Henry Schein
Annual Report 2006

Plain-text annual report

Celebrating Our History. Focused On Our Future. 7 5 Y E A R S O F S U C C E S S • A N N U A L R E P O R T 2 0 0 6 A B O U T H E N R Y S C H E I N Henry Schein, a FORTUNE 500® company, is the largest distributor of healthcare products and services to office- based practitioners in the combined North American and European markets. The Company’s sales reached a record $5.15 billion in 2006. The Company provides innovative solutions for healthcare professionals and is recognized for its excellent customer service and highly competitive prices. Henry Schein’s four business groups– Dental, Medical/Animal Health, International and Technology–serve more than 500,000 customers worldwide, including: • Approximately 85% of the estimated 135,000 U.S. and Canadian office-based dental practices and 19,000 dental laboratories; • Approximately 45% of the estimated 250,000 U.S. office-based physician practices, as well as surgical centers and other alternate-care sites; • Over 75% of the estimated 26,000 veterinary practices in the United States; • Approximately 240,000 office-based dental, medical and veterinary practices outside North America, primarily in Europe, Australia and New Zealand; and • Government and other institutions providing healthcare services. The Company operates through a centralized and automated distribution network, which provides customers in more than 200 countries with a comprehensive selection of more than 70,000 branded and Henry Schein private-brand products in stock, as well as over 100,000 additional products available to our customers as special order items. Henry Schein also offers a wide range of innovative for healthcare value-added practice solutions the Company’s professionals, such as ARUBA®, electronic catalog and ordering system. Its leading software systems–DENTRIX® and Easy Dental® for dental practices; MicroMD® for medical providers for in primary care and all specialties; LabNet® dental laboratories; and AVImark® for veterinary clinics–have been installed in more than 50,000 healthcare practices. Henry Schein has been included in the FORTUNE list of America’s Most Admired Companies for three consecutive years, and each of those years the Company has led its industry in social responsibility. Headquartered in Melville, N.Y., Henry Schein employs more than 11,000 people and has operations in 19 countries. For more information, visit the Henry Schein Web site at www.henryschein.com. TO OUR STOCKHOLDERS Seventy-five years ago, in the middle of the Great However, it is likely that even their healthcare professions that we serve; optimistic vision for what Henry reinvention of our Company to take Schein could become fell short of the advantage of changing markets and Depression, Henry and Esther reality that we have been able to emerging areas of opportunity; Schein founded our Company as a small pharmacy in Queens, New York. Their business philosophy, commitment to their achieve: a multinational FORTUNE sustained growth in every facet of our 500® company that is the largest Company; commitment to meeting distributor of healthcare products our customers’ many practice needs; and services to office-based dental, and preservation of our unique medical, and veterinary practitioners values-based culture, a legacy of in the combined North American and our founders. customers and employees, and European markets. willingness to adapt their It has been a remarkable journey, and Celebrating Our Success – 2006 business to take advantage of new opportunities drove our Company’s early success and laid the foundation for the as we reach this milestone 75th Our most recent year was also our most anniversary, it is appropriate to reflect successful. In 2006, we posted record on and celebrate our past success. As net sales of $5.15 billion, an increase you will see in this Annual Report, the of 11.2% over the prior year, including history of our Company has been 10.6% growth in local currencies. marked by innovation that has helped Our operating margin expanded by 24 decades of growth that followed. reshape our industry and the basis points over 2005, while income 1 H E N R Y S C H E I N “On a long journey such as ours, a significant milestone such as from continuing operations increased In 2006, our Company continued We added new products to our by 21.3% and earnings per diluted to grow through several strategic growing list of exclusive offerings: share from continuing operations acquisitions: NLS Animal Health, a state-of-the-art dental radiography grew by 19.3%. Each of our four full-service animal health distribution products from Imaging Sciences business groups posted market share business, which significantly enhanced International, including the i-CAT™ gains for the year with sales of $2.14 our presence in the U.S. veterinary Cone Beam 3-D Imaging System; the billion for Dental, $1.52 billion for market; Darby Medical Supply, which complete line of BIOLASE® dental laser Medical (including Animal Health), provides medical supplies and systems, including the Waterlase MD™, $1.4 billion for International, and $98 pharmaceuticals to U.S. medical the industry’s leading “all-tissue” dental million for Technology. practices; Island Dental, a full-service laser system; and the Milestone Single These financial results were supported by many operational achievements throughout the year, with the continued implementation of global corporate programs in human resources, information technology, inventory management, distribution and other key operational areas. U.S. distributor of dental merchandise Tooth Anesthesia™ system. and equipment; Darby Dental Laboratory Supply, a distributor that has been serving the U.S. dental lab community for more than 50 years; and Provet Holding AG, the leading animal health distributor in Switzerland, which greatly expanded our European Animal Health operations. We celebrated several public achievements during the year. Henry Schein climbed to the FORTUNE 500 list and is now number 438. We have been included in the FORTUNE list of America’s Most Admired Companies for three consecutive years, and each 2 H E N R Y S C H E I N 75 years is not a final destination, but simply a chance to reflect...” of those years the Company has led healthcare advocacy and education; Focused On Our Future our industry in social responsibility. In increase access to care among 2006, we were designated as one of underserved populations; strengthen only 12 “turbocharged” companies on community wellness programs; and FORBES Platinum list based on our prepare for and respond to disasters. multi-year double-digit growth in sales These initiatives ranged from high- and earnings per share. Henry Schein profile access to care programs (such is now included in NASDAQ’s highest as Give Kids A Smile and Healthy listing tier–the NASDAQ Global Select Children, Healthy Lifestyles) to Market. And in 2006, we were pleased community-based initiatives (such as to celebrate 15 years of operations the Back to School program in the in the United Kingdom, Spain and United States and Canada, and Crisis at the Netherlands. The year was marked by further expansion of Henry Schein Cares™, our global social responsibility program that is “helping health happen.” The activities we supported during 2006 helped enhance Christmas in the United Kingdom), and from product support for healthcare missions to Africa to humanitarian relief around the world (through Medshare International, Direct Relief International and the International Medical Corps). In addition to these many activities, we looked forward during the year as we started our 2007-2009 strategic plan. We reaffirmed our commitment to provide our customers with a consistently superior experience through innovative solutions to practice issues enabling the best quality patient care, and practice efficiency and success. To achieve this, we will share best practices and services across borders and functions; we will remain a technology leader and consistently deliver superior integrated solutions to meet our customers’ practice needs; we will become trusted advisors to the more than 500,000 customers we serve 3 7 5 Y E A R S O F S U C C E S S “We are certain that the road we are on is a positive path forward and confident that our best years lie ahead.” around the world; we will clearly resistant markets. Team Schein will We are certain that the road we are on define and communicate our Henry continue to grow, and Team Schein is a positive path forward and confident Schein global brand; and we will Members will remain committed that our best years lie ahead. On behalf ensure that Team Schein–now to providing our customers with of our Board of Directors and my Team more than 11,000 members strong– excellent service. Collectively we will Schein colleagues, we are delighted continues to be our greatest asset preserve the values-based culture that that you are our companions on this through recruitment and professional distinguishes our Company and has exciting journey, and we thank you for development. been the foundation of our success. your continued support. On a long journey such as ours, a significant milestone such as 75 years is not a final destination, but simply a chance to reflect and to look ahead at the road not yet traveled. We are confident that Henry Schein is in the right markets at the right time. We are a well-diversified industry leader in healthy, technology-driven, recession- We will continue to give back to society through Henry Schein Cares™, expanding this commitment as our Company continues to grow. And we will embrace change, as we have done throughout our Company’s history, strategically reinventing Henry Schein as necessary to remain a strong, forward-looking industry leader well into the future. Sincerely, Stanley M. Bergman Chairman and Chief Executive Officer 4 H E N R Y S C H E I N FINANCIAL HIGHLIGHTS NET SALES From Continuing Operations ($ in millions) OPERATING MARGIN From Continuing Operations (3) See the Notes below for discussion of Non-GAAP Disclosures EARNINGS PER DILUTED SHARE From Continuing Operations (3) See the Notes below for discussion of Non-GAAP Disclosures RETURN ON COMMITTED CAPITAL (2) OPERATING CASH FLOW ($ in millions) (3) NOTES: Operating Margin and Earnings from Continuing Operations Per Diluted Share have been adjusted to exclude certain one-time items. Refer to Non-GAAP Disclosures on page 21. Additionally, refer to our annual consolidated financial statements for a complete presentation of our Consolidated Statements of Cash Flows. (1) During 2004, we recorded a non-recurring $13.2 million pre-tax ($8.4 million post-tax) charge related to the Fluvirin® contract with Chiron Corporation. The effect that this charge had on earnings per share for the year ended December 25, 2004 was ($0.10). Excluding this charge, our earnings per diluted share for 2004 was $1.39. (2) 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.) (3) Adjusted to reflect the effect of our adoption, on January 1, 2006, of FAS 123(R) using the modified retrospective application. 5 7 5 Y E A R S O F S U C C E S S Serving Our Customers With A World-Class Infrastructure As the largest distributor of healthcare feet of space in 31 distribution as special-order items. To help meet products and services to office-based centers throughout North America, virtually all of our customers’ practice practitioners in the combined North Europe, Australia and New Zealand– needs are 2,425 field sales consultants American and European markets, the to efficiently and accurately ship over and equipment sales specialists; 1,375 world’s leading value-added dental 11 million customer orders annually. In telesales representatives; 136 independent distributor, and the only Pan-European the United States and Canada, 99% of software sales representatives; and distributor in the office-based our orders are shipped the same day more than 700 equipment service healthcare industry, Henry Schein the order is placed, are delivered within technicians, all supported by over serves more than 500,000 customers two days of placement, and are shipped 35 million targeted direct-marketing and has the capability to provide with virtually 100% accuracy. And our pieces annually. door-to-door air package delivery to state-of-the-art “cold chain” distribution practitioners in over 200 countries capabilities ensure the integrity of heat- around the world. sensitive products shipped. More than 11,000 Team Schein Our customers can choose from more Members in 19 countries use our than 70,000 branded and Henry Schein leveragable, world-class, centralized private-brand products in stock, as well infrastructure–nearly 3 million square as 100,000 additional products available 6 H E N R Y S C H E I N Henry Schein efficiently and accurately shipped over 11 million orders during 2006. In the U.S. and Canada, 99% of our orders are shipped the same day the order is placed and delivered within two days of placement. Henry Schein’s state-of-the-art, cold-chain distribution capabilities ensure the integrity of vaccines and other heat-sensitive products. Voice pick technology contributes to Henry Schein’s average order accuracy rate of virtually 100%. 7 7 5 Y E A R S O F S U C C E S S Meeting Virtually All Dental Customers’ Practice Needs Dental spending continues to increase, and diagnostic procedures in dental strengthened with the acquisition of driven in part by a growing awareness practices are all accelerating dental Island Dental, a full-service distributor of the correlation between oral health spending. These trends have resulted of dental merchandise and equipment, and overall well-being. Studies have in a need for greater dental practice and Darby Dental Laboratory Supply, a demonstrated the relationship between productivity, which is driving equipment full-line distributor serving the U.S. periodontal disease and stroke or heart and technology sales. dental lab community. attack, while other research shows that some chronic health conditions, such as diabetes, may place a person at greater risk for periodontal disease. Most recently, a Harvard study has suggested a link between poor oral health and pancreatic cancer. Henry Schein’s Dental Group, which The Dental Group offers approximately includes Sullivan-Schein Dental and 42,000 in-stock products to our dental Zahn Dental Laboratory in the U.S. and customers and many more as special- Henry Schein Ash Arcona in Canada, is order items. This comprehensive there to meet virtually all of our dental selection includes many important customers’ needs for operating an product exclusives, such as the efficient and successful practice while Camlog™ dental implant system; As a result, the important role of dentists providing a high quality of patient care. Colgate® Oral Care line of products; in the healthcare continuum is becoming The Group serves approximately 85% DEXIS® digital radiography products; clearer, as they help in the early of the estimated 135,000 U.S. and BruxGuard™; Pentron® Laboratory detection of cardiovascular disease, Canadian office-based dental practices Products; ShadeVision™; the i-CAT™ asthma, oral cancer and other conditions. and 19,000 laboratories, and has Cone Beam 3-D Imaging Systems Additionally, the percentage of patients approximately 38% of the estimated from Imaging Sciences International; with dental insurance coverage, a $5.5 billion U.S. and Canadian BIOLASE® dental laser systems; and greater emphasis on cosmetic dentistry, distribution market. In 2006, our Milestone Single Tooth Anesthesia™ and the growing use of pharmaceuticals position in the market was further system. 8 H E N R Y S C H E I N Among the many Henry Schein product exclusives is the complete line of BIOLASE ® dental laser systems, including the Waterlase MD™, the industry’s leading “all-tissue” dental laser system. Henry Schein’s dental offering features state-of-the-art radiography products from Imaging Sciences International, including the i-CAT™ Cone Beam 3-D Imaging System. BUSINESS GROUP NET SALES 42% DENTAL • Sales $2.14 billion • % of Company sales 42% Equipment repair services through ProRepair® and COMPLETEcare are just part of the wide range of value-added services that we offer to our dental customers. 9 7 5 Y E A R S O F S U C C E S S Providing Physicians With Products To Meet Growing Demand As baby boomers, the most educated Henry Schein’s Medical Group is well We offer our medical customers a and affluent generation in history, positioned to serve physician customers selection of approximately 35,000 continue to age, they are willing to affected by this shift. The Group products in stock and many more as spend more money on their health. At currently serves approximately 45% of special-order items. the same time, advances in healthcare the estimated 250,000 U.S. office-based technology are helping physicians to physician practices, surgical centers and meet their patients’ desires to remain other alternate-care sites, and holds healthier longer. approximately 17% of the estimated As a result of these converging trends, demand for physician and clinical $8.5 billion medical and veterinary distribution market. In addition, we are a leading supplier of vaccines, injectables and other pharmaceuticals to physicians and alternate-care sites, providing our customers with influenza, tetanus/ diphtheria toxoid, pneumonococcal and services continues to increase in In 2006, the Group added Darby many other vaccines. And we are developed countries around the world. Medical Supply, which supplies medical pleased to offer formulary plans to Diagnostic tests, screenings and other supplies and pharmaceutical products, many of the leading medical elective surgical procedures are moving including generic drugs, branded drugs professional associations, such as the from hospitals to physicians’ offices or and vaccines, to medical practices American Medical Association, the alternate-care settings. In fact, 63% across the United States. American Society of Plastic Surgeons, of all surgeries in the United States are now performed as outpatient procedures. the American Academy of Dermatology, and the American Academy of Ophthalmology. 10 H E N R Y S C H E I N Henry Schein offers formulary plans to many of the leading medical professional associations, such as the American Medical Association, the American Society of Plastic Surgeons, the American Academy of Dermatology, and the American Academy Henry Schein is a leading supplier of of Ophthalmology. vaccines, injectables, and other pharmaceuticals to physicians and alternate-care sites. BUSINESS GROUP NET SALES 29% MEDICAL • Sales $1.52 billion (including Animal Health) • % of Company sales 29% (including Animal Health) Henry Schein’s Medical Group supports our physician customers—approximately 45% of the estimated 250,000 U.S. office-based physician practices—with a selection of over 35,000 products in stock and many more as special-order items. 11 7 5 Y E A R S O F S U C C E S S Helping Veterinarians Serve A Burgeoning Pet Population The U.S. companion animal market is Henry Schein’s Animal Health Group is Henry Schein’s leading software systems—DENTRIX ® currently estimated to be growing at ideally positioned to capitalize on this 5-7% annually, spurred by a number growing market. In 2006, we acquired of demographic factors. Overall, the NLS Animal Health, which serves number of U.S. households is growing, veterinarians in 26 states and as is the proportion of households significantly enhanced our position with pets. While the overall pet within the market. We now serve population continues to increase, over 75% of the estimated 26,000 annual expenditures per pet are also U.S. veterinary practices, offering rising. And studies have reported that veterinarians a wide selection of pet ownership may contribute to the approximately 23,000 products in stock overall well-being of pet owners and many more as special-order items. and Easy Dental ® for dental practices; MicroMD ® for medical providers in primary care and all specialties; LabNet ® for dental laboratories; and AVImark® for veterinary clinics— have been installed in more than 50,000 practices. themselves. As a result of these factors, there is greater demand for veterinary oncology and oral health services, and an increase in the specialty services offered by veterinarians. 12 H E N R Y S C H E I N Leading Through Technology Office-based dental, medical and certified as meeting all 2006 ambulatory our Privileges™ customer loyalty veterinary practitioners turn to the health record criteria by the program, which was designed to attract, products and services offered by our Certification Commission for Healthcare retain and reward dental customers, Technology Group to increase practice Information Technology. now with more than 25,000 U.S. Dental efficiency and profitability and facilitate delivery of quality healthcare to their patients. Practitioners also benefit from the wide range of value-added services that we offer, including: repair services through Our proprietary software systems ProRepair® and COMPLETEcare; office include DENTRIX® and Easy Dental® design services; continuing education; for dental practices; MicroMD® for electronic health claims processing medical providers in primary care and (with more than 36 million claims all major specialties; LabNet® for processed in 2006); Information dental laboratories; and AVImark® for Technology Solutions including veterinary practices. These systems are computer hardware, integration and installed in more than 50,000 practices. support services; 24/7 ordering Ranked highest in customer satisfaction capability through our ArubA® Web- by an independent research based electronic catalog and ordering organization, DENTRIX® seamlessly system and other options; Financial integrates digital X-ray, intraoral Services such as equipment leasing and imaging and other technology tools. financing, patient financing, and And MicroMD® EMR 4.5 has been electronic credit card processing; and members, with similar programs being introduced to our U.S. Medical customers and already active in nine international markets. BUSINESS GROUP NET SALES 2% TECHNOLOGY • Sales $98 million • % of total Company sales 2% 13 7 5 Y E A R S O F S U C C E S S Growing Our Global Presence At Henry Schein, we now serve one Republic, France, Germany, Iceland, We will continue to expand our world of customers–a world that has Ireland, Israel, Italy, Luxembourg, the successful full-service dental model become a single global market for Netherlands, New Zealand, Portugal, throughout Europe, positioning our dental, medical and veterinary office- Spain, Switzerland and the United field sales consultants and telesales based practitioners who have similar Kingdom. And through Schein Direct, representatives as trusted advisors to needs regardless of geographic which provides door-to-door air our customers. We also will continue boundaries. Like their North American package delivery service, we have to explore expansion opportunities colleagues, healthcare practitioners in the capability to serve practitioners abroad in countries where we currently countries around the world are in more than 200 countries around have a presence, as well as potential searching for solutions to help them the world. operate more efficient and profitable practices as they provide a high quality of patient care. Our International Group currently holds approximately 15% of the estimated $8 billion combined dental, We meet our international customers’ medical and animal health market in needs by providing superior service the European countries in which we and the most comprehensive selection operate. With significant room for of products. Our International Group future growth, we will share best serves approximately 240,000 office- practices and operational efficiencies based dental, medical and veterinary across international borders and practices and has operations in 17 markets as we continue to build an countries outside of North America: infrastructure based on our successful Austria, Australia, Belgium, the Czech U.S. model. expansion into new markets. In 2006, we were pleased to expand our presence in the European animal health market with the acquisition of Provet Holding AG, the leading animal health distribution company in Switzerland. And we will further refine the Henry Schein global brand to ensure that all of our customers and suppliers around the world clearly understand the benefits of partnership with our Company. 14 H E N R Y S C H E I N Among the more than 35 million targeted direct-marketing pieces that Henry Schein distributes annually are catalogs in German, Spanish, English and many other languages spoken by the more than 500,000 customers we serve around the world. Henry Schein’s newly opened warehouse in France is just one of the state-of-the-art distribution centers throughout North America, Europe, Australia and New Zealand—nearly 3 million square feet of space through which over 11 million customer orders are efficiently and accurately shipped each year. In 2006, Henry Schein acquired Provet Holding AG, the leading animal health distribution company in Switzerland, greatly expanding our European Animal Health operations. 15 7 5 Y E A R S O F S U C C E S S BUSINESS GROUP NET SALES 27% INTERNATIONAL • Sales $1.4 billion • % of total Company sales 27% “Helping Health Happen” Through Henry Schein Cares Henry Schein’s unique culture, which focuses on delivering the best possible service to our customers, is defined by our values of mutual responsibility, ethical behavior, creativity and open communication. We recognize that each Team Schein Member is as important as the next; are committed to enhancing diversity and cultural competency throughout our Company to better serve our changing customer base; and invest in ongoing sales force training to make each interaction as productive as possible for our customers. Our culture also includes a commitment to social responsibility, which we put into action through Henry Schein Cares™, our global social responsibility program. Through the activities we support, we enhance healthcare advocacy and education; increase access to care among underserved populations; strengthen community wellness programs; and help prepare for and respond to disasters. By using our core competencies–our extensive healthcare product offerings and logistical distribution capabilities, our close relationships with customers and supplier partners, and our extensive communication network–in creative and innovative ways, we further the goals of many worthy programs. And by “helping health happen” we believe that we are furthering our Company’s long-term success. In 2006, Henry Schein Cares™ activities broadened in scope. We sponsored high-profile access to care programs such as Give Kids A Smile and Healthy Children, Healthy Lifestyles, and created the Henry Schein Comfort Cart at New York’s Schneider Children’s community-based Hospital. initiatives included our annual Back to Our 16 H E N R Y S C H E I N support School and Holiday Cheer programs in the U.S., and the Crisis at Christmas and Help a Local Child initiatives in the U.K. In Germany, we produced a play for kindergartners to educate children about the importance of oral health, while in France we supported the Bucco Bus to provide dental care to the elderly in nursing homes. We provided for healthcare missions to Africa, helped people in through need around Medshare International and Direct Relief International, and contributed for relief humanitarian Lebanon and the Israel International Medical Corps. Finally, we helped to rebuild our customers’ practices on the U.S. Gulf Coast, and, with the ADA, donated the state-of-the- art mobile dental clinic Tomorrow’s Dental Office Today to the State of Mississippi for ongoing outreach. supplies through the world Through Henry Schein Cares, our global social responsibility program, we help enhance healthcare advocacy and education; increase access to care among underserved populations; strengthen community wellness programs; and prepare for and respond to disasters. 17 7 5 Y E A R S O F S U C C E S S 75 Years of Success Henry Schein has a history of driving change and innovation in the industries it serves. The Company has frequently transformed itself to meet customers’ needs, take advantage of new technologies, and tap into burgeoning markets. These are some of the changes that Henry Schein has undergone and innovations it has introduced over the years. 1950s 1959 1962 1969 Henry Schein shifts business focus from customers to office-based practitioners Sales: $1 Million; 15 TSMs Company introduces 1st Henry Schein Catalog Sales: $5.7 Million; 35 TSMs Up until the 1960s, many Team Schein Members called Henry Schein “Papa.” 1985 1986 1989 1990 Company focuses on veterinary dentistry; acquires Zahn Dental Henry Schein introduces the Protex program to educate the dental profession about infection control Stanley Bergman becomes Chairman and CEO of Henry Schein following the untimely death of Jay Schein; Sales: $225 Million; 890 TSMs Henry Schein begins international expansion (The Netherlands, United Kingdom, and Spain) Henry Schein’s European expansion began in the Netherlands in 1990. The most popular item sold internationally on the first day was tennis balls. 1999 2000 2001 2002 2003 Company introduces the Digital Dental Office, Privileges customer loyalty program, and Customer Analysis Tool (CAT) system; establishes the Henry Schein Cares global social responsibility program Henry Schein establishes Sullivan-Schein University; begins role as exclusive distributor of professional products for ADA’s Give Kids A Smile! program; Sales: $2.68 Billion; 6,900 TSMs Company acquires Colonial Surgical (U.S.) and Hager Dental (Germany) Company acquires Heiland (Germany) and GIV (U.S.) Henry Schein becomes the only Pan-European dental, medical, and veterinary distributor; Sales: $2.38 Billion; 6,200 TSMs “This is what we are really all about — technology, a concern for people, and a concern for results.” - Jay Schein 18 H E N R Y S C H E I N 1932 1935 1940s 1942 1949 Henry Schein is founded by Henry and Esther Schein as a storefront pharmacy in Queens, NY; 2 TSMs Company fulfills mail order prescriptions using flyers Company introduces private-brand dental, medical, and veterinary products Company begins direct sale of penicillin to customers Sales: $175,000; 4 TSMs The initial investment in Henry Schein, Inc. in 1932 was $500. “Through the years, we always insisted on making our people feel special, like family.” - Esther Schein 1971 1979 1980 1983 1984 Company focuses on dental practitioners, concentrating on operational excellence and discounted prices Sales: $58 Million; 180 TSMs Jay Schein becomes Chairman and CEO of Henry Schein, Inc., beginning a new period of record growth and prosperity for the Company Introduction of TouchTone™ telephone ordering Company becomes first in the industry to fully automate the distribution cycle In 1983, Henry Schein led the industry with ProTONETM, the first electronic system allowing customers to order by TouchToneTM phone. 1994 1995 1996 1997 1998 Company leads the industry with a dental practice-management software system; electronic claims processing is offered Henry Schein is listed on NASDAQ Marketplace (HSIC), raising $72.8 million in the initial public offering; acquires Veratex Company introduces unique integrated sales and marketing approach to serving customers (field sales, telesales, direct marketing); Sales: $830 Million; 3,200 TSMs Henry Schein acquires Sullivan Dental Products, Dentrix Dental Systems, and Caligor; Company becomes largest healthcare distributor serving office-based practitioners Company acquires Regional Healthcare (Australia), Arcona (Canada), and Meer Dental (U.S.); Sales: $1.92 Billion; 5,500 TSMs Shares of Henry Schein traded publicly on NASDAQ for the first time on November 3,1995. The initial price was $8 per share (split-adjusted). 2004 2005 2006 Henry Schein debuts on FORTUNE 500; acquires Demedis (Germany), KRUGG (Italy), Ash Temple (Canada), and Barton-Cyker Dental Supply (U.S.); introduces Tomorrow’s Dental Office Today (TDOT); Sales: $3.9 Billion; 9,600 TSMs Henry Schein celebrates 10 years as a publicly traded company; Company acquires Ash Temple (Canada), Halas Dental (Australia), and Shalfoon Brothers (New Zealand) Henry Schein is again included in FORTUNE’s list of America’s Most Admired Companies and ranked Number 1 in the industry for social responsibility; Company acquires NLS Animal Health, Darby Medical Supply, Island Dental, Darby Dental Laboratory Supply, and Provet Holding AG (Switzerland); Sales: $5.15 Billion; More than 11,000 TSMs 19 7 5 Y E A R S O F S U C C E S S 2007 “For 75 years, our values-based Team Schein culture, our unsurpassed level of customer service, and our commitment to social responsibility have distinguished Henry Schein in the marketplace and made us one of FORTUNE’s “Most Admired” companies. As we continue to grow beyond this milestone year, preservation of this unique corporate culture will ensure that our best years are still to come.” - Stanley M. Bergman SELECTED FINANCIAL DATA The following selected financial data, with respect to our financial position and results of operations for each of the five fiscal years in the period ended December 30, 2006, set forth below, has been derived from, should be read in conjunction with and is qualified in its entirety by reference to, our consolidated financial statements and notes thereto. The selected financial data presented below should also be read in conjunction with ITEM 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and ITEM 8, “Financial Statements and Supplementary Data.” Income Statement Data: Net sales Gross profit Selling, general and administrative expenses (2) Operating income Other expense, net Income from continuing operations before taxes, minority interest and equity in earnings of affiliates Income taxes from continuing operations Minority interest in net income of subsidiaries Equity in earnings of affiliates Income from continuing operations Income (loss) from discontinued operations, net of tax (3) Net income Earnings from continuing operations per share: Basic Diluted Earnings (loss) from discontinued operations per share: Basic Diluted Earnings per share: Basic Diluted Weighted-average common shares outstanding: Basic Diluted Net Sales by Market Data: Healthcare Distribution (4) Dental (5) Medical (6) International (7) Total Healthcare Distribution Technology (8) Total Balance Sheet Data: Total assets Long-term debt Minority interest Stockholders' equity (1) See page 21 for Notes For Selected Financial Data. Years ended December 30, 2006 December 31, 2005 (1) December 25, 2004 (1) (in thousands, except per share data) December 27, 2003 (1) December 28, 2002 (1) $3,898,485 1,054,465 862,267 192,198 (11,121) 181,077 (67,016) (1,486) 1,699 114,274 2,565 $ 116,839 $ $ $ 1.31 1.29 0.03 0.03 1.34 1.32 87,253 88,646 Years ended December 25, 2004 (in thousands) $1,602,457 1,284,279 928,207 3,814,943 83,542 $3,898,485 As of December 25, 2004 (in thousands) $2,433,670 525,682 12,438 1,117,706 $3,194,031 908,163 690,393 217,770 (8,973) 208,797 (77,959) (2,807) 931 128,962 (794) $ 128,168 $ $ $ 1.48 1.45 (0.01) (0.01) 1.47 1.44 87,417 89,099 $2,675,645 771,538 591,915 179,623 (6,933) 172,690 (63,487) (2,591) 659 107,271 4,146 $ 111,417 $ $ $ 1.23 1.21 0.05 0.04 1.28 1.25 86,978 89,007 December 27, 2003 December 28, 2002 $1,364,812 1,178,310 576,628 3,119,750 74,281 $3,194,031 $1,227,273 944,600 437,046 2,608,919 66,726 $2,675,645 December 27, 2003 December 28, 2002 $1,819,370 247,100 11,532 1,006,551 $1,558,052 242,561 6,748 863,133 $5,153,097 1,480,055 1,175,158 304,897 (9,295) 295,602 (105,220) (8,090) 835 183,127 (19,368) $ 163,759 $ $ $ 2.08 2.04 (0.22) (0.22) 1.86 1.82 87,952 89,820 $4,635,929 1,316,936 1,053,798 263,138 (16,534) 246,604 (90,456) (5,963) 827 151,012 (11,253) $ 139,759 $ $ $ 1.74 1.71 (0.13) (0.13) 1.61 1.58 87,006 88,489 December 30, 2006 December 31, 2005 $2,136,830 1,516,155 1,401,889 5,054,874 98,223 $5,153,097 $1,896,643 1,394,121 1,256,910 4,547,674 88,255 $4,635,929 December 30, 2006 December 31, 2005 $2,881,146 455,806 21,746 1,470,963 $2,583,120 489,520 12,353 1,249,154 20 H E N R Y S C H E I N NON-GAAP DISCLOSURES The following table sets forth, for the periods indicated, a reconciliation of operating income and income from continuing operations adjusted to reflect the effects of discontinued operations, as reported to adjusted operating income and adjusted income from continuing operations. The diluted earnings from continuing operations per share and weighted-average common shares outstanding information reflects a two-for-one stock split effected in the form of a dividend that became effective on February 28, 2005. December 25, 2004 December 27, 2003 Years ended December 28, 2002 (in thousands, except per share data) December 30, 1995 Operating income (loss), as reported $ 192,198 $ 217,770 $ 179,623 $ (1,474) Adjustments: Merger, integration, and restructuring credits Special management compensation costs One-time charge related to influenza vaccine contract Adjusted operating income Adjusted operating margin Income (loss) from continuing operations, as reported Adjustments, net of tax: Merger, integration, and restructuring credits Special management compensation costs Gains on real estate transactions - - 13,246 205,444 5.3% 114,274 - - - One-time charge related to influenza vaccine contract 8,358 - - - 217,770 6.8% 128,962 - - (454) - (734) - - 178,889 6.7% 107,271 (734) - (890) - - 20,797 - 19,323 3.1% (10,479) - 19,623 - - Adjusted income from continuing operations $ 122,632 $ 128,508 $ 105,647 $ 9,144 Diluted earnings (loss) from continuing operations per share: As reported Adjusted $ 1.29 1.39 $ 1.45 1.44 $ 1.21 1.19 Diluted weighted-average common shares outstanding: 88,646 89,099 89,007 $ (0.39) 0.34 26,894 NOTES FOR SELECTED FINANCIAL DATA: (1) Adjusted to reflect the effects of our adoption of FAS 123(R) using the modified retrospective application. (2) During 2004, we recorded a $13.2 million pre-tax ($8.4 million post-tax) charge related to our Fluvirin® contract with Chiron Corporation. This charge, which represented the write-off of a deferred expense associated with the 2005/2006 influenza season, occurred as a result of the significant uncertainty about whether Chiron would be able to provide Fluvirin® for the 2005/2006 influenza season. The effect that this charge had on earnings per share for the year ended December 25, 2004 was $(0.10). (3) On April 1, 2006, we sold substantially all of the assets of our Hospital Supply Business, previously reported as part of our healthcare distribution reportable segment. The sale price was $36.5 million, which was received during the second quarter of 2006. As a result of this sale, included in the operating results from discontinued operations for 2006 is a $32.3 million ($19.4 million after-tax) loss on the sale, including $3.5 million ($2.1 million after-tax) of transitional service obligations and selling costs. Also, because the decision to divest this business was reached in 2005, we recorded an impairment charge to our long-lived assets of approximately $7.0 million, net of tax, or $(0.08) per diluted share in 2005. 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. This sale resulted in a loss of $2.0 million, net of tax, or $(0.02) per diluted share. Due to immateriality, we have not reflected the operating results, other than the loss on sale, of PMA Bode separately as a discontinued operation for any of the periods presented. This was partially offset by the Hospital discontinued operation discussed above. (4) Consists of consumable products, small equipment, laboratory products, large dental equipment, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. (5) Consists of products sold in the United States and Canada. (6) Consists of products sold in the United States' medical and animal health markets. (7) Consists of products sold in the dental, medical and animal health markets, primarily in Europe. (8) Consists of practice management software and other value-added products and services, which are sold primarily to healthcare providers in the United States and Canada. 21 7 5 Y E A R S O F S U C C E S S USE OF NON-GAAP MEASURES: The above information includes financial measures that are not calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"). The above table reconciles operating income, income from continuing operations and diluted earnings (loss) from continuing operations per share, our most directly comparable measure calculated and presented in accordance with GAAP, to comparable amounts as adjusted to eliminate the effect of one-time items. We eliminated the effect of such one-time items to assist in evaluating the underlying operational performance of our business, excluding such one-time items, over the periods presented. We believe that this presentation is appropriate and facilitates such an evaluation by us, investors and analysts. These measures should be considered supplemental to, and not a substitute for or superior to, financial measures calculated in accordance with GAAP. BOARD OF DIRECTORS Stanley M. Bergman Chairman and Chief Executive Officer Barry Alperin (1) (2) (3) Retired Vice Chairman, Hasbro, Inc. Gerald A. Benjamin Executive Vice President and Chief Administrative Officer James P. Breslawski President and Chief Operating Officer Paul Brons (4) Former Member, Board of Management, Akzo Nobel N.V. Margaret A. Hamburg, M.D. (4) Former Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services; Former Commissioner of Health for the City of New York Donald Kabat (1) (2) Retired Partner, Accentur Philip Laskawy (1) (3) (4) Retired Chairman, Ernst & Young Norman Matthews (2) (4) Former President, Federated Department Stores Mark E. Mlotek Executive Vice President, Corporate Business Development Steven Paladino Executive Vice President and Chief Financial Officer Marvin H. Schein Founder, Schein Dental Equipment Corp. Louis W. Sullivan, M.D. (3) (4) Former U.S. Secretary of Health and Human Services; Founding Dean, Director and President Emeritus of the Morehouse School of Medicine Standing Row l to r: Mark E. Mlotek, Steven Paladino, Paul Brons, Louis W. Sullivan, Norman Matthews, Philip Laskawy, Donald Kabat, Gerald A. Benjamin Seated Row l to r: Barry Alperin, Margaret A. Hamburg, Stanley M. Bergman, James P. Breslawski, Marvin H. Schein (1) Member Audit Committee (2) Member Compensation Committee (3) Member Nominating and Governance Committee (4) Member Strategic Advisory Committee EXECUTIVE OFFICERS Stanley M. Bergman Chairman and Chief Executive Officer Leonard A. David Senior Vice President and Chief Compliance Officer Steven Paladino Executive Vice President and Chief Financial Officer James P. Breslawski President and Chief Operating Officer Stanley Komaroff Senior Advisor Michael Racioppi President, Medical Group Gerald A. Benjamin Executive Vice President and Chief Administrative Officer Mark E. Mlotek Executive Vice President, Corporate Business Development Michael Zack President, International Group 22 H E N R Y S C H E I N ADVISORY BOARDS Charles N. Aswad, M.D. Jeffrey A. Gelfand, M.D. Executive Vice President, CEO, Medical Society of the State of New York, Emeritus Herbert J. Conrad Former Chairman, Board of Directors, Gen Vec, Inc.; former President, Pharmaceuticals Division, Hoffmann-LaRoche, Inc. Glenna Crooks, M.D. President and CEO, Strategic Health Policy International, Inc. Stanley Epstein, M.D. Clinical Professor of Medicine, College of Physicians and Surgeons of Columbia University; Associate Clinical Professor at Albert Einstein College of Medicine; Founder, Westchester Cardiology Associates Marilyn Hughes Gaston, M.D. Former Assistant Surgeon General and Director, Bureau of Primary Health Care, U.S. Public Health Service; Co-Director, Gaston & Porter Health Improvement Center Senior Advisor, International Medical Affairs, Partners HealthCare Systems; Director, CIMIT Program (Center for Integration of Medicine and Innovative Technology International); Professor of Medicine, Tufts University School of Medicine Margaret A. Hamburg, M.D. Former Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services; Former Commissioner of Health for the City of New York; Member, Henry Schein, Inc. Board of Directors Norman Matthews Former President, Federated Department Stores; Member, Henry Schein, Inc. Board of Directors Martin Sperber Former Chairman and CEO, Schein Pharmaceutical; Chancellor, Arnold & Marie Schwartz College of Pharmacy; Member, Board of Trustees, Long Island University Louis W. Sullivan, M.D. Former U.S. Secretary of Health and Human Services; Founding Dean, Director, and President Emeritus of the Morehouse School of Medicine; Member, Henry Schein, Inc. Board of Directors Medical Advisory Board Standing Row l to r: Herbert J. Conrad, Margaret A. Hamburg, Stanley Epstein, Marilyn Hughes Gaston, Glenna Crooks Seated Row l to r: Charles N. Aswad, Louis W. Sullivan, Martin Sperber, Norman Matthews, Jeffrey A. Gelfand Oral Health Advisory Board Standing Row l to r: Greg Chadwick, David Hoexter, Raul Garcia, Charles N. Aswad Seated Row l to r: Charles Babbash, Leslie Grant, Lawrence Meskin, L. Jackson Brown Charles N. Aswad, M.D. Raul Garcia, D.M.D., MMedSc Executive Vice President, CEO, Medical Society of the State of New York, Emeritus Professor and Chairman, Department of Health Policy & Health Services Research, Boston University School of Dental Medicine Charles Babbash, D.D.S., MScD Director, Dental Implant Center, Cleveland, Ohio; Clinical Professor of Oral and Maxillofacial Surgery, and Director of Dental Implant Research, Case Western Reserve University, School of Dentistry L. Jackson Brown, D.D.S., Ph.D. Associate Executive Director, Health Policy Resources Center, American Dental Association Greg Chadwick, D.D.S., MS (Emeritus) Private Practice; Former President, American Dental Association Leslie Grant, D.D.S., MSPA Immediate Past President, National Dental Association David Hoexter, D.M.D. Clinical Professor of Periodontology, Temple University School of Dentistry; Editor-in-Chief, Dental Tribune; and past President of American College of Oral Implantology and New England American Academy of Implant Dentistry Lawrence Meskin, D.D.S., Ph.D. Professor and Director of Continuing Education, past Dean University of Colorado, School of Dentistry; former Editor, Journal of the American Dental Association 23 7 5 Y E A R S O F S U C C E S S CORPORATE INFORMATION 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 15, 2007 at 9:00 a.m. EDT, at the Melville Marriott Long Island, 1350 Old Walt Whitman Road, Melville, New York 11747. 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.giv.com; www.dentrix.com; www.easydental.com; www.labnet.com; www.digitaldentaloffice.com; www.zahndental.com; www.micromd.com; www.camlogimplants.com; and www.avimark.com. SHAREHOLDER REPORTS AND INVESTOR INQUIRIES For shareholder inquiries, including requests for quarterly and annual reports, contact our Investor Relations department at (631) 845-2820, or e-mail your request to investor@henryschein.com. Printed materials can also be requested through the Company’s Web site. FORM 10-K A copy of the Company’s annual report on Form 10-K for the fiscal year ended December 30, 2006, is available without charge to shareholders upon request to the Company’s Investor Relations department. The report also is available on the Company’s Web site. INDEPENDENT REGISTERED ACCOUNTANTS BDO Seidman, LLP 330 Madison Avenue New York, New York 10017 LEGAL COUNSEL Proskauer Rose, LLP 1585 Broadway New York, New York 10036 STOCK TRANSFER AGENT For address changes, account cancellation, registration changes and lost stock certificates, please contact: Continental Stock Transfer & Trust Company 17 Battery Place New York, New York 10004 (212) 509-4000 24 H E N R Y S C H E I N In accordance with the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors which, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements are identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate” or other comparable terms. A full discussion of our operations and financial condition, including factors that may affect our business and future prospects, is contained in documents we have filed with the U.S. Securities and Exchange Commission (SEC) and will be contained in all subsequent periodic filings we make with the SEC. These documents identify in detail important risk factors that could cause our actual performance to differ materially from current expectations. Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: competitive factors; changes in the healthcare industry; changes in government regulations that affect us; financial risks associated with our international operations; fluctuations in quarterly earnings; our dependence on third parties for the manufacture and supply of our products; transitional challenges associated with acquisitions; regulatory and litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence upon sales personnel and key customers; our dependence on our senior management; possible increases in the cost of shipping our products or other service trouble with our third-party shippers; risks from rapid technological change; risks from potential increases in variable interest rates; financial risks associated with acquisitions; possible volatility of the market price of our common stock; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation that affect us. The order in which these factors appear should not be construed to indicate their relative importance or priority. We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements. C O R P O R AT E M I S S I O N 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 www.henryschein.com 

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