Henry Schein, Inc. (HSIC) Q4 2010 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Henry Schein Fourth Quarter Conference Call. [Operator Instructions] I would now like to introduce your host for today's call, Susan Vassallo, Henry Schein's Vice President of Corporate Communications. Please go ahead, Susan.

Good morning. Thank you, operator, and my thanks to each of you for joining us to discuss Henry Schein's fourth quarter results. If you have not received a copy of our earnings news release, you can access it on our website at henryschein.com. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein; and Steven Paladino, Executive Vice President and Chief Financial Officer. Before we begin, I would like to state that certain comments made during this call will include information that is forward looking. As you know, risks and uncertainties involved in the company’s business may affect the matters referred to in forward-looking statements. As a result, the company's performance may differ from those expressed in or indicated by such forward-looking statements. Also, these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commission filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, February 22, 2011. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. I ask that during the Q&A portion of today's call that you limit yourself to a single question and a follow-up before returning to the queue. This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for the call. With that said, I would like to turn the call over now to Stanley Bergman.

Thank you, Susan, and good morning, everyone, and thank you for joining us this morning. We are delighted to be reporting solid fourth quarter financial results that reflect market share gains across the board in each of our business groups. This quarterly performance is continued validation of our growth strategy and the underlying strength of our business and confidence in our markets. In addition, for the first time, quarterly sales for Henry Schein reached the $2 billion mark. Quarterly net sales first surpassed the $1 billion in the third quarter of 2004. And this doubling of quarterly sales represents compounded annual growth of 12%. Since then, the timeframe that includes the recent years of global economic challenges. In a moment, I'll provide some further color on each of our businesses and provide the full year highlights. But first, let's ask Steve Paladino to provide an overview of our quarterly financial results. Steve?

Okay, thank you, Stan, and good morning to everyone. I, too, am pleased to be reporting strong results for the fourth quarter of 2010. Before we begin, I'd like to point out that the prior year's fourth quarter results reflect a restructuring credit of about $1 million pretax or $0.01 per diluted share. I will be providing growth rates compared with the prior year, excluding the restructuring, and I will refer to those results as adjusted results from continuing operation. Exhibit B to this morning's earnings news release reconciles our GAAP and non-GAAP income and EPS from continuing operations. Turning to our financial performance. As Stan mentioned, net sales for the quarter ended December 25, 2010, were $2 billion, reflecting a 13.3% increase compared with the fourth quarter of 2009. This consists of a 15% growth in local currencies, partially offset by a 1.7% decrease related to foreign currency exchange. In local currencies, internally generated sales were up 3.3%, while acquisition growth was 11.7%. Sales of seasonal influenza vaccines were $14 million for the fourth quarter of 2010. And if you were to exclude the sales of these products from both periods, our net sales increased by 15.4% in local currencies. Again, you can note the details of sales growth contained in Exhibit A of our earnings news release that was issued this morning. Gross margin for the fourth quarter of 2010 was 28.4%, a decline of about 106 basis points compared with the fourth quarter of 2009. This decline is entirely due to our North American Animal Health business and as a result of product mix. Please keep in mind that our animal health gross margin is less than our other businesses, and that animal health now represents a much larger percentage of net sales. More specifically, in the fourth quarter of 2009, our North American Animal Health business was approximately 3% of company's total sales, and today, for the fourth quarter of 2010, it represents approximately 11% of the total. Selling, general and administrative expenses for the fourth quarter of 2010 were $432.7 million, representing a 21.4% of sales, and that compares with 21.8% of sales for the fourth quarter of 2009 and this is an improvement of 43 basis points. Excluding the seasonal Influenza Vaccine business from both periods, SG&A expenses improved by 49 basis points as a percentage of sales. Our operating margin for the fourth quarter of 2010 was 7.0%, a decline of 69 basis points compared with the fourth quarter of 2009. And again, the majority of this operating margin contraction was due to our North American Animal Health business and the gross margin details I just discussed. If you look at our effective tax rate for the quarter. For the quarter, the effective tax rate was 31.9%, which is in line with our guidance and is down from 32.6% in the fourth quarter of 2009. The 2009 number's on a non-GAAP basis. Income from continuing operations attributable to Henry Schein for the fourth quarter of 2010 was $93.0 million or an even $1 per diluted share. On a non-GAAP basis, which excludes certain unusual items in the prior year, income from continuing operations and diluted EPS increased 8.5% and 7.5%, respectively, compared with the fourth quarter of 2009. Again, details of non-GAAP items are included on Exhibit B. If we look at our financial performance on a full year basis, I'm pleased to report that we achieved 15.4% sales growth in local currencies, including 3.1% internally generated; nearly 12% diluted EPS growth from continuing operations on a non-GAAP basis; and cash flow from operations of nearly $389 million, which exceeds our net income from the year and is in line with our corporate goal. We are very proud to have exceeded the EPS goal we stated more than a year ago during this difficult and uncertain economic climate. Now I'd like to provide some detail on our sales results for the quarter. Our North American Dental sales for the fourth quarter of 2010 increased 7.3% to $720.7 million consisting of 6.7% increase in local currencies and a 0.6% increase related to foreign currency. If you look at our consumable merchandise sales, which increased 9.7% in local currencies, and that includes a 4.3% increase in internal sales growth and 5.4% growth due to acquisitions. This 4.3% local internal growth and consumable merchandise sales compares very favorably with the 1.5% growth we've reported for the third quarter of 2010, and internal sales growth in local currencies has increased modestly for each of the past five quarters in this category. Our Dental equipment sales increased 0.2% compared with the prior-year quarter in local currencies. All of that is internally generated. This is the fourth consecutive quarter that we have posted positive Dental equipment sales growth. I would also note that the fourth quarter comparison for this year is more difficult than earlier years due to stronger equipment sales in last year's fourth quarter. On an overall basis, we believe we gained market share in our North American Dental market based on our 3% local internal sales growth. Turning to North American Medical sales, they were $327.7 million for the fourth quarter. That's an increase of 5.7%. Internally generated sales increased 0.8% and acquisition growth was 4.9%. However, if you exclude the sales of seasonal influenza vaccines from both periods, our medical sales for the fourth quarter increased by 7.1% and internally generated sales were up 1.9%. The fourth quarter 2010 sales growth comparison was also negatively impacted by reduced sales of products related to the H1N1 virus compared to the fourth quarter of last year. If you exclude the sales of those products, as well as the seasonal influenza vaccine from both periods, we estimate that our North American internal sales increased by 5.7%, and we believe that this is clearly gaining market share during the quarter, and also we believe that patient traffic to office-based physicians continues to be down moderately. North American Animal Health sales were $222.7 million for the fourth quarter, an increase of 282.2%. Again, this is related to the Butler Schein transaction, and we estimate that our internally generated sales were essentially flat. Although please note that, again, it's very difficult to calculate this figure since our business has been fully integrated into the combined Butler Schein Animal Health business. I'll also point out that beginning with the first quarter of 2011, the Butler Schein Animal Health transaction has annualized, and therefore, the comparisons will be more meaningful on a go-forward basis. International sales for the fourth quarter of 2010 was $695 million. That's down 0.6% compared with the prior year's quarter. This consisted of a 4.4% increase in local currencies and partially offset by a 5% decrease related to foreign currency exchange. Our internal sales growth increased 4%, and the remainder of 0.4% was acquisition growth in local currencies. If we look at the international dental sales, which represent approximately 70% of our International business, they were up 0.6%. This consisted of 6.1% growth in local currencies and a 5.5% decrease related to foreign currency exchange. And our internally generated sales in local currencies increased 5.5%, and acquisitions accounted for 0.6% growth. Internal growth in local currencies was 3.8% for Dental merchandise for the quarter, and was a strong 9% for Dental equipment for the quarter. Obviously a very healthy growth rate on the International Dental equipment side. We also believe that on an overall basis, we gained market share on our International Dental business for the quarter. And the remainder of the International business, which is primarily of the Animal Health business, which represents 24% of the International business, was down slightly 1.1%, and that consisted of 2.2% growth in local currencies, all internally generated, and a 3.3% decrease related to foreign currency exchange. Turning to our Technology and Value-Added Services sales for the fourth quarter of 2010 were $57.5 million, up 21.9% compared with the prior year's quarter. That represents internally generated sales increasing 17.5% and acquisition growth of approximately 4.4%. During the quarter, we saw continued strong growth in our Electronic Services and Software businesses with particular strength in software sales in Australia, New Zealand, Canada, and our Electronic Services business in the United States. We continued during the quarter to repurchase common stock in the open market. For the fourth quarter, more specifically, we repurchased 919,698,000 (sic) [919,698] shares of common stock during the quarter, at an average price of $57.54 per share. In total, we bought back about $58 million of common stock during 2010. This impact on the repurchase of shares in the fourth quarter and full year was not material to our EPS. Our goal of share repurchase activity is just to keep the number of shares outstanding for 2011, either in line or slightly down compared to the share count for 2010. Let's now take a brief look at some of the highlights of our balance sheet and cash flow. Operating cash flow for the quarter was $212 million, which compares to $178.5 million in the 2009 fourth quarter. The operating cash flow for the year was $388.9 million, as I mentioned earlier, and we are very pleased to have achieved our stated goal of having operating cash flow for the year in excess of our net income. Accounts receivable day sales outstanding from continuing operations increased to 40.8 days for the fourth quarter. That compares to 38 days for the fourth quarter of last year. And on a full year basis, our day sales outstanding were consistent at 40.4 days for both the current year and the prior year. Our inventory turns from continuing operations for the fourth quarter improved to 6.7 turns. That compares with 6.5 turns in the fourth quarter of 2009. For the year, our inventory turns also improved to 6.5 turns compared to 6.2 turns in the prior year. Our capital expenditures for the year of 2010 were $39 million, and we expect capital expenditures to be up a bit in 2011 to approximately $55 million to $60 million for the year. I'd like to conclude my remarks with affirming our 2011 financial guidance as follows. We expect the 2011 diluted EPS to be in the range of $3.88 to $3.98, and this 2011 guidance is for continuing operations as well as any completed or previously-announced acquisitions, but does not include the impact of any potential future acquisitions. Let me also mention at this point that we expect growth for the first quarter of 2011 to be in the mid-single digits and then to accelerate beyond that. With that, I'd like to turn the call back over to Stanley.

Thank you very much, Steven. North American Dental. I'd like to begin my review of our business with a review of the North American Dental business. We marked our fifth consecutive quarter of internal Dental consumable merchandise growth in local currencies, which provides further evidence of the stability of our North American Dental market, as well as the productivity of our consultative approach to sales and customer service resulting, we believe, in our continuous market share gains. We have recorded Dental equipment sales growth for each quarter of 2010. Sales of Dental equipment continued to reflect strong demand for high-tech equipment. We believe that pent-up demand for Dental equipment will have a positive impact in future quarters, and our order book continues to be quite healthy. You may recall that in late September 2009, we have announced that Lonnie Shoff had joined Henry Schein as President of the newly created Henry Schein Global Healthcare Specialties Group. Her mandate is to seek strategic business opportunities that help us to build our specialty businesses and expand our exclusive and semi-exclusive products and service offerings. Over the past several years, we have made excellent progress in deepening our presence in the Global Dental Specialties markets. This is particularly exciting as Henry Schein has a significant opportunity to partner with our dental specialist customers, as we do with our general practitioner customers. There are a number of businesses within this group and product categories include orthodontics, endodontics, CAD/CAM and instrumentation, as well as dental implants, restorations and alloys. Overall, products sold under these brands carry gross margins that are higher than the company's average. So clearly, they are important to Henry Schein's bottom line. Exclusive brand relationships enable us to bring innovative goods and services to our customers and help our customers to raise standards of care and improve their practices, both from a clinical and financial point of view. One of the prime benefits of our strategic acquisition approach is that we gain the expertise of key executives at acquired companies, with the goal of leveraging the talent that these executives bring, and of course our own executives saw mutual benefit. Among our most successful investments is Camlog International, our Dental Implant business. We began our relationship with Camlog over six years ago with a 51% ownership interest. Since that time we increased our equity stake to 91%, substantially improving our bottom line, and over that period, Camlog has reported a compounded annual growth rate of sales in the 20% region. Our Dental Specialties group held our first annual Dental Specialties national sales meeting in early January of this year. More than 100 team Schein members from the United States and Canada attended the event, primarily those involved in sales and marketing. While much was covered, the key areas of focus were product training and strategy implementation. New products were featured too, including introduction of a new implant system and new orthodontic bracket system. As is the case for our overall North American Dental and Medical groups, this meeting will become an annual event for our Dental Specialties group, which is actually headed up by George Guttroff, an experienced dental executive, part of Lonnie Shoff's team. Lonnie of course also has responsibility for the Henry Schein Animal Health business in North America. That joint venture, at least, from a Henry Schein point of view. The North American Medical Group, during the fourth quarter sold approximately 1.3 million doses of seasonal influenza vaccines. This brings our total for the year to approximately 12.5 million doses, which is in line with our expectations and is up from the approximately 9 million doses of seasonal flu vaccine we sold in the previous year of 2009. Also, during the 2009 fourth quarter, we had meaningful sales of products related to H1N1 virus, and sales of such products occurred to a lesser extent of course in 2010 same period. Excluding sales of this group of products from both periods, as well as sales of the seasonal flu vaccine, as Steve mentioned, we estimated that the internal sales growth was approximately 5.7%. We are very pleased with the -- I believe it's a good indication of the true top line performance of our Medical Group. This growth rate clearly represents further market share gains in the physician marketplace during this quarter, while we believe the overall office-based physician market continues to experience a decline in patient visits. So overall, we're very pleased with the performance of our U.S. Medical business as well. So now let's turn to the North American Animal Health business, which is our Butler Schein joint venture. Regarding our North American Animal Health business, as I've said for the past couple of quarters, integration work at Butler Schein Animal Health is, to a large extent, complete, and we've turned our focus now to various initiatives to drive internal sales growth by expanding the breadth and depth of our product offerings. As tangible examples of these initiatives, last week we announced two very important strategic acquisitions, both involving veterinary software companies. Our Animal Health business has become increasingly important to Henry Schein, and that's not only of course from U.S. point of view but from a global point of view as well. And being on the leading edge of technology solutions supports our position of industry leader. Of course on the software side, we now have a good presence in the United States, in parts of Europe and Australia and New Zealand as well. With the addition of the products and services of McAllister Software Systems and ImproMed, we further enhanced the vital role that Butler Schein Animal Health plays as a consultative partner to companion animal health practitioners. At the same time, we enhanced our ability to forge even stronger relationships with those manufacturers of veterinary pharmaceuticals, diagnostics and pet foods. So it's a symbiotic relationship between Butler Schein Animal Health and our Veterinary businesses in the United States and abroad, between the veterinarian and, of course, our suppliers of products to veterinarians. McAllister Software Systems serves nearly 10,000 veterinary clinics in the U.S. Henry Schein, by the way, has been the exclusive distributor for McAllister Software Systems in the U.S. for a while now, being responsible for the sale of these 10,000 veterinary systems. And ImproMed has approximately 4,000 users, mostly larger practices. We are delighted to represent such well-respected software brands AVImark, Infinity and Vtech advantage [ph], as well as the award-winning technology support of these businesses plus ancillary of course offering, ancillary e-products and services. Now let's take a look at our International business. Results were also strong. We had strong internal growth in local currencies in our Dental business, particularly in the Dental equipment area. International Animal Health sales growth in local currencies was also quite solid. On an overall basis, the U.K., Italy, France, Holland, Belgium and Austria each exhibited healthy sales growth. Equipment sales were particularly strong in Germany where we have a very nice position in the Dental equipment market and have done well growing our market share and for those suppliers that support us in that market in fact throughout Europe and Australia and New Zealand. Early in the first quarter, we closed on our acquisition of Provet Holdings Limited, which I described in some details in the last quarter conference. I just returned from a visit to Australia where I met with the dental team, the Henry Schein health team and the Provet team, and I'm really, really pleased to report that our business in Australia and New Zealand is very, very good. We have a solid management team. Unfortunately in New Zealand, we heard bad news today on the earthquake. It did not directly impact our businesses. Having said that, our hearts go out to the people of New Zealand who have gone and experienced this tragedy. Really, a very, very sad situation. Provet Holdings marks our entry into the Australasian veterinary markets, and the business continues to be run by its previous excellent management team. Really a group of knowledgeable animal health experts. The team down there really understand the product line, the needs of the practitioner and very, very happy with the team that has joined us down in Australia and New Zealand on the animal health side, which of course, supplements our successful Dental management team, which continues to run the business and has run the business for many years now. So overall, very, very good position of those markets, outstanding management team and well-run businesses in general. As we look to the first half of 2011, it's important to note that the biennial International Dental Shows, the IDS will be held in Cologne, Germany in late March. This is one of the largest and most important gatherings of the Dental community from across Europe. And in fact, people from around the world will be attending as usual that meeting. All major vendors will have a presence at the trade show, which typically provides a good indication of the Dental equipment market in particular, of course in Germany and Austria. This year's show promises to feature numerous product launches, and as in years past, we expect the Henry Schein booth to be very, very active, and we expect as usual to book a good pipeline of orders. As a reminder, typically, Dental equipment sales are somewhat slower in the months leading after the IDS show, and then orders tend to come through during the subsequent two quarters. That's the pattern we've seen for many, many years. By the way, our German team held their first national sales meeting in Germany. The first, I believe, of its kind in the German market, also extremely successful. And we also, a few weeks ago, held our U.K. national sales meeting. I can report to the shareholders that the morale in both markets, both the U.K. and Irish team and the German team is very high. We are doing very well in both markets where we are continuing to gain market share. Of course, this is [indiscernible] and should be combined with the strength that we are experiencing in gaining market share in Italy and France as well. And, by the way, the Benelux countries as well. Let me conclude my review of our business with the Technology and Value-Added Services group. Once again, we posted impressive internal growth in local currencies in these business units. We had notably strong software sales in Australia, New Zealand and Canada. Our continued excellent performance in Technology and Value-Added Services provides a platform for enhancing customer relations, increasing market penetration and a clear competitive advantage. Obviously, the software businesses provide very good profits as our shareholders know, but also terrific stickiness to the rest of our business. And this is particularly exciting now as we've made meaningful investments in the Animal Health Software businesses with the McAllister and ImproMed veterinary software acquisitions that I've actually discussed a moment or two ago, and will be accounted for in our Technology and Value-Added Services Group. Let me also note that our Financial Services Group also had a terrific fourth quarter and we are very, very pleased with the performance of that group, too. Remember, we do not take credit risk ourselves that is passed off onto a bank, multiple banks that we provide excellent turnaround time and good financing options to our customers. It's a real good customer service option. We just had our first global meeting of all our financial service managers and really a delight to see the morale amongst that team and in fact the performance of that team. So before we take questions, I'd like to take a moment to review some of the highlights of 2010, which set the stage for very, very exciting 2011 and beyond. 2010 was another year where we entered into a number of acquisitions both in the United States and abroad, each of which provided an excellent strategic and cultural fit with Henry Schein. I'd want to stress that, of course, the mathematics have to work, but the cultural fit that we seek when pursuing acquisitions. And as I just mentioned, we took a leadership position in the veterinary market in Australia and New Zealand by acquiring and merging with Provet Holdings Limited and into our leading dental position down there already. The cultural fit between Provet and Henry Schein in Australia and New Zealand is a perfect match. We also entered into the dental market in Turkey by acquiring a 50% interest in the leading dental distributor in Turkey, Güney, to the organic growth and strategic acquisitions. Our international operations represent 1/3 of our consolidated 2010 sales. By the way, Güney is not consolidated. It's a 50% acquisition. During 2010, we made an investment in Brasla USA [ph], which is a leading distributor of dental specialty instrumentation. Brasla continues to operate as a standalone business under its existing leadership. Now that all internal announcements have been completed regarding our investment, we are pleased to publicly and enthusiastically confirm that this investment is in place, deepening our product offering to dental specialties. Very, very pleased with this investment and adding a lot of good talent to the team Schein organization from a specialty point of view but also from a sales organization point of view, where Brasla is particularly strong in the United States and Canadian markets. And a lot of strength actually new [indiscernible] is of course the formation of the Butler Schein Animal Health joint venture, which solidified our position as the leading distributor of products and services to the United States companion animal veterinary. That's a proven with our large position and growing position in Europe, where we believe we are also Europe's largest distributor of Veterinary Animal Health products. And as noted earlier on in Australia and in New Zealand where we command a similar type of position. So we have the U.S., Europe and Australia and New Zealand where we have a growing presence in the important Animal Health market. And as reported a little earlier, these businesses are all coming together nicely from a consolidation, integration and standardization of the brand and now we've added the opportunity of McAllister Software Systems, ImproMed and a couple of smaller veterinary software acquisitions in Europe, that coupled with the Provet Software business in Australia and new Zealand gives us a really, really solid position to help grow our business, help provide value-added services to our customers down south and in Australia and of course in the United States and Europe, and while at the same time cementing our relationship with diagnostic and other manufacturers of product. From a financial perspective, in August, we entered into a new $400 million private placement shelf facilities and called for redemption of our outstanding convertible contingencies, thereby limiting one of our more expensive sources of capital and avoiding the potential for future dilution of earnings per share. And if we just reflect for a moment on EPS, as Steve mentioned, we are proud to have delivered full year adjusted earnings per diluted share of $3.58, which represents growth of nearly 12% over 2009 and is above the guidance range we set in November of 2009. This accomplishment along with our 15.4% growth in net sales in local currencies is all the more notable, given the considerable market uncertainties and the challenges we experienced in the global economy during this time. And as a final highlight, in November, our Board of Directors authorized the further $100 million to our share buyback program, which is a very positive signal, we believe, about our company's future and our confidence in our growth in top line, profits and, in this case, cash flow as well. So with the overview of our business in markets, let's take a few questions, but let me also take this opportunity to thank our 14,000 team Schein members around the world, who produced these terrific results in a most challenging economic environment. And also, I want to thank those shareholders who had confidence in us to invest in the company. So thank you very much. And Susan, let's open the lines for some questions.

Operator, we'll take our first question.

And your first question comes from Robert Jones with Goldman Sachs.

Looks like some strength in Dental consumables this quarter. I was wondering if you could talk a little bit more about what you saw with the Dental equipment in the U.S.? And specifically, can you maybe just provide an update on how you're thinking about promotional activities around Dental equipment and how sensitive those sales have been relative to promotions lately?

First on Dental equipment, we did see, I guess, some positive signs in Dental equipment in the fourth quarter. You have to remember that our year ended December 25, so we didn't get the full benefit of year-end buying related to tax planning because there was still an extra week of sales that could have occurred. Overall, if you look at our equipment sales, last year in 2009, the fourth quarter was down much less than the third and the second quarters. Specifically the fourth quarter, Dental equipment was down about 6%, and that compared with it being down double that 13% in the third quarter and 19% in the second quarter. So we had a more difficult comp for Q4. With respect to promotional activity, I'm not sure we're going to do anything unusually different from what we've been doing. We've been very active with promotional activity with Dental equipment, including unique financing arrangements. But I don't see us really doing anything different going forward. And again, if you look at the components of Dental equipment, we saw very strong growth in some of the high-tech categories. Really, traditional equipment was the area that was not as strong during the quarter. So I hope that helps out as color.

And then just my follow-up was around some of the comments you made on medical, more specifically around the share gains. I was wondering if maybe you could just give us a little bit more insight into where that share gain is coming from? Is this from your larger competitors or is this from some of the smaller regional players? And then just as it relates to that, I know you said that you're still seeing some challenges around foot traffic, but I was wondering if you could just maybe give us a little detail around sequential improvement or decline in physician utilization, that will be helpful.

Okay, on the first part of your question, certainly, a 5.7% local internal sales growth excluding the impact of H1N1 and seasonal flu vaccine is a very strong number and certainly is gaining market share. It's a little bit difficult for us to determine where the market share gains are coming from, but we don't believe it's focused on any one entity or group of entities, so we think it is across the board. We do believe that patient utilization is improving but improving modestly. We would expect that to continue during 2011. And right now, I think we're very pleased with growing our business in a market that at best it's flat but it's probably slightly down during the fourth quarter. So really it was a good quarter for our Medical Group.

Your next question comes from the line of Steven Valiquette with UBS.

The color on the North American Dental equipment was helpful. Your national equipment on the flip side was obviously a pretty strong number and I wanted to get more color on that, sort of what drove the 9% growth there?

Yes, International was similar to what we saw in the U.S. It was driven by strong high-tech sales, specifically our German business, which is our largest International business for equipment. Had a very strong fourth quarter, but it was also a good quarter for the other markets. But again, it was led by the high-tech equipment categories that was extremely strong for us in Q4.

And then just a quick question and follow-up here on the 1Q '11 guidance. It looks like it's maybe it $0.03 or $0.04 below consensus, but I kind of missed the commentary on what's driving your view of sort of mid-single digit type growth for 1Q and then the acceleration for the rest of the year. If you can just give a little more color on that as well?

Really if you look at Q1, the reason why the growth is a bit lower than the full year growth relates to, in simplest terms, a more difficult comp. Specifically, if you look at last year, our EPS growth was up 17%. So it was a very strong first quarter last year, and it's really just the timing of a number of expenses and activities, including going up. Stanley mentioned the IDS show, which tends to delay some equipment sales in the early part of the year but then that's a timing benefit in the latter part of the year. So it's really timing and the very strong Q1 of last year growth that we have that impacts that.

Your next question comes from the line of A.J. Rice with Susquehanna Financial.

Just maybe a broad question on the International acquisition activity. It seems like there's been a pickup in activity as witnessed at the announcements that you guys had. Is there any underlying reason that you think you're seeing more opportunities now? Are you more active? Or is there any reason that their sellers are more willing to talk to you at this point?

I don't think much has changed. We have a very active business development group that have responsibility for advancing our business in North America and abroad. The pipeline continues to remain quite active. It's been quite active for many, many years. The timing of closing is of course lumpy, and I think the closing just bunched up a little bit. But the pipeline continues to be quite active as we expand our footprint in terms of Dental, Animal Health and to some extent, Medical, in the consumables, the equipment and software arenas. And we have lots more to go. We are moving towards a situation where probably half of our business will come from outside of the United States and then a period of time a couple of years. Lots more activity to go and lots more business to be had. We have a relatively small international market share, although by far the biggest of any distributor. But then the market continues to be relatively under-penetrated by us, so lots more to go and nothing special. There's no change in the price of acquisition. They still continue to be close at about the same rates. I think maybe getting a little bit better at doing these deals so we get a little bit more better deals, but no major changes, I think, right now.

Thinking about the Butler Schein business, I know the original bought was going to be $0.03 to $0.05 added to 2011. Maybe any update on that? And also I guess that's the main driver of your minority interest expense, and I've noticed that has bounced around a little bit in the last three quarters, $4.2 million this quarter. Is that a reasonable run rate? Or do you think it will revert back to the sort of $8 million we saw last quarter?

We'll take the second part of your question first, A.J. The minority interest line has bounced around, but the biggest change there was that we increased our ownership in Camlog International, right? So we went from about 65% ownership at the beginning of the year to -- we're just over 90%. So obviously, the change there was lower minority interest impact. There's offset to interest expense because we paid cash for that obviously. And net, it was slightly positive to us for the quarter. So I would expect that line to be more consistent to what you saw in Q4, as well as growth as the underlying businesses grow next year and beyond, because we do expect them to grow. With respect to Butler Schein, we don't have any change in our 2011 accretion guidance. We still believe that, that's a very doable achievement for us. We are focused on, as Stanley said, driving top line growth. We do think that now that all the integration activities are completed, we can do that and there's lots of opportunities there. And of course, hopefully, as the year progresses, we'll give more detail on that, but right now, we feel like the guidance that we gave is still intact.

The next question comes from the line of Lisa Gill with JP Morgan. Lisa Gill - JP Morgan Chase & Co: Firstly, just a follow-up to an earlier question where you said that the year ended on December 25. Did you see sales actually come through for high-tech equipment in that last week? Or do you think because of the changes with the tax benefits being extended that the people are pushing out those decisions and maybe you'll see some of that come through in 2011?

Lisa, it was a little bit of both because we did notice that some customers, because the tax benefit continues into this year, it wasn't the same need to purchase in 2010. Although just from a cash flow perspective, get the tax benefit this year versus next year is an advantage. And we did see our order book continue to be strong as we ended the year, so we do think that there's opportunity for equipment to pick up a little bit for 2011. It's really hard, as you can imagine, for us to specifically pinpoint exactly what the impact of the taxes, as well as the year end really does to our numbers. But we do think that Q4 would've been a little bit stronger because we did have a number of installations that occurred in the first part of January. Lisa Gill - JP Morgan Chase & Co: And then on the consumable side, 4.3% internal growth. Are we seeing that the people are coming back to the dentist again? Do you feel that these are the trends are going to continue as we move throughout 2011? And then secondly, I think you also commented that you were taking some market share. Can you maybe just give us some idea of where you're taking that market share from?

First, I think patient traffic in the dental office for Q4 clearly was up, so that was a good news. I think it's very important to note that the consumable sales is generally an indicator of the overall dental market, including equipment. So the fact that we saw good growth in the market and we took market share, because I don't think the market was near 4% growth, 4.3%, I think it's a good indicator that the market is rebounding, and I think that should again help out with equipment as the year progresses because as the dentists sees more activity, they may not want to delay certain equipment purchases. But to be fair, I don't think that gains, 4.3% gains on a continuing basis is something that you should expect. I think it was a very strong quarter for us but I do think that, that expectation continuing, it probably needs to be tempered a little bit. Lisa Gill - JP Morgan Chase & Co: And then where you're taking the market share from?

Again, I think it's primarily from the smaller players, but it probably is across-the-board. But primarily, I think from smaller players.

Your next question comes from the line of Jeff Johnson from Robert Baird. Jeffrey Johnson - Robert W. Baird & Co. Incorporated: Stanley, just on the U.S. Dental business or the North American Dental business, especially on equipment, any comments on your E4D business this quarter? And then Steve, the BIOLASE business went largely direct, I guess, in October of 2010, and I think Q4 last year was a pretty big BIOLASE quarter for you, if I remember right. Can you help us quantify at all what that headwind of that business going direct might've created in the quarter?

Yes, Jeff, I would characterize E4D as quite solid. Of course, E4D has only been in the market for about two years or so and is gaining credibility and momentum. The machine is quite stable and I would say that our field sales consultants are getting many more appointments to see the machine now than say a year ago. And our close rate is pretty good. So I would say that in the United States market and the Canadian market, the machine is gaining credibility. We are starting to gain some sales. So we're happy, and so are our partners. There'll be more technology introduced in the next period of time, upgrades, et cetera. And so, I think we should characterize the investment and the exclusive distribution right as something we're very pleased with.

Jeff, with respect to BIOLASE. Yes, you are correct that because of the change in the distribution arrangement, we are no longer the exclusive seller of BIOLASE. BIOLASE is also selling on a direct basis, and we think that's good for the product as it needs more representation in the market. That did have a negative impact to us, so our BIOLASE sales where we continue to sell was down. It was the highest negative in our equipment category. And if you were to exclude BIOLASE from both periods -- remember, it's not that material to us on an overall basis, but it did have an impact on our growth rate. If you were to exclude BIOLASE, the negative impact on our equipment sales growth for the quarter was almost 3%, so it did have a negative impact to us. And I think it's a good question because the overall Equipment business was stronger than what showed through on a reported basis. Jeffrey Johnson - Robert W. Baird & Co. Incorporated: And, Stanley, last question. I guess my follow-up question would be on your International business. One, I thought it was interesting you said in the next couple of years maybe getting a 50% of revenue as I've heard you in the past say, maybe over three to five years. So is there something that's accelerating that? That would imply over $1 billion in kind of new revenues over the next couple of years just in the international markets? And then any update at all on your Middle East business with all the upheaval we're seeing there? Obviously in the countries you're in -- the four countries you're in, it seems like things are relatively stable there, but any bleed over impact that we should be thinking about?

Jeff, what I think gives us the additional confidence is we really have developed an outstanding international team over the last couple of years on the Dental side and the Animal Health and the small Medical business that we have. And I think that the team can take on more assignments. Of course, as we entered into and expanded into the Animal Health market, that gives us additional opportunity because there's a real good opportunity to consolidate that market and take our dental model and expand it abroad. So I think the team we have gives us runway. Clearly, our market share is not very high. So there's lots and lots of opportunity in each of the major markets. And of course, our entry into the emerging world markets also provides some upside, although my guess is the majority of the growth will come -- or the majority in terms of absolute dollars will come from the developed world. As it relates to the Middle East, our major position of course is in Turkey, which is really quite stable and the business is doing quite well, of course, it's a 50% ownership and is therefore not consolidated. We do some Export business into the Gulf. I don't expect that to be impacted at all, but we don't actually have a joint venture on the ground or business on the ground in the Gulf. And our business in Israel is doing quite well.

Your next question comes from the line of Robert Willoughby with Bank of America Merrill Lynch.

Steve, there was a small sale of a noncontrolling interest in the subsidiary in the quarter. What was the income statement of that? And then secondarily, I guess Oak Hill can put their interest to you in Butler Burns this year. Do you expect that? And if so, kind of timing and impact from something like that?

Okay, on the put rights, yes, Oak Hill has the right to sell their shares or to put their shares to us starting at the beginning of 2011. At this point, they haven't given us any indication that they want to put. I think they still like the business. They like the growth opportunities of the business. But again, it's hard for me to project. But right now, the indications are that they're not interested in putting. And Bob, I didn't catch your first piece of your question. What was the question that you were asking?

It just looks like at the cash flow statement there was a small sales, some proceeds came in from a noncontrolling interest in a subsidiary where, I guess, you reduced an interest or your interest, if I'm reading that correctly. I was wondering, did that generate a small gain or loss for you from an income statement perspective? It was timing, it was like $3 million on the cash flow statement.

No, there really was no P&L impact on that. It was all cash flow. So no, there was no P&L gain or loss related to that.

Your next question comes from the line of John Kreger with William Blair.

This is Rob Difan [ph] in for John today. A question on the vet side, it sounds like you're starting to focus a little bit more on growth after the integration is over. Can you talk about some of the initiatives you're putting in place and what you think the impact of those could be to organic growth in '11?

Are you talking about on the Butler Schein?

Yes, exactly.

There's a number of things. One, if you just look at the focus of our field sales group, there was a lot of focus in 2010 on changing territories and changing the mix of the customer base or sales people so that we can eliminate sales people calling on the same account. So all of that has gone and now everyone knows who their account is and everyone really is completely focused on their new territory alignments. There is also a lot of cross-selling opportunity. With respect to private label, we have a broader private label offering now with the Henry Schein private label product offering. Certainly, with the acquisitions of the software companies, that should help cross-selling to the companion health market. We also have a number of financial services leasing and other services that will make it hopefully easier to sell certain equipment to the veterinary practice. And then there is, on the flea & tick product categories, we now have access to both lead brands and that allows us to sell the product line to both the original Butler customers, both product lines, as well as to the Schein customers. So it's really in cross-selling and getting deeper penetration with our customer base.

I think just to add a little bit more to what Steven said, and that is we, at this point, feel that the market is probably starting to grow again, and that's good, and we expect to gain market share. So gaining market share in a growing market will add to internal growth.

And then if we think more globally for vet, I know you guys have talked about using your global breadth to drive better purchases. Where do you stand in that initiative?

I think you have to bifurcate that question into two. There's the branded manufacturers. I don't think we expect to necessarily get better pricing because we are a global player. I think we will help those manufacturers [indiscernible] that work with us closely gain market share. Having said that, I think that supply chain efficiencies will increase, and we will take these businesses and increase the operating margin from the supply chain efficiencies. In addition to that, clearly, as Steven noted, injecting our private brand offering into these markets, the Animal Health markets will of course increase the profitability of those businesses and obviously, the more private brand we sell on an aggregated basis between all our businesses, the better deals we can get with our suppliers. And I think that we will continue to leverage our buying capability in that regard and specifically our Asian office out of Shanghai, which will continue to increase the profitability through reducing of our acquisition costs. And that in itself will provide greater profits.

And our final question will come from the line of Larry Marsh with Barclays Capital.

This is Elliot Dunwin [ph] filling in for Larry. Steve, just a follow-up to a previous question when you spoke a little bit about guidance, the guidance range being $0.10 for this year, still very reasonable at this point given it's early in the year. But just wondering what are the key drivers or swing factors, as you see them for '11, that gets you to your upper-end of that range?

There's a couple of things that hopefully there are opportunity on. One is related to foreign exchange because people know we tend to include in our guidance conservative estimates on how the dollar versus the local currencies impact us, and right now, that is the conservative assumption that we have baked into our guidance. So hopefully, that will continue. I think the big thing really is the market's continuing to modestly improve like we've seen and like we're expecting. So that continuation is important. We're very focused on gaining market share. And if you look at a lot of our businesses, despite the market conditions, we have gained market share, so we want to continue to do that. I think that there is some opportunity on equipment because we're also trying to be conservative on equipment expectations. You heard earlier that x the BIOLASE impact, we're almost 3% growth for the quarter. So hopefully, we'll see some pickup in equipment. But again, on a lot of these things what we tend to do is build in conservative or realistic to conservative expectations. As you said, it's still early in the year, but we feel good about going into 2011 with all of the activities that we've completed, and we feel like there's some positive momentum going into 2011.

And just really quick, Steve, on taxes for 2011. I may have missed on much if you're giving direction there, but it seems that directionally, should we now assume that you have the ability to drive a more efficient tax rate over the next year or two given the trend that we've seen over the past couple of years?

Yes, I think that that's correct, that we should not expect to see any significant improvement in tax rate. I think it's going to be relatively consistent, maybe up slightly. It depends on income and which tax jurisdictions. But we don't expect that and we're not expecting that to be an opportunity going into 2011.

So, thank you very much everyone for calling in on today's call. I think you can tell from the prepared remarks and the Q&A dialogue that we believe the business is continuing to grow nicely in terms of market share in every one of our businesses. We are managing our expenses quite well. We continue to integrate acquisitions affectively and have a good pipeline for acquisitions, although there are no commitments obviously to close any acquisitions in any particular time frame. That is always dependent on the effects on the ground at the time. So overall, we're quite happy with the state of the business. We think that the markets are stabilizing to moving into the slightly positive territory, and assuming that the world continues to be relatively stable, we continue to be most encouraged by our markets and look forward to a terrific 2011. So thank you for calling. If you have any questions, you can reach Steven at (631) 843-5915 and Susan at 5562 at Henry Schein. So thank you very much, and have a good day.

This concludes today's conference. You may disconnect at this time.