Henry Schein 2003 Annual Report Download

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ONEWORLD. ONECOMPANY. ONETEAM.
2003 Annual Report

Table of contents

  • Page 1
    ON E WORLD. ON E COMPANY. ON E TEAM. 2003 Annual Report

  • Page 2
    ... and European markets. The Company's sales reached a record $3.4 billion in 2003. Recognized for its excellent customer service and highly competitive prices, Henry Schein's four business groups-Dental, Medical, International, and Technology-serve more than 425,000 customers worldwide. Its customers...

  • Page 3

  • Page 4
    ... process, we retain our unique and powerful culture, with all Team Schein Members dedicated to delivering the best possible customer service. One World. One Company. One Team. This was the opportunity we saw, and we made the most of it-posting record 2003 financial results, and for the first time...

  • Page 5
    ... to accelerate future growth in sales and operating income. To achieve this we will continue to develop our high-growth dental specialty business and implement our Henry Schein Rx Services plan, adding new vaccines, injectables and related services to our medical offering. In addition, we will...

  • Page 6
    .... Sullivan-Schein Representatives-including Field Sales Consultants, Design Professionals, Equipment Sales Specialists and Equipment Service Technicians-work together seamlessly with our dental customers to design, create and support aesthetically pleasing offices that optimize work flow and space...

  • Page 7
    ... of specialty pharmaceutical products. In addition, thriving, as an aging population uses more healthcare services each year. there is continued growth in the use of injectables and diagnostic tests, and new vaccines for adults are being developed. As a result, Henry Schein's future holds great...

  • Page 8
    ... field sales consultants, equipment sales specialists, and more than 875 telesales representatives. In 2003, we supported their efforts by delivering more than 31 million targeted direct marketing pieces to over 650,000 healthcare practitioners. 6 Our customers know they can order from Henry Schein...

  • Page 9
    ... small equipment repair service to office-based practitioners in the world. Henry Schein's centralized infrastructure and supply chain is another pillar of our superior customer service. We have more than 2.1 million square feet of distribution space at 15 strategically located distribution centers...

  • Page 10
    ...action through Henry Schein Cares, which provides resources to help narrow the disparity in the delivery of healthcare information and services in underserved communities in the United States and abroad. CUSTOMER FOCUS COMPETITIVE BENCHMARKING TEAM SCHEIN CULTURE MONETARY RESOURCES COMMUNICATION...

  • Page 11
    ... Part of the Team Schein culture is a commitment to education and training, as exemplified by our Dental Career Development programs and SullivanSchein University (SSU). Intensive sales training sessions, product demonstrations and training on proprietary sales tools equip our sales force with...

  • Page 12
    ... revenues, which represents growth of 11% over 2002, including 9% growth in consumable merchandise sales and 18% growth in equipment sales and service revenue. The Dental Group includes Sullivan-Schein Dental in the United States, Henry Schein Arcona in Canada, and the Zahn Dental laboratory supply...

  • Page 13
    ... office-based practitioners. We offer more than 75,000 SKUs to our growing base of 170,000 customers located in 14 countries outside of North America, including Austria, Australia, Belgium, the Czech Republic, France, Germany, Iceland, Ireland, Israel, the Netherlands, New Zealand, Portugal, Spain...

  • Page 14
    ...Administrative Officer Mark E. Mlotek Executive Vice President, Business Development James P. Breslawski Executive Vice President and President, Sullivan-Schein Dental Margaret A. Hamburg, M.D. (4) Former Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services...

  • Page 15
    ... Financial Data 18 Management's Discussion and Analysis of Financial Condition and Results of Operations 30 Quantitative and Qualitative Disclosures About Market Risk Consolidated Financial Statements: 32 Report of Independent Certified Public Accountants 33 Balance Sheets as of December 27, 2003...

  • Page 16
    ... EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is quoted through the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol "HSIC". The following table sets forth, for the periods indicated, the high and low reported sales prices of our common stock as reported on the...

  • Page 17
    ... fiscal years 2003 or 2002. We currently do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including our stock repurchase program. Any declaration...

  • Page 18
    .... Years ended December 27, 2003 Statements of Operations Data: Net sales Gross profit Selling, general and administrative expenses Merger, integration and restructuring (credits) costs (1) Operating income Other expense, net Income before taxes on income, minority interest, equity in earnings...

  • Page 19
    ...States and Canada. (5) Consists of products sold in the United States' Medical and Veterinary markets. (6) Consists of products sold in the Dental, Medical and Veterinary markets, primarily in Europe. (7) Consists of practice management software and other value-added products and services, which are...

  • Page 20
    ... markets with operations in the United States, Canada, the United Kingdom, the Netherlands, Belgium, Germany, France, Austria, Spain, Ireland, Portugal, Australia and New Zealand. Our reportable segments are strategic business units that offer different products and services to the same customer...

  • Page 21
    ...-service distributor of dental consumables and equipment in Germany, Austria, and the Benelux countries, and EDH, which includes KRUGG S.p.A., Italy's leading distributor of dental consumable products and DentalMV GmbH (otherwise know as Muller & Weygandt), one of Europe's leading direct marketing...

  • Page 22
    ... risks of counterfeit products in the supply chain and the manufacturers' concerns regarding the impact of secondary market distribution on counterfeiting. As a distributor of such products, we continue to work with our suppliers to help minimize the risks associated with counterfeit products in the...

  • Page 23
    ... Dental, Medical and Veterinary markets, primarily in Europe. (5) Consists of practice management software and other value-added products and services, which are sold primarily to healthcare professionals in the United States and Canada. For the year ended December 27, 2003, our net sales increased...

  • Page 24
    ....5 million for the year ended December 27, 2003 from $370.1 million for the prior year period. The increase was primarily due to expenses directly associated with supporting increased sales volume. As a percentage of net sales, selling and shipping expenses decreased slightly to 13.0% from 13.1% for...

  • Page 25
    ... Dental, Medical and Veterinary markets, primarily in Europe. (5) Consists of practice management software and other value-added products and services, which are sold primarily to healthcare professionals in the United States and Canada. For the year ended December 28, 2002, our net sales increased...

  • Page 26
    ... 11.3% increase in medical net sales was primarily due to increased sales to physicians' office and alternate care markets. The $39.0 million or 9.8% increase in international net sales was primarily due to increased account penetration in France, United Kingdom and Australia and favorable exchange...

  • Page 27
    ... operations, revolving credit facilities, private placement loans and stock issuances. Our principal source of cash is derived from our operations. Our ability to generate sufficient cash flows from operations is dependent on the continued demand of our customers for our products and services. Given...

  • Page 28
    ...of continued sales growth. The following table shows our contractual obligations related to fixed and variable rate long-term debt, excluding interest, as well as lease obligations and inventory purchase commitments as of December 27, 2003 (See Notes 8 and 13 to our consolidated financial statements...

  • Page 29
    ... of our financial statements: Revenue Recognition We generate revenue from the sale of dental, medical and veterinary consumable products, as well as dental equipment, software products and services and other sources. Provisions for discounts, rebates to customers, customer returns and other...

  • Page 30
    ... the sale of dental equipment is recognized when products are delivered to customers. Such sales typically entail scheduled deliveries of large equipment primarily by equipment service technicians. Some equipment sales require minimal installation, which is completed at the time of delivery. Revenue...

  • Page 31
    ... or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a VIE to be consolidated by a company if that company is designated as the primary beneficiary. Application of FIN 46 is required in financial statements of public...

  • Page 32
    ...Swiss Francs ($1.4 million), Japanese Yen ($355 thousand), Swedish Krona ($82 thousand) and New Zealand Dollars ($82 thousand). As of December 27, 2003, the fair value of these contracts, calculated as the gross value of future U.S. dollar payments and receipts determined by quoted market prices was...

  • Page 33
    ... segment, which primarily sells practice management software and other value-added products, depends upon continued product development, technical support and marketing. Failures in these and related areas could adversely affect our results of operations. • Our business is subject to requirements...

  • Page 34
    ... Board of Directors and Stockholders Henry Schein, Inc. Melville, New York We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 27, 2003 and December 28, 2002, and the related consolidated statements of income, changes in stockholders' equity and...

  • Page 35
    ... data) December 27, 2003 ASSETS Current assets: Cash and cash equivalents Marketable securities Accounts receivable, net of reserves of $43,203 and $36,200 Inventories Deferred income taxes Prepaid expenses and other Total current assets Property and equipment, net Goodwill Other intangibles, net...

  • Page 36
    HENRY SCHEIN, INC CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Years ended December 27, 2003 Net sales Cost of sales Gross profit Operating expenses: Selling, general and administrative Merger, integration and restructuring credits Operating income Other income (expense): ...

  • Page 37
    HENRY SCHEIN, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands, except share and per share data) Common Stock $.01 Par Value Shares Amount Balance, December 30, 2000 Net income Foreign currency translation loss Total comprehensive income Stock issued to ESOP trust ...

  • Page 38
    ... receivable Inventories Other current assets Accounts payable and accruals Net cash provided by operating activities of continuing operations Cash flows from investing activities: Purchases of capital expenditures Payments for business acquisitions, net of cash acquired Purchases of marketable...

  • Page 39
    ... in the United States, Canada, the United Kingdom, the Netherlands, Belgium, Germany, France, Austria, Spain, Ireland, Portugal, Australia and New Zealand. We sell products and services to customers in dental practices and dental laboratories, as well as physician practices, veterinary clinics...

  • Page 40
    ... on deposit, which are primarily related to payments for inventory, were classified as accounts payable. Such amounts were $0 and $27.0 million at December 27, 2003 and December 28, 2002. Marketable Securities Marketable securities are classified as available-for-sale and are recorded at fair value...

  • Page 41
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 1-Significant Accounting Policies (Continued) Property and Equipment and Depreciation and Amortization Property and equipment are stated at cost. Amortization of leasehold ...

  • Page 42
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 1-Significant Accounting Policies (Continued) Our foreign currency forward and exchange contracts are designated as cash flow hedging instruments. These contracts are ...

  • Page 43
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 1-Significant Accounting Policies (Continued) Under the accounting provisions of FAS 123, our net income and net income per common share would have been adjusted to the pro...

  • Page 44
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 1-Significant Accounting Policies (Continued) In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." FAS...

  • Page 45
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 2-Earnings Per Share A reconciliation of shares used in calculating basic and diluted earnings per common share follows: Years ended December 27, 2003 Basic Effect of ...

  • Page 46
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 3-Investments in Marketable Securities (Continued) Investments in available-for-sale securities as of December 28, 2002 were as follows: Gross Unrealized Gain Gross ...

  • Page 47
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 5-Goodwill and Other Intangibles, Net The changes in the carrying amount of goodwill for the year ended December 27, 2003 were as follows: Healthcare Distribution ...

  • Page 48
    ... distribution businesses, which were not considered material on either an individual or aggregate basis. On May 28, 2003, we acquired all of the outstanding common stock of Hager Dental GmbH, a dental distributor of consumable supplies and equipment located in Germany. On June 2, 2003, we acquired...

  • Page 49
    ... price will be paid from existing cash resources and/or the proceeds of (i) a bridge loan and/or (ii) the issuance or sale in a public or private placement of equity interests or notes, debentures or other debt securities (or another debt financing) with a maturity in excess of one year (in any case...

  • Page 50
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 8-Debt (Continued) As of December 27, 2003, the aggregate amounts of long-term debt maturing in each of the next five years are as follows: 2004 - $3.3 million; 2005 - $3.3...

  • Page 51
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 9- Taxes on Income (Continued) The tax effects of temporary differences that give rise to our deferred tax asset (liability) were as follows: December 27, 2003 Current ...

  • Page 52
    ... of larger accounts on a customer-by-customer basis. No single customer accounted for more than 1.3% of our net sales in 2003. Our long-term note receivables represent strategic financing arrangements with certain industry affiliates and amounts owed to us from sales of certain businesses. Generally...

  • Page 53
    ... Canada. (3) Consists of products sold in the United States' Medical and Veterinary markets. (4) Consists of products sold in Dental, Medical and Veterinary markets, primarily in Europe. (5) Consists of practice management software and other value-added products and services, which are distributed...

  • Page 54
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 11-Segment and Geographic Data (Continued) Years ended December 27, 2003 Operating Income: Healthcare distribution Technology Total Interest Income: Healthcare ...

  • Page 55
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 11-Segment and Geographic Data (Continued) The following table reconciles segment totals to consolidated totals as of and for the years ended December 27, 2003, December 28...

  • Page 56
    ...of employment. On May 8, 1996, our stockholders approved the 1996 Non-Employee Director Stock Option Plan. As amended in June 2003, pursuant to this plan we may grant options to each director who is not also an officer or employee, for up to 200,000 shares of our common stock. The exercise price and...

  • Page 57
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 12-Stockholders' Equity (Continued) A summary of the status of our stock option plans, including the Assumed Plans, is presented below: Years ended December 27, 2003 ...

  • Page 58
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 12-Stockholders' Equity (Continued) Supplemental Executive Retirement Plan We offer an unfunded, non-qualified supplemental executive retirement plan to eligible employees....

  • Page 59
    ... course of business, and from time to time we are named as a defendant in cases as a result of our distribution of pharmaceutical and other healthcare products. As a business practice, we generally obtain product indemnification from our suppliers for manufactured products. We have various insurance...

  • Page 60
    ...New Jersey, Law Division, Morris County, entitled "West Morris Pediatrics, P.A. and Avenel-Iselin Medical Group, P.A. vs. Henry Schein, Inc., doing business as Caligor", Case... New Jersey Consumer Fraud Act, unjust enrichment, conversion and promissory estoppel relating to sales of a vaccine product ...

  • Page 61
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 14-Supplemental Cash Flow Information Cash paid for interest and income taxes was: Years ended December 27, 2003 Interest Income taxes $16,595 58,405 December 28, 2002 $17,...

  • Page 62
    HENRY SCHEIN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except share and per share data) Note 15-Quarterly Information (Unaudited) (Continued) (1) During the third quarter of 2003, we recognized a $2.0 million loss, net of tax, from the sale of a discontinued ...

  • Page 63
    CORPORATEINFORMATION CORPORATE HEADQUARTERS Henry Schein, Inc. 135 Duryea Road Melville, New York 11747 U.S.A. (631) 843-5500 www.henryschein.com COMMON STOCK Henry Schein Common Stock trades on the NASDAQ Stock Market® under the symbol "HSIC." ANNUAL SHAREHOLDERS MEETING Our Annual Meeting of ...

  • Page 64
    CORPORATEMISSION To be the worldwide leader in providing the best quality and value in products and services for our healthcare customers. Henry Schein, Inc. 135 Duryea Road Melville, New York 11747 U.S.A. (631) 843-5500 WWW.HENRYSCHEIN.COM