Henry Schein 2012 Annual Report Download - page 59
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Available-for-sale securities
As of December 29, 2012, we have approximately $3.3 million ($2.8 million net of temporary impairments)
invested in auction-rate securities (“ARS”). These investments are backed by student loans (backed by the federal
government) and investments in closed-end municipal bond funds. ARS are publicly issued securities that
represent long-term investments, typically 10-30 years, in which interest rates had reset periodically (typically
every 7, 28 or 35 days) through a “dutch auction” process. Our ARS portfolio is comprised of investments that are
rated investment grade by major independent rating agencies. Since the middle of February 2008, these auctions
have failed to settle due to an excess number of sellers compared to buyers. The failure of these auctions has
resulted in our inability to liquidate our ARS in the near term. We are currently not aware of any defaults or
financial conditions that would negatively affect the issuers’ ability to continue to pay interest and principal on our
ARS. We continue to earn and receive interest at contractually agreed upon rates. We believe that the current lack
of liquidity related to our ARS investments will have no impact on our ability to fund our ongoing operations and
growth opportunities. As of December 29, 2012, we have classified ARS holdings as long-term, available-for-sale
and they are included in the Investments and other line within our consolidated balance sheets.
Accounts receivable days sales outstanding and inventory turns
Our accounts receivable days sales outstanding from operations decreased to 39.8 days as of December 29,
2012 from 40.6 days as of December 31, 2011. During the years ended December 29, 2012 and December 31,
2011, we wrote off approximately $8.3 million and $6.2 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations decreased to 6.2 for the year ended
December 29, 2012 from 6.6 for the year ended December 31, 2011, primarily due to inventory buy-ins in advance
of potential price increases related to the medical device excise tax. Our working capital accounts may be impacted
by current and future economic conditions.
Contractual obligations
The following table summarizes our contractual obligations related to fixed and variable rate long-term debt,
including interest (assuming an average long-term rate of interest of 3.7%), as well as operating and capital lease
obligations, capital expenditure obligations and inventory purchase commitments as of December 29, 2012:
Payments due by period (in thousands)
< 1 year 2 - 3 years 4 - 5 years > 5 years Total
Contractual obligations:
Long-term debt, including interest ......................
.
$ 34,660 $ 130,290 $ 171,799 $ 273,569 $ 610,318
Inventory purchase commitments ........................
.
67,245 50,329 48,139 78,053 243,766
Operating lease obligations .................................
.
75,901 104,972 61,488 65,718 308,079
Capital lease obligations, including interest ........
.
1,739 1,485 207 - 3,431
Fixed asset obligations .........................................
.
1,311 - - - 1,311
Total ....................................................................
.
$ 180,856 $ 287,076 $ 281,633 $ 417,340 $ 1,166,905
Inventory purchase commitments include obligations to purchase certain pharmaceutical products from a
manufacturer through 2013, which require us to pay a price based on the prevailing market price or formula price in
each respective year. The amounts included in the above table related to these purchase commitments were
determined using current market conditions. We also have obligations to purchase certain pharmaceutical products
from another manufacturer. Actual amounts may differ.
During 2013, we intend to refinance the debt of approximately $220 million related to the Butler Schein
Animal Health transaction. The refinancing is expected to reduce interest expense and to be accretive to earnings
per share by $0.02 to $0.03 on an annualized basis. We expect the refinancing to occur at the end of the first
quarter of 2013. As part of that refinancing, we expect to incur a one-time, non-cash charge of approximately $0.04
to $0.05 per diluted share.
Redemption of convertible debt
On September 3, 2010, we paid approximately $240 million in cash and issued 732,422 shares of our common
stock in connection with the redemption of our $240 million of Convertible Notes, which were issued in 2004.