Balance Sheet Suggests That Getting Paid by Henry Schein Is Like Pulling Teeth

Also, a big deal for Qualcomm? And behind the Zomax story.
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The Tuesday Trounce:

Open wide:

Numbers don't usually lie. Consider the case of

Henry Schein

(HSIC) - Get Report

, which calls itself the largest distributor of health-care products and services to office-based health-care practitioners in North America and Europe. This is a company whose payable days -- the amount of time it takes before paying its suppliers -- historically have hovered around 35 to 37. In the past two quarters that's zoomed up to 50 days, while rival

Patterson Dental's

(PDCO) - Get Report

have remained fairly constant.

That's no surprise to Steven Klein, who runs San Diego-based

Dental Articulating Paper Co.

"They used to pay in 10 days," he says. "For 20 years they were my best customer. They were always the most reliable." But then the company went on a buying binge; in the past two years alone it has bought 24 companies. Some of the transactions involved cash. As recently as last week, Klein told me Henry Schein hadn't paid seven invoices dating back to September.

For a while, he thought he was the only supplier with such a problem. So, he says he called Henry Schein "and I got shuffled from one department to another. They said the check's in the mail since late October. They said they sent it to the wrong vendor. Then I called around and found everyone else was having the same problem."

Klein, an attorney, says the company had simply stopped responding to him; even letters written in his best legalese haven't helped. (As it turns out, he finally got paid yesterday with a check post-dated mid-December, which means the company was still well over a month late in paying.)

Which brings us back to the balance sheet and financial statements. According to Henry Schein's

Securities and Exchange Commission

filings, the company reported a positive cash flow of $18 million in the quarter ended last June, and negative $5.8 million in September. However, if the company hadn't stretched out payables, and had kept them at historic levels, one short-seller calculates cash flow would've been more like a negative $49 million in the September quarter and a negative $24 million in the June quarter.

That's not all: For the first nine months of last year, receivables shot up by 58% vs. a 14% gain in sales. Inventories, meanwhile, leapt 77%.

A Henry Schein spokeswoman says, without elaborating, that the company believes it's the best payer in the dental industry. "Most of our suppliers tell us that," she says.

That's what Klein once thought too.

Strange times:

"When you start pitching these stocks, we're all in trouble." One of this column's short-selling sources was half-joking about yesterday's

item regarding

Chumbo

and

Zomax

(ZOMX)

. I originally heard about Zomax and Chumbo a month ago; if there had never been an Internet insanity, it would've been a good story. I decided not to write a word, however, after one plugged-in money manager -- within hours after I had made a few calls about Chumbo -- told me he had heard I was planning to write about the company. That explained the rise in Zomax's stock that day, and it caused me to put the brakes on doing any further research into the company. (That's the

last

thing the writer of this type of column wants to hear.) Within days of that fiasco, analyst Clint Morrison from

John G. Kinnard

reiterated his buy, and the stock has since roughly doubled.

I had pretty much put Chumbo out of my mind until late last Friday -- well after 3 p.m. -- when I heard that a day earlier Chumbo had struck a deal with

IBM

(IBM) - Get Report

that nobody apparently noticed. This time I waited until around 4 p.m. Friday to start making calls on a story that ran 6:30 a.m. Monday.

And from the "the times they are a changin'" department: In normal times that kinda item would have been considered legit for shining the spotlight on a company that nobody had previously given a hoot about. (Go back and take a look at my original

Rambus

(RMBS) - Get Report

piece from several years ago in the

San Francisco Chronicle

. These days it's labeled as hype.)

Speaking of which:

The bull/bear battle over

Qualcomm

(QCOM) - Get Report

has been raging for so long, it's hard to tell which side is on first. The stock has traded in a tight range for the past three years, as the teeter has tottered in both directions. It may now be teetering back in favor of the bulls.

Motorola

(MOT)

last week announced a new phone using CDMA digital technology. One of this column's very reliable money management sources, who is long Qualcomm, said Motorola officials told him at last week's

Consumer Electronics Show

in Las Vegas that the new phone was using Qualcomm's chip. Neither Motorola nor Qualcomm officials returned calls seeking comment

Finally, more Chumbo chatter:

One very important question I forgot to answer in yesterday's

column on Chumbo (actually, I forgot to ask it) was what Chumbo means. "A well-kept secret," President David Prais says. Ah, c'mon. "It means unleaded gas in Portuguese," he says. "They say, 'Fill it up with Chumbo.' It's a cool name. And when we discovered what it meant, we figured we can turn lead into gold."

Herb Greenberg writes daily for TheStreet.com. In keeping with the editorial policy of TSC, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. Greenberg writes a monthly column for Fortune and provides daily commentary for CNBC.