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Henry ScheinA N N U A L R E P O R T 2 0 0 7 About Henry Schein Henry Schein, Inc., a FORTUNE 500® company and a member of the NASDAQ-100® Index, is the largest distributor of healthcare products and services to office-based practitioners in the combined North American and European markets. The Company has been named “Most Admired” in its industry in FORTUNE’s list of America’s Most Admired Companies, and number one in social responsibility for four consecutive years. Henry Schein is recognized for its excellent customer The Company operates through a centralized and service and highly competitive prices. The Company’s automated distribution network, which provides four business groups—Dental, Medical, International customers in more than 200 countries with a and Technology—serve more than 550,000 customers comprehensive selection of more than 90,000 worldwide, including: • Approximately 85% of the estimated 136,000 U.S. and Canadian office-based dental practices, as well as dental laboratories; national and Henry Schein private-brand products in stock, as well as more than 100,000 additional products available as special-order items. Henry Schein also offers a wide range of innovative value-added practice solutions for healthcare • Approximately 45% of the estimated 250,000 professionals, such as ARUBA®, the Company’s U.S. office-based physician practices, as well as surgical centers and other alternate-care sites; • Over 75% of the estimated 27,000 animal health clinics in the United States; • Approximately 240,000 office-based dental, medical and animal health clinics outside of North America, primarily in Europe, Australia and New Zealand; and electronic catalog and ordering system. Its leading practice-management software solutions have a user base of more than 52,000 practices, including DENTRIX®, Easy Dental®, Oasis® and EXACT® for dental practices, MicroMD® for physician practices, and AVImark® for animal health clinics. Headquartered in Melville, New York, Henry Schein employs more than 12,000 people and has operations or affiliates in 20 countries. The Company's net sales reached a record • Government and other institutions providing $5.9 billion in 2007. For more information, visit the healthcare services. Henry Schein Web site at www.henryschein.com. 1 HENRY SCHEIN AT A GLANCE: NET SALES from Continuing Operations ($ in Millions) CAGR 17%* $5,920 $5,048 $4,526 $3,795 $6,000 $5,000 $4,000 $400 $300 Financial Highlights OPERATING INCOME from Continuing Operations (1) ($ in Millions) EARNINGS PER DILUTED SHARE from Continuing Operations (1) CAGR 17%* $386 CAGR 17%* $3.00 $304 $262 $2.00 $2.58 $2.03 $1.70 $1.44 $1.39 $1.19 $1.00 $2,000 $1,000 $0 $300 $250 $200 $150 $100 $3,000 $3,181 $2,676 $200 $217 $205 $179 $100 $0 2002 2003 2004 2005 2006 2007 *Compound Annual Growth Rate 2002 2003 2004 2005 2006 2007 $0.00 2002 2003 2004 2005 2006 2007 OPERATING CASH FLOW AND CAPITAL EXPENDITURES ($ in Millions) MARKET SIZE vs. MARKET SHARE ($ in Billions) Serving a Larger Portion of a Growing Market** $270 $255 $235 Share: 6% Share: 23% $183 $129 $123 Size: $10.0 Size: $25.5 $50 $48 $39 $38 $51 $67 $57 1995 2007 $0 2002 2003 2004 2005 2006 2007 **Market is defined as the distribution of healthcare products and services primarily to office-based practitioners in the combined North American and European markets. 2 NOTES: Operating Income and Earnings Per Diluted Share from Continuing Operations have been adjusted to exclude certain one-time items. Refer to Non-GAAP Disclosures on page 9. 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 diluted share from continuing operations for the year ended December 25, 2004 was ($0.10). Excluding this charge, our earnings per diluted share from continuing operations for 2004 was $1.39. Henry Schein At A Glance DENTAL MEDICAL (cid:1) 2007 net sales: $2.46 billion (cid:1) % of Company sales: 42% (cid:1) Includes Henry Schein Dental, Henry Schein Canada and Zahn Dental Laboratory (cid:1) Serves approximately 85% of the (cid:1) 2007 net sales: $1.56 billion (including Animal Health) (cid:1) % of Company sales: 26% (including Animal Health) (cid:1) Serves approximately 45% of the estimated 250,000 U.S. office-based physician practices, as well as surgical centers and alternate-care sites estimated 136,000 U.S. and Canadian (cid:1) Has approximately 17% of the office-based dental practices, as well as dental laboratories (cid:1) Has approximately 40% of the estimated $6 billion U.S. and Canadian distribution market (cid:1) Offers approximately 44,000 products in stock and many more as special-order items (cid:1) Key product exclusives/semi- exclusives: Camlog™ dental implant system; Colgate® Oral Care Products; DEXIS® digital radiography products; i-CAT™ 3-D Imaging Systems; BIOLASE® dental laser systems; Milestone Single Tooth Anesthesia™ system; KaVo; Noritake dental materials; Pelton & Crane; BruxGuard™; Pentron® Laboratory Products; and ShadeVision™ estimated $9 billion U.S. distribution market (including Animal Health) (cid:1) Offers approximately 37,000 products in stock and many more as special-order items (cid:1) Leading supplier of vaccines (influenza, tetanus/diphtheria toxoid, pneumonococcal and many others), injectables and other pharmaceuticals to physicians and alternate-care sites (cid:1) Purchase plans for the American Medical Association, the American Society of Plastic Surgeons, the American Academy of Dermatology, and the American Academy of Ophthalmology ANIMAL HEALTH (cid:1) Serves over 75% of the estimated 27,000 U.S. animal health clinics (cid:1) Offers approximately 23,000 products in stock and many more as special-order items (cid:1) Important new product introductions in 2007: Bayer’s Advantage Multi and ProFender products; Pfizer’s Clavamox; Summit Vet Pharm’s Vectra 3D; and Fort Dodge’s Promeris for Dogs and Cats INTERNATIONAL (cid:1) 2007 net sales: $1.77 billion (cid:1) % of total Company sales: 30% (cid:1) Has approximately 17% of the estimated $10.5 billion combined dental, medical and animal health market in the European countries in which we operate (cid:1) Serves approximately 240,000 office-based dental, medical and animal health clinics through operations or affiliates in 18 countries outside of North America: Australia, Austria, Belgium, the Czech Republic, France, Germany, Iceland, Ireland, Israel, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Spain, Switzerland, the United Arab TECHNOLOGY AND VALUE-ADDED SERVICES (cid:1) 2007 net sales: $132 million (cid:1) % of total Company sales: 2% (cid:1) Doing business as Henry Schein Practice Solutions for dental and Henry Schein Medical Systems for medical (cid:1) Practice management and electronic medical records systems user base of more than 52,000 dental, medical and animal health clinics (cid:1) Key products include: DENTRIX®, Easy Dental®, DentalVision®, Oasis®, and EXACT® for dental practices; MicroMD® for physician practices; LabNet® for dental laboratories; and AVImark® for animal health clinics (cid:1) Value-added services include: repair services through ProRepair® and COMPLETEcare; Emirates, the United Kingdom office design services; continuing education (cid:1) Schein Direct provides direct air package delivery service to practitioners in more than 200 countries around the world (cid:1) Key 2007 acquisition: W&J Dunlop Ltd. (U.K., animal health) for healthcare professionals; electronic health claims processing (41 million claims processed in 2007); Office Automation Technology Solutions; 24/7 ordering capability through the ARUBA® Web-based electronic catalog; Financial Services such as equipment leasing and financing, patient financing, electronic credit card processing and credit facilities; and the Privileges™ customer loyalty program (cid:1) Key 2007 acquisition: Software of Excellence International Ltd. (U.K., Australia, New Zealand, dental software) 3 To Our Stockholders In 2007, our 75th year of operations, we celebrated our commitment to the five constituencies that have led to this important business milestone and our ongoing success—our investors, customers, Team Schein, supplier partners and society. This steadfast commitment helped make 2007 the most successful year in our Company’s history. Record Results and Innovation Growth Our commitment to our investors was seen in the record Our Company added important new resources to better serve financial results we posted for the year. Our net sales for our customers and expand Team Schein, our greatest asset, 2007 reached a record $5.9 billion, an increase of 17.3% to more than 12,000 members. We acquired the full-service over the prior year. This increase includes 14.3% local and special markets business of Becker-Parkin Dental Supply, currency growth (7.3% internally generated and 7.0% from increasing our dental penetration in several important U.S. acquisitions, net of divestiture) and 3.0% related to foreign markets. W&J Dunlop Ltd., a leading supplier of animal currency exchange. Income from continuing operations health products and services to animal health clinics in for 2007 was $235 million, or $2.58 per diluted share, an the United Kingdom, joined the Henry Schein family of increase of 28.6% and 27.1%, respectively, compared with companies. We also acquired Software of Excellence 2006. Each of our four business groups posted double-digit International Ltd., a New Zealand-based supplier of sales gains for the year with net sales of $2.46 billion for dental practice management systems and software in the Dental, $1.56 billion for Medical (including Animal Health), United Kingdom, Australia and New Zealand. $1.77 billion for International, and $132 million for Technology. Strong partnerships with our suppliers resulted in a growing Additionally we achieved many operational milestones number of important product exclusives and semi-exclusives, throughout the year, with the continued implementation of which now include the Camlog™ dental implant system; global corporate programs in human resources, information Colgate® Oral Care Products; DEXIS® digital radiography technology, inventory management, distribution and other products; i-CAT™ 3-D Imaging Systems; BIOLASE® dental key areas. We rolled out innovative programs to leverage our laser systems; Milestone Single Tooth Anesthesia™ system; strengths, and our use of technology was recognized publicly KaVo; Noritake dental materials; Pelton & Crane; Siemens as Henry Schein ranked 81st in InformationWeek’s Most refurbished ultrasound equipment; BruxGuard™; Pentron® Innovative Business Technology Companies. Laboratory Products; ShadeVision™; and others. 4 A Commitment to Caring Our commitment to society and our reputation for corporate is seen in our use of recycled and environmentally-friendly citizenship continues to grow as Henry Schein has been products in our catalogs, sales flyers, buyers’ guide and ranked “Most Admired” in our industry in FORTUNE’s list of business cards, as well as this annual report; in our Global America’s Most Admired Companies, and number one in Reflections offering of all-natural and recycled products; in social responsibility for four consecutive years. the use of energy-efficient products throughout our facilities; Through Henry Schein Cares, our global social responsibility { } We recognize that corporate social responsibility means much “Helping Health Happen.” program, we are more than simply writing a check for charity—it includes a commitment to good corporate governance, to environmental responsibility and to philanthropic community support. and in our new Henry Schein Dental trade show booth, which incorporates innovations that makes 60% of the booth’s construction environmentally-friendly. We also are committed to using our core competencies to enhance healthcare advocacy and education; increase access to healthcare among underserved populations; strengthen community wellness programs and volunteer activities; and further humanitarian relief and disaster response. We achieve this goal through the many activities we support through Henry Schein Cares, our global social responsibility program that is “helping health happen.” Our Henry Schein Cares activities throughout the year were as diverse as the Team Schein Members who drove their success. With our supplier partners, we once again In 2007, in the area of corporate governance, EthiSphere™ supported thousands of dental team volunteers who provided Magazine awarded Henry Schein an “A”—the only one in our free treatment to more than 750,000 underserved U.S. industry—for our Code of Conduct, with particular praise for children for the ADA’s fifth annual Give Kids A Smile® day. our commitment to stakeholders and the presentation and We expanded our Healthy Children, Healthy Lifestyles style of information. Our ongoing environmental commitment program to five U.S. cities. In 10 years, our Back to School 5 Looking Ahead program has supported more than 7,000 children in nine 2007 will be remembered as a milestone year in our U.S. states and Canada. And our Holiday Cheer for Children Company’s history. We are confident that we can achieve program again made the holidays a bit brighter for those who even more by focusing on the five key priorities detailed in are less fortunate. our three-year strategic plan: In addition to these broad initiatives, Team Schein supported countless community-based programs throughout 2007. We cleaned up parks in New Zealand; Denver, Pennsylvania; Jacksonville, Florida; and Indianapolis, Indiana. We built homes in Reno, Nevada, and constructed children’s • Share best practices and services across borders and business functions • Consistently deliver superior integrated solutions— consisting of innovative technology and services— to meet our customers’ needs in managing their practices playgrounds on Long Island, New York. We expanded dental • Become trusted consultants and advisors outreach programs in Australia, Germany, the Philippines, to our customers Mongolia, the Ukraine, and across the African continent. We • Develop the strategic Henry Schein global brand supported an orphanage in Ethiopia and helped the homeless in New York. We also provided humanitarian relief around the world through our support of MedShare International, Direct Relief International and other organizations. Henry Schein uses its core competencies—our distribution • Ensure that Team Schein Members continue to be our number one asset By addressing these priorities and maintaining our strong commitment to our constituencies, we are confident that our best years are yet to come. On behalf of our expertise and our relationships with suppliers and healthcare Board of Directors and my Team Schein colleagues, professionals—to create public-private partnerships we thank you for your continued support. that can expand the scale and scope of any program. We encourage non-governmental organizations; local, Sincerely, state and Federal governments; professional associations; educators; and others in industry to pool their resources with a common goal. Stanley M. Bergman Chairman and Chief Executive Officer 6 Stanley M. Bergman Chairman and Chief Executive Officer Barry J. 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 J. Kabat (1) (2) Retired Partner, Accenture, Ltd. Board of Directors Philip A. Laskawy (1) (3) (4) Retired Chairman, Ernst & Young LLP Norman S. Matthews (2) (4) Former President, Federated Department Stores, Inc. 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 Executive Officers Standing Row, left to right: Mark E. Mlotek, Steven Paladino, Paul Brons, Louis W. Sullivan, Norman S. Matthews, Philip A. Laskawy, Donald J. Kabat, Gerald A. Benjamin Seated Row, left to right: Barry J. 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 Stanley M. Bergman Chairman and Chief Executive Officer James P. Breslawski President and Chief Operating Officer Gerald A. Benjamin Executive Vice President and Chief Administrative Officer Leonard A. David Senior Vice President and Chief Compliance Officer James Harding Senior Vice President and Corporate Chief Technology Officer Stanley Komaroff Senior Advisor Mark E. Mlotek Executive Vice President, Corporate Business Development Steven Paladino Executive Vice President and Chief Financial Officer Michael Racioppi Senior Vice President and Chief Merchandising Officer Michael Zack President, International Group 7 Henry Schein is Committed to its Five Key Constituencies Customers Supplier Partners for whom we seek to be a trusted advisor with whom we will achieve and consultant in building the efficiency and mutual business success. success of their practices. Team Schein for whom we will continue to foster an entrepreneurial environment marked by dignity, respect, and opportunities for personal and professional growth. Investors Society for whom we will achieve continued growth in which we will remain a responsible and profitability and deliver an excellent corporate citizen, using our core return on investment. competencies to give back to the communities in which we operate. 8 Non-GAAP Disclosures The following table sets forth, for the periods indicated, a reconciliation of operating income (loss) and income (loss) 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 (loss) 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 $ 191,949 $ 217,432 $ 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 - - 13,246 205,195 5.4% 114,129 - - - One-time charge related to influenza vaccine contract 8,358 - - - 217,432 6.8% 128,759 - - (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 $ 122,487 $ 128,305 $ 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 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 (loss), income (loss) 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. 9 Henry Schein, Inc. 135 Duryea Road Melville, New York 11747 U.S.A. (631) 843-5500 www.henryschein.com
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