UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.

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

For the fiscal year ended December 29, 2007

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

HENRY SCHEIN, INC.

DELAWARE		135 Duryea Road
(State or other jurisdiction of		Melville, New York
incorporation or organization)		(Address of principal executive offices)
11-3136595		11747
(I.R.S. Employer Identification No.)		(Zip Code)

Title of each class		Name of each exchange on which registered
Common Stock, par value $.01 per share		The Nasdaq Stock Market

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

YES: þ      NO: o

     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: o      NO: þ

     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: þ      NO: o

     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. þ

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

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

YES: o      NO: þ

     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 National Market on June 30, 2007 was approximately $4,758,604,000.

     As of February 15, 2008, there were 89,628,700 shares of registrant’s Common Stock, par value $.01 per share, outstanding.

Documents Incorporated by Reference:

     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, 2007) are incorporated by reference in Part III hereof.

 

 

TABLE OF CONTENTS

				Page
				Number
PART I
ITEM 1.		Business		3
ITEM 1A.		Risk Factors		14
ITEM 1B.		Unresolved Staff Comments		20
ITEM 2.		Properties		21
ITEM 3.		Legal Proceedings		21
ITEM 4.		Submission of Matters to a Vote of Security Holders		22
PART II
ITEM 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		22
ITEM 6.		Selected Financial Data		25
ITEM 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
ITEM 7A.		Quantitative and Qualitative Disclosures About Market Risk		45
ITEM 8.		Financial Statements and Supplementary Data		47
ITEM 9.		Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		87
ITEM 9A.		Controls and Procedures		87
ITEM 9B.		Other		90
PART III
ITEM 10.		Directors, Executive Officers and Corporate Governance		90
ITEM 11.		Executive Compensation		90
ITEM 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		91
ITEM 13.		Certain Relationships and Related Transactions, and Director Independence		91
ITEM 14.		Principal Accountant Fees and Services		91
PART IV
ITEM 15.		Exhibits and Financial Statement Schedules		92
		Signatures		93
		Exhibit Index		96
EX-10.8: PERFORMANCE INCENTIVE PLAN
EX-10.13: AMENDMENT TO LETTER AGREEMENT
EX-10.14: AMENDMENT TO LETTER AGREEMENT
EX-21.1: SUBSIDIARIES
EX-23.1: CONSENT OF BDO SEIDMAN LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

PART I

ITEM 1. Business

General

     We believe we are the largest distributor of healthcare products and services primarily to office-based healthcare practitioners in the combined North American and European markets. We serve more than 550,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions. We believe that we have a strong brand identity due to our more than 75 years of experience distributing healthcare products.

     We are headquartered in Melville, New York, employ more than 12,000 people (of which over 5,000 are based outside of the United States) and have operations in the United States, Australia, Austria, Belgium, Canada, the Czech Republic, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Spain, Switzerland and the United Kingdom. We also have affiliates in Iceland, Israel and the United Arab Emirates.

     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: healthcare distribution and technology. These segments offer different products and services to the same customer base. The healthcare distribution reportable segment aggregates our dental, medical (including animal health) and international operating segments. This segment consists of consumable products, small equipment, laboratory products, large dental and medical equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

     Our dental group serves approximately 85% of the estimated 136,000 office-based dental practices in the combined United States and Canadian dental market. Based upon an estimated $6.0 billion combined United States and Canadian dental market, we estimate our share of this market was approximately 40% in 2007.

     Our medical group serves approximately 45% of the estimated 250,000 office-based physician practices, as well as surgical centers and other alternate-care settings throughout the United States. We also serve over 75% of the estimated 27,000 animal health clinics in the United States. Based upon an estimated $9.0 billion combined market, we estimate our share of this market was approximately 17% in 2007.

     Our international group serves approximately 240,000 practices in 18 countries outside of North America and is what we believe to be a leading European healthcare supplier serving office-based practices. Based upon an estimated $10.5 billion European combined dental, medical and animal health market in which we operate, we estimate our share of this market was approximately 17% in 2007.

     Our technology group provides software, technology and other value-added services to healthcare practitioners, primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our value-added practice solutions include practice-management software systems for dental and medical practitioners and animal health clinics. Our technology group offerings also include financial services and continuing education services for practitioners.

Industry

     The healthcare products distribution industry, as it relates to office-based healthcare practitioners, is highly fragmented and diverse. This industry, which encompasses the dental, medical and animal health markets, was estimated to produce revenues of approximately $25.5 billion in 2007 in the combined North American and European markets. The industry ranges from sole practitioners working out of relatively small offices to group practices or service organizations ranging in size from a few practitioners to a large number of practitioners who have combined or otherwise associated their practices.

     Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of supplies in their offices, the distribution of healthcare supplies and small equipment to office-based healthcare 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 healthcare 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 healthcare products distribution industry continues to experience growth due to the aging population, increased healthcare awareness, the proliferation of medical technology and testing, new pharmacology treatments and expanded third-party insurance coverage. In addition, the physician market continues to benefit from the shift of procedures and diagnostic testing from acute-care settings (or hospitals) to alternate-care sites, particularly physicians’ offices. As the cosmetic surgery and elective procedure markets continue to grow, physicians are increasingly performing more of these procedures in their offices. The elder-care market continues to benefit from the increasing growth rate of the population of elderly Americans.

     We believe that consolidation within the industry will continue to result in a number of distributors, particularly those with limited financial and marketing resources, seeking to combine with larger companies that can provide growth opportunities. This consolidation 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.

Competition

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

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

     We also face significant competition internationally, where we compete on the basis of price and customer service against several large competitors, including the GACD Group, Pluradent AG & Co., Planmeca Oy, Omega Pharma NV and Billericay Dental Supply Co. Ltd., as well as a large number of dental, medical and animal health product distributors and manufacturers in Australia, Austria, Belgium, the Czech Republic, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Spain, Switzerland, 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 operating results.

Competitive Strengths

     We have more than 75 years of experience in distributing products to healthcare practitioners resulting in strong awareness of the “Henry Schein” name. Our competitive strengths include:

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

•

Field sales consultants. We have approximately 2,600 field sales consultants, including equipment sales specialists, covering major North American and 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 2007, we distributed more than 34 million pieces of direct marketing material, including catalogs, flyers, order stuffers and other promotional materials to existing and potential office-based healthcare customers.

•

Telesales. We support our direct marketing effort with approximately 1,450 inbound and outbound telesales representatives, who facilitate order processing and generate new sales through direct and frequent contact with customers.

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 90,000 Stock Keeping Units, or SKUs, to our customers. Of the SKUs offered, approximately 44,000 are offered to our dental customers, approximately 37,000 to our medical customers and approximately 23,000 to our animal health customers. We offer over 100,000 additional SKUs to our customers in the form of special order items.

•

Technology and other value-added products and services. We sell practice management software systems to our dental, medical and animal health customers. Our practice management software solutions provide practitioners with patient treatment history, billing, accounts receivable analyses and management, appointment calendars, electronic claims processing and word processing programs. As of December 29, 2007, we have an installed user base of more than 52,000 practices, including Dentrix®, Easy Dental®, Oasis® and EXACT® for dental practices, MicroMD® for physician practices and AVImark® for animal health clinics.

•

Repair services. We have 183 equipment sales and service centers worldwide that provide a variety of repair, installation and technical services for our healthcare customers. Our technicians provide installation and repair services for dental handpieces; dental, medical and animal health small equipment; table top sterilizers; and large dental equipment.

•

Financial services. We offer our customers assistance in operating their practices by providing access to a number of financial services and products at rates that we believe are generally lower than what they would be able to secure independently.

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. Approximately 99% of items ordered in the United States and Canada 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 healthcare products. We continuously evaluate our purchase requirements and suppliers’ offerings and prices in order to obtain products at the lowest possible cost. In 2007, our top 10 healthcare distribution suppliers and our single largest supplier accounted for approximately 32% and 9%, 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 healthcare distribution and technology reportable segments:

		2007				2006 (1)				2005 (1)
Healthcare Distribution
Dental:
Consumable dental products, dental laboratory products and small equipment (2)			46.0	%			46.4	%			48.1	%
Large dental equipment (3)			18.2				18.9				17.4
Total dental			64.2				65.3				65.5
Medical:
Medical products (4)			27.1				28.7				28.9
Animal health products (5)			6.5				4.1				3.7
Total medical			33.6				32.8				32.6
Total Healthcare Distribution			97.8				98.1				98.1
Technology
Software and related products and other value-added products (6)			2.2				1.9				1.9
Total			100.0	%			100.0	%			100.0	%

Business Strategy

     Our objective is to continue to expand as a value-added distributor of healthcare products and services to office-based healthcare practitioners. To accomplish this, we will apply our competitive strengths in executing the following strategies:

•

Increase penetration of our existing customer base. We intend to increase sales to our existing customer base and enhance our position as their primary supplier. In the North American dental market, total consumable sales per practitioner are estimated to be approximately $34,000, compared to our average dental customer’s sales of approximately $13,500 (or 40%). In the U.S. medical market, total sales per practitioner are estimated to be approximately $12,000, compared to our average U.S. medical customer’s sales of approximately $5,400 (or 45%). In the European dental market, total sales per practitioner are estimated to be approximately $31,000, compared to our average European dental customer’s sales of approximately $8,000 (or 26%).

•

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.

•

Leverage our value-added products and services. We intend to increase cross-selling efforts for key product lines. 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 medical distribution customers, as well as cross-selling core products and practice management software with these key products. In the animal health business, we have opportunities to sell several major new pharmaceutical lines to existing customers, as well as cross-selling opportunities.

•

Pursue strategic acquisitions and joint ventures. Our acquisition strategy includes acquiring entities with businesses 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 networks of field sales consultants and an opportunity to further expand internationally.

Markets Served

     Demographic trends indicate that our markets are growing, as an aging U.S. population is increasingly using healthcare services. Between 2007 and 2017, the 45 and older population is expected to grow by approximately 17%. Between 2007 and 2027, this age group is expected to grow by approximately 30%. This compares with expected total U.S. population growth rates of approximately 9% between 2007 and 2017 and approximately 18% between 2007 and 2027.

     In the dental industry, there is predicted to be a rise in oral healthcare expenditures as the 45 and older segment of the population increases. Cosmetic dentistry is another growing aspect of dental practices as new technologies allow dentists to offer cosmetic solutions that patients seek. At the same time, there is an increase in dental insurance coverage. Approximately 57% of the U.S. population now has some form of dental coverage, up from 49% in 1996.

     We support our dental professionals through the many SKUs that we offer, as well as through important value-added services, including practice management software, electronic claims processing, financial services and continuing education, all designed to help maximize a practitioner’s efficiency.

     There continues to be a migration of procedures from acute-care settings (or hospitals) to physicians’ offices, a trend that 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.

     We believe our international group is a leading European healthcare supplier servicing office-based dental, medical and animal health practices. We are in the process of implementing SAP software across continental Europe. Additionally, we are expanding our dental full-service model and our animal health presence throughout Europe, as well as 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 200 countries around the world.

     For information on revenues and long-lived assets by geographic area, see Note 10 of “Notes to Consolidated Financial Statements,” which is incorporated herein by reference.

Seasonality and Other Factors Affecting Our Business and Quarterly Results

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

     Our business is subject to seasonal and other quarterly fluctuations. Net sales and operating profits generally have been higher in the third and fourth quarters due to the timing of sales of seasonal products (including influenza vaccine, equipment and software products), purchasing patterns of office-based

healthcare practitioners and year-end promotions. Net sales and operating profits generally have been lower in the first quarter, primarily due to increased sales in the prior two quarters. Quarterly results also may be adversely affected by a variety of other factors, including:

	•		costs of developing new applications and services;
	•		costs related to acquisitions and/or integrations of technologies or businesses;
	•		timing and amount of sales and marketing expenditures;
	•		loss of sales representatives;
	•		general economic conditions, as well as those specific to the healthcare industry and related industries;
	•		timing of the release of functions of our technology-related products and services;
	•		our success in establishing or maintaining business relationships;
	•		changes in accounting principles;
	•		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; and
	•		increases in the cost of shipping or service trouble with our third-party shippers.

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

Governmental Regulations

     Our business is subject to requirements under various local, state, federal and foreign governmental laws and regulations applicable to the distribution of pharmaceuticals and medical devices. Among the federal laws applicable to us are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended, the Prescription Drug Marketing Act of 1987, and comparable foreign regulations.

     The Federal Food, Drug, and Cosmetic Act generally regulates the introduction, manufacture, advertising, labeling, packaging, storage, handling, reporting, marketing and distribution of, and record keeping for, pharmaceuticals and medical devices shipped in interstate commerce.

     The Prescription Drug Marketing Act of 1987, which amended the Federal Food, Drug, and Cosmetic Act, establishes certain requirements applicable to the wholesale distribution of prescription drugs, including the requirement that wholesale drug distributors be licensed by each state in which they conduct business, provide certain drug pedigree information on the distribution of prescription drugs and act in accordance with federally established guidelines on storage, handling and record maintenance.

     Under the Controlled Substances Act, as a distributor of controlled substances, we are required to obtain a registration annually from the United States Drug Enforcement Administration and are subject to other regulatory requirements relating to the handling of such drugs, in accordance with specified rules and regulations. We are subject to inspection by the United States Drug Enforcement Administration.

     Certain of our businesses are required to register for permits and/or licenses with, and comply with operating and security standards of, the United States Drug Enforcement Administration, United States Food and Drug Administration, the Department of Health and Human Services, and various state boards of pharmacy, state health departments and/or comparable state agencies as well as 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, or own pharmacy operations. The United States Drug Enforcement Administration, the United States Food and Drug Administration and state regulatory authorities have broad enforcement powers, including the ability to seize or order the recall of products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. Our customers are also subject to significant federal, state, local and foreign governmental regulation.

     Certain of our businesses are subject to federal and state (and similar foreign) healthcare fraud and abuse, referral and reimbursement laws and regulations with respect to their operations. Such laws prohibit, among other things, persons from 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 government health care programs. The fraud and abuse laws and regulations are subject to frequent modification and varied interpretation. Certain of our businesses also maintain contracts with the governments and are subject to certain regulatory requirements relating to government contractors.

     Certain of our businesses are subject to various additional federal, state, local and foreign laws and regulations, including with respect to the sale, transportation, handling and disposal of hazardous or potentially hazardous substances. In recent years, some states have passed or proposed laws and regulations that are intended to protect the integrity of the supply channel. For example, Florida and other states are implementing drug pedigree requirements that require that prescription drugs be distributed with records or information documenting the prior distribution of the drug, back to the manufacturers. Effective January 1, 2009, California will require the implementation of an electronic drug pedigree system that provides track and trace chain of custody technologies, such as radio frequency identification, or RFID, technologies. There have been increasing efforts by various levels of government to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit, adulterated or misbranded pharmaceuticals into the distribution system. At the federal level, the United States Food and Drug Administration issued final regulations pursuant to the Prescription Drug Marketing Act that became effective in December 2006. The regulations impose drug pedigree and other chain of custody requirements that increase the costs and/or burden to us of selling our products and handling product returns. In early December 2006, the federal District Court for the Eastern District of New York issued a preliminary injunction, enjoining the implementation of some of the federal drug pedigree requirements, in response to a case initiated by secondary distributors. On February 1, 2007, the United States Department of Health and Human Services and the United States Food and Drug Administration appealed this decision to the federal Court of Appeals for the Second Circuit. We cannot predict the ultimate outcome of this legal proceeding. Moreover, the United States Food and Drug Administration Amendments Act of 2007, which went into effect on September 27, 2007, requires the United States Food and Drug Administration to establish standards and identify and validate effective technologies for the purpose of securing the pharmaceutical supply chain against counterfeit drugs. These standards include any track and trace or authentication technologies, such as RFID and other technologies. The United States Food and Drug Administration must develop a standardized numerical identifier by April 1, 2010.

     In addition, United States and international import and export laws and regulations require us to abide by certain standards relating to the importation and exportation of products. Certain of our businesses also may be subject to requirements relating to the protection and privacy of health or other personal information. We also are subject to certain laws and regulations concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act and anti-bribery laws and laws pertaining to the accuracy of our internal books and records.

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

     See “ITEM 1A. Risk Factors” for a discussion of additional regulatory developments that may affect our results of operations and financial condition.

Proprietary Rights

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

Employees

     As of December 29, 2007, we employed more than 12,000 full-time employees, including approximately 1,450 telesales representatives, 2,600 field sales consultants, including equipment sales specialists, 2,150 warehouse employees, 450 computer programmers and technicians, 1,100 management employees and 4,300 office, clerical and administrative employees. Approximately 224 or 1.9% of our employees were subject to collective bargaining agreements. We believe that our relations with our employees are excellent.

Available Information

     We make available free of charge through our Internet Web site, www.henryschein.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements of beneficial ownership of securities on Forms 3, 4 and 5 and amendments to these reports and statements filed or furnished pursuant to Section 13(a) and Section 16 of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC.

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

     Our principal executive offices are located at 135 Duryea Road, Melville, New York 11747, and our telephone number is (631) 843-5500. Unless the context specifically requires otherwise, the terms the “Company,” “Henry Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware corporation, and its consolidated subsidiaries.

Executive Officers of the Registrant

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

Name		Age		Position
Stanley M. Bergman		58		Chairman, Chief Executive Officer, Director
Gerald A. Benjamin		55		Executive Vice President, Chief Administrative Officer, Director
James P. Breslawski		54		President, Chief Operating Officer, Director
Leonard A. David		59		Senior Vice President, Chief Compliance Officer
James Harding		52		Senior Vice President, Corporate Chief Technology Officer
Stanley Komaroff		72		Senior Advisor
Mark E. Mlotek		52		Executive Vice President, Corporate Business Development, Director
Steven Paladino		50		Executive Vice President, Chief Financial Officer, Director
Michael Racioppi		53		Senior Vice President, Chief Merchandising Officer
Michael Zack		55		President, International Group

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

     Gerald A. Benjamin has been our Executive Vice President and Chief Administrative Officer since 2000 and a director since 1994. Prior to holding his current position, Mr. Benjamin was Senior Vice President of Administration and Customer Satisfaction since 1993. Mr. Benjamin was Vice President of Distribution Operations from 1990 to 1992 and Director of Materials Management from 1988 to 1990. Before joining us in 1988, Mr. Benjamin was employed for 13 years in various management positions at Estée Lauder, Inc., where his last position was Director of Materials Planning and Control.

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

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

     James Harding has been Corporate Chief Technology Officer of the Company since May 2005 and Senior Vice President since October 2001. Prior to holding his current position, Mr. Harding was Chief Information Officer since October 2001, with primary responsibility for worldwide information technology.

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

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

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

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

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

ITEM 1A. Risk Factors

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

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

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

     The healthcare industry is highly regulated and subject to changing political, economic and regulatory influences. In recent years, the healthcare industry has undergone significant change driven by various efforts to reduce costs, including the reduction of spending budgets by government and private insurance programs, such as Medicare, Medicaid and corporate health insurance plans; pressures relating to potential healthcare reform; trends toward managed care; consolidation of healthcare distribution companies; consolidation of healthcare manufacturers; collective purchasing arrangements among office-based healthcare practitioners; and changes in reimbursements to customers. Both our own profit margins and the profit margins of our customers may be adversely affected by laws and regulations reducing reimbursement rates for pharmaceuticals and/or medical treatments or services or changing the methodology by which reimbursement levels are determined. If we are unable to react effectively to these and other changes in the healthcare industry, our operating results could be adversely affected. In addition, the enactment of any significant healthcare reforms could have a material adverse effect on our business.

Failure to comply with existing and future regulatory requirements could negatively 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. Among the federal laws with which we must comply are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic Act, as amended and the Prescription Drug Marketing Act of 1987. Such laws:

•

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

•

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

•

regulate the transportation of certain of our products that are considered hazardous materials;

•

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

•

require recordkeeping and documentation of transactions involving drug products;

•

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 or medical device causes serious illness, injury or death.

     Applicable federal, state and local laws and regulations also may require us to meet various standards relating to, among other things, licensure or registration, sales and marketing practices, product integrity and supply tracking to the manufacturer of the product, personnel, privacy of health or other personal information and the importation and exportation of products. Our business also is subject to requirements of similar and other foreign governmental laws and regulations affecting our operations abroad.

     The failure to comply with any of these regulations, or new interpretations of existing laws and regulations, or the imposition of any additional laws and regulations, could negatively affect our business. There can be no assurance that current government regulations will not adversely affect our business. The costs to us associated with complying with the various applicable statutes and regulations, as they now exist and as they may be modified, could be material. Allegations by a governmental body that we have not complied with these laws could have a material adverse impact on our businesses. If it is determined that we have not complied with these laws, or 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 or our ability to participate in government healthcare programs. Any of the foregoing could have a material adverse impact on our businesses. We believe that the healthcare services industry will continue to be subject to extensive domestic and foreign government regulation and that we have adequate compliance programs and controls in place to ensure substantial compliance with the laws and regulations.

If we fail to comply with laws and regulations in respect to healthcare fraud, we could suffer penalties or be required to make significant changes to our operations.

     We are subject to extensive and frequently changing federal and state laws and regulations relating to healthcare fraud. The federal government continues to strengthen its position and scrutiny over practices involving healthcare fraud affecting government healthcare programs. Our relationships with pharmaceutical manufacturers and healthcare providers subject our business to laws and regulations on fraud and abuse which, among other things, (i) prohibit persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a patient for treatment or to induce the ordering, purchasing, leasing or arranging for or recommending ordering, purchasing or leasing of items or services that are in any way paid for by government-sponsored healthcare programs and (ii) impose a number of restrictions upon referring physicians and providers of designated health services under government healthcare programs. While we believe that we are substantially compliant with all applicable laws, many of the regulations applicable to us are vague or indefinite and have not been interpreted by the courts. They 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. If we fail to comply with applicable laws and regulations, we could suffer civil and criminal penalties, including the loss of licenses or our ability to participate in federal and state healthcare programs.

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

     International operations are subject to risks that may materially adversely affect our business, results of operations and financial condition. The risks that our international 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;

•

unexpected difficulties in importing or exporting our products;

•

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

•

unexpected regulatory, economic and political changes in foreign markets.

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

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

•

costs of developing new applications and services;

•

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

•

timing and amount of sales and marketing expenditures;

•

loss of sales representatives;

•

general economic conditions, as well as those specific to the healthcare industry and related industries;

•

timing of the release of functions of our technology-related products and services;

•

our success in establishing or maintaining business relationships;

•

changes in accounting principles;

•

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; and

•

increases in the cost of shipping or service trouble with our third-party shippers.

     Any change in one or more of these or other factors could cause our annual or quarterly operating results to fluctuate. If our operating results do not meet market expectations, our stock price may decline.

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

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

Our expansion through acquisitions and joint ventures involves risks.

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

•

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

•

requires significant management attention; and

•

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

     There can be no assurance that our future acquisitions or joint ventures will be successful. Our ability to continue to successfully effect acquisitions and joint ventures will depend upon the following:

•

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

•

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

•

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

•

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

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

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

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

     Our business involves a risk of product liability and other claims in the ordinary course of business, and from time to time we are named as a defendant in cases as a result of our distribution of pharmaceutical products, medical devices and other healthcare products. Additionally, we own a majority interest in a company that manufactures dental implants and we are subject to the potential risk of product liability or other claims relating to the manufacture of products by that entity. One of the potential risks we face in the distribution of our products is liability resulting from counterfeit products infiltrating the supply chain. In addition, some of the products that we transport and sell are considered hazardous materials. The improper handling of such materials or accidents involving the transportation of such materials could subject us to liability. We have various insurance policies, including product liability insurance, covering risks and in amounts that we consider adequate. In many cases in which we have been sued in connection with products manufactured by others, the manufacturer of the product provides us with indemnification. There can be no assurance that the insurance coverage we maintain is sufficient or will be available in adequate amounts or at a reasonable cost, or that indemnification agreements will provide us with adequate protection. A successful claim brought against us in excess of available insurance or not covered by indemnification agreements, or any claim that results in significant adverse publicity against us, could have an adverse effect on our business.

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; and

•

our ability to provide ongoing technical support.

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

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

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

Our future success is substantially dependent upon our senior management.

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

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

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

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

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

We are exposed to the risk of an increase in interest rates.

     In 2003, we entered into interest rate swap agreements to exchange our fixed-rate interest rates for variable interest rates payable on our $190.0 million senior notes. Our fixed interest rates on the senior notes were 6.9% and 6.7% for the $130.0 million and $60.0 million senior notes, respectively. The variable rate is comprised of LIBOR plus the spreads and resets on the interest due dates for the senior notes. As a result of these interest rate swap agreements, as well as our existing variable rate credit lines and loan agreements, we are exposed to risk from fluctuations in interest rates.

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

     The market price for our common stock may be highly volatile. A variety of factors may have a significant impact on the market price of our common stock, including:

•

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

•

changes in our industry and competitors;

•

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

•

stock repurchases;

•

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

•

the dilutive impact of convertible debt on our earnings per share;

•

general market and economic conditions; and

•

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

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

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:

•

remove a director; and

•

to amend or repeal our by-laws, with certain limited exceptions.

     In addition, our 1994 Stock Incentive Plan, 1996 Non-Employee Director Stock Incentive Plan and 2001 Non-Employee Director Incentive Plan provide for accelerated vesting of stock options upon a change in control, and certain agreements between us and our executive officers provide for increased severance payments if those executive officers are terminated without cause within two years after a change in control.

     We also have a stockholder rights plan that could make it more difficult for a third party to acquire us if our Board of Directors does not determine that the acquisition proposal is adequate and in the stockholders’ best interest.

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

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

Item 1B. Unresolved Staff Comments

     We have no unresolved comments from the staff of the United States Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2007 fiscal year.

ITEM 2. Properties

     We own or lease the following properties:

				Own or		Approximate				Lease Expiration
Property		Location		Lease		Square Footage				Date
Corporate Headquarters		Melville, NY		Own			105,000			N/A
Corporate Headquarters		Melville, NY		Lease			185,000			July 2020
Office and Distribution Center		West Allis, WI		Lease			106,000			October 2011
Distribution Center		Denver, PA		Lease			613,000			February 2013
Distribution Center		Indianapolis, IN		Own			287,000			N/A
Distribution Center		Indianapolis, IN		Lease			144,000			June 2009
Distribution Center		Grapevine, TX		Lease			176,000			July 2013
Distribution Center		Gallin, Germany		Own			215,000			N/A
Distribution Center		Jacksonville, FL		Lease			212,000			June 2013
Distribution Center		Niagara on the Lake, Canada		Lease			94,000			September 2016
Distribution Center		Sparks, NV		Lease			273,000			March 2011
Distribution Center		Gillingham, United Kingdom		Lease			103,000			April 2010
Distribution Center		Tours, France		Own			133,000			N/A
Distribution Center		Lyssach, Switzerland		Lease			147,000			July 2016

     The properties listed in the table above are our principal properties primarily used by our healthcare distribution segment. In addition, we lease numerous other distribution, office, showroom, manufacturing and sales space in locations including the United States, Australia, Austria, Belgium, Canada, the Czech Republic, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Spain, Switzerland 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

     Our business involves a risk of product liability and other claims in the ordinary course of business, and from time to time we are named as a defendant in cases as a result of our distribution of pharmaceutical, medical devices and other healthcare products. As a business practice, we generally obtain product liability indemnification from our suppliers.

     We have various insurance policies, including product liability insurance, covering risks in amounts that we consider adequate. In many cases in which we have been sued in connection with products manufactured by others, the manufacturer 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. In our opinion, all pending matters are covered by insurance or will not otherwise have a material adverse effect on our financial condition or results of operations.

     As of December 29, 2007, we had accrued our best estimate of potential losses relating to product liability and other claims that were probable to result in a liability and for which we were able to reasonably estimate a loss. This accrued amount, as well as related expenses, was not material to our financial position, results of operations or cash flows. Our method for determining estimated losses considers currently available facts, presently enacted laws and regulations and other external factors, including probable recoveries from third parties.

ITEM 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of our stockholders during the fourth quarter of fiscal 2007.

PART II

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

     Our common stock is traded on the NASDAQ Global Select Market tier of the Nasdaq Stock Market, or NASDAQ, under the symbol HSIC. NASDAQ became operational as a stock exchange on August 1, 2006. Our common stock was quoted on NASDAQ before that time, including on the NASDAQ National Market tier before July 3, 2006. On October 2, 2007, our common stock became a component of the NASDAQ-100 stock market index. The following table sets forth, for the periods indicated, the high and low reported sales prices of our common stock as reported on NASDAQ (on and after August 1, 2006) and the high and low bid prices of our common stock as quoted on NASDAQ (before August 1, 2006) for each quarterly period in fiscal 2007 and 2006:

		High				Low
Fiscal 2007:
1st Quarter		$	55.33			$	45.82
2nd Quarter			56.00				51.92
3rd Quarter			61.98				53.32
4th Quarter			63.45				55.49
Fiscal 2006:
1st Quarter		$	49.20			$	42.82
2nd Quarter			49.57				44.37
3rd Quarter			52.35				46.17
4th Quarter			54.08				47.50

     On February 15, 2008, there were approximately 997 holders of record of our common stock and the last reported sales price was $59.45.

Purchases of Equity Securities by the Issuer

     Our current share repurchase program, announced on June 21, 2004, originally allowed us to repurchase up to $100.0 million of shares of our common stock, which represented approximately 3.5% of the shares outstanding at the commencement of the program. On October 31, 2005 and on March 28, 2007, our Board of Directors authorized additional $100.0 million and $100.0 million, respectively, of shares of our common stock to be repurchased under this program. As of December 29, 2007, we had repurchased $159.5 million of common stock (4,012,242 shares) under this initiative, with $140.5 million available for future common stock share repurchases.

     During the fiscal quarter ended December 29, 2007, we did not repurchase any of our common stock. The maximum number of shares that may yet be purchased under this program, as shown below, is determined at the end of each month based on the closing price of our common stock at that time.

		Maximum Number
		of Shares that May Yet
Fiscal Month		Be Purchased Under Our Program
09/30/07 through 11/03/07			2,253,067
11/04/07 through 12/01/07			2,375,719
12/02/07 through 12/29/07			2,264,686

Dividend Policy

     We have not declared any cash dividends on our common stock during fiscal years 2007 or 2006. We currently do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain earnings to finance the expansion of our business and for general corporate purposes, including our stock repurchase program. Any declaration of dividends will be at the discretion of our Board of Directors and will depend upon the earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends and other factors. The agreements governing our senior notes limit the distribution of dividends without the prior written consent of the lenders (limited to $25.0 million, plus 80% of cumulative net income, plus net proceeds from the issuance of additional capital stock.) As of December 29, 2007, the amount of retained earnings free of restrictions was $644.5 million.

Stock Performance Graph

     The graph below compares the cumulative total stockholder return on $100 invested, assuming the reinvestment of all dividends, on December 28, 2002, the last trading day before the beginning of our 2003 fiscal year, through the end of fiscal 2007 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 (U.S. companies) Composite Index.

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN

ASSUMES $100 INVESTED ON DECEMBER 28, 2002
ASSUMES DIVIDENDS REINVESTED

		December 28,				December 27,				December 25,				December 31,				December 30,				December 29,
		2002				2003				2004				2005				2006				2007
Henry Schein, Inc.		$	100.00			$	151.02			$	150.95			$	194.78			$	218.61			$	276.95
Dow Jones U.S. Health Care Index			100.00				119.43				124.86				135.26				144.57				158.01
NASDAQ Stock Market (U.S. companies) Composite Index			100.00				150.36				163.00				166.58				183.68				201.91

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, 2007, 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 25,				December 27,
		2007				2006 (1)				2005 (1)				2004 (1)				2003 (1)
						(in thousands, except per share data)
Income Statement Data:
Net sales		$	5,920,190			$	5,048,191			$	4,526,022			$	3,794,516			$	3,181,374
Gross profit			1,718,284				1,471,957				1,308,413				1,047,160				907,218
Selling, general and administrative expenses (2)			1,332,025				1,167,822				1,046,008				855,211				689,786
Operating income			386,259				304,135				262,405				191,949				217,432
Other expense, net			(4,016	)			(9,204	)			(16,365	)			(11,188	)			(8,979	)
Income from continuing operations before taxes, minority interest and equity in earnings (losses) of affiliates			382,243				294,931				246,040				180,761				208,453
Income taxes from continuing operations			(129,762	)			(104,932	)			(90,189	)			(66,845	)			(77,818	)
Minority interest in net income of subsidiaries			(17,442	)			(8,090	)			(5,963	)			(1,486	)			(2,807	)
Equity in earnings (losses) of affiliates			(73	)			835				827				1,699				931
Income from continuing operations			234,966				182,744				150,715				114,129				128,759
Income (loss) from discontinued operations, net of tax (3)			(19,793	)			(18,985	)			(10,956	)			2,710				(591	)
Net income		$	215,173			$	163,759			$	139,759			$	116,839			$	128,168
Earnings from continuing operations per share:
Basic		$	2.65			$	2.08			$	1.73			$	1.31			$	1.47
Diluted			2.58				2.03				1.70				1.29				1.45
Earnings (loss) from discontinued operations per share:
Basic		$	(0.22	)		$	(0.22	)		$	(0.12	)		$	0.03			$	—
Diluted			(0.22	)			(0.21	)			(0.12	)			0.03				(0.01	)
Earnings per share:
Basic		$	2.43			$	1.86			$	1.61			$	1.34			$	1.47
Diluted			2.36				1.82				1.58				1.32				1.44
Weighted-average common shares outstanding:
Basic			88,559				87,952				87,006				87,253				87,417
Diluted			91,163				89,820				88,489				88,646				89,099

		Years ended
		December 29,				December 30,				December 31,				December 25,				December 27,
		2007				2006 (1)				2005 (1)				2004 (1)				2003 (1)
										(in thousands)
Net Sales by Market Data:
Healthcare distribution (4):
Dental (5)		$	2,462,373			$	2,136,830			$	1,896,643			$	1,602,457			$	1,364,812
Medical (6)			1,556,043				1,411,249				1,284,214				1,180,310				1,165,653
International (7)			1,769,881				1,401,889				1,256,910				928,207				576,628
Total healthcare distribution			5,788,297				4,949,968				4,437,767				3,710,974				3,107,093
Technology (8)			131,893				98,223				88,255				83,542				74,281
Total		$	5,920,190			$	5,048,191			$	4,526,022			$	3,794,516			$	3,181,374

		As of
		December 29,				December 30,				December 31,				December 25,				December 27,
		2007				2006				2005				2004				2003
										(in thousands)
Balance Sheet data:
Total assets		$	3,313,984			$	2,881,146			$	2,583,120			$	2,433,670			$	1,819,370
Long-term debt			423,274				455,806				489,520				525,682				247,100
Minority interest			35,923				21,746				12,353				12,438				11,532
Stockholders’ equity			1,779,982				1,470,963				1,249,154				1,117,706				1,006,551

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

Cautionary Note Regarding Forward-Looking Statements

     In accordance with the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995, we provide the following cautionary remarks regarding important factors that, among others, could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied herein. All forward-looking statements made by us are subject to risks and uncertainties and are not guarantees of future performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance and achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These statements are identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate” or other comparable terms.

     Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: competitive factors; changes in the healthcare industry; changes in regulatory requirements that affect us; risks associated with our international operations; fluctuations in quarterly earnings; our dependence on third parties for the manufacture and supply of our products; transitional challenges associated with acquisitions, including the failure to achieve anticipated synergies; financial risks associated with acquisitions; regulatory and litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; our dependence upon sales personnel and key customers; our dependence on our senior management; possible increases in the cost of shipping our products or other service trouble with our third-party shippers; risks from rapid technological change; risks from potential increases in variable interest rates; possible volatility of the market price of our common stock; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation that affect us. The order in which these factors appear should not be construed to indicate their relative importance or priority.

     We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control or predict. Accordingly, any forward-looking statements contained herein should not be relied upon as a prediction of actual results. We undertake no duty and have no obligation to update forward-looking statements.

Executive Level Overview

     We believe we are the largest distributor of healthcare products and services primarily to office-based healthcare practitioners in the combined North American and European markets. We serve more than 550,000 customers worldwide, including dental practitioners and laboratories, physician practices and animal health clinics, as well as government and other institutions. We believe that we have a strong brand identity due to our more than 75 years of experience distributing healthcare products.

     We are headquartered in Melville, New York, employ more than 12,000 people and have operations in the United States, Australia, Austria, Belgium, Canada, the Czech Republic, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Portugal, Spain, Switzerland and the United Kingdom. We also have affiliates in Iceland, Israel and the United Arab Emirates.

     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: healthcare distribution and technology. These segments offer different products and services to the same customer base. The healthcare distribution reportable segment aggregates our dental, medical (including animal health) and international operating segments. This segment consists of consumable products, small equipment, laboratory products, large dental equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

     Our dental group serves office-based dental practitioners, schools and other institutions in the combined United States and Canadian dental market. Our medical group serves office-based medical practitioners, surgical centers, other alternate-care settings, animal health clinics and other institutions throughout the United States. Our international group serves 18 countries outside of North America and is what we believe to be a leading European healthcare supplier serving office-based practitioners.

     Our technology group provides software, technology and other value-added services to healthcare practitioners, primarily in the United States, Canada, the United Kingdom, Australia and New Zealand. Our value-added practice solutions include practice-management software systems for dental and medical practitioners and animal health clinics. Our technology group offerings also include financial services, e-services and continuing education services for practitioners.

Industry Overview

     In recent years, the healthcare 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.

     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 healthcare industry, including consolidation of healthcare distribution companies, potential healthcare reform, trends toward managed care, cuts in Medicare and collective purchasing arrangements.

Industry Consolidation

     The healthcare products distribution industry, as it relates to office-based healthcare practitioners, is highly fragmented and diverse. This industry, which encompasses the dental, medical and animal health markets, was estimated to produce revenues of approximately $25.5 billion in 2007 in the combined North American and European markets. The industry ranges from sole practitioners working out of relatively small offices to group practices or service organizations ranging in size from a few practitioners to a large number of practitioners who have combined or otherwise associated their practices.

     Due in part to the inability of office-based healthcare practitioners to store and manage large quantities of supplies in their offices, the distribution of healthcare supplies and small equipment to office-based healthcare 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 healthcare 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.

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

     Our trend with regard to acquisitions has been to expand our role as a provider of products and services to the healthcare industry. This trend has resulted in 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. In the U.S. dental market, we estimate that there are currently more than 300 smaller distributors holding approximately 27% of the market. In the U.S. medical market, we estimate that more than 500 smaller distributors hold approximately 38% of the market, and in the European dental market, we estimate that more than 200 smaller distributors hold approximately 80% of the market.

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

     The healthcare products distribution industry continues to experience growth due to the aging population, increased healthcare awareness, the proliferation of medical technology and testing, new pharmacology treatments and expanded third-party 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. As the cosmetic surgery and elective procedure markets continue to grow, physicians are increasingly performing more of these procedures in their offices. The elder-care market continues to benefit from the increasing growth rate of the population of elderly Americans.

     The January 2000 U.S. Bureau of the Census estimated that the elderly population in the United States will more than double by the year 2040. In 2000, four million Americans were aged 85 or older, the segment of the population most in need of long-term care and elder-care services. By the year 2040, that number is projected to more than triple to more than 14 million. The population aged 65 to 84 years is projected to more than double in the same time period.

     As a result of these market dynamics, annual expenditures for healthcare services continue to increase in the United States. The Centers for Medicare and Medicaid Services, or CMS, published “National Health Expenditure Projections 2006 — 2016” indicating that total national healthcare spending reached $2.0 trillion in 2005, or 16.0% of the nation’s gross domestic product, the benchmark measure for annual production of goods and services in the United States. Healthcare spending is projected to reach $4.1 trillion in 2016, approximately 20.0% of the nation’s gross domestic product.

Government Influences

     The healthcare industry is subject to extensive government regulation, licensure and operating compliance procedures. National healthcare reform has been the subject of a number of legislative initiatives by Congress. Additionally, government and private insurance programs fund a large portion of the total cost of medical care. The Balanced Budget Act passed by Congress in 1997 significantly reduced reimbursement rates for nursing homes and home healthcare providers, affecting spending levels and the overall financial viability of these institutions.

     The Medicare Prescription Drug, Improvement, and Modernization Act or the Medicare Act, is the largest expansion of the Medicare program since its inception, and provides participants with voluntary prescription drug benefits through an interim drug discount card. The Medicare Act also includes provisions relating to medication management programs, generic substitution and provider reimbursement.

     There have been increasing efforts by various levels of government, including state departments of health, state boards of pharmacy and comparable agencies, to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit, adulterated or mislabeled pharmaceuticals into the distribution system. An increasing number of states, including Florida, have already adopted laws and regulations, including drug pedigree tracking requirements, that are intended to protect the integrity of the pharmaceutical distribution system. Regulations adopted under the federal Prescription Drug Marketing Act, effective December, 2006, require the identification and documentation of transactions involving the receipt and distribution of prescription drugs, that is, drug pedigree information. Other states and government agencies are currently considering similar laws and regulations. We continue to work with our suppliers to help minimize the risks associated with counterfeit products in the supply chain and potential litigation.

E-Commerce

     Traditional healthcare supply and distribution relationships are being challenged by electronic online commerce solutions. Our distribution business is characterized by rapid technological developments and intense competition. The advancement of online commerce will require us to cost-effectively adapt to changing technologies, to enhance existing services and to develop and introduce a variety of new services to address 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 growing aspect of the distribution business. We continue to explore ways and means to improve and expand our Internet presence and capabilities.

Results of Operations

     The following table summarizes the significant components of our operating results and cash flows for each of the three years ended December 29, 2007, December 30, 2006 and December 31, 2005 (in thousands):

		Years ended
		December 29,				December 30,				December 31,
		2007				2006 (1)				2005 (1)
Operating Results:
Net sales		$	5,920,190			$	5,048,191			$	4,526,022
Cost of sales			4,201,906				3,576,234				3,217,609
Gross profit			1,718,284				1,471,957				1,308,413
Operating expenses:
Selling, general and administrative			1,332,025				1,167,822				1,046,008
Operating income		$	386,259			$	304,135			$	262,405
Other expense, net		$	(4,016	)		$	(9,204	)		$	(16,365	)
Income from continuing operations			234,966				182,744				150,715
Loss from discontinued operations, net of tax			(19,793	)			(18,985	)			(10,956	)
Net income			215,173				163,759				139,759

		Years ended
		December 29,				December 30,				December 31,
		2007				2006				2005
Cash Flows:
Net cash provided by operating activities		$	270,211			$	235,317			$	254,776
Net cash used in investing activities			(242,047	)			(180,361	)			(206,681	)
Net cash used in financing activities			(31,120	)			(21,274	)			(28,501	)

2007 Compared to 2006

Net Sales

     Net sales for 2007 and 2006 were as follows (in thousands):

						% of								% of
		2007				Total				2006 (1)				Total
Healthcare distribution (2):
Dental (3)		$	2,462,373				41.6	%		$	2,136,830				42.3	%
Medical (4)			1,556,043				26.3				1,411,249				28.0
International (5)			1,769,881				29.9				1,401,889				27.8
Total healthcare distribution			5,788,297				97.8				4,949,968				98.1
Technology (6)			131,893				2.2				98,223				1.9
Total		$	5,920,190				100.0	%		$	5,048,191				100.0	%

     The $872.0 million, or 17.3%, increase in net sales for the year ended December 29, 2007 includes increases of 14.3% local currency growth (7.3% internally generated primarily due to volume growth and 7.0% from acquisitions) and 3.0% related to foreign currency exchange.

     The $325.5 million, or 15.2%, increase in dental net sales for the year ended December 29, 2007 includes increases of 14.6% local currency growth (10.0% internally generated primarily due to increased volume and 4.6% from acquisitions) and 0.6% related to foreign currency exchange. The 14.6% local currency growth was due to dental consumable merchandise sales growth of 11.9% (5.9% internal growth and 6.0% from acquisitions) and dental equipment sales and service growth of 25.0% (21.9% internal growth and 3.1% from acquisitions). The growth in equipment sales was primarily due to gains in both traditional equipment and high-tech products.

     The $144.8 million, or 10.3%, increase in medical net sales for the year ended December 29, 2007 is due to local currency growth (5.5% internally generated and 4.8% from acquisitions).

     The $368.0 million, or 26.2%, increase in international net sales for the year ended December 29, 2007 includes increases of 16.6% in local currencies (12.3% from acquisitions and 4.3% internally generated), and 9.6% related to foreign currency exchange.

     The $33.7 million, or 34.3%, increase in technology net sales for the year ended December 29, 2007 includes increases of 34.0% in local currency growth (18.4% internally generated and 15.6% from acquisitions) and 0.3% due to foreign currency exchange. The increase in internal net sales growth was driven by growth in electronic service, financial services, support and maintenance revenue.

Gross Profit

     Gross profit and gross margins for 2007 and 2006 by segment and in total were as follows (in thousands):

						Gross								Gross
		2007				Margin %				2006 (1)				Margin %
Healthcare distribution		$	1,620,159				28.0	%		$	1,396,454				28.2	%
Technology			98,125				74.4				75,503				76.9
Total		$	1,718,284				29.0			$	1,471,957				29.2

     Gross profit increased $246.3 million, or 16.7%, for the year ended December 29, 2007 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 healthcare distribution segment. These higher gross margins result from being both the developer and seller of software products combined with the nature of the software industry, in which developers typically realize higher gross margins to recover investments in research and development.

     Healthcare distribution gross profit increased $223.7 million, or 16.0%, for the year ended December 29, 2007 compared to the prior year period. Healthcare distribution gross profit margin decreased slightly to 28.0% for the year ended December 29, 2007 from 28.2% for the comparable prior year period.

     Technology gross profit increased $22.6 million, or 30.0%, for the year ended December 29, 2007 compared to the prior year period. Technology gross profit margin decreased to 74.4% for the year ended December 29, 2007 from 76.9% for the comparable prior year period, primarily due to changes in the product sales mix.

Selling, General and Administrative

     Selling, general and administrative expenses by segment and in total for 2007 and 2006 were as follows (in thousands):

						% of								% of
						Respective								Respective
		2007				Net Sales				2006 (1)				Net Sales
Healthcare distribution		$	1,280,831				22.1	%		$	1,129,522				22.8	%
Technology			51,194				38.8				38,300				39.0
Total		$	1,332,025				22.5			$	1,167,822				23.1

     Selling, general and administrative expenses increased by $164.2 million, or 14.1%, for the year ended December 29, 2007 compared to the prior year period. As a percentage of net sales, selling, general and administrative expenses decreased to 22.5% from 23.1% for the comparable prior year period. This decrease was primarily due to our continued leveraging of higher sales volume across our established infrastructure.

     As a component of total selling, general and administrative expenses, selling expenses increased $107.1 million, or 13.5%, for the year ended December 29, 2007 from the prior year period. This increase was primarily due to payroll, as well as other expenses related to recent acquisitions. As a percentage of net sales,

selling expenses decreased to 15.2% from 15.7% for the comparable prior year period. This decrease was primarily due to our continued leveraging of higher sales volume across our established infrastructure.

     As a component of total selling, general and administrative expenses, general and administrative expenses increased $57.1 million, or 15.2%, for the year ended December 29, 2007 from the prior year period. As a percentage of net sales, general and administrative expenses decreased to 7.3% from 7.4% for the comparable prior year period.

Other Expense, Net

     Other expense, net for the years ended 2007 and 2006 was as follows (in thousands):

		2007				2006 (1)
Interest income		$	16,531			$	16,378
Interest expense			(25,177	)			(27,627	)
Other, net			4,630				2,045
Other expense, net		$	(4,016	)		$	(9,204	)

     Other expense, net decreased $5.2 million to $4.0 million for the year ended December 29, 2007 from the comparable prior year period. This decrease was primarily due to an increase in other income resulting from a gain on the divestiture of certain non-core businesses of Becker-Parkin during 2007 and a reduction in interest expense resulting from principal repayments of debt being made during 2007.

Income Taxes

     For the year ended December 29, 2007, our effective tax rate from continuing operations was 34.0% compared to 35.6% for the prior year period. The difference resulted from a combination of additional tax planning, settlements of tax audits, revaluation of deferred income taxes, a non-recurring tax charge resulting from a European restructuring, and higher levels of income generated in lower taxing countries. The difference between our effective tax rate and the federal statutory tax rate for both periods related primarily to foreign and state income taxes. For 2008, we expect our effective tax rate to be in the range of 34% to 35%.

     As a result of tax legislation enacted in Germany, the United Kingdom and Italy for 2007, deferred income taxes were revalued resulting in a $5.6 million reduction in deferred income tax accounts and a corresponding reduction of income tax expense. Additionally, in response to the legislation enacted in Germany, a restructuring was implemented in 2007 resulting in a non-recurring income tax charge of $3.5 million.

Loss from Discontinued Operations

     During the year ended December 29, 2007 and during the year ended December 30, 2006, we recognized aggregate losses of $19.8 million and $19.0, net of tax, related to discontinued operations (see Note 6 in the accompanying annual consolidated financial statements for further discussion).

Net Income

     Net income increased $51.4 million, or 31.4%, for the year ended December 29, 2007 compared to the prior year period. The increase in net income is primarily due to an increase in income from continuing operations. In 2007, net income includes a net gain on the sale of discontinued operations of $0.7 million, net of taxes. In 2006, net income includes a loss on the sale of discontinued operations of $19.4 million, net of taxes.

2006 Compared to 2005

Net Sales

     Net sales for 2006 and 2005 were as follows (in thousands):

						% of								% of
		2006 (1)				Total				2005 (1)				Total
Healthcare distribution (2):
Dental (3)		$	2,136,830				42.3	%		$	1,896,643				41.9	%
Medical (4)			1,411,249				28.0				1,284,214				28.4
International (5)			1,401,889				27.8				1,256,910				27.8
Total healthcare distribution			4,949,968				98.1				4,437,767				98.1
Technology (6)			98,223				1.9				88,255				1.9
Total		$	5,048,191				100.0	%		$	4,526,022				100.0	%

     The $522.2 million, or 11.5%, increase in net sales for the year ended December 30, 2006 includes increases of 11.0% local currency growth (5.4% internally generated primarily due to volume growth and 5.6% from acquisitions) and 0.5% related to foreign currency exchange.

     The $240.2 million, or 12.7%, increase in dental net sales for the year ended December 30, 2006 includes increases of 11.9% local currency growth (8.4% internally generated primarily due to increased volume and 3.5% from acquisitions) and 0.8% related to foreign currency exchange. The 11.9% local currency growth was due to dental consumable merchandise sales growth of 9.8% (6.1% internal growth and 3.7% from acquisitions) and dental equipment sales and service growth of 18.4% (15.6% internal growth and 2.8% from acquisitions).

     The 127.0 million, or 9.9%, increase in medical net sales for the year ended December 30, 2006 is due to local currency growth (1.1% internally generated and 8.8% from acquisitions).

     The $145.0 million, or 11.5%, increase in international net sales for the year ended December 30, 2006 includes increases of 10.7% in local currencies (5.6% from acquisitions and 5.1% internally generated), and 0.8% related to foreign currency exchange.

     The $10.0 million, or 11.3%, increase in technology net sales for the year ended December 30, 2006 includes increases of 10.9% in local currency growth (8.6% internally generated and 2.3% from acquisitions) and 0.4% due to foreign currency exchange. The increase was driven by growth in electronic service, financial services, support and maintenance revenue.

Gross Profit

     Gross profit and gross margins for 2006 and 2005 by segment and in total were as follows (in thousands):

						Gross								Gross
		2006 (1)				Margin %				2005 (1)				Margin %
Healthcare distribution		$	1,396,454				28.2	%		$	1,241,313				28.0	%
Technology			75,503				76.9				67,100				76.0
Total		$	1,471,957				29.2			$	1,308,413				28.9

     Gross profit increased $163.5 million, or 12.5%, for the year ended December 30, 2006 compared to the prior year period. As a result of different practices for 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 healthcare distribution segment. These higher gross margins result from being both the developer and seller of software products combined with the nature of the software industry, in which developers typically realize higher gross margins to recover investments in research and development.

     Healthcare distribution gross profit increased $155.1 million, or 12.5%, for the year ended December 30, 2006 compared to the prior year period. Healthcare distribution gross profit margin increased slightly to 28.2% for the year ended December 30, 2006 from 28.0% for the comparable prior year period.

     Technology gross profit increased $8.4 million, or 12.5%, for the year ended December 30, 2006 compared to the prior year period. Technology gross profit margin increased to 76.9% for the year ended December 30, 2006 from 76.0% for the comparable prior year period, primarily due to a change in sales mix reflecting a larger percentage of higher margin electronic and financial services sales and other cost improvements, largely in technical support.

Selling, General and Administrative

     Selling, general and administrative expenses by segment and in total for 2006 and 2005 were as follows (in thousands):

						% of								% of
						Respective								Respective
		2006 (1)				Net Sales				2005 (1)				Net Sales
Healthcare distribution		$	1,129,522				22.8	%		$	1,011,527				22.8	%
Technology			38,300				39.0				34,481				39.1
Total		$	1,167,822				23.1			$	1,046,008				23.1

     Selling, general and administrative expenses increased by $121.8 million, or 11.6%, for the year ended December 30, 2006 compared to the prior year period. As a percentage of net sales, selling, general and administrative expenses remained constant at 23.1%.

     As a component of total selling, general and administrative expenses, selling expenses increased $90.7 million, or 12.9%, for the year ended December 30, 2006 from the prior year period. The increase was primarily due to payroll and other expenses related to recent acquisitions. As a percentage of net sales, selling expenses increased to 15.7% from 15.5% for the comparable prior year period.

     As a component of total selling, general and administrative expenses, general and administrative expenses increased $31.1 million, or 9.1%, for the year ended December 30, 2006 from the prior year period. As a percentage of net sales, general and administrative expenses decreased to 7.4% from 7.6% for the comparable prior year period.

Other Expense, Net

     Other expense, net for the years ended 2006 and 2005 was as follows (in thousands):

		2006 (1)				2005 (1)
Interest income		$	16,378			$	7,302
Interest expense			(27,627	)			(25,301	)
Other, net			2,045				1,634
Other expense, net		$	(9,204	)		$	(16,365	)

     Other expense, net decreased $7.2 million to $9.2 million for the year ended December 30, 2006 from the comparable prior year period. This decrease was primarily due to an increase in interest income due to higher interest rates and average investment balances, a gain of approximately $2.0 million associated with a change in accounting for net investment hedging arrangements (see Note 1 in the accompanying annual consolidated financial statements for further discussion) and increased interest expense due to higher interest rates, partially offset by a reduction of interest expense of approximately $2.8 million representing the interest rate component of our mark-to-market adjustment.

Income Taxes

     For the year ended December 30, 2006, our effective tax rate from continuing operations was 35.6% compared to 36.7% for the prior year period. The difference between our effective tax rates and the federal statutory tax rates for both periods primarily relates to state income taxes.

Loss from Discontinued Operations

     During the years ended December 30, 2006 and December 31, 2005, we recognized a loss of $19.0 million and $11.0 million, net of tax, related to discontinued operations (see Note 6 in the accompanying annual consolidated financial statements for further discussion).

Net Income

     Net income increased $24.0 million, or 17.2%, for the year ended December 30, 2006 compared to the prior year period. In 2006, net income includes a loss on the sale of discontinued operations of $19.4 million, net of taxes. In 2005, net income includes an impairment charge related to long-lived assets of discontinued operations of $7.0 million, net of tax.

Liquidity and Capital Resources

     Our principal capital requirements include the funding of acquisitions, working capital needs, purchases of fixed assets, repayments of debt principal 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. Since sales tend to be stronger during the third and fourth quarters and special inventory forward buy-in opportunities are most prevalent just before the end of the year, our working capital requirements have generally been higher from the end of the third quarter to the end of the first quarter of the following year.

     We finance our business primarily through cash generated from our operations, revolving credit facilities, debt placements and stock issuances. Our ability to generate sufficient cash flows from operations is dependent on the continued demand of our customers for, and provision by our suppliers of, our products and services. Given current operating, economic and industry conditions, we believe that demand for our products and services will remain consistent with recent trends in the foreseeable future.

     Net cash flow provided by operating activities was $270.2 million for the year ended December 29, 2007 compared to $235.3 million for the comparable prior year period. This net change of $34.9 million was primarily due to higher income from continuing operations, non-cash charges for impairment from a write-down of long-lived assets of discontinued operations and minority interest in net income of subsidiaries, offset by a net decrease in working capital, non-cash gain on sale of discontinued operations, net of tax in the prior year and an increase in the benefit from deferred income taxes.

     Net cash used in investing activities was $242.0 million for the year ended December 29, 2007 compared to $180.4 million for the comparable prior year period. The net change of $61.6 million was primarily due to decreases in available-for-sale securities sales and cash received from a business divestiture in the prior year, as well as an increase for foreign exchange forward contract settlements, partially offset by a decrease in purchases of available-for-sale securities and fixed assets.

     Net cash used in financing activities was $31.1 million for the year ended December 29, 2007 compared to $21.3 million for the comparable prior year period. The net change of $9.8 million was primarily due to increased repayments of long-term debt and other, offset by a decrease in repurchases of our common stock during the year ended December 29, 2007.

     We expect to invest approximately $50.0 to $55.0 million during 2008 in capital projects to modernize and expand our facilities and computer systems and to integrate certain operations into our core structure.

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

		December 29,				December 30,
		2007				2006
Cash and cash equivalents		$	247,590			$	248,647
Available-for-sale securities			997				47,999
Working capital			908,160				834,760
Debt:
Bank credit lines		$	8,977			$	2,528
Current maturities of long-term debt			24,319				41,036
Long-term debt			423,274				455,806
Total debt		$	456,570			$	499,370

     Our cash and cash equivalents consist of bank balances and investments in money market funds representing overnight investments with a high degree of liquidity. At December 29, 2007, our available-for-sale securities consist of an investment in stock of a single company. At December 30, 2006, our available-for-sale securities consisted of highly liquid tax-efficient securities, including primarily auction-rate securities and variable-rate demand notes.

     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 as a result of continuing sales growth.

     Our accounts receivable days sales outstanding from continuing operations improved to 40.7 days as of December 29, 2007 from 40.8 days as of December 30, 2006. During the years ended December 29, 2007 and December 30, 2006, we wrote off approximately $9.8 million and $6.6 million, respectively, of fully reserved accounts receivable against our trade receivable reserve. Our inventory turns from continuing operations increased to 6.8 as of December 29, 2007 from 6.7 as of December 30, 2006.

     The following table summarizes our contractual obligations related to fixed and variable rate long-term debt, including interest (assuming an average long-term rate of interest of 5.5%), as well as operating and capital lease obligations and inventory purchase commitments as of December 29, 2007:

		Payments due by period (in thousands)
		< 1 year				1 - 3 years				4 - 5 years				> 5 years				Total
Contractual obligations:
Inventory purchase commitments		$	198,329			$	303,476			$	275,303			$	424,536			$	1,201,644
Long-term debt, including interest			41,541				193,297				14,803				404,927				654,568
Operating lease obligations			52,455				75,544				44,678				49,109				221,786
Capital lease obligations, including interest			3,429				3,569				1,045				715				8,758
Interest rate swap agreements			1,847				909				—				—				2,756
Total		$	297,601			$	576,795			$	335,829			$	879,287			$	2,089,512

     Inventory purchase commitments include obligations to purchase influenza vaccine from GlaxoSmithKline Biologicals, or GSK, and Novartis AG through 2014, which, with respect to GSK, require us to pay an amount per dose based on the prevailing market price or formula price in each respective year. The amounts included in the above table related to these purchase commitments were determined using current market conditions. Actual amounts may differ.

     Our convertible debt, which matures in 2034, is available to be redeemed beginning on or after August 20, 2010.

     As more fully disclosed in Note 8 of “Notes to Consolidated Financial Statements,” we adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109,” effective December 31, 2006. We cannot reasonably estimate the timing of future cash flows related to the unrecognized tax benefits of $12.5 million as of December 29, 2007.

     In 2004, we completed an issuance of $240.0 million of convertible debt. These notes are senior unsecured obligations bearing a fixed annual interest rate of 3.0% and are due to mature on August 15, 2034. Interest on the notes is payable on February 15 and August 15 of each year. The notes are convertible into our common stock at a conversion ratio of 21.58 shares per one thousand dollars of principal amount of notes, which is equivalent to a conversion price of $46.34 per share, under the following circumstances:

	•		if the price of our common stock is above 130% of the conversion price measured over a specified number of trading days;
	•		during the five-business-day period following any 10-consecutive-trading-day period in which the average of the trading prices for the notes for that 10-trading-day period was less than 98% of the average conversion value for the notes during that period;

•

if the notes have been called for redemption; or

•

upon the occurrence of a fundamental change or specified corporate transactions, as defined in the note agreement.

     Upon conversion, we are required to satisfy our conversion obligation with respect to the principal amount of the notes to be converted, in cash, with any remaining amount to be satisfied in shares of our common stock. We currently have sufficient availability of funds through our $300.0 million revolving credit facility (discussed below) along with cash on hand to fully satisfy the cash portion of our conversion obligation. We also will pay contingent interest during any six-month-interest period beginning August 20, 2010, if the average trading price of the notes is above specified levels. We may redeem some or all of the notes on or after August 20, 2010. The note holders may require us to purchase all or a portion of the notes on August 15, 2010, 2014, 2019, 2024 and 2029 or, subject to specified exceptions, upon a change of control event.

     Our $130.0 million senior notes are due on June 30, 2009 and bear interest at a fixed rate of 6.9% per annum. On September 28, 2007, we made our second annual principal payment of $20.0 million on our $100.0 million senior notes, which bear interest at a fixed rate of 6.7% per annum. Remaining principal payments are due annually on September 25, 2008 and 2009 and September 27, 2010. Interest on both notes is payable semi-annually.

     In 2003, we entered into agreements relating to our $230.0 million senior notes to exchange their fixed interest rates for variable interest rates. The value of debt exchanged to a variable rate of interest reduces according to the repayment schedule of the senior notes. As of December 29, 2007, there is $190.0 million of principal remaining with a weighted-average interest rate of 8.38%. For the year ended December 29, 2007, the weighted-average variable interest rate was 8.42%. This weighted-average variable interest rate is comprised of LIBOR plus a spread and resets on the interest due dates for such senior notes.

     On May 24, 2005, we entered into a $300.0 million revolving credit facility with a $100.0 million expansion feature. This facility expires in May 2010. As of December 29, 2007, there were $11.1 million of letters of credit provided to third parties and no borrowings outstanding under this revolving credit facility.

     During 2007, we repurchased $30.7 million or 639,100 shares under our common stock repurchase programs, with $140.5 million available for future common stock share repurchases, under repurchase programs approved by our Board of Directors.

     Some minority shareholders in certain of our subsidiaries have the right, at certain times, to require us to acquire their ownership interest in those entities at fair value based on third-party valuations or at a price pursuant to a formula as defined in the agreements, which approximates fair value. Additionally, some prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash consideration if certain profitability targets are met. We accrue liabilities that may arise from these transactions when we believe that the outcome of the contingency is determinable beyond a reasonable doubt.

     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.

Critical Accounting Policies and Estimates

     The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We base our estimates on historical data, when available, experience, industry and market trends, and on various other assumptions that are believed to be reasonable under the circumstances, the combined results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, by their nature, estimates are subject to various assumptions and uncertainties. Reported results are therefore sensitive to any changes in our assumptions, judgments and estimates, including the possibility of obtaining materially different results if different assumptions were to be applied.

     We believe that the following critical accounting policies, which have been discussed with our audit committee, affect the significant estimates and judgments used in the preparation of our financial statements:

Revenue Recognition

     We generate revenue from the sale of dental, medical and animal health consumable products, as well as equipment, software products and services and other sources. Provisions for discounts, rebates to customers, customer returns and other contra-revenue adjustments are recorded based upon historical data and estimates and are provided for in the period in which the related sales are recognized.

     Revenue derived from the sale of consumable products is recognized when products are shipped to customers. Such sales typically entail high-volume, low-dollar orders shipped using third-party common carriers. We believe that the shipment date is the most appropriate point in time indicating the completion of the earnings process because we have no post-shipment obligations, the product price is fixed and determinable, collection of the resulting receivable is probable and product returns are reasonably estimable.

     Revenue derived from the sale of equipment is recognized when products are delivered to customers. Such sales typically entail scheduled deliveries of large equipment primarily by equipment service technicians. Some equipment sales require minimal installation, which is completed at the time of delivery.

     Revenue derived from the sale of software products is recognized when products are shipped to customers. Such software is generally installed by customers and does not require extensive training due to the nature of its design. Revenue derived from post-contract customer support for software, including annual support and/or training, is recognized over the period in which the services are provided.

     Revenue derived from other sources including freight charges, equipment repairs and financial services, is recognized when the related product revenue is recognized or when the services are provided.

Accounts Receivable and Reserves

     The carrying amount of accounts receivable reflects a reserve representing 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 may adjust our assumptions for anticipated changes in any of these or other factors expected to affect collectibility. Although we believe our judgments, estimates and/or assumptions related to accounts receivable and reserves are reasonable, making material changes to such judgments, estimates and/or assumptions could materially affect our financial results.

Inventories and Reserves

     Inventories consist primarily of finished goods and are valued at the lower of cost or market. Cost is determined primarily by the first-in, first-out method. In performing our lower of cost or market 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 salability. 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 are not amortized, but are subject to annual impairment analyses. Such impairment analyses for goodwill require the comparison of the fair value to the carrying value of reporting units. Measuring fair value of a reporting unit is generally based on valuation techniques using multiples of sales or earnings, unless supportable information is available for using a present value technique, such as estimates of future cash flows. Although we believe our judgments, estimates and/or assumptions used in 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.

     We regard our reporting units to be our operating segments (dental, medical (including animal health), international and technology). Goodwill was allocated to such reporting units, for the purposes of preparing our impairment analyses, based on a specific identification basis. We assess the potential impairment of goodwill and other indefinite-lived intangible assets annually 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, which 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 will record an impairment charge in our consolidated statement of income.

Supplier Rebates

     Supplier rebates are included as a reduction to cost of sales and are recognized as 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, including definite-lived intangible assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows derived from such assets. Definite-lived intangible assets primarily consist of non-compete agreements, trademarks, trade names, customer lists, customer relationships and intellectual property. 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

     Effective January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards (FAS) No. 123(R), “Share-Based Payment.” We previously applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and provided the required pro forma disclosures of FAS 123, “Accounting for Stock-Based Compensation,” in our consolidated financial statements. We elected to adopt the modified retrospective application method provided by FAS 123(R).

     We measure stock-based compensation at the grant date, based on the estimated fair value of the award. Awards under our equity incentive plans principally include a combination of at-the-money stock options and restricted stock (including restricted stock units).

     We estimate the fair value of stock options using the Black-Scholes valuation model which requires us to make assumptions about the expected life of options, stock price volatility, risk-free interest rates and dividend yields.

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

     With respect to time-based restricted stock, we estimate the fair value on the date of grant based on our closing stock price. With respect to performance-based restricted stock, the number of shares that ultimately vest and are received by the recipient is based upon our earnings per share performance measured against specified targets over a three-year period. We estimate the fair value of performance-based restricted stock based on our closing stock price assuming that performance targets will be achieved. Over the performance period, the number of shares of common stock that will ultimately vest and be issued 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 expense will be based on a comparison of the final performance metrics to the specified targets.

     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.

Recently Issued Accounting Standards

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued FAS Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FAS No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognitions 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 percent likely of being realized upon ultimate settlement. The adoption of FIN 48, effective December 31, 2006, resulted in a decrease to stockholders’ equity of approximately $0.3 million.

     In September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FAS 157 applies under other previously issued accounting pronouncements that require or permit fair value measurements but does not require any new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with the exception of all non-financial assets and liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, which will be effective for years beginning after November 15, 2008. We are currently evaluating the impact of FAS 157 on our consolidated financial statements.

     In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” FAS 158 requires an employer to recognize the over- or under-funded status of a defined benefit plan as an asset or liability in the statement of financial position and to recognize changes in that funded status, net of tax through comprehensive income, in the year in which the changes occur. FAS 158 also requires an employer to measure the funded status of a defined benefit plan as of the date of its year end statement of financial position. The provisions of FAS 158 became effective for our year ended December 30, 2006, with the exception of the requirement to measure the funded status of retirement benefit plans as of our fiscal year end, which is effective for our fiscal year ending December 27, 2008. During December 2006, we implemented the requirement to recognize the funded status of our defined benefit plans. Recognizing the funded status of our defined benefit plans did not have a material impact on our statement of financial position.

     In February 2007, FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), including an amendment to FASB No. 115. FAS 159 provides entities with the irrevocable option to measure eligible financial assets, financial liabilities and firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election, called the fair value option, will enable entities to achieve an offset accounting effect for changes in fair value of certain related assets and liabilities without having to apply complex hedge accounting provisions. FAS 159 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2007. We are currently evaluating the impact of FAS 159 on our consolidated financial statements.

     In December 2007, the FASB issued Statement No. 141 (revised 2007), “Business Combinations,” and Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” FAS No. 141 (revised 2007) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. This standard also requires the fair value measurement of certain other assets and liabilities related to the acquisition such as contingencies. FAS 141 (revised 2007) applies prospectively to business combinations and is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the impact that FAS 141 (revised 2007) will have on our accounting for past and future acquisitions and our consolidated financial statements.

     Statement No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the noncontrolling interest with disclosure of both amounts on the consolidated statement of income. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The presentation provisions of FAS 160 are to be applied retrospectively, and FAS 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the impact that FAS 160 will have on our consolidated financial statements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to market risks, which include changes in interest rates, 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 using interest rate swap agreements and foreign currency forward and swap contracts and through maintaining counter-party credit limits. These hedging activities provide only limited protection against interest rate and currency exchange and credit risks. Factors that could influence the effectiveness of our programs include volatility of the interest rate and currency markets and availability of hedging instruments and liquidity of the credit markets. All interest rate swap and foreign currency forward and swap contracts that we enter into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated interest rate and currency exposure. We do not enter into such contracts for speculative purposes. We manage our credit risks by diversifying our investments, maintaining a strong balance sheet and having multiple sources of capital.

Interest Rate Swap Agreements

     We have fixed rate senior notes of $130.0 million at 6.9% and $60.0 million at 6.7%. During 2003, we entered into interest rate swap agreements to exchange these fixed interest rates for variable interest rates. The variable rates are comprised of LIBOR plus the spreads and reset on the interest due dates for the senior notes. As a result of these interest rate swap agreements, as well as our existing variable rate credit lines and loan agreements, we are exposed to risk from changes in interest rates. A hypothetical 100 basis point increase in interest rates would increase our annual interest expense by approximately $1.9 million.

     As of December 29, 2007, the fair value of our interest rate swap agreements recorded in other current and non-current liabilities in our consolidated balance sheet was $1.2 million, which represented the amount that would be paid upon unwinding the interest rate swap agreements based on market conditions at that time. Changes in the fair value of these interest rate swap agreements are reflected as an adjustment to current and non-current assets or liabilities with an offsetting adjustment to the carrying value of the $190.0 million notes as such hedges are deemed fully effective.

Foreign Currency Agreements

     The value of certain foreign currencies as compared to the U.S. dollar may affect our financial results. Fluctuations in exchange rates may positively or negatively affect our revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging programs using primarily foreign currency forward and swap contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase short-term (i.e., 12 months or less) foreign currency forward and swap contracts to protect against currency exchange risks associated with long-term intercompany loans due from our international subsidiaries and the payment of merchandise purchases to foreign suppliers. We do not hedge the translation of foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure.

     As of December 29, 2007, we had outstanding foreign currency forward and swap contracts with notional amounts of $427.7 million, of which $356.3 million related to intercompany debt and $71.4 million related to the purchase of merchandise from foreign suppliers. The contracts hedge currency fluctuations against the U.S. Dollar for Euros ($252.2 million), British Pounds ($123.8 million), Australian Dollars ($34.7 million), Canadian Dollars ($8.5 million), Swiss Francs ($6.0 million) and New Zealand Dollars ($2.5 million). In addition, our international business entered into hedges against currency fluctuations relative to local functional currencies. The notional amount of such contracts was $87.8 million. A hypothetical 5% change of the value of the U.S. Dollar would change the fair value of our foreign currency exchange agreements by $18.8 million.

     As of December 29, 2007, the fair value of our foreign currency exchange agreements, which expire through December 18, 2008, recorded in other current liabilities was $3.7 million, as determined by quoted market prices. For the year ended December 29, 2007, we had realized net gains of $0.8 million and unrealized gains of $1.1 million relating to such agreements.

Short-term Investments

     With respect to our cash equivalents, available-for-sale securities, short-term investments and derivative instruments, our credit risk is limited due to our counter-parties being high-credit quality financial institutions. As a risk management policy, we limit the amount of credit exposure by utilizing numerous different counter-parties.

ITEM 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS
HENRY SCHEIN, INC.

		Page
Report of Independent Registered Public Accounting Firm		48
Consolidated Financial Statements:
Balance Sheets as of December 29, 2007 and December 30, 2006		49
Statements of Income for the years ended December 29, 2007, December 30, 2006 and December 31, 2005		50
Statements of Changes in Stockholders’ Equity for the years ended December 29, 2007, December 30, 2006 and December 31, 2005		51
Statements of Cash Flows for the years ended December 29, 2007, December 30, 2006 and December 31, 2005		52
Notes to Consolidated Financial Statements		53
Report of Independent Registered Public Accounting Firm		94
Schedule II — Valuation and Qualifying Accounts for the years ended December 29, 2007, December 30, 2006 and December 31, 2005		95

All other schedules are omitted because the required information is either inapplicable or is included in the consolidated financial statements or the notes thereto.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Henry Schein, Inc.
Melville, New York

     We have audited the accompanying consolidated balance sheets of Henry Schein, Inc. as of December 29, 2007 and December 30, 2006 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Henry Schein, Inc. at December 29, 2007 and December 30, 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2007, in conformity with accounting principles generally accepted in the United States of America.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Henry Schein, Inc.’s internal control over financial reporting as of December 29, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, 2008 expressed an unqualified opinion thereon.

/s/ BDO SEIDMAN, LLP

New York, New York
February 25, 2008

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

		December 29,				December 30,
		2007				2006
ASSETS
Current assets:
Cash and cash equivalents		$	247,590			$	248,647
Available-for-sale securities			997				47,999
Accounts receivable, net of reserves of $41,315 and $40,536			708,307				610,020
Inventories, net			666,786				584,103
Deferred income taxes			32,827				28,240
Prepaid expenses and other			192,292				125,839
Total current assets			1,848,799				1,644,848
Property and equipment, net			247,671				225,038
Goodwill			917,194				773,801
Other intangibles, net			192,420				161,542
Investments and other			107,900				75,917
Total assets		$	3,313,984			$	2,881,146
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	474,009			$	414,062
Bank credit lines			8,977				2,528
Current maturities of long-term debt			24,319				41,036
Accrued expenses:
Payroll and related			136,291				110,401
Taxes			73,278				59,007
Other			223,765				183,054
Total current liabilities			940,639				810,088
Long-term debt			423,274				455,806
Deferred income taxes			80,260				62,334
Other liabilities			53,906				60,209
Minority interest			35,923				21,746
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding			—				—
Common stock, $.01 par value, 240,000,000 shares authorized, 89,603,660 outstanding on December 29, 2007 and 88,499,321 outstanding on December 30, 2006			896				885
Additional paid-in capital			673,763				614,551
Retained earnings			1,005,055				808,164
Accumulated other comprehensive income			100,268				47,363
Total stockholders’ equity			1,779,982				1,470,963
Total liabilities and stockholders’ equity		$	3,313,984			$	2,881,146

See accompanying notes.

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

		Years ended
		December 29,				December 30,				December 31,
		2007				2006				2005
						(Adjusted - Note 6)				(Adjusted - Note 6)
Net sales		$	5,920,190			$	5,048,191			$	4,526,022
Cost of sales			4,201,906				3,576,234				3,217,609
Gross profit			1,718,284				1,471,957				1,308,413
Operating expenses:
Selling, general and administrative			1,332,025				1,167,822				1,046,008
Operating income			386,259				304,135				262,405
Other income (expense):
Interest income			16,531				16,378				7,302
Interest expense			(25,177	)			(27,627	)			(25,301	)
Other, net			4,630				2,045				1,634
Income from continuing operations before taxes, minority interest and equity in earnings (losses) of affiliates			382,243				294,931				246,040
Income taxes			(129,762	)			(104,932	)			(90,189	)
Minority interest in net income of subsidiaries			(17,442	)			(8,090	)			(5,963	)
Equity in earnings (losses) of affiliates			(73	)			835				827
Income from continuing operations			234,966				182,744				150,715
Discontinued operations:
Loss from operations of discontinued components, including gains and losses on disposals			(31,420	)			(31,608	)			(18,185	)
Income tax benefit			11,627				12,623				7,229
Loss from discontinued operations			(19,793	)			(18,985	)			(10,956	)
Net income		$	215,173			$	163,759			$	139,759
Earnings from continuing operations per share:
Basic		$	2.65			$	2.08			$	1.73
Diluted		$	2.58			$	2.03			$	1.70
Loss from discontinued operations per share:
Basic		$	(0.22	)		$	(0.22	)		$	(0.12	)
Diluted		$	(0.22	)		$	(0.21	)		$	(0.12	)
Earnings per share:
Basic		$	2.43			$	1.86			$	1.61
Diluted		$	2.36			$	1.82			$	1.58
Weighted-average common shares outstanding:
Basic			88,559				87,952				87,006
Diluted			91,163				89,820				88,489