Henry Schein Annual Report 2012

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HELPING HEALTH HAPPEN
THROUGH INTEGRATED SOLUTIONS

A N N U A L R E P O RT 2 012

HENRY SCHEIN FINANCIAL HIGHLIGHTS
2008–2012

$10,000

$8,000

NET SALES
from Continuing Operations
($ in Millions)

CAGR 9%*

$7,527

$8,940

$8,530

$6,000

$6,380

$6,538

OPERATING INCOME
from Continuing Operations
($ in Millions)

CAGR 10%*

$634

$582

$533

$700

$600

$500

$469

$400

$443

$4,000

$2,000

$5.00

$4.00

2008

2009

2010

2011

2012

EARNINGS PER DILUTED SHARE
from Continuing Operations

CAGR 12%*

$4.44

$3.97

$3.58

$3.00

$3.20

$2.92

$2.00

$1.00

$300

$200

$100

$600

$500

$400

$300

$200

$100

2008

2009

2010

2011

2012

OPERATING CASH FLOW
AND CAPITAL EXPENDITURES
($ in Millions)

$555

$385

$398

$395

$408

(1)

$51

$52

$39

$45

$51

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

*Five-year Compound Annual Growth Rate

OPERATING CASH FLOW

CAPITAL EXPENDITURES

(1) Net of temporary forward inventory buy-ins of $150MM.

NOTE:
Operating Income and Earnings Per Diluted Share from Continuing Operations attributable to Henry Schein, Inc. have been adjusted to exclude certain one-time items. Refer to
Non-GAAP Disclosures on page 8. Additionally, refer to our annual consolidated financial statements for a complete presentation of our Consolidated Statements of Cash Flows.

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ABOUT HENRY SCHEIN

Henry Schein, Inc. is the world’s largest provider of health care products and
services to office-based dental, medical and animal health practitioners.

The Company also serves dental laboratories, government and institutional health care clinics, and other

alternate-care sites. A Fortune 500® Company and a member of the NASDAQ 100® Index, Henry Schein

employs more than 15,000 Team Schein Members and serves more than 775,000 customers.

The Company offers a comprehensive selection of products and services, including value-added solutions for

operating efficient practices and delivering high-quality care. Henry Schein operates through a centralized and

automated distribution network, with a selection of more than 96,000 branded products and Henry Schein

private-brand products in stock, as well as more than 110,000 additional products available as special-order

items. The Company also offers its customers exclusive, innovative technology solutions, including practice

management software and e-commerce solutions, as well as a broad range of financial services.

Headquartered in Melville, New York, Henry Schein has operations or affiliates in 25 countries. The Company’s

sales reached a record $8.9 billion in 2012, and have grown at a compound annual rate of 17 percent since

Henry Schein became a public company in 1995.

For more information, visit the Henry Schein Web site at www.henryschein.com.

(As of March 2013)

About the cover theme: Henry Schein is “helping health happen” through the integrated solutions that we offer

to our dental, medical and animal health customers around the world. By sharing our customers’ patient-centric

perspective and focusing not on individual products, but on creating tailored solutions that meet our customers’

unique practice needs, we are establishing Henry Schein as the “go-to” company for our constituencies–

a valuable long-term business partner that thinks globally and acts locally.

HENRY SCHEIN ANNUAL REPORT

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HENRY SCHEIN AT A GLANCE

HENRY SCHEIN GLOBAL BUSINESS UNITS:

DENTAL

(cid:129) 53.4% of total net sales

(cid:129) Serves office-based dental practitioners, schools and other institutions

ANIMAL HEALTH

(cid:129) 26.0% of total net sales

(cid:129) Serves animal health practices and clinics

MEDICAL

(cid:129) 17.4% of total net sales

(cid:129) Serves office-based medical practitioners, ambulatory surgery

centers, other alternate-care settings and other institutions

TECHNOLOGY & VALUE-ADDED SERVICES

(cid:129) 3.2% of total net sales

(cid:129) Offerings include practice management software systems for dental and medical practitioners and animal

health clinics. Our value-added practice solutions include financial services on a non-recourse basis, e-services,

practice technology, network and hardware services, plus continuing education services for practitioners.

2012 GLOBAL NET SALES
$8.9 Billion

53.4% DENTAL

26.0% ANIMAL HEALTH

17.4% MEDICAL

3.2% TECHNOLOGY & VALUE-ADDED SERVICES

WORLDWIDE MARKETING AND OPERATIONAL EXCELLENCE:

(cid:129) 3,300 Field Sales Consultants

(cid:129) 1,650 Telesales Representatives

(cid:129) Average of 120,000 Cartons Shipped Daily

(cid:129) 99.9% Order Accuracy

(cid:129) 31.6 Million Direct Marketing Pieces Distributed in 2012

(cid:129) 99% Order Fulfillment Rate;

(cid:129) 187 Equipment Sales and Service Centers

(cid:129) 67 Distribution Centers

Orders Shipped Same Day;

Orders Delivered in 2 Days

(cid:129) 4.5 Million Square Feet of Space in Distribution Centers

(cid:129) 91% Orders Delivered Next Day

HENRY SCHEIN’S MISSION STATEMENT:

To provide innovative, integrated health care products and services; and to be trusted advisors and consultants

to our customers–enabling them to deliver the best quality patient care and enhance their practice management

efficiency and profitability.

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TO OUR SHAREHOLDERS

In 2012, we celebrated 80 years

in business by continuing the work

of reinvention that is the hallmark

of Henry Schein.

Ever since Henry and Esther Schein founded our company in 1932, we have committed ourselves to continuously

adapting our business model to remain relevant to the customers we serve. In 2012, we took another step in our

journey of reinvention with the implementation of our 2012–2014 Strategic Plan.

We established three global business lines: Dental, Animal Health and Medical, each

supported by our Technology and Value-Added Services group. This change sharpened

our customer focus in each market we serve and more tightly integrated the management

of our operations across borders. I am pleased to report that we gained market share in

each business last year, with strong domestic results across the board and despite some

challenges in certain overseas markets.

Another hallmark of Henry Schein is consistent growth in key financial and company metrics,

and 2012 was no exception:

(cid:129) We posted record net sales of $8.9 billion and record adjusted net income of $398.6 million,

or $4.44 per diluted share;

(cid:129) We expanded operating margin by 41 basis points, excluding the impact of acquisitions made during the year;

(cid:129) We achieved our annual stated goal of generating operating cash flow in excess of adjusted net income

attributable to Henry Schein, Inc.;

(cid:129) We passed the 1 million mark in terms of the number of dental, medical, and animal health practitioners,

operating out of more than 775,000 practices that we serve worldwide; and

(cid:129) Underscoring our commitment to returning cash to shareholders, we spent $300 million to repurchase

over 3.9 million shares of our common stock, and, in November, our Board of Directors authorized

the repurchase of up to an additional $300 million of shares.

HENRY SCHEIN ANNUAL REPORT

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TO OUR SHAREHOLDERS (CONTINUED)

Beyond our financial results,

veterinary surgeons in the U.K.;

2012 also was a year of significant

2012 was notable for the external

AUV Veterinary Services, the

evolution for our company as a

recognition of our growth and

leading distributor serving

leading contributor to the global

success. We continued our steady

animal health practitioners in

dialogue on prevention and

climb up the Fortune 500, reaching

the Netherlands and Belgium;

wellness. We shared our views on

#303, and we were ranked #10

C&M Vetlink, which expanded our

expanding access to health care and

on the Barron’s 500, an exclusive

animal health presence to Ireland;

the importance of public-private

listing of the 500 largest publicly

and Accord, a full-service dental

partnerships with a variety of

traded companies in the U.S.

provider in Thailand. We acquired

audiences, including the World

and Canada, as measured by a

Modern Laboratory Services, which

Economic Forum at Davos;

combination of revenue growth, cash

strengthened our U.S. physician

the Global Conference for Social

flow growth and investment return.

office laboratory presence, and we

Change; and the Alliance for

We also enjoyed growth in the

important category of Team Schein.

We welcomed Carol Raphael to

our Board of Directors, and we

completed a number of strategic

transactions during 2012 involving

each of our global businesses.

bolstered our product offering by

Oral Health Across Borders,

acquiring Ortho Technology, which

among other venues.

enhanced our position in the dental

specialty market. We also acquired a

majority interest in the Exan Group,

a leading Canadian developer of

software for dental schools.

We continued our deep commitment

to social responsibility, ranking #1

overall in our industry in Fortune’s

2012 list of the World’s Most

Admired Companies, and #1 in

We expanded our market presence

Henry Schein now has more than

the industry in the categories of

by welcoming Team Schein Members

15,000 Team Schein Members

corporate social responsibility,

from Veterinary Instrumentation,

around the world, connecting 3,000

global competitiveness, quality of

the leading supplier of surgical

supplier partners to more than 775,000

management, quality of products/

instruments and implants to

customers in over 190 countries.

services and long-term investment.

Examples of how we partner
with our customers to help

them achieve their goals: ““After 5 years as a missionary dentist in Hong Kong, I moved back to New England

a Camlog implant course, I met a Henry Schein Equipment Sales Specialist, who

a beautiful setting, I quickly found that the space was limiting the equipment and

of our space while introducing new technology to help me run a more profitable

and purchased an established dental practice housed in a historic farmhouse. While

services I could offer, as well as the number of staff I could bring on. While attending

business. In addition, Henry Schein’s Financial Services team was a partner in helping

was also trained as an architect. He had a clear vision of how to improve the efficiency

me fulfill my aspiration to design and equip a state-of-the-art practice to best serve

my patients. Today, our office showcases its past alongside modern technology and

equipment thanks to Henry Schein’s knowledge, design expertise and business

counsel. New patient traffic is already up 15 percent from last year.”

Dr. Ron Holiman, Plaistow, New Hampshire

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TO OUR SHAREHOLDERS (CONTINUED)

In 2012, we were also named to

business involves the value-added

customers and the most valuable

Ethisphere’s list of the World’s Most

distribution of products and

customer to our supplier partners.

Ethical Companies for the first

services, if you look a little deeper,

time, which honors companies that

you will see that we are providing

raise the bar for ethical standards

solutions to our customers’

through exemplary ethical

clinical and business challenges.

leadership, worldwide business

Importantly, this solutions-based

standards and commitment to

approach extends to our

corporate social responsibility.

relationships with our supplier

Our financial success, and the

partners, as well.

external recognition of that success,

Providing solutions is a dynamic

reinforces our dedication to our

process that varies geographically

corporate mission: improving

and by customer type. In certain

the efficiency of our health care

markets and with certain

customers so they can improve the

customers, our work is focused

lives of their patients. On a global

on helping to navigate through

basis, Henry Schein upholds an

strong macroeconomic headwinds,

unwavering commitment to the

while elsewhere our focus is on

success of our customers, which, in

enhancing growth and profitability.

turn, contributes to the health and

Yet, regardless of the circumstances,

well-being of their patients and,

during the past 80 years, Henry

ultimately, to the success of our

Schein has built a reputation as a

company. While on the surface our

reliable and trusted advisor to our

As we look forward to the future

with confidence, we will continue to

strive to provide our shareholders

with an excellent return on

investment and to ensure that Team

Schein remains the most important

asset in our values-based culture.

On behalf of our Board of Directors

and my Team Schein colleagues,

thank you for your continued

support.

Sincerely,

Stanley M. Bergman
Chairman of the Board and
Chief Executive Officer

“

“The Carolina Center for Occupational Health provides occupational

“Greencross Ltd. is the largest veterinary group in Australia, with over 86

and correctional medicine in South Carolina. We rely on Henry Schein

veterinary hospitals including specialty, emergency and general practices,

for its high-tech, enterprise-wide solutions for inventory and materials

as well as two veterinary pathology laboratories. Team members from

management. These tools help us track our medical inventory on a

Henry Schein Provet’s (HSP) operational team help with inventory

real-time basis and ensure that we have critical supplies at all times

management in all our hospitals including assisting with stock takes,

to meet the needs of our population. Equally as important, Henry

barcoding stock on shelves in clinics, and providing scanners and an

Schein’s tools and expertise have saved us time and money with a fully

IT platform to help manage our stock more effectively and efficiently.

automated system to ensure that our medical inventory practices are

The HSP education unit personnel have been exceptional in providing

held to the highest standard. At our last Immigration and Customs

resources, content and administrative support for our Certificate II and IV

inspection, the inspector said that our implementation of inventory

Veterinary nursing participants, as well as workshops for our nurses and

solutions should be held as the gold standard for other sites.”

practice managers. The relationship between Greencross and HSP is

Herbert Drayton III, Vice President & Health Services Administrator

exceptionally strong and goes deeper than business synergies.”

for the Carolina Center for Occupational Health

Dr. Glen Richards, Managing Director, Greencross Ltd.

HENRY SCHEIN ANNUAL REPORT

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HENRY SCHEIN CARES

Corporate Social
Responsibility–
Creating Shared Value

As a company

committed to

“doing well by

doing good,”

Henry Schein strives to do its part to

improve the world’s economic, social

and environmental condition. Henry

Schein’s commitment to its supplier

partners, customers, Team Schein

Members and investors enables the

Company to effectively serve a fifth

constituency – society – through

Henry Schein Cares. In this way, we

pursue the creation of shared value

for the benefit of all. Henry Schein
is a Fortune “World’s Most Admired
Company” and ranks first in its

industry for social responsibility. The
Company is also one of Ethisphere’s
“World’s Most Ethical Companies.”

Access to Care – As a catalyst to
create collaborative public-private

materials used for packing, shipping

and marketing.

Corporate Governance – Henry
Schein’s requirements for ethical
behavior and strong corporate

partnerships, Henry Schein is

governance are driven from the most

helping to increase access to health
care among underserved populations

senior executive levels and instilled

throughout the organization. The

around the world by advancing

Company’s Worldwide Business

prevention and wellness; building

Standards emphasize the requirement

health care capacity; and strengthening

for uncompromising honesty, integrity

emergency preparedness and relief.

and ethical behavior globally.

Environment – The Company
continually seeks opportunities

By engaging Team Schein Members

to expand access to health care,

to reduce its carbon footprint and

promote environmental sustainability,

minimize use of natural resources.

and ensure accountability and best

Henry Schein is implementing

practices in dealing with customers,

conservation efforts throughout the

suppliers and investors, Henry

organization, with a strong focus on

Schein is serving society and

minimizing energy consumption and

“doing well by doing good.”

Henry Schein Cares Foundation
Health Kit Outreach Program

Think Pink, Practice Pink Program

Healthy Lifestyles, Healthy Communities
Program

Product Donations for Washoe County
Sheriff’s Office Non-Profit K-9 Unit

American Dental Association’s
Give Kids A Smile Program

Back To School Program

Henry’s Angels Support
EllenorLions Hospices

Holiday Cheer for Children Program

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EXECUTIVE OFFICERS AND BOARD OF DIRECTORS

Stanley M. Bergman
Chairman of the Board,
Chief Executive Officer;
Director

Gerald A. Benjamin
Executive Vice President,
Chief Administrative Officer;
Director

James P. Breslawski
President, Chief Operating Officer,
Henry Schein, Inc.;
Chief Executive Officer,
Henry Schein Global Dental Group;
Director

Leonard A. David
Senior Vice President,
Chief Compliance Officer

James Harding
Senior Vice President,
Chief Technology Officer

Stanley Komaroff
Senior Advisor

Mark E. Mlotek
Executive Vice President,
Chief Strategic Officer;
Director

Steven Paladino
Executive Vice President,
Chief Financial Officer;
Director

Michael Racioppi
Senior Vice President,
Chief Merchandising
Officer

Lonnie Shoff
President, Chief Executive Officer,
Global Animal Health and
Strategic Partnership Group

Michael Zack
President,
International Group

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

Paul Brons
Former Member,
Board of Management,
Akzo Nobel, N.V.;
Director - (4)

Donald J. Kabat
Retired Partner,
Accenture, Ltd.;
Director - (1) (2)

Philip Laskawy
Retired Chairman,
Ernst & Young LLP;
Lead Director - (1) (3) (4)

Karyn Mashima
Private Consultant; Former Senior
Vice President, Strategy and
Technology, Avaya;
Director - (4)

Norman S. Matthews
Former President, Federated
Department Stores, Inc.;
Director - (2) (4)

Carol Raphael
Former President and CEO,
Visiting Nurse Service of New York;
Director

Bradley T. Sheares, Ph.D.
Former CEO, Reliant
Pharmaceuticals; Former President of
U.S. Human Health, Merck & Co.;
Director - (4)

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;
Director - (3) (4)

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

HENRY SCHEIN ANNUAL REPORT

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NON-GAAP DISCLOSURES

The following table sets forth, for the applicable periods, a reconciliation of operating income attributable to Henry Schein, Inc.
adjusted to reflect the effects of restructuring costs.

Operating income, as reported

Operating margin, as reported

Adjustments:

Restructuring costs (1)

Adjusted operating income

Adjusted operating margin

Income attributable to Henry Schein, Inc.:

As reported

Adjustments, net of tax:

Restructuring costs (1)

Years Ended

December 29,
2012

December 25,
2010

December 27,
2008

(in thousands, except per share data)

$ 618,961

$ 521,131

$ 419,286

6.9%

6.6%

$ 15,192

$ 12,285

23,240

$ 634,153

$ 533,416

$ 442,526

7.1%

6.9%

$ 388,076

$ 325,789

$ 247,347

$ 10,537

8,260

15,991

Adjusted income attributable to Henry Schein, Inc.:

$ 398,613

$ 334,049

$ 266,383

Diluted earnings per share attributable to Henry Schein, Inc.:

As reported

Adjusted

4.32

4.44

3.49

3.58

2.71

2.92

Diluted weighted-average common shares outstanding:

89,823

93,268

91,221

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 attributable to Henry Schein, Inc. and diluted earnings per share attributable to
Henry Schein, Inc., our most directly comparable measure calculated and presented in accordance with GAAP, to comparable amounts as adjusted to eliminate
the effect of restructuring costs.

We eliminated the effect of restructuring costs to assist in evaluating the underlying operational performance of our business, excluding such costs, 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.

NOTES:

(1) During 2012 and 2010, we recorded restructuring costs of $15.2 million pre-tax ($10.5 million post-tax) and $12.3 million pre-tax ($8.3 million post-tax),
respectively. The effect that these charges had on earnings per diluted share attributable to Henry Schein, Inc. was ($0.12) and ($0.09), respectively.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2012

__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-27078

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of

incorporation or organization)
11-3136595
(I.R.S. Employer Identification No.)

135 Duryea Road
Melville, New York
(Address of principal executive offices)
11747
(Zip Code)

(631) 843-5500
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, par value $.01 per share

Name of each exchange on which registered
The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES: X NO: __

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES: __ NO: X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files).
YES: X NO: __

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be

contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.

Large accelerated filer: X Accelerated filer: __ Non-accelerated filer: __ Smaller reporting company: __

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES: __ NO: X

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, computed by reference to the closing

sales price as quoted on the NASDAQ Global Select Market on June 30, 2012, was approximately $6,978,125,000.

As of February 4, 2013, there were 87,573,322 shares of registrant’s Common Stock, par value $.01 per share, outstanding.

Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the

fiscal year (December 29, 2012) are incorporated by reference in Part III hereof.

Documents Incorporated by Reference:

TABLE OF CONTENTS

Page
Number

PART I.

ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.

Business ............................................................................................................................................
Risk Factors ......................................................................................................................................
Unresolved Staff Comments .............................................................................................................
Properties ..........................................................................................................................................
Legal Proceedings .............................................................................................................................
Mine Safety Disclosures ...................................................................................................................

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters

ITEM 6.
ITEM 7.

ITEM 7A.
ITEM 8.
ITEM 9.

ITEM 9A.
ITEM 9B.

and Issuer Purchases of Equity Securities ....................................................................................
Selected Financial Data ....................................................................................................................
Management's Discussion and Analysis of Financial Condition

and Results of Operations ............................................................................................................
Quantitative and Qualitative Disclosures About Market Risk ..........................................................
Financial Statements and Supplementary Data .................................................................................
Changes in and Disagreements With Accountants on Accounting

and Financial Disclosure ..............................................................................................................
Controls and Procedures ...................................................................................................................
Other Information .............................................................................................................................

PART III

ITEM 10.
ITEM 11.
ITEM 12.

Directors, Executive Officers and Corporate Governance ................................................................
Executive Compensation ..................................................................................................................
Security Ownership of Certain Beneficial Owners and Management

ITEM 13.
ITEM 14.

and Related Stockholder Matters .................................................................................................
Certain Relationships and Related Transactions, and Director Independence ..................................
Principal Accountant Fees and Services ...........................................................................................

PART IV

ITEM 15.

Exhibits, Financial Statement Schedules ..........................................................................................
Signatures .........................................................................................................................................
Exhibit Index ....................................................................................................................................

3
17
27
28
28
28

29
32

34
56
57

103
103
105

105
105

106
106
106

107
108
111

ITEM 1. Business

General

PART I

We believe we are the world’s largest provider of health care products and services primarily to office-based
dental, medical and animal health care practitioners. We serve over 775,000 customers worldwide, including dental
practitioners and laboratories, physician practices and animal health clinics, as well as government, institutional
health care clinics and other alternate care clinics. We believe that we have a strong brand identity due to our more
than 80 years of experience distributing health care products.

We are headquartered in Melville, New York, employ more than 15,000 people (of which nearly 7,000 are

based outside the United States) and have operations or affiliates in 25 countries, including the United States,
Australia, Austria, Belgium, Canada, China, the Czech Republic, France, Germany, Hong Kong SAR, Iceland,
Ireland, Israel, Italy, Luxembourg, Mauritius, the Netherlands, New Zealand, Portugal, Slovakia, Spain,
Switzerland, Thailand, Turkey and the United Kingdom.

We offer a comprehensive selection of products and services and value-added solutions for operating efficient

practices and delivering high quality care. We operate through a centralized and automated distribution network
with a selection of more than 96,000 branded products and Henry Schein private brand products in stock, as well as
more than 110,000 additional products available as special order items. We also offer our customers exclusive,
innovative technology solutions, including practice management software and e-commerce solutions, as well as a
broad range of financial services.

We have established approximately four million square feet of space in 67 strategically located distribution
centers around the world to enable us to better serve our customers and increase our operating efficiency. This
infrastructure, together with broad product and service offerings at competitive prices, and a strong commitment to
customer service, enables us to be a single source of supply for our customers’ needs. Our infrastructure also
allows us to provide convenient ordering and rapid, accurate and complete order fulfillment.

We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and

value-added services. These segments offer different products and services to the same customer base.

The health care distribution reportable segment aggregates our global dental, medical and animal health
operating segments. This segment consists of consumable products, small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic
tests, infection-control products and vitamins. Our global dental group serves office-based dental practitioners,
schools and other institutions. Our global medical group serves office-based medical practitioners, ambulatory
surgery centers, other alternate-care settings and other institutions. Our global animal health group serves animal
health practices and clinics.

Our global technology and value-added services group provides software, technology and other value-added

services to health care practitioners. Our technology group offerings include practice management software
systems for dental and medical practitioners and animal health clinics. Our value-added practice solutions include
financial services on a non-recourse basis, e-services, practice technology, network and hardware services, plus
continuing education services for practitioners.

Industry

The health care products distribution industry, as it relates to office-based health care practitioners, is highly
fragmented and diverse. This industry, which encompasses the dental, medical and animal health markets, was
estimated to produce revenues of approximately $30 billion in 2012 in the combined North American, European
and Australian/New Zealand markets. The industry ranges from sole practitioners working out of relatively small
offices to group practices or service organizations ranging in size from a few practitioners to a large number of
practitioners who have combined or otherwise associated their practices.

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

The health care products distribution industry continues to experience growth due to the aging population,
increased health care awareness, the proliferation of medical technology and testing, new pharmacology treatments
and expanded third-party insurance coverage, partially offset by the affects of increased unemployment on
insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and
diagnostic testing from acute care settings to alternate-care sites, particularly physicians’ offices.

We believe that consolidation within the industry will continue to result in a number of distributors, particularly

those with limited financial and marketing resources, seeking to combine with larger companies that can provide
growth opportunities. This consolidation also may continue to result in distributors seeking to acquire companies
that can enhance their current product and service offerings or provide opportunities to serve a broader customer
base.

In recent years, the health care 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. It also has 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 competitive 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 affect demand for technology solutions, including software, which can enhance the efficiency and
facilitation of practice management.

Competition

The distribution and manufacture of health care supplies and equipment is highly competitive. Many of the
health care distribution products we sell are available to our customers from a number of suppliers. In addition, our
competitors could obtain exclusive rights from manufacturers to market particular products. Manufacturers also
could seek to sell directly to end-users, and thereby eliminate or reduce our role and that of other distributors.

In North America, we compete with other distributors, as well as several manufacturers, of dental, medical and

animal health products, primarily on the basis of price, breadth of product line, customer service and value-added
products and services. In the sale of our dental products, our primary competitors are the Patterson Dental division
of Patterson Companies, Inc. and Benco Dental Supply Company. In addition, we compete against a number of
other distributors that operate on a national, regional and local level. Our primary competitors in the sale of
medical products are McKesson Corp., PSS World Medical, Inc. and Cardinal Health, Inc., which are national
distributors. In the animal health market, our primary competitors are MWI Veterinary Supply, Inc. and the
Patterson Veterinary Supply division of Patterson Companies, Inc. We also compete against a number of regional
and local medical and animal health distributors, as well as a number of manufacturers that sell directly to
physicians and veterinarians. With regard to our dental practice management software, we compete against
numerous companies, including Carestream Health, Inc. and the Patterson Dental division of Patterson Companies,
Inc. The medical practice management and electronic medical records market is very fragmented and we compete
with numerous companies such as NextGen Healthcare Information Systems, Inc., eClinicalWorks, Allscripts, LLC
and athenahealth, Inc. In the animal health practice management market, our primary competitors are IDEXX
Laboratories, Inc. and the Patterson Veterinary Supply division of Patterson Companies, Inc.

We also face significant competition internationally, where we compete on the basis of price and customer
service against several large competitors, including the GACD Group, Pluradent AG & Co., Planmeca Oy, Arseus
NV, Billericay Dental Supply Co. Ltd., National Veterinary Services and Alcyon SA, as well as a large number of
dental, medical and animal health product distributors and manufacturers in Australia, Austria, Belgium, China, the
Czech Republic, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland, Thailand, Turkey and the United Kingdom.

Significant price reductions by our competitors could result in a similar reduction in our prices. Any of these

competitive pressures may materially adversely affect our operating results.

Competitive Strengths

We have more than 80 years of experience in distributing products to health care practitioners resulting in

strong awareness of the “Henry Schein” brand. Our competitive strengths include:

A focus on meeting our customers’ unique needs. We are committed to providing customized solutions to our
customers that are driven by our understanding of the market and reflect the technology-driven products and
services best suited for their practice needs.

Direct sales and marketing expertise. Our sales and marketing efforts are designed to establish and solidify
customer relationships through personal visits by field sales representatives, frequent direct marketing and
telesales contact, emphasizing our broad product lines, including exclusive distribution agreements,
competitive prices and ease of order placement. The key elements of our direct sales and marketing efforts
are:

• Field sales consultants. We have approximately 3,300 field sales consultants, including equipment
sales specialists, covering major North American, European and other international markets. These
consultants complement our direct marketing and telesales efforts and enable us to better market,
service and support the sale of more sophisticated products and equipment.

• Direct marketing. During 2012, we distributed approximately 31.6 million pieces of direct marketing
material, including catalogs, flyers, order stuffers and other promotional materials to existing and
potential office-based health care customers.

• Telesales. We support our direct marketing effort with approximately 1,650 inbound and outbound
telesales representatives, who facilitate order processing and generate new sales through direct and
frequent contact with customers.

• Electronic commerce solutions. We provide our customers and sales teams with innovative and

competitive Internet, PC and mobile e-commerce solutions.

• Social media. Our operating entities and employees engage our customers and supplier partners

through various social media platforms.

Broad product and service offerings at competitive prices. We offer a broad range of products and services
to our customers, at competitive prices, in the following categories:

• Consumable supplies and equipment. We offer over 96,000 Stock Keeping Units, or SKUs, to our

customers. Of the SKUs offered, approximately 51,000 are offered to our dental customers,
approximately 39,000 to our medical customers and approximately 15,500 to our animal health
customers. We offer over 110,000 additional SKUs to our customers in the form of special order items.

• Technology and other value-added products and services. We sell practice management software
systems to our dental, medical and animal health customers. Our practice management solutions
provide practitioners with electronic medical records, patient treatment history, billing, accounts
receivable analyses and management, appointment calendars, electronic claims processing and word
processing programs. As of December 29, 2012, we have an active user base of more than 75,000
practices, including Dentrix®, Easy Dental®, Oasis®, Evolution® and EXACT®, Power Practice Px,
AxiUm, EndoVision, PerioVision, OMSVision and ViiveTM for dental practices, MicroMD® for
physician practices and Advantage+, AVImark®, DVM Manager®, Infinity, Sunpoint, Triple Crown®
and Vetech Advantage for animal health practices.

• Repair services. We have 187 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our health care customers. Our ProRepair technicians
provide installation and repair services for: dental handpieces; dental, medical and animal health small
equipment; table top sterilizers; and large dental equipment.

• Financial services. We offer our customers solutions in operating their practices more efficiently by
providing access to a number of financial services and products (including non-recourse financing for
equipment, technology and software products; non-recourse patient financing; collection services and
credit card processing) at rates that we believe are generally lower than what our customers would be
able to secure independently. We also provide dental practice valuation and brokerage services.

Commitment to superior customer service. We maintain a strong commitment to providing superior
customer service. We frequently monitor our customer service through customer surveys, focus groups and
statistical reports. Our customer service policy primarily focuses on:

• Exceptional order fulfillment. We ship an average of approximately 120,000 cartons daily.

Approximately 99% of items ordered are shipped without back ordering and are shipped on the same
business day the order is received.

• Streamlined ordering process. Customers may place orders 24 hours a day, 7 days a week by mail, fax,

telephone, e-mail, Internet and by using our computerized order entry systems.

Integrated management information systems. Our information systems generally allow for centralized
management of key functions, including accounts receivable, inventory, accounts payable, payroll,
purchasing, sales and order fulfillment. These systems allow us to manage our growth, deliver superior
customer service, properly target customers, manage financial performance and monitor daily operational
statistics.

Cost-effective purchasing. We believe that cost-effective purchasing is a key element to maintaining and
enhancing our position as a competitive-pricing provider of health care products. We continuously evaluate
our purchase requirements and suppliers’ offerings and prices in order to obtain products at the lowest
possible cost. In 2012, our top 10 health care distribution suppliers and our single largest supplier accounted
for approximately 37% and 7%, respectively, of our aggregate purchases.

Efficient distribution. We distribute our products from our strategically located distribution centers. We
strive to maintain optimal inventory levels in order to satisfy customer demand for prompt delivery and
complete order fulfillment. These inventory levels are managed on a daily basis with the aid of our
management information systems. Once an order is entered, it is electronically transmitted to the
distribution center nearest the customer’s location and a packing slip for the entire order is printed for order
fulfillment.

Products

The following table sets forth the percentage of consolidated net sales by principal categories of products

offered through our health care distribution and technology reportable segments. Certain prior period amounts have
been reclassified to conform to the current period presentation:

Health care distribution:

Dental products (1) ..........................................................................
Medical products (2) .......................................................................
Animal health products (3) .............................................................

53.4
17.4
26.0

Total health care distribution ......................................................

96.8

55.9
17.6
23.6

97.1

58.7
18.2
20.4

97.3

2012

2011

2010

Technology:

Software and related products and

other value-added products (4) ...........................................

3.2

2.9

2.7

Total ........................................................................................................

100.0 %

(1)

Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental implants,

gypsum, acrylics, articulators, abrasives, dental chairs, delivery units and lights, X-ray supplies and equipment, equipment

repair and high-tech equipment.

(2)

Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray products,

equipment and vitamins.

(3)

Includes branded and generic pharmaceuticals, surgical and consumable products and services and equipment.

(4)

Includes software and related products and other value-added products, including financial products and other services, including

e-services and continuing education services for practitioners.

Business Strategy

Our objective is to continue to expand as a global value-added provider of health care products and services to

office-based dental, medical and animal health care practitioners. To accomplish this, we will apply our
competitive strengths in executing the following strategies:

• Increase penetration of our existing customer base. We have over 775,000 customers worldwide and we
intend to increase sales to our existing customer base and enhance our position as their primary supplier.

• Increase the number of customers we serve. This strategy includes increasing the number and

productivity of field sales consultants, as well as using our customer database to focus our marketing efforts
in all of our operating segments. In the dental business, we provide products and services to traditional dental
practices as well as new emerging segments, such as dental support organizations and community health
centers. Leveraging our unique assets and capabilities, we offer solutions to address these new markets. In
the medical business, we have expanded to serve customers located in settings outside of the traditional
office, such as urgent care clinics, retail and occupational health settings. As settings of health care shift, we
remain committed to serving these practitioners and providing them with the products and services they need.

• Leverage our value-added products and services. We continue to increase cross-selling efforts for key

product lines utilizing a consultative selling process. In the dental business, we have significant cross-selling
opportunities between our dental practice management software users and our dental distribution customers.
In the medical business, we have opportunities to expand our vaccine, injectables and other pharmaceuticals
sales to health care practitioners, as well as cross-selling core products and electronic health record and
practice management software. Our strategy extends to providing health systems, integrated delivery
networks and other large group and multi-site health care organizations, that include physician clinics, these
same value added products and services. As physicians and health systems closely align, we have increased
access to opportunities for cross-marketing and selling our product and service portfolios. In the animal
health business, we have opportunities to cross-sell practice management software and other products.

• Pursue strategic acquisitions and joint ventures. Our acquisition strategy includes acquiring businesses and
entering into joint ventures complementary to ours that will provide, among other things, additional sales to
be channeled through our existing distribution infrastructure, access to additional product lines and field sales
consultants and an opportunity to further expand into new geographic markets.

Markets Served

Demographic trends indicate that our markets are growing, as an aging U.S. population is increasingly using
health care services. Between 2012 and 2022, the 45 and older population is expected to grow by approximately
13%. Between 2012 and 2032, this age group is expected to grow by approximately 26%. This compares with
expected total U.S. population growth rates of approximately 9% between 2012 and 2022 and approximately 18%
between 2012 and 2032.

In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45 and older segment

of the population increases. There is increasing demand for new technologies that allow dentists to increase
productivity, and this is being driven in the U.S. by lower insurance reimbursement rates. At the same time, there is
an expected increase in dental insurance coverage.

We support our dental professionals through the many SKUs that we offer, as well as through important value-

added services, including practice management software, electronic claims processing, financial services and
continuing education, all designed to help maximize a practitioner’s efficiency.

There continues to be a migration of procedures from acute-care settings to physicians’ offices, a trend that we
believe provides additional opportunities for us. There also is the continuing use of vaccines, injectables and other
pharmaceuticals in alternate-care settings. We believe we have established a leading position as a vaccine supplier
to the office-based physician practitioner.

The animal health market, impacted by growing companion pet ownership and care, as well increased focus on

safety and efficiency in livestock production, continues to provide additional growth opportunities for us. We
support the animal health practitioners we serve through the distribution of biologicals, pharmaceuticals, supplies
and equipment and by actively engaging in the development, sale and distribution of veterinary practice
management software.

Additionally, we are expanding our dental full-service model, our animal health presence and our medical
offerings in countries where opportunities exist. Through our “Schein Direct” program, we also have the capability
to provide door-to-door air package delivery to practitioners in over 190 countries around the world.

For information on revenues and long-lived assets by geographic area, see Note 15 of “Notes to Consolidated

Financial Statements,” which is incorporated herein by reference.

Seasonality and Other Factors Affecting Our Business and Quarterly Results

We experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations

of securities analysts and investors, which could cause our stock price to decline.

Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally
have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza
vaccine, equipment and software products), purchasing patterns of office-based health care practitioners and year-
end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to
increased sales in the prior two quarters. We expect our historical seasonality of sales to continue in the foreseeable
future. Quarterly results also may be adversely affected by a variety of other factors, including:

• timing and amount of sales and marketing expenditures;

• timing of pricing changes offered by our vendors;

• timing of the introduction of new products and services by our vendors;

• timing of the release of upgrades and enhancements to our technology-related products and services;

• changes in or availability of vendor contracts or rebate programs;

• vendor rebates based upon attaining certain growth goals;

• changes in the way vendors introduce or deliver products to market;

• costs of developing new applications and services;

• exclusivity requirements with certain vendors may prohibit us from distributing competitive products

manufactured by other vendors;

• loss of sales representatives;

• costs related to acquisitions and/or integrations of technologies or businesses;

• costs associated with our self-insured medical and dental insurance programs;

• general market and economic conditions, as well as those specific to the health care industry and

related industries;

• our success in establishing or maintaining business relationships;

• unexpected difficulties in developing and manufacturing products;

• product demand and availability or recalls by manufacturers;

• exposure to product liability and other claims in the event that the use of the products we sell results in

injury;

• increases in the cost of shipping or service issues with our third-party shippers;

• restructuring costs; and

• changes in accounting principles.

Any change in one or more of these or other factors could cause our annual or quarterly operating results to

fluctuate. If our operating results do not meet market expectations, our stock price may decline.

Governmental Regulations

Operating, Security and Licensure Standards

Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we

are subject to various local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Among the federal laws applicable to us are the Controlled
Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, and Section 361 of the Public Health
Service Act. We are also subject to comparable foreign regulations.

The Federal Food, Drug, and Cosmetic Act (“FDC Act”) generally regulates the introduction, manufacture,
advertising, labeling, packaging, storage, handling, reporting, marketing and distribution of, and record keeping for,
pharmaceuticals and medical devices shipped in interstate commerce, and states may similarly regulate such
activities within the state. Section 361 of the Public Health Service Act, which provides authority to prevent the
spread of communicable diseases, serves as the legal basis for the United States Food and Drug Administration’s
regulation of human cells, tissues, and cellular and tissue-based products, also known as HCT/P products.

The FDC Act also establishes certain requirements applicable to the wholesale distribution of prescription
drugs, including the requirement that wholesale drug distributors be licensed by each state in which they conduct
business, provide certain drug pedigree information on the distribution of prescription drugs and act in accordance
with federally established guidelines on storage, handling and record maintenance.

Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and

renew annually registrations from the United States Drug Enforcement Administration permitting us to handle
controlled substances. We are also subject to other statutory and regulatory requirements relating to the sale,
marketing, handling and distribution of such drugs, in accordance with specified rules and regulations, and these
requirements have been subject to heightened enforcement activity in recent times. We are subject to inspection by
the United States Drug Enforcement Administration.

Certain of our businesses are required to register for permits and/or licenses with, and comply with operating
and security standards of, the United States Drug Enforcement Administration, the United States Food and Drug
Administration, the United States Department of Health and Human Services, and various state boards of
pharmacy, state health departments and/or comparable state agencies as well as comparable foreign agencies, and
certain accrediting bodies depending on the type of operations and location of product distribution, manufacturing
or sale. These businesses include those that distribute, manufacture and/or repackage prescription pharmaceuticals
and/or medical devices and/or HCT/P products, or own pharmacy operations, or install, maintain or repair
equipment. In addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws,
impose civil and/or criminal penalties for the transfer of certain human tissue (for example human bone products)
for valuable consideration, while generally permitting payments for the reasonable costs incurred in procuring,
processing, storing and distributing that tissue. The United States Drug Enforcement Administration, the United
States Food and Drug Administration and state regulatory authorities have broad inspection and enforcement
powers, including the ability to suspend or limit the distribution of products by our distribution centers, seize or
order the recall of products and impose significant criminal, civil and administrative sanctions for violations of
these laws and regulations. Furthermore, compliance with legal requirements has required and may in the future
require us to institute voluntary recalls of products we sell, which could result in financial losses and potential
reputational harm. Our customers are also subject to significant federal, state, local and foreign governmental
regulation.

Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations,

including with respect to the sale, transportation, storage, handling and disposal of hazardous or potentially
hazardous substances, and safe working conditions. In recent years, some states have passed or proposed laws and
regulations that are intended to protect the integrity of the medical supply channel. For example, Florida and
certain other states have implemented or are implementing drug pedigree requirements that require that prescription
drugs be distributed with records or information documenting the prior distribution of the drug, from distributors
and potentially back to the manufacturers. California has enacted a law requiring the implementation of an
electronic drug pedigree system that provides track and trace chain of custody technologies, such as radio frequency
identification, or RFID, technologies. The law will take effect on a staggered basis, commencing on January 1,
2015 for pharmaceutical manufacturers, and July 1, 2016 for pharmaceutical wholesalers and repackagers. There
have been increasing efforts by various levels of government to regulate the pharmaceutical distribution system in
order to prevent the introduction of counterfeit, adulterated or misbranded pharmaceuticals into the distribution
system.

At the federal level, the FDC Act requires certain wholesalers to provide a drug pedigree for each wholesale

distribution of prescription drugs which includes an identifying statement that records the chain of ownership of a
prescription drug. Currently, the United States Food and Drug Administration, in the exercise of its enforcement
discretion, requires these wholesalers to maintain drug pedigrees that include transaction dates, names and
addresses regarding transactions going back to either the manufacturer or the last authorized distributor of record
that handled the drugs.

The FDC Act also requires the United States Food and Drug Administration to establish standards and identify
and validate effective technologies for the purpose of securing the pharmaceutical supply chain against counterfeit
drugs. These standards include any track and trace or authentication technologies, such as RFID and other
technologies. The United States Food and Drug Administration has continued to develop its policies in this area,
such as issuing a Final Guidance in 2010 regarding standardized numerical identification for prescription drug
packages, and issuing a proposed rule in July 2012 for a unique medical device identification system.

Certain of our businesses also maintain contracts with governmental agencies and are subject to certain

regulatory requirements specific to government contractors.

Health Care Fraud

Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws and regulations with respect to their operations. Some of these laws-referred to as
“false claims laws”- prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws”, prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items
or services that are paid for by federal, state and other health care payers and programs.

The fraud and abuse laws and regulations have been subject to varying interpretations, as well as heightened
enforcement activity over the past few years, and significant enforcement activity has been the result of “relators,”
who serve as whistleblowers by filing complaints in the name of the United States (and if applicable, particular
states) under federal and state false claims laws. Under the federal False Claims Act relators can be entitled to
receive up to 30% of total recoveries. Also, violations of the federal False Claims Act can result in treble damages,
and each false claim submitted can be subject to a penalty of up to $11,000 per claim. The Health Care Reform
Law significantly strengthened the federal False Claims Act and the anti-kickback law provisions, which could lead
to the possibility of increased whistleblower or relator suits, and among other things made clear that a federal anti-
kickback law violation can be a basis for federal False Claims Act liability.

The government has expressed concerns about financial relationships between suppliers on the one hand and

physicians and dentists on the other. As a result, we regularly review and revise our marketing practices as
necessary to facilitate compliance. We are now engaged in discussions with the government that may lead to
changes in certain of our marketing practices and, potentially, payments which we do not expect to be material. In
addition, under the reporting and disclosure obligations of the Physician Payment Sunshine Act provisions of the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, each
enacted in March 2010, generally known as the “Health Care Reform Law” (discussed in more detail in Health
Care Reform, below), by the second quarter of 2014, the general public and government officials will be provided
with new access to detailed information with regard to payments or other transfers of value to certain practitioners
11

(including physicians, dentists and teaching hospitals) by applicable drug and device manufacturers subject to such
reporting and disclosure obligations, which is likely to include us. This information may lead to greater scrutiny,
which may result in modifications to established practices and additional costs.

We also are subject to certain laws and regulations concerning the conduct of our foreign operations, including

the U.S. Foreign Corrupt Practices Act and anti-bribery laws and laws pertaining to the accuracy of our internal
books and records, which have been the focus of increasing enforcement activity in recent years.

Failure to comply with fraud and abuse laws and regulations could result in significant civil and criminal
penalties and costs, including the loss of licenses and the ability to participate in federal and state health care
programs, and could have a material adverse impact on our business. Also, these measures may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory
authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition,
many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to
frequent modification and varied interpretation by prosecutorial and regulatory authorities, increasing the risk of
noncompliance.

While we believe that we are substantially compliant with fraud and abuse laws and regulations, and have
adequate compliance programs and controls in place to ensure substantial compliance, we cannot predict whether
changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in response,
could adversely affect our business.

Health Care Reform

The Health Care Reform Law also included other provisions to reduce fraud and abuse and Medicare

expenditures and the cost of health care generally, to increase federal oversight of private health insurance plans
and to increase access to health coverage, some of which impact and further regulate some of our businesses. In
particular, a Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act,
imposed new reporting and disclosure requirements for drug and device manufacturers with regard to payments or
other transfers of value made to certain practitioners (including physicians, dentists and teaching hospitals), and for
such manufacturers and group purchasing organizations, with regard to certain ownership interests held by
physicians in the reporting entity. Implementation had been delayed pending the issuance of applicable rules by the
Centers for Medicare and Medicaid Services (“CMS”). On February 1, 2013, CMS released the final rule to
implement the Physician Payment Sunshine Act. The final rule provides that data collection activities begin on
August 1, 2013, and first disclosure reports are due by March 31, 2014 for the period August 1, 2013 through
December 31, 2013. On or about June 1, 2014, CMS will publish information from these reports, including
amounts transferred and physician, dentist and teaching hospital identities, in a national publicly available data
bank.

The final rule implementing the Physician Payment Sunshine Act is complex, ambiguous, and broad in scope,
and we are in the process of analyzing its application to our businesses. For example, the final rule is unclear as to
whether the Physician Payment Sunshine Act requires that wholesale drug and device distributors that take title to
the products they distribute, such as we generally do, are to be treated as “applicable manufacturers” subject to full
reporting requirements. The CMS commentary on the final rule indicates that they are; however, this interpretation
appears to be inconsistent with the language of the Physician Payment Sunshine Act itself. In addition, because
certain of our subsidiaries manufacture drugs and devices, we will in any event likely be required to collect and
report detailed information regarding certain financial relationships we have with physicians, dentists and teaching
hospitals. It is difficult to predict how the new requirements may impact existing relationships among
manufacturers, distributors, physicians, dentists and teaching hospitals. The Physician Payment Sunshine Act
preempts similar state reporting laws, although we or our subsidiaries may be required to continue to report under
certain of such state laws. While we expect to have adequate compliance programs and controls in place to comply
with the Physician Payment Sunshine Act requirements, our compliance with the new final rule is likely to pose
additional costs on us.

On June 28, 2012, the United States Supreme Court overturned certain lower federal court decisions to uphold

as constitutional a key provision in the Health Care Reform Law often referred to as the “individual mandate,”
which requires individuals without health insurance to pay a penalty. However, the decision also invalidated a
provision in the Health Care Reform Law requiring states to expand their Medicaid programs or risk the complete
loss of all federal Medicaid funding. The Court held that the federal government may offer states the option of
accepting the expansion requirement, but that it may not take away pre-existing Medicaid funds in order to coerce
states into complying with the expansion. A number of states have indicated a reluctance to accept the Medicaid
expansion, so the full extent of increased health care coverage under the Health Care Reform Law is uncertain.

Regulated Software; Electronic Health Records

The United States Food and Drug Administration, or FDA, has become increasingly active in addressing the

regulation of computer software intended for use in health care settings, and has been developing policies on
regulating clinical decision support tools as medical devices. Certain of our businesses involve the development
and sale of software and related products to support physician and dental practice management, and it is possible
that the FDA could determine that one or more of our products is a medical device, which could subject us or one
or more of our businesses to substantial additional requirements with respect to these products.

Certain of our businesses involve access to personal health, medical, financial and other information of

individuals, and are accordingly directly or indirectly subject to numerous federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, and require, among other things, the
implementation of various recordkeeping, operational, notice and other practices intended to safeguard that
information, limit its use to allowed purposes, and notify individuals in the event of privacy and security breaches.
Failure to comply with these laws can result in substantial penalties and other liabilities. As a result of the federal
Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), which was passed in
2009, some of our businesses that were previously only indirectly subject to federal Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) privacy and security rules became directly subject to such rules
because such businesses serve as “business associates” of HIPAA covered entities, such as health care providers.
On January 17, 2013 the Office for Civil Rights of the Department of Health and Human Services released a final
rule implementing the HITECH Act and making certain other changes to HIPAA privacy and security
requirements. Compliance with the rule is required by September 23, 2013, and will increase the requirements
applicable to some of our businesses.

In addition, federal initiatives, including in particular the HITECH Act, are providing a program of incentive

payments available to certain health care providers involving the adoption and use of certain electronic health care
records systems and processes. The HITECH initiative includes providing, among others, physicians and dentists,
with financial incentives, if they meaningfully use certified electronic health record technology (“EHR”). Also,
eligible providers that fail to adopt certified EHR systems may be subject to Medicare reimbursement reductions
beginning in 2015. Qualification for the incentive payments requires the use of EHRs that are certified as having
certain capabilities for meaningful use pursuant to standards adopted by the Department of Health and Human
Services. Initial (“stage one”) standards addressed criteria for periods beginning in 2011. CMS has also issued a
final rule with “stage two” criteria for periods beginning in 2014, which are more demanding, and new,
incrementally more rigorous criteria are expected to be issued for stage “three” compliance, however, final
standards have not yet been issued and so these criteria are not yet certain. Certain of our businesses involve the
manufacture and sale of certified EHR systems and other products linked to incentive programs, and so must
maintain compliance with these evolving governmental criteria.

Also, HIPAA requires certain health care providers, such as physicians, to use certain transaction and code set
rules for specified electronic transactions, such as transactions involving claims submissions. Commencing July 1,
2012, CMS required that, electronic claim submissions and related electronic transactions be conducted under a
new HIPAA transaction standard, called Version 5010. CMS has required this upgrade in connection with another
new requirement applicable to the industry, the implementation of new diagnostic code sets to be used in claims
submission. The new diagnostic code sets are called the ICD-10-CM. They were originally to be implemented on
October 1, 2013, but CMS recently issued a final rule that extended the implementation date until October 1, 2014.
Certain of our businesses provide electronic practice management products that must meet those requirements, and
while we believe we are prepared to timely adopt the new standards, it is possible that the transition to these new
standards, particularly the transition to ICD-10-CM, may result in a degree of disruption and confusion, thus
potentially increasing the costs associated with supporting this product.

International Transactions

In addition, United States and international import and export laws and regulations require us to abide by
certain standards relating to the importation and exportation of products. We also are subject to certain laws and
regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act and
anti-bribery laws and laws pertaining to the accuracy of our internal books and records, as well as other types of
requirements similar to those imposed in the United States.

While we believe that we are substantially compliant with the foregoing laws and regulations promulgated
thereunder and possess all material permits and licenses required for the conduct of our business, there can be no
assurance that regulations that impact our business or customers’ practices will not have a material adverse impact
on our business. As a result of political, economic and regulatory influences, the health care distribution industry in
the United States is under intense scrutiny and subject to fundamental changes. We cannot predict what further
reform proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.

See “ITEM 1A. Risk Factors” for a discussion of additional burdens, risks and regulatory developments that

may affect our results of operations and financial condition.

Proprietary Rights

We hold trademarks relating to the “Henry Schein” name and logo, as well as certain other trademarks.

Pursuant to agreements executed in connection with our reorganization in 1994, both Henry Schein, Inc. and Schein
Pharmaceutical, Inc. (which was acquired by Watson Pharmaceuticals, Inc. in 2000), a company previously
engaged in the manufacture and distribution of multi-source pharmaceutical products, are entitled to use the
“Schein” name in connection with their respective businesses, but Schein Pharmaceutical, Inc. must always use
“Schein” in combination with the word “Pharmaceutical” and is not entitled to use the name “Henry Schein” or to
use “Schein” alone or with any other word (other than “Pharmaceutical”). We intend to protect our trademarks to
the fullest extent practicable.

Employees

As of December 29, 2012, we employed more than 15,000 full-time employees, including approximately 1,650

telesales representatives, 3,300 field sales consultants, including equipment sales specialists, 2,925 warehouse
employees, 725 computer programmers and technicians, 1,475 management employees and 5,550 office, clerical
and administrative employees. Over 315 or 2.1% of our employees were subject to collective bargaining
agreements. We believe that our relations with our employees are excellent.

Available Information

We make available free of charge through our Internet Web site, www.henryschein.com, our annual report on

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the United States Securities and Exchange Commission, or
SEC.

The above information is also available at the SEC’s Office of Investor Education and Advocacy at United
States Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-0213 or obtainable by
calling the SEC at (800) 732-0330. In addition, the SEC maintains an Internet Web site at www.sec.gov, where the
above information can be viewed.

Our principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone

number is (631) 843-5500. Unless the context specifically requires otherwise, the terms the “Company,” “Henry
Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware corporation, and its consolidated subsidiaries.

Executive Officers of the Registrant

The following table sets forth certain information regarding our executive officers:

Name

Age

Position

Stanley M. Bergman ..................... 63
Gerald A. Benjamin ...................... 60
James P. Breslawski ...................... 59

Leonard A. David .......................... 64
James Harding ............................... 57
Stanley Komaroff .......................... 77
Mark E. Mlotek ............................. 57
Steven Paladino ............................. 55
Michael Racioppi .......................... 58
Lonnie Shoff ................................. 54

Michael Zack ................................ 60

Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
President, Chief Operating Officer, Chief Executive Officer, Henry Schein
Global Dental, Director
Senior Vice President, Chief Compliance Officer
Senior Vice President, Chief Technology Officer
Senior Advisor
Executive Vice President, Chief Strategic Officer, Director
Executive Vice President, Chief Financial Officer, Director
Senior Vice President, Chief Merchandising Officer
President and Chief Executive Officer, Global Animal Health and
Strategic Partnerships
President, International Group

Stanley M. Bergman has been our Chairman and Chief Executive Officer since 1989 and a director since
1982. Mr. Bergman held the position of President from 1989 to 2005. Mr. Bergman held the position of Executive
Vice President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.

Gerald A. Benjamin has been our Executive Vice President and Chief Administrative Officer since 2000 and a

director since 1994. Prior to holding his current position, Mr. Benjamin was Senior Vice President of
Administration and Customer Satisfaction since 1993. Mr. Benjamin was Vice President of Distribution
Operations from 1990 to 1992 and Director of Materials Management from 1988 to 1990. Before joining us in
1988, Mr. Benjamin was employed for 13 years in various management positions at Estée Lauder, Inc., where his
last position was Director of Materials Planning and Control.

James P. Breslawski has been our President and Chief Operating Officer since 2005 and a director since 1992.
Mr. Breslawski is also the Chief Executive Officer of our Henry Schein Global Dental Group. Mr. Breslawski held
the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with primary
responsibility for the North American Dental Group. Between 1980 and 1990, Mr. Breslawski held various
positions with us, including Chief Financial Officer, Vice President of Finance and Administration and Controller.

Leonard A. David has been our Senior Vice President and Chief Compliance Officer since 2006. Mr. David
held the position of Vice President and Chief Compliance Officer from 2005 to 2006. Mr. David held the position
of Vice President of Human Resources and Special Counsel from 1995 to 2005. Mr. David held the position of
Vice President, General Counsel and Secretary from 1990 through 1994 and practiced corporate and business law
for eight years prior to joining us.

James Harding has been our Chief Technology Officer since 2005 and Senior Vice President since 2001.

Prior to holding his current position, Mr. Harding was Chief Information Officer since 2001, with primary
responsibility for worldwide information technology.

Stanley Komaroff has been our Senior Advisor since 2003. Prior to joining us, Mr. Komaroff was a partner
for 35 years in the law firm of Proskauer Rose LLP, counsel to us. He served as Chairman of that firm from 1991
to 1999.

Mark E. Mlotek has been Executive Vice President and Chief Strategic Officer since 2004. Mr. Mlotek was
Senior Vice President of Corporate Business Development from 2000 to 2004. Prior to that, Mr. Mlotek was Vice
President, General Counsel and Secretary from 1994 to 1999 and became a director in 1995. Prior to joining us,
Mr. Mlotek was a partner in the law firm of Proskauer Rose LLP, counsel to us, specializing in mergers and
acquisitions, corporate reorganizations and tax law from 1989 to 1994.

Steven Paladino has been our Executive Vice President and Chief Financial Officer since 2000. Prior to

holding his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to
2000 and has been a director since 1992. From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer
and from 1987 to 1990 served as Corporate Controller. Before joining us, Mr. Paladino was employed in public
accounting for seven years, most recently with the international accounting firm of BDO USA, LLP. Mr. Paladino
is a certified public accountant.

Michael Racioppi has been our Senior Vice President, Chief Merchandising Officer since 2008. Prior to
holding his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008 and Interim
President from 1999 to 2000, and Corporate Vice President from 1994 to 2008. Mr. Racioppi served as Senior
Director, Corporate Merchandising from 1992 to 1994. Before joining us in 1992, Mr. Racioppi was employed by
Ketchum Distributors, Inc. as the Vice President of Purchasing and Marketing.

Lonnie Shoff has been President and Chief Executive Officer of the Global Animal Health and Strategic
Partnerships Group since 2009. Prior to joining us, Ms. Shoff was employed with Roche Diagnostics, where she
held a series of positions of increasing responsibility in the United States and Switzerland over the past 20 years,
most recently as Senior Vice President General Manager, Applied Science.

Michael Zack has been President of our International Group since 2006. Mr. Zack held the position of Senior
Vice President of our International Group from 1989 to 2006. Mr. Zack was employed by Polymer Technology (a
subsidiary of Bausch & Lomb) as Vice President of International Operations from 1984 to 1989 and by
Gruenenthal GmbH as Manager of International Subsidiaries from 1975 to 1984.

ITEM 1A. Risk Factors

The risks described below could have a material adverse impact on our business, reputation, financial condition

or the trading price of our common stock. Although it is not possible to predict or identify all such risks and
uncertainties, they may include, but are not limited to, the factors discussed below. Our business operations could
also be affected by additional factors that are not presently known to us or that we currently consider not to be
material to our operations. You should not consider this list to be a complete statement of all risks and
uncertainties. The order in which these factors appear should not be construed to indicate their relative importance
or priority.

The health care products distribution industry is highly competitive and we may not be able to compete
successfully.

We compete with numerous companies, including several major manufacturers and distributors. Some of our

competitors have greater financial and other resources than we do, which could allow them to compete more
successfully. Most of our products are available from several sources and our customers tend to have relationships
with several distributors. Competitors could obtain exclusive rights to market particular products, which we would
then be unable to market. Manufacturers also could increase their efforts to sell directly to end-users and thereby
eliminate or reduce our role and that of other distributors. Industry consolidation among health care products
distributors, price competition, the unavailability of products, whether due to our inability to gain access to products
or to interruptions in supply from manufacturers, or the emergence of new competitors also could increase
competition. In the future, we may be unable to compete successfully and competitive pressures may reduce our
revenues.

Because substantially all of the products that we distribute are not manufactured by us, we are dependent upon
third parties for the manufacture and supply of substantially all of our products.

We obtain substantially all of our products from third-party suppliers. Generally, we do not have long-term
contracts with our suppliers committing them to supply products to us. Therefore, suppliers may not provide the
products we need in the quantities we request. Because we generally do not control the actual production of the
products we sell, we may be subject to delays caused by interruption in production based on conditions outside of
our control. In the event that any of our third-party suppliers were to become unable or unwilling to continue to
provide the products in required volumes, we would need to identify and obtain acceptable replacement sources on
a timely basis. There is no guarantee that we would be able to obtain such alternative sources of supply on a timely
basis, if at all. An extended interruption in the supply of our products, including the supply of our influenza
vaccine and any other high sales volume product, would have an adverse effect on our results of operations, which
most likely would adversely affect the value of our common stock.

Our revenues depend on our relationships with capable sales personnel as well as customers, suppliers and
manufacturers of the products that we distribute.

Our future operating results depend on our ability to maintain satisfactory relationships with qualified sales
personnel as well as customers, suppliers and manufacturers. If we fail to maintain our existing relationships with
such persons or fail to acquire relationships with such key persons in the future, our business may be adversely
affected.

Our future success is substantially dependent upon our senior management.

Our future success is substantially dependent upon the efforts and abilities of members of our existing senior
management, particularly Stanley M. Bergman, Chairman and Chief Executive Officer, among others. The loss of
the services of Mr. Bergman could have a material adverse effect on our business. We have an employment
agreement with Mr. Bergman. We do not currently have “key man” life insurance policies on any of our
employees. Competition for senior management is intense and we may not be successful in attracting and retaining
key personnel.

We experience fluctuations in quarterly earnings. As a result, we may fail to meet or exceed the expectations of
securities analysts and investors, which could cause our stock price to decline.

Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally
have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza
vaccine, equipment and software products), purchasing patterns of office-based health care practitioners and year-
end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to
increased sales in the prior two quarters. We expect our historical seasonality of sales to continue in the foreseeable
future. Quarterly results may also be adversely affected by a variety of other factors, including:

• timing and amount of sales and marketing expenditures;

• timing of pricing changes offered by our vendors;

• timing of the introduction of new products and services by our vendors;

• timing of the release of upgrades and enhancements to our technology-related products and services;

• changes in or availability of vendor contracts or rebate programs;

• vendor rebates based upon attaining certain growth goals;

• changes in the way vendors introduce or deliver products to market;

• costs of developing new applications and services;

• exclusivity requirements with certain vendors may prohibit us from distributing competitive products

manufactured by other vendors;

• loss of sales representatives;

• costs related to acquisitions and/or integrations of technologies or businesses;

• costs associated with our self-insured medical and dental insurance programs;

• general market and economic conditions, as well as those specific to the health care industry and

related industries;

• our success in establishing or maintaining business relationships;

• unexpected difficulties in developing and manufacturing products;

• product demand and availability or recalls by manufacturers;

• exposure to product liability and other claims in the event that the use of the products we sell results in

injury;

• increases in the cost of shipping or service issues with our third-party shippers;

• restructuring costs; and

• changes in accounting principles.

Any change in one or more of these or other factors could cause our annual or quarterly operating results to

fluctuate. If our operating results do not meet market expectations, our stock price may decline.

Expansion of group purchasing organizations (“GPO”) or provider networks and the multi-tiered costing
structure may place us at a competitive disadvantage.

The medical products industry is subject to a multi-tiered costing structure, which can vary by manufacturer
and/or product. Under this structure, certain institutions can obtain more favorable prices for medical products than
we are able to obtain. The multi-tiered costing structure continues to expand as many large integrated health care
providers and others with significant purchasing power, such as GPOs, demand more favorable pricing terms.
Additionally, the formation of provider networks and GPOs may shift purchasing decisions to entities or persons
with whom we do not have a historical relationship. This may threaten our ability to compete effectively, which
would in turn negatively impact our results of operations. Although we are seeking to obtain similar terms from
manufacturers and obtain access to lower prices demanded by GPO contracts or other contracts and seeking to
develop relationships with provider networks and new GPOs, we cannot assure such terms will be obtained or
contracts will be executed.

Increases in the cost of shipping or service issues with our third-party shippers could harm our business.

Shipping is a significant expense in the operation of our business. We ship almost all of our orders through

third-party delivery services, and typically bear the cost of shipment. Accordingly, any significant increase in
shipping rates could have an adverse effect on our operating results. Similarly, strikes or other service interruptions
by those shippers could cause our operating expenses to rise and adversely affect our ability to deliver products on a
timely basis.

Uncertain global macro-economic conditions could adversely affect our results of operations and financial
condition.

Uncertain global macro-economic conditions that affect the economy and the economic outlook of the United

States, Europe and other parts of the world could adversely affect our customers and vendors, which could
adversely affect our results of operations and financial condition. These uncertainties, including, among other
things, sovereign debt levels, the inability of political institutions to effectively resolve actual or perceived
economic, currency or budgetary crises or issues, consumer confidence, unemployment levels (and a corresponding
increase in the uninsured and underinsured population), interest rates, availability of capital, fuel and energy costs,
tax rates, health care costs and the threat or outbreak of terrorism or public unrest, could adversely impact our
customers and vendors, which could adversely affect us. Government debt and/or budget crises may lead to
reductions in government spending in certain countries, which could reduce overall health care spending, and/or
higher income or corporate taxes, which could depress spending overall. Additionally, recessionary conditions and
depressed levels of consumer and commercial spending may cause customers to reduce, modify, delay or cancel
plans to purchase our products and may cause vendors to reduce their output or change their terms of sales. We
generally sell products to customers with payment terms. If customers’ cash flow or operating and financial
performance deteriorates, or if they are unable to make scheduled payments or obtain credit, they may not be able
to pay, or may delay payment to us. Likewise, for similar reasons vendors may restrict credit or impose different
payment terms. Any inability of current and/or potential customers to pay us for our products and/or services or
any demands by vendors for different payment terms may adversely affect our results of operations and financial
condition.

Disruptions in the financial markets may adversely affect the availability and cost of credit to us.

Our ability to make scheduled payments or refinance our obligations with respect to indebtedness will depend

on our operating and financial performance, which in turn is subject to prevailing economic conditions and
financial, business and other factors beyond our control. Disruptions in the financial markets may adversely affect
the availability and cost of credit to us.

The market price for our common stock may be highly volatile.

The market price for our common stock may be highly volatile. A variety of factors may have a significant

impact on the market price of our common stock, including:

•

the publication of earnings estimates or other research reports and speculation in the press or
investment community;

changes in our industry and competitors;

our financial condition, results of operations and cash flows and prospects;

stock repurchases;

any future issuances of our common stock, which may include primary offerings for cash, stock
splits, issuances in connection with business acquisitions, restricted stock/units and the grant or
exercise of stock options from time to time;

general market and economic conditions; and

any outbreak or escalation of hostilities in areas where we do business.

In addition, the NASDAQ Stock Market can experience extreme price and volume fluctuations that can be
unrelated or disproportionate to the operating performance of the companies listed on NASDAQ. Broad market and
industry factors may negatively affect the market price of our common stock, regardless of actual operating
performance. In the past, following periods of volatility in the market price of a company’s securities, securities
class action litigation has often been instituted against companies. This type of litigation, if instituted, could result
in substantial costs and a diversion of management’s attention and resources, which would have an adverse effect
on our business.

The health care industry is experiencing changes that could adversely affect our business.

The health care industry is highly regulated and subject to changing political, economic and regulatory
influences. In recent years, the health care industry has undergone significant change driven by various efforts to
reduce costs, including: trends toward managed care; consolidation of health care distribution companies;
consolidation of health care manufacturers; collective purchasing arrangements and consolidation among office-
based health care practitioners; and changes in reimbursements to customers, as well as growing enforcement
activities (and related monetary recoveries) by governmental officials. Both our own profit margins and the profit
margins of our customers may be adversely affected by laws and regulations reducing reimbursement rates for
pharmaceuticals and/or medical treatments or services or changing the methodology by which reimbursement levels
are determined. If we are unable to react effectively to these and other changes in the health care industry, our
operating results could be adversely affected. In addition, the enactment of significant health care reforms could
have a material adverse effect on our businesses.

The implementation of the Health Care Reform Law could adversely affect our business.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation

Act, each enacted in March 2010, generally known as the Health Care Reform Law, significantly expand health
insurance coverage to uninsured Americans and changes the way health care is financed by both governmental and
private payers. We expect expansion of access to health insurance to increase the demand for our products and
services, but other provisions of the Health Care Reform Law could affect us adversely. Additionally, further
federal and state proposals for health care reform are likely. We cannot predict what further reform proposals, if
any, will be adopted, when they may be adopted, or what impact they may have on us.

The Health Care Reform Law contains many provisions designed to generate the revenues necessary to fund
the coverage expansions and to reduce costs of Medicare and Medicaid, including imposing a 2.3% excise tax on
domestic sales of medical devices by manufacturers and importers beginning in 2013, and a fee on branded
prescription drugs and biologics that was implemented in 2011, both of which may adversely affect sales and cost
of goods sold. For example, (i) where we purchase medical devices from third-party manufacturers, the
manufacturers may increase their prices to cover their payment of the excise tax and our costs to purchase such
medical devices may therefore increase and (ii) where we manufacture medical devices or are the importer of
record, our cost of goods sold have increased because we are subject to paying the excise tax.

The implementation of the reporting and disclosure obligations of the Physician Payment Sunshine Act
provisions of the Health Care Reform Law could adversely affect our business.

A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act, imposed

new reporting and disclosure requirements for drug and device manufacturers with regard to payments or other
transfers of value made to certain practitioners (including physicians, dentists and teaching hospitals), and for such
manufacturers and group purchasing organizations, with regard to certain ownership interests held by physicians in
the reporting entity. Implementation had been delayed pending the issuance of applicable rules by the Centers for
Medicare and Medicaid Services (“CMS”). On February 1, 2013, CMS released the final rule to implement the
Physician Payment Sunshine Act. The final rule provides that data collection activities begin on August 1, 2013,
and first disclosure reports are due by March 31, 2014 for the period August 1, 2013 through December 31, 2013.
On or about June 1, 2014, CMS will publish information from these reports, including amounts transferred and
physician, dentist and teaching hospital identities, in a national publicly available data bank.

The final rule implementing the Physician Payment Sunshine Act is complex, ambiguous, and broad in scope,
and we are in the process of analyzing its application to our businesses. For example, the final rule is unclear as to
whether the Physician Payment Sunshine Act requires that wholesale drug and device distributors that take title to
the products they distribute, such as we generally do, are to be treated as “applicable manufacturers” subject to full
reporting requirements. The CMS commentary on the final rule indicates that they are; however, this interpretation
appears to be inconsistent with the language of the Physician Payment Sunshine Act. In addition, because certain
of our subsidiaries manufacture drugs and devices, we will in any event likely be required to collect and report
detailed information regarding certain financial relationships we have with physicians, dentists and teaching
hospitals. It is difficult to predict how the new requirements may impact existing relationships among
manufacturers, distributors, physicians, dentists and teaching hospitals. The Physician Payment Sunshine Act
preempts similar state reporting laws, although we or our subsidiaries may be required to continue to report under
certain of such state laws. While we expect to have adequate compliance programs and controls in place to comply
with the Physician Payment Sunshine Act requirements, our compliance with the new final rule is likely to pose
additional costs on us.

Failure to comply with existing and future regulatory requirements could adversely affect our business.

Our business is subject to requirements under various local, state, federal and international laws and regulations

applicable to the distribution of pharmaceuticals and medical devices, and human cells, tissue, and cellular and
tissue-based products, also known as HCT/P products. Among the federal laws with which we must comply are the
Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, and Section 361 of the Public
Health Services Act. Among other things, such laws, and the regulations promulgated thereunder:

•

regulate the storage and distribution, labeling, packaging, handling, reporting, record keeping,
introduction, manufacturing and marketing of drugs, HCT/P products and medical devices;

subject us to inspection by the United States Food and Drug Administration and the United States
Drug Enforcement Administration;

regulate the storage, transportation and disposal of certain of our products that are considered
hazardous materials;

require us to advertise and promote our drugs and devices in accordance with applicable United
States Food and Drug Administration requirements;

require registration with the United States Food and Drug Administration and the United States
Drug Enforcement Administration and various state agencies;

•

require record keeping and documentation of transactions involving drug products;

require us to design and operate a system to identify and report suspicious orders of controlled
substances to the United States Drug Enforcement Agency;

require us to manage returns of products that have been recalled and subject us to inspection of our
recall procedures and activities; and

impose reporting requirements if a pharmaceutical, HCT/P products or medical device causes
serious illness, injury or death.

Applicable federal, state and local laws and regulations also may require us to meet various standards relating

to, among other things, licensure or registration, sales and marketing practices, product integrity and supply
tracking to the manufacturer of the product, personnel, privacy and security of health or other personal information,
installation, maintenance and repair of equipment, and the importation and exportation of products. Our business
also is subject to requirements of similar and other foreign governmental laws and regulations affecting our
operations abroad. The United States Food and Drug Administration and United States Drug Enforcement
Administration have recently increased their regulatory and enforcement activities.

The failure to comply with any of these regulations, or new interpretations of existing laws and regulations, or

the imposition of any additional laws and regulations, could negatively affect our business. There can be no
assurance that current government regulations will not adversely affect our business. The costs to us associated
with complying with the various applicable statutes and regulations, as they now exist and as they may be modified,
could be material. Allegations by a governmental body that we have not complied with these laws could have a
material adverse impact on our businesses. If it is determined that we have not complied with these laws, we are
potentially subject to penalties including warning letters, civil and criminal penalties, mandatory recall of product,
seizure of product and injunction, and suspension or limitation of product sale and distribution. If we enter into
settlement agreements to resolve allegations of non-compliance, we could be required to make settlement payments
or be subject to civil and criminal penalties, including fines and the loss of licenses. Non-compliance with
government requirements could adversely affect our ability to participate in federal and state government health
care programs, and damage our reputation.

If we fail to comply with laws and regulations relating to health care fraud, we could suffer penalties or be
required to make significant changes to our operations, which could adversely affect our business.

We are subject to federal and state (and similar foreign) laws and regulations relating to health care fraud.
Some of these laws, referred to as “false claims laws”, prohibit the submission or causing the submission of false or
fraudulent claims for reimbursement to federal, state and other health care payers and programs. Other laws,
referred to as “anti-kickback laws”, prohibit soliciting, offering, receiving or paying remuneration in order to
induce the referral of a patient or ordering, purchasing, leasing or arranging for or recommending ordering,
purchasing or leasing, of items or services that are paid for by federal, state and other health care payers and
programs. Health care fraud measures may implicate, for example, our relationships with pharmaceutical
manufacturers, our pricing and incentive programs for physician and dental practices, and our dental and physician
practice management products that offer billing-related functionality.

The government has expressed concerns about financial relationships between suppliers on the one hand and

physicians and dentists on the other. As a result, we regularly review and revise our marketing practices as
necessary to facilitate compliance. We are now engaged in discussions with the government that may lead to
changes in certain of our marketing practices and, potentially, payments which we do not expect to be material. In
addition, under the reporting and disclosure obligations of the Physician Payment Sunshine Act provisions of the
Health Care Reform Law, by the second quarter of 2014, the general public and government officials will be
provided with new access to detailed information with regard to payments or other transfers of value to certain
practitioners (including physicians, dentists and teaching hospitals) by applicable drug and device manufacturers
subject to such reporting and disclosure obligations, which is likely to include us. This information may lead to
greater scrutiny, which may result in modifications to established practices and additional costs.

The applicable requirements have been subject to varying interpretations, as well as heightened enforcement
activity, over the past few years. Also, significant enforcement activity has been the result of actions brought by
“relators,” who file complaints in the name of the United States (and if applicable, particular states) under federal
and state false claims laws, and under the federal False Claims Act can be entitled to receive up to 30% of total
recoveries. Violations of the federal False Claims Act can result in treble damages, and each false claim submitted
can be subject to a penalty of up to $11,000 per claim. The Health Care Reform Law significantly strengthened the
federal False Claims Act and federal anti-kickback law provisions, which could lead to the possibility of increased
whistleblower or relator suits, and among other things made clear that a federal anti-kickback law violation can be a
basis for federal False Claims Act liability.

We also are subject to certain laws and regulations concerning the conduct of our foreign operations, including

Failure to comply with health care fraud laws and regulations could result in significant civil and criminal

penalties and costs, including the loss of licenses and the ability to participate in federal and state health care
programs, and could have a material adverse impact on our business. Also, these laws may be interpreted or
applied by a prosecutorial, regulatory or judicial authority in a manner that could require us to make changes in our
operations or incur substantial defense and settlement expenses. Even unsuccessful challenges by regulatory
authorities or private relators could result in reputational harm and the incurring of substantial costs. In addition,
many of these laws are vague or indefinite and have not been interpreted by the courts, and have been subject to
frequent modification and varied interpretation by prosecutorial, regulatory authorities, increasing compliance risks.

While we believe that we are substantially compliant with the foregoing laws and regulations promulgated
thereunder, and have adequate compliance programs and controls in place to ensure substantial compliance, we
cannot predict whether changes in applicable law, or interpretation of laws, or changes in our services or marketing
practices in response, could adversely affect our business.

If we fail to comply with laws and regulations relating to the confidentiality of sensitive personal
information or standards in electronic health data transmissions, we could be required to make
significant changes to our products, or incur penalties or other liabilities.

State, federal and foreign laws, such as the federal Health Insurance Portability and Accountability Act of 1996,

regulate the confidentiality of sensitive personal information and the circumstances under which such information
may be released. These measures may govern the disclosure and use of personal and patient medical record
information and may require users of such information to implement specified security measures, and to notify
individuals in the event of privacy and security breaches. Evolving laws and regulations in this area could restrict
the ability of our customers to obtain, use or disseminate patient information, or could require us to incur significant
additional costs to re-design our products in a timely manner to reflect these legal requirements, either of which
could have an adverse impact on our results of operations. Other health information standards, such as regulations
under HIPAA, establish standards regarding electronic health data transmissions and transaction code set rules for
specified electronic transactions, for example transactions involving claims submissions to third party payers.
These also continue to evolve and are often unclear and difficult to apply. In addition, under the federal Health
Information Technology for Economic and Clinical Health Act (“HITECH Act”), which was passed in 2009, some
of our businesses that were previously only indirectly subject to federal HIPAA privacy and security rules became
directly subject to such rules because the businesses serve as “business associates” to our customers. On January
17, 2013, the Office for Civil Rights of the Department of Health and Human Services released a final rule
implementing the HITECH Act and making certain other changes to HIPAA privacy and security requirements.
Compliance with the rule is required by September 23, 2013, and will increase the requirements applicable to some
of our businesses. Failure to maintain the confidentiality of sensitive personal information in accordance with the
applicable regulatory requirements, or to abide by electronic health data transmission standards, could expose us to
breach of contract claims, fines and penalties, costs for remediation and harm to our reputation.

Our global operations are subject to inherent risks that could adversely affect our operating results.

Global operations are subject to risks that may materially adversely affect our business, results of operations

and financial condition. The risks that our global operations are subject to include, among other things:

•

difficulties and costs relating to staffing and managing foreign operations;

•

difficulties in establishing channels of distribution;

fluctuations in the value of foreign currencies;

longer payment cycles of foreign customers and difficulty of collecting receivables in foreign
jurisdictions;

repatriation of cash from our foreign operations to the United States;

regulatory requirements;

anti-bribery, anti-corruption and laws pertaining to the accuracy of our internal books and records;

unexpected difficulties in importing or exporting our products;

imposition of import/export duties, quotas, sanctions or penalties;

difficulties and delays inherent in sourcing products and contract manufacturing in foreign markets;

limitations on our ability under local laws to protect our intellectual property;

unexpected regulatory, legal, economic and political changes in foreign markets;

civil disturbances, geopolitical turmoil, including terrorism, war or political or military coups; and

public health emergencies.

Our expansion through acquisitions and joint ventures involves risks.

We have expanded our domestic and international markets in part through acquisitions and joint ventures, and

we expect to continue to make acquisitions and enter into joint ventures in the future. Such transactions involve
numerous risks, including possible adverse effects on our operating results or the market price of our common
stock. Some of our acquisitions and future acquisitions may also give rise to an obligation by us to make
contingent payments or to satisfy certain repurchase obligations, which payments could have an adverse effect on
our results of operations. In addition, integrating acquired businesses and joint ventures:

• may result in a loss of customers or product lines of the acquired businesses or joint ventures;

•

requires significant management attention;

• may place significant demands on our operations, information systems and financial resources; and

•

results in additional acquisition and integration expenses.

There can be no assurance that our future acquisitions or joint ventures will be successful. Our ability to

continue to successfully effect acquisitions and joint ventures will depend upon the following:

•

the availability of suitable acquisition or joint venture candidates at acceptable prices;

our ability to consummate such transactions, which could potentially be prohibited due to U.S. or
foreign antitrust regulations;

the availability of financing on acceptable terms, in the case of non-stock transactions; and

the liquidity of our investments and our ability to raise capital could be affected by the financial
credit markets.

Our acquisitions may not result in the benefits and revenue growth we expect.

We are in the process of integrating companies that we acquired and including the operations, services,

products and personnel of each company within our management policies, procedures and strategies. We cannot be
sure that we will achieve the benefits of revenue growth that we expect from these acquisitions or that we will not
incur unforeseen additional costs or expenses in connection with these acquisitions. To effectively manage our
expected future growth, we must continue to successfully manage our integration of these companies and continue
to improve our operational systems, internal procedures, working capital management, and financial and
operational controls. If we fail in any of these areas, our business could be adversely affected.

We face inherent risk of exposure to product liability and other claims in the event that the use of the products
we sell results in injury.

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 products,
medical devices, bone regeneration and other health care products. Additionally, we own interests in companies
that manufacture certain dental products. As a result, we are subject to the potential risk of product liability or other
claims relating to the manufacture and distribution of products by those entities. One of the potential risks we face
in the distribution of our products is liability resulting from counterfeit or tainted products infiltrating the supply
chain. In addition, some of the products that we transport and sell are considered hazardous materials. The
improper handling of such materials or accidents involving the transportation of such materials could subject us to
liability. We have various insurance policies, including product liability insurance, covering risks and in amounts
that we consider adequate. In many cases in which we have been sued in connection with products manufactured
by others, the manufacturer of the product 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. A successful claim brought against us in
excess of available insurance or not covered by indemnification agreements, or any claim that results in significant
adverse publicity against us, could have an adverse effect on our business and our reputation.

Our technology segment depends upon continued software and e-services product development, technical
support and successful marketing.

Competition among companies supplying practice management software and/or e-services is intense and
increasing. Our future sales of practice management software and e-services will depend on, among other factors:

•

the effectiveness of our sales and marketing programs;

our ability to enhance our products and services to satisfy customer requirements; and

our ability to provide ongoing technical support.

We cannot be sure that we will be successful in introducing and marketing new software, software

enhancements or e-services, or that such software, software enhancements and e-services will be released on time or
accepted by the market. Our software and applicable e-services products, like software products generally, may
contain undetected errors or bugs when introduced or as new versions are released. We cannot be sure that future
problems with post-release software errors or bugs will not occur. Any such defective software may result in
increased expenses related to the software and could adversely affect our relationships with the customers using
such software. We do not have any patents on our software or e-services, and rely upon copyright, trademark and
trade secret laws, as well as contractual and common law protections. We cannot provide assurance that such legal
protections will be available or enforceable to protect our software or e-services products.

We may not be able to respond to technological change effectively.

Traditional health care supply and distribution relationships are being challenged by electronic online

commerce solutions. Our distribution business is characterized by rapid technological developments and intense
competition. The continued advancement of online commerce will require us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a variety of new services to address
changing demands of consumers and our clients on a timely basis, particularly in response to competitive offerings.
Our inability to anticipate and effectively respond to changes on a timely basis could have an adverse effect on our
business.

Cyber-security risks generally associated with our information systems and our technology products and services
could adversely affect our results of operations.

We rely on information systems (IS) in our business to obtain, rapidly process, analyze and manage data to,

among other things:

• maintain and manage worldwide systems to facilitate the purchase and distribution of thousands of

inventory items from numerous distribution centers;

•

receive, process and ship orders on a timely basis;

• manage the accurate billing and collections for thousands of customers;

•

process payments to suppliers; and

• maintain certain of our customers’ electronic medical records.

A cyber-attack that bypasses our IS security systems causing an IS security breach may lead to a material
disruption of our IS business systems and/or the loss of business information resulting in adverse business impact.
Risks may include, among other things:

•

future results could be adversely affected due to the theft, destruction, loss, misappropriation or
release of confidential data or intellectual property;

operational or business delays resulting from the disruption of IS systems and subsequent clean-up
and mitigation activities; and

negative publicity resulting in reputation or brand damage with our customers, partners or industry
peers.

Our results of operations could be adversely affected if our IS systems are interrupted, damaged by unforeseen

events, cyber-attacks or fail for any extended period of time.

We develop products and provide services to our customers that are technology-based. A cyber-attack that

bypasses the security systems of our products or services causing a security breach and/or perceived security
vulnerabilities in our products or services could cause significant reputational harm. Actual or perceived
vulnerabilities may lead to claims against us by our customers and/or governmental agencies. Although our
customer license agreements typically contain provisions that eliminate or limit our exposure to such liability, there
is no assurance these provisions will withstand all legal challenges.

Failure to maintain the confidentiality of sensitive customer data in accordance with applicable regulatory
requirements, or to abide by electronic health data transmission standards, could also expose us to claims, fines and
penalties and costs for remediation. Additionally, legislative or regulatory action related to cyber-security may
increase our costs to develop or implement new technology products and services.

We have various insurance policies, including cyber liability insurance, covering risks and in amounts that we

consider adequate. 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. Successful claims for misappropriation or release of
confidential or personal data brought against us in excess of available insurance or fines or other penalties assessed
or any claim that results in significant adverse publicity against us, could have an adverse effect on our business and
our reputation.

Certain provisions in our governing documents and other documents to which we are a party may discourage
third-party offers to acquire us that might otherwise result in our stockholders receiving a premium over the
market price of their shares.

The provisions of our certificate of incorporation and by-laws may make it more difficult for a third party to
acquire us, may discourage acquisition bids and may limit the price that certain investors might be willing to pay in
the future for shares of our common stock. These provisions, among other things:

•

require the affirmative vote of the holders of at least 60% of the shares of common stock entitled to
vote to approve a merger, consolidation, or a sale, lease, transfer or exchange of all or substantially
all of our assets; and

require the affirmative vote of the holders of at least 66 2/3% of our common stock entitled to vote
to (i) remove a director; and (ii) to amend or repeal our by-laws, with certain limited exceptions.

In addition, our 1994 Stock Incentive Plan and 1996 Non-Employee Director Stock Incentive Plan provide for
accelerated vesting of stock options upon a change in control. These incentive plans also authorize the committee
under the plans to provide for accelerated vesting of other types of equity awards in connection with a change in
control at grant or thereafter, and certain other awards made under these incentive plans (such as restricted stock
and restricted stock unit awards) accelerate upon a change in control or upon certain termination events in
connection with a change in control. Further, certain agreements between us and our executive officers provide for
increased severance payments and certain benefits if those executive officers are terminated without cause by us or
if they terminate for good reason in each case, within two years after a change in control or within ninety days prior
to the effective date of the change in control or after the first public announcement of the pendency of the change in
control.

Tax legislation initiatives could adversely affect our net earnings and tax liabilities.

We are subject to the tax laws and regulations of the United States federal, state and local governments, as well

as foreign jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely
affect our tax positions. There can be no assurance that our effective tax rate will not be adversely affected by these
initiatives. In addition, tax laws and regulations are extremely complex and subject to varying interpretations.
Although we believe that our historical tax positions are sound and consistent with applicable laws, regulations and
existing precedent, there can be no assurance that our tax positions will not be challenged by relevant tax authorities
or that we would be successful in any such challenge.

Item 1B. Unresolved Staff Comments

We have no unresolved comments from the staff of the SEC that were issued 180 days or more preceding the

end of our 2012 fiscal year.

ITEM 2. Properties

We own or lease the following properties with more than 100,000 square feet:

Property

Corporate Headquarters ........................................

Location

Melville, NY

Office and Distribution Center .............................

Lyssach, Switzerland

Office and Distribution Center .............................

Tours, France

Office and Distribution Center ............................. Niagara on the Lake, Canada

Office and Distribution Center .............................

Bastian, VA

Office and Distribution Center .............................

West Allis, WI

Office and Distribution Center ............................. Gillingham, United Kingdom

Office and Distribution Center .............................

Cuijk, Netherlands

Distribution Center ...............................................

Denver, PA

Distribution Center ...............................................

Indianapolis, IN

Distribution Center ...............................................

Sparks, NV

Distribution Center ...............................................

Indianapolis, IN

Distribution Center ...............................................

Grapevine, TX

Distribution Center ...............................................

Gallin, Germany

Distribution Center ...............................................

Jacksonville, FL

Own or
Lease

Lease

Own

Lease

Own

Lease

Own

Lease

Own

Lease

Own

Lease

Approximate
Square Footage

Lease Expiration

185,000

105,000

180,000

161,000

Date

July 2020

N/A

July 2016

N/A

128,000

September 2021

108,000

N/A

106,000

October 2017

103,000

101,000

April 2020

May 2022

624,000

December 2021

380,000

February 2019

370,000

December 2016

287,000

242,000

215,000

N/A

July 2018

N/A

212,000

February 2019

The properties listed in the table above are our principal properties primarily used by our health care

distribution segment. In addition, we lease numerous other distribution, office, showroom, manufacturing and sales
space in locations including the United States, Australia, Austria, Belgium, Canada, China, the Czech Republic,
France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Luxembourg, Mauritius, the Netherlands, New Zealand,
Portugal, Slovakia, Spain, Switzerland, Thailand, Turkey and the United Kingdom.

We believe that our properties are in good condition, are well maintained and are suitable and adequate to carry

on our business. We have additional operating capacity at certain distribution center facilities.

ITEM 3. Legal Proceedings

From time to time, we may become a party to legal proceedings, including, without limitation, product liability

claims, employment matters, commercial disputes, governmental inquiries and investigations and other matters
arising out of the ordinary course of our business. In our opinion, pending matters will not have a material adverse
effect on our financial condition or results of operations.

As of December 29, 2012, we had accrued our best estimate of potential losses relating to product liability and

other claims that were probable to result in a liability and for which we were able to reasonably estimate a loss.
This accrued amount, as well as related expenses, 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 probable recoveries from third parties.

ITEM 4. Mine Safety Disclosures

Not applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

Our common stock is traded on the NASDAQ Global Select Market tier of the NASDAQ Stock Market, or

NASDAQ, under the symbol HSIC. On October 2, 2007, our common stock became a component of the
NASDAQ-100 stock market index. The following table sets forth, for the periods indicated, the high and low
reported sales prices of our common stock as reported on NASDAQ for each quarterly period in fiscal 2012 and
2011:

Fiscal 2012:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................

Fiscal 2011:
1st Quarter ......................................................................................................... $
2nd Quarter ........................................................................................................
3rd Quarter .........................................................................................................
4th Quarter .........................................................................................................

High

Low

77.05 $
80.38
80.75
82.91

69.98 $
74.48
74.98
71.13

64.74
71.97
72.84
73.35

61.26
67.21
58.50
58.56

On February 4, 2013, there were approximately 508 holders of record of our common stock and the last

reported sales price was $87.14.

Purchases of Equity Securities by the Issuer

Our current share repurchase program, announced on June 21, 2004, originally allowed us to repurchase up to
$100 million of shares of our common stock, which represented approximately 3.5% of the shares outstanding at
the commencement of the program. As summarized in the table below, subsequent additional increases totaling $1
billion, authorized by our Board of Directors, to the repurchase program provide for a total of $1.1 billion of shares
of our common stock to be repurchased under this program.

Date of

Amount of Additional

Authorization

Repurchases Authorized

October 31, 2005

March 28, 2007

November 16, 2010

August 18, 2011

April 18, 2012

November 12, 2012

100,000,000

200,000,000

300,000,000

As of December 29, 2012, we had repurchased $799.9 million of common stock (13,756,063 shares) under

these initiatives, with $300.1 million available for future common stock share repurchases.

The following table summarizes repurchases of our common stock under our stock repurchase program during

the fiscal quarter ended December 29, 2012:

Total

Number

of Shares

Fiscal Month

Purchased (1)

09/30/12 through 11/03/12

11/04/12 through 12/01/12

12/02/12 through 12/29/12

281,428

230,700

546,899

1,059,027

Average

Price Paid

Per Share

77.50

78.00

81.16

Total Number
of Shares
Purchased as Part

Maximum Number

of Shares

that May Yet

of Our Publicly

Be Purchased Under

Announced Program
281,428
230,700
546,899
1,059,027

Our Program (2)

838,904

4,265,239

3,753,319

(1) All repurchases were executed in the open market under our existing publicly announced authorized program.

(2)

The maximum number of shares that may yet be purchased under this program is determined at the end of each month based on the
closing price of our common stock at that time.

Dividend Policy

We have not declared any cash or stock dividends on our common stock during fiscal years 2012 or 2011. We

currently do not anticipate declaring any cash or stock 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.

Stock Performance Graph

The graph below compares the cumulative total stockholder return on $100 invested, assuming the reinvestment

of all dividends, on December 29, 2007, the last trading day before the beginning of our 2008 fiscal year, through
the end of fiscal 2012 with the cumulative total return on $100 invested for the same period in the Dow Jones U.S.
Health Care Index and the NASDAQ Stock Market Composite Index.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

$135

$125

$115

$105

$95

$85

$75

$65

$55

December 2007

December 2008

December 2009

December 2010

December 2011

December 2012

Henry Schein, Inc.

Dow Jones US Health Care Index

NASDAQ Composite Index

ASSUMES $100 INVESTED ON DECEMBER 29, 2007
ASSUMES DIVIDENDS REINVESTED

December 29, December 27, December 26, December 25, December 31, December 29,

2007

2008

2009

2010

2011

2012

Henry Schein, Inc. .......................... $

100.00 $

57.02 $

85.43 $

100.18 $

103.84 $

128.86

Dow Jones U.S. Health

Care Index ...................................

100.00

74.56

94.05

98.01

108.79

128.17

NASDAQ Stock Market

Composite Index .........................

100.00

58.03

87.57

103.20

101.92

117.65

ITEM 6. 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 29, 2012, 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.”

December 29,

December 31,

December 25,

December 26, December 27,

Years ended

2012

2011

2010
(in thousands, except per share data)

2009

2008

Income Statement Data:

Net sales ......................................................................... $

8,939,967 $

8,530,242 $

7,526,790 $

6,538,336 $

6,380,413

Gross profit .....................................................................

Selling, general and administrative expenses ................

Restructuring costs (1) ...................................................

Operating income ...........................................................

Other expense, net ..........................................................

Income from continuing operations before taxes

and equity in earnings of affiliates .............................

Income taxes ...................................................................

Equity in earnings of affiliates .......................................

Income from continuing operations ...............................

Income (loss) from discontinued

2,507,513

1,873,360

15,192

618,961

(14,773)

604,188

(187,858)

7,058

423,388

2,418,055

1,835,906

582,149

(12,842)

569,307

(180,212)

15,561

404,656

2,170,876

1,637,460

12,285

521,131

(19,096)

502,035

(160,069)

10,165

352,131

operations, net of tax (2) ............................................

Net income .....................................................................

423,388

404,656

352,131

1,916,820

1,449,715

3,020

464,085

(11,365)

452,720

(127,521)

5,243

330,442

2,715

333,157

Less: Net income attributable to

noncontrolling interests

(35,312)

(36,995)

(26,342)

(22,004)

Net income attributable to Henry Schein, Inc. .............. $

388,076 $

367,661 $

325,789 $

311,153 $

1,874,295

1,431,769

23,240

419,286

(23,837)

395,449

(131,210)

5,037

269,276

(7,902)

261,374

(21,917)

239,457

Amounts attributable to Henry Schein, Inc.:

Income from continuing operations ............................. $

388,076 $

367,661 $

325,789 $

308,551 $

247,347

Income (loss) from discontinued

operations, net of tax .................................................

2,602

Net income ................................................................... $

388,076 $

367,661 $

325,789 $

311,153 $

Earnings (loss) per share attributable to

Henry Schein, Inc.:

From continuing operations:
Basic ........................................................................... $

Diluted ........................................................................

From discontinued operations:

Basic ............................................................................ $

Diluted .........................................................................

From net income:

Basic ............................................................................ $

Diluted .........................................................................

Weighted-average common shares outstanding:

4.44 $

4.32

- $

4.44 $

4.32

4.08 $

3.97

- $

4.08 $

3.97

3.62 $

3.49

- $

3.62 $

3.49

3.47 $

3.41

0.03 $

0.03

3.50 $

3.44

(7,890)

239,457

2.78

2.71

(0.09)

(0.08)

2.69

2.63

Basic ............................................................................

Diluted .........................................................................

87,499

89,823

90,120

92,620

90,097

93,268

88,872

90,556

89,080

91,221

December 29,

December 31,

December 25,

2012

2011

2010

December 26,
2009

December 27,

2008

Years ended

(in thousands)

Net Sales by Market Data:
Health care distribution (3):

Dental ............................................................... .$

Medical ............................................................. .

Animal health ................................................... .

Total health care distribution ........................ .

Technology and value-added services (4) .......... .

4,774,482 $
1,560,921
2,321,151
8,656,554
283,413

4,764,898 $
1,504,454
2,010,270
8,279,622
250,620

4,415,469 $
1,373,999
1,537,370
7,326,838
199,952

4,177,101 $
1,312,750
875,277
6,365,128
173,208

4,154,072

1,271,289

791,763

6,217,124

163,289

Total .............................................................. .$

8,939,967 $

8,530,242 $

7,526,790 $

6,538,336 $

6,380,413

December 29,

December 31,

December 25,

2012

2011

2010

December 26,
2009

December 27,

2008

As of

(in thousands)

Balance Sheet data:

Total assets .......................................................... .$

Long-term debt .................................................... .

Redeemable noncontrolling interests .................. .

Stockholders' equity ............................................ .

5,333,997 $
488,121
435,175
2,615,864

4,740,144 $
363,524
402,050
2,433,623

4,547,471 $
395,309
304,140
2,412,957

3,835,985 $
243,373
178,570
2,161,508

3,599,210

256,648

233,035

1,772,354

(1) Restructuring costs for the year ended December 29, 2012 consist primarily of severance costs, including severance pay and benefits
of $12.8 million and facility closing costs of $2.4 million. Restructuring costs for the year ended December 25, 2010 consist
primarily of severance costs, including severance pay and benefits of $8.9 million and facility closing costs of $3.4 million.
Restructuring costs for the year ended December 26, 2009 consist primarily of employee severance costs, including severance pay
and benefits of $1.5 million and facility closing costs of $1.5 million. Restructuring costs for the year ended December 27, 2008
consist primarily of employee severance costs, including severance pay and benefits of $19.4 million and facility closing costs of
$3.8 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Plans of
Restructuring” herein and the consolidated financial statements and related notes contained in ITEM 8.

(2) On August 5, 2009, we completed the sale of a wholesaler of dental consumables for aggregate consideration of $14.2 million, of
which $13.2 million had been received as of December 26, 2009. As a result of this sale, included in operating results from
discontinued operations for 2009 is a net gain, net of tax, of $2.6 million or $0.03 per diluted share.

During the fourth quarter of 2008, included in operating results from discontinued operations, we recorded an impairment charge of
$11.2 million ($7.3 million, net of tax), or $0.08 per diluted share, related to the exit from our wholesale ultrasound business.

(3) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and

generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

(4) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

and financial and other services, including e-services and continuing education services for practitioners.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

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 that, 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.

Risk factors and uncertainties that could cause actual results to differ materially from current and historical

results include, but are not limited to: effects of a highly competitive market; our dependence on third parties for
the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and
manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion
of customer purchasing power and multi-tiered costing structures; possible increases in the cost of shipping our
products or other service issues with our third-party shippers; general global macro-economic conditions;
disruptions in financial markets; possible volatility of the market price of our common stock; changes in the health
care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy
laws; risks associated with our global operations; transitional challenges associated with acquisitions and joint
ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions and joint
ventures; litigation risks; the dependence on our continued product development, technical support and successful
marketing in the technology segment; risks from rapid technological change; risks from disruption to our
information systems; certain provisions in our governing documents that may discourage third-party acquisitions of
us; and changes in tax legislation. 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, any forward-looking statements contained herein should not be relied upon as a
prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements.

Executive-Level Overview

We are headquartered in Melville, New York, employ more than 15,000 people (of which nearly 7,000 are

We have established strategically located distribution centers to enable us to better serve our customers and

increase our operating efficiency. This infrastructure, together with broad product and service offerings at
competitive prices, and a strong commitment to customer service, enables us to be a single source of supply for our
customers’ needs. Our infrastructure also allows us to provide convenient ordering and rapid, accurate and
complete order fulfillment.

We conduct our business through two reportable segments: health care distribution and technology and value-
added services. These segments offer different products and services to the same customer base. The health care
distribution reportable segment aggregates our global dental, medical and animal health operating segments. This
segment consists of consumable products, small equipment, laboratory products, large equipment, equipment repair
services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control
products and vitamins.

Our global dental group serves office-based dental practitioners, schools and other institutions. Our global
medical group serves office-based medical practitioners, ambulatory surgery centers, other alternate-care settings
and other institutions. Our global animal health group serves animal health practices and clinics. Our global
technology and value-added services group provides software, technology and other value-added services to health
care practitioners. Our technology group offerings include practice management software systems for dental and
medical practitioners and animal health clinics. Our value-added practice solutions include financial services on a
non-recourse basis, e-services, practice technology, network and hardware services, plus continuing education
services for practitioners.

Industry Overview

In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited

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

Our current and future results have been and could be impacted by the current economic environment and

uncertainty, particularly impacting overall demand for our products and services.

Industry Consolidation

The trend of consolidation extends to our customer base. Health care practitioners are increasingly seeking to

partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician
hospital organizations. In many cases, purchasing decisions for consolidated groups are made at a centralized or
professional staff level; however orders are delivered to the practitioners’ offices.

We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking to combine with larger companies that can
provide growth opportunities. This consolidation also may continue to result in distributors seeking to acquire
companies that can enhance their current product and service offerings or provide opportunities to serve a broader
customer base.

Our trend with regard to acquisitions and joint ventures has been to expand our role as a provider of products
and services to the health care industry. This trend has resulted in our expansion into service areas that complement
our existing operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired
businesses.

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. We also have invested in
expanding our sales/marketing infrastructure to include a focus on building relationships with decision makers who
do not reside in the office-based practitioner setting.

As the health care industry continues to change, we continually evaluate possible candidates for merger and
joint venture or acquisition and intend to continue to seek opportunities to expand our role as a provider of products
and services to the health care 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 merger and/or 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

According to the U.S. Census Bureau’s International Data Base, in 2012 there were more than five million
Americans aged 85 years or older, the segment of the population most in need of long-term care and elder-care
services. By the year 2050, that number is projected to more than triple to approximately 19 million. The
population aged 65 to 84 years is projected to increase over 85% during the same time period.

As a result of these market dynamics, annual expenditures for health care services continue to increase in the
United States. Given current operating, economic and industry conditions, we believe that demand for our products
and services will grow at slower rates. The Centers for Medicare and Medicaid Services, or CMS, published
“National Health Expenditure Projections 2011-2021” indicating that total national health care spending reached
approximately $2.7 trillion in 2011, or 17.9% of the nation’s gross domestic product, the benchmark measure for
annual production of goods and services in the United States. Health care spending is projected to reach
approximately $4.8 trillion in 2021, approximately 19.6% of the nation’s gross domestic product.

Government

Certain of our businesses involve the distribution of pharmaceuticals and medical devices, and in this regard we

are subject to extensive local, state, federal and foreign governmental laws and regulations applicable to the
distribution of pharmaceuticals and medical devices. Additionally, government and private insurance programs
fund a large portion of the total cost of medical care. Many of these laws and regulations are subject to change and
may impact our financial performance.

Health Care Reform

For example, the Patient Protection and Affordable Care Act as amended by the Health Care and Education

Reconciliation Act, each enacted in March 2010, generally known as the Health Care Reform Law, increased
federal oversight of private health insurance plans and included a number of provisions designed to reduce
Medicare expenditures and the cost of health care generally, to reduce fraud and abuse, and to provide access to
increased health coverage. The Health Care Reform Law requirements include, for example a 2.3% excise tax on
domestic sales of medical devices by manufacturers and importers beginning in 2013, and a fee on branded
prescription drugs and biologics that was implemented in 2011, both of which may affect sales. On June 28, 2012,
the United States Supreme Court upheld as constitutional a key provision in the Health Care Reform Law, often
referred to as the “individual mandate,” which requires individuals without health insurance to pay a penalty.
However, the decision also invalidated a provision in the Health Care Reform Law requiring states to expand their
Medicaid programs or risk the complete loss of all federal Medicaid funding. The Court held that the federal
government may offer states the option of accepting the expansion requirement, but that it may not take away pre-
existing Medicaid funds in order to coerce states into complying with the expansion. A number of states have
indicated a reluctance to accept the Medicaid expansion, so the full extent of increased health care coverage under
the Health Care Reform Law is uncertain.

A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act, imposed

Health Care Fraud

Certain of our businesses are subject to federal and state (and similar foreign) health care fraud and abuse,
referral and reimbursement laws, and regulations with respect to their operations. Some of these laws, referred to
as “false claims laws” prohibit the submission or causing the submission of false or fraudulent claims for
reimbursement to federal, state and other health care payers and programs. Other laws, referred to as “anti-
kickback laws”, prohibit soliciting, offering, receiving or paying remuneration in order to induce the referral of a
patient or ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing, of items
or services that are paid for by federal, state and other health care payers and programs.

The government has expressed concerns about financial relationships between suppliers on the one hand and

physicians and dentists on the other. As a result, we regularly review and revise our marketing practices as
necessary to facilitate compliance. In addition, under the reporting and disclosure obligations of the Physician
Payment Sunshine Act provisions of the Patient Protection and Affordable Care Act as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010, generally known as the “Health Care Reform
Law,” discussed in more detail in Health Care Reform, above, by the second quarter of 2014, the general public and
government officials will be provided with new access to detailed information with regard to payments or other
transfers of value to certain practitioners (including physicians, dentists and teaching hospitals) by applicable drug
and device manufacturers subject to such reporting and disclosure obligations, which is likely to include us. This
information may lead to greater scrutiny, which may result in modifications to established practices and additional
costs.

We also are subject to certain laws and regulations concerning the conduct of our foreign operations, including

Operating and Security Standards

At the federal level, the Federal Food, Drug, and Cosmetic Act, or FDC Act, requires certain wholesalers to

provide a drug pedigree for each wholesale distribution of prescription drugs, which includes an identifying
statement that records the chain of ownership of a prescription drug. Currently, the United States Food and Drug
Administration, in exercise of its enforcement discretion, requires these wholesalers to maintain drug pedigrees that
include transaction dates, names and addresses regarding transactions going back to either the manufacturer or the
last authorized distributor of record that handled the drugs. The United States Food and Drug Administration, or
FDA, has continued to develop its policies regarding the integrity of the supply chain, such as by issuing a Final
Guidance in 2010 regarding standardized numerical identification for prescription drug packages, and by issuing a
proposed rule in 2012 for a unique medical device identification system.

Many states have implemented or are considering similar drug pedigree laws and regulations. There have been
increasing efforts by various levels of government, including state departments of health, state boards of pharmacy
and comparable agencies, to regulate the pharmaceutical distribution system in order to prevent the introduction of
counterfeit, adulterated or mislabeled pharmaceuticals into the distribution system. A number of states, including
Florida, have already implemented pedigree requirements, including drug tracking requirements, which are
intended to protect the integrity of the pharmaceutical distribution system. California has enacted a statute that,
beginning in 2015, will require manufacturers to identify each package of a prescription pharmaceutical with a
standard, machine-readable unique numerical identifier, and will require manufacturers and distributors to
participate in an electronic track-and-trace system and provide or receive an electronic pedigree for each transaction
in the drug distribution chain. The law will take effect on a staggered basis, commencing on January 1, 2015 for
pharmaceutical manufacturers, and July 1, 2016 for pharmaceutical wholesalers and repackagers. Other states have
passed or are reviewing similar requirements. Bills have been proposed in Congress that would impose similar
requirements at the federal level.

The Combat Methamphetamine Enhancement Act of 2010, which became effective in April 2011, requires

retail sellers of products containing certain chemicals, such as pseudoephedrine, to self-certify to the Drug
Enforcement Administration (“DEA”) that they understand and agree to comply with the laws and regulations
regarding such sales. The law also prohibits distributors from selling these products to retailers who are not
registered with the DEA or who have not self-certified compliance with the laws and regulations. Various states
also impose restrictions on the sale of certain products containing pseudoephedrine and other chemicals. The
Secure and Responsible Drug Disposal Act of 2010, signed by President Obama in October 2010, is intended to
allow patients to deliver unused controlled substances to designated entities to more easily and safely dispose of
controlled substances while reducing the chance of diversion. The law authorizes the DEA to promulgate
regulations to allow, but not require, designated entities to receive unused controlled substances.

Regulated Software; Electronic Health Records

The FDA has become increasingly active in addressing the regulation of computer software intended for use in

health care settings, and has been developing policies on regulating clinical decision support tools as medical
devices. Certain of our businesses involve the development and sale of software and related products to support
physician and dental practice management, and it is possible that the FDA could determine that one or more of our
products is a medical device, which could subject us or one or more of our businesses to substantial additional
requirements with respect to these products.

Certain of our businesses involve access to personal health, medical, financial and other information of

individuals, and are accordingly directly or indirectly subject to numerous federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, such as the privacy and security provisions of
the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations
(“HIPAA”). HIPAA requires, among other things, the implementation of various recordkeeping, operational,
notice and other practices intended to safeguard that information, limit its use to allowed purposes, and notify
individuals in the event of privacy and security breaches. Failure to comply with these laws and regulations can
result in substantial penalties and other liabilities. As a result of the federal Health Information Technology for
Economic and Clinical Health Act (“HITECH Act”), which was enacted in 2009, some of our businesses that were
previously only indirectly affected by federal HIPAA privacy and security rules became directly subject to such
rules because such businesses serve as “business associates” of HIPAA covered entities, such as health care
providers. On January 17, 2013, the Office for Civil Rights of the Department of Health and Human Services
released a final rule implementing the HITECH Act and making certain other changes to HIPAA privacy and
security requirements. Compliance with the rule is required by September 23, 2013, and will increase the
requirements applicable to some of our businesses.

In addition, federal initiatives, including in particular the HITECH Act, are providing a program of incentive

payments available to certain health care providers involving the adoption and use of certain electronic health care
records systems and processes. The HITECH initiative includes providing, among others, physicians and dentists,
with financial incentives if they meaningfully use certified electronic health record technology (“EHR”). Also,
eligible providers that fail to adopt certified EHR systems may be subject to Medicare reimbursement reductions
beginning in 2015. Qualification for the incentive payments requires the use of EHRs that are certified as having
certain capabilities for meaningful use pursuant to standards adopted by the Department of Health and Human
Services. Initial (“stage one”) standards addressed criteria for periods beginning in 2011. CMS has also issued a
final rule with “stage two” criteria for periods beginning in 2014, which are more demanding, and new,
incrementally more rigorous criteria are expected to be issued for stage “three” compliance, however final
standards have not yet been issued and so these criteria are not yet certain. Certain of our businesses involve the
manufacture and sale of certified EHR systems, and other products linked to incentive programs, and so must
maintain compliance with these evolving governmental criteria.

Also, HIPAA requires certain health care providers, such as physicians, to use certain transaction and code set
rules for specified electronic transactions, such as transactions involving claims submissions. Commencing July 1,
2012, CMS required that electronic claim submissions and related electronic transactions be conducted under a new
HIPAA transaction standard, called Version 5010. CMS has required this upgrade in connection with another new
requirement applicable to the industry, the implementation of new diagnostic code sets to be used in claims
submission. The new diagnostic code sets are called the ICD-10-CM. They were originally to be implemented on
October 1, 2013, but CMS recently issued a final rule that extended the implementation date until October 1, 2014.
Certain of our businesses provide electronic practice management products that must meet those requirements, and
while we believe that we are prepared to timely adopt the new standards, it is possible that the transition to these
new standards, particularly the transition to ICD-10-CM, may result in a degree of disruption and confusion, thus
potentially increasing the costs associated with supporting this product.

There may be additional legislative initiatives in the future impacting health care.

E-Commerce

Electronic commerce solutions have become an integral part of traditional health care supply and distribution

relationships. Our distribution business is characterized by rapid technological developments and intense
competition. The continuing advancement of online commerce requires us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a variety of new services to address the
changing demands of consumers and our customers on a timely basis, 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, our name recognition and large customer base built
on solid customer relationships position us well to participate in this significant aspect of the distribution business.
We continue to explore ways and means to improve and expand our Internet presence and capabilities, including
our online commerce offerings and our use of various social media outlets.

Results of Operations

The following tables summarize the significant components of our operating results and cash flows for each of

the three years ended December 29, 2012, December 31, 2011 and December 25, 2010 (in thousands):

Years Ended
December 29, December 31,

December 25,

2012

2011

2010

Operating results:
Net sales .................................................................................................. $
Cost of sales ............................................................................................
Gross profit .........................................................................................
Operating expenses:
Selling, general and administrative .....................................................
Restructuring costs ..............................................................................
Operating income ........................................................................... $

8,939,967 $
6,432,454
2,507,513

8,530,242 $
6,112,187
2,418,055

1,873,360
15,192
618,961 $

1,835,906
-
582,149 $

7,526,790
5,355,914
2,170,876

1,637,460
12,285
521,131

Other expense, net ................................................................................... $
Net income ..............................................................................................
Net income attributable to Henry Schein, Inc. ........................................

(14,773) $
423,388
388,076

(12,842) $
404,656
367,661

(19,096)
352,131
325,789

Years Ended
December 29, December 31,

December 25,

2012

2011

2010

Cash flows:
Net cash provided by operating activities ............................................... $
Net cash used in investing activities ........................................................
Net cash used in financing activities .......................................................

408,099 $
(269,604)
(170,601)

554,625 $
(193,222)
(357,214)

395,480
(387,623)
(330,643)

Plans of Restructuring

During the year ended December 29, 2012, we incurred restructuring costs of approximately $15.2 million

(approximately $10.5 million after taxes) consisting of employee severance pay and benefits related to the
elimination of approximately 200 positions, facility closing costs, representing primarily lease terminations and
asset write-off costs, and outside professional and consulting fees directly related to the restructuring plan. This
restructuring program is complete and we do not expect any additional costs from this program. We expect that the
majority of these costs will be paid in 2013.

During the year ended December 25, 2010, we recorded restructuring costs of approximately $12.3 million
(approximately $8.3 million after taxes). These costs primarily consisted of employee severance pay and benefits,
facility closing costs, representing primarily lease termination and asset write-off costs, and outside professional
and consulting fees directly related to the restructuring plans. The costs associated with these restructurings are
included in a separate line item, “Restructuring costs,” within our consolidated statements of income.

2012 Compared to 2011

Net Sales

Net sales for 2012 and 2011 were as follows (in thousands):

Health care distribution (1):
Dental ...................................................... $
Medical ....................................................
Animal health ..........................................
Total health care distribution ................
Technology and value-added services (2) ......
Total ..................................................... $

2012

% of
Total

2011

% of
Total

Increase

4,774,482
1,560,921
2,321,151
8,656,554
283,413
8,939,967

53.4 % $
17.4
26.0
96.8
3.2

100.0 % $

4,764,898
1,504,454
2,010,270
8,279,622
250,620
8,530,242

55.9 % $
17.6
23.6
97.1
2.9

100.0 % $

9,584
56,467
310,881
376,932
32,793
409,725

0.2 %
3.8
15.5
4.6
13.1
4.8

(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and

generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

(2) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

and financial services, including e-services and continuing education services for practitioners.

The fiscal year ended December 29, 2012 consisted of 52 weeks as compared to the fiscal year ended

December 31, 2011, which consisted of 53 weeks.

Beginning with the first quarter of 2012, we have reported net sales and prior-year sales comparisons for each

of our global dental, medical, animal health and global technology and value-added services business groups.

This sales reporting is consistent with our global business groups as realigned in 2012. These groups were
formed to provide distinct organizational focus for reaching and serving each practitioner segment with the benefits
of a global perspective, as well as global product and service offerings and best practices.

We will continue to report financial results for our health care distribution and technology and value-added
services reportable segments. The health care distribution segment comprises three global operating segments
(dental, medical and animal health) and the technology and value-added services segment remains unchanged.

The $409.7 million, or 4.8%, increase in net sales for the year ended December 29, 2012 includes an increase of

6.7% local currency growth (5.1% increase in internally generated revenue, 1.5% decrease due to the impact from
extra week and 3.1% growth from acquisitions) as well as a decrease of 1.9% related to foreign currency exchange.

The $9.6 million, or 0.2%, increase in dental net sales for the year ended December 29, 2012 includes an
increase of 2.5% in local currencies (2.8% increase in internally generated revenue, 1.5% decrease due to the
impact from extra week and 1.2% growth from acquisitions) as well as a decrease of 2.3% related to foreign
currency exchange. The 2.5% increase in local currency sales was due to increases in dental equipment sales and
service revenues of 0.4% (3.1% decrease in internally generated revenue, 3.0% decrease due to the impact from
extra week and 0.3% growth from acquisitions) and dental consumable merchandise sales growth of 3.3% (2.7%
increase in internally generated revenue, 0.9% decrease due to the impact from extra week and 1.5% growth from
acquisitions).

The $56.5 million, or 3.8%, increase in medical net sales for the year ended December 29, 2012 includes an
increase of 4.2% local currency growth (4.8% increase in internally generated revenue, 1.5% decrease due to the
impact from extra week and 0.9% growth from acquisitions) as well as a decrease of 0.4% related to foreign
currency exchange.

The $310.9 million, or 15.5%, increase in animal health net sales for the year ended December 29, 2012
includes an increase of 17.7% local currency growth (10.2% increase in internally generated revenue, 1.6%
decrease due to the impact from extra week and 9.1% growth from acquisitions) as well as a decrease of 2.2%
related to foreign currency exchange.

The $32.8 million, or 13.1%, increase in technology and value-added services net sales for the year ended
December 29, 2012 includes an increase of 13.4% local currency growth (10.8% increase in internally generated
revenue, 1.5% decrease due to the impact from extra week and 4.1% growth from acquisitions) as well as a
decrease of 0.3% related to foreign currency exchange.

Gross Profit

Gross profit and gross margins for 2012 and 2011 by segment and in total were as follows (in thousands):

Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $

Gross

Margin %

2012
2,323,913
183,600
2,507,513

26.8 % $
64.8
28.0

2011
2,253,814
164,241
2,418,055

Gross
Margin %

27.2 % $
65.5
28.3

Increase

70,099
19,359
89,458

%
3.1 %
11.8
3.7

Gross profit increased $89.5 million, or 3.7%, for the year ended December 29, 2012 compared to the prior
year period. As a result of different practices of categorizing costs associated with distribution networks throughout
our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally,
we realize substantially higher gross margin percentages in our technology segment than in our health care
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.

Within our health care distribution segment, gross profit margins may vary from one period to the next.
Changes in the mix of products sold as well as changes in our customer mix have been the most significant drivers
affecting our gross profit margin. For example, sales of pharmaceutical products are generally at lower gross profit
margins than other products. Conversely, sales of our private label products achieve gross profit margins that are
higher than average. With respect to customer mix, sales to our large-group customers are typically completed at
lower gross margins due to the higher volumes sold as opposed to the gross margin on sales to office-based
practitioners who normally purchase lower volumes at greater frequencies.

Health care distribution gross profit increased $70.1 million, or 3.1%, for the year ended December 29, 2012

compared to the prior year period. Health care distribution gross profit margin decreased to 26.8% for the year
ended December 29, 2012 from 27.2% for the comparable prior year period. The decrease in our health care
distribution gross profit margin is primarily due to growth in sales within our animal health businesses, which
typically include a greater percentage of lower-margin pharmaceutical products than our other operating units.

Technology and value-added services gross profit increased $19.4 million, or 11.8%, for the year ended
December 29, 2012 compared to the prior year period. Technology and value-added services gross profit margin
decreased to 64.8% for the year ended December 29, 2012 from 65.5% for the comparable prior year period,
primarily due to changes in the product sales mix and from higher support costs associated with our growing
number of software and eServices customers. Revenues generated from lower than average gross margins grew at
a greater rate than traditional electronic services (e.g., claims processing) or software sales, which typically
generate higher than average gross margins.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2012 and 2011 were as follows (in

thousands):

Health care distribution ............................. $
Technology and value-added services .......
Total .................................................... $

% of
Respective
Net Sales

2012
1,767,265
106,095
1,873,360

20.4 % $
37.4
21.0

2011
1,741,720
94,186
1,835,906

% of
Respective
Net Sales

21.0 % $
37.6
21.5

Increase

25,545
11,909
37,454

%
1.5 %
12.6
2.0

Selling, general and administrative expenses increased $37.5 million, or 2.0%, for the year ended December 29,

2012 from the comparable prior year period. As a percentage of net sales, selling, general and administrative
expenses decreased to 21.0% from 21.5% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses increased $6.2 million,

or 0.5%, for the year ended December 29, 2012 from the comparable prior year period. As a percentage of net
sales, selling expenses decreased to 13.3% from 13.8% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $31.3 million, or 4.8%, for the year ended December 29, 2012 from the comparable prior year period. As
a percentage of net sales, general and administrative expenses remained constant at 7.7% when compared with the
comparable prior year period.

Other Expense, Net

Other expense, net for the years ended 2012 and 2011 was as follows (in thousands):

Interest income .................................................................... $
Interest expense ...................................................................
Other, net .............................................................................
Other expense, net ....................................................... $

13,394 $
(30,902)
2,735
(14,773) $

15,593 $
(30,377)
1,942
(12,842) $

2012

2011

Variance

(2,199)
(525)
793
(1,931)

%
(14.1)%
(1.7)
40.8
(15.0)

Other expense, net increased $1.9 million to $14.8 million for the year ended December 29, 2012 from the
comparable prior year period. Interest income decreased $2.2 million primarily due to lower investment income.
Interest expense increased $0.5 million primarily due to an increase in borrowings under our private placement
facilities and our bank credit lines, partially offset by lower interest expense due to a reduction in borrowings under
our Butler Animal Health Supply, LLC (“BAHS”) debt. Other, net increased by $0.8 million due primarily to a gain
related to an increase in the fair value of an equity affiliate which is now being reported as a consolidated entity
beginning in the third quarter of 2012.

Income Taxes

For the year ended December 29, 2012, our effective tax rate was 31.1% compared to 31.7% for the prior year

period. The net reduction in our 2012 effective tax rate results from additional tax planning, settlements of tax
audits and higher income from lower taxing countries. The difference between our effective tax rate and the federal
statutory tax rate for both periods related primarily to state and foreign income taxes and interest expense. For
2013, we expect our effective tax rate to be in the range of 31.0%

Net Income

Net income increased $18.7 million, or 4.6%, for the year ended December 29, 2012, compared to the prior

year period due to the factors noted above.

2011 Compared to 2010

Net Sales

Net sales for 2011 and 2010 were as follows (in thousands):

Health care distribution (1):
Dental ...................................................... $
Medical ....................................................
Animal health ..........................................
Total health care distribution ................
Technology and value-added services(2) .......
Total ..................................................... $

2011

% of
Total

2010

% of
Total

Increase

4,764,898
1,504,454
2,010,270
8,279,622
250,620
8,530,242

55.9 % $
17.6
23.6
97.1
2.9

100.0 % $

4,415,469
1,373,999
1,537,370
7,326,838
199,952
7,526,790

58.7 % $
18.2
20.4
97.3
2.7

100.0 % $

349,429
130,455
472,900
952,784
50,668
1,003,452

7.9 %
9.5
30.8
13.0
25.3
13.3

(1) Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and

generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

(2) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,

and financial and other services, including e-services and continuing education services for practitioners.

The fiscal year ended December 31, 2011 consisted of 53 weeks as compared to the fiscal year ended

December 25, 2010, which consisted of 52 weeks.

The $1,003.5 million, or 13.3%, increase in net sales for the year ended December 31, 2011 includes an
increase of 10.9% local currency growth (4.5% increase in internally generated revenue, 1.5% impact from extra
week and 4.9% growth from acquisitions) as well as an increase of 2.4% related to foreign currency exchange.

The $349.4 million, or 7.9%, increase in dental net sales for the year ended December 31, 2011 includes an
increase of 5.5% in local currencies (3.0% increase in internally generated revenue, 1.5% impact from extra week
and 1.0% growth from acquisitions) as well as an increase of 2.4% related to foreign currency exchange. The 5.5%
increase in local currency sales was due to increases in dental equipment sales and service revenues of 3.6% (0.1%
decrease in internally generated revenue, 3.0% impact from extra week and 0.7% growth from acquisitions) and
dental consumable merchandise sales growth of 6.2% (4.1% increase in internally generated revenue, 0.9% impact
from extra week and 1.2% growth from acquisitions).

The $130.5 million, or 9.5%, increase in medical net sales for the year ended December 31, 2011 includes an
increase of 9.2% local currency growth (6.3% internally generated, 1.5% impact from extra week and 1.4% growth
from acquisitions) as well as an increase of 0.3% related to foreign currency exchange.

The $472.9 million, or 30.8%, increase in animal health net sales for the year ended December 31, 2011

includes an increase of 26.2% local currency growth (6.7% internally generated, 1.5% impact from extra week and
18.0% growth from acquisitions) as well as an increase of 4.6% related to foreign currency exchange.

The $50.7 million, or 25.3%, increase in technology and value-added services net sales for the year ended
December 31, 2011 includes an increase of 24.4% local currency growth (9.6% internally generated growth, 1.9%
impact from extra week and 12.9% growth from acquisitions) as well as an increase of 0.9% related to foreign
currency exchange.

Gross Profit

Gross profit and gross margins for 2011 and 2010 by segment and in total were as follows (in thousands):

Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $

Gross

Margin %

2011
2,253,814
164,241
2,418,055

27.2 % $
65.5
28.3

2010
2,033,860
137,016
2,170,876

Gross
Margin %

27.8 % $
68.5
28.8

Increase

$
219,954
27,225
247,179

%
10.8 %
19.9
11.4

Gross profit increased $247.2 million, or 11.4%, for the year ended December 31, 2011 compared to the prior
year period. As a result of different practices of categorizing costs associated with distribution networks throughout
our industry, our gross margins may not necessarily be comparable to other distribution companies. Additionally,
we realize substantially higher gross margin percentages in our technology segment than in our health care
distribution segment. These higher gross margins result from being both the developer and seller of software
products and services, as well as certain financial services. The software industry typically realizes higher gross
margins to recover investments in research and development.

Health care distribution gross profit increased $220.0 million, or 10.8%, for the year ended December 31, 2011

compared to the prior year period. Health care distribution gross profit margin decreased to 27.2% for the year
ended December 31, 2011 from 27.8% for the comparable prior year period. The decrease in our health care
distribution gross profit margin is primarily due to growth in sales within our animal health businesses, which
typically include a greater percentage of lower-margin pharmaceutical products than our other operating units. The
increase in animal health sales results from internal growth in the United States and the acquisition of Provet
Holdings Limited (see Note 9 “Business Acquisitions and Other Transactions” within our notes to our consolidated
financial statements) at the beginning of our 2011 fiscal year.

Technology and value-added services gross profit increased $27.2 million, or 19.9%, for the year ended
December 31, 2011 compared to the prior year period. Technology and value-added services gross profit margin
decreased to 65.5% for the year ended December 31, 2011 from 68.5% for the comparable prior year period,
primarily due to changes in the product sales mix. Specifically, revenues generated from hardware sales and
installations, which generally are completed at a lower than average gross margin, grew at a greater rate than
electronic services (claims processing, statements generation, etc.) or software sales, which typically generate
higher than average gross margins.
Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2011 and 2010 were as follows (in

thousands):

Health care distribution ............................. $
Technology and value-added services .......
Total ..................................................... $

% of
Respective
Net Sales

2011
1,741,720
94,186
1,835,906

21.0 % $
37.6
21.5

2010
1,566,190
71,270
1,637,460

% of
Respective
Net Sales

21.4 % $
35.6
21.8

Increase

$
175,530
22,916
198,446

%
11.2 %
32.2
12.1

Selling, general and administrative expenses increased $198.4 million, or 12.1%, for the year ended December

31, 2011 compared to the prior year period. As a percentage of net sales, selling, general and administrative
expenses decreased to 21.5% from 21.8% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses increased $101.4

million, or 9.4%, for the year ended December 31, 2011 from the comparable prior year period. As a percentage of
net sales, selling expenses decreased to 13.8% from 14.3% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $97.0 million, or 17.4%, for the year ended December 31, 2011 from the comparable prior year period.
As a percentage of net sales, general and administrative expenses increased to 7.7% from 7.4% for the comparable
prior year period.

Other Expense, Net

Other expense, net for the years ended 2011 and 2010 was as follows (in thousands):

15,593 $
(30,377)
1,942
(12,842) $

14,098 $
(33,641)
447
(19,096) $

2011

2010

Variance

1,495
3,264
1,495
6,254

%
10.6 %
9.7
334.5
32.8

Other expense, net decreased $6.3 million to $12.8 million for the year ended December 31, 2011 from the
comparable prior year period. Interest income increased $1.5 million primarily due to higher investment income
partially offset by a decrease in late fee income. Interest expense decreased $3.3 million primarily due to reduced
interest expense from the redemption of our 3% convertible contingent notes originally due in 2034 (the
“Convertible Notes”) on September 3, 2010, partially offset by increased interest expense related to borrowings
under our private placement facilities, as well as interest expense related to our credit lines. Other, net increased by
$1.5 million due primarily to a gain associated with the acquisition of the remaining interest in an equity investment
and proceeds received from a litigation settlement.

Income Taxes

For the year ended December 31, 2011, our effective tax was 31.7% compared to 31.9% for the prior year
period. The net reduction in our 2011 effective tax rate results from additional tax planning, settlements of tax
audits and higher income from lower taxing countries. The difference between our effective tax rate and the federal
statutory tax rate for both periods related primarily to foreign and state income taxes.

Net Income

Net income increased $52.5 million, or 14.9%, for the year ended December 31, 2011 compared to the prior

year period due to the factors noted above.

Liquidity and Capital Resources

Our principal capital requirements include funding of acquisitions, purchases of additional noncontrolling
interests, repayments of debt principal, the funding of working capital needs, purchases of securities and fixed
assets and repurchases of common stock. Working capital requirements generally result from increased sales,
special inventory forward buy-in opportunities and payment terms for receivables and payables. Historically, sales
have tended to be stronger during the third and fourth quarters and special inventory forward buy-in opportunities
have been most prevalent just before the end of the year, causing our working capital requirements to have 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 and

debt placements. Our ability to generate sufficient cash flows from operations is dependent on the continued
demand of our customers for our products and services, and access to products and services from our suppliers.

Our business requires a substantial investment in working capital, which is susceptible to fluctuations 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 and our desired level of inventory. We anticipate
future increases in our working capital requirements.

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, our ability to access private debt markets and public equity
markets, and our available funds under existing credit facilities provide us with sufficient liquidity to meet our
currently foreseeable short-term and long-term capital needs. We have no off-balance sheet arrangements.

Net cash provided by operating activities was $408.1 million for the year ended December 29, 2012, compared
to $554.6 million for the comparable prior year period. The net change of $146.5 million was primarily attributable
to inventory buy-ins during the fourth quarter of 2012 in advance of potential price increases related to the medical
device excise tax.

Net cash used in investing activities was $269.6 million for the year ended December 29, 2012, compared to

$193.2 million for the comparable prior year period. The net change of $76.4 million was primarily due to
increases in payments for equity investments and business acquisitions.

Net cash used in financing activities was $170.6 million for the year ended December 29, 2012, compared to

$357.2 million for the comparable prior year period. The net change of $186.6 million was primarily due to
increased net proceeds from issuance of debt and decreased acquisitions of noncontrolling interests in subsidiaries,
partially offset by increased repurchases of common stock.

We expect to invest approximately $60 million to $65 million during 2013 in capital projects to modernize and

expand our facilities and computer systems and to integrate certain operations into our existing structure.

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

Cash and cash equivalents ................................................................................................... $
Available-for-sale securities - long-term .............................................................................
Working capital ...................................................................................................................

2012

122,080 $
2,816
1,231,668

2011

147,284
11,329
1,000,868

December 29, December 31,

Debt:
Bank credit lines ............................................................................................................. $
Current maturities of long-term debt ..............................................................................
Long-term debt ...............................................................................................................
Total debt ................................................................................................................... $

27,166 $
17,992
488,121
533,279 $

55,014
22,819
363,524
441,357

Our cash and cash equivalents consist of bank balances and investments in money market funds representing

overnight investments with a high degree of liquidity.

Available-for-sale securities

As of December 29, 2012, we have approximately $3.3 million ($2.8 million net of temporary impairments)
invested in auction-rate securities (“ARS”). These investments are backed by student loans (backed by the federal
government) and investments in closed-end municipal bond funds. ARS are publicly issued securities that
represent long-term investments, typically 10-30 years, in which interest rates had reset periodically (typically
every 7, 28 or 35 days) through a “dutch auction” process. Our ARS portfolio is comprised of investments that are
rated investment grade by major independent rating agencies. Since the middle of February 2008, these auctions
have failed to settle due to an excess number of sellers compared to buyers. The failure of these auctions has
resulted in our inability to liquidate our ARS in the near term. We are currently not aware of any defaults or
financial conditions that would negatively affect the issuers’ ability to continue to pay interest and principal on our
ARS. We continue to earn and receive interest at contractually agreed upon rates. We believe that the current lack
of liquidity related to our ARS investments will have no impact on our ability to fund our ongoing operations and
growth opportunities. As of December 29, 2012, we have classified ARS holdings as long-term, available-for-sale
and they are included in the Investments and other line within our consolidated balance sheets.

Accounts receivable days sales outstanding and inventory turns

Our accounts receivable days sales outstanding from operations decreased to 39.8 days as of December 29,
2012 from 40.6 days as of December 31, 2011. During the years ended December 29, 2012 and December 31,
2011, we wrote off approximately $8.3 million and $6.2 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations decreased to 6.2 for the year ended
December 29, 2012 from 6.6 for the year ended December 31, 2011, primarily due to inventory buy-ins in advance
of potential price increases related to the medical device excise tax. Our working capital accounts may be impacted
by current and future economic conditions.

Contractual obligations

The following table summarizes our contractual obligations related to fixed and variable rate long-term debt,
including interest (assuming an average long-term rate of interest of 3.7%), as well as operating and capital lease
obligations, capital expenditure obligations and inventory purchase commitments as of December 29, 2012:

Payments due by period (in thousands)

< 1 year

2 - 3 years

4 - 5 years

> 5 years

Total

Contractual obligations:

Long-term debt, including interest .......................$

34,660 $

130,290 $

171,799 $

273,569 $

Inventory purchase commitments .........................

Operating lease obligations ..................................

Capital lease obligations, including interest .........

Fixed asset obligations ..........................................

67,245

75,901

1,739

1,311

50,329

104,972

1,485

48,139

61,488

207

78,053

65,718

610,318

243,766

308,079

3,431

1,311

Total .....................................................................$

180,856 $

287,076 $

281,633 $

417,340 $

1,166,905

Inventory purchase commitments include obligations to purchase certain pharmaceutical products from a

manufacturer through 2013, which require us to pay a price based on the prevailing market price or formula price in
each respective year. The amounts included in the above table related to these purchase commitments were
determined using current market conditions. We also have obligations to purchase certain pharmaceutical products
from another manufacturer. Actual amounts may differ.

During 2013, we intend to refinance the debt of approximately $220 million related to the Butler Schein
Animal Health transaction. The refinancing is expected to reduce interest expense and to be accretive to earnings
per share by $0.02 to $0.03 on an annualized basis. We expect the refinancing to occur at the end of the first
quarter of 2013. As part of that refinancing, we expect to incur a one-time, non-cash charge of approximately $0.04
to $0.05 per diluted share.

Redemption of convertible debt

On September 3, 2010, we paid approximately $240 million in cash and issued 732,422 shares of our common

stock in connection with the redemption of our $240 million of Convertible Notes, which were issued in 2004.

Credit Facilities

On September 12, 2012, we entered into a new $500 million revolving credit agreement (the “Credit
Agreement”) with a $200 million expansion feature, which expires on September 12, 2017. This credit facility
replaced our then existing $400 million revolving credit facility with a $100 million expansion feature, which
would have expired on September 5, 2013. There were no borrowings outstanding under this revolving credit
facility as of December 29, 2012. The interest rate, which was 0.82% during the year ended December 29, 2012, is
based on the USD LIBOR plus a spread based on our leverage ratio at the end of each financial reporting quarter.
The Credit Agreement provides, among other things, that we are required to maintain certain interest coverage and
maximum leverage ratios, and contains customary representations, warranties and affirmative covenants. The
Credit Agreement also contains customary negative covenants, subject to negotiated exceptions on liens,
indebtedness, significant corporate changes (including mergers), dispositions and certain restrictive agreements.

As of December 29, 2012, we had various other short-term bank credit lines available, of which approximately

$27.2 million was outstanding. At December 29, 2012, borrowings under all of our credit lines had a weighted
average interest rate of 2.22%. As of December 29, 2012, there were $9.3 million of letters of credit provided to
third parties under the credit facility.

Private Placement Facilities

On August 10, 2010, we entered into $400 million private placement facilities with two insurance companies.

On April 30, 2012, we increased our available credit facilities by $375 million by entering into a new agreement
with one insurance company and amending our existing agreements with two insurance companies. These facilities
are available on an uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from
time to time during a three year issuance period, through April 26, 2015. The facilities allow us to issue senior
promissory notes to the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the
time of issuance. The term of each possible issuance will be selected by us and can range from five to 15 years
(with an average life no longer than 12 years). The proceeds of any issuances under the facilities will be used for
general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness
and/or to fund potential acquisitions. The agreement provides, among other things, that we maintain certain
maximum leverage ratios, and contains restrictions relating to subsidiary indebtedness, liens, affiliate transactions,
disposal of assets and certain changes in ownership. These facilities contain a make-whole provision in the event
that we pay off the facility prior to the due date.

The components of our private placement facility borrowings as of December 29, 2012 are presented in the

following table:

Date of
Borrowing

September 2, 2010
January 20, 2012
January 20, 2012 (1)
December 24, 2012

Amount of
Borrowing
Outstanding

100,000
50,000
50,000
50,000
250,000

Borrowing
Rate

3.79 %
3.45
3.09
3.00

Due Date

September 2, 2020
January 20, 2024
January 20, 2022
December 24, 2024

(1) Annual repayments of approximately $7.1 million for this borrowing will commence on January 20, 2016.

Butler Animal Health Supply

Effective December 31, 2009, BAHS, a majority-owned subsidiary whose financial information is consolidated

with ours, had incurred approximately $320.0 million of debt (of which $37.5 million, which is eliminated in our
consolidated financial statements, was provided by Henry Schein, Inc.) in connection with our acquisition of a
majority interest in BAHS.

On May 27, 2011, BAHS refinanced the terms and amount of its debt in an aggregate principal amount of
$366.0 million (of which $55.0 million, which is eliminated in our consolidated financial statements, was provided
by Henry Schein, Inc.). The refinanced debt consists of the following three components:

Original amount of debt (includes $55.0 million of debt
provided by Henry Schein, Inc.) ...................................... $
Number of remaining quarterly installments .........................
Quarterly payments from:
December 31, 2012 through June 30, 2013 ...................... $
September 30, 2013 through June 30, 2014 .....................
July 1, 2014 through September 30, 2014 ........................
December 31, 2012 through September 30, 2015 ............
Final installment due on December 31, 2014 ........................
Final installment due on December 31, 2015 ........................
Balance outstanding as of December 29, 2012 .....................

Interest rate on debt ...............................................................
Interest rate on debt - LIBOR floor .......................................

Term Loan A

Term Loan B

Revolver

100,000 $
8

216,000
12

50,000

4,931
8,766
2,739
$
65,196

4,239

81,632

LIBOR plus a
margin of 2.50%

135,287
138,807
LIBOR plus a
margin of 3.25%

-
LIBOR plus a
margin of 2.50%

1.25 %

During 2011 and 2012, BAHS made prepayments on Term Loans A and B, which resulted in a reduction to the
future quarterly and final installment amounts due. Future prepayments by BAHS, if any, will result in reductions
to remaining quarterly and final installment amounts due.

The outstanding balance of $220.4 million (net of unamortized debt discount and excluding amounts owed to

Henry Schein, Inc.) is reflected in our consolidated balance sheet as of December 29, 2012.

The debt agreement provides, among other things, that BAHS maintain certain interest coverage and maximum

leverage ratios, and contains restrictions relating to subsidiary indebtedness, capital expenditures, liens, affiliate
transactions, disposal of assets and certain changes in ownership. In addition, the debt agreement contains
provisions which, under certain circumstances, require BAHS to make prepayments based on excess cash flows of
BAHS as defined in the debt agreement.

Stock repurchases

From June 21, 2004 through December 29, 2012, we repurchased $799.9 million, or 13,756,063 shares, under

our common stock repurchase programs. On April 18, 2012 and November 12, 2012, our Board of Directors
authorized an additional $200.0 million and $300.0 million, respectively, for additional repurchases of our common
stock, $300.1 million of which is available as of December 29, 2012 for future common stock share repurchases.

Redeemable noncontrolling interests

Some minority shareholders in certain of our subsidiaries have the right, at certain times, to require us to
acquire their ownership interest in those entities at fair value. ASC Topic 480-10 is applicable for noncontrolling
interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated
subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual
agreements. The components of the change in the Redeemable noncontrolling interests for the years ended
December 29, 2012, December 31, 2011 and December 25, 2010 are presented in the following table:

December 29,
2012

December 31, December 25,

2011

2010

Balance, beginning of period ................................................................. $
Decrease in redeemable noncontrolling interests due to

402,050 $

304,140 $

178,570

redemptions .......................................................................................

(23,637)

(160,254)

(141,415)

Increase in redeemable noncontrolling interests due to
business acquisitions ...........................................................................
Net income attributable to redeemable noncontrolling interests ............
Dividends declared .................................................................................
Effect of foreign currency translation gain (loss) attributable to

redeemable noncontrolling interests ..................................................
Change in fair value of redeemable securities .......................................
Other adjustment to redeemable noncontrolling interests ......................
Balance, end of period ............................................................................ $

30,935
34,803
(21,013)

904
53,769
(42,636)
435,175 $

13,618
36,514
(15,212)

(889)
224,133
-
402,050 $

203,729
26,054
(12,360)

(2,281)
51,843
-
304,140

Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are adjusted

at each reporting period with a corresponding adjustment to Additional paid-in capital. Future reductions in the
carrying amounts are subject to a “floor” amount that is equal to the fair value of the redeemable noncontrolling
interests at the time they were originally recorded. The recorded value of the redeemable noncontrolling interests
cannot go below the floor level. These adjustments do not impact the calculation of earnings per share.

Additionally, some prior owners of such acquired subsidiaries are eligible to receive additional purchase price

cash consideration if certain financial targets are met. For acquisitions completed prior to 2009, we accrue
liabilities that may arise from these transactions when we believe that the outcome of the contingency is
determinable beyond a reasonable doubt. For 2009 and future acquisitions, as required by ASC Topic 805,
“Business Combinations,” we have and will accrue liabilities for the estimated fair value of additional purchase
price adjustments at the time of the acquisition. Any adjustments to these accrual amounts are recorded in our
consolidated statement of income.

On December 30, 2011, we acquired all of Oak Hill Capital Partners’ (“OHCP”) remaining direct and indirect

interests in BAHS (including its interest in W.A. Butler Company) for $155 million in cash. As a result of this
transaction, our ownership in BAHS increased to approximately 71.7% at December 31, 2011. The amount paid to
OHCP for their remaining interests in BAHS was in excess of the previously agreed upon annual limits (see Note 9.
“Business Acquisitions and Other Transaction” within our notes to our consolidated financial statements), but such
limits were waived by all parties involved. At December 29, 2012, our ownership in BAHS is approximately
73.7%.

Unrecognized tax benefits

As more fully disclosed in Note 12 of “Notes to Consolidated Financial Statements,” we cannot reasonably
estimate the timing of future cash flows related to the unrecognized tax benefits, including accrued interest, of
$40.7 million as of December 29, 2012.

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 disclosures of contingent assets and
liabilities. 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. However, by their nature, estimates are subject to various assumptions and
uncertainties. Reported results are therefore sensitive to any changes in our assumptions, judgments and estimates,
including the possibility of obtaining materially different results if different assumptions were to be applied.

We believe that the following critical accounting policies, which have been discussed with our audit committee,

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 animal health consumable products, as well as

equipment, software products and services and other sources. Provisions for discounts, rebates to customers,
customer returns and other contra-revenue adjustments are recorded based upon historical data and estimates 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 using 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 reasonably assured and product returns are reasonably estimable.

Revenue derived from the sale of 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 typically 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 over the period in which the services are provided.

Revenue derived from multiple element arrangements, and the related deferral of such revenue (which is

insignificant to our financial statements), is recognized as follows. When we sell software products together with
related services (i.e., training and technical support) we allocate revenue to the delivered elements using the
residual method, based upon vendor-specific objective evidence (“VSOE”) of the fair value of the undelivered
elements, or defer it until such time as vendor-specific evidence of fair value is obtained. Multiple element
arrangements that include elements that are not considered software consist primarily of equipment and the related
installation service. Effective December 26, 2010 we allocate revenue for such arrangements based on the relative
selling prices of the elements applying the following hierarchy: first VSOE, then third-party evidence (“TPE”) of
selling price if VSOE is not available, and finally our estimate of the selling price if neither VSOE nor TPE is
available. VSOE exists when we sell the deliverables separately and represents the actual price charged by us for
each deliverable. Estimated selling price reflects our best estimate of what the selling prices of each deliverable
would be if it were sold regularly on a standalone basis taking into consideration the cost structure of our business,
technical skill required, customer location and other market conditions. Each element that has standalone value is
accounted for as a separate unit of accounting. Revenue allocated to each unit of accounting is recognized when the
service is provided or the product is delivered.

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 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 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. Although we believe our judgments, estimates and/or assumptions
related to accounts receivable and reserves are reasonable, making material changes to such judgments, estimates
and/or assumptions could materially affect our financial results.

Inventories and Reserves

Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. In accordance with our policy for inventory valuation, we consider many factors including the
condition and salability of the inventory, historical sales, forecasted sales and market 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 the value of inventory. Although we believe our judgments, estimates and/or assumptions related
to inventory and reserves are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect our financial results.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill and other indefinite-lived intangible assets (primarily trademarks) are not amortized, but are subject
to impairment analysis at least once annually. Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments:
health care distribution (global dental, medical and animal health) and technology and value-added services.

During the fiscal year ended December 31, 2011, we adopted the provisions of Accounting Standards Update

2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”),
which allows us to use qualitative factors to determine whether it is more likely than not that the fair values of our
reporting units are less than their carrying values. The factors that we consider in developing our qualitative
assessment included:

• Macroeconomic conditions consisting of the overall sales growth of our business and the overall sales

growth of each of our operating segments. We also consider our growth in market share in the markets in
which we compete;

• Credit markets and our ability to access debt facilities at favorable terms;

• Key personnel and management expertise, as well as our growth strategies for the next several years; and

• Our expectations of selling or disposing all, or a portion, of a reporting unit.

Prior to the adoption of ASU 2011-08, measuring fair value of a reporting unit was generally based on
valuation techniques using multiples of sales or earnings. Goodwill was allocated to such reporting units, for the
purposes of preparing our impairment analyses, based on a specific identification basis. Our impairment analysis
for indefinite-lived intangibles consists of a comparison of the fair value to the carrying value of the assets. This
comparison is made based on a review of historical, current and forecasted sales and gross profit levels, as well as a
review of any factors that may indicate potential impairment. For certain indefinite-lived intangible assets, a
present value technique, such as estimates of future cash flows, is utilized. We assessed the potential impairment of
goodwill and other indefinite-lived intangible assets annually (at the beginning of our fourth quarter) and on an
interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
There were no events or circumstances from the date of that assessment through December 29, 2012 that impacted
our analysis.

Some factors we consider important that could trigger an interim impairment review include:

•

significant underperformance relative to expected historical or projected future operating results;

significant changes in the manner of our use of acquired assets or the strategy for our overall business
(e.g., decision to divest a business); or

significant negative industry or economic trends.

If we determine through the impairment review process that goodwill or other indefinite-lived intangible assets

are impaired, we record an impairment charge in our consolidated statements of income.

Beginning with the first quarter of 2012, we changed our reporting units from dental, medical, animal health,

international and technology to global dental, global medical, global animal health and global technology and
value-added services.

These groups have been formed to provide distinct organizational focus for reaching and serving each

practitioner segment with the benefits of a global perspective, as well as global product and service offerings and
best practices.

In connection with this change in business groups, goodwill was reallocated to the new reporting units. Based

upon this change, we felt it was necessary to perform a quantitative assessment, in addition to a qualitative
assessment, of goodwill impairment as of the first day of the fourth quarter for the year ended December 29, 2012
in order to establish a new baseline calculation.

For the years ended December 29, 2012, December 31, 2011 and December 25, 2010, the results of our

goodwill impairment analysis did not result in any impairments.

Supplier Rebates

Supplier rebates are included as a reduction of cost of sales and are recognized over the period they are earned.

The factors we consider in estimating supplier rebate accruals include forecasted inventory purchases and sales in
conjunction with supplier rebate contract terms which generally provide for increasing rebates based on either
increased purchase or sales volume. Although we believe our judgments, estimates and/or assumptions related to
supplier rebates are reasonable, making material changes to such judgments, estimates and/or assumptions could
materially affect our financial results.

Long-Lived Assets

Long-lived assets, other than goodwill and other indefinite-lived intangibles, are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable
through the estimated undiscounted future cash flows derived from such assets.

Definite-lived intangible assets primarily consist of non-compete agreements, trademarks, trade names,

customer lists, customer relationships and intellectual property. For long-lived assets used in operations,
impairment losses are only recorded if the asset’s carrying amount is not recoverable through its undiscounted,
probability-weighted future cash flows. We measure the impairment loss based on the difference between the
carrying amount and the estimated fair value. When an impairment exists, the related assets are written down to
fair value. Although we believe our judgments, estimates and/or assumptions used in estimating cash flows and
determining fair value are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect such impairment analyses and our financial results.

Stock-Based Compensation

We measure stock-based compensation at the grant date, based on the estimated fair value of the award. Prior

to March 2009, awards principally included a combination of at-the-money stock options and restricted stock
(including restricted stock units). Since March 2009, equity-based awards have been granted solely in the form of
restricted stock and restricted stock units, with the exception of stock options for certain pre-existing contractual
obligations.

We estimate the fair value of stock options using the Black-Scholes valuation model which requires us to make

assumptions about the expected life of options, stock price volatility, risk-free interest rates and dividend yields.

We issue restricted stock that vests solely based on the recipient’s continued service over time (primarily four-
year cliff vesting) and restricted stock that vests based on our achieving specified performance measurements and
the recipient’s continued service over time (primarily three-year cliff vesting).

With respect to time-based restricted stock, we estimate the fair value on the date of grant based on our closing

stock price. With respect to performance-based restricted stock, the number of shares that ultimately vest and are
received by the recipient is based upon our performance as measured against specified targets over a three-year
period as determined by the Compensation Committee of the Board of Directors. Though there is no guarantee that
performance targets will be achieved, we estimate the fair value of performance-based restricted stock, based on
our closing stock price at time of grant. Adjustments to the performance-based restricted stock targets are provided
for significant events such as acquisitions, divestitures, new business ventures and share repurchases. Over the
performance period, the number of shares of common stock that will ultimately vest and be issued and the related
compensation expense is adjusted upward or downward based upon our estimation of achieving such performance
targets. The ultimate number of shares delivered to recipients and the related compensation cost recognized as an
expense will be based on our actual performance metrics as defined.

Although we believe our judgments, estimates and/or assumptions related to stock-based compensation are
reasonable, making material changes to such judgments, estimates and/or assumptions could materially affect our
financial results.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks as well as changes in foreign currency exchange rates as measured against the

U.S. dollar and each other, and changes to the credit markets. We attempt to minimize these risks by primarily
using foreign currency forward contracts and by maintaining counter-party credit limits. These hedging activities
provide only limited protection against currency exchange and credit risks. Factors that could influence the
effectiveness of our hedging programs include currency markets and availability of hedging instruments and
liquidity of the credit markets. All foreign currency forward contracts that we enter into are components of hedging
programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. We do
not enter into such contracts for speculative purposes and we manage our credit risks by diversifying our
investments, maintaining a strong balance sheet and having multiple sources of capital.

Foreign Currency Agreements

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 contracts aimed at limiting the impact of foreign currency
exchange rate fluctuations on earnings. We purchase short-term (i.e., 18 months or less) foreign currency forward
contracts to protect against currency exchange risks associated with intercompany loans due from our international
subsidiaries and the payment of merchandise purchases to foreign suppliers. We do not hedge the translation of
foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure.

As of December 29, 2012, the net fair value of our foreign currency exchange agreements, which expire

through June 26, 2013, was $0.4 million, as determined by quoted market prices. A hypothetical 5% change in the
value of the U.S. dollar would change the fair value of our foreign currency exchange agreements by $(0.6) million.

Short-Term Investments

We limit our credit risk with respect to our cash equivalents, available-for-sale securities, short-term

investments and derivative instruments, by monitoring the credit worthiness of the financial institutions who are the
counter-parties to such financial instruments. As a risk management policy, we limit the amount of credit exposure
by diversifying and utilizing numerous investment grade counter-parties.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.

Page

Report of Independent Registered Public Accounting Firm ........................................................................................

Consolidated Financial Statements:

Balance Sheets as of December 29, 2012 and December 31, 2011 ......................................................................

Statements of Income for the years ended December 29, 2012,

December 31, 2011 and December 25, 2010 ..............................................................................................

Statements of Comprehensive Income for the years ended December 29, 2012,

December 31, 2011 and December 25, 2010 ..............................................................................................

Statements of Changes in Stockholders’ Equity for the years ended

December 29, 2012, December 31, 2011 and December 25, 2010 .............................................................

Statements of Cash Flows for the years ended December 29, 2012,

December 31, 2011 and December 25, 2010 ..............................................................................................

Notes to Consolidated Financial Statements ........................................................................................................

Report of Independent Registered Public Accounting Firm ........................................................................................

109

Schedule II - Valuation and Qualifying Accounts for the years ended December 29, 2012,

December 31, 2011 and December 25, 2010 .......................................................................................................

110

All other schedules are omitted because the required information is either inapplicable or is included in the consolidated
financial statements or the notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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 29, 2012

and December 31, 2011 and the related consolidated statements of income, comprehensive income, changes in
stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2012. These
financial statements and schedule 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 the standards of the Public Company Accounting Oversight Board

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Henry Schein, Inc. at December 29, 2012 and December 31, 2011, and the results of its
operations and its cash flows for each of the three years in the period ended December 29, 2012, in conformity with
accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Henry Schein, Inc.’s internal control over financial reporting as of December 29, 2012, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February 13, 2013 expressed an
unqualified opinion thereon.

/s/ BDO USA, LLP

New York, New York
February 13, 2013

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

December 29,
2012

December 31,

2011

ASSETS
Current assets:
Cash and cash equivalents ................................................................................................... $
Accounts receivable, net of reserves of $75,240 and $65,853 .............................................
Inventories, net ....................................................................................................................
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 ...................................................................................
Accrued expenses:

Payroll and related ..........................................................................................................
Taxes ...............................................................................................................................
Other ...............................................................................................................................
Total current liabilities ...............................................................................................
Long-term debt .........................................................................................................................
Deferred income taxes ..............................................................................................................
Other liabilities .........................................................................................................................
Total liabilities ...........................................................................................................

122,080
1,015,194
1,203,507
64,049
299,547
2,704,377
273,458
1,601,046
462,182
292,934

5,333,997 $

787,658
27,166
17,992

207,381
132,774
299,738
1,472,709
488,121
196,814
125,314
2,282,958

147,284
888,248
947,849
54,970
234,157
2,272,508
262,088
1,497,108
409,612
298,828
4,740,144

621,468
55,014
22,819

191,173
121,234
259,932
1,271,640
363,524
188,739
80,568
1,904,471

Redeemable noncontrolling interests .......................................................................................
Commitments and contingencies

435,175

402,050

Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,

none outstanding .............................................................................................................

Common stock, $.01 par value, 240,000,000 shares authorized,

87,850,671 outstanding on December 29, 2012 and
89,928,082 outstanding on December 31, 2011 ..............................................................
Additional paid-in capital ....................................................................................................
Retained earnings ................................................................................................................
Accumulated other comprehensive income .........................................................................
Total Henry Schein, Inc. stockholders' equity .................................................................
Noncontrolling interests ......................................................................................................
Total stockholders' equity ...........................................................................................
Total liabilities, redeemable noncontrolling interests and stockholders' equity .............. $

879
375,946
2,183,905
52,855
2,613,585
2,279
2,615,864
5,333,997 $

899
401,262
2,007,477
22,584
2,432,222
1,401
2,433,623
4,740,144

See accompanying notes.

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

Years Ended
December 29, December 31, December 25,
2011

2010

2012

Net sales ................................................................................................................ $
Cost of sales ..........................................................................................................
Gross profit ......................................................................................................
Operating expenses:
Selling, general and administrative .....................................................................
Restructuring costs ..............................................................................................
Operating income ............................................................................................
Other income (expense):
Interest income ....................................................................................................
Interest expense ..................................................................................................
Other, net ............................................................................................................
Income before taxes and equity in earnings of affiliates
Income taxes ..........................................................................................................
Equity in earnings of affiliates ..............................................................................
Net income ............................................................................................................
Less: Net income attributable to noncontrolling interests ...................................
Net income attributable to Henry Schein, Inc. ...................................................... $

8,939,967 $
6,432,454
2,507,513

8,530,242 $
6,112,187
2,418,055

1,873,360
15,192
618,961

1,835,906
-
582,149

13,394
(30,902)
2,735
604,188
(187,858)
7,058
423,388
(35,312)
388,076 $

15,593
(30,377)
1,942
569,307
(180,212)
15,561
404,656
(36,995)
367,661 $

7,526,790
5,355,914
2,170,876

1,637,460
12,285
521,131

14,098
(33,641)
447
502,035
(160,069)
10,165
352,131
(26,342)
325,789

Earnings per share attributable to Henry Schein, Inc.:

Basic ................................................................................................................... $
Diluted ................................................................................................................ $

4.44 $
4.32 $

4.08 $
3.97 $

3.62
3.49

Weighted-average common shares outstanding:
Basic ...................................................................................................................
Diluted ................................................................................................................

87,499
89,823

90,120
92,620

90,097
93,268

See accompanying notes.

HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

December 29, December 31, December 25,

2012

2011

2010

Net income .......................................................................................................... $

423,388 $

404,656 $

352,131

Other comprehensive income, net of tax:

Foreign currency translation gain (loss) ...........................................................

33,347

(2,310)

(30,584)

Unrealized gain (loss) from foreign currency hedging activities .....................

Unrealized investment gain ..............................................................................

2,865

414

(618)

347

(885)

145

Pension adjustment loss ...................................................................................

(5,451)

(6,238)

(4,637)

Other comprehensive income (loss), net of tax ..................................................

31,175

Comprehensive income .......................................................................................

454,563

Comprehensive income attributable to noncontrolling interests:

Net income ....................................................................................................

Foreign currency translation (gain) loss ........................................................

(35,312)

(904)

(8,819)

395,837

(36,995)

889

(35,961)

316,170

(26,342)

2,281

Comprehensive income attributable to noncontrolling interests ................

(36,216)

(36,106)

(24,061)

Comprehensive income attributable to Henry Schein, Inc. ................................. $

418,347 $

359,731 $

292,109

See accompanying notes.

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

Common Stock
$.01 Par Value

Amount

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other

Total

Comprehensive Noncontrolling Stockholders'
Interests

Income

Equity
2,161,508

Balance, December 26, 2009 ........................................................... 90,630,889 $
Net income (excluding $26,054 attributable to Redeemable

906 $

603,772 $

1,492,607 $

64,194 $

29 $

noncontrolling interests) ............................................................

Foreign currency translation loss (excluding $2,281

attributable to Redeemable noncontrolling interests) ...............

Unrealized loss from foreign currency hedging activities,

net of tax benefit of $255 ..........................................................
Unrealized investment gain, net of tax of $215 ...............................
Pension adjustment loss, net of tax benefit of $1,710 .....................
Dividends paid .................................................................................
Reclassification of noncontrolling interest no longer

subject to redemption .................................................................

Initial noncontrolling interests and adjustments related to

-
-
-
-

business acquisitions .................................................................
Change in fair value of redeemable securities .................................
Stock issued upon conversion of convertible senior notes ..............
Shares issued to 401(k) plan ............................................................
Repurchase and retirement of common stock ..................................
Stock issued upon exercise of stock options,

-
-
732,422
107,662
(1,005,869)

including tax benefit of $8,304 .................................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....

1,248,643
285,742
(60,012)
-

Balance, December 25, 2010 ........................................................... 91,939,477 $
Net income (excluding $36,514 attributable to Redeemable

noncontrolling interests) ............................................................

Foreign currency translation loss (excluding $889

attributable to Redeemable noncontrolling interests) ...............

Unrealized loss from foreign currency hedging activities,

net of tax benefit of $94 ............................................................
Unrealized investment gain, net of tax of $215 ...............................
Pension adjustment loss, net of tax benefit of $1,534 .....................
Dividends paid .................................................................................
Other adjustments .............................................................................
Initial noncontrolling interests and adjustments related to

business acquisitions .................................................................
Change in fair value of redeemable securities .................................
Shares issued to 401(k) plan ............................................................
Repurchase and retirement of common stock ..................................
Stock issued upon exercise of stock options,

including tax benefit of $7,246 .................................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....

-
-
-
-
-

-
-
93,204
(3,179,188)

941,701
175,980
(43,092)
-

Balance, December 31, 2011 ........................................................... 89,928,082 $
Net income (excluding $34,803 attributable to Redeemable

noncontrolling interests) ............................................................

Foreign currency translation gain (excluding $904

attributable to Redeemable noncontrolling interests) ...............

Unrealized gain from foreign currency hedging activities,

net of tax of $654 ......................................................................
Unrealized investment gain, net of tax of $310 ...............................
Pension adjustment loss, net of tax benefit of $2,187 .....................
Dividends paid .................................................................................
Initial noncontrolling interests and adjustments related to

-
-
-
-

-
-
(3,937,054)

including tax benefit of $31,638 ...............................................
Stock-based compensation expense .................................................
Shares withheld for payroll taxes ....................................................
Liability for cash settlement stock-based compensation awards .....

1,889,872
277,339
(307,568)
-

-
-
-
-

-
-
7
1
(10)

12
3
-
-

-
-
-
-

(22,077)
(51,843)
12,129
5,720
(18,507)

46,729
29,907
(4,260)
(556)

325,789

288

326,077

-
-
-
-

-
-
-
-
(39,218)

-
-
-
-

(28,303)

(885)
145
(4,637)
-

-
-
-
(501)

(885)
145
(4,637)
(501)

-
-
-
-
-

-
-
-
-

1,516

-
-
-
-
-

-
-
-
-

(22,077)
(51,843)
12,136
5,721
(57,735)

46,741
29,910
(4,260)
(556)

919 $

601,014 $

1,779,178 $

30,514 $

1,332 $

2,412,957

-
-
-
-
-

-
-
1
(31)

9
2
(1)
-

-
-
-
-
-

4,155
(224,133)
5,797
(60,609)

41,756
36,930
(2,989)
(659)

367,661

481

368,142

-
-
-
-
-

-
-
-
(139,362)

-
-
-
-

(1,421)

(618)
347
(6,238)
-
-

-
-
-
-

-
-
-
(457)
45

-
-
-
-

(618)
347
(6,238)
(457)
45

4,155
(224,133)
5,798
(200,002)

41,765
36,932
(2,990)
(659)

899 $

401,262 $

2,007,477 $

22,584 $

1,401 $

2,433,623

-
-
-
-

-
-
(39)

19
3
(3)
-

-
-
-
-

(1,189)
(53,769)
(88,196)

104,103
37,310
(23,024)
(551)

388,076

509

388,585

-
-
-
-

-
-
(211,648)

-
-
-
-

32,443

2,865
414
(5,451)
-

-
-
-

-
-
-
-

-
-
-
(430)

799
-
-

-
-
-
-

2,865
414
(5,451)
(430)

(390)
(53,769)
(299,883)

104,122
37,313
(23,027)
(551)

Balance, December 29, 2012 ........................................................... 87,850,671 $

879 $

375,946 $

2,183,905 $

52,855 $

2,279 $

2,615,864

See accompanying notes.

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

Years Ended
December 29, December 31, December 25,
2011

2012

2010

Cash flows from operating activities:
Net income ....................................................................................................... $
Adjustments to reconcile net income to net cash provided by

operating activities:

Depreciation and amortization ................................................................
Amortization of bond discount ................................................................
Stock-based compensation expense ........................................................
Provision for losses on trade and other accounts receivable ...................
Provision for (benefit from) deferred income taxes ................................
Stock issued to 401(k) plan ......................................................................
Equity in earnings of affiliates ................................................................
Distributions from equity affiliates ..........................................................
Other .......................................................................................................
Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable ............................................................................
Inventories ..........................................................................................
Other current assets ............................................................................
Accounts payable and accrued expenses ............................................
Net cash provided by operating activities ..............................................................

Cash flows from investing activities:
Purchases of fixed assets ..................................................................................
Payments for equity investments and business

acquisitions, net of cash acquired ................................................................
Purchases of available-for-sale securities .........................................................
Proceeds from sales of available-for-sale securities .........................................
Proceeds from maturities of available-for-sale securities .................................
Other .................................................................................................................
Net cash used in investing activities ......................................................................

Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings .............................................
Proceeds from issuance of long-term debt ........................................................
Debt issuance costs ............................................................................................
Principal payments for long-term debt .............................................................
Proceeds from issuance of stock upon exercise of stock options ......................
Payments for repurchases of common stock .....................................................
Excess tax benefits related to stock-based compensation .................................
Distributions to noncontrolling shareholders ....................................................
Acquisitions of noncontrolling interests in subsidiaries ...................................
Other .................................................................................................................
Net cash used in financing activities .....................................................................

423,388 $

404,656 $

352,131

125,322
-
37,313
4,407
10,072
-
(7,058)
14,499
14,193

(73,925)
(193,585)
(62,390)
115,863
408,099

115,896
-
36,932
6,156
(19,319)
5,798
(15,561)
14,883
6,352

36,204
(44,155)
(10,493)
17,276
554,625

101,214
4,007
29,910
5,564
(6,051)
5,721
(10,165)
6,606
3,702

(76,129)
(21,307)
(26,640)
26,917
395,480

(51,237)

(45,176)

(39,000)

(220,238)
-
9,225
-
(7,354)
(269,604)

(32,185)
155,132
(1,482)
(40,722)
72,485
(299,883)
17,819
(21,284)
(20,481)
-
(170,601)

(149,403)
-
2,600
-
(1,243)
(193,222)

13,316
3,101
(2,847)
(33,722)
34,519
(200,002)
8,765
(10,055)
(170,199)
(90)
(357,214)

(352,598)
(26,984)
6,000
26,984
(2,025)
(387,623)

40,500
110,000
(410)
(313,028)
38,437
(57,735)
11,292
(12,531)
(146,811)
(357)
(330,643)

(322,786)
1,980
471,154
150,348

Net change in cash and cash equivalents ...............................................................
Effect of exchange rate changes on cash and cash equivalents .............................
Cash and cash equivalents, beginning of period ....................................................
Cash and cash equivalents, end of period .............................................................. $

(32,106)
6,902
147,284
122,080 $

4,189
(7,253)
150,348
147,284 $

See accompanying notes.

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

Note 1 – Significant Accounting Policies

Nature of Operations

We distribute health care products and services primarily to office-based health care practitioners with
operations or affiliates in the United States, Australia, Austria, Belgium, Canada, China, the Czech Republic,
France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Luxembourg, Mauritius, the Netherlands, New
Zealand, Portugal, Slovakia, Spain, Switzerland, Thailand, Turkey and the United Kingdom.

Principles of Consolidation

Our consolidated financial statements include the accounts of Henry Schein, Inc. and all of our controlled

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 or
investments in unconsolidated affiliates of less than 20% in which we have the ability to influence the operating or
financial decisions, are accounted for under the equity method. See Note 6 for accounting treatment of Redeemable
noncontrolling interests. 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 accounting principles generally accepted in the

United States 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 results of operations and cash flows on a 52-53 week basis ending on the last Saturday of

December. The year ended December 29, 2012 consisted of 52 weeks, the year ended December 31, 2011
consisted of 53 weeks and the year ended December 25, 2010 consisted of 52 weeks.

Revenue Recognition

We generate revenue from the sale of dental, medical and animal health consumable products, as well as

Revenue derived from the sale of consumable products is recognized when products are shipped to customers.

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

Note 1 – Significant Accounting Policies – (Continued)

Revenue derived from multiple element arrangements, and the related deferral of such revenue (which is

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.

Cash and Cash Equivalents

We consider all highly liquid short-term investments with an original maturity of three months or less to be

cash equivalents. Due to the short-term maturity of such investments, the carrying amounts are a reasonable
estimate of fair value. Outstanding checks in excess of funds on deposit of $59.4 million and $49.1 million,
primarily related to payments for inventory, were classified as accounts payable as of December 29, 2012 and
December 31, 2011.

Available-for-sale Securities

We determine cost of investments in available-for-sale securities on a specific identification basis. As of

December 29, 2012 and December 31, 2011, unrealized losses, which are recorded in Accumulated other
comprehensive income within the equity section of our consolidated balance sheets, on our available-for-sale
securities totaled $0.5 million and $1.2 million, respectively. Gross realized gains and losses were immaterial in all
periods presented.

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

Note 1 – Significant Accounting Policies – (Continued)

Accounts Receivable and Reserves

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects our best estimate

Inventories and Reserves

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. Direct shipping and
handling costs were $63.8 million, $61.8 million and $57.0 million for the years ended December 29, 2012,
December 31, 2011 and December 25, 2010.

Advertising and Promotional Costs

We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses were $10.4 million, $13.1 million and $12.7 million for the years ended December 29, 2012, December
31, 2011 and December 25, 2010. Additionally, advertising and promotional costs incurred in connection with
direct marketing, including product catalogs and printed material, are deferred and amortized on a straight-line
basis over the period which is benefited, generally not exceeding one year. As of December 29, 2012 and
December 31, 2011, we had $3.5 million and $4.2 million of deferred direct marketing expenses included in other
current assets.

Supplier Rebates

Supplier rebates are included as a reduction of cost of sales and are recognized over the period they are earned.

The factors we consider in estimating supplier rebate accruals include forecasted inventory purchases and sales, in
conjunction with supplier rebate contract terms, which generally provide for increasing rebates based on either
increased purchase or sales volume.

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

Note 1 – Significant Accounting Policies – (Continued)

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation or amortization. Depreciation is
computed primarily under the straight-line method (see Note 2 - Property and Equipment, Net for estimated useful
lives). Amortization of leasehold improvements is computed using the straight-line method over the lesser of the
useful life of the assets or the lease term.

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

Income Taxes

We account for income taxes under an asset and liability approach that requires the recognition of deferred
income 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 income 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 U.S. federal income tax return with our 80% or greater owned U.S. 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
Accumulated other comprehensive income 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 foreign currency exchange rates.
Our objective is to manage the impact that foreign currency exchange rate fluctuations could have on recognized
asset and liability fair values, earnings and cash flows. 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. We do not enter into derivative instruments for speculative
purposes. Our derivative instruments primarily include foreign currency forward agreements related to certain
intercompany loans and certain forecasted inventory purchase commitments with foreign suppliers.

Our foreign currency forward agreements related to forecasted inventory purchase commitments are designated
as cash flow hedges. Our foreign currency forward agreements related to foreign currency balance sheet exposure
provide economic hedges but are not designated as hedges for accounting purposes.

For agreements not designated as hedges, changes in the value of the derivative, along with the transaction gain

or loss on the hedged item, are recorded in earnings. For cash flow hedges, the effective portion of the changes in
the fair value of the derivative, along with any gain or loss on the hedged item, is recorded as a component of
Accumulated other comprehensive income in stockholders’ equity and subsequently reclassified into earnings in the
period(s) during which the hedged transaction affects earnings.

We classify the cash flows related to our hedging activities in the same category on our consolidated statements

of cash flows as the cash flows related to the hedged item.

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

Note 1 – Significant Accounting Policies – (Continued)

Acquisitions

The net assets of businesses purchased are recorded at their fair value at the acquisition date and our
consolidated financial statements include their results of operations from that date. Any excess of acquisition
consideration over the fair value of identifiable net assets acquired is recorded as goodwill. The major classes of
assets and liabilities that we generally allocate purchase price to, excluding goodwill, include identifiable intangible
assets (i.e., trademarks and trade names, customer relationships and lists and non-compete agreements), property,
plant and equipment, deferred taxes and other current and long-term assets and liabilities. The estimated fair value
of identifiable intangible assets is based on critical estimates, judgments and assumptions derived from: analysis of
market conditions; discount rate; discounted cash flows; customer retention rates; and estimated useful lives. Some
prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash consideration if
certain financial targets are met. For acquisitions completed prior to 2009, we accrue liabilities that may arise from
these transactions when we believe that the outcome of the contingency is determinable beyond a reasonable doubt.
For 2009 and future acquisitions, we accrue liabilities for the estimated fair value of additional purchase price
adjustments at the time of acquisition. Any adjustments to these accruals are recorded in our consolidated
statement of income. For the years ended December 29, 2012, December 31, 2011 and December 25, 2010, there
were no material adjustments recorded in our consolidated statement of income relating to changes in estimated
contingent purchase price liabilities.

Redeemable Noncontrolling Interests

Some minority shareholders in certain of our subsidiaries have the right, at certain times, to require us to
acquire their ownership interest in those entities at fair value. Their interests in these subsidiaries are classified
outside permanent equity on our consolidated balance sheets and are carried at the estimated redemption amounts.
The redemption amounts have been estimated based on expected future earnings and cash flow and, if such
earnings and cash flow are not achieved, the value of the redeemable noncontrolling interests might be impacted.
Changes in the estimated redemption amounts of the noncontrolling interests subject to put options are reflected at
each reporting period with a corresponding adjustment to Additional paid-in capital. Future reductions in the
carrying amounts are subject to a “floor” amount that is equal to the fair value of the redeemable noncontrolling
interests at the time they were originally recorded. The recorded value of the redeemable noncontrolling interests
cannot go below the floor level. These adjustments do not impact the calculation of earnings per share.