Henry Schein 2014 Annual Report Download - page 62

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48
Gross Profit
Gross profit and gross margins for 2013 and 2012 by segment and in total were as follows (in thousands):
Gross Gross Increase
2013 Margin % 2012 Margin % $ %
Health care distribution ............................. $ 2,451,334 26.5 % $ 2,323,913 26.8 % $ 127,421 5.5 %
Technology and value-added services ....... 204,680 64.0 183,600 64.8 21,080 11.5
Total ..................................................... $ 2,656,014 27.8 $ 2,507,513 28.0 $ 148,501 5.9
Gross profit increased $148.5 million, or 5.9%, for the year ended December 28, 2013 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 $127.4 million, or 5.5%, for the year ended December 28, 2013
compared to the prior year period. Health care distribution gross profit margin decreased to 26.5% for the year
ended December 28, 2013 from 26.8% 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 $21.1 million, or 11.5%, for the year ended
December 28, 2013 compared to the prior year period. Technology and value-added services gross profit margin
decreased to 64.0% for the year ended December 28, 2013 from 64.8% for the comparable prior year period,
primarily due to changes in the product sales mix.
Selling, General and Administrative
Selling, general and administrative expenses by segment and in total for 2013 and 2012 were as follows (in
thousands):
% of % of
Respective Respective Increase
2013 Net Sales 2012 Net Sales $ %
Health care distribution ............................. $ 1,860,670 20.1 % $ 1,767,265 20.4 % $ 93,405 5.3 %
Technology and value-added services ....... 118,290 37.0 106,095 37.4 12,195 11.5
Total ..................................................... $ 1,978,960 20.7 $ 1,873,360 21.0 $ 105,600 5.6
Selling, general and administrative expenses increased $105.6 million, or 5.6%, for the year ended December
28, 2013 from the comparable prior year period. As a percentage of net sales, selling, general and administrative
expenses decreased to 20.7% from 21.0% for the comparable prior year period.