Henry Schein 2009 Annual Report Download - page 42

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We conduct our business through two reportable segments: healthcare distribution and technology. These
segments offer different products and services to the same customer base. The healthcare distribution
reportable segment aggregates our dental, medical (including animal health) and international operating
segments. This segment consists of consumable products, small equipment, laboratory products, large dental
and medical equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical
products, diagnostic tests, infection-control products and vitamins.
Our dental group serves office-based dental practitioners, schools and other institutions in the combined
United States and Canadian dental market. Our medical group serves office-based medical practitioners,
surgical centers, other alternate-care settings, animal health clinics and other institutions throughout the
United States. Our international group serves 21 countries outside of North America and is what we believe
to be a leading European healthcare supplier serving office-based practitioners.
Our technology group provides software, technology and other value-added services to healthcare
practitioners, primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our
value-added practice solutions include practice management software systems for dental and medical
practitioners and animal health clinics. Our technology group offerings also include financial services, on a
non-recourse basis, e-services and continuing education services for practitioners.
Industry Overview
In recent years, the healthcare industry has increasingly focused on cost containment. This trend has
benefited distributors capable of providing a broad array of products and services at low prices. It also has
accelerated the growth of HMOs, group practices, other managed care accounts and collective buying groups,
which, in addition to their emphasis on obtaining products at competitive prices, tend to favor distributors
capable of providing specialized management information support. We believe that the trend towards cost
containment has the potential to favorably affect demand for technology solutions, including software, which
can enhance the efficiency and facilitation of practice management.
Our operating results in recent years have been significantly affected by strategies and transactions that
we undertook to expand our business, domestically and internationally, in part to address significant changes
in the healthcare industry, including consolidation of healthcare distribution companies, potential healthcare
reform, trends toward managed care, cuts in Medicare and collective purchasing arrangements.
Our current and future results have been and could be impacted by the current economic environment and
uncertainty, particularly impacting overall demand for our products and services.
Industry Consolidation
The healthcare products distribution industry, as it relates to office-based healthcare practitioners, is
highly fragmented and diverse. This industry, which encompasses the dental, medical and animal health
markets, was estimated to produce revenues of approximately $27.5 billion in 2009 in the combined North
American and European markets. The industry ranges from sole practitioners working out of relatively small
offices to group practices or service organizations ranging in size from a few practitioners to a large number
of practitioners who have combined or otherwise associated their practices.
Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of
supplies in their offices, the distribution of healthcare supplies and small equipment to office-based healthcare
practitioners has been characterized by frequent, small quantity orders, and a need for rapid, reliable and
substantially complete order fulfillment. The purchasing decisions within an office-based healthcare practice
are typically made by the practitioner or an administrative assistant. Supplies and small equipment are
generally purchased from more than one distributor, with one generally serving as the primary supplier.
We believe that consolidation within the industry will continue to result in a number of distributors,
particularly those with limited financial and marketing resources, seeking to combine with larger companies
that can provide growth opportunities. This consolidation also may continue to result in distributors seeking