,647,661 18,934,361 12,381,477
1996 issuances:
Secondary Offering Shares .......................... 3,734,375 -- 1,367,903 --
Shares issued to ESOP trust on August 9, 1996 ...... 13,568 -- 4,523 --
Shares issued on July 10, 1996 in
connection with one of the Acquisitions ......... 33,109 -- 11,036 --
------------ ------------ ------------ ------------
22,713,043 12,647,661 20,317,823 12,381,477
Less assumed repurchase of shares under treasury
stock method based on an average price
of $35.785 per share (2):
Stock options -- 221,397 shares
x $4.21
-------
$932,081 / $35.785 .............. (26,047)(4) (62,597)(3) (28,253)(5) (62,597)(3)
IPO options -- 408,400 shares
x $16.00
--------
$6,534,400 / $35.785 .............. (182,602)(4) -- (198,072)(5) --
------------ ------------ ------------ ------------
Pro forma weighted average common shares outstanding ... 22,504,394 12,585,064 20,091,498 12,318,880
============ ============ ============ ============
Pro forma net income per common share .................. $ .24 $ .17 $ .60 $ .41
============ ============ ============ ============
</TABLE>
- -----------
(1) Considered "cheap stock" and treated as outstanding since January 1, 1995.
(2) The treasury stock method was not used for the shares issued to settle the
long-term incentive plan liability and the compensatory portion of the
stock options granted because the related special compensation charges have
been/will be excluded from pro forma net income and, therefore, were not
assumed to be proceeds.
(3) Computed using IPO value per share of $16.00 on 237,897 stock options.
(4) Computed using the average closing value per share for the three months
ended September 28, 1996.
(5) Computed using the average closing value per share for the nine months
ended September 28, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-28-1996
<CASH> 48,905
<SECURITIES> 0
<RECEIVABLES> 135,095
<ALLOWANCES> (3,068)
<INVENTORY> 105,790
<CURRENT-ASSETS> 321,393
<PP&E> 73,938
<DEPRECIATION> (38,301)
<TOTAL-ASSETS> 434,016
<CURRENT-LIABILITIES> 122,441
<BONDS> 30,805
0
0
<COMMON> 222
<OTHER-SE> 280,176
<TOTAL-LIABILITY-AND-EQUITY> 434,016
<SALES> 592,610
<TOTAL-REVENUES> 592,610
<CGS> 417,787
<TOTAL-COSTS> 417,787
<OTHER-EXPENSES> 156,028
<LOSS-PROVISION> 554
<INTEREST-EXPENSE> 3,045
<INCOME-PRETAX> 17,553
<INCOME-TAX> 6,711
<INCOME-CONTINUING> 11,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,968
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
