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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ Quarterly report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE PERIOD ENDED MARCH 29, 1997
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)
<TABLE>
<S> <C>
DELAWARE 11-3136595
(State or other (I.R.S. Employer
jurisdiction
of incorporation Identification No.)
or organization)
</TABLE>
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 May 13, 1997, there were 23,324,084 shares of the Registrant's
Common Stock outstanding.
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HENRY SCHEIN, INC.
INDEX
PART I. FINANCIAL INFORMATION
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PAGE NO.
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
March 29, 1997 and December 28, 1996............................................................................ 3
Consolidated Statements of Operations
Three months ended March 29, 1997 and March 30, 1996............................................................ 4
Consolidated Statements of Cash Flows
Three months ended March 29, 1997 and March 30, 1996............................................................ 5
Notes to Consolidated Financial Statements........................................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................................................... 9
</TABLE>
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................................................. 13
SIGNATURE......................................................................................................... 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER
MARCH 29, 28,
ASSETS 1997 1996
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<S> <C> <C>
(UNAUDITED) (RESTATED)
Current assets:
Cash and cash equivalents........................................ $ 16,911 $ 43,750
Accounts receivable, less reserves of $7,790 and $7,373,
respectively................................................... 143,353 140,813
Inventories...................................................... 118,760 126,862
Deferred income taxes............................................ 6,347 6,189
Other............................................................ 29,378 29,822
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Total current assets......................................... 314,749 347,436
Property and equipment, net of accumulated depreciation and
amortization of $40,838 and $39,751, respectively.................. 38,374 37,571
Goodwill and other intangibles, net of accumulated amortization of
$4,287 and $3,659, respectively.................................... 56,014 53,420
Investments and other................................................ 29,416 29,023
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$ 438,553 $ 467,450
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--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 64,413 $ 88,268
Bank credit lines................................................ 6,826 6,716
Accruals:
Salaries and related expenses.................................. 11,318 11,041
Other.......................................................... 22,543 28,375
Current maturities of long-term debt............................. 8,203 8,461
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Total current liabilities.................................... 113,303 142,861
Long-term debt....................................................... 23,707 24,569
Other liabilities.................................................... 2,843 2,715
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Total liabilities............................................ 139,853 170,145
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Minority Interest.................................................... 5,119 5,289
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Stockholders' equity:
Common stock, $.01 par value, authorized 60,000,000: issued
23,386,563 and 23,342,441, respectively........................ 233 233
Additional paid-in capital....................................... 255,308 254,198
Retained earnings................................................ 40,810 39,311
Treasury stock, at cost 62,479 and 60,529 shares, respectively... (1,156) (1,090)
Foreign currency translation adjustment.......................... (1,614) (636)
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Total stockholders' equity................................... 293,581 292,016
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$ 438,553 $ 467,450
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
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<CAPTION>
(RESTATED)
<S> <C> <C>
Net Sales................................................................................. $ 240,499 $ 187,339
Cost of sales............................................................................. 168,777 130,833
---------- ----------
Gross profit........................................................................ 71,722 56,506
Operating expenses:
Selling, general and administrative..................................................... 64,782 51,396
Merger costs............................................................................ 2,527 --
---------- ----------
Operating income.................................................................... 4,413 5,110
Other income (expense):
Interest income......................................................................... 528 409
Interest expense........................................................................ (853) (961)
Other-net............................................................................... (73) (97)
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Income before taxes on income, minority interest and equity in earnings of
affiliates........................................................................ 4,015 4,461
Taxes on income........................................................................... 2,480 1,951
Minority interest in net loss of subsidiaries............................................. (14) (70)
Equity in earnings (losses) of affiliates................................................. (50) 136
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Net income................................................................................ $ 1,499 $ 2,716
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Net income per common share............................................................... $ 0.06 $ 0.14
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Weighted average common and common equivalent
shares outstanding...................................................................... 23,678 19,740
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</TABLE>
See accompanying notes to consolidated financial statements.
4
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HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
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<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
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(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 1,499 $ 2,716
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization....................................................... 2,260 1,745
Provision (benefit) for losses on accounts receivable............................... 417 (360)
Provision (benefit) for deferred income taxes....................................... (200) 168
Undistributed (earnings) losses of affiliates....................................... 50 (136)
Minority interest in net loss of subsidiaries....................................... (14) (70)
Other............................................................................... (27) 24
Changes in assets and liabilities:
Increase in accounts receivable..................................................... (2,953) (11,767)
Decrease in inventories............................................................. 9,499 9,916
Decrease in other current assets.................................................... 447 1,486
Decrease in accounts payable and accruals........................................... (28,295) (19,642)
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Net cash used in operating activities..................................................... (17,317) (15,920)
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CASH FLOW'S FROM INVESTING ACTIVITIES:
Capital expenditures.................................................................... (2,357) (1,992)
Business acquisitions, net of cash acquired............................................. (4,377) (1,925)
Other................................................................................... (497) 285
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Net cash used in investing activities..................................................... (7,231) (3,632)
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CASH FLOW'S FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................................................ 79 662
Principal payments on long-term debt.................................................... (1,030) (924)
Proceeds from borrowings from banks..................................................... 1,283 23,960
Payments on borrowings from banks....................................................... (1,341) (3,559)
Purchase of treasury stock.............................................................. (66) --
Other................................................................................... (1,216) (474)
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Net cash provided by (used in) financing activities....................................... (2,291) 19,665
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Net increase (decrease) in cash and cash equivalents...................................... (26,839) 113
Cash and cash equivalents, beginning of period............................................ 43,750 8,882
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Cash and cash equivalents, end of period.................................................. $ 16,911 $ 8,995
---------- ----------
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</TABLE>
See accompanying notes to consolidated financial statements
5
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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 financial
statements include adjustments to give effect to the acquisition of Dentrix
Dental Systems, Inc. ("Dentrix"), effective February 28, 1997, which was
accounted for under the pooling of interests method. 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 28, 1996. The Company follows the same
accounting policies in preparation of interim reports. The results of operations
for the three months ended March 29, 1997 are not necessarily indicative of the
results to be expected for the fiscal year ending December 27, 1997 or any other
period.
NOTE 2. BUSINESS ACQUISITIONS
During the year ended December 28, 1996, the Company acquired seventeen
healthcare distribution businesses. The 1996 acquisitions included 10 dental and
three medical companies, a veterinary supply distributor and three international
dental companies, with aggregate net sales in their last fiscal year ends of
approximately $104,000, and were all accounted for using the purchase method of
accounting. Of these, fifteen were for majority ownership (100% in nine of the
transactions). The total amount of cash paid and promissory notes issued for
these acquisitions was approximately $33,423. The Company also issued 155,183
shares of common stock in 1996 in connection with two of these acquisitions.
Operations of these businesses have been included in the consolidated financial
statements from their respective acquisition dates. No single 1996 acquisition
was material.
During the three months ended March 29, 1997, the Company completed three
acquisitions. These acquisitions, which in the aggregate were not material,
included; (1) on February 12, 1997, the business of Smith Holden, Inc. ("Smith
Holden"), the longest operating dental supply company in the United States, with
net sales of approximately $14,200, (2) on February 28, 1997, all of the common
stock of Dentrix, a leading provider of clinically-based dental practice
management systems, with net sales of approximately $10,200, and (3) one other
healthcare distribution business.
The Company acquired all the common stock of Dentrix in exchange for
1,070,000 shares of the Company's Common Stock. The Dentrix acquisition was
accounted for as a pooling of interests, and, accordingly, the consolidated
financial statements for the periods presented have been restated to include
Dentrix. In connection with the Dentrix acquisition the Company incurred merger
costs of approximately $2,527, or $0.11 per share, in the first quarter of 1997.
Included in the merger costs are investment banking, legal, accounting and
advisory fees and other nonrecurring costs associated with this acquisition.
Net sales of the Company and Dentrix for the three months ended March 30,
1996 was $185,359 and $1,980, respectively. For the two months ended February
28, 1997, the effective date of the Dentrix acquisition, Dentrix's net sales
were $1,842.
6
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HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
The acquisitions of Smith Holden and the other healthcare distribution
business were accounted for using the purchase method of accounting, and,
accordingly, the results of operations of these businesses have been included in
the consolidated financial statements from their respective dates of
acquisition. These acquisitions had net sales for the three months ended March
30, 1996 of approximately $3,804. The total amount of cash paid in connection
with the 1997 acquisitions accounted for using the purchase method of accounting
was approximately $4,377. The excess of the acquisition costs over the fair
value of identifiable net assets acquired for these acquisitions will be
amortized on a straight-line basis over a period not to exceed 30 years.
The summarized unaudited pro forma results of operations set forth below for
the three months ended March 29, 1997 and March 30, 1996 assume the
acquisitions, completed in 1996 and the first quarter of 1997 which were
accounted for under the purchase method of accounting, occurred as of the
beginning of each of these periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 30,
1997 1996
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<S> <C> <C>
Net sales................................................................................. $ 241,880 $ 211,908
Net income................................................................................ 1,369 2,684
Net income per common share............................................................... $ 0.06 $ 0.14
</TABLE>
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.
On March 7, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") pursuant to which Micro Bio-Medics, Inc. ("MBMI") will
merge into a wholly-owned subsidiary of the Company. As a result of the
transaction, which has been approved by the Boards of Directors of MBMI and the
Company, each outstanding share of MBMI's Common Stock will be exchanged at a
fixed rate of 0.62 of a share of the Company's Common Stock.
MBMI distributes medical supplies to physicians and hospitals in the New
York metropolitan area, as well as to healthcare professionals in sports
medicine, emergency medicine, school health, industrial safety, government and
laboratory markets nationwide. MBMI had net sales of approximately $150,000 and
net income of approximately $1,700 for its fiscal year ended November 30, 1996.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBMI shareholder
approval. The transaction is expected to be completed by mid-1997 although no
assurances can be given in this regard.
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
7
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HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 3. PUBLIC OFFERING (CONTINUED)
Company's revolving credit agreement, (ii) finance 1996 acquisitions totaling
$32,540 and (iii) repay a $2,400 note payable incurred in connection with a 1995
acquisition; the remaining proceeds have been used for working capital needs and
for general corporate purposes.
NOTE 4. SUPPLEMENTAL NET INCOME PER SHARE
Supplemental net income per share for the three months ended March 30, 1996
was $0.14. 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 borrowings 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.
NOTE 5. SUBSEQUENT EVENTS
Pursuant to a shareholders' agreement, certain minority shareholders of a
subsidiary of the Company have advised the Company of their intention to
exercise their option to sell their shares in the subsidiary to the Company. The
value of the shares which will be put to the Company under the shareholders'
agreement is estimated to be approximately $11,500 and is expected to be payable
in cash and term notes of approximately $3,000 and $8,500, respectively. It is
expected that the term notes will be payable upon demand at anytime within five
years of issue, but no more than one-half after each of the first and second
anniversaries of issue.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
Since December 28, 1996, the Company has acquired (i) in a pooling of
interests transaction, all of the outstanding common stock of Dentrix, a leading
provider of clinically-based dental practice management systems with 1996 net
sales of approximately $10.2 million, and (ii) in a purchase transaction, the
business of Smith Holden, the longest operating dental supply company in the
United States, with 1996 net sales of approximately $14.2 million. Additionally,
on March 7, 1997, the Company entered into the Merger Agreement pursuant to
which MBMI will merge into a wholly-owned subsidiary of the Company. As a result
of the transaction, which has been approved by the Boards of Directors of MBMI
and the Company, each outstanding share of MBMI's Common Stock will be exchanged
at a fixed rate of 0.62 of a share of the Company's Common Stock. Each of the
members of MBMI's Board of Directors has granted the Company a proxy to vote
their shares of MBMI Common Stock in favor of the Merger Agreement and an
option, exercisable under certain circumstances, to acquire their shares for the
consideration that they would have received under the Merger Agreement in
respect of those shares.
MBMI distributes medical supplies to physicians and hospitals in the New
York metropolitan area, as well as to healthcare professionals in sports
medicine, emergency medicine, school health, industrial safety, government and
laboratory markets nationwide. MBMI had net sales of approximately $150.0
million and earnings of approximately $1.7 million for its fiscal year ended
November 30, 1996. Upon completion of the acquisition, the Company believes that
it will become North America's largest distributor of healthcare products to
office-based healthcare practitioners and a leading provider of healthcare
products and services to the U.S. physician market.
The completion of the transaction is subject to the satisfaction of
customary closing conditions, including, among others, MBMI shareholder
approval. The transaction is expected to be completed by mid-1997 although no
assurances can be given in this regard. For a more complete description of the
terms of the Merger Agreement, reference is made to the Exhibits of the
Company's Form 10-K. The Company has filed a Registration Statement on Form S-4
with the Securities and Exchange Commission with respect to the securities to be
issued in connection with the Merger Agreement.
In connection with the Dentrix acquisition the Company incurred merger costs
of approximately $2.5 million, or $0.11 per share, in the first quarter of 1997.
Included in the merger costs are investment banking, legal, accounting and
advisory fees and other nonrecurring costs associated with the merger.
Additional merger costs are expected to be incurred during 1997 relating to
integrating this acquisition.
Excluding the non-recurring merger costs of $2.5 million, or $0.11 per
share, for the Dentrix acquisition, net income and net income per common share
would have been $4.0 million and $0.17, respectively.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 29, 1997 COMPARED TO THREE MONTHS ENDED MARCH 30, 1996
Net sales increased $53.2 million, or 28.4%, to $240.5 million for the three
months ended March 29, 1997 from $187.3 million for the three months ended March
30, 1996. The Company estimates that overall approximately 17.1% of the increase
was due to internal growth, while the remaining 11.3% was due to acquisitions.
Of the $53.2 million increase, approximately $31.6 million represented a 33.4%
increase in the Company's dental business, $15.9 million represented a 39.6%
increase in its medical business, $4.4 million represented a 12.2% increase in
its international business, and $1.4 million represented a 16.9% increase in the
Company's veterinary business. Technology net sales decreased $0.1 million, or
1.6%. The increase in dental net sales was primarily the result of the
continuing favorable impact 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. 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, the increase in net sales was due equally to acquisitions and increased
unit volume growth. Unfavorable exchange rate translation adjustments resulted
in a net sales decrease of approximately $1.4 million dollars. Had net sales for
the international market been translated at the same exchange rates in effect
during 1996, net sales would have increased by an additional 4.0%. In the
veterinary market, the increase in net sales was primarily due to increased
account penetration with corporate accounts. In the technology market, sales
were essentially unchanged from the prior year's quarter.
Gross profit increased by $15.2 million, or 26.9%, to $71.7 million for the
three months ended March 29, 1997 from $56.5 million for the three months ended
March 30, 1996, while gross profit margin decreased to 29.8% from 30.2%. The
$15.2 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 $13.4 million, or
26.1%, to $64.8 million for the three months ended March 29, 1997 compared to
$51.4 million for the three months ended March 30, 1996. Selling and shipping
expenses increased by $8.2 million, or 23.8%, to $42.7 million for the three
months ended March 29, 1997 from $34.5 million for the three months ended March
30, 1996. As a percentage of net sales, selling and shipping expenses decreased
0.6% to 17.8% for the three months ended March 29, 1997 from 18.4% for the three
months ended March 30, 1996. This decrease was primarily due to leveraging of
the Company's distribution infrastructure, partially offset by an increase in
selling expenses. General and administrative expenses increased $5.2 million, or
30.8%, to $22.1 million for the three months ended March 29, 1997 from $16.9
million for the three months ended March 30, 1996, primarily as a result of
acquisitions. As a percentage of net sales, general and administrative expenses
increased 0.2% to 9.2% for the three months ended March 29, 1997 from 9.0% for
the three months ended March 30, 1996.
Other income (expense)-net decreased by $0.2 million, or 33.3%, to ($0.4)
million for the three months ended March 29, 1997 from ($0.6) million for the
three months ended March 30, 1996. This decrease was primarily due to a decrease
in average borrowings, which were partially paid off with proceeds from the
Company's follow-on offering in June 1996, combined with an increase in imputed
interest income arising from non-interest bearing extended payment term sales.
For the three months ended March 29, 1997, the Company's effective tax rate
was 61.8%. Excluding merger costs, substantially all of which are not deductible
for income tax purposes, the Company's effective tax rate would have been 37.9%.
The difference between the effective tax rate and the federal statutory rate
relates primarily to a favorable tax treatment for certain donated inventory.
For the three months ended March 30, 1996, the Company's effective rate was
43.7%, which was higher than the federal statutory rate primarily due to state
income taxes and the non-deductible net operating losses of certain foreign
subsidiaries.
10
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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 forward buy-in opportunities, (b) capital
expenditures, and (c) acquisitions. Since sales have traditionally been
strongest during the fourth quarter and special inventory forward buy-in
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 three months ended March 29,
1997 of $17.3 million resulted primarily from a net increase in working capital
of $21.3 million offset, in part, by net income adjusted for non-cash charges
relating primarily to depreciation and amortization of $4.0 million. The
increase in working capital was primarily due to (i) a decrease in accounts
payable and other accrued expenses of $28.3 million resulting primarily from
payments to vendors for inventory purchased as part of the Company's year-end
inventory forward buy-in program and, (ii) a $3.0 million increase in accounts
receivable resulting from increased sales and extended payment terms, offset by,
(i) a $9.5 million decrease in inventory, and (ii) a $0.4 million decrease in
other current assets. The Company anticipates future increases in working
capital as a result of its continued sales growth.
Net cash used in investing activities for the three months ended March 29,
1997 of $7.2 million resulted primarily from cash outlays for acquisitions of
$4.4 million and capital expenditures of $2.4 million. The increased amount of
capital expenditures over the comparable prior year period was due to the
development of new computer systems, as well as expenditures for additional
operating facilities. The Company expects that it will continue to invest in
excess of $10.0 million per year in capital projects to modernize and expand its
facilities and infrastructure systems.
Net cash used in financing activities for the three months ended March 29,
1997 of $2.3 million resulted primarily from net payments on long-term debt and
bank credit lines. A balloon payment of approximately $3.5 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.
Pursuant to a shareholders' agreement, certain minority shareholders of a
subsidiary of the Company have advised the Company of their intention to
exercise their option to sell their shares in the subsidiary to the Company. The
value of the shares which will be put to the Company under the shareholders'
agreement is estimated to be approximately $11.5 million and is expected to be
payable in cash and term notes of approximately $3.0 million and $8.5 million,
respectively. It is expected that the term notes will be payable upon demand at
anytime within five years of issue, but no more than one-half after each of the
first and second anniversaries of issue.
The Company's cash and cash equivalents as of March 29, 1997 of $16.9
million are invested primarily in short-term tax-exempt securities rated AAA by
Moodys (or an equivalent rating). These investments have staggered maturity
dates, none greater than three months, and have a high degree of liquidity since
the securities are actively traded in public markets.
The Company entered into an amended revolving credit facility on January 31,
1997 that increased its main credit facility from $65.0 million to $100.0
million, extended the facility termination to January 30, 2002 and reduced the
interest rate on the Company's borrowings under the facility. Borrowings under
the credit facility were $19.5 million at March 29, 1997. Certain of the
Company's subsidiaries have revolving credit facilities that total approximately
$10.0 million under which $6.8 million have been borrowed at March 29, 1997.
11
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The Company believes that its cash and cash equivalents, 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 currently foreseeable capital needs.
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 healthcare practitioners, the impact of
healthcare 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 28, 1996. 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 March 29,
1997.
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: MAY 13, 1997 By: /s/ STEVEN PALADINO
-----------------------------------------
Steven Paladino
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
(Principal Financial Officer and
Principal Accounting Officer)
13
<PAGE>
EXHIBIT 11.1
HENRY SCHEIN, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
<S> <C> <C>
MARCH 29, MARCH 30,
1997 1996
----------------- -----------
Net income per consolidated statements of operation (in thousands).............. $ 1,499 $ 2,716
----------------- -----------
----------------- -----------
Weighted average common shares outstanding:
Shares outstanding at December 30, 1995(1).................................... 18,936,791 18,936,791
1996 issuances:
Follow-on Offering Shares on June 21, 1996.................................. 3,734,375 --
Shares issued to ESOP trust on August 9, 1996............................... 24,210 --
Shares issued on July 10, 1996 in connection with an acquisition............ 37,197 --
Class B Options............................................................. 42,800 --
Stock options granted pursuant to the 1996 Non-Employee Director Stock
Option Plan............................................................... 10,000 --
Shares issued on November 1, 1996 in connection with an acquisition......... 117,986 --
Less: 1996 Treasury Stock purchases......................................... (8,850) --
----------------- -----------
22,894,509 18,936,791
1997 issuances:
Shares issued on February 19, 1997 in connection with an acquisition........ 1,070,000 1,070,000
1997 Non-Employee Director Stock Option Plan................................ 176 --
Shares issued to ESOP trust on March 21, 1997............................... 3,879 --
Less: 1997 Treasury Share purchases......................................... (1,425) --
----------------- -----------
23,967,139 20,006,791
Less assumed repurchase of shares under treasury stock method based on an
average price of $31.48 per share
Stock options--221,397 shares
X$4.21
--------------------
$932,081/$31.48.................................................... (29,609)(2) (33,336)(3)
Non-Employee
Stock options--10,000 shares
X$29.00
--------------------
$290,000/$31.48.................................................... (9,212)(2) --
IPO options--403,200 shares
X$16.00
--------------------
$6,451,200/$31.48.................................................. (204,930)(2) (233,705)(3)
New options--35,000 shares
X$29.50
--------------------
$1,032,500/$31.48.................................................. (32,799)(2) --
New options--10,000 shares
X$31.00
--------------------
$310,000/$31.48.................................................... (9,848)(2) --
New options--3,000 shares
X$36.25
--------------------
$108,750/$31.48.................................................... (3,000)(2) --
----------------- -----------
Weighted average common shares outstanding...................................... 23,677,747 19,739,750
----------------- -----------
----------------- -----------
Net income per common share..................................................... $ 0.06 $ 0.14
----------------- -----------
----------------- -----------
</TABLE>
- ------------------------
(1) Includes options totalling 629,897.
(2) Computed using the average closing value per share for the three months
ended March 29, 1997 of $31.48.
(3) Computed using the average closing value per share for the three months
ended March 30, 1996 of $27.96.
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 16,911
<SECURITIES> 0
<RECEIVABLES> 143,353
<ALLOWANCES> (4,292)
<INVENTORY> 118,760
<CURRENT-ASSETS> 314,749
<PP&E> 79,212
<DEPRECIATION> (40,838)
<TOTAL-ASSETS> 438,553
<CURRENT-LIABILITIES> 113,303
<BONDS> 31,910
0
0
<COMMON> 233
<OTHER-SE> 293,348
<TOTAL-LIABILITY-AND-EQUITY> 438,553
<SALES> 240,499
<TOTAL-REVENUES> 240,499
<CGS> 168,777
<TOTAL-COSTS> 168,777
<OTHER-EXPENSES> 67,309
<LOSS-PROVISION> 376
<INTEREST-EXPENSE> 853
<INCOME-PRETAX> 4,015
<INCOME-TAX> 2,480
<INCOME-CONTINUING> 1,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,499
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
