8-K
HENRY SCHEIN INC (HSIC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| FORM 8-K |
|---|
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 20, 2020
| Henry Schein, Inc. |
|---|
(Exact name of registrant as specified in its charter)
| Delaware<br><br>(State or other jurisdiction<br><br>of incorporation) | 0-27078<br><br>(Commission<br><br>File Number) | 11-3136595<br><br>(IRS Employer<br><br>Identification No.) |
|---|---|---|
| 135 Duryea Road, Melville, New York<br><br>(Address of principal executive offices) | 11747<br><br>(Zip Code) |
Registrant’s telephone number, including area code: (631) 843-5500
| (Former name or former address, if changed since last report.) |
|---|
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br>Symbol(s) | Name of each exchange<br><br>on which registered |
|---|---|---|
| Common Stock, par value $.01 per share | HSIC | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On February 20, 2020, Henry Schein, Inc. issued a press release reporting the financial results for the three months and full year ended December 28, 2019. The full text of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Item 2.02 and the press release attached as Exhibit 99.1 are considered furnished to the Securities and Exchange Commission and are not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Item 9.01. Financial Statements and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Exhibit 99.1 – Press Release dated February 20, 2020.
Exhibit 104 - Cover Page Interactive Data File (embedded within the Inline XBRL document)
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 hereunto duly authorized.
| HENRY SCHEIN, INC. | |
|---|---|
| By: | /s/ Steven Paladino |
| Steven Paladino | |
| Executive Vice President and | |
| Chief Financial Officer | |
| (principal financial and accounting | |
| officer) |
February 20, 2020
FOR IMMEDIATE RELEASE
HENRY SCHEINREPORTS RECORD FOURTH QUARTER 2019 FINANCIAL RESULTS
FROM CONTINUINGOPERATIONS
· GAAP dilutedEPS from continuing operations of $2.25, up 192.2 %over prior-year quarter, reflecting, among other things, a net gain onsale of equity investments
· Non-GAAPdiluted EPS from continuing operations of $0.97, up 9.0 %over prior-year quarter
· Affirmsguidance range for 2020 non-GAAP diluted EPS from continuing operations of $3.65 to $3.75
MELVILLE, N.Y., February 20, 2020 – Henry Schein, Inc. (Nasdaq: HSIC), the world’s largest provider of health care solutions to office-based dental and medical practitioners, today reported record fourth quarter financial results from continuing operations. Results from continuing operations exclude contributions from Henry Schein’s former Animal Health business, which was spun off in February 2019 to form a new publicly traded company, Covetrus (Nasdaq: CVET).
Net sales from continuing operations for the quarter ended December 28, 2019, were $2.7 billion, an increase of 7.9% compared with the fourth quarter of 2018. The 7.9% increase included 8.9% growth in local currencies and a 1.0% decline related to foreign currency exchange. In local currencies, internally generated sales increased 5.8% and growth from acquisitions was 3.1%. Excluding sales to Covetrus under the transition services agreement entered into in connection with the Animal Health spin-off, internal sales growth in local currencies was approximately 4.9% (see Exhibit A for details of sales growth).
Net income attributable to Henry Schein, Inc. from continuing operations for the fourth quarter of 2019 was $330.6 million, or $2.25 per diluted share, compared with prior-year net income from continuing operations of $117.8 million, or $0.77 per diluted share. Fourth quarter 2019 results include a net gain on sale of equity investments of approximately $186.8 million, or $1.27 per diluted share, as well as a reduction in estimated restructuring costs of $1.1 million, or $0.01 per diluted share. Excluding these items, non-GAAP net income from continuing operations for the fourth quarter of 2019 was $143.0 million, or $0.97 per diluted share, compared with non-GAAP net income from continuing operations of $136.2 million, or $0.89 per diluted share, for the fourth quarter of 2018. Exhibit B provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
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“As our fourth quarter 2019 results attest, Henry Schein delivered an excellent conclusion to a transformative year in which we strategically positioned our business for continued success in the markets we serve,” said Stanley M. Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein. “Strong revenue growth in our Medical and Technology and Value-Added Services businesses were a particular highlight, along with sales of North America Dental Equipment and International Consumable Merchandise. We continue to execute on our strategic plan and remain optimistic about the Company’s prospects in 2020 and beyond.”
Dental sales of $1.7 billion increased 2.9%, consisting of 4.2% growth in local currencies and a 1.3% decline related to foreign currency exchange. In local currencies, internally generated sales increased 2.5% and growth from acquisitions was 1.7%.
“North America dental consumable merchandise internal sales in local currencies were essentially flat in the fourth quarter, reflecting soft end-market demand from independent dental practices. Dental equipment internal sales increased by a healthy 7.2% in local currencies, primarily driven by high-tech equipment sales,” commented Mr. Bergman.
“Internationally, dental consumable merchandise internal sales in local currencies had growth of 4.4%, driven by broad-based strength across most of our business. Dental equipment internal sales in local currencies decreased by 0.8%, as we faced a difficult prior-year comparison when internal sales growth in local currencies was 7.5%. The sales decrease was also due in part to soft macroeconomic conditions in Australia,” said Mr. Bergman.
Medical sales of $788.7 million increased 15.2%, with no impact from foreign currency exchange. Internally generated sales increased 10.2% and growth from acquisitions was 5.0%, primarily driven by the contribution from North American Rescue.
“We believe our Medical business continued to gain market share, with internal sales in local currencies up double-digits in the fourth quarter,” remarked Mr. Bergman. “Our focus on providing a wide array of solutions, services, and support to a broad spectrum of health care customers has enabled the Company to grow its presence in the Medical market and positions Henry Schein well for the future.”
Technology and Value-Added Services sales from continuing operations of $137.1 million increased 20.0%, consisting of 20.3% growth in local currencies and a 0.3% decline related to foreign currency exchange. In local currencies, internally generated sales increased 9.4% and growth from acquisitions was 10.9%, primarily driven by the contribution from Lighthouse 360.
“North America Technology and Value-Added Services internal sales growth in local currencies was a strong 8.7% as the business benefited from service revenue associated with a product migration, as well as from solid financial services revenue. Internationally, Technology and Value-Added Services internal sales increased 13.4% in local currencies, led by strong financial services revenue,” said Mr. Bergman.
“Henry Schein One continues to advance its platform of delivering integrated technology to enhance dental practice management and allow dentists to focus on delivering quality patient care,” Mr. Bergman continued.
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Stock Repurchase Plan
The Company repurchased approximately 2.9 million shares of its common stock during the fourth quarter at an average price of $69.05 per share, for a total of $200 million. The impact of the repurchase of shares on fourth quarter 2019 diluted EPS was immaterial.
For fiscal year 2019, the Company repurchased approximately 8.2 million shares for a total of $525 million. At fiscal year-end, Henry Schein had $275 million authorized and available for future stock repurchases.
2019 Financial Results
Net sales from continuing operations for the year ended December 28, 2019, were $10.0 billion, an increase of 6.0% compared with 2018. This consisted of 7.7% growth in local currencies and a decrease of 1.7% related to foreign currency exchange. In local currencies, internally generated sales increased 4.4% and acquisition growth was 3.3%. Excluding sales to Covetrus, internal sales growth was 3.5% in local currencies.
Net income attributable to Henry Schein, Inc. from continuing operations for 2019 was $700.7 million, or $4.69 per diluted share, an increase of 62.7% and 67.5%, respectively, compared with 2018. Non-GAAP net income from continuing operations for 2019 was $523.6 million, or $3.51 per diluted share, an increase of 7.6% and 10.7%, respectively, compared with 2018. Non-GAAP results for 2019 and 2018 exclude certain items noted in Exhibit B, which provides a reconciliation of GAAP net income and diluted EPS from continuing operations to non-GAAP net income and diluted EPS from continuing operations.
2020 EPSGuidance
Henry Schein today affirmed 2020 non-GAAP diluted EPS guidance. At this time, the Company is not providing 2020 GAAP diluted EPS guidance as it is unable to provide an accurate estimate of expenses related to a planned restructuring intended to mitigate stranded costs associated with the spin-off of its Animal Health business and to drive operating efficiencies. Financial guidance is as follows:
· 2020 non-GAAP diluted EPS from continuing operations attributable to Henry Schein, Inc. is expected to be $3.65 to $3.75, reflecting growth of 4% to 7% compared with 2019 non-GAAP diluted EPS from continuing operations of $3.51.
· Guidance assumes no significant supply chain disruption related to the Novel Coronavirus Disease 2019 (COVID-19) for certain infection control products.
· Guidance for 2020 non-GAAP diluted EPS attributable to Henry Schein, Inc. is for current continuing operations as well as completed or previously announced acquisitions, and does not include the impact of potential future acquisitions, if any, and restructuring expenses. Guidance also assumes foreign exchange rates that are generally consistent with current levels, and that end markets remain stable and are consistent with current market conditions.
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Adjustments to Projected 2020 DilutedEPS
The Company has provided guidance for 2020 diluted EPS from continuing operations on a non-GAAP basis, as noted above. A reconciliation to the Company’s projected 2020 diluted EPS from continuing operations prepared on a GAAP basis is not provided because the Company is unable to provide an estimate of costs related to a restructuring to mitigate stranded costs and drive additional operating efficiencies and the corresponding tax effect that will be included in the Company’s 2020 diluted EPS from continuing operations prepared on a GAAP basis without unreasonable effort. The inability to provide these reconciliations is due to the uncertainty and inherent difficulty of predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized. Management does not believe these items are representative of the Company’s underlying business performance. For the same reasons, the Company is unable to address the probable significance of the unavailable information, which could be material to future results.
Fourth Quarter and Full Year 2019 Conference Call Webcast
The Company will hold a conference call to discuss fourth quarter and full year 2019 financial results today, beginning at 10:00 a.m. Eastern time. Individual investors are invited to listen to the conference call through Henry Schein’s website by visiting www.henryschein.com/IRwebcasts. In addition, a replay will be available beginning shortly after the call has ended.
About Henry Schein, Inc.
Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company for health care professionals powered by a network of people and technology. With more than 19,000 Team Schein Members worldwide, the Company's network of trusted advisors provides more than 1 million customers globally with more than 300 valued solutions that improve operational success and clinical outcomes. Our Business, Clinical, Technology, and Supply Chain solutions help office-based dental and medical practitioners work more efficiently so they can provide quality care more effectively. These solutions also support dental laboratories, government and institutional healthcare clinics, as well as other alternate care sites.
Henry Schein operates through a centralized and automated distribution network, with a selection of more than 120,000 branded products and Henry Schein private-brand products in stock, as well as more than 180,000 additional products available as special-order items.
A FORTUNE 500 Company and a member of the S&P 500® index, Henry Schein is headquartered in Melville, N.Y., and has operations or affiliates in 31 countries. The Company's sales from continuing operations reached $10.0 billion in 2019, and have grown at a compound annual rate of approximately 13 percent since Henry Schein became a public company in 1995.
For more information, visit Henry Schein at www.henryschein.com, Facebook.com/HenrySchein, and @HenrySchein on Twitter.
Cautionary Note Regarding Forward-Looking Statements and Use ofNon-GAAP Financial Information
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 that, 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
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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 include EPS guidance and are generally identified by the use of such terms as "may," "could," "expect," "intend," "believe," "plan," "estimate," "forecast," "project," "anticipate," “to be,” “to make” or other comparable terms. A full discussion of our operations and financial condition, status of litigation matters, including factors that may affect our business and future prospects, is contained in documents we have filed with the United States Securities and Exchange Commission, or 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: effects of a highly competitive and consolidating market; increased competition by third party online commerce sites; our dependence on third parties for the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion of customer purchasing power and multi-tiered costing structures; increases in shipping costs for our products or other service issues with our third-party shippers; general global macro-economic conditions; risks associated with currency fluctuations; risks associated with political and economic uncertainty; disruptions in financial markets; volatility of the market price of our common stock; changes in the health care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws; risks associated with our global operations; risks associated with the Novel Coronavirus Disease 2019 (COVID-19); risk associated with the United Kingdom’s withdrawal from the European Union; transitional challenges associated with acquisitions, dispositions and joint ventures, including the failure to achieve anticipated synergies/benefits; financial and tax risks associated with acquisitions, dispositions and joint ventures; litigation risks; new or unanticipated litigation developments and the status of litigation matters; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence on third parties for certain technologically advanced components; risks from disruption to our information systems; cyberattacks or other privacy or data security breaches; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation. 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, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements.
Included within the press release are non-GAAP financial measures that supplement the Company’s Consolidated Statements of Income prepared under generally accepted accounting principles (GAAP). These non-GAAP financial measures adjust the Company’s actual results prepared under GAAP to exclude certain items. In the schedules attached to this press release, the non-GAAP measures have been reconciled to and should be considered together with the Consolidated Statements of Income. Management believes that non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding, similarly captioned, GAAP measures.
CONTACTS: Investors
Steven Paladino
Executive Vice President and Chief Financial Officer
steven.paladino@henryschein.com
(631) 843-5500
Carolynne Borders
Vice President, Investor Relations
carolynne.borders@henryschein.com
(631) 390-8105
Media
Ann Marie Gothard
Vice President, Corporate Media Relations
annmarie.gothard@henryschein.com
(631) 390-8169 (TABLES TO FOLLOW)
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| HENRY SCHEIN, INC. | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
| (in thousands, except per share data) | |||||||||||
| Three Months Ended | Years Ended | ||||||||||
| December 28, | December 29, | December 28, | December 29, | ||||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||
| (unaudited) | **** | (unaudited) | **** | **** | **** | ||||||
| Net sales | $ | 2,668,941 | $ | 2,472,556 | $ | 9,985,803 | $ | 9,417,603 | |||
| Cost of sales | 1,858,343 | 1,721,625 | 6,894,917 | 6,506,856 | |||||||
| Gross profit | 810,598 | 750,931 | 3,090,886 | 2,910,747 | |||||||
| Operating<br> expenses: | **** | **** | |||||||||
| Selling, general<br> and administrative | 615,323 | 558,285 | 2,357,920 | 2,217,273 | |||||||
| Litigation<br> settlements | - | - | - | 38,488 | |||||||
| Restructuring<br> costs (credits) | (1,059) | 34,644 | 14,705 | 54,367 | |||||||
| Operating income | 196,334 | 158,002 | 718,261 | 600,619 | |||||||
| Other income<br> (expense): | **** | **** | |||||||||
| Interest income | 3,389 | 4,386 | 15,757 | 15,491 | |||||||
| Interest expense | (9,333) | (21,447) | (50,792) | (76,016) | |||||||
| Other, net | (907) | (1,485) | (2,919) | (3,258) | |||||||
| Income from<br> continuing operations before taxes, equity in | **** | **** | |||||||||
| earnings of<br> affiliates and noncontrolling interests | 189,483 | 139,456 | 680,307 | 536,836 | |||||||
| Income taxes | (42,189) | (20,778) | (159,515) | (107,432) | |||||||
| Equity in<br> earnings of affiliates | 3,129 | 6,208 | 17,900 | 21,037 | |||||||
| Net gain on sale<br> of equity investments | 186,769 | - | 186,769 | - | |||||||
| Net income from<br> continuing operations | 337,192 | 124,886 | 725,461 | 450,441 | |||||||
| Income (loss)<br> from discontinued operations | (747) | 14,124 | (6,323) | 111,685 | |||||||
| Net Income | 336,445 | 139,010 | 719,138 | 562,126 | |||||||
| Less: Net income<br> attributable to noncontrolling interests | (6,583) | (7,109) | (24,770) | (19,724) | |||||||
| Less: Net<br> (income) loss attributable to noncontrolling interests | **** | **** | |||||||||
| from<br> discontinued operations | - | 1,072 | 366 | (6,521) | |||||||
| Net income<br> attributable to Henry Schein, Inc. | $ | 329,862 | $ | 132,973 | $ | 694,734 | $ | 535,881 | |||
| Amounts<br> attributable to Henry Schein Inc.: | **** | **** | |||||||||
| Continuing<br> operations | $ | 330,609 | $ | 117,777 | $ | 700,691 | $ | 430,717 | |||
| Discontinued<br> operations | (747) | 15,196 | (5,957) | 105,164 | |||||||
| Net income<br> attributable to Henry Schein, Inc. | $ | 329,862 | $ | 132,973 | $ | 694,734 | $ | 535,881 | |||
| Earnings per share from continuing operations attributable to Henry Schein, Inc.: | **** | **** | **** | **** | **** | **** | |||||
| Basic | $ | 2.27 | $ | 0.78 | $ | 4.74 | $ | 2.82 | |||
| Diluted | $ | 2.25 | $ | 0.77 | $ | 4.69 | $ | 2.80 | |||
| Earnings (loss) per share from discontinued operations attributable to Henry Schein, Inc.: | **** | **** | **** | **** | **** | **** | |||||
| Basic | $ | (0.01) | $ | 0.10 | $ | (0.04) | $ | 0.69 | |||
| Diluted | $ | (0.01) | $ | 0.10 | $ | (0.04) | $ | 0.68 | |||
| Earnings per share attributable to Henry Schein, Inc.: | **** | **** | **** | **** | **** | **** | |||||
| Basic | $ | 2.27 | $ | 0.88 | $ | 4.70 | $ | 3.51 | |||
| Diluted | $ | 2.24 | $ | 0.87 | $ | 4.65 | $ | 3.49 | |||
| Weighted-average<br> common shares outstanding: | **** | **** | |||||||||
| Basic | 145,404 | 151,757 | 147,817 | 152,656 | |||||||
| Diluted | 147,078 | 152,991 | 149,257 | 153,707 | |||||||
| Note: Certain<br> prior period amounts have been reclassified to conform to the current period<br> presentation. |
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HENRY SCHEIN, INC.
CONSOLIDATEDBALANCE SHEETS
(in thousands, except share and per share data)
| December 28, | December 29, | |||||
|---|---|---|---|---|---|---|
| 2019 | 2018 | |||||
| ASSETS | **** | **** | ||||
| Current assets: | **** | **** | ||||
| Cash and cash<br> equivalents | $ | 106,097 | $ | 56,885 | ||
| Accounts<br> receivable, net of reserves of 60,002 and 53,121 | **** | 1,246,246 | 1,168,776 | |||
| Inventories, net | **** | 1,428,799 | 1,415,512 | |||
| Prepaid expenses<br> and other | **** | 445,360 | 451,033 | |||
| Assets of<br> discontinued operations | **** | - | 1,083,014 | |||
| Total current<br> assets | **** | 3,226,502 | 4,175,220 | |||
| Property and<br> equipment, net | **** | 329,645 | 314,221 | |||
| Operating lease<br> right-of-use assets, net | **** | 231,662 | - | |||
| Goodwill | **** | 2,462,495 | 2,081,029 | |||
| Other<br> intangibles, net | **** | 572,878 | 376,031 | |||
| Investments and<br> other | **** | 327,919 | 420,367 | |||
| Assets of<br> discontinued operations | **** | - | 1,133,659 | |||
| Total assets | $ | 7,151,101 | $ | 8,500,527 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | **** | **** | **** | |||
| Current<br> liabilities: | **** | **** | **** | |||
| Accounts payable | $ | 880,266 | $ | 785,756 | ||
| Bank credit<br> lines | **** | 23,975 | 951,458 | |||
| Current<br> maturities of long-term debt | **** | 109,849 | 8,280 | |||
| Operating lease<br> liabilities | **** | 65,349 | - | |||
| Liabilities of<br> discontinued operations | **** | - | 577,607 | |||
| Accrued<br> expenses: | **** | **** | ||||
| **** | 265,206 | 242,876 | ||||
| **** | 165,171 | 154,613 | ||||
| **** | 528,553 | 498,237 | ||||
| Total current<br> liabilities | **** | 2,038,369 | 3,218,827 | |||
| Long-term debt | **** | 622,908 | 980,344 | |||
| Deferred income<br> taxes | **** | 64,989 | 27,218 | |||
| Operating lease<br> liabilities | **** | 176,267 | - | |||
| Other<br> liabilities | **** | 331,173 | 357,741 | |||
| Liabilities of<br> discontinued operations | **** | - | 62,453 | |||
| Total<br> liabilities | **** | 3,233,706 | 4,646,583 | |||
| Redeemable<br> noncontrolling interests | **** | 287,258 | 219,724 | |||
| Redeemable<br> noncontrolling interests from discontinued operations | **** | - | 92,432 | |||
| Commitments and<br> contingencies | **** | **** | ||||
| Stockholders'<br> equity: | **** | **** | ||||
| Preferred stock,<br> .01 par value, 1,000,000 shares authorized, | **** | **** | ||||
| **** | - | - | ||||
| Common stock,<br> .01 par value, 480,000,000 shares authorized, | **** | **** | ||||
| **** | ||||||
| **** | 1,434 | 1,514 | ||||
| Additional<br> paid-in capital | **** | 47,768 | - | |||
| Retained<br> earnings | **** | 3,116,215 | 3,208,589 | |||
| Accumulated<br> other comprehensive loss | **** | (167,373) | (248,771) | |||
| **** | 2,998,044 | 2,961,332 | ||||
| Noncontrolling<br> interests | **** | 632,093 | 580,456 | |||
| Total<br> stockholders' equity | **** | 3,630,137 | 3,541,788 | |||
| $ | 7,151,101 | $ | 8,500,527 | |||
| Note: Certain<br> prior period amounts have been reclassified to conform to the current period<br> presentation. |
All values are in US Dollars.
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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| **** | **** | Three Months Ended | Years Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | December 28, | December 29, | December 28, | December 29, | ||||||
| 2019 | 2018 | 2019 | 2018 | ||||||||
| **** | (unaudited) | **** | (unaudited) | **** | **** | **** | **** | ||||
| Cash flows from operating activities: | **** | **** | **** | **** | |||||||
| Net income | $ | 336,445 | $ | 139,010 | $ | 719,138 | $ | 562,126 | |||
| Income (loss)<br> from discontinued operations | **** | (747) | 14,124 | **** | (6,323) | 111,685 | |||||
| Income from<br> continuing operations | **** | 337,192 | 124,886 | **** | 725,461 | 450,441 | |||||
| Adjustments to<br> reconcile net income to net cash provided by operating activities: | **** | **** | **** | **** | |||||||
| Depreciation and<br> amortization | **** | 48,732 | 36,700 | **** | 184,942 | 143,630 | |||||
| Net gain on sale<br> of equity investments | **** | (250,167) | - | **** | (250,167) | - | |||||
| Stock-based<br> compensation expense | **** | 11,810 | 2,051 | **** | 44,920 | 32,621 | |||||
| Provision for<br> losses on trade and other accounts receivable | **** | 5,036 | 6,984 | **** | 12,612 | 14,384 | |||||
| Benefit from<br> deferred income taxes | **** | (589) | (32,239) | **** | (4,057) | (36,007) | |||||
| Equity in<br> earnings of affiliates | **** | (3,129) | (6,208) | **** | (17,900) | (21,037) | |||||
| Distributions<br> from equity affiliates | **** | 3,556 | 5,801 | **** | 71,469 | 20,386 | |||||
| Changes in<br> unrecognized tax benefits | **** | (1,594) | (4,022) | **** | 1,941 | (1,169) | |||||
| Benefit from<br> transition tax | **** | - | (10,000) | **** | - | (10,000) | |||||
| Other | **** | 7,806 | (134) | **** | 5,684 | 369 | |||||
| Changes in<br> operating assets and liabilities, net of acquisitions: | **** | **** | **** | **** | |||||||
| Accounts<br> receivable | **** | 42,695 | 13,816 | **** | (72,689) | (127,201) | |||||
| Inventories | **** | (60,391) | 18,752 | **** | 14,702 | (41,042) | |||||
| Other current<br> assets | **** | 13,057 | (106,789) | **** | (57,291) | (165,645) | |||||
| Accounts payable<br> and accrued expenses | **** | 141,284 | 131,962 | **** | 160,851 | 191,225 | |||||
| Net cash<br> provided by operating activities from continuing operations | **** | 295,298 | 181,560 | **** | 820,478 | 450,955 | |||||
| Net cash<br> provided by (used in) operating activities from discontinued operations | **** | (2,738) | 112,392 | **** | (166,391) | 233,751 | |||||
| Net cash<br> provided by operating activities | **** | 292,560 | 293,952 | **** | 654,087 | 684,706 | |||||
| Cash flows from investing activities: | **** | **** | **** | **** | |||||||
| Purchases of<br> fixed assets | **** | (27,263) | (21,964) | **** | (76,219) | (71,283) | |||||
| Payments from<br> (for equity) investments and business | **** | ||||||||||
| acquisitions,<br> net of cash acquired | **** | 1,214 | (14,244) | **** | (655,879) | (53,240) | |||||
| Proceeds from<br> sale of equity investments | **** | 296,751 | 1,000 | **** | 307,251 | 1,000 | |||||
| Repayments from<br> (borrowings for) loan to affiliate | **** | 265 | (1,500) | **** | 16,713 | (25,700) | |||||
| Other | **** | (1,927) | (3,544) | **** | (14,175) | (15,101) | |||||
| Net cash<br> provided by (used in) investing activities from continuing operations | **** | 269,040 | (40,252) | **** | (422,309) | (164,324) | |||||
| Net cash used in<br> investing activities from discontinued operations | **** | - | (6,345) | **** | (2,064) | (28,630) | |||||
| Net cash<br> provided by (used in) investing activities | **** | 269,040 | (46,597) | **** | (424,373) | (192,954) | |||||
| Cash flows from financing activities: | **** | **** | **** | **** | |||||||
| Net change in<br> bank borrowings | **** | (84,066) | (193,357) | **** | (927,912) | 210,741 | |||||
| Proceeds from<br> issuance of long-term debt | **** | - | - | **** | 741 | 115,000 | |||||
| Principal<br> payments for long-term debt | **** | (250,692) | (252) | **** | (260,944) | (24,735) | |||||
| Debt issuance<br> costs | **** | - | (106) | **** | (391) | (501) | |||||
| Proceeds from<br> issuance of stock upon exercise of stock options | **** | - | - | **** | 34 | 3,076 | |||||
| Payments for<br> repurchases of common stock | **** | (200,000) | (85,894) | **** | (525,000) | (200,000) | |||||
| Payments for<br> taxes related to shares withheld for employee taxes | **** | (63) | (120) | **** | (10,814) | (18,023) | |||||
| Distribution<br> received related to Animal Health Spin-off | **** | - | - | **** | 1,120,000 | - | |||||
| Proceeds related<br> to Animal Health Share Sale | **** | - | - | **** | 361,090 | - | |||||
| Proceeds from<br> (distributions to) noncontrolling shareholders | **** | (1,931) | (1,209) | **** | 51,498 | (7,351) | |||||
| Acquisitions of<br> noncontrolling interests in subsidiaries | **** | - | (1,402) | **** | (2,358) | (287,635) | |||||
| Proceeds from<br> (payments to) Henry Schein Animal Health Business | **** | (2,738) | 100,061 | **** | (169,295) | (192,745) | |||||
| Net cash used in<br> financing activities from continuing operations | **** | (539,490) | (182,279) | **** | (363,351) | (402,173) | |||||
| Net cash<br> provided by (used in) financing activities from discontinued operations | **** | 2,738 | (102,981) | **** | 147,371 | (201,603) | |||||
| Net cash used in<br> financing activities | **** | (536,752) | (285,260) | **** | (215,980) | (603,776) | |||||
| Effect of<br> exchange rate changes on cash & cash equivalents continuing operations | **** | 5,993 | (80) | **** | 14,394 | 14,425 | |||||
| Effect of<br> exchange rate changes on cash & cash equivalents discontinued operations | **** | - | (1,546) | **** | (2,240) | 3,150 | |||||
| Net change in<br> cash and cash equivalents from continuing operations | **** | 30,841 | (41,051) | **** | 49,212 | (101,117) | |||||
| Net change in<br> cash and cash equivalents from discontinued operations | **** | - | 1,520 | **** | (23,324) | 6,668 | |||||
| Cash and cash<br> equivalents, beginning of period | **** | 75,256 | 97,936 | **** | 56,885 | 158,002 | |||||
| Cash and cash<br> equivalents, end of period | $ | 106,097 | $ | 56,885 | $ | 106,097 | $ | 56,885 | |||
| Note: Certain<br> prior period amounts have been reclassified to conform to the current period<br> presentation. |
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| Exhibit A - QTD Sales | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Henry Schein, Inc. | |||||||||
| 2019 Fourth Quarter | |||||||||
| Sales Summary | |||||||||
| (in thousands) | |||||||||
| (unaudited) | |||||||||
| Q4 2019 over Q4 2018 | |||||||||
| Global | Q4 2019 | Q4 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 1,722,154 | $ | 1,673,464 | 2.9% | -1.3% | 4.2% | 1.7% | 2.5% |
| Medical | 788,659 | 684,799 | 15.2% | 0.0% | 15.2% | 5.0% | 10.2% | ||
| Total Health<br> Care Distribution | 2,510,813 | 2,358,263 | 6.5% | -0.9% | 7.4% | 2.7% | 4.7% | ||
| Technology and<br> value-added services | 137,102 | 114,293 | 20.0% | -0.3% | 20.3% | 10.9% | 9.4% | ||
| Total excluding<br> Corporate TSA Revenue | 2,647,915 | 2,472,556 | 7.1% | -0.9% | 8.0% | 3.1% | 4.9% | ||
| Corporate TSA<br> revenues (1) | 21,026 | - | n/a | n/a | n/a | n/a | n/a | ||
| Total Global | $ | 2,668,941 | $ | 2,472,556 | 7.9% | -1.0% | 8.9% | 3.1% | 5.8% |
| North America | Q4 2019 | Q4 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 1,061,077 | $ | 1,035,787 | 2.4% | -0.1% | 2.5% | 0.3% | 2.2% |
| Medical | 769,135 | 665,752 | 15.5% | 0.0% | 15.5% | 5.2% | 10.3% | ||
| Total Health<br> Care Distribution | 1,830,212 | 1,701,539 | 7.6% | 0.0% | 7.6% | 2.3% | 5.3% | ||
| Technology and<br> value-added services | 117,608 | 98,407 | 19.5% | 0.0% | 19.5% | 10.8% | 8.7% | ||
| Total excluding<br> Corporate TSA Revenue | 1,947,820 | 1,799,946 | 8.2% | 0.0% | 8.2% | 2.7% | 5.5% | ||
| Corporate TSA<br> revenues (1) | - | - | n/a | n/a | n/a | n/a | n/a | ||
| Total North America | $ | 1,947,820 | $ | 1,799,946 | 8.2% | 0.0% | 8.2% | 2.7% | 5.5% |
| International | Q4 2019 | Q4 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 661,077 | $ | 637,677 | 3.7% | -3.3% | 7.0% | 4.0% | 3.0% |
| Medical | 19,524 | 19,047 | 2.5% | -3.0% | 5.5% | 0.0% | 5.5% | ||
| Total Health<br> Care Distribution | 680,601 | 656,724 | 3.6% | -3.4% | 7.0% | 3.9% | 3.1% | ||
| Technology and<br> value-added services | 19,494 | 15,886 | 22.7% | -2.4% | 25.1% | 11.7% | 13.4% | ||
| Total excluding<br> Corporate TSA Revenue | 700,095 | 672,610 | 4.1% | -3.3% | 7.4% | 4.0% | 3.4% | ||
| Corporate TSA<br> revenues (1) | 21,026 | - | n/a | n/a | n/a | n/a | n/a | ||
| Total International | $ | 721,121 | $ | 672,610 | 7.2% | -3.4% | 10.6% | 4.1% | 6.5% |
| (1) <br> Corporate TSA revenues represents sales of certain products to Covetrus under<br> the transition services agreement entered into in connection with the Animal<br> Health spin-off, which we expect to continue through August 2020. | |||||||||
| Note: Certain<br> prior period amounts have been reclassified to conform to the current period<br> presentation. |
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| Exhibit A - YTD Sales | **** | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Henry Schein, Inc. | |||||||||
| Full Year 2019 | |||||||||
| Sales Summary | |||||||||
| (in thousands) | |||||||||
| (unaudited) | |||||||||
| Full Year 2019 over Full Year 2018 | |||||||||
| Global | Full Year 2019 | Full Year 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 6,415,865 | $ | 6,347,998 | 1.1% | -2.3% | 3.4% | 1.4% | 2.0% |
| Medical | 2,973,586 | 2,661,166 | 11.7% | -0.2% | 11.9% | 4.9% | 7.0% | ||
| Total Health<br> Care Distribution | 9,389,451 | 9,009,164 | 4.2% | -1.7% | 5.9% | 2.4% | 3.5% | ||
| Technology and<br> value-added services | 515,085 | 408,439 | 26.1% | -0.9% | 27.0% | 22.7% | 4.3% | ||
| Total excluding<br> Corporate TSA Revenue | 9,904,536 | 9,417,603 | 5.2% | -1.7% | 6.9% | 3.4% | 3.5% | ||
| Corporate TSA<br> revenues (1) | 81,267 | - | n/a | n/a | n/a | n/a | n/a | ||
| Total Global | $ | 9,985,803 | $ | 9,417,603 | 6.0% | -1.7% | 7.7% | 3.3% | 4.4% |
| North America | Full Year 2019 | Full Year 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 3,911,746 | $ | 3,866,171 | 1.2% | -0.2% | 1.4% | 0.2% | 1.2% |
| Medical | 2,894,137 | 2,581,696 | 12.1% | 0.0% | 12.1% | 5.0% | 7.1% | ||
| Total Health<br> Care Distribution | 6,805,883 | 6,447,867 | 5.6% | -0.1% | 5.7% | 2.1% | 3.6% | ||
| Technology and<br> value-added services | 445,317 | 344,168 | 29.4% | 0.0% | 29.4% | 25.7% | 3.7% | ||
| Total excluding<br> Corporate TSA Revenue | 7,251,200 | 6,792,035 | 6.8% | -0.1% | 6.9% | 3.3% | 3.6% | ||
| Corporate TSA<br> revenues (1) | 4,098 | - | n/a | n/a | n/a | n/a | n/a | ||
| Total North America | $ | 7,255,298 | $ | 6,792,035 | 6.8% | -0.2% | 7.0% | 3.4% | 3.6% |
| International | Full Year 2019 | Full Year 2018 | Total Sales Growth | Foreign Exchange Growth | Local Currency Growth | Acquisition Growth | Local Internal Growth | ||
| Dental | $ | 2,504,119 | $ | 2,481,827 | 0.9% | -5.7% | 6.6% | 3.3% | 3.3% |
| Medical | 79,449 | 79,470 | 0.0% | -5.5% | 5.5% | 0.0% | 5.5% | ||
| Total Health<br> Care Distribution | 2,583,568 | 2,561,297 | 0.9% | -5.7% | 6.6% | 3.3% | 3.3% | ||
| Technology and<br> value-added services | 69,768 | 64,271 | 8.6% | -5.6% | 14.2% | 6.8% | 7.4% | ||
| Total excluding<br> Corporate TSA Revenue | 2,653,336 | 2,625,568 | 1.1% | -5.7% | 6.8% | 3.4% | 3.4% | ||
| Corporate TSA<br> revenues (1) | 77,169 | - | n/a | n/a | n/a | n/a | n/a | ||
| Total International | $ | 2,730,505 | $ | 2,625,568 | 4.0% | -5.7% | 9.7% | 3.3% | 6.4% |
| (1) <br> Corporate TSA revenues represents sales of certain products to Covetrus under<br> the transition services agreement entered into in connection with the Animal<br> Health spin-off, which we expect to continue through August 2020. | |||||||||
| Note: Certain<br> prior period amounts have been reclassified to conform to the current period<br> presentation. |
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| Exhibit B | **** | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Henry Schein, Inc. | **** | |||||||||||
| 2019 Fourth Quarter and Year-to-Date | **** | |||||||||||
| Reconciliation of reported GAAP net income from continuing operations and | **** | |||||||||||
| diluted EPS from continuing operations attributable to Henry Schein, Inc. | **** | |||||||||||
| to non-GAAP net income from continuing operations and | **** | |||||||||||
| diluted EPS from continuing operations attributable to Henry Schein, Inc. | **** | |||||||||||
| (in thousands, except per share data) | **** | |||||||||||
| (unaudited) | **** | |||||||||||
| **** | **** | Fourth Quarter | Full Year | **** | ||||||||
| **** | **** | **** | % | % | **** | |||||||
| 2019 | **** | 2018 | Growth | 2019 | **** | 2018 | Growth | **** | ||||
| Net Income from continuing operations attributable to Henry Schein, Inc. | $ | 330,609 | $ | 117,777 | 180.7 | % | $ | 700,691 | $ | 430,717 | 62.7 | % |
| Diluted EPS from continuing operations attributable to Henry Schein, Inc. | $ | 2.25 | $ | 0.77 | 192.2 | % | $ | 4.69 | $ | 2.80 | 67.5 | % |
| Non-GAAP Adjustments | ||||||||||||
| Restructuring<br> costs (credits) - Pre-tax (1) | $ | (1,059) | $ | 34,644 | $ | 14,705 | $ | 54,367 | ||||
| Income tax<br> expense (benefit) for restructuring costs (credits) (1) | 265 | (8,688) | (3,676) | (13,592) | ||||||||
| Net gain on sale<br> of equity investments (2) | (186,769) | - | (186,769) | - | ||||||||
| Litigation<br> settlements - Pre-tax (3) | - | - | - | 38,488 | ||||||||
| Income tax<br> benefit for litigation settlements (3) | - | - | - | (9,622) | ||||||||
| One-time tax on<br> reorganization related to HS One (4) | - | - | - | 3,914 | ||||||||
| One-time tax<br> charge related to the Animal Health spin-off (5) | - | 3,135 | - | 3,135 | ||||||||
| International<br> legal entity reorganization (6) | - | (10,649) | - | (10,649) | ||||||||
| Change in<br> estimate of transition tax on repatriated | ||||||||||||
| foreign earnings<br> (7) | - | - | - | (10,000) | ||||||||
| Tax credit<br> related to Animal Health spin-off (8) | - | - | (1,333) | - | ||||||||
| Total non-GAAP adjustments to Net Income from continuing operations | $ | (187,563) | $ | 18,442 | $ | (177,073) | $ | 56,041 | ||||
| Non-GAAP adjustments to diluted EPS from continuing operations | $ | (1.28) | $ | 0.12 | $ | (1.19) | $ | 0.36 | ||||
| Non-GAAP Net Income from continuing operations attributable to Henry Schein, Inc. | $ | 143,046 | $ | 136,219 | 5.0 | % | $ | 523,618 | $ | 486,758 | 7.6 | % |
| Non-GAAP diluted EPS from continuing operations attributable to Henry Schein, Inc. | $ | 0.97 | $ | 0.89 | 9.0 | % | $ | 3.51 | $ | 3.17 | 10.7 | % |
Management believes that non-GAAP financial measures provideinvestors with useful supplemental information about the financial performanceof our business, enable comparison of financial results between periods wherecertain items may vary independent of business performance and allow forgreater transparency with respect to key metrics used by management inoperating our business. These non-GAAP financial measures are presented solelyfor informational and comparative purposes and should not be regarded as areplacement for corresponding, similarly captioned, GAAP measures. Earningsper share numbers may not sum due to rounding.
(1) Represents Q4 2019 restructuring credits of $1,059, net of $265 tax expense, resulting in an after-tax effect of $794 and YTD 2019 restructuring costs of $14,705, net of $3,676 tax benefit, resulting in an after-tax effect of $11,029. Represents Q4 2018 restructuring costs of $34,644, net of $8,688 tax benefit, resulting in an after-tax effect of $25,956 and YTD 2018 restructuring costs of $54,367, net of $13,592 tax benefit, resulting in an after-tax effect of $40,775.
(2) Represents a net after-tax gain on a sale of equity investments during Q4 2019.
(3) Represents a Q3 2018 pre-tax charge of $38,488 related to a litigation settlement, net of a tax benefit of $9,622, resulting in a net after-tax charge of $28,866.
(4) Represents a Q3 2018 one-time charge of $3,914 related to a tax on reorganization of legal entities related to forming Henry Schein One.
(5) Represents a Q4 2018 one-time charge of $3,135 to income tax expense as a result of a reorganization of legal entities completed in preparation for the Animal Health spin-off.
(6) Represents a $10,649 effect on income resulting from an income tax credit of $13,852, net of noncontrolling interest of $3,203, in Q4 2018 originating from a legal entity reorganization outside the United States.
(7) Represents a Q3 2018 one-time credit of $10,000 related to a change in the estimate of the transition tax on deemed repatriated foreign earnings.
(8) Represents a change in estimate of $1,333 to income tax expense related to a one-time tax expense recorded in Q4 2018 as a result of a reorganization of legal entities completed in preparation for the Animal Health spin-off, which was completed on February 7, 2019.
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