<PAGE>
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 March 25, 2000
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 Identification No.)
incorporation or organization)
135 Duryea Road
Melville, New York
(Address of principal executive offices)
11747
(Zip Code)
Registrant's telephone number, including area code: (631) 843-5500
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 4, 2000 there were 40,811,314 shares of the Registrant's Common Stock
outstanding.
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Financial Statements:
<S> <C> <C>
ITEM 1. Balance Sheets as of March 25, 2000 and December 25, 1999 ............ 3
Statements of Operations
for the three months ended March 25, 2000, and March 27, 1999 ... 4
Statements of Cash Flows for the three months ended
March 25, 2000 and March 27, 1999 ............................... 5
Notes to Consolidated Financial Statements ........................... 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................... 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ........... 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................... 14
ITEM 6. Exhibits and Reports on Form 8-K ..................................... 15
Signature ............................................................ 15
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 25, December 25,
2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 17,405 $ 26,019
Accounts receivable, less reserves of $21,062, and $20,391, respectively .. 358,371 388,063
Inventories ............................................................... 292,697 285,590
Deferred income taxes ..................................................... 17,583 15,520
Prepaid expenses and other ................................................ 66,657 63,617
----------- -----------
Total current assets ................................................. 752,713 778,809
Property and equipment, net of accumulated depreciation and amortization
of $64,518 and $60,702, respectively ..................................... 87,293 86,627
Goodwill and other intangibles, net of accumulated amortization
of $34,571 and $31,356, respectively ..................................... 288,275 295,113
Investments and other .......................................................... 44,058 43,553
----------- -----------
$ 1,172,339 $ 1,204,102
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................... $ 184,099 $ 198,983
Bank credit lines ......................................................... 40,556 41,527
Accruals:
Salaries and related expenses ........................................ 31,006 31,188
Merger and integration costs ......................................... 7,921 10,093
Other ................................................................ 54,564 64,710
Current maturities of long-term debt ...................................... 3,139 3,879
----------- -----------
Total current liabilities ............................................ 321,285 350,380
Long-term debt ................................................................. 306,263 318,218
Other liabilities .............................................................. 11,436 9,782
----------- -----------
Total liabilities .................................................... 638,984 678,380
----------- -----------
Minority interest .............................................................. 7,070 7,855
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 120,000,000,
issued: 40,805,594 and 40,768,306, respectively ...................... 408 407
Additional paid-in capital ................................................ 362,159 361,757
Retained earnings ......................................................... 179,207 167,809
Treasury stock, at cost, 62,479 shares .................................... (1,156) (1,156)
Accumulated comprehensive loss ............................................ (13,773) (10,359)
Deferred compensation ..................................................... (560) (591)
----------- -----------
Total stockholders' equity ........................................... 526,285 517,867
----------- -----------
$ 1,172,339 $ 1,204,102
=========== ===========
</TABLE>
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
----------------------
March 25, March 27,
2000 1999
--------- ---------
<S> <C> <C>
Net sales ............................................................... $ 553,810 $ 536,335
Cost of sales ........................................................... 384,606 372,918
--------- ---------
Gross profit ....................................................... 169,204 163,417
Operating expenses:
Selling, general and administrative ................................ 145,727 139,769
Merger and integration costs ....................................... -- 2,203
--------- ---------
Operating income .............................................. 23,477 21,445
Other income (expense):
Interest income .................................................... 1,096 2,333
Interest expense ................................................... (5,852) (5,724)
Other - net ........................................................ (151) (189)
--------- ---------
Income before taxes on income, minority interest and equity
in earnings (losses) of affiliates ....................... 18,570 17,865
Taxes on income ......................................................... 6,778 7,127
Minority interest in net income of subsidiaries ......................... 488 597
Equity in earnings (losses) of affiliates ............................... 94 (228)
--------- ---------
Net income .............................................................. $ 11,398 $ 9,913
========= =========
Net income per common share:
Basic .............................................................. $ 0.28 $ 0.25
========= =========
Diluted ............................................................ $ 0.28 $ 0.24
========= =========
Weighted average common shares outstanding:
Basic .............................................................. 40,715 40,417
========= =========
Diluted ............................................................ 41,084 41,806
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 25, March 27,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................ $ 11,398 $ 9,913
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ................................... 7,926 6,973
Provision (benefit) for losses and allowances on accounts
receivable ................................................ 671 (1,561)
Benefit for deferred income taxes ............................... (484) (1,404)
Undistributed (earnings) losses of affiliates ................... (94) 228
Minority interest in net income of subsidiaries ................. 488 597
Other ........................................................... 93 (182)
Changes in assets and liabilities (net of acquisitions):
Decrease in accounts receivable ...................................... 27,057 10,157
(Increase) decrease in inventories ................................... (9,287) 985
(Increase) decrease in other current assets .......................... (3,403) 9,599
Decrease in accounts payable and accruals ............................ (25,510) (48,540)
--------- ---------
Net cash provided by (used in) operating activities ............................ 8,855 (13,235)
--------- ---------
Cash flows from investing activities:
Capital expenditures ...................................................... (6,041) (8,975)
Business acquisitions, net of cash acquired ............................... (470) (119,777)
Proceeds from sale of fixed assets ........................................ -- 6,402
Other ..................................................................... (457) (70)
--------- ---------
Net cash used in investing activities .......................................... (6,968) (122,420)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- 234
Principal payments on long-term debt ...................................... (2,317) (12,256)
Proceeds from issuance of stock ........................................... 435 3,643
Proceeds from borrowing from banks ....................................... 3,730 137,325
Payments on borrowings from banks ......................................... (13,467) (4,789)
Other ..................................................................... 58 (3,398)
--------- ---------
Net cash (used in) provided by financing activities ............................ (11,561) 120,759
--------- ---------
Net decrease in cash and cash equivalents ...................................... (9,674) (14,896)
Effect of exchange rate changes on cash ........................................ 1,060 --
--------- ---------
Cash and cash equivalents, beginning of year ................................... 26,019 28,222
--------- ---------
Cash and cash equivalents, end of year ......................................... $ 17,405 $ 13,326
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 adjustments) 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 25, 1999. The
Company follows the same accounting policies in preparation of interim reports.
The results of operations for the three months ended March 25, 2000 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 30, 2000 or any other period.
Note 2. Business Acquisitions
During the three months ended March 27, 1999, the Company completed six
acquisitions. The 1999 completed acquisitions included General Injectables and
Vaccines, Inc. ("GIV"), through the purchase of all of the outstanding common
stock of Biological and Popular Culture, Inc., a leading independent direct
marketer of vaccines and other injectables to office-based practitioners
throughout the United States; and the Heiland Group GmbH ("Heiland"), the
largest direct marketer of healthcare supplies to medical, dental and veterinary
office-based practitioners, in Germany. Of the six completed acquisitions, five
were accounted for under the purchase method of accounting, and the remaining
acquisition was accounted for under the pooling of interests method of
accounting. The pooling transaction was not material and has been included in
the consolidated financial statements from the beginning of the first quarter of
1999. Acquisitions completed during the first quarter of 2000 were not material.
6
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except employee data)
(unaudited)
Note 2. Business Acquisitions --(Continued)
In connection with prior year acquisitions, which were accounted for
under the pooling of interests method, the Company incurred certain merger and
integration costs. The following table shows amounts paid against the merger and
integration accrual during the three months ended March 25, 2000:
<TABLE>
<CAPTION>
Balance At Balance At
December 25, March 25,
1999 Payments 2000
------------ -------- ----------
<S> <C> <C> <C>
Severance and other direct costs .. $ 1,694 $ (370) $ 1,324
Direct transaction and other
integration costs ........... 8,399 (1,802) 6,597
------------ -------- ----------
$ 10,093 $ (2,172) $ 7,921
============ ======== ==========
</TABLE>
For the three months ended March 25, 2000, 33 employees received
severance and 24 were owed severance at March 25, 2000.
Note 3. Comprehensive Income
Net comprehensive income for the three months ended March 25, 2000 and
March 27, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
March 25, March 27,
2000 1999
--------------- ---------------
<S> <C> <C>
Net income .................................. $ 11,398 $ 9,913
Foreign currency translation adjustments .... (3,414) (3,684)
--------------- ---------------
Net comprehensive income .................... $ 7,984 $ 6,229
=============== ===============
</TABLE>
7
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands)
(unaudited)
Note 4. Segment Data
The Company has two reportable segments, healthcare distribution and
technology. The healthcare distribution segment which is comprised of the
Company's dental, medical, veterinary and international business groups,
distributes healthcare products (primarily consumable) and services to
office-based healthcare practitioners and professionals in the combined North
American, European and the Pacific Rim markets. The technology segment consists
primarily of the Company's practice management software business and certain
other value-added products and services which are distributed primarily to
healthcare professionals in the North American market.
The Company's reportable segments are strategic business units that
offer different products and services, albeit to the same customer base. Most of
the technology business was acquired as a unit, and the management at the time
of acquisition was retained. The following tables present information about the
Company's business segments:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 25, March 27,
2000 1999
-------------- --------------
<S> <C> <C>
Net Sales:
Healthcare distribution (1):
Dental ................................. $ 254,788 $ 253,253
Medical ................................ 168,875 158,075
Veterinary ............................. 13,457 12,689
International (2) ...................... 99,955 98,318
--------------- ---------------
Total healthcare distribution ..... 537,075 522,335
Technology (3) .............................. 16,735 14,000
--------------- ---------------
$ 553,810 $ 536,335
=============== ===============
</TABLE>
------------------------------------------
(1) Consists of consumable products, small equipment, laboratory products,
large dental equipment, branded and generic pharmaceuticals, surgical
products, diagnostic tests, infection control and vitamins.
(2) Consists of products sold in Dental, Medical and Veterinary groups in
European and Pacific Rim markets.
(3) Consists of practice management software and other value-added products
and services.
8
<PAGE>
HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(in thousands, except share data)
(unaudited)
Note 4. Segment Data -- (Continued)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 25, March 27,
2000 1999
-------------- --------------
<S> <C> <C>
Operating Income:
Healthcare distribution (includes merger and
integration costs of $2,203 in 1999) ............. $ 17,309 $ 16,956
Technology ............................................ 6,168 4,489
-------------- --------------
Total ................................................. $ 23,477 $ 21,445
============== ==============
</TABLE>
<TABLE>
<CAPTION>
March 25, March 27,
2000 1999
-------------- --------------
<S> <C> <C>
Total Assets:
Healthcare distribution ............................... $ 1,143,207 $ 1,122,120
Technology ............................................ 72,411 40,301
-------------- --------------
Total assets for reportable segments ............. 1,215,618 1,162,421
Receivables due from healthcare distribution segment .. (40,544) (21,575)
Receivables due from technology segment ............... (2,735) (831)
-------------- --------------
Consolidated total assets ........................ $ 1,172,339 $ 1,140,015
============== ==============
</TABLE>
Note 5. Earnings per Share
A reconciliation of shares used in calculating basic and diluted earnings per
share follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 25, March 27,
2000 1999
-------------- --------------
<S> <C> <C>
Basic ...................................................... 40,715 40,417
Effect of assumed conversion of employee stock options ..... 369 1,389
-------------- --------------
Diluted .................................................... 41,084 41,806
============== ==============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended March 25, 2000 compared to Three Months Ended
March 27, 1999
Net sales increased $17.5 million, or 3.3%, to $553.8 million for the
three months ended March 25, 2000 from $536.3 million for the three months ended
March 27, 1999. Of the $17.5 million increase, approximately $14.7 million, or
84.3%, represented a 2.8% increase in the Company's healthcare distribution
business. As part of this increase approximately $10.8 million represented a
6.8% increase in the Company's medical business, $1.6 million represented a 1.7%
increase in its international business, $1.5 million represented a 0.6% increase
in its dental business and $0.8 million represented a 6.1% increase in its
veterinary business. The increase in medical net sales is primarily attributable
to telesales and marketing activities, partially offset by a decrease in sales
to hospitals. In the international market, the increase in net sales was
primarily due to increased account penetration in Germany, Australia, France and
Spain, offset by unfavorable foreign exchange rates. In the veterinary market,
the increase in net sales was primarily due to increased account penetration.
The increase in dental net sales was primarily due to improvement in equipment
sales and services. The remaining increase in first quarter 2000 net sales was
due to the technology business, which increased $2.8 million, or 20.0%, to $16.8
million for the three months ended March 25, 2000, from $14.0 million for the
three months ended March 27, 1999. The increase in technology and value-added
product net sales was primarily due to increased practice management software
sales.
Gross profit increased by $5.8 million, or 3.5%, to $169.2 million for
the three months ended March 25, 2000 from $163.4 million for the three months
ended March 27, 1999. Gross profit margin increased 0.1% to 30.6% from 30.5% for
the same period last year. Healthcare distribution gross profit increased $3.9
million, or 2.5%, to $157.8 million for the three months ended March 25, 2000
from $153.9 million for the three months ended March 27, 1999. Healthcare
distribution gross profit margin decreased by 0.1% to 29.4% for the three months
ended March 25, 2000 from 29.5% for the three months ended March 27, 1999,
primarily due to sales mix. Technology gross profit increased by $1.9 million or
20.4% to $11.4 million for the three months ended March 25, 2000 from $9.5
million for the three months ended March 27, 1999. Technology gross profit
margins increased by 0.5% to 68.2% for three months ended March 25, 2000 from
67.7% for the three months ended March 27, 1999, primarily due to changes in
sales mix.
Selling, general and administrative expenses increased by $5.9 million,
or 4.2%, to $145.7 million for the three months ended March 25, 2000 from $139.8
million for the three months ended March 27, 1999. Selling and shipping expenses
increased by $0.9 million, or 0.9%, to $95.7 million for the three months ended
March 25, 2000 from $94.8 million for the three months ended March 27, 1999. As
a percentage of net sales, selling and shipping expenses decreased 0.4% to 17.3%
for the three months ended March 25, 2000 from 17.7% for the three months ended
March 27, 1999. The decrease was primarily due to reductions in sales and
marketing expenses. General and administrative expenses increased $5.0 million,
or 11.1%, to $50.0 million for the three months ended March 25, 2000 from $45.0
million for the three months ended March 27, 1999, primarily due to
acquisitions. As a percentage of net sales, general and administrative expenses
increased 0.6% to 9.0% for the three months ended March 25, 2000 from 8.4% for
the three months ended March 27, 1999.
10
<PAGE>
Other income (expense) - net decreased by $1.3 million, to $(4.9)
million for the three months ended March 25, 2000, compared to $(3.6) million
for the three months ended March 27, 1999, due primarily to lower interest
income on receivables, and an increase in interest expense, which resulted from
an increase in interest rates.
Equity in earnings (losses) of affiliates increased $0.3 million to
$0.1 million for the three months ended March 25, 2000 from $(0.2) million for
the three months ended March 27, 1999. The increase is due to a reduced loss in
2000 from an affiliate. In 1998, HS Pharmaceutical, an affiliated company, which
is accounted for under the equity method, ceased manufacturing of certain
anesthetic products. On September 23, 1999, the United States Food and Drug
Administration ("FDA") issued clearance for HS Pharmaceutical to resume
production of its anesthetic products for shipment into the United States. HS
Pharmaceutical resumed limited production and shipment of its products in the
fourth quarter of 1999.
For the three months ended March 25, 2000 the Company's effective tax
rate was 36.5%. The difference between the Company's effective tax rate and the
Federal statutory rate relates primarily to state income taxes. For the three
months ended March 27, 1999, the Company's effective tax rate was 39.9%.
Excluding merger and integration costs net of applicable taxes the Company's
effective tax rate for the three months ended March 27, 1999 would have been
39.8%. The difference between the Company's effective tax rate, excluding
certain non-deductible merger and integration costs, and the Federal statutory
rate relates primarily to state income taxes.
Euro Conversion
Effective January 1, 1999, 11 of the 15 member countries of the
European Union have adopted the Euro as their common legal currency. On that
date, the participating countries established fixed Euro conversion rates
between their existing sovereign currencies and the Euro. The Euro now trades on
currency exchanges and is available for non-cash transactions. The participating
countries now issue sovereign debt exclusively in Euros, and have re-denominated
outstanding sovereign debt. The authority to direct monetary policy for the
participating countries, including money supply and official interest rates for
the Euro, is now exercised by the new European Central Bank.
The Company has established an Euro Task Force to address its
information system, product and customer concerns. The Company expects to
achieve timely Euro information system and product readiness, so as to conduct
transactions in the Euro, in accordance with implementation schedules as they
are established by the European Commission. The Company does not anticipate that
the costs of the overall effort will have a material adverse impact on future
results.
E-Commerce
Traditional healthcare supply and distribution relationships are being
challenged by electronic on-line commerce solutions. The Company's distribution
business is characterized by rapid technological developments and intense
competition. The rapid evolution of on-line commerce will require continuous
improvement in performance, features and reliability of Internet content and
technology by the Company, particularly in response to competitive offerings.
Through the Company's proprietary technologically based suite of products,
customers are offered a variety of competitive alternatives. The Company's
tradition of reliable service, proven name recognition, and large customer base
built on solid customer relationships makes it well situated to participate
fully in this rapidly growing aspect of the distribution business. The Company
is exploring ways and means of improving and expanding its Internet presence
and will continue to do so.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund (a)
repayments on bank borrowings, (b) acquisitions, (c) capital expenditures, and
(d) working capital needs resulting from increased sales and special inventory
forward buy-in opportunities. Since sales have been strongest during the fourth
quarter and special inventory forward buy-in opportunities are most prevalent
just before the end of the year, the Company's working capital requirements have
been 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, private placement loans, and stock
issuances.
Net cash provided by operating activities for the three months ended
March 25, 2000 of $8.9 million resulted primarily from net income of $11.4
million, adjusted for non-cash charges of $8.6 million, offset by an increase in
operating items of working capital of $11.1 million. The increase in working
capital was primarily due to a decrease in accounts payable and other accrued
expenses of $25.5 million primarily due to payments made to vendors for year-end
inventory buy-ins, a $9.3 million increase in inventory, a $3.4 million increase
in other current assets, offset by a decrease in accounts receivable of $27.1
million. The Company anticipates future increases in working capital
requirements as a result of its continued sales growth and special inventory
forward buy-in opportunities.
Net cash used in investing activities for the three months ended March
25, 2000 of $7.0 million resulted primarily from cash used for capital
expenditures of $6.0 million and to make acquisitions of $0.5 million. The
Company expects that it will invest more than $25.0 million during the year
ending December 30, 2000, in capital projects to modernize and expand its
facilities and infrastructure systems and integrate operations.
Net cash used in financing activities for the three months ended March
25, 2000 of $11.6 million resulted primarily from repayments on the Company's
revolving credit facility and other long-term debt, offset by proceeds from
issuances of stock resulting from option conversions.
Certain holders of minority interests in 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 March 25, 2000 of $17.4
million consist of bank balances and money market funds.
The Company has a $150.0 million revolving credit facility, which has a
termination date of August 15, 2002. Borrowings under the credit facility were
$43.9 million at March 25, 2000. The Company also has one uncommitted bank line
totaling $15.0 million, none of which has been borrowed at March 25, 2000.
Certain of the Company's subsidiaries have revolving credit facilities that
total approximately $54.1 million at March 25, 2000, under which $41.6 million
has been borrowed.
On June 30, 1999 and September 25, 1998, the Company completed private
placement transactions under which it issued $130.0 million and $100.0 million,
respectively, in Senior Notes, the proceeds of which were used respectively, for
the permanent financing of the GIV and Heiland acquisitions, as well as repaying
and retiring a portion of four uncommitted bank lines and to pay down amounts
owed under
12
<PAGE>
its revolving credit facility. The $130.0 million notes come due in full on June
30, 2009 and bear interest at a rate of 6.94% per annum. Principal payments
totaling $20.0 million are due annually starting September 25, 2006 through
2010. The notes and bear interest at a rate of 6.66% per annum. Interest on both
notes are payable semi-annually.
The Company believes that its cash and cash equivalents, its
anticipated cash flow from operations, its ability to access private and public
debt and equity markets, and the availability of funds under its existing credit
agreements will provide it with sufficient liquidity to meet its short and
long-term capital needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes to the disclosures made in our report
10-K for the year ended December 25, 1999, on this matter.
Disclosure Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information in this Form 10-Q
contains information that is forward-looking, such as the Company's
opportunities to increase sales through, among other things, acquisitions; its
exposure to fluctuations in foreign currencies; its anticipated liquidity and
capital requirements; competitive product and pricing pressures and the ability
to gain or maintain share of sales in global markets as a result of actions by
competitors; and the results of legal proceedings. The matters referred to in
forward-looking statements 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, the ability to
maintain favorable supplier arrangements and relationships, 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, economic and political conditions in
international markets, including civil unrest, government changes and
restrictions on the ability to transfer capital across borders, the impact of
current or pending legislation, regulation and changes in accounting standards
and taxation requirements, environmental laws in domestic and foreign
jurisdictions, as well as certain other risks described in this Form 10-Q.
Subsequent written and oral forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the cautionary statements in this paragraph and elsewhere described
in this Form 10-Q.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The manufacture or distribution of certain products by the Company
involves a risk of product liability claims, and from time to time the Company
is named as a defendant in products liability cases as a result of its
distribution of pharmaceutical and other healthcare products. As of the end of
the Company's first fiscal quarter of 2000 the Company was named a defendant in
approximately sixty-five such cases. Of these product liability claims,
forty-five involve claims made by healthcare workers who claim allergic
reaction relating to exposure to latex gloves. In these cases, the Company acted
as a distributor of both brand name and/or "Henry Schein" private brand latex
gloves, which were manufactured by third parties. To date, discovery in these
cases has generally been limited to product identification issues. The
manufacturers in these cases have withheld indemnification of the Company
pending product identification; however, the Company is taking steps to implead
those manufacturers into each case in which the Company is a defendant. The
Company is also a named defendant in nine lawsuits involving the sale of
phentermine and fenfluramin. Plaintiffs in the case allege injuries from the
combined use of the drugs known as "Phen/fen". The Company expects to obtain
indemnification from the manufacturers of these products, although this is
dependent upon the financial viability of the manufacturer and insurer.
In addition, the Company is subject to other claims, suits and
complaints, which arise in the course of the Company's business. In Texas
District Court, Travis County, the Company, and one of its subsidiaries, are
defendants in a matter entitled Shelly E. Stromboe & Jeanne N. Taylor, on Behalf
of Themselves and All Other Similarly Situated vs. Henry Schein, Inc., Easy
Dental Systems, Inc. and Dentisoft, Inc. Case No. 98-00886. This complaint
alleges among other things, negligence, breach of contract, fraud, and
violations of certain Texas Commercial Statutes involving the sale of certain
practice management software products sold prior to 1998 under the Easy Dental
name. In October 1999, the Court, on motion, certified both a Windows Sub-Class
and a DOS Sub-Class to proceed as a class action pursuant to Tex. R.Civ. P.42.
It is estimated that 5,000 Windows customers and 15,000 DOS customers could be
covered by the judge's ruling. The Company has filed an appeal of the Court's
determination, during which time a trial on the merits is stayed. The Company
intends to vigorously defend itself against this claim, as well as all other
claims, suits and complaints.
The Company has various insurance policies, including product liability
insurance covering risks and in amounts it considers adequate. In many cases the
Company is provided by indemnification by the manufacturer of the product. There
can be no assurance that the coverage maintained by the Company is sufficient to
cover all future claims or will be available in adequate amounts or at a
reasonable cost, or that indemnification agreements will provide adequate
protection for the Company. The Company intends to vigorously defend all such
claims, suits and complaints. In the opinion of the Company, all such pending
matters are covered by insurance or are of such kind, or involve such amounts,
as would not have a material adverse effect on the financial statements of the
Company if disposed of unfavorably.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None.
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)
By: /s/ Steven Paladino
------------------------------------
STEVEN PALADINO
Executive Vice President and
Chief Financial Officer and Director
(principal financial officer and
accounting officer)
Dated: May 9, 2000
15
<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> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> DEC-26-1999
<PERIOD-END> MAR-25-2000
<CASH> 17,405
<SECURITIES> 0
<RECEIVABLES> 379,433
<ALLOWANCES> (21,062)
<INVENTORY> 292,697
<CURRENT-ASSETS> 752,713
<PP&E> 151,811
<DEPRECIATION> (64,518)
<TOTAL-ASSETS> 1,172,339
<CURRENT-LIABILITIES> 321,285
<BONDS> 309,402
0
0
<COMMON> 408
<OTHER-SE> 525,877
<TOTAL-LIABILITY-AND-EQUITY> 1,172,339
<SALES> 553,810
<TOTAL-REVENUES> 553,810
<CGS> 384,606
<TOTAL-COSTS> 384,606
<OTHER-EXPENSES> 145,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,852
<INCOME-PRETAX> 18,570
<INCOME-TAX> 6,778
<INCOME-CONTINUING> 11,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,398
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
