Henry Schein 2013 Annual Report Download - page 56

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47
Gross Profit
Gross profit and gross margins for 2012 and 2011 by segment and in total were as follows (in thousands):
Gross Gross Increase
2012 Margin % 2011 Margin % $ %
Health care distribution ............................. $ 2,323,913 26.8 % $ 2,253,814 27.2 % $ 70,099 3.1 %
Technology and value-added services ....... 183,600 64.8 164,241 65.5 19,359 11.8
Total ..................................................... $ 2,507,513 28.0 $ 2,418,055 28.3 $ 89,458 3.7
Gross profit increased $89.5 million, or 3.7%, for the year ended December 29, 2012 compared to the prior
year period. As a result of different practices of categorizing costs associated with distribution networks throughout
our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally,
we realize substantially higher gross margin percentages in our technology segment than in our health care
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.
Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers
affecting our gross profit margin. For example, sales of pharmaceutical products are generally at lower gross profit
margins than other products. Conversely, sales of our private label products achieve gross profit margins that are
higher than average. With respect to customer mix, sales to our large-group customers are typically completed at
lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners who normally purchase lower volumes at greater frequencies.
Health care distribution gross profit increased $70.1 million, or 3.1%, for the year ended December 29, 2012
compared to the prior year period. Health care distribution gross profit margin decreased to 26.8% for the year
ended December 29, 2012 from 27.2% for the comparable prior year period. The decrease in our health care
distribution gross profit margin is primarily due to growth in sales within our animal health businesses, which
typically include a greater percentage of lower-margin pharmaceutical products than our other operating units.
Technology and value-added services gross profit increased $19.4 million, or 11.8%, for the year ended
December 29, 2012 compared to the prior year period. Technology and value-added services gross profit margin
decreased to 64.8% for the year ended December 29, 2012 from 65.5% for the comparable prior year period,
primarily due to changes in the product sales mix and from higher support costs associated with our growing
number of software and eServices customers. Revenues generated from lower than average gross margins grew at
a greater rate than traditional electronic services (e.g., claims processing) or software sales, which typically
generate higher than average gross margins.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2012 and 2011 were as follows (in
thousands):
% of % of
Respective Respective Increase
2012 Net Sales 2011 Net Sales $ %
Health care distribution ............................. $ 1,767,265 20.4 % $ 1,741,720 21.0 % $ 25,545 1.5 %
Technology and value-added services ....... 106,095 37.4 94,186 37.6 11,909 12.6
Total ..................................................... $ 1,873,360 21.0 $ 1,835,906 21.5 $ 37,454 2.0
Selling, general and administrative expenses increased $37.5 million, or 2.0%, for the year ended December 29,
2012 compared to the prior year period. As a percentage of net sales, selling, general and administrative expenses
decreased to 21.0% from 21.5% for the comparable prior year period.