HENRY SCHEIN 2006AnnualReport

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HENRY SCHEIN 2006AnnualReport

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

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