Henry Schein Annual Report 2018

FY2018 Annual Report · Henry Schein

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INNOVATIVE SOLUTIONS

A N N U A L R E P O R T 2 0 1 8

ABOUT HENRY SCHEIN, INC.

Henry Schein, Inc. (Nasdaq: HSIC) is a solutions company
for health care professionals powered by a network of
people and technology.

With more than 18,000 Team Schein Members worldwide,
the Company’s network of trusted advisors provides
more than 1 million customers globally with more than
300 valued solutions that improve operational success
and clinical outcomes. Our Business, Clinical, Technology,
and Supply Chain solutions help office-based dental and
medical practitioners work more efficiently so they can
provide quality care more effectively. These solutions also
support dental laboratories, government and institutional
health care clinics, as well as other alternate care sites.

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.

A FORTUNE 500 Company and a member of the S&P 500®
and the Nasdaq 100® indexes, Henry Schein is headquartered
in Melville, New York, and has operations or affiliates in
31 countries. The Company’s sales from continuing operations
reached $9.4 billion in 2018, and have grown at a compound
annual rate of approximately 13% since Henry Schein became
a public company in 1995.
(As of March 2019)

HENRY SCHEIN FINANCIAL HIGHLIGHTS 2016–2018

NET SALES
Unaudited
($ in Millions)
CAGR 7%

3
8
8
8
$

9
1
2
8
$

8
1
4
9
$

$10,000

$8,000

$6,000

$4,000

$2,000

NON-GAAP (1)
Operating Income
Unaudited
($ in Millions)
CAGR 5%

5
7
6
$

4
9
6
$

0
3
6
$

$800

$700

$600

$500

$400

$300

$200

$100

NON-GAAP (2)
Diluted EPS
Unaudited
CAGR 10%

7
1
.
3
$

9
8
2
$

3
6
2
$

$4.00

$3.00

$2.00

$1.00

2016

2017

2018

2016

2017

2018

2016

2017

2018

(1) GAAP operating income from continuing operations for 2016, 2017, and 2018 was $592 million, $670 million

and $601 million, respectively. See page 8 for a reconciliation of GAAP and non-GAAP measures.

(2) GAAP diluted EPS from continuing operations for 2016, 2017, and 2018 was $2.45, $1.85

and $2.80, respectively. See page 8 for a reconciliation of GAAP and non-GAAP measures.

HENRY SCHEIN AT A GLANCE

2018 GLOBAL
Net Sales of
$9.4 BILLION*

67.4% DENTAL

28.3% MEDICAL

4.3%

TECHNOLOGY &
VALUE-ADDED SERVICES*

2018 net sales of $6.3 billion

2018 net sales of $2.7 billion

2018 net sales of $408 million*

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

Growth Opportunities:

• Increasing penetration
with existing customers

• Geographic expansion

• Advancing technology solutions

• Greater penetration of

specialty markets

• Continued focus on large

group practices

• Digitalization of prosthetic

solutions

MEDICAL
A leading U.S. distributor to
health care providers in multiple
segments: alternate-site practices;
ambulatory surgery centers;
laboratory; public safety;
government; and health systems

Growth Opportunities:

• Increasing penetration organically

and through acquisition

• Continued focus on large accounts,
health systems, and surgery centers

• Focus on specialty segments

and solutions

• Create unique offering with

supply partners

• Select international opportunities

TECHNOLOGY
& VALUE-ADDED SERVICES
A leader in practice management
software, patient relationship
management solutions, and
patient demand generation
solutions for dental practices

Full-service provider of
financial services

Growth Opportunities:

• Increasing penetration with

existing customers

• Geographic expansion

• Ability to serve large group

practices

• Continued focus on facilitating

financial services for technology
investments and office expansion

(As of March 2019)

*Sales from continuing operations (unaudited).

FORTUNE 500 Ranking of theLargest U.S. Corporations (15 Years)A FORTUNE WORLD’S MOST ADMIRED COMPANY (18 Years)AN ETHISPHERE® INSTITUTEWORLD’SMOST ETHICALCOMPANY (8 Years)COMPONENT OFNASDAQ 100®(12 Years) AND S&P 500® INDEXES (4 Years)FORTUNECHANGE THEWORLD LIST(2018)HIGHERAMBITIONCOMPANYOF THEYEAR(2018)health business, which we completed
in February 2019. That business is
now part of a new, publicly traded
company named Covetrus, which
serves the global companion animal
health market with technology-
enabled solutions. We expect
Covetrus customers will benefit from
differentiated technology, practice
management software, and insights to
help drive better clinical and financial
outcomes for their practices and
pet patients. This past year we also
announced the formation of Henry
Schein One, which pairs our dental
practice management software with
new demand-generation tools to help
customers better communicate with
patients and to create opportunities
for dental professionals to interact
with new patients.

With this increased focus exclusively
on the health of people, we are
optimistic about the future of
Henry Schein. We are excited
about the long-term business
opportunities in the global office-
based dental and medical markets,
while acknowledging that 2019
will be a year of transition. And we
will continue to focus on driving
growth in these market segments,
supporting our customers around the
world with innovative technology that
expands our value-added solutions
offering while pursuing new
investment opportunities.

Financial Performance
and Strategic Investments

As a result of the spin-off of our
global animal health business, we
are providing financial results on
the basis of continuing operations,
which excludes animal health
contribution. Our continued

commitment to innovation reaped
financial benefits in 2018. We
achieved net sales from continuing
operations of $9.4 billion, up 6.0%
from 2017, with 4.0% internal
growth in local currencies. Non-
GAAP diluted EPS growth from
continuing operations was 9.7%*
versus 2017 non-GAAP results.
Following the announcement of
the animal health spin-off, we
spent approximately $200 million
to repurchase approximately 2.5
million shares of our common stock
in 2018, reflecting our confidence
in the strength of our business
and our commitment to delivering
shareholder value.

In addition, in 2018 we completed
five majority owned strategic
transactions in our dental and
medical businesses, as we continued
to expand our geographic presence
and enhance our product offering.
In dental, our acquisitions expanded
our digital dentistry solutions for
implants and orthodontics, and we
announced Henry Schein One. In
medical, in early 2019 we acquired
a leading provider of mission-critical
products for the defense and public
safety markets, North American
Rescue.

We expect to continue to invest
in technology and dental specialty
solutions for implants and bone
regeneration, and in endodontic
and orthodontic products. These
categories complement the
growth profile of our traditional
dental business and enhance our
profitability margins. We will also
invest in expanding our global
medical business. We have no
shortage of opportunities to allocate
capital toward strategic investments.

A MESSAGE FROM THE
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER

To My Fellow Stockholders,

Henry Schein is a company of
innovation. Over the course of
nearly nine decades, our Company
has transformed by anticipating
and adapting to market dynamics,
consistently offering our customers
better and brighter ideas. Our
true innovation is seen in how
we apply these ideas to achieve
results for our customers and
other constituencies. That is how
Henry Schein has become what
we are today: a solutions company
for health care professionals
powered by a network of people
and technology.

Innovation Through Focus

2018 was another year of innovation
for Henry Schein. We announced
the spin-off of our global animal

“Henry Schein is a company of innovation.”

High-Touch, Consultative
Sales Model

Stakeholder Relationships
Built Upon Trust

We foresee an exciting future for
Henry Schein as we continue on our
path of success through innovation,
serving our customers whose needs
are rapidly evolving. Our high-
touch, consultative sales model
is built on education, service and
support, software and innovation,
and strong customer relationships.
Our consultative approach sets our
business apart in an environment
that demands fast access to a more
expansive offering of products
and services to dental and medical
practitioners, as well as the power
of technology to drive efficiency
and better decision-making.

We have a goal of continuing
to create long-term value for all
of our constituencies: customers;
investors; Team Schein Members;
supplier partners; and society.
We firmly believe our purpose-
driven, values-based culture
and highly engaged team create
our success as we balance the
needs and build trust with each
constituency.

To create and sustain our trust-based
relationships, we communicate
our purpose, strategy, culture,
and executional capabilities
throughout Henry Schein, and we
empower Team Schein Members
to form innovative partnerships
with our customers and supplier
partners. In this way, we work
with our constituencies to “Help
Health Happen.” This innovative
collaboration model establishes
a common sense of purpose and
creates a powerful vehicle to build
value for society while driving our
Company’s success.

Henry Schein’s partnership
model is rooted in our values-
based culture, and it distinguishes
our Company in the global
marketplace. Our long-term
relationships are trust-based
relationships that help drive our
ability to reinvent our Company
to anticipate industry changes
and build shareholder value. In
addition to providing exceptional
customer service, we align our
business strengths with societal
issues that resonate with our
customers and supplier partners,
and together we make a positive
difference in the world.

How is this approach working?
Over the past 10 years, Henry
Schein has posted an average
annual total shareholder return of
approximately 17%** and average
annual earnings per share growth
of approximately 11%**.

I would like to thank our more than
18,000 Team Schein Members around
the world, whose engagement and
commitment to our customers has
led us on this path of great success.
Team Schein’s commitment to our
values-based culture has been integral
to our ability to be a trusted partner
to every customer we serve. And we
will continue to demonstrate to our
customers, investors, Team Schein
Members, supplier partners, and
society that their trust in Henry Schein
is well placed.

We look forward to an exciting future
for Henry Schein, and to our next
chapter of innovation.

Sincerely,

Stanley M. Bergman

Chairman of the Board and
Chief Executive Officer

March 2019

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.

* 2018 growth in GAAP diluted EPS from continuing
operations was 51.4% versus 2017 GAAP results.
See reconciliation of GAAP and non-GAAP
measures on page 8.

** From 2008 through 2018; on both

a GAAP and non-GAAP basis.

“Our long-term relationships are trust-based relationships that help drive our ability to reinvent our Company to anticipate industry changes and build shareholder value.”

HENRY SCHEIN’S SOLUTIONS-BASED APPROACH

HENRY SCHEIN PROVIDES THE SOLUTIONS HEALTH CARE PROFESSIONALS RELY ON TO
OPERATE MORE EFFICIENTLY AND PROVIDE PATIENTS WITH BETTER CARE.

Henry Schein is a solutions company for health care
professionals powered by a network of people and
technology. When we say Rely on Us, we make
a promise to put the power of our knowledgeable

network of trusted advisors to work for our customers
by providing information, education, and advice on
the more than 300 Business, Clinical, Technology,
and Supply Chain solutions we offer.

Business Solutions

To help customers manage
and grow their business

Clinical Solutions

To help stay on the leading
edge of patient care

Including equipment financing, recruiting
and training, practice analysis, regulatory
compliance, and much more.

With products such as implants, orthodontic devices,
and bone regeneration materials, as well as
telemedicine and clinical decision support services.

Technology Solutions

To help harness information and
enhance the patient experience

Including innovative practice management
software, CAD/CAM equipment, marketing
and communications tools to attract patients,
as well as remote technical support and on-site
equipment service to improve practice efficiency.

Supply Chain Solutions

To deliver the right products
at the right time

Through the industry’s best-in-class performing
fulfillment system, supported by customized
inventory management systems for individual
practices, large group practices, and
integrated delivery networks.

120,000 PRODUCTS IN STOCKAND 180,000 ADDITIONAL PRODUCTS AS SPECIAL-ORDER ITEMSAVERAGE OF 134,000 CARTONS SHIPPED DAILYSERVING MORE THAN 1 MILLION CUSTOMERSMORE THAN 18,000TEAM SCHEIN MEMBERSMORE THAN 300 SOLUTIONS99%OF ITEMS ORDERED ARE SHIPPED ON THE SAME BUSINESS DAY THE ORDER IS RECEIVEDHELPING HEALTH HAPPEN

Henry Schein aims to positively impact health around the
world by aligning our strengths as a business with the needs
of society, and we have pursued the ideal of “doing well by

doing good” since our founding 87 years ago. This spirit of
corporate citizenship is exemplified through Henry Schein
Cares, our global corporate social responsibility program.

SELECTED HENRY SCHEIN CARES ACCOMPLISHMENTS IN 2018

Give Kids A Smile: We celebrated 16 years
of supporting this ADA Foundation initiative,
which provides free oral health services to
underserved children across the country.
Henry Schein has served as the program’s
official professional products sponsor
since its inception, and helped dental
professionals provide free oral health
screenings, treatment, and education to
more than 5.5 million children.

Henry Schein Cares Medal:

Celebrated
the third annual
Henry Schein Cares
Medal program, which
honored organizations
from the fields of oral

health, animal health,

and medicine. In 2018, the gold medalist
for oral health was Mary’s Center for
Maternal and Child Care of Washington,
DC; for animal health, the gold went
to the Massachusetts Society for the
Prevention of Cruelty to Animals;
and the gold medalist for medicine was
The Night Ministry, based in Chicago.

Arnold P. Gold Foundation:
To promote our shared commitment
to championing the human connection
in health care, we supported the
Foundation’s “Keep Healthcare Human”
lapel pin program. In 2018, more than
47,000 of these pins were presented to
students at medical, physician’s assistant,
and nursing schools across the U.S. The
pins serve as a visual reminder that empathy
and compassion are the cornerstones to the
effective delivery of quality care.

Special Olympics: Formed a multi-year
partnership with Special Olympics to
support Special Olympics Healthy
Athletes®, an initiative that offers
health screenings and education to
participating athletes with the goal of
promoting healthy lifestyle choices and
identifying problems that may need
additional follow-up.

Holiday Cheer for Children:
The 20th annual celebration of this
flagship corporate initiative helped
more than 1,200 families celebrate
the holiday, as Team Schein Members
at 22 Company locations in seven
countries collected and donated toys,
clothing, supermarket gift cards, and other
gifts to children and families in need.

Women’s Leadership Network (WLN):
The Company’s first Employee
Resource Group helped connect Team
Schein Members to a range of corporate
social responsibility initiatives in 2018.
For example, WLN members participated
in a book drive to promote children’s
literacy in Milwaukee, donated hygiene
supplies for a domestic violence shelter
in Indianapolis, and held a “dress for
success” clothing drive to help women in
need across Long Island thrive in work
and in life.

Back to School: Team Schein helped
more than 5,000 underserved children
around the world return to the classroom
ready to learn by providing them with
new backpacks, school supplies,
clothing, shoes, books, and hygiene
products. Held at 30 Company locations
in four countries, this is the 21st year
that the Company has celebrated the
Back to School program, having helped
more than 50,000 kids return to school
equipped for success since its inception.

EXECUTIVE MANAGEMENT

Front row, left to right:

David Brous

President, Strategic Business Units Group and Asia Pacific & Brazil Dental

Christopher Pendergast

Senior Vice President and Chief Technology Officer

Lorelei McGlynn

Senior Vice President, Chief Human Resources Officer

Stanley M. Bergman*

Chairman of the Board and Chief Executive Officer

James P. Breslawski*

Vice Chairman of the Board and President

Michael S. Ettinger*

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

Back row, left to right:

Walter Siegel*

Brad Connett

Michael Racioppi

Steven Paladino*

Senior Vice President and General Counsel

President, U.S. Medical Group

Senior Vice President, Chief Merchandising Officer

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

Gerald A. Benjamin*

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

Jonathan Koch

Mark E. Mlotek*

James Mullins

Senior Vice President and Chief Executive Officer, Global Dental Group

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

Senior Vice President, Global Services

James A. Harding Jr.

Chief Executive Officer, Henry Schein One

*Executive Officers

March 2019

BOARD OF DIRECTORS

Front row, left to right:

Carol Raphael

Barry J. Alperin

Shira Goodman

Senior Advisor for Manatt Health Solutions; and Former President and Chief Executive Officer, Visiting Nurse Service of New York (4) (5)

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

Former Chief Executive Officer, Staples, Inc. and Advisory Director for Charlesbank Capital Partners, LLC (3) (4)

Stanley M. Bergman

Chairman of the Board and Chief Executive Officer

Philip A. Laskawy

Lead Director, Henry Schein, Inc.; and Retired Chairman, Ernst & Young, LLP (1) (3)

Anne H. Margulies

Vice President and Chief Information Officer, Harvard University (5)

Joseph L. Herring

Former Chief Executive Officer, Covance, Inc. (2) (4) (5)

Back row, left to right:

Gerald A. Benjamin

Executive Vice President, Chief Administrative Officer

Mark E. Mlotek

Kurt P. Kuehn

Executive Vice President, Chief Strategic Officer

Former Chief Financial Officer of United Parcel Service, Inc. (1) (5)

James P. Breslawski

Vice Chairman of the Board and President

Steven Paladino

Executive Vice President, Chief Financial Officer

Paul Brons

Former President of Organon International BV (4)

Bradley T. Sheares, Ph.D.

Former Chief Executive Officer, Reliant Pharmaceuticals; and Former President of U.S. Human Health for Merck & Co. (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)

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

(4) Member of Strategic Advisory Committee (5) Member of Regulatory, Compliance & Cybersecurity Committee

March 2019

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

ANNUAL MEETING OF STOCKHOLDERS
Our Annual Meeting of Stockholders will be
held on May 22, 2019, at 10:00 a.m. EDT at
The Melville Marriott Long Island, located at 1350
Walt Whitman Road, Melville, New York 11747.

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.

FORM 10-K
Our Annual Report on Form 10-K for the
fiscal year ended December 29, 2018 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
1 State Street, 30th Floor
New York, New York 10004
(212) 509-4000

NON-GAAP DISCLOSURES
The following table sets forth, for the applicable periods, a reconciliation of accounting principles
generally accepted in the United States (“GAAP”) operating income, net income from continuing
operations attributable to Henry Schein, Inc., and diluted earnings per share from continuing operations
adjusted to reflect the effects of restructuring costs, litigation settlements, 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 GAAP. The table reconciles differences between each of operating income from
continuing operations, net income from continuing operations attributable to Henry Schein, Inc.,
and diluted earnings per share from continuing operations attributable to Henry Schein, Inc., each
as presented in accordance with GAAP, and comparable non-GAAP 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 per-
formance 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 replace-
ment for corresponding, similarly captioned, GAAP measures.
NOTES
(1) During 2018, we recorded restructuring costs of $54.4 million pre-tax ($40.8 million post-tax). During
2016, we recorded restructuring costs of $38.6 million pre-tax ($29.0 million post-tax). The effect
that these charges had on earnings per diluted share from continuing operations attributable to
Henry Schein, Inc. was ($0.27), and ($0.18), respectively.

(2) Represents a 2018 pre-tax charge of $38,488 related to a litigation settlement, resulting in a net
after tax charge of $28,866. Represents a 2017 pre-tax charge of $5,325 related to a litigation
settlement. The associated tax benefit of $2,130 resulted in a net after tax charge of $3,195.
The effect that these charges had on earnings per diluted share from continuing operations
attributable to Henry Schein, Inc. was ($0.19) and ($0.02), respectively.

(3) Represents a loss on divestiture in 2017 of an equity ownership in E4D. The effect that this
transaction had on earnings per diluted share from continuing operations attributable to
Henry Schein, Inc. was ($0.11) in 2017.

(4) Represents a 2018 net credit of $10,000 related to a change in the estimate of the transition tax
on deemed repatriated foreign earnings. Represents a 2017 one-time charge of $140,000 related
to an estimate of the transitional tax on deemed repatriated foreign earnings. The effect that these
credits/charges had on earnings per diluted share from continuing operations attributed to
Henry Schein, Inc. was $0.07 and ($0.88), respectively.

(5) Represents a 2017 one-time charge of $2,952 for the revaluation of deferred taxes associated

with U.S. tax reform legislation. The effect that this charge had on earnings per diluted share from
continuing operations attributed to Henry Schein, Inc. was ($0.02).

(6) Represents a 2018 one-time charge of $3,914 to income tax expense as a result of a reorganization
of legal entities related to forming Henry Schein One. The effect that this charge had on earnings per
diluted share from continuing operations attributed to Henry Schein, Inc. was ($0.03).

(7) Represents a $10,649 effect on income resulting from an income tax credit of $13,852, net of
noncontrolling interest of $3,203, originating from a legal entity reorganization outside the
United States. The effect that this credit had on earnings per diluted share from continuing
operations attributed to Henry Schein, Inc. was $0.07.

(8) Represents a 2018 one-time charge of $3,135 to income tax expense as a result of a reorganization of

legal entities completed in preparation for the Animal Health spin-off. The effect that this charge had on
earnings per diluted share from continuing operations attributed to Henry Schein, Inc. was ($0.02).

Year Ended
December 29,
2018

Year Ended
December 30,
2017

Year Ended
December 31,
2016

(in thousands, except per share data)

Operating income from continuing operations
Operating margin from continuing operations

$ 600,618
6.4%

$ 669,762
7.5%

$ 591,841
7.2%

Adjustments:

Restructuring costs (1)
Litigation settlement (2)

Adjusted operating income
from continuing operations

Adjusted operating margin
from continuing operations

$ 54,367
$ 38,488

--
5,325

$ 38,622
--

$ 693,473

$ 675,087

$ 630,463

7.4%

7.6%

7.7%

Net income from continuing operations attributable
to Henry Schein, Inc.:

$ 430,714

$ 293,172

$ 401,284

Adjustments, net of tax:

Restructuring costs (1)

Litigation settlement (2)

Loss on sale of equity investment (3)

Transitional tax on repatriated
Foreign earnings (4)

Deferred tax adjustment (5)

One-time tax charge for Henry Schein One

legal entity reorganization (6)

40,775

$ 28,866

$ (10,000)

3,914

Tax credit (net of noncontrolling interest from
international legal entity reorganization) (7)

$ (10,649)

$ 28,967

3,195

$ 17,636

$ 140,000

2,952

One-time tax for Animal Health
legal entity reorganization (8)

Adjusted net income from continuing
operations attributable to Henry Schein, Inc.:

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

Adjusted diluted earnings per share from continuing
operations attributable to Henry Schein, Inc.:

Diluted weighted-average
common shares outstanding:

3,135

$ 486,755

$ 456,955

$ 430,251

2.80

3.17

1.85

2.89

2.45

2.63

153,707

158,208

163,724

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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

Henry Schein, Inc.

135 Duryea Road

Melville, New York 11747

U.S.A.

(631) 843-5500

www.henryschein.com

19KS4595UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

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

For the fiscal year ended December 29, 2018

__ 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 every Interactive Data File required to be submitted
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 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, a smaller reporting
company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer: X Accelerated filer: __ Non-accelerated filer: __
Emerging growth company: __

Smaller reporting company: __

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □

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

YES: __ NO: X

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

sales price as quoted on the Nasdaq Global Select Market on June 30, 2018, was approximately $11,016,833,000.

As of February 12, 2019, there were 151,403,703 shares of registrant’s Common Stock, par value $.01 per share, outstanding.

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

fiscal year (December 29, 2018) are incorporated by reference in Part III hereof.

Documents Incorporated by Reference:

TABLE OF CONTENTS

PART I.

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

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

PART II

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters

ITEM 6.
ITEM 7.

ITEM 7A.
ITEM 8.
ITEM 9.

ITEM 9A.

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

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

and Financial Disclosure ............................................................................................
Controls and Procedures ................................................................................................

PART III

ITEM 10.
ITEM 11.
ITEM 12.

ITEM 13.
ITEM 14.

PART IV.

ITEM 15.
ITEM 16.

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

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

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

Page
Number

3
21
36
37
38
41

42
45

47
75
77

133
133

136
136

137
137
137

137
145
146

ITEM 1. Business

Spin-Off of Henry Schein Animal Health Business

PART I

On February 7, 2019 (the “Distribution Date”), we completed the previously announced separation (the
“Separation”) and subsequent merger of our animal health business (the “Henry Schein Animal Health Business”)
with Direct Vet Marketing, Inc. (d/b/a Vets First Choice, “Vets First Choice”) (the “Merger”). This was
accomplished by a series of transactions among us, Vets First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc.
“Covetrus”), a wholly owned subsidiary of ours prior to the Distribution Date, and HS Merger Sub, Inc., a wholly
owned subsidiary of Covetrus (“Merger Sub”). In connection with the Separation, we contributed, assigned and
transferred to Covetrus certain applicable assets, liabilities and capital stock or other ownership interests relating to
the Henry Schein Animal Health Business. On the Distribution Date, we received a tax-free distribution of
$1,120.0 million from Covetrus pursuant to certain debt financing incurred by Covetrus. On the Distribution Date
and prior to the Distribution, Covetrus issued shares of Covetrus common stock to certain institutional accredited
investors (the “Share Sale Investors”) for $361.1 million (the “Share Sale”). The proceeds of the Share Sale were
paid to Covetrus and distributed to us. Subsequent to the Share Sale, we distributed, on a pro rata basis, all of the
shares of the common stock of Covetrus held by us to our stockholders of record as of the close of business on
January 17, 2019 (the “Animal Health Spin-off”). After the Share Sale and Animal Health Spin-off, Merger Sub
consummated the Merger whereby it merged with and into Vets First Choice, with Vets First Choice surviving the
Merger as a wholly owned subsidiary of Covetrus. Immediately following the consummation of the Merger, on a
fully diluted basis, (i) approximately 63% of the shares of Covetrus common stock were (a) owned by our
stockholders and the Share Sale Investors, and (b) in respect of certain equity awards held by certain employees of
the Henry Schein Animal Health Business, and (ii) approximately 37% of the shares of Covetrus common stock
were (a) owned by stockholders of Vets First Choice immediately prior to the Merger, and (b) in respect of certain
equity awards held by certain employees of Vets First Choice. After the Separation and the Merger, we no longer
beneficially owned any shares of Covetrus common stock and, following the Distribution Date, will not consolidate
the financial results of Covetrus for the purpose of our financial reporting. Following the Separation and the
Merger, Covetrus was an independent, publicly traded company on the Nasdaq Global Select Market, under the
symbol CVET.

All financial information within this Form 10-K includes the Henry Schein Animal Health Business as the
Separation occurred in 2019. Effective first quarter 2019, we will report the historical earnings of the Henry Schein
Animal Health Business as a discontinued operation. The Company estimates that on a continuing operations basis,
its 2018 revenues were $9.4 billion and its 2018 net income was $430.7 million.

General

The description of our business throughout this Form 10-K excludes our global animal health business as the

filing date of this Form 10-K is subsequent to the effective date of the Separation.

We believe we are the world’s largest provider of health care products and services primarily to office-based
dental and medical practitioners. We serve more than 1 million customers worldwide including dental practitioners
and laboratories 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 86 years of experience
distributing health care products.

We are headquartered in Melville, New York, employ more than 18,000 people (of which more than 8,800 are

based outside the United States) and have operations or affiliates in 31 countries, including the United States,
Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR,
Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New Zealand, Poland, Portugal,
Singapore, Slovakia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates 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 3.5 million square feet of space in 30 strategically located distribution centers around

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

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

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

The health care distribution reportable segment aggregates our global dental, medical and, prior to the

completion of the Animal Health Spin-off, animal health 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
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, medical and, prior to the completion of the Animal Health Spin-off, animal health practitioners. 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. 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 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. 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 medical distributors, as well as a number of manufacturers that sell directly to 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. 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., as well as a large number of dental and medical product distributors and
manufacturers in Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany,
Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New
Zealand, Poland, Portugal, Singapore, Slovakia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates
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 86 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 over 3,600 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 2018, we distributed approximately 26 million pieces of direct marketing
material, including catalogs, flyers, order stuffers and other promotional materials to existing and
potential office-based health care customers.

• Telesales. We support our direct marketing effort with approximately 1,900 inbound and outbound

telesales representatives, who facilitate order processing, generate new sales through direct and frequent
contact with customers and stay abreast of market developments and the hundreds of new products,
services and technologies introduced each year to educate practice personnel.

• 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. 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 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. We
have approximately 500 technical representatives supporting customers using our practice management
solutions. As of December 29, 2018, we had an active user base of almost 66,000 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;
and MicroMD® for physician practices.

• Repair services. We have over 180 equipment sales and service centers worldwide that provide a
variety of repair, installation and technical services for our health care customers. Our over 2,000
technicians provide installation and repair services for: dental handpieces; dental 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 180,000 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 2018, our top 10 health care distribution suppliers and our single largest supplier accounted
for approximately 32% 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 .............................................

48.1 %
27.9

20.1

96.1

48.5 %
27.9

20.1

96.5

48.0 %

28.1

20.2

96.3

2018

2017

2016

Technology:

Software and related products and

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

3.9

3.5

3.7

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

100.0 %

(1)

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

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

repair and high-tech 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 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 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 2018 and 2028, the 45 and older population is expected to grow by approximately
12%. Between 2018 and 2038, this age group is expected to grow by approximately 24%. This compares with
expected total U.S. population growth rates of approximately 8% between 2018 and 2028 and approximately 14%
between 2018 and 2038.

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.

In the medical market, 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 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 16 of “Notes to Consolidated

Financial Statements.”

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;

• changes in accounting principles; and

• litigation or regulatory judgments, expenses or settlements.

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, and continues 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.

requirements for low risk devices being reached on September 24, 2022, which will complete the phase in. 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, reporting, record-keeping 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

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, and who may receive up to 30% of total government
recoveries. Penalties under fraud and abuse laws may be severe. For example, under the federal False Claims Act,
violations may result in treble damages, plus civil penalties of up to $22,363 per claim, as well as exclusion from
federal health care programs and criminal penalties. 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. With
respect to “anti-kickback laws,” violations of, for example, the federal Anti-Kickback Law may result in civil
penalties of up to $100,000 for each violation, plus up to three times the total amount of remuneration offered, paid,
solicited or received, as well as exclusion from federal health care programs and criminal penalties. Notably,
effective October 24, 2018, a new federal anti-kickback law (the “Eliminating Kickbacks in Recovery Act of
2018”) enacted in connection with broader addiction services legislation, may impose criminal penalties for
kickbacks involving clinical laboratory services, regardless of whether the services at issue involved addiction
services, and regardless of whether the services were reimbursed by a federal health care program or by a
commercial health insurer. Furthermore, the United States Patient Protection and Affordable Care Act as amended
by the Health Care Education Reconciliation Act, each enacted in March 2016 (the “Health Care Reform Law”)
significantly strengthened the federal False Claims Act and the federal Anti-Kickback Law provisions, clarifying
that a federal Anti-Kickback Law violation can be a basis for federal False Claims Act liability.

With respect to measures of this type, 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.

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 Health Care Reform Law increased federal oversight of private health insurance plans and included a
number of provisions designed to reduce Medicare expenditures and the cost of health care generally, to reduce
fraud and abuse, and to provide access to increased health coverage.

The Health Care Reform Law requirements include 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, and on January 22, 2018 an additional two-year moratorium was imposed under Public Law No. 115-120,
suspending the imposition of the tax on device sales during the period beginning January 1, 2018 and ending on
December 31, 2019. 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 is seeking to repeal and replace the Health Care Reform Law. Repeal and replace

legislation has been passed in the House of Representatives, but did not obtain the necessary votes in the Senate.
Subsequently, the President has affirmed his intention to repeal and replace the Health Care Reform Law and has
taken a number of administrative actions to materially weaken it, including, without limitation, by permitting the
use of less robust plans with lower coverage and eliminating “premium support” for insurers providing policies
under the Health Care Reform Law. On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“Tax
Act”), which contains a broad range of tax reform provisions that impact the individual and corporate tax rates,
international tax provisions, income tax add-back provisions and deductions and which also repealed the individual
mandate of the Health Care Reform Law. Further, in December 2018, a Texas federal court struck down the entire
Health Care Reform Law, a ruling which is being appealed, and, if upheld could have a significant impact on the
U.S. healthcare industry. 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, imposes annual reporting and disclosure requirements for drug and device manufacturers 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 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. Effective January 1, 2022, transfers of value to physician
assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-
midwives must be reported.

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

certain financial relationships we have with covered recipients such as 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.

modifier and the Medicare electronic health record (“EHR”) programs into a single program in which Medicare
reimbursement to eligible clinicians includes both positive and negative payment adjustments that take into account
quality, promoting interoperability, resource use, clinical practice improvement and improving patient access to
health information. Advanced APMs generally involve higher levels of financial and technology risk. The first
MIPS performance year was 2017, and the data collected in the first performance year determines 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.

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.

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. The 21st Century Cures Act (“Cures Act”), signed into law on December 13, 2016, amended
the device definition to exclude certain software, including clinical decision support software that meet certain
criteria. In December 2017, the FDA issued draft guidance documents describing its proposed interpretation of the
statutory language regarding which types of clinical decision support tools and other software are exempt from
regulation 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.

In addition, the European Parliament and the Council of the European Union have adopted a new pan-European

General Data Protection Regulation (“GDPR”), effective from May 25, 2018, which increased privacy rights for
individuals in Europe, extended the scope of responsibilities for data controllers and data processors and imposes
increased requirements and potential penalties on companies offering goods or services to individuals who are
located in Europe (“Data Subjects”) or monitoring the behavior of such individuals (including by companies based
outside of Europe). Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of global
company revenues. Individual member states may impose additional requirements and penalties as they relate to
certain things such as employee personal data. Among other things, the GDPR requires with respect to data
concerning Data Subjects, company accountability, consents from Data Subjects or other acceptable legal basis
needed to process the personal data, prompt breach notifications within 72 hours, fairness and transparency in how
the personal data is stored, used or otherwise processed, and data integrity and security, and provides rights to Data
Subjects relating to modification, erasure and transporting of the personal data. While we expect we have
substantially compliant programs and controls in place to comply with the GDPR requirements, our compliance

with the new regulation is likely to impose additional costs on us, and we cannot predict whether the interpretations
of the requirements, or changes in our practices in response to new requirements or interpretations of the
requirements, could have a material adverse effect on our business.

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, regulations and industry standards,
such as HIPAA and the Payment Card Industry Data Security Standards, 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.

Various federal initiatives involve the adoption and use by health care providers of certain electronic health
care records systems and processes. The initiatives include, among others, programs that incentivize physicians
and dentists, through Medicare’s MIPS, to use certified EHR technology in accordance with certain evolving
requirements, including regarding quality, promoting interoperability, resource use, clinical practice improvement
and improving patient access to health information. Qualification for the MIPS incentive payments requires the use
of EHRs that are certified as having certain capabilities designated in 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”). These standards have been subject to change.

Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked
to MIPS and other incentive programs. In order to maintain certification of our EHR products, we must satisfy the
changing governmental standards. If any of our EHR systems do not meet these standards, yet have been relied
upon by health care providers to receive federal incentive payments, we are exposed to risk, such as under federal
health care fraud and abuse laws, including the False Claims Act. For example, on May 31, 2017, the U.S.
Department of Justice announced a $155 million settlement and 5-year corporate integrity agreement involving a
vendor of certified EHR systems, based on allegations that the vendor, by misrepresenting capabilities to the
certifying body, caused its health care provider customers to submit false Medicare and Medicaid claims for
meaningful use incentive payments in violation of the False Claims Act. While we believe we are substantially in
compliance with such certifications and with applicable fraud and abuse laws and regulations, and 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 practices in response to changes in applicable
law or interpretation of laws, could have a material adverse effect on our business. 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.

Additionally, as electronic medical devices are increasingly connected to each other and to other technology,
the ability of these connected systems safely and effectively to exchange and use exchanged information becomes
increasingly important. On September 6, 2017, the FDA issued guidance to assist industry in identifying specific
considerations related to the ability of electronic medical devices to safely and effectively exchange and use
exchanged information. As a medical device manufacturer, we must manage risks including those associated with
an electronic interface that is incorporated into a medical device.

There may be additional legislative or regulatory 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.

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.

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

We employ more than 18,000 full-time equivalent employees, including approximately 1,900 telesales
representatives, over 3,600 field sales consultants, including equipment sales specialists, 4,000 warehouse
employees, 500 computer programmers and technicians, 1,000 management employees and 7,800 office, clerical
and administrative employees. Approximately 1,930, or 11%, of our employees are 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.

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 ............
Mark E. Mlotek ................
Steven Paladino ................
Walter Siegel ....................

69
66
65
57
63
61
59

Chairman, Chief Executive Officer, Director
Executive Vice President, Chief Administrative Officer, Director
Vice Chairman, President, Director
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Executive Vice President, Chief Strategic Officer, Director
Executive Vice President, Chief Financial Officer, Director
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 Vice Chairman since 2018, President since 2005 and a director since 1992.
Mr. Breslawski was the Chief Executive Officer of our Henry Schein Global Dental Group from 2005 to 2018. 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.

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.

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.

Other Executive Management

The following table sets forth certain information regarding other Executive Management:

Name

Age

Position

David Brous ....................
Brad Connett ...................
James A. Harding ............
Jonathan Koch ................
Lorelei McGlynn .............
James Mullins ..................
Christopher Pendergast .....
Michael Racioppi ............

50
60
63
44
55
54
56
64

President, Strategic Business Units Group and Asia Pacific & Brazil Dental
President, U.S. Medical Group
Chief Executive Officer, Henry Schein One
Senior Vice President and Chief Executive Officer, Global Dental Group
Senior Vice President, Global Human Resources and Financial Operations
Senior Vice President, Global Services
Senior Vice President and Chief Technology Officer
Senior Vice President, Chief Merchandising Officer

David Brous has been our President, Strategic Business Units Group and Asia Pacific & Brazil Dental since

2019. Mr. Brous joined us in 2002 and has held many positions within the organization, including leading and
managing the Corporate Business Development Group and the International Healthcare Group (managing our
International Animal Health business, International Medical business and Australia / New Zealand Dental
business).

Brad Connett has been President of our U.S. Medical Group since 2018. Mr. Connett joined us in 1997 and
has held a number of increasingly responsible positions at the Company. Throughout his career, he has received
numerous industry honors, including the John F. Sasen Leadership Award from the Health Industry Distributors
Association (HIDA), in recognition of his service to the industry, and induction into the Medical Distribution Hall
of Fame by Repertoire Magazine.

James A. Harding has been our Chief Executive Officer of Henry Schein One since 2018. Prior to his current
position, Mr. Harding was our Corporate Chief Technology Officer from 2005 to 2018, and Senior Vice President
and Chief Information Officer from 2001 to 2005. Prior to joining us, Mr. Harding held the positions of Chief
Information Officer at Olsten Corporation from 1997 to 2000, and roles of increasing responsibility at Mobil Oil
Corporation from 1977 to 1996, including Chief Information Officer for the Americas, Marketing and Refining,
and head of Global Architecture.

Jonathan Koch has been our Senior Vice President and Chief Executive Officer of our Global Dental Group
since 2018. Prior to joining us, for the years 2006 to 2018, Mr. Koch was a senior executive at Covance, the drug
development services business of Laboratory Corporation of America. In his last role at Covance, Mr. Koch was
the Executive Vice President and Group President of Covance Clinical Development & Commercialization
Services. Prior to that, Mr. Koch was Executive Vice President and Group President of Covance Research and
Development Laboratories from 2015 to 2017. Mr. Koch was also President of Covance Central Laboratory
Services from 2010 to 2015, and Vice President at Covance, with various responsibilities, from 2006 to 2010. Prior
to Covance, Mr. Koch held senior leadership roles of increasing responsibility while employed with Charles River
Laboratories from 1998 to 2006.

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.

James Mullins has served as our Senior Vice President of Global Services since 2018. Mr. Mullins joined us

in 1988 and has held a number of key positions with increasing responsibility, including Global Chief Customer
Service Officer.

Christopher Pendergast has been our Senior Vice President and Chief Technology Officer since 2018. Prior

to joining us, Mr. Pendergast was the employed by VSP Global from 2008 to 2018, most recently as the Chief
Technology Officer and Chief Information Officer. Prior to VSP Global, Mr. Pendergast served in roles of
increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from
2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000 and Rohm and Haas from 1994 to 1998.

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).

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 the roles 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 our 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. 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, which 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 product 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;

• changes in accounting principles; and

• litigation or regulatory judgments, expenses or settlements.

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
could in turn negatively impact our financial results. Although we are seeking to obtain similar terms from
manufacturers to obtain access to lower prices demanded by GPO contracts or other contracts, and to 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 business, financial condition or 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 2018, approximately
7% of our consolidated net sales were invoiced to customers in the United Kingdom and
approximately 25% 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;

• 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; including without limitation, the Tax Act;

• increases in interest rates;

• availability of capital;

•

increases in fuel and energy costs;

•

• the effect of inflation on our ability to procure products and our ability to increase prices over time;

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

• increases in health care costs;

• the threat or outbreak of war, 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 deteriorate, 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, but not limited to:

•

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, changes to the methodology by which reimbursement levels are determined. If we are unable to react
effectively to these and other changes in the health care industry, our financial results could be materially adversely
affected.

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

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, and on January 22, 2018 an additional two-year
moratorium was imposed under Public Law No. 115-120, suspending the imposition of the tax on device sales
during the period beginning January 1, 2018 and ending on December 31, 2019. 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 is seeking to
repeal and replace the Health Care Reform Law. Repeal and replace legislation has been passed in the House of
Representatives, but did not obtain the necessary votes in the Senate. Subsequently, the President has affirmed his
intention to repeal and replace the Health Care Reform Law and has taken a number of administrative actions to
materially weaken it, including without limitation, by permitting the use of less robust plans with lower coverage
and eliminating “premium support” for insurers providing policies under the Health Care Reform Law. On
December 22, 2017, the President signed into law the Tax Act, which contains a broad range of tax reform
provisions that impact the individual and corporate tax rates, international tax provisions, income tax add-back
provisions and deductions and which also repealed the individual mandate of the Health Care Reform Law.
Further, in December 2018, a Texas federal court struck down the entire Health Care Reform Law, a ruling which
is being appealed, and, if upheld, could have a significant impact on the U.S. healthcare industry. The uncertain
status of the Health Care Reform Law affects our ability to plan.

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 annual reporting and disclosure requirements for drug and device manufacturers with
regard to payments or other transfers of value made to covered recipients (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.
Effective January 1, 2022, transfers of value to physician assistants, nurse practitioners or clinical nurse specialists,
certified registered nurse anesthetists, and certified nurse-midwives must also be reported.

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

certain financial relationships we have with covered recipients such as 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 FDC 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 is
also 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 and future 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 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.

The fraud and abuse laws and regulations have been subject to varying interpretations, as well as heightened

states) under federal and state false claims laws, and who may receive up to 30% of total government
recoveries. Penalties under fraud and abuse laws may be severe. For example, under the federal False Claims Act,
violations may result in treble damages, plus civil penalties of up to $22,363 per claim, as well as exclusion from
federal health care programs and criminal penalties. 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. With
respect to “anti-kickback laws,” violations of, for example, the federal Anti-Kickback Law may result in civil
penalties of up to $100,000 for each violation, plus up to three times the total amount of remuneration offered, paid,
solicited or received, as well as exclusion from federal health care programs and criminal penalties. Notably,
effective October 24, 2018, a new federal anti-kickback law (the “Eliminating Kickbacks in Recovery Act of
2018”) enacted in connection with broader addiction services legislation, may impose criminal penalties for
kickbacks involving clinical laboratory services, regardless of whether the services at issue involved addiction
services, and regardless of whether the services were reimbursed by a federal health care program or by a
commercial health insurer. Furthermore, the Health Care Reform Law significantly strengthened the federal False
Claims Act and the federal Anti-Kickback Law provisions, clarifying that a federal Anti-Kickback Law violation
can be a basis for federal False Claims Act liability.

With respect to measures of this type, the United States government (among others) has expressed concerns

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. 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 records or transmissions, we could be required to make significant changes to our
products, or incur substantial fines, penalties or other liabilities.

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

health care settings. The Cures Act, signed into law on December 13, 2016, amended the device definition to
exclude certain software, including clinical decision support software that meet certain criteria. In December 2017,
the FDA issued draft guidance documents describing its proposed interpretation of the statutory language regarding
28

which types of clinical decision support tools and other software are exempt from regulations 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.

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, the European Parliament and the Council of the European Union have adopted the GDPR, effective
from May 25, 2018, which increased privacy rights for individuals in Europe, extended the scope or responsibilities
for data controllers and data processors and imposes increased requirements and potential penalties on companies
offering goods or services to Data Subjects or monitoring the behavior of such individuals (including by companies
based outside of Europe). Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of
global company revenues. Individual member states may impose additional requirements and penalties as they
relate to certain things such as employee personal data. Among other things, the GDPR requires with respect to
data concerning Data Subjects, company accountability, consents from Data Subjects or other acceptable legal basis
needed to process the personal data, prompt breach notifications within 72 hours, fairness and transparency in how
the personal data is stored, used or otherwise processed, and data integrity and security, and provides rights to Data
Subjects relating to modification, erasure and transporting of the personal data. While we expect we have
substantially compliant programs and controls in place to comply with the GDPR requirements, our compliance
with the new regulation is likely to impose additional costs on us, and we cannot predict whether the interpretations
of the requirements, or changes in our practices in response to new requirements or interpretations of the
requirements, could have a material adverse effect on our business.

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, regulations and industry standards,
such as HIPAA and the Payment Card Industry Data Security Standards, 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.

Various federal initiatives involve the adoption and use by health care providers of certain electronic health
care records systems and processes. The initiatives include, among others, programs that incentivize physicians
and dentists, though Medicare’s MIPS, to use certified EHR technology in accordance with certain evolving
requirements, including regarding quality, promoting interoperability, resource use, clinical practice improvement
and improving patient access to health information. Qualification for the MIPS incentive payments requires the use
of EHRs that are certified as having certain capabilities designated in standards adopted by CMS and ONC. These
standards have been subject to change.

Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked
to MIPS and other incentive programs. In order to maintain certification of our EHR products, we must satisfy the
changing governmental standards. If any of our EHR systems do not meet these standards, yet have been relied
upon by health care providers to receive federal incentive payments, we are exposed to risk, such as under federal
health care fraud and abuse laws, including the False Claims Act. For example, on May 31, 2017, the U.S.
Department of Justice announced a $155 million settlement and 5-year corporate integrity agreement involving a
vendor of certified EHR systems, based on allegations that the vendor, by misrepresenting capabilities to the
certifying body, caused its health care provider customers to submit false Medicare and Medicaid claims for
meaningful use incentive payments in violation of the False Claims Act. While we believe we are substantially in
compliance with such certifications and with applicable fraud and abuse laws and regulations and 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 practices in response to changes in applicable law or
interpretation of laws, could have a material adverse effect on our business. 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.

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

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.

If the Animal Health Spin-off or certain internal transactions undertaken in anticipation of the Animal Health
Spin-off are determined to be taxable in whole or in part, we and our stockholders may incur substantial tax
liabilities.

In connection with the Animal Health Spin-off, we obtained an opinion of outside tax counsel that the Animal

Health Spin-off will qualify as a tax-free transaction to us and our stockholders for U.S. federal income tax
purposes. We have not sought or obtained a ruling from the Internal Revenue Service (“IRS”) on the tax
consequences of the transaction. In addition, the tax opinion is subject to customary qualifications and assumptions,
and is based on factual representations and undertakings. The failure of any factual representation or assumption to
be true, correct and complete in all material respects, or any undertakings to be fully complied with, could affect the
validity of the tax opinion. Moreover, an opinion of counsel represents counsel’s best legal judgment, is not binding
on the IRS or the courts, and the IRS or the courts may not agree with the conclusions set forth in the tax
opinion. Even if the Animal Health Spin-off otherwise qualified as a tax-free transaction for U.S. federal income
tax purposes, it may become taxable to us if certain events occur that affect either us or Covetrus. While Covetrus
has agreed not to take certain actions that could cause the transaction not to qualify as a tax-free transaction and is
generally obligated to indemnify us against any tax consequences if it breaches this agreement, the potential tax
liabilities could have an adverse effect on us if we were not entitled to indemnification or if the indemnification
obligations were not fulfilled. If the Animal Health Spin-off or certain internal transactions undertaken in
anticipation of the Animal Health Spin-off are determined to be taxable for U.S. federal income tax purposes, we
and/or our U.S. stockholders who participated in the Animal Health Spin-off could incur substantial U.S. federal
income tax liabilities. There can be no assurance that we would be entitled to indemnification or that Covetrus
would have the resources or liquidity required to indemnify us for any such taxable gain. In addition, we and/or our
stockholders who participated in the Animal Health Spin-off could incur tax costs in foreign jurisdictions in
connection with the transaction, irrespective of whether the Animal Health Spin-off qualifies as tax-free for U.S.
federal income tax purposes.

The Animal Health Spin-off may not achieve the intended benefits and may expose us to potential risks and
liabilities.

We completed the Animal Health Spin-off on February 7, 2019. We undertook the transaction because, among

other things, we believed that our animal health business could achieve greater growth by combining with Vets
First Choice and that we could benefit from greater strategic focus of our resources and management efforts. We
may not benefit as expected from the increased focus on our core business, strategic programs and objectives made
possible by the Animal Health Spin-off. In addition, the value of the transaction may be reduced by potential
liabilities related to post-closing adjustments and indemnities, which could adversely affect our results of
operations.

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.
In addition, our reputation could be adversely affected by negative publicity surrounding such events regardless of
whether or not claims against us are successful. 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;

• 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 rely on third parties for certain technologically advanced products.

Some of our products contain technologically advanced components, including software, that are developed by
third parties. We may not be able to replace the functions provided by these third-party components or products if
they become obsolete, defective or incompatible with future versions of our products or with our services and
solutions, or if they are not adequately maintained or updated.

In addition, third-party suppliers of software or other intellectual property assets could be unwilling to permit
us to use their intellectual property and this could impede or disrupt use of their products or services by us and our
customers. Alternate sources for the technology currently provided by third parties to us may not be available to us
in a timely manner, and may not provide us with the same functions as currently provided to us or may be more
expensive than products we currently use or sell.

Further, the risk of intellectual property infringement claims against us may increase as we expand our business

to include more technologically advanced products and continue to incorporate third party components, software
and/or other intellectual property into the products we sell. Also, individuals and firms have purchased intellectual
property assets in order to assert claims of infringement against technology providers and customers that use such
technology. Any infringement action brought against us or our customers could be costly to defend or lead to an
expensive settlement or judgment against us.

The risks described above could have a material adverse effect on our business, financial condition or operating

results and our reputation.

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
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. On December 22, 2017, the President signed the
Tax Act into law, which contains a broad range of tax reform provisions that impact the individual and corporate
tax rates, international tax provisions, income tax add-back provisions and deductions. 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 2018 fiscal year.

ITEM 2. Properties

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

Own or
Lease

Lease

Own

Lease/Own

Location

Melville, NY

Tours, France

Fiumana-Predappio, Italy

Gillingham, United Kingdom

Property
Corporate Headquarters .............
Corporate Headquarters .............
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center .....
Office and Distribution Center ..... Eastern Creek, New South Wales, Australia
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 ...................

Niagara on the Lake, Canada

Heppenheim, Germany

Gallin, Germany

Jacksonville, FL

Indianapolis, IN

West Allis, WI

Grapevine, TX

Bastian, VA

Denver, PA

Sparks, NV

Own

Lease

Own

Lease

Own

Lease

Own

Lease

N/A

July 2030

June 2020

June 2033

Lease Expiration
Date

Approximate
Square Footage
185,000
105,000
166,000
165,000
183,000
161,000
128,000 September 2021
108,000
106,000
October 2027
624,000 December 2021
380,000
370,000 December 2021
287,000
242,000
215,000
212,000
194,000

February 2026

March 2022

March 2030

July 2023

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, France, Germany, Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia,
the Netherlands, New Zealand, Poland, Portugal, Singapore, Slovakia, South Africa, Spain, Switzerland, Thailand,
United Arab Emirates 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

Beginning in January 2016, purported class action complaints were filed against Patterson Companies, Inc.
(“Patterson”), Benco Dental Supply Co. (“Benco”) and Henry Schein, Inc. Although there were factual and legal
variations among these complaints, each of these complaints alleges, 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. On February 9, 2016, the U.S. District Court for the Eastern
District of New York ordered all of these actions, and all other actions filed thereafter asserting substantially similar
claims against defendants, consolidated for pre-trial purposes. On February 26, 2016, a consolidated class action
complaint was filed by Arnell Prato, D.D.S., P.L.L.C., d/b/a Down to Earth Dental, Evolution Dental Sciences,
LLC, Howard M. May, DDS, P.C., Casey Nelson, D.D.S., Jim Peck, D.D.S., Bernard W. Kurek, D.M.D.,
Larchmont Dental Associates, P.C., and Keith Schwartz, D.M.D., P.A. (collectively, “putative class
representatives”) in the U.S. District Court for the Eastern District of New York, entitled In re Dental Supplies
Antitrust Litigation, Civil Action No. 1:16-CV-00696-BMC-GRB. In the consolidated class action complaint,
putative class representatives allege a nationwide agreement among Henry Schein, Benco, Patterson and non-party
Burkhart Dental Supply Company, Inc. (“Burkhart”) not to compete on price. The consolidated 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. On September 28, 2018, the parties executed a settlement agreement that proposes, subject to court approval,
a full and final settlement of the lawsuit on a classwide basis. Subject to certain exceptions, the settlement class
consists of all persons or entities that purchased dental products directly from Henry Schein, Patterson, Benco,
Burkhart, or any combination thereof, during the period August 31, 2008 through and including March 31, 2016.
As a result, we recorded a charge of $38.5 million in our third quarter 2018 results.

On August 31, 2012, Archer and White Sales, Inc. (“Archer”) filed a complaint against Henry Schein, Inc. as

well as Danaher Corporation and its subsidiaries Instrumentarium Dental, Inc., Dental Equipment, LLC, Kavo
Dental Technologies, LLC and Dental Imaging Technologies Corporation (collectively, the “Danaher Defendants”)
in the U.S. District Court for the Eastern District of Texas, Civil Action No. 2:12-CV-00572-JRG, styled as an
antitrust action under Section 1 of the Sherman Act, and the Texas Free Enterprise Antitrust Act. Archer alleges a
conspiracy between Henry Schein, an unnamed company and the Danaher Defendants to terminate or limit
Archer’s distribution rights. On August 1, 2017, Archer filed an amended complaint, adding Patterson and Benco
as defendants, and alleging that Henry Schein, Patterson, Benco and Burkhart conspired to fix prices and refused to
compete with each other for sales of dental equipment to dental professionals and agreed to enlist their common
suppliers, the Danaher Defendants, to join a price-fixing conspiracy and boycott by reducing the distribution
territory of, and eventually terminating, their price-cutting competing distributor Archer. Archer seeks damages in
an amount to be proved at trial, to be trebled with interest and costs, including attorneys’ fees, jointly and severally,
as well as injunctive relief. On October 30, 2017, Archer filed a second amended complaint, to add additional
allegations that it believes support its claims. The named parties and causes of action are the same as the August 1,
2017 amended complaint.

On October 1, 2012, we filed a motion for an order: (i) compelling Archer to arbitrate its claims against us; (2)

staying all proceedings pending arbitration; and (3) joining the Danaher Defendants’ motion to arbitrate and
stay. On May 28, 2013, the Magistrate Judge granted the motions to arbitrate and stayed proceedings pending
arbitration. On June 10, 2013, Archer moved for reconsideration before the District Court judge. On December 7,
2016, the District Court Judge granted Archer’s motion for reconsideration and lifted the stay. Defendants
appealed the District Court’s order. On December 21, 2017, the U.S. Court of Appeals for the Fifth Circuit
affirmed the District Court’s order denying the motions to compel arbitration. On February 12, 2018, defendants
filed an Application for Stay of Proceedings in the District Court in the Supreme Court of the United States,
seeking to stay proceedings in the District Court pending a decision on defendants’ forthcoming petition for writ of
certiorari. On June 25, 2018, the Supreme Court of the United States granted defendants’ petition for writ of
certiorari. On October 29, 2018, the Supreme Court heard oral arguments. On January 8, 2019, the Supreme Court
issued its published decision vacating the judgment of the Fifth Circuit and remanding the case to the Fifth Circuit
for further proceedings consistent with the Supreme Court’s opinion. We intend to defend ourselves vigorously
against this action.

On August 17, 2017, IQ Dental Supply, Inc. (“IQ Dental”) filed a complaint in the U.S. District Court for the
Eastern District of New York, entitled IQ Dental Supply, Inc. v. Henry Schein, Inc., Patterson Companies, Inc. and
Benco Dental Supply Company, Case No. 2:17-cv-4834. Plaintiff alleges that it is a distributor of dental supplies
and equipment, and sells dental products through an online dental distribution platform operated by SourceOne
Dental (“SourceOne”). SourceOne had previously brought an antitrust lawsuit against Henry Schein, Patterson and
Benco, which Henry Schein settled in the second quarter of 2017 and which is described in our prior filings with
the SEC.

IQ Dental alleges, among other things, that defendants conspired to suppress competition from IQ Dental and
SourceOne 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 and SourceOne. Plaintiff claims that this alleged conduct constitutes
unreasonable restraint of trade in violation of Section 1 of the Sherman Act, New York’s Donnelly Act and the
New Jersey Antitrust Act, and also makes pendant state law claims for tortious interference with prospective
business relations, civil conspiracy and aiding and abetting. Plaintiff seeks injunctive relief, compensatory, treble
and punitive damages, jointly and severally, and reasonable costs and expenses, including attorneys’ fees and
expert fees. On December 21, 2017, the District Court granted the defendants’ motion to dismiss. On January 19,
2018, IQ Dental appealed the District Court’s order. The U.S. Court of Appeals for the Second Circuit heard oral
argument on the appeal on September 13, 2018. The court’s decision is pending. We intend to defend ourselves
vigorously against this action.

On February 12, 2018, the United States Federal Trade Commission (“FTC”) filed a complaint against Benco
Dental Supply Co., Henry Schein, Inc. and Patterson Companies, Inc. The FTC alleges, among other things, that
defendants violated U.S. antitrust laws by conspiring, and entering into an agreement, to refuse to provide discounts
to or otherwise serve buying groups representing dental practitioners. The FTC alleges that defendants conspired in
violation of Section 5 of the FTC Act. The complaint seeks equitable relief only and does not seek monetary
damages. We deny the allegation that we conspired to refuse to provide discounts to or otherwise serve dental
buying groups and intend to defend ourselves vigorously against this action. A hearing before an administrative law
judge began on October 16, 2018 and is ongoing. We believe this matter will not have a material adverse effect on
our consolidated financial position, liquidity or results of operations.

On March 7, 2018, Joseph Salkowitz, individually and on behalf of all others similarly situated, filed a putative

class action complaint for violation of the federal securities laws against Henry Schein, Inc., Stanley M. Bergman
and Steven Paladino in the U.S. District Court for the Eastern District of New York, Case No. 1:18-cv-01428. The
complaint sought to certify a class consisting of all persons and entities who, subject to certain exclusions,
purchased Henry Schein securities from March 7, 2013 through February 12, 2018 (the “Class Period”). The
complaint alleged, among other things, that the defendants had made materially false and misleading statements
about Henry Schein’s business, operations and prospects during the Class Period, including matters relating to the
issues in the antitrust class action and the FTC action described above, thereby causing the plaintiff and members of
the purported class to pay artificially inflated prices for Henry Schein securities. The complaint sought unspecified
monetary damages and a jury trial. Pursuant to the provisions of the Private Securities Litigation Reform Act of
1995 (the “PSLRA”), the court appointed lead plaintiff and lead counsel on June 22, 2018 and recaptioned the
putative class action as In re Henry Schein, Inc. Securities Litigation, under the same case number. Lead plaintiff
filed a consolidated class action complaint on September 14, 2018. The consolidated class action complaint asserts
similar claims against the same defendants (plus Timothy Sullivan) on behalf of the same putative class of
purchasers during the Class Period. It alleges that Henry Schein’s stock price was inflated during that period
because Henry Schein had misleadingly portrayed its dental-distribution business “as successfully producing
excellent profits while operating in a highly competitive environment” even though, “in reality, [Henry Schein] had
engaged for years in collusive and anticompetitive practices in order to maintain Schein’s margins, profits, and
market share.” The complaint alleges that the stock price started to fall from August 8, 2017, when the company
announced below-expected financial performance that allegedly “revealed that Schein’s poor results were a product
of abandoning prior attempts to inflate sales volume and margins through anticompetitive collusion,” through
February 13, 2018, after the FTC filed a complaint against Benco, Henry Schein and Patterson alleging that they

violated U.S. antitrust laws. The complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5
and Section 20(a) of the Exchange Act. We intend to defend ourselves vigorously against this action. Henry Schein
has also received a request under 8 Del. C. § 220 to inspect corporate books and records relating to the issues raised
in the securities class action and the antitrust matters discussed above.

On May 3, 2018, a purported class action complaint, Marion Diagnostic Center, LLC, et al. v. Becton,

Dickinson, and Co., et al., Case No. 3:18-cv-010509, was filed in the U.S. District Court for the Southern District
of Illinois against Becton, Dickinson, and Co. (“Becton”); Premier, Inc. (“Premier”), Vizient, Inc. (“Vizient”),
Cardinal Health, Inc. (“Cardinal”), Owens & Minor Inc. (“O&M”), Henry Schein, Inc., and Unnamed Becton
Distributor Co-Conspirators. The complaint alleges that the defendants entered into a vertical conspiracy to force
healthcare providers into long-term exclusionary contracts that restrain trade in the nationwide markets for
conventional and safety syringes and safety IV catheters and inflate the prices of certain Becton products to above-
competitive levels. The named plaintiffs seek to represent three separate classes consisting of all healthcare
providers that purchased (i) Becton’s conventional syringes, (ii) Becton’s safety syringes, or (iii) Becton’s safety
catheters directly from Becton, Premier, Vizient, Cardinal, O&M or Henry Schein on or after May 3, 2014. The
complaint asserts a single count under Section 1 of the Sherman Act, and seeks equitable relief, treble damages,
reasonable attorneys’ fees and costs and expenses, and pre-judgment and post-judgment interest. On June 15, 2018,
an amended complaint was filed asserting the same allegations against the same parties and adding McKesson
Medical-Surgical, Inc. as an additional defendant. On November 30, 2018, the District Court granted defendants’
motion to dismiss and entered a final judgment, dismissing plaintiffs’ complaint with prejudice. On December 27,
2018, plaintiffs appealed the District Court’s decision to the Seventh Circuit Court of Appeals. We intend to
defend ourselves vigorously against this action.

On May 29, 2018, an amended complaint was filed in the MultiDistrict Litigation (“MDL”) proceeding In Re
National Prescription Opiate Litigation (MDL No. 2804; Case No. 17-md-2804) in an action entitled The County of
Summit, Ohio et al. v. Purdue Pharma, L.P., et al., Civil Action No. 1:18-op-45090-DAP (“County of Summit
Action”), in the U.S. District Court for the Northern District of Ohio, adding Henry Schein, Inc., Henry Schein
Medical Systems, Inc. and others as defendants. Plaintiffs allege that manufacturers of prescription opioid drugs
engaged in a false advertising campaign to expand the market for such drugs and their own market share and that
the entities in the supply chain (including Henry Schein, Inc. and Henry Schein Medical Systems, Inc.) reaped
financial rewards by refusing or otherwise failing to monitor appropriately and restrict the improper distribution of
those drugs. Plaintiffs assert the following claims for relief against Henry Schein, Inc. and Henry Schein Medical
Systems, Inc.: statutory public nuisance; common law absolute public nuisance; negligence; injury through criminal
acts (R.C. 2307.60); unjust enrichment; and civil conspiracy. This case has been designated “Track 1” and is
currently set for trial on October 21, 2019. We intend to defend ourselves vigorously against this action.

In addition to the Summit County Action, Henry Schein and/or one or more of its affiliated companies have
currently been named as a defendant in twenty-one (21) additional lawsuits, which allege claims similar to those
alleged in the Summit County Action. None of these other cases have been set for trial. These actions consist of
some that have been consolidated within the MDL and are currently abated for discovery purposes, and others
which remain pending in state courts and are proceeding independently and outside of the MDL. Sales of opioids
in North America from October 2017 through October 2018 were less than 1% of all North American sales. We
intend to defend ourselves vigorously against these actions.

On October 9, 2018, a purported class action complaint entitled Kramer v. Henry Schein, Inc., Patterson Co.,
Inc., Benco Dental Supply Co., and Unnamed Co-Conspirators, was filed in the U.S. District Court for the Northern
District of California. The complaint alleges that members of the proposed class, comprised of purchasers of dental
services from dental practices in California, suffered antitrust injury due to an unlawful boycott, price-fixing or
otherwise anticompetitive conspiracy among Henry Schein, Patterson and Benco. The complaint alleges that the
alleged conspiracy overcharged California dental practices, orthodontic practices and dental laboratories on their
purchase of dental supplies, which in turn passed on some or all of such overcharges to members of the California
class purchasing dental services. Subject to certain exclusions, the complaint defines the class as “all persons
residing in California purchasing and/or reimbursing for dental services from California dental practices on or after
August 31, 2012.” The complaint alleges violations of California antitrust laws, including the Cartwright Act (Cal.
Bus. and Prof. Code § 16720) and the Unfair Competition Act (Cal. Bus. and Prof. Code § 17200), and seeks a

permanent injunction, actual damages to be determined at trial, trebled, reasonable attorneys’ fees and costs, and
pre- and post-judgment interest. On December 7, 2018, an amended complaint was filed asserting the same claims
against the same parties. We intend to defend ourselves vigorously against this action.

On January 29, 2019, a purported class action complaint was filed by R. Lawrence Hatchett, M.D. against
Henry Schein, Inc., Patterson Co., Inc., Benco Dental Supply Co., and unnamed co-conspirators in the U.S. District
Court for the Southern District of Illinois. The complaint alleges that members of the proposed class suffered
antitrust injury due to an unlawful boycott, price-fixing or otherwise anticompetitive conspiracy among Henry
Schein, Patterson and Benco. The complaint alleges that the alleged conspiracy overcharged Illinois dental
practices, orthodontic practices and dental laboratories on their purchase of dental supplies, which in turn passed on
some or all of such overcharges to members of the class. Subject to certain exclusions, the complaint defines the
class as “all persons residing in Illinois purchasing and/or reimbursing for dental care provided by independent
Illinois dental practices purchasing dental supplies from the defendants, or purchasing from buying groups
purchasing these supplies from the defendants, on or after January 29, 2015.” The complaint alleges violations of
the Illinois Antitrust Act, 740 Ill. Comp. Stat. §§ 10/3(2), 10/7(2), and seeks a permanent injunction, actual
damages to be determined at trial, trebled, reasonable attorneys’ fees and costs, and pre- and post-judgment
interest. We intend to defend ourselves vigorously against this action.

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
consolidated financial position, liquidity or results of operations.

As of December 29, 2018, 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

On August 16, 2017, we announced that our Board of Directors approved a two-for-one stock split of our
common stock. Each Henry Schein, Inc. stockholder of record at the close of business on September 1, 2017
received a distribution of one additional share for every share held. Trading began on a split-adjusted basis on
September 15, 2017.

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.

On February 12, 2019, there were approximately 324 holders of record of our common stock and the last

reported sales price was $61.01.

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 $3.2
billion, authorized by our Board of Directors, to the repurchase program provide for a total of $3.3 billion of shares
of our common stock to be repurchased under this program.

Date of
Authorization

Amount of Additional
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

September 15, 2017

December 12, 2018

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
400,000,000
400,000,000

As of December 29, 2018, we had repurchased approximately $2.9 billion of common stock (58,189,377

shares) under these initiatives, with $400.0 million available for future common stock share repurchases.

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

the fiscal quarter ended December 29, 2018:

Total
Number
of Shares

Fiscal Month

Purchased (1)

9/30/2018 through 11/3/18

11/04/18 through 12/01/18

12/02/18 through 12/29/18

275,000
722,179
997,179

Average
Price Paid
Per Share

-
87.23
85.72

Total Number
of Shares
Purchased as Part
of Our Publicly

Maximum Number

of Shares
that May Yet

Be Purchased Under

Announced Program

Our Program (2)

275,000
722,179
997,179

1,028,543

694,004

5,133,472

(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 2018 or 2017. 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 28, 2013, the last trading day before the beginning of our 2014 fiscal year, through
the end of our 2018 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

$200

$150

$100

$50

December
2013

December
2014

December
2015

December
2016

December
2017

December
2018

Henry Schein, Inc.

Dow Jones US Health Care Index

NASDAQ Composite Index

ASSUMES $100 INVESTED ON DECEMBER 28, 2013
ASSUMES DIVIDENDS REINVESTED

December 28, December 27, December 26, December 31, December 30, December 29,

2013

2014

2015

2016

2017

2018

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

100.00 $

120.06 $

137.28 $

132.58 $

122.14 $

136.19

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

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

100.00

127.46

135.05

131.05

160.98

168.59

100.00

117.02

124.33

134.27

174.07

167.82

ITEM 6. Selected Financial Data

The following selected financial data, with respect to our financial position and results of operations for each of
the five fiscal years in the period ended December 29, 2018, 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.”

Years ended
December 29, December 30, December 31, December 26, December 27,
2016

2014

2018

2017

2015

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

Earnings per share attributable to

Henry Schein, Inc.: (4)

(in thousands, except per share data)

13,201,995 $

12,461,543 $

11,571,668 $

10,629,719 $

10,371,390

3,595,084

3,399,103

3,226,473

3,006,954

2,910,820

2,701,876

2,534,409

2,409,008

2,238,051

2,195,678

38,488

38,756

62,912

753,052

(57,704)

5,325

859,369

(36,521)

45,891

771,574

(15,739)

34,931

733,972

(13,214)

715,142

(5,830)

695,348

822,848

755,835

720,758

709,312

(155,492)

(362,506)

(217,958)

(211,391)

(215,610)

22,270

562,126

16,587

(17,636)

459,293

18,518

14,060

11,734

556,395

523,427

505,436

(26,245)

(52,994)

(49,617)

(44,369)

535,881 $

406,299 $

506,778 $

479,058 $

(39,359)

466,077

Basic ...................................................... $
Diluted ....................................................

3.51 $

3.49

2.59 $

2.57

3.14 $

3.10

2.89 $

2.85

2.77

2.72

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

152,656

153,707

156,787

158,208

161,641

163,723

165,687

168,250

168,531

171,480

December 29,

December 30,

December 31,

December 26,

December 27,

2018

2017

2016

2015

2014

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 ...................................... $

6,348,945 $
3,682,639
2,661,166
12,692,750
509,245
13,201,995 $

6,048,813 $
3,476,635
2,497,994
12,023,442
438,101
12,461,543 $

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

As of

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

December 29,

December 30,

December 31,

December 26,

December 27,

2018

2017

2016

2015

2014

(in thousands)

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

8,500,527 $
1,003,873
312,156
3,541,788

7,863,995 $
907,756
832,138
2,824,410

6,811,763 $
715,457
607,636
2,800,804

6,580,775 $
463,752
542,194
2,886,814

6,184,320

542,776

564,527

2,816,445

(1) Restructuring costs for the year ended December 29, 2018 consist primarily of severance costs, including severance pay and benefits
of $58.2 million, facility closing costs of $3.6 million and other costs of $1.1 million. 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. 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)

In 2018 we recorded (a) a $10.0 million net credit to income tax representing a change in our estimate of the transition tax on
deemed repatriated foreign earnings, (b) a one-time income tax charge of $3.9 million to income tax as a result of a reorganization of
legal entities related to Henry Schein One, (c) an income tax credit of $13.9 million ($10.6 million attributable to Henry Schein, Inc.)
resulting from a legal entity reorganization outside of the United States and (d) a one-time income tax charge of $3.1 million as a
result of the reorganization of legal entities completed in preparation for the Animal Health spin-off. In 2017 we recorded a one-time
income tax charge of $140 million related to the transition tax on deemed repatriated foreign earnings and a one-time income tax
charge of $3.0 million for the revaluation of deferred taxes associated with U.S. tax reform legislation. In 2015, we recorded 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.

(3) Represents a 2017 loss on divestiture of an equity ownership in E4D Technologies.

(4) On August 16, 2017, we announced that our Board of Directors approved a two-for-one stock split of our common stock. Each

Henry Schein, Inc. stockholder of record at the close of business on September 1, 2017 received a distribution of one additional share
for every share held. Trading began on a split-adjusted basis on September 15, 2017. The effects of the stock split on share and per
share amounts have been retroactively reflected for all periods presented in this Form 10-K.

(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, dispositions and joint
ventures, including the failure to achieve anticipated synergies/benefits; financial and tax risks associated with
acquisitions, dispositions and joint ventures; litigation risks; new or unanticipated litigation developments; the
dependence on our continued product development, technical support and successful marketing in the technology
segment; our dependence on third parties for certain technologically advanced components; 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 are headquartered in Melville, New York, employ more than 18,000 people (of which more than 8,800 are

Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New Zealand, Poland, Portugal,
Singapore, Slovakia, South Africa, Spain, Switzerland, Thailand, United Arab Emirates and the United Kingdom.

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.

The health care distribution reportable segment aggregates our global dental 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 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. 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.

Spin-Off of Henry Schein Animal Health Business

On February 7, 2019 (the “Distribution Date”), we completed the previously announced separation (the

“Separation”) and subsequent merger of our animal health business (the “Henry Schein Animal Health Business”)
with Direct Vet Marketing, Inc. (d/b/a Vets First Choice, “Vets First Choice”) (the “Merger”). This was
accomplished by a series of transactions among us, Vets First Choice, Covetrus, Inc. (f/k/a HS Spinco, Inc.
“Covetrus”), a wholly owned subsidiary of ours prior to the Distribution Date, and HS Merger Sub, Inc., a wholly
owned subsidiary of Covetrus (“Merger Sub”). In connection with the Separation, we contributed, assigned and
transferred to Covetrus certain applicable assets, liabilities and capital stock or other ownership interests relating to
the Henry Schein Animal Health Business. On the Distribution Date, we received a tax-free distribution of
$1,120.0 million from Covetrus pursuant to certain debt financing incurred by Covetrus. On the Distribution Date
and prior to the Distribution, Covetrus issued shares of Covetrus common stock to certain institutional accredited
investors (the “Share Sale Investors”) for $361.1 million (the “Share Sale”). The proceeds of the Share Sale were
paid to Covetrus and distributed to us. Subsequent to the Share Sale, we distributed, on a pro rata basis, all of the
shares of the common stock of Covetrus held by us to our stockholders of record as of the close of business on
January 17, 2019 (the “Animal Health Spin-off”). After the Share Sale and Animal Health Spin-off, Merger Sub
consummated the Merger whereby it merged with and into Vets First Choice, with Vets First Choice surviving the
Merger as a wholly owned subsidiary of Covetrus. Immediately following the consummation of the Merger, on a
fully diluted basis, (i) approximately 63% of the shares of Covetrus common stock were (a) owned by our
stockholders and the Share Sale Investors, and (b) in respect of certain equity awards held by certain employees of
the Henry Schein Animal Health Business, and (ii) approximately 37% of the shares of Covetrus common stock
were (a) owned by stockholders of Vets First Choice immediately prior to the Merger, and (b) in respect of certain
equity awards held by certain employees of Vets First Choice. After the Separation and the Merger, we no longer
beneficially owned any shares of Covetrus common stock and, following the Distribution Date, will not consolidate
the financial results of Covetrus for the purpose of our financial reporting. Following the Separation and the
Merger, Covetrus was an independent, publicly traded company on the Nasdaq Global Select Market.

Effective first quarter 2019, we will report the historical earnings of the Henry Schein Animal Health Business
as a discontinued operation. The Company estimates that on a continuing operations basis, its 2018 revenues were
$9.4 billion and its 2018 net income was $430.7 million.

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 2018 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 50% 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 2017-2026” indicating that total national health care
spending reached approximately $3.7 trillion in 2018, or 18.2% 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 $5.7 trillion in 2026, approximately 19.7% 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, anti-bribery and anti-
kickback, customer interaction transparency, 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 United States Patient Protection and Affordable Care Act as amended by the Health Care and Education
Reconciliation Act, each enacted in March 2010 (the “Health Care Reform Law”) increased federal oversight of
private health insurance plans and included a number of provisions designed to reduce Medicare expenditures and
the cost of health care generally, to reduce fraud and abuse, and to provide access to increased health coverage.

2017, and on January 22, 2018 an additional two-year moratorium was imposed under Public Law No. 115-120,
suspending the imposition of the tax on device sales during the period beginning January 1, 2018 and ending on
December 31, 2019. 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 is seeking to repeal and replace the Health Care Reform Law. Repeal and replace

legislation has been passed in the House of Representatives, but did not obtain the necessary votes in the Senate.
Subsequently, the President has affirmed his intention to repeal and replace the Health Care Reform Law and has
taken a number of administrative actions to materially weaken it, including, without limitation, by permitting the
use of less robust plans with lower coverage and eliminating “premium support” for insurers providing policies
under the Health Care Reform Law. On December 22, 2017, the President signed into law the Tax Cuts and Jobs
Act (the “Tax Act”), which contains a broad range of tax reform provisions that impact the individual and corporate
tax rates, international tax provisions, income tax add-back provisions and deductions, and which also repealed the
individual mandate of the Health Care Reform Law. Further, in December 2018, a Texas federal court struck down
the entire Health Care Reform Law, a ruling which is being appealed, and if upheld, could have a significant impact
on the U.S. healthcare industry. 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, imposes annual 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. CMS publishes
information from these reports on a publicly available website, including amounts transferred and physician, dentist
and teaching hospital identities. Effective January 1, 2022, transfers of value to physician assistants, nurse
practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives must
also be reported.

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

regarding certain financial relationships we have with covered recipients such as 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, established 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, certain eligible clinicians are required to participate in Medicare through the
Merit-Based Incentive Payment System (“MIPS”) or Advanced Alternative Payment Models (“APMs”). MIPS
generally consolidated three 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 includes both positive and negative payment adjustments that take into account
quality, promoting interoperability, resource use, clinical practice improvement and improving patient access to
health information. Advanced APMs generally involve higher levels of financial and technology risk. The first
MIPS performance year was 2017, and the data collected in the first performance year determines 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

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, and who may receive up to 30% of total government
recoveries. Penalties under fraud and abuse laws may be severe. For example, under the federal False Claims Act,
violations may result in treble damages, plus civil penalties of up to $22,363 per claim, as well as exclusion from
federal health care programs and criminal penalties. 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. With
respect to “anti-kickback laws,” violations of, for example, the federal Anti-Kickback Law may result in civil
penalties of up to $100,000 for each violation, plus up to three times the total amount of remuneration offered, paid,
solicited or received, as well as exclusion from federal health care programs and criminal penalties. Notably,
effective October 24, 2018, a new federal anti-kickback law (the “Eliminating Kickbacks in Recovery Act of
2018”) enacted in connection with broader addiction services legislation, may impose criminal penalties for
kickbacks involving clinical laboratory services, regardless of whether the services at issue involved addition
services, and regardless of whether the services were reimbursed by a federal health care program or by a
commercial health insurer. Furthermore, the Health Care Reform Law significantly strengthened the federal False
Claims Act and the federal Anti-Kickback Law provisions, clarifying that a federal Anti-Kickback Law violation
can be a basis for federal False Claims Act liability.

With respect to measures of this type, the United States government (among others) has expressed concerns

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 continues 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 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. Most compliance dates were reached as of September 24, 2018, with a final set of
requirements for low risk devices being reach on September 24, 2022, which will complete the phase in. 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 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

health care settings. The 21st Century Cures Act (“Cures Act”), signed into law on December 13, 2016, amended
the device definition to exclude certain software, including clinical decision support software that meet certain
criteria. In December 2017, the FCA issued draft guidance documents describing its proposed interpretation of the
statutory language regarding which types of clinical decision support tools and other software are exempt from
regulation 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, the European Parliament and the Council of the European Union have adopted a new pan-European

increased requirements and potential penalties on companies offering goods or services to individuals who are
located in Europe (“Data Subjects”) or monitoring the behavior of such individuals (including by companies based
outside of Europe). Noncompliance can result in penalties of up to the greater of EUR 20 million, or 4% of global
company revenues. Individual member states may impose additional requirements and penalties as they relate to
certain things such as employee personal data. Among other things, the GDPR requires with respect to data
concerning Data Subjects, company accountability, consents from Data Subjects or other acceptable legal basis
needed to process the personal data, prompt breach notifications within 72 hours, fairness and transparency in how
the personal data is stored, used or otherwise processed, and data integrity and security, and provides rights to Data
Subjects relating to modification, erasure and transporting of the personal data. While we expect we have
substantially compliant programs and controls in place to comply with the GDPR requirements, our compliance
with the new regulation is likely to impose additional costs on us, and we cannot predict whether the interpretations
of the requirements, or changes in our practices in response to new requirements or interpretations of the
requirements, could have a material adverse effect on our business.

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, regulations and industry standards,
such as HIPAA and the Payment Card Industry Data Security Standards, 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.

Various federal initiatives involve the adoption and use by health care providers of certain electronic health
care records systems and processes. The initiatives include, among others, programs that incentivize physicians
and dentists, through Medicare’s MIPS, to use certified EHR technology in accordance with certain evolving
requirements. Including regarding quality, promoting interoperability, resource use, clinical practice improvement
and improving patient access to health information. Qualification for the MIPS incentive payments requires the use
of EHRs that are certified as having certain capabilities designated in 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”). These standards have been subject to change.

Certain of our businesses involve the manufacture and sale of certified EHR systems and other products linked
to MIPS and other incentive programs. In order to maintain certification of our EHR products, we must satisfy the
changing governmental standards. If any of our EHR systems do not meet these standards, yet have been relied
upon by health care providers to receive federal incentive payments we are exposed to risk, such as under federal
health care fraud and abuse laws, including the False Claims Act. For example, on May 31, 2017, the U.S.
Department of Justice announced a $155 million settlement and 5-year corporate integrity agreement involving a
vendor of certified EHR systems, based on allegations that the vendor, by misrepresenting capabilities to the
certifying body, caused its health care provider customers to submit false Medicare and Medicaid claims for
meaningful use incentive payments in violation of the False Claims Act. While we believe we are substantially in
compliance with such certifications and with applicable fraud and abuse laws and regulations, and 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 practices in response to changes in applicable
law or interpretation of laws, could have a material adverse effect on our business. 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

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.

E-Commerce

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

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.

2,409,008

-
-
45,891
771,574

(15,739)
556,395
506,778

Results of Operations

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

the three years ended December 29, 2018, December 30, 2017 and December 31, 2016 (in thousands):

Years Ended
December 29, December 30,

2018

2017

December 31,
2016

Operating results:
Net sales .................................................................................. $
Cost of sales .............................................................................
Gross profit ..........................................................................
Operating expenses:
Selling, general and administrative ............................................
Litigation settlements ..............................................................
Transaction costs related to Animal Health spin-off ......................
Restructuring costs ................................................................

Operating income .............................................................. $

13,201,995 $
9,606,911
3,595,084

12,461,543 $
9,062,440
3,399,103

11,571,668
8,345,195
3,226,473

2,701,876
38,488
38,756
62,912
753,052 $

2,534,409
5,325

-
-
859,369 $

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

(57,704) $
562,126
535,881

(36,521) $
459,293
406,299

Years Ended
December 29, December 30,

2018

2017

December 31,
2016

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

684,706 $

545,515 $

(192,954)
(603,776)

(342,276)
(112,551)

642,576
(316,422)
(327,344)

Plans of Restructuring

On July 9, 2018, we committed to an initiative to rationalize our operations and provide expense

efficiencies. These actions will allow us to execute on our plan to reduce our cost structure and fund new initiatives
that are expected to drive future growth under our 2018 to 2020 strategic plan. This initiative is expected to include
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. The total 2018
costs associated with the actions to complete this restructuring were initially expected to be in the range of $45
million to $55 million. However, additional cost savings opportunities were identified in the fourth quarter of 2018
resulting in a charge of $35.4 million in the quarter, which increased our full year 2018 restructuring charges to
$62.9 million, consisting primarily of severance costs.

We plan to continue restructuring activities in the first half of 2019 and expect to incur additional restructuring

costs related to these activities during the first half of 2019. At this time we are identifying specific opportunities
and cannot reasonably estimate the amount of additional restructuring costs in 2019.

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 for this restructuring included
$34.9 million pre-tax, which was recorded in fiscal 2015, and $45.9 million pre-tax, which was recorded in fiscal
2016.

The costs associated with these restructurings are included in a separate line item, “Restructuring costs” within

our consolidated statements of income.

2018 Compared to 2017

Net Sales

Net sales for 2018 and 2017 were as follows (in thousands):

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

2018

% of
Total

2017

% of
Total

Increase

6,348,945
3,682,639
2,661,166
12,692,750
509,245
13,201,995

48.1 % $
27.9
20.1
96.1
3.9

100.0 % $

6,048,813
3,476,635
2,497,994
12,023,442
438,101
12,461,543

48.5 % $
27.9
20.1
96.5
3.5

100.0 % $

300,132
206,004
163,172
669,308
71,144
740,452

5.0 %
5.9
6.5
5.6
16.2
5.9

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

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

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

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

The $740.5 million, or 5.9%, increase in net sales for the year ended December 29, 2018 includes an increase of

5.2% local currency growth (3.4% increase in internally generated revenue and 1.8% growth from acquisitions) as
well as an increase of 0.7% related to foreign currency exchange.

The $300.1 million, or 5.0%, increase in dental net sales for the year ended December 29, 2018 includes an

increase of 4.2% in local currencies (3.0% increase in internally generated revenue and 1.2% growth from
acquisitions) as well as an increase of 0.8% related to foreign currency exchange. The 4.2% increase in local
currency sales was due to increases in dental equipment sales and service revenues of 2.6% (2.5% increase in
internally generated revenue and 0.1% growth from acquisitions) and dental consumable merchandise sales growth
of 4.8% (3.2% increase in internally generated revenue and 1.6% growth from acquisitions).

The $206.0 million, or 5.9%, increase in animal health net sales for the year ended December 29, 2018 includes

an increase of 4.6% local currency growth (2.1% increase in internally generated revenue and 2.5% growth from
acquisitions) as well as an increase of 1.3% related to foreign currency exchange. The growth in internally
generated animal health revenue is affected by year-over-year changes to certain supplier agreements where we
acted as an agent in 2018 versus acting as a principal in the prior year. When excluding the effects of this change,
internally generated revenue grew by 5.4%. As indicated above, we completed the Animal Health Spin-off on
February 7, 2019.

The $163.2 million, or 6.5%, increase in medical net sales for the year ended December 29, 2018 includes an

increase of 6.4% local currency growth (6.3% increase in internally generated revenue and 0.1% growth from
acquisitions) as well as an increase of 0.1% related to foreign currency exchange.

The $71.1 million, or 16.2%, increase in technology and value-added services net sales for the year ended

December 29, 2018 includes an increase of 15.8% local currency growth (3.5% increase in internally generated
revenue and 12.3% growth from acquisitions) as well as an increase of 0.4% related to foreign currency exchange.

Gross Profit

Gross profit and gross margins for 2018 and 2017 by segment and in total were as follows (in thousands):

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

2018
3,253,452
341,632
3,595,084

Gross
Margin %

25.6 % $
67.1
27.2

2017
3,112,436
286,667
3,399,103

Gross
Margin %

25.9 % $
65.4
27.3

Increase

$
141,016
54,965
195,981

%
4.5 %
19.2
5.8

Gross profit increased $196.0 million, or 5.8%, for the year ended December 29, 2018 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 $141.0 million, or 4.5%, for the year ended December 29, 2018

compared to the prior year period. Health care distribution gross profit margin decreased to 25.6% for the year
ended December 29, 2018 from 25.9% for the comparable prior year period. The overall increase in our health care
distribution gross profit is attributable to a $128.9 million gross profit increase from growth in internally generated
revenue and $49.4 million is attributable to acquisitions. These increases were partially offset by a $37.3 million
decline in gross profit due to the decrease in the gross margin rates.

Technology and value-added services gross profit increased $55.0 million, or 19.2%, for the year ended
December 29, 2018 compared to the prior year period. Technology and value-added services gross profit margin
increased to 67.1% for the year ended December 29, 2018 from 65.4% for the comparable prior year period.
Acquisitions accounted for $45.2 million of our gross profit increase within our technology and value-added
services segment for the year ended December 29, 2018 compared to the prior year period. The remaining increase
of $9.8 million in our technology and value-added services segment gross profit was primarily attributable to $11.4
million growth in internally generated revenue, partially offset by $1.6 million related to gross margin rates.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2018 and 2017 were as follows (in

thousands):

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

% of
Respective
Net Sales

2018
2,634,664
207,368
2,842,032

20.8 % $
40.7
21.5

2017
2,383,916
155,818
2,539,734

% of
Respective
Net Sales

19.8 % $
35.6
20.4

Increase

$
250,748
51,550
302,298

%
10.5 %
33.1
11.9

Selling, general and administrative expenses (together with litigation settlements, transaction costs related to
the Animal Health spin-off and restructuring costs) increased $302.3 million, or 11.9%, to $2,842.0 million for the
year ended December 29, 2018 from the comparable prior year period. The $250.7 million increase in selling,
general and administrative expenses within our health care distribution segment for the year ended December 29,

2018 as compared to the prior year period was attributable to $209.3 million of additional operating costs
(including an increase of $33.2 million for litigation settlements, $38.8 million of transaction costs related to the
Animal Health spin-off and $59.1 million of restructuring costs) and $41.4 million of additional costs from
acquired companies. The $51.6 million increase in selling, general and administrative expenses within our
technology and value-added services segment for the year ended December 29, 2018 as compared to the prior year
period was attributable to $45.6 million of additional costs from acquired companies and $6.0 million of additional
operating costs. As a percentage of net sales, selling, general and administrative expenses increased to 21.5% from
20.4% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses increased $90.3 million,

or 5.8%, to $1,653.7 million for the year ended December 29, 2018 from the comparable prior year period. As a
percentage of net sales, selling expenses remained consistent at 12.5%.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $212.0 million, or 21.7%, to $1,188.3 million for the year ended December 29, 2018 from the comparable
prior year period primarily due to an increase of $33.2 million for litigation settlements, $38.8 million of
transaction costs related to the Animal Health spin-off and $59.1 million of restructuring costs. As a percentage of
net sales, general and administrative expenses increased to 9.0% from 7.8% for the comparable prior year period.

Other Expense, Net

Other expense, net for the years ended 2018 and 2017 was as follows (in thousands):

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

2018

2017

21,236 $

(78,786)
(154)
(57,704) $

17,553 $

(53,654)
(420)
(36,521) $

Variance

3,683
(25,132)
266
(21,183)

21.0 %

(46.8)
63.3
(58.0)

Other expense, net increased $21.2 million to $57.7 million for the year ended December 29, 2018 from the
comparable prior year period. Interest income increased $3.7 million primarily due to increased investment and
late fee income. Interest expense increased $25.1 million primarily due to increased borrowings under our bank
credit lines and our private placement facilities primarily to fund acquisitions of noncontrolling interests in
subsidiaries, as well as higher interest rates.

Income Taxes

For the year ended December 29, 2018, our effective tax rate was 22.4% compared to 44.1% for the prior year

period. In 2018, our effective tax rate was primarily impacted by a reduction in the estimate of our transition tax
associated with the Tax Act, tax charges and credits associated with legal entity reorganizations outside the U.S.,
and state and foreign income taxes and interest expense. In 2017, our effective tax rate was primarily impacted by
the Tax Act, the adoption of Accounting Standards Update (“ASU”) No. 2016-09, “Stock Compensation” (Topic
718) (“ASU 2016-09”), as well as state and foreign income taxes and interest expense.

On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act is comprehensive tax

legislation that implemented complex changes to the U.S. tax code including, but not limited to, the reduction of the
corporate tax rate from 35% to 21%, modification of accelerated depreciation, the repeal of the domestic
manufacturing deduction and changes to the limitations of the deductibility of interest. Additionally, the Tax Act
moved from a global tax regime to a modified territorial regime, which requires U.S. companies to pay a mandatory
one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. The transition tax
is payable over eight years. The Tax Act also included provisions to tax global intangible low-taxed income
(“GILTI”), a beneficial tax rate foreign Derived Intangible Income (“FDII”), a base erosion and anti-abuse tax
(“BEAT”) that imposes tax on certain foreign related-party payments, and IRC Section 163(j) interest limitation
(Interest Limitation). We became subject to the GILTI, FDII, BEAT and Interest Limitation provisions effective
January 1, 2018.

The Financial Accounting Standards Board (“FASB”) Staff Q&A, Topic 740 No. 5, Accounting for Global
Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize
deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense
related to GILTI in the year the tax is incurred. We elected to recognize the tax on GILTI as a period expense in the
period the tax is incurred. Under Topic 740, we estimated the impact of each provision of the Tax Act on our
effective tax and recorded a current tax expense for the GILTI provision of $7.5 million in our effective tax rate for
the year ended December 29, 2018. For the BEAT, FDII and Interest Limitation computations, we have not
recorded an estimate in our effective tax rate for the year ended December 29, 2018 because we have concluded
that these provisions of the Tax Act will not apply to us or will have an immaterial impact in 2018.

Due to the complexities of the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”)
that allowed the company to record a provisional amount for any income tax effects of the Tax Act in accordance
with Accounting Standards Codification (“ASC”) 740, to the extent that a reasonable estimate can be made, in its
2017 financial statements. SAB 118 allowed for a measurement period of up to one year after the enactment date
of the Tax Act to finalize the recording of the related tax impacts. In the fourth quarter of 2017, we recorded
provisional amounts related to the Tax Act for any items that could be reasonably estimated at the time. This
included the one-time transition tax that we estimated to be $140.0 million and a net deferred tax expense of $3.0
million attributable to the revaluation of deferred tax assets and liabilities due to the lower enacted federal income
tax rate of 21%. Within our consolidated balance sheets, $27.4 million was included in “Accrued taxes” and
$112.6 million was included in “Other liabilities”. In the aggregate, for the quarter ended December 30, 2017,
these Tax Act modifications resulted in a one-time tax expense of approximately $143.0 million. Absent the effects
of the transition tax and the revaluation of deferred tax assets and liabilities, our effective tax rate for the year ended
December 30, 2017 would have been 26.7% as compared to our actual effective tax rate of 44.1%.

For the year ended December 29, 2018 we have recorded a net $10.0 million reduction to the one-time

transition tax and an additional $1.7 million net deferred tax benefit from the revaluation of deferred tax assets and
liabilities to reflect the new tax rate. Within our consolidated balance sheets, $9.9 million is included in “Accrued
taxes” and $104.2 million is included in “Other liabilities” for the transition tax. The changes were a result of
additional analysis, changes in interpretation and assumptions, as well as additional regulatory guidance that was
issued. As of December 29, 2018, the Company has completed its analysis of the impact of the Tax Act in
accordance with SAB 118 and the amounts are now considered final.

Net Income

Net income increased $102.8 million, or 22.4%, for the year ended December 29, 2018, compared to the prior

year period due to the factors noted above.

2017 Compared to 2016

Net Sales

Net sales for 2017 and 2016 were as follows (in thousands):

Health care distribution (1):
Dental ................................... $
Animal health ..........................
Medical ..................................
Total health care distribution .......

Technology and value-added services
(2) ............................................

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

2017

% of
Total

2016

% of
Total

Increase

6,048,813
3,476,635
2,497,994
12,023,442
438,101
12,461,543

48.5 % $
27.9
20.1
96.5
3.5

100.0 % $

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 % $

493,514
223,540
160,333
877,387
12,488
889,875

8.9 %
6.9
6.9
7.9
2.9
7.7

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

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

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

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

The fiscal year ended December 30, 2017 consisted of 52 weeks as compared to the fiscal year ended

December 31, 2016, which consisted of 53 weeks.

The $889.9 million, or 7.7%, increase in net sales for the year ended December 30, 2017 includes an increase of

7.2% local currency growth (5.1% increase in internally generated revenue, 1.5% decrease due to the impact from
the extra week in 2016 and 3.6% growth from acquisitions) as well as an increase of 0.5% related to foreign
currency exchange.

The $493.5 million, or 8.9%, increase in dental net sales for the year ended December 30, 2017 includes an

increase of 7.9% in local currencies (3.0% increase in internally generated revenue, 1.4% decrease due to the
impact from the extra week in 2016 and 6.3% growth from acquisitions) as well as an increase of 1.0% related to
foreign currency exchange. The 7.9% increase in local currency sales was due to increases in dental equipment
sales and service revenues of 4.5% (6.5% increase in internally generated revenue, 2.4% decrease due to the impact
from the extra week in 2016 and 0.4% growth from acquisitions) and dental consumable merchandise sales growth
of 9.0% (1.9% increase in internally generated revenue, 1.1% decrease due to the impact from the extra week in
2016 and 8.2% growth from acquisitions).

The $223.6 million, or 6.9%, increase in animal health net sales for the year ended December 30, 2017 includes
an increase of 6.9% local currency growth (6.3% increase in internally generated revenue, 1.3% decrease due to the
impact from the extra week in 2016 and 1.9% growth from acquisitions). The growth in internally generated
animal health revenue is affected by the revenue for certain products being recognized on a gross basis in 2017 that
had been recognized on an agency basis in the prior year. When excluding the effects of this change, internally
generated revenue grew by 6.0%. As indicated above, we completed the Animal Health Spin-off on February 7,
2019.

The $160.3 million, or 6.9%, increase in medical net sales for the year ended December 30, 2017 includes an
increase of 6.8% local currency growth (8.4% increase in internally generated revenue and 1.6% decrease due to
the impact from the extra week in 2016) as well as an increase of 0.1% related to foreign currency exchange.

The $12.5 million, or 2.9%, increase in technology and value-added services net sales for the year ended

December 30, 2017 includes an increase of 3.2% local currency growth (3.5% increase in internally generated
revenue, 0.8% decrease due to the impact from the extra week in 2016 and 0.5% growth from acquisitions) partially
offset by a decrease of 0.3% related to foreign currency exchange.

Gross Profit

Gross profit and gross margins for 2017 and 2016 by segment and in total were as follows (in thousands):

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

2017
3,112,436
286,667
3,399,103

Gross
Margin %

25.9 % $
65.4
27.3

2016
2,953,136
273,337
3,226,473

Gross
Margin %

26.5 % $
64.2
27.9

Increase

$
159,300
13,330
172,630

%
5.4 %
4.9
5.4

Gross profit increased $172.6 million, or 5.4%, for the year ended December 30, 2017 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 $159.3 million, or 5.4%, for the year ended December 30, 2017

compared to the prior year period. Health care distribution gross profit margin decreased to 25.9% for the year
ended December 30, 2017 from 26.5% for the comparable prior year period. The overall increase in our health care
distribution gross profit is attributable to a $104.0 million gross profit increase from growth in internally generated
revenue and $125.3 million is attributable to acquisitions. These increases were partially offset by a $70.0 million
decline in gross profit due to the decrease in the gross margin rates.

Technology and value-added services gross profit increased $13.3 million, or 4.9%, for the year ended
December 30, 2017 compared to the prior year period. Technology and value-added services gross profit margin
increased to 65.4% for the year ended December 30, 2017 from 64.2% for the comparable prior year period.
Acquisitions accounted for $2.0 million of our gross profit increase within our technology and value-added services
segment for the year ended December 30, 2017 compared to the prior year period. The remaining increase of $11.3
million in our technology and value-added services segment gross profit was primarily attributable to growth in
internally generated revenue and the increase in gross margin rates.

Selling, General and Administrative

Selling, general and administrative expenses by segment and in total for 2017 and 2016 were as follows (in

thousands):

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

% of
Respective
Net Sales

2017
2,383,916
155,818
2,539,734

19.8 % $
35.6
20.4

2016
2,256,948
152,060
2,409,008

% of
Respective
Net Sales

20.2 % $
35.7
20.8

Increase

$
126,968
3,758
130,726

%
5.6 %
2.5
5.4

Selling, general and administrative expenses increased $130.7 million, or 5.4%, for the year ended December
30, 2017 from the comparable prior year period. The $127.0 million increase in selling, general and administrative
expenses within our health care distribution segment for the year ended December 30, 2017 as compared to the
prior year period was attributable to $107.3 million of additional costs from acquired companies, and $19.7 million

of additional operating costs. The $3.7 million increase in selling, general and administrative expenses within our
technology and value-added services segment for the year ended December 30, 2017 as compared to the prior year
period was attributable to $2.1 million of additional costs from acquired companies and $1.6 million of additional
operating costs. As a percentage of net sales, selling, general and administrative expenses decreased to 20.4% from
20.8% for the comparable prior year period.

As a component of total selling, general and administrative expenses, selling expenses increased $82.2 million,

or 5.6%, for the year ended December 30, 2017 from the comparable prior year period. As a percentage of net
sales, selling expenses decreased to 12.5% from 12.8% for the comparable prior year period.

As a component of total selling, general and administrative expenses, general and administrative expenses
increased $48.5 million, or 5.2%, for the year ended December 30, 2017 from the comparable prior year period. As
a percentage of net sales, general and administrative expenses decreased to 7.8% from 8.0% for the comparable
prior year period.

Other Expense, Net

Other expense, net for the years ended 2017 and 2016 was as follows (in thousands):

2017

2016

17,553 $

(53,654)
(420)
(36,521) $

13,275 $

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

Variance

4,278
(21,761)
(3,299)
(20,782)

32.2 %

(68.2)
(114.6)
(132.0)

Other expense, net increased $20.8 million to $36.5 million for the year ended December 30, 2017 from the
comparable prior year period. Interest income increased $4.3 million primarily due to increased investment and
late fee income. Interest expense increased $21.8 million primarily due to increased borrowings and higher interest
rates under our bank credit lines and interest expense related to a financing arrangement entered into during the first
quarter of 2017 in Brazil. Other, net decreased by $3.3 million due primarily to investment proceeds received in
the first quarter of 2016.

Income Taxes

For the year ended December 30, 2017, our effective tax rate was 44.1% compared to 28.8% for the prior year

period. Our effective tax rate in 2017 was primarily higher due to the Tax Act. Our effective tax rate was
favorably impacted in 2017 by the adoption of ASU 2016-09, Accounting for Stock Compensation, as well as
savings from implementation of tax planning initiatives and higher income from lower tax jurisdictions. 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.

On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act is comprehensive tax

legislation that implements complex changes to the U.S. tax code including, but not limited to, the reduction of the
corporate tax rate from 35% to 21%, modification of accelerated depreciation, the repeal of the domestic
manufacturing deduction and changes to the limitations of the deductibility of interest. Additionally, the Tax Act
moved from a global tax regime to a modified territorial regime, which required U.S. companies to pay a
mandatory one-time transition tax on historical offshore earnings that have not been repatriated to the U.S. The
transition tax is payable over eight years.

Due to the complexities of the Tax Act, the SEC staff issued SAB 118 that allowed the company to record a

provisional amount for any income tax effects of the Tax Act in accordance with ASC 740, to the extent that a
reasonable estimate can be made. SAB 118 allowed for a measurement period of up to one year after the enactment
date of the Tax Act to finalize the recording of the related tax impacts.

We have recorded provisional amounts for any items that could be reasonably estimated at that time. This

included the one-time transition tax that we estimated to be $140.0 million. Within our consolidated balance
sheets, $27.4 million is included in “Accrued taxes” and $112.6 million is included in “Other liabilities”. The U.S.
deferred tax assets and liabilities were revalued due to the lower enacted federal income tax rate, of 21%, that was
effective January 1, 2018. The Company accrued a net deferred tax expense of $3.0 million attributable to the
revaluation. In the aggregate, for the quarter ended December 30, 2017, these Tax Act modifications resulted in a
one-time tax expense of approximately $143.0 million. Absent the effects of the transition tax and the revaluation
of deferred tax assets and liabilities, our effective tax rate for the year ended December 30, 2017 would have been
26.7% as compared to our actual effective tax rate of 44.1%.

Net Income

Net income decreased $97.1 million, or 17.5%, for the year ended December 30, 2017, 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 be 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 $684.7 million for the year ended December 29, 2018, compared
to $545.5 million for the prior year. The net change of $139.2 million was primarily attributable to working capital
requirements.

Net cash used in investing activities was $193.0 million for the year ended December 29, 2018, compared to

$342.3 million for the prior year. The net change of $149.3 million was primarily due to reduced payments for
equity investments and business acquisitions, partially offset by reduced proceeds of sales of equity investments.

Net cash used in financing activities was $603.8 million for the year ended December 29, 2018, compared to

$112.6 million for the prior year. The net change of $491.2 million was primarily due to increased acquisitions of
noncontrolling interests in subsidiaries and reduced net borrowings from debt, partially offset by decreased
repurchases of common stock.

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

Cash and cash equivalents .................................................................................. $
Working capital (1) ...........................................................................................

2018

80,209 $

956,393

2017

174,658
1,257,045

December 29, December 30,

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

951,458 $
8,955
1,003,873
1,964,286 $

741,653
16,659
907,756
1,666,068

(1) Includes $422 million of accounts receivable which serve as security for U.S. trade accounts receivable
securitization at December 29, 2018 and December 30, 2017.

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 43.6 days as of December 29,
2018 from 42.7 days as of December 30, 2017. During the years ended December 29, 2018 and December 30,
2017, we wrote off approximately $7.7 million and $6.7 million, respectively, of fully reserved accounts receivable
against our trade receivable reserve. Our inventory turns from operations were 4.9 as of December 29, 2018 and
5.3 as of December 30, 2017. 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 3.4%), as well as inventory purchase commitments
and operating and capital lease obligations as of December 29, 2018:

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 ..........................
Transition tax obligations ............................
Capital lease obligations, including interest ......

43,450 $

609,428 $

61,905 $

453,678 $

1,168,461

499,346

78,940

9,923

1,695

446,412

106,179

19,845

1,844

124,911

54,866

43,411

604

1,070,669

68,373

31,008

1,430

308,358

104,187

5,573

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

633,354 $

1,183,708 $

285,697 $

554,489 $

2,657,248

Bank Credit Lines

On April 18, 2017, we entered into a new $750 million revolving credit agreement (the “Credit Agreement”).
This facility, which matures in April 2022, replaced our $500 million revolving credit facility, which was scheduled
to mature in September 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. On June 29, 2018, we amended the Credit Agreement to, among
other things, (i) permit the consummation of the Animal Health Spin-off (See Note 21), (ii) provide for swing-line
commitments in the amount of $75 million, and (iii) provide for the designation of subsidiary borrowers under the
facility. 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 29, 2018 and December 30, 2017, the borrowings outstanding on this revolving credit facility

and the prior credit facility were $175.0 million and $320.0 million, respectively. As of December 29, 2018 and
December 30, 2017, there were $11.2 million and $11.3 million of letters of credit, respectively, provided to third
parties under this credit facility.

As of December 29, 2018 and December 30, 2017, we had various other short-term bank credit lines available,
of which $376.5 million and $421.7 million, respectively, were outstanding. At December 29, 2018 and December
30, 2017, borrowings under all of our credit lines had a weighted average interest rate of 3.30% and 2.27%,
respectively.

Committed Loan Associated with Animal Health Spin-off

On May 21, 2018, we obtained a $400 million committed loan which matured on the earlier of (i) March 31,
2019 and (ii) the consummation of the Animal Health Spin-off. The proceeds of this loan were used, among other
things, to fund our purchase of all of the equity interests in Butler Animal Health Holding Company, LLC
(“BAHHC”) directly or indirectly owned by Darby Group Companies, Inc. (“Darby”) and certain other sellers
pursuant to the terms of that certain Amendment to Put Rights Agreements, dated as of April 20, 2018, by and
among us, Darby, BAHHC and the individual sellers party thereto for an aggregate purchase price of $365 million.
As of December 29, 2018, the balance outstanding on this loan was $400 million and is included within the “Bank
credit lines” caption within our consolidated balance sheet. At December 29, 2018, the interest rate on this loan
was 3.38%. Concurrent with the completion of the Animal Health Spin-off on February 7, 2019, we re-paid the
balance of this loan.

Private Placement Facilities

On September 15, 2017, we increased our available private placement facilities with three insurance companies
to a total facility amount of $1 billion, and extended the expiration date to September 15, 2020. 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 15, 2020. 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. On June 29, 2018, we amended and restated the above private placement facilities to, among other
things, (i) permit the consummation of the Animal Health Spin-off and (ii) provide for the issuance of notes in
Euros, British Pounds and Australian Dollars, in addition to U.S. Dollars. 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 29, 2018 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
June 16, 2017
September 15, 2017
January 2, 2018
Less: Deferred debt issuance costs

Amount of
Borrowing
Outstanding

Borrowing
Rate

3.79 %
3.45
3.09
3.00
3.19
3.42
3.52
3.32

100,000
50,000
28,571
50,000
100,000
100,000
100,000
100,000

(382)
628,189

Due Date
September 2, 2020
January 20, 2024
January 20, 2022
December 24, 2024
June 2, 2021
June 16, 2027
September 15, 2029
January 2, 2028

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

U.S. Trade Accounts Receivable Securitization

We have a facility agreement with a bank, as agent, based on the securitization of our U.S. trade accounts
receivable that is structured as an asset-backed securitization program with pricing committed for up to three years.
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. On July 6, 2017, we extended the expiration
date of this facility agreement to April 29, 2020. The borrowings outstanding under this securitization facility were
$350.0 million and $350.0 million as of December 29, 2018 and December 30, 2017, respectively. At December
29, 2018, the interest rate on borrowings under this facility was based on the asset-backed commercial paper rate of
2.66% plus 0.75%, for a combined rate of 3.41%. At December 30, 2017, the interest rate on borrowings under this
facility was based on the asset-backed commercial paper rate of 1.53% plus 0.75%, for a combined rate of 2.28%.

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 29, December 30,

Private placement facilities ................................................................................ $
U.S. trade accounts receivable securitization .........................................................
Various collateralized and uncollateralized loans payable with interest,

in varying installments through 2023 at interest rates

ranging from 2.61% to 5.01% at December 29, 2018 and
ranging from 2.56% to 12.90% at December 30, 2017 .....................................
Capital lease obligations (see Note 18) ................................................................
Total .............................................................................................................
Less current maturities .....................................................................................
Total long-term debt ................................................................................. $

2018

2017

628,189 $

350,000

535,295

350,000

29,491

5,148

1,012,828

(8,955)

1,003,873 $

34,027

5,093

924,415

(16,659)

907,756

Stock repurchases

From June 21, 2004 through December 29, 2018, we repurchased approximately $2.9 billion, or 58,189,377
shares, under our common stock repurchase programs, with $400.0 million available as of December 29, 2018 for
future common stock share repurchases.

Noncontrolling interests

Some minority stockholders in certain of our subsidiaries have the right, at certain times, to require us to
acquire their ownership interest in those entities at fair value. ASC Topic 480-10 is applicable for noncontrolling
interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated
subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual
agreements. The components of the change in the Redeemable noncontrolling interests for the years ended
December 29, 2018, December 30, 2017 and December 31, 2016 are presented in the following table:

December 29, December 30, December 31,
2017

2018

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 gain (loss) attributable to

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

832,138 $

607,636 $

542,194

(669,947)

(48,669)

(72,729)

10,294
21,848
(18,065)

(13,031)
148,919
312,156 $

78,939
52,203
(28,161)

7,461
162,729
832,138 $

58,172
48,760
(32,973)

(2,652)
66,864
607,636

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.

During 2018, we entered into a joint venture with Internet Brands to create a newly formed entity, Henry
Schein One, LLC. The joint venture includes Henry Schein Practice Solutions products and services, as well as
Henry Schein’s international dental practice management systems and the dental businesses of Internet Brands.
Internet Brands holds a 26% noncontrolling interest in Henry Schein One, LLC that is accounted for within
stockholders’ equity, as well as a freestanding and separately exercisable right to put its noncontrolling interest to
Henry Schein, Inc. for fair value following the fifth anniversary of the effective date of the formation of the joint
venture. Beginning with the second anniversary of the effective date of the formation of the joint venture, Henry
Schein One will issue a fixed number of additional interests to Internet Brands through the fifth anniversary,
thereby increasing Internet Brands’ ownership by approximately 7.6%. Internet Brands will also be entitled to
receive a fixed number of additional interests, in the aggregate up to approximately 1.6% of the joint venture’s
ownership, if certain operating targets are met by the joint venture in its fourth, fifth and sixth operating years.
These additional shares are considered contingent consideration that are accounted for within stockholders’ equity;
however, these shares will not be allocated any net income of Henry Schein One until the shares vest or are earned
by Internet Brands. As a result of this transaction with Internet Brands, we recorded $567.6 million of
noncontrolling interest within stockholders’ equity reflecting certain fair value methodology.

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
$100.0 million as of December 29, 2018.

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 the Audit

Committee of the Board of Directors, affect the significant estimates and judgments used in the preparation of our
financial statements:

Revenue Recognition

On December 31, 2017, we adopted ASC 606 (“Topic 606”) using the modified retrospective method applied
to those contracts which were not completed as of the adoption date. Results for reporting periods beginning after
December 30, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported under the accounting standards in effect for those periods. Our revenue recognition accounting policies
applied prior to adoption of Topic 606 are outlined in the financial statements in our Annual Report on Form 10-K
for the year ended December 30, 2017. The disclosures included herein reflect our accounting policies under Topic
606.

We generate revenue from the sale of dental, medical, and prior to the completion of the Animal Health Spin-
off, animal health consumable products, as well as equipment, software products and services and other sources.
Provisions for discounts, rebates to customers, customer returns and other contra revenue adjustments are included
in the transaction price at contract inception by estimating the most likely amount 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 at a point in time when control transfers to
the customer. 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 control has transferred to the
customer because we have no post-shipment obligations and this is when legal title and risks and rewards of
ownership transfer to the customer and the point at which we have an enforceable right to payment.

Revenue derived from the sale of equipment is recognized when control transfers to the customer. This occurs
when the equipment is delivered. 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. Our product generally carries standard warranty terms provided by the manufacturer, however,
in instances where we provide warranty labor services, the warranty costs are accrued in accordance with ASC 460
“Guarantees”.

Revenue derived from the sale of software products is recognized when products are shipped to customers or

made available electronically. 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 generally recognized over time using time elapsed as the input method
that best depicts the transfer of control to the customer.

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. We apply the
practical expedient to treat shipping and handling activities performed after the customer obtains control as
fulfillment activities, rather than a separate performance obligation in the contract.

Sales, value-add and other taxes we collect concurrent with revenue-producing activities are excluded from

revenue.

Certain of our revenue is derived from bundled arrangements that include multiple distinct performance

obligations which are accounted for separately. When we sell software products together with related services (i.e.,
training and technical support), we allocate revenue to software using the residual method, using an estimate of the
standalone selling price to estimate the fair value of the undelivered elements. There are no cases where revenue is
deferred due to a lack of a standalone selling price. Bundled 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 goods or services. If an observable selling price is not
available (i.e., we do not sell the goods or services separately), we use one of the following techniques to estimate
the standalone selling price: adjusted market approach; cost-plus approach; or the residual method. There is no
specific hierarchy for the use of these methods, but the estimated selling price reflects our best estimate of what the
selling prices of each deliverable would be if it were sold regularly on a standalone basis taking into consideration
the cost structure of our business, technical skill required, customer location and other market conditions.

Accounts Receivable

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. 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 adjust our assumptions for anticipated changes in any of these or other
factors expected to affect collectability.

Contract Assets

Contract Liabilities

Contract liabilities are comprised of advance payments and deferred revenue amounts. Contract liabilities are
transferred to revenue once the performance obligation has been satisfied. Current contract liabilities are included
in Accrued expenses: Other and the non-current contract liabilities are included in Other liabilities within our
consolidated balance sheet.

Deferred Commissions

Sales commissions earned by our sales force that relate to long term arrangements are capitalized as costs to

obtain a contract when the costs incurred are incremental and are expected to be recovered. Deferred sales
commissions are amortized over the estimated customer relationship period. We apply the practical expedient
related to the capitalization of incremental costs of obtaining a contract, and recognize such costs as an expense
when incurred if the amortization period of the assets that we would have recognized is one year or less.

Sales Returns

Sales returns are recognized as a reduction of revenue by the amount of expected returns and are recorded as
refund liability within current liabilities. We estimate the amount of revenue expected to be reversed to calculate
the sales return liability based on historical data for specific products, adjusted as necessary for new products. The
allowance for returns is presented gross as a refund liability and we record an inventory asset (and a corresponding
adjustment to cost of sales) for any goods or services that we expect to be returned.

Inventories and Reserves

Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method for merchandise or actual cost for large equipment and high tech
equipment. In accordance with our policy for inventory valuation, we consider many factors including the
condition and salability of the inventory, historical sales, forecasted sales and market and economic trends.

From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors
expected to affect the value of inventory. Although we believe our judgments, estimates and/or assumptions related
to inventory and reserves are reasonable, making material changes to such judgments, estimates and/or assumptions
could materially affect our financial results.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill and other indefinite-lived intangible assets (primarily trademarks) are not amortized, but are subject
to impairment analysis at least once annually. Such impairment analyses for goodwill require a comparison of the
fair value to the carrying value of reporting units. We regard our reporting units to be our operating segments:
health care distribution (global dental, medical, and prior to the completion of the Animal Health Spin-off, animal
health) 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 29, 2018 and December 30, 2017, and December 31, 2016 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.

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 29, 2018, December 30, 2017 and December 31, 2016, 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

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,

including, without limitation, 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, foreign exchange fluctuations, certain litigation related costs, and material changes in income tax
rates. 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 Standards Update

For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please

refer to Note 1 of the Notes to Consolidated Financial Statements included under Item 8.

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 2018 compared to foreign
currencies would have changed our 2018 reported Net income attributable to Henry Schein, Inc. by approximately
$8.0 million.

As of December 29, 2018, we had forward foreign currency exchange agreements, which expire through
November 27, 2019, which include a fair value gain of $1.4 million as determined by quoted market prices. As of
December 29, 2018, Henry Schein, Inc. had Euro to Brazilian Real (BRL) cross currency swap contracts notionally
totaling an amount of €94.6 million, with a reported fair value of these contracts as a net asset of $9.4 million. A
5% hypothetical change in the value of the Euro to the BRL from December 29, 2018, with all other variables held
constant, would have had changed the value fair value of these swap contracts by approximately $5.3 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 29, 2018, 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 April 18, 2017 and expires on April 18, 2022, 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 29, 2018, there was $175.0 million outstanding under this revolving
credit facility. During the year ended December 29, 2018, the average outstanding balance under this revolving
credit facility was approximately $393.8 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 $1.0 million.

Our U.S trade accounts receivable securitization, which we entered into on April 17, 2013 and which expires on
April 29, 2020, has an interest rate that is based upon the asset-backed commercial paper rate. As of December 29,
2018, the commercial paper rate was 2.66% plus 0.75%, for a combined rate of 3.41%. At December 29, 2018 the
outstanding balance was $350.0 million under this securitization facility. During the year ended December 29,
2018, the average outstanding balance under this securitization facility was approximately $349.0 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 $0.9 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 29, 2018 and December 30, 2017 ..........................................................

Statements of Income for the years ended December 29, 2018,

December 30, 2017 and December 31, 2016 ..............................................................................

Statements of Comprehensive Income for the years ended December 29, 2018,

December 30, 2017 and December 31, 2016 ..............................................................................

Statements of Changes in Stockholders’ Equity for the years ended

December 29, 2018, December 30, 2017 and December 31, 2016 ..................................................

Statements of Cash Flows for the years ended December 29, 2018,

December 30, 2017 and December 31, 2016 ..............................................................................

Notes to Consolidated Financial Statements .......................................................................................
Note 1 – Significant Accounting Policies ..................................................................................
Note 2 - Property and Equipment, Net .....................................................................................
Note 3 - Goodwill and Other Intangibles, Net ...........................................................................
Note 4 - Investments and Other ..............................................................................................
Note 5 - Debt .......................................................................................................................
Note 6 - Redeemable Noncontrolling Interests ...........................................................................
Note 7 - Comprehensive Income ............................................................................................
Note 8 - Fair Value Measurements ...........................................................................................
Note 9 - Business Acquisitions ...............................................................................................
Note 10 - Plans of Restructuring ..............................................................................................
Note 11 - Earnings Per Share ..................................................................................................
Note 12 - Income Taxes .........................................................................................................
Note 13 - Concentrations of Risk ............................................................................................
Note 14 - Derivatives and Hedging Activities ............................................................................
Note 15 - Revenue from Contracts with Customers ..................................................................................
Note 16 - Segment and Geographic Data ...................................................................................
Note 17 - Employee Benefit Plans ...........................................................................................
Note 18 - Commitments and Contingencies ...............................................................................
Note 19 - Quarterly Information (Unaudited) .............................................................................
Note 20 - Supplemental Cash Flow Information .........................................................................
Note 21 – Subsequent Event .......................................................................................................................

101

102

104

106

109

110

111

116

117

118

120

124

130

131

Schedule II - Valuation and Qualifying Accounts for the years ended December 29, 2018,

December 30, 2017 and December 31, 2016 ......................................................................................
All other schedules are omitted because the required information is either inapplicable or is included in the consolidated
financial statements or the notes thereto.

147

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Henry Schein, Inc.
Melville, NY

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. (the “Company”) and

subsidiaries as of December 29, 2018 and December 30, 2017, the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended
December 29, 2018, and the related notes and schedule presented in Item 15 (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries at December 29, 2018 and December 30,
2017, and the results of their operations and their cash flows for each of the three years in the period ended
December 29, 2018, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (“PCAOB”), the Company's internal control over financial reporting as of December 29, 2018,
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 20, 2019
expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our

responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor since 1984.

New York, NY
February 20, 2019

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

December 29,

December 30,

2018

2017

ASSETS
Current assets:
Cash and cash equivalents ............................................................................... $
Accounts receivable, net of reserves of $60,533 and $53,832 ...................................
Inventories, net ............................................................................................
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, net ...........................................................................................
Deferred income taxes .......................................................................................
Other liabilities ................................................................................................
Total liabilities .....................................................................................

80,209
1,603,711
1,970,742
520,558
4,175,220
382,398
2,820,295
584,244
538,370
8,500,527 $

1,227,209
951,458
8,955

279,764
172,165
579,276
3,218,827
1,003,873
31,570
392,313
4,646,583

174,658
1,522,807
1,933,803
454,752
4,086,020
375,001
2,301,331
669,641
432,002
7,863,995

1,153,012
741,653
16,659

272,998
188,873
455,780
2,828,975
907,756
50,431
420,285
4,207,447

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

312,156

832,138

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

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

Common stock, $.01 par value, 480,000,000 shares authorized,

151,401,668 outstanding on December 29, 2018 and 240,000,000 shares authorized,
153,690,146 outstanding on December 30, 2017 ...............................................
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 ........... $

1,514
3,208,589
(248,771)
2,961,332
580,456
3,541,788
8,500,527 $

1,537
2,940,029
(130,067)
2,811,499
12,911
2,824,410
7,863,995

See accompanying notes.

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

Years Ended
December 29, December 30, December 31,
2017

2016

2018

Net sales ........................................................................................ $
Cost of sales ....................................................................................
Gross profit ................................................................................
Operating expenses:
Selling, general and administrative ......................................................
Litigation settlements .......................................................................
Transaction costs related to Animal Health spin-off ..................................
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 .............................................................
Loss on sale of equity investment .........................................................
Net income .....................................................................................
Less: Net income attributable to noncontrolling interests ...........................
Net income attributable to Henry Schein, Inc. .......................................... $

13,201,995 $
9,606,911
3,595,084

12,461,543 $
9,062,440
3,399,103

11,571,668
8,345,195
3,226,473

2,701,876
38,488
38,756
62,912
753,052

21,236
(78,786)
(154)
695,348
(155,492)
22,270
-
562,126
(26,245)
535,881 $

2,534,409
5,325
-
-
859,369

17,553
(53,654)
(420)
822,848
(362,506)
16,587
(17,636)
459,293
(52,994)
406,299 $

2,409,008
-
-
45,891
771,574

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

Earnings per share attributable to Henry Schein, Inc.:

Basic ........................................................................................... $
Diluted ........................................................................................ $

3.51 $
3.49 $

2.59 $
2.57 $

3.14
3.10

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

152,656
153,707

156,787
158,208

161,641
163,723

See accompanying notes.

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

Years Ended

December 29, December 30, December 31,

2018

2017

2016

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

562,126 $

459,293 $

556,395

Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss) ..............................................

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

Unrealized investment gain (loss) .......................................................

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

Other comprehensive income (loss), net of tax .......................................
Comprehensive income .....................................................................
Comprehensive income attributable to noncontrolling interests:

Net income ...............................................................................
Foreign currency translation (gain) loss ............................................

(136,356)

191,886

(98,402)

626

(3)

3,033

(132,700)

429,426

(26,245)

13,996

(729)

(3)

3,933

195,087

654,380

(52,994)

(8,113)

(992)

(399)

(99,791)

456,604

(49,617)

2,689

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

(12,249)

(61,107)

(46,928)

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

417,177 $

593,273 $

409,676

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

Accumulated
Other

Total

Paid-in
Capital

Retained
Earnings

Comprehensive Noncontrolling Stockholders'
Interests
Income (Loss)

Equity

1,648 $

206,550 $

2,895,997 $

(219,939) $

2,558 $

2,886,814

Balance, December 26, 2015 ...................................... 164,830,640 $
Net income (excluding $48,760 attributable to Redeemable

Foreign currency translation loss (excluding $2,652

noncontrolling interests) .......................................
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 of $548 ..........................
Dividends paid ..................................................
Other adjustments ................................................
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,
Stock-based compensation expense ................................
Shares withheld for payroll taxes ..................................
Liability for cash settlement stock-based compensation awards ......
Deferred tax benefit arising from acquisition of partnership ..........
noncontrolling interests in partnership ...........................

including tax benefit of $23,392

-
-
-
-
-

-
-
(6,923,564)

415,832
755,104
(328,888)
55,886

-
-
-
-
-

-
-
(70)

4
8
(2)
-

-
-
-
-
-
-
-

-
Balance, December 31, 2016 ...................................... 158,805,010 $
Net income (excluding $52,203 attributable to Redeemable

Foreign currency translation gain (excluding $7,461

noncontrolling interests) .......................................
attributable to Redeemable noncontrolling interests) ..............
Unrealized loss from foreign currency hedging activities,
net of tax benefit of $786 .......................................
Unrealized investment loss, net of tax benefit of $1 .................
Pension adjustment gain, net of tax of $314 ........................
Dividends paid ..................................................
Other adjustments ................................................
Purchase of noncontrolling interests ...............................
Change in fair value of redeemable securities ......................
Initial noncontrolling interests and adjustments related to
business acquisitions ...........................................
Repurchase and retirement of common stock .......................
Stock issued upon exercise of stock options.........................
Stock-based compensation expense ................................
Shares withheld for payroll taxes ..................................
Settlement of stock-based compensation awards ....................
Deferred tax benefit arising from acquisition of
noncontrolling interest in partnership ............................
Transfer of charges in excess of capital ............................
Balance, December 30, 2017 ...................................... 153,690,146 $
-
Cumulative impact of adopting new accounting standards
Net income (excluding $21,848 attributable to Redeemable

-
(5,864,404)
197,434
1,072,922
(520,816)
-

Foreign currency translation loss (excluding $13,031

noncontrolling interests) .......................................
attributable to Redeemable noncontrolling interests) ..............
Unrealized gain from foreign currency hedging activities,
net of tax of $396 ..............................................
Unrealized investment loss, net of tax of $0 .........................
Pension adjustment gain, net of tax of $1,179 .......................
Dividends paid ..................................................
Other adjustments ................................................
Purchase of noncontrolling interests ...............................
Change in fair value of redeemable securities ......................
Initial noncontrolling interests and adjustments related to
business acquisitions ...........................................
Repurchase and retirement of common stock .......................
Stock issued upon exercise of stock options.........................
Stock-based compensation expense ................................
Shares withheld for payroll taxes ..................................
Settlement of stock-based compensation awards ....................
Deferred tax benefit arising from acquisition of
noncontrolling interest in partnership ............................
-
Transfer of charges in excess of capital ............................
-
Balance, December 29, 2018 ...................................... 151,401,668 $

-
(2,518,387)
153,516
340,794
(267,772)
3,371

-
-
-
-
-
-
-

-
-

34,792
58,238
(29,112)
4,052

1,588 $

48,037
126,742 $

-
-
-
-
-
-
-

-
(59)
2
11
(5)
-

-
-

1,537 $

-
-
-
-
-
-
-

-
(25)
1
4
(3)
-

-
-
-
-
23
-
(162,729)

-
(97,205)
5,264
42,283
(44,771)
(599)

35,681
95,311

- $
-

-
-
-
-
(19)
-
(148,919)

-
(36,206)
3,075
36,236
(18,140)
(727)

506,778

857

507,635

(95,713)

(37)

(95,750)

-
-
-
-
5

-
(66,864)
(128,956)

-
-
(420,998)

-
-
-
-
-

-
-
-
-

(992)
2
(399)
-
-

-
-
-

-
-
-
-

-
-
-
(593)
10

4,943
-
-

-
-
-
-

2,981,777 $

(317,041) $

7,738 $

406,299

791

407,090

183,773

652

184,425

-
-
-
-
-
-
-

-
(352,736)
-
-
-
-

-
(95,311)
2,940,029 $

2,594

535,881

-
-
-
-
-
-
-

-
(163,769)
-
-
-
-

(729)
(3)
3,933
-
-
-
-

-
-
-
-
-
-

-
-

-
-
-
(546)
376
(4,150)
-

8,050
-
-
-
-
-

-
-

(130,067) $

12,911 $

4,397

540,278

(122,360)

(965)

(123,325)

626
(3)
3,033
-
-
-
-

-
-
-
-
-
-

-
-

-
-
-
(656)
713
(214)
-

564,270
-
-
-
-
-

-
-

(248,771) $

580,456 $

626
(3)
3,033
(656)
694
(214)
(148,919)

564,270
(200,000)
3,076
36,240
(18,143)
(727)

58,554
-
3,541,788

(992)
2
(399)
(593)
15

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

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

48,037
2,800,804

(729)
(3)
3,933
(546)
399
(4,150)
(162,729)

8,050
(450,000)
5,266
42,294
(44,776)
(599)

35,681
-
2,824,410
2,594

-
-
1,514 $

58,554
106,146

- $

-
(106,146)
3,208,589 $

See accompanying notes.

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

Years Ended
December 29, December 30, December 31,
2017

2016

2018

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

562,126 $

459,293 $

556,395

operating activities:

Depreciation and amortization ...................................................
Loss on sale of equity investment ...............................................
Stock-based compensation expense .............................................
Provision for losses on trade and other accounts receivable ...............
Provision for (benefit from) deferred income taxes ..........................
Equity in earnings of affiliates ...................................................
Distributions from equity affiliates ..............................................
Changes in unrecognized tax benefits ..........................................
Provision for (benefit from) transition tax .....................................
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 sale of equity investment ..............................................
Repayments from (borrowings for) loan to affiliate .................................
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 ..........................................
Payments for taxes related to shares withheld for employee taxes ................
Excess tax benefits related to stock-based compensation ..........................
Distributions to noncontrolling stockholders .........................................
Acquisitions of noncontrolling interests in subsidiaries ............................
Net cash used in financing activities .......................................................

207,560
-
36,240
15,105
(41,213)
(22,270)
21,311
(650)
(10,000)
(807)

(147,499)
(84,784)
(92,059)
241,646
684,706

193,072
17,636
42,294
9,370
485
(16,587)
23,157
(2,318)
140,000
10,921

(160,266)
(175,059)
(85,759)
89,276
545,515

169,780
-
58,246
2,647
(37,066)
(18,518)
20,351
6,013
-
12,595

(7,655)
(104,787)
(22,657)
7,232
642,576

(90,637)

(81,501)

(70,179)

(61,570)
1,000
(25,700)
(16,047)
(192,954)

210,741
115,000
(501)
(28,042)
3,076
(200,000)
(18,023)
-
(17,515)
(668,512)
(603,776)

(288,673)
34,048
6,700
(12,850)
(342,276)

302,941
200,440
(1,990)
(60,050)
5,266
(450,000)
(44,832)
-
(29,134)
(35,192)
(112,551)

(228,575)
-
(4,500)
(13,168)
(316,422)

98,748
260,799
(233)
(15,381)
11,404
(550,024)
(27,115)
(463)
(32,350)
(72,729)
(327,344)

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

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 ................................................. $

17,575
(94,449)
174,658
80,209 $

21,589
112,277
62,381
174,658 $

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, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg,
Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, South Africa,
Spain, Sweden, Switzerland, Thailand, United Arab Emirates 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.

We consolidate a Variable Interest Entity (“VIE”) where we hold a variable interest and are the primary

beneficiary. The VIE is a trade accounts receivable securitization. We are the primary beneficiary because we have
the power to direct activities that most significantly affect the economic performance and have the obligation to
absorb the majority of the losses or benefits. The results of operations and financial position of this VIE are
included in our consolidated financial statements.

For the consolidated VIE, the trade accounts receivable transferred to the VIE are pledged as collateral to the
related debt. The creditors have recourse to us for losses on these trade accounts receivable. For the years ended
December 29, 2018 and December 30, 2017, trade accounts receivable that can only be used to settle obligations of
this VIE were $422 million and $422 million, respectively, and the liabilities of the VIE where the creditors have
recourse to us were $350 million and $350 million, respectively.

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 years ended December 29, 2018 and December 30, 2017 consisted of 52 weeks, and the year ended
December 31, 2016 consisted of 53 weeks.

Stock Split

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

Revenue Recognition

On December 31, 2017, we adopted Topic 606 using the modified retrospective method applied to those

contracts which were not completed as of the adoption date. Results for reporting periods beginning after
December 30, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported under the accounting standards in effect for those periods. Our revenue recognition accounting policies
applied prior to adoption of Topic 606 are outlined in the financial statements in our Annual Report on Form 10-K
for the year ended December 30, 2017. The disclosures included herein reflect our accounting policies under Topic
606.

Revenue is recognized when a customer obtains control of promised goods or services in an amount that

identify the contract(s) with a customer;
identify the performance obligations in the contract;

reflects the consideration that we expect to receive for those goods or services. To recognize revenue, we do the
following:


 determine the transaction price;



allocate the transaction price to the performance obligations in the contract; and
recognize revenue when, or as, the entity satisfies a performance obligation.

We generate revenue from the sale of dental, animal health and medical consumable products, equipment
(Healthcare distribution revenues), software products and services and other sources (Technology and value-added
services revenues). Provisions for discounts, rebates to customers, customer returns and other contra revenue
adjustments are included in the transaction price at contract inception by estimating the most likely amount 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 software products is recognized when products are shipped to customers or

Revenue derived from other sources, including freight charges, equipment repairs and financial services, is

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

Sales, value-add and other taxes we collect concurrent with revenue-producing activities are excluded from

revenue.

Certain of our revenue is derived from bundled arrangements that include multiple distinct performance

See Note 15 for additional disclosures of disaggregated net sales and Note 16 for disclosures of net sales by

segment and geographic data.

Contract Balances

Contract balances represent amounts presented in our consolidated balance sheet when either we have

transferred goods or services to the customer or the customer has paid consideration to us under the contract. These
contract balances include accounts receivable, contract assets and contract liabilities.

Accounts Receivable

Accounts receivable are generally recognized when heath care distribution and technology and value-added
services revenues are recognized. 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. 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 adjust our assumptions for anticipated changes
in any of these or other factors expected to affect collectability.

Contract Assets

Contract assets include amounts related to any conditional right to consideration for work completed but not
billed as of the reporting date and generally represent amounts owed to us by customers, but not yet billed. Contract
assets are transferred to accounts receivable when the right becomes unconditional. The contract assets primarily
relate to our bundled arrangements for the sale of equipment and consumables and sales of term software licenses.
Current contract assets are included in Prepaid expenses and other and the non-current contract assets are included
in Investments and other within our consolidated balance sheet. Current and non-current contract asset balances as
of December 29, 2018 and December 31, 2017 were not material.

Contract Liabilities

Contract liabilities are comprised of advance payments and upfront payments for service arrangements

provided over time that are accounted for as deferred revenue amounts. Contract liabilities are transferred to
revenue once the performance obligation has been satisfied. Current contract liabilities are included in Accrued
expenses: Other and the non-current contract liabilities are included in Other liabilities within our consolidated

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

balance sheet. At December 31, 2017, the current portion of contract liabilities of $85.7 million was reported in
Accrued expenses: Other, and $5.2 million related to non-current contract liabilities were reported in Other
liabilities. During the year ended December 29, 2018, we recognized substantially all of the current contract
liability amounts that were previously deferred at December 31, 2017. At December 29, 2018, the current and non-
current portion of contract liabilities were $83.6 million and $5.3 million, respectively.

Deferred Commissions

Sales commissions earned by our sales force that relate to long term arrangements are capitalized as costs to

Sales Returns

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 $72.0 million and $83.6 million,
primarily related to payments for inventory, were classified as accounts payable as of December 29, 2018 and
December 30, 2017.

Inventories and Reserves

Inventories consist primarily of finished goods and are valued at the lower of cost or net realizable value. 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 adjust our assumptions for anticipated changes in any of these or other factors expected to affect
the value of inventory.

Direct Shipping and Handling Costs

Freight and other direct shipping costs are included in cost of sales. Direct handling costs, which represent
primarily direct compensation costs of employees who pick, pack and otherwise prepare, if necessary, merchandise
for shipment to our customers are reflected in selling, general and administrative expenses. Direct shipping and
handling costs were $102.1 million, $93.3 million and $84.0 million for the years ended December 29, 2018,
December 30, 2017 and December 31, 2016.

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

Advertising and Promotional Costs

We generally expense advertising and promotional costs as incurred. Total advertising and promotional
expenses were $28.9 million, $15.7 million and $18.4 million for the years ended December 29, 2018, December
30, 2017 and December 31, 2016.

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 is recognized as income or expense in the period that includes the enactment
date. Our accounting for the Tax Cuts and Jobs Act, enacted on December 22, 2017, is further discussed in Note 12
of “Notes to Consolidated Financial Statements.” We file a consolidated U.S. federal income tax return with our
80% or greater owned U.S. subsidiaries.

Foreign Currency Translation and Transactions

The financial position and results of operations of our foreign subsidiaries are determined using local currency
as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at
each year-end. Income statement accounts are translated at the average rate of exchange prevailing during the year.
Translation adjustments arising from the use of differing exchange rates from period to period are included in
Accumulated other comprehensive income in stockholders’ equity. Gains and losses resulting from foreign
currency transactions are included in earnings.

Risk Management and Derivative Financial Instruments

We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates.
Our objective is to manage the impact that foreign currency exchange rate fluctuations could have on recognized
asset and liability fair values, earnings and cash flows. Our risk management policy requires that derivative
contracts used as hedges be effective at reducing the risks associated with the exposure being hedged and be

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

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. 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.

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.

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 rates; 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 29, 2018, December 30, 2017 and December 31,
2016, 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 stockholders 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.

Noncontrolling Interests

Noncontrolling interests represent our less than 50% ownership interest in an acquired subsidiary. Our net
income is reduced by the portion of the subsidiaries net income that is attributable to noncontrolling interests.

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

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.

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 profits 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.

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 assess 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 29, 2018, December 30, 2017 and December 31, 2016, the results of our

goodwill and intangible impairment analysis did not result in any impairments.

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

Long-Lived Assets

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

Cost of Sales

The primary components of cost of sales include the cost of the product (net of purchase discounts, supplier

chargebacks and rebates) and inbound and outbound freight charges. Costs related to purchasing, receiving,
inspections, warehousing, internal inventory transfers and other costs of our distribution network are included in
selling, general and administrative expenses along with other operating costs.

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. Total distribution
network costs were $87.3 million, $83.2 million and $79.4 million for the years ended December 29, 2018,
December 30, 2017 and December 31, 2016.

Comprehensive Income

Comprehensive income includes certain gains and losses that, under accounting principles generally accepted in

the United States, are excluded from net income as such amounts are recorded directly as an adjustment to
stockholders’ equity. Our comprehensive income is primarily comprised of net income, foreign currency
translation gain (loss), unrealized gain (loss) from foreign currency hedging activities, unrealized investment gain
(loss) and pension adjustment gain (loss).

Accounting Pronouncements Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update
(“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, Accounting Standards Codification (“ASC”)
606 (“Topic 606”). We adopted the provisions of this standard as of December 31, 2017, on a modified
retrospective basis. We applied the requirements of the new standard only to contracts that were not completed as
of the adoption date. We recorded an immaterial adjustment to the opening balance of retained earnings for the
adoption of Topic 606. The comparative information has not been restated and continues to be reported under the
accounting standards in effect for those periods.

The impact of the new standard on our consolidated statements of income, which we expect to be

immaterial on an ongoing basis, is primarily related to software sales and sales commissions and is described as
follows:

Software Sales

For software licenses sold together with post contract support (PCS), we previously deferred software
revenue if it did not have vendor-specific evidence of fair value of the PCS. Under Topic 606, the concept of

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

vendor-specific objective evidence is eliminated and there are no cases where revenue is deferred due to a lack
of standalone selling price. In addition, we previously recognized revenue from term licenses ratably over the
contract term. Under Topic 606, such licenses represent a right to use intellectual property and therefore require
upfront recognition. Furthermore, certain upfront fees related to service arrangements were previously deferred
and recognized over the estimated customer life. Under Topic 606, the period over which we will recognize
these fees is reduced, as the upfront fee represents additional contract price which will be allocated to the
performance obligations in the contract and recognized as those performance obligations are satisfied, rather
than being amortized over the estimated customer life. Based on the aforementioned changes, such software
revenue will be recognized sooner than under the previous revenue recognition standard.

Sales Commissions

We previously recognized sales commissions as an expense when incurred. Under Topic 606, we defer

such sales commissions as costs to obtain a contract when the costs are incremental and expected to be
recovered. Deferred sales commissions are amortized over the estimated customer relationship period. We
apply the practical expedient to expense, as incurred, commissions with an expected amortization period of one
year or less.

The impact of adoption on our consolidated balance sheet and income statement was as follows:

Balance Sheet
Assets:
Prepaid expenses and other ................. $
Investments and other ........................

Liabilities:
Accrued expenses -Taxes .................... $
Accrued expenses - Other ...................
Deferred income taxes .......................
Other liabilities (long-term) ................
Stockholders' equity:
Retained earnings ............................. $
Accumulated other comprehensive loss . $

As of
December 29, 2018
Balances

As
Reported

Without Adoption

of Topic 606

Effect of
Change
Increase/(Decrease)

520,558 $
538,370

520,778 $
535,879

172,165 $
579,276
31,570
392,313

3,208,589 $
(248,771) $

171,809 $
581,138
30,979
393,024

3,204,548 $
(248,627) $

(220)
2,491

356
(1,862)
591
(711)

4,041
(144)

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

Statement of Income
Net sales:
Dental ..................................................... $
Animal Health ..........................................
Medical ...................................................
Total healthcare distribution ..................... $
Technology and value-added services ............
Total ................................................... $

Costs and expenses:
Cost of sales .............................................
Selling, general and administrative ................
Income taxes .............................................
Net income ............................................... $

Year Ended
December 29, 2018
Balances Without
Adoption
of Topic 606

Effect of
Change
Increase/ (Decrease)

As Reported

6,348,945 $
3,682,639
2,661,166
12,692,750 $
509,245

13,201,995 $

9,606,911
2,701,876
(155,492)

6,348,945 $
3,682,639
2,661,166
12,692,750 $
508,939

13,201,689 $

9,606,911
2,702,552
(155,347)

562,126 $

561,289 $

-
-
-
-
306

306

-
(676)
145
837

Additional information related to Topic 606 can be found below in “Critical Accounting Policies and

Estimates” as well as in Note 15.

In October 2016, the FASB issued ASU No. 2016-16, “Income Taxes, Intra-Entity Transfers of Assets
Other Than Inventory” (“Topic 740”). Topic 740 requires companies to recognize the income tax effects of
intercompany sales and transfers of assets other than inventory in the period which the transfer occurs.
Previously, companies were required to defer the income tax effects on intercompany transfer of assets until the
asset has been sold to an outside party. On December 31, 2017, we adopted the guidance, which is effective for
annual periods and related interim periods beginning after December 15, 2017 on a modified retrospective
basis. As a result of the adoption of Topic 740, we have recorded an immaterial adjustment to the opening
balance of retained earnings and a reduction to prepaid assets.

The cumulative effect of the changes made to our consolidated balance sheet as of December 31, 2017 related

to Topic 606 and Topic 740 were as follows:

Assets:
Prepaid expenses and other ........... $
Investments and other ..................

Liabilities:
Accrued expenses - Taxes ............. $
Accrued expenses - Other .............
Deferred income taxes .................
Other liabilities (long-term) ..........

Stockholders' equity:
Retained earnings ....................... $

Balance at
December 30,
2017
(As Reported)

Adjustments

Balance at

Due To
Topic 606

Due To
Topic 740

December 31,

2017

454,752 $
432,002

188,873 $
455,780
50,431
420,285

119 $

1,133

437 $

(2,614)
471
(246)

(610) $

- $
-
-
-

454,261
433,135

189,310
453,166
50,902
420,039

2,940,029 $

3,204 $

(610) $

2,942,623

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

Recently Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842) (“ASU 2016-02”), which will
require lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent
with current accounting principles generally accepted in the United States (“U.S. GAAP”), the recognition,
measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on
its classification as a finance or operating lease. However, unlike current U.S. GAAP, which requires only capital
leases to be recognized on the balance sheet, the new guidance will require both types of leases to be recognized on
the balance sheet. The ASU is effective for interim and annual periods beginning after December 15, 2018, with
early adoption permitted. In August 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted
Improvements” which permits adoption of the guidance in ASU 2016-02 using either a modified retrospective
transition, requiring application at the beginning of the earliest comparative period presented or a transition method
whereby companies could continue to apply existing lease guidance during the comparative periods and apply the
new lease requirements through a cumulative-effect adjustment in the period of adoption rather than in the earliest
period presented without adjusting historical financial statements.

We will use the modified retrospective transition approach in ASU No. 2018-11 and apply the new lease
requirements through a cumulative-effect adjustment in the period of adoption. We are currently finalizing the
effects that the adoption of ASU 2016-02 will have on our consolidated financial statements, but anticipate that the
new guidance will significantly impact our consolidated balance sheet as we will recognize right of use assets and
lease liabilities for our operating leases. The new standard provides a number of optional practical expedients in
transition. We expect to elect the package of practical expedients, which permits us not to reassess, under the new
standard, our prior conclusions about lease identification, lease classification and initial direct costs. We do not
expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being
applicable to us. We do not expect that this accounting standard will have a material impact on our debt covenants.
We also do not expect that the implementation of this standard will have a material impact on our results of
operations. We are implementing a new lease accounting system and updating our processes in preparation for the
adoption of the new standard.

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. 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 receivables loss activity and current known activity regarding our outstanding receivables, we
do not expect that this ASU will have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other” (Topic 350) (“ASU

2017-04”). ASU 2017-04 eliminates step two from the goodwill impairment test, thereby eliminating the
requirement to calculate the implied fair value of a reporting unit. ASU 2017-04 will require us to perform our
annual goodwill impairment test by comparing the fair value of our reporting units to the carrying value of those
units. If the carrying value exceeds the fair value, we will be required to recognize an impairment charge; however,
the impairment charge should not exceed the amount of goodwill allocated to such reporting unit. ASU 2017-04 is
required to be implemented on a prospective basis for fiscal years beginning after December 15, 2019. We do not
expect that the requirements of ASU 2017-04 will have a material impact on our consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging” (Topic 815) (“ASU 2017-

12”), which simplifies the requirements for hedge accounting, more closely aligns hedge accounting with risk
management activities and increases transparency of the scope and results of hedging activities. This ASU amends
the presentation and disclosure requirements and changes how we can assess the effectiveness of our hedging

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

relationships. This ASU will make more financial and nonfinancial hedging strategies eligible for hedge
accounting. ASU 2017-12 is required to be implemented for fiscal years beginning after December 15, 2018 and
interim periods within those fiscal years. We do not expect that the requirements of ASU 2017-12 will have a
material impact on our consolidated financial statements.

In February 2018, the FASB issued ASU No. 2018-02, "Treatment of Stranded Tax Effects in Accumulated

Other Comprehensive Income Resulting From the Tax Cuts and Jobs Act of 2017 " which allows the
reclassification from accumulated comprehensive income to retained earnings the income tax effects resulting from
the Tax Act. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018.
We do not expect that the requirements of ASU 2018-02 will have a material impact on our consolidated financial
statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which expands the scope of
Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU
2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for
share-based payments to employees. ASU 2018-07 is effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within that fiscal year. We do not expect that the
requirements of ASU-2018-07 will have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other-Internal-Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That Is a Service Contract” (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs
incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation
costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use
software license). The accounting for the service element of a hosting arrangement that is a service contract is not
affected by the amendments in this ASU. ASU 2018-15 is effective for public business entities for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is
permitted. We do not expect that the requirements of this ASU will have a material impact on our consolidated
financial statements.

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

Note 2 – Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed primarily
under the straight-line method over the estimated useful life. Depreciation of leasehold improvements is computed
using the straight-line method over the lesser of the useful life of the assets or the lease term. Property and
equipment, including related estimated useful lives, consisted of the following:

December 29,

December 30,

2018

2017

Land ........................................................................................................... $
Buildings and permanent improvements ............................................................
Leasehold improvements ................................................................................
Machinery and warehouse equipment ................................................................
Furniture, fixtures and other ............................................................................
Computer equipment and software ....................................................................

Less accumulated depreciation .........................................................................

20,400 $

144,407

115,993

150,672

151,999

463,240

1,046,711

(664,313)

Property and equipment, net ..................................................................... $

382,398 $

21,019

143,250

106,236

138,478

149,136

432,379

990,498

(615,497)

375,001

Estimated Useful

Lives (in years)

Buildings and permanent improvements .................................
Machinery and warehouse equipment ....................................
Furniture, fixtures and other .................................................
Computer equipment and software ........................................

5-10

3-10

Property and equipment related depreciation expense for the years ended December 29, 2018, December 30,

2017 and December 31, 2016 was $73.5 million, $67.3 million and $63.8 million.

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

Note 3 – Goodwill and Other Intangibles, Net

The changes in the carrying amount of goodwill for the years ended December 29, 2018 and December 30,

2017 were as follows:

Balance as of December 31, 2016 ......................................... $
Adjustments to goodwill:

Acquisitions ..............................................................
Foreign currency translation .........................................
Balance as of December 30, 2017 .........................................
Adjustments to goodwill:

Acquisitions ..............................................................
Foreign currency translation .........................................
Balance as of December 29, 2018 ......................................... $

Other intangible assets consisted of the following:

Health Care
Distribution

Technology and
Value-Added
Services

Total

1,831,535 $

188,205 $

2,019,740

216,144
48,915

2,096,594

40,437

(46,590)

8,736
7,796
204,737

530,012

(4,895)

224,880

56,711

2,301,331

570,449

(51,485)

2,090,441 $

729,854 $

2,820,295

December 29, 2018

Accumulated

December 30, 2017

Accumulated

Non-compete agreements ....................... $
Trademarks / trade names - definite lived ....
Customer relationships and lists ................
Product Development ............................
Other ...............................................
Total ........................................... $

Cost

Amortization

Net

Cost

Amortization

Net

38,384 $

(9,224) $

29,160 $

41,758 $

(9,539) $

113,286

(59,038)

54,248

151,918

(76,497)

32,219

75,421

847,561

(409,301)

438,260

851,339

(355,327)

496,012

79,363

64,913

(37,373)

(44,327)

41,990

20,586

77,958

58,582

(37,105)

(33,446)

40,853

25,136

1,143,507 $

(559,263) $

584,244 $

1,181,555 $

(511,914) $

669,641

Non-compete agreements represent amounts paid primarily to key employees and prior owners of acquired

businesses, as well as certain sales persons, in exchange for placing restrictions on their ability to pose a
competitive risk to us. Such amounts are amortized, on a straight-line basis over the respective non-compete
period, which generally commences upon termination of employment or separation from us. The weighted-average
non-compete period for agreements currently being amortized was approximately 5.2 years as of December 29,
2018.

Trademarks, trade names, customer lists and customer relationships were established through business
acquisitions. Definite-lived trademarks and trade names are amortized on a straight-line basis over a weighted-
average period of approximately 8.2 years as of December 29, 2018. Customer relationships and customer lists are
definite-lived intangible assets that are amortized on a straight-line basis over a weighted-average period of
approximately 10.8 years as of December 29, 2018. Product development is a definite-lived intangible asset that is
amortized on a straight-line basis over a weighted-average period of approximately 10.1 years as of December 29,
2018.

Amortization expense related to definite-lived intangible assets for the years ended December 29, 2018,
December 30, 2017 and December 31, 2016 was $123.3 million, $116.5 million and $98.2 million. The annual

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

amortization expense expected to be recorded for existing intangibles assets for the years 2019 through 2023 is
$115.7 million, $106.5 million, $93.7 million, $69.2 million and $59.6 million.

Note 4 – Investments and Other

Investments and other consisted of the following:

December 29, December 30,

Investment in unconsolidated affiliates ............................................................... $
Non-current deferred foreign, state and local income taxes .....................................
Notes receivable (1) ........................................................................................
Capitalized costs for internally generated software for resale ..................................
Distribution rights and exclusivity agreements, net of amortization ..........................
Acquisition related indemnification ....................................................................
Other long-term assets .....................................................................................
Total .................................................................................................... $

2018

2017

283,091 $

268,364

83,242

66,652

40,070

582

47,828

16,905

10,962

35,015

35,359

1,378

65,558

15,366

538,370 $

432,002

(1) Long-term notes receivable carry interest rates ranging from 1.0% to 12.0% and are due in varying installments through

December 31, 2030.

Amortization expense related to other long-term assets for the years ended December 29, 2018, December 30,

2017 and December 31, 2016 was $10.7 million, $9.3 million and $7.8 million.

Note 5 – Debt

Bank Credit Lines

As of December 29, 2018 and December 30, 2017, the borrowings outstanding on this revolving credit facility

were $175.0 million and $320.0 million, respectively. As of December 29, 2018 and December 30, 2017, there
were $11.2 million and $11.3 million of letters of credit, respectively, provided to third parties under this credit
facility.

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

Committed Loan Associated with Animal Health Spin-off

Long-term debt

Long-term debt consisted of the following:

December 29, December 30,

in varying installments through 2023 at interest rates

2018

2017

628,189 $

350,000

535,295

350,000

29,491

5,148

1,012,828

(8,955)

1,003,873 $

34,027

5,093

924,415

(16,659)

907,756

Private Placement Facilities

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

The components of our private placement facility borrowings as of December 29, 2018 are presented in the

following table:

Date of

Borrowing

Amount of

Borrowing

Outstanding

Borrowing

Rate

September 2, 2010

January 20, 2012

January 20, 2012 (1)

December 24, 2012

June 2, 2014

June 16, 2017

September 15, 2017

January 2, 2018

Less: Deferred debt issuance costs

100,000
50,000
28,571
50,000
100,000
100,000
100,000
100,000

(382)
628,189

3.79 %
3.45
3.09
3.00
3.19
3.42
3.52
3.32

Due Date
September 2, 2020

January 20, 2024

January 20, 2022

December 24, 2024

June 2, 2021

June 16, 2027

September 15, 2029

January 2, 2028

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

U.S. Trade Accounts Receivable Securitization

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

sheet.

100

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

As of December 29, 2018, the aggregate amounts of long-term debt, including capital lease obligations and net

of deferred debt issuance costs of $382, maturing in each of the next five years and thereafter are as follows:

2019 ............................................................. $
2020 .............................................................
2021 .............................................................
2022 .............................................................
2023 .............................................................
Thereafter ......................................................
Total ...................................................... $

8,955
458,445
108,050
30,421
3,671
403,286
1,012,828

Note 6 – Redeemable Noncontrolling Interests

Some minority stockholders in certain of our subsidiaries have the right, at certain times, to require us to
acquire their ownership interest in those entities at fair value. ASC 480-10 is applicable for noncontrolling
interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated
subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual
agreements. The components of the change in the Redeemable noncontrolling interests for the years ended
December 29, 2018, December 30, 2017 and December 31, 2016 are presented in the following table:

December 29, December 30, December 31,
2017

2018

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 gain (loss) attributable to

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

832,138 $

607,636 $

542,194

(669,947)

(48,669)

(72,729)

10,294
21,848
(18,065)

(13,031)
148,919
312,156 $

78,939
52,203
(28,161)

7,461
162,729
832,138 $

58,172
48,760
(32,973)

(2,652)
66,864
607,636

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.

101

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

Note 7 – Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income

as such amounts are recorded directly as an adjustment to stockholders’ equity.

The following table summarizes our Accumulated other comprehensive income, net of applicable taxes as of:

December 29, December 30, December 31,
2017

2018

2016

Attributable to Redeemable noncontrolling interests:

Foreign currency translation adjustment ......................................... $

(18,595) $

(5,564) $

(13,025)

Attributable to noncontrolling interests:

Foreign currency translation adjustment ......................................... $

(426) $

539 $

(113)

Attributable to Henry Schein, Inc.:
Foreign currency translation loss ...................................................... $
Unrealized loss from foreign currency hedging activities .......................
Unrealized investment loss ..............................................................
Pension adjustment loss ..................................................................
Accumulated other comprehensive loss .......................................... $

(234,799) $
(156)
(6)
(13,810)
(248,771) $

(112,439) $
(782)
(3)
(16,843)
(130,067) $

(296,212)
(53)
-
(20,776)
(317,041)

Total Accumulated other comprehensive loss .......................................... $

(267,792) $

(135,092) $

(330,179)

The following table summarizes the components of comprehensive income, net of applicable taxes as follows:

December 29, December 30, December 31,
2017

2018

2016

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

562,126

459,293 $

556,395

Foreign currency translation gain (loss) ...............................................
Tax effect .....................................................................................
Foreign currency translation gain (loss) ...............................................

(136,356)

191,886

(98,402)

(136,356)

191,886

(98,402)

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

Unrealized investment gain (loss) .......................................................
Tax effect .....................................................................................
Unrealized investment gain (loss) .......................................................

Pension adjustment gain (loss) ..........................................................
Tax effect .....................................................................................
Pension adjustment gain (loss) ..........................................................

1,022
(396)
626

(3)
-
(3)

4,212
(1,179)
3,033

(1,515)
786
(729)

(4)
1
(3)

4,247
(314)
3,933

(1,025)
33
(992)

2
-
2

(947)
548
(399)

Comprehensive income ................................................................... $

429,426 $

654,380 $

456,604

102

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

Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign

currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The
foreign currency translation gain (loss) during the years ended December 29, 2018, December 30, 2017 and
December 31, 2016 was impacted by changes in foreign currency exchange rates as follows:

Currency
Euro ................................................................................. $
Brazilian Real .....................................................................
Australian Dollar .................................................................
British Pound .....................................................................
Canadian Dollar ..................................................................
Polish Zloty ........................................................................
Swiss Franc ........................................................................
All other currencies .............................................................
Total ............................................................................. $

Currency
Euro .................................................................................. $
Brazilian Real ......................................................................
Australian Dollar .................................................................
British Pound ......................................................................
Canadian Dollar ..................................................................
Polish Zloty ........................................................................
Swiss Franc ........................................................................
All other currencies .............................................................
Total ............................................................................. $

Foreign Currency
Translation
Gain (Loss)
for the
Year Ended
December 29,
2018

FX Rate in USD

December 29, December 30,

2018

2017

1.14

0.26

0.70

1.26

0.73

0.27

1.01

1.20

0.30

0.78

1.35

0.80

0.29

1.03

FX Rate in USD

2017

2016

1.20

0.30

0.78

1.35

0.80

0.29

1.03

1.05

0.31

0.72

1.23

0.74

0.24

0.98

December 30, December 31,

(40,681)
(27,313)

(25,639)

(21,329)

(9,111)

(5,025)

(2,442)

(4,816)

(136,356)

113,259
(2,411)

15,124

28,001

9,403

11,058

5,544

11,908

191,886

Foreign Currency
Translation
Gain (Loss)
for the
Year Ended
December 30,
2017

103

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

Currency
Euro ................................................................................. $
Brazilian Real ......................................................................
Australian Dollar .................................................................
British Pound .....................................................................
Canadian Dollar ..................................................................
Polish Zloty .......................................................................
Swiss Franc.........................................................................
All other currencies .............................................................
Total ............................................................................. $

Foreign Currency
Translation
Gain (Loss)
for the
Year Ended
December 31,
2016

FX Rate in USD

December 31, December 26,

2016

2015

1.05

0.31

0.72

1.23

0.74

0.24

0.98

1.10

0.25

0.73

1.49

0.72

0.26

1.01

(41,245)

2,856

(562)
(53,723)
3,345

(3,849)

(2,365)
(2,859)
(98,402)

The following table summarizes our total comprehensive income, net of applicable taxes as follows:

December 29, December 30, December 31,
2017

2016

2018

Comprehensive income attributable to
Henry Schein, Inc. .................................................................. $
Comprehensive income attributable to
noncontrolling interests ...........................................................
Comprehensive income attributable to
Redeemable noncontrolling interests ..........................................
Comprehensive income ............................................................... $

417,177 $

593,273 $

409,676

3,432

1,443

820

8,817
429,426 $

59,664
654,380 $

46,108
456,604

Note 8 – Fair Value Measurements

ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”) provides a framework for

measuring fair value in generally accepted accounting principles.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes
a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market
data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market
participant assumptions developed based on the best information available in the circumstances (unobservable
inputs).

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs
(Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows:

• Level 1— Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at

the measurement date.

• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active

104

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

markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than
quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other means.

• Level 3— Inputs that are unobservable for the asset or liability.

The following section describes the fair values of our financial instruments and the methodologies that we used

to measure their fair values.

Investments and notes receivable

There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable;

however, we believe the carrying amounts are a reasonable estimate of fair value.

Debt

The fair value of our debt (including bank credit lines) as of December 29, 2018 and December 30, 2017 was
estimated at $1,964.3 million and $1,666.1 million, respectively. Factors that we considered when estimating the
fair value of our debt include market conditions, such as interest rates and credit spreads.

Derivative contracts

Derivative contracts are valued using quoted market prices and significant other observable and unobservable

inputs. We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange
rates. Our derivative instruments primarily include foreign currency forward agreements related to intercompany
loans and certain forecasted inventory purchase commitments with suppliers.

The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our

contract rate to a published forward price of the underlying market rates, which is based on market rates for
comparable transactions and are classified within Level 2 of the fair value hierarchy.

Redeemable noncontrolling interests

Some minority stockholders 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 based on third-party valuations. The primary factor
affecting the future value of redeemable noncontrolling interests is expected earnings and, if such earnings are not
achieved, the value of the redeemable noncontrolling interests might be impacted. The noncontrolling interests
subject to put options are adjusted to their estimated redemption amounts 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. The values for Redeemable
noncontrolling interests are classified within Level 3 of the fair value hierarchy. The details of the changes in
Redeemable noncontrolling interests are presented in Note 6.

105

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

The following table presents our assets and liabilities that are measured and recognized at fair value on a
recurring basis classified under the appropriate level of the fair value hierarchy as of December 29, 2018 and
December 30, 2017:

Assets:
Derivative contracts ........................................... $
Total assets .................................................. $

Liabilities:
Derivative contracts ........................................... $
Total liabilities .............................................. $

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

Assets:
Derivative contracts ........................................... $
Total assets .................................................. $

Liabilities:
Derivative contracts ........................................... $
Total liabilities .............................................. $

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

Note 9 – Business Acquisitions

Level 1

Level 2

Level 3

Total

December 29, 2018

- $
- $

- $

12,533 $
12,533 $

1,708 $
1,708 $

- $
- $

12,533
12,533

1,708
1,708

- $

312,156 $

312,156

Level 1

Level 2

Level 3

Total

December 30, 2017

- $
- $

- $

11,799 $
11,799 $

2,089 $
2,089 $

- $
- $

11,799
11,799

2,089
2,089

- $

832,138 $

832,138

The operating results of all acquisitions are reflected in our financial statements from their respective

acquisition dates.

On July 1, 2018, we closed on a joint venture with Internet Brands, a provider of web presence and online
marketing software, to create a newly formed entity, Henry Schein One, LLC. The joint venture includes Henry
Schein Practice Solutions products and services, as well as Henry Schein’s international dental practice
management systems and the dental businesses of Internet Brands. We own 74% of the joint venture and Internet
Brands owns the remaining 26% noncontrolling interest, which is accounted for within stockholders’ equity. In
addition, Internet Brands received a freestanding and separately exercisable right to put their noncontrolling interest
to Henry Schein, Inc. for fair value following the fifth anniversary of the effective date of the formation of the joint
venture. Beginning with the second anniversary of the effective date of the formation of the joint venture, Henry
Schein One will issue a fixed number of additional interests to Internet Brands through the fifth anniversary of the
effective date, thereby increasing Internet Brands’ ownership by approximately 7.6%. Internet Brands will also be
entitled to receive a fixed number of additional interests, in the aggregate up to approximately 1.6% of the joint
venture’s ownership, if certain operating targets are met by the joint venture in its fourth, fifth and sixth operating
years. These additional shares are considered contingent consideration that are accounted for within stockholders’
equity; however these shares will not be allocated any net income of Henry Schein One until the shares vest or are
earned by Internet Brands. As a result of the transaction with Internet Brands, we recorded $567.6 million of
noncontrolling interest within stockholders’ equity reflecting certain fair value methodology.

106

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

Senior management from Henry Schein and Internet Brands serve on the board of Henry Schein One. The
goodwill recorded as part of the acquisition primarily reflects the value of future synergies. We allocated all of the
goodwill to our Technology and value-added services reporting segment. As of December 29, 2018, the goodwill
associated with this transaction is $551.7 million. None of the goodwill recognized is deductible for income tax
purposes, and as such, no deferred taxes have been recorded related to goodwill.

Concurrent with the formation of Henry Schein One, LLC, we entered into a separate agreement with Internet
Brands whereby (1) beginning July 1, 2023, Internet Brands will have the right to require Henry Schein to purchase
all or a portion of Internet Brands ownership interests in Henry Schein One, LLC for fair market value, and (2)
beginning July 1, 2028, or earlier if certain events occur, Henry Schein will have the right to require Internet
Brands to sell all or a portion of its ownership interests in Henry Schein One, LLC to Henry Schein for fair market
value.

We completed certain other acquisitions during the year ended December 29, 2018, which were immaterial to
our financial statements individually and in the aggregate. As of December 29, 2018, we recorded approximately
$15.2 million of goodwill through preliminary purchase price allocations for these acquisitions. Total acquisition
transaction costs incurred in the year ended December 29, 2018 were immaterial to our financial results.

On May 2, 2017, we announced the acquisition of Southern Anesthesia and Surgical, Inc. (SAS), a leading U.S.
distributor of anesthesia and surgical supplies to oral surgeons, dental anesthesiologists and periodontists. SAS had
sales in 2016 of approximately $72 million. As of December 29, 2018, we have recorded $74.2 million of goodwill
related to this acquisition.

On August 28, 2017, we announced the acquisition of Merritt Veterinary Supplies, Inc. (Merritt), an

independent supplier of animal health products. Merritt had sales in 2016 of approximately $115 million. As of
December 29, 2018, we have recorded $34.4 million of goodwill related to this acquisition.

We completed certain other acquisitions during the year ended December 30, 2017, which were immaterial to
our financial statements individually and in the aggregate. As of December 29, 2018, we recorded approximately
$43.2 million of goodwill through preliminary purchase price allocations for these acquisitions. Total acquisition
transaction costs incurred in the year ended December 30, 2017 were immaterial to our financial results.

On January 12, 2016, we announced that our U.S. animal health business, Henry Schein Animal Health,
completed the purchase of an 80.1% interest in Vetstreet, Inc., a leading software as a service (SaaS) provider of
marketing solutions and health information analytics to veterinary practices and animal health product
manufacturers. Vetstreet had sales in 2015 of approximately $40 million. As of December 29, 2018, we have
recorded $21.4 million of goodwill related to this acquisition.

On February 3, 2016, we announced the completion of the acquisition of RxWorks, Inc., a leading provider of
veterinary practice management software primarily to customers in Australia, New Zealand, the United Kingdom,
the Netherlands and other countries around the world. The company had sales for the 12 months ended June 30,
2015 of approximately $7 million. As of December 29, 2018, we have recorded $8.1 million of goodwill related to
this acquisition.

On February 5, 2016, we announced that we entered into an agreement to acquire a majority ownership interest

in Dental Cremer S.A., a distributor of dental supplies and equipment in Brazil. Headquartered in
Blumenau, Brazil, Dental Cremer, which is the dental distribution business of Cremer S.A., had 2015 sales of
approximately $70 million. On December 28, 2016, we completed this transaction. As of December 29, 2018, we
have recorded $63.2 million of goodwill related to this acquisition.

107

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

On March 23, 2016, we announced that we entered into a definitive agreement with J. Morita Corp. to expand

our presence in Japan. This transaction was completed on June 20, 2016 and, as a result, we own a 50% non-
consolidating interest in One Piece Corp., a subsidiary of J. Morita, one of the world's largest manufacturers and
distributors of dental equipment and supplies. One Piece Corp. had aggregate sales in fiscal 2015 of approximately
$125 million.

We completed certain other acquisitions during the year ended December 31, 2016, which were immaterial to
our financial statements individually and in the aggregate. As of December 29, 2018, we recorded approximately
$101.3 million of goodwill through preliminary purchase price allocations for these acquisitions. Total acquisition
transaction costs incurred in the year ended December 31, 2016 were immaterial to our financial results.

Some prior owners of acquired subsidiaries are eligible to receive additional purchase price cash consideration

if certain financial targets are met. We have accrued liabilities for the estimated fair value of additional purchase
price consideration at the time of the acquisition. Any adjustments to these accrual amounts are recorded in our
consolidated statements of income. For the years ended December 29, 2018, December 30, 2017 and December 31,
2016, there were no material adjustments recorded in our consolidated statement of income relating to changes in
estimated contingent purchase price liabilities.

108

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

Note 10 – Plans of Restructuring

On July 9, 2018, we committed to an initiative to rationalize our operations and provide expense

efficiencies. These actions will allow us to execute on our plan to reduce our cost structure and fund new initiatives
that are expected to drive future growth under our 2018 to 2020 strategic plan. This initiative is expected to include
the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. The total 2018
costs associated with the actions to complete this restructuring were previously expected to be in the range of $45
million to $55 million, however, additional cost savings opportunities were identified in the fourth quarter of 2018
resulting in a charge of $35.4 million, which increased our full year 2018 restructuring charges to $62.9 million,
consisting primarily of severance costs.

We plan to continue restructuring activities in the first half of 2019 and expect to incur additional restructuring
costs related to these activities during Q1 and Q2 2019. At this time we are identifying specific opportunities and
cannot reasonably estimate the amount of additional restructuring costs in 2019.

The costs associated with these restructurings are included in a separate line item, “Restructuring costs” within

our consolidated statements of income.

The following table shows the amounts expensed and paid for restructuring costs that were incurred during our

2018, 2017 and 2016 fiscal years and the remaining accrued balance of restructuring costs as of December 29,
2018, which is included in Accrued expenses: Other and Other liabilities within our consolidated balance sheet:

Severance
Costs

Facility
Closing
Costs

Balance, December 26, 2015 ......................... $
Provision ...................................................
Payments and other adjustments .....................
Balance, December 31, 2016 ......................... $
Provision ...................................................
Payments and other adjustments .....................
Balance, December 30, 2017 ......................... $
Provision ...................................................
Payments and other adjustments .....................
Balance, December 29, 2018 ......................... $

9,103 $
40,728
(27,477)

22,354 $

-
(19,136)

3,218 $
58,154
(30,649)

30,723 $

2,151 $
3,587
(3,284)

2,454 $

-
(1,139)

1,315 $
3,607
(3,167)

1,755 $

Other

Total

811 $

1,576
(1,492)

895 $
-
(871)

24 $

1,151
(1,017)

158 $

12,065
45,891
(32,253)
25,703
-
(21,146)
4,557
62,912
(34,833)
32,636

109

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

The following table shows, by reportable segment, the amounts expensed and paid for restructuring costs that
were incurred during our 2018, 2017 and 2016 fiscal years and the remaining accrued balance of restructuring costs
as of December 29, 2018:

Health Care
Distribution

Technology and
Value-Added

Services

Total

Balance, December 26, 2015 ............................................... $
Provision .........................................................................
Payments and other adjustments ...........................................
Balance, December 31, 2016 ............................................... $
Provision .........................................................................
Payments and other adjustments ...........................................
Balance, December 30, 2017 ............................................... $
Provision .........................................................................
Payments and other adjustments ...........................................
Balance, December 29, 2018 ............................................... $

12,062 $
44,082
(30,906)

25,238 $

-
(20,681)

4,557 $
59,126
(32,483)

31,200 $

3 $

1,809
(1,347)

465 $
-
(465)

- $

3,786
(2,350)

1,436 $

12,065
45,891
(32,253)
25,703
-
(21,146)
4,557
62,912
(34,833)
32,636

Note 11 – Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to Henry Schein, Inc. by the
weighted-average number of common shares outstanding for the period. Our diluted earnings per share is
computed similarly to basic earnings per share, except that it reflects the effect of common shares issuable for
presently unvested restricted stock and restricted stock units and upon exercise of stock options, using the treasury
stock method in periods in which they have a dilutive effect.

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

Basic ...........................................................................................
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units .....................
Diluted .....................................................................................

152,656

156,787

161,641

1,051
153,707

1,421
158,208

2,082
163,723

Years Ended
December 29, December 30, December 31,
2017

2018

2016

110

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

Note 12 – Income Taxes

Income before taxes and equity in earnings of affiliates was as follows:

Years ended

December 29,

December 30,

December 31,

2018

2017

2016

Domestic ................................................................................. $
Foreign ....................................................................................
Total .................................................................................. $

505,877 $

189,471

695,348 $

649,657 $

173,191

822,848 $

625,792

130,043

755,835

The provisions for income taxes were as follows:

Years ended

December 29,

December 30,

December 31,

2018

2017

2016

Current income tax expense:
U.S. Federal ................................................................ $
State and local .............................................................
Foreign .......................................................................
Total current ............................................................

Deferred income tax expense (benefit):
U.S. Federal ................................................................
State and local .............................................................
Foreign .......................................................................
Total deferred ..........................................................
Total provision ..................................................... $

93,209 $

283,417 $

35,197

68,299

196,705

(9,331)

(4,625)

(27,257)

(41,213)

28,520

50,084

362,021

13,686

856

(14,057)

485

155,492 $

362,506 $

185,438

28,229

41,357

255,024

(18,090)

(4,809)

(14,167)

(37,066)

217,958

111

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

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

follows:

Years Ended

December 29,

December 30,

2018

2017

Deferred income tax asset:

Investment in partnerships ........................................................................ $
Net operating losses and other carryforwards ................................................
Inventory, premium coupon redemptions and accounts receivable

valuation allowances ........................................................................
Stock-based compensation .......................................................................
Uniform capitalization adjustment to inventories ...........................................
Other asset ............................................................................................
Total deferred income tax asset .................................................................
Valuation allowance for deferred tax assets (1) ........................................
Net deferred income tax asset ....................................................................

Deferred income tax liability

Intangibles amortization ...........................................................................
Property and equipment ............................................................................
Total deferred tax liability .........................................................................
Net deferred income tax asset (liability) (2) ......................................................... $

76,232 $
44,630

25,270
18,473
8,189
38,514
211,308
(23,535)
187,773

(122,805)
(13,296)
(136,101)

51,672 $

22,600
48,711

23,715
22,525
6,591
13,669
137,811
(31,223)
106,588

(132,280)
(13,777)
(146,057)
(39,469)

(1) Primarily relates to operating losses of acquired subsidiaries, the benefits of which are uncertain. Any future reductions

of such valuation allowances will be reflected as a reduction of income tax expense in accordance with the provisions of
ASC Topic 805, “Business Combinations.”

(2) Certain deferred tax amounts do not have a right of offset and are therefore reflected on a gross basis in

non-current assets and liabilities in our consolidated balance sheets.

The table above has been revised for presentational purposes to separately present total deferred tax assets and

total deferred tax liabilities.

The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting rules
is judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood
that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled
reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and the results of recent
operations. Since this evaluation requires consideration of events that may occur some years into the future, there
is an element of judgment involved. Realization of our deferred tax assets is dependent on generating sufficient
taxable income in future periods. We believe that it is more likely than not that future taxable income will be
sufficient to allow us to recover substantially all of the value assigned to our deferred tax assets. However, if future
events cause us to conclude that it is not more likely than not that we will be able to recover all of the value
assigned to our deferred tax assets, we will be required to adjust our valuation allowance accordingly.

As of December 29, 2018, we had foreign net operating loss carryforwards of $2.4 million, which can be
utilized against future foreign income through December 31, 2026. Additionally, as of December 29, 2018, there
were foreign net operating loss carryforwards of $135.9 million that have an indefinite life. As of December 29,
2018, the company had post-apportionment state net operating loss carryforwards of $16.9 million, which can be

112

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

utilized against future state income through December 31, 2038. Additionally, as of December 29, 2018, there
were post-apportionment state operating loss carryforwards of $12.5 million that have an indefinite life.

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

Years ended

December 29,

December 30,

December 31,

2018

2017

2016

Income tax provision at federal statutory rate .......................... $
State income tax provision, net of federal income tax effect .......
Foreign income tax provision ...............................................
Pass through noncontrolling interest ......................................
Valuation allowance ..........................................................
Unrecognized tax benefits and audit settlements .......................
Interest expense related to loans ...........................................
Excess tax benefits related to stock compensation ....................
Transition tax on deemed repatriation of foreign earnings ..........
Revaluation of deferred tax assets and liabilities ......................
Tax on global intangible low-taxed income ("GILTI") ...............
Transaction costs related to Animal Health spin-off ..................
Tax benefit related to legal entity reorganization outside the U.S.
Tax charge related to reorganization of legal entities related ......
to forming Henry Schein One ..........................................
Tax charge related to reorganization of legal entities completed ..
in preparation for the Animal Health spin-off ......................
Other ..............................................................................
Total income tax provision ........................................... $

146,023 $

287,996 $

16,271

(420)

(4,595)

2,037

4,166

(11,925)

(837)

(10,000)

(1,676)

7,455

7,325

(13,852)

3,914

3,135

8,471

12,457

(24,433)

(11,623)

1,008

3,899

(18,717)

(17,387)

140,000

2,953

(13,647)

155,492 $

362,506 $

264,542

11,236

(18,036)

(13,083)

1,472

3,066

(21,737)

(9,502)

217,958

For the year ended December 29, 2018, our effective tax rate was 22.4% compared to 44.1% for the prior year

period. In 2018, our effective tax rate was primarily impacted by a reduction in the estimate of our transition tax
associated with the Tax Cuts and Jobs Act (“the Tax Act”), tax charges and credits associated with legal entity
reorganizations outside the U.S., and state and foreign income taxes and interest expense. In 2017, our effective tax
rate was primarily impacted by the Tax Act, the adoption of ASU 2016-09, as well as state and foreign income
taxes and interest expense.

On December 22, 2017, the U.S. government passed the Tax Act. The Tax Act is comprehensive tax legislation
that implemented complex changes to the U.S. tax code including, but not limited to, the reduction of the corporate
tax rate from 35% to 21%, modification of accelerated depreciation, the repeal of the domestic manufacturing
deduction and changes to the limitations of the deductibility of interest. Additionally, the Tax Act moved from a
global tax regime to a modified territorial regime, which requires U.S. companies to pay a mandatory one-time
transition tax on historical offshore earnings that have not been repatriated to the U.S. The transition tax is payable
over eight years. The Tax Act also included provisions to tax global intangible low-taxed income (“GILTI”), a
beneficial tax rate foreign Derived Intangible Income (“FDII”), a base erosion and anti-abuse tax (“BEAT”) that
imposes tax on certain foreign related-party payments, and IRC Section 163(j) interest limitation (Interest
Limitation). We became subject to the GILTI, FDII, BEAT and Interest Limitation provisions effective January 1,
2018.

113

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

The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an
entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected
to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred.
We elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. Under Topic 740,
we estimated the impact of each provision of the Tax Act on our effective tax and recorded a current tax expense
for the GILTI provision of $7.5 million in our effective tax rate for the year ended December 29, 2018. For the
BEAT, FDII and Interest Limitation computations, we have not recorded an estimate in our effective tax rate for the
year ended December 29, 2018 because we have concluded that these provisions of the Tax Act will not apply to us
in 2018.

Due to the complexities of the Tax Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”)
that allowed the company to record a provisional amount for any income tax effects of the Tax Act in accordance
with ASC 740, to the extent that a reasonable estimate can be made, in its 2017 financial statements. SAB 118
allowed for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording
of the related tax impacts. In the fourth quarter of 2017, we recorded provisional amounts for any items that could
be reasonably estimated at the time. This included the one-time transition tax that we estimated to be $140.0
million and a net deferred tax expense of $3.0 million attributable to the revaluation of deferred tax assets and
liabilities due to the lower enacted federal income tax rate of 21%. Within our consolidated balance sheets, $27.4
million was included in “Accrued taxes” and $112.6 million was included in “Other liabilities”. In the aggregate,
for the quarter ended December 30, 2017, these Tax Act modifications resulted in a one-time tax expense of
approximately $143.0 million. Absent the effects of the transition tax and the revaluation of deferred tax assets and
liabilities, our effective tax rate for the year ended December 30, 2017 would have been 26.7% as compared to our
actual effective tax rate of 44.1%.

For the year ended December 29, 2018 we have recorded a net $10.0 million reduction to the one-time

transition tax and an additional $1.7 million net deferred tax benefit from the revaluation of deferred tax assets and
liabilities to reflect the new tax rate. Within our consolidated balance sheets, $9.9 million is included in “Accrued
taxes” and $104.2 million is included in “Other liabilities” for the transition tax. The changes were a result of
additional analysis, changes in interpretation and assumptions, as well as additional regulatory guidance that was
issued. As of December 22, 2018, the Company has completed its analysis of the impact of the Tax Act in
accordance with SAB 118 and the amounts are now considered final.

During 2016, the effective tax rate was affected by a federal tax audit settlement, which reduced our income tax

expense by approximately $4.5 million which is included in the unrecognized tax benefits amount above.

Due to the one-time transition tax and the imposition of the GILTI provisions, all previously unremitted
earnings will no longer be subject to U.S. federal income tax; however, there could be U.S. state and/or foreign
withholding taxes upon distribution of such unremitted earnings. Determination of the amount of unrecognized
deferred tax liability with respect to such earnings is not practicable.

ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in the financial statements

in accordance with other provisions contained within this guidance. This topic prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not
to be sustained upon examination by the taxing authorities. The amount recognized is measured as the largest
amount of benefit that is greater than 50% likely of being realized upon ultimate audit settlement. In the normal
course of business, our tax returns are subject to examination by various taxing authorities. Such examinations may
result in future tax and interest assessments by these taxing authorities for uncertain tax positions taken in respect to
certain tax matters.

114

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

The total amount of unrecognized tax benefits, which are included in “Other liabilities” within our consolidated
balance sheets as of December 29, 2018 was approximately $100.0 million, of which $86.1 million would affect the
effective tax rate if recognized. It is expected that the amount of unrecognized tax benefits will change in the next
12 months; however, we do not expect the change to have a material impact on our consolidated financial
statements.

The total amounts of interest and penalties, which are classified as a component of the provision for income
taxes and included in “Other liabilities”, were approximately $16.4 million and $0, respectively, as of December
29, 2018.

The tax years subject to examination by major tax jurisdictions include the years 2012 and forward by the U.S.

Internal Revenue Service (“IRS”), as well as the years 2008 and forward for certain states and certain foreign
jurisdictions. In December 2014, the IRS issued a Statutory Notice of Deficiency for 2009, 2010 and 2011. During
the quarter ended March 28, 2015, we filed our petition to the U.S. Tax Court disputing the adjustments proposed
by the IRS. During the quarter ended June 27, 2015, we were notified by the IRS that our protest was transferred to
the Appellate Divisions (Appeals Section) of the IRS. During the quarter ended March 26, 2016, we filed our
protest with the Appellate Division. The opening appeals conference was held on June 8, 2016 and a proposed
settlement was reached. On July 13, 2016, a joint status report was filed with the Tax Court indicating a basis for
settlement had been reached on all of the issues in this case. On October 7, 2016 an executed decision document
was signed by the Internal Revenue Service’s Special Trial Attorney and submitted to the Tax Court finalizing the
Appeals decision. Additionally, during the quarter ended December 31, 2016 we filed a Mutual Agreement
Procedure request with the IRS for assistance from the U.S. Competent Authority for an open Transfer Pricing issue
which resulted in a partial settlement during the quarter ended December 30, 2017. We received a 30 Day Letter
from the IRS during the quarter ended April 1, 2017 for the remaining open audit issues for the years 2012 and
2013. We filed a Protest with the Appellate Division regarding these issues during the second quarter of 2017. We
had an initial Appeals Conference during the third quarter of 2018, of which we are awaiting a final settlement.
During the quarter ended December 29, 2018, we submitted the first draft of our proposed Advanced Pricing
Agreement covering tax years 2014-2024 to the IRS in which Henry Schein, Inc. and the IRS would agree on an
appropriate transfer pricing methodology. We do not expect this to have a material effect on our consolidated
financial position, liquidity or the results of operations.

The following table provides a reconciliation of unrecognized tax benefits excluding the effects of deferred

taxes, interest and penalties:

December 29,

December 30,

December 31,

2018

2017

2016

Balance, beginning of period ............................................... $
Additions based on current year tax positions ..........................
Additions based on prior year tax positions .............................
Reductions based on prior year tax positions ...........................
Reductions resulting from settlements with taxing authorities ....
Reductions resulting from lapse in statutes of limitations ..........
Balance, end of period ........................................................ $

90,900 $

90,400 $

5,000

11,600

(1,700)

(1,900)

(20,400)

8,500

6,100

(800)

(10,500)

(2,800)

83,500 $

90,900 $

77,600

7,300

20,400

(900)

(9,700)

(4,300)

90,400

115

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

Note 13 – Concentrations of Risk

Certain financial instruments potentially subject us to concentrations of credit risk. These financial instruments

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

We limit our credit risk with respect to our cash equivalents, short-term and long-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.

With respect to our trade receivables, our credit risk is somewhat limited due to a relatively large customer base

and its dispersion across different types of health care professionals and geographic areas. No single customer
accounted for more than 1% of our net sales in 2018 or 2017. With respect to our sources of supply, our top 10
health care distribution suppliers and our single largest supplier accounted for approximately 32% and 6%,
respectively, of our aggregate purchases in 2018 and approximately 34% and 5%, respectively, of our aggregate
purchases in 2017.

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

Note 14 – Derivatives and Hedging Activities

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 credit risk of the derivative counterparties. 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 counterparties, maintaining a strong balance sheet and having multiple sources of capital.

Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar 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 our 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. Our hedging activities have
historically not had a material impact on our consolidated financial statements. Accordingly, additional disclosures
related to derivatives and hedging activities required by ASC Topic 815 have been omitted.

116

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

Note 15 – Revenue from Contracts with Customers

Revenue (Net sales) is recognized in accordance with the policies discussed in Note 1 – Significant Accounting

Policies.

Disaggregation of Net sales

The following table disaggregates our Net sales by reportable segment and geographic area:

Year Ended
December 29, 2018

North America

International

Global

Net sales:
Health care distribution ...................................................
Dental ........................................................................ $
Animal health .............................................................
Medical .....................................................................
Total health care distribution ........................................
Technology and value-added services ................................
Total ......................................................................... $

3,867,118 $
1,865,316
2,581,696
8,314,130
426,653
8,740,783 $

2,481,827 $
1,817,323
79,470
4,378,620
82,592
4,461,212 $

6,348,945
3,682,639
2,661,166
12,692,750
509,245
13,201,995

117

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

Note 16 – Segment and Geographic Data

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 global dental, animal health and medical groups serve
practitioners in 31 countries worldwide.

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, continuing education services for practitioners, consulting and other
services.

The following tables present information about our reportable and operating segments:

Years Ended

December 29,
2018

December 30, December 31,

2017

2016

Net Sales:

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

6,348,945 $
3,682,639
2,661,166
12,692,750
509,245
13,201,995 $

6,048,813 $
3,476,635
2,497,994
12,023,442
438,101
12,461,543 $

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

(1)

(2)

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.

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.

118

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

Years ended

December 29,

December 30,

December 31,

2018

2017

2016

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

Income before taxes and equity in earnings of affiliates:
Health care distribution ................................................. $
Technology and value-added services ...............................
Total ..................................................................... $

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

Income Tax Expense:
Health care distribution ................................................. $
Technology and value-added services ...............................
Total ..................................................................... $

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

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

Purchases of Fixed Assets:
Health care distribution ................................................. $
Technology and value-added services ...............................
Total ..................................................................... $

618,788 $
134,264
753,052 $

563,006 $
132,342
695,348 $

179,760 $
27,800
207,560 $

101,179 $
54,313
155,492 $

20,849 $
387
21,236 $

78,769 $
17
78,786 $

87,131 $

3,506

90,637 $

728,520 $
130,849
859,369 $

696,453 $
126,395
822,848 $

168,186 $
24,886
193,072 $

325,302 $
37,204
362,506 $

17,318 $
235
17,553 $

53,607 $

53,654 $

76,449 $

5,052

81,501 $

652,106
119,468
771,574

640,184
115,651
755,835

146,276
23,504
169,780

185,571
32,387
217,958

13,086
189
13,275

31,845
48
31,893

66,611

3,568

70,179

As of

December 29,

December 30,

December 31,

2018

2017

2016

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

7,375,723 $
1,124,804
8,500,527 $

7,399,718 $
464,277
7,863,995 $

6,377,253
434,510
6,811,763

119

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

The following table presents information about our operations by geographic area as of and for the three years
ended December 29, 2018. Net sales by geographic area are based on the respective locations of our subsidiaries.
No country, except for the United States, generated net sales greater than 10% of consolidated net sales. There
were no material amounts of sales or transfers among geographic areas and there were no material amounts of
export sales.

2018

2017

2016

Net Sales

United States ....................... $
Other .................................
4,853,597
Consolidated total ............ $ 13,201,995 $

8,348,398 $

Long-Lived
Assets
2,522,477 $

Net Sales

7,904,698 $

Long-Lived
Assets
2,000,624 $

Net Sales

7,536,897 $

Long-Lived
Assets
1,803,689

1,264,459

4,556,845

1,345,349

4,034,771

1,171,137

3,786,936 $ 12,461,543 $

3,345,973 $ 11,571,668 $

2,974,826

Note 17 – Employee Benefit Plans

Stock-based Compensation

Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of
$36.2 million ($28.1 million after-tax), $42.3 million ($23.7 million after-tax) and $58.2 million ($41.4 million
after-tax) for the years ended December 29, 2018, December 30, 2017 and December 31, 2016.

Our accompanying consolidated statements of cash flows present our stock-based compensation expense as an

adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In the
accompanying consolidated statements of cash flows, there were no benefits associated with tax deductions in
excess of recognized compensation as a cash inflow from financing activities for the years ended December 29,
2018 and December 30, 2017 and $0.5 million of such benefits for the year ended December 31, 2016.

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

Stock Incentive Plan, as amended, and our 2015 Non-Employee Director Stock Incentive Plan (together, the
“Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Prior to March
2009, awards under the Plans principally included a combination of at-the-money stock options and restricted
stock/units. Since March 2009, equity-based awards have been granted solely in the form of restricted stock/units,
with the exception of providing stock options to employees pursuant to certain pre-existing contractual obligations.
As of December 29, 2018, there were 62,459 shares authorized and 6,262 shares available to be granted under the
2013 Stock Incentive Plan and 1,800 shares authorized and 256 shares available to be granted under the 2015 Non-
Employee Director Stock Incentive Plan.

120

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

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,

including, without limitation, 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.

We record deferred income tax assets for awards that will result in future deductions on our income tax returns
based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will
receive a deduction.

During the first quarter of 2017, we adopted the provisions of ASU 2016-09 which requires that all excess tax

benefits and tax deficiencies resulting from the difference between the deduction for tax purposes and the stock-
based compensation cost recognized for financial reporting purposes be included as a component of income tax
expense as of January 1, 2017. Prior to the implementation of ASU 2016-09, 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 or in the income statement if there were no accumulated excess tax benefits.

Stock-based compensation grants for the three years ended December 29, 2018 primarily consisted of restricted
stock/unit grants. Certain stock-based compensation granted may require us to settle in the form of a cash payment.
During the year ended December 29, 2018, we recorded a liability of $0.8 million relating to the grant date fair
value of stock-based compensation to be settled in cash. The weighted-average grant date fair value of stock-based
awards granted before forfeitures was $71.38, $85.43 and $83.90 per share during the years ended December 29,
2018, December 30, 2017 and December 31, 2016.

Total unrecognized compensation cost related to non-vested awards as of December 29, 2018 was $77.9

million, which is expected to be recognized over a weighted-average period of approximately 2.0 years.

121

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

A summary of the stock option activity under the Plans is presented below:

December 29,
2018

Years Ended
December 30,
2017

December 31,
2016

Weighted
Average
Exercise
Price

155 $
-
(153)
-
2 $

29.65
-
29.81
-
17.22

353 $
-
(198)
-
155 $

28.59
-
27.76
-
29.65

769 $
-
(416)
-
353 $

28.00
-
27.49
-
28.59

Outstanding at beginning of year ........
Granted .........................................
Exercised .......................................
Forfeited ........................................
Outstanding at end of year .................

Options exercisable at end of year ......

2 $

17.22

155 $

29.65

353 $

28.59

During the years ended December 29, 2018, December 30, 2017 and December 31, 2016, we did not grant any

stock options.

The following table represents the intrinsic values of:

As of

December 29,

December 30,

December 31,

2018

2017

2016

Stock options outstanding ..................................................... $
Stock options exercisable ......................................................

121 $

121

6,256 $

6,256

16,681

The total cash received as a result of stock option exercises for the years ended December 29, 2018, December

30, 2017 and December 31, 2016 was approximately $3.1 million, $5.3 million and $11.4 million. In connection
with these exercises, we did not realize any tax benefits for the years ended December 29, 2018 and December 30,
2017. During the year ended December 31, 2016 the tax benefit that we realized was $23.4 million. We settle
employee stock option exercises with newly issued common shares.

122

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

The total intrinsic value per share of restricted stock/units that vested was $76.48, $83.16 and $81.86 during the
years ended December 29, 2018, December 30, 2017 and December 31, 2016. The following table summarizes the
status of our non-vested restricted stock/units for the year ended December 29, 2018:

Time-Based Restricted Stock/Units
Weighted Average

Shares/Units

Grant Date Fair
Value Per Share

Intrinsic Value
Per Share

Outstanding at beginning of period ...................................
Granted .......................................................................
Vested .........................................................................
Forfeited ......................................................................
Outstanding at end of period ............................................

1,233 $
367
(312)
(88)
1,200 $

70.28
66.00
62.98
77.67
70.33 $

77.92

Performance-Based Restricted Stock/Units

Weighted Average

Grant Date Fair
Value Per Share

Shares/Units

Intrinsic Value
Per Share

1,226 $
200
(426)
(80)
920 $

60.81
72.16
71.33
77.27
50.86 $

77.92

We offer qualified 401(k) plans to substantially all our domestic full-time employees. As determined by our

Board of Directors, matching contributions to these plans generally do not exceed 100% of the participants’
contributions up to 7% of their base compensation, subject to applicable legal limits. Matching contributions
consist of cash and were allocated entirely to the participants’ investment elections on file, subject to a 20%
allocation limit to the Henry Schein Stock Fund. Forfeitures attributable to participants whose employment
terminates prior to becoming fully vested are used to reduce our matching contributions and offset administrative
expenses of the 401(k) plans.

Assets of the 401(k) and other defined contribution plans are held in self-directed accounts enabling

participants to choose from various investment fund options. Matching contributions and administrative expenses
related to these plans charged to operations during the years ended December 29, 2018, December 30, 2017 and
December 31, 2016 amounted to $35.0 million, $39.0 million and $33.9 million, respectively.

Supplemental Executive Retirement Plan

We offer an unfunded, non-qualified supplemental executive retirement plan to eligible employees. This plan

generally covers officers and certain highly-compensated employees after they have reached the maximum IRS
allowed pre-tax 401(k) contribution limit. Our contributions to this plan are equal to the 401(k) employee-elected
contribution percentage applied to base compensation for the portion of the year in which such employees are not
eligible to make pre-tax contributions to the 401(k) plan. The amounts charged (credited) to operations during the
years ended December 29, 2018, December 30, 2017 and December 31, 2016 amounted to $(0.4) million, $0.6
million and $0.3 million, respectively.

Deferred Compensation Plan

During 2011, we began to offer a deferred compensation plan to a select group of management or highly
compensated employees of the Company and certain subsidiaries. This plan allows for the elective deferral of base
salary, bonus and/or commission compensation by eligible employees. The amounts charged to operations during
123

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

the years ended December 29, 2018, December 30, 2017 and December 31, 2016 were approximately $2.3 million,
$5.0 million and $1.7 million, respectively.

Note 18 – Commitments and Contingencies

Operating Leases

We lease facilities and equipment under non-cancelable operating leases expiring through 2033. We expect

that in the normal course of business, leases will be renewed or replaced by other leases.

Future minimum annual rental payments under our non-cancelable operating leases as of December 29, 2018

were:

2019 ................................................................. $
2020 .................................................................
2021 .................................................................
2022 .................................................................
2023 .................................................................
Thereafter ..........................................................
Total minimum operating lease payments ............ $

78,940
61,605
44,574
31,501
23,365
68,373
308,358

Total rental expense for the years ended December 29, 2018, December 30, 2017 and December 31, 2016 was

$91.1 million, $84.8 million and $79.6 million, respectively.

Capital Leases

We lease certain equipment under capital leases. Future minimum annual lease payments under our capital

leases together with the present value of the minimum capital lease payments as of December 29, 2018 were:

2019 ................................................................................. $
2020 .................................................................................
2021 .................................................................................
2022 .................................................................................
2023 .................................................................................
Thereafter ..........................................................................
Total minimum capital lease payments ....................................
Less: Amount representing interest at 0.07% to 19.79%
Total present value of minimum capital lease payments .......... $

1,695
1,134
710
313
291
1,430
5,573
(425)
5,148

124

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

Purchase Commitments

In our health care distribution business, we sometimes enter into long-term purchase commitments to ensure the
availability of products for distribution. Future minimum annual payments for inventory purchase commitments as
of December 29, 2018 were:

499,346
215,445
230,967
124,465
446
-
1,070,669

Employment, Consulting and Non-Compete Agreements

We have definite-lived employment, consulting and non-compete agreements that have varying base aggregate
annual payments for the years 2019 through 2023 and thereafter of approximately $16.6 million, $1.8 million, $0.8
million, $0.1 million and $0.0 million. We also have lifetime consulting agreements that provide for current
compensation of $0.5 million per year, increasing $25 every fifth year with the next increase in 2022. In addition,
some agreements have provisions for additional incentives and compensation.

Litigation

On August 31, 2012, Archer and White Sales, Inc. (“Archer”) filed a complaint against Henry Schein, Inc. as

125

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

in the U.S. District Court for the Eastern District of Texas, Civil Action No. 2:12-CV-00572-JRG, styled as an
antitrust action under Section 1 of the Sherman Act, and the Texas Free Enterprise Antitrust Act. Archer alleges a
conspiracy between Henry Schein, an unnamed company and the Danaher Defendants to terminate or limit
Archer’s distribution rights. On August 1, 2017, Archer filed an amended complaint, adding Patterson and Benco
as defendants, and alleging that Henry Schein, Patterson, Benco and Burkhart conspired to fix prices and refused to
compete with each other for sales of dental equipment to dental professionals and agreed to enlist their common
suppliers, the Danaher Defendants, to join a price-fixing conspiracy and boycott by reducing the distribution
territory of, and eventually terminating, their price-cutting competing distributor Archer. Archer seeks damages in
an amount to be proved at trial, to be trebled with interest and costs, including attorneys’ fees, jointly and severally,
as well as injunctive relief. On October 30, 2017, Archer filed a second amended complaint, to add additional
allegations that it believes support its claims. The named parties and causes of action are the same as the August 1,
2017 amended complaint.

On October 1, 2012, we filed a motion for an order: (i) compelling Archer to arbitrate its claims against us; (2)

126

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

defendants violated U.S. antitrust laws by conspiring, and entering into an agreement, to refuse to provide discounts
to or otherwise serve buying groups representing dental practitioners. The FTC alleges that defendants conspired in
violation of Section 5 of the FTC Act. The complaint seeks equitable relief only and does not seek monetary
damages. We deny the allegation that we conspired to refuse to provide discounts to or otherwise serve dental
buying groups and intend to defend ourselves vigorously against this action. A hearing before an administrative law
judge began on October 16, 2018 and is ongoing. We believe this matter will not have a material adverse effect on
our consolidated financial position, liquidity or results of operations.

On March 7, 2018, Joseph Salkowitz, individually and on behalf of all others similarly situated, filed a putative

On May 3, 2018, a purported class action complaint, Marion Diagnostic Center, LLC, et al. v. Becton,

127

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

2018, plaintiffs appealed the District Court’s decision to the Seventh Circuit Court of Appeals. We intend to
defend ourselves vigorously against this action.

128

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

damages to be determined at trial, trebled, reasonable attorneys’ fees and costs, and pre- and post-judgment
interest. We intend to defend ourselves vigorously against this action.

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

As of December 29, 2018, we had accrued our best estimate of potential losses relating to claims that were

129

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

Note 19 – Quarterly Information (Unaudited)

The following tables present certain quarterly financial data:

Quarters ended

March 31,
2018 (1)

June 30,

September 29, December 29,

2018 (1)

Transaction costs related to Animal Health spin-off ....
Restructuring costs ..............................................
Operating income ................................................
Net income ........................................................

3,220,439 $

3,326,676 $

3,279,678 $

3,375,202

895,592

901,072

3,777

3,762

206,142

148,631

7,611

14,896

201,349

147,509

888,560

38,488

7,282

8,853

165,926

126,976

909,860

20,086

35,401

179,635

139,010

Amounts attributable to
Henry Schein, Inc.:
Net income .........................................................

Earnings per share attributable to
Henry Schein, Inc.:

140,218

141,212

121,478

132,973

Basic ........................................................... $
Diluted .........................................................

0.92 $

0.91

0.92 $

0.92

0.80 $

0.79

0.88

0.87

Net sales ............................................................ $
Gross profit ........................................................
Litigation settlement .............................................
Operating income ................................................
Net income ........................................................

Amounts attributable to
Henry Schein, Inc.:
Net income (loss) .................................................

Earnings (loss) per share attributable to
Henry Schein, Inc.:

Quarters ended

April 1,

2017 (2)

July 1,

September 30, December 30,

2017 (2)

2,922,948 $

3,059,458 $

3,161,083 $

3,318,054

822,920

839,173

836,054

900,956

193,968
150,253

5,325

210,662
149,582

213,548
150,948

241,191

8,510

140,748

136,055

138,031

(8,535)

Basic ........................................................... $
Diluted .........................................................
(1) See Note 10 - "Plans of Restructuring" for details of the restructuring costs incurred during the fiscal year of 2018.

0.89 $

0.88 $

0.86 $

0.86

0.87

0.88

(0.06)

(2) See Item 5 - "Purchases of Equity Securities by the Issuer" for details of the 2-for-1 split of our common stock, during the

third quarter of 2017.

130

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

Note 20 – Supplemental Cash Flow Information

Cash paid for interest and income taxes was:

Interest ............................................................................. $
Income taxes .....................................................................

72,310 $

248,245

49,311 $

221,832

29,391
205,196

December 29,

2018

Years ended
December 30,

2017

December 31,

2016

There was approximately $0.0 million, $0.4 million and $63.8 million of debt assumed as a part of the
acquisitions for the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively.
Debt assumed during the year ended December 31, 2016 primarily relates to the acquisitions of Dental Cremer S.A.
and Dental Speed Graph.

For the years ended December 29, 2018, December 30, 2017 and December 31, 2016, we had $1.0 million,

$(1.5) million and $(1.0) million of non-cash net unrealized gains (losses) related to foreign currency hedging
activities, respectively. During the years ended December 29, 2018 and December 30, 2017, as part of business
acquisitions, we increased our ownerships in subsidiaries through non-cash transactions of $1.4 million and $17.6
million, respectively.

During the third quarter of 2018, we closed on a joint venture with Internet Brands to create a newly formed
entity, Henry Schein One, LLC, through a non-cash transaction resulting in an initial estimate of approximately
$385 million of noncontrolling interest representing Internet Brands’ current 26% minority interest and an initial
estimate of $182.6 million of deferred additional ownership interests of Internet Brands in Henry Schein One,
representing up to an additional 9.2% ownership interests, a portion of which is contingent upon the achievement of
certain operating targets (See Note 9).

Note 21 – Subsequent Event

131

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

equity awards held by certain employees of Vets First Choice. After the Separation and the Merger, we no longer
beneficially owned any shares of Covetrus common stock and, following the Distribution Date, will not consolidate
the financial results of Covetrus for the purpose of our financial reporting. Following the Separation and the
Merger, Covetrus was an independent, publicly traded company on the Nasdaq Global Select Market.

132

ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

ITEM 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our principal executive officer and
principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this annual report as such term is defined in Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on
this evaluation, our management, including our principal executive officer and principal financial officer,
concluded that our disclosure controls and procedures were effective as of December 29, 2018 to ensure that all
material information required to be disclosed by us in reports that we file or submit under the Exchange Act is
accumulated and communicated to them as appropriate to allow timely decisions regarding required disclosure and
that all such information is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.

Changes in Internal Control over Financial Reporting

The combination of acquisitions, continued acquisition integrations and systems implementations undertaken

during the quarter and carried over from prior quarters, when considered in the aggregate, represents a material
change in our internal control over financial reporting.

During the quarter ended December 29, 2018, post-acquisition integration related activities continued for our

global dental, technology and animal health businesses acquired during prior quarters, representing aggregate
annual revenues of approximately $362 million. These acquisitions, the majority of which utilize separate
information and financial accounting systems, have been included in our consolidated financial statements since
their respective dates of acquisition.

Also, during the quarter ended December 29, 2018, post-implementation systems improvement activities
continued for a new equipment system implemented during prior quarters for our U.S. dental business representing
approximate aggregate annual revenues of $453 million.

All acquisitions integrations and systems implementations involved necessary and appropriate change-

management controls that are considered in our annual assessment of the design and operating effectiveness of our
internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system is designed to
provide reasonable assurance to our management and Board of Directors regarding the preparation and fair
presentation of published financial statements. Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-
Integrated Framework (2013), updated and reissued by the Committee of Sponsoring Organizations, or the COSO
Framework. Based on our evaluation under the COSO Framework, our management concluded that our internal
control over financial reporting was effective at a reasonable assurance level as of December 29, 2018.

The effectiveness of our internal control over financial reporting as of December 29, 2018 has been

independently audited by BDO USA, LLP, an independent registered public accounting firm, and their attestation is
included herein.

133

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the internal control system are met. Because of the inherent limitations of any
internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any,
within a company have been detected.

134

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors
Henry Schein, Inc.
Melville, NY

Opinion on Internal Control over Financial Reporting

We have audited Henry Schein Inc.’s (the “Company’s”) internal control over financial reporting as of

December 29, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 29,
2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board

(United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2018 and
December 30, 2017, the related consolidated statements of income, comprehensive income, stockholders’ equity,
and cash flows for each of the three years in the period ended December 29, 2018, and the related notes and
schedule and our report dated February 20, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
“Item 9A, Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

135

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ BDO USA, LLP
New York, NY
February 20, 2019

ITEM 10. Directors, Executive Officers and Corporate Governance

PART III

Information required by this item regarding our directors and executive officers and our corporate governance
is hereby incorporated by reference to the Section entitled “Election of Directors,” with respect to directors, and the
first paragraph of the Section entitled “Corporate Governance - Board of Directors Meetings and Committees -
Audit Committee,” with respect to corporate governance, in each case in our definitive 2019 Proxy Statement to be
filed pursuant to Regulation 14A and to the Section entitled “Executive Officers of the Registrant” in Part I of this
report, with respect to executive officers.

There have been no changes to the procedures by which stockholders may recommend nominees to our Board

of Directors since our last disclosure of such procedures, which appeared in our definitive 2018 Proxy Statement
filed pursuant to Regulation 14A on April 12, 2018.

Information required by this item concerning compliance with Section 16(a) of the Securities Exchange Act of

1934 is hereby incorporated by reference to the Section entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive 2019 Proxy Statement to be filed pursuant to Regulation 14A.

We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer, Chief

Accounting Officer and Controller. We make available free of charge through our Internet website,
www.henryschein.com, under the “About Henry Schein--Corporate Governance” caption, our Code of Ethics. We
intend to disclose on our Web site any amendment to, or waiver of, a provision of the Code of Ethics.

ITEM 11. Executive Compensation

The information required by this item is hereby incorporated by reference to the Sections entitled

“Compensation Discussion and Analysis,” “Compensation Committee Report” (which information shall be deemed
furnished in this Annual Report on Form 10-K), “Executive and Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in our definitive 2019 Proxy Statement to be filed pursuant to
Regulation 14A.

136

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters

We maintain several stock incentive plans for the benefit of certain officers, directors and employees. All

active plans have been approved by our stockholders. Descriptions of these plans appear in the notes to our
consolidated financial statements. The following table summarizes information relating to these plans as of
December 29, 2018:

Number of Common

Plan Category
Plans Approved by Stockholders ................
Plans Not Approved by Stockholders ..........
Total ................................................

Shares to be Issued Upon Weighted- Average Number of Common
Shares Available for
Exercise of Outstanding
Future Issuances
Options and Rights

Outstanding Options

Exercise Price of

2,000 $

17.22

6,518,438

The other information required by this item is hereby incorporated by reference to the Section entitled “Security

Ownership of Certain Beneficial Owners and Management” in our definitive 2019 Proxy Statement to be filed
pursuant to Regulation 14A.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is hereby incorporated by reference to the Section entitled “Certain

Relationships and Related Transactions” and “Corporate Governance – Board of Directors Meetings and
Committees – Independent Directors” in our definitive 2019 Proxy Statement to be filed pursuant to Regulation
14A.

ITEM 14. Principal Accounting Fees and Services

The information required by this item is hereby incorporated by reference to the Section entitled “Independent
Registered Public Accounting Firm Fees and Pre-Approval Policies and Procedures” in our definitive 2019 Proxy
Statement to be filed pursuant to Regulation 14A.

ITEM 15. Exhibits, Financial Statement Schedules
(a)
List of Documents Filed as a Part of This Report:

PART IV

1. Financial Statements:

Our Consolidated Financial Statements filed as a part of this report are listed on the index on
Page 77.

2. Financial Statement Schedules:

Schedule II – Valuation of Qualifying Accounts
No other schedules are required.

Index to Exhibits:
See exhibits listed under Item 15(b) below.

137

(b) Exhibits

2.1 Contribution and Distribution Agreement, dated as of April 20, 2018, by and among us, HS

Spinco, Inc., Direct Vet Marketing, Inc. and Shareholder Representative Services LLC.
(Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on April 23,
2018 (film no. 18767875).)*

2.2 Agreement and Plan of Merger, dated as of April 20, 2018, by and among us, HS Spinco, Inc,

HS Merger Sub, Inc., Direct Vet Marketing, Inc. and Shareholder Representative Services LLC.
(Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed on April 23,
2018 (film no. 18767875).)*

2.3 Letter Agreement, Amendment No. 1 to Contribution and Distribution Agreement and

Amendment No. 1 to Agreement and Plan of Merger, dated as of September 14, 2018, by and
among us, HS Spinco, Inc., HS Merger Sub, Inc., Direct Vet Marketing, Inc. and Shareholder
Representative Services LLC.+

2.4 Letter Agreement and Amendment No. 2 to Contribution and Distribution Agreement, dated as

of November 30, 2018, by and among us, HS Spinco, Inc., Direct Vet Marketing, Inc. and
Shareholder Representative Services LLC. +

2.5 Letter Agreement and Amendment No. 3 to Contribution and Distribution Agreement and

Amendment No. 2 to Agreement and Plan of Merger, dated as of December 25, 2018, by and
among us, HS Spinco, Inc., HS Merger Sub, Inc., Direct Vet Marketing, Inc. and Shareholder
Representative Services LLC.+

2.6 Letter Agreement and Amendment No. 4 to Contribution and Distribution Agreement, dated as
of January 15, 2019, by and among us, HS Spinco, Inc., Direct Vet Marketing, Inc. and
Shareholder Representative Services LLC.+

3.1 Second Amended and Restated Certificate of Incorporation of Henry Schein, Inc. (Incorporated
by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 1, 2018.)

3.2 Second Amended and Restated By-Laws of Henry Schein, Inc. (Incorporated by reference to

Exhibit 3.2 to our Current Report on Form 8-K filed on June 1, 2018.)

4.1 Second Amended and Restated Multicurrency Master Note Purchase Agreement dated as of
June 29, 2018, by and among us, Metropolitan Life Insurance Company, MetLife Investment
Advisors Company, LLC and each MetLife affiliate which becomes party thereto. (Incorporated
by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on July 2, 2018.)

4.2 Second Amended and Restated Master Note Facility dated as of June 29, 2018, by and among

us, NYL Investors LLC and each New York Life affiliate which becomes party thereto.
(Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on July 2,
2018.)

4.3 Second Amended and Restated Multicurrency Private Shelf Agreement dated as of June 29,

2018, by and among us, PGIM, Inc. and each Prudential affiliate which becomes party thereto.

138

(Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on July 2,
2018.)

10.1 Henry Schein, Inc. 1994 Stock Incentive Plan, as amended and restated effective as of March

27, 2007. (Incorporated by reference to Appendix A to our definitive 2007 Proxy Statement on
Schedule 14A filed on April 10, 2007.)**

10.2 Amendment Number One to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of

January 1, 2005. (Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K
for the fiscal year ended December 27, 2008 filed on February 24, 2009.)**

10.3 Amendment Number Two to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of
May 28, 2009. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended June 27, 2009 filed on August 4, 2009.)**

10.4 Amendment Number Three to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of
February 23, 2010. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form
10-Q for the fiscal quarter ended March 27, 2010 filed on May 4, 2010.)**

10.5 Amendment Number Four to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of
May 18, 2011. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended June 25, 2011 filed on August 2, 2011.)**

10.6 Amendment Number Five to the Henry Schein, Inc. 1994 Stock Incentive Plan, effective as of
May 18, 2011. (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended June 25, 2011 filed on August 2, 2011.)**

10.7 Henry Schein, Inc. 2013 Stock Incentive Plan, as amended and restated effective as of May 14,

2013. (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on
May 16, 2013.)**

10.8 Form of 2015 Restricted Stock Agreement for time-based restricted stock awards pursuant to

the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of May
14, 2013). (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for
the fiscal quarter ended March 28, 2015 filed on May 4, 2015.)**

10.9 Form of 2015 Restricted Stock Unit Agreement for time-based restricted stock awards pursuant
to the Henry Schein, Inc. 2013 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.3
to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 28, 2015 filed on May
4, 2015.)**

10.10 Form of 2016 Restricted Stock Agreement for time-based restricted stock awards pursuant to

10.11 Form of 2016 Restricted Stock Agreement for performance-based restricted stock awards

pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective

139

as of May 14, 2013). (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 26, 2016 filed on May 3, 2016.)**

10.12 Form of 2016 Restricted Stock Unit Agreement for time-based restricted stock awards pursuant

to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of
May 14, 2013). (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended March 26, 2016 filed on May 3, 2016.)**

10.13 Form of 2016 Restricted Stock Unit Agreement for performance-based restricted stock awards

pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective
as of May 14, 2013). (Incorporated by reference to Exhibit 10.4 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 26, 2016 filed on May 3, 2016.)**

10.14 Form of 2017 Restricted Stock Agreement for performance-based restricted stock awards

pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective
as of May 14, 2013). (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended April 1, 2017 filed on May 9, 2017.)**

10.15 Form of 2017 Restricted Stock Unit Agreement for time-based restricted stock awards pursuant

to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of
May 14, 2013). (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-
Q for the fiscal quarter ended April 1, 2017 filed on May 9, 2017.)**

10.16 Form of 2017 Restricted Stock Unit Agreement for performance-based restricted stock awards

pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective
as of May 14, 2013). (Incorporated by reference to Exhibit 10.3 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended April 1, 2017 filed on May 9, 2017.)**

10.17 Form of 2018 Restricted Stock Unit Agreement for time-based restricted stock unit awards

pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated effective as of
May 14, 2013). (Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 2018 filed on May 8, 2018.)**

10.18 Form of 2018 Restricted Stock Unit Agreement for performance-based restricted stock unit

awards pursuant to the Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated
effective as of May 14, 2013). (Incorporated by reference to Exhibit 10.5 to our Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2018 filed on May 8, 2018.)**

10.19 Form of 2018 Restricted Stock Unit Agreement for time-based restricted stock unit awards
pursuant to the Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan (as
amended and restated effective as of June 22, 2015). (Incorporated by reference to Exhibit 10.6
to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018 filed on May
8, 2018.)**

10.20 Henry Schein, Inc. 2015 Non-Employee Director Stock Incentive Plan. (Incorporated by

reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the fiscal quarter ended
June 27, 2015 filed on July 29, 2015.)**

140

10.21 Henry Schein, Inc. Supplemental Executive Retirement Plan, amended and restated effective as

of January 1, 2014. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended September 28, 2013 filed on November 5, 2013.)**

10.22 2001 Henry Schein, Inc. Section 162(m) Cash Bonus Plan effective as of June 6, 2001.

(Incorporated by reference to Appendix B to our definitive 2001 Proxy Statement on Schedule
14A filed on April 30, 2001.)**

10.23 Amendment Number One to the 2001 Henry Schein, Inc. Section 162(m) Cash Bonus Plan,
effective as of May 24, 2005. (Incorporated by reference to Exhibit B to our definitive 2005
Proxy Statement on Schedule 14A, filed on April 22, 2005.)**

10.24 Amendment Number Two to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan, effective

as of January 1, 2007. (Incorporated by reference to Exhibit 10.8 to our Annual Report on
Form 10-K for the fiscal year ended December 27, 2008 filed on February 24, 2009.)**

10.25 Amendment Number Three to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan effective
as of December 31, 2009. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended June 27, 2009 filed on August 4, 2009.)**

10.26 Amendment Number Four to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan, effective
as of May 14, 2013. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed on May 16, 2013.)**

10.27 Amendment Number Five to the Henry Schein, Inc. Section 162(m) Cash Bonus Plan, dated

May 31, 2017. (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K
filed on June 1, 2017.)**

10.28 Henry Schein, Inc. 2004 Employee Stock Purchase Plan, effective as of May 25, 2004.

(Incorporated by reference to Exhibit D to our definitive 2004 Proxy Statement on
Schedule 14A, filed on April 27, 2004.)**

10.29 Henry Schein, Inc. Non-Employee Director Deferred Compensation Plan, amended and restated

effective as of January 1, 2005. (Incorporated by reference to Exhibit 10.11 to our Annual
Report on Form 10-K for the fiscal year ended December 27, 2008 filed on February 24,
2009.)**

10.30 Henry Schein, Inc. Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.23 to
our Annual Report on Form 10-K for the fiscal year ended December 25, 2010 filed on
February 22, 2011.)**

10.31 Amendment to the Henry Schein, Inc. Deferred Compensation Plan. (Incorporated by reference

to Exhibit 10.26 to our Annual Report on Form 10-K for the fiscal year ended December 31,
2011 filed on February 15, 2012.)**

10.32 Amendment Number Two to the Henry Schein, Inc. Deferred Compensation

Plan. (Incorporated by reference to Exhibit 10.20 to our Annual Report on Form 10-K for the
fiscal year ended December 28, 2013 filed on February 11, 2014.)**

141

10.33 Amendment Number Three to the Henry Schein, Inc. Deferred Compensation Plan.

(Incorporated by reference to Exhibit 10.21 to our Annual Report on Form 10-K for the fiscal
year ended December 28, 2013 filed on February 11, 2014.)**

10.34 Amendment Number Four to the Henry Schein, Inc. Deferred Compensation Plan.

(Incorporated by reference to Exhibit 10.46 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2016 filed on February 21, 2017.)**

10.35 Henry Schein Management Team Performance Incentive Plan and Plan Summary, effective as

of January 1, 2014. (Incorporated by reference to Exhibit 10.7 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended March 29, 2014 filed on May 6, 2014.)**

10.36 Amended and Restated Employment Agreement dated as of December 31, 2016, by and

between us and Stanley M. Bergman. (Incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K filed on April 7, 2016.)**

10.37 Form of Performance-Based RSU Award Agreement for Stanley M. Bergman pursuant to the
Henry Schein, Inc. 2013 Stock Incentive Plan (as amended and restated as of May 14, 2013).
(Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed on April 7,
2016.)**

10.38 Form of Time-Based RSU Award Agreement for Stanley M. Bergman pursuant to the Henry

Schein, Inc. 2013 Stock Incentive Plan (as amended and restated as of May 14, 2013).
(Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on April 7,
2016.)**

10.39 Employment Agreement dated as of April 5, 2016, by and between us and Karen Prange.

(Incorporated by reference to Exhibit 10.52 to our Annual Report on Form 10-K for the fiscal
year ended December 31, 2016 filed on February 21, 2017.)**

10.40 Confidentiality and Non-Solicitation/Non-Compete Agreement dated as of April 5, 2016, by
and between us and Karen Prange.(Incorporated by reference to Exhibit 10.53 to our Annual
Report on Form 10-K for the fiscal year ended December 31, 2016 filed on February 21,
2017.)**

10.41 Release, dated April 23, 2018, between us and Karen Prange. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 23, 2018 (film no.
18767936).)**

10.42 Form of Amended and Restated Change in Control Agreement dated December 12, 2008

between us and certain executive officers who are a party thereto (Gerald Benjamin, James
Breslawski, Michael S. Ettinger, Mark Mlotek and Steven Paladino, respectively). (Incorporated
by reference to Exhibit 10.15 to our Annual Report on Form 10-K for the fiscal year ended
December 27, 2008 filed on February 24, 2009.)**

10.43 Form of Amendment to Amended and Restated Change in Control Agreement effective January

1, 2012 between us and certain executive officers who are a party thereto (Gerald Benjamin,
James Breslawski, Michael S. Ettinger, Mark Mlotek and Steven Paladino, respectively).

142

(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on January
20, 2012.)**

10.44 Credit Agreement, dated as of April 18, 2017, among the Company, the several lenders parties

thereto, JPMorgan Chase Bank, N.A., as administrative agent, joint lead arranger and joint
bookrunner, U.S. Bank National Association, as syndication agent, joint lead arranger and joint
bookrunner, together with the exhibits and schedules thereto. (Incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 19, 2017.)

10.45 First Amendment, dated as of June 29, 2018, among us, the several lenders parties thereto, and

JPMorgan Chase Bank, N.A., as administrative agent, lead arranger and lead bookrunner.
(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on July 2,
2018.)

10.46 Promissory Note in favor of JPMorgan Chase Bank, N.A. dated as of May 21, 2018.

(Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on May 21,
2018.)

10.47 Receivables Purchase Agreement, dated as of April 17, 2013, by and among us, as servicer,

HSFR, Inc., as seller, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as agent and the various
purchaser groups from time to time party thereto. (Incorporated by reference to Exhibit 10.1 to
our Current Report on Form 8-K filed on April 19, 2013.)

10.48 Amendment No. 1 dated as of September 22, 2014 to the Receivables Purchase Agreement,
dated as of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, The Bank of
Tokyo-Mitsubishi UFJ, LTD., New York Branch, as agent and the various purchaser groups
from time to time party thereto, as amended. (Incorporated by reference to Exhibit 10.2 to our
Current Report on Form 8-K filed on September 26, 2014.)

10.49 Amendment No. 2 dated as of April 17, 2015 to Receivables Purchase Agreement, dated as of

April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The Bank of
Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various purchaser groups
party thereto. (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended June 25, 2016 filed on August 4, 2016.)

10.50 Amendment No. 3 dated as of June 1, 2016 to Receivables Purchase Agreement, dated as of

April 17, 2013, by and among us, as performance guarantor, HSFR, Inc., as seller, The Bank of
Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as agent and the various purchaser groups
party thereto. (Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended June 25, 2016 filed on August 4, 2016.)

10.51 Amendment No. 4 dated as of July 6, 2017 to Receivables Purchase Agreement, dated as of

143

10.52 Receivables Sale Agreement, dated as of April 17, 2013, by and among us, certain of our

wholly-owned subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on April 19, 2013.)

10.53 Omnibus Amendment No. 1, dated July 22, 2013, to Receivables Purchase Agreement dated as

of April 17, 2013, by and among us, as servicer, HSFR, Inc., as seller, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., as agent, and the various purchaser groups from time to time party thereto
and Receivables Sales Agreement, dated as of April 17, 2013, by and among us, certain of our
wholly-owned subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to Exhibit
10.5 to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2013 filed on
August 6, 2013.)

10.54 Omnibus Amendment No. 2, dated April 21, 2014, to Receivables Purchase Agreement dated as
of April 17, 2013, as amended, by and among us, as servicer, HSFR, Inc., as seller, The Bank of
Tokyo-Mitsubishi UFJ, Ltd., as agent, and the various purchaser groups from time to time party
thereto and Receivables Sales Agreement, dated as of April 17, 2013, by and among us, certain
of our wholly-owned subsidiaries and HSFR, Inc., as buyer. (Incorporated by reference to
Exhibit 10.8 to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2014
filed on May 6, 2014.)

10.55 Form of Indemnification Agreement between us and certain directors and executive officers

who are a party thereto (Barry J. Alperin, Ph.D., Paul Brons, Shira Goodman,Joseph L. Herring,
Kurt P. Kuehn, Philip A. Laskawy, Anne H. Margulies,Carol Raphael, E. Dianne Rekow, DDS,
Ph.D., Bradley T. Sheares, Ph.D., Gerald A. Benjamin, Stanley M. Bergman, James P.
Breslawski, Michael S. Ettinger, Mark E. Mlotek, Steven Paladino, and Walter Siegel,
respectively). (Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q
for the fiscal quarter ended September 26, 2015 filed on November 4, 2015.)**

21.1 List of our Subsidiaries.+

23.1 Consent of BDO USA, LLP.+

31.1 Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002.+

31.2 Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act

of 2002.+

32.1 Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906

of the Sarbanes-Oxley Act of 2002.+

101.INS XBRL Instance Document+

101.SCH XBRL Taxonomy Extension Schema Document+

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document+

101.DEF XBRL Taxonomy Extension Definition Linkbase Document+

144

101.LAB XBRL Taxonomy Extension Label Linkbase Document+

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document+

_________

+ Filed herewith.

* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby agrees to furnish supplementally a copy of any of the omitted schedules and exhibits upon request
by the U.S. Securities and Exchange Commission.

** Indicates management contract or compensatory plan or agreement.

ITEM 16. Form 10-K Summary

None.

145

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Henry Schein, Inc.

By: /s/ STANLEY M. BERGMAN
Stanley M. Bergman
Chairman and Chief Executive Officer
February 20, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Capacity

/s/ STANLEY M. BERGMAN
Stanley M. Bergman

/s/ STEVEN PALADINO
Steven Paladino

/s/ JAMES P. BRESLAWSKI
James P. Breslawski

/s/ GERALD A. BENJAMIN
Gerald A. Benjamin

/s/ MARK E. MLOTEK
Mark E. Mlotek

/s/ BARRY J. ALPERIN
Barry J. Alperin

/s/ PAUL BRONS
Paul Brons

/s/ SHIRA GOODMAN
Shira Goodman

/s/ JOSEPH L. HERRING
Joseph L. Herring

/s/ KURT P. KUEHN
Kurt P. Kuehn

/s/ PHILIP A. LASKAWY
Philip A. Laskawy

/s/ ANNE H. MARGULIES
Anne H. Margulies

/s/ CAROL RAPHAEL
Carol Raphael

/s/ E. DIANNE REKOW
E. Dianne Rekow, DDS, Ph.D.

/s/ BRADLEY T. SHEARES, PH. D.
Bradley T. Sheares, Ph. D.

Chairman, Chief Executive Officer
and Director (principal executive officer)

Executive Vice President, Chief Financial
Officer and Director (principal financial and
accounting officer)

Director

146

Date

February 20, 2019

Schedule II

Valuation and Qualifying Accounts

(in thousands)

Additions

Balance at Charged to Charged to
beginning of statement of

other

Balance at

end of

Description

period

income (1)

accounts (2) Deductions (3)

period

Year ended December 29, 2018:

Allowance for doubtful accounts
and other ................................... $

Year ended December 30, 2017:

Allowance for doubtful accounts
and other ................................... $

Year ended December 31, 2016:

Allowance for doubtful accounts
and other ................................... $

(1) Represents amounts charged to bad debt expense.

53,832 $

15,105 $

(700)

(7,704) $

60,533

38,962 $

9,370 $

12,206

(6,706) $

53,832

30,974 $

2,647 $

11,576

(6,235) $

38,962

(2) Amounts charged to other accounts primarily relate to provision for late fees and the impact of foreign currency exchange rates.

(3) Deductions primarily consist of fully reserved accounts receivable that have been written off.

147