Henry Schein Annual Report 2016

FY2016 Annual Report · Henry Schein

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B R I N G I N G T O G E T H E R A N E T W O R K

O F S O L U T I O N S , K N O W L E D G E A N D E X P E R T I S E

A N N U A L R E P O R T 201 6

Henry Schein, Inc. (Nasdaq:HSIC) is the
world’s largest provider of health care
products and services to office-based
dental, animal health, and medical
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 S&P 500®
and the Nasdaq 100® indexes, Henry
Schein employs more than 21,000 Team
Schein Members and serves more than
1 million 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 120,000 branded
products and Henry Schein private brand
products in stock, as well as more than
180,000 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 33 countries. The Company’s sales
reached a record $11.6 billion in 2016, and
have grown at a compound annual rate
of approximately 15% since Henry Schein
became a public company in 1995.

For more information, visit Henry Schein
at www.henryschein.com,
Facebook.com/HenrySchein
and @HenrySchein on Twitter.

Henry Schein Financial Highlights
2012–2016

NET SALES
($ in Millions)
CAGR 7%**

NON-GAAP EARNINGS
PER DILUTED SHARE*
CAGR 10%**

2
7
5
,
1
1
$

0
3
6
0
1
$

1
7
3
0
1
$

1
6
5
9
$

0
4
9
8
$

$10,000

$8,000

$6,000

$4,000

$2,000

1
6
6
$

6
9
5
$

4
4
5

5 $
9
4
$

4
4
4
$

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

NON-GAAP OPERATING INCOME*
($ in Millions)
CAGR 7%**

OPERATING CASH FLOW
AND CAPITAL EXPENDITURES
($ in Millions)

$769

8
1
8
$

9
6
7

5 $
1
7
$

7
7
6
$

4
3
6
$

$800

$700

$600

$500

$400

$300

$200

$100

4
6
6
$

3
9
5
$

7
8
5
$

5
1
6
$

)
1
(

8
0
4
$

$51

$60

$82

$72

$70

$600

$500

$400

$300

$200

$100

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

Operating Cash Flow
Capital Expenditures

Non-GAAP Operating Income and Non-GAAP Earnings Per Diluted Share attributable to Henry Schein, Inc. for 2012,
2013, 2015 and 2016 have been adjusted to exclude certain one-time items. Refer to page 8 for a reconciliation of
GAAP and Non-GAAP measures. Additionally, refer to our annual consolidated financial statements for a complete
presentation of our Consolidated Statements of Cash Flows.

** Four-year Compound Annual Growth Rate

(1) Includes effect of forward inventory buy-ins of $150MM in 2012

A Message from the Chairman of the Board

and Chief Executive Officer

#268
FORTUNE® 500
Ranking of the
Largest U.S.
Corporations
(13 Years)

DENTAL
Only global dental distributor to general
practitioners, specialists, and laboratories

Growth Opportunities:
• Increasing penetration with

existing customers

• Geographic expansion
• Advancing technology solutions,
including practice management

• Greater penetration of specialty markets
• Continued focus on large group practices
• Digitalization of prosthetic solutions

TECHNOLOGY
& VALUE-ADDED SERVICES
A leader in practice management
software solutions for Dental and
Animal Health Practices
Full-service provider of financial services

Growth Opportunities:
• Increasing penetration with

existing customers

• Geographic expansion
• Ability to serve large practices
• Continued focus on facilitating

financial services for technology
investments and office expansion

2016 GLOBAL
net sales of
$11.6 BILLION

48.0% DENTAL

28.1% ANIMAL HEALTH

20.2% MEDICAL

3.7%

TECHNOLOGY &
VALUE-ADDED SERVICES

2016 net sales of $3.3 billion

2016 net sales of $5.6 billion

ANIMAL HEALTH
Only global animal health distributor

Growth Opportunities:
• Increasing penetration with

existing customers

• Geographic expansion
• Advancing technology solutions,
including practice management

• Continued focus on large

group practices

• Focus on practice-building products

and services

A Message from the Chairman of the Board
MEDICAL
A leading U.S. distributor to primary
and Chief Executive Officer
care physicians and specialists, group
practices, physician-owned labs, and
ambulatory surgery centers
Operations in certain European markets

2016 net sales of $2.3 billion

Growth Opportunities:
• Increasing penetration with

existing customers

• Greater penetration of U.S. market
• Continued focus on large

group practices

• Focus on specialty segments

and solutions

• Select international opportunities

2016 net sales of $426 million

To My Fellow Stockholders,

Without question, the complexities of the
global health care ecosystem in which we
operate creates the need for powerful,
collaborative, and technology-enabled
solutions. Due to Henry Schein’s scale
and our growing global footprint, we
are in an excellent position to bring
together a valuable network of solutions,
knowledge, and expertise. We continued
to deliver on the promise of our business
strategy during 2016, a year of further
momentum for Henry Schein and growth
in the global health care market.

Despite the changing socioeconomic
and political landscapes, the most
significant challenges facing health care
remain: access, quality, and cost. Each
not only impacts the markets we serve,
but also provides significant opportunity
for Henry Schein. The rising burden
of these challenges heightens the
importance of wellness and prevention.
It also makes the need for practice
efficiency even more important. Our
success as a company has been built on
helping clinicians look to the long-term
success of their practices and providing
them with the resources they need to
manage and grow profitable businesses.

At every Henry Schein office around
the world, we embrace a culture of
diversity and entrepreneurialism that has
enabled our execution in a competitive
and rapidly changing marketplace.
Globalization and the proliferation of
technology will afford multinational
companies such as ours the opportunity
to bridge the economic divide and
promote interconnected societies that
enable greater access to resources and
more comprehensive care. In order to
accomplish this, we must look ahead to
how our investments and contributions
today will promote a better future for our
company and society as a whole.

While we have enjoyed tremendous
success in growing our business over
our 85-year history, we know we must
continue to evolve in order to meet the
ever-changing needs of our customers.
They look to us for innovative ideas
on the adoption of digital technology
and new ways of doing business. They
rely on our consultative approach as
the foundation of our relationship. As
we evolve our business to lead change
that helps our customers grow their
practices, they too are transitioning to
more successful enterprises.

FOUR PILLARS OF SUCCESS
The framework for our offering is built on four
pillars we consider to be key differentiators
and fundamental to our success.

• Supply Chain Solutions:

Our customers rely on us for a
comprehensive product selection to
deliver the right products at the right time,
with inventory replenishment management
solutions and business reporting.

• Technology Solutions:

Our customers rely on us to harness the
power of technology for the benefit of
their practice or laboratory with practice
management systems, integration
services, technology support, hosting
services, and digital solutions.

• Clinical Solutions:

Our customers rely on us to stay on
the cutting edge of patient care with
the latest in specialty products, clinical
education, laboratory services, and
compliance solutions.

• Business Solutions:

Our customers rely on us to help
them successfully manage and grow
their business through offerings such
as practice planning, management
consulting, financial services, and
patient marketing solutions.

a commitment to open-architecture
products and platforms that enhance
the customer experience and provide
real value to their practices. Building on
our brand promise of being a reliable,
trusted resource to our customers, we
have the vision and the resources to
bring together solutions, knowledge,
and expertise, with Henry Schein
at the core.

2016 FINANCIAL RESULTS

Our success in assembling this network
led to our achieving a record $11.6
billion in net sales for 2016, up 8.9%
from the prior year. Internal sales
growth in local currencies was 6.7%
when excluding the impact of an extra
week of sales related to the timing of
our 2016 fiscal year-end. On that same
basis, our Global Dental sales grew
by 3.2% despite seemingly temporary
market softness in North America;
Animal Health sales increased by 9.6%;
Medical sales grew by 11.1%; and our
Technology and Value-Added Services
sales increased by 7.9%. We believe
we gained market share in each of our
business groups on a global basis.

We are a customer-driven health
solutions network powered by poeple
and technology. We bring to market

A Message from the Chairman of the Board
and Chief Executive Officer

Diluted earnings per share increased
by 8.8% on a GAAP basis or by 10.9%
on a non-GAAP basis* from 2015, and
operating cash flow for the year was
$615.5 million, exceeding GAAP net
income by more than $108 million.

COMMITMENT TO SOCIETY
AND TO SHAREHOLDER VALUE
Our success as a Company is a credit
to our people, our culture of care
and respect, and our commitment to
corporate social responsibility. This
commitment is rooted in our belief that
we have a duty as a corporate citizen
to give back to those we serve. In our
view, “doing good” creates the trust
across all our constituencies—Team
Schein Members, customers, supplier
partners, investors, and society.

This leads to higher customer
satisfaction, greater cooperation with
supplier partners, higher employee
engagement, and, ultimately, generates
long-term shareholder value.
In line with our commitment to building
shareholder value, Henry Schein
is proud to have recently joined
The American Prosperity Project, a
nonpartisan framework for long-term
investment. Together with a coalition
of key leaders across many industries,
signatories to this framework endorse
actions where businesses and
governments work together to promote
long-term investment, innovation,
and economic opportunity so that
communities may prosper.

In addition, Henry Schein is a core
member of the World Economic
Forum’s Compact for Responsive
and Responsible Leadership, tasked
with creating a corporate governance
framework with a focus on the
sustainability of corporations and long-
term goals of society. We believe that
business has a role to play in ensuring
that all segments of society are treated
fairly, and this roadmap seeks to
promote the common good in business,
government, and civil society.

This past year we were honored to
be chosen among the top performers
within the Health Care Technology and
Distribution sector in the CEO, CFO,
and IR Program categories as part of
Institutional Investor’s 2017 survey for
the All-America Executive Team. These
awards speak to our commitment to
open communications and transparency
with our investors, as well as our
commitment to driving business
execution and delivering value to
our shareholders.

BOARD OF DIRECTORS AND
EXECUTIVE LEADERSHIP

In 2016, we welcomed two new Board
members. Joseph Herring, former
CEO of Covance, whose health care
experience spans more than 35 years,
and Kurt Kuehn, who spent his career
at United Parcel Service, including eight
years as their CFO, bring a wealth of
talent and expertise to our board and
we look forward to their contributions
as we build on the momentum of our
strategic plan.

We also announced two additions to
our Executive Management team with
the appointments of Karen Prange as
Executive Vice President and Chief
Executive Officer of our Global Animal
Health, Medical, and Dental Surgical
Group, and Bridget Ross as President
of the Global Medical Group. As market,
technological and demographic forces
converge to create unique business

COMPONENT OF
NASDAQ 100®
(10 Years)
AND S&P 500® INDEXES
(2 Years)

opportunities for Henry Schein, we are
delighted that Karen and Bridget have
joined us to help make the most of
these opportunities.

Opportunity is not something we are
short on. I would like to thank our more
than 21,000 Team Schein Members,
whose commitment, hard work, and
alignment with our strategy has enabled
the consistent delivery on our strategic
plan and set the course for continued
success.

On behalf of our Board of Directors,
I thank you, our stockholders, for your
continued support of our Company.

Sincerely,

Stanley M. Bergman

Chairman of the Board and
Chief Executive Officer

April 2017

Forward looking statements made in this report are subject to
the reservations specified in the Safe Harbor statement noted
in the Company’s Form 10-K filing.

* See reconciliation of GAAP and Non-GAAP measures

on page 8.

we know we must continue to evolve in order to meet the ever-changing needs of our customers. Henry Schein founded our Company in
1932 based on the belief that our success
is inextricably linked to the success of the
customers and communities we serve. Ever
since, we have pursued the ideal of “doing
well by doing good.” This spirit of corporate
citizenship is exemplified through Henry
Schein Cares, our global corporate social
responsibility program.

Through Henry Schein Cares, we seek
to “help health happen” by expanding
access to health care for underserved and
vulnerable populations around the world.
We assist those with limited access to care
through three strategic priorities: wellness,
prevention, treatment, and education;
emergency preparedness and relief; and
capacity building.

Central to our accomplishments is our
public-private partnership model through
which we mobilize partners—including the
health care industry, non-governmental
organizations, professional associations,
and Team Schein Members—to work
together as positive agents for change.

SELECTED HENRY SCHEIN CARES ACCOMPLISHMENTS IN 2016

ACCESS TO CARE

Alpha Omega-Henry Schein Cares
Holocaust Survivors Oral Health
Program: A three-year initiative of
Henry Schein Cares and the Alpha
Omega International Dental Fraternity,

this program has provided approximately $900,000 in free dental
care to more than 500 low-income Holocaust survivors to date.

The Major Stuart Adam Wolfer Institute (MSAWI): Donated 1,500
oral health kits to MSAWI that were included in care packages
prepared for active-duty U.S. troops and veterans in need.

TEAM SCHEIN

Holiday Cheer for Children: Spread joy to children in need and their
families around the world by providing them with toys, clothing,
supermarket gift cards, and other gifts during the holiday season.

Give Kids A Smile: Continued to support this ADA Foundation
initiative in 2016, when nearly 40,000 dental team volunteers
provided 300,000 underserved children with free oral health
screenings, treatment, and education. To date, more than 5.5
million children have participated in the program.

A Message from the Chairman of the Board
and Chief Executive Officer

Henry Schein Cares-Canine Companions Puppy Raiser Care
Packages: Continued to support volunteer puppy raisers who help
train service dogs for people with physical disabilities by providing
them with more than 700 care packages filled with essential
products for the puppy’s care and development.

Back to School: Held at 31 Company locations around the world,
this program provided more than 5,000 underserved children with
the backpacks, classroom supplies, books, hygiene products, and
clothing they need to return to the classroom ready to succeed.

DISASTER PREPAREDNESS AND EMERGENCY RELIEF

Global Pandemic Supply Chain Network: Continued to serve
as the private sector lead of this public-private initiative formed
in response to lessons learned from the 2014 West Africa Ebola
outbreak and the discussions that followed at the World Economic
Forum in Davos in 2015. Once launched, the network will serve as
a shared platform to respond to public health emergencies with
vital health care products and equipment necessary for a public
health response and strategic upstream and downstream logistics
capacities based on a common approach designed to save lives.

Hurricane Matthew Relief Efforts: Joined its Team Schein Members
to donate more than $100,000 in cash and health care products
to relief organizations working in impacted areas throughout
the southeastern United States and the Caribbean that were
affected by Hurricane Matthew. Organizations receiving cash and
product donations include AmeriCares, Catholic Medical Mission
Board, Catholic Relief Services, Direct Relief International, Heart
to Heart International, International Medical Corps, IsraAid, LDS
Philanthropies, Lutheran World Relief, Inc., MAP International,
MedShare, Partners in Health, and Project HOPE.

Refugee Relief: Supported initiatives around the world dedicated
to protecting the health needs of refugees, including the
commitment of more than $50,000 in oral health products to
support international organizations treating refugees; the donation
of health and hygiene products that were included in thousands of
personal care kits sent to Syrians living in refugee camps in Turkey;
and the Company’s membership in the Tent Alliance, a network of
businesses that works to end the refugee crisis.

Henry Schein Cares Medal: Awarded the inaugural Henry Schein
Cares Medals to organizations that demonstrate excellence in
expanding access to care to the underserved by dental, medical,
and animal health professionals.

The Henry Viscardi School: Donated more than $100,000 in
medical products to the Henry Viscardi School, a school for
children with severe physical disabilities and who often require
life-sustaining medical treatment throughout the day.

A FORTUNE®
WORLD’S MOST
ADMIRED COMPANY
(16 Years)

A Message from the Chairman of the Board
and Chief Executive Officer

Front row, left to right:

James A. Harding

Senior Vice President and Chief Technology Officer

James P. Breslawski

President, Henry Schein, Inc. and Chief Executive Officer, Global Dental Group, Member of the Board of Directors

Lorelei McGlynn

Senior Vice President, Global Human Resources and Financial Operations

Stanley M. Bergman

Chairman of the Board and Chief Executive Officer

Walter Siegel

Senior Vice President and General Counsel

Paul Rose

Senior Vice President, Global Supply Chain

Bob Minowitz

President, International Dental Group—EMEA Region

Peter McCarthy

President, Global Animal Health Group

Back row, left to right:

Gerald A. Benjamin

Executive Vice President and Chief Administrative Officer, Member of the Board of Directors

Mark E. Mlotek

Executive Vice President and Chief Strategic Officer, Member of the Board of Directors

Michael Racioppi

Senior Vice President and Chief Merchandising Officer

Steven Paladino

Executive Vice President and Chief Financial Officer, Member of the Board of Directors

Karen Prange

Executive Vice President and Chief Executive Officer, Global Animal Health, Medical and Dental Surgical Group

David C. McKinley

Chief Commercial Officer, Henry Schein, Inc. and President of Corporate Commercial Development Group

Michael S. Ettinger

Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary

Bridget Ross, who joined Henry Schein in February of 2017 as President, Global Medical Group, is not pictured.

(As of December 2016)

AN
ETHISPHERE®
INSTITUTE WORLD’S
MOST ETHICAL
COMPANY
(6 Years)

A Message from the Chairman of the Board
and Chief Executive Officer

Front row, left to right:

James P. Breslawski

President, Henry Schein, Inc. and Chief Executive Officer, Global Dental Group

Barry J. Alperin

Retired Vice Chairman, Hasbro, Inc.; Member of the Board of Directors of Fiesta Restaurant Group, Inc., Jefferies Group LLC,

Sterling Drive Ventures, Inc. and Weeks Marine, Inc. (1) (2) (3)

Carol Raphael

Senior Advisor for Manatt Health Solutions; Former President and CEO, Visiting Nurse Service of New York;

Member of the Board of Directors of the New York eHealth Collaborative (4)

Stanley M. Bergman

Chairman of the Board and Chief Executive Officer

Donald J. Kabat

Former Chief Financial Officer of Central Park Skaters, Inc.; Former President of D.J.K. Consulting Services, Inc.; Retired Partner, Accenture
PLC Ireland; Member of the Board of Directors for several not-for-profit organizations (1) (2)

Joseph L. Herring

Former Chief Executive Officer Covance, Inc.; Member of the Board of Directors of the University Medical Center of Princeton (4)

Lawrence S. Bacow, Ph.D.

Leader-in-Residence, Center for Public Leadership at Harvard’s Kennedy School of Government; Member and Chair of the Finance
Committee, Harvard Corporation; Member of the Board of Directors of Liquidnet Holdings, Inc. and Loews Corporation (3) (4)

Back row, left to right:

Paul Brons

Former President of Organon International BV; Former Member of the Board of Management of Akzo Nobel N.V. (4)

Gerald A. Benjamin

Executive Vice President and Chief Administrative Officer

Mark E. Mlotek

Steven Paladino

Executive Vice President and Chief Strategic Officer

Executive Vice President and Chief Financial Officer; Member of the Board of Directors of MSC Industrial, Co., Inc.

Philip A. Laskawy

Retired Chairman, Ernst & Young, LLP (now known as EY LLP) and Member of the Board of Directors of Lazard Ltd. and Loews Corporation;

Lead Director for Henry Schein, Inc. (1) (3) (4)

Bradley T. Sheares, Ph.D.

Former CEO, Reliant Pharmaceuticals and Former President of U.S. Human Health for Merck & Co.;

Member of the Board of Directors of Honeywell International and The Progressive Corporation (2) (3) (4)

E. Dianne Rekow, DDS, Ph.D.

Former Dean of the Dental Institute at King’s College London and Professor of Orthodontics; Former Professor of Orthodontics,

Senior Vice Provost of Engineering Technology and Provost of Polytechnic Institute at New York University (4)

Kurt P. Kuehn

Former Chief Financial Officer of United Parcel Service, Inc.; Member of the Board of Directors of NCR Corporation (1)

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

(4) Member of Strategic Advisory Committee

(As of April 2017)

COMMON STOCK
Henry Schein Common Stock trades on the
Nasdaq® Stock Market under the symbol “HSIC.”

ANNUAL MEETING OF STOCKOLDERS
Our Annual Meeting of Stockholders will be
held on May 31, 2017 at 10:00 a.m. EDT at
The Melville Marriott Long Island, located at
1350 Walt Whitman Road, Melville, NY 11747.

FOLLOW HENRY SCHEIN
Facebook: http://www.facebook.com/henryschein
Twitter: http://twitter.com/henryschein
Instagram: http://instagram.com/henryschein
LinkedIn: http://www.linkedin.com/company/henry-schein
You Tube: http://www.youtube.com/user/henryscheininc

STOCKHOLDER REPORTS
AND INVESTOR INQUIRIES
For stockholder inquiries, including requests for
quarterly and annual reports, contact our Investor
Relations department at (631) 843-5611, or e-mail
your request to investor@henryschein.com.
Printed materials can also be requested through
the Company’s website, www.henryschein.com.

FORM 10-K
Our Annual Report on Form 10-K for the fiscal
year ended December 31, 2016 has been filed
with the SEC and is available free of charge
through our Internet website, www.henryschein.
com. Stockholders may also obtain a copy of the
Form 10-K upon written request to Henry Schein,
Inc., 135 Duryea Road, Melville, New York 11747,
Attn: Investor Relations, via email at investor@
henryschein.com or facsimile at (631) 843-5541. In
response to such request, the Company will furnish
without charge the Form 10-K including financial
statements, financial schedules and a list of exhibits.

INDEPENDENT AUDITORS
BDO USA, LLP
100 Park Avenue, New York, New York 10017

LEGAL COUNSEL
Proskauer Rose, LLP
Eleven Times Square, New York, New York 10036

STOCK TRANSFER AGENT
For address changes, account cancellation,
registration changes and lost stock certificates,
please contact:

Continental Stock Transfer & Trust Company
17 Battery Place, 8th Floor,
New York, New York 10004
(212) 509-4000

Year Ended
December 31,
2016

Year Ended
December 26,
2015
(in thousands, except per share data)

Year Ended
December 28,
2013

Year Ended
December 29,
2012

Operating income, as reported
Operating margin, as reported

$ 771,574
6.7%

$ 733,972
6.9%

$ 677,054
7.1%

$ 618,961
6.9%

Adjustments:

Restructuring costs (1)

Adjusted operating income

Adjusted operating margin

Net income attributable
to Henry Schein, Inc.:

As reported

Adjustments, net of tax:

Restructuring costs (1)

Foreign tax benefit (2)

Loss on sale of equity investment (3)

Accelerated amortization of
deferred financing costs (4)

One time tax benefit (5)

Adjusted net income attributable
to Henry Schein, Inc.:

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

As reported

Adjusted

Diluted weighted-average
common shares outstanding:

$ 45,891

$ 817,465

7.1%

$ 34,931

$ 768,903

7.2%

$ 677,054

7.1%

$ 15,192

$ 634,153

7.1%

$ 506,778

$ 479,058

$ 431,554

$ 388,076

$ 34,418

$ 26,198

$ 10,537

$ (13,398)

$ 12,535

$ 2,679

$ (3,802)

$ 541,196

$ 501,454

$ 433,370

$ 398,613

$ 6.19

$ 6.61

$ 5.69

$ 5.96

$ 4.93

$ 4.95

$ 4.32

$ 4.44

81,862

84,125

87,622

89,823

NON-GAAP DISCLOSURES
The following table sets forth, for the applicable periods, a reconciliation of
operating income, net income attributable to Henry Schein, Inc., and diluted
earnings per share adjusted to reflect the effects of restructuring costs and
other adjustments.
USE OF NON-GAAP MEASURES:
The information in the table includes financial measures that are not calculated and
presented in accordance with accounting principles generally accepted in the United
States (“GAAP”). The table reconciles operating income, net 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 the items
listed below.
We eliminated the effect of the items listed below to assist in evaluating the
underlying operational performance of our business, excluding such costs, over the
periods presented. Management believes that non-GAAP financial measures provide
investors with useful supplemental information about the financial performance
of our business, enable comparison of financial results between periods where
certain items may vary independent of business performance and allow for greater
transparency with respect to key metrics used by management in operating our
business. These non-GAAP financial measures are presented solely for informational
and comparative purposes and should not be regarded as a replacement for
corresponding, similarly captioned, GAAP measures.
NOTES:
(1) During 2016, we recorded restructuring costs of $45.9 million pre-tax ($34.4

million post-tax). During 2015, we recorded restructuring costs of $34.9 million
pre-tax ($26.2 million post-tax). During 2012, we recorded restructuring costs of
$15.2 million pre-tax ($10.5 million post-tax). The effect that these charges had on
earnings per diluted share attributable to Henry Schein, Inc. was ($0.42), ($0.32)
and ($0.12), respectively.

(2) During 2013, we reduced the remaining valuation allowance of $13.4 million on
the deferred tax asset associated with a net operating loss carryforward outside
of the United States. The effect that this transaction had on earnings per diluted
share attributed to Henry Schein, Inc. was $0.15.

(3) Represents a loss on divestiture in 2013 of a noncontrolling interest in a dental
wholesale distributor in the Middle East. The effect that this transaction had on
earnings per diluted share attributable to Henry Schein, Inc. was ($0.14).
(4) In February 2013, we repaid the then outstanding debt related to the Henry

Schein Animal Health, formerly Butler Schein Animal Health, transaction. As part
of this transaction, we recorded a one-time interest charge of $6.2 million
pre-tax ($2.7 million post-tax) related to the accelerated amortization of deferred
financing costs. The effect that this transaction had on earnings per diluted share
attributed to Henry Schein, Inc. was ($0.03).

(5) Represents a one-time income tax benefit of $6,337 from a favorable tax ruling
received during Q3 2015 by a subsidiary, net of noncontrolling interest of $2,535,
resulting in a net income effect of $3,802.

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 31, 2016

__ 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. X

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 25, 2016, was approximately $13,826,764,000.

As of February 16, 2017, there were 79,196,697 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 31, 2016) are incorporated by reference in Part III hereof.

Documents Incorporated by Reference:

TABLE OF CONTENTS

PART I.

Page
Number

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

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

3
20
33
34
35
35

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

36
39

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

41
67
68

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

112
112
115

PART III

ITEM 10.
ITEM 11.
ITEM 12.

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

115
115

ITEM 13.
ITEM 14.

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

116
116
116

PART IV

ITEM 15.
ITEM 16.

Exhibits, Financial Statement Schedules ...........................................................................................................
Form 10-K Summary .........................................................................................................................................
Signatures ..........................................................................................................................................................
Exhibit Index .....................................................................................................................................................

117
117
118
121

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, animal health and medical practitioners. We serve more than 1 million customers worldwide including
dental practitioners and laboratories, animal health clinics and physician practices, 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 84 years of experience distributing health care products.

We are headquartered in Melville, New York, employ more than 21,000 people (of which more than 10,500 are

based outside the United States) and have operations or affiliates in 33 countries, including the United States,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany, Hong
Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway,
Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand 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 120,000 branded products and Henry Schein private brand products in stock, as well
as more than 180,000 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 over 4.5 million square feet of space in 62 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, animal health and medical
operating segments. This segment distributes 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,
dental laboratories, schools and other institutions. Our global animal health group serves animal health practices
and clinics. Our global medical group serves office-based medical practitioners, ambulatory surgery centers, other
alternate-care settings and other institutions.

Our 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, as well as
continuing education services for practitioners.

Industry

The health care products distribution industry, as it relates to office-based health care practitioners, is
fragmented and diverse. This industry, which encompasses the dental, animal health and medical markets, was
estimated to produce revenues of approximately $45 billion in 2016 in the global 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 effects of 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, 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.

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, animal
health and medical products, primarily on the basis of price, breadth of product line, customer service and value-
added products and services. In the dental market, 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. In the animal health market, our primary
competitors are the MWI Animal Health division of AmerisourceBergen and the Patterson Veterinary division of
Patterson Companies, Inc. Our primary competitors in the medical market are McKesson Corporation and Medline
Industries, Inc., which are national distributors. We also compete against a number of regional and local animal
health and medical distributors, as well as a number of manufacturers that sell directly to veterinarians and
physicians. 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. In the animal
health practice management market, our primary competitors are IDEXX Laboratories, Inc. and the Patterson
Veterinary 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 the NextGen division of Quality
Systems, Inc., eClinicalWorks and Allscripts Healthcare Solutions, 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., Lifco AB, Planmeca
Oy, Billericay Dental Supply Co. Ltd., National Veterinary Services Limited (Patterson Veterinary division of
Patterson Companies, Inc.), Centaur Services Limited (MWI Animal Health division of AmerisourceBergen) and
Alcyon SA, as well as a large number of dental, animal health and medical product distributors and manufacturers
in Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany,
Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand,
Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand 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 84 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 3,800 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 2016, we distributed approximately 34 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 2,200 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 120,000 Stock Keeping Units, or SKUs, to our

customers. Of the SKUs offered, approximately 51,000 are offered to our dental customers,
approximately 12,000 to our animal health customers and approximately 55,000 to our medical
customers. We offer over 180,000 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, animal health and medical 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 31, 2016, we had an active user base of more than 95,000
practices, including users of Dentrix® Dental Systems, Dentrix® Enterprise, Dentrix® Dental
VisionTM, Dentrix Ascend®, Easy Dental®, OasisTM, Evolution® and EXACT®, Gesden®,
Julie®Software, Power Practice® Px, AxiUmTM, EndoVision®, PerioVision®, OMSVision® and
Viive® for dental practices; Advantage+TM, AVImark®, DVM Manager®, InfinityTM, Triple Crown®,
Vetstreet®, VisionVPMTM, Robovet®, and RxWorks® for animal health practices; and MicroMD® for
physician practices.

• Repair services. We have over 200 equipment sales and service centers worldwide that provide a
variety of repair, installation and technical services for our health care customers. Our technicians
provide installation and repair services for: dental handpieces; dental, animal health and medical 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 consulting services, 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 174,000 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 2016, our top 10 health care distribution suppliers and our single largest supplier accounted
for approximately 34% and 6%, 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:

Health care distribution:

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

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

48.0 %
28.1

20.2

96.3

49.6 %
27.5

19.5

96.6

51.9 %

27.9

16.8

96.6

2016

2015

2014

Technology:

Software and related products and

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

3.7

3.4

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 and digital restoration equipment.

(2)

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

(3)

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

products, equipment and vitamins.

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

and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other

services.

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, animal health and medical 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 1 million 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 service 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 animal health business, we have opportunities to cross-sell practice management software and other
products. 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.

• 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 2016 and 2026, the 45 and older population is expected to grow by approximately
12%. Between 2016 and 2036, this age group is expected to grow by approximately 25%. This compares with
expected total U.S. population growth rates of approximately 8% between 2016 and 2026 and approximately 15%
between 2016 and 2036.

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.

The animal health market, impacted by growing companion pet ownership and care, as well as 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.

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.

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. Revenues and profitability 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. Revenues and profitability 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 materially adversely affected by a variety of other factors, including:

• timing and amount of sales and marketing expenditures;

• timing of pricing changes offered by our suppliers;

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

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

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

• supplier rebates based upon attaining certain growth goals;

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

• costs of developing new applications and services;

• our ability to correctly identify customer needs and preferences and predict future needs and

preferences;

• uncertainties regarding potential significant breaches of data security or disruptions of our information

technology systems;

• unexpected regulatory actions, or government regulation generally;

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

manufactured by other suppliers;

• 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 shipping costs or service issues with our third-party shippers;

• fluctuations in the value of foreign currencies;

• restructuring costs;

• the adoption or repeal of legislation; and

• changes in accounting principles.

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

fluctuate. If our financial 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 United States federal laws applicable to us are the
Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended (“FDC Act”), and Section 361
of the Public Health Service Act. We are also subject to comparable foreign regulations.

The FDC Act and similar foreign laws generally regulate 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 (“FDA”)
regulation of human cells, tissues and cellular and tissue-based products, also known as “HCT/P products.”

The Federal Drug Quality and Security Act of 2013 brought about significant changes with respect to
pharmaceutical supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug
Supply Chain Security Act (“DSCSA”), is being phased in over ten years, and is intended to build a national
electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United
States. The law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers and
dispensers (e.g., pharmacies) of prescription drugs took effect in January 2015, subject to certain enforcement
delays by the FDA, and will continue to be implemented. The DSCSA product tracing requirements replace the
former FDA drug pedigree requirements and pre-empt state requirements that are inconsistent with, more stringent
than, or in addition to, the DSCSA requirements.

The DSCSA also establishes certain requirements for the licensing and operation of prescription drug

wholesalers and third party logistics providers (“3PLs”), and includes the creation of national wholesaler and 3PL
licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. The DSCSA requires wholesalers and 3PLs to submit annual reports to the FDA, which include
information regarding each state where the wholesaler or 3PL is licensed, the name and address of each facility and
contact information. According to FDA guidance, states are pre-empted from imposing any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered by the standards established by federal
law in this area. Current state licensing requirements will likely remain in effect until the FDA issues new
regulations as directed by the DSCSA.

We believe that we are substantially compliant with applicable DSCSA requirements.

The Food and Drug Administration Amendments Act of 2007 and the Food and Drug Administration Safety
and Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate regulations to implement a
unique device identification (“UDI”) system. The FDA is phasing in the implementation of the UDI regulations
over seven years, generally beginning with the highest-risk devices (i.e., Class III medical devices) and ending with
the lowest-risk devices. The UDI regulations require “labelers” to include unique device identifiers (“UDIs”), with
a content and format prescribed by the FDA and issued under a system operated by an FDA-accredited issuing
agency, on the labels and packages of medical devices, and to directly mark certain devices with UDIs. The UDI

regulations also require labelers to submit certain information concerning UDI-labeled devices to the FDA, much of
which information is publicly available on an FDA database, the Global Unique Device Identification Database.
The UDI regulations provide for certain exceptions, alternatives and time extensions. For example, the UDI
regulations include a general exception for Class I devices exempt from the Quality System Regulation (other than
record-keeping requirements and complaint files). Regulated labelers include entities such as device
manufacturers, repackagers, reprocessors and relabelers that cause a device’s label to be applied or modified, with
the intent that the device will be commercially distributed without any subsequent replacement or modification of
the label, and include certain of our businesses.

We believe that we are substantially compliant with applicable UDI requirements.

Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain and
renew annually registrations for our facilities from the United States Drug Enforcement Administration (“DEA”)
permitting us to handle controlled substances. We are also subject to other statutory and regulatory requirements
relating to the storage, sale, marketing, handling and distribution of such drugs, in accordance with the Controlled
Substances Act and its implementing regulations, and these requirements have been subject to heightened
enforcement activity in recent times. We are subject to inspection by the DEA.

Certain of our businesses are also required to register for permits and/or licenses with, and comply with
operating and security standards of, the DEA, the FDA, 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. We are also subject to
foreign government regulation of such products. The DEA, the FDA 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. Foreign regulations subject us to similar foreign enforcement
powers. 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.

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

regulatory requirements specific to government contractors.

Antitrust

The U.S. federal government, most U.S. states and many foreign countries have antitrust laws that prohibit
certain types of conduct deemed to be anti-competitive. Violations of antitrust laws can result in various sanctions,
including criminal and civil penalties. Private plaintiffs also could bring civil lawsuits against us in the United
States for alleged antitrust law violations, including claims for treble damages.

Health Care Fraud

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, in accordance with an interim final rule published by the Department Justice on June 30, 2016, which
substantially increased maximum civil penalties for False Claims Act violations, the amounts for civil penalties
assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, were increased from
$11,000 per claim for pre-November 2, 2011 violations to up to $21,563 per claim. Most states have adopted
similar state false claims laws, and these state laws have their own penalties which may be in addition to federal
False Claims Act penalties. The Health Care Reform Law significantly strengthened the federal False Claims Act
and the 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.

The United States government (among others) 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 also are subject to certain United States and foreign laws and regulations concerning the conduct of our
foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, German anti-corruption
laws and other anti-bribery laws and laws pertaining to the accuracy of our internal books and records, which have
been the focus of increasing enforcement activity globally 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 effect 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 applicable 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 to changes in applicable law or interpretation of laws, could have a material adverse effect on our
business.

Health Care Reform

The United States Health Care Reform Law adopted through the March 2010 enactment of the Patient
Protection and Affordable Care Act and the Health Care and Education Reconciliation Act 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.

imposition of the tax on device sales during the period beginning January 1, 2016 and ending on December 31,
2017. The Health Care Reform Law has also materially expanded the number of individuals in the United States
with health insurance. The Health Care Reform Law has faced ongoing legal challenges, including litigation
seeking to invalidate some of or all of the law or the manner in which it has been implemented. In addition, the
President and majorities in both houses of Congress have stated their intention to repeal the Health Care Reform
Law. The uncertain status of the Health Care Reform Law affects our ability to plan.

A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, has 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 for group purchasing organizations, with regard to certain
ownership interests held by physicians in the reporting entity. The Centers for Medicine and Medicaid Services
(“CMS”) publishes information from these reports on a publicly available website, including amounts transferred
and physician, dentist and teaching hospital identities.

Under the Physician Payment Sunshine Act we are required to collect and report detailed information regarding

certain financial relationships we have with physicians, dentists and teaching hospitals. We believe that we are
substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician Payment
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report
under certain state transparency laws that address circumstances not covered by the Physician Payment Sunshine
Act, and some of these state laws, as well as the federal law, can be ambiguous. We are also subject to foreign
regulations requiring transparency of certain interactions between suppliers and their customers. While we believe
we have substantially compliant programs and controls in place to comply with these requirements, our compliance
with these rules imposes additional costs on us.

Another notable Medicare health care reform initiative, the Medicare Access and CHIP Reauthorization Act of
2015 (“MACRA”), enacted on April 16, 2015, establishes a new payment framework, called the Quality Payment
Program, which modifies certain Medicare payments to “eligible clinicians,” including physicians, dentists and
other practitioners. Under MACRA, eligible clinicians will be required to participate in Medicare through the
Merit-Based Incentive Payment System (“MIPS”) or Advanced Alternative Payment Models (“APMs”). MIPS
generally will consolidate three current programs; the physician quality reporting system, the value-based payment
modifier and the Medicare electronic health record (“EHR”) programs into a single program in which Medicare
reimbursement to eligible clinicians will include both positive and negative payment adjustments that take into
account quality, resource use, clinical practice improvement and meaningful use of certified EHR technology.
Advanced APMs generally involve higher levels of financial and technology risk. The final rule was published in
the Federal Register on November 4, 2016 and announced some flexibilities that allow eligible Medicare clinicians
to pick their pace of participation for the first performance period that began January 1, 2017. The data collected in
the first performance year will determine payment adjustments beginning January 1, 2019. MACRA represents a
fundamental change in physician reimbursement that is expected to provide substantial financial incentives for
physicians to participate in risk contracts, and to increase physician information technology and reporting
obligations. The implications of the implementation of MACRA are uncertain and will depend on future regulatory
activity and physician activity in the marketplace. MACRA may encourage physicians to move from smaller
practices to larger physician groups or hospital employment, leading to a consolidation of a portion of our customer
base. Although we believe that we are positioned to capitalize on this consolidation trend, there can be no
assurances that we will be able to successfully accomplish this.

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 developed and continues to develop policies on regulating clinical decision support
tools and other types of software 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
or foreign government authorities 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.

In addition, our businesses that involve physician and dental practice management products include electronic

information technology systems that store and process personal health, clinical, financial and other sensitive
information of individuals. These information technology systems may be vulnerable to breakdown, wrongful
intrusions, data breaches and malicious attack, which could require us to expend significant resources to eliminate
these problems and address related security concerns, and could involve claims against us by private parties and/or
governmental agencies. For example, we are directly or indirectly subject to numerous and evolving 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.

We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers are subject to laws and regulations, such as HIPAA,
which require that they protect the privacy and security of those records, and our products may be used as part of
these customers’ comprehensive data security programs, including in connection with their efforts to comply with
applicable privacy and security laws. Perceived or actual security vulnerabilities in our products or services, or the
perceived or actual failure by us or our customers who use our products to comply with applicable legal
requirements, may not only cause us significant reputational harm, but may also lead to claims against us by our
customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and expenses
and costs for remediation.

Federal initiatives provide 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 initiatives include
providing, among others, physicians and dentists, with financial incentives, if they meaningfully use certified EHR
technology in accordance with applicable and evolving requirements. In addition, Medicare-eligible providers that
fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those systems in
accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement reductions,
which reductions for applicable health professionals (including physicians and dentists) began on January 1, 2015.
Qualification for the incentive payments requires the use of EHRs that have certain capabilities for meaningful use
pursuant to evolving standards adopted by CMS and by the Office of the National Coordinator for Health
Information Technology (“ONC”) of the Department of Health and Human Services (“HHS”).

The use of certified EHR technology will continue as a feature of MACRA’s MIPS program, and in connection

with this, Medicare EHR program payment adjustments to eligible clinicians will sunset at the end of 2018 and
MIPS payment adjustments will begin on January 1, 2019. The first performance period for MIPS began January 1,
2017, and will afford eligible clinicians different reporting options linked to the amount of data reported and the
duration of the reporting period, with positive payment adjustments generally linked to more robust reporting.

On October 6, 2015, CMS and ONC released comprehensive final rules with respect to the EHR program that,

among other things, established the more challenging “Stage 3” criteria, made certain adjustments to Stage 1 and
Stage 2 standards (e.g., reducing the 2015 reporting period from a full year to 90 days), and finalized 2015 edition
health information technology (HIT) certification criteria (which is now added to the existing 2014 edition HIT
certification criteria, but not required until 2018). Notably, under the new rules, compliance with Stage 3 standards
is optional for providers in 2017, and would generally be required for all eligible providers (regardless of prior
participation in the EHR incentive program) for 2018 reporting periods and subsequently. Developers and others
involved in the manufacture of EHR program technology will have this interim period to develop and certify
products and work with customers to implement products for the 2018 EHR program period. In connection with
the release of the October 6 rules, HHS has also stated that it will continue to modify applicable EHR program
standards. On November 14, 2016, CMS published a final rule that will impact Medicare and Medicaid EHR
incentive programs through revisions to the objectives and measures for eligible hospitals, critical access hospitals
and dual-eligible hospitals.

Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked

to incentive programs, and therefore we must maintain compliance with, and are affected by, these changing

governmental criteria. Moreover, in order to satisfy our customers, our products may need to incorporate
increasingly complex reporting functionality. Although we believe we are positioned to accomplish this, the effort
may involve increased costs, and our failure to implement product modifications, or otherwise satisfy applicable
standards, could have a material adverse effect on our business.

Other health information standards, such as regulations under HIPAA, establish standards regarding electronic

health data transmissions and transaction code set rules for specific electronic transactions, such as transactions
involving claims submissions to third party payers. Certain of our businesses provide electronic practice
management products that must meet these requirements. Failure to abide by electronic health data transmission
standards could expose us to breach of contract claims, substantial fines, penalties, and other liabilities and
expenses, costs for remediation and harm to our reputation.

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

International Transactions

In addition, United States and foreign 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, the
U.K. Bribery Act, German anti-corruption laws and other anti-bribery laws and laws pertaining to the accuracy of
our internal books and records, as well as other types of foreign 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 effect
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. We

intend to protect our trademarks to the fullest extent practicable.

Employees

As of December 31, 2016, we employed more than 21,000 full-time employees, including approximately 2,200

telesales representatives, 3,800 field sales consultants, including equipment sales specialists, 4,550 warehouse
employees, 650 computer programmers and technicians, 1,025 management employees and 8,800 office, clerical
and administrative employees. Approximately 1,747, or 8%, 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 website, 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 website 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 ...........
Gerald A. Benjamin ............
James P. Breslawski ...........
Michael S. Ettinger .............
James A. Harding ...............
Peter McCarthy ..................
Lorelei McGlynn ...............
David C. McKinley ............

Bob Minowitz ....................
Mark E. Mlotek .................
Steven Paladino .................
Karen Prange ......................

Michael Racioppi ...............
Paul Rose ..........................
Bridget A. Ross .................
Walter Siegel .....................

67
64
63
55
61
57
53
64

58
61
59
53

62
59
52
57

Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
President, Henry Schein and CEO, Global Dental Group, Director
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Senior Vice President, Chief Technology Officer
President, Global Animal Health Group
Senior Vice President, Global Human Resources and Financial Operations
Chief Commercial Officer and President, Corporate Commercial Development
Group
President, International Dental Group, EMEA Region
Executive Vice President, Chief Strategic Officer, Director
Executive Vice President, Chief Financial Officer, Director
Executive Vice President and Chief Executive Officer, Global Animal Health,
Medical and Dental Surgical Group
Senior Vice President, Chief Merchandising Officer
Senior Vice President, Global Supply Chain
President, Global Medical Group
Senior Vice President and General Counsel

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 12 years at Estée Lauder, Inc., in various management positions where his
last position was Director of Materials Planning and Control.

James P. Breslawski has been our President 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 Corporate Controller.

Michael S. Ettinger has been Senior Vice President, Corporate & Legal Affairs, Chief of Staff and Secretary
since 2015. Prior to his current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs
and Secretary from 2013 to 2015, Corporate Senior Vice President, General Counsel & Secretary from 2006 to
2013, Vice President, General Counsel and Secretary from 2000 to 2006, Vice President and Associate General
Counsel from 1998 to 2000 and Associate General Counsel from 1994 to 1998. Before joining us, Mr. Ettinger
served as a senior associate with Bower & Gardner and as a member of the Tax Department at Arthur Andersen.

James A. Harding has been our Corporate 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.

Peter McCarthy has been President, Global Animal Health Group since 2015. Prior to holding his current
position, Mr. McCarthy was President, Henry Schein International Animal Health from 2012 to 2015 and President,
Henry Schein Animal Health, Europe from 2010 to 2012. Prior to joining us, Mr. McCarthy was employed with
Schering-Plough Animal Health (now Merck Animal Health), serving as Senior Director, Global Operations and
General Manager, China. Mr. McCarthy also worked at Wyeth/American Cyanamid for 14 years, helping to grow
the human pharmaceutical business.

Lorelei McGlynn has served as Senior Vice President, Global Human Resources and Financial Operations
since 2013. Since joining us in 1999, Ms. McGlynn has served as Vice President, Global Human Resources and
Financial Operations from 2008 to 2013, Chief Financial Officer, International Group and Vice President of Global
Financial Operations from 2002 to 2008 and Vice President, Finance, North America from 1999 to 2002. Prior to
joining us, Ms. McGlynn served as Assistant Vice President of Finance at Adecco Corporation.

David C. McKinley has been Chief Commercial Officer and President, Corporate Commercial Development
Group since 2016. Before assuming his current position, Mr. McKinley was President of Henry Schein’s Medical
Group since 2008. Mr. McKinley was President of Henry Schein Practice Solutions from 2006 to 2008 and
President of Dental Prosthetic Solutions from 2005 to 2006. Prior to joining us, Mr. McKinley served as the Group
Executive for Olympus Medical North America and as General Manager for the Bard Urology and Bard Germany
businesses. Mr. McKinley currently serves on the Health Industry Distributors Association (HIDA) Education
Foundation.

Bob Minowitz has been President of Henry Schein’s International Dental Group since 2012 with the addition
of responsibility for the EMEA region beginning in 2016. Before assuming his current position, Mr. Minowitz held
a number of key roles with increasing responsibility throughout the Company, including President, Henry Schein
European Dental Group from 2009 to 2012, President, Henry Schein Western Europe, Middle East and Pacific
Regions from 2006 to 2009, Managing Director, Henry Schein U.K. Holdings from 2004 to 2006, President Henry
Schein Western Europe from 2004 to 2006 and President Henry Schein Europe from 2001 to 2004. Prior to joining
us, Mr. Minowitz was employed by Bristol-Myers Company as a Senior Internal Auditor.

Mark E. Mlotek has been Executive Vice President and Chief Strategic Officer since 2012. Mr. Mlotek was
Senior Vice President and subsequently Executive Vice President of the Corporate Business Development Group
between 2000 and 2012. 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.

Karen Prange has been Executive Vice President and Chief Executive Officer, Global Animal Health, Medical

and Dental Surgical Group since 2016. Before joining us, Ms. Prange was Senior Vice President and President,
Urology and Pelvic Health at Boston Scientific Corporation since 2012 and held various positions of increasing
responsibility at Johnson & Johnson, most recently as General Manager of the Micrus Endovascular and Codman
Neurovascular businesses. Ms. Prange is a member of the Committee of 200 (C200), a membership organization of
the world’s most successful women entrepreneurs and corporate innovators.

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, with primary responsibility for the
Medical Group, Marketing and Merchandising departments. 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. He currently serves on the board of National
Distribution and Contracting and previously served on the board of Health Distribution Management Association
and Health Industry Distributors Association (HIDA).

Paul Rose has served as Senior Vice President, Global Supply Chain since 2013. Prior to holding his current
position, Mr. Rose held a number of key roles with increasing responsibility throughout the Company, including
serving as Vice President, Global Supply Chain from 2008 to 2013, Vice President, Global Inventory Management
from 2004 to 2008 and Vice President, Inventory Management, North America from 2001 to 2004. He also served
on the HIDA Supply Chain Advisory Council and as the National Wholesale Druggists’ Associations
Pharmaceutical Market Committee Chairman.

Bridget A. Ross has been our President, Global Medical Group since February 2017. Before joining us, Ms.

Ross was Vice President of Commercial Operations, North America for Johnson & Johnson’s Medical Devices
Group. During her 28-year career at Johnson & Johnson, Ms. Ross held roles including Global President of
Acclarent, Inc. and Global President for Ethicon’s Women’s Health & Urology, both Johnson & Johnson Medical
Device companies.

Walter Siegel has been Senior Vice President and General Counsel since 2013. Prior to joining us, Mr. Siegel

was employed with Standard Microsystems Corporation, a publicly traded global semiconductor company from
2005 to 2012, holding positions of increasing responsibility, most recently as Senior Vice President, General
Counsel and Secretary.

ITEM 1A. Risk Factors

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

and/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 consolidating 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 product
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. There has also been increasing consolidation among manufacturers of health care products which
could have a material adverse effect on our margins and product availability. Additionally, in this competitive
market, some of our contracts contain minimum purchase commitments. We could be subject to charges and
financial losses in the event we fail to satisfy minimum purchase commitments. In the future, we may be unable to
compete successfully and competitive pressures may reduce our revenues and profitability.

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 parties. 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. While there is generally more than one source of supply for most of the
categories of products we sell, some key suppliers, in the aggregate, supply a significant portion of the products we
sell. Additionally, 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, including the
failure to comply with applicable government requirements. The failure of manufacturers of products regulated by
the FDA or other governmental agencies to meet these requirements could result in product recall, cessation of
sales or other market disruptions. 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, especially any
high sales volume product, could have a material adverse effect on our results of operations, which most likely
would adversely affect the value of our common stock.

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

Our future revenues and profitability 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
materially 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. Revenues and profitability generally have

• timing and amount of sales and marketing expenditures;

• timing of pricing changes offered by our suppliers;

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

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

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

• supplier rebates based upon attaining certain growth goals;

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

• costs of developing new applications and services;

• our ability to correctly identify customer needs and preferences and predict future needs and

preferences;

• uncertainties regarding potential significant breaches of data security or disruptions of our information

technology systems;

• unexpected regulatory actions, or government regulation generally;

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

manufactured by other suppliers;

• 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 shipping costs or service issues with our third-party shippers;

• fluctuations in the value of foreign currencies;

• restructuring costs;

• the adoption or repeal of legislation; and

• changes in accounting principles.

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

fluctuate. If our financial 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 financial results. Although we are seeking to obtain similar terms from
manufacturers, obtain access to lower prices demanded by GPO contracts or other contracts, and develop
relationships with provider networks and new GPOs, we cannot assure that such terms will be obtained or contracts
will be executed.

Increases in shipping costs 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 a material adverse effect on our operating results. Similarly, strikes or other service
interruptions by those shippers could cause our operating expenses to rise and materially adversely affect our ability
to deliver products on a timely basis.

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

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

the United States, Europe and other parts of the world could materially adversely affect our results of operations
and financial condition. These uncertainties, include, among other things:

• the United Kingdom’s vote to leave the European Union (generally referred to as Brexit) and any other
similar referenda or actions by other European Union member countries (during 2016, approximately
7% of our consolidated net sales were invoiced to customers in the U.K. and approximately 26% of
our consolidated net sales were invoiced to customers in Europe overall, including the U.K.);

• election results;

• changes to laws and policies governing foreign trade (including, without limitation, North American

Free Trade Agreement (NAFTA) and other international trade agreements);

• greater restrictions on imports and exports;

• changes in laws and policies governing health care, including, without limitation possible repeal of the

United States Health Care Reform Law;

• tariffs and sanctions;

• 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);

• changes in regulatory and tax regulations;

• increases in interest rates;

• availability of capital;

• increases in fuel and energy costs;

• changes in tax rates and the availability of certain tax deductions;

• increases in health care costs;

• the threat or outbreak of terrorism or public unrest; and

• changes in laws and policies governing manufacturing, development and investment in territories and

countries where we do business

Additionally, changes in government, 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.

Recessionary conditions and depressed levels of consumer and commercial spending may also cause customers
to reduce, modify, delay or cancel plans to purchase our products and may cause suppliers to reduce their output or
change their terms of sale. 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 suppliers 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 suppliers for different payment terms may materially adversely
affect our results of operations and financial condition.

Disruptions in the financial markets may materially 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 materially
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;

• changes in government or legislation;

• 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, issuances of 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 could have a material adverse
effect on our business.

The health care industry is experiencing changes that could materially 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, and is in the process of undergoing, significant
changes driven by various efforts to reduce costs, including, among other things: 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 profitability and the profitability of our customers may be materially adversely
affected by laws and regulations reducing reimbursement rates for pharmaceuticals and/or medical treatments or
services, changing the methodology by which reimbursement levels are determined and, in the case of animal
health practitioners, changes in the use of feed additives (including, without limitation, antibiotics and growth
promotants) used in the production of animal products due to trade restrictions, animal welfare and/or government
regulations; and changes in customer buying habits (including customers purchasing animal health pharmaceuticals
outside the veterinarians’ offices). If we are unable to react effectively to these and other changes in the health care
industry, our financial results could be materially adversely affected.

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

The United States 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.

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 many medical devices by manufacturers and importers that began 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. However, with respect to the medical device excise tax, a two-year moratorium was imposed under
the Consolidated Appropriations Act, 2016, suspending the imposition of the tax on device sales during the period
beginning January 1, 2016 and ending on December 31, 2017. The Health Care Reform Law has also materially
expanded the number of individuals in the United States with health insurance. The Health Care Reform Law has
faced ongoing legal challenges, including litigation seeking to invalidate some of or all of the law or the manner in
which it has been implemented. In addition, the President and the majorities in both houses of Congress have stated
their intention to repeal the Health Care Reform Law. The uncertain status of the Health Care Reform Law also
affects our ability to plan.

Another notable Medicare health care reform initiative, the MACRA, enacted on April 16, 2015, establishes a

new payment framework, called the Quality Payment Program, which modifies certain Medicare payments to
“eligible clinicians,” including physicians, dentists and other practitioners. Under MACRA, eligible clinicians will
be required to participate in Medicare through MIPS or APMs. MIPS generally will consolidate three current
programs; the physician quality reporting system, the value-based payment modifier, and the Medicare EHR
program into a single program in which Medicare reimbursement to eligible clinicians will include both positive
and negative payment adjustments that take into account quality, resource use, clinical practice improvement and
meaningful use of certified EHR technology. Advanced APMs generally involve higher levels of financial and
technology risk. The final rule was published in the Federal Register on November 4, 2016 and announced some
flexibilities that will allow eligible Medicare clinicians to pick their pace of participation for the first performance
period that began January 1, 2017. The data collected in the first performance year will determine payment
adjustments beginning January 1, 2019. MACRA represents a fundamental change in physician reimbursement
that is expected to provide substantial financial incentives for physicians to participate in risk contracts, and to
increase physician information technology and reporting obligations. The implications of the implementation of
MACRA are uncertain and will depend on future regulatory activity and physician activity in the marketplace.
MACRA may encourage physicians to move from smaller practices to larger physician groups or hospital
employment, leading to a consolidation of a portion of our customer base. Although we believe that we are
positioned to capitalize on this consolidation trend, there can be no assurances that we will be able to successfully
accomplish this.

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 or Open

Payments Program, imposes 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 for group purchasing organizations, with regard to certain ownership
interests held by physicians in the reporting entity. CMS publishes information from these reports on a publicly
available website, including amounts transferred and physician, dentist and teaching hospital identities. Under the
Physician Payment Sunshine Act we are required to collect and report detailed information regarding certain
financial relationships we have with physicians, dentists and teaching hospitals. We believe that we are
substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician Payment
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may also be required to report
under certain state transparency laws that address circumstances not covered by the Physician Payment Sunshine
Act, and some of these state laws, as well as the federal law, can be ambiguous. We are also subject to foreign
regulations requiring transparency of certain interactions between suppliers and their customers. While we believe
we have substantially compliant programs and controls in place to comply with these reporting requirements, our
compliance with these new rules imposes additional costs on us.

Failure to comply with existing and future regulatory requirements could materially 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, and animal feed and supplements. 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 FDA and the DEA;

• 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 FDA

requirements;

• require registration with the FDA and the DEA 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 DEA;

• 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 product or medical device causes serious
illness, injury or death.

Applicable federal, state, local and foreign 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 FDA and DEA 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 materially adversely 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 effect on our businesses. While we believe that we are substantially compliant with applicable
fraud and abuse and other laws and regulations, and believe we have adequate compliance programs and controls in
place to ensure substantial compliance, 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, consent decrees, 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 or other laws and regulations, we
could suffer penalties or be required to make significant changes to our operations, which could materially
adversely affect our business.

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. 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 fraud and abuse 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, in accordance
with an interim final rule published by the Department of Justice on June 30, 2016, which substantially increased
maximum civil penalties for False Claims Act violations, the amounts for civil penalties assessed after August 1,
2016, whose associated violations occurred after November 2, 2015, were increased from $11,000 per claim for
pre-November 2, 2011 violations to up to $21,563 per claim. Most states have adopted similar state false claims
laws, and these state laws have their own penalties which may be in addition to federal False Claims Act penalties.
The Health Care Reform Law significantly strengthened the federal False Claims Act and the 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 United States and foreign laws and regulations concerning the conduct of our

foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, the German Anti-
Corruption Law and other anti-bribery laws, anti-corruption laws, and laws pertaining to the accuracy of our
internal books and records, which have been the focus of increasing enforcement activity globally in recent years.
Our businesses are generally subject to numerous other laws and regulations that could impact our financial results,
including, without limitation, securities, antitrust and marketing laws and regulations. Failure to comply with laws
or regulations could have a material adverse effect on our business.

Failure to comply with fraud and abuse laws and regulations and other 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 effect 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 non-compliance. We may determine to enter into settlements, make
payments, agree to consent decrees or enter into other arrangements to resolve such matters. For example, one of
our subsidiaries recently resolved an investigation by the Federal Trade Commission related to the manner in which
it advertised certain data security features of its dental practice management software, which resulted in a consent
order and fine. Failure to comply with consent decrees could materially adversely affect our business.

While we believe that we are substantially compliant with applicable fraud and abuse and other laws and

regulations, and believe we 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 to changes in applicable law or interpretation of laws, could have a
material adverse effect on 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 substantial fines, penalties or other liabilities.

Our businesses that involve physician and dental practice management products include electronic information

technology systems that store and process personal health, clinical, financial and other sensitive information of
individuals. These information technology systems may be vulnerable to breakdown, wrongful intrusions, data
breaches and malicious attack, which could require us to expend significant resources to eliminate these problems
and address related security concerns, and could involve claims against us by private parties and/or governmental
agencies. For example, we are 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 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 could expose us to breach of contract claims,
substantial fines, penalties and other liabilities and expenses, costs for remediation and harm to our reputation.
Also, 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 a material adverse effect 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 specific electronic transactions, such as transactions
involving claims submissions to third party payers. Certain of our businesses provide electronic practice
management products that must meet these requirements. Failure to abide by electronic health data transmission
standards could expose us to breach of contract claims, substantial fines, penalties and other liabilities and
expenses, costs for remediation and harm to our reputation.

In addition, federal initiatives provide 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
initiatives include providing, among others, physicians and dentists, with financial incentives if they meaningfully
use certified EHR systems in accordance with applicable and evolving requirements. In addition, Medicare-eligible
providers that fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those
systems in accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement
reductions, which reductions for applicable health professionals (including physicians and dentists) began on
January 1, 2015. Qualification for the incentive payments requires the use of EHRs that have certain capabilities
for meaningful use pursuant to evolving standards adopted by CMS and ONC.

On October 6, 2015, CMS and ONC released comprehensive final rules with respect to the EHR program that,
among other things, established the more challenging “Stage 3” criteria, making certain adjustments to Stage 1 and
Stage 2 standards (e.g., reducing the 2015 reporting period from a full year to 90 days), and finalized 2015 edition
health technology (HIT) certification criteria (which is now added to the existing 2014 edition HIT certification
criteria, but not required until 2018). Notably, under the new rules, compliance with Stage 3 standards is optional
for providers in 2017, and would generally be required for all eligible providers (regardless of prior participation in
the EHR incentive program) for 2018 reporting periods and subsequently. Developers and others involved in the
manufacture of EHR program technology will have this interim period to develop and certify products, and work
with customers to implement products for the 2018 EHR program period. In connection with the release of the
October 6 rules, HHS has also stated it will continue to modify applicable EHR program standards. On
November 14, 2016, CMS published a final rule that will impact Medicare and Medicaid EHR incentive programs
through revisions to the objectives and measures for eligible hospitals, critical access hospitals, and dual-eligible

hospitals.

In addition, under MACRA, which establishes MIPS, over the next few years the EHR program is expected to

become part of a more comprehensive federal quality measurement and incentive program, apparently with
modified applicable requirements, and CMS has indicated that it may even supplant certain Stage 3 rules with more
streamlined MIPS approaches. Certain of our businesses involve the manufacture and sale of certified EHR
systems and other products linked to incentive programs, and therefore we must maintain compliance with, and are
affected by, these changing governmental criteria.

Our global operations are subject to inherent risks that could materially adversely affect our business.

Global operations are subject to risks that may materially adversely affect our business. 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 tariffs, 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;

• changes in tax regulations that influence purchases of capital equipment;

• 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 material adverse effects on our financial 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 a material adverse
effect on our financial results. 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;

•

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

• our ability to retain, recruit and incentivize the management of the companies we acquire.

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 manage successfully 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 materially adversely affected.

We face inherent risk of exposure to product liability, intellectual property infringement 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, intellectual property infringement 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 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, intellectual property infringement or other claims
relating to the manufacture and distribution of products by those entities. Additionally, as our private-label
business continues to grow, purchasers of such products may increasingly seek recourse directly from us, rather
than the ultimate product manufacturer, for product-related claims. Another potential risk 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 a material 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;
30

• 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 as well as our reputation. 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 experience competition from third-party online commerce sites.

Traditional health care supply and distribution relationships are being challenged by electronic online
commerce solutions. The continued advancement of online commerce by third parties will require us to cost-
effectively adapt to changing technologies, to enhance existing services and to differentiate our business (including
with additional value-added services) to address changing demands of consumers and our customers on a timely
basis. The emergence of such potential competition and our inability to anticipate and effectively respond to
changes on a timely basis could have a material adverse effect on our business.

Security risks generally associated with our information systems and our technology products and services could
materially adversely affect our business, and our results of operations could be materially adversely affected if
our information systems (or third-party systems we rely on) are interrupted, damaged by unforeseen events, are
subject to cyberattacks or fail for any extended period of time.

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

• provide products and services that maintain certain of our customers’ electronic medical or dental

records (including protected health information of their patients).

Information security risks have generally increased in recent years, and a cyberattack 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 a material adverse effect on our business.

In addition, we develop products and provide services to our customers that are technology-based, and a
cyberattack that bypasses the IS security systems of our products or services causing a security breach and/or
perceived security vulnerabilities in our products or services could also cause significant reputational harm, and
actual or perceived vulnerabilities may lead to claims against us by our customers and/or governmental agencies.
In particular, certain of our practice management products and services purchased by health care providers, such as
physicians and dentists, are used to store and manage patient medical or dental records. These customers are
subject to laws and regulations, such as HIPAA, which require that they protect the privacy and security of those
records, and our products may be used as part of these customers’ comprehensive data security programs, including
in connection with their efforts to comply with applicable privacy and security laws. Perceived or actual security
vulnerabilities in our products or services, or the perceived or actual failure by us or our customers who use our

products to comply with applicable legal requirements, may not only cause us significant reputational harm, but
may also lead to claims against us by our customers and/or governmental agencies and involve fines and penalties,
costs for remediation, and substantial defense and settlement expenses.

Regarding direct customer claims, although our customer license agreements typically contain provisions that
seek to eliminate or limit our exposure to such liability, there is no assurance these provisions will withstand legal
challenges, or that we will be able to obtain such provisions in all cases.

In addition, our information systems also utilize certain third party service organizations that manage a portion

of our information systems, and our business may be materially adversely affected if these third party service
organizations are subject to an IS security breach. Additionally, legislative or regulatory action related to
cybersecurity may increase our costs to develop or implement new technology products and services.

Risks associated with these and other IS security breaches may include, among other things:

• future results could be materially 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 information systems and subsequent

clean-up and mitigation activities;

• procedures and safeguards must continually evolve to meet new IS challenges, and enhancing

protections, and conducting investigations and remediation, may impose additional costs on us;

• we may incur claims, fines and penalties, and costs for remediation, or substantial defense and

settlement expenses; and

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

peers.

We also deliver Internet-based services and, accordingly, depend on our ability and the ability of our customers
to access the Internet. In the event of any difficulties, outages and delays by Internet service providers, we may be
impeded from providing such services, which may have a material adverse effect on our business and our
reputation.

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 a material 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 2013 Stock Incentive Plan and 2015 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
32

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/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 could materially adversely affect our financial results 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 materially
adversely affect our tax positions. There can be no assurance that our effective tax rate will not be materially
adversely affected by legislation resulting from 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 2016 fiscal year.

ITEM 2. Properties

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

Property
Corporate Headquarters .............
Corporate Headquarters .............
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................
Distribution Center ...................

Gillingham, United Kingdom
Eastern Creek, New South Wales, Australia

Location

Melville, NY

Reno, NV

Lyssach, Switzerland

Plymouth, MA

Tours, France

Langeskov, Denmark

Niagara on the Lake, Canada

Bastian, VA

West Allis, WI

Cuijk, Netherlands

Denver, PA

Indianapolis, IN

Sparks, NV

Indianapolis, IN

Grapevine, TX

Gallin, Germany

Jacksonville, FL

Heppenheim, Germany

Fort Worth, TX

Own or
Lease

Lease

Own

Lease

Own
Lease/Own

Lease

Own

Lease

Own

Lease

Own

Lease

N/A

Lease Expiration
Date

July 2030

June 2021

June 2020

June 2033

August 2021

Approximate
Square Footage
185,000
105,000
236,000 December 2020
180,000
180,000 December 2017
166,000
165,000
161,000
157,000
128,000 September 2021
108,000
106,000
101,000
624,000 December 2021
380,000
370,000 December 2021
287,000
242,000
215,000
212,000
194,000
120,000

February 2019

October 2027

March 2030

March 2022

May 2021

May 2022

July 2018

N/A

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, Brazil, Canada, Chile, China, the Czech
Republic, Denmark, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain,
Sweden, Switzerland, Thailand 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

In September 2015, Henry Schein, Inc. was served with a summons and complaint in an action commenced in
the United States District Court for the Eastern District of New York, entitled SourceOne Dental, Inc. v. Patterson
Companies, Inc., Henry Schein, Inc. and Benco Dental Supply Company, Civil Action No. 15-cv-05440-JMA-
GRB. Plaintiff alleges that, through its website, it markets and sells dental supplies and equipment to
dentists. Plaintiff alleges, among other things, that defendants conspired to eliminate plaintiff as a viable
competitor and to exclude plaintiff from the market for the marketing, distribution and sale of dental supplies and
equipment in the United States and that defendants unlawfully agreed with one another to boycott dentists,
manufacturers and state dental associations that deal with, or considered dealing with, plaintiff. Plaintiff asserts the
following claims: (i) unreasonable restraint of trade in violation of state and federal antitrust laws; (ii) tortious
interference with prospective business relations; (iii) civil conspiracy; and (iv) aiding and abetting the other
defendants’ ongoing tortious and anticompetitive conduct. Plaintiff seeks equitable relief, compensatory and treble
damages, jointly and severally, punitive damages, interest, and reasonable costs and expenses, including attorneys’
fees and expert fees. We intend to defend ourselves vigorously against the action.

Beginning in January 2016, class action complaints were filed against Patterson Companies, Inc., Benco Dental
Supply Co. and Henry Schein, Inc. Each of these complaints allege, among other things, that defendants conspired
to fix prices, allocate customers and foreclose competitors by boycotting manufacturers, state dental associations
and others that deal with defendants’ competitors. Subject to certain exclusions, these classes seek to represent all
persons who purchased dental supplies or equipment in the United States directly from any of the defendants or
Burkhart Dental Supply Co. since August 31, 2008. Each class action complaint asserts a single count under
Section 1 of the Sherman Act, and seeks equitable relief, compensatory and treble damages, jointly and severally,
and reasonable costs and expenses, including attorneys’ fees and expert fees. We intend to defend ourselves
vigorously against these actions.

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

liability claims, employment matters, commercial disputes, governmental inquiries and investigations (which may
in some cases involve our entering into settlement arrangements or consent decrees), and other matters arising out
of the ordinary course of our business. While the results of any legal proceeding cannot be predicted with certainty,
in our opinion none of these other pending matters are currently anticipated to have a material adverse effect on our
financial condition or results of operations.

As of December 31, 2016, we had accrued our best estimate of potential losses relating to claims that were

probable to result in 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 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 2016 and
2015:

Fiscal 2016:
1st Quarter ................................................................................................
2nd Quarter ...............................................................................................
3rd Quarter ................................................................................................
4th Quarter ................................................................................................

Fiscal 2015:
1st Quarter ................................................................................................
2nd Quarter ...............................................................................................
3rd Quarter ................................................................................................
4th Quarter ................................................................................................

High

Low

170.24 $
180.98
183.00
164.48

143.89 $
146.45
149.95
160.00

142.64
165.16
158.53
146.23

133.77
135.80
126.17
127.16

On February 16, 2017, there were approximately 450 holders of record of our common stock and the last

reported sales price was $167.25.

Purchases of Equity Securities by the Issuer

Our 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 $2.4
billion, authorized by our Board of Directors, to the repurchase program provide for a total of $2.5 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

December 9, 2013

December 4, 2014

November 30, 2015

October 18, 2016

100,000,000
100,000,000
100,000,000
200,000,000
200,000,000
300,000,000
300,000,000
300,000,000
400,000,000
400,000,000

As of December 31, 2016, we had repurchased approximately $2.2 billion of common stock (24,903,293

shares) under these initiatives, with $250 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 31, 2016:

Total

Number

of Shares

Total Number

Maximum Number

of Shares

Average

Purchased as Part

that May Yet

Price Paid

of Our Publicly

Be Purchased Under

Fiscal Month

Purchased (1)

Per Share

Announced Program

Our Program (2)

09/25/16 through 10/29/16

10/30/16 through 11/26/16

11/27/16 through 12/31/16

310,311 $
971,031

1,281,342

153.44
156.95
-

310,311
971,031

1,281,342

2,695,108

1,653,658

1,647,881

(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 2016 or 2015. 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 share 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 31, 2011, the last trading day before the beginning of our 2012 fiscal year, through
the end of our 2016 fiscal year 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

$300

$250

$200

$150

$100

$50

December 2011

December 2012

December 2013

December 2014

December 2015

December 2016

Henry Schein, Inc.

Dow Jones US Health Care
Index
NASDAQ Composite Index

ASSUMES $100 INVESTED ON DECEMBER 31, 2011
ASSUMES DIVIDENDS REINVESTED

December 31, December 29, December 28, December 27, December 26, December 31,

2011

2012

2013

2014

2015

2016

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

100.00 $

124.10 $

177.60 $

213.24 $

243.81 $

235.46

Dow Jones U.S. Health
Care Index ..........................

NASDAQ Stock Market
Composite Index ...................

100.00

117.81

168.96

215.35

228.17

221.41

100.00

115.15

163.76

191.63

203.61

219.89

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 31, 2016, 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 31,

December 26,

Years ended
December 27,

December 28,

December 29,

2016

2015

2014

2013

2012

(in thousands, except per share data)

Income Statement Data:
Net sales ................................................
Gross profit .............................................
Selling, general and administrative expenses ..........
Restructuring costs (1) .................................
Operating income ......................................
Other expense, net (2) ..................................
Income before taxes and equity in earnings
of affiliates ..........................................
Income taxes (3) ........................................
Equity in earnings of affiliates .........................
Loss on sale of equity investment (4) ..................
Net income .............................................
Less: Net income attributable to
noncontrolling interests ..............................
Net income attributable to Henry Schein, Inc. .........

11,571,668 $

10,629,719 $

10,371,390 $

9,560,647 $

8,939,967

3,233,969

3,012,259

2,911,315

2,656,014

2,416,504

2,243,356

2,196,173

1,978,960

45,891

771,574

(15,739)

34,931

733,972

(13,214)

715,142

(5,830)

677,054

(12,360)

2,507,513

1,873,360

15,192

618,961

(14,773)

755,835

720,758

709,312

664,694

604,188

(217,958)

(211,391)

(215,610)

(190,891)

(187,858)

18,518

14,060

11,734

556,395

523,427

505,436

10,194

(12,535)

471,462

(49,617)

(44,369)

(39,359)

(39,908)

506,778 $

479,058 $

466,077 $

431,554 $

7,058

423,388

(35,312)

388,076

Earnings per share attributable to

Henry Schein, Inc.:

Basic .................................................
Diluted ...............................................

6.27 $

6.19

5.78 $

5.69

5.53 $

5.44

5.02 $

4.93

4.44

4.32

Weighted-average common shares outstanding:
Basic .................................................
Diluted ...............................................

80,820

81,862

82,844

84,125

84,265

85,740

85,926

87,622

87,499

89,823

December 31,

December 26,

December 27,

December 28,

December 29,

2016

2015

2014

2013

2012

Years ended

(in thousands)

Net Sales by Market Data:

Health care distribution (5):
Dental .......................................
Animal health ...............................
Medical .....................................
Total health care distribution .............
Technology and value-added services (6) ....
Total ......................................

5,555,299 $
3,253,095
2,337,661
11,146,055
425,613
11,571,668 $

5,276,407 $
2,921,624
2,072,915
10,270,946
358,773
10,629,719 $

5,381,215 $
2,898,612
1,742,685
10,022,512
348,878
10,371,390 $

As of

4,997,972 $
2,599,461
1,643,167
9,240,600
320,047
9,560,647 $

4,774,482

2,321,151

1,560,921

8,656,554

283,413

8,939,967

December 31,

December 26,

December 27,

December 28,

December 29,

2016

2015

2014

2013

2012

(in thousands)

Balance Sheet data:
Total assets ....................................
Long-term debt ...............................
Redeemable noncontrolling interests .........
Stockholders' equity ..........................

6,730,396 $
715,457
607,636
2,800,804

6,504,740 $
463,752
542,194
2,886,814

6,138,807 $
542,776
564,527
2,816,445

5,624,636 $
450,233
497,539
2,788,001

5,333,997

488,121

435,175

2,615,864

(1) Restructuring costs for the year ended December 31, 2016 consist primarily of severance costs, including severance pay and benefits

of $40.7 million, facility closing costs of $3.6 million and other costs of $1.6 million. Restructuring costs for the year ended
December 26, 2015 consist primarily of severance costs, including severance pay and benefits of $26.7 million, facility closing costs
of $5.7 million and other costs of $2.5 million. 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. 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)

(3)

Includes approximately $6.2 million of one-time expenses related to the refinancing of Henry Schein Animal Health debt in
2013. These expenses reflect the non-cash write-off of deferred financing costs.

In 2015, there was a $6.3 million income tax benefit related to a favorable response to a tax petition, which allowed us to conclude
that it is was more likely than not that certain unrecognized tax benefits, which had been previously reserved, would be realized. In
2013, there was a $13.4 million reduction of our valuation allowance related to certain deferred tax assets related to tax
loss carryforwards originating outside the United States.

(4) Represents a loss on divestiture of a noncontrolling interest in a dental wholesale distributor in the Middle East in 2013.

(5) 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.

(6) Consists of practice management software and other value-added products, which are distributed primarily to health care providers,
and financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other
services.

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. Factors that could
cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on
Form 10-K, and in particular the risks discussed under the caption “Risk Factors” in Item 1A of this report and
those discussed in other documents we file with the Securities and Exchange Commission (SEC).

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 and consolidating 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; increases in shipping costs for
our products or other service issues with our third-party shippers; general global macro-economic conditions; risks
associated with currency fluctuations; risks associated with political and economic uncertainty; disruptions in
financial markets; 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; increased competition by third party online commerce sites; risks from disruption to our
information systems; cyberattacks or other privacy or data security breaches; 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.

Where You Can Find Important Information

We may disclose important information through one or more of the following channels: SEC filings, public
conference calls and webcasts, press releases, the investor relations page of our website (www.henryschein.com)
and the social media channels identified on the Newsroom page of our website.

Executive-Level Overview

We believe we are the world’s largest provider of health care products and services primarily to office-based

We are headquartered in Melville, New York, employ more than 21,000 people (of which more than 10,500 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: (i) health care distribution and (ii) technology and

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

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, as well
as 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.

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, although there can be no
assurances that we will be able to successfully accomplish this. 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 2015 there were more than six 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 nearly triple to approximately 19 million. The population
aged 65 to 84 years is projected to increase over 65% 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. We believe that demand for our products and services will grow, while continuing to be impacted by
current and future operating, economic and industry conditions. The Centers for Medicare and Medicaid Services,
or CMS, published “National Health Expenditure Projections 2015-2025” indicating that total national health care
spending reached approximately $3.2 trillion in 2015, or 17.8% 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 $5.6 trillion in 2025, approximately 20.1% 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 and sale of pharmaceuticals and medical devices. Additionally, government and private insurance
programs fund a large portion of the total cost of medical care, and there has been an emphasis on efforts to control
medical costs, including laws and regulations lowering reimbursement rates for pharmaceuticals, medical devices,
and/or medical treatments or services. Also, many of these laws and regulations are subject to change and may
impact our financial performance. In addition, our businesses are generally subject to numerous other laws and
regulations that could impact our financial performance, including securities, antitrust, data privacy, data security
and other laws and regulations. Failure to comply with law or regulations could have a material adverse effect on
our business.

Health Care Reform

The Health Care Reform Law requirements include a 2.3% excise tax on domestic sales of many medical
devices by manufacturers and importers that began in 2013 and a fee on branded prescription drugs and biologics
that was implemented in 2011, both of which may affect sales. However, with respect to the medical device excise
tax, a two-year moratorium was imposed under the Consolidated Appropriations Act, 2016, suspending the
imposition of the tax on device sales during the period beginning January 1, 2016 and ending on December 31,
2017. The Health Care Reform Law has also materially expanded the number of individuals in the United States
with health insurance. The Health Care Reform Law has faced ongoing legal challenges, including litigation
seeking to invalidate some of or all of the law or the manner in which it has been implemented. In addition, the
President and the majorities in both houses of Congress have stated their intention to repeal the Health Care Reform
Law. The uncertain status of the Health Care Reform Law affects our ability to plan.

A Health Care Reform Law provision, generally referred to as the Physician Payment Sunshine Act or Open
Payments Program, has imposed new reporting and disclosure requirements for drug and device manufacturers and
distributors with regard to payments or other transfers of value made to certain covered recipients (including
physicians, dentists and teaching hospitals), and for such manufacturers and distributors and for group purchasing
organizations, with regard to certain ownership interests held by physicians in the reporting entity. The Centers for
Medicare and Medicaid Services (“CMS”) publishes information from these reports on a publicly available website,
including amounts transferred and physician, dentist and teaching hospital identities.

Under the Physician Payment Sunshine Act, we are required to collect and report detailed information

regarding certain financial relationships we have with physicians, dentists and teaching hospitals. We believe that
we are substantially compliant with applicable Physician Payment Sunshine Act requirements. The Physician
Payment Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries may be required to
report under certain state transparency laws that address circumstances not covered by the Physician Payment
Sunshine Act, and some of these state laws, as well as the federal law, can be ambiguous. We are also subject to
foreign regulations requiring transparency of certain interactions between suppliers and their customers. While we
believe we have substantially compliant programs and controls in place to comply with these requirements, our
compliance with these rules imposes additional costs on us.

Another notable Medicare health care reform initiative, the Medicare Access and CHIP Reauthorization Act of
2015 (“MACRA”), enacted on April 16, 2015, establishes a new payment framework, called the Quality Payment
Program, which modifies certain Medicare payments to “eligible clinicians,” including physicians, dentists and
other practitioners. Under MACRA, eligible clinicians will be required to participate in Medicare through the
Merit-Based Incentive Payment System (“MIPS”) or Advanced Alternative Payment Models (“APMs”). MIPS
generally will consolidate three current programs; the physician quality reporting system, the value-based payment
modifier and the Medicare electronic health record (“EHR”) program, into a single program in which Medicare
reimbursement to eligible clinicians will include both positive and negative payment adjustments that take into
account quality, resource use, clinical practice improvement and meaningful use of certified EHR technology.
Advanced APMs generally involve higher levels of financial and technology risk. The final rule was published in
the Federal Register on November 4, 2016 and allow eligible Medicare clinicians to pick their pace of participation
for the first performance period that began January 1, 2017. The data collected in the first performance year will
determine payment adjustments beginning January 1, 2019. MACRA represents a fundamental change in physician
reimbursement that is expected to provide substantial financial incentives for physicians to participate in risk
contracts, and to increase physician information technology and reporting obligations. The implications of the
implementation of MACRA are uncertain and will depend on future regulatory activity and physician activity in the
marketplace. MACRA may encourage physicians to move from smaller practices to larger physician groups or
hospital employment, leading to a consolidation of a portion of our customer base. Although we believe that we are
positioned to capitalize on this consolidation trend, there can be no assurances that we will be able to successfully
accomplish this.

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, in accordance with an interim final rule published by the Department of Justice on June 30, 2016, which
substantially increased maximum civil penalties for False Claims Act violations, the amounts for civil penalties
assessed after August 1, 2016, whose associated violations occurred after November 2, 2015, were increased from
$11,000 per claim for pre-November 2, 2011 violations up to $21,563 per claim. Most states have adopted similar
state false claims laws, and these state laws have their own penalties which may be in addition to federal False
Claims Act penalties. The Health Care Reform Law significantly strengthened the federal False Claims Act and the
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.

While we believe that we are substantially compliant with applicable fraud and abuse laws and regulations, and

Operating, Security and Licensure Standards

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

The FDC Act and similar foreign laws generally regulate 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 (“FDA”) regulation of
human cells, tissues and cellular and tissue-based products, also known as “HCT/P products.”

The Federal Drug Quality and Security Act of 2013 brought about significant changes with respect to
pharmaceutical supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug
Supply Chain Security Act (“DSCSA”), is being phased in over a period of ten years, and is intended to build a
national electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in
the United States. The law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers
and dispensers (e.g., pharmacies) of prescription drugs took effect in January 2015, and will continue to be
implemented. The DSCSA product tracing requirements replace the former FDA drug pedigree requirements and
pre-empt state requirements that are inconsistent with, more stringent than, or in addition to, the DSCSA
requirements.

The DSCSA also establishes certain requirements for the licensing and operation of prescription drug

wholesalers and third party logistics providers (“3PLs”), and includes the eventual creation of national wholesaler
and 3PL licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. According to FDA guidance, states are pre-empted from imposing any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered by the standards established by federal
law in this area. Current state licensing requirements will likely remain in effect until the FDA issues new
regulations as directed by the DSCSA.

We believe that we are substantially compliant with applicable DSCSA requirements.

The Food and Drug Administration Amendments Act of 2007 and the Food and Drug Administration Safety

and Innovation Act of 2012 amended the FDCA to require the FDA to promulgate regulations to implement a
unique device identification (“UDI”) system. The FDA is phasing in the implementation of the UDI regulations
over seven years, generally beginning with the highest-risk devices (i.e., Class III medical devices) and ending with
the lowest-risk devices. The UDI regulations require “labelers” to include unique device identifiers (“UDIs”), with
a content and format prescribed by the FDA and issued under a system operated by an FDA-accredited issuing
agency, on the labels and packages of medical devices, and to directly mark certain devices with UDIs. The UDI
regulations also require labelers to submit certain information concerning UDI-labeled devices to the FDA, much of
which information is publicly available on an FDA database, the Global Unique Device Identification Database.
The UDI regulations provide for certain exceptions, alternatives and time extensions. For example, the UDI
regulations include a general exception for Class I devices exempt from the Quality System Regulation (other than
record-keeping requirements and complaint files). Regulated labelers include entities such as device
manufacturers, repackagers, reprocessors and relabelers that cause a device’s label to be applied or modified, with
the intent that the device will be commercially distributed without any subsequent replacement or modification of
the label, and include certain of our businesses.

We believe that we are substantially compliant with applicable UDI requirements.

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.

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

regulatory requirements specific to government contractors.

Antitrust

Regulated Software; Electronic Health Records

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

In addition, our businesses that involve physician and dental practice management products include electronic

information technology systems that store and process personal health, clinical, financial and other sensitive
information of individuals. These information technology systems may be vulnerable to breakdown, wrongful
intrusions, data breaches and malicious attack, which could require us to expend significant resources to eliminate
these problems and address related security concerns, and could involve claims against us by private parties and/or
governmental agencies. For example, we are 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.

We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records. These customers are subject to laws and regulations, such as HIPAA,
which require that they protect the privacy and security of those records, and our products may be used as part of
these customers’ comprehensive data security programs, including in connection with their efforts to comply with
applicable privacy and security laws. Perceived or actual security vulnerabilities in our products or services, or the
perceived or actual failure by us or our customers who use our products to comply with applicable legal or
contractual requirements, may not only cause us significant reputational harm, but may also lead to claims against
us by our customers and/or governmental agencies and involve substantial fines, penalties and other liabilities and
expenses and costs for remediation.

Federal initiatives provide 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 initiatives include
providing, among others, physicians and dentists, with financial incentives if they meaningfully use certified EHR
technology in accordance with applicable and evolving requirements. In addition, Medicare-eligible providers that
fail to timely adopt certified EHR systems and meet “meaningful use” requirements for those systems in
accordance with regulatory requirements are to be subject to cumulative Medicare reimbursement reductions,
which reductions for applicable health professionals (including physicians and dentists) began on January 1,
2015. Qualification for the incentive payments requires the use of EHRs that have certain capabilities for
meaningful use pursuant to evolving standards adopted by CMS and by the Office of the National Coordinator for
Health Information Technology (“ONC”) of the Department of Health and Human Services (“HHS”).

The use of certified EHR technology will continue as a feature of MACRA’s MIPS program, and in connection
with this, Medicare EHR program payment adjustments to eligible professionals will sunset at the end of 2018 and
MIPS payment adjustments will begin on January 1, 2019. The first performance period for MIPS began January
1, 2017, and will afford eligible clinicians different reporting options linked to the amount of data reported and the
duration of the reporting period, with positive payment adjustments generally linked to more robust reporting.

On October 6, 2015, CMS and ONC released comprehensive final rules with respect to the EHR program that,

among other things, established the more challenging “Stage 3” criteria, made certain adjustments to Stage 1 and
Stage 2 standards (e.g., reducing the 2015 reporting period from a full year to 90 days), and finalized 2015 edition
health information technology (HIT) certification criteria (which is now added to the existing 2014 edition HIT
certification criteria, but not required until 2018). Notably, under the new rules, compliance with Stage 3 standards
is optional for providers in 2017, and would generally be required for all eligible providers (regardless of prior
participation in the EHR incentive program) for 2018 reporting periods and subsequently. Developers and others
involved in the manufacture of EHR program technology will have this interim period to develop and certify
products, and work with customers to implement products for the 2018 EHR program period. In connection with
the release of the October 6 rules, HHS has also stated that it will continue to modify applicable EHR program
standards. On November 14, 2016, CMS published a final rule that will impact Medicare and Medicaid EHR
incentive programs through revisions to the objectives and measures for eligible hospitals, critical access hospitals
and dual-eligible hospitals.

Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked

to incentive programs. CMS and ONC establish criteria for certified EHR systems, and these criteria have been
subject to change. In order to maintain certification of our EHR products, we must satisfy these changing
governmental criteria. Moreover, in order to satisfy our customers, our products may need to incorporate
increasingly complex reporting functionality. Although we believe we are positioned to accomplish this, the effort
may involve increased costs, and our failure to implement product modifications, or otherwise satisfy applicable
standards, could have a material adverse effect on our business.

Other health information standards, such as regulations under HIPAA, establish standards regarding electronic

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 31, 2016, December 26, 2015 and December 27, 2014 (in thousands):

Years Ended
December 31, December 26,

2016

2015

December 27,
2014

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

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

11,571,668 $
8,337,699
3,233,969

10,629,719 $
7,617,460
3,012,259

10,371,390
7,460,075
2,911,315

2,416,504
45,891
771,574 $

2,243,356
34,931
733,972 $

2,196,173
-
715,142

(15,739) $
556,395
506,778

(13,214) $
523,427
479,058

(5,830)
505,436
466,077

Years Ended
December 31, December 26,

2016

2015

December 27,
2014

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

615,461 $

586,841 $

(316,422)
(300,229)

(260,031)
(319,371)

592,504
(516,639)
(154,647)

Plans of Restructuring

On November 6, 2014, we announced a corporate initiative to rationalize our operations and provide expense
efficiencies, which was expected to be completed by the end of fiscal 2015. This initiative originally planned for
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. We subsequently
announced our plan to extend these restructuring activities through the end of 2016 to further implement cost-
savings initiatives, which ultimately resulted in the elimination of approximately 900 positions, representing
slightly more than 4% of our workforce. The total costs associated with the actions to date for this restructuring
include $34.9 million pre-tax, which was recorded in fiscal 2015 and $45.9 million pre-tax, which has been
recorded in fiscal 2016. The costs associated with this restructuring are included in a separate line item,
“Restructuring costs” within our consolidated statements of income.

As of December 31, 2016 our restructuring activities are complete and we do not expect to incur any additional

restructuring charges in fiscal 2017.

2016 Compared to 2015

Net Sales

Net sales for 2016 and 2015 were as follows (in thousands):

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

2016

% of
Total

2015

% of
Total

Increase

5,555,299
3,253,095
2,337,661
11,146,055
425,613
11,571,668

48.0 % $
28.1
20.2
96.3
3.7

100.0 % $

5,276,407
2,921,624
2,072,915
10,270,946
358,773
10,629,719

49.6 % $
27.5
19.5
96.6
3.4

100.0 % $

278,892
331,471
264,746
875,109
66,840
941,949

5.3 %
11.3
12.8
8.5
18.6
8.9

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

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 on a non-recourse basis, e-services, continuing education services for practitioners, consulting
and other services.

The fiscal year ended December 31, 2016 consisted of 53 weeks as compared to the fiscal year ended

December 26, 2015, which consisted of 52 weeks.

The $941.9 million, or 8.9%, increase in net sales for the year ended December 31, 2016 includes an increase of

10.1% local currency growth (6.7% increase in internally generated revenue, 1.5% impact from extra week and
1.9% growth from acquisitions) partially offset by a decrease of 1.2% related to foreign currency exchange.

The $278.9 million, or 5.3%, increase in dental net sales for the year ended December 31, 2016 includes an
increase of 6.2% in local currencies (3.2% increase in internally generated revenue, 1.5% impact from extra week
and 1.5% growth from acquisitions) offset by a decrease of 0.9% related to foreign currency exchange. The 6.2%
increase in local currency sales was due to increases in dental equipment sales and service revenues of 9.0% (5.1%
increase in internally generated revenue, 2.5% impact from extra week and 1.4% growth from acquisitions) and
dental consumable merchandise sales growth of 5.3% (2.6% increase in internally generated revenue, 1.2% impact
from extra week and 1.5% growth from acquisitions).

The $331.5 million, or 11.3%, increase in animal health net sales for the year ended December 31, 2016
includes an increase of 13.9% local currency growth (9.6% increase in internally generated revenue, 1.5% impact
from extra week and 2.8% growth from acquisitions) partially offset by a decrease of 2.6% related to foreign
currency exchange. The growth in internally generated animal health revenue is affected by the revenue for certain
products being recognized on a gross basis in 2016 that had been recognized on an agency basis in the prior year.
When excluding the effects of this change, internally generated revenue grew by 7.1%.

The $264.7 million, or 12.8%, increase in medical net sales for the year ended December 31, 2016 includes an

increase of 12.8% local currency growth (11.1% increase in internally generated revenue and 1.7% impact from
extra week). The growth in internally generated medical revenue is affected by certain sales being recognized on a
gross basis in 2016 that had been recognized on an agency basis in the prior year. When excluding the effects of
this change, internally generated revenue grew by 7.9%.

The $66.8 million, or 18.6%, increase in technology and value-added services net sales for the year ended

December 31, 2016 includes an increase of 20.0% local currency growth (7.9% increase in internally generated
revenue, 0.9% impact from extra week and 11.2% growth from acquisitions) partially offset by a decrease of 1.4%
related to foreign currency exchange.

Gross Profit

Gross profit and gross margins for 2016 and 2015 by segment and in total were as follows (in thousands):

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

2016
2,953,140
280,829
3,233,969

Gross
Margin %

26.5 % $
66.0
27.9

2015
2,768,676
243,583
3,012,259

Gross
Margin %

27.0 % $
67.9
28.3

Increase

$
184,464
37,246
221,710

%
6.7 %
15.3
7.4

Gross profit increased $221.7 million, or 7.4%, for the year ended December 31, 2016 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 $184.5 million, or 6.7%, for the year ended December 31, 2016

compared to the prior year period. Health care distribution gross profit margin decreased to 26.5% for the year
ended December 31, 2016 from 27.0% for the comparable prior year period. The overall increase in our health care
distribution gross profit is attributable to a $170.8 million gross profit increase from growth in internally generated
revenue and $60.9 million is attributable to acquisitions. These increases were partially offset by a $47.2 million
decline in gross profit due primarily to the effects of foreign exchange on revenues and the decrease in the gross
margin rates.

Technology and value-added services gross profit increased $37.2 million, or 15.3%, for the year ended
December 31, 2016 compared to the prior year period. Technology and value-added services gross profit margin
decreased to 66.0% for the year ended December 31, 2016 from 67.9% for the comparable prior year period.
Acquisitions accounted for $18.5 million of our gross profit increase within our technology and value-added
services segment for the year ended December 31, 2016 compared to the prior year period. The remaining increase
of $18.7 million in our technology and value-added services segment gross profit was primarily attributable to
growth in internally generated revenue.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2016 and 2015 were as follows (in

thousands):

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

% of
Respective
Net Sales

2016
2,256,952
159,552
2,416,504

20.2 % $
37.5
20.9

2015
2,108,213
135,143
2,243,356

% of
Respective
Net Sales

20.5 % $
37.7
21.1

Increase

$
148,739
24,409
173,148

%
7.1 %
18.1
7.7

Selling, general and administrative expenses increased $173.1 million, or 7.7%, for the year ended December
31, 2016 from the comparable prior year period. The $148.7 million increase in selling, general and administrative
expenses within our health care distribution segment for the year ended December 31, 2016 as compared to the
prior year period was attributable to $57.6 million of additional costs from acquired companies, and $91.1 million

of additional operating costs. The $24.4 million increase in selling, general and administrative expenses within our
technology and value-added services segment for the year ended December 31, 2016 as compared to the prior year
period was attributable to $15.2 million of additional costs from acquired companies and $9.2 million of additional
operating costs. As a percentage of net sales, selling, general and administrative expenses decreased to 20.9% from
21.1% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses increased $104.2

million, or 7.6%, for the year ended December 31, 2016 from the comparable prior year period. As a percentage of
net sales, selling expenses decreased to 12.8% from 13.0% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $68.9 million, or 8.0%, for the year ended December 31, 2016 from the comparable prior year period. As
a percentage of net sales, general and administrative expenses decreased to 8.1% from 8.2% for the comparable
prior year period.

Other Expense, Net

Other expense, net for the years ended 2016 and 2015 was as follows (in thousands):

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

2016

2015

13,275 $

(31,893)
2,879
(15,739) $

12,935 $

(26,008)
(141)
(13,214) $

Variance

340
(5,885)
3,020
(2,525)

2.6 %

(22.6)
2,141.8
(19.1)

Other expense, net increased $2.5 million to $15.7 million for the year ended December 31, 2016 from the
comparable prior year period. Interest expense increased $5.9 million primarily due to increased borrowings under
our bank credit lines and our U.S. trade accounts receivable securitization. Higher interest rates also contributed to
the increase in interest expense. Other, net increased by $3.0 million due primarily to investment proceeds received
in the first quarter of 2016.

Income Taxes

For the year ended December 31, 2016, our effective tax rate was 28.8% compared to 29.3% for the prior year

period. During the second quarter of 2016, the effective tax rate was affected by a federal tax audit settlement,
which reduced our income tax expense by approximately $4.5 million.

During the third quarter of 2015, we received a favorable response to a tax petition, which allowed us to
conclude that it was more likely than not that certain unrecognized tax benefits, which had been previously
reserved, would be realized. As a result, our provision for income taxes in 2015 included a $6.3 million income tax
benefit.

Absent the effects of this income tax benefit in the third quarter of 2015, our effective tax rate for the year
ended December 26, 2015 would have been 30.2% as compared to our actual effective tax rate of 29.3%. The
remaining difference between our effective tax rate and the federal statutory tax rate for both periods primarily
relates to state and foreign income taxes and interest expense. For 2017, we expect our effective tax rate to be in
the range of 28%.

Net Income

Net income increased $33.0 million, or 6.3%, for the year ended December 31, 2016, compared to the prior

year period due to the factors noted above.

2015 Compared to 2014

Net Sales

Net sales for 2015 and 2014 were as follows (in thousands):

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

2015

% of
Total

2014

% of
Total

Increase/(Decrease)
%

5,276,407
2,921,624
2,072,915
10,270,946
358,773
10,629,719

49.6 % $
27.5
19.5
96.6
3.4

100.0 % $

5,381,215
2,898,612
1,742,685
10,022,512
348,878
10,371,390

51.9 % $
27.9
16.8
96.6
3.4

100.0 % $

(104,808)
23,012
330,230
248,434
9,895
258,329

(1.9) %
0.8
18.9
2.5
2.8
2.5

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

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 on a non-recourse basis, e-services, continuing education services for practitioners, consulting
and other services.

The $258.3 million, or 2.5%, increase in net sales for the year ended December 26, 2015 includes an increase of

8.4% local currency growth (5.0% increase in internally generated revenue and 3.4% growth from acquisitions)
partially offset by a decrease of 5.9% related to foreign currency exchange.

The $104.8 million, or 1.9%, decrease in dental net sales for the year ended December 26, 2015 includes an

increase of 5.0% in local currencies (4.4% increase in internally generated revenue and 0.6% growth from
acquisitions) offset by a decrease of 6.9% related to foreign currency exchange. The 5.0% increase in local
currency sales was due to increases in dental equipment sales and service revenues of 7.0% (6.4% increase in
internally generated revenue and 0.6% growth from acquisitions) and dental consumable merchandise sales growth
of 4.4% (3.8% increase in internally generated revenue and 0.6% growth from acquisitions).

The $23.0 million, or 0.8%, increase in animal health net sales for the year ended December 26, 2015 includes

an increase of 8.4% local currency growth (1.9% increase in internally generated revenue and 6.5% growth from
acquisitions) partially offset by a decrease of 7.6% related to foreign currency exchange. The growth in internally
generated animal health revenue is affected by certain products switching between agency sales and standard sales,
as well as changes to our veterinary diagnostics manufacturer relationships. When excluding the effects of these
items, internally generated revenue grew 5.6%.

The $330.2 million, or 18.9%, increase in medical net sales for the year ended December 26, 2015 includes an

increase of 19.7% local currency growth (12.2% increase in internally generated revenue and 7.5% growth from
acquisitions) partially offset by a decrease of 0.8% related to foreign currency exchange.

The $9.9 million, or 2.8%, increase in technology and value-added services net sales for the year ended
December 26, 2015 includes an increase of 5.3% local currency growth (4.9% increase in internally generated
revenue and 0.4% growth from acquisitions) partially offset by a decrease of 2.5% related to foreign currency
exchange.

Gross Profit

Gross profit and gross margins for 2015 and 2014 by segment and in total were as follows (in thousands):

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

2015
2,768,676
243,583
3,012,259

Gross
Margin %

27.0 % $
67.9
28.3

2014
2,680,190
231,125
2,911,315

Gross
Margin %

26.7 % $
66.2
28.1

Increase

88,486
12,458
100,944

%
3.3 %
5.4
3.5

Gross profit increased $100.9 million, or 3.5%, for the year ended December 26, 2015 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

Health care distribution gross profit increased $88.5 million, or 3.3%, for the year ended December 26, 2015

compared to the prior year period. Health care distribution gross profit margin increased to 27.0% for the year
ended December 26, 2015 from 26.7% for the comparable prior year period. The overall increase in our health care
distribution gross profit is primarily attributable to acquisitions which contributed $98.6 million of additional gross
profit in our health care distribution segment for the year ended December 26, 2015 compared to the prior year
period. The offsetting decrease of $10.1 million in our health care distribution segment gross profit was primarily
attributable to the effects of foreign exchange.

Technology and value-added services gross profit increased $12.5 million, or 5.4%, for the year ended
December 26, 2015 compared to the prior year period. Technology and value-added services gross profit margin
increased to 67.9% for the year ended December 26, 2015 from 66.2% for the comparable prior year period.
Acquisitions accounted for $1.6 million of our gross profit increase within our technology and value-added services
segment for the year ended December 26, 2015 compared to the prior year period. The remaining increase of $10.9
million in our technology and value-added services segment gross profit was attributable to improvements in the
gross margin rate resulting from changes in product mix.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2015 and 2014 were as follows (in

thousands):

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

2015
2,108,213
135,143
2,243,356

% of
Respective
Net Sales

20.6 % $
36.6
21.2

2014
2,068,419
127,754
2,196,173

Increase

39,794
7,389
47,183

%
1.9 %
5.8
2.1

20.5 % $
37.7
21.1

Selling, general and administrative expenses increased $47.2 million, or 2.1%, for the year ended December 26,

2015 from the comparable prior year period. The $39.8 million increase in selling, general and administrative
expenses within our health care distribution segment for the year ended December 26, 2015 as compared to the
prior year period was attributable to $96.9 million of additional costs from acquired companies, partially offset by a
reduction of $57.1 million of costs primarily due to the impact of foreign exchange. The $7.4 million increase in
selling, general and administrative expenses within our technology and value-added services segment for the year
ended December 26, 2015 as compared to the prior year period was attributable to $1.3 million of additional costs
from acquired companies and $6.1 million of additional operating costs. As a percentage of net sales, selling,
general and administrative expenses decreased to 21.1% from 21.2% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses decreased $12.8 million,

or 0.9%, for the year ended December 26, 2015 from the comparable prior year period. As a percentage of net
sales, selling expenses decreased to 13.0% from 13.4% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $60.0 million, or 7.4%, for the year ended December 26, 2015 from the comparable prior year period. As
a percentage of net sales, general and administrative expenses increased to 8.2% from 7.8% for the comparable
prior year period.

Other Expense, Net

Other expense, net for the years ended 2015 and 2014 was as follows (in thousands):

2015

2014

12,935 $

(26,008)
(141)
(13,214) $

13,655 $

(24,057)
4,572
(5,830) $

Variance

(720)
(1,951)
(4,713)
(7,384)

%
(5.3) %
(8.1)
(103.1)
(126.7)

Other expense, net increased $7.4 million to $13.2 million for the year ended December 26, 2015 from the
comparable prior year period. Interest income decreased $0.7 million primarily due to lower late fee income.
Interest expense increased $2.0 million primarily due to increased borrowings under our private placement facilities
and our bank credit lines. Other, net decreased by $4.7 million due primarily to a contractual payment in 2014 from
an animal health supplier in Europe related to a change to a non-exclusive sales model.

Income Taxes

For the year ended December 26, 2015, our effective tax rate was 29.3% compared to 30.4% for the prior year
period. During the third quarter of 2015, we received a favorable response to a tax petition, which has allowed us
to conclude that it is more likely than not that certain unrecognized tax benefits, which had been previously
reserved, will be realized. As a result, our provision for income taxes includes a $6.3 million income tax benefit.

Net Income

Net income increased $18.0 million, or 3.6%, for the year ended December 26, 2015, 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 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, and have caused 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 $615.5 million for the year ended December 31, 2016, compared

to $586.8 million for the prior year. The net change of $28.7 million was primarily attributable to net income
improvements.

Net cash used in investing activities was $316.4 million for the year ended December 31, 2016, compared to
$260.0 million for the prior year. The net change of $56.4 million was primarily due to increased payments for
equity investments and business acquisitions.

Net cash used in financing activities was $300.2 million for the year ended December 31, 2016, compared to

$319.4 million for the prior year. The net change of $19.2 million was primarily due to increased net proceeds
from the issuance of long-term debt partially offset by increases in repurchases of our common stock.

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

December 31, December 26,

Cash and cash equivalents ...................................................................................
Working capital ................................................................................................

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

2016

62,381 $

1,022,134

2015

72,086
1,084,103

437,476 $
65,923
715,457
1,218,856 $

328,631
17,331
463,752
809,714

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

overnight investments with a high degree of liquidity.

Accounts receivable days sales outstanding and inventory turns

Our accounts receivable days sales outstanding from operations increased to 41.3 days as of December 31,
2016 from 40.1 days as of December 26, 2015. During the years ended December 31, 2016 and December 26,
2015, we wrote off approximately $6.2 million and $8.0 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations were 5.5 as of December 31, 2016 and
December 26, 2015. 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 a weighted average interest rate of 2.9%), as well as inventory purchase commitments
and operating and capital lease obligations as of December 31, 2016:

Payments due by period (in thousands)

< 1 year

2 - 3 years

4 - 5 years

> 5 years

Total

Contractual obligations:
Long-term debt, including interest ..................
$
Inventory purchase commitments ....................
Operating lease obligations ...........................
Capital lease obligations, including interest .......

84,742 $

419,493 $

231,218 $

116,172 $

179,562

84,010

1,517

208,174

120,015

1,982

212,960

70,123

576

116,200

63,393

1,834

851,625

716,896

337,541

5,909

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

349,831 $

749,664 $

514,877 $

297,599 $

1,911,971

Bank Credit Lines

On September 12, 2012, we entered into a new $500 million revolving credit agreement (the “Credit

Agreement”) with a $200 million expansion feature, which was originally set to expire on September 12, 2017. On
September 22, 2014, we extended the expiration date of the Credit Agreement to September 22, 2019. The interest
rate 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 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 31, 2016
and December 26, 2015, the borrowings outstanding on this revolving credit facility were $65.0 million and $40.0
million, respectively. As of December 31, 2016 and December 26, 2015, there were $13.0 million and $11.4
million of letters of credit, respectively, provided to third parties under the credit facility.

As of December 31, 2016 and December 26, 2015, we had various other short-term bank credit lines available,
of which $372.5 million and $288.6 million, respectively, was outstanding. At December 31, 2016 and December
26, 2015, borrowings under all of our credit lines had a weighted average interest rate of 1.61% and 1.21%,
respectively.

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 an
additional agreement with one insurance company and amending our existing agreements with two insurance
companies. On September 22, 2014, we increased our available private placement facilities by $200 million to a
total facility amount of $975 million, and extended the expiration date to September 22, 2017. 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 through September 22, 2017. 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 agreements provide, among other things, that we maintain certain maximum leverage ratios, and
contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain
changes in ownership. These facilities contain make-whole provisions in the event that we pay off the facilities
prior to the applicable due dates.

The components of our private placement facility borrowings as of December 31, 2016 are presented in the

following table (in thousands):

Date of

Borrowing

September 2, 2010

January 20, 2012

January 20, 2012 (1)

December 24, 2012

June 2, 2014

Amount of

Borrowing

Outstanding

Borrowing

Rate

100,000
50,000
42,857
50,000
100,000
342,857

3.79 %
3.45
3.09
3.00
3.19

Due Date
September 2, 2020

January 20, 2024

January 20, 2022

December 24, 2024

June 2, 2021

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

U.S. Trade Accounts Receivable Securitization

On April 17, 2013, we entered into a facility agreement of up to $300 million with a bank, as agent, based on

the securitization of our U.S. trade accounts receivable. This facility allowed us to replace public debt
(approximately $220 million), which had a higher interest rate at Henry Schein Animal Health (formerly Butler
Schein Animal Health) during February 2013 and provided funding for working capital and general corporate
purposes. The financing was structured as an asset-backed securitization program with pricing committed for up to
three years. On April 17, 2015, we extended the expiration date of this facility agreement to April 15, 2018, and on
June 1, 2016, we extended the expiration date of this facility agreement to April 29, 2019 and increased the
purchase limit under the facility from $300 million to $350 million. The borrowings outstanding under this
securitization facility were $350.0 million and $90.0 million as of December 31, 2016 and December 26, 2015,
respectively. At December 31, 2016, the interest rate on borrowings under this facility was based on the asset-
backed commercial paper rate of 101 basis points plus 75 basis points, for a combined rate of 1.76%. At December
26, 2015, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of
40 basis points plus 75 basis points, for a combined rate of 1.15%.

We are required to pay a commitment fee of 30 basis points on the daily balance of the unused portion of the
facility if our usage is greater than or equal to 50% of the facility limit or a commitment fee of 35 basis points on
the daily balance of the unused portion of the facility if our usage is less than 50% of the facility limit.

Borrowings under this facility are presented as a component of Long-term debt within our consolidated balance

sheet.

Long-term debt

Long-term debt consisted of the following:

December 31, December 26,

2016

2015

Private placement facilities .................................................................................
U.S. trade accounts receivable securitization ..........................................................
Notes payable to banks at a weighted average interest rate of 21.37% and 8.83%

342,857 $

350,000

47,957

350,000

90,000

Various collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates ranging
from 2.56% to 12.9% .................................................................................
Capital lease obligations (see Note 17) .................................................................
Total ..............................................................................................................
Less current maturities ......................................................................................
Total long-term debt ..................................................................................

35,150

5,416

781,380

(65,923)

715,457 $

38,215

2,863

481,083

(17,331)

463,752

Stock repurchases

From June 21, 2004 through December 31, 2016, we repurchased approximately $2.2 billion, or 24,903,293
shares, under our common stock repurchase programs, with $250 million available as of December 31, 2016 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. Accounting Standards Codification 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 31, 2016, December 26, 2015 and December 27, 2014 are presented in the
following table:

December 31, December 26, December 27,
2015

2014

2016

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

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

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

redeemable noncontrolling interests ..........................................
Change in fair value of redeemable securities .................................
Balance, end of period ................................................................

542,194 $

564,527 $

497,539

(72,729)

(82,563)

(105,383)

58,172
48,760
(32,973)

(2,652)
66,864
607,636 $

18,936
43,588
(32,706)

(4,790)
35,202
542,194 $

120,220
38,741
(23,346)

(4,080)
40,836
564,527

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. Any adjustments to these accrual amounts are recorded in
our consolidated statement of income.

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
$107.4 million as of December 31, 2016.

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, animal health and medical 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. 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
61

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, animal health and medical) and technology and value-added services.
Goodwill was allocated to such reporting units, for the purposes of preparing our impairment analyses, based on a
specific identification basis.

For the years ended December 31, 2016 and December 26, 2015, we tested goodwill for impairment using a

quantitative analysis consisting of a two-step approach. The first step of our quantitative analysis consists of a
comparison of the carrying value of our reporting units, including goodwill, to the estimated fair value of our
reporting units using a discounted cash flow methodology. If step one results in the carrying value of the reporting
unit exceeding the fair value of such reporting unit, we would then proceed to step two which would require us to
calculate the amount of impairment loss, if any, that we would record for such reporting unit. The calculation of
the impairment loss in step two would be equivalent to the reporting unit’s carrying value of goodwill less the
implied fair value of such goodwill.

Our use of a discounted cash flow methodology includes estimates of future revenue based upon budget

projections and growth rates which take into account estimated inflation rates. We also develop estimates for future
levels of gross and operating profits and projected capital expenditures. Our methodology also includes the use of
estimated discount rates based upon industry and competitor analysis as well as other factors. The estimates that we
use in our discounted cash flow methodology involve many assumptions by management that are based upon future
growth projections.

For the year ended December 27, 2014, we tested goodwill impairment under the provisions of Accounting

Standards Update 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment,”
which allowed 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 considered 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.

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 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.

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.

For the years ended December 31, 2016, December 26, 2015 and December 27, 2014, the results of our

goodwill and intangible 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 to be 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

Stock-based compensation represents the cost related to stock-based awards granted to employees and non-
employee directors. We measure stock-based compensation at the grant date, based on the estimated fair value of
the award, and recognize the cost (net of estimated forfeitures) as compensation expense on a straight-line basis
over the requisite service period. Our stock-based compensation expense is reflected in selling, general and
administrative expenses in our consolidated statements of income.

Stock-based awards are provided to certain employees and non-employee directors under the terms of our 2013

Grants of restricted stock/units are stock-based awards granted to recipients with specified vesting
provisions. In the case of restricted stock, common stock is delivered on the date of grant, subject to vesting
conditions. In the case of restricted stock units, common stock is generally delivered on or following satisfaction of
vesting conditions. We issue restricted stock/units that vest solely based on the recipient’s continued service over
time (primarily four-year cliff vesting, except for grants made under the 2015 Non-Employee Director Stock
Incentive Plan, which are primarily 12-month cliff vesting) and restricted stock/units that vest 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/units, we estimate the fair value on the date of grant based on our

closing stock price. With respect to performance-based restricted stock/units, 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
specified period, as determined by the Compensation Committee of the Board of Directors. Although there is no
guarantee that performance targets will be achieved, we estimate the fair value of performance-based restricted
stock/units based on our closing stock price at time of grant.

The Plans provide for adjustments to the performance-based restricted stock/units targets for significant events
such as acquisitions, divestitures, new business ventures, certain capital transactions (including share repurchases),
restructuring costs, if any, changes in accounting principles or in applicable laws or regulations and certain foreign
exchange fluctuations. 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
under the Plans.

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.

Accounting Pronouncements Adopted

of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or
premium are considered in the aggregate when determining the effective interest rate on the debt. ASU 2015-03 is
effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. ASU
2015-03 must be applied retrospectively. Entities may choose to adopt the new requirements as of an earlier date
for financial statements that have not been previously issued. The adoption of this ASU during 2016 did not have a
material impact on our consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period

Adjustments” (“ASU 2015-16”). ASU 2015-16 removes the previous requirement for an acquiring company to
restate prior period financial results due to measurement-period adjustments. ASU 2015-16 requires that an
acquirer recognize provisional amounts that are identified during the measurement-period in the reporting period in
which the adjustment amounts are determined. ASU 2015-16 also requires presentation of the amount recorded in
current period earnings by line item, either on the face of the income statement or within the notes to financial
statements, which would have been recorded in previous reporting periods if the adjustment to the provisional
amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for annual reporting periods
beginning after December 15, 2015, including interim periods within that reporting period. The guidance is to be
applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance. The
adoption of this ASU during 2016 did not have a material impact on our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17 (Topic 740), “Balance Sheet Classification of Deferred
Taxes” (“ASU 2015-17”). ASU 2015-17 requires deferred tax liabilities and assets to be classified as noncurrent in
the Consolidated Balance Sheet. The standard will be effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted
for financial statements that have not been previously issued. The ASU may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all periods presented. The Company elected to early adopt
ASU 2015-17 prospectively in the third quarter of 2016. As a result, all deferred tax assets and liabilities have been
presented as noncurrent on the consolidated balance sheet as of December 31, 2016. There was no impact on our
results of operations as a result of the adoption of ASU 2015-17 and prior periods have not been adjusted.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU
2014-09”), which supersedes nearly all existing revenue recognition guidance under accounting principles generally
accepted in United States (“U.S. GAAP”). The core principle of ASU 2014-09 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this
core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing U.S. GAAP.

In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers” (“ASU 2015-
14”) which deferred the effective date by one year to December 15, 2017 for interim and annual reporting periods
beginning after that date. Early adoption is permitted only as of annual reporting periods beginning after December
15, 2016, including interim reporting periods within that reporting period.

When effective, ASU 2014-09 will use either of the following transition methods: (i) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain
practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09
recognized at the date of adoption (which includes additional footnote disclosures).

Currently, we are reviewing our various revenue streams within our two reportable segments: (i) health care
distribution and (ii) technology and value-added services. We are gathering data to quantify the amount of sales by
type of revenue stream. Concurrently, through the use of various data gathering methods, we are categorizing the
types of sales for our business units for the purpose of comparing how we currently recognize revenue for the
purpose of quantifying the impact, if any, that this ASU will have on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”). ASU 2016-02

contains guidance on accounting for leases and requires that most lease assets and liabilities and the associated
rights and obligations be recognized on the Company’s balance sheet. ASU 2016-02 focuses on lease assets and
lease liabilities by lessees classified as operating leases under previous generally accepted accounting principles.
For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of
underlying asset not to recognize lease assets and lease liabilities. ASU 2016-02 will require disclosures regarding
the amount, timing and uncertainty of cash flows arising from leases. The standard which requires the use of a
modified retrospective approach will be effective for interim and annual periods beginning after December 15,
2018. Early adoption is permitted. We are currently in the early stages of evaluating the impact of ASU 2016-02 on
our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, “Stock Compensation” (Topic 718) (“ASU 2016-09”).
ASU 2016-09 contains amended guidance for share-based payment accounting. We will adopt the provisions of
this standard during the first quarter of 2017.

The impact of ASU 2016-09 to our accounting for income taxes will require us to record all excess tax benefits

and deficiencies as a component of income tax expense using the prospective transition method beginning as of
January 1, 2017. Prior to the implementation of this ASU, excess tax benefits were recorded as a component of
additional paid in capital and tax deficiencies were recognized either as an offset to accumulated excess tax
benefits, if any, or in the income statement.

In addition, the ASU clarifies the classification of certain share based payment activities within the statements

of cash flow. We have elected to prospectively present the amount of excess tax benefits related to stock
compensation as a component of cash flow from operating activities.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of
expected credit losses for financial assets held at amortized cost. This ASU is effective for interim and annual
reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual
reporting periods beginning after December 15, 2018. This ASU is required to be adopted using the modified
retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the first
reporting period in which the guidance of this ASU is effective. Based upon the level and makeup of our financial
asset portfolio, past loan loss activity and current known activity regarding our outstanding loans, we do not expect
that this ASU will have a material impact on the results of our consolidated financial statements.

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 and the value of certain underlying

functional currencies of the Company, including its foreign subsidiaries, 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. A hypothetical 5% change in the average value of the U.S. dollar in 2016 compared to foreign
currencies would have changed our 2016 reported Net income attributable to Henry Schein, Inc. by approximately
$6.3 million.

As of December 31, 2016, we had foreign currency exchange agreements, which expire through May 31, 2017,

which include a mark-to-market gain of $0.3 million as determined by quoted market prices. A hypothetical 5%
change in the value of the U.S. dollar would change the notional value of our foreign currency exchange
agreements by $3.5 million.

Short-Term Investments

We limit our credit risk with respect to our cash equivalents, 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.

Variable Interest Rate Debt

As of December 31, 2016, we had variable interest rate exposure for certain of our revolving credit facilities

and our U.S. trade accounts receivable securitization.

Our revolving credit facility which we entered into on September 22, 2014 and expires on September 22, 2019,

has an interest rate that is based on the U.S. Dollar LIBOR plus a spread based on our leverage ratio at the end of
each financial reporting quarter. As of December 31, 2016, there was $65.0 million outstanding under this
revolving credit facility. During the year ended December 31, 2016, the average outstanding balance under this
revolving credit facility was approximately $214.0 million. Based upon our average outstanding balance for this
revolving credit facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would
have increased by $0.5 million.

Our U.S trade accounts receivable securitization, which we entered into on April 17, 2013 and which expires on

April 29, 2019, has an interest rate that is based upon the asset-backed commercial paper rate of 101 basis points
plus 75 basis points. As of December 31, 2016, we had an outstanding balance of $350.0 million under this
securitization facility. During the year ended December 31, 2016, the average outstanding balance under this
securitization facility was approximately $322.0 million. Based upon our average outstanding balance for this
securitization facility, for each hypothetical increase of 25 basis points, our interest expense thereunder would have
increased by $0.8 million.

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 31, 2016 and December 26, 2015 ...........................................................

Statements of Income for the years ended December 31, 2016,

December 26, 2015 and December 27, 2014 ...............................................................................

Statements of Comprehensive Income for the years ended December 31, 2016,

December 26, 2015 and December 27, 2014 ...............................................................................

Statements of Changes in Stockholders’ Equity for the years ended

December 31, 2016, December 26, 2015 and December 27, 2014 ...................................................

Statements of Cash Flows for the years ended December 31, 2016,

December 26, 2015 and December 27, 2014 ...............................................................................

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

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

119

Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2016,

December 26, 2015 and December 27, 2014 .......................................................................................

120

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, NY

We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 31, 2016

and December 26, 2015 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 31, 2016. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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 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 31, 2016 and December 26, 2015, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 12 to the financial statements, in 2016 the Company changed its method of accounting

related to the classification of deferred income taxes due to the adoption of Accounting Standards Update No.
2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes.

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 31, 2016, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February 21, 2017 expressed an
unqualified opinion thereon.

/s/ BDO USA, LLP

New York, NY
February 21, 2017

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

December 31,

December 26,

2016

2015

62,381
1,254,139
1,635,750
-
360,510
3,312,780
333,906
2,019,740
621,180
442,790
6,730,396 $

977,249
437,476
65,923

266,463
151,750
391,785
2,290,646
715,457
51,589
264,264
3,321,956

607,636

72,086
1,229,816
1,509,957
58,159
361,082
3,231,100
318,476
1,907,593
592,971
454,600
6,504,740

1,005,798
328,631
17,331

258,416
161,760
375,061
2,146,997
463,752
252,862
212,121
3,075,732

542,194

794
127,536
2,981,777
(317,041)
2,793,066
7,738
2,800,804
6,730,396 $

824
207,374
2,895,997
(219,939)
2,884,256
2,558
2,886,814
6,504,740

ASSETS
Current assets:
Cash and cash equivalents ................................................................................
Accounts receivable, net of reserves of $90,329 and $77,008 ....................................
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 ......................................................................................

Redeemable noncontrolling interests ......................................................................
Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,

none outstanding ........................................................................................

Common stock, $.01 par value, 240,000,000 shares authorized,

79,402,505 outstanding on December 31, 2016 and
82,415,320 outstanding on December 26, 2015 ..................................................
Additional paid-in capital .................................................................................
Retained earnings ..........................................................................................
Accumulated other comprehensive loss ...............................................................
Total Henry Schein, Inc. stockholders' equity ....................................................
Noncontrolling interests ..................................................................................
Total stockholders' equity .........................................................................
Total liabilities, redeemable noncontrolling interests and stockholders' equity ............

See accompanying notes.

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

Years Ended
December 31, December 26, December 27,
2015

2014

2016

11,571,668 $
8,337,699
3,233,969

10,629,719 $
7,617,460
3,012,259

10,371,390
7,460,075
2,911,315

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. ...........................................

2,416,504
45,891
771,574

2,243,356
34,931
733,972

13,275
(31,893)
2,879
755,835
(217,958)
18,518
556,395
(49,617)
506,778 $

12,935
(26,008)
(141)
720,758
(211,391)
14,060
523,427
(44,369)
479,058 $

Earnings per share attributable to Henry Schein, Inc.:

Basic ............................................................................................
Diluted .........................................................................................

$
$

6.27 $
6.19 $

5.78 $
5.69 $

Weighted-average common shares outstanding:
Basic ............................................................................................
Diluted .........................................................................................

80,820
81,862

82,844
84,125

See accompanying notes.

2,196,173
-
715,142

13,655
(24,057)
4,572
709,312
(215,610)
11,734
505,436
(39,359)
466,077

5.53
5.44

84,265
85,740

HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

Years Ended

December 31, December 26, December 27,

2016

2015

2014

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

556,395 $

523,427 $

505,436

Other comprehensive loss, net of tax:
Foreign currency translation loss ........................................................

Unrealized gain (loss) from foreign currency hedging activities ..................

Unrealized investment gain ...............................................................

Pension adjustment gain (loss) ...........................................................

Other comprehensive loss, net of tax .....................................................
Comprehensive income ......................................................................
Comprehensive income attributable to noncontrolling interests:
Net income ................................................................................
Foreign currency translation loss .....................................................

(98,402)

(134,035)

(157,698)

(992)

(399)

(99,791)

456,604

(49,617)

2,689

1,994

134

2,270

(2,337)

379

(7,441)

(129,637)

393,790

(167,097)

338,339

(44,369)

4,830

(39,359)

4,116

Comprehensive income attributable to noncontrolling interests .............

(46,928)

(39,539)

(35,243)

Comprehensive income attributable to Henry Schein, Inc. ...........................

409,676 $

354,251 $

303,096

See accompanying notes.

HENRY SCHEIN, INC.
CONSOLIDATED STATEMENTS 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

856 $

318,225 $

2,398,267 $

67,849 $

2,804 $

Accumulated
Other

Total

Comprehensive Noncontrolling Stockholders'
Interests
Income (Loss)

Equity
2,788,001

466,077

618

466,695

84,008,537 $

840 $

265,363 $

2,642,523 $

(95,132) $

2,851 $

2,816,445

479,058

781

479,839

(153,582)

(36)

(153,618)

(2,337)
379
(7,441)
-

-
-
-
(544)

-
-
-

-
-
-
-

9
-
-

-
-
-
-

(2,337)
379
(7,441)
(544)

753
(40,836)
(299,989)

42,652
45,876
(22,572)
(574)

(129,205)

(40)

(129,245)

1,994
134
2,270
-
-

-
-
-

-
-
-
-

-
-
-
(657)
(9)

(368)
-
-

-
-
-
-

1,994
134
2,270
(657)
213

(368)
(35,202)
(299,852)

35,672
44,614
(28,314)
(729)

Balance, December 28, 2013 ..................................
Net income (excluding $38,741 attributable to Redeemable

noncontrolling interests) ..................................

Foreign currency translation loss (excluding $4,080

attributable to Redeemable noncontrolling interests) ........

Unrealized loss from foreign currency hedging activities,

net of tax benefit of $155 .................................
Unrealized investment gain, net of tax of $250 ..................
Pension adjustment loss, net of tax of $2,781 ...................
Dividends paid ..............................................
Initial noncontrolling interests and adjustments related to

business acquisitions .....................................
Change in fair value of redeemable securities ..................
Repurchase and retirement of common stock ...................
Stock issued upon exercise of stock options,

including tax benefit of $11,161 ...........................
Stock-based compensation expense ............................
Shares withheld for payroll taxes ..............................
Liability for cash settlement stock-based compensation awards ..
Balance, December 27, 2014 ..................................
Net income (excluding $43,588 attributable to Redeemable

noncontrolling interests) ..................................

Foreign currency translation loss (excluding $4,790

Unrealized gain from foreign currency hedging activities,

attributable to Redeemable noncontrolling interests) ........
net of tax of $153 .........................................
Unrealized investment gain, net of tax of $0 ....................
Pension adjustment gain, net of tax of $1,008 ..................
Dividends paid ..............................................
Other adjustments ............................................
Initial noncontrolling interests and adjustments related to

including tax benefit of $20,802 ...........................
Stock-based compensation expense ............................
Shares withheld for payroll taxes ..............................
Liability for cash settlement stock-based compensation awards ..
Balance, December 26, 2015 ..................................
Net income (excluding $48,760 attributable to Redeemable

noncontrolling interests) ..................................

Foreign currency translation loss (excluding $2,652

attributable to Redeemable noncontrolling interests) ........

Unrealized loss from foreign currency hedging activities,

net of tax benefit of $33 ...................................
Unrealized investment gain, net of tax of $0 ....................
Pension adjustment loss, net of tax benefit of $548 ..............
Dividends paid ..............................................
Other adjustments ............................................
Initial noncontrolling interests and adjustments related to

including tax benefit of $23,392 ...........................
Stock-based compensation expense ............................
Shares withheld for payroll taxes ..............................
Liability for cash settlement stock-based compensation awards ..
Deferred tax benefit arising from acquisition of .................
noncontrolling interest in partnership .......................
Balance, December 31, 2016 ..................................

Shares
85,622,452 $

-
-
-
-

-
-
(2,528,209)

637,014
464,124
(186,844)
-

-
-
-
-

-
-
(25)

6
5
(2)
-

-
-
-
-
-

-
-
(2,084,297)

297,866
392,855
(199,641)
-

-
-
-
-
-

-
-
(21)

3
4
(2)
-

-
-
-
-
-

-
-
(3,461,782)

207,916
377,552
(164,444)
27,943

-
-
-
-
-

-
-
(35)

2
4
(1)
-

744
(40,836)
(78,143)

42,646
45,871
(22,570)
(574)

-
-
(221,821)

-
-
-
-

-
(35,202)
(74,247)

35,669
44,610
(28,312)
(729)

-
-
(225,584)

-
-
-
-

-
-
-
-
222

-
-
-
-
5

-
-
-
-

-
-
-
-
-

-
-
-
-

79,402,505 $

-
794 $

48,037
127,536 $

See accompanying notes.

82,415,320 $

824 $

207,374 $

2,895,997 $

(219,939) $

2,558 $

2,886,814

506,778

857

507,635

(95,713)

(37)

(95,750)

(992)
2
(399)
-
-

-
-
-

-
-
-
-

-
-
-
(593)
10

4,943
-
-

-
-
-
-

(992)
2
(399)
(593)
15

4,943
(66,864)
(550,024)

34,796
58,246
(29,114)
4,052

-
7,738 $

48,037
2,800,804

-
(66,864)
(128,991)

-
-
(420,998)

34,794
58,242
(29,113)
4,052

2,981,777 $

(317,041) $

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

Cash flows from operating activities:
Net income ..................................................................................
Adjustments to reconcile net income to net cash provided by

556,395 $

523,427 $

505,436

Years Ended
December 31, December 26, December 27,
2015

2016

2014

operating activities:

Depreciation and amortization ...................................................
Stock-based compensation expense .............................................
Provision for losses on trade and other accounts receivable ...............
Benefit from deferred income taxes .............................................
Equity in earnings of affiliates ...................................................
Distributions from equity affiliates ..............................................
Changes in unrecognized tax benefits ..........................................
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 related to equity investments and business

acquisitions, net of cash acquired ...................................................
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 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 ............................
Net cash used in financing activities .......................................................

169,780
58,246
2,647
(37,066)
(18,518)
20,351
6,997
11,611

(1,904)
(104,787)
(22,657)
(25,634)
615,461

159,127
44,614
3,184
(6,241)
(14,060)
18,029
11,847
7,549

(120,001)
(194,869)
(58,376)
212,611
586,841

152,238
45,876
4,619
(1,092)
(11,734)
15,727
22,597
3,303

(81,441)
(71,899)
(40,407)
49,281
592,504

(70,179)

(71,684)

(82,116)

(228,575)
-
-
(17,668)
(316,422)

98,748
260,799
(233)
(15,381)
11,404
(550,024)
(463)
(32,350)
(72,729)
(300,229)

(171,861)
20
-
(16,506)
(260,031)

145,173
135,000
(150)
(201,203)
14,870
(299,852)
2,199
(33,301)
(82,107)
(319,371)

(424,283)
-
3,250
(13,490)
(516,639)

152,641
314,787
(687)
(228,407)
31,491
(299,989)
5,886
(24,986)
(105,383)
(154,647)

(20,360)
(99,142)
188,616
89,474

Effect of exchange rate changes on cash and cash equivalents .......................
Net change in cash and cash equivalents ..................................................
Cash and cash equivalents, beginning of period .........................................
Cash and cash equivalents, end of period .................................................

(8,515)
(9,705)
72,086
62,381 $

(24,827)
(17,388)
89,474
72,086 $

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, Brazil, Canada, Chile, China, the Czech
Republic, Denmark, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain,
Sweden, Switzerland, Thailand 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 31, 2016 consisted of 53 weeks, and the years ended December 26, 2015 and
December 27, 2014 consisted of 52 weeks.

Revenue Recognition

We generate revenue from the sale of dental, animal health and medical 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)

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

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 $98.5 million and $54.4 million,
primarily related to payments for inventory, were classified as accounts payable as of December 31, 2016 and
December 26, 2015.

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

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

for shipment to our customers are reflected in selling, general and administrative expenses. Direct shipping and
handling costs were $86.2 million, $78.7 million and $78.4 million for the years ended December 31, 2016,
December 26, 2015 and December 27, 2014.

Advertising and Promotional Costs

We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses were $18.4 million, $19.2 million and $18.4 million for the years ended December 31, 2016, December
26, 2015 and December 27, 2014. 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 31, 2016 and
December 26, 2015, we had $3.5 million and $4.4 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.

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.

HENRY SCHEIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(in thousands, except per share data)

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.

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 the years ended December 31, 2016, December 26, 2015 and December 27,
2014, 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.