Henry Schein Reports Record Fourth Quarter and Full Year Results

Henry Schein, Inc. (NASDAQ: HSIC), the largest provider of healthcare products and services to office-based practitioners in the combined North American and European markets, today reported financial results for the quarter ended December 29, 2007. Net sales for the fourth quarter of 2007 were $1.7 billion, an increase of 16.4% compared with the fourth quarter of 2006. This increase includes 12.3% local currency growth (3.8% internally generated and 8.5% from acquisitions) and 4.1% related to foreign currency exchange. (See Exhibit A for details of sales growth.) Income from continuing operations for the fourth quarter of 2007 was $76.4 million or $0.83 per diluted share, up 21.3% and 18.6%, respectively, compared with the prior-year fourth quarter. Net income for the fourth quarter of 2007 was $78.3 million or $0.85 per diluted share. Results include income from discontinued operations of approximately $1.8 million or $0.02 per diluted share, primarily related to the gain on the sale of the Company’s specialty pharmacy business. "Our strong fourth quarter financial results close out a very solid year for Henry Schein,” said Stanley M. Bergman, Chairman and Chief Executive Officer of Henry Schein. "For the year our Dental, Medical, International and Technology Groups each reported double-digit sales growth and market share gains, and we are proud to have once again achieved our key long-term financial objectives for internal sales growth, operating margin expansion, EPS growth and cash flow from operations.” Dental Group sales increased 12.8% during the fourth quarter, including 11.2% growth in local currencies (9.4% internally generated and 1.8% from acquisitions) and 1.6% growth related to foreign currency exchange. Of the 11.2% local currency growth, Dental consumable merchandise sales increased 6.5% (4.6% internal growth and 1.9% acquisition growth) and Dental equipment sales and service revenues were up 21.3% (19.6% internal growth and 1.7% acquisition growth). "Our Dental Group continues to be successful in delivering profitable growth and expanding our presence in the marketplace,” commented Mr. Bergman. "Fourth quarter performance was highlighted by impressive internal growth in equipment sales and service revenues, with strong gains in both traditional equipment and high-tech products.” Medical Group sales declined 5.5% during the fourth quarter (6.0% decline in internal growth and 0.5% acquisition growth). Medical Group sales were impacted by the timing of influenza vaccine sales which, while higher in the third quarter of 2007 due to earlier shipments, were significantly lower in the fourth quarter of 2007 when compared with the fourth quarter of 2006. Excluding sales of influenza vaccine, Medical Group sales increased 3.8% for the quarter, with 3.3% internal growth. For the year influenza vaccine sales were more than 20% higher than 2006. "During the fourth quarter we achieved our stated goal of reducing sales of certain lower-margin pharmaceutical products, thereby allowing our Medical Group to focus on driving profitable revenue growth in the office-based physician market,” said Mr. Bergman. "Early in 2008 we announced the appointment of Michael Racioppi to Chief Merchandising Officer, a new corporate leadership position with responsibility for optimizing the Company’s global gross profit, and named David McKinley as President of Henry Schein’s Medical Group,” he added. "I am very excited about the future contributions of each of these two executives.” For the quarter International Group sales increased 42.5%, including 30.1% growth in local currencies (5.0% internally generated and 25.1% from acquisitions) and 12.4% related to foreign currency exchange. "Sales growth in our International Group was driven by strong gains in the United Kingdom, Spain, Italy and the Benelux countries,” commented Mr. Bergman. "I am pleased to report that W. & J. Dunlop, a leading United Kingdom animal health products supplier we acquired during the third quarter of 2007, is performing consistent with our expectations.” Technology and Value-Added Services Group sales increased 44.8% during the fourth quarter of 2007, including 44.0% growth in local currencies (15.5% internally generated and 28.5% acquisition growth) and 0.8% growth related to foreign currency exchange. "Technology and Value-Added Services results reflect continued strong electronic services, software and financial services revenue growth,” stated Mr. Bergman. "Revenue includes a full quarter contribution from Software of Excellence, a leading supplier of practice management systems in the United Kingdom, Australia and New Zealand.” Full-Year 2007 Results For 2007 net sales of $5.9 billion represent an increase of 17.3% compared with 2006. This increase includes 14.3% local currency growth (7.3% internally generated and 7.0% from acquisitions, net of divestiture) and 3.0% related to foreign currency exchange. Income from continuing operations for 2007 was $235.0 million or $2.58 per diluted share, up 28.6% and 27.1%, respectively, compared with 2006. 2008 EPS Guidance Henry Schein affirms 2008 financial guidance, as follows: 2008 diluted EPS is expected to be $2.93 to $3.00, representing growth of 14% to 16% compared with 2007. This 2008 diluted EPS guidance includes Henry Schein’s expectation that it will distribute 12 million to 15 million doses of influenza vaccine during the year, representing earnings of $0.13 to $0.16 per diluted share. 2008 diluted EPS guidance is for current continuing operations including completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any. Fourth Quarter Conference Call Webcast The Company will hold a conference call to discuss fourth quarter financial results today, beginning at 10:00 a.m. Eastern time. Individual investors are invited to listen to the conference call over the Internet through Henry Schein’s Web site at www.henryschein.com. In addition, a replay will be available beginning shortly after the call has ended. About Henry Schein Henry Schein, a Fortune 500® company and a member of the Nasdaq 100® Index, is recognized for its excellent customer service and highly competitive prices. The Company's four business groups – Dental, Medical, International and Technology – serve more than 550,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions. The Company operates through a centralized and automated distribution network, which provides customers in more than 200 countries with a comprehensive selection of more than 90,000 national and Henry Schein private-brand products in stock, as well as more than 100,000 additional products available as special-order items. Henry Schein also offers a wide range of innovative value-added practice solutions for healthcare professionals, such as ArubA®, the Company’s electronic catalog and ordering system. Its leading practice-management software solutions have an installed user base of more than 52,000 practices, including DENTRIX®, Easy Dental®, Oasis® and EXACT® for dental practices, MicroMD® for physician practices, and AVImark® for animal health clinics. Headquartered in Melville, N.Y., Henry Schein employs over 12,000 people and has operations or affiliates in 20 countries. The Company's net sales reached a record $5.9 billion in 2007. For more information, visit the Henry Schein Web site at www.henryschein.com. In accordance with the "Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements are identified by the use of such terms as "may,” "could,” "expect,” "intend,” "believe,” "plan,” "estimate,” "forecast,” "project,” "anticipate” or other comparable terms. A full discussion of our operations and financial condition, including factors that may affect our business and future prospects, is contained in documents we have filed with the SEC and will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail important risk factors that could cause our actual performance to differ materially from current expectations. Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: competitive factors; changes in the healthcare industry; changes in regulatory requirements that affect us; risks associated with our international operations; fluctuations in quarterly earnings; our dependence on third parties for the manufacture and supply of our products; transitional challenges associated with acquisitions, including the failure to achieve anticipated synergies; financial risks associated with acquisitions; regulatory and litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence upon sales personnel and key customers; our dependence on our senior management; possible increases in the cost of shipping our products or other service trouble with our third-party shippers; risks from rapid technological change; risks from potential increases in variable interest rates; possible volatility of the market price of our common stock; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation that affect us. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements. HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data)     Three Months Ended     Years Ended December 29,   December 30, December 29,   December 30, 2007 2006 2007 2006 (unaudited) (unaudited)   Net sales $ 1,717,470 $ 1,475,064 $ 5,920,190 $ 5,048,191 Cost of sales   1,233,339     1,054,931     4,201,906     3,576,234   Gross profit 484,131 420,133 1,718,284 1,471,957 Operating expenses: Selling, general and administrative   359,145     315,594     1,332,025     1,167,822   Operating income 124,986 104,539 386,259 304,135 Other income (expense): Interest income 3,765 4,398 16,531 16,378 Interest expense (6,796 ) (6,520 ) (25,177 ) (27,627 ) Other, net   288     (120 )   4,630     2,045   Income from continuing operations before taxes, minority interest and equity in earnings (losses) of affiliates 122,243 102,297 382,243 294,931 Income taxes (39,974 ) (35,870 ) (129,762 ) (104,932 ) Minority interest in net income of subsidiaries (6,438 ) (3,643 ) (17,442 ) (8,090 ) Equity in earnings (losses) of affiliates   614     254     (73 )   835   Income from continuing operations 76,445 63,038 234,966 182,744   Discontinued operations: Income (loss) from operations of discontinued components (including write-down of long-lived assets of $32.7 million in 2007 and a net gain on sale of discontinued operations of $1.1 million in 2007 and a $32.3 million loss on sale of discontinued operation in 2006)       2,882 (7 ) (31,420 ) (31,608 ) Income tax benefit (expense)   (1,058 )   (34 )   11,627     12,623   Income (loss) from discontinued operations   1,824     (41 )   (19,793 )   (18,985 ) Net income $ 78,269   $ 62,997   $ 215,173   $ 163,759     Earnings from continuing operations per share: Basic $ 0.86   $ 0.71   $ 2.65   $ 2.08   Diluted $ 0.83   $ 0.70   $ 2.58   $ 2.03     Income (loss) from discontinued operations per share: Basic $ 0.02   $ 0.00   $ (0.22 ) $ (0.22 ) Diluted $ 0.02   $ 0.00   $ (0.22 ) $ (0.21 )   Earnings per share: Basic $ 0.88   $ 0.71   $ 2.43   $ 1.86   Diluted $ 0.85   $ 0.70   $ 2.36   $ 1.82     Weighted-average common shares outstanding: Basic   89,082     88,580     88,559     87,952   Diluted   92,031     90,488     91,163     89,820     Note: The above prior period amounts have been restated to reflect the effects of our discontinued operations. HENRY SCHEIN, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)     December 29,   December 30, 2007 2006   ASSETS Current assets: Cash and cash equivalents $ 247,590 $ 248,647 Available-for-sale securities 997 47,999 Accounts receivable, net of reserves of $41,315 and $40,536 708,307 610,020 Inventories, net 666,786 584,103 Deferred income taxes 32,827 28,240 Prepaid expenses and other   192,292   125,839 Total current assets 1,848,799 1,644,848 Property and equipment, net 247,671 225,038 Goodwill 917,194 773,801 Other intangibles, net 192,420 161,542 Investments and other   107,900   75,917 Total assets $ 3,313,984 $ 2,881,146   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 474,009 $ 414,062 Bank credit lines 8,977 2,528 Current maturities of long-term debt 24,319 41,036 Accrued expenses: Payroll and related 136,291 110,401 Taxes 73,278 59,007 Other 223,765 183,054 Total current liabilities 940,639 810,088 Long-term debt 423,274 455,806 Deferred income taxes 80,260 62,334 Other liabilities 53,906 60,209   Minority interest 35,923 21,746 Commitments and contingencies   Stockholders' equity: Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.01 par value, 240,000,000 shares authorized, 89,603,660 outstanding on December 29, 2007 and 88,499,321 outstanding on December 30, 2006 896 885 Additional paid-in capital 673,763 614,551 Retained earnings 1,005,055 808,164 Accumulated other comprehensive income   100,268   47,363 Total stockholders' equity   1,779,982   1,470,963 Total liabilities and stockholders' equity $ 3,313,984 $ 2,881,146 HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)     Three Months Ended     Years Ended December 29,   December 30, December 29,   December 30, 2007 2006 2007 2006 (unaudited) (unaudited)   Cash flows from operating activities: Net income $ 78,269 $ 62,997 $ 215,173 $ 163,759 Adjustments to reconcile net income to net cash provided by operating activities:   Loss (gain) on sale of discontinued operation, net of tax (1,602 ) - (673 ) 19,363 Depreciation and amortization 20,915 18,039 73,936 64,930 Stock-based compensation expense 5,833 5,531 22,553 19,464 Impairment from write down of long-lived assets of discontinued operations - - 32,667 - Provision for losses on trade and other accounts receivable 322 529 1,384 2,872 Provision for (benefit from) deferred income taxes 9,326 3,959 (7,404 ) 1,297 Stock issued to 401(k) plan - - 4,104 3,565 Undistributed (earnings) losses of affiliates (614 ) (254 ) 73 (835 ) Minority interest in net income of subsidiaries 6,438 3,643 17,442 8,090 Other (3,642 ) 483 (6,512 ) (2,066 ) Changes in operating assets and liabilities, net of acquisitions:   Accounts receivable 60,557 (287 ) (21,964 ) (9,705 ) Inventories 15,995 (5,991 ) (15,946 ) (41,958 ) Other current assets (48,353 ) 11,048 (58,194 ) 18,424 Accounts payable and accrued expenses   (23,158 )   70,994     13,572     (11,883 ) Net cash provided by operating activities   120,286     170,691     270,211     235,317     Cash flows from investing activities: Purchases of fixed assets (23,798 ) (17,073 ) (56,821 ) (67,000 ) Payments for equity investment and business acquisitions, net of cash acquired (81,884 ) (13,748 ) (206,182 ) (199,880 ) Cash received from business divestitures 10,766 - 15,827 36,527 Purchases of available-for-sale securities - (57,999 ) (115,066 ) (222,036 ) Proceeds from sales of available-for-sale securities 27,750 8,000 163,065 294,767 Proceeds from maturities of available-for-sale securities - 2,000 - 3,280 Net payments for foreign exchange forward contract settlements (15,261 ) (5,633 ) (32,241 ) (22,528 ) Other   408     3,113     (10,629 )   (3,491 ) Net cash used in investing activities   (82,019 )   (81,340 )   (242,047 )   (180,361 )   Cash flows from financing activities: Proceeds from issuance of long-term debt - 1,201 483 1,201 Proceeds from (repayments of) bank borrowings 5,766 (113 ) 1,212 184 Principal payments for long-term debt (5,374 ) (3,860 ) (47,903 ) (34,537 ) Proceeds from issuance of stock upon exercise of stock options 2,740 2,722 35,459 35,622 Payments for repurchases of common stock - (14,563 ) (30,689 ) (40,263 ) Excess tax benefits related to stock-based compensation 1,071 1,700 12,668 14,850 Other   (471 )   4     (2,350 )   1,669   Net cash provided by (used in) financing activities   3,732     (12,909 )   (31,120 )   (21,274 )   Net change in cash and cash equivalents 41,999 76,442 (2,956 ) 33,682 Effect of exchange rate changes on cash and cash equivalents (1,867 ) (3,865 ) 1,899 4,282 Cash and cash equivalents, beginning of period   207,458     176,070     248,647     210,683   Cash and cash equivalents, end of period $ 247,590   $ 248,647   $ 247,590   $ 248,647   Exhibit A   Henry Schein, Inc. 2007 Fourth Quarter Sales Growth Rate Summary (unaudited)     Q4 2007 over Q4 2006     Consolidated   Dental   Medical   International   Technology   Internal Sales Growth 3.8% 9.4% -6.0% 5.0% 15.5%   Acquisitions 8.5% 1.8% 0.5% 25.1% 28.5%   Local Currency Sales Growth 12.3% 11.2% -5.5% 30.1% 44.0%   Foreign Currency Exchange 4.1% 1.6% - 12.4% 0.8%   Total Sales Growth 16.4% 12.8% -5.5% 42.5% 44.8%           Q4 YTD 2007 over Q4 YTD 2006     Consolidated Dental Medical International Technology   Internal Sales Growth 7.3% 10.0% 5.5% 4.3% 18.4%   Acquisitions, net of divestiture 7.0% 4.6% 4.8% 12.3% 15.6%   Local Currency Sales Growth 14.3% 14.6% 10.3% 16.6% 34.0%   Foreign Currency Exchange 3.0% 0.6% - 9.6% 0.3%   Total Sales Growth 17.3% 15.2% 10.3% 26.2% 34.3%