Good morning, ladies and gentlemen, and welcome to the Henry Schein Second Quarter Continue Call. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Neal Goldner, Henry Schein's Vice President of Investor Relations. Please go ahead, Neal.

Thank you, Courtney, and my many thanks to each of you for joining us to discuss Henry Schein's second quarter results. If you have not received a copy of our earnings news release, you can access it on our website at www.henryschein.com. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein and Steven Paladino, Executive Vice President and Chief Financial Officer. Before we begin, I would like to state that certain comments made during this call will include information that is forward-looking. As you know, risks and uncertainties involved in our company's business may affect the matters referred to forward in looking statements. As a result the company's performance may differ from those expressed in or indicated by such forward-looking statements. Also these forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein's Securities and Exchange Commissions filings. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 5, 2008. Henry Schein undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. I asked that during the Q&A portion of today's call, you limit yourself to a single question and a follow-up before returning to the queue. This will provide the opportunity for as many listeners as possible to ask a question within the one hour we have allotted for this call. With that said, I would like to turn the call over to Stanley Bergman. Stanley?

Thank you, Neal. Good morning everyone and thank you for joining us. We are delighted to report a 19% increase in net sales and a 20% increase in earnings from continuing operations for the second quarter of 2008. These results reflect a strong contribution from our International Group, as well as solid growth here in the United States from our Dental Group. We have said before that our customers' practices are relatively resistant to macroeconomic trends, they are certainly not immune and our first half results clearly support this thinking. Our results also illustrate Henry Schein's ability to deliver consistently strong sales and earnings growth. We remain confident about the future of Henry Schein and the confidence that we feel is demonstrated by the fact that in the last quarter we repurchased approximately $32 million of our common stock during the quarter. In a moment I will provide some commentary on each of our four business groups. But first I'll ask our Chief Financial Officer, Steve Paladino, to provide an overview of our second quarter financial results. Steve?

Okay, thank you, Stan. Let me begin by saying that I am also very pleased to report very strong financial performance for the second quarter. Let me first point out that our prior year information was restated to report the oncology pharmaceutical and specialty pharmacy businesses as discontinued operations. So for purposes of comparison, I will discuss our Q2 2008 results compared with results from continuing operations in the prior quarter. There is no impact from our discontinued operations in the current year's quarter. Our net sales for the quarter ended June 28, 2008 were $1.6 billion, reflecting 18.6% growth over the second quarter of 2007 or 13.6% growth in local currencies. 4% of this growth was internally generated, while 9.6% was acquisition growth, primarily due to the acquisitions of Dunlop, a leading UK animal health products supplier, as well as Software of Excellence, a leading provider and supplier of practice management systems in the UK, Australia and New Zealand, and finally by our acquisition of Minerva, a full service dental distributor in the UK. Please note that our details of sales growth are contained in Exhibit A, which is attached to our earnings release issued earlier today. We also previously announced an initiative of reducing sales of certain lower margin pharmaceutical products. Excluding the sales of those products, our internal sales growth in local currencies was approximately 6.6% for the quarter. Our operating margin for the second quarter of 2008 was 6.9% and was more than 30 basis points higher than the second quarter of 2007. Our effective tax rate for the quarter was 34.1%. That compares to 34.3% in the second quarter of 2007. We expect our full year 2008 effective tax rate to remain in the 34% range. Our second quarter net income was $65.5 million, which…

Thank you very much, Steve. I would like to provide you with some additional commentary on each of our four business groups. On the Dental side, we posted, as you can see from the press release, a solid sales growth during the quarter and continue to gain market share in both the consumable merchandise and equipment product categories. Our Dental customers continue to have busy practices and while certain aspects of the business are impacted by macroeconomic conditions, our sales mix reflects relatively modest exposure to those high-end and elective procedures. This was evident in our 9% growth in consumer dental merchandise this quarter with over two-thirds of that coming from internal growth. So, we believe that both from an internal growth point of view and, of course, from a total growth point of view, we continue to gain market share on the consumable side in a relatively healthy market andm of course, on the equipment side. On the equipment side, we recorded another quarter of double-digit growth and continue to be pleased with our relationship with our key equipment suppliers, including the Donahue [ph] Group, Serona, and BIOLASE. The quarter was highlighted by gains in high-tech products, including digital imaging and the progress we are making with the E4D launch. The quarter marked our first full quarter of E4D, the CAD/CAM product. I'm happy to report that we saw acceleration in sales of E4D compared with the first quarter and we expect further acceleration in the third and fourth quarters of 2008 and, of course, into 2009 when we will see our first full year of E4D sales. As we've said previously, during this time our primary goal is to ensure that our early user experiences from the use of E4D are overwhelming positive. We are delighted that feedback…

[Operator Instructions].And our first question comes from Glen Santangelo.

Yes. Stan, just a quick question following up on something you said earlier. In your prepared remarks on Dental, you sort of suggested that the company continues to gain market share on both the equipment side as well as the consumable side. Could you maybe give us a little bit more detail around that and do you think the market share is coming from business that's traditionally gone direct or you think you're taking some of that from you distribution competitors? And then maybe if you can give us a couple of more specific areas as to where you think you are taking market share on the equipment side that would be helpful.

Glen, we think the markets have been growing at about 5% or so for the last several years. It may have slowed down just a tad, may have been made up by a little bit of inflation. It's hard to gauge the specific growth number that precisely to the nearest basis point. Having said that, we are growing at more than 5% internally from a merchandise point of view and about double that from an equipment point of view. We think the merchandise business growth is coming from across the board from our competitors. We don't think that has been impacted in any material way by direct products that are not going through the channel. ARESTIN itself is an agency relationship. So we only book our commission so that really doesn't really... that does impact to sales much although it's quite profitable. And I mentioned earlier on the launch has been quite successful. So, on the merchandise side, we believe it's coming from across the board. On the equipment side, well, it's coming from a lot of the high-tech products. The digital side, we are doing very well with the DEXIS system plus a couple of others. We were at somewhat of a disadvantage in the marketplace for a while, we didn't have a good brand. But now the DEXIS brand, of course, is highly recognized. The product has been improved and I think we are gaining market share on the digital side in, I might add, a rapidly growing market. On the CAD/CAM side, we were excluded from that sector and now we're in that, although the sales were not that material, they count, and we were in that sector. On the ISI side, on the 3D side, that was a direct business and so a year and change ago and now that is going through the channel. ISI is not the only player today, there are others in that sector and we carry some of those other products. And I believe that that's helping our growth and no question that we have the largest percentage of the 3D marketplace. BIOLASE, yes, that was a product sold direct and is not going through our channel. But the traditional business also is solid and we, I think, continue to gain recognition as a provider of traditional equipment, whether it's the chairs, units, lights, cabinetry, X-rays, compressors, and I think we continue to gain market share there. So, I think it's a matter of gaining competition across... sales across the board on the equipment side as we become more recognized as a full service dealer. I still think there is a lot more opportunity because many dentists don't associate Henry Schein with equipment sales. So, it's across the board and it's taking some products from the direct channel through distribution.

Well, thanks for the comments Stan and congrats on the quarter.

Thank you.

Your next question comes from the line of Randall Stanicky.

Great, I am with Goldman Sachs. Thanks for taking the question. Just first on the minority interest line, it continues to bounce around a little bit, it was up again sequentially. Is that just a pickup in implants and how do we think about that line item going forward?

Yes, the minority interest line was driven by strong growth in our CAMLOG implant business, as well as strong growth in our Australian/New Zealand business. Both of those businesses Henry Schein owns a controlling interest, but there is a minority interest and we should continue to see additional growth in the minority interest line as the overall business groups continue to grow nicely in the future.

So we should expect to see that 7ish million dollars continue to grow, is that the new run rate we should think about there?

I would say, I would say that we are continuing to see growth in those businesses or yes, we'll see those... that line grow. Remember the way the accounting works for that, that's just backing out the minority share. So obvious... the minority share of earnings. So obviously that's a good thing as that number grows because that means above that line there is higher growth in overall income.

Okay, great. And then just finally you talked about earlier shipments in flue, how do you think about the back half split between 3Q and 4Q as you are thinking about it at least at this point in time?

Well,it's really, really difficult to predict what will happen in Q3 versus Q4 for influenza vaccine, but I can tell you at least manufacturers are indicating to us that they're optimistic that they'll have product early in the season. So, I'll pass that comment on to you, but again, what we'll do when we announce Q3 and Q4 earnings, if the timing is where it is early in the season, it's more weighted towards Q3, we'll give a detail on that or, if the opposite happens, we'll also give detail on that. So, we'll be very transparent on the timing of flu vaccine. But again, the indications from the manufacturers are that it could be a little bit earlier this year, which I think is a good thing for the industry as well as ourselves.

That's great. I'll stop there. Thanks for the questions.

Okay.

Your next question comes from John Kreger. John Kreger - William Blair & Company, L.L.C: Hi, thanks very much. Just hoping you could expand a bit more on your comments around the national sales meetings that you held recently. On the Dental side, what are your sales been telling you about how the second half might play out around the sort of traditional heavy season for equipment buying in Dental? Is it likely to be a pretty typical season or could it be better because of the tax incentives or perhaps worse because of a tough environment? And then the follow up on the Medical side, also curious what did you hear at the national sales meeting that that is causing the optimism in the face of what looks like some slower growth coming out of the segment? Thanks.

On the Dental side, dentists continue to be... and this is the sense we get from our sales people and from the market in general, continue to be quite busy. The backlog may not be as many weeks of appointments as perhaps it was a year or two ago, but they are occupied and they're quite busy. They had a lot of choices in terms of high-tech equipment now, expensive equipments, at least from us they the E4D, have the ISI, have the GALILEOS equipment. They have lasers and, of course, general traditional equipment with a lot of new equipment being exposed to the marketplace these days. So there are lots of places to spend their money. Our sales organization tells us that they will spend money. They may not buy everything from that mix, but they will spend money. The tax incentives are likely to create some fueling of this interest in acquiring high-tech equipment, and perhaps even refurbishing the office. If one leases equipment or actually takes out a loan for equipment, it becomes immediately cash flow positive from a tax point of view. So, we expect that we will have a good year in the fourth quarter. We did have a very good year in the fourth quarter last year and the year before. So we're relatively comfortable that we are going to see consistent growth. There are a lot of exciting activities going on at Schein, including ARESTIN, Colgate, a number of other areas that, the technology area, the update of DENTRIX, all of these are making for a very, very exciting environments within our Dental Equipment Group. On the Medical side, the excitement remains related to the consolidation of our business under one brand, it was of course a huge undertaking with tens and thousands of accounts being reassigned within our telesales group and also within our equipment group... within our full service group. The programs that are available to our field sales representatives as a result of the synergy between telesales and field sales is something that's exciting that group. There is some commodity deflation as pricing becomes more competitive with certain products, but there is also inflation on certain commodity products that have the raw material base such as gloves. So, one should be very careful when reviewing the actual results as there's a lot of puts and takes there and not necessarily related to units. There is also some shortage in a couple of product areas on the pharmaceutical side and there is a shift in our mix of pharmaceutical products. But overall, our sales people and management continue to be very, very enthusiastic about our medical business, which over the long run presents perhaps one of the biggest opportunities that Schein has. John Kreger - William Blair & Company, L.L.C: Great, thanks very much.

Your next question comes from Robert Willoughby.

Hi, this is Erin Gore in for Robert today. I just had a question for you on the physician revenue growth. When can we expect the negative comps to kind of come back, to kind of reverse themselves?

Well, hi, Erin. If you are referring to because of us not selling the low margin pharma sales, I assume that's your reference. That will continue for the balance of this year because we effectively stopped selling those low margin pharma products towards the end of 2007. And so it will continue for the balance of this year and then we will... we won't have to continue discussing that starting in the first quarter of 2009.

Okay. And different note, can you just comment on your appetite for acquisitions, has that changed and what you do have coming down the pipe?

Our appetite for acquisitions has remained consistent for the 52 quarters that we've been a public company. Our pipeline remains as full as it ever has been and we expect to continue to make acquisitions that of the tuck-in type or to expand our current business geographically or expand our value-added services in one way or another. But we expect to fully remain within the $25 billion office-based practitioner markets where we have about 22% market share. And we expect to have acquisitions continue to be accretive in that overall marketplace.

Okay. And last question, not sure if this is discussed, but with the solid quarter here, why did you reaffirm the guidance? Why was there not an up-tick in the guidance projection for the latter half of the year?

Well, I think we actually feel good with first half results, we feel bullish about the second half opportunities. We felt reaffirming guidance given what's going on in the overall economy was a possible statement. So, overall we still feel very good about our business, the results of Q2, as well as the projected results going forward. And we just felt the right thing to do was to reaffirm guidance at this time.

Okay, that is it. Thanks.

Thank you.

Your next question comes from the line of Lisa Gill.

Hi, good morning, Stanley and Steve. Steve, just a follow up on that last question. As we think about things, I think clearly put up a much better second quarter than what you had anticipated at least the last time we talked on last quarter's call. Was there anything that got pulled forward from maybe the third or fourth quarter into the second quarter and that's why you are just somewhat comfortable with working forcibly in the second quarter half of the year or is that just conservatism? And then secondly, you showed some really nice improvement on your SG&A this quarter. Can you maybe just talk about anything that was specifically driving that? And then just the last question is just on the timeline of when you expect to complete your share repurchase. Thanks very much.

Sure. I would say that there's really nothing noteworthy that we felt that we pull forward from future quarters into Q2. I think on the contrary, as we tried to outline, we really had very good results from our International Group, double-digit internal sales growth, really up and down across the board. There's a recent industry piece on the ADDE, which came out, which indicated that European dental sales growth has increased modestly. So, I think it's a combination of the markets being good and us really taking market share. So, again, we feel real good about the business prospects going forward. There's a lot of opportunities for us. We think that... we feel good about the second half.

Okay, good. So not working about the... you are definitely feeling right. You are feeling good about the second half and you are just being conservative at this point given everything else is out there.

Well, I think we do feel good about the second half. I don't want to characterize the guidance with the guidance. We felt the right thing to do given everything going on in the economy was to reaffirm, we feel good about reaffirming. At the high end of our range, it will be a mid teens EPS growth for the second half of the year and that's all internally generated. So hopefully, there will be some opportunities, as Stanley just discussed on the M&A side. So, again, we feel good about the business opportunities going forward, short as well as long term.

Okay. And then just any thoughts on SG&A in the quarter, that's a nice sequential improvement as well as the share repurchase timeline?

It's really a combination of our continued efforts both domestically and internationally in expense management. So that was good, plus very strong top line growth. Overall, growth is 19% in the quarter. Now, some of that's acquisition growth. Some of that's internal growth. But all of that growth helps leverage the infrastructure. So that was a very positive thing. I would point out that we didn't specifically talk about it, but if you exclude out Dunlop, which as people know has a lower operating margin, our operating margin would have been expanded by an additional 20 basis points this quarter. But we really got very good leverage on our expense structure and we hope that will continue. And lastly, on the stock buyback, your final question. We felt that the pricing that we were under pressure a little bit with the stock price in the second quarter, that's why we did buyback $32 million. We don't have a specific time period for buying backlog of our stock, but I do believe given the recent stock price level that we'll continue to be very active in stock buyback. We tend to be opportunistic and buy on weakness and that's why we were buying as much as $32 million in the second quarter. So, I fully expect to continue to be active, but we don't have a specific timeline for the remaining stock plan.

[Operator Instructions]. And our next question comes from the line of Larry Marsh.

Thanks for Stanley and Steve, good morning, good results. Really wanted to just clarify the internal growth that was in dental consumables. Steve, I think you said last quarter that you might have been somewhat negatively impacted because of the timing of holidays and you would see some pickup in the second quarter. If you sort of net those two out, would you see where you feel like that you saw pretty consistent growth trends Q2 to Q1 or do you think you saw some acceleration?

Well it's hard to precisely calculate that.

Yes.

But I do think that we have seen a little bit of acceleration in dental consumables in Q2 and the reason why I say that is if you take a look at the average internal sales growth for the first half, which should eliminate any impact of the Easter timing between Q1 and Q2, we did deliver better than that growth in dental merchandise as well as other categories. So, my belief is that we did have a little bit of acceleration in consumable merchandise.

And is the ARESTIN like kind of... I know it's a de minimis contribution to revenues, but was it a de minimis contribution to internal growth in the quarter?

Yes, right now because it's an agency sale, Larry, it's really not a big impact on the top line, although we're still very excited about the product and we just launched it. So -- and we need a little bit of time to make inroads with that. So, we're very excited about the opportunity with it and it does deliver nice profitability. But on the top line, it really was not a driver this quarter.

And just as you sort of see it, I know, I guess, maybe your biggest supplier talked about adjusted internal growth U.S. about 3%. They are saying the dealers might see a little bit faster growth in that. So, is it really just... we should look at U.S. having a broader product line, so you're actually selling in some bigger growth categories and just that one supplier or is it a little bit more complicated than that?

Again, it's hard to answer. We certainly have versus any supplier, we certainly have a broader product offering. We tend to be strong in areas that are not economically impacted. So actually the opposite is true. Things like U.S. dental implants very small sales contribution. Some of the high-end elective procedures and on orthodontic, we really have very low sales contribution. So we happen to be well positioned.

Right.

With our sales mix and I think that's part of the reason why we're doing well on consumables as well as equipment versus some of the manufacturers that are broader in those spaces.

Great. Just a follow up, then. On the international business, great result, your big contributor internal growth, over 10%. Now I haven't seen the ADDE study, but was that suggesting there seem some internal growth acceleration in Europe or not? And do we think of this 10% as just an unusually strong result or do we think more normalized, you think that market is growing overall? I know it's hard to categorize because that includes vet, dental and I think some medical, but do we think of that still as sort of a mid single-digit internal growth business for you or is that 10% a signal o additional good things to come?

Well, I think there is a couple of points. The ADDE study did show a very modest uptick in market sales growth, it's probably still in the 5%, 6% range that it show. So it certainly gaining market share in international. Again, Larry, remember the Easter impact. So we did get a little bit of benefit also of the Easter impact in Q2. But I have to tell you we feel very optimistic about the international business going forward, both on the top line and especially on the bottom line as we expand margins also.

Right. And then just a clarification, the equity and affiliates, at the end of last quarter you'd said good growth in your investment you have in the discount dental business. Sequentially I know it was down some, but still up obviously a lot year-over-year. Why might there have been some seasonality there?

There's not a specific reason. I think it's kind of the ebbs and flows of that business, but the increase over prior year was primarily that affiliate did an acquisition of another company. So the run rate that you are seeing for the first half of the year should be a continued run rate and growth on top of that as that business is growing also. But there's nothing really to point to on a consecutive quarter basis that would say other than can ebbs and flows and timing of the quarters.

Great, very good. Thanks.

And we have time for one last question and we do have a question from Jeff Johnson.

Good morning, Stanley, good morning Steven.

Morning.

A couple of question here. Steve, as far as Q3 versus Q4 EPS and I know you don't provide quarterly EPS, but sometimes you'll provide a little color on the forward quarter, you come up against tough comp, but I think 40% plus EPS growth in Q3 last year. Should we be thinking about a little higher Q4, a little lower Q3, as far as EPS growth next quarter?

No, I don't want to not directly try to answer the question, but really one of the earlier questions we got in timing of flu vaccine is so critical to Q3 versus Q4. So, at least what we are hearing from manufacturers is they expect flu vaccine doses to be in the market earlier this year than prior years. Time will tell how true that is. I certainly believe that's a good thing for us as well as the overall market because we certainly believe the earlier product dose gets into the market, the bigger the overall demand will be because if it gets late in the season, obviously there are some people who will not be vaccinated, some providers who elect not to buy private latencies and because they have less usage for it. So, again, I think what we'll... the only thing we can do is be perfectly transparent when we release Q3 earnings. By that time we will know what we sold in Q3, we will know what we sold in the beginning part of the fourth quarter for flu vaccine. And we'll be able to really give good color and guidance on that. But, to really try to predict Q3 versus Q4 with the flu timing is really difficult to do.

Yes, fair enough, Steve. And then on flu vaccine, can you at all qualitatively, I guess, comment on pricing and/or pre-sold volumes as we go into the third quarter here?

I think right now on pricing we'd rather not comment specifically other than say that pricing is holding up pretty well at this time. We feel very good about our position and as Stanley mentioned in his remarks that combination of... we're seeing in the market and customer order activity where we do have certain contracts with customers as well as a very good pre-book order process. So we feel good about going into the season but remember we haven't received our first dose of flu yet, we haven't sold our first dose yet, but the indicators are very positive right now.

Great. And then last question again, I get back to Q3, Q4 timing in the dental equipment business. So summer tends to be seasonably slow at least here in the U.S. and Europe, I guess. And you're going up against your toughest comp, tax incentives in Q4 might drive a little more there. Again should we think about kind of the back half of the year more Q4-weighted than Q3 on the dental equipment side?

I would say yes primarily because of the tax incentives. I think people, customers in Q4 will pull the trigger, so to speak, to take advantage of those tax incentives. So, I guess, I would expect Q4 to be help buyback on the equipment side. That's U.S. concept, I'm not sure that you could make the same analogy in Europe because Europe doesn't have a favorable tax incentives. But it's always seasonally better in Q4 obviously.

Understood. Thanks for the comments guys.

Okay.

So, thank you everyone for participating in the call. As I think you can felt from Steven and my tone, we remain optimistic about the company. We are very happy with where we are. These are obviously challenging times from a macroeconomic point of view, the company overall. The portfolio on balance is relatively resistant to the swings of the economy, but not totally immune. But we think from a earnings capacity point of view, we continue to be in a very good position. We continue to gain market share across the board. We are optimistic about some acquisitions in the quarters ahead of us that will make a difference both strategically and from an economic point of view to the bottom line. And, we thank you all for participating in this call and showing interest. If you have any questions, Steven can be reached at 631-843-5500 or Neal at 631-845-2820. So, we look forward to updating you in another 90 days or so on the third quarter. Thank you very much.

This concludes today's conference call. You may now disconnect.