HENRY SCHEIN INC (HSIC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HENRY SCHEIN INC's 10-K for fiscal year 2024. Filing date: 2025-02-25. Report date: 2024-12-28. Accession: 0001000228-25-000014.

This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high.

Company profile: HSIC · All MD&A years: index · Previous year: FY 2023 · Next year: FY 2025

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of

Operations

Cautionary Note Regarding Forward-Looking Statements

In accordance with the “Safe Harbor” provisions of the Private Securities

Litigation Reform Act of 1995, we

provide the following cautionary remarks regarding important factors

that, among others, could cause future results

to differ materially from the forward-looking statements, expectations and assumptions

expressed or implied herein.

All forward-looking statements made by us are subject to risks and uncertainties

and are not guarantees of future

performance.

These forward-looking statements involve known and unknown

risks, uncertainties and other factors

that may cause our actual results, performance and achievements

or industry results to be materially different from

any future results, performance or achievements expressed or implied

by such forward-looking statements.

These

statements are generally identified by the use of such terms as “may,” “could,” “expect,” “intend,” “believe,”

“plan,” “estimate,” “forecast,” “project,” “anticipate,” “to be,” “to

make” or other comparable terms. Factors that

could cause or contribute to such differences include, but are not limited to,

those discussed in this Annual Report

on Form 10-K, and in particular the risks discussed under the caption

“Risk Factors” in Item 1A of this report and

those that may be discussed in other documents we file with

the Securities and Exchange Commission (“SEC”).

Risk factors and uncertainties that could cause actual results to differ materially from current

and historical results

include, but are not limited to: our dependence on third parties for

the manufacture and supply of our products and

where we manufacture products, our dependence on third parties

for raw materials or purchased components; risks

relating to the achievement of our strategic growth objectives; risks

related to the recently signed Strategic

Partnership Agreement; our ability to develop or acquire and maintain

and protect new products (particularly

technology products) and services and utilize new technologies

that achieve market acceptance with acceptable

margins; transitional challenges associated with acquisitions, dispositions and joint ventures,

including the failure to

achieve anticipated synergies/benefits, as well as significant demands on our operations,

information systems, legal,

regulatory, compliance, financial and human resources functions in connection with acquisitions, dispositions and

joint ventures; certain provisions in our governing documents that may discourage

third-party acquisitions of us;

adverse changes in supplier rebates or other purchasing incentives;

risks related to the sale of corporate brand

products; risks related to activist investors; security risks associated with our

information systems and technology

products and services, such as cyberattacks or other privacy or data security

breaches (including the October 2023

incident); effects of a highly competitive (including, without limitation, competition

from third-party online

commerce sites) and consolidating market; changes in the health care

industry; risks from expansion of customer

purchasing power and multi-tiered costing structures; increases in shipping costs

for our products or other service

issues with our third-party shippers, and increases in fuel and energy costs; changes

in laws and policies governing

manufacturing, development and investment in territories and countries

where we do business; general global and

domestic macro-economic and political conditions, including inflation,

deflation, recession, unemployment (and

corresponding increase in under-insured populations), consumer confidence,

sovereign debt levels, ongoing wars,

fluctuations in energy pricing and the value of the U.S. dollar as compared to

foreign currencies, and changes to

other economic indicators, international trade agreements; the threat

or outbreak of war, terrorism or public unrest

(including, without limitation, the war in Ukraine, the Israel-Gaza war and other

unrest and threats in the Middle

East and the possibility of a wider European or global conflict); changes

to laws and policies governing foreign

trade, tariffs and sanctions, or greater restrictions on imports and exports; supply

chain disruption; geopolitical

wars; failure to comply with existing and future regulatory requirements,

including relating to health care; risks

associated with the EU Medical Device Regulation; failure to comply

with laws and regulations relating to health

care fraud or other laws and regulations; failure to comply with laws

and regulations relating to the collection,

storage and processing of sensitive personal information or standards in electronic

health records or transmissions;

changes in tax legislation, changes in tax rates and availability of certain tax

deductions; risks related to product

liability, intellectual property and other claims; risks associated with customs policies or legislative import

restrictions; risks associated with disease outbreaks, epidemics, pandemics

(such as the COVID-19 pandemic), or

similar wide-spread public health concerns and other natural or

man-made disasters; risks associated with our

global operations; litigation risks; new or unanticipated litigation developments

and the status of litigation matters;

our dependence on our senior management, employee hiring and retention,

increases in labor costs or health care

costs, and our relationships with customers, suppliers and manufacturers;

and disruptions in financial markets. The

order in which these factors appear should not be construed to indicate their

relative importance or priority.

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Index to Financial Statements

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 except as

required by law.

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 About Media Center page of

our website.

Recent Developments

While the U.S. economy has experienced inflationary pressures and

strengthening of the U.S. dollar, their impacts

have not been material to our results of operations.

Though inflation impacts both our revenues and costs, the depth

and breadth of our product portfolio often allows us to offer lower-cost national brand solutions

or corporate brand

alternatives to our more price-sensitive customers who are unwilling to

absorb price increases, thus positioning us

to protect our gross profit.

Segment Reporting

During the fourth quarter of our fiscal year ended December 28, 2024,

we revised our reportable segments to align

with how the Chairman and Chief Executive Officer manages the business, assesses

performance and allocates

resources.

Our revised reportable segments now consist of: (i) Global Distribution

and Value

-Added Services; (ii)

Global Specialty Products; and (iii) Global Technology.

Global Distribution and Value-Added Services includes distribution to the global dental and medical markets of

national brand and corporate brand merchandise, as well as equipment and related

technical services.

This segment

also includes value-added services such as financial services, continuing

education services, consulting and other

services.

This segment also markets and sells under our own corporate brand,

a portfolio of cost-effective, high-

quality consumable merchandise.

Global Specialty Products includes manufacturing, marketing and sales

of dental

implant and biomaterial products; and endodontic, orthodontic and orthopedic

products and other health care-

related products and services.

Global Technology includes development and distribution of practice management

software, e-services, and other products, which are distributed to health

care providers.

A key element to grow closer to our customers is our One Schein initiative, which

is a unified go-to-market

approach that enables practitioners to work synergistically with our supply chain,

equipment sales and service and

other value-added services, allowing our customers to leverage the

combined value that we offer through a single

program.

Specifically, One Schein provides customers with streamlined access to our comprehensive offering of

national brand products, our corporate brand products and proprietary specialty

products and solutions (including

implant, orthodontic and endodontic products).

In addition, customers have access to a wide range of services,

including software and other value-added services.

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 DSOs, GPOs, 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.

believe that the trend towards cost containment has

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Index to Financial Statements

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.

Industry Consolidation

The health care products distribution industry, as it relates to office-based health care practitioners, is fragmented

and diverse.

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.

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.

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 approach 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, although

there can be no assurances

that we will be able to successfully accomplish this.

are focused 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 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

opportunity or consummate any such transaction, if pursued.

If additional transactions are entered into or

consummated, we would incur merger and/or acquisition-related costs, and there

can be no assurance that the

integration efforts associated with any such transaction would be successful.

Aging Population and Other Market Influences

The health care products distribution industry continues to experience growth

due to the aging population,

increased health care awareness, the proliferation of medical technology

and testing, new pharmacological

treatments, and expanded third-party insurance coverage, partially offset by the effects of unemployment

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Index to Financial Statements

insurance coverage.

In addition, the physician market continues to benefit from the

shift of procedures and

diagnostic testing from acute care settings to alternate-care sites, particularly

physicians’ offices.

According to the U.S. Census Bureau’s International Database, between 2024 and 2034, the 45 and older

population is expected to grow by approximately 10%.

Between 2024 and 2044, this age group is expected to grow

by approximately 18%.

This compares with expected total U.S. population growth

rates of approximately 4%

between 2024 and 2034 and approximately 6% between 2024 and 2044.

According to the U.S. Census Bureau’s International Database, in 2024 there are approximately seven million

Americans aged 85 years or older, the segment of the population most in need of long-term care

and elder-care

services.

By the year 2050, that number is projected to increase to approximately

17 million.

The population aged

65 to 84 years is projected to increase by approximately 18% during

the same period.

As a result of these market dynamics, annual expenditures for health care services

continue to increase in the

United States.

believe that demand for our products and services will grow while

continuing to be impacted by

current and future operating, economic, and industry conditions.

The Centers for Medicare and Medicaid Services

or CMS published “National Health Expenditure Data” indicating that

total national health care spending reached

approximately $4.9 trillion in 2023, or 17.6% of the nation’s gross domestic product, the benchmark measure

for

annual production of goods and services in the United States.

Health care spending is projected to reach

approximately $7.7 trillion by 2032, or 19.7% of the nation’s projected gross domestic product.

Government

Our businesses are generally subject to numerous laws and regulations that could

impact our financial performance,

and failure to comply with such laws or regulations could have a material adverse

effect on our business.

See “

Item

1. Business – Governmental Regulations

” for a discussion of laws, regulations and governmental activity

that may

affect our results of operations and financial condition.

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Index to Financial Statements

Results of Operations

The following tables summarize the significant components of our operating

results and cash flows for each of the

three years ended December 28, 2024, December 30, 2023, and December

31, 2022 (in millions):

Years

Ended

December 28,

December 30,

December 31,

2024

2023

2022

Operating results:

Net sales

12,673

12,339

12,647

Cost of sales

8,657

8,479

8,816

Gross profit

4,016

3,860

3,831

Operating expenses:

Selling, general and administrative

3,034

2,956

2,771

Depreciation and amortization

251

209

182

Restructuring and integration costs

110

131

Operating income

621

615

747

Other expense, net

(108)

(73)

(26)

Income taxes

(128)

(120)

(170)

Net income

398

436

566

Net income attributable to Henry Schein, Inc.

390

416

538

Years

Ended

December 28,

December 30,

December 31,

2024

2023

2022

Cash flows:

Net cash provided by operating activities

848

500

602

Net cash used in investing activities

(430)

(1,135)

(276)

Net cash provided by (used in) financing activities

(510)

701

(315)

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Index to Financial Statements

Plans of Restructuring and Integration Costs

On August 6, 2024, we committed to a new restructuring plan (the “2024

Plan”) to integrate recent acquisitions,

right-size operations and further increase efficiencies.

During the year ended December 28, 2024, we recorded

restructuring charges associated with the 2024 Plan of $73 million, which primarily

related to severance and

employee-related costs, accelerated amortization of right-of-use

lease assets and fixed assets, impairment of

intangible assets related to the disposal of a portion of a business

and other exit costs.

We expect to record

restructuring charges associated with the 2024 Plan in 2025; however an estimate

of the amount of these charges

has not yet been determined.

During the year ended December 28, 2024, in connection with the 2024 Plan,

we recorded an impairment of

goodwill and intangible assets of $13 million related to the disposal of a portion

of a business.

This impairment is

included in the $73 million of restructuring charges discussed above and related

to the Global Specialty Products

segment.

On August 1, 2022, we committed to a restructuring plan (the “2022

Plan”) focused on funding the priorities of the

BOLD+1 strategic plan, streamlining operations and other initiatives to

increase efficiency.

The 2022 Plan has

been completed as of July 31, 2024.

During the years ended December 28, 2024, December

30, 2023, and

December 31, 2022, in connection with our 2022 Plan, we recorded restructuring

costs of $37 million, $80 million,

and $128 million, respectively.

The restructuring costs for these periods primarily related to

severance and

employee-related costs, accelerated amortization of right-of-use

lease assets and fixed assets, impairment of

intangible assets related to disposal of a U.S. business,

and other exit costs.

During the year ended December 30, 2023, in connection with the 2022 Plan,

we recorded an impairment of an

intangible asset of $12 million related to disposal of a U.S. business.

This impairment is included in the $80

million of restructuring costs discussed above and related to the Global Specialty

Products segment.

The disposal

was completed during the first quarter of 2024.

During the year ended December 31, 2022, in connection with the 2022 Plan,

we vacated one of the buildings at our

corporate headquarters in Melville, New York, which resulted in an accelerated amortization of a right-of-use lease

asset of $34 million.

We also initiated the disposal of a non-profitable U.S. business within the Global Specialty

Products segment and recorded related costs of $49 million, which primarily

consisted of impairment of intangible

assets and goodwill, inventory impairment, and severance and employee-related

costs, which are included in the

Global Specialty Products segment.

These costs are included in the $128 million of restructuring

charges discussed

above.

The disposal was completed during the first quarter of 2023.

On August 26, 2022, we acquired Midway Dental Supply.

In connection with this acquisition, during the year

ended December 31, 2022, we recorded integration costs of $3 million

related to one-time employee and other

costs, as well as restructuring charges of $9 million, which are included in the

$128 million of restructuring charges

discussed above.

The integration and restructuring costs related to Midway Dental

Supply are recorded in the

Global Distribution and Value-Added Services segment.

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Index to Financial Statements

2024 Compared to 2023

Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other

Expense, Net; and Income Taxes are

based on actual values and may not recalculate due to rounding.

During the fourth quarter of our fiscal year ended December 28, 2024,

we revised our reportable segments to align

with how the Chairman and Chief Executive Officer manages the business, assesses

performance and allocates

resources.

Our revised reportable segments now consist of: (i) Global Distribution

and Value

-Added Services; (ii)

Global Specialty Products; and (iii) Global Technology.

All prior comparative segment information has been recast

to reflect our new segment structure.

Net Sales

Net sales by reportable segment and by major product or service type were

as follows:

% of

Increase / (Decrease)

2024

Total

2023

Total

Global Distribution and Value

-Added Services

Global Dental merchandise

(1)

4,727

37.3

4,787

38.8

(60)

(1.3)

Global Dental equipment

(2)

1,719

13.6

1,671

13.5

2.9

Global Value

-added services

(3)

233

1.8

191

1.6

21.5

Global Dental

6,679

52.7

6,649

53.9

0.4

Global Medical

(4)

4,081

32.2

3,912

31.7

169

4.3

Total Global Distribution and Value

-Added Services

10,760

84.9

10,561

85.6

199

1.9

Global Specialty Products

(5)

1,446

11.4

1,331

10.8

115

8.7

Global Technology

(6)

630

5.0

602

4.9

4.7

Eliminations

(163)

(1.3)

(155)

(1.3)

(8)

n/a

Total

12,673

100.0

12,339

100.0

334

2.7

(1)

Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental

implants, gypsum, acrylics, articulators, abrasives, PPE products,

and our own corporate brand of consumable merchandise.

(2)

Includes dental chairs, delivery units and lights, digital dental laboratories, X-ray supplies and equipment, equipment repair and

high-tech and digital restoration equipment.

(3)

Consists of financial services on a non-recourse basis, continuing education services for practitioners, consulting and other services.

(4)

Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray

products, equipment, PPE products and vitamins.

(5)

Includes manufacturing, marketing and sales of dental implant and biomaterial products; and endodontic, orthodontic and

orthopedic products and other health care-related products and services.

(6)

Consists of practice management software, e-services, and other products, which are distributed to health care providers.

The components of our sales growth/(decline) were as follows:

Local Currency Growth/(Decline)

Total Local

Currency

Growth/(Decline)

Foreign

Exchange

Impact

Total Sales

Growth/(Decline)

Local Internal

Growth

Acquisition

Growth

Global Distribution and Value

-Added Services

Global Dental Merchandise

(1.2)

0.2

(1.0)

(0.3)

(1.3)

Global Dental Equipment

2.7

0.3

3.0

(0.1)

2.9

Global Value

-added services

0.4

21.4

21.8

(0.3)

21.5

Global Dental

(0.2)

0.9

0.7

(0.3)

0.4

Global Medical

(1.2)

5.5

4.3

Total Global Distribution and Value

-Added Services

(0.6)

2.6

2.0

(0.1)

1.9

Global Specialty Products

0.1

9.1

9.2

(0.5)

8.7

Global Technology

2.4

2.0

4.4

0.3

4.7

Total

(0.4)

3.3

2.9

(0.2)

2.7

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Index to Financial Statements

Global Sales

Global net sales for the year ended December 28, 2024 increased 2.7%.

The components of sales growth are

presented in the table above.

The 0.4% decrease in our internally generated local currency sales was primarily

attributable to the migration to

lower priced products and the challenging economic environment in

certain markets and lower sales of PPE

products and COVID-19 test kits.

For the year ended December 28, 2024, the estimated increase in

internally

generated local currency sales, excluding PPE products and COVID-19

test kits, was 0.3%.

Global Distribution and Value-Added Services Sales

Global Distribution and Value-Added Services net sales for the year ended December 28, 2024 increased 1.9%.

The components of our sales increase are presented in the table

above.

The 0.2% decrease in internally generated local currency dental sales was primarily

due to the migration to lower

priced dental merchandise products and a challenging economic environment

in certain markets, and lower sales of

PPE products.

The decrease was partially offset by sales growth in traditional equipment and parts and

services in

the United States and sales growth in digital equipment in our international

markets, partially offset by lower sales

of digital equipment in the United States and declines in sales of

traditional equipment in certain international

markets.

The growth in traditional equipment benefited from installation

delays during the fourth quarter of 2023

after the cyber incident.

The 1.2% decrease in internally generated local currency medical sales reflects

the conversion of certain

pharmaceutical products to lower priced generics, and lower sales of PPE

products,

COVID-19 test kits and

influenza vaccines, partially offset by strong sales of point-of-care diagnostics including

multi-assay flu/COVID

combination test kits.

The acquisition growth in medical sales was attributable to our expansion

in the Home Solutions market, including

the acquisition of Shield Healthcare during the year ended December

30, 2023.

The acquisition growth in value-

added services within dental sales was attributable primarily to an acquisition

of a practice transitions business in

2023.

We estimate that sales of PPE products and COVID-19 test kits were approximately $622

million for the year

ended December 28, 2024 as compared to $710 million for the year ended

December 30, 2023 representing an

estimated decrease of $88 million.

The estimated $88 million net decrease in sales of PPE products

and COVID-19

test kits represents 5.8% of Global Distribution and Value-Added Services

net sales for the year ended December

28, 2024, and was primarily due to lower glove prices and reduced demand

following the cyber incident.

The

estimated increase in the segment’s internally generated local currency sales, excluding PPE products and COVID-

19 test kits, was 0.3%.

Global Specialty Products

Global Specialty Products net sales for the year ended December

28, 2024 increased

8.7%.

The components of our

sales increase are presented in the table above.

The internally generated local currency sales were relatively flat due to implant

sales growth in certain international

markets and growth in endodontics sales in the United States and

international markets, offset by a decline in

implant sales in the United States and lower orthodontic sales.

The increase in local currency Global Specialty

Products sales was attributable to the acquisitions of TriMed during the year ended December 28, 2024,

and

Biotech Dental and S.I.N. Implant System during the year ended December

30, 2023.

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Index to Financial Statements

Global Technology

Global Technology net sales for the year ended December 28, 2024 increased 4.7%.

The components of sales

growth are presented in the table above.

The internally generated local currency increase of 2.4% in Global Technology sales was primarily attributable to a

continued increase in the number of cloud-based users of our practice management

software and an increase in

revenue cycle management solutions and our analytical products.

Gross Profit

Gross profit and gross margin percentages by segment and in total were as follows:

Gross

Increase / (Decrease)

2024

Margin %

2023

Margin %

Global Distribution and Value

-Added Services

2,776

25.8

2,699

25.6

3.2

Global Specialty Products

802

55.4

720

54.1

11.3

Global Technology

424

67.4

417

69.2

1.9

Corporate

n/a

(10)

(41.4)

Total

4,016

31.7

3,860

31.3

156

4.1

As a result of different practices of categorizing costs associated with distribution networks

throughout our

industry, our gross margins may not necessarily be comparable to other distribution companies.

Gross margin

percentages vary between our segments.

We realize substantially higher gross margin from sales of products that

we develop and manufacture within our Global Specialty Products segment

compared to gross margin from sales of

products that we distribute within our Global Distribution and Value-Added Services segment.

Within our Global

Technology segment, higher gross margins result from us being both the developer and seller of software products

and services.

Within our Global Distribution and Value

-Added Services segment, gross profit margins may vary between the

periods as a result of the changes in the mix of products sold as well as

changes in our customer mix.

With respect

to customer mix, sales to our large-group customers are typically completed at lower gross

margins due to the

higher volumes sold as opposed to the gross margin on sales to office-based practitioners, who normally

purchase

lower volumes.

The increase in Global Distribution and Value-Added Services gross profit for the year ended December 28, 2024

compared to the prior-year-period is due to acquisitions and margin expansion providing a favorable impact

of sales

mix of higher-margin products.

The increase in Global Specialty Products gross profit reflects increased

sales volume and higher gross profit from

internally generated sales and gross profit from acquisitions.

The increase in gross margin rates was due to product

mix.

The increase in Global Technology gross profit is the result of a higher gross profit from internally generated sales

and gross profit from acquisitions.

The decrease in gross margin rates was due to increased vendor costs and

product mix.

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Index to Financial Statements

Operating Expenses

Operating expenses (consisting of selling, general and administrative

expenses; depreciation and amortization; and

restructuring and integration costs) by segment were as follows:

% of

Respective

Increase / (Decrease)

2024

Net Sales

2023

Net Sales

Global Distribution and Value

-Added Services

2,080

19.3

2,034

19.3

2.3

Global Specialty Products

624

43.2

545

41.0

14.4

Global Technology

272

43.2

275

45.6

(3)

(0.8)

Corporate

n/a

116

n/a

(25)

(22.1)

3,067

24.2

2,970

24.1

3.3

Adjustments

(1)

328

n/a

275

n/a

Total operating expenses

3,395

26.8

3,245

26.3

150

4.6

(1)

Adjustments represent items excluded from segment operating income to enable comparison of financial results between periods.

These items may vary independently of business performance.

Please see

Note 4 – Segment and Geographic Data

These

adjustments (current year vs. prior year) consist of (i) acquisition intangible amortization ($184 million vs. $150 million); (ii)

restructuring costs ($110 million vs. $80 million); (iii) changes in contingent consideration ($45 million vs. $0 million); (iv) cyber

incident third-party advisory expenses, net of insurance proceeds ($31 million net proceeds vs. $11 million net expenses); (v)

impairment of capitalized assets ($12 million vs. $27 million); (vi) impairment of intangible assets ($0 million vs. $7 million); (vii)

litigation settlements ($6 million vs. $0 million); and (viii) costs associated with shareholder advisory matters ($2 million vs. $0

million).

The net increase in operating expenses is attributable to the following:

Operating Costs

(excluding

acquisitions)

Acquisitions

Adjustments

Total

Global Distribution and Value

-Added Services

(23)

Global Specialty Products

Global Technology

(8)

(3)

Corporate

(25)

(47)

144

Adjustments

Total operating expenses

(47)

144

150

The components of the net increase in total operating expenses are presented

in the table above.

The decrease in

operating costs (excluding acquisitions) during the year ended December 28,

2024 included cost savings from our

restructuring activities and reflected a gain of $19 million related to the remeasurement

to fair value of a previously

held equity investment within our Global Distribution and Value-Added Services segment.

Other Expense, Net

Other expense, net was as follows:

Variance

2024

2023

Interest income

39.8

Interest expense

(131)

(87)

(44)

(51.7)

Other, net

(1)

(3)

n/a

Other expense, net

(108)

(73)

(35)

(49.3)

Interest income increased primarily due to increased interest rates.

Interest expense increased primarily due to

increased borrowings and increased interest rates.

Table of Contents

Index to Financial Statements

Income Taxes

Our effective tax rate was 24.9% for the year ended December 28, 2024, compared to 22.1%

for the prior year

period.

The difference between our effective and federal statutory tax rates primarily relates to state

and foreign

income taxes and interest expense.

The Organization of Economic Co-Operation and Development (OECD) issued

technical and administrative

guidance on Pillar Two rules in December 2021, which provides for a global minimum tax rate on the earnings of

large multinational businesses on a country-by-country basis.

Effective January 1, 2024, the minimum global tax

rate is 15% for various jurisdictions pursuant to the Pillar Two rules.

Future tax reform resulting from these

developments may result in changes to long-standing tax principles, which

may adversely impact our effective tax

rate going forward or result in higher cash tax liabilities.

As of December 28, 2024,

the impact of the Pillar Two

rules to our financial statements was immaterial.

Table of Contents

Index to Financial Statements

2023 Compared to 2022

Discussion of the results of operations for the year ended December

30, 2023 as compared to December 31, 2022

was included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results

Operations” in the Company’s Form 10-K for the year ended December 30, 2023, as filed with the SEC on

February 28, 2024. During the fourth quarter of our fiscal year ended

December 28, 2024, we revised our reportable

segments to align with how the Chairman and Chief Executive Officer manages

the business, assesses performance

and allocates resources.

A discussion of the results of operations for the year ended

December 30, 2023 as

compared to December 31, 2022 for net sales and segment adjusted operating

income based on the realigned

segments is presented below.

Note: Percentages for Net Sales; Gross Profit; Operating Expenses; Other

Expense, Net; and Income Taxes are

based on actual values and may not recalculate due to rounding.

Net Sales

Net sales were as follows:

% of

Increase / (Decrease)

2023

Total

2022

Total

Global Distribution and Value

-Added Services

Global Dental merchandise

(1)

4,787

38.8

4,763

37.7

0.5

Global Dental equipment

(2)

1,671

13.5

1,715

13.5

(44)

(2.6)

Global Value

-added services

(3)

191

1.6

151

1.2

27.1

Global Dental

6,649

53.9

6,629

52.4

0.3

Global Medical

(4)

3,912

31.7

4,346

34.4

(434)

(10.0)

Total Global Distribution and Value

-Added Services

10,561

85.6

10,975

86.8

(414)

(3.8)

Global Specialty Products

(5)

1,331

10.8

1,273

10.1

4.6

Global Technology

(6)

602

4.9

549

4.3

9.6

Eliminations

(155)

(1.3)

(150)

(1.2)

(5)

n/a

Total

12,339

100.0

12,647

100.0

(308)

(2.4)

(1)

Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental

implants, gypsum, acrylics, articulators, abrasives, PPE products,

and our own corporate brand of consumable merchandise.

(2)

Includes dental chairs, delivery units and lights, digital dental laboratories, X-ray supplies and equipment, equipment repair and

high-tech and digital restoration equipment.

(3)

Consists of financial services on a non-recourse basis, continuing education services for practitioners, consulting and other services.

(4)

Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray

products, equipment, PPE products and vitamins.

(5)

Includes manufacturing, marketing and sales of dental implant and biomaterial products; and endodontic, orthodontic and

orthopedic products and other health care-related products and services.

(6)

Consists of practice management software, e-services, and other products, which are distributed to health care providers.

The components of our sales growth/(decline) were as follows:

Local Currency Growth/(Decline)

Total Local

Currency

Growth/

(Decline)

Foreign

Exchange

Impact

Total Sales

Growth/

(Decline)

Local

Internal

Growth

Acquisition

Growth

Extra Week

Impact

Global Distribution and Value

-Added Services

Global Dental Merchandise

(0.6)

2.2

(1.0)

0.6

(0.1)

0.5

Global Dental Equipment

(1.7)

1.1

(2.1)

(2.7)

0.1

(2.6)

Global Value

-added services

11.4

16.5

(0.7)

27.2

(0.1)

27.1

Global Dental

(0.6)

2.2

(1.3)

0.3

Global Medical

(11.0)

2.3

(1.3)

(10.0)

Total Global Distribution and Value

-Added Services

(4.7)

2.2

(1.3)

(3.8)

Global Specialty Products

(4.0)

8.7

(1.0)

3.7

0.9

4.6

Global Technology

8.3

2.1

(0.8)

9.6

Total

(4.2)

2.9

(1.2)

(2.5)

0.1

(2.4)

Table of Contents

Index to Financial Statements

Global Sales

We report our results of operations on a 52 or 53 weeks per fiscal year basis ending on the last Saturday of

December.

The year ended December 30, 2023 consisted of 52 weeks, and

the year ended December 31, 2022

consisted of 53 weeks,

resulting in an extra week of sales.

Global net sales for the year ended December 30, 2023 decreased 2.4%.

The components of our sales decline are

presented in the table above.

The 4.2% decrease in our internally generated local currency sales was primarily

attributable to a decrease in sales

of PPE products and COVID-19 test kits.

For the nine months ended September 30, 2023, the estimated

increase in

internally generated local currency sales, excluding PPE products

and COVID-19 test kits, was 3.5%.

However, as

a result of the adverse impact of the 2023 cyber incident during the quarter ended

December 30, 2023, our

internally generated local currency sales, excluding sales of PPE products

and COVID-19 test kits, on a full year

basis were flat compared to the prior year.

Global Distribution and Value-Added Services Sales

Global Distribution and Value-Added Services net sales for the year ended December 30, 2023 decreased 3.8%.

The components of our sales decline are presented in the table above.

The 0.6% decrease in internally generated local currency dental sales was attributable

to a decrease in sales of

dental merchandise and dental equipment as a result of the adverse

impact of the 2023 cyber incident.

The 11.0% decrease in internally generated local currency medical sales is primarily attributable

to the impact of

the 2023 cyber incident and to lower sales of PPE products and COVID-19

test kits and other point-of-care

diagnostic products.

The acquisition growth in medical sales was attributable to our expansion

in the Home Solutions market, including

the acquisition of Shield Healthcare during the year ended December

30, 2023.

The acquisition growth in value-

added services was attributable primarily to an acquisition of a practice

transitions business in 2023.

The increase in internally generated local currency value-added services

sales is attributable to an increase in our

dental billing solutions, partially offset by the expiration, during the year ended

December 31, 2022, of a modestly

profitable government contract in one of our value-added services businesses.

We estimate that sales of PPE products and COVID-19 test kits were approximately $710

million for the year

ended December 30, 2023

as compared to $1,238 million for the year ended December 31, 2022

representing an

estimated decrease of $528 million.

The estimated $528 million net decrease in sales of PPE products

and COVID-

19 test kits represents 5.0%

of Global Distribution and Value-Added Services net sales for the year ended

December 30, 2023 and was primarily due to lower market prices and loss of

demand during the 2023 cyber

incident.

Excluding PPE products and COVID-19 test kits, our internally

generated local currency sales were flat.

Global Specialty Products

Global Specialty Products net sales for the year ended December 30, 2023

increased 4.6%.

The components of

sales increase are presented in the table above.

The decrease in internally generated local currency sales was primarily

attributable to lower sales in our

orthodontics business,

partially impacted by a patent expiration and the October 2023

cyber incident and declines in

certain other health care related consumable merchandise products.

The acquisition growth in Global Specialty Products sales was attributable

to the acquisitions of Biotech Dental and

S.I.N. Implant system during the year ended December 30, 2023.

Table of Contents

Index to Financial Statements

Global Technology

Global Technology net sales for the year ended December 30, 2023 increased 9.6%.

The components of our sales

growth are presented in the table above.

During the year ended December 30, 2023, the trend for sales of practice

management software growth remained strong as we continued to

increase the number of cloud-based users.

also experienced increased demand for our revenue cycle management solutions

and our analytical products.

This

segment of our business was not directly affected by the 2023 cyber

incident in the fourth quarter.

Gross Profit

Gross profit and gross margin percentages by reportable segment were as follows:

Gross

Increase / (Decrease)

2023

Margin %

2022

Margin %

Global Distribution and Value

-Added Services

2,699

25.6

2,769

25.2

(70)

(2.5)

Global Specialty Products

720

54.1

678

53.3

6.3

Global Technology

417

67.4

375

69.2

11.3

Corporate

n/a

152.9

Total

3,860

31.7

3,831

31.3

0.8

As a result of different practices of categorizing costs associated with distribution networks

throughout our

industry, our gross margins may not necessarily be comparable to other distribution companies.

Gross margin

percentages vary between our segments.

We realize substantially higher gross margin from sales of products that

we develop and manufacture within our Global Specialty Products segment

compared to gross margin from sales of

products that we distribute within our Global Distribution and Value-Added Services segment.

Within our Global

Technology segment, higher gross margins result from us being both the developer and seller of software products

and services.

Within our Global Distribution and Value

-Added Services segment, gross profit margins may vary between the

periods as a result of the changes in the mix of products sold as well as

changes in our customer mix.

For example,

sales of our corporate brand and certain specialty products achieve

gross profit margins that are higher than average

total gross profit margins of all products.

With respect to customer mix, sales to our large-group customers are

typically completed at lower gross margins due to the higher volumes sold as opposed

to the gross margin on sales

to office-based practitioners, who normally purchase lower volumes.

The decrease in Global Distribution and Value-Added Services gross profit for the year ended December 30, 2023

compared to the prior year was due to the 2023 cyber incident and a

reduction in sales of PPE products and

COVID-19 test kits, partially offset by additional gross profit from acquisitions.

The increase in Global Specialty Products gross profit is primarily attributable

to gross profit from our acquisitions

offset by lower gross profit from our orthodontics business and certain other health

care related consumable

merchandise products.

The increase in gross margin rates was due to a favorable impact of sales mix.

The increase in Global Technology gross profit reflects increased local currency revenues and additional gross

profit from acquisitions.

Table of Contents

Index to Financial Statements

Operating Expenses

Operating expenses (consisting of selling, general and administrative

expenses; depreciation and amortization,

restructuring and integration costs) by segment were as follows:

% of

Respective

Increase / (Decrease)

2023

Net Sales

2022

Net Sales

Global Distribution and Value

-Added Services

2,034

19.3

1,936

17.6

5.0

Global Specialty Products

545

41.0

486

38.2

12.3

Global Technology

275

45.6

250

45.4

10.1

Corporate

116

n/a

121

n/a

(5)

(4.9)

2,970

24.1

2,793

22.1

177

6.3

Adjustments

(1)

275

n/a

291

n/a

(16)

n/a

Total operating expenses

3,245

26.3

3,084

24.4

161

5.2

(1)

Adjustments represent items excluded from segment operating income to enable comparison of financial results between periods.

These items may vary independently of business performance.

Please see

Note 4 – Segment and Geographic Data

These

adjustments (current year vs. prior year) consist of (i) acquisition intangible amortization ($150 million vs. $126 million); (ii)

restructuring costs ($80 million vs. $131 million); (iii) cyber incident third-party advisory expenses ($11 million vs. $0 million);

(iv) impairment of capitalized assets ($27 million vs. $0 million); and (v) impairment of intangible assets ($7 million vs. $34

million).

The net increase in operating expenses is attributable to the following:

Operating Costs

(excluding

acquisitions)

Acquisitions

Adjustments

Total

Global Distribution and Value

-Added Services

Global Specialty Products

(12)

Global Technology

Corporate

(5)

128

177

Adjustments

(16)

Total operating expenses

128

(16)

161

The increase in operating costs (excluding acquisitions) during the year ended

December 30, 2023 includes

increases in payroll and payroll related costs primarily in our Global

Distribution and Value-Added Services

segment.

During the year ended December 30, 2023, our operating expenses

were favorably impacted by the

recognition of a remeasurement gain of $18 million following an acquisition of

a controlling interest of a previously

held equity investment.

Other Expense, Net

Other expense, net was as follows:

Variance

2023

2022

Interest income

125.1

Interest expense

(87)

(35)

(52)

(148.7)

Other, net

(3)

(4)

n/a

Other expense, net

(73)

(26)

(47)

(172.9)

Interest income increased primarily due to increased interest rates.

Interest expense increased primarily due to

increased borrowings and increased interest rates.

Table of Contents

Index to Financial Statements

Income Taxes

Our effective tax rate was 22.1% for the year ended December 30, 2023 compared to 23.5%

for the prior year.

each year, the difference between our effective and federal statutory tax rates primarily relates to state and foreign

income taxes and interest expense.

The Organization of Economic Co-Operation and Development (OECD) issued

technical and administrative

guidance on Pillar Two rules in December 2021, which provides for a global minimum tax rate on the earnings of

large multinational businesses on a country-by-country basis.

Effective January 1, 2024, the minimum global tax

rate is 15% for various jurisdictions pursuant to the Pillar Two rules.

Future tax reform resulting from these

developments may result in changes to long-standing tax principles, which

may adversely impact our effective tax

rate going forward or result in higher cash tax liabilities.

As of December 30, 2023, the impact of the Pillar Two

rules to our financial statements was immaterial.

Table of Contents

Index to Financial Statements

Liquidity and Capital Resources

Our principal capital requirements have included funding of acquisitions, purchases

of additional noncontrolling

interests, repayments of debt principal, the funding of working capital needs,

purchases of fixed assets and

repurchases of common stock.

Working capital requirements generally result from increased sales, special

inventory forward buy-in opportunities and payment terms for receivables

and payables.

Historically, sales have

tended to be stronger during the second half of the year and special inventory

forward buy-in opportunities have

been most prevalent just before the end of the year, and have caused our working capital requirements

to be higher

from the end of the third quarter to the end of the first quarter of

the following year.

We finance our business primarily through cash generated from our operations, revolving credit facilities and debt

placements.

Please see

Note 14 – Debt

for further information.

Our ability to generate sufficient cash flows from

operations is dependent on the continued demand of our customers

for our products and services, and access to

products and services from our suppliers.

Our business requires a substantial investment in working capital, which

is susceptible to fluctuations during the

year as a result of inventory purchase patterns and seasonal demands.

Inventory purchase activity is a function of

sales activity, special inventory forward buy-in opportunities and our desired level of inventory.

We finance our business to provide adequate funding for at least 12 months.

Funding requirements are based on

forecasted profitability and working capital needs, which, on occasion, may

change.

Consequently, we may change

our funding structure to reflect any new requirements.

We believe that our cash and cash equivalents, our ability to access private debt markets and public equity markets,

and our available funds under existing credit facilities provide us with

sufficient liquidity to meet our currently

foreseeable short-term and long-term capital needs.

Our acquisition strategy is focused on investments in companies that

add new customers and sales teams, increase

our geographic footprint (whether entering a new country, such as emerging markets, or building scale where we

have already invested in businesses), and finally, those that enable us to access new products and technologies.

Net cash provided by operating activities was $848 million for the

year ended December 28, 2024, compared to net

cash provided by operating activities of $500 million for the prior year.

The net change of $348 million was

primarily attributable to changes in working capital accounts (primarily accounts

receivable and inventory), and

higher cash net income.

The residual impacts of the 2023 cyber incident on our working

capital during the year

ended December 28, 2024 included an increase in operating cash flows from

accounts receivable due to improved

collection levels and decreased cash flows from accounts payable and accrued

expenses resulting from previously

delayed payments.

Net cash used in investing activities was $430 million for the year

ended December 28, 2024, compared to net cash

used in investing activities of $1,135 million for the prior year.

The net change of $705 million was primarily

attributable to decreased payments for equity investments and business

acquisitions.

Net cash used in financing activities was $510 million for the year

ended December 28, 2024, compared to net cash

provided by financing activities of $701 million for the prior year.

The net change of $1,211 million was primarily

due to decreased net borrowings from debt to finance our investments,

increased acquisitions of noncontrolling

interests in subsidiaries and increased repurchases of common stock.

Table of Contents

Index to Financial Statements

The following table summarizes selected measures of liquidity and capital

resources:

December 28,

December 30,

2024

2023

Cash and cash equivalents

122

171

Working

capital

(1)

1,180

1,805

Debt:

Bank credit lines

650

264

Current maturities of long-term debt

150

Long-term debt

1,830

1,937

Total debt

2,536

2,351

Leases:

Current operating lease liabilities

Non-current operating lease liabilities

259

310

(1)

Includes $241 million and $284 million of certain accounts receivable which serve as security for U.S. trade accounts receivable

securitization at December 28, 2024 and December 30, 2023, respectively.

Our cash and cash equivalents consist of bank balances and investments

in money market funds representing

overnight investments with a high degree of liquidity.

Accounts receivable days sales outstanding and inventory turns

Our accounts receivable days sales outstanding from operations

increased to 47.3 days as of December 28, 2024

from 46.2 days as of December 30, 2023.

Adjusted for the impact of the cyber incident our days sales outstanding

decreased to 45.7 days as of December 28, 2024.

During the years ended December 28, 2024 and December

30,

2023, we wrote off approximately $12 million and $16 million, respectively, of fully reserved accounts receivable

against our trade receivable reserve.

Our inventory turns from operations increased to 5.0 as of December

28, 2024

from 4.5 as of December 30, 2023.

Our working capital accounts may be impacted by current and

future economic

conditions.

Contractual obligations

The following table summarizes our contractual obligations related

to fixed and variable rate long-term debt and

finance lease obligations, including interest (assuming a weighted

average interest rate of 4.88%), as well as

inventory purchase commitments and operating lease obligations

as of December 28, 2024:

Payments due by period

1 year

2 - 3 years

4 - 5 years

5 years

Total

Contractual obligations:

Long-term debt, including interest

140

1,053

337

657

2,187

Inventory purchase commitments

Operating lease obligations

130

378

Transition tax obligations

Finance lease obligations, including interest

Total

263

1,191

418

738

2,610

For information relating to our debt please see

Note 14 – Debt

Table of Contents

Index to Financial Statements

Leases

We have operating and finance leases for corporate offices, office space, distribution and other facilities, vehicles

and certain equipment.

Our leases have remaining terms of less than one year to approximately

17 years, some of

which may include options to extend the leases for up to 15 years.

As of December 28, 2024, our right-of-use

assets related to operating leases were $293 million and our current and

non-current operating lease liabilities were

$75 million and $259 million, respectively.

Please see

Note 8 – Leases

for further information.

Stock Repurchases

On January 27, 2025, our Board authorized the repurchase of up

to an additional $500 million in shares of our

common stock.

From March 3, 2003 through December 28, 2024, we repurchased $5.1

billion, or 95,814,454 shares, under our

common stock repurchase programs, with $380 million available

as of December 28, 2024 for future common stock

share repurchases.

Subject to market conditions and other factors, we plan to continue

to accelerate our share

repurchase activity.

Redeemable Noncontrolling Interests

Some minority stockholders 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 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.

As of December 28, 2024 and December 30, 2023, our balance

for

redeemable noncontrolling interests was $806 million and $864 million,

respectively.

Please see

Note 20 –

Redeemable Noncontrolling Interests

for further information.

Unrecognized tax benefits

As more fully disclosed in

Note 15 – Income Taxes

of “Notes to Consolidated Financial Statements,” we cannot

reasonably estimate the timing of future cash flows related to our unrecognized

tax benefits, including accrued

interest, of $108 million and $115 million as of December 28, 2024 and December 30, 2023, respectively.

Critical Accounting Estimates

Our accounting policies are described in

Note 1 – Basis of Presentation and Significant Accounting Policies

of the

consolidated financial statements.

The preparation of consolidated financial statements requires us

to make

estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses and related

disclosures of contingent assets and liabilities.

We base our estimates on historical data, when available,

experience, industry and market trends, and on various other assumptions

that are believed to be reasonable under

the circumstances, the combined results of which form the basis for

making judgments about the carrying values of

assets and liabilities that are not readily apparent from other sources.

We believe that the estimates, judgments and

assumptions upon which we rely are reasonable based upon information

available to us at the time that these

estimates, judgments and assumptions are made.

However, by their nature, estimates are subject to various

assumptions and uncertainties.

Therefore, reported results may differ from estimates and any such differences may

be material to our consolidated financial statements.

We believe that the following critical accounting estimates, which have been discussed with the Audit Committee

of our Board, affect the significant estimates and judgments used in the preparation

of our consolidated financial

statements:

Table of Contents

Index to Financial Statements

Inventories and Reserves

Inventories consist primarily of finished goods, raw materials and

work-in-process and are valued at the lower of

cost or net realizable value.

Cost is determined by the weighted average method for merchandise and

actual cost

for large equipment,

high tech equipment and drop-shipments.

We include product costs, labor, and related fixed

and variable overhead in the cost of inventory

that we manufacture.

In estimating carrying value of inventory, we

consider many factors including the condition and salability of the inventory

by reviewing on-hand quantities,

historical sales, forecasted sales and market and economic trends.

Business Combinations

The estimated fair value of acquired identifiable intangible assets (i.e., customer

relationships and lists, trademarks

and trade names, product development and non-compete agreements)

is based on critical judgments and

assumptions derived from analysis of market conditions, including discount

rates, projected revenue growth rates

(which are based on historical trends and assessment of financial projections),

estimated customer attrition and

projected cash flows.

These assumptions are forward-looking and could be affected by future economic

and market

conditions.

Please see

Note 5 – Business Acquisitions

for further discussion of our acquisitions.

Goodwill

Goodwill is subject to impairment analysis at least once annually as

of the first day of our fourth quarter, or if an

event occurs or circumstances change that would more likely than

not reduce a reporting unit’s fair value below

carrying value.

We regard our reporting units to be our operating segments or one level below the operating

segments.

Goodwill is allocated to such reporting units, for the purposes of

preparing our impairment analyses,

based on a specific identification basis.

Application of the goodwill impairment test requires judgment, including

the identification of reporting units,

assignment of assets and liabilities that are considered shared services

to the reporting units, and ultimately the

determination of the fair value of each reporting unit.

The fair value of each reporting unit is calculated by

applying the discounted cash flow methodology and confirming with

a market approach.

There are inherent

uncertainties, however, related to fair value models, the inputs and our judgments in applying them

to this analysis.

The most significant inputs include estimation of detailed future cash flows based

on budget expectations, and

determination of comparable companies to develop a weighted average

cost of capital for each reporting unit.

On an annual basis, we prepare financial projections.

These projections are based on input from our leadership and

are presented annually to our Board.

Influences on this year's forecasted financial information and

the fair value

model include: the impact of planned strategic initiatives, the continued

integration of recent acquisitions and

overall market conditions.

The estimates used to calculate the fair value of a reporting unit change

from year to

year based on operating results, market conditions, and other factors.

During the year ended December 28, 2024, we engaged third-party valuation

specialists to determine the relative

fair value of our goodwill related to the revision of our reportable segments.

Our management reviewed and

approved this valuation.

During the fourth quarter of our fiscal year ended December 28, 2024,

we revised our segment structure to align

with how our Chairman and Chief Executive Officer manages the business, assesses

performance and allocates

resources.

Our revised reportable segments now consist of: (i) Global Distribution

and Value

-Added Services; (ii)

Global Specialty Products; and (iii) Global Technology.

Reporting units under the former structure were tested for

impairment, and no impairment was identified.

As a result of the realignment and the change in operating

segments, we reallocated goodwill to each of our new reporting units using

a relative fair value approach.

Based on

the impairment test under the new structure, it was determined that the

fair values of our reporting units more likely

than not exceeded their carrying values, resulting in no impairment.

For both the former and new structure

goodwill impairment tests as of September 30, 2024, the fair values of reporting

units were computed using the

methodology described above.

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In connection with our restructuring initiatives, during the year ended

December 28, 2024, we recorded an $11

million impairment of goodwill in the Global Specialty Products segment,

relating to the disposal of a portion of a

business; such impairment was calculated based on the relative fair value of

goodwill.

For the year ended

December 31, 2022, in connection with our restructuring activities, we

recorded a $20 million impairment of

goodwill, in the Global Specialty Products segment, relating to the disposal

of an unprofitable business for which

estimated fair value was lower than carrying value.

Apart from the above impairments identified in connection with

our restructuring initiative, we did not record any

additional impairment during the years ended December 28, 2024, December

30, 2023, and December 31, 2022.

We performed our annual quantitative testing for the remaining goodwill and the fair value of each of our reporting

units sufficiently exceeded the carrying values.

Definite-Lived Intangible Assets

Annually or if we identify an impairment indicator,

definite-lived intangible assets such as non-compete

agreements, trademarks, trade names, customer relationships and lists, and

product development are reviewed for

impairment indicators.

If any impairment indicators exist, quantitative testing

is performed on the asset.

The quantitative impairment model is a two-step test under which we

first calculate the recoverability of the

carrying value by comparing the undiscounted projected cash flows associated

with the asset or asset group,

including its estimated residual value, to the carrying amount.

If the cash flows associated with the asset or asset

group are less than the carrying value, we perform a fair value assessment

of the asset, or asset group.

If the

carrying amount is found to be greater than the fair value, we record an

impairment loss for the excess of book

value over the fair value.

In addition, in all cases of an impairment review, we re-evaluate the remaining useful

lives of the assets and modify them, as appropriate.

Although we believe our judgments, estimates and/or

assumptions used in estimating cash flows and determining fair value

are reasonable, making material changes to

such judgments, estimates and/or assumptions could materially affect such impairment

analyses and our financial

results.

During the year ended December 28, 2024, we recorded $4 million of

impairment charges related to businesses in

our Global Distribution and Value-Added Services segment.

It included $2 million of a trade name impairment,

calculated using the relative fair value, related to a disposal of a business,

and $1 million related to trade name

impairment due to business integration in connection with our restructuring

initiatives.

The remaining $1 million

impairment charges related to trade names and non-compete agreements and were

calculated as the differences

between the carrying values and the estimated fair values of the impaired

intangible assets, using a discounted

estimate of future cash flows.

During the year ended December 30, 2023, we recorded $19 million of

impairment charges related to businesses in

our Global Distribution and Value-Added Services segment, consisting of $7 million primarily related to customer

lists and relationships attributable to lower than anticipated operating

margins in certain businesses, and a $12

million charge related to the planned exit of a business in connection with our restructuring

initiatives.

These

impairment charges were calculated as the differences between the carrying values and the

estimated fair values of

the impaired intangible assets, using a discounted estimate of future

cash flows.

During the year ended December 31, 2022, we recorded $49 million of

impairment charges related to businesses in

our Global Distribution and Value-Added Services segment, consisting of a $15 million charge related to the

disposal of an unprofitable business in connection with our restructuring

initiatives, and a $34 million charge

related to customer lists and relationships attributable to customer attrition rates

being higher than expected in

certain other Global Distribution and Value-Added Services businesses.

These impairment charges were calculated

as the differences between the carrying values and the estimated fair values of

the impaired intangible assets, using

a discounted estimate of future cash flows.

Please see

Note 16 – Plans of Restructuring and Integration Costs

for additional details.

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Index to Financial Statements

Redeemable Noncontrolling Interests

Some minority stockholders in certain of our consolidated subsidiaries have

the right, at certain times, to require us

to acquire their ownership interest in those entities at fair value.

The redemption amounts have been estimated

based on recent transactions and/or implied multiples of earnings

and, if such earnings and cash flows are not

achieved, the value of the redeemable noncontrolling interests might be impacted.

See

Note 1 – Basis of

Presentation and Significant Accounting Policies

and

Note 20 – Redeemable Noncontrolling Interests

for additional

information.

Income Tax

When determining if the realization of a deferred tax asset is likely to assess

the need to record a valuation

allowance, estimates and judgement are required.

consider all available evidence, both positive and negative,

including estimated future taxable earnings, ongoing planning strategies,

future reversals of existing temporary

differences and historical operating results.

Additionally, changes to tax laws and statutory tax rates can have an

impact on our determination.

evaluate the realizability of our deferred tax assets quarterly.

Accounting Standards Codification Topic 740 prescribes the accounting for uncertainty in income taxes recognized

in the financial statements in accordance with provisions contained within

its guidance.

This topic prescribes a

recognition threshold and a measurement attribute for the financial statement

recognition and measurement of tax

positions taken or expected to be taken in a tax return.

For those benefits to be recognized, a tax position must be

more likely than not to be sustained upon examination by the taxing authorities.

The amount recognized is

measured as the largest amount of benefit that has a greater than 50% likelihood of being

realized upon ultimate

audit settlement.

In the normal course of business, our tax returns are subject

to examination by various taxing

authorities.

Such examinations may result in future tax and interest assessments

by these taxing authorities for

uncertain tax positions taken in respect of certain tax matters.

Please see

Note 15 – Income Taxes

for further

discussion.

Accounting Standards Update

For a discussion of accounting standards updates that have been adopted

or will be adopted in the future, please see

Note 1 – Basis of Presentation and Significant Accounting Policies

included under Item 8.

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Index to Financial Statements

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