Henry Schein Annual Report 2001

FY2001 Annual Report · Henry Schein

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70 years. One focus.

2001 Annual Report

ABOUT HENRY SCHEIN

Henry Schein, Inc. is the largest distributor of healthcare products and services to office-based practitioners in the combined
North American and European markets. Customers include dental practices and laboratories, physician practices and veterinary
clinics, as well as government and other institutions.

Widely recognized for superior service, low prices, and innovative value-added solutions, the Company is dedicated to helping its
customers practice high-quality healthcare and improve their profitability.

Henry Schein operates its five business groups – Dental, Medical, Veterinary, International, and Technology – through a centralized
and automated distribution network, which provides more than 400,000 customers in 125 countries with a comprehensive selection
of over 80,000 national and private brand products. The Company reaches its customers through an integrated sales and marketing
approach, combining a network of over 1,250 field sales consultants with extensive direct marketing programs, electronic ordering
options, and over 700 telesales representatives. During 2001, Henry Schein distributed more than 19 million pieces of direct marketing
materials to approximately 650,000 office-based practitioners.

FINANCIAL HIGHLIGHTS

OPERATING RESULTS
Net Sales
Operating Income
Operating Margin
Return on Committed Capital
Net Income
Diluted Earnings Per Share
Diluted Average Shares Outstanding

OPERATING DATA
Number of Orders Shipped
Average Order Size

(In thousands, except per share and operating data)

2001

2000

1999

1998

1997

$2,558,243
$ 147,750
5.8%
27.2%
87,373
2.01
43,545

$
$

$2,381,721
$ 127,613
5.4%
23.5%
$ 70,147
$ 1.67
42,007

$2,284,544
$ 119,232
5.2%
22.0%
59,796
1.44
41,438

$
$

$1,922,851
96,196
$
5.0%
20.3%
57,823
1.39
41,549

$
$

$1,698,862
62,609
$
3.7%
17.3%
41,746
1.14
36,690

$
$

7,891,000
$ 324

8,280,000
$ 288

7,979,000
286

6,718,000
286

6,064,000
280

FINANCIAL POSITION AND CASH FLOW
Total Assets
Stockholders' Equity
Net Cash from Operating Activities

$1,385,428
$ 680,457
$ 190,911

$1,231,068
$ 579,060
$ 152,994

$1,204,102
$ 517,867
56,493
$

$ 962,040
$ 463,034
2,693
$

$ 803,946
$ 424,223
$ (41,687)

NET
SALES
($ in millions)

OPERATING
MARGIN

EARNINGS
PER SHARE
(in dollars)

RETURN ON
COMMITTED CAPITAL

$ 3,000

$ 2,500

$ 2,000

$ 1,500

$ 1,000

$ 500

2
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$ 2.50

$ 2.00

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$ .50

NET CASH FROM
OPERATING ACTIVITIES
($ in thousands)

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5
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97 98 99 00 01

30%

25%

20%

15%

10%

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97 98 99 00 01

$ 200

$ 150

$ 100

$ 50

$ 25

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97 98 99 00 01

NOTE: Financial Highlights are presented as originally reported, and have been restated to reflect various new accounting pronouncements and exclude
merger and integration costs, and restructuring costs, net of taxes; as well as losses on the disposal of certain non-core business units.

70 YEARS. ONE FOCUS.

Henry Schein, Inc. began as a retail pharmacy in
Queens, New York in 1932. Today, seven decades
later, we are the largest distributor of healthcare
products and services to office-based practitioners
in the combined North American and European
markets. Ours is an impressive story of success that
is due to the fact that for 70 years, we have had
just one focus – helping our customers to succeed.

During that time, everything around us has
changed; the number of our customers and their
needs, our locations and offerings, and the speed of
business and technology used. We have changed
to meet these demands, increasing our size, our
markets, our products and services, and the ways
our customers can do business with us.

Today, over 6,500 Team Schein Members share the
same uncompromising commitment to customer
service that Henry and Esther Schein instilled in
their company. Our dedication to this ideal is why
Henry Schein continues to be an industry leader.

For 70 years, we have focused on our customers –
a focus we will continue for years to come. It is the
best way we know to ensure another seven decades
of remarkable success.

One focus.

Top photo: Henry Schein in his pharmacy circa 1932. Bottom photo: Standing from left to right, Dr. Thomas Schwieterman, Dr. Donald Schwieterman,
Marilyn Willke Schwieterman, seated is Dr. Jim Schwieterman. Henry Schein’s origin as a family business is important to Dr. Thomas Schwieterman,
the fourth generation of his family to run the 109-year-old Schwieterman Family Practice in Ohio. “Through the years, Henry Schein has always provided
us with the highest quality customer service,” he says. “When we call Henry Schein, people talk to us as though we are their neighbor.”

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LETTER FROM STANLEY BERGMAN

To Our Shareholders,
This year, Henry Schein celebrates its
70th anniversary. Through the past seven
decades, the world has changed greatly,
but there has been one constant at our
company since 1932 – our focus on helping
our customers to succeed.
Since we were founded, we’ve seen some dramatic changes:
• Our Company’s size – Henry Schein began as a retail pharmacy
in Queens, New York. Today we are the largest distributor of
healthcare products and services to office-based practitioners
in the combined North American and European markets.

• The speed of our business – We now ship over 8 million orders

each year.

• Our customer base – We now serve more than 400,000

healthcare practitioners in 125 countries around the world.

• Our offering of products and services – Today, no other

company offers as wide a variety of products – over 80,000 SKUs
in North America and more than 63,000 SKUs in Europe.

• The technology we use – The healthcare technology used by our
customers and the technology that drives our business advances
each year. Essential tools, such as the Internet and CD-ROM
catalogs, were unimaginable just 20 years ago.

Through all of these changes, we have consistently and predictably
grown because we have never lost sight of our founding principles –
a commitment to deliver the best customer service possible. This
commitment, which is embraced by each of our over 6,500 Team
Schein Members, is as important now as it was 70 years ago.

Our Financial Results
The success of focusing on customer service is clearly seen in our
recent growth and our financial results for 2001. In the past seven
years, we’ve completed approximately 70 acquisitions and successfully
integrated them into our organization. As a result of acquisition and
our organic growth, we are the leading participant in healthy yet
highly fragmented markets, and we face significant growth opportu-
nities. We have an estimated 15% share of the consolidated markets
we serve, which total an estimated $15.5 billion, and are growing at
approximately 5% to 7% each year.

At the beginning of 2001 and following a company-wide restructuring
in the previous year, we began implementing an updated three-year
strategic plan. Our goal is to leverage our unrivaled assets and
unique position as a multinational, diversified healthcare products
and services company to the benefit of our customers and our
stockholders. Our plan is specifically designed to continue sales
growth, improve operating margins, and generate strong cash flow.

As evidence of our success, in 2001 we posted record
financial results in five key areas:
• Net sales

7.4% growth (9.4% in local currencies and adjusted for a comparable
number of selling days) – $2.6 billion, up from $2.4 billion in 2000

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• Operating income

15.8% growth – $147.8 million, up from $127.6 million,
adjusted to exclude one-time items in 2000

• Net income

24.6% growth – $87.4 million, up from $70.1 million,
adjusted to exclude one-time items in 2000

• Earnings per share

20.4% growth – $2.01, up from $1.67,
adjusted to exclude one-time items in 2000

• Cash flow from operations

24.8% growth – $190.9 million, up from $153.0 million in 2000

• Return on committed capital
27.2% for 2001, up from 23.5%,
adjusted to exclude one-time items in 2000

Our Five Operating Groups
A focus on excellence in customer service is a constant across our five
operating groups, although that excellence may take different forms.

In our Dental Group, we recognize that the role of the oral health
provider is becoming increasingly crucial, as more and more research
points to the correlation between oral health and an individual’s over-
all well being. Many severe chronic medical conditions are discovered
only at a late stage of the disease when signs and symptoms compel
the affected person to seek medical care. Research suggests that
dentists can help in the early detection of such illnesses as cardiovas-
cular disease, asthma, and oral cancer. To help detect oral cancer,
which claims the lives of over 8,000 people annually in the U.S.,
dentists look to Henry Schein for OralCDx®, the brush biopsy product
that we distribute exclusively. The new ADA-accepted test, which is
the first advance in oral cancer testing, does not require anesthesia,
and causes minimal bleeding or discomfort. In addition to OralCDx®,
we exclusively distribute several other products, such as X-Rite’s
ShadeVision™ dental vision system, a significant technological
advance in restorative tooth shading.

Stanley M. Bergman is pictured above at the Melville, New York headquarters. To his left is a portrait of Henry and Esther Schein,
the founders of the Company.

As the role of the dentist evolves there is a growing importance of
the value-added services that can help practitioners provide a high
level of quality patient care, and at the same time operate a more
efficient and profitable business. To this end, we are a leading
provider of practice-management software, electronic claims
processing, financial services, and continuing education. We also
offer a wide range of ordering options for dental professionals,
including field sales representatives, telephone, Internet, and
CD-ROM. As a result of our customer service focus, we remain
a leading distributor of dental supplies, equipment, and services in
the U.S., serving more than 75% of the 110,000 U.S. dental practices,
15,000 U.S. dental labs, as well as most dental schools and
government institutions.

Our Medical Group is a constant reliable source for the healthcare
practitioner. We are the fastest growing distributor among the major
competitors in the physician and alternate-care market, with 17%
year-over-year growth. In addition to offering a wide array of medical
products, we provide a full range of vaccines, injectables, and other
pharmaceutical products. New commitments with our manufacturers
of influenza, tetanus diphtheria toxoids, and pneumococcal vaccines
will help ensure we meet our customers’ needs for years to come.
We also have in place a number of attractive formulary pricing plans
for groups including the American Medical Association, the American
Society of Plastic Surgeons, the American Academy of Dermatology,
and U.S. Oncology, to name a few.

Our commitment to our Veterinary Group customers can be seen
in the breadth of our product offering. We serve 70% of the
22,000 U.S. Companion Animal Veterinary Clinics, offering them a
selection of more than 23,000 items. The Group, which shares the
Dental/Medical Group infrastructure, has a catalog that is supported
by more than 50 telesales professionals.

To ensure excellent service for our European customers, our
International Group is replicating our successful U.S. model in
Europe, and has assembled a seasoned senior management team.
This commitment strengthens our position as the only Pan-European
healthcare supplier to office-based dental, medical and veterinary
practices in over 125 countries worldwide, and more than 150,000
active customers in Western Europe alone.

Practice efficiency will become increasingly critical as individual
practitioners see an increasing number of patients, and advances
spearheaded by our Technology Group allow us to increase the
efficiency of our customers’ practices. Through our practice
management software, we are connected to more than 44,000
practices, with another 20,000 customers placing their orders through
our electronic catalog. We generate more than $250 million in
electronic orders annually. In 2001, we processed over 21 million
electronic dental claims, and launched an exciting new initiative – the
Digital Dental Office (DDO), which uses a suite of technologically
advanced products to deliver true seamless integration of imaging,
clinical, and financial applications in the dentist’s office.

Delivering Customer Service in Four Ways
We deliver excellent customer service in four ways.

• Through customer partnerships – We have increased the number

and productivity of our field sales consultants, and pride ourselves
on having the industry’s best-trained field sales force, telesales
representatives, equipment and office design specialists, and
technical service representatives.

• Through value-added services – We have a broad line of products
offered at low prices, as well as financial services, repair services,
continuing education programs, and customer loyalty programs.

• Through our infrastructure – In the U.S. and Canada, 99% of all

items are shipped complete, 99% of all orders are shipped the same
day they are received, and 99% of all orders are delivered within
two days of placement.

Team Schein Members worldwide embrace these competencies as
being the core of customer service. In addition, we are committed
to being good corporate citizens, as exemplified through our
Henry Schein Cares™ program. This global corporate donations
program supports underserved communities suffering from a
disparity in healthcare services, both in the U.S. and abroad.
Medical and dental supplies, including pharmaceuticals and other
injectables, donated through the program are given to clinics treating
the underserved throughout the United States, Central America,
Africa, and eastern Europe. In this way, we continue to dedicate
ourselves to helping close the gap in the delivery of healthcare
throughout these areas of the world.

Looking Ahead to Our 70th Year
We look forward to building on our success of 2001, and are
optimistic about our future for a number of reasons.

• We are in attractive markets. The 50% growth
in the 45-65 age group between 1995 and
2000 is expected to double by 2020, and the
aging U.S. population is increasingly utilizing
healthcare services. Other trends include an
increased number of dental procedures
and increased dental insurance coverage,

a migration of procedures from acute-care settings to physician-
offices, and continuing growth in the use of vaccines, injectables
and other pharmaceuticals in alternate-care settings.

• We have important competitive advantages. In addition to our
direct sales and marketing expertise, we have a broad product
offering at low prices and a large installed user base of dental and
veterinary practice-management software upon which to build.

• We have clear growth strategies. We will increase the penetration
of our existing customer base, the number of customers we serve,
and our cross-selling efforts with key product lines. We also will
pursue strategic acquisitions.

• We have one focus – customer service. Through our customer

service programs, field sales training, finely tuned infrastructure, and
the latest technology, we will stay true to our guiding philosophy.

I remain confident in the direction in which Henry Schein is heading
and have great expectations for our 70th year. Sales of our Medical
consumable products should outpace market growth, having
increased at more than twice the market rate for several quarters.
Our Dental sales should continue to grow as we reap the benefits of
key initiatives implemented during the year. Our operating margins
should continue to increase, driving bottom-line growth in the mid-
teens, and a greater percentage of our operating income should come
from value-added services.

As we enter our eighth decade of business, we recognize the tremen-
dous contributions of each Team Schein Member and the continued
support of our customers, supply partners, and shareholders. We
remain as focused on delivering premier customer service as was our
founder when he opened his pharmacy in 1932. This singular focus
will help us achieve continued profitable growth for years to come.

Sincerely,

• Through technology – Our innovations, ranging from DDO
technology to our recently redesigned Web site, help our
customers operate more efficient and profitable businesses.

Stanley M. Bergman
Chairman, Chief Executive Officer and President
May 2002

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CUSTOMER
SERVICE
THROUGH
PARTNERSHIP

Partnership – by the numbers
• 1,250 field sales consultants
• 700 telesales representatives

Our goal is to be a true business partner with our customers – to be one source upon
which they can rely. Our customers know they can turn to us at the time and in the
way that best suits their needs. With highly trained Team Schein Members providing all
the tools our customers need to operate efficient and profitable practices, Henry Schein
is always open for business.

Henry Schein is one of the most recognized and trusted

names in the Dental, Medical, and Veterinary industries
for a very good reason – we strive to be our customers’
partner in everything we do.

We are an integral link in the healthcare chain, and it is a responsi-
bility we do not take lightly. Patients around the world depend on
their healthcare providers. In turn, those providers – our customers
– rely on Henry Schein to have the products and services they need
to help them treat their patients.

Our commitment to partnership has included increasing the number
of highly trained field sales consultants we have representing
Henry Schein around the globe. We now have over 1,250 field sales
consultants covering North America and Western Europe, including
our equipment sales specialists. In addition, the Company has over
700 telesales representatives in regular contact with customers.

We are also committed to increasing the productivity of our sales
consultants through tools that utilize the latest technology and
ongoing training. During 2001, this included a significant invest-
ment in our proprietary Customer Analysis Tool (CAT) system, an
electronic call planning system that displays the order patterns of
customers. By focusing on listening to our customers’ needs and
helping them succeed through our broad offering of products and
services, our training programs ensure that our customers’ contact
with Team Schein Members will be productive and beneficial.

Complementing the work of our sales force, our Equipment Sales
Specialists provide expert counsel in equipment selection, while our
Office Design group develops plans that use space most efficiently
to provide for growth. Finally, our highly trained Service Technicians
keep our customers’ equipment running at its best with tools such as
FieldCom, which contains a complete equipment and parts listing,
documents and catalogs customer repair data/history, and facilitates
ordering and billing for parts.

FieldCom eliminates paper work orders, generates receipts, and
helps technicians quickly determine pricing and availability of parts –
improving our customers’ profits by decreasing equipment downtime.

Like any valuable partner, we seek new ways to ensure our reliability
to our customers, as in the case of vaccines. The Henry Schein
Medical Group is a leading distributor of vaccines to office-based
practitioners in the U.S., and we expect more vaccines to come to
market in the coming years. Because influenza vaccine is in high
demand annually, we entered into a new, expanded multiyear
commitment with our primary flu vaccine manufacturer in 2001.
Similarly, because the tetanus and diphtheria toxoid vaccine has
been in extremely short supply, we signed an agreement to distribute
over 8 million doses of the vaccine to our customers over three years.
We also signed a new contract to ensure a supply of pneumococcal
vaccine to our customers. These important new agreements will help
us continue to meet our customers’ vaccine needs for years to come.

Our reliability was one reason that the U.S. government selected
Henry Schein to be a partner in their emergency disaster relief team.
We were called upon to deliver emergency medical supplies to
New York area trauma hospitals and Ground Zero following the
tragic attacks of September 11. Within 90 minutes of receiving the
call, we coordinated with police in New Jersey and New York City,
and were one of the first to arrive on the scene, delivering prepack-
aged trauma kits. As rescue efforts continued, these deliveries
expanded to include veterinary supplies for the rescue dogs combing
through the wreckage. Previously, we were part of the response
efforts for the 1993 bombing of the World Trade Center and the
1996 crash of TWA Flight 800. In these emergency situations,
when our customers were ready to treat victims, we were there for
them – like any true partner.

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Dr. David B. Case M.D., MACP (left) and Ed Bradey, Henry Schein Medical Group Lab Specialist at New York Physicians, LLP.
To our customers, Henry Schein is more than a product and services distributor – we are a business partner. Our field sales consultants
and telesales representatives around the globe work with customers to understand and meet their needs, offering them products and services
to build successful and efficient practices.

CUSTOMER
FOCUS
THROUGH
VALUE-ADDED
SERVICES

Adding value – by the numbers
• 21 million electronic claims processed
• 80,000 SKUs in North America
• 63,000 SKUs in Europe
• 7,500 Henry Schein brand SKUs

At Henry Schein, we recognize that our customers expect, and deserve, services that add
value to their practices. In addition to the convenience of one-stop shopping, we offer our
customers an impressive array of value-added services including financing, continuing
education, office design, repair services, and customer loyalty programs, among others.
Through this broad offering we help improve all facets of our customers’ practices and
strengthen our customer relationships.

Since 1932, Henry Schein has constantly searched for new

ways to add value to the high-quality products we provide
our customers. We do this by continually evaluating and
expanding our product offering. Today, with the broadest

range of competitively priced products in our history, we are a single
source for virtually all of our customers’ product needs. Our compre-
hensive catalogs now include over 80,000 SKUs in North America
and approximately 63,000 SKUs in Europe, and feature products
from the industry’s premier manufacturers at prices typically below
those of our major competitors. Our catalogs also include an
extensive Henry Schein private brand offering of quality healthcare
products, consisting of over 7,500 SKUs.

Often the products we exclusively offer to our customers can help
them ensure the health of their patients while building their
practices. This is the case with OralCDx®, a computer-assisted brush
biopsy test for the small, white or red areas that dentists see in
patients’ mouths almost every day. OralCDx® enables dentists to
test these areas painlessly and easily for oral cancer, which claims the
lives of 8,000 people annually in the U.S. The new ADA-accepted
test, which is the first advance in oral cancer testing, does not require
anesthesia, and causes minimal bleeding or discomfort. Another
product that Henry Schein distributes exclusively is X-Rite’s
ShadeVision™ dental vision system, a significant technological
advance in restorative tooth shading. The ShadeVision™ System
enables dentists to easily capture the precise color image and
accurate colormetric data of the patient’s teeth and communicate
it to the dental laboratory to make a matching prosthesis.

We also provide an increasing number of value-added services to
help practitioners provide a high level of quality patient care while
operating more efficient and profitable businesses. In addition to
our extensive practice-management software user base, we are the
industry’s largest processor of dental electronic claims, with more
than 21 million processed in 2001.

Through Henry Schein Financial Services, we offer competitive
rates for equipment leasing and financing, patient financing options,
electronic credit card processing and lines of credit, as well as
financial planning services.

ProRepair® provides a fast, quality repair service for dental
handpieces and small equipment repairs at very competitive prices.
Our manufacturer-trained technicians have experience with all types
of equipment, a full stock of factory parts, and precision instruments.
In addition to handpiece and small equipment service, ProRepair
provides sterilizer service, instrument sharpening, lab handpiece
repairs and ultrasonic inserts. Our value-added services extend to
Henry’s Schein’s Continuing Education for Healthcare Professionals
(CEHP) program, through which participants can access fully
accredited courses on the latest healthcare technology in person,
in print, or online.

Privileges™, our innovative customer loyalty program, is an example
of adding value with the goal of attracting, rewarding, and retaining
customers for life. Privileges™ includes personalized, priority
professional service, priority attention on all service calls, guaranteed
emergency response time, free extended warranties, and preferred
rate pricing. Through Privileges™, our customers can earn gift
certificates toward office-design services, in-office labor, repairs,
preventive maintenance and a host of technology offerings and
service programs. Privileges™ customers who place orders through
our ARUBA® PC-based electronic catalog and ordering system also
can earn ARUBA® premium reward points, redeemable for leisure
merchandise, sporting goods, travel, jewelry, specialty foods, dental
equipment, and much more.

Through premium programs, continuing education, essential
practice services, and the products themselves, Henry Schein
continues to be a leader in customer service by delivering added
value to healthcare practitioners.

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Henry Schein’s broad range of products and services provide a single source for virtually all our customer needs.
With more than 80,000 national and private brand products, we have the most extensive product offering in our history.

CUSTOMER
SERVICE
THROUGH
TECHNOLOGY

Technology – by the numbers
• 44,000 installed practice-management

systems

• 20,000 electronic catalog customers
• $250 million in electronic orders

annually

• 68% increase in Internet sales

Few developments have changed the face of business as have advances in technology.
Henry Schein is committed to remaining at the forefront of innovation, both in the
technologically advanced tools we provide to our customers for their practices, and in the
technology we use to make their contact with us as convenient and productive as possible.

Innovation has been part of Henry Schein’s heritage for decades.

In the past, the Company broke new ground within the industry
in a number of areas, most notably with the publication of the
Henry Schein catalog in the 1960s, which is still considered the

definitive industry resource.

Today, our innovations are being driven largely by technology,
which has transformed even the mainstay of our business – the
Henry Schein catalog. In addition to our printed catalog, the
resource also lives in electronic form on our recently redesigned Web
sites – henryschein.com, and sullivanschein.com – and on CD-ROM.
Over 20,000 customers place their orders electronically, generating
more than $250 million in orders annually, and we saw a 68%
increase in Internet sales during 2001. The ability to order products
by mail, fax, telephone, CD-ROM, and the Web, gives our customers
the flexibility to reach us around the clock.

Technology also is spurring innovation in many of our most popular
products and services. One of the most exciting new applications
is our Digital Dental Office (DDO) technology. Through three
revolutionary products – the DENTRIX® ImageRAY™, the DENTRIX®
ImageCAM™, and DENTRIX® practice-management software –
dentists can enjoy true seamless integration of imaging, clinical, and
financial applications. DENTRIX® ImageRAY™ delivers incredible
clarity and high resolution digital x-rays, while DENTRIX®
ImageCAM™ enables dentists to show patients their dental problems
on screen, requiring less time for explanation and more time for
treatment. Images captured through these two tools can be stored
with DENTRIX® practice-management software, along with front-
desk scheduling, billing, ordering, and record-keeping information.

Another technology-driven innovation is our Web-enabled feature,
which offers our customers their own free Web site as an integral
part of their practice-management system and technical-support
program. With this product, practitioners can easily upload patient
information directly to their Web site. Their patients can then log
on to the doctor’s Web site and easily view their account and

appointment information from their home or office computer.
Dentists using DENTRIX® and Easy Dental® also can access
Sullivan-Schein Dental’s online ordering site. This innovative,
value-added product helps healthcare professionals to run more
efficient practices, and strengthens our link to our customers.

We have nearly 40,000 installed DENTRIX® and Easy Dental®
practice-management systems, upon which dentists rely to increase
the efficiency and profitability of their practices. In the veterinary
market, our AVImark® practice-management system, which we
have sold to more than 5,400 veterinarians, has been rated the
highest among all competing systems in a survey conducted by the
American Animal Hospital Association. In that survey, 97% of those
questioned said they would recommend AVImark® to a colleague.

This huge, installed user base provides us with important
cross-selling opportunities to provide our customers with related
products and services that can further enhance their practices.
In this way, not only is technology enhancing our customers’
practices and our business, but also the very relationships that link
Henry Schein with its customers.

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Dr. Eric Gott, D.M.D. from Silverman & Gott, LLP & Associates (right), a full-service family dentistry practice and Sullivan-Schein Dental Field Sales
Consultant Carlos Marin. Today, the innovations we offer our customers are driven largely by technology. One of our most exciting applications, the Digital
Dental Office (DDO), offers dentists state-of-the-art, high-resolution imaging and practice-management software. Through DDO, dentists finally have
seamless integration of imaging, clinical, and financial applications.

CUSTOMER
FOCUS
THROUGH
INFRASTRUCTURE

Infrastructure – by the numbers
• 99% of all U.S. and Canadian orders

shipped complete

• 99% of all U.S. and Canadian orders

shipped the same day they are received

• 99% of all orders delivered within

two days of placement

• 19 million direct marketing materials

Our customers depend on Henry Schein to have what they need,
when they need it. It’s a responsibility we take seriously and the reason we have
developed a state-of-the-art infrastructure that is the envy of the industry.

Outreach also is accomplished through our targeted direct marketing
programs, an area in which the Company has been an industry
leader since the introduction of the groundbreaking Henry Schein
catalog in the 1960s. Today, over 19 million catalogs, flyers,
newsletters, and other direct marketing materials are delivered to
our customers each year.

W e are our customers’ storeroom, their inventory-

management system, and their doorway to what’s new
and innovative. Practitioners rely on Henry Schein
to promptly deliver whatever they need to run their
practices efficiently and profitably, and we do not disappoint them.

Over the years, we have developed an infrastructure that is second
to none. The effectiveness of our distribution system is seen in a few
vital statistics. In the U.S. and Canada, 99% of all items are shipped
complete, 99% of all orders are shipped on the same day they are
received, and 99% are delivered within two days of order placement.
These are impressive numbers, and ones we are determined to
uphold. Knowing our crucial role in the healthcare distribution
chain, we are constantly looking for ways to increase the efficiency
of our business operations.

As we expand our presence internationally to better serve our clients
around the world, we are using our proven U.S. distribution model
as the basis for building a leading edge Pan-European infrastructure.

Access to the Henry Schein offering of products and services is
another model of efficiency, with customers placing orders online,
by telephone, and in person with our field sales consultants.
We are in touch with thousands of customers, and through
the use of unique assets – such as our extensive database of
approximately 650,000 office-based healthcare practitioners –
we ensure that contact with our customers is as beneficial to them as
possible. We know what they want, we know what the industry is
producing, and we utilize our unique positioning to match the two
in order to help our customers succeed.

Over the years, Henry Schein has developed an infrastructure that is second to none. That’s why our customers can rely on us to give them the
products and services they need, when they need them. In the United States and Canada, 99% of all orders are shipped the same day they are
received, and delivered within two days of order placement.

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TEAM SCHEIN:
6,500 PEOPLE,
ONE FOCUS

Team Schein – by the numbers
• 6,500 Team Schein Members
• Serving customers in 125
countries around the world

Without question, our greatest asset is our people, the over 6,500 Team Schein Members
who deliver excellence in customer service every day of the year. Whether our customers
meet with a field sales consultant, talk with a telesales representative, or are visited by
an equipment sales and service representative, they know that each Team Schein Member
has the knowledge, the tools, and the desire to meet their needs.

W ithout question, our greatest asset is our people,

the over 6,500 Team Schein Members who deliver
excellence in customer service every day of the year.
Whether our customers meet with a field sales

consultant, talk with a telesales representative, or are visited by an
equipment sales and service representative, they know that each
Team Schein Member has the knowledge, the tools and the desire
to meet their needs.

Behind every one of our customers are highly motivated,
multicultural Team Schein Members who share a singular focus
on customer service. This focus begins with each individual's clear
understanding of his or her responsibilities, a commitment to
succeed, and the knowledge that Team Schein Members are
rewarded for success through our incentive-based compensation
and Employee Stock Ownership Program.

At Henry Schein, we are goal-oriented, and look to Team Schein for
coaches, facilitators, and mentors who can help us achieve our goals.
We encourage our Team Schein Members to cut through bureaucracy
and drive multifunctional teams. This entrepreneurial environment
flourishes in an atmosphere of mutual respect based on the Team
Schein "Wheel of Success" – a belief that each Team Schein Member
is a spoke in the wheel and each member is as important as the next
in achieving ultimate success.

Training is an integral part of the continuing career development
of Team Schein Members. For example, an intensive week-long
training program, including sessions on sales skills, product demon-
strations, and technology training on several of our new proprietary
computerized sales tools, equips our field sales force with the
knowledge they need to succeed. Through this program and
ongoing sessions, we are dedicated to developing the best and
most productive sales force in the industry – one that is thoroughly
trained and equipped to meet our customers' needs.

We also recognize that service extends beyond the workplace to
our home communities. Team Schein Members are involved in
numerous and diverse volunteer activities. This spirit of corporate
citizenship is also exemplified through our Henry Schein Cares
program, which donates medical and dental supplies to clinics
treating under-served communities in the United States, Central
America, and eastern Europe.

Everything we do is focused on service and our customers.
Through Team Schein's efforts, we are reaching our goal of being a
true business partner, offering our customers the tools and expertise
to run their practices in the the most efficient and profitable
ways possible.

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Shown at left: Team Schein Members from Henry Schein’s Melville, New York headquarters. Our greatest asset is our people.
Behind every one of our customers are 6,500 highly motivated Team Schein Members who share a singular focus on customer service.

HENRY SCHEIN AT A GLANCE

Our Place in a Large and
Growing Market:

•Estimated market size

for 2001 – $15.5 billion

•Estimated market share

for 2001 – 15%

•Estimated annual market

growth – 5–7%

Our Groups’ Contributions
to Sales Revenues:

Dental

Medical

International

Technology

Veterinary

43%

36%

16%

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Dental Overview
In 2001, Henry Schein’s Dental Group
commanded an estimated 28% of the
$4 billion U.S. and Canadian dental market,
and served more than 75% of the 110,000
U.S. dental practices and 15,000 dental labs.
With a network of 80 equipment sales and
service centers, the Group also is a major
supplier to government, schools, and other
institutions serving, for example, as a prime
vendor for U.S. Army bases and clinics
located in the United States and Europe.
Through Sullivan-Schein Dental® in the
U.S., Henry Schein Arcona in Canada, and
the Zahn Dental laboratory supply business,
the Group’s 800 field sales consultants and
over 200 telesales representatives offer a
broad array of more than 60,000 SKUs to
dental customers.

Medical Overview
With 14% of the estimated $5–7 billion
office-based physician supply market, Henry
Schein’s Medical Group serves 35% of the
230,000 U.S. medical practices, as well as
surgical centers and other alternate-care
settings. Through its extensive national
direct marketing and telesales operation
and its field sales presence in the eastern,
southern, and central U.S., the Group offers
more than 28,000 SKUs, including generic
and branded pharmaceuticals, vaccines,
medical and surgical supplies, diagnostic
kits, and major equipment. The Group is a
major supplier to organizations that bundle
member purchasing power such as the
American Society of Plastic Surgeons, the
American Academy of Dermatology, and
U.S. Oncology, Inc. One of these formulary
plans, the AMA PurchaseLink® Program
with the American Medical Association,
is now in its seventh year.

2001 Sales: $1.1 billion

2001 Sales: $930 million

Growth Opportunities
The 45-to-65 age group is expected to
double over the next 20 years. With this
increase in the age of the U.S. population,
we expect to see more dental procedures
supported by increases in dental coverage.
Just over 56% of the U.S. population now
has some form of dental coverage, up from
44% in 1994. In the coming years, there
should be increased expenditures on
retaining teeth, as well as increased aware-
ness among consumers of the importance
of oral health and its relationship to overall
well-being. Cosmetic dentistry is a
growing aspect of dental practices, as
well. Henry Schein’s Dental Group is well
positioned to take advantage of these trends.

Growth Opportunities
The medical market presents tremendous
opportunities for Henry Schein. As the U.S.
population ages, there will be an attendant
rise in U.S. healthcare services and a trend
toward procedures being increasingly done
in physicians’ offices. As the fastest growing
distributor among the major competitors in
this market, our industry-leading growth
rates will be driven by cross-selling our
key product lines, increasing our number
of customer accounts, and utilizing our
extensive database, with a significant focus
on our telesales and field sales consultants.
Growth should also come from vaccines,
of which we are a leading U.S. distributor.
To ensure our position as a reliable supplier
to our customers, Henry Schein signed new,
expanded commitments with our primary
influenza, tetanus/diphtheria toxoid, and
pneumococcal vaccine manufacturers.

International Overview
With operations in 15 countries outside
of the U.S., Henry Schein’s International
Group distributes dental products across
the United Kingdom, the European
continent, the Middle East, Australia, New
Zealand, Africa and Latin America, and
continues to expand in the medical and
veterinary fields. As the only pan-European
healthcare supplier serving office-based
dental, medical and veterinary practices,
its customers include 150,000 practices
primarily in Western Europe, where it had
8% of the estimated $3 billion dental
market and 5% of the estimated $2 billion
medical/veterinary market in 2001. The
Group offers approximately 63,000 SKUs,
and with Schein Direct™, it provides rapid
door-to-door air package delivery to practi-
tioners in 125 countries around the world.

Technology Overview
Henry Schein’s Technology Group enhances
all other Groups, by offering value-added
products and services based on innovative
technology. This includes practice-
management and clinical software, such as
DENTRIX®, Easy Dental®, and LabNet®,
which are used in almost 40,000 dental
practices, and AVImark®, which is used in
more than 5,400 veterinary clinics. The
Group also features the ARUBA® PC-based
electronic catalog and ordering systems,
through which 20,000 customers placed
their orders in 2001. Other offerings include
credit card and electronic claims processing,
practice and patient financing, equipment
financing, the Continuing Education for
Healthcare Professionals (CEHP) program,
and the new Web-enabled features that
offer dental practitioners their own Web
site as an integral part of their practice-
management system.

Veterinary Overview
Henry Schein’s Veterinary Group is the
largest direct marketer to companion-
animal veterinary clinics in the U.S.,
providing a high level of quality service and
more than 23,000 SKUs at low prices. The
group serves 70% of the approximately
22,000 U.S. veterinary clinics, commanding
7% of the estimated $700 million market in
2001. More than 50 telesales professionals
support the Group’s veterinary catalog, and
a variety of promotional materials, such as
postcards, inserts, mailers, and other
direct marketing materials, are distributed
annually. With formulary pricing plans,
the Group also enjoys a prime vendor
relationship with VCA Antech, the largest
provider of clinical pet care in the U.S.

2001 Sales: $398 million

2001 Sales: $71 million

2001 Sales: $53 million

Growth Opportunities
The International Group is uniquely
positioned to take a leadership role in the
European marketplace by developing an
infrastructure based on the state-of-the-art
U.S. model. This process is already well
underway, with the assembly of a new,
experienced senior management team in
Europe that recognizes the important
country-by-country differences that exist
throughout the continent. The Company
will continue to grow abroad, as it looks for
expansion opportunities in a market ripe
for further growth and consolidation. The
single-currency Euro will also spur growth,
as well as the Group’s strategic entry into
new markets.

Growth Opportunities
There is great opportunity for the
Technology Group. With one-third of all
U.S. Dental practices using Henry Schein
practice-management software, these
practices represent a significant opportunity
for cross-selling with our distribution
capabilities, and represent a sizeable
customer base for add-on products and
services. Practice-management customers
also hold the potential for us to strengthen
the customer relationship by providing
critical productivity-enhancing tools.

The Technology Group is committed to
continue to offer our customers the latest
advances in integrated technologies, such
as digital x-ray and intraoral photography,
which help practitioners increase the
efficiency and profitability of their practices.

Growth Opportunities
The Veterinary Group’s market position as
the low-cost provider is enhanced by the
expense efficiencies realized through a core
infrastructure shared with Henry Schein’s
Dental and Medical Groups. This cost-
effectiveness positions the Veterinary Group
to service large-scale practice-management
companies and groups, in addition to
individual veterinary clinics.

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DIRECTORS AND OFFICERS

Board of Directors

Executive Officers

Stanley M. Bergman (4)
Chairman, Chief Executive Officer and President

Stanley M. Bergman
Chairman, Chief Executive Officer and President

Barry J. Alperin (1) (2) (3)
Retired Vice Chairman, Hasbro, Inc.

Gerald A. Benjamin
Executive Vice President and Chief Administrative Officer

Gerald A. Benjamin (4)
Executive Vice President and Chief Administrative Officer

James P. Breslawski
Executive Vice President and President, Sullivan-Schein Dental

James P. Breslawski (4)
Executive Vice President and President, Sullivan-Schein Dental

Leonard A. David
Vice President, Human Resources and Special Counsel

Pamela Joseph
Director, MaNose Studios

Donald J. Kabat (1) (2) (3)
Retired Partner, Andersen Consulting

Philip A. Laskawy
Retired Chairman, Ernst & Young

Norman S. Matthews
Former President, Federated Department Stores

Mark E. Mlotek
Senior Vice President, Corporate Business Development

Steven Paladino (4)
Executive Vice President and Chief Financial Officer

Marvin H. Schein (4)
Founder, Schein Dental Equipment Corp.

Irving Shafran, Esq. (1)
Attorney at Law

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Larry Gibson
Executive Vice President and Chief Technology Officer

Mark E. Mlotek
Senior Vice President, Corporate Business Development

Steven Paladino
Executive Vice President and Chief Financial Officer

Michael Racioppi
President, Medical Group

Michael Zack
Senior Vice President, International Group

(1) Member Audit Committee

(2) Member Compensation Committee

(3) Member Stock Option Committee

(4) Member Executive Committee

First row, from left to right: Larry Gibson, James P. Breslawski, Stanley M. Bergman, Michael Zack
Second row, from left to right: Mark E. Mlotek, Steven Paladino, Leonard A. David, Michael Racioppi, Gerald A. Benjamin

FINANCIAL INFORMATION

Table of Contents

18 Market for Registrant’s Common Equity and Related Stockholder Matters

19 Selected Financial Data

21 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated Financial Statements:

29 Report of Independent Certified Public Accountants

30 Balance Sheets as of December 29, 2001 and December 30, 2000

31 Statements of Income and Comprehensive Income for the Years Ended

December 29, 2001, December 30, 2000, and December 25, 1999

32 Statements of Stockholders’ Equity for the Years Ended

December 29, 2001, December 30, 2000, December 25, 1999, and December 26, 1998

33 Statements of Cash Flows for the Years Ended

December 29, 2001, December 30, 2000, and December 25, 1999

34 Notes to Consolidated Financial Statements

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth, for the periods indicated, the high and low reported sales prices of the Common Stock of the Company as
reported on the NASDAQ National Market System for each quarterly period in fiscal 2000 and 2001 and for the first quarter of fiscal 2002
through March 15, 2002.

Fiscal 2000:
1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Fiscal 2001:
1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Fiscal 2002:
1st Quarter (Through March 15, 2002)

High

$18.81

$18.50

$20.63

$36.50

$37.44

$40.57

$40.00

$41.50

$46.11

Low

$10.75

$13.12

$13.31

$18.59

$27.19

$29.84

$31.61

$31.90

$35.22

The Company’s Common Stock is quoted through the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol
“HSIC.” On March 15, 2002, there were approximately 757 holders of record of the Common Stock. On March 15, 2002, the last reported
sales price was $43.51.

DIVIDEND POLICY

The Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future; it intends to retain its
earnings to finance the expansion of its business and for general corporate purposes. Any payment of dividends will be at the discretion
of the Company’s Board of Directors and will depend upon the earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to payment of dividends and other factors. The Company’s revolving credit agreement, as well as a
note payable that was repaid in January 2002, limit the distribution of dividends without the prior written consent of the lenders.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information in this
Annual Report includes information that is forward-looking, such as the Company’s opportunities to increase sales through, among other
things, acquisitions; its exposure to fluctuations in foreign currencies; its anticipated liquidity and capital requirements; competitive
product and pricing pressures and the ability to gain or maintain share of sales in global markets as a result of actions by competitors;
and the results of legal proceedings. The matters referred to in forward-looking statements could be affected by the risks and
uncertainties involved in the Company’s business. These risks and uncertainties include, but are not limited to, the effect of economic
and market conditions, the impact of the consolidation of healthcare practitioners, the impact of healthcare reform, opportunities for
acquisitions and the Company’s ability to effectively integrate acquired companies, the acceptance and quality of software products,
acceptance and ability to manage operations in foreign markets, the ability to maintain favorable supplier arrangements and relationships,
possible disruptions in the Company’s computer systems or telephone systems, possible increases in shipping rates or interruptions in
shipping service, the level and volatility of interest rates and currency values, economic and political conditions in international markets,
including civil unrest, government changes and restriction on the ability to transfer capital across borders, the impact of current or pending
legislation, regulation and changes in accounting standards and taxation requirements, environmental laws in domestic and foreign
jurisdictions, as well as certain other risks described above in this Annual Report. Subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this
paragraph and elsewhere in this Annual Report.

SELECTED FINANCIAL DATA

The following selected financial data, with respect to the Company’s financial position and its results of operations for each of the five years
in the period ended December 29, 2001, set forth below has been derived from the Company’s consolidated financial statements. The
selected financial data presented below should be read in conjunction with the Consolidated Financial Statements and related notes
thereto herein and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. The Selected
Operating Data and Net Sales By Market Data presented below have not been audited.

Years ended

December 29,

December 30,
2001 2000 1999

December 25,

December 26,

December 27,

1998 1997

Statements of Operations Data:
Net sales

$2,558,243

$2,381,721

$2,284,544

$1,922,851

$1,698,862

(In thousands, except per share and selected operating data)

Gross profit

699,324

647,901

608,596

523,831

442,842

Selling, general and administrative

expenses

Merger and integration costs (1)

Restructuring costs (2)

Operating income

Interest income

551,574

––

147,750

10,078

520,288

585

14,439

112,589

6,279

489,364

13,467

––

105,765

7,777

427,635

56,666

––

39,530

6,964

380,233

50,779

––

11,830

7,353

Interest expense

(17,324) (20,409) (23,593) (12,050) (7,643)

Other - net (153)

(1,925) (166)

1,570

Other income (expense) - net

(7,399) (16,055) (15,982) (3,516)

Income before taxes on income,

minority interest and equity
in earnings (losses) of affiliates

Taxes on income

Minority interest in net income (loss)

140,351

51,930

96,534

36,150

89,783

35,589

36,014

20,325

1,375

1,085

12,915

17,670

of subsidiaries 1,462 1,757 1,690 145 (430)

Equity in earnings (losses) of affiliates 414 (1,878) (2,192)

Net income (loss)

87,373

56,749

50,312

Net income (loss) per common share:

Basic
Diluted

Weighted average shares outstanding:

Basic
Diluted

$ 2.06
$ 2.01

42,366
43,545

$ 1.38
$ 1.35

41,244
42,007

$ 1.24
$ 1.21

40,585
41,438

783

16,327

$ 0.42
$ 0.39

39,305
41,549

2,141

(2,184)

$ (0.06)
$ (0.06)

37,531
37,531

December 29,

December 30,
2001 2000 1999

December 25,

December 26,

December 27,

1998 1997

Years ended

Pro Forma Data (3):

(In thousands, except per share and selected operating data)

Pro forma net income (loss) $ –– $ –– $ –– $ 13,748 $ (1,778)

Pro forma net income (loss) per

common share

Basic $ –– $

––

$ ––

0.35 $ (0.05)

Diluted $

––

$ –– $ –– $ 0.33 $ (0.05)

Pro forma average shares outstanding:

Basic

Diluted

Selected Operating Data:

Number of orders shipped

Average order size

Net Sales by Market Data:

Healthcare Distribution:

Dental (4)

Medical

Veterinary

International (5)

––

39,305

41,549

37,531

7,891,000

8,280,000

7,979,000

6,718,000

6,064,000

324

$ 288

$ 286

$ 280

$1,106,580

$1,073,889

$1,047,259

$1,085,717

$ 999,671

929,825

52,744

398,071

794,880

56,421

389,946

715,210

52,050

403,137

515,276

48,492

230,792

441,110

40,852

181,278

Total Healthcare Distribution

2,487,220

2,315,136

2,217,656

1,880,277

1,662,911

Technology (6)

71,023

66,585

66,888

42,574

35,951

$2,558,243

$2,381,721

$2,284,544

$1,922,851

$1,698,862

Balance Sheet Data:

Working capital

Total assets

Total debt

Minority interest

Stockholders’ equity

$ 489,909

$ 423,547

$ 428,429

$ 403,592

$ 312,916

1,385,428

1,231,068

1,204,102

261,417

6,786

680,457

276,693

7,996

579,060

363,624

7,855

517,867

962,040

209,451

5,904

463,034

803,946

148,685

2,225

424,223

(1) Merger and integration costs consist primarily of investment banking, legal, accounting and advisory fees, compensation, write-off of
duplicate management information systems, other assets and the impairment of goodwill arising from acquired businesses integrated
into the Company’s medical and dental businesses, as well as certain other integration costs incurred primarily in connection with the
1998 acquisition of H. Meer Dental Supply Co., Inc. (“Meer”) and the 1997 acquisitions of Sullivan Dental Products, Inc., Micro Bio-
Medics, Inc. and Dentrix Dental Systems, Inc., which were accounted for under the pooling of interests method of accounting. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Acquisition Strategy” herein and the
Consolidated Financial Statements and related notes thereto herein.

(2) Restructuring costs consist primarily of employee severance costs, including severance pay and benefits of approximately $7.2
million, facility closing costs, primarily lease termination and asset write-off costs of approximately $4.4 million and professional and
consulting fees directly related to the restructuring plan of approximately $2.8 million. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Plan of Restructuring” herein and the Consolidated Financial Statements and
related notes thereto herein.

(3) Reflects the provision for income tax (expense) recoveries on previously untaxed earnings of Meer as an S Corporation of $(0.6) million
and $0.4 million for 1998 and 1997, respectively, and the pro forma elimination of a net deferred tax asset arising from Meer’s
conversion from an S Corporation to a C Corporation of $2.0 million in 1998. See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Acquisition Strategy” herein and the Consolidated Financial Statements and related notes
herein.

(4) Dental consists of the Company’s dental business in the United States and Canada.

(5) International consists of the Company’s business (primarily dental) outside the United States and Canada, primarily in Europe.

(6) Technology consists of the Company’s practice-management software business and certain other value-added products and services,

which are distributed primarily to healthcare professionals in the North American market.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s consolidated financial condition and consolidated results of operations should be
read in conjunction with the Company’s Consolidated Financial Statements and related notes thereto herein.

General

Critical Accounting Policies and Estimates

Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, requires all companies to
include a discussion of critical accounting policies or methods used in the preparation of financial statements. Note 1 of the consolidated
financial statements, included elsewhere in this Annual Report, includes a summary of the significant accounting policies and methods
used in the preparation of the Company’s consolidated financial statements.

The Company believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of
the Company’s financial statements:

Revenue Recognition

Sales are recorded when products are shipped or services are rendered to customers, as the Company generally has no significant post
delivery obligations, the product price is fixed and determinable, collection of the resulting receivable is probable and product returns are
reasonably estimable. Revenues derived from post contract customer support for practice-management software are deferred and
recognized ratably over the period in which the support is to be provided, generally one year. Revenues from freight charged to customers
are recognized when products are shipped. Provisions for discounts, rebates to customers, customer returns and other adjustments are
provided for in the period the related sales are recorded based upon historical data.

Management’s Estimates

The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated
financial statements. The preparation of these financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing
basis, the Company evaluates estimates, including those related to sales provisions, as described above, volume purchase rebates,
income taxes, bad debts, inventory reserves, intangible assets, and contingencies. The Company bases its estimates on historical data,
when available, experience, and on various other assumptions that are believed to be reasonable under the circumstances, the combined
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.

Goodwill and Other Intangible Assets

At December 29, 2001, the Company has recorded approximately $288.0 million in goodwill and other intangible assets, net of
accumulated amortization, primarily related to acquisitions made in 2001 and prior years. The recoverability of these assets is subject to
an impairment test based on the estimated fair value of the underlying businesses. (See “Effect of Recently Issued Accounting
Standards.”)

Plan of Restructuring

On August 1, 2000, the Company announced a comprehensive restructuring plan designed to improve customer service and increase
profitability by maximizing the efficiency of the Company’s infrastructure. In addition to closing or downsizing certain facilities, this world-
wide initiative included the elimination of approximately 300 positions, including open positions, or approximately 5% of the total
workforce, throughout all levels within the organization. The restructuring plan was substantially completed at December 30, 2000.

For the year ended December 30, 2000, the Company incurred one-time restructuring costs of approximately $14.4 million, ($9.3 million
after taxes), or approximately $0.22 per diluted share, consisting primarily of; employee severance costs, including severance pay and
benefits of approximately $7.2 million, facility closing costs, primarily lease termination and asset write-off costs of approximately $4.4
million, and outside professional and consulting fees directly related to the restructuring plan of approximately $2.8 million.

Acquisition Strategy

The Company’s results of operations in recent years have been significantly impacted by strategies and transactions undertaken by the
Company to expand its business, both domestically and internationally, in part, to address significant changes in the healthcare industry,
including potential healthcare reform, trends toward managed care, cuts in Medicare, consolidation of healthcare distribution companies
and collective purchasing arrangements.

During the year ended December 29, 2001, the Company completed the acquisition of two healthcare distribution businesses, which
included the purchase of the remaining 50% interest of an affiliate. Neither of these purchases was considered material either individually
or in the aggregate. The two transactions were accounted for under the purchase method of accounting and have been included in the
consolidated financial statements from their respective acquisition dates.

During the year ended December 30, 2000, the Company completed the acquisition of two healthcare distribution businesses and one
technology business, none of which were considered material either individually or in the aggregate. Of the three completed acquisitions,
two were accounted for under the purchase method of accounting and the remaining acquisition was accounted for under the pooling of
interests method of accounting. The Company issued 465,480 shares of its Common Stock, with an aggregate market value of
approximately $7.9 million in connection with the pooling transaction. The transactions completed under the purchase method of
accounting have been included in the consolidated financial statements from their respective acquisition dates. The pooling transaction
was not material and, accordingly, prior period financial statements have not been restated. Results of the acquired company have been
included in the consolidated financial statements from the beginning of the second quarter of 2000.

During the year ended December 25, 1999, the Company completed the acquisition of eight healthcare distribution businesses and one
technology business. The completed acquisitions included General Injectables and Vaccines, Inc. (“GIV”), and the international dental,
medical and veterinary healthcare distribution businesses of Heiland Holding GmbH (the “Heiland Group”). GIV, which had 1998 net sales
of approximately $120.0 million, is a leading independent direct marketer of vaccines and other injectable products to office-based
practitioners in the United States. The Heiland Group, the largest direct marketer of healthcare supplies to office-based practitioners in
Germany, had 1998 net sales of approximately $130.0 million. The acquisition agreements for GIV provides for additional cash
consideration of up to $6.0 million per year through 2004, not to exceed $22.5 million in total, to be paid if certain profitability targets are
met. The remaining seven acquisitions had combined net sales of approximately $74.0 million for 1998. Six of the acquisitions were
accounted for under the purchase method of accounting, while the remaining acquisition was accounted for under the pooling of interests
method of accounting. Results of operations of the business acquisitions accounted for under the purchase method of accounting have
been included in the consolidated financial statements commencing with the acquisition dates. The total cash purchase price paid for
the acquisitions accounted for under the purchase method of accounting was approximately $137.2 million. The Company issued 189,833
shares of its Common Stock with an aggregate market value of approximately $6.4 million in connection with the pooling transaction. The
pooling transaction was not material and, accordingly, prior period financial statements have not been restated. Results of the acquired
company have been included in the consolidated financial statements from the beginning of the quarter in which the acquisition occurred.

In connection with the 2000 and 1999 acquisitions, the Company incurred certain merger and integration costs of approximately $0.6
million and $13.5 million, respectively. Net of taxes, merger and integration costs were approximately $0.01 and $0.23 per share, on a
diluted basis, respectively. Merger and integration costs for the healthcare distribution and technology segments were $0.0 million and
$0.6 million for 2000 and $13.5 million and $0.0 million for 1999, respectively. Merger and integration costs consist primarily of investment
banking, legal, accounting and advisory fees, severance, impairment of goodwill arising from acquired businesses integrated into the
Company’s medical and dental businesses, as well as certain other integration costs associated with these mergers.

Excluding the merger, integration, and restructuring costs of $9.9 million after tax and losses of $3.5 million after tax on disposals of (i) a
United Kingdom practice-management software development business unit, and (ii) the sale of a 50% interest in a dental anesthetic
manufacturer, in 2000, and the merger and integration costs of $9.5 million after tax in 1999, pro forma net income and pro forma net
income per common share, on a diluted basis, would have been $70.1 million, and $1.67, respectively, for the year ended December 30,
2000, and $59.8 million and $1.44, respectively, for the year ended December 25, 1999.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, Net Sales, Gross Profit and Adjusted Operating Profit, excluding merger and
integration, and restructuring costs (in thousands), by business segment for the years ended 2001, 2000, and 1999. Percentages are
calculated on related net sales.

2001

2000

1999

Net Sales by Segment Data:
Healthcare distribution:

Dental (1)
Medical
Veterinary
International (2)

Total healthcare distribution

Technology (3)

Total

Gross Profit by Segment Data:
Healthcare distribution
Technology

$1,106,580
929,825
52,744
398,071

2,487,220

71,023

43.2%
36.3%
2.1%
15.6%

97.2%

2.8%

$1,073,889
794,880
56,421
389,946

2,315,136

66,585

45.1%
33.4%
2.4%
16.4%

97.2%

2.8%

$1,047,259
715,210
52,050
403,137

2,217,656

66,888

45.8%
31.3%
2.3%
17.6%

97.1%

2.9%

$2,558,243

100.0%

$2,381,721

100.0%

$2,284,544

100.0%

$ 649,469
49,855

26.1%
70.2%

$ 601,036
46,865

26.0%
70.4%

$ 563,107
45,489

25.4%
68.0%

Total

$ 699,324

27.3%

$ 647,901

27.2%

$ 608,596

26.6%

Adjusted Operating Profit
(excluding merger and integration,
and restructuring costs) by
Segment Data:
Healthcare distribution (4)
Technology (5)

Total

$ 123,767
23,983

$ 147,750

5.0%
33.8%

5.8%

$ 102,953
24,660

$ 127,613

4.4%
37.0%

5.4%

$ 93,934
25,298

$ 119,232

4.2%
37.8%

5.2%

(1) Dental consists of the Company’s dental business in the United States and Canada.

(2) International consists of the Company’s business (primarily dental) outside the United States and Canada, primarily in Europe.

(3) Technology consists of the Company’s practice-management software business and certain other value-added products and services,

which are distributed primarily to healthcare professionals in the North American market.

(4) Excludes merger and integration, and restructuring costs of $0.0 million, $14.1 million, and $13.5 million in 2001, 2000, and 1999,

respectively.

(5) Excludes merger and integration, and restructuring costs of $0.0 million, $1.0 million, and $0.0 million in 2001, 2000, and 1999,

respectively.

2001 Compared to 2000

The Company reports financial results on a 52-53 week basis and, as such, the 2000 fiscal year included an additional week. For the year
ended December 29, 2001, net sales increased $176.5 million, or 7.4%, to $2,558.2 million in 2001 from $2,381.7 million in 2000. On a
comparable basis (excluding the additional week in 2000), net sales growth was approximately 8.7%. Of the $176.5 million increase,
approximately $172.1 million, or 97.5%, represented a 7.4% (8.7% on a comparable basis) increase in the Company’s healthcare
distribution business. As part of this increase, approximately $135.0 million represented a 17.0% (18.6% on a comparable basis) increase
in its medical business, $32.7 million represented a 3.0% (4.0% on a comparable basis) increase in its dental business, $8.1 million
represented a 2.1% (3.5% on a comparable basis) increase in the Company’s international business, and $(3.7) million represented a
6.5% (5.2% on a comparable basis) decrease in the Company’s veterinary business. The increase in medical net sales was primarily
attributable to increased sales to core physicians’ office and alternate care markets. In the dental market, the increase in net sales was
primarily due to increased account penetration. In the international market, the increase in net sales was primarily due to increased
account penetration in Germany, France, and the United Kingdom, somewhat offset by unfavorable exchange rates to the U.S. dollar. Had
net sales for the international market been translated at the same exchange rates in 2000, net sales would have increased by 5.8%. In
the veterinary market, the decrease in net sales was primarily due to the loss of a product line. The remaining increase in 2001 net sales
was due to the technology business, which increased $4.4 million, or 6.7% (7.6% on a comparable basis), to $71.0 million for 2001, from
$66.6 million for 2000. The increase in technology and value-added product net sales was primarily due to increased sales of technology
products and related services.

Gross profit increased by $51.4 million, or 7.9%, to $699.3 million in 2001, from $647.9 million in 2000. Gross profit margin increased by
0.1% to 27.3% from 27.2% in the prior year. Healthcare distribution gross profit increased by $48.4 million, or 8.1%, to $649.4 million in
2001, from $601.0 million in 2000. Healthcare distribution gross profit margin increased by 0.1%, to 26.1%, from 26.0% in the prior year
primarily due to changes in sales mix. Technology gross profit increased by $3.0 million, or 6.4%, to $49.9 million in 2001, from $46.9
million in 2000. Technology gross profit margin decreased by 0.2%, to 70.2%, from 70.4% in the prior year primarily due to changes in
sales mix.

Selling, general and administrative expenses increased by $31.3 million, or 6.0%, to $551.6 million in 2001 from $520.3 million in 2000.
Selling and shipping expenses increased by $23.5 million, or 7.6%, to $334.1 million in 2001 from $310.6 million in 2000. As a percentage
of net sales, selling and shipping expenses increased 0.1% to 13.1% in 2001 from 13.0% in 2000. General and administrative expenses
increased $7.8 million, or 3.7%, to $217.5 million in 2001 from $209.7 million in 2000. As a percentage of net sales, general and
administrative expenses decreased 0.3% to 8.5% in 2001 from 8.8% in 2000. The decrease was primarily due to reductions in expenses
associated with the Company’s restructuring program.

Other income (expense) - net decreased by $(8.7) million, to $(7.4) million in 2001 from $(16.1) million for 2000, due primarily to higher
interest income on long-term loans receivable and short-term investments, higher finance charge income on trade accounts receivable,
lower interest expense due to reductions in long-term debt and bank credit line balances and lower interest rates, and in 2000, the
nonrecurring loss of $1.6 million after tax on the sale of the Company’s software development unit in the United Kingdom.

Equity in earnings (losses) of affiliates increased $2.3 million to $0.4 million in 2001 from $(1.9) million in 2000. The increase is primarily
due to a nonrecurring net loss of $1.9 million during the fourth quarter of 2000 from the sale of the Company’s interest in HS
Pharmaceutical, Inc. (“H.S. Pharmaceutical”).

For 2001, the Company’s effective tax rate was 37.0%. The difference between the Company’s effective tax rate and the Federal statutory
rate relates primarily to state income taxes.

For 2000, the Company’s effective tax rate was 37.4%. Excluding merger and integration costs, the majority of which are not deductible
for income tax purposes, the Company’s effective tax rate would have been 37.3%. The difference between the Company’s effective tax
rate and the Federal statutory rate relates primarily to state income taxes.

2000 Compared to 1999

Net sales increased $97.2 million, or 4.3%, to $2,381.7 million in 2000 from $2,284.5 million in 1999. Of the $97.2 million increase,
approximately $97.5 million, or 100.3%, represented a 4.4% increase in the Company’s healthcare distribution business. As part of this
increase, approximately $79.7 million represented an 11.1% increase in its medical business, $26.6 million represented a 2.5% increase
in its dental business, $4.4 million represented an 8.4% increase in the Company’s veterinary business, and $(13.2) million represented a
3.3% decrease in the Company’s international business. The increase in medical net sales was primarily attributable to increased sales
to core physicians’ office and alternate care markets. In the dental market, the increase in net sales was primarily due to increased
account penetration. In the veterinary market, the increase in net sales was primarily due to increased account penetration. In the
international market, the decrease in net sales was primarily due to unfavorable exchange rate translation adjustments. Had net sales for
the international market been translated at the same exchange rates in 1999, net sales would have increased by 8.4%. The remaining
decrease in 2000 net sales was due to the technology business, which decreased $(0.3) million, or 0.3%, to $66.6 million for 2000, from
$66.9 million for 1999. The decrease in technology and value-added product net sales was primarily due to a decrease in practice
management software sales, which was exceptionally strong in 1999 primarily due to Year 2000 conversions.

Gross profit increased by $39.3 million, or 6.5%, to $647.9 million in 2000, from $608.6 million in 1999. Gross profit margin increased by
0.6% to 27.2% from 26.6% last year. Healthcare distribution gross profit increased by $37.9 million, or 6.7%, to $601.0 million in 2000,
from $563.1 million in 1999. Healthcare distribution gross profit margin increased by 0.6%, to 26.0%, from 25.4% last year primarily due
to changes in sales mix. Technology gross profit increased by $1.4 million, or 3.0%, to $46.9 million in 2000, from $45.5 million in 1999.
Technology gross profit margin increased by 2.4%, to 70.4%, from 68.0% last year also primarily due to changes in sales mix.

Selling, general and administrative expenses increased by $30.9 million, or 6.3%, to $520.3 million in 2000 from $489.4 million in 1999.
Selling and shipping expenses increased by $9.7 million, or 3.2%, to $310.6 million in 2000 from $300.9 million in 1999. As a percentage
of net sales, selling and shipping expenses decreased 0.2% to 13.0% in 2000 from 13.2% in 1999. This decrease was primarily due to
improvement in the Company’s distribution efficiencies resulting from the leveraging of the Company’s distribution infrastructure. General
and administrative expenses increased $21.2 million, or 11.2%, to $209.7 million in 2000 from $188.5 million in 1999, primarily as a result
of acquisitions. As a percentage of net sales, general and administrative expenses increased 0.5% to 8.8% in 2000 from 8.3% in 1999.

Other income (expense) - net changed by $(0.1) million, to $(16.1) million for the year ended December 30, 2000 from $(16.0) million for
1999 primarily due to the non-recurring loss of approximately $1.6 million, or approximately $0.04 per diluted share, from the sale of the
Company’s software development unit in the United Kingdom and lower interest income on accounts receivable balances, offset by a
decrease in interest expense resulting from a decrease in average borrowings.

Equity in losses of affiliates decreased $0.3 million or 13.6%, to $(1.9) million in 2000 from $(2.2) million in 1999. The net decrease is
primarily due to increased earnings from an affiliate offset by a non-recurring net loss of approximately $1.9 million, or approximately $0.05
per diluted share from the sale of the Company’s interest in HS Pharmaceutical during the fourth quarter of 2000.

For 2000, the Company’s effective tax rate was 37.4%. Excluding merger and integration costs, the majority of which are not deductible
for income tax purposes, the Company’s effective tax rate would have been 37.3%. The difference between the Company’s effective tax
rate, excluding merger and integration costs, and the Federal statutory rate relates primarily to state income taxes.

For 1999, the Company’s effective tax rate was 39.6%. Excluding merger and integration costs, the majority of which are not deductible
for income tax purposes, the Company’s effective tax rate would have been 38.3%. The difference between the Company’s effective tax
rate, excluding merger and integration costs, and the Federal statutory rate relates primarily to state income taxes.

Seasonality

Euro Conversion

Effective January 1, 2000, 11 of the 15 member countries of the European Union adopted the Euro as their common legal currency. On
that date, the participating countries established fixed Euro conversion rates between their existing sovereign currencies and the Euro.
The participating countries now issue sovereign debt exclusively in Euro, and have re-denominated outstanding sovereign debt. The
authority to direct monetary policy for the participating countries, including money supply and official interest rates for the Euro, is now
exercised by the new European Central Bank.

Beginning on January 1, 2002, Euro banknotes were put into circulation. There was a changeover period of two months during which there
was dual circulation - where both Euro and national currencies were used together. Following the changeover period, the national
currencies were completely replaced by the Euro.

During 2001, the Company successfully converted all of their European information systems in order to achieve timely Euro information
system and product readiness, so as to conduct transactions in the Euro, in accordance with implementation schedules as they are
established by the European Commission. The costs of these changes were not material to the Company and are included as part of
operating expenses for 2001.

E-Commerce

Traditional healthcare supply and distribution relationships are being challenged by electronic on-line commerce solutions. The
Company’s distribution business is characterized by rapid technological developments and intense competition. The rapid evolution of
on-line commerce will require continuous improvement in performance, features and reliability of Internet content and technology by the
Company, particularly in response to competitive offerings. Through the Company’s proprietary technologically based suite of products,
customers are offered a variety of competitive alternatives. The Company’s tradition of reliable service, proven name recognition, and large
customer base built on solid customer relationships makes it well situated to participate fully in this rapidly growing aspect of the
distribution business. The Company is exploring ways and means of improving and expanding its Internet presence and will continue to
do so. In January 2001, the Company announced the unveiling of a new Web site http://www.henryschein.com, which includes an array
of value-added features. As part of this effort, the Company also launched http://www.sullivanschein.com Web site for its office-based
dental practitioner customers.

Inflation

Management does not believe inflation had a material adverse effect on the financial statements for the periods presented.

Effect of Recently Issued Accounting Standards

(A) In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, Business Combinations (“FAS 141”), and
No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FAS 141 requires the use of the purchase method of accounting and prohibits
the use of the pooling of interests method of accounting for business combinations initiated after June 30, 2001. FAS 141 also requires
that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria.
FAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after
July 1, 2001. It also requires, upon adoption of FAS 142, that the Company reclassify, if necessary, the carrying amounts of intangible
assets and goodwill based on the criteria in FAS 141.

FAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least
annually. In addition, FAS 142 requires that the Company identify reporting units for the purposes of assessing potential future
impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with
the guidance in FAS 142. FAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were initially recognized. FAS 142 also requires the Company
to complete a transitional goodwill impairment test within six months from the date of adoption. The Company is also required to reassess
the useful lives of other intangible assets within the first interim quarter after adoption of FAS 142.

Certain of the Company’s business combinations effected prior to June 30, 2001 were accounted for using both the pooling of interests
and purchase methods. The pooling of interests method does not result in the recognition of acquired goodwill or other intangible assets.
As a result, the adoption of FAS 141 and FAS 142 will not have any effect with respect to the Company’s prior transactions that were
accounted for under the pooling of interests method. However, all future business combinations will be accounted for under the purchase
method, which may result in the recognition of goodwill and other intangible assets. With respect to the Company’s business combinations
that were effected prior to June 30, 2001, using the purchase method of accounting, the net carrying amounts of the resulting goodwill
and other intangible assets as of December 29, 2001 were $280.0 million and $8.0 million, respectively. Amortization expense during the
year ended December 29, 2001 was $12.9 million of which $11.6 million was amortization of goodwill and $1.3 million was amortization
of other intangibles. The Company has estimated that the impact of not amortizing goodwill on the results of operations will be an increase
of approximately $0.17 per diluted share in 2002. The Company is still determining the reporting units to be used for its goodwill
impairment testing, and accordingly, has not determined the impact, if any, from the results of such testing.

(B) In August 2001, the FASB issued FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(“FAS 144”). This statement supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of (“FAS 121”) and amends Accounting Principles Board Opinion No. 30, “Reporting Results of Operations
– Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.” FAS 144 retains the fundamental provisions of FAS 121 for recognition and measurement of impairment, but amends the
accounting and reporting standards for segments of a business to be disposed of. FAS 144 is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally
are to be applied prospectively. The Company believes that the adoption of FAS 144 will not have a material impact on the Company’s
financial position or results of operations.

Risk Management

The Company has operations in the United States, Canada, the United Kingdom, The Netherlands, Belgium, Germany, France, Austria,
Spain, Australia and New Zealand. Substantially all of the Company’s operations endeavor to protect their financial results by using foreign
currency forward contracts to hedge intercompany debt and the foreign currency payments to foreign vendors. The total U.S. dollar
equivalent of all foreign currency forward contracts hedging debt and the purchase of merchandise from foreign vendors was $44.1 million
and $2.6 million, respectively, as of the end of fiscal 2001. As of December 29, 2001 the fair value of these contracts, which are determined
by quoted market prices and expire through November 2002, was not material. For the year ended December 29, 2001, the Company
recognized an immaterial loss relating to its foreign currency forward contracts.

The Company considers its investment in foreign operations to be both long-term and strategic. As a result, the Company does not hedge
the long-term translation exposure to its balance sheet. The Company has experienced negative translation adjustments of approximately
$5.7 million and $7.8 million in 2001 and 2000, respectively, which adjustments were reflected in the balance sheet as a component
of stockholders’ equity. The cumulative translation adjustment at the end of 2001 showed a net negative translation adjustment of
$23.9 million.

Liquidity and Capital Resources

The Company’s principal capital requirements have been to fund (a) capital expenditures, (b) repayments on bank borrowings, (c) working
capital needs resulting from increased sales, special inventory forward buy-in opportunities and (d) acquisitions. Since sales tend to be
strongest during the fourth quarter and special inventory forward buy-in opportunities are most prevalent just before the end of the year,
the Company’s working capital requirements have been generally higher from the end of the third quarter to the end of the first quarter of
the following year. The Company has financed its business primarily through its operations, its revolving credit facilities, private placement
loans and stock issuances.

Net cash provided by operating activities for the year ended December 29, 2001 of $190.9 million resulted primarily from net income of
$87.4 million, non-cash charges of approximately $54.2 million, and a net increase in operating items of working capital of approximately
$49.3 million. The increase in working capital was primarily due to an increase in accounts payable and accruals of $55.1 million, an $8.8
million decrease in other current assets, and a $3.2 million decrease in accounts receivable, offset by a $17.8 million increase in
inventories. The Company’s accounts receivable days sales outstanding ratio improved to 53.52 days for the period ending December
29, 2001 from 57.07 days for the period ending December 30, 2000. The Company’s inventory turns improved to 6.93 inventory turns for
the period ending December 29, 2001 from 6.28 inventory turns for the period ending December 30, 2000. The Company anticipates
future increases in working capital requirements as a result of its continued sales growth, extended payment terms and special inventory
forward buy-in opportunities.

Net cash used in investing activities for the year ended December 29, 2001 of $55.1 million resulted primarily from cash used for capital
expenditures of $46.1 million, of which $10.2 million was for the Company’s new mid-west distribution center, and business acquisitions
of $8.6 million. During the past three years, the Company has invested $110.4 million in the development of new computer systems, and
for new and existing operating facilities. In the coming year, the Company expects to invest in excess of $50.0 million in capital projects
to modernize and expand its facilities and infrastructure computer systems, and integrate operations.

Net cash provided by financing activities for the year ended December 29, 2001 of $0.4 million resulted primarily from proceeds from the
issuance of stock upon exercise of stock options of $14.2 million, offset primarily by net payments on borrowings from banks of $10.8
million and net payments on long-term debt of $2.9 million.

Certain holders of minority interests in acquired entities have the right at certain times to require the Company to acquire their interest at
fair value pursuant to a formula price based on earnings of the entity.

The Company’s cash and cash equivalents as of December 29, 2001 of $193.4 million consist of bank balances and investments in money
market funds. These investments have staggered maturity dates, none of which exceed three months, and have a high degree of liquidity
since the securities are actively traded in public markets.

The Company entered into an amended revolving credit facility on August 15, 1997 that increased its main credit facility to $150.0 million
and extended the facility termination date to August 15, 2002. There were no borrowings under the credit facility at December 29, 2001.
The Company expects to renew the revolving line of credit prior to its scheduled termination in August 2002. The Company also has one
uncommitted bank line of $15.0 million, of which no amounts have been borrowed against at December 29, 2001.

On June 30, 1999 and September 25, 1998, the Company completed private placement transactions under which it issued $130.0 million
and $100.0 million, respectively, in Senior Notes, the proceeds of which were used respectively, for the permanent financing of its
acquisitions of GIV and the Heiland Group, as well as repaying and retiring a portion of four uncommitted bank lines and to pay down
amounts owed under its revolving credit facility. The $130.0 million notes come due on June 30, 2009 and bear interest at a rate of 6.94%
per annum. Principal payments totaling $20.0 million are due annually starting September 25, 2006 on the $100.0 million notes and bear
interest at a rate of 6.66% per annum. Interest on both notes is payable semiannually. Certain of the Company’s subsidiaries have credit
facilities that totaled $39.9 million at December 29, 2001 under which $4.0 million had been borrowed.

The aggregate purchase price of the acquisitions completed during 1999, including the acquisition of the minority interests of two
subsidiaries, was approximately $139.0 million, payable $132.6 million in cash and $6.4 million in stock. The acquisitions of GIV and the
Heiland Group were funded by the Company’s revolving credit agreement and various short-term borrowings entered into in January 1999.
Existing borrowing lines primarily funded the remaining cash portion of the purchases.

The following table shows the Company’s contractual obligations related to fixed and variable rate long-term debt as well as lease
obligations (See Notes 9 and 14(a) to the Consolidated Financial Statements included herein):

Contractual obligations:

Long-term debt
Capital lease obligations
Operating lease obligations

Payments due by period

Total

< 1 year

1 - 3 years

4 - 5 years

> 5 years

$255,252
2,140
106,558

$14,392
831
19,866

(In thousands)

$ 2,543
562
32,387

$21,222
227
24,138

$217,095
520
30,167

Total

$363,950

$35,089

$35,492

$45,587

$247,782

The Company believes that its cash and cash equivalents of $193.4 million as of December 29, 2001, its ability to access public and
private debt and equity markets, and the availability of funds under its existing credit agreements will provide it with sufficient liquidity to
meet its currently foreseeable short-term and long-term capital needs.

Market Risks

The Company is exposed to market risks, which include changes in U.S. and international interest rates as well as changes in foreign
currency exchange rates as measured against the U.S. dollar and each other. The Company attempts to reduce these risks by utilizing
financial instruments, pursuant to Company policies.

Forward Foreign Currency Contracts

The value of certain foreign currencies as compared to the U.S. dollar may affect the Company’s financial results. Changes in exchange
rates may positively or negatively affect the Company’s revenues (as expressed in U.S. dollars), gross margins, operating expenses, and
retained earnings. Where the Company deems it prudent, it engages in hedging programs aimed at limiting, in part, the impact of
currency fluctuations. Using primarily forward exchange contracts, the Company hedges those transactions that, when remeasured
according to accounting principles generally accepted in the United States, may impact its statement of income. From time to time, the
Company purchases short-term forward exchange contracts to protect against currency exchange risks associated with the ultimate
repayment of intercompany loans due from the Company’s international subsidiaries and the payment of merchandise purchases to
foreign vendors. As of December 29, 2001, the Company had outstanding foreign currency forward contracts aggregating $46.7 million,
of which $44.1 million related to intercompany debt and $2.6 million related to the purchase of merchandise from foreign vendors. The
contracts hedge against currency fluctuations of British Pounds ($24.1 million), Euros ($21.1 million), Australian dollars ($1.3 million), and
New Zealand dollars ($0.2 million). As of December 29, 2001 the fair value of these contracts, which are determined by quoted market
prices and expire through November 2002, was not material. For the year ended December 29, 2001, the Company recognized an
immaterial loss relating to its foreign currency forward contracts.

These hedging activities provide only limited protection against currency exchange risks. Factors that could impact the effectiveness of
the Company’s programs include volatility of the currency markets, and availability of hedging instruments. All currency contracts that are
entered into by the Company are components of hedging programs and are entered into for the sole purpose of hedging an existing or
anticipated currency exposure, not for speculation. Although the Company maintains these programs to reduce the impact of changes
in currency exchange rates, when the U.S. dollar sustains a strengthening position against currencies in which the Company sells
products and services, or a weakening exchange rate against currencies in which the Company incurs costs, the Company’s revenues
or costs are adversely affected.

Interest Rates

The Company is exposed to risk from changes in interest rates from borrowings under certain variable bank credit lines and loan
agreements. The Company has fixed rate debt of $130.0 million at 6.94% and $100.0 million at 6.66%. If the remaining outstanding debt
at December 29, 2001 of $31.4 million was the average balance for the following twelve month period and the Company experienced a
1% increase in average interest rates, the interest expense for that period would have increased by $0.3 million. Based upon current
economic conditions, the Company does not believe interest rates will increase substantially in the near future. As a result, the Company
does not believe it is necessary to hedge its exposure against potential future interest rate increases.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
Henry Schein, Inc.
Melville, New York

We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. and Subsidiaries as of December 29, 2001 and
December 30, 2000, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows
for each of the three years in the period ended December 29, 2001. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Henry
Schein, Inc. and Subsidiaries at December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 29, 2001 in conformity with accounting principles generally accepted in the United
States of America.

BDO SEIDMAN, LLP

New York, New York
March 1, 2002

HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

ASSETS

Current assets:

Cash and cash equivalents

Accounts receivable, less reserves of $31,929 and $27,556, respectively

Inventories

Deferred income taxes

Prepaid expenses and other

Total current assets

Property and equipment, net

Goodwill and other intangibles, net

Investments and other

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Bank credit lines

Accruals

Salaries and related expenses

Merger, integration, and restructuring costs

Acquisition earnout payments

Other expenses

Current maturities of long-term debt

Total current liabilities

Long-term debt

Other liabilities

Total liabilities

Minority interest

Commitments and contingencies

Stockholders’ equity:

Preferred stock $.01 par value, authorized 1,000,000,

issued and outstanding 0 and 0, respectively

Common stock, $.01 par value, authorized 120,000,000,

issued: 42,745,204 and 41,946,284, respectively

Additional paid-in capital

Retained earnings

December 29,
2001

December 30,
2000

$ 193,367

$ 58,362

363,700

291,231

25,751

52,922

926,971

117,980

288,004

52,473

371,668

276,473

21,001

60,900

788,404

94,663

292,018

55,983

$ 1,385,428

$ 1,231,068

$ 263,190

4,025

$ 216,535

4,390

41,602

5,867

26,800

80,355

15,223

437,062

242,169

18,954

698,185

6,786

––

427

393,047

312,402

39,830

13,735

15,500

68,788

6,079

364,857

266,224

12,931

644,012

7,996

––

419

373,413

225,029

Treasury stock, at cost, 62,479 shares

(1,156)

Accumulated comprehensive loss (23,922) (18,179)

Deferred compensation

(341)

(466)

Total stockholders’ equity

680,457

$ 1,385,428

579,060

$ 1,231,068

See accompanying notes to consolidated financial statements.

HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)

Net sales

Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative

Merger and integration costs

Restructuring costs

Operating income

Other income (expense):

Interest income

December 29,
2001

$2,558,243

1,858,919

699,324

551,574

––

147,750

Years ended

December 30,
2000

$2,381,721

1,733,820

647,901

520,288

585

14,439

112,589

December 25,
1999

$2,284,544

1,675,948

608,596

489,364

13,467

––

105,765

10,078

6,279

7,777

Interest expense (17,324) (20,409) (23,593)

Other - net (153) (1,925) (166)

Income before taxes on income, minority interest and equity

in earnings (losses) of affiliates

Taxes on income

Minority interest in net income of subsidiaries

140,351

51,930

1,462

96,534

36,150

1,757

89,783

35,589

1,690

Equity in earnings (losses) of affiliates 414

(1,878) (2,192)

Net income

Other comprehensive income (loss):

$ 87,373

$ 56,749

$ 50,312

Foreign currency translation adjustment (5,743) (7,820) (8,302)

Comprehensive income

Net income per common share:

Basic

Diluted

Weighted average common shares outstanding:

Basic

Diluted

$ 81,630

$ 48,929

$ 42,010

$ 2.06

$ 2.01

$ 1.38

$ 1.35

$ 1.24

$ 1.21

42,366

43,545

41,244

42,007

40,585

41,438

See accompanying notes to consolidated financial statements.

HENRY SCHEIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)

Common Stock
$.01 Par Value
Shares Amount

Additional
Paid-in
Capital

Accumulated

Deferred

Total

Retained Treasury Comprehensive Compen- Stockholders’
Earnings

Equity

sation

Stock

Loss

Balance, December 26, 1998 40,250,936

$402

$348,119

$119,064 $(1,156)

$(2,057)

$(1,338)

$463,034

Deficit of one company acquired
under the pooling of interests
method, not deemed material

Net income

–– ––

––

(1,567)

50,312

Shares issued for acquisitions 189,833 2

Shares issued to ESOP trust 101,233

Amortization of restricted stock

Foreign currency translation loss

–– ––

1,900

1,766

––

(8,302)

––

747

––

(1,567)

50,312

1,902

1,767

747

(8,302)

Shares issued upon exercise of
stock options by employees,
including tax benefit of $5,974 226,304

9,972

––

9,974

Balance, December 25, 1999

40,768,306 407

361,757

167,809

(1,156) (10,359) (591)

517,867

Retained earnings of one company

acquired under the pooling of
interests method, not deemed
material

Net income

–– ––

––

471

56,749

Shares issued for acquisitions

465,480

Shares issued to ESOP trust

121,253 1

Amortization of restricted stock

–– ––

Foreign currency translation loss

–– ––

423

2,192

––

125

471

56,749

428

2,193

125

(7,820) ––

(7,820)

Shares issued upon exercise of
stock options by employees,
including tax benefit of $2,758

591,245

9,041

––

9,047

Balance, December 30, 2000 41,946,284 419

373,413

225,029

(1,156)

(18,179)

(466)

579,060

Net income –– ––

––

87,373

Shares issued to ESOP trust 61,997

2,224

Amortization of restricted stock

–– ––

Foreign currency translation loss –– ––

––

(5,743)

––

125

––

87,373

2,225

125

(5,743)

Shares issued upon exercise of
stock options by employees,
including tax benefit of $3,262 736,923 7

17,410

––

17,417

Balance, December 29, 2001 42,745,204 $427

$393,047

$312,402 $(1,156)

$(23,922)

$(341)

$680,457

See accompanying notes to consolidated financial statements.

HENRY SCHEIN, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

December 29,
2001

Years ended

December 30,
2000

December 25,
1999

$ 87,373

$ 56,749

$ 50,312

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation and amortization

Provision for losses and allowances on trade and other receivables

Stock issued to ESOP trust

Provision (benefit) for deferred income taxes

Undistributed (earnings) losses of affiliates

Minority interest in net income of subsidiaries

Write-off of equipment, intangibles and other

Changes in operating assets and liabilities

(net of purchase acquisitions):

Decrease (increase) in accounts receivable

(Increase) decrease in inventories

Increase (decrease) in accounts payable and accruals

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures

Business acquisitions, net of cash acquired

of $228, $0, and $11,092

Proceeds from sale of fixed assets

Other

35,642

7,988

2,225

292

(414)

1,462

7,067

3,194

(17,850)

33,762

7,165

2,193

(1,335)

1,878

1,757

701

5,186

4,630

55,124

190,911

44,936

152,994

28,273

255

1,767

2,192

1,690

286

(22,258)

12,102

6,786

(24,925)

56,493

(46,127) (29,743) (34,549)

(8,588) (6,838) (132,552)

––

8,583

(355)

(9,645) (5,557)

Decrease (increase) in other current assets

8,808 (4,628)

Net cash used in investing activities (55,070)

(46,226) (164,075)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

10,166

––

131,211

Principal payments on long-term debt (13,042) (5,147) (14,873)

Proceeds from issuance of stock upon exercise

of stock options by employees

Proceeds from borrowing from banks

14,155

1,988

6,283

9,714

3,998

139,924

Payments on borrowings from banks (12,740) (89,047) (146,877)

Other (156)

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents

Cash and cash equivalents, beginning of year

371

136,212

(1,207)

58,362

346

(77,851)

28,917

3,426

26,019

113,423

5,841

(8,044)

28,222

Cash and cash equivalents, end of year

$ 193,367

$ 58,362

$ 26,019

See accompanying notes to consolidated financial statements.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)

Note 1–Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Henry Schein, Inc. and all of its wholly owned and majority owned
subsidiaries (collectively the “Company”). Investments in unconsolidated affiliates, which are greater than or equal to 20% and less than
or equal to 50% owned, are accounted for under the equity method. All intercompany accounts and transactions are eliminated in
consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Fiscal Year

The Company reports its operations and cash flows on a 52-53 week basis ending on the last Saturday of December. The fiscal year
ended December 29, 2001 consisted of 52 weeks. The fiscal year ended December 30, 2000 consisted of 53 weeks. The fiscal year
ended December 25, 1999 consisted of 52 weeks.

Revenue Recognition

Sales are recorded when products are shipped or services are rendered to customers, as the Company generally has no significant post
delivery obligations, the product price is fixed and determinable, collection of the resulting receivable is probable and product returns are
reasonably estimable. Revenues derived from post contract customer support for practice management software are deferred and
recognized ratably over the period in which the support is to be provided, generally one year. Revenues from freight charged to customers
are recognized when products are shipped. Provisions for discounts, rebates to customers, customer returns and other adjustments are
provided for in the period the related sales are recorded based on historical data.

Direct Shipping and Handling Costs

Freight and other direct shipping costs are included in “Cost of sales.” Direct handling costs, which represent primarily direct
compensation costs of employees who pick, pack and otherwise prepare, if necessary, merchandise for shipment to the Company’s
customers are reflected in “Selling, general and administrative” expenses. These costs were approximately $21,200, $17,700, and
$15,700 for the years ended 2001, 2000, and 1999, respectively.

Advertising

The Company generally expenses advertising and promotional costs as incurred. Total advertising and promotional expenses were
approximately $14,300, $13,900, and $12,600 for fiscal years ended 2001, 2000, and 1999, respectively.

Inventories

Inventories consist substantially of finished goods and are valued at the lower of cost or market. Cost is determined by the first-in, first-
out (“FIFO”) method.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost. Depreciation is computed primarily under the straight-line method over the following estimated
useful lives:

Buildings and improvements

Machinery and warehouse equipment

Furniture, fixtures and other

Computer equipment and software

Years

5-10

3-10

3-8

Amortization of leasehold improvements is computed using the straight-line method over the lesser of the useful life of the assets or the
lease term.

Capitalized software costs consist of costs to purchase and develop software. The Company capitalizes certain incurred software
development costs in accordance with the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position No.
98-1, “Accounting for the Cost of Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”). Costs incurred during the
application-development stage for software bought and further customized by outside vendors for the Company’s use and software
developed by a vendor for the Company’s proprietary use have been capitalized. Costs incurred for the Company’s own personnel who
are directly associated with software development are also capitalized.

Taxes on Income

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax
returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of
changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or
expense in the period that includes the enactment date. The Company files a consolidated Federal income tax return with its 80% or
greater owned subsidiaries.

Statement of Cash Flows

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments and other short-term investments
with an initial maturity of three months or less to be cash equivalents.

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company’s foreign subsidiaries are determined using local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year-end. Income statement
accounts are translated at the average rate of exchange prevailing during the year. Translation adjustments arising from the use of
differing exchange rates from period to period are included in the accumulated comprehensive loss account in stockholders’ equity.
Gains and losses resulting from foreign currency transactions are included in earnings.

Derivative Financial Instruments

On December 31, 2000, the Company adopted Statement of Financial Accounting Standards No. 133 (“FAS 133”) “Accounting for
Derivative Instruments and Hedging Activities,” as amended, and interpreted, which requires that all derivative instruments be recorded
on the balance sheet at their fair value. The impact of adopting FAS 133 on the Company’s Statement of Income and Balance Sheet was
not material.

The Company uses derivatives to reduce its exposure to fluctuations in foreign currencies. Derivative products, specifically foreign
currency forward contracts, are used to hedge the foreign currency market exposures underlying certain intercompany debt and certain
forecasted transactions with foreign vendors. The Company does not enter such contracts for speculative purposes.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

For derivative instruments that are designated and qualify as a fair value hedge (i.e., hedging the exposure to changes in the fair value
of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument
as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings in the current period.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure of variability in expected
future cash flows that would be attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is
reported as a component of Accumulated comprehensive loss (a component of stockholders’ equity) and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument, if
any (i.e., the ineffective portion and any portion of the derivative instrument excluded from the assessment of effectiveness) is recognized
in earnings in the current period. For derivative instruments not designated as hedging instruments, changes in their fair values are
recognized in earnings, as a component of Other-net.

Acquisitions

The net assets of businesses purchased are recorded at their fair value at the acquisition date and the consolidated financial statements
include their operations from that date. Any excess of acquisition costs over the fair value of identifiable net assets acquired is included
in Goodwill. Certain acquisitions provide for contingent consideration, primarily cash, to be paid in the event certain financial performance
targets are satisfied over future periods. The Company’s policy is to record a liability and adjust the acquisition price for such amounts
when the targets are met.

Long-lived Assets

Long-lived assets, such as goodwill and property and equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the
use of these assets. When any such impairment exists, the related assets are written down to fair value.

Stock-based Compensation

The Company accounts for its stock option awards to employees under the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount
an employee must pay to acquire the stock. The Company makes pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting had been applied as required by Statement of Financial Accounting Standards No. 123 (“FAS
123”), “Accounting for Stock-Based Compensation.”

Earnings Per Share

Basic earnings per share includes no dilution and is computed by dividing net income by the weighted average number of common
shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common
shares issuable upon exercise of stock options.

Comprehensive Income

Comprehensive income includes net income and revenues, expenses, gains and losses that, under generally accepted accounting
principles, are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity. The
Company’s comprehensive income is comprised of net income and foreign currency translation adjustments.

Fair Value of Financial Instruments

The carrying amounts of cash, accounts receivable, and accounts payable approximate fair value because of the immediate or short-term
maturity of these financial instruments. The carrying amount reported for long-term debt approximates fair value because certain of the
underlying instruments are at variable rates, which are repriced frequently. The remaining portion of long-term debt approximates fair
value because the interest approximates current market rates for financial instruments with similar maturities and terms.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

New Accounting Pronouncements

(A) In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141, “Business Combinations” (“FAS 141”),
and No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). FAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling of interests method of accounting for business combinations initiated after June 30, 2001. FAS 141
also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain
criteria. FAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed
on or after July 1, 2001. It also requires, upon adoption of FAS 142, that the Company reclassify, if necessary, the carrying amounts of
intangible assets and goodwill based on the criteria in FAS 141.

Certain of the Company’s business combinations effected prior to June 30, 2001 were accounted for using both the pooling of interests
and purchase methods. The pooling of interests method does not result in the recognition of acquired goodwill or other intangible assets.
As a result, the adoption of FAS 141 and FAS 142 will not have any effect with respect to the Company’s prior transactions that
were accounted for under the pooling of interests method. However, all future business combinations will be accounted for under the
purchase method, which may result in the recognition of goodwill and other intangible assets. With respect to the Company’s business
combinations that were effected prior to June 30, 2001, using the purchase method of accounting, the net carrying amounts of the
resulting goodwill and other intangible assets as of December 29, 2001 were approximately $280,000 and $8,000, respectively.
Amortization expense during the year ended December 29, 2001 was $12,900 of which $11,600 was amortization of goodwill and $1,300
was amortization of other intangibles. The Company has estimated that the impact of not amortizing goodwill on the results of operations
will be an increase of approximately $0.17 per diluted share in 2002. The Company is still determining the reporting units to be used for
its goodwill impairment testing, and accordingly, has not determined the impact, if any, from the results of such testing.

(B) In August 2001, the FASB issued FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS
144”). This statement supercedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of” (“FAS 121”) and amends Accounting Principles Board Opinion No. 30, “Reporting Results of Operations –
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions.” FAS 144 retains the fundamental provisions of FAS 121 for recognition and measurement of impairment, but amends the
accounting and reporting standards for segments of a business to be disposed of. FAS 144 is effective for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of FAS 144 generally
are to be applied prospectively. The Company believes that the adoption of FAS 144 will not have a material impact on the Company’s
financial position or results of operations.

Note 2–Earnings Per Share

A reconciliation of shares used in calculating basic and diluted earnings per share follows:

Basic

Effect of assumed conversion of

employee stock options

Diluted

December 29,
2001

Years ended

December 30,
2000

42,366

41,244

1,179

43,545

763

42,007

December 25,
1999

40,585

853

41,438

Options to purchase approximately 1,114, 3,011, and 2,485 shares of common stock at prices ranging from $35.50 to $46.00, $19.73 to
$46.00, and $24.56 to $46.00 per share that were outstanding during 2001, 2000, and 1999, respectively, were not included in the
computation of diluted earnings per share for each of the respective years because the options’ exercise prices exceeded the fair market
value of the Company’s common stock.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except per share data)

Note 3–Property and Equipment, Net

Major classes of property and equipment consist of the following:

Land

Buildings and leasehold improvements

Machinery and warehouse equipment

Furniture, fixtures and other

Computer equipment and software

Less accumulated depreciation and amortization

Net property and equipment

December 29,
2001

December 30,
2000

$ 3,540

$ 1,257

52,257

24,016

27,096

101,894

208,803

90,823

$117,980

42,744

21,909

24,888

76,999

167,797

73,134

$ 94,663

The net book value of equipment held under capital leases amounted to approximately $1,081 and $2,165 as of December 29, 2001 and
December 30, 2000, respectively (See Note 14(b)).

Note 4–Goodwill and Other Intangibles, Net

Goodwill and other intangibles, net consist of the following:

Goodwill

Other

Less accumulated amortization

Estimated Lives

December 29,
2001

December 30,
2000

30 years

3- 5 years

$ 326,473

$ 319,625

17,473

343,946

55,942

16,812

336,437

44,419

$ 288,004

$ 292,018

Goodwill represents the excess of the purchase price of acquisitions over the fair value of identifiable net assets acquired. During 2001,
the increase in goodwill was primarily due to additional purchase price consideration of approximately $13,300 for a prior year acquisition,
net of an impairment loss related to the healthcare distribution business. Other intangibles include covenants not-to-compete, customer
lists and deferred financing costs.

Note 5–Investments and Other

Investments and other consist of the following:

Long-term notes receivables (1)

Investments in unconsolidated affiliates

Other

December 29,
2001

December 30,
2000

$ 41,214

$ 39,028

4,201

7,058

4,791

12,164

$ 52,473

$ 55,983

(1) Long-term notes receivables include various notes due arising from the sale of certain businesses of approximately $22,251 in 2001

and $21,700 in 2000.

The Company’s investment as of December 29, 2001, is a 50% interest in an unconsolidated affiliate, which is involved in the healthcare
distribution business. In the fourth quarter of fiscal 2000, the Company sold its 50% interest in HS Pharmaceutical Inc. (“HS
Pharmaceutical”), a manufacturer and distributor of generic pharmaceuticals, which resulted in a non-recurring net loss of $1,925 which
is included in Equity in earnings (losses) of affiliates.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

Note 6–Business Acquisitions

In 2000, the Company completed the acquisition of two healthcare distribution businesses and one technology business, none of which
were considered material either individually or in the aggregate. Of the three completed acquisitions, two were accounted for under the
purchase method of accounting and the remaining acquisition was accounted for under the pooling of interests method of accounting.
The Company issued 465,480 shares of its Common Stock, with an aggregate market value of approximately $7,900 in connection with
the pooling transaction. The transactions completed under the purchase method of accounting have been included in the consolidated
financial statements from their respective acquisition dates. The pooling transaction was not material and accordingly, prior period
financial statements have not been restated. Results of the acquired company have been included in the consolidated financial
statements from the beginning of the second quarter of 2000.

In 1999, the Company completed the acquisition of eight healthcare distribution businesses and one technology business, the most
significant of which were transactions accounted for under the purchase method of accounting; General Injectables and Vaccines, Inc.
(“GIV”) (on December 30, 1998), a leading independent direct marketer of vaccines and other injectables to office based practitioners
throughout the United States; and the Heiland Group GmbH (“Heiland”) (on December 31, 1998), the largest direct marketer of healthcare
supplies to the medical, dental, and veterinarian office-based practitioners in Germany.

GIV and Heiland had 1998 net sales of approximately $120,000 and $130,000, respectively. The purchase price and resultant goodwill,
which was being amortized over 30 years, for these acquisitions was approximately $65,000 and $47,400 for GIV, and $60,400 and
$55,800 for Heiland, respectively (see Note 9 (a)). The acquisition agreements for GIV provide for additional cash consideration of up to
$6,000 per year through 2004, not to exceed $22,500 in total, to be paid if certain profitability targets are met.

Additionally, during 1999, the Company acquired six other companies, which had total sales in 1998 of approximately $74,000 that were
accounted for under the purchase method of accounting. Results of operations of the business acquisitions accounted for under the
purchase method of accounting have been included in the financial statements commencing with the acquisition dates. The total
purchase price of the six companies acquired was approximately $11,800. The Company also acquired one company, which is being
accounted for under the pooling of interests method of accounting, which was not material. In connection with this acquisition, the
Company issued 189,833 shares of its Common Stock with an aggregate market value of $6,400. The pooling transaction was not
material and accordingly prior period financial statements have not been restated. Results of the pooling transaction acquisition have
been included in the consolidated financial statements from the beginning of the quarter in which the acquisition occurred.

Summarized unaudited pro forma results of operations for the acquisitions completed during fiscal 2001 and 2000, which were accounted
for under the purchase method of accounting, are not presented as the impact of reflecting the Company’s results of operations which
assumed the acquisitions occurred as of the beginning of the fiscal 2000 is not material.

The Company incurred certain direct costs in connection with the aforementioned acquisitions accounted for under the pooling of interests
method of accounting including, in 1998, the H. Meer Dental Supply Co. Inc. (“Meer”), a distributor of consumable dental supplies, and
the integration of these and certain other acquired businesses into the Company’s infrastructure. These costs, which have been classified
as merger and integration costs, are as follows:

Direct transaction / merger costs (1)

Integration costs:

Severance and other direct costs

Costs associated with the closure of distribution centers (2)

Long-lived asset write-off and impairment

Total integration costs

Total merger and integration costs

December 29,
2001

––

Years ended

December 30,
2000

December 25,
1999

$585

$ 4,032

––

3,437

5,583

415

9,435

$585

$13,467

(1) Primarily investment banking and professional fees, including $3,533 related to Meer in 1999 (primarily legal fees resulting from the

acquisition).

(2) Primarily rent and consulting fees.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The following table shows the activity in the merger and integration accruals:

Balance at
Beginning of
Year

Provision

Payments

Applied

Against Long- Adjustments to
Reflect Actual
Lived Assets
Cost
(1)

Balance at
End of Year

Year ended December 25, 1999:

Severance and other direct costs

$ 7,943

$ 4,721

$ (9,686)

$ ––

$ (1,284) $ 1,694

Direct transaction and other

integration costs

14,049

8,340

(9,156) (6,524)

1,690 8,399

$21,992

$13,061 $ (18,842)

$ (6,524)

$ 406

$10,093

Year ended December 30, 2000:

Severance and other direct costs

$ 1,694

$ ––

(947)

$ ––

$ 747

Direct transaction and other

integration costs

8,399

585 (4,844)

––

$10,093

$ 585

$ (5,791)

$ ––

4,140

$ 4,887

Year ended December 29, 2001:

Severance and other direct costs

$ 747

$ ––

$ (382)

$ ––

$ –– $ 365

Direct transaction and other

integration costs

4,140

–– (1,957)

––

$ 4,887

$ ––

$ (2,339)

$ ––

2,183

$ 2,548

(1) To reflect specific write-offs relating to amounts previously provided.

As a result of the acquisitions and integration of these and certain other businesses into the Company’s infrastructure, 870 employees
were terminated through December 25, 1999. Of the 870 terminated employees, 206 received severance during 1999, 37 received
severance during 2000, 11 received severance during 2001, and 1 was owed severance at December 29, 2001.

Note 7–Plan of Restructuring

On August 1, 2000, the Company announced a comprehensive restructuring plan designed to improve customer service and increase
profitability by maximizing the efficiency of the Company's infrastructure. In addition to closing or downsizing certain facilities, this
worldwide initiative included the elimination of approximately 300 positions, including open positions, or about 5% of the total workforce,
throughout all levels within the organization.

For the year ended December 30, 2000, the Company incurred one-time restructuring costs of approximately $14,439 ($9,270 after taxes),
consisting of employee severance pay and benefits, facility closing costs, representing primarily lease termination and asset write-off
costs, and outside professional and consulting fees directly related to the restructuring plan.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The following table shows amounts expensed and paid for restructuring costs that were incurred and accrued in 2000:

Severance costs (1)

Facility closing costs (2)

Other professional and consulting costs

Balance at
December 30,
2000

$ 4,007

3,684

1,157

$ 8,848

Payments

$ (4,106)

(1,278)

(145)

$ (5,529)

Adjustments
to Reflect
Actual Cost

Balance at
December 29,
2001

$ 732

633

239

(971)

2,645

$ ––

$ 3,319

(1) Represents salaries and related benefits for employees separated from the Company.

(2) Represents costs associated with the closing of certain equipment branches (primarily lease termination costs) and property and

equipment write-offs.

For the year ended December 30, 2000, 284 employees separated from the Company and received severance payments in 2000. During
2001, 104 of these employees received severance payments, and 6 were owed severance pay and benefits at December 29, 2001. These
employees were from nearly all functional areas of the Company’s operations.

Note 8–Bank Credit Lines

At December 29, 2001, certain subsidiaries of the Company had available various short-term bank credit lines totaling approximately
$39,850, expiring through January 2004. Borrowings of $4,025 under these credit lines, bear interest rates ranging from 4.00% to 7.25%,
and were collateralized by accounts receivable, inventory and property and equipment with an aggregate net book value of $83,110 at
December 29, 2001.

Note 9–Long-term Debt

Long-term debt consists of:

Private Placement Loans (a)

Borrowings under Revolving Credit Agreement (b)

Notes payable to banks, interest at 4.49% to 6.94%,

payable in quarterly installments ranging from $59 to $63

through 2019, semi-annual installments of $452 through 2002

December 29,
2001

December 30,
2000

$230,000

––

$230,000

10,660

and a lump sum payment of $5,423 on January 1, 2002

21,091

21,517

Various loans payable with interest, in varying

installments through 2010, uncollateralized

Note payable, interest payable quarterly

at 5.28% plus a margin; balance due on January 1, 2002

Capital lease obligations in various installments through

fiscal 2010; interest at 6.0% to 10.1% or varies with
prime rate (see Note 14 (b))

Total

Less current maturities

Total long-term debt

2,517

1,644

2,140

257,392

15,223

5,682

1,984

2,460

272,303

6,079

$242,169

$266,224

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

(a) Private Placement Loans

On June 30, 1999, the Company completed a private placement transaction under which it issued $130,000 in Senior Notes, the
proceeds of which were used for the permanent financing of its acquisitions of GIV and Heiland, as well as repaying and retiring a portion
of four uncommitted bank lines. The notes come due on June 30, 2009 and bear interest at a rate of 6.94% per annum. Interest is payable
semi-annually.

On September 25, 1998, the Company completed a private placement transaction under which it issued $100,000 in Senior Notes,
the proceeds of which were used to pay down amounts owed under its revolving credit facility. Principal payments totaling $20,000
are due annually starting September 25, 2006 through 2010. The notes bear interest at a rate of 6.66% per annum. Interest is payable
semiannually.

(b) Revolving Credit Agreement

On August 15, 1997, the Company entered into an amended revolving credit agreement which, among other things, increased the
maximum available borrowings to $150,000 from $100,000 and extended the term of the agreement to August 15, 2002. The interest rate
on any borrowings under the agreement is based on prime, or LIBOR, as defined in the agreement, which were 4.75%, and 4.84%,
respectively, at December 29, 2001. There were no borrowings outstanding at December 29, 2001. The agreement provides for a sliding
scale fee ranging from 0.1% to 0.3%, based upon certain financial ratios, on any unused portion of the commitment. The agreement also
provides, among other things, that the Company will maintain, on a consolidated basis, as defined, a minimum tangible net worth, current
cash flow, and interest coverage ratios, a maximum leverage ratio, and contains restrictions relating to annual dividends in excess of $500,
guarantees of subsidiary debt, investments in subsidiaries, mergers and acquisitions, liens, capital expenditures, certain changes in
ownership and employee and shareholder loans. The Company expects to renew the revolving line of credit prior to its scheduled
termination in August 2002.

As of December 29, 2001, the aggregate amounts of long-term debt maturing in each of the next five years are as follows: 2002 - $15,223;
2003 - $1,895; 2004 - $1,210; 2005 - $703; 2006 - $20,746.

Note 10–Taxes on Income

Taxes on income are based on income before taxes on income, minority interest and equity in earnings (losses) of affiliates as follows:

Domestic

December 29,
2001

$140,675

Foreign

(324)

Total

$140,351

Years ended

December 30,
2000

$102,777

(6,243)

$ 96,534

December 25,
1999

$ 84,877

4,906

$ 89,783

The provision (benefit) for taxes on income was as follows:

Current tax expense:

U.S. Federal

State and local

Foreign

Total current

Deferred tax expense (benefit):

U.S. Federal

State and local

Foreign

Total deferred

Total provision

December 29,
2001

Years ended

December 30,
2000

December 25,
1999

$ 46,225

3,806

1,607

51,638

(162)

234

$ 33,989

2,882

614

37,485

(1,046)

220

(379)

292

$ 51,930

(1,335)

$ 36,150

$ 28,137

5,579

1,860

35,576

954

(1,338)

397

$ 35,589

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The tax effects of temporary differences that give rise to the Company’s deferred tax asset (liability) are as follows:

Current deferred tax assets:

Inventory, premium coupon redemptions and accounts receivable

valuation allowances

Uniform capitalization adjustments to inventories

Other accrued liabilities

Total current deferred tax asset

Non-current deferred tax asset (liability):

Property and equipment

December 29,
2001

December 30,
2000

$ 14,433

3,578

7,740

25,751

$ 11,824

3,750

5,427

21,001

(12,402) (8,459)

Provision for other long-term liabilities (5,198)

(3,001)

Net operating loss carryforward

Net operating losses of foreign subsidiaries

150

2,697

156

2,863

Total non-current deferred tax liability (14,753)

(8,441)

Valuation allowance for non-current deferred tax assets (1)

(1,850) (2,686)

Net non-current deferred tax liabilities (16,603) (11,127)

Net deferred tax asset

$ 9,148

$ 9,874

(1) Primarily relates to operating losses of foreign subsidiaries.

The net deferred tax asset is realizable as the Company has sufficient taxable income in prior years to realize the tax benefit for deductible
temporary differences. The non-current deferred liability is included in Other liabilities on the Consolidated Balance Sheets.

At December 29, 2001, the Company has net operating loss carryforwards for Federal income tax purposes of $389, which are available
to offset future Federal taxable income through 2010. Foreign net operating losses totaled $8,096 at December 29, 2001. Such losses
can be utilized against future foreign income. These losses expire between 2002 and 2011 with $1,674 expiring in 2002.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The tax provisions differ from the amount computed using the Federal statutory income tax rate as follows:

Provision at Federal statutory rate

State income taxes, net of Federal income tax effect

Net foreign losses for which no tax benefits

are available

Foreign income taxed at other than the Federal

statutory rate

December 29,
2001

$49,122

2,626

597

(6)

Years ended

December 30,
2000

$33,785

1,874

1,009

448

Reduction in valuation allowance (210) (1,011)

Non-deductible merger and integration costs

––

205

December 25,
1999

$31,425

2,757

196

––

1,329

Other (199) (160) (156)

Income tax provision

$51,930

$36,150

$35,589

Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries. Those earnings have
been and will continue to be reinvested. These earnings could become subject to additional tax if they were remitted as dividends, if
foreign earnings were loaned to the Company or a U.S. affiliate, or if the Company should sell its stock in the foreign subsidiaries. It is
not practicable to determine the amount of additional tax, if any, that might be payable on the foreign earnings; however, the Company
believes that foreign tax credits would substantially offset any U.S. tax. At December 29, 2001, the cumulative amount of reinvested earn-
ings was approximately $6,073.

Note 11–Financial Instruments and Credit Risk Concentrations

(a) Financial Instruments

To reduce its exposure to fluctuations in foreign currencies, the Company is party to foreign currency forward contracts with major financial
institutions, which are used to hedge the foreign currency market exposures underlying certain inter-company debt and certain forecasted
transactions with foreign vendors.

As of December 29, 2001, the Company had outstanding foreign currency forward contracts aggregating $46,732, of which, $44,077
related to intercompany debt and $2,655 related to the purchase and sale of merchandise from foreign vendors. The contracts hedge
against currency fluctuations of British Pounds ($24,145), Euros ($21,071), Australian dollars ($1,294), and New Zealand dollars ($222).
As of December 29, 2001, the fair value of these contracts, which are determined by quoted market prices and expire through November
2002, was not material. For the year ended December 29, 2001, the Company recognized an immaterial loss relating to its foreign currency
forward contracts.

While the Company is exposed to credit loss in the event of nonperformance by the counter parties of these contracts, the Company does
not anticipate nonperformance by the counter parties. The Company does not require collateral or other security to support these financial
instruments.

(b) Concentrations of Credit Risk

Certain financial instruments potentially subject the Company to concentrations of credit risk. These financial instruments consist
primarily of trade receivables and short-term cash investments. The Company places its short-term cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit
risk with respect to trade receivables are limited due to a large customer base and its dispersion across different types of healthcare pro-
fessionals and geographic areas. The Company maintains an allowance for losses based on the expected collectability of all receivables.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

Note 12–Segment and Geographic Data

The Company has two reportable segments: healthcare distribution and technology. The healthcare distribution segment, which is
comprised of the Company’s dental, medical, veterinary and international business groups, distributes healthcare products (primarily
consumable) and services to office-based healthcare practitioners and professionals in the combined North American and international
markets. Products, which are similar for each business group, are maintained and distributed from strategically located distribution
centers. The technology segment consists primarily of the Company’s practice management software business and certain other value-
added products and services that are distributed primarily to healthcare professionals in the North American market.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The
Company evaluates segment performance based on operating income.

The Company’s reportable segments are strategic business units that offer different products and services, albeit to the same customer
base. Most of the technology business was acquired as a unit, and the management at the time of acquisition was retained. The following
table presents information about the Company’s business segments:

Net Sales:

Healthcare distribution (1):

Dental

Medical

Veterinary

International (2)

Total healthcare distribution

Technology (3)

Total

December 29,
2001

Years ended

December 30,
2000

December 25,
1999

$1,106,580

$1,073,889

$1,047,259

929,825

52,744

398,071

2,487,220

71,023

$2,558,243

794,880

56,421

389,946

2,315,136

66,585

$2,381,721

715,210

52,050

403,137

2,217,656

66,888

$2,284,544

(1) Consists of consumable products, small equipment, laboratory products, large dental equipment, branded and generic

pharmaceuticals, surgical products, diagnostic tests, infection control and vitamins.

(2) Consists of products sold in Dental, Medical and Veterinary markets, primarily in Europe.

(3) Consists of practice-management software and other value-added products and services, which are distributed primarily to healthcare

professionals in the North American market.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

Operating Income:

Healthcare distribution (includes merger and integration and

restructuring costs of $0, $14,081, and $13,467, respectively)

$ 123,767

$ 88,872

$ 80,467

December 29,
2001

Years ended

December 30,
2000

December 25,
1999

23,983

$ 147,750

9,435

2,619

23,717

25,298

$ 112,589

$ 105,765

$ 5,231

$ 7,811

4,424

1,534

12,054

$ 9,655

$ 9,345

18,574

726

19,300

$ 22,611

$ 24,785

1,174

376

$ 23,785

$ 25,161

December 29,
2001

December 30,
2000

December 25,
1999

$1,355,681

88,590

$1,444,271

$ 34,080

1,562

$ 35,642

$ 1,188,098

97,058

$ 1,285,156

$1,134,312

110,563

$1,244,875

$ 32,465

$ 26,355

1,297

1,918

$ 33,762

$ 28,273

$ 45,289

$ 28,344

$ 32,639

838

1,399

1,910

$ 46,127

$ 29,743

$ 34,549

Technology (includes merger and integration and restructuring

costs of $0, $943, and $0, respectively)

Total

Interest Income:

Healthcare distribution

Technology

Total

Interest Expense:

Healthcare distribution

Technology

Total

Total Assets:

Healthcare distribution

Technology

Total

Depreciation and Amortization:

Healthcare distribution

Technology

Total

Capital Expenditures:

Healthcare distribution

Technology

Total

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The following table reconciles segment totals to consolidated totals as of, and for the years ended December 29, 2001, December 30,
2000, and December 25, 1999:

2001

2000

1999

Total Assets:

Total assets for reportable segments

$1,444,271

$1,285,156

$1,244,875

Receivables due from healthcare distribution segment (57,685) (46,494) (36,593)

Receivables due from technology segment

(1,158) (7,594) (4,180)

Consolidated total assets

Interest Income:

$1,385,428

$1,231,068

$1,204,102

Total interest income for reportable segments

$ 12,054

$ 9,655

$ 9,345

Interest on receivables due from healthcare distribution segment (1,737) (2,887) (1,369)

Interest on receivables due from technology segment

(239) (489) (199)

Total consolidated interest income

$ 10,078

$ 6,279

$ 7,777

Interest Expense:

Total interest expense for reportable segments

$ 19,300

$ 23,785

$ 25,161

Interest on payables due to healthcare distribution segment (239)

(489) (199)

Interest on payables due to technology segment (1,737) (2,887) (1,369)

Total consolidated interest expense

$ 17,324

$ 20,409

$ 23,593

The following table presents information about the Company by geographic area as of, and for the years ended December 29, 2001,
December 30, 2000, and December 25, 1999. Revenues by geographic area are based on the respective locations of the Company’s
subsidiaries. No individual country, except for the United States, generated net sales greater than 10% of consolidated net sales. There
were no material amounts of sales or transfers among geographic areas and there were no material amounts of United States export sales.

2001 2000 1999

Net Sales

Long-lived
Assets

Net Sales

Long-Iived
Assets

Net Sales

Long-Iived
Assets

North America

$2,179,645

$296,858

$2,010,398

$271,188

$1,899,188

$249,524

Europe and other

378,598

109,126

371,323

115,493

385,356

132,216

Consolidated Total

$2,558,243

$405,984

$2,381,721

$386,681

$2,284,544

$381,740

The Company’s subsidiary located in Germany had long-lived assets of $71,825, $77,995, and $88,050 at December 29, 2001, December
30, 2000, and December 25, 1999, respectively.

Note 13–Stockholders’ Equity

(a) Common Stock Purchase Rights

On November 30, 1998, the Company’s Board of Directors adopted a Stockholder Rights Plan (the “Rights Plan”), and declared a dividend
under the Rights Plan of one common stock purchase right (a “Right”) on each outstanding share of the Company’s Common Stock. Until
the occurrence of certain events, each share of Common Stock that is issued will also have a Right attached to it. The Rights provide, in
substance, that should any person or group acquire 15% or more of the outstanding common stock of the Company after the date of
adoption of the Rights Plan, each Right, other than Rights held by the acquiring person or group, would entitle its holder to purchase a
certain number of shares of Common Stock for 50% of the then-current market value of the Common Stock. Unless a 15% acquisition has
occurred, the Company may redeem the Rights at any time prior to the termination date of the Rights Plan. This Right to purchase the
Common Stock at a discount will not be triggered by a person’s or group’s acquisition of 15% or more of the Common Stock pursuant to
a tender or exchange offer which is for all outstanding shares at a price and on terms that the Board of Directors determines (prior to
acquisition) to be adequate and in the stockholders’ best interests. In addition, the Right will not be triggered by the positions of existing
shareholders.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

Certain business combinations with an acquiring person or its affiliates will trigger an additional feature of the Rights. Each Right, other
than Rights held by the acquiring person or group, will entitle its holder to purchase a certain number of shares of the Common Stock of
the acquiring person at a price equal to 50% of the market value of such shares at the time of exercise. Initially, the Rights will be attached
to, and trade with, the certificates representing the Company’s outstanding shares of Common Stock and no separate certificates
representing the Rights will be distributed. The Rights will become exercisable only if a person or group acquires, or commences a tender
or exchange offer for 15% or more of the Company’s Common Stock.

The Board of Directors may, at its option, redeem all but not less than all of the then outstanding Rights at a redemption price of $0.01 per
Right at any time prior to the earlier of (a) any person or group acquiring 15% or more of the Company’s Common Stock or (b) the final
expiration date of November 30, 2008.

(b) Stock Options

The Company established the 1994 Stock Option Plan for the benefit of certain employees. As amended in June 2001, pursuant to this
plan the Company may issue up to approximately 4,445,000 shares of its Common Stock. The Plan provides for two classes of options:
Class A options and Class B options. A maximum of 237,897 shares of Common Stock may be covered by Class A options. Both
incentive and non-qualified stock options may be issued under the Plan.

In 1995, Class A options to acquire 237,897 common shares were issued to certain executive management at an exercise price of $4.21
per share, substantially all of which became exercisable upon the closing of the Company’s initial public offering which was on November
3, 1995. The exercise price of all Class B options issued has been equal to the market price on the date of grant and accordingly no
compensation cost has been recognized. Substantially all Class B options become exercisable up to the tenth anniversary of the date of
issuance, subject to acceleration upon termination of employment.

On May 8, 1996, the Company’s stockholders approved the 1996 Non-Employee Director Stock Option Plan, under which the Company
may grant options to each director who is not also an officer or employee of the Company, for up to 50,000 shares of the Company’s
Common Stock. The exercise price and term, not to exceed 10 years, of each option is determined by the plan committee at the time of
the grant. During 2001, 2000, and 1999, 12,000, 0, and 13,000, options, respectively, were granted to certain non-employee directors at
exercise prices, which were equal to the market price on the date of grant.

Additionally, in 1997 as a result of the Company’s acquisition of Sullivan Dental Products Inc. and Micro Bio-Medics, Inc., the Company
assumed their respective stock option plans (the “Assumed Plans”). Options granted under the Assumed Plans of 1,218,000 and
1,117,000, respectively are exercisable for up to ten years from the date of grant at prices not less than the fair market value of the
respective acquirees’ common stock at the date of grant, on a converted basis.

A summary of the status of the Company’s two fixed stock option plans and the Assumed Plans, and the related transactions is presented
below:

December 29,
2001

Years ended

December 30,
2000

December 25,
1999

Weighted
Average
Exercise
Price

4,650,722

$24.59

5,439,340

$23.53

4,434,173

$25.89

883,600

(736,923)

(151,128)

28.73

19.21

30.26

93,500

(591,245)

14.77

11.00

1,447,935

(226,304)

(290,873)

29.39 (216,464)

17.35

36.22

36.76

4,646,271

$26.04

4,650,722

$24.59

5,439,340

$23.53

Outstanding at beginning

of year

Granted

Exercised

Forfeited

Outstanding at end

of year

Options exercisable at

year end

3,722,164

$26.53

3,708,213

$25.98

3,593,439

$23.62

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The following table summarizes information about stock options outstanding at December 29, 2001:

Options Outstanding

Options Exercisable

Number
Outstanding

Weighted Average
Remaining
Contractual Life

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise Price

Range of Exercise Prices

$ 4.21 to $16.00

$16.13 to $27.00

$28.63 to $35.71

$36.08 to $46.00

1,117,524

1,128,233

1,387,390

1,013,124

4,646,271

6.5

6.2

7.9

6.4

6.8

$12.05

$22.46

$30.69

$39.09

$26.04

875,127

1,081,265

756,019

1,009,753

3,722,164

$12.00

$22.49

$32.36

$39.10

$26.53

The Company applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related
interpretations in accounting for its employee stock options. Under APB 25, because the exercise price of the Company’s employee stock
options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by FAS 123, and has been determined as if the Company
and its acquired subsidiaries had accounted for its employee stock options under the fair value method of FAS 123. The weighted
average fair value of options granted during 2001, 2000, and 1999 was $17.05, $8.85, and $9.85, respectively. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions
for 2001, 2000, and 1999: risk-free interest rates of 5.0% for 2001, 6.3% for 2000, and 5.6% for 1999; volatility factor of the expected market
price of the Company’s Common Stock of 48.0% for 2001, 45.1% for 2000, and 45.8% for 1999, assumed dividend yield of 0% for all years
and a weighted-average expected life of the option of 10 years.

Under the accounting provisions of FAS 123, the Company’s net income and net income per common share would have been adjusted
to the pro forma amounts indicated below:

Years ended

December 29,
2001

December 30,
2000

December 25,
1999

$80,728

$48,630

$43,012

1.91

$ 1.85

$ 1.18

$ 1.16

$ 1.06

$ 1.04

Net income

Net income per common share:

Basic

Diluted

Employee Stock Ownership Plan (ESOP)

In 1994, the Company established an ESOP and a related trust as a benefit for substantially all of its domestic employees. This plan
supplements the Company’s Profit Sharing Plan, whereby a percentage, as defined, of the profit sharing allocation granted to eligible
employees is provided in shares of the Company’s Common Stock. Charges to operations related to this plan were $2,378, $2,537, and
$2,283 for 2001, 2000, and 1999, respectively, based on the prevailing market price of the Company’s Common Stock on the date of
issuance. Under this plan, the Company issued 61,997, 121,253, and 101,233 shares of the Company’s Common Stock to the trust in
2001, 2000, and 1999, to satisfy the 2000, 1999, and 1998 contribution, respectively. The Company expects to fund the 2001 accrued
contribution in 2002 with shares of the Company’s Common Stock. As of April 1, 1998 the Company’s ESOP was merged into its 401(k)
plan. Shares of the Company’s Common Stock are held in trust by the 401(k) plan.

Profit Sharing Plan

Prior to April 1, 1998, the Company had qualified contributory and noncontributory 401(k) and profit sharing plans, respectively, for eligible
employees. As of April 1, 1998, the Company’s profit sharing plan was merged into its 401(k) plan. Assets of the profit sharing plan are
now held in self-directed accounts within the 401(k) plan. Contributions to the plans were determined by the Board of Directors and
charged to operations during 2001, 2000, and 1999 amounted to $4,099, $7,305, and $6,517, respectively.

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The Company provides a matching 401(k) contribution of 100% of the participants’ contributions with respect to the first 7% of the
employees’ base compensation. Forfeitures attributable to participants who leave the Company before becoming fully vested are used by
the Company to reduce the matching contribution.

Supplemental Executive Retirement Plan

In 1994, the Company instituted an unfunded non-qualified supplemental executive retirement plan for eligible employees. The increases
in plan value that were charged to operations, were $426, $360, and $617 for 2001, 2000, and 1999, respectively.

Note 14–Commitments and Contingencies

(a) Operating Leases

The Company leases facilities and equipment under noncancelable operating leases expiring through 2013. Management expects that
in the normal course of business, leases will be renewed or replaced by other leases.

Future minimum annual rental payments under the noncancelable leases at December 29, 2001 are as follows:

2002

2003

2004

2005

2006

Thereafter

Total minimum lease payments

$ 19,866

17,087

15,300

13,591

10,547

30,167

$106,558

The future minimum annual rental payments exclude the rent obligations associated with the corporate headquarters as the Company
purchased this facility on January 10, 2002.

Total rental expense for 2001, 2000, and 1999 was $26,085, $29,730, and $25,798, respectively.

(b) Capital Leases

The Company leases certain equipment under capital leases. The following is a schedule of approximate future minimum annual lease
payments under the capitalized leases together with the present value of the net minimum lease payments at December 29, 2001:

2002

2003

2004

2005

2006

Thereafter

Total minimum lease payments

Less: Amount representing interest at 6.0% to 10.1%

$ 919

556

262

163

154

585

2,639

(499)

$2,140

The Company’s business involves a risk of product liability claims and other claims in the ordinary course of business, and from time to
time the Company is named as a defendant in cases as a result of its distribution of pharmaceutical and other healthcare products. As
of December 29, 2001, the Company was named a defendant in approximately 72 product liability cases. Of these claims, 56 involve
claims made by healthcare workers who claim allergic reaction relating to exposure to latex gloves. In each of these cases, the Company
acted as a distributor of both brand name and “Henry Schein” private brand latex gloves, which were manufactured by third parties. To
date, discovery in these cases has generally been limited to product identification issues. The manufacturers in these cases have withheld
indemnification of the Company pending product identification; however, the Company is taking steps to implead those manufacturers
into each case in which the Company is a defendant. The Company is also a named defendant in nine lawsuits involving the sale of

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

phentermine and fenfluramin. Plaintiffs in the cases allege injuries from the combined use of the drugs known as “Phen/fen.” The
Company expects to obtain indemnification from the manufacturers of these products, although this is dependent upon, among other
things, the financial viability of the manufacturer and their insurers.

In Texas District Court, Travis County, the Company and one of its subsidiaries are defendants in a matter entitled Shelly E. Stromboe &
Jeanne N. Taylor, on Behalf of Themselves and All Other Similarly Situated vs. Henry Schein, Inc., Easy Dental Systems, Inc. and Dentisoft,
Inc., Case No. 98-00886. This complaint alleges among other things, negligence, breach of contract, fraud and violations of certain Texas
commercial statutes involving the sale of certain practice-management software products sold prior to 1998 under the Easy Dental® name.
In October 1999, the Court, on motion, certified both a Windows® Sub-Class and a DOS Sub-Class to proceed as a class action pursuant
to Tex. R.Civ. P.42. It is estimated that 5,000 Windows® customers and 15,000 DOS customers could be covered by the judge’s ruling. In
November of 1999, the Company filed an interlocutory appeal of the District Court’s determination to the Texas Court of Appeals on the
issue of whether this case was properly certified as a class action. On September 14, 2000, the Court of Appeals affirmed the District
Court’s certification order. On January 5, 2001, the Company filed a Petition for Review in the Texas Supreme Court asking this court to
find “conflicts jurisdiction” to permit review of the District Court’s certification order, which appeal is now pending. On April 5, 2001 the
Texas Supreme Court requested that the parties file briefs on the merits.

On August 23, 2001, the Texas Supreme Court dismissed the Company’s Petition for Review based on lack of conflicts jurisdiction. The
Company filed a motion for rehearing on September 24, 2001 requesting that the Texas Supreme Court reconsider and reverse its finding
that it is without conflicts jurisdiction to review the case. On November 8, 2001, the Texas Supreme Court granted the motion for rehearing
and withdrew its order of August 23, 2001. The Texas Supreme Court heard oral argument on February 6, 2002. Pending a decision by
the Supreme Court on the Petition for Review, a trial on the merits, currently scheduled for July, 2002, will be stayed.

In February 2002, the Company was served with a summons and complaint in an action commenced in the Superior Court of New Jersey,
Law Division, Morris County, entitled West Morris Pediatrics, P.A. v. Henry Schein, Inc., doing business as Caligor, no. MRSL-421-02. The
complaint by West Morris Pediatrics purports to be on behalf of a nationwide class, but there has been no court determination that the
case may proceed as a class action. Plaintiff seeks to represent a class of all physicians, hospitals and other healthcare providers
throughout New Jersey and across the United States. This complaint alleges, among other things, breach of oral contract, breach of
implied covenant of good faith and fair dealing, violation of the New Jersey Consumer Fraud Act, unjust enrichment, and conversion. The
Company has not yet submitted its response to this complaint. The Company intends to vigorously defend itself against this claim, as well
as all other claims, suits and complaints.

The Company has various insurance policies, including product liability insurance, covering risks and in amounts it considers adequate.
In many cases in which the Company has been sued in connection with products manufactured by others, the Company is provided
indemnification by the manufacturer. There can be no assurance that the coverage maintained by the Company is sufficient or will be
available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide adequate protection for the
Company. In the opinion of the Company, all pending matters are covered by insurance or will not otherwise seriously harm the Company’s
financial condition.

(d) Employment, Consulting and Noncompete Agreements

The Company has employment, consulting and noncompete agreements expiring through 2006 (except for a lifetime consulting
agreement with a principal stockholder which provides for initial compensation of $283 per year, increasing $25 every fifth year beginning
in 2002). The agreements provide for varying base aggregate annual payments of approximately $4,946 per year, which decrease
periodically to approximately $867 per year. In addition, some agreements have provisions for incentive and additional compensation.

Note 15–Supplemental Cash Flow Information

Cash paid for interest and income taxes amounted to the following:

Interest

Income taxes

December 29,
2001

$17,541

$37,222

Years ended

December 30,
2000

$19,810

$28,219

December 25,
1999

$19,528

$23,266

HENRY SCHEIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share data)

The fair value of assets acquired through business acquisitions is indicated in the following table:

Fair value of assets

acquired, excluding cash

Less liabilities assumed

and created upon acquisition

Net cash paid

December 29,
2001

$10,074

1,486

$ 8,588

Years ended

December 30,
2000

December 25,
1999

$ 6,838

$239,278

––

$ 6,838

106,726

$132,552

Note 16–Quarterly Information (Unaudited)

The following presents certain unaudited quarterly financial data:

Net Sales

Gross profit

Operating income

Net income

Net income per share:

Basic

Diluted

Net Sales

Gross profit

Operating income

Net income

Net income per share:

Basic

Diluted

March 31,
2001

$ 593,895

159,357

27,583

14,132

$ 0.34

$ 0.33

March 25,
2000

$ 554,139

149,116

23,477

11,398

$ 0.28

Quarters ended

June 30,
2001

$ 606,285

166,892

35,272

20,910

$ 0.49

$ 0.48

Quarters ended

June 24,
2000

$ 568,631

158,815

30,982

16,381

$ 0.40

$ 0.39

September 29, December 29,

2001

$ 659,774

$ 698,289

178,856

194,219

41,875

25,195

43,020

27,136

$ 0.59

$ 0.64

$ 0.58

$ 0.62

September 23, December 30,

2000

$ 603,319

$ 655,632

161,951

178,019

28,944

16,238

29,186

12,732

$ 0.39

$ 0.31

$ 0.39

$ 0.30

The Company’s business is subject to seasonal and other quarterly influences. Net sales and operating profits are generally higher in the
fourth quarter due to timing of sales of software and equipment, year-end promotions and purchasing patterns of office-based healthcare
practitioners and are generally lower in the first quarter due primarily to the increased purchases in the prior quarter. Quarterly results
also may be materially affected by a variety of other factors, including the timing of acquisitions and related costs, timing of purchases,
special promotional campaigns, fluctuations in exchange rates associated with international operations and adverse weather conditions.
In the fourth quarter of 2000, the Company recorded non-recurring after tax losses on business disposals relating to the sale of its United
Kingdom practice management software development business unit and sale of its 50% interest in dental anesthetic manufacturer, HS
Pharmaceutical, of approximately $1,600 and $1,900, respectively. Restructuring charges of approximately $5,400 and $9,000 pretax
($3,400 and $5,900, after taxes) were recorded in the third and fourth quarters of 2000, respectively. Merger and integration charges of
approximately $600 were recorded in the first quarter of 2000.

Diluted earnings per share calculations for each quarter include the effect of stock options, when dilutive to the quarter’s average number
of shares outstanding for each period, and therefore the sum of the quarters may not necessarily be equal to the full year earnings per
share amount.

CORPORATE INFORMATION

Independent Auditors
BDO Seidman, LLP
330 Madison Avenue
New York, New York 10017

Legal Counsel
Proskauer Rose, LLP
1585 Broadway
New York, New York 10036

Stock Transfer Agent
For address changes, account consolidation, registration
changes, and lost stock certificates, please contact:
Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor
New York, New York 10004
(212) 509-4000

Corporate Headquarters
Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
(631) 843-5500
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 Shareholders will be held on June 5, 2002
at 11:00 a.m., at the Huntington Hilton, Melville, New York 11747.

Henry Schein on the Internet
For more information about Henry Schein and its products and
services, go to henryschein.com. Other Company Web sites include:
avimark.com; caligor.com; dentrix.com; digitaldentaloffice.com;
easydental.com; giv.com; ident.com; labnet.net; microbiomedics.com;
studentdentist.com; sullivanschein.com; and zahndental.com.

Shareholder Reports and Investor Inquiries
For shareholder inquiries, including requests for quarterly
and annual reports, contact our Investor Relations department
at (631) 843-5611/5562, or e-mail your request to
investor@henryschein.com. Printed materials can also be
requested through the Company’s Web site.

Form 10-K
A copy of the Company’s annual report on Form 10-K for the fiscal
year ended December 29, 2001, is available without charge to
shareholders upon request to the Company’s Investor Relations
department. The report is also available on the Company’s Web site.

This Annual Report contains forward-looking statements under "Management’s Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere. The Company’s results may differ materially from those expressed in or indicated by such forward-looking
statements. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.

KS 8600

CORPORATE MISSION

To be the worldwide leader in providing the best quality
and value in products and services for our healthcare customers.

CORPORATE CHARTER

To Our Customers
We provide the best quality and value in products and services,
helping them, as business partners, to:

• Deliver quality healthcare to their patients;

• Efficiently operate and grow their practices; and

• Increase their financial return and financial security.

To Our Shareholders and Venture Partners
We are responsible for achieving continued growth and profitability,
resulting in an excellent return on investment.

To Team Schein
We will continue to foster an entrepreneurial environment, while
offering exciting opportunities for personal and professional growth,
and treating each individual with respect and dignity.

To Our Suppliers
Together, we will strive to create an environment that enables us
to grow our respective businesses in the spirit of partnership,
each making a fair profit.

Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
631-843-5500
www.henryschein.com