Henry Schein Annual Report 2003

FY2003 Annual Report · Henry Schein

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ON E WORLD. ON E COMPANY. ON E TEAM.

2003 Annual Report

ABOUTHENRYSCHEIN

Henry Schein, Inc., a FORTUNE 500® company, is the largest distributor of
healthcare products and services to office-based healthcare practitioners in the
combined North American and European markets. The Company's sales
reached a record $3.4 billion in 2003.

Henry Schein operates through a centralized and automated distribution
network that serves customers in more than 125 countries. The Company
offers a comprehensive selection of over 90,000 national and Henry Schein
private-brand products.

Recognized for its excellent customer service and highly competitive prices,
Henry Schein’s four business groups—Dental, Medical, International, and
Technology—serve more than 425,000 customers worldwide. Its customers
include:
(cid:2) Approximately 75% of the estimated 135,000 U.S. and Canadian office-

based dental practices and 15,000 dental laboratories;

(cid:2) Over 45% of the estimated 230,000 U.S. office-based physician practices,

as well as surgical centers and other alternate-care sites;
(cid:2) Over 70% of the estimated 24,000 U.S. veterinary clinics;
(cid:2) Approximately 170,000 office-based dental, medical, and veterinary practices
overseas, primarily in Western Europe, Australia, and New Zealand; and

(cid:2) Government and other institutions providing healthcare services.

Henry Schein also offers a wide range of innovative value-added practice
solutions, including such leading practice-management software systems as
DENTRIX® and Easy Dental® for dental practices, and AVIMark® for veterinary
clinics, which were installed in over 50,000 practices; and ARUBA®, Henry
Schein's electronic catalog and ordering system.

With headquarters in Melville, N.Y., Henry Schein employs nearly 8,000
people in 16 countries.

NET SALES

($ in millions)

OPERATING
MARGIN

EARNINGS PER DILUTED SHARE
FROM CONTINUING OPERATIONS

RETURN ON
COMMITTED CAPITAL

OPERATING CASH FLOW
FROM CONTINUING OPERATIONS

(in dollars)

($ in thousands)

8
3
5
3
3

0
5
2
8
2

2
.
8
5
5
,
2

7
.
1
8
3
,
2

5
.
4
8
2
,
2

$ 3,500

$ 3,000

$ 2,500

$ 2,000

$ 1,500

$ 1,000

$ 500

99 00 01 02 03

0
.
7

9
.
6

8
.

2
5

9
0
.
3

9
5
2

1
0

7
6
1

$ 3.50

$ 3.00

$ 2.50

$ 2.00

$ 1.50

4
4

$ 1.00

$ .50

99 00 01 02 03

35%

30%

25%

20%

15%

10%

0
.
4
3

1
.
4
3

7
2

3
0 2
2
2

1
1
9
,
0
9
1

4
9
9
,
2
5
1

9
6
6
4
3
1

3
4
8
8
2
1

$ 200

$ 150

$ 100

$ 50

$ 25

3
9
4

6
5

99 00 01 02 03

Note: Operating Margin and Earnings Per Diluted Share from Continuing Operations have been adjusted to exclude certain one-time items. See “Reconciliation of Certain
Operating Results” on page 15. Return on Committed Capital represents operating income over average committed capital (committed capital equals inventory plus trade
accounts receivables and net property, plant, and equipment less trade accounts payables).

Henry Schein, Inc.

SHAREHOLDERSLETTER

To our Shareholders,

One world of healthcare customers is emerging, and Henry

Schein is ideally positioned as one company to take

advantage of the opportunity this presents, with nearly

8,000 Team Schein Members working together to serve a

growing base of more than 425,000 customers.

One World – We are strategically positioned to serve dental, medical and veterinary
office-based practitioners who have many shared needs. Many of these healthcare
providers serve an increasingly affluent and insured patient base, are benefiting from
significant demographic changes, and are using clinical and technological advances
in healthcare. Regardless of their country, these practitioners share a common goal:
to operate a practice that is as efficient and profitable as possible while providing a
high quality of care.

Henry Schein, Inc.

One Company – As this global healthcare market emerges, there is a tremendous
opportunity for us to meet the needs of office-based practitioners in multiple
countries. Henry Schein has the strategic commitment and infrastructure to do so, and
we have proven our success in the dental, medical and veterinary markets, both in the
United States and abroad. Our international presence provides us with significant
economies of scale. As such, we are uniquely positioned to add value to our
customers through the sharing of best practices and operational efficiencies.

One Team – For one company to meet this challenge, all employees must
work together seamlessly as a team. We have kept pace with our quickly changing
world through internal growth and by successfully integrating a number of strategic
acquisitions. Throughout this process, we retain our unique and powerful culture,
with all Team Schein Members dedicated to delivering the best possible
customer service.

One World. One Company. One Team. This was the opportunity we saw, and we made
the most of it—posting record 2003 financial results,
and for the first time, entering the FORTUNE 500® list
of America’s largest publicly traded companies.

FORTUNE is a registered
trademark of
FORTUNE Magazine,
a division of Time Inc.

2003 FINANCIAL RESULTS AND HIGHLIGHTS
During 2003 we posted record net sales of $3.4 billion, an increase of 19% from
2002. In local currencies, our sales rose 15%, including 13% internal growth. Sales
for our Dental Group in 2003 were a record $1.4 billion. This represents an 11%
increase over 2002, or 10% in local currencies, of which 8% was internally generated.
Our Medical Group posted record sales for 2003 of $1.3 billion, 22% higher than
2002, with internal growth accounting for 21%. For 2003, record International sales
were $577 million, growing by 32% in U.S. dollars and 13% in local currencies over
last year, with 7% internally generated. And last, Technology and Value-Added
Services sales for 2003 were a record $74 million, a growth of 11% over 2002,
substantially all of which was internally generated.

Net income from continuing operations for the year was $139.5 million, up 18% (20%
on a comparable basis) compared with 2002, and earnings per diluted share from
continuing operations were $3.10, up 18% (19% on a comparable basis) over the
prior year.

In 2003 we achieved impressive growth and gained
market share in each of our four business Groups, but
these financial results are just part of the story in a year
marked by progress across a number of initiatives.

Strategic acquisitions – We completed several
strategic acquisitions in 2003, including Colonial
Surgical, Hager Dental, American Medical Services
and Damer & Cartwright. We also began the process
of acquiring three of Europe’s leading dental
distributors—with our pending acquisitions of
demedis GmbH, KRUGG S.p.A., and DentalMV
GmbH (Muller & Weygandt).

Vaccines and injectables – This growing product
category contributed to our success in 2003, as we
shipped more than 20 million doses of influenza
vaccine during the U.S. flu season. We also signed
new agreements that added important products to
our offering. For example, as part of our growing
Henry Schein Rx Services, we now distribute
Remicade, Centocor’s intravenous infusion therapy
for treating rheumatoid arthritis and Crohn’s disease,
to physician offices across the United States.

SHAREHOLDERSLETTER

We have powerful strengths to build upon. Henry Schein has unique sales and
marketing expertise, a world-class centralized infrastructure, and a broad product
offering at highly competitive prices. We are committed to providing superior
customer service, and have a large user base of practice management software.

We have clear growth strategies. We are dedicated to further transitioning our
business from being a pure distributor of products to becoming a provider of
integrated products and services. To achieve this we will expand our offering of value-
added products and services, and continue to further build customer loyalty by
providing critical practice-enhancing tools. We will expand Privileges™, our highly
successful customer loyalty program for dental customers, and offer a portfolio of
exclusive and semi-exclusive products. We will also grow our customer base by
increasing the number and productivity of our field sales consultants and by using our
extensive customer database to focus our marketing efforts.

Another important growth strategy is to continue pursuing complementary initiatives
to accelerate future growth in sales and operating income. To achieve this we will
continue
to develop our high-growth dental
specialty business and implement our Henry Schein
Rx Services plan, adding new vaccines, injectables
and related services to our medical offering.
In addition, we will continue to pursue strategic
acquisitions, selectively capitalizing on consolidation
opportunities to increase sales, and our force of field
sales consultants, equipment sales specialists, and
equipment service technicians. We will also seek
acquisition opportunities that improve our product
offering by providing us with greater expertise in
a particular product category, enhancing our
procurement leverage, or adding new product lines.

We have clear priorities to help reach our goals.
To achieve success, we are committed to attracting,
training and retaining highly qualified and motivated
people. We will continue to gather and analyze
information to help us better understand and serve
our customers. And we will make investments in
technology to expand our e-commerce and other
systems capabilities as we institutionalize best-
practices on a company-wide basis.

2003 was a banner
year for
Henry Schein...
for a number of
reasons I am
confident that our
best years are
yet to come.

Corporate responsibility – Through broad-based programs supported by Henry
Schein Cares, we demonstrated our commitment to corporate responsibility more
clearly and strongly than ever before, including our continuing commitment to the
American Dental Association’s “Give Kids a SmileSM” Day and the Institute for Diversity
in Leadership. In addition, in support of the U.S. Centers for Disease Control and
Prevention’s (CDC) national education campaign and immunization initiative, Henry
Schein donated flu vaccine to CDC selected sites across the country.

Corporate governance – In 2003, we increased the size of our Board of Directors
by adding two valuable new independent members: Louis W. Sullivan, M.D., former
U.S. Secretary of Health and Human Services, and the founding Dean, Director, and
President Emeritus of the Morehouse School of Medicine in Atlanta; and Margaret A.
Hamburg, M.D., former Assistant Secretary for Planning and Evaluation, U.S.
Department for Health and Human Services, and former Commissioner of Health for
the City of New York.

OUR FUTURE LOOKS BRIGHT
2003 was a banner year for Henry Schein, but for a number of reasons I am confident
that our best years are yet to come.

We serve attractive markets. The population of the geographies we serve is aging,
and the market to serve their healthcare needs is growing.

ONE WORLD, ONE COMPANY, ONE TEAM – HENRY SCHEIN
We are confident that our growth strategies will continue to support and enhance
partnerships with our current and future customers, helping practitioners to improve
their practice efficiency and profitability, while delivering the highest quality care.

Finally, we will work to further diversity within the healthcare industry, with the goal of
increasing access to care as it affects professionals and their patients in underserved
communities. As part of this commitment, we will endeavor to ensure that Team
Schein reflects the cultural diversity of our customer base, and support programs that
enhance this diversity, thereby helping our customers better serve their patients.

One world of customers looking to one company to serve their needs, and one team
rising to meet this challenge. This is our vision for the future of Henry Schein.

Sincerely,

Stanley M. Bergman
Chairman, Chief Executive Officer and President

ONEWORLD.ONECOMPANY. ONETEAM.

ONEWORLD.

Henry Schein serves an increasingly diverse customer

base of dentists, physicians, and veterinarians who seek

to operate efficient and profitable practices as they deliver

high quality healthcare.

Sullivan-Schein Representatives—including Field Sales Consultants, Design Professionals,
Equipment Sales Specialists and Equipment Service Technicians—work together seamlessly with
our dental customers to design, create and support aesthetically pleasing offices that optimize
work flow and space utilization, maximize practice efficiency, and enable dental teams
to focus on delivering the high quality care.

Henry Schein, Inc.

The markets we serve are

thriving, as an aging

population uses more

healthcare services each year.

The markets we serve are thriving, as an

aging population uses more healthcare

services each year. For example, life

expectancy in the United States is now

77.2 years, up from 75.4 years in 1990.

And the population over 45 years old is

expected to increase by 42% by 2020,

and by 58% by 2030.

Practice trends also bode well for Henry

Schein. Expenditures on dental services

are expected to rise steadily. There is an

increasing recognition of the correlation

between oral health and overall well-

being, and in many countries there is an

increase in dental insurance coverage

for patients and a greater emphasis on

cosmetic dentistry. Dental pharmaceutical

therapies and noninvasive diagnostic

ONEWORLD

pharmaceutical products. In addition,

there is continued growth in the use of

injectables and diagnostic tests, and

new vaccines for adults are being

developed.

As a result, Henry Schein’s future holds

great promise. Throughout the years

the healthcare market has shown

growth

in both strong and weak

economic times. And because we work

in highly fragmented markets, there are

still opportunities for further industry

consolidation and continued growth.

We are well positioned to capitalize

on these trends, and provide our

customers with an ever-increasing array

of value-added products and services.

Beyond the United States and Canada,

procedures are on the rise, and with fewer dentists to meet

we serve approximately 170,000 customers. We have

increasing demand, dental practice productivity will be more

operations in 14 countries outside of North America, primarily

important.

In the medical arena, expenditures on physician and clinical

services are also expected to increase. Procedures continue

to migrate from acute-care settings to less costly physician

in Western Europe, Australia and New Zealand, and typically

enjoy a leadership position in these countries. We also serve

healthcare practitioners in 125 countries through Schein Direct™,

which provides rapid door-to-door air package delivery.

offices and alternate-care sites. Technological advances are

In a world that is progressively more complex and diverse, Henry

enhancing medical practices, and our customers are becoming

Schein is there to meet the needs of our customers.

frequent prescribers and dispensers of specialty

ONEWORLD.ONECOMPANY. ONETEAM.

ONECOMPANY.

Henry Schein is a model of one company that is

strategically positioned to meet the needs of office-based

practitioners in many countries around the world.

The core of our success lies in our strengths, beginning

with a strong brand identity that is rooted in 72 years of

healthcare distribution experience. We reach healthcare

practitioners through the sales and marketing expertise

of 1,550 field sales consultants, equipment sales

specialists, and more than 875 telesales representatives.

In 2003, we supported their efforts by delivering more

than 31 million targeted direct marketing pieces to over

650,000 healthcare practitioners.

Henry Schein, Inc.

Henry Schein offers a comprehensive selection of over 90,000
products, including an array of over 8,000 Henry Schein private
brand products. We update our product offerings regularly to
meet our customers’ changing needs.

Our customers know they can order from Henry Schein 24/7 via
telephone, fax, CD-ROM, and the Internet. In 2003, Henry Schein’s
Internet sales increased 63% over the previous year.

A steadfast commitment

to superior customer service

distinguishes

Henry Schein from

our competitors.

A steadfast commitment to superior

customer service distinguishes Henry

Schein

from

our

competitors.

Customers can order from us 24/7 via

telephone,

fax, CD-ROM and

the

Internet, and they are increasingly

doing so: our Internet sales increased

63% during 2003 compared with 2002.

But order placement

just

the

beginning of customer satisfaction. We

ship nearly nine million orders to our

customers each year. In the U.S. and

Canadian markets, 99% of our orders

are shipped the same day the order

is placed, are delivered within two

days of placement, and are shipped

with virtually 100% accuracy. In the

countries we serve beyond the United

ONECOMPANY

Europe and Australia. Important capital

investments

this highly efficient

infrastructure—in inventory management

technology, special capabilities such as

cold-chain distribution, and information

technology— help ensure that we remain

an industry leader.

We are a single source for virtually all of

our customers’ practice needs, with a

broad offering of products and services

at highly competitive prices. This

includes more than 90,000 SKUs in North

America, 75,000 SKUs in Europe and

8,000 Henry Schein private brand SKUs.

Another important strength is our large

installed user base of practice-

management software. More than

44,000 installed DENTRIX® and Easy

States and Canada, our statistics for efficiency and accuracy are

Dental® systems and over 6,000 installed AVIMark® systems

also impressive. To support our customers’ dental equipment

provide us with opportunities to cross-sell our core distribution

service needs, we have nearly 800 highly qualified dental

offering, sell add-on products and services, and strengthen our

Equipment Service Technicians operating out of 121 locations

customer relationships by providing critical tools for managing

throughout the world.

In addition to offering in-office installation and repair services for

large dental equipment, we also offer rapid turn-around services

for dental handpieces and dental, medical and veterinary small

their businesses more efficiently and profitably. An independent

dental products research laboratory has recognized DENTRIX®

as being first in customer satisfaction, with the fastest growing

user-base, and as having superior clinical features.

equipment and sterilizers through our ProRepair® division. With

In addition, Henry Schein’s Web site was recognized during

operations across the United States and abroad, we believe

2003 as leading the industry in customer satisfaction.

ProRepair® is the leading handpiece and small equipment repair

service to office-based practitioners in the world.

By bringing these significant strengths to bear, Henry Schein has

emerged as a company well positioned to meet the needs of

Henry Schein’s centralized infrastructure and supply chain is

office-based healthcare practitioners in many countries around

another pillar of our superior customer service. We have more

the world.

than 2.1 million square feet of distribution space at 15

strategically located distribution centers in North America,

DENTRIX®’s proprietary DDO (Digital Dental Office)
technology provides seamless integration of all
information that drives a practice. In 2003, DENTRIX ®
was ranked by an independent dental products
research laboratory as being first in customer
satisfaction, with the fastest growing user base,
and superior clinical features.

ONEWORLD.ONECOMPANY. ONETEAM.

ONETEAM.

Throughout North America and in 14 other countries,
nearly 8,000 dedicated individuals are working together
as one team—Team Schein—to deliver the best
possible customer service.

Team Schein Members contribute to and are influenced
by the unique and powerful culture of Henry Schein, a
values-based company that engenders an atmosphere of
mutual respect and cooperation. Mutual responsibility,
ethical behavior, creativity, and open communications are
the guiding principles of Henry Schein. Each person is
a spoke in the Team Schein “Wheel of Success,” and the
contribution of each Team Schein Member is valued as
integral toward reaching our goals. And through a
remarkable period of organic growth and strategic
acquisitions, we have been able
this
distinguishing culture.

to retain

Henry Schein, Inc.

Our commitment to corporate responsibility is put into action through Henry Schein Cares,
which provides resources to help narrow the disparity in the delivery of healthcare
information and services in underserved communities in the United States and abroad.

COMPETITIVE
BENCHMARKING

CUSTOMER
FOCUS

TEAM
SCHEIN
CULTURE

MONETARY
RESOURCES

COMMUNICATION

FLEXIBLE
GAME
PLAN

“THE
BOTTOM
LINE”

MAXIMUM
EFFICIENCY
FOR OPTIMUM
QUALITY

FOSTER
CREATIVE
CHANGE

Part of the Team Schein culture is a
commitment to education and training, as
exemplified by our Dental Career
Development programs and Sullivan-
Schein University (SSU). Intensive sales
training sessions, product demonstrations
and training on proprietary sales tools
equip our sales force with the knowledge
they need to succeed. Our online
learning tool includes over 60 vendor
training and 30 career development
modules that enable individuals to learn
at their own pace. Graduates of our
Career Development programs are now
counseling
on
marketing, effective scheduling, practice
management and problem solving.

practices

dental

is committed

Henry Schein
to
enhancing diversity and inclusiveness
within the healthcare industry, leading to improved access to
care for people in underserved communities. To this end, we are
a corporate sponsor of the American Dental Association’s
Diversity in Leadership initiative, and are working closely to
create a diversity leadership institute for the dental profession.
We recently partnered with the New York State Dental
Association to host the first Diversity Meeting and Educational
Seminar in New York. We provide financial and logistical support
to the Hispanic Dental Association, Indian Health Services
clinics, National Dental Association, Medical Education for South
African Blacks and many other groups that enhance diversity in
the healthcare professions. We also sponsor dozens of
healthcare outreach programs within the United States and in
developing countries.

Another aspect of Team Schein’s culture is our commitment
to corporate responsibility, which we put into action through

Mutual responsibility, ethical

behavior, creativity, and open

communications are the

guiding principles of

Henry Schein.

ONETEAM

Henry Schein Cares. The mission of
Henry Schein Cares is to assist in
narrowing the disparity of healthcare
services and information in underserved
communities, both in the United States
and abroad, by providing resources to
support the programs of community-
based healthcare professionals and their
organizations. We achieve this by making
product donations and cash awards,
supporting programs for the under-
served, volunteering our time, delivering
healthcare information, partnering with
other organizations and enhancing the
quality of life for Team Schein Members.

Through Henry Schein Cares, we
donated influenza vaccine to expand
the scope of two Centers for Disease
Control and Prevention programs,
vaccinating thousands of additional underserved people in 19
U.S. cities and the Mississippi Delta who might otherwise have
gone unvaccinated. We also have served as the exclusive
distributor of professional products for the American Dental
Association’s “Give Kids a Smile” Day for the past two years. In
the program’s second year, we recruited 51 vendor partners and
helped over 35,000 dental team volunteers treat underserved
children in the United States free of charge. On this day, an
estimated one million children received care valued at
approximately $100 million in “Give Kids a Smile” events
nationwide.

Mutual respect, extensive experience, unwavering commitment,
and a sense of caring and responsibility are just some of the
hallmark qualities of Team Schein.

Among our many Henry Schein Cares activities in 2003 were the American Dental Association’s
“Give Kids a Smile” Day, which treated more than one million underserved children in the United States
free of charge, and our annual Back-to-School Program, which provided underprivileged
children with a backpack filled with school supplies and clothing for their first day of school.

ONEWORLD.ONECOMPANY. ONETEAM.

ATAGLANCE

DENTALGROUP

MEDICALGROUP

In 2003 the Dental Group recorded sales of $1.4 billion, 41% of
total Company revenues, which represents growth of 11% over
2002, including 9% growth in consumable merchandise sales
and 18% growth in equipment sales and service revenue.

The Dental Group includes Sullivan-Schein Dental in the United
States, Henry Schein Arcona in Canada, and the Zahn Dental
laboratory supply business, and has approximately 30% share of
the estimated $4.4 billion U.S. and Canadian dental distribution
market. We serve over 75% of the estimated 135,000 U.S. and
Canadian dental practices, and approximately 15,000 dental
laboratories. We are also a major supplier to large group
practices, schools, government and other institutions.

The Group includes more than 900 field sales consultants
(including equipment sales specialists), nearly 600 equipment
service technicians, and 84 equipment sales and service
centers. Counseling the Group from the dental practitioners’
perspective is a Dental Advisory Board that includes many
leaders of the profession.

We support dentists by offering more than 70,000 SKUs,
including many Henry Schein exclusives, such as Oral CDx®,
BriteSmile-To-Go™, Debacterol®, X-Rite’s ShadeVision™,
BruxGuard™, Norad®, Titan Instruments and Pentron® dental
laboratory products.

We also provide dentists with several important technology-
based value-added services, including our DENTRIX® and Easy
Dental® practice-management software systems, financial
services, continuing education and dental electronic claims
processing. PRIVILEGES™, our highly successful and innovative
customer loyalty program helps us attract, retain and reward
customers, and provides us with a platform to introduce our other
products to our customers. By the end of 2003, PRIVILEGES™
had enrolled more than 16,000 members, and these members
are increasing their business with Henry Schein at a rate far
above that of our average customer.

The Medical Group posted record sales of $1.3 billion in 2003,
22% higher than the previous year, representing 40% of total
Company revenues.

Henry Schein’s Medical Group serves over 45% of the estimated
230,000 U.S. office-based physician practices and has
approximately 16% of the estimated $7.1 billion market. We offer
over 30,000 SKUs to the physician marketplace through three
primary brands: Henry Schein Medical, which offers a full
portfolio of products and services to all 50 states through more
than 230 telesales representatives; Caligor, with more than 350
field sales consultants in 41 states offering a similar portfolio of
products and services; and General Injectables and Vaccines
(GIV), whose more than 40 telesales representatives specialize in
vaccines and other injectables and serve practitioners across the
nation. This Group also ships over 25% of the U.S. doses for the
Vaccine for Children’s (VFC) program, and over 25% of the U.S.
influenza vaccine supply to physicians.

During 2003, the Company also acquired Damer & Cartwright, a
specialty distributor of pharmaceuticals focused on oncology,
infertility, hepatitis, transplant and respiratory disease states, and
American Medical Services, a distributor of oncology drugs.

The Medical Group also serves institutions, surgical centers,
alternate-care facilities and acute-care facilities in the northeast
United States, as well as over 70% of the estimated 24,000 U.S.
veterinary clinics. Offering more than 40,000 SKUs to our
veterinary customers, we are a primary vendor to VCA Antech, the
largest provider of clinical petcare in the country.

We are a major supplier to the formulary plans of many
professional groups, such as the American Medical Association
and the American Society of Plastic Surgeons. Already a leading
provider of vaccines, injectables and other pharmaceuticals with
expertise in cold-chain distribution, we are uniquely positioned to
take advantage of the trend toward increased use of vaccines
and injectables in physicians offices and alternate-care settings.

The Medical Group receives the counsel of many leading
medical professionals through its Medical Advisory Board, which
provides valuable insights into practitioners’ needs.

Henry Schein, Inc.

ATAGLANCE

INTERNATIONALGROUP

TECHNOLOGY&VALUE-ADDEDSERVICESGROUP

In 2003 the International Group posted record sales of $577
million, 17% of total Company revenues, which represented
32% growth in U.S. dollars and 13% in local currencies from
the previous year.

In 2003 the Technology and Value-Added Services Group
posted record sales of $74 million, growth of 11% from the
previous year, which represented 2% of total Company
revenues.

The year was highlighted by particular sales strength in France,
Spain and Austria. The Group has an approximate 9% share of
the Western European dental, medical and veterinary markets in
which we operate.

The mission of the International Group is to provide best-in-class
capabilities on a Pan-European basis, offering products and
services
to dental, medical and veterinary office-based
practitioners. We offer more than 75,000 SKUs to our growing
base of 170,000 customers located in 14 countries outside of
North America, including Austria, Australia, Belgium, the Czech
Republic, France, Germany, Iceland, Ireland, Israel, the
Netherlands, New Zealand, Portugal, Spain and the United
Kingdom. In addition, we serve healthcare practitioners in 125
countries through Schein Direct™, which provides rapid door-to-
door air package delivery.

In 2003 the strategic acquisition of Hager Dental strengthened the
Group’s equipment sales and service presence in Germany and
added over 40 field sales consultants. In addition, Henry Schein
began the process of acquiring three of Europe’s leading dental
distributors—with our pending acquisitions of demedis GmbH, a
leading full-service distributor of dental consumables and
equipment in Germany, Austria and the Benelux countries, which
will further our strategy to be a full-service, high-value provider of
products and services to European dentists; KRUGG S.p.A., Italy’s
leading distributor of dental consumable products, which will
provide us entrée into Europe’s second-largest dental market and
further our Pan-European strategy; and DentalMV GmbH (Muller &
Weygandt), one of Europe’s leading direct marketing distributors of
dental consumable products, which will enhance our European
direct marketing capabilities.

There is tremendous opportunity for Henry Schein’s expansion in
Europe. Nearly 45% of Western European dental practices are
not active Henry Schein customers, and there is substantial
opportunity in the Western European medical and veterinary
markets. We are well positioned to help meet the needs of
medical, dental and veterinary office-based practitioners in many
countries around the world.

This Group provides leading software, technology and other
value-added products and services to healthcare providers in the
dental, medical and veterinary professions. We seek to provide
practitioners with products and services that will improve practice
efficiency and profitability while enabling our customers to deliver
high quality care.

Approximately one-third of all U.S. dental practices use our
DENTRIX® or Easy Dental® practice-management software. In
2003 DENTRIX was ranked by an independent dental products
research laboratory as being first in customer satisfaction, with
the fastest growing user base, and superior clinical features.

Through our Digital Dental Office initiative or “DDO”, we offer
customers a suite of technologically advanced products that
seamlessly integrate imaging, clinical and financial applications
for the dental office.

Our AVIMark® practice-management software has been installed
in over 6,000 companion animal clinics, representing more than
25% of the veterinary clinics in the United States.

In addition, we provide an increasing number of value-added
services to practitioners. We believe we are one of the dental
largest processors of electronic claims, with
industry’s
approximately 25 million processed in 2003. Through Henry
Schein Financial Services, we offer low rates for equipment
leasing and financing, patient-financing options, electronic credit
card processing and lines of credit. Other services include
Henry Schein’s Continuing Education
for Healthcare
Professionals program, through which participants can access
fully accredited courses on the latest healthcare technology in
person, in print or online.

ONEWORLD.ONECOMPANY. ONETEAM.

DIRECTORSOFFICERS

BOARDOFDIRECTORS

Stanley M. Bergman
Chairman, Chief Executive Officer and President

Philip A. Laskawy (1) (3) (4)
Retired Chairman, Ernst & Young

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

Norman S. Matthews (2) (4)
Former President, Federated Department Stores

Gerald A. Benjamin
Executive Vice President and Chief Administrative Officer

Mark E. Mlotek
Executive Vice President, Business Development

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

Steven Paladino
Executive Vice President and Chief Financial Officer

Margaret A. Hamburg, M.D. (4)
Former Assistant Secretary for Planning and Evaluation,
U.S. Department of Health and Human Services
and Former Commissioner of Health for the City of New York

Marvin H. Schein
Founder, Schein Dental Equipment Corp.

Pamela Joseph
Director, MaNose Studios

Donald J. Kabat (1) (2)
Retired Partner, Accenture

EXECUTIVEOFFICERS

Irving Shafran, Esq.
Attorney at Law

Louis W. Sullivan, M.D. (3) (4)
Former U.S. Secretary of Health and Human Services
and Founding Dean, Director, and President Emeritus
of the Morehouse School of Medicine

Stanley M. Bergman
Chairman, Chief Executive Officer and President

Stanley Komaroff, Esq.
Senior Advisor

Gerald A. Benjamin
Executive Vice President and Chief Administrative Officer

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

Mark E. Mlotek
Executive Vice President, Business Development

Steven Paladino
Executive Vice President and Chief Financial Officer

Michael Racioppi
President, Medical Group

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

Michael Zack
Senior Vice President, International Group

(1) Member Audit Committee (2) Member Compensation Committee (3) Member Nominating and Governance Committee (4) Member Strategic Advisory Committee

Henry Schein, Inc.

FINANCIAL INFORMATION

Table of Contents

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

16 Selected Financial Data

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

30 Quantitative and Qualitative Disclosures About Market Risk

Consolidated Financial Statements:

32 Report of Independent Certified Public Accountants

33 Balance Sheets as of December 27, 2003 and December 28, 2002

34 Statements of Income for the Years Ended

December 27, 2003, December 28, 2002, and December 29, 2001

35 Statements of Changes in Stockholders’ Equity for the Years Ended

December 27, 2003, December 28, 2002, and December 29, 2001

36 Statements of Cash Flows for the Years Ended

December 27, 2003, December 28, 2002, and December 29, 2001

37 Notes to Consolidated Financial Statements

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted through the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol “HSIC”. The
following table sets forth, for the periods indicated, the high and low reported sales prices of our common stock as reported on the
NASDAQ National Market System for each quarterly period in fiscal 2003 and 2002:

Fiscal 2003:

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Fiscal 2002:

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

High

$46.60

54.15

60.32

70.00

$46.11

50.59

54.98

57.73

Low

$34.17

40.89

51.50

55.34

$35.34

43.10

39.00

40.30

On March 2, 2004, there were approximately 636 holders of record of our common stock. On March 2, 2004, the last reported sales price
was $73.97.

We maintain several stock incentive plans for the benefit of certain officers, directors and employees. Certain plans are subject to
stockholder approval while other plans have been authorized solely by the Board of Directors. Descriptions of these plans are described
in the notes to our consolidated financial statements. The following table summarizes information relating to the Plans as of December
27, 2003:

Number of Common
Shares to be Issued Upon
Exercise of Outstanding
Options and Rights

Weighted-Average
Exercise Price of
Outstanding Options

Number of Common
Shares Available for
Future Issuances

Plans Approved by

Stockholders

Plans Not Approved by

Stockholders

Total

4,208,706

25,000

4,233,706

$34.12

40.82

$34.16

1,986,677

––

1,986,677

Dividend Policy

We have not declared any cash dividends on our common stock during fiscal years 2003 or 2002. We currently do not anticipate declaring
any cash dividends on our common stock in the foreseeable future. We intend to retain earnings to finance the expansion of our business
and for general corporate purposes, including our stock repurchase program. Any declaration of dividends will be at the discretion of our
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. Our revolving credit agreement, as well as the agreements governing
our Senior Notes, limit the distribution of dividends without the prior written consent of the lenders.

Reconciliation of Certain Operating Results

The following table sets forth, for the periods indicated, a reconciliation of Operating income and Net income, as reported to Adjusted
operating income and Adjusted net income.

Years ended

December 27, December 28, December 29, December 30, December 25,
2001

2000

1999

2003

2002

Operating income, as reported

$233,719

$197,003

$147,750

$112,589

$105,765

(In thousands, except per share data)

Adjustments:

Merger, integration and restructuring (credits) costs ––

(734)

––

15,024

Adjusted operating income

Adjusted operating margin

Net income, as reported

Adjustments, net of tax:

233,719

196,269

147,750

127,613

7.0%

6.9%

137,510

117,987

5.8%

87,373

5.4%

56,749

Merger, integration and restructuring (credits) costs –– (734)

Gains on real estate transactions

(454)

(890)

Loss on sale of Novocol

Loss on sale of UK Technology Business

––

Loss on sale of discontinued operation - PMA Bode

2,012

––

9,855

––

1,925

1,618

––

13,467

119,232

5.2%

50,312

9,484

––

$139,068

$116,363

$ 87,373

$ 70,147

$ 59,796

Adjusted net income

Earnings per diluted share:

As reported

Adjusted

Weighted-average diluted common shares outstanding: 44,988

44,872

43,545

3.06

3.09

2.63

2.59

2.01

$ 1.35

1.21

1.67

42,007

1.44

41,438

SELECTED FINANCIAL DATA

The following selected financial data, with respect to our financial position and results of operations for each of the five years in the period
ended December 27, 2003, set forth below, has been derived from our consolidated financial statements. The selected financial data
presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements.

Years ended

December 27,
2003

December 28,
2002

December 29,
2001

December 30,
2000

December 25,
1999

(In thousands, except per share data)

Statements of Operations Data:
Net sales

$3,353,805

$2,825,001

$2,558,243

$2,381,721

$2,284,544

Gross profit

927,194

794,904

699,324

647,901

608,596

Selling, general and administrative
expenses

693,475

598,635

551,574

520,288

489,364

Merger, integration and
restructuring (credits) costs (1) –– (734) –– 15,024

Operating income

233,719

197,003

147,750

112,589

13,467

105,765

Other expense, net (7,943) (6,574) (7,399) (16,055) (15,982)

Income before taxes on income,
minority interest, equity in
earnings (losses) of affiliates
and loss on sale of discontinued
operation

225,776

190,429

140,351

96,534

89,783

Taxes on income
from continuing operations (84,378) (70,510) (51,930) (36,150) (35,589)

Minority interest in net income
of subsidiaries (2,807) (2,591) (1,462) (1,757) (1,690)

Equity in earnings (losses)
of affiliates 931 659 414 (1,878) (2,192)

Net income from continuing
operations

139,522

117,987

87,373

56,749

50,312

Loss on sale of discontinued
operation, net of tax (2) (2,012)

–– –– ––

––

Net income

$ 137,510

$ 117,987

87,373

$ 56,749

50,312

Net income from continuing operations
per common share:
Basic
Diluted

Net income per common share:
Basic
Diluted

Weighted-average common
shares outstanding:
Basic
Diluted

$ 3.19
3.10

$ 2.71
2.63

$ 2.06
2.01

$ 1.38
1.35

$ 1.24
1.21

$ 3.15
3.06

$ 2.71
2.63

$ 2.06
2.01

$ 1.38
1.35

$ 1.24
1.21

43,709
44,988

43,489
44,872

42,366
43,545

41,244
42,007

40,585
41,438

Selected Operating Data
(unaudited):

Number of orders shipped
Average order size

Net Sales by Market Data:
Healthcare distribution (3):

Dental (4)
Medical (5)
International (6)

Years ended

December 27,
2003

December 29,
December 28,
2001
2002
(In thousands, except selected operating data)

December 30,
2000

December 25,
1999

8,825,000
$ 380

7,861,000
$ 359

7,891,000
$ 324

8,280,000
$ 288

7,979,000
$ 286

$1,364,812
1,338,084
576,628

$1,227,273
1,093,956
437,046

$1,121,394
982,569
398,071

$1,087,073
851,301
389,946

$1,056,406
767,258
403,140

Total healthcare distribution

3,279,524

2,758,275

2,502,034

2,328,320

2,226,804

Technology (7)

Total

Balance Sheet Data:
Total assets
Long-term debt
Minority interest
Stockholders' equity

74,281

66,726

56,209

53,401

57,740

$3,353,805

$2,825,001

$2,558,243

$2,381,721

$2,284,544

$1,819,370
247,100
11,532
1,004,118

$1,558,052
242,561
6,748
861,217

$1,385,428
242,169
6,786
680,457

$1,231,068
266,224
7,996
579,060

$1,204,102
318,218
7,855
517,867

(1) In 2002, we revised our original estimates of our anticipated merger, integration and restructuring costs. This change in estimates is
attributable to facts and circumstances that arose subsequent to the original charges. As a result, we recorded additional expenses
and reversed certain of our previously recorded expenses. Merger, integration and restructuring costs consisted primarily of
investment banking, legal, accounting and advisory fees, severance costs and benefits, facility costs, write-offs of duplicate
management information systems and other assets.

(2) In the third quarter of 2003, we sold PMA Bode GmbH, an x-ray film distribution business located in Germany, which was a component
of our healthcare distribution business. Due to immateriality, we have not reflected the operating results of PMA Bode separately as
a discontinued operation for any of the periods presented.

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

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

(4) Consists of products sold in the United States and Canada.

(5) Consists of products sold in the United States’ Medical and Veterinary markets.

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

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

professionals in the United States and Canada.

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

Cautionary Note Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this report (including without limitation, statements indicating that we
“expect”, “estimate”, “anticipate”, or “believe” and all other statements concerning future financial results, product or service offerings or
other events that have not yet occurred) are forward-looking statements that are made pursuant to the safe harbor provisions of applicable
securities legislation and regulations. Forward-looking statements involve known and unknown factors, risks and uncertainties which may
cause our actual results in future periods to differ materially from those expressed in any forward-looking statements. Those factors, risks
and uncertainties include, but are not limited to, the factors described under "Risk Factors" discussed later in this Annual Report.

Executive-Level Overview

We are the largest distributor of healthcare products and services primarily to office-based healthcare practitioners in the combined North
American and European markets with operations in the United States, Canada, the United Kingdom, the Netherlands, Belgium, Germany,
France, Austria, Spain, Ireland, Portugal, Australia and New Zealand.

Our reportable segments are strategic business units that offer different products and services to the same customer base. We conduct
our business through two segments: healthcare distribution and technology.

Our healthcare distribution segment, which is comprised of our dental, medical (including veterinary) and international business groups,
distributes healthcare products (primarily consumable) and services primarily to office-based healthcare practitioners and professionals
in the United States, Canada and international markets. Products, which are similar for each business group, are maintained and
distributed from strategically located distribution centers.

Our technology segment consists primarily of our practice management software business and certain other value-added products and
services that are distributed primarily to healthcare professionals in the United States and Canada. Most of the technology business,
including members of its management, was acquired as a unit.

The following table summarizes the significant components of our operating results and cash flows for each of the three years ended
December 27, 2003 (in thousands):

Operating Results:
Net sales
Cost of sales

Gross profit

Operating expenses:

December 27,
2003

$3,353,805)
2,426,611)

927,194)

Years ended

December 28,
2002

$2,825,001)
2,030,097)

794,904)

December 29,
2001

$2,558,243)
1,858,919)

699,324)

Selling, general and administrative
Merger, integration and restructuring credits

693,475)

598,635)
–– (734)

551,574)
––

Operating income

Other expense, net
Net income from continuing operations
Loss on sale of discontinued operation, net of tax
Net income

Cash Flows:
Net cash provided by operating

activities from continuing operations

Net cash used in investing activities
Net cash (used in) provided by financing activities

$ 233,719)

$ (7,943)
139,522)
(2,012)
137,510)

$ 128,843)
118,122)
(48,375)

$ 197,003)

$ (6,574)
117,987)
––)
117,987)

$ 134,669)
142,758)
18,683)

$ 147,750)

$ (7,399)
87,373)
––)
87,373)

$ 190,911)
55,070)
371)

Industry Overview

In recent years, the healthcare industry has increasingly focused on cost containment. This trend has benefited distributors capable of
providing a broad array of products and services at low prices. This trend has also accelerated the growth of HMOs, group practices,
other managed care accounts and collective buying groups which, in addition to their emphasis on obtaining products at low prices, tend
to favor distributors capable of providing specialized management information support. We believe that the trend towards cost
containment has the potential to favorably impact demand for practice management systems and software that can enhance the efficiency
and facilitation of practice management.

Our operating results in recent years have been significantly impacted by strategies and transactions we undertook to expand our
business, both domestically and internationally, in part, to address significant changes in the healthcare industry, including consolidation
of healthcare distribution companies, potential healthcare reform, trends toward managed care, cuts in Medicare and collective
purchasing arrangements.

Industry Consolidation

The office-based healthcare practitioner industry, in the geographic markets in which we operate, is highly fragmented and diverse.
Encompassing the dental, medical and veterinary markets, this industry accounted for revenues of approximately $17 billion in 2003. The
industry ranges from sole practitioners working out of relatively small offices to group practices or service organizations comprised of
between a few and a large number of practitioners who have combined or otherwise associated their practices.

Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of supplies in their offices, the
distribution of healthcare supplies and small equipment to office-based healthcare practitioners has traditionally been characterized by
frequent, small quantity orders, and a need for rapid, reliable and substantially complete order fulfillment. The purchasing decision within
an office-based healthcare practice is typically made by the practitioner or an administrative assistant, and supplies and small equipment
are generally purchased from more than one distributor with one generally serving as the primary supplier.

We believe that consolidation within the supply industry serving office-based healthcare practitioners will continue to result in a number
of distributors, particularly companies with limited financial and marketing resources, seeking to combine with larger companies that can
provide opportunities for growth. This consolidation may also continue to result in distributors seeking to acquire companies that can
enhance their current product offerings and expand the services they can offer or provide opportunities to serve a broader customer base.

Our trend with regard to acquisitions has been to expand our role as a provider of products to the healthcare industry. This trend has
resulted in expansion into service areas, which (a) complement our existing operations, and (b) provide opportunities for us to develop
synergies with, and thus strengthen, the acquired businesses.

We are currently awaiting regulatory approval for the acquisition of demedis, a leading full-service distributor of dental consumables and
equipment in Germany, Austria, and the Benelux countries, and EDH, which includes KRUGG S.p.A., Italy's leading distributor of dental
consumable products and DentalMV GmbH (otherwise know as Muller & Weygandt), one of Europe's leading direct marketing distributors
of dental consumable products. These acquisitions will approximately double the net sales of our international operations (see Note 7 to
our consolidated financial statements). Additionally, we have completed 22 acquisitions in the past five years, including 8 in 2003.

As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe we have the ability to
support increased sales through our existing infrastructure. In the U.S. dental market, we estimate that there are currently over 300 smaller
distributors holding approximately 40% of the market. In the U.S. medical market, we estimate that over 500 smaller distributors hold
approximately 60% of the market, and in the European dental market, we estimate that over 200 competitors hold approximately 80% of
the market.

As the healthcare industry continues to change, we continually evaluate possible candidates for merger or acquisition and intend to
continue to seek opportunities to expand our role as a provider of products and services to the healthcare industry. There can be no
assurance that we will be able to successfully pursue any such opportunity or consummate any such transaction, if pursued. If additional
transactions are entered into or consummated, we would incur additional merger and acquisition related costs, and there can be no
assurance that the integration efforts associated with any such transaction would be successful.

Aging Population and Other Market Influences

The healthcare products distribution industry continues to experience growth due to the aging population, increased healthcare
awareness, the proliferation of medical technology and testing, new pharmacology treatments and expanded third-party insurance
coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing in hospitals to the
alternate site, particularly physician offices, despite significantly lower pricing of hospital medical products. As the cosmetic surgery and
elective procedure markets continue to grow, physicians are increasingly performing more of these procedures in their offices. The elder
care market continues to benefit from the increasing growth rate of the population of elderly Americans.

The January 2000 U.S. Bureau of the Census estimates that the elderly population in America will more than double by the year 2040. In
2000, four million Americans were age 85 years and older, the segment of the population most in need of long-term care and elder care
services. By the year 2040, that number is projected to more than triple to over 14 million. The population age 65 to 84 years is projected
to more than double in the same time period.

As a result of these market dynamics, the annual expenditures for healthcare services continue to increase in the U.S. The Centers for
Medicaid and Medicare Services (CMS), Office of the Actuary published "Health Spending Projections Through 2013" in 2004, indicating
that total national healthcare spending reached $1.6 trillion in 2002, or 14.9% of the nation’s gross domestic product. Healthcare spending
is projected to reach $3.4 trillion in 2013, an estimated 18.4% of the gross domestic product, the benchmark measure for annual
production of goods and services in the U.S.

Governmental Influences

The healthcare industry is subject to extensive government regulation, licensure, and operating compliance procedures. National
healthcare reform has been the subject of a number of legislative initiatives by Congress. Additionally, government and private insurance
programs fund a large portion of the total cost of medical care. During 1997, the Balanced Budget Act passed by Congress significantly
reduced reimbursement rates for nursing homes and home healthcare providers, affecting spending levels and overall financial viability
of these institutions.

The Medicare Prescription Drug, Improvement, and Modernization Act (the "Medicare Act") was passed by Congress and enacted by
President Bush on December 8, 2003. The Medicare Act is the largest expansion of the Medicare program since its inception and
provides participants with voluntary prescription drug benefits effective in 2006 with an interim drug discount card. The Medicare Act also
includes provisions relating to medication management programs, generic substitution and provider reimbursement. Based upon current
information, we believe the Medicare Act may create additional volume demand and provide incentives for additional utilization of generic
drugs, both of which have potentially positive implications for our pharmaceutical distribution business.

Product Integrity

Certain pharmaceutical and medical-surgical product manufacturers and legislators are in discussions regarding the risks of counterfeit
products in the supply chain and the manufacturers' concerns regarding the impact of secondary market distribution on counterfeiting.
As a distributor of such products, we continue to work with our suppliers to help minimize the risks associated with counterfeit products
in the supply chain and with potential litigation.

Results of Operations
2003 Compared to 2002

Net Sales

Net sales for 2003 and 2002 were as follows (in thousands):

Healthcare distribution (1):

Dental (2)
Medical (3)
International (4)

Total healthcare distribution

Technology (5)

Total

2003

$1,364,812
1,338,084
576,628

3,279,524
74,281

% of
Total

40.7%
39.9%
17.2%

97.8%
2.2%

2002

$1,227,273
1,093,956
437,046

2,758,275
66,726

% of
Total

43.4%
38.7%
15.5%

97.6%
2.4%

$3,353,805

100.0%

$2,825,001

100.0%

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

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

(2) Consists of products sold in the United States and Canada.

(3) Consists of products sold in the United States’ Medical and Veterinary markets.

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

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

professionals in the United States and Canada.

For the year ended December 27, 2003, our net sales increased $528.8 million or 18.7% from the comparable prior year period. Of the
increase in total net sales, $521.2 million or 98.6% resulted from an 18.9% increase in our healthcare distribution business. Of this
increase, $137.5 million resulted from an 11.2% increase in our dental business, $244.1 million resulted from a 22.3% increase in our
medical business and $139.6 million resulted from a 31.9% increase in our international business. The remaining increase in net sales of
$7.6 million resulted from an 11.3% increase in our technology business.

The $137.5 million or 11.2% increase in dental net sales, consisted of an increase in dental consumable merchandise of $91.0 million or
9.4% and dental equipment of $46.5 million or 18.3%. The increase in dental net sales was primarily due to increased account penetration
of existing customers driven by our Privileges loyalty program and an acquisition. Excluding the effects of the acquisition and exchange
rates, net sales for the dental business increased $96.3 million or 7.9%. The $244.1 million or 22.3% increase in medical net sales was
primarily due to increased sales to physicians’ office and alternate care markets. The $139.6 million or 31.9% increase in international net
sales was primarily due to an acquisition, favorable exchange rates and increased account penetration in France, Spain and Austria,
partially offset by a divestiture. Excluding the effect of exchange rates, the acquisition and divestiture, net sales for the international market
increased $31.6 million or 7.2%.

The increase in technology net sales of $7.6 million or 11.3% was primarily due to increased sales of value-added products including
software products and related services, including the impact of our MarketOne marketing initiative. Under this initiative, certain technology
and equipment products were sold directly to end-user customers beginning with the third quarter of 2002, rather than through resellers,
which resulted in a higher growth rate for the technology business. Without this change, the technology business net sales would have
increased by 8.0%.

Gross Profit

Gross profit and gross margins for 2003 and 2002 by segment and in total were as follows (in thousands):

Healthcare distribution
Technology

Total

2003

$870,499
56,695

$927,194

Gross
Margin %

26.5%
76.3%

27.6%

2002

$743,880
51,024

$794,904

Gross
Margin %

27.0%
76.5%

28.1%

Gross profit increased $132.3 million or 16.6%, to $927.2 million for the year ended December 27, 2003 compared to the prior year
period.

Healthcare distribution gross profit increased $126.6 million or 17.0% to $870.5 million for the year ended December 27, 2003 compared
to the prior year period. Healthcare distribution gross profit margin decreased to 26.5% for the year ended December 27, 2003 from
27.0% for the comparable prior year period, primarily due to our medical business experiencing higher sales of lower margin injectable
pharmaceutical products, partially offset by a change in sales mix in our dental business.

Technology gross profit increased $5.7 million or 11.1% to $56.7 million for the year ended December 27, 2003 compared to the prior year
period. Technology gross profit margin decreased slightly to 76.3% for the year ended December 27, 2003 from 76.5% for the comparable
prior year period, primarily due to changes in sales mix.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2003 and 2002 were as follows (in thousands):

Healthcare distribution
Technology

Total

2003

$665,470
28,005

$693,475

% of
Respective
Net Sales

20.3%
37.7%

20.7%

2002

$573,627
25,008

$598,635

% of
Respective
Net Sales

20.8%
37.5%

21.2%

Selling, general and administrative expenses increased $94.8 million or 15.8% to $693.5 million for the year ended December 27, 2003
compared to the prior year period. As a percentage of sales, selling, general and administrative expenses decreased to 20.7% from
21.2% for the comparable prior year period. This decrease was primarily due to lower payroll and rent costs in our healthcare distribution
business as a percentage of sales, realized through leveraging our infrastructure.

As a component of total selling, general and administrative expenses, selling and shipping expenses increased $67.4 million or 18.2% to
$437.5 million for the year ended December 27, 2003 from $370.1 million for the prior year period. The increase was primarily due to
expenses directly associated with supporting increased sales volume. As a percentage of net sales, selling and shipping expenses
decreased slightly to 13.0% from 13.1% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses increased $27.4 million or
12.0% to $256.0 million for the year ended December 27, 2003 from $228.5 million for the prior year period. As a percentage of net sales,
general and administrative expenses decreased to 7.6% from 8.1% for the comparable prior year period primarily for the reasons stated
above.

Other Expense, Net

Other expense, net increased $1.4 million to $7.9 million for the year ended December 27, 2003 compared to the prior year period. The
net increase was primarily due to decreased interest income primarily due to lower cash and cash equivalents and marketable securities
balances during 2003.

Income Taxes

For the year ended December 27, 2003, our effective tax rate was 37.4% compared to 37.2% for the prior year period. The difference
between our effective tax rates and the federal statutory rates for both periods primarily relates to state income taxes.

Loss on Sale of Discontinued Operation

During the year ended December 27, 2003, we recognized a $2.0 million loss, net of tax, on the sale of a discontinued operation (See
Note 7 to our consolidated financial statements).

Net Income

Net income increased $19.5 million or 16.5% to $137.5 million for the year ended December 27, 2003 compared to the prior year period.
A real estate transaction gain of $454 thousand and a loss on sale of a discontinued operation of $2.0 million are included in 2003 net
income. A real estate transaction gain of $890 thousand and a restructuring accrual reversal of $734 thousand are included in 2002 net
income. The effect that such transactions had on diluted earnings per share was $(0.03) in 2003 and $0.04 in 2002.

2002 Compared to 2001

Net Sales

Net sales for 2002 and 2001 were as follows (in thousands):

Healthcare distribution (1):

Dental (2)
Medical (3)
International (4)

Total healthcare distribution

Technology (5)

2002

$1,227,273
1,093,956
437,046

2,758,275
66,726

% of
Total

43.4%
38.7%
15.5%

97.6%
2.4%

2001

$1,121,394
982,569
398,071

2,502,034
56,209

% of
Total

43.8%
38.4%
15.6%

97.8%
2.2%

Total

$2,825,001

100.0%

$2,558,243

100.0%

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

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

(2) Consists of products sold in the United States and Canada.

(3) Consists of products sold in the United States’ Medical and Veterinary markets.

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

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

professionals in the United States and Canada.

For the year ended December 28, 2002, our net sales increased $266.8 million or 10.4% from the comparable prior year period. Of the
increase in total net sales, $256.3 million or 96.1% resulted from a 10.2% increase in our healthcare distribution business. Of this increase,
$105.9 million resulted from a 9.4% increase in our dental business, $111.4 million resulted from an 11.3% increase in our medical
business and $39.0 million resulted from a 9.8% increase in our international business. The remaining increase in net sales of $10.5 million
resulted from an 18.7% increase in our technology business.

The $105.9 million or 9.4% increase in dental net sales, consisted of an increase in dental consumable merchandise of $65.9 million or
7.3% and dental equipment of $40.0 million or 18.5%. The increase in dental net sales was primarily due to increased dental equipment
sales and increased account penetration of existing customers driven by our Privileges loyalty program. The $111.4 million or 11.3%
increase in medical net sales was primarily due to increased sales to physicians’ office and alternate care markets. The $39.0 million or
9.8% increase in international net sales was primarily due to increased account penetration in France, United Kingdom and Australia and
favorable exchange rates. Excluding the effect of the exchange rates, net sales for the international market increased $18.7 million or
4.7%.

The increase in technology net sales of $10.5 million or 18.7% was primarily due to increased sales of value-added products including
software products and related services, including the impact of a new marketing initiative, MarketOne. Under this initiative, certain
technology and equipment products were sold directly to end-user customers beginning with the third quarter of 2002, rather than through
resellers, which resulted in a higher growth rate for the technology business. Without this change, the technology business net sales
would have increased by 13.9%.

Gross Profit

Gross profit and gross margins for 2002 and 2001 by segment and in total were as follows (in thousands):

Healthcare distribution
Technology

Total

2002

$743,880
51,024

$794,904

Gross Gross
Margin %

2001

Margin %

27.0%
76.5%

28.1%

$659,092
40,232

$699,324

26.3%
71.6%

27.3%

Gross profit increased $95.6 million or 13.7% to $794.9 million for the year ended December 28, 2002 compared to the prior year period.
Gross profit margin increased to 28.1% for the year ended December 28, 2002 from 27.3% for the comparable prior year period.

Healthcare distribution gross profit increased $84.8 million or 12.9% to $743.9 million for the year ended December 28, 2002 compared
to the prior year period. Healthcare distribution gross profit margin increased to 27.0% for the year ended December 28, 2002 from 26.3%
for the comparable prior year period, primarily due to changes in sales mix.

Technology gross profit increased $10.8 million or 26.8% to $51.0 million for the year ended December 28, 2002 compared to the prior
year period. Technology gross profit margin increased to 76.5% for the year ended December 28, 2002 from 71.6% for the comparable
prior year period, primarily due to changes in sales mix.

Selling, General and Administrative

Selling, general and administrative expenses for 2002 and 2001 by segment and in total were as follows (in thousands):

Healthcare distribution
Technology

Total

2002

$573,627
25,008

$598,635

% of
Respective
Net Sales

20.8%
37.5%

21.2%

2001

$530,755
20,819

$551,574

% of
Respective
Net Sales

21.2%
37.0%

21.6%

Selling, general and administrative expenses increased $47.0 million or 8.5% to $598.6 million for the year ended December 28, 2002
compared to the prior year period. As a percentage of sales, selling, general and administrative expenses decreased to 21.2% from
21.6% for the comparable prior year period. This decrease was primarily due to lower rent costs in our healthcare distribution business
as a percentage of sales, realized through leveraging our infrastructure.

As a component of total selling, general and administrative expenses, selling and shipping expenses increased $36.0 million or 10.8% to
$370.1 million for the year ended December 28, 2002 from $334.1 million for the prior year period. The increase was primarily due to
expenses directly associated with supporting increased sales volume. As a percentage of net sales, selling and shipping expenses
remained constant at 13.1% compared to the prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses increased $11.0 million or
5.1% to $228.5 million for the year ended December 28, 2002 from $217.5 million for the prior year period. As a percentage of net sales,
general and administrative expenses decreased to 8.1% from 8.5% for the comparable prior year period. The decrease was primarily
due to the elimination of goodwill amortization expense with the adoption of FAS 142.

Other Expense, Net

Other expense, net decreased by $825 thousand to $6.6 million for the year ended December 28, 2002 compared to the prior year period.
The net decrease was primarily due to the favorable settlement of a real estate transaction.

Income Taxes

For the year ended December 28, 2002, our effective tax rate was 37.2% compared to 37.0% for the comparable prior year period. The
difference between our effective tax rates and the federal statutory rates for both periods primarily relates to state income taxes.

Net Income

Net income increased $30.6 million or 35.0% to $118.0 million for the year ended December 28, 2002 compared to the prior year. A real
estate transaction gain of $890 thousand, a restructuring accrual reversal of $734 thousand and the effect of the implementation of
FAS 142 at the beginning of 2002 which ceased amortization of goodwill and indefinite-lived intangible assets of approximately $7.3 million
are included in 2002 net income. The effect that such transactions had on diluted earnings per share was $0.20 in 2002.

Liquidity and Capital Resources

Our principal capital requirements include the funding of working capital needs, acquisitions, repurchases of common stock and capital
expenditures resulting from increased sales and special inventory forward buy-in opportunities, pursuing growth opportunities and
managing funding needs. Since sales tend to be strong during the fourth quarter and special inventory forward buy-in opportunities are
most prevalent just before the end of the year, our working capital requirements have generally been higher from the end of the third
quarter to the end of the first quarter of the following year.

We finance our business primarily through cash generated from our operations, revolving credit facilities, private placement loans and
stock issuances. Our principal source of cash is derived from our operations. Our ability to generate sufficient cash flows from operations
is dependent on the continued demand of our customers for our products and services. Given current operating, economic and industry
conditions, we believe that demand for our products and services will remain consistent in the foreseeable future.

Net cash flow provided by operating activities from continuing operations was $128.8 million for the year ended December 27, 2003
compared to $134.7 million for the prior year period. This decrease was primarily due to increased trade receivable and inventory levels
as of December 27, 2003 resulting from increased end of year sales and purchase activity for 2003 compared to 2002.

Net cash used in investing activities was $118.1 million for the year ended December 27, 2003 compared to $142.8 million for the prior
year period. The decrease was primarily due to an increase in net proceeds received from the sale and maturity of marketable securities
and a reduction in capital expenditures, partially offset by an increase in cash used for acquisitions. We expect to invest approximately
between $35 million and $40 million during fiscal year 2004 in capital projects to modernize and expand our facilities, on computer
infrastructure systems and to integrate operations.

Net cash used in financing activities was $48.4 million for the year ended December 27, 2003 compared to $18.7 million provided by
financing activities for the comparable prior year period. The net change was primarily due to payments made to repurchase our common
stock and a reduction in the proceeds received from the issuance of stock upon the exercise of stock options, partially offset by lower
principal payments on long-term debt.

On March 12, 2003, we announced that our Board of Directors had authorized the repurchase of up to two million shares of our common
stock, which represented approximately 4.5% of shares outstanding on the announcement date. During the year ended December 27,
2003, we repurchased and retired 1,335,000 shares at an average price of $46.26 per share.

The following table summarizes selected measures of liquidity and capital resources (in thousands):

Cash and cash equivalents
Marketable securities, including non-current
Working capital
Debt, net of cash and cash equivalents and

December 27,
2003

$157,351
14,496
637,296

marketable securities (1) 84,565

December 28,
2002

$200,651
55,185
604,199

(1) Debt includes bank credit lines and current and non-current portions of long-term debt, including Senior Notes and loans payable to

banks and capital lease obligations.

Our cash and cash equivalents 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 traded in public markets.

Our marketable securities consist of short and long-term debt securities classified as available for sale, including corporate bonds rated
AAA by Moody’s (or an equivalent rating) and commercial paper rated P-1 by Moody’s (or an equivalent rating). The fair values of our
marketable securities are determined by quoted market prices.

Our business requires a substantial investment in working capital that is susceptible to large variations during the year as a result of
inventory purchase patterns and seasonal demands. Inventory purchase activity is a function of sales activity, special inventory forward
buy-in opportunities, new customer build-up requirements and the desired level of investment inventory. Working capital has increased
primarily as a result of our higher sales volume.

Our accounts receivable days sales outstanding improved to 46.4 days for the year ended December 27, 2003 from 48.2 days for the
comparable prior year period primarily due to our continued focus on actively pursuing collection of aged receivables and tightening
credit standards. Our inventory turns improved to 6.9 turns for the year ended December 27, 2003 from 6.6 turns for the prior year as a
result of increased sales of higher turnover products. We anticipate future increases in our working capital requirements as a result of
continued sales growth.

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

Contractual obligations:

< 1 year

Payments due by period (in thousands)
4 - 5 years

1 - 3 years

> 5 years

Total

Inventory purchase commitments

$149,891

$129,440

$ ––

$279,331

Long-term debt

Operating lease obligations

Capital lease obligations

2,622

22,286

631

24,362

35,348

943

42,316

20,725

376

178,715

24,419

388

248,015

102,778

2,338

Total

$175,430

$190,093

$63,417

$203,522

$632,462

In prior years, we completed private placement transactions under which we issued $130.0 million and $100.0 million in Senior Notes.
The $130.0 million notes come due on June 30, 2009 and bear interest at a fixed 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 fixed rate of 6.66% per
annum. Interest on both notes is payable semi-annually.

During the fourth quarter of 2003, we entered into agreements relating to the $230.0 million Senior Notes to exchange our fixed interest
rates for variable interest rates. The weighted-average variable interest rate is 4.25%. This weighted-average variable interest rate is
comprised of LIBOR, plus the spread, and resets on the interest due dates for the Senior Notes.

We have a Revolving Credit Facility of $200.0 million that is a four-year committed line scheduled to terminate in May 2006. There were
no borrowings under this credit facility as of December 27, 2003. As of December 27, 2003, certain of our subsidiaries had revolving
credit facilities, which had outstanding balances of $6.1 million, against aggregate borrowing limits of $32.6 million.

In connection with our pending acquisition of demedis and EDH for approximately 255 million euros, as previously discussed, after making
a deposit on January 20, 2004 of 35 million euros, we will be paying approximately 220 million euros at closing. The remaining purchase
price will be paid from existing cash resources and/or the proceeds of (i) a bridge loan and/or (ii) the issuance or sale in a public or private
placement of equity interests or notes, debentures or other debt securities (or another debt financing) with a maturity in excess of one
year (in any case, a "Permanent Financing"). We have obtained commitments for a $150.0 million bridge loan facility scheduled to mature
on the six-month anniversary of the closing of the acquisition. The bridge loan will be unsecured, and will bear interest, at our option, at

LIBOR plus 0.925% or the prime rate. We intend to refinance the bridge loan by means of a Permanent Financing or, if a Permanent
Financing can be arranged prior to the consummation of the Acquisition, we will pay the purchase price with the proceeds of such
Permanent Financing. The acquisition is subject to standard closing conditions and regulatory approvals and is expected to close mid-
year 2004.

Some holders of minority interests in entities we have acquired have the right at certain times to require us to acquire their interest at a
price that approximates fair value pursuant to a formula price based on earnings of the entity. Additionally, some prior owners of acquired
businesses are eligible to receive additional purchase price cash consideration if certain profitability targets are met. We have not
accrued any liabilities that may arise from these transactions since the outcome of the contingency is not determinable beyond a
reasonable doubt.

We finance our business to provide adequate funding for at least 12 months. Funding requirements are based on forecasted profitability
and working capital needs, which, on occasion may change. Consequently, we may change our funding structure to reflect any new
requirements.

We believe that our cash and cash equivalents, investments in short and long-term marketable securities, ability to access public and
private debt and equity markets and availability of funds under our existing credit facilities will provide us with sufficient liquidity to meet
our currently foreseeable short-term and long-term capital needs.

Seasonality and Other Factors Affecting Our Business

Our business is subject to seasonal and other quarterly influences. Net sales and operating profits are generally higher in the third and
fourth quarters due to timing of seasonal product sales, software and equipment sales, year-end promotions and purchasing patterns of
office-based healthcare practitioners and are generally lower in the first quarter primarily due to the increased purchases in the prior
quarter.

Quarterly results also may be materially affected by a variety of other factors, including the timing of acquisitions and related costs, timing
of sales, special promotional campaigns, fluctuations in exchange rates and adverse weather conditions.

E-Commerce

Traditional healthcare supply and distribution relationships are impacted by the advancement of electronic on-line commerce solutions.
Our distribution business is characterized by rapid technological developments and is highly competitive. The rapid advancement of on-
line commerce requires us to provide continuous improvement in performance, security, features and reliability of Internet content and
technology, particularly in response to competitive offerings.

Through our proprietary technologically-based suite of products, we offer customers a variety of competitive alternatives. We believe that
our tradition of reliable service coupled with our name recognition and large customer base built on solid customer relationships positions
us well to participate in this growing aspect of the distribution business. We continue to explore ways and means to improve and expand
our Internet presence and capabilities.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires us 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, we evaluate
estimates, including those related to sales allowance provisions, as described below, volume purchase rebates, income taxes, inventory
and bad debt reserves and contingencies. We base our estimates on historical data, when available, experience, industry and market
trends, 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.

We believe that the following critical accounting policies affect the significant estimates and judgments used in the preparation of our
financial statements:

Revenue Recognition

We generate revenue from the sale of dental, medical and veterinary consumable products, as well as dental equipment, software
products and services and other sources. Provisions for discounts, rebates to customers, customer returns and other adjustments are
recorded based upon historical data and are provided for in the period in which the related sales are recognized.

Revenue derived from the sale of consumable products is recognized when products are shipped to customers. Such sales typically
entail high-volume, low-dollar orders shipped utilizing third-party common carriers. We believe that the shipment date is the most
appropriate point in time indicating the completion of the earnings process because we have no post-shipment obligations, the product
price is fixed and determinable, collection of the resulting receivable is probable and product returns are reasonably estimable.

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

Revenue derived from the sale of software products is recognized when products are shipped to customers. Such software is generally
installed by customers and does not require extensive training due to the nature of its design. Revenue derived from post-contract
customer support for software, including annual support and/or training, is recognized ratably over the period in which the services are
provided.

Revenue derived from other sources including freight charges, equipment repairs and financial services, is recognized when the related
product revenue is recognized or when the services are provided.

Accounts Receivable and Reserves

The carrying amount of accounts receivable reflects a reserve representing our best estimate of the amounts that will not be collected. In
addition to reviewing delinquent accounts receivable, we consider many factors in estimating our reserve, including historical data,
experience, customer types, credit worthiness, and economic trends. From time to time, we may adjust our assumptions for anticipated
changes in any of these or other factors expected to affect collectability.

Goodwill and Other Indefinite-Lived Intangible Assets

In accordance with Statement of Financial Accounting Standard ("FAS") No. 141, "Business Combinations", and No. 142, "Goodwill and
Other Intangible Assets", goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual
impairment tests. Such impairment tests require the comparison of the fair value and carrying value of reporting units. Measuring fair
value of a reporting unit is generally based on valuation techniques using multiples of sales or earnings, unless supportable information
is available for using a present value technique, such as estimates of future cash flows. We assess the potential impairment of goodwill
and other indefinite-lived intangible assets annually and on an interim basis whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Some factors we consider important which could trigger an interim impairment review include
the following:

• Significant underperformance relative to expected historical or projected future operating results;
• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
• Significant negative industry or economic trends.

If we determine through the impairment review process that goodwill has been impaired, we record an impairment charge in our
consolidated statement of income. Based on our 2003 impairment review process, we have not recorded any impairments during the
year ended December 27, 2003.

Long-Lived Assets

Long-lived assets, other than goodwill and other indefinite-lived intangible assets, 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 such assets. Other definite-lived intangible assets are amortized over their estimated useful lives. Such definite-
lived intangible assets primarily consist of non-compete agreements and customer relationships. When an impairment exists, the related
assets are written down to fair value. We have not recorded any impairments during the year ended December 27, 2003.

Stock-Based Compensation

We account for stock option awards to employees under the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees". Under this method, no compensation expense is recorded provided the exercise price is
equal to or greater than the quoted market price of the stock at the grant date.

We make pro forma disclosures of net income and earnings per share as if the fair value-based method of accounting (the alternative
method of accounting for stock-based compensation) had been applied as required by FAS No. 123, "Accounting for Stock-Based
Compensation". The fair value-based method requires us to make assumptions to determine expected risk-free interest rates, stock price
volatility, dividend yield and weighted-average option life.

Recently Issued Accounting Standards

In December 2003, the FASB issued a revision to FAS No. 132, "Employers’ Disclosures about Pensions and Other Postretirement
Benefits." This statement does not change the measurement or recognition aspects for pensions and other postretirement benefit plans;
however, it does revise employers’ disclosures to include more information about the plan assets, obligations to pay benefits and funding
obligations. FAS 132, as revised, was effective for our 2003 consolidated financial statements. The adoption of FAS 132 did not have a
material effect on our consolidated financial statements.

In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity." FAS No. 150 clarifies the definition of a liability as currently defined in FASB Concepts Statement No. 6, "Elements of Financial
Statements," as well as other planned revisions. This statement requires a financial instrument that embodies an obligation of an issuer
to be classified as a liability. In addition, the statement establishes standards for the initial and subsequent measurement of these financial
instruments and disclosure requirements. FAS 150 was effective for financial instruments entered into or modified after May 31, 2003. For
all instruments entered into or last modified prior to May 31, 2003, FAS 150 was effective at the beginning of our third quarter of 2003.
The adoption of FAS 150 did not have a material effect on our financial position or results of operations.

In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." FAS No.
149 amends FAS No. 133 for decisions made by the FASB’s Derivatives Implementation Group, other FASB projects dealing with financial
instruments, and in response to implementation issues raised in relation to the application of the definition of a derivative. This statement
is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30,
2003. The adoption of FAS 149 did not have a material effect on our financial position or results of operations.

In January 2003, the FASB issued Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities" and in December 2003, a
revised interpretation was issued (FIN No. 46(R)). In general, a variable interest entity ("VIE") is a corporation, partnership, trust, or any
other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that
do not provide sufficient financial resources for the entity to support its activities. FIN 46 requires a VIE to be consolidated by a company
if that company is designated as the primary beneficiary. Application of FIN 46 is required in financial statements of public entities that
have interest in structures that are commonly referred to as special-purpose entities, or SPEs, for periods ending after December 15, 2003.
Application by public entities, other than small business issuers, for all other types of VIEs (i.e. non-SPEs) is required in financial
statements for periods ending after March 15, 2004. The adoption of FIN 46 did not have a material effect on our financial position or
results of operations.

In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based Compensation – Transition and Disclosure." This
statement amends FAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition, FAS 148 amends the
disclosure requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted the disclosure
provisions of this standard.

In November 2002, the FASB reached a consensus regarding EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables."
EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services, and/or
rights to use assets. The guidance provided by EITF 00-21 is effective for contracts entered into on or after July 1, 2003. The adoption
of EITF 00-21 did not have a material effect on our financial position or results of operations.

In November 2002, the FASB issued FIN No. 45, "Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". FIN 45 addresses the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees. FIN 45 also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45
did not have a material effect on our financial position or results of operations.

In June 2002, the FASB issued FAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". This Statement addresses
financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". The principal difference between this Statement and EITF 94-3 relates to the Statement’s requirements for recognition of
a liability for a cost associated with an exit or disposal activity. This Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, whereas under EITF 94-3, a liability was recognized at the date of an entity’s
commitment to an exit plan. This Statement is effective for exit or disposal activities that are initiated after December 31, 2002. The
adoption of FAS 146 did not have a material effect on our financial position or results of operations.

In June 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement Obligations," which addresses financial accounting
requirements for retirement obligations associated with tangible long-lived assets. In May 2002, the FASB issued FAS No. 145, "Rescission
of FASB Statements 4, 44, 64, Amendment to FASB Statement No. 13, and Technical Corrections as of April 2002." FAS 145 amends other
existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under
changed conditions. FAS 143 and 145 were effective commencing April 1, 2003 and did not have a material effect on our financial position
or results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are 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. We attempt to reduce these risks by utilizing interest rate swap
agreements and foreign currency forward and swap contracts. These hedging activities provide only limited protection against interest
rate and currency exchange risks. Factors that could impact the effectiveness of our programs include volatility of the interest rate and
currency markets and availability of hedging instruments. All interest rate swap and currency contracts that we enter into are components
of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated interest rate and currency exposure,
not for speculation.

Interest Rate Swaps

We have fixed rate Senior Notes of $130.0 million at 6.94% and $100.0 million at 6.66%. During the fourth quarter of 2003, we entered
into interest rate swap agreements to exchange our fixed interest rates for variable interest rates payable on the $230.0 million Senior
Notes. The variable rate is comprised of LIBOR plus the spreads and resets on the interest due dates for the Senior Notes. As a result
of these interest rate swap agreements, as well as our existing variable rate credit lines and loan agreements, we are exposed to risk from
changes in interest rates. A hypothetical 100 basis point increase in interest rates would increase our annual interest expense by
approximately $2.4 million.

As of December 27, 2003, the fair value of our interest rate swap agreements recorded in other non-current assets was approximately
$700 thousand, which represented the amount that would be earned upon unwinding the interest rate swap agreements based on market
conditions at that time. Changes in the fair value of these interest rate swap agreements are reflected as an adjustment to the related
assets with an offsetting adjustment to the carrying value of the $230.0 million notes as such hedges are deemed fully effective.

Foreign Exchange

The value of certain foreign currencies as compared to the U.S. dollar may affect our financial results. Fluctuations in exchange rates may
positively or negatively affect our revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in U.S.
dollars. Where we deem it prudent, we engage in hedging programs, using primarily foreign currency forward and swap contracts, aimed
at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase short-term foreign currency forward and
swap contracts to protect against currency exchange risks associated with long-term intercompany loans, due from our international
subsidiaries and the payment of merchandise purchases to foreign vendors. We do not hedge the translation of foreign currency profits
into U.S. dollars as we regard this as an accounting not an economic exposure.

As of December 27, 2003, we had outstanding foreign currency forward and swap contracts aggregating $105.5 million, of which $97.0
million related to intercompany debt and $8.5 million related to the purchase of merchandise from foreign vendors. The contracts hedge
against currency fluctuations of British Pounds ($32.9 million), Euros ($61.7 million), Australian Dollars ($9.0 million), Swiss Francs ($1.4
million), Japanese Yen ($355 thousand), Swedish Krona ($82 thousand) and New Zealand Dollars ($82 thousand). As of December 27,
2003, the fair value of these contracts, calculated as the gross value of future U.S. dollar payments and receipts determined by quoted
market prices was $114.9 million. These contracts expire through January 2005. For the year ended December 27, 2003, we recognized
a loss relating to our foreign currency forward and swap contracts of $200 thousand.

Risk Factors

Stockholders and investors should carefully consider the risks described below and other information in this annual report. Our business,
financial condition and operating results, and the trading price of our common stock could be adversely affected if any of these risks
materialize.

• The healthcare products distribution industry is highly competitive, and we compete with numerous companies, including major
manufacturers and distributors that have greater financial and other resources than us. Competitors could obtain exclusive rights to
market particular products or manufacturers could increase their efforts to sell directly to end-users, thereby bypassing distributors like
us. Consolidation among healthcare products distributors could result in existing competitors increasing their market position. In
addition, unavailability of products, whether due to our inability to gain access to products or interruptions in supply of products from
manufacturers, could adversely affect our operating results.

• In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs, including the
reduction of spending budgets by government and private insurance programs, such as Medicare, Medicaid and corporate health
insurance plans; trends toward managed care; consolidation of healthcare distribution companies; electronic commerce; and collective
purchasing arrangements among office-based healthcare practitioners. If we are unable to react effectively to these and other changes
in the healthcare industry, our operating results could be adversely affected.

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

• Our business is subject to requirements under various local, state, federal and foreign governmental laws and regulations applicable to
the manufacture and distribution of pharmaceuticals and medical devices, including the Federal Food, Drug, and Cosmetic Act, the
Prescription Drug Marketing Act of 1987 and the Controlled Substances Act. There is no assurance that current or future government
regulations will not adversely affect our business.

• Our business involves a risk of product liability and other claims in the ordinary course of business, and from time to time we are named
as a defendant in cases as a result of our distribution of pharmaceutical and other healthcare products. We have insurance policies,
including product liability insurance, and in many cases we have indemnification rights from manufacturers with respect to the products
we distribute. There is no assurance that insurance coverage or manufacturers' indemnity will be available in all of the pending or any
future cases brought against us, or that an unfavorable result in any such case will not adversely affect our financial condition or results
of operations.

• Our business is dependent upon our ability to hire and retain qualified sales representatives, service specialists and other sales agents.
Due to the relationships developed between our field sales representatives and their customers, upon the departure of a sales
representative we face the risk of losing the representative's customers, especially if the representative becomes an employee of one
of our competitors.

• Our business is subject to seasonal and other quarterly influences. Net sales and operating profits are generally higher in the third and
fourth quarters due to timing of seasonal product sales, software and equipment sales, year-end promotions and purchasing patterns
of office-based healthcare practitioners and are generally lower in the first quarter primarily due to the increased purchases in the prior
quarter.

• Our international operations are subject to inherent risks, which could adversely affect our operating results. These risks include
difficulties in opening and managing foreign offices and distribution centers; difficulties in establishing channels of distribution;
fluctuations in the value of foreign currencies; longer payment cycles of foreign customers and difficulty in collecting receivables in
foreign jurisdictions; import/export duties and quotas; and unexpected regulatory, economic and political changes in foreign markets.

• Our expansion through acquisitions and/or joint ventures could result in a loss of customers, diversion of management attention and

increased demands on our operations, information systems and financial resources.

• We rely on third parties to ship products to our customers. Increases in shipping rates or interruptions of service could adversely affect

our operating results.

• Changes in e-commerce could affect our business relationships and could require significant resources. The rapid advancement of on-
line commerce requires us to provide continuous improvement in performance, security, features and reliability of Internet content and
technology, particularly in response to competitive offerings.

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. as of December 27, 2003 and December 28,
2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in
the period ended December 27, 2003. 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 consolidated financial
position of Henry Schein, Inc. at December 27, 2003 and December 28, 2002, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 27, 2003 in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 5, the Company changed its policy of accounting for goodwill in 2002 as required by Financial Accounting
Standards Board Statement No. 142, "Goodwill and Other Intangible Assets".

BDO SEIDMAN, LLP

New York, New York
February 24, 2004

HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

ASSETS

Current assets:

Cash and cash equivalents
Marketable securities
Accounts receivable, net of reserves of $43,203 and $36,200
Inventories
Deferred income taxes
Prepaid expenses and other

Total current assets

Property and equipment, net
Goodwill
Other intangibles, net
Investments and other

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable
Bank credit lines
Current maturities of long-term debt
Accruals:

Payroll and related expenses
Taxes
Other expenses

Total current liabilities

Long-term debt
Other liabilities

Minority interest
Commitments and contingencies

Stockholders' equity:

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

none outstanding

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

December 27,
2003

December 28,
2002

$ 157,351
3,012
467,085
385,846
30,559
112,631

1,156,484

154,205
398,888
37,551
72,242

$ 200,651
31,209
368,263
323,080
29,919
74,407

1,027,529

142,532
302,687
7,661
77,643

$1,819,370

$1,558,052

$ 278,163
6,059
3,253

68,214
45,969
117,530

519,188

247,100
37,432

$ 243,166
4,790
2,662

53,954
32,196
86,562

423,330

242,561
24,196

11,532

6,748

––

43,761,973 and 44,041,591 outstanding

440
436,554
Additional paid-in capital
Retained earnings
430,389
Treasury stock, at cost, 0 and 62,479 shares –– (1,156)
Accumulated other comprehensive income (loss) 24,999 (4,794)
(216)
Deferred compensation (91)

438
445,118
533,654

Total stockholders' equity

Total liabilities and stockholders' equity

1,004,118

$1,819,370

861,217

$1,558,052

See accompanying notes.

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

December 27,
2003

$3,353,805
2,426,611

927,194

Years ended

December 28,
2002

$2,825,001
2,030,097

794,904

December 29,
2001

$2,558,243
1,858,919

699,324

Net sales
Cost of sales

Gross profit

Operating expenses:

Selling, general and administrative

693,475

598,635

551,574

Merger, integration and restructuring credits ––

(734) ––

Operating income

Other income (expense):

Interest income

233,719

197,003

147,750

8,746

10,446

10,078

Interest expense (18,311) (17,960) (17,324)

Other, net

1,622

940

(153)

Income before taxes on income, minority interest,

equity in earnings of affiliates and loss
on sale of discontinued operation

225,776

190,429

140,351

Taxes on income from continuing operations (84,378) (70,510) (51,930)

Minority interest in net income of subsidiaries (2,807) (2,591) (1,462)

Equity in earnings of affiliates

Net income from continuing operations

931

139,522

659

117,987

414

87,373

Loss on sale of discontinued operation, net of tax (2,012) –– ––

Net income

$ 137,510

$ 117,987

$ 87,373

Net income from continuing operations per common share:

Basic

Diluted

$ 3.19

$ 3.10

$ 2.71

$ 2.63

$ 2.06

$ 2.01

Loss on discontinued operation, net of tax per common share:

Basic $

(0.04) $ –– $ ––

Diluted $ (0.04)

$ ––

Net income per common share:

Basic

Diluted

Weighted-average common shares outstanding:

Basic

Diluted

See accompanying notes.

$ 3.15

$ 3.06

$ 2.71

$ 2.63

$ 2.06

$ 2.01

43,709

44,988

43,489

44,872

42,366

43,545

87,373

(5,743)

81,630

2,225

125

––

125

––

17,417

HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share and per share data)

Common Stock
$.01 Par Value Paid-in Retained Treasury Comprehensive Deferred Stockholders'

Additional Other Total

Amount Capital Earnings Stock

Income (Loss) Compensation

Equity

Accumulated

Balance, December 30, 2000 41,946,284 $419 $373,413 $225,029

$(1,156) $(18,179) $(466) $ 579,060

Net income

––

87,373

––

Foreign currency translation loss

––

–– (5,743) ––

Total comprehensive income

Stock issued to ESOP trust

Amortization of restricted stock

Stock issued upon exercise of
stock options, including tax
benefit of $3,262

––

61,997

––

2,224

––

736,923

17,410

––

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

393,047 312,402 (1,156) (23,922)

(341) 680,457

Net income

Foreign currency translation gain

Net unrealized investment gain

Total comprehensive income

Stock issued to ESOP trust

Amortization of restricted stock

Stock issued upon exercise of
stock options, including tax
benefit of $8,058

––

24,859

––

1,340

––

117,987

––

1,271,528

42,167

––

18,989

139

––

125

––

Balance, December 28, 2002

44,041,591

440 436,554 430,389 (1,156)

(4,794) (216)

Net income

Foreign currency translation gain

––

137,510

––

30,765

––

117,987

18,989

139

137,115

1,340

125

42,180

861,217

137,510

30,765

Net unrealized investment loss

–– –– –– –– ––

(125)

––

(125)

Pension adjustment loss

–– –– –– –– –– (847)

––

(847)

Total comprehensive income

Stock issued to ESOP trust

Amortization of restricted stock

––

39,786

––

2,300

––

Retirement of treasury stock

(62,479) ––

(571) (585) 1,156 ––

––

125

––

167,303

2,300

125

––

Repurchase and retirement

of common stock

(1,335,000) (13)

(28,081) (33,660) –– ––

––

(61,754)

Stock issued upon exercise of
stock options, including tax
benefit of $12,579

1,078,075

34,916

––

34,927

Balance, December 27, 2003

43,761,973 $438 $445,118 $533,654

$ –– $ 24,999

$ (91) $1,004,118

See accompanying notes.

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

Cash flows from operating activities of continuing operations:

Net income

Loss on sale of discontinued operation, net of tax

Net income from continuing operations

Adjustments to reconcile net income to net cash provided

by operating activities of continuing operations:

Depreciation and amortization

Provision for losses and allowances on trade receivables

Stock issued to ESOP trust

Provision for deferred income taxes

December 27,
2003

Years ended

December 28,
2002

December 29,
2001

$137,510

2,012

139,522

36,843

6,548

2,300

5,524

$117,987

$ 87,373

––

117,987

––

87,373

28,272

8,962

1,340

226

35,642

8,850

2,225

292

Undistributed earnings of affiliates (931) (659) (414)

Minority interest in net income of subsidiaries

Other

2,807

2,005

2,591

145

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable

(69,543) (6,714)

1,462

7,067

2,332

Inventories (28,781) (23,075) (17,850)

Other current assets (16,957) (18,445) 8,808

Accounts payable and accruals

Net cash provided by operating activities of continuing operations

Cash flows from investing activities:

49,506

128,843

24,039

134,669

55,124

190,911

Purchases of capital expenditures (38,978) (47,543) (46,127)

Payments for business acquisitions, net of cash acquired (118,180) (36,224) (8,588)

Purchases of marketable securities (39,667) (55,211)

Proceeds from sales of marketable securities

Proceeds from maturities of marketable securities

40,619

39,030

––

Other, including discontinued operation (946) (3,780) (355)

Net cash used in investing activities (118,122) (142,758) (55,070)

Cash flows from financing activities:

Proceeds from issuance of long-term debt

––

10,166

Principal payments on long-term debt (8,667) (14,941) (13,042)

Proceeds from issuance of stock upon exercise of stock options

22,348

34,122

Net (payments on) borrowing from banks (180) 394

Payments for repurchases of common stock (61,754)

––

14,155

(10,752)

––

Other (122) (892) (156)

Net cash (used in) provided by financing activities (48,375)

Net change in cash and cash equivalents

(37,654)

18,683

10,594

371

136,212

Effect of exchange rate changes on cash and cash equivalents (5,646) (3,310) (1,207)

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

200,651

$157,351

193,367

$200,651

58,362

$193,367

See accompanying notes.

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

Note 1–Significant Accounting Policies

Nature of Operations

We distribute healthcare products and services primarily to office-based healthcare practitioners in the combined North American and
European markets with operations in the United States, Canada, the United Kingdom, the Netherlands, Belgium, Germany, France,
Austria, Spain, Ireland, Portugal, Australia and New Zealand. We sell products and services to customers in dental practices and dental
laboratories, as well as physician practices, veterinary clinics, government and other institutions.

Principles of Consolidation

Our consolidated financial statements include the accounts of Henry Schein, Inc. and all of our wholly-owned and majority-owned
subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. 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. Certain prior period
amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires us 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

We report our operations and cash flows on a 52-53 week basis ending on the last Saturday of December. Each of the three years ended
December 27, 2003 consisted of 52 weeks.

Revenue Recognition

Revenue derived from other sources including freight charges, equipment repairs and financial services, is recognized when the related
product revenue is recognized or when the services are provided.

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

Note 1–Significant Accounting Policies (Continued)

Cash and Cash Equivalents

We consider all highly-liquid debt instruments and other short-term investments with an original maturity of three months or less to be cash
equivalents. Book overdrafts representing outstanding checks in excess of funds on deposit, which are primarily related to payments for
inventory, were classified as accounts payable. Such amounts were $0 and $27.0 million at December 27, 2003 and December 28, 2002.

Marketable Securities

Marketable securities are classified as available-for-sale and are recorded at fair value. The fair value of substantially all securities is
determined by quoted market prices. Unrealized gains and losses, net of related taxes, are included as a separate component of
stockholders’ equity.

Accounts Receivable and Reserves

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects our best estimate of the amounts that will
not be collected. The reserve for accounts receivable is comprised of allowance for doubtful accounts and sales returns. In addition to
reviewing delinquent accounts receivable, we consider many factors in estimating our general allowance, including historical data,
experience, customer types, credit worthiness and economic trends. From time to time, we may adjust our assumptions for anticipated
changes in any of these or other factors expected to affect collectability.

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 our customers are reflected in
selling, general and administrative expenses. These costs were $25.7 million, $23.2 million and $21.2 million for each of the three years
ended December 27, 2003.

Advertising and Promotional Costs

We generally expense advertising and promotional costs as incurred. Total advertising and promotional expenses were $18.6 million,
$13.9 million and $14.3 million for each of the three years ended December 27, 2003.

Inventories

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

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

Note 1–Significant Accounting Policies (Continued)

Property and Equipment and Depreciation and Amortization

Property and equipment are stated at cost. Amortization of leasehold improvements is computed using the straight-line method over the
lesser of the useful life of the assets or the lease term. 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

Capitalized software costs consist of costs to purchase and develop software. Costs incurred during the application development stage
for software bought and further customized by outside vendors for our use and software developed by a vendor for our proprietary use
have been capitalized. Costs incurred for our own personnel who are directly associated with software development are also capitalized.

Taxes on Income

We account 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 our financial statements or tax returns. In estimating future
tax consequences, we generally consider 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. We file a consolidated United States Federal income tax return with our 80% or greater owned United States subsidiaries.

Foreign Currency Translation and Transactions

The financial position and results of operations of our 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 other comprehensive income (loss) account in stockholders’ equity. Gains
and losses resulting from foreign currency transactions are included in earnings.

Risk Management and Derivative Financial Instruments

We use derivative instruments to minimize our exposure to fluctuations in interest rates and foreign currency exchange rates. Our
objective is to manage the impact that interest rate and foreign currency exchange rate fluctuations could have on recognized asset and
liability fair values, earnings and cash flows. We do not enter into derivative instruments for speculative purposes. Our derivative
instruments include interest rate swap agreements related to our long-term fixed rate debt; foreign currency forward and swap contracts
related to intercompany loans and certain forecasted transactions with foreign vendors. We consider our net investments in foreign
subsidiaries to be both long-term and strategic and consequently do not hedge such investments. Our risk management policy requires
that derivative contracts used as hedges be effective at reducing the risks associated with the exposure being hedged and be designated
as a hedge at the inception of the contract.

Our interest rate swap agreements are designated as fair value hedging instruments. The terms of the interest rate swap agreements are
identical to the Senior Notes and consequently qualify for an assumption of no ineffectiveness under the provisions of Statement of
Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". Both the interest rate
swap agreements and the underlying Senior Notes are marked-to-market through earnings at the end of each period; however, since our
interest rate swap agreements are deemed fully effective, these mark-to-market adjustments have no net impact on earnings.

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

Note 1–Significant Accounting Policies (Continued)

Our foreign currency forward and exchange contracts are designated as cash flow hedging instruments. These contracts are recorded
at fair value on the balance sheet and all changes in fair value are deferred in accumulated other comprehensive income (loss) until the
underlying transactions are recognized. Upon recognition, such gains or losses are recorded in operations as an adjustment to the
carrying amounts of the underlying transactions in the period in which these transactions are recognized.

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 recorded
as goodwill. Certain acquisitions provide for contingent consideration, primarily cash, to be paid in the event certain financial performance
targets are satisfied over future periods. We have not accrued any liabilities that may arise from these transactions since the outcome of
the contingencies are not determinable beyond a reasonable doubt.

Goodwill and Other Indefinite-Lived Intangible Assets

In accordance with FAS No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Such impairment tests require
the comparison of the fair value and carrying value of reporting units. Measuring fair value of a reporting unit is generally based on
valuation techniques using multiples of sales or earnings, unless supportable information is available for using a present value technique,
such as estimates of future cash flows. We assess the potential impairment of goodwill and other indefinite-lived intangible assets annually
and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Some factors we consider important which could trigger an interim impairment review include the following:

• Significant underperformance relative to expected historical or projected future operating results;

• Significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and

• Significant negative industry or economic trends.

If we determine through the impairment review process that goodwill has been impaired, we record an impairment charge in our
consolidated statements of income. Based on our 2003 impairment review process, we have not recorded any impairments during the
year ended December 27, 2003.

Long-Lived Assets

Long-lived assets, other than goodwill and other indefinite-lived intangible assets, 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 such assets. Other definite-lived intangible assets are amortized over their estimated useful lives. Such definite-
lived intangible assets primarily consist of non-compete agreements, and customer relationships. When an impairment exists, the related
assets are written down to fair value. We have not recorded any impairments during the year ended December 27, 2003.

Stock-Based Compensation

We account for stock option awards under the intrinsic value-based method of accounting prescribed by APB No. 25, "Accounting for
Stock Issued to Employees". Under this method, no compensation expense is recorded provided the exercise price is equal to or greater
than the quoted market price of the stock at the grant date.

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

Note 1–Significant Accounting Policies (Continued)

Under the accounting provisions of FAS 123, our net income and net income per common share would have been adjusted to the pro
forma amounts indicated in the table below. The following assumptions were used in determining the fair values: weighted-average risk-
free interest rates of 3.0%, 4.0% and 4.7% for the years ended December 27, 2003, December 28, 2002 and December 29, 2001, stock
price volatility of 45.0%, dividend yield of 0.0% and weighted-average expected option life of five years for each of the three years ended
December 27, 2003.

Net income as reported

Deduct: Total tax affected stock-based compensation

December 27,
2003

$137,510

Years ended

December 28,
2002

$117,987

December 29,
2001

$87,373

expense determined under fair value method (7,413) (5,725) (5,782)

Pro forma net income

$130,097

$112,262

$81,591

Net income per common share, as reported:

Basic

Diluted

Net income per common share, pro forma:

Basic

Diluted

Earnings Per Share

$ 3.15

$ 3.06

$ 2.98

$ 2.89

$ 2.71

$ 2.63

$ 2.58

$ 2.50

$ 2.06

$ 2.01

$ 1.93

$ 1.87

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per common share is computed similarly to basic, except it reflects, in periods in which they have a dilutive
effect, the effect of common shares issuable upon exercise of stock options using the treasury stock method.

Comprehensive Income

Comprehensive income includes certain 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. Our comprehensive income is primarily
comprised of net income and foreign currency translation adjustments, but also includes unrealized gains (losses) on hedging activity and
marketable securities and a pension adjustment loss in 2003.

New Accounting Pronouncements

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

Note 1–Significant Accounting Policies (Continued)

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

Note 2–Earnings Per Share

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

Basic

Effect of assumed conversion of

stock options

Diluted

December 27,
2003

43,708,586

1,279,162

44,987,748

Years ended

December 28,
2002

43,489,229

December 29,
2001

42,366,048

1,382,965

44,872,194

1,179,061

43,545,109

Weighted-average options to purchase 17,177, 30,322 and 1,142,556 shares of common stock at prices ranging from $52.51 to $68.83,
$46.80 to $54.00 and $35.50 to $46.00 per share that were outstanding during 2003, 2002 and 2001 were excluded from the computation
of diluted earnings per common share. In each of these periods, the options’ exercise prices exceeded the average market price of our
common stock.

Note 3–Investments in Marketable Securities

Investments in available-for-sale securities as of December 27, 2003 were as follows:

Amortized
Cost

$ 3,012

3,012

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Fair
Market
Value

$ ––

––

$ ––

––

$ 3,012

3,012

Debt Securities recorded at market,
maturing within one year
Municipal securities

Total short-term

Debt Securities recorded at market,

maturing between one and three years

U.S. government and agency securities 10,505 1

(22)

Municipal securities

1,000

––

Total long-term 11,505 1

––

(22)

10,484

1,000

11,484

Total investments in marketable securities $14,517 $ 1 $ (22) $14,496

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

Note 3–Investments in Marketable Securities (Continued)

Investments in available-for-sale securities as of December 28, 2002 were as follows:

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Debt Securities recorded at market,

maturing within one year

U.S. government and agency securities

Municipal securities

Corporate notes and bonds

Total short-term

Debt Securities recorded at market,

maturing between one and two years

U.S. government and agency securities

Municipal securities

Corporate notes and bonds

Total long-term

Total investments in marketable securities

$ 7,517

14,512

9,106

31,135

15,911

1,000

7,000

23,911

$55,046

$ 68

$ ––

––

$139

$ ––

Fair
Market
Value

$ 7,585

14,516

9,108

31,209

15,975

1,000

7,001

23,976

$55,185

We determine cost of investments on the specific identification basis. Proceeds from sales of available-for-sale securities were $40.6
million in 2003 and $0 in 2002. Gross realized gains were $114 and gross realized losses were $26 in 2003. There was no gains or losses
on the sales of securities in 2002. The securities held on December 27, 2003 had contractual maturities of up to three years. The
securities held on December 28, 2002 had contractual maturities of up to two years. Expected maturities of debt securities may differ
from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

Note 4–Property and Equipment, Net

Property and equipment consisted of the following:

Land

Buildings and leasehold improvements

Machinery and warehouse equipment

Furniture, fixtures and other

Computer equipment and software

December 27,

2003

December 28,

2002

$ 7,754

64,410

34,148

30,176

150,193

286,681

$ 7,061

62,724

27,165

25,737

121,364

244,051

Less accumulated depreciation and amortization (132,476) (101,519)

Property and equipment, net

$154,205

$142,532

The net book value of equipment held under capital leases amounted to approximately $2.3 million and $930 as of December 27, 2003
and December 28, 2002. Depreciation expense for 2003, 2002 and 2001 was $33.6 million, $27.2 million and $22.6 million.

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

Note 5–Goodwill and Other Intangibles, Net

The changes in the carrying amount of goodwill for the year ended December 27, 2003 were as follows:

Balance as of December 28, 2002

Adjustments to goodwill:

Acquisitions

Healthcare
Distribution

$302,352

Technology

$ 335

Total

$302,687

80,480

1,550

82,030

Divestiture (2,358) –– (2,358)

Foreign currency translation

17,621

––

17,621

Other (1,092) –– (1,092)

Balance as of December 27, 2003

$397,003

$1,885

$398,888

The acquisition costs incurred during the year ended December 27, 2003 related to eight acquisitions, contingent earnout payments
relating to acquisitions made in prior years and increased ownership interests in consolidated subsidiaries.

With the adoption of FAS 142, we ceased amortization of goodwill as of December 30, 2001. The following table presents our results for
all periods presented on a comparable basis applying the effects of the adoption of FAS 142 to the year ended December 29, 2001:

Net income

Add back goodwill amortization, net of tax

December 27,

2003

$137,510

––

Years ended
December 28,

2002

$117,987

––

Adjusted net income

$137,510

$117,987

Diluted net income per common share:

Net income

Add back goodwill amortization, net of tax

3.06

––

Adjusted diluted net income per common share

$ 3.06

$ 2.63

––

$ 2.63

December 29,

2001

$87,373

7,296

$94,669

$ 2.01

0.17

$ 2.18

Other intangible assets consisted of the following:

December 27, 2003 December 28, 2002 (1)

Cost

Accumulated
Amortization

Cost

Accumulated
Amortization

Non-compete agreements $18,869 $ (5,021)

$10,826

$ (3,549)

Trademarks and trade names

12,494

––

Customer relationships 11,547 (1,074) –– ––

Other 3,316 (2,580) 897 (584)

Total $46,226 $ (8,675) $11,794 $ (4,133)

(1) Reclassified to conform to current year presentation.

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

Note 5–Goodwill and Other Intangibles, Net (Continued)

Trademarks and trade names and customer relationships were primarily related to acquisitions made during the year ended December
27, 2003. Trademarks and trade names are deemed indefinite-lived intangible assets and are not amortized. Customer relationships are
definite-lived intangible assets which are amortized on a straight-line basis over a weighted-average period of 5.3 years as of December
27, 2003.

Amortization of definite-lived intangible assets for the years ended December 27, 2003, December 28, 2002 and December 29, 2001
was $3.2 million, $1.1 million and $1.3 million. The annual amortization expense expected for the years 2004 through 2008 is $4.6 million,
$3.5 million, $2.6 million, $1.9 million and $1.4 million.

Note 6–Investments and Other

Investments and other consisted of the following:

Long-term note receivables (1)

Investments in long-term marketable securities

Deposit on long-term inventory purchase agreement

Investment in unconsolidated affiliates

Non-current deferred income tax asset

Other

December 27,
2003

December 28,
2002

$35,434

11,484

6,899

5,538

4,200

8,687

$72,242

$39,566

23,976

––

4,728

––

9,373

$77,643

(1) Long-term note receivables carry interest rates ranging from 2.6% to 12.0% and are due in varying installments through 2020. Long-
term note receivables include notes arising from the sale of certain businesses in prior years of approximately $19.7 million in 2003
and $22.5 million in 2002.

Note 7–Business Acquisitions and Divestiture

On January 8, 2004, we entered into agreements to purchase demedis GmbH ("demedis"), a leading full-service distributor of dental
consumables and equipment in Germany, Austria, and the Benelux countries, and Euro Dental Holding GmbH ("EDH"), which includes
KRUGG S.p.A., Italy's leading distributor of dental consumable products and DentalMV GmbH (otherwise know as Muller & Weygandt),
one of Europe's leading direct marketing distributors of dental consumable products. Thirty-five million euros of the purchase price of
approximately 255 million euros was paid on January 20, 2004. The remainder of the purchase price of approximately 220 million euros
is payable in cash and due at closing.

During the year ended December 27, 2003, we acquired eight healthcare distribution businesses, which were not considered material on
either an individual or aggregate basis. On May 28, 2003, we acquired all of the outstanding common stock of Hager Dental GmbH, a
dental distributor of consumable supplies and equipment located in Germany. On June 2, 2003, we acquired the assets of Colonial
Surgical Supply, Inc., a United States dental distributor of consumable supplies, primarily examination gloves. On November 17, 2003
we acquired Damer & Cartwright Pharmaceutical, Inc. and American Medical Services, Inc., specialty pharmaceutical distributors in the
United States.

The 2002 reported net sales were over $50.0 million for Hager Dental, over $40.0 million for Colonial Surgical and over $100.0 million for
Damer & Cartwright and American Medical Services. The acquisitions were accounted for under the purchase method of accounting and
have been included in our consolidated financial statements from their respective acquisition dates.

On August 29, 2003, we sold PMA Bode GmbH, an x-ray film distribution business located in Germany, which was a component of our
healthcare distribution business segment. PMA Bode generated annual net sales of approximately $31.0 million. The loss recorded on
the sale of PMA Bode was approximately $2.0 million (net of $54 tax benefit) and is presented separately as a loss on sale of discontinued
operation in our statements of income. Due to immateriality, we have not reflected the operating results of PMA Bode separately as a
discontinued operation for any of the periods presented.

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

Note 7–Business Acquisitions and Divestiture (Continued)

During the year ended December 28, 2002, we purchased additional interests in three consolidated subsidiaries in Europe. These
purchases were not considered material either individually or in the aggregate.

During the year ended December 29, 2001, we 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.

Note 8–Debt

Bank Credit Lines

We have a Revolving Credit Facility of $200.0 million that is a committed line scheduled to terminate in May 2006. The interest rate is
based on LIBOR, or prime, as defined in the agreement, which were 1.1% and 4.0% at December 27, 2003. The agreement provides,
among other things, that we maintain certain interest coverage and maximum leverage ratios, and contains restrictions relating to annual
dividends in excess of $25.0 million, guarantees of subsidiary debt, investments in subsidiaries, mergers and acquisitions, liens, certain
changes in ownership and employee and shareholder loans. There were no borrowings under this credit facility as of December 27, 2003.

As of December 27, 2003, certain of our subsidiaries had available various short-term bank credit lines totaling approximately $32.6 million
expiring through October 2004. Borrowings of $6.1 million under these credit lines, bear interest at rates ranging from 2.8% to 6.5%, and
were collateralized by accounts receivable, inventory and property and equipment with an aggregate net book value of $73.9 million at
December 27, 2003.

In connection with our pending acquisition of demedis and EDH for approximately 255 million euros, as discussed in Note 7, we will be
paying approximately 220 million euros at closing. The remaining purchase price will be paid from existing cash resources and/or the
proceeds of (i) a bridge loan and/or (ii) the issuance or sale in a public or private placement of equity interests or notes, debentures or
other debt securities (or another debt financing) with a maturity in excess of one year (in any case, a "Permanent Financing"). We have
obtained commitments for a $150.0 million bridge loan facility scheduled to mature on the six-month anniversary of the closing of the
acquisition. The bridge loan will be unsecured, and will bear interest, at our option, at LIBOR plus 0.925% or the prime rate. We intend
to refinance the bridge loan by means of a Permanent Financing or, if a Permanent Financing can be arranged prior to the consummation
of the Acquisition, we will pay the purchase price with the proceeds of such Permanent Financing. The acquisition is subject to standard
closing conditions and regulatory approvals and is expected to close mid-year 2004.

Long-term debt

Long-term debt consisted of the following:

Senior Notes

Notes payable to banks, interest rates ranging from 3.9% to 9.0%,

payable in quarterly installments ranging from $5 to $102

As of
December 27,
2003

As of
December 28,
2002

$230,741

$230,000

through 2019

12,494

11,667

Various uncollateralized loans payable with interest, in varying

installments through 2006

Capital lease obligations (see Note 13)

Total

4,780

2,338

250,353

Less current maturities (3,253)

Total long-term debt

$247,100

1,509

2,047

245,223

(2,662)

$242,561

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

Note 8–Debt (Continued)

As of December 27, 2003, the aggregate amounts of long-term debt maturing in each of the next five years are as follows: 2004 - $3.3
million; 2005 - $3.3 million; 2006 - $22.0 million; 2007 - $21.9 million; 2008 - $20.8 million.

In prior years, we completed private placement transactions under which we issued $130.0 million and $100.0 million in Senior Notes.
The $130.0 million notes mature on June 30, 2009 and bear interest at a rate of 6.94% per annum. Principal payments on the $100.0
million notes totaling $20.0 million annually are due starting September 25, 2006 and bear interest at a rate of 6.66% per annum. Interest
on both notes is payable semi-annually.

During the year ended December 27, 2003, we entered into interest rate swap agreements relating to our $230.0 million Senior Notes to
exchange our fixed interest rates for variable interest rates. The weighted-average variable interest rate was 4.25% as of December 27,
2003. This variable rate is comprised of LIBOR plus the spreads and resets on the interest due dates of the Senior Notes.

The agreement governing our Senior Notes provides, among other things, that we will maintain on a consolidated basis, certain leverage
and priority debt ratios and a minimum net worth. The agreement also contains restrictions relating to transactions with affiliates, annual
dividends, mergers and acquisitions and liens.

Note 9 – Taxes on Income

Taxes on income are based on income before taxes on income, minority interest, equity in earnings of affiliates and loss on sale of a
discontinued operation were as follows:

Domestic

December 27,
2003

$214,283

Years ended

December 28,
2002

December 29,
2001

$186,134

$140,675

Foreign 11,493 4,295 (324)

Total

$225,776

$190,429

$140,351

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

Current tax expense:

U.S. Federal

State and local

Foreign

Total current

Deferred tax expense (benefit):

December 27,
2003

Years ended

December 28,
2002

December 29,
2001

$61,383

10,680

6,791

78,854

$59,254

9,223

1,807

70,284

$46,225

3,806

1,607

51,638

U.S. Federal 7,088 (1,196) (162)

State and local 1,141 (151)

Foreign (2,705)

Total deferred

Total provision

5,524

$84,378

1,573

226

$70,510

234

220

292

$51,930

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

Note 9– Taxes on Income (Continued)

The tax effects of temporary differences that give rise to our deferred tax asset (liability) were as follows:

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):

December 27,
2003

December 28,
2002

$17,021

4,365

9,173

30,559

$18,991

3,473

7,455

29,919

Property and equipment (18,980)

(14,590)

Provision for other long-term liabilities (26,593) (17,723)

Net operating loss carryforward

Net operating losses of foreign subsidiaries

1,981

15,552

1,318

11,221

Total non-current deferred tax liability (28,040) (19,774)

Valuation allowance for non-current deferred tax assets (1) (698) (1,842)

Net non-current deferred tax liability (28,738) (21,616)

Net deferred tax asset

$ 1,821

$ 8,303

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

The net deferred tax asset is realizable as we have sufficient taxable income in prior years to realize the tax benefit for deductible
temporary differences. The non-current deferred tax liability is included in "Other liabilities" on the accompanying consolidated balance
sheets.

As of December 27, 2003, we have domestic unconsolidated net operating loss carry forwards of $5.0 million, which are available to offset
future federal taxable income through 2023. Foreign net operating losses totaled $43.5 million as of December 27, 2003. Such losses
can be utilized against future foreign income and have an indefinite life.

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

Income tax provision at federal statutory rate

State income taxes, net of federal income tax effect

December 27,
2003

$79,020

7,684

Years ended

December 28,
2002

$66,652

5,897

Change in valuation reserve and other (2,326) (2,039)

Total income tax provision

$84,378

$70,510

December 29,
2001

$49,122

2,626

182

$51,930

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

Note 9–Taxes on Income (Continued)

Provision has not been made for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries, which 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 us or a U.S. affiliate, or if we should sell our 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, we believe that foreign tax credits would
substantially offset any U.S. tax liabilities. As of December 27, 2003, the cumulative amount of reinvested earnings was approximately
$9.8 million.

Note 10–Financial Instruments and Concentrations of Credit Risk

Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is
practicable to estimate that value:

Cash equivalents, trade receivables and short-term investments – Due to the short-term maturity of such instruments, the carrying amounts
are a reasonable estimate of fair value.

Long-term investments and notes receivable – The fair values of long-term marketable securities are estimated based on quoted market
prices for those investments. Such instruments are carried at fair value on the balance sheet. For investments in unconsolidated affiliates
and notes receivable there are no quoted market prices available; however, we believe the carrying amounts are a reasonable estimate
of fair value.

Long-term debt – The fair value of our long-term debt is estimated based on the quoted market prices for similar issues. The fair value
of our long-term debt as of December 27, 2003 and December 28, 2002 was estimated at $250.4 million and $245.2 million.

Derivative instruments – The fair value of foreign currency forward contracts and interest rate swap agreements are estimated by obtaining
quotes from brokers. Such instruments are carried at fair value on the balance sheet. The fair value of our foreign currency forward
contracts as of December 27, 2003 and December 28, 2002 were estimated at $114.9 million and $78.0 million which approximated
contract value. The fair value of our interest rate swap agreements as of December 27, 2003 were estimated at $1.6 million. The fair value
of interest rate swap agreements are the estimated amounts we would pay or receive to terminate the agreements at the reporting date,
taking into account current interest rates, market expectations for future interest rates and our current creditworthiness.

Concentrations of Credit Risk

Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments consist primarily of cash
equivalents, trade receivables, short-term investments, long-term investments, notes receivable and derivative instruments. In all cases,
our maximum exposure to loss from credit risk equals the gross fair value of the financial instruments. We continuously assess the need
for reserves for such losses, which have historically been within our expectations. We do not require collateral or other security to support
financial instruments subject to credit risk, except for long-term notes receivable.

With respect to our cash equivalents, short-term and long-term investments and derivative instruments, our credit risk is limited due to our
counter-parties being high-credit quality financial institutions. As a risk management policy, we limit the amount of credit exposure by
utilizing numerous different counter-parties.

With respect to our trade receivables, our credit risk is somewhat limited due to a relatively large customer base and its dispersion across
different types of healthcare professionals and geographic areas. We do have some concentrations of credit risk associated with our sales
to hospitals; however, such credit risks are somewhat mitigated by our method of monitoring credit-worthiness and collectability of larger
accounts on a customer-by-customer basis. No single customer accounted for more than 1.3% of our net sales in 2003.

Our long-term note receivables represent strategic financing arrangements with certain industry affiliates and amounts owed to us from
sales of certain businesses. Generally, these notes are secured by certain assets of the counter-party; however, in most cases our security
is subordinate to other commercial financial institutions. While we have exposure to credit loss in the event of non-performance by these
counter-parties, we conduct ongoing assessments of their financial and operational performance.

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

Note 11–Segment and Geographic Data

The following tables summarize information by business segment:

Net Sales:

Healthcare distribution (1):

Dental (2)

Medical (3)

International (4)

Total healthcare distribution

Technology (5)

Total

December 27,
2003

Years ended

December 28,
2002

December 29,
2001

$1,364,812

$1,227,273

$1,121,394

1,338,084

576,628

3,279,524

74,281

1,093,956

437,046

2,758,275

66,726

$3,353,805

$2,825,001

982,569

398,071

2,502,034

56,209

$2,558,243

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

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

(2) Consists of products sold in the United States and Canada.

(3) Consists of products sold in the United States’ Medical and Veterinary markets.

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

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

healthcare professionals in the United States and Canada.

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

Note 11–Segment and Geographic Data (Continued)

December 27,
2003

Years ended

December 28,
2002

December 29,
2001 (1)

$205,029

28,690

$233,719

$ 8,662

5,231

$ 13,893

$ 18,311

5,147

$ 23,458

$ 34,067

2,776

$ 36,843

$ 37,485

1,493

$ 38,978

$170,987

26,016

$197,003

$ 10,354

4,022

$ 14,376

$ 18,012

3,878

$ 21,890

$ 25,978

2,294

$ 28,272

$ 46,641

902

$ 47,543

$128,337

19,413

$147,750

$ 9,565

2,494

$ 12,059

$ 18,814

491

$ 19,305

$ 34,412

1,230

$ 35,642

$ 45,428

699

$ 46,127

December 27,
2003

December 28,
2002

December 29,
2001 (1)

$1,798,857

134,615

$1,933,472

$1,533,529

106,319

$1,639,848

$1,369,241

75,030

$1,444,271

Operating Income:

Healthcare distribution

Technology

Total

Interest Income:

Healthcare distribution

Technology

Total

Interest Expense:

Healthcare distribution

Technology

Total

Depreciation and Amortization:

Healthcare distribution

Technology

Total

Capital Expenditures:

Healthcare distribution

Technology

Total

Total Assets:

Healthcare distribution

Technology

Total

(1) Reclassified to conform to current year presentation.

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

Note 11–Segment and Geographic Data (Continued)

The following table reconciles segment totals to consolidated totals as of and for the years ended December 27, 2003, December 28,
2002 and December 29, 2001:

Total Assets:

Total assets for reportable segments

$1,933,472

$1,639,848

$1,444,271

Receivables due from healthcare distribution segment (113,629) (80,855) (57,685)

Receivables due from technology segment (473) (941) (1,158)

Consolidated assets

$1,819,370

$1,558,052

$1,385,428

2003

2002

2001 (1)

Interest Income:

Total interest income for reportable segments

$ 13,893

$ 14,376

$ 12,059

Interest on receivables due from healthcare distribution segment (5,147) (3,878) (1,737)

Interest on receivables due from technology segment –– (52) (244)

Consolidated interest income

$ 8,746

$ 10,446

$ 10,078

Interest Expense:

Total interest expense for reportable segments

$ 23,458

$ 21,890

$ 19,305

Interest on payables due to healthcare distribution segment –– (52) (244)

Interest on payables due to technology segment (5,147) (3,878) (1,737)

Consolidated interest expense

$ 18,311

$ 17,960

$ 17,324

(1) Reclassified to conform to current year presentation.

The following table presents information about us by geographic area as of, and for the three years ended December 27, 2003. Net sales
by geographic area are based on the respective locations of our 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.

2003 2002 (1) 2001 (1)

Net Sales

Long-Lived
Assets

Net Sales

Long-Lived
Assets

Net Sales

Long-Lived
Assets

United States

$2,708,195

$403,629

$2,333,347

$318,323

$2,114,623

$292,281

Foreign

645,610

187,015

491,654

134,557

443,620

113,703

Consolidated Total

$3,353,805

$590,644

$2,825,001

$452,880

$2,558,243

$405,984

(1) Reclassified to conform to current year presentation.

Our subsidiary located in Germany had long-lived assets of $119.0 million, $85.2 million and $71.8 million as of December 27, 2003,
December 28, 2002 and December 29, 2001.

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

Note 12–Stockholders’ Equity

(a) Common Stock Purchase Rights

On November 30, 1998, our 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 our common stock. Until the occurrence of
certain events, each share of common stock that is issued will also have attached to it a Right. The Rights provide, in substance, that
should any person or group acquire 15% or more of our outstanding common stock 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, we 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.

Certain business combinations involving 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 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 our 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 our 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 our common stock or (b) the final expiration date
of November 30, 2008.

(b) Stock Options

We established the 1994 Stock Option Plan (the "Plan") for the benefit of certain employees. As amended in June 2003, pursuant to this
plan we may issue up to approximately 8,579,635 shares of our 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 our 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 vest evenly over three years from the date of grant; however shares exercised
in the second and third year after the date of grant may not be sold until the third anniversary of the date of grant. Class B options expire
on the tenth anniversary of the date of issuance, subject to acceleration upon termination of employment.

On May 8, 1996, our stockholders approved the 1996 Non-Employee Director Stock Option Plan. As amended in June 2003, pursuant to
this plan we may grant options to each director who is not also an officer or employee, for up to 200,000 shares of our common stock.
The exercise price and term, not to exceed 10 years, of each option is determined by the plan committee at the time of the grant. During
2003, 2002 and 2001, 50,000, 40,000 and 12,000 options, were granted to certain non-employee directors at exercise prices equal to the
market price on the date of grant.

Additionally, in 1997 as a result of our acquisition of Sullivan Dental Products, Inc. and Micro Bio-Medics, Inc., we assumed their respective
stock option plans (the "Assumed Plans"). Options granted under the Assumed Plans of 1,218,000 and 1,117,000, which are convertible
into our common stock, 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.

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

Note 12–Stockholders’ Equity (Continued)

A summary of the status of our stock option plans, including the Assumed Plans, is presented below:

Years ended

December 27, 2003 December 28, 2002 December 29, 2001

Weighted
Average
Exercise
Price

4,281,425

$29.20

4,646,271

$26.04

4,650,722

$24.59

1,096,050

40.30

1,017,850

41.37

883,600

Outstanding at beginning

of year

Granted

28.73

19.21

30.26

Exercised (1,078,075) 20.73 (1,271,528) 26.69 (736,923)

Forfeited (65,694) 33.48 (111,168) 37.56 (151,128)

Outstanding at end

of year

Options exercisable at

4,233,706

$34.16

4,281,425

$29.20

4,646,271

$26.04

end of year

2,995,383

$31.55

3,183,593

$26.44

3,722,164

$26.53

The following table summarizes information about stock options outstanding at December 27, 2003:

Options Outstanding Options Exercisable

Weighted Average
Remaining
Contractual Life
in Years

Weighted
Average Exercise
Price

Number
Exercisable

Weighted
Average Exercise
Price

4.7

6.5

7.6

9.1

7.1

$13.80

27.30

39.32

55.11

34.16

429,940

1,020,961

1,507,526

36,956

2,995,383

$13.80

27.24

39.10

49.57

31.55

Number
Outstanding

429,940

1,068,491

2,610,075

125,200

4,233,706

Range of Exercise Prices

$4.21

20.16

31.13

45.96

$19.76

30.06

45.59

68.83

401(k) Plan

We offer qualified, fully-funded 401(k) plans to substantially all our domestic full-time employees. As determined by our Board of Directors,
matching contributions to these plans are equal to 100% of the participants’ contributions up to 7% of their base compensation. Matching
contributions include both cash and our common stock. Forfeitures attributable to participants whose employment terminates prior to
becoming fully vested are used to reduce our matching contributions.

Assets of the 401(k) plans are held in self-directed accounts enabling participants to choose from various investment fund options.
Matching contributions to these plans charged to operations during 2003, 2002 and 2001 amounted to $7.6 million, $5.3 million and $4.1
million.

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

Note 12–Stockholders’ Equity (Continued)

Supplemental Executive Retirement Plan

We offer an unfunded, non-qualified supplemental executive retirement plan to eligible employees. This plan generally covers officers
and certain highly-compensated employees after they have reached the maximum IRS allowed pre-tax 401(k) contribution limit. Our
contributions to this plan are equal to the 401(k) employee-elected contribution percentage applied to base compensation for the portion
of the year in which such employees are not eligible to make pre-tax contributions to the 401(k) plan. The increases in plan value that
were charged to operations during 2003, 2002 and 2001 amounted to $839, $707 and $426.

Note 13–Commitments and Contingencies

Operating Leases

We lease facilities and equipment under non-cancelable operating leases expiring through 2016. We expect that in the normal course of
business, leases will be renewed or replaced by other leases.

Future minimum annual rental payments under our non-cancelable operating leases as of December 27, 2003 were:

2004

2005

2006

2007

2008

Thereafter

$ 22,286

20,027

15,321

11,770

8,955

24,419

Total minimum operating lease payments

$102,778

Total rental expense for 2003, 2002 and 2001 was $26.9 million, $25.8 million, and $26.1 million.

Capital Leases

We lease certain equipment under capital leases. Future minimum annual lease payments under our capital leases together with the
present value of the net minimum lease payments as of December 27, 2003 were:

2004

2005

2006

2007

2008

Thereafter

$ 718

864

273

245

206

411

Total minimum capital lease payments

2,717

Less: Amount representing interest at 5.0% to 11.3% (379)

Total minimum capital lease payments

$2,338

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

Note 13–Commitments and Contingencies (Continued)

Purchase Commitments

In our healthcare distribution business, we sometimes enter into long-term purchase commitments to ensure the availability of products
for distribution. Future minimum annual payments for inventory purchase commitments as of December 27, 2003 were:

2004

2005

2006

2007

2008

Thereafter

Total minimum inventory purchase
commitment payments

$149,891

128,495

945

––

$279,331

Litigation

Our business involves a risk of product liability claims and other claims in the ordinary course of business, and from time to time we are
named as a defendant in cases as a result of our distribution of pharmaceutical and other healthcare products. As a business practice,
we generally obtain product indemnification from our suppliers for manufactured products.

We have various insurance policies, including product liability insurance, covering risks and in amounts we consider adequate. In many
cases in which we have been sued in connection with products manufactured by others, the manufacturer provides us with
indemnification. There can be no assurance that the insurance coverage we maintain is sufficient or will be available in adequate amounts
or at a reasonable cost, or that indemnification agreements will provide us with adequate protection. In our opinion, all pending matters,
including those described below, are covered by insurance or will not otherwise seriously harm our financial condition.

Product Liability Claims

As of December 27, 2003, we were a defendant in approximately 16 product liability cases. Of these cases, 11 involve claims made by
healthcare workers who claim allergic reaction relating to exposure to latex gloves. In each of these cases, we acted as a distributor of
brand name and/or "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 us
pending product identification; however, we have impleaded or filed cross claims against those manufacturers in each case in which we
are a defendant.

As of December 27, 2003, we had accrued our best estimate of potential losses relating to product liability claims for which we were able
to determine a reasonable estimated loss. This accrued amount was not material to our financial position, results of operations or cash
flows. Our method for determining estimated losses considers currently available facts, presently enacted laws and regulations and other
external factors, including potential recoveries from third parties.

Texas Class Action

On January 27, 1998, in District Court in Travis County, Texas, we and one of our subsidiaries were named as defendants in a matter
entitled "Shelly E. Stromboe and Jeanne Taylor, on Behalf of Themselves and all others Similarly Situated vs. Henry Schein, Inc., Easy
Dental Systems, Inc. and Dentisoft, Inc.", Case No. 98-00886. The petition 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.

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

Note 13–Commitments and Contingencies (Continued)

In October 1999, the trial 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 approximately 5,000 Windows® customers and approximately 10,000 DOS customers
were covered by the class action that was certified by the trial court. In November of 1999, we filed an interlocutory appeal of the trial
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 trial court’s certification order. On January 5, 2001, we filed a Petition for Review
in the Texas Supreme Court asking the Court to find that it had "conflicts jurisdiction" to permit review of the trial court’s certification order.
The Texas Supreme Court heard oral argument on February 6, 2002. On October 31, 2002, the Texas Supreme Court issued an opinion
in the case holding that it had conflicts jurisdiction to review the decision of the Court of Appeals and the finding that the trial court’s
certification of the case as a class action was improper. The Texas Supreme Court further held that the judgment of the Court of Appeals,
which affirmed the class certification order, must be reversed in its entirety. Upon reversal of the class certification order, the Texas
Supreme Court remanded the case to the trial court for further proceedings consistent with its opinion.

On January 31, 2003, counsel for the class filed a Motion for Rehearing with the Texas Supreme Court seeking a reversal of the Supreme
Court’s earlier opinion reversing the class certification order. On May 8, 2003, the Texas Supreme Court denied the Motion for Rehearing,
letting stand its opinion dated October 31, 2002, which decertified both sub-classes in their entirety. On August 29, 2003, class counsel
filed amended papers seeking certification of an amended Windows® class and an amended DOS class. The only claim asserted for
class certification by the Windows® class was for the alleged breach of the implied warranty of merchantability. The only claim asserted
for class certification by the DOS class were claims for alleged violations of the Texas Unsolicited Goods Statute and the Federal
Unordered Merchandise Act. Defendants filed motions for partial summary judgment as to the claims asserted on behalf of the Windows®
Class and the DOS Class. A hearing on Defendants’ Motions for Partial Summary Judgment and Plaintiffs’ Amended Motion to Certify a
Class was held on November 18-20, 2003. By Order dated December 10, 2003, the trial court (1) denied Defendants’ Motion for Partial
Summary Judgment on the Windows® Class claims; (2) granted Defendants’ Motion for Partial Summary Judgment on the DOS Class
claims. By granting summary judgment on the claims asserted on behalf of the DOS class, the DOS motion for class certification became
moot because certain class claims asserted by the named class representatives for the DOS class were found to be without merit. By
Order dated January 13, 2004, the trial court denied the amended motion for class certification filed by the Windows® Class in its entirety.
The deadline for the Windows® Class to file an interlocutory appeal of the denial of the amended motion for class certification was February
2, 2004. No appeal was filed on or before that date. As a result of the favorable rulings obtained in the trial court, only certain individual
claims asserted on behalf of the named plaintiffs remain pending in this case.

Purported Class Action in New Jersey

In February 2002, we were 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. and Avenel-Iselin Medical Group, P.A. vs. Henry Schein, Inc., doing business
as Caligor", Case No. MRS-L-421-02. The plaintiffs’ complaint 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. Plaintiffs seek to represent a class of all physicians, hospitals and other
healthcare providers throughout New Jersey and across the United States. This complaint, as amended in August 2002, 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, conversion and promissory estoppel relating to sales of a vaccine product in the year 2001. We filed an
answer in October 2002. Because the plaintiffs have not specified damages, it is not possible to determine the range of damages or other
relief sought by the plaintiffs. We intend to vigorously defend ourselves against this claim, as well as all other claims, suits and complaints.

Employment, Consulting and Non-Compete Agreements

We have employment, consulting and non-compete agreements expiring through 2007, except for a lifetime consulting agreement with a
former principal stockholder, which provides for current compensation of $308 per year, increasing $25 every fifth year with the next
increase in 2007. The agreements provide for varying base aggregate annual payments of approximately $2.5 million, which decrease
periodically to approximately $344. In addition, some agreements have provisions for incentive and additional compensation.

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

Note 14–Supplemental Cash Flow Information

Cash paid for interest and income taxes was:

Interest

Income taxes

December 27,
2003

$16,595

58,405

Years ended

December 28,
2002

$17,217

63,196

December 29,
2001

$17,541

37,222

During the year ended December 27, 2003, as part of $155.0 million in acquisitions, we assumed $36.8 million in liabilities resulting in net
cash payments of $118.2 million. During the year ended December 28, 2002, we had no significant non-cash investing or financing
activities. During the year ended December 29, 2001, as part of a $10.1 million acquisition, we assumed $1.5 million in liabilities resulting
in a net cash payment of $8.6 million.

Note 15–Quarterly Information (Unaudited)

The following presents certain quarterly financial data:

Net sales

Gross profit

Operating income (2)

Net income from continuing

operations (1) (2)

Net income (1) (2)

Net income from continuing

operations per common share:

Basic

Diluted (4)

Net sales

Gross profit

Operating income (3)

Net income (3)

Net income per common share:

Basic

Diluted (4)

March 29,
2003

$737,997

201,417

42,205

24,766

Quarters ended

June 28,
2003

$776,166

220,529

56,030

32,855

September 27,
2003

December 27,
2003

$892,718

251,500

76,400

46,359

44,347

$946,924

253,748

59,084

35,542

$ 0.56

0.55

$ 0.76

$ 1.06

0.74

1.03

$ 0.81

0.79

Quarters ended

September 28,
2002

December 28,
2002

March 30,
2002

$647,093

178,390

35,198

19,730

$ 0.46

0.45

June 29,
2002

$671,432

192,396

46,989

28,066

$759,073

216,472

64,285

39,228

$ 0.65

$ 0.90

0.63

0.87

$747,403

207,646

50,531

30,963

$ 0.70

0.69

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

Note 15–Quarterly Information (Unaudited) (Continued)

(1) During the third quarter of 2003, we recognized a $2.0 million loss, net of tax, from the sale of a discontinued operation (see Note 7).

The effect of this loss on discontinued operation was $(0.04) on basic and diluted earnings per share for the third quarter of 2003.

(2)

In the first quarter of 2003, we recorded a $726 pre-tax ($454 after-tax) gain related to a real estate transaction. This gain was
included in the "Other, net" line on the consolidated statements of income.

(3)

In the third quarter of 2002, we recorded a $1.4 million pre-tax ($890 after-tax) gain related to a real estate transaction. This gain was
included in the "Other, net" line on the consolidated statements of income. In addition, in the fourth quarter of 2002, we recorded a
net credit of $734 related to a reversal of previously accrued merger, integration and restructuring costs.

(4) Diluted earnings per share calculations for each quarter include the effect of dilutive stock options, which are added to the quarter’s
weighted-average number of common shares outstanding for each period. As a result of this dilutive adjustment, as well as changes
in the number of common shares outstanding from quarter to quarter, the sum of the quarters does not equal the full year diluted
earnings per common share amount.

CORPORATEINFORMATION

CORPORATE HEADQUARTERS

FORM 10-K

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

COMMON STOCK

Henry Schein Common Stock trades on the NASDAQ Stock Market® under
the symbol “HSIC.”

ANNUAL SHAREHOLDERS MEETING

Our Annual Meeting of Shareholders will be held on May 25, 2004 at 10 a.m.
at The Mark New York, 25 East 77th Street, New York, NY 10021.

A copy of the Company’s annual report on Form 10-K for the fiscal year ended
December 27, 2003, 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.

INDEPENDENT AUDITORS

BDO Seidman, LLP
330 Madison Avenue
New York, N.Y. 10017

LEGAL COUNSEL

Proskauer Rose, LLP
1585 Broadway
New York, N.Y. 10036

STOCK TRANSFER AGENT

HENRY SCHEIN ON THE INTERNET

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

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

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.

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.

ONEWORLD. ONECOMPANY. ONETEAM.

CORPORATEMISSION

To be the worldwide leader

in providing the best quality

and value in products and services

for our healthcare customers.

Henry Schein, Inc.
135 Duryea Road
Melville, New York 11747
U.S.A.
(631) 843-5500