Edgar Filing: HENRY SCHEIN INC

the2q15_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 27, 2015

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

For the transition period from ____________ to ____________

Commission File Number: 0-27078

HENRY SCHEIN, INC.

(Exact name of registrant as specified in its charter)

Delaware	11-3136595
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

135 Duryea Road

Melville, New York

(Address of principal executive offices)

11747

(Zip Code)

(631) 843-5500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X

No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X

No __

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

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

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

Yes __

No X

As of July 24, 2015, there were 83,396,962 shares of the registrant’s common stock outstanding.



HENRY SCHEIN, INC.
INDEX

				Page

PART I. FINANCIAL INFORMATION


ITEM 1.	Consolidated Financial Statements:

		Balance Sheets as of June 27, 2015 and December 27, 2014		3

		Statements of Income for the three and six months ended
			June 27, 2015 and June 28, 2014	4

		Statements of Comprehensive Income for the three and six months ended
			June 27, 2015 and June 28, 2014	5

		Statement of Changes in Stockholders' Equity for the six months ended
			June 27, 2015	6

		Statements of Cash Flows for the six months ended
			June 27, 2015 and June 28, 2014	7

		Notes to Consolidated Financial Statements		8

ITEM 2.	Management's Discussion and Analysis of
		Financial Condition and Results of Operations		22

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk			40

ITEM 4.	Controls and Procedures			40

PART II. OTHER INFORMATION



ITEM 1.	Legal Proceedings			41

ITEM 1A.	Risk Factors			41

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds			41

ITEM 6.	Exhibits			42

	Signature			43

Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HENRY SCHEIN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

	June 27,			December 27,
	2015			2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	47,068		$	89,474
Accounts receivable, net of reserves of $75,142 and $80,671		1,164,380			1,127,517
Inventories, net		1,314,220			1,327,796
Deferred income taxes		57,535			56,591
Prepaid expenses and other		322,134			311,788
Total current assets		2,905,337			2,913,166
Property and equipment, net		310,333			311,496
Goodwill		1,871,844			1,884,123
Other intangibles, net		601,118			643,736
Investments and other		416,994			386,286
Total assets	$	6,105,626		$	6,138,807

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	778,748		$	860,996
Bank credit lines		132,428			182,899
Current maturities of long-term debt		14,716			5,815
Accrued expenses:
Payroll and related		221,335			237,511
Taxes		155,420			151,162
Other		334,095			341,728
Total current liabilities		1,636,742			1,780,111
Long-term debt		588,523			542,776
Deferred income taxes		252,969			253,118
Other liabilities		193,704			181,830
Total liabilities		2,671,938			2,757,835

Redeemable noncontrolling interests		567,672			564,527
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,
83,654,154 outstanding on June 27, 2015 and
84,008,537 outstanding on December 27, 2014		837			840
Additional paid-in capital		248,772			265,363
Retained earnings		2,779,521			2,642,523
Accumulated other comprehensive loss		(165,737	)		(95,132	)
Total Henry Schein, Inc. stockholders' equity		2,863,393			2,813,594
Noncontrolling interests		2,623			2,851
Total stockholders' equity		2,866,016			2,816,445
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	6,105,626		$	6,138,807

See accompanying notes.

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

	Three Months Ended						Six Months Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014

Net sales	$	2,629,320		$	2,615,406		$	5,092,966		$	5,045,565
Cost of sales		1,878,642			1,886,934			3,628,893			3,620,380
Gross profit		750,678			728,472			1,464,073			1,425,185
Operating expenses:
Selling, general and administrative		560,426			547,628			1,105,592			1,087,073
Restructuring costs		7,222			-			14,084			-
Operating income		183,030			180,844			344,397			338,112
Other income (expense):
Interest income		3,257			3,416			6,712			6,871
Interest expense		(6,290	)		(5,670	)		(12,553	)		(10,928	)
Other, net		(177	)		1,032			(57	)		4,612
Income before taxes and equity in earnings
of affiliates		179,820			179,622			338,499			338,667
Income taxes		(53,784	)		(55,322	)		(102,911	)		(104,945	)
Equity in earnings of affiliates		3,572			2,817			5,600			3,523
Net income		129,608			127,117			241,188			237,245
Less: Net income attributable to noncontrolling interests		(11,680	)		(10,881	)		(19,813	)		(18,910	)
Net income attributable to Henry Schein, Inc.	$	117,928		$	116,236		$	221,375		$	218,335

Earnings per share attributable to Henry Schein, Inc.:

Basic	$	1.42		$	1.37		$	2.66		$	2.58
Diluted	$	1.40		$	1.35		$	2.62		$	2.53

Weighted-average common shares outstanding:
Basic		83,053			84,620			83,139			84,716
Diluted		84,249			85,980			84,433			86,189

See accompanying notes.

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

	Three Months Ended						Six Months Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014

Net income	$	129,608		$	127,117		$	241,188		$	237,245

Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)		35,725			6,828			(74,147	)		14,620

Unrealized gain (loss) from foreign currency hedging
activities		1,234			(772	)		(654	)		(1,720	)

Unrealized investment gain		2			27			2			38

Pension adjustment gain (loss)		(275	)		249			1,174			517

Other comprehensive income (loss), net of tax		36,686			6,332			(73,625	)		13,455
Comprehensive income		166,294			133,449			167,563			250,700
Comprehensive income attributable to noncontrolling
interests:
Net income		(11,680	)		(10,881	)		(19,813	)		(18,910	)
Foreign currency translation loss (gain)		(556	)		(491	)		3,020			(2,601	)
Comprehensive income attributable to noncontrolling
interests		(12,236	)		(11,372	)		(16,793	)		(21,511	)

Comprehensive income attributable to Henry Schein, Inc.	$	154,058		$	122,077		$	150,770		$	229,189

See accompanying notes.

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HENRY SCHEIN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share and per share data)
													Accumulated
	Common Stock						Additional						Other						Total
	$.01 Par Value						Paid-in			Retained			Comprehensive			Noncontrolling			Stockholders'
	Shares			Amount			Capital			Earnings			Loss			Interests			Equity
Balance, December 27, 2014		84,008,537		$	840		$	265,363		$	2,642,523		$	(95,132	)	$	2,851		$	2,816,445
Net income (excluding $19,441 attributable to Redeemable
noncontrolling interests)		-			-			-			221,375			-			372			221,747
Foreign currency translation gain (loss) (excluding loss of
$3,033 attributable to Redeemable noncontrolling interests)		-			-			-			-			(71,127	)		13			(71,114	)
Unrealized loss from foreign currency hedging activities,
including tax benefit of $167		-			-			-			-			(654	)		-			(654	)
Unrealized investment gain, net of tax of $0		-			-			-			-			2			-			2
Pension adjustment gain, net of tax of $538		-			-			-			-			1,174			-			1,174
Dividends paid		-			-			-			-			-			(245	)		(245	)
Initial noncontrolling interests and adjustments related to
business acquisitions		-			-			-			-			-			(368	)		(368	)
Change in fair value of redeemable securities		-			-			(9,319	)		-			-			-			(9,319	)
Other adjustments		-			-			54			-			-			-			54
Repurchase and retirement of common stock		(808,786	)		(8	)		(28,822	)		(84,377	)		-			-			(113,207	)
Stock issued upon exercise of stock options,
including tax benefit of $16,547		221,226			2			27,403			-			-			-			27,405
Stock-based compensation expense		427,434			4			21,997			-			-			-			22,001
Shares withheld for payroll taxes		(194,257	)		(1	)		(27,555	)		-			-			-			(27,556	)
Liability for cash settlement stock-based compensation awards		-			-			(349	)		-			-			-			(349	)

Balance, June 27, 2015		83,654,154		$	837		$	248,772		$	2,779,521		$	(165,737	)	$	2,623		$	2,866,016

See accompanying notes.

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

	Six Months Ended
	June 27,			June 28,
	2015			2014

Cash flows from operating activities:
Net income	$	241,188		$	237,245
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		76,175			73,489
Stock-based compensation expense		22,001			19,505
Provision for losses on trade and other accounts receivable		2,290			2,415
Provision for deferred income taxes		12,335			6,009
Equity in earnings of affiliates		(5,600	)		(3,523	)
Distributions from equity affiliates		6,113			5,340
Changes in unrecognized tax benefits		4,297			7,434
Other		4,862			8,019
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(55,452	)		(86,199	)
Inventories		(3,024	)		48,550
Other current assets		(26,349	)		(23,251	)
Accounts payable and accrued expenses		(97,734	)		(151,050	)
Net cash provided by operating activities		181,102			143,983

Cash flows from investing activities:
Purchases of fixed assets		(33,430	)		(37,976	)
Payments for equity investments and business
acquisitions, net of cash acquired		(61,316	)		(222,857	)
Proceeds from sales of available-for-sale securities		20			-
Other		(3,179	)		(6,497	)
Net cash used in investing activities		(97,905	)		(267,330	)

Cash flows from financing activities:
Proceeds from (repayments of) bank borrowings		(49,989	)		53,239
Proceeds from issuance of debt		125,000			314,787
Debt issuance costs		(150	)		-
Principal payments for long-term debt		(69,243	)		(100,866	)
Proceeds from issuance of stock upon exercise of stock options		10,858			21,277
Payments for repurchases of common stock		(113,207	)		(151,443	)
Excess tax benefits related to stock-based compensation		2,932			4,579
Distributions to noncontrolling shareholders		(14,681	)		(17,689	)
Acquisitions of noncontrolling interests in subsidiaries		(8,257	)		(102,552	)
Net cash provided by (used in) financing activities		(116,737	)		21,332

Effect of exchange rate changes on cash and cash equivalents		(8,866	)		3,097
Net change in cash and cash equivalents		(42,406	)		(98,918	)
Cash and cash equivalents, beginning of period		89,474			188,616
Cash and cash equivalents, end of period	$	47,068		$	89,698

See accompanying notes.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 1 – Basis of Presentation

Our consolidated financial statements include our accounts, as well as those of our wholly-owned and majority-owned subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation.

Our accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by U.S. GAAP for complete financial statements.

The consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the consolidated results of operations and financial position for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 27, 2014.

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the six months ended June 27, 2015 are not necessarily indicative of the results to be expected for any other interim period or for the year ending December 26, 2015.

Note 2 – Segment Data

We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and value-added services. These segments offer different products and services to the same customer base.

The health care distribution reportable segment aggregates our global dental, animal health and medical operating segments. This segment distributes consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins. Our global dental group serves office-based dental practitioners, dental laboratories, schools and other institutions. Our global animal health group serves animal health practices and clinics. Our global medical group serves office-based medical practitioners, ambulatory surgery centers, other alternate-care settings and other institutions. Our global dental, animal health and medical groups serve practitioners in 30 countries worldwide.

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

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 2 – Segment Data – (Continued)

The following tables present information about our reportable and operating segments:

				Three Months Ended				Six Months Ended
				June 27,		June 28,		June 27,		June 28,
				2015		2014		2015		2014
Net Sales:
	Health care distribution (1):
		Dental		$	1,320,743	$	1,368,481	$	2,570,816	$	2,665,409
		Animal health			748,558		754,549		1,432,882		1,409,037
		Medical			470,519		403,257		914,052		800,671
			Total health care distribution		2,539,820		2,526,287		4,917,750		4,875,117
	Technology and value-added services (2)				89,500		89,119		175,216		170,448
		Total		$	2,629,320	$	2,615,406	$	5,092,966	$	5,045,565


(1)		Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and
		generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins.

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


				Three Months Ended				Six Months Ended
				June 27,		June 28,		June 27,		June 28,
				2015		2014		2015		2014
Operating Income:
	Health care distribution			$	156,168	$	153,578	$	292,307	$	287,397
	Technology and value-added services				26,862		27,266		52,090		50,715
		Total		$	183,030	$	180,844	$	344,397	$	338,112

Note 3 – Debt

Bank Credit Lines

On September 12, 2012, we entered into a new $500 million revolving credit agreement (the “Credit Agreement”) with a $200 million expansion feature, which was originally set to expire on September 12, 2017. On September 22, 2014, we extended the expiration date of the Credit Agreement to September 22, 2019. The interest rate is based on the USD LIBOR plus a spread based on our leverage ratio at the end of each financial reporting quarter. The Credit Agreement provides, among other things, that we are required to maintain maximum leverage ratios, and contains customary representations, warranties and affirmative covenants. The Credit Agreement also contains customary negative covenants, subject to negotiated exceptions on liens, indebtedness, significant corporate changes (including mergers), dispositions and certain restrictive agreements. There was no balance outstanding under this revolving credit facility as of June 27, 2015 and December 27, 2014. As of June 27, 2015 and December 27, 2014, there were $10.1 million of letters of credit provided to third parties under the credit facility.

As of June 27, 2015 and December 27, 2014, we had various other short-term bank credit lines available, of which $132.4 million and $182.9 million, respectively, were outstanding. At June 27, 2015 and December 27, 2014, borrowings under all of our credit lines had a weighted average interest rate of 1.36% and 1.26%, respectively.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 3 – Debt – (Continued)

Private Placement Facilities

On August 10, 2010, we entered into $400 million private placement facilities with two insurance companies. On April 30, 2012, we increased our available credit facilities by $375 million by entering into a new agreement with one insurance company and amending our existing agreements with two insurance companies. On September 22, 2014, we increased our available private placement facilities by $200 million to a total facility amount of $975 million, and extended the expiration date to September 22, 2017. These facilities are available on an uncommitted basis at fixed rate economic terms to be agreed upon at the time of issuance, from time to time through September 22, 2017. The facilities allow us to issue senior promissory notes to the lenders at a fixed rate based on an agreed upon spread over applicable treasury notes at the time of issuance. The term of each possible issuance will be selected by us and can range from five to 15 years (with an average life no longer than 12 years). The proceeds of any issuances under the facilities will be used for general corporate purposes, including working capital and capital expenditures, to refinance existing indebtedness and/or to fund potential acquisitions. The agreements provide, among other things, that we maintain certain maximum leverage ratios, and contain restrictions relating to subsidiary indebtedness, liens, affiliate transactions, disposal of assets and certain changes in ownership. These facilities contain make-whole provisions in the event that we pay off the facilities prior to the applicable due dates.

The components of our private placement facility borrowings as of June 27, 2015 are presented in the following table (in thousands):

	Amount of
	Borrowing		Borrowing
Date of Borrowing	Outstanding		Rate		Due Date
September 2, 2010	$	100,000	3.79	%	September 2, 2020
January 20, 2012		50,000	3.45		January 20, 2024
January 20, 2012 (1)		50,000	3.09		January 20, 2022
December 24, 2012		50,000	3.00		December 24, 2024
June 2, 2014		100,000	3.19		June 2, 2021
	$	350,000


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

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 3 – Debt – (Continued)

U.S. Trade Accounts Receivable Securitization

On April 17, 2013, we entered into a facility agreement of up to $300 million with a bank, as agent, based on the securitization of our U.S. trade accounts receivable. This facility allowed us to replace public debt (approximately $220 million), which had a higher interest rate at Henry Schein Animal Health during February 2013 and provided funding for working capital and general corporate purposes. The financing was structured as an asset-backed securitization program with pricing committed for up to three years. On April 17, 2015, we extended the expiration date of this facility agreement to April 15, 2018. The borrowings outstanding under this securitization facility were $210.0 million and $150.0 million as of June 27, 2015 and December 27, 2014, respectively. At June 27, 2015, the interest rate on borrowings under this facility was based on the average asset-backed commercial paper rate of 21 basis points plus 75 basis points, for a combined rate of 0.96%. At December 27, 2014, the interest rate on borrowings under this facility was based on the average asset-backed commercial paper rate of 20 basis points plus 75 basis points, for a combined rate of 0.95%.

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

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

Long-term debt

Long-term debt consisted of the following:

	June 27,			December 27,
	2015			2014
Private placement facilities	$	350,000		$	350,000
U.S. trade accounts receivable securitization		210,000			150,000
Notes payable to banks at a weighted-average interest rate of 8.83%		14			30
Various collateralized and uncollateralized loans payable with interest,
in varying installments through 2018 at interest rates ranging
from 1.92% to 5.41%		41,038			41,259
Capital lease obligations payable through 2019 with interest rates
ranging from 2.00% to 11.49%		2,187			7,302
Total		603,239			548,591
Less current maturities		(14,716	)		(5,815	)
Total long-term debt	$	588,523		$	542,776

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 4 – Redeemable Noncontrolling Interests

Some minority shareholders in certain of our subsidiaries have the right, at certain times, to require us to acquire their ownership interest in those entities at fair value. Accounting Standards Codification (“ASC”) Topic 480-10 is applicable for noncontrolling interests where we are or may be required to purchase all or a portion of the outstanding interest in a consolidated subsidiary from the noncontrolling interest holder under the terms of a put option contained in contractual agreements. The components of the change in the Redeemable noncontrolling interests for the six months ended June 27, 2015 and the year ended December 27, 2014 are presented in the following table:

	June 27,			December 27,
	2015			2014
Balance, beginning of period	$	564,527		$	497,539
Decrease in redeemable noncontrolling interests due to
redemptions		(8,257	)		(105,383	)
Increase in redeemable noncontrolling interests due to business
acquisitions		885			120,220
Net income attributable to redeemable noncontrolling interests		19,441			38,741
Dividends declared		(15,210	)		(23,346	)
Effect of foreign currency translation loss attributable to
redeemable noncontrolling interests		(3,033	)		(4,080	)
Change in fair value of redeemable securities		9,319			40,836
Balance, end of period	$	567,672		$	564,527

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

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 5 – Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income as such amounts are recorded directly as an adjustment to stockholders’ equity. Our comprehensive income is primarily comprised of net income, foreign currency translation gain (loss), unrealized gain (loss) on foreign currency hedging activities, unrealized investment gain (loss) and pension adjustment gain (loss).

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

	June 27,			December 27,
	2015			2014
Attributable to Redeemable noncontrolling interests:
Foreign currency translation adjustment	$	(8,616	)	$	(5,583	)

Attributable to noncontrolling interests:
Foreign currency translation adjustment	$	(23	)	$	(36	)

Attributable to Henry Schein, Inc.:
Foreign currency translation loss	$	(142,421	)	$	(71,294	)
Unrealized loss from foreign currency hedging activities		(1,709	)		(1,055	)
Unrealized investment loss		(134	)		(136	)
Pension adjustment loss		(21,473	)		(22,647	)
Accumulated other comprehensive loss	$	(165,737	)	$	(95,132	)

Total Accumulated other comprehensive loss	$	(174,376	)	$	(100,751	)

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

	Three Months Ended						Six Months Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014
Net income	$	129,608		$	127,117		$	241,188		$	237,245

Foreign currency translation gain (loss)		35,725			6,828			(74,147	)		14,620
Tax effect		-			-			-			-
Foreign currency translation gain (loss)		35,725			6,828			(74,147	)		14,620

Unrealized gain (loss) from foreign currency hedging
activities		1,353			(869	)		(821	)		(2,021	)
Tax effect		(119	)		97			167			301
Unrealized gain (loss) from foreign currency hedging
activities		1,234			(772	)		(654	)		(1,720	)

Unrealized investment gain		2			44			2			62
Tax effect		-			(17	)		-			(24	)
Unrealized investment gain		2			27			2			38

Pension adjustment gain (loss)		(369	)		235			1,712			581
Tax effect		94			14			(538	)		(64	)
Pension adjustment gain (loss)		(275	)		249			1,174			517
Comprehensive income	$	166,294		$	133,449		$	167,563		$	250,700

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 5 – Comprehensive Income – (Continued)

During the three months ended June 27, 2015 and June 28, 2014, we recognized as a component of our comprehensive income, a foreign currency translation gain of $35.7 million and $6.8 million, respectively, due to changes in foreign exchange rates from the beginning of the period to the end of the period. During the six months ended June 27, 2015 and June 28, 2014, we recognized as a component of our comprehensive income, a foreign currency translation gain (loss) of $(74.1) million and $14.6 million, respectively, due to changes in foreign exchange rates from the beginning of the period to the end of the period. Our financial statements are denominated in the U.S. Dollar currency. Fluctuations in the value of foreign currencies as compared to the U.S. Dollar may have a significant impact on our comprehensive income. The foreign currency translation gain (loss) during the three and six months ended June 27, 2015 was impacted by changes in foreign currency exchange rates as follows:

	Foreign Currency					Foreign Currency
	Translation					Translation
	Gain (Loss)					Gain (Loss)
	for the Three					for the Three
	Months Ended			FX Rate into USD		Months Ended			FX Rate into USD
	June 27,			June 27,	March 28,	June 28,			June 28,	March 29,
Currency	2015			2015	2015	2014			2014	2014
Euro	$	17,698		1.12	1.09	$	(7,088	)	1.36	1.38
British Pound		14,145		1.57	1.49		7,237		1.70	1.66
Australian Dollar		(4,318	)	0.77	0.78		3,380		0.94	0.92
Polish Zloty		214		0.27	0.27		(208	)	0.33	0.33
Canadian Dollar		5,368		0.81	0.80		3,090		0.94	0.90
Swiss Franc		1,866		1.07	1.04		(373	)	1.12	1.13
Brazilian Real		486		0.32	0.31		159		0.45	0.44
All other currencies		266					631
Total	$	35,725				$	6,828


	Foreign Currency					Foreign Currency
	Translation					Translation
	Gain (Loss)					Gain (Loss)
	for the Six					for the Six
	Months Ended			FX Rate into USD		Months Ended			FX Rate into USD
	June 27,			June 27,	December 27,	June 28,			June 28,	December 28,
Currency	2015			2015	2014	2014			2014	2013
Euro	$	(59,640	)	1.12	1.22	$	(7,529	)	1.36	1.38
British Pound		(107	)	1.57	1.56		10,266		1.70	1.65
Australian Dollar		(11,805	)	0.77	0.81		11,407		0.94	0.89
Polish Zloty		(1,851	)	0.27	0.28		(286	)	0.33	0.33
Canadian Dollar		(1,343	)	0.81	0.86		706		0.94	0.94
Swiss Franc		3,704		1.07	1.01		(182	)	1.12	1.12
Brazilian Real		(2,614	)	0.32	0.37		159		0.45	0.43
All other currencies		(491	)				79
Total	$	(74,147	)			$	14,620

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 5 – Comprehensive Income – (Continued)

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

	Three Months Ended				Six Months Ended
	June 27,		June 28,		June 27,		June 28,
	2015		2014		2015		2014
Comprehensive income attributable to
Henry Schein, Inc.	$	154,058	$	122,077	$	150,770	$	229,189
Comprehensive income attributable to
noncontrolling interests		189		188		385		259
Comprehensive income attributable to
Redeemable noncontrolling interests		12,047		11,184		16,408		21,252
Comprehensive income	$	166,294	$	133,449	$	167,563	$	250,700

Note 6 – Fair Value Measurements

ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”) provides a framework for measuring fair value in generally accepted accounting principles.

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

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

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

• Level 2— Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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

The following section describes the valuation methodologies that we used to measure different financial instruments at fair value.

Investments and notes receivable

There are no quoted market prices available for investments in unconsolidated affiliates and notes receivable; however, we believe the carrying amounts are a reasonable estimate of fair value.

Debt

The fair value of our debt as of June 27, 2015 and December 27, 2014 was estimated at $735.7 million and $731.5 million, respectively. Factors that we considered when estimating the fair value of our debt include market conditions, prepayment and make-whole provisions, liquidity levels in the private placement market, variability in pricing from multiple lenders and term of debt.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 6 – Fair Value Measurements – (Continued)

Derivative contracts

Derivative contracts are valued using quoted market prices and significant other observable and unobservable inputs. We use derivative instruments to minimize our exposure to fluctuations in foreign currency exchange rates. Our derivative instruments primarily include foreign currency forward agreements related to intercompany loans and certain forecasted inventory purchase commitments with suppliers.

The fair values for the majority of our foreign currency derivative contracts are obtained by comparing our contract rate to a published forward price of the underlying market rates, which is based on market rates for comparable transactions and are classified within Level 2 of the fair value hierarchy.

Redeemable noncontrolling interests

Some minority 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. The primary factor affecting the future value of redeemable noncontrolling interests is expected earnings and, if such earnings are not achieved, the value of the redeemable noncontrolling interests might be impacted. The noncontrolling interests subject to put options are adjusted to their estimated redemption amounts each reporting period with a corresponding adjustment to Additional paid-in capital. Future reductions in the carrying amounts are subject to a “floor” amount that is equal to the fair value of the redeemable noncontrolling interests at the time they were originally recorded. The recorded value of the redeemable noncontrolling interests cannot go below the floor level. These adjustments do not impact the calculation of earnings per share. The values for Redeemable noncontrolling interests are classified within Level 3 of the fair value hierarchy. The details of the changes in Redeemable noncontrolling interests are presented in Note 4.

The following table presents our assets and liabilities that are measured and recognized at fair value on a recurring basis classified under the appropriate level of the fair value hierarchy as of June 27, 2015 and December 27, 2014:

	June 27, 2015
	Level 1		Level 2		Level 3		Total

Assets:
Derivative contracts	$	-	$	1,226	$	-	$	1,226
Total assets	$	-	$	1,226	$	-	$	1,226

Liabilities:
Derivative contracts	$	-	$	1,579	$	-	$	1,579
Total liabilities	$	-	$	1,579	$	-	$	1,579

Redeemable noncontrolling interests	$	-	$	-	$	567,672	$	567,672

	December 27, 2014
	Level 1		Level 2		Level 3		Total

Assets:
Derivative contracts	$	-	$	2,472	$	-	$	2,472
Total assets	$	-	$	2,472	$	-	$	2,472

Liabilities:
Derivative contracts	$	-	$	1,307	$	-	$	1,307
Total liabilities	$	-	$	1,307	$	-	$	1,307

Redeemable noncontrolling interests	$	-	$	-	$	564,527	$	564,527

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 7 – Business Acquisitions

Acquisitions

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

On July 10, 2015, we announced that, during the second quarter ended June 27, 2015, we made a 50% ownership investment in Maravet S.A. (“Maravet”), an animal health distributor in Romania. Maravet is a privately held company with annual sales of approximately $23 million.

On June 23, 2015, we announced an agreement to acquire an 85% interest in Jorgen Kruuse A/S (“KRUUSE”), a leading distributor of veterinary supplies in Denmark, Norway and Sweden. KRUUSE had sales in 2014 of approximately $90 million. The transaction is expected to close in the third quarter of 2015.

We completed certain other acquisitions during the six months ended June 27, 2015. Such acquisitions were immaterial to our financial statements individually and in the aggregate.

Some prior owners of such acquired subsidiaries are eligible to receive additional purchase price cash consideration if certain financial targets are met. We have accrued liabilities for the estimated fair value of additional purchase price consideration at the time of the acquisition. Any adjustments to these accrual amounts are recorded in our consolidated statements of income. For the six months ended June 27, 2015 and June 28, 2014, there were no material adjustments recorded in our consolidated statement of income relating to changes in estimated contingent purchase price liabilities.

Note 8 – Plan of Restructuring

On November 6, 2014, we announced a corporate initiative to rationalize our operations and provide expense efficiencies, which will occur throughout fiscal 2015. This initiative is expected to include the elimination of approximately 2% to 3% of our workforce and the closing of certain facilities. The costs associated with all actions to complete this restructuring are expected to be in the range of $35 million to $40 million pre-tax (approximately $0.29 to $0.33 per diluted share). We plan to reduce our cost structure to fund new initiatives to drive future growth as our 2015 – 2017 strategic planning cycle begins. During the three and six months ended June 27, 2015, we recorded $7.2 million and $14.1 million in restructuring costs, respectively.

On July 28, 2015, we estimated that the total remaining restructuring costs we expect to incur in connection with the restructuring activity to be $23 million to $28 million, consisting of $12 million to $14 million in employee severance pay and benefits, $9 million to $11 million in facility costs, representing primarily lease termination and other facility closure related costs, and $2 million to $3 million in other restructuring costs.

The costs associated with this restructuring are included in a separate line item, “Restructuring costs” within our consolidated statements of income.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 8 – Plan of Restructuring – (Continued)

The following table shows the amounts expensed and paid for restructuring costs that were incurred during the six months ended June 27, 2015 and during our 2014 fiscal year and the remaining accrued balance of restructuring costs as of June 27, 2015, which is included in Accrued expenses: Other and Other liabilities within our consolidated balance sheet:

				Facility
	Severance			Closing
	Costs			Costs			Other			Total
Balance, December 28, 2013	$	227		$	484		$	-		$	711
Provision		-			-			-			-
Payments and other adjustments		(107	)		(183	)		-			(290	)
Balance, December 27, 2014	$	120		$	301		$	-		$	421
Provision		11,227			1,753			1,104			14,084
Payments		(5,907	)		(796	)		(832	)		(7,535	)
Balance, June 27, 2015	$	5,440		$	1,258		$	272		$	6,970

The following table shows, by reportable segment, the amounts expensed and paid for restructuring costs that were incurred during the six months ended June 27, 2015 and the 2014 fiscal year and the remaining accrued balance of restructuring costs as of June 27, 2015:

				Technology and
	Health Care			Value-Added
	Distribution			Services			Total
Balance, December 28, 2013	$	711		$	-		$	711
Provision		-			-			-
Payments and other adjustments		(290	)		-			(290	)
Balance, December 27, 2014	$	421		$	-		$	421
Provision		13,104			980			14,084
Payments		(6,555	)		(980	)		(7,535	)
Balance, June 27, 2015	$	6,970		$	-		$	6,970

Note 9 – Earnings Per Share

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

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

		Three Months Ended		Six Months Ended
		June 27,	June 28,	June 27,	June 28,
		2015	2014	2015	2014
Basic		83,053	84,620	83,139	84,716
Effect of dilutive securities:
	Stock options, restricted stock and restricted stock units	1,196	1,360	1,294	1,473
	Diluted	84,249	85,980	84,433	86,189

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 10 – Income Taxes

For the six months ended June 27, 2015, our effective tax rate was 30.4% compared to 31.0% 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 and foreign income taxes and interest expense.

The total amount of unrecognized tax benefits as of June 27, 2015 was approximately $87.4 million, of which $64.2 million would affect the effective tax rate if recognized. It is expected that the amount of unrecognized tax benefits will change in the next 12 months; however, we do not expect the change to have a material impact on our consolidated financial statements.

The total amounts of interest and penalties, which are classified as a component of the provision for income taxes, were approximately $17.3 million and $0, respectively, for the six months ended June 27, 2015.

The tax years subject to examination by major tax jurisdictions include the years 2009 and forward by the U.S. Internal Revenue Service (“IRS”), as well as the years 2005 and forward for certain states and certain foreign jurisdictions. In December 2014, the IRS issued a Statutory Notice of Deficiency for 2009, 2010 and 2011. We do not expect this to have a significant effect on our consolidated financial position, liquidity or the results of operations. During the quarter ended March 28, 2015, we filed our petition to the U.S. Tax Court disputing the adjustments proposed by the IRS. During the quarter ended June 27, 2015, we were notified by the IRS that our protest was transferred to the Appellate Divisions (Appeals Section) of the IRS.

Note 11 – Derivatives and Hedging Activities

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

Fluctuations in the value of certain foreign currencies as compared to the U.S. dollar may positively or negatively affect our revenues, gross margins, operating expenses and retained earnings, all of which are expressed in U.S. dollars. Where we deem it prudent, we engage in hedging programs using primarily foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. We purchase short-term (i.e., 18 months or less) foreign currency forward contracts to protect against currency exchange risks associated with intercompany loans due from our international subsidiaries and the payment of merchandise purchases to our foreign suppliers. We do not hedge the translation of foreign currency profits into U.S. dollars, as we regard this as an accounting exposure, not an economic exposure. Our hedging activities have historically not had a material impact on our consolidated financial statements. Accordingly, additional disclosures related to derivatives and hedging activities required by ASC Topic 815 have been omitted.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 12 – Stock-Based Compensation

Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of $13.5 million ($9.4 million after-tax) and $22.0 million ($15.3 million after-tax) for the three and six months ended June 27, 2015, respectively, and $10.5 million ($7.3 million after-tax) and $19.5 million ($13.5 million after-tax) for the three and six months ended June 28, 2014, respectively.

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

Stock-based awards are provided to certain employees and non-employee directors under the terms of our 2013 Stock Incentive Plan, as amended, and our 2015 Non-Employee Director Stock Incentive Plan (together, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Prior to March 2009, awards under the Plans principally included a combination of at-the-money stock options and restricted stock/units. Since March 2009, equity-based awards have been granted solely in the form of restricted stock/units, with the exception of providing stock options to employees pursuant to certain pre-existing contractual obligations.

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

With respect to time-based restricted stock/units, we estimate the fair value on the date of grant based on our closing stock price. With respect to performance-based restricted stock/units, the number of shares that ultimately vest and are received by the recipient is based upon our performance as measured against specified targets over a three-year period as determined by the Compensation Committee of the Board of Directors. Although there is no guarantee that performance targets will be achieved, we estimate the fair value of performance-based restricted stock/units based on our closing stock price at time of grant.

The Plans provide for adjustments to the performance-based restricted stock/units targets for significant events such as acquisitions, divestitures, new business ventures, share repurchases and certain foreign exchange fluctuations. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense is adjusted upward or downward based upon our estimation of achieving such performance targets. The ultimate number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on our actual performance metrics as defined under the Plans.

Total unrecognized compensation cost related to non-vested awards as of June 27, 2015 was $120.8 million, which is expected to be recognized over a weighted-average period of approximately 2.3 years.

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HENRY SCHEIN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

Note 12 – Stock-Based Compensation – (Continued)

The following table summarizes stock option activity under the Plans during the six months ended June 27, 2015:

				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
		Exercise		Life in	Intrinsic
	Shares	Price		Years	Value
Outstanding at beginning of period	684	$	53.41
Granted	-		-
Exercised	(223)		49.31
Forfeited	-		-
Outstanding at end of period	461	$	55.39	2.1	$	41,541

Options exercisable at end of period	461	$	55.39	2.1	$	41,541

The following tables summarize the activity of our non-vested restricted stock/units for the six months ended June 27, 2015:

	Time-Based Restricted Stock/Units
		Weighted Average
		Grant Date Fair		Intrinsic Value
	Shares/Units	Value Per Share		Per Share
Outstanding at beginning of period	836	$	83.86
Granted	164		140.81
Vested	(207)		72.17
Forfeited	(10)		94.94
Outstanding at end of period	783	$	98.72	$	145.45


	Performance-Based Restricted Stock/Units
		Weighted Average
		Grant Date Fair		Intrinsic Value
	Shares/Units	Value Per Share		Per Share
Outstanding at beginning of period	1,127	$	77.19
Granted	253		130.09
Vested	(297)		73.50
Forfeited	(7)		102.74
Outstanding at end of period	1,076	$	96.12	$	145.45

Note 13 – Supplemental Cash Flow Information

Cash paid for interest and income taxes was:

	Six Months Ended
	June 27,		June 28,
	2015		2014
Interest	$	11,596	$	9,712
Income taxes		93,936		95,105

During the six months ended June 27, 2015 and June 28, 2014, we had $0.8 million and $2.0 million of non-cash net unrealized losses related to foreign currency hedging activities, respectively.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

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

Risk factors and uncertainties that could cause actual results to differ materially from current and historical results include, but are not limited to: effects of a highly competitive market; our dependence on third parties for the manufacture and supply of our products; our dependence upon sales personnel, customers, suppliers and manufacturers; our dependence on our senior management; fluctuations in quarterly earnings; risks from expansion of customer purchasing power and multi-tiered costing structures; possible increases in the cost of shipping our products or other service issues with our third-party shippers; general global macro-economic conditions; disruptions in financial markets; possible volatility of the market price of our common stock; changes in the health care industry; implementation of health care laws; failure to comply with regulatory requirements and data privacy laws; risks associated with our global operations; transitional challenges associated with acquisitions and joint ventures, including the failure to achieve anticipated synergies; financial risks associated with acquisitions and joint ventures; litigation risks; the dependence on our continued product development, technical support and successful marketing in the technology segment; risks from challenges associated with the emergence of potential increased competition by third-party online commerce sites; risks from disruption to our information systems; certain provisions in our governing documents that may discourage third-party acquisitions of us; and changes in tax legislation. The order in which these factors appear should not be construed to indicate their relative importance or priority.

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

Where You Can Find Important Information

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

Executive-Level Overview

We believe we are the world’s largest provider of health care products and services primarily to office-based dental, animal health and medical practitioners. We serve more than 1 million customers worldwide including dental practitioners and laboratories, animal health clinics and physician practices, as well as government, institutional health care clinics and other alternate care clinics. We believe that we have a strong brand identity due to our more than 83 years of experience distributing health care products.

We are headquartered in Melville, New York, employ more than 18,000 people (of which more than 8,000 are based outside the United States) and have operations or affiliates in 30 countries, including the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, France, Germany, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, South Africa, Spain, Switzerland, Thailand and the United Kingdom.

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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.

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

Industry Overview

In recent years, the health care industry has increasingly focused on cost containment. This trend has benefited 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 health care industry, including consolidation of health care distribution companies, health care reform, trends toward managed care, cuts in Medicare and collective purchasing arrangements.

Our current and future results have been and could be impacted by the current economic environment and uncertainty, particularly impacting overall demand for our products and services.

Industry Consolidation

The health care products distribution industry, as it relates to office-based health care practitioners, is highly fragmented and diverse. This industry, which encompasses the dental, animal health and medical markets, was estimated to produce revenues of approximately $45 billion in 2014 in the global markets. The industry ranges from sole practitioners working out of relatively small offices to group practices or service organizations ranging in size from a few practitioners to a large number of practitioners who have combined or otherwise associated their practices.

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

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The trend of consolidation extends to our customer base. Health care practitioners are increasingly seeking to partner, affiliate or combine with larger entities such as hospitals, health systems, group practices or physician hospital organizations. In many cases, purchasing decisions for consolidated groups are made at a centralized or professional staff level; however, orders are delivered to the practitioners’ offices.

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

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

As industry consolidation continues, we believe that we are positioned to capitalize on this trend, as we believe we have the ability to support increased sales through our existing infrastructure. We also have invested in expanding our sales/marketing infrastructure to include a focus on building relationships with decision makers who do not reside in the office-based practitioner setting.

As the health care industry continues to change, we continually evaluate possible candidates for merger and joint venture or acquisition and intend to continue to seek opportunities to expand our role as a provider of products and services to the health care industry. There can be no assurance that we will be able to successfully pursue any such