Good morning, ladies and gentlemen, and welcome to the Henry Schein second quarter conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, the call is being recorded. I'd like to introduce your host for today's call, Susan Vassallo, Henry Schein's Vice President of Corporate Communications. Please go ahead, Susan.

Thank you, operator. My 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 henryschein.com. With me this morning are Stanley Bergman, Chairman and Chief Executive Officer of Henry Schein and Steven Paladino, our 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 the company’s business may affect the matters referred to in forward-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 Commission filing. The content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast, August 4, 2009. 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 ask 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.

Good morning. Thank you, Susan. And thank you everyone for joining us for a discussion on our second quarter results. We, as a company and as a management team, are very pleased to be reporting growth in diluted earnings per share from continuing operations of 14% to a record $0.81 and operating margin expansion of 65 basis points to 7.6%. Our financial results for the quarter demonstrate a strong commitment to efficient operations and prudent cash management. The markets Henry Schein serves are largely as we expected them to be during the quarter. We believe that we continue to gain market share across all of our divisions, both in United States and abroad, and we remain cautiously optimistic about the future and today, are affirming our 2009 financial guidance. In a moment, I will provide commentary on each of our four business groups, but first let me ask Steve Paladino to provide an overview of our quarterly financial results in some further depth. Thank you, Steven.

Thank you, Stan and good morning, everyone. Before we begin, I would like to point out that our 2008 second quarter results are restated to reflect the wholesale ultrasound business as a discontinued operation as well as the adoption of new accounting regulations regarding interest expense on our convertible debt. The impact of this adoption on diluted EPS for Q2 was approximately $0.01 per share and $0.04 per share on a full year basis. Our net sales for the quarter ended June 27, 2009 were $1.61 billion, reflecting a 1.8% decline compared with the second quarter of 2008. This consists of a 7.1% decline related to foreign currency exchange, offset by a 5.3% growth in local currencies. Internally generated sales were up 0.7% and acquisition growth was 4.6%. You can note the details of our sales growth that is contained in Exhibit A of our earnings news release, which was issued earlier today. Our selling, general, and administrative expenses for the second quarter of 2009 decreased to $356.2 million from $374.1 million in the prior year second quarter. This $18 million decline in costs consists of a $12 million from expense reductions and $6 million as the net impact from the favorable impact of foreign currencies and additional SG&A costs from operations that we acquired during the period. As we have stated last quarter, our guidance for 2009 is based on conservative sales assumptions and aggressive expense management initiatives, and we are pleased that our second quarter and first half results reflect the effectiveness of our strategies. Our operating margin for the second quarter of 2009 of 7.6% was 65 basis points higher than the second quarter of 2008, as Stanley just mentioned. Our effective tax rate for the quarter was 32.9%, down from 34.1% in the second quarter of…

Thank you, Steven. Before I review some of the highlights of each of our four business groups, I would like to share with you thoughts on our national sales meetings. Our annual U.S. national sales meetings strengthen supplier partnership and our sales team's ability to help our customers operate more efficient practices, while providing quality care to patients. In July, we held the largest of these meetings, which is our national dental sales meeting. And in June, we held our medical national sales meeting. In addition to these two, we held our special markets meeting earlier this year and we will hold our animal health meeting in the fall. These four meetings include more than 2,400 team Schein members and nearly 500 supplier partners' participants. In an involved and intensive series of hands-on educational and training sessions designed to ensure that Henry Schein sales force remained the most knowledgeable and best equipped in each of the markets that Henry Schein serves. These annual meetings underscore the importance of partnership to our company's continued success. In the training sessions, there is significant opportunity for our team to share perspectives on best practices from the territories with their colleagues. Additionally, stronger bonds are forged with strategic suppliers as they have the chance for demonstrate their products' features of benefits directly to our sales force. But clearly the biggest beneficiaries of our annual sales meetings are customers as we position our sales consultants to provide expert consultative advice in support of our comprehensive offering of the premier dental medical and animal health products and services. This is particularly important today in this economically challenging time when office-based practitioners are seeking ways to increase revenue and reduce costs in their practices. Training sessions at the 2009 meetings held to date have included consultative skills…

(Operator Instructions). Your first question comes from the line of Glen Santangelo with Credit Suisse.

Stan, just a couple of follow-up questions to your prepared comments, you sort of suggested on the equipment side that were seeing a trade down into less expensive comparable equipment. Can you maybe give us examples of kind of what you are seeing and maybe how long you think that will persist?

Glen, if you take it at its simplest form, the dental unit, which is the chair and the light, we are seeing a movement from the more expensive units to the less expensive units, maybe even manufactured by the same manufacturer. Likewise, we see the same on the X-ray side. The [ISI type] unit, the 3D unit is moving downwards a little bit at this time towards the 2D and towards the medium field of view. And so, I think the unit decrease is not as bad as the dollar decrease. I might add this is primarily a U.S. phenomena and a little bit in Canada. As to when it will end, it's hard to tell. But the sense we have perhaps we reached the bottom in terms of a decrease in equipment sales percentage decrease, we see that starting to mitigate. It's hard to give you an exact number because a couple of months is not a trend. I think the equipment sales reflect the sentiment of what people think with respect to the economy in general and the news that is coming out right now seems to be a little bit better than it was nine months ago. So, I think we are sensing a positive feel on equipment market side.

So, Stan, if I hear you correctly it's not a credit issue at all. Dentists have no problems getting credit. It's just that they are a little skittish on the economy so they are just trading down temporarily we think?

Yeah. When you talk about credit, it's a tad harder to get credit today than perhaps it was six months ago even. But we are still getting well over 90% approvals on our credit application. The FICO scores are being focused on a little bit more, but over 90% of our customers that are seeking at least are getting pretty quick approval.

And then this is a U.S. issue and then you are not seeing it so much internationally, is that what you said?

It's tad of an issue in Canada. But our sales in Canada are a little bit stronger than the U.S. and definitely non-issue outside of the U.S., at least, the credit issue.

Lastly, on the flu vaccine you obviously took your guidance down for traditional influenza, because of the GSK, but if I look at the government they have ordered almost 200 million doses of swine vaccine potentially for an autumn vaccination campaign. Could that be an opportunity for you to offset some of those lost doses? Is it anything you are at all considering at this point?

Yes, Glen, we view the H1N1 vaccine anti-virals infection control products to be an opportunity, although we have not baked in much into our expectations and factored much in terms of profit. Neither the manufacturers of H1N1 vaccine nor the U.S. government have publicly discussed the distribution plans for the vaccine. So at this stage I think it's more prudent for us to not expect any incremental earnings in this area. But obviously, our customers, we do business with 100,000 practices and those customers are in the sweet spot of customers that would use these vaccines because of our traditional position in that marketplace. So I think we could expect some contribution, but really are taking a cautionary approach internally from a budgeting point of view.

Your next question comes from the line of Randall Stanicky with Goldman Sachs.

It's Alex Beckler for Randall, thank you. Just couple of quick ones for me. First, could you provide any color of who you are gaining market share from in the physicians' market and what specifically allows you to gain that share you think?

On the physician side, I would say that we are doing well in the marketplace, in general. I don't believe there is anyone distributor that we are gaining market share from or one particular distributor that is losing market share. Having said that, we implemented a number of key initiatives over the past year. First of all, we had a number of brands that competed and we brought them all under one brand, under the Henry Schein Medical Group brand, and that took us about a little over a year in terms of systems to combine all these businesses under the Henry Schein Medical One Plan. And I think that's doing very well. Second, we are doing quite well now on the overall focus on some of these new larger customers that are emerging. And I say larger customers, multiple locations under common management; that's doing quite well. And I'm referring to our key physician business. We did shed a lot of low margin pharmaceuticals in previous quarters. That is no longer impacting our sales. And overall, our strategy of putting together a well-class field organization working closely with telesales and direct marketing is paying off. I think, strategically, we're focused on some of the specialties and of course, these larger groups that I just mentioned. And overall, this strategy is working out well and we believe that our medical group is heading in the right direction to continue to gain market share in the office-based practitioner field. There is some other areas that we are not focusing on as much today, but 90% of our business is in the office-based area and that's the sweet spot of focus including, of course, equipment and the digitalization of the office and that includes electronic medical records and software as well. Those are all the areas we are focusing on had paid off and will continue to pay off, we believe.

Great. And then, Steven, I wanted to ask about your thoughts on capital structure going forward. Looks like you guys are paying off most of your senior notes next quarter. What's your view on the balance sheet leverage going forward from here?

We happen to be in a very good position. We have a strong balance sheet. We did pay off in early into the third quarter about $130 million of senior notes that matured. We paid that out of Treasury. I think we expect our cash flow to continue to be used for primarily acquisitions. I think, longer term, we will continue to do stock buyback, although this quarter we did not buy back any stock during this quarter. We are just being a little bit conservative on cash. We like having a strong balance sheet. We think it allows us to be opportunistic should there be a good business opportunity that [lies ahead]. And again, primarily for acquisitions would be our cash flow.

Your next question comes from the line of Derek Leckow with Barrington Research.

In terms of the guidance, I think the upside in the second quarter sounds like it is being absorbed by the lower expectations for flu vaccine in the second half. I wanted to be on those factors, get into the dental consumables internal growth rate expectations and then at the size of the opportunity as it relates to operating margin in Europe. I think that's still operating at well below average, and there is a pretty big opportunity to improve the margin in Europe. So those two factors I wondered if you could spend a little time on those?

Derek, let me comment first on overall guidance. When we look at our full year guidance, we did reaffirm our guidance on this press release. And I think there is a couple of things to consider. First, we wanted to continue to maintain a high level of competence of achieving our guidance. Two, as Stanley said in his prepared remarks, we do have a reduced expectation for flu vaccine availability, originally from 12 to 13 million doses and now we were expecting 8 to 9 million doses of flu vaccine. Another point is our guidance does not assume that the markets are going to improve during the second half of the year although we hope that they will improve and we do believe that we are seeing signs of stabilization and the potential for improvement in the second half. Our guidance also does not assume any potential opportunities that could be from H1N1 either vaccine or related products during the second half. And the last thing is that we're also being conservative on dental equipment and while we do believe that dental equipment sales growth will be improved in the second half from what we are seeing, our decline will be less in the second half because a couple of the factors that I mentioned impacted Q2 will not continue to exist. That is namely the E4D pent-up demand, which was a one-time event for Q2. And we also believe that the comparables will get a little bit easier, primarily in Q4. So we do believe that dental equipment could be a little bit better. Specifically as you ask about international, we are pleased with the progress that our international business is achieving and expanding operating margins for the quarter. Our international group had over 4% operating margins, about 4.25%. And again that was a little over 40 basis points of improvement for the quarter. We are getting that steady increase in international. We expect that to continue. Our goal of achieving over 6% operating margins is still intact and we believe that we will be getting there in the next couple of years. I think that answers the bulk of your questions. I'm not sure if I missed anything, Derek.

Let me just ask one quick follow-up on the dental consumables. So it sounds like you are saying from your point of view the guidance assumes an internal consumables growth rate what we are seeing, but it sounds like the comparison does get a little bit easier. So should we kind of expect a little bit of an improvement in the consumables area?

Well, I think we were hopeful that that is a good possibility. But again, our guidance, you know, has been structured all year on trying to be very conservative on sales expectations, so we continue to have that built into our guidance. And again that will give us a high level of confidence in achieving the guidance for the second half of the year and for the full year.

Your next question comes from the line of Jeff Johnson with Robert Baird.

Great. So Steve, just want to make sure I understand on the guidance here. As I do the math, if you take the influenza vaccine guidance down to 8 million to 9 million doses that probably shaves 3 pennies to 4 pennies out of my model. Are you saying you are not including any expectations for increased consumable supplies, antivirals, infection control, what have you on the medical side from H1N1? You are just leaving that out of the model, so truly it's a 3 to 4-penny reduction in the back half of the year from flu that isn't being offset by anything else in the medical segment?

Well, we were not assuming any continued benefit because of H1N1 related products typically during the summer time when influenza goes dormant. Typically, we would not expect to see it during the summer time, but there is a possibility that in the fall and the winter months, we could see a spike. But again, we're not assuming that in our guidance. We want to maintain realistic and conservative sales growth. And just to remember, Jeff, that the reduction in flu vaccine comes from GSK, which is our most profitable flu vaccine that we sell. Its profitability is greater than the proportionate amount of the reduction.

Fair enough. So safe to say that EPS impact could be a little greater, is what I'm taking there anyway. And then couple other questions, kind of one-off questions. Some talk about nationalized dental care in Australia, and obviously there has been an increase in exposure there. Is that a good thing or a bad thing? And then just also interested just on the Dentatus acquisition, the agreement with Dentatus? I know a year ago or so, we were talking about bringing CAMLOG into the U.S. a little more aggressively, is that not going to happen now because of Dentatus or how can those two coexist in the U.S.?

Jeff, first of all on Australia and New Zealand, we are not expecting an impact from any government reimbursement. In fact, our sales of equipment are quite good in Australia and New Zealand, and we don't expect to see much of an impact there. Second on Dentatus. The Dentatus product does not compete with the traditional CAMLOG dental implants. It's a narrow body implant, sort of a mini implant, with a particular utility for fastening in dentures and it doesn't compete there with the traditional CAMLOG product, but rather rounds out implant offering. We think that the Dentatus Atlas system stands apart in this important and growing market. I think the implant market continues to be a good market and we are continuing to grow our implant business in the U.S. I don't think we ever said we were not, but it's relatively immaterial compared to a total of Schein. And so the growth of our implant business in the U.S. as a percentage of the base continues to do quite nicely, but it's relatively immaterial to the whole of Schein.

Great. And just going back to Australia, Stanley, if they went nationalized dental care that would not be an opportunity at all on the consumable side?

Yes, I mean, there maybe an opportunity but I think it's far too soon. We are quite happy with our Australia and New Zealand businesses. They are doing well. We continued to do well on the market share growth, internal growth, we continued to expand our offering. We have an excellent footprint on the software side, continue to invest in that and overall it's turned out to be a very good market for us. But we aren't counting on any special wins from any change in reimbursement at this stage.

Your next question comes from the line of Lisa Gill with JPMorgan.

Steven, I was wondering if you could walk us through on the guidance, really how you get to that upper end of the guidance range. I heard a lot about what's not included in there. We heard about flu and then it's probably even more than $0.03 to $0.04. What's the expectation of the upper end versus the lower end? Is the upper end of the guidance still achievable this year?

Certainly, we believe that the upper end of the guidance is achievable otherwise we would not have our range to include that upper end. It's hard really to specifically say what factors would need to occur. I think we tend to be conservative on our guidance. I think that's something that we want to maintain. There is uncertainty obviously in the market, although we do think the market has stabilized and has the opportunity for improvement. It allows for if there is changes that are unexpected, should flu vaccine come in even a little bit less than our expectation, should the dollar continue to strengthen? There are a number of uncertainties that are out there that we want to make sure are covered. Again, the short answer is we feel that the top end of our range is also achievable and that's why it's included as part of our range.

Is it mainly driven based on sales expectations? I mean you have done a really good job of controlling costs and we've seen that come through in the numbers. But is that really what the expectation is on the upper end of the range that sales will start to improve in the back half of the year and you are starting to see the signs of the recovery and that's where the upper end comes in to play?

Well, it is mostly related to sales impact. Again, even on the high end of our range we are being conservative on sales expectation. So we do not need a significant improvement in sales expectations to achieve the high end of our range. But it is directly related to sales because as you said the expense initiatives that we've completed -- they are already completed and we're seeing that benefit in the first half and will continue in the second half of the year.

So the expense side is down, so now if you can increase the sales you are saying there is more leverage than there historically has been even in the model. I mean, you had leverage in the model before, but because they're taking out those incremental costs, you will have more leverage if the sales start to come back?

That's the right thing. Look at what we are doing to the operating margin. The operating margin expansion is above our normal goal of 30 to 50 basis points. We believe that will continue for the second half of the year; that will get very strong operating margin and that's really on a worldwide basis. Internal sales growth is slightly up and it's up 0.7%, local and internal sales growth on a worldwide basis. The margin opportunity on increased sales growth is very significant for us.

Is there anything that we should be thinking about, again not to belabor this, but it is a $0.40 range versus what you did in the first half of the year? So, is there any additional cost cutting or any other big items we should be thinking about from a modeling perspective?

No. Right now we feel comfortable that we've done. We're always trying to be efficient on expenses. I don't want to say that we are not always looking to save expenses. Restructuring costs that we completed at the beginning of Q1 is done, and we have no further expectations to do anything like that for the balance of the year.

Your next question comes from the line of Larry Marsh.

Just a couple of things. On the H1N1 opportunity, when do you think you will see some resolution around supply chain decisions and product distribution, given the significant amount of purchasing? And maybe could you reflect on the viability of selling a product like that direct as an alternative of going through you and others as a distribution channel?

Well, that's very hard, Larry, to determine when the government is going to be making an announcement. There are quite a few meetings going on, advisory meetings, different kinds of consultative discussions and at this time we can tell that no decision has been made on direction. If the volume or product is in fact available and it’s available in a short window of time, it's hard to believe how any one company can distribute this effectively. In fact, we are hearing from the states that they would like to see several companies be in the distribution channel, including our company. But it's very hard at this stage to get a sense of when the product will be available, will it be available? How many distributers will be in the distribution? I think it will be hard for the government to sell it directly and bill for it directly. However, I don't think it's even clear whether government is going to give this vaccine away or it's going to be in one way or another selling it through the distribution channel? But I can't imagine the government actually selling and then billing for it.

Right. But it seems like that decision is to be made in the next two months I would imagine. What do you think?

Sooner the better. Sooner the supply chain can (inaudible) in an efficient way. I think it will be hard to tell the exact week that the products will be made available, even the exact month because of manufacturing challenges and who exactly is going to be the first to market. But I would think that there are a lot of requirements here that needs to be sort through quickly, not only the vaccine but also the supplies that go along, [required] to actually provide inoculation.

I guess to the point then let's just say there is some sort of announcement that perhaps you are involved. You are saying at this point you wouldn't know whether that might be a small fee associated with your participation. Maybe there is no margin associated with that net of your costs or it might be a more traditional vaccine-type margin that you have seen historically. Is that right or do you think you have a better visibility how it might play out?

No we don't have a visibility. Anything is a guess. But my guess at this point is it's more in the nature of a fee, (inaudible) services rather than the government selling us the product and then us making the market.

Right. And so if there is a fee that would mean there would be a smaller implicit profit on that than your traditional flu relationships?

Very hard to tell, I'd say so.

Second. And you started talking about the trade down phenomenon on equipment, I really started hearing from you very early this year and it continues to be the case. At the same time, it seems like your participation and providing financing alternatives to your group of partner banks has expanded. And earlier this year, you talked about a third of all purchase is through your partner banks. Has that changed at all in terms of the mix of where your customers are getting financing and where is that percentage these days?

We still have our bank group that is continuing to be in the market and wanting to do more business with our type customers. We have expanded our market share and what we are financing. I don't know the exact percentage off the top of my head, but I know that even on lower revenues with equipment sales declining 18% for the quarter, we increased our financing by 2% or 3%. We are financing more business. I continue to believe that although financing is tougher now than it was a year ago. It is a competitive advantage for Schein because not everyone has access to financing for their customers and we're financing more than ever before.

Two other quick things. One on the international side. I know you're pleased with how the IDS went early here in March, and it seems like it has filtered down to a good momentum. As you look out in the next year or so, are you concerned at all about reimbursement specifically, say in Germany with election there for sometime in 2010? Or you feel cautiously optimistic that the tone will be reasonable next year?

There are elections sometime next year. Don't expect the government to turn to doing reimbursement that quickly. I think for several quarters out probably four at least the reimbursement won't have any impact at all. I don't think so. It is possible that it might have an impact on the visit to the dentist. The purchase of equipment is very much tied into the sentiment in the market in general, and right now it's not great but it's not that bad. And unless there is an economic shift we don't see much of a change in sentiment towards purchasing of equipment.

Finally just to summarize, I would imagine you guys have to be pleased here in this kind of environment. Year-to-date you are posting sort of mid-single digit top line and mid-teens earnings growth. So, I hear you on the cautionary statements second half of the year. But I mean, I have to believe you are extremely pleased with your performance in this environment. Is that a fair statement?

I think, Larry, you are correct and we, of course, are optimistic, but these are still uncertain times. I think at least internally we believe we have hit the bottom in terms of decrease in sales. I think some of our strategies particularly in our medical group are starting to pay off. Dental group has always had good strategies. We think we're gaining market share across the board, but I think it's better to remain cautious on the top line at least until we talk to you again next quarter. It's true that the comparables gets a little bit better say for September and for the other three months of the year and we built our budget and risked on opportunities for the remainder of the year along the lines of cautionary sales. I think that's where we should keep it. Having said that, you watch TV or read the newspaper the sentiment is a lot better than it was perhaps the last time we all spoke.

Your next question comes from the line of John Kreger with William Blair.

Hi, good morning. This is [Robbie Farah] in for John today. Guys if you think about the quarterly progression of sales in your different businesses, how did the trends progress from April through June and then even into July?

Well, it's not the same for each business. We did see for example in the medical business in part because of H1N1 related sales. We did see strong beginning part of the second quarter, but then a lot of that benefit directly related to H1N1 subsided at the end of the quarter. With respect to dental, I would say that on equipment we saw our backlog continue to grow at the end of the second quarter. So that gives us optimism for the second half of the year. Obviously, if we turn to international for international perspective, we did see the benefit that we were expecting coming out of the IDS show, but it continues. The consumable business in our European dental markets continues to be good. I don't think I've seen any significant up or down movement since the quarter end. So again we are tracking with slight improvements that we are seeing earlier into the third quarter, but it's still early in the third quarter, so I don't know if it makes a trend just yet.

Got it. Just as a follow up to your IDS comment, excluding IDS would we have seen dental equipment sales that were comparable to the U.S. and Europe? And should we expect that for the second half?

First of all, we had some pent-up demand from the fourth quarter into the first because of tax reasons then we had the IDS. But the sentiment with respect to dentists buying and even physicians buying equipment in Europe is nowhere near as down as here. So, may not be as robust as a year ago, but I think it's more in line with positive to slightly negative. It's not material. It's about flattish, maybe a tad positive.

Ladies and gentlemen, we have time for one last question from the line of Robert Willoughby with Banc of America.

Looking at the inventory days they've trended unfavorably. Is there anything structural here or if not what are your initiatives to work those inventory days down?

There is nothing structural. We believe that there is good opportunity to work down inventories. Remember, some of the additional inventory because of some of the acquisition activity we did at the end of Q4, so it takes us normally at least a couple of quarters to work down that inventory. But we are hopeful that we will see some improvement in inventory turns for the second half of the year.

I think of the inventory in terms of revenues by business line, did the inventories largely match up as on a percentage basis with the revenues? If your dental sales are X percent of your revenues, will that equate to same amount of your inventories?

I would say generally that's true but there are exceptions. For example, on the medical side there are some pharma companies that are delivering product to us in virtually every 10 day or a 2-week period, so that inventory may turn a little bit faster. Depending on grade points for volume discounts, we may need to achieve certain minimum order sizes to get the best possible price. But I would say as a general rule, your statement is correct.

The vet business up 8% percent or so, all organic? Did you have product launch or what drove that performance?

It was all organic. I think we're clearly taking market share on our veterinary business because the market is now nearly at 8%. We've seen some strong growth in some of the flea and tick products on our veterinary business, but no acquisition growth is included in that number.

Okay, operator, I think that ends our call at this time.

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