Henry Schein 2003 Annual Report Download - page 33

Risk Factors
Stockholders and investors should carefully consider the risks described below and other information in this annual report. Our business,
financial condition and operating results, and the trading price of our common stock could be adversely affected if any of these risks
materialize.
• The healthcare products distribution industry is highly competitive, and we compete with numerous companies, including major
manufacturers and distributors that have greater financial and other resources than us. Competitors could obtain exclusive rights to
market particular products or manufacturers could increase their efforts to sell directly to end-users, thereby bypassing distributors like
us. Consolidation among healthcare products distributors could result in existing competitors increasing their market position. In
addition, unavailability of products, whether due to our inability to gain access to products or interruptions in supply of products from
manufacturers, could adversely affect our operating results.
• In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs, including the
reduction of spending budgets by government and private insurance programs, such as Medicare, Medicaid and corporate health
insurance plans; trends toward managed care; consolidation of healthcare distribution companies; electronic commerce; and collective
purchasing arrangements among office-based healthcare practitioners. If we are unable to react effectively to these and other changes
in the healthcare industry, our operating results could be adversely affected.
• Our technology 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 under various local, state, federal and foreign governmental laws and regulations applicable to
the manufacture and distribution of pharmaceuticals and medical devices, including the Federal Food, Drug, and Cosmetic Act, the
Prescription Drug Marketing Act of 1987 and the Controlled Substances Act. There is no assurance that current or future government
regulations will not adversely affect our business.
• Our business involves a risk of product liability and other claims in the ordinary 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. We have insurance policies,
including product liability insurance, and in many cases we have indemnification rights from manufacturers with respect to the products
we distribute. There is no assurance that insurance coverage or manufacturers' indemnity will be available in all of the pending or any
future cases brought against us, or that an unfavorable result in any such case will not adversely affect our financial condition or results
of operations.
• Our business is dependent upon our ability to hire and retain qualified sales representatives, service specialists and other sales agents.
Due to the relationships developed between our field sales representatives and their customers, upon the departure of a sales
representative we face the risk of losing the representative's customers, especially if the representative becomes an employee of one
of our competitors.
• Our business is subject to seasonal and other quarterly influences. Net sales and operating profits are generally higher in the third and
fourth quarters due to timing of seasonal product sales, software and equipment sales, year-end promotions and purchasing patterns
of office-based healthcare practitioners and are generally lower in the first quarter primarily due to the increased purchases in the prior
quarter.
• Our international operations are subject to inherent risks, which could adversely affect our operating results. These risks include
difficulties in opening and managing foreign offices and distribution centers; difficulties in establishing channels of distribution;
fluctuations in the value of foreign currencies; longer payment cycles of foreign customers and difficulty in collecting receivables in
foreign jurisdictions; import/export duties and quotas; and unexpected regulatory, economic and political changes in foreign markets.
• Our expansion through acquisitions and/or joint ventures could result in a loss of customers, diversion of management attention and
increased demands on our operations, information systems and financial resources.
• We rely on third parties to ship products to our customers. Increases in shipping rates or interruptions of service could adversely affect
our operating results.
• Changes in e-commerce could affect our business relationships and could require significant resources. The rapid advancement of on-
line commerce requires us to provide continuous improvement in performance, security, features and reliability of Internet content and
technology, particularly in response to competitive offerings.
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