What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-02-21 · 530 added, 436 removed, 507 unchanged (66% of the section changed)

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or industry results to be materially

different from any future results, performance or achievements expressed or implied by such forward-looking

different from any future results, performance or achievements expressed or implied by such

forward-looking

These statements are generally identified by the use of such

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Commission (“SEC”).

Forward looking statements include the overall impact of the Novel Coronavirus

(COVID-19) on us, our results of operations, liquidity and financial condition

(including any estimates of the

impact on these items), the rate and consistency with which dental

and other practices resume or maintain normal

operations in the United States and internationally, expectations regarding personal protective equipment (“PPE”)

products and COVID-19 related product sales and inventory levels, whether

additional resurgences or variants of

the virus will adversely impact the resumption of normal operations, whether

supply chain disruptions will

adversely impact our business, the impact of integration and restructuring

programs as well as of any future

acquisitions, general economic conditions including exchange rates,

inflation and recession, and more generally

current expectations regarding performance in current and future periods.

Forward looking statements also include

the (i) our ability to have continued access to a variety of COVID-19

test types, expectations regarding COVID-19

test sales, demand and inventory levels, as well as the efficacy or relative efficacy of the test

results given that the

test efficacy has not been, or will not have been, independently verified under

normal FDA procedures and (ii)

potential for us to distribute the COVID-19 vaccines and ancillary supplies.

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

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include, but are not limited to:

risks associated with COVID-19

and any variants thereof, as well as other disease

outbreaks, epidemics, pandemics, or similar wide-spread public health concerns

and other natural disasters;

dependence on third parties for the manufacture and supply of our products;

our ability to develop or acquire and

maintain and protect new products (particularly technology products) and

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;

legal, regulatory, compliance,

cybersecurity, financial and tax risks associated with acquisitions, dispositions and joint ventures;

certain provisions

in our governing documents that may discourage third-party acquisitions

adverse changes in supplier rebates

or other purchasing incentives;

risks related to the sale of corporate brand

effects of a highly competitive

(including, without limitation, competition from third-party online commerce

sites) and consolidating market;

repeal or judicial prohibition on implementation of the Affordable Care Act;

changes in the health

care industry;

our dependence on third parties for

the manufacture and supply of our products;

ability to develop or acquire and maintain and protect new products (particularly

technology products) and

technologies that achieve market acceptance with acceptable margins;

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;

changes in supplier rebates or

other purchasing incentives;

risks related to the sale of corporate brand products;

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

competition from third-party online commerce sites) and consolidating

changes in the health care industry;

risks from expansion of customer purchasing power and multi-tiered

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global and domestic macro-economic

and political conditions, including inflation, deflation, recession, fluctuations

in energy pricing and the value of the

dollar as compared to foreign currencies, and changes to other economic

indicators, international trade

agreements, potential trade barriers and terrorism;

failure to comply with existing

and future regulatory

requirements;

risks associated with the EU Medical Device Regulation;

to comply with laws and regulations

relating to health care fraud or other laws and regulations;

and political conditions, including inflation, deflation, recession, 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, potential trade barriers and terrorism;

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;

existing and future regulatory requirements;

risks associated with the EU Medical

Device Regulation;

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;

risks related to product liability, intellectual property and other claims;

litigation risks;

new or unanticipated litigation developments and the status of litigation

risks related to product liability, intellectual

property and other claims;

risks associated with customs policies

or legislative import restrictions;

risks associated

with customs policies or legislative import restrictions;

or other privacy or data security breaches;

associated with our global operations;

our dependence on our senior management,

employee hiring and retention,

and our relationships with customers, suppliers and manufacturers;

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;

new or unanticipated litigation developments and the status

of litigation matters;

our dependence on our

senior management, employee hiring and retention, and our relationships

with customers, suppliers and

manufacturers;

and disruptions in financial markets.

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

relative importance or priority.

The order in which these factors appear should not be

construed to indicate their relative importance or priority.

We caution that these factors may not be exhaustive and that many of these factors are beyond our ability to control

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Recent Developments

The COVID-19 pandemic negatively impacted the global economy, disrupted global supply chains and created

significant volatility and disruption of global financial markets in

2020 and 2021.

The impact of COVID-19 had a

material adverse effect on our business, results of operations and cash flows in 2020.

During the year ended

December 25, 2021, patient traffic levels returned to levels approaching pre-pandemic

Demand for dental

products and certain medical products throughout 2021 was driven

by sales of PPE and COVID-19 test kits.

During the year ended December 31, 2022 we experienced a decrease

in the sales volume of PPE and COVID-19

The volatility in sales of COVID-19 test kits has moderated, albeit at a significantly

lower level of sales

compared with 2021, resulting in us recording an inventory obsolescence

reserve of $17 million for COVID-19 test

kits during the year ended December 31, 2022.

During the years ended December 30, 2023 and December 31, 2022 we

continued to experience a decrease in the

sales of PPE and COVID-19 test kits as compared to the comparable

prior-year periods, primarily due to lower

market pricing of PPE and lower market demand for COVID-19

While the U.S.

economy has recently experienced inflationary

pressures and strengthening of the U.S dollar, their

impacts have not been material to our results of operations in the

fourth quarter or full year ended December 31,

2022, and we currently expect moderating of inflation and foreign currency

fluctuations.

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 unable to

absorb price increases, thus positioning us to protect our gross profit.

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.

Our consolidated financial statements reflect estimates and assumptions

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measurement of

compensation cost for certain share-based performance awards and cash

compensation cost for certain share-based performance awards and cash bonus

and pension plan

Due to the significant uncertainty surrounding the future impact

of COVID-19, our judgments

regarding estimates and impairments could change in the future.

There is an ongoing risk that the COVID-19

pandemic may again have a material adverse effect on our business, results of operations

and cash flows and may

result in a material adverse effect on our financial condition and liquidity.

However, the extent of the potential

impact cannot be reasonably estimated at this time.

Cybersecurity Incident

In addition to immaterial and unrelated prior incidents at certain of

our subsidiaries, in October 2023 Henry Schein

experienced a cybersecurity incident that primarily affected the operations of our

North American and European

dental and medical distribution businesses.

Henry Schein One, our practice management software, revenue

management and patient relationship management solutions business, was

not affected, and our manufacturing

businesses were mostly unaffected.

Once we became aware of the issue, we took steps

to assess, contain and

remediate this incident.

We restored affected systems and applications, our distribution operations resumed and we

reactivated our ecommerce platform.

We also notified law enforcement and our employees, customers, suppliers

and investors, informing them of both the incident and management’s efforts to mitigate its impact on our daily

operations and data maintained on the Company’s systems.

Subsequently, on or about November 8, 2023, we

determined that the threat actor obtained personal and sensitive information

maintained on our systems belonging to

certain third parties and since that date we have notified affected and potentially affected parties

as appropriate.

The scope of personal and sensitive data impacted is still under investigation.

On November 22, 2023, we

experienced a related disruption to our ecommerce platform and related

applications, which has since been

As described in “Management’s Discussion & Analysis – 2023 Compared to 2022, the incident

adversely impacted our financial results for the fourth quarter and full year 2023.

We also expect some short-term

residual impact on our financial results in 2024.

We maintain cybersecurity insurance, subject to certain retentions and policy limitations.

With respect to the

October 2023 cybersecurity incident, we have a $60 million insurance policy, following a $5 million retention.

Executive-Level Overview

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by a network of people and

We believe we are the world’s

largest provider of health care products and services primarily to office-

believe we are the world’s largest provider of health care products and services primarily to office-

based dental and medical practitioners, as well as alternate sites of care.

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employ approximately 25,000 people (of which approximately

10,700 are based outside of the United States) and have operations or

affiliates in 32 countries and territories.

11,500 are based outside of the United States) and have operations or affiliates in 33 countries and territories.

broad global footprint has evolved over time through our organic success as well as

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supply for our customers’ needs.

While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell under

While our primary go-to-market strategy is in our capacity as a distributor, we also market and sell our own

corporate brand portfolio of cost-effective, high-quality consumable merchandise products,

and manufacture certain

dental specialty products in the areas of implants, orthodontics and endodontics.

have achieved scale in these

global businesses primarily through acquisitions as manufacturers of these

products typically do not utilize a

distribution channel to serve customers.

including in vitro

diagnostic devices, manufacture certain dental specialty products in

the areas of implants, orthodontics and

endodontics, manufacture drug products, and repackage/relabel prescription drugs

and/or devices.

achieved scale in these global businesses primarily through acquisitions, as

manufacturers of these products

typically do not utilize a distribution channel to serve customers.

conduct our business through two reportable segments:

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institutions.

Our medical businesses serve physician offices, urgent care centers, ambulatory care sites, emergency

Our medical businesses serve physician offices, urgent care centers, ambulatory care sites,

medical technicians, dialysis centers, home health, federal and state governments

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toward managed care, cuts in Medicare and collective purchasing arrangements.

Our current and future results have been and could be impacted by the COVID-19

pandemic, the current economic

environment and continued economic and public health uncertainty.

Since the onset of the COVID-19 pandemic in

early 2020, we have been carefully monitoring its impact on our global

operations and have taken appropriate steps

to minimize the risk to our employees.

have seen and expect to continue to see changes in demand trends

some of our products and services, supply chain challenges and labor

challenges, as rates of infection fluctuate, new

strains or variants of COVID-19 emerge and spread, governments adapt their approaches

to combatting the virus,

and local conditions change across geographies.

As a result, we expect to see continued volatility.

Industry Consolidation

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operations and provide opportunities for us to develop synergies with, and thus strengthen, the acquired

consolidation continues, we believe that we are positioned to capitalize

on this trend, as we believe we

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

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increased health care awareness, the proliferation of medical technology

and testing, new pharmacology treatments,

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

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’

and testing, new pharmacological

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

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 2022 and 2032, the 45 and older

Census Bureau’s International Database, between 2023

and 2033, the 45 and older

population is expected to grow by approximately 11%.

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rates of approximately 6%

between 2022 and 2032 and approximately 12% between 2022 and 2042.

between 2023 and 2033

and approximately 11% between 2023 and 2043.

According to the U.S.

Census Bureau’s International Database, in 2022 there are approximately seven million

Census Bureau’s International Database, in 2023

there are approximately seven million

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

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the same period.

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

continue to increase in the

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

care services continue to increase in the

United States.

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Health care spending is projected to reach

approximately $6.2 trillion in 2028, or 19.7% of the nation’s projected gross domestic product.

approximately $7.2 trillion by 2031, or 19.6% of the nation’s projected gross domestic product.

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

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Refer to Item 7:

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

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

our 2022 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results

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The following tables summarize the significant components of our operating

results and cash flows from continuing

results and cash flows:

Operating results:

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Other expense, net

Gain on sale of equity investments, net of tax

Net income from continuing operations

Income from discontinued operations, net of tax

Gain on sale of equity investment

Net income attributable to Henry Schein, Inc.

Net cash provided by operating activities from continuing operations

Net cash used in investing activities from continuing operations

Net cash used in financing activities from continuing operations

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Plans of Restructuring and Integration Costs

On August 1, 2022, we committed to a restructuring plan focused on

funding the priorities of the strategic plan and

streamlining operations and other initiatives to increase efficiency.

We expect this initiative to extend through

We are currently unable in good faith to make a determination of an estimate of the amount or range of

amounts expected to be incurred in connection with these activities, both with

respect to each major type of cost

associated therewith and with respect to the total cost, or an estimate of the

amount or range of amounts that will

result in future cash expenditures.

During the year ended December 31, 2022, we recorded restructuring charges of $128

million primarily related to

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

lease assets, impairment of other

long-lived assets and lease exit costs.

During the three months ended December 31, 2022, in connection with our restructuring

plan, we vacated one of

the buildings at our corporate headquarters in Melville NY, which resulted in an accelerated amortization of right-

of-use lease asset of $34 million.

We also initiated the disposal of a non-profitable US business 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.

These expenses are included in the $128 million of

restructuring charges discussed above.

The disposal is expected to be completed in the first quarter of 2023.

funding the priorities of the BOLD+1 strategic

plan, streamlining operations and other initiatives to increase efficiency.

We revised our previous expectations of

completion and we have extended this initiative through the end of 2024.

We are currently unable in good faith to

make a determination of an estimate of the amount or range of amounts

expected to be incurred in connection with

these activities, both with respect to each major type of cost associated

therewith and to the total cost, or an

estimate of the amount or range of amounts that will result in future

cash expenditures.

During the years ended December 30, 2023, December 31, 2022, and December

25, 2021, we recorded

restructuring costs of $80 million, $128 million, and $8 million, respectively.

The restructuring costs for these

periods primarily related to severance and employee-related costs,

impairment of intangible assets, accelerated

amortization of right-of-use lease assets and fixed assets, other lease exit

costs, and certain business exit costs

discussed below.

During the year ended December 30, 2023, in connection with our restructuring

plan, we recorded an impairment of

an intangible asset of $12 million related to a planned disposal of a non-U.S.

The disposal is expected to

be completed in 2024.

This impairment is included in the $80 million of restructuring

charges discussed above.

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

restructuring 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.

recorded related costs of $49 million, which primarily consisted of

impairment of intangible assets and goodwill,

inventory impairment, and severance and employee-related costs.

These expenses 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

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

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2023 Compared to 2022

Percentages for Net Sales;

Gross Profit;

Operating Expenses;

Expense, Net;

and Income Taxes are

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

Net sales were as follows:

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The components of our sales growth were as follows:

Local Currency Growth

Local Currency Growth/(Decline)

Growth/(Decline)

Local Internal

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Technology and value-added services

Percentages for Net Sales;

Gross Profit;

Selling, General and Administrative;

Other Expense, Net;

and Income Taxes are based on

actual values and may not recalculate due to rounding.

Consists of consumable products, small equipment, laboratory products, large equipment, equipment repair services, branded and

generic pharmaceuticals, vaccines, surgical products, dental specialty products (including implant, orthodontic and endodontic

Consists of consumable products, dental specialty products (including implant, orthodontic and endodontic products), small

equipment, laboratory products, large equipment, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical

products, diagnostic tests, infection-control products, PPE products and vitamins.

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education services for practitioners, consulting and other services.

Global net sales for the year ended December 31, 2022 increased 2.0% based

upon the components presented in the

We estimate that sales for the year ended

December 31, 2022 of PPE products and COVID-19 test kits

were approximately $1,245 million, an estimated decrease of 34.7% versus the prior

Excluding PPE products

and COVID-19 test kits,

the estimated increase in internally generated local currency sales was 6.7%.

Dental net sales for the year ended December 31, 2022 decreased 0.9% based

upon the components presented in the

Our sales growth in local currency for dental merchandise decreased

primarily due to a decrease in

PPE product sales.

We estimate that global dental sales for the year ended December 31, 2022 of PPE products

were approximately $447 million, an estimated decrease of 32.5% versus the prior

Excluding PPE products,

the estimated increase in internally generated local currency dental sales

Dental equipment sales in local

currency increased in both our North American and international markets,

primarily due to increased demand.

Medical net sales for the year ended December 31, 2022 increased 5.7% based

upon the components presented in

the table above.

Globally, we estimate our medical business recorded sales of approximately $798 million of

of PPE products

and COVID-19 test kits for the year ended December 31, 2022, an estimated

approximately 27.4% compared to the prior year.

Excluding PPE products and COVID-19 test kits, the estimated

increase in internally generated local currency medical sales was

chnology and value-added services

Technology and value-added services net sales for the year ended December 31, 2022 increased 11.8% based upon

the components presented in the table above.

During the year ended December 31, 2022, the trend for transactional

software sales improved as we increased the number of users, generating demand

for our sales cycle management

solutions, and also from cloud-based solutions that drive practice efficiency and patient engagement.

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

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 growth are

presented in the table above.

The 4.4% 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

internally generated local currency sales, excluding PPE products

and COVID-19 test kits, was 3.5%.

a result of the adverse impact of the cybersecurity 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.

In addition, we estimate that sales of PPE products and COVID-19

test kits were approximately $713 million and

$1,245 million for the years ended December 30, 2023 and December 31,

2022, respectively, representing an

estimated decrease of $532 million or 42.7%

versus the prior year, with the $532 million net decrease year-over-

year representing 4.2%

of global net sales for the year ended December 30, 2023.

Dental net sales for the year ended December 30, 2023 increased 0.9%.

The components of our sales growth are

presented in the table above.

Our decrease in internally generated local currency sales for dental

merchandise was

primarily attributable to the negative impact of the cybersecurity incident.

Our sales decrease in internally

generated local currency for dental equipment was also primarily attributable

to the impact of the cybersecurity

We estimate that sales of PPE products were approximately $338 million and $448 million for the years ended

December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease of $110 million or

24.5% versus the prior year, with the $110 million net decrease year-over-year representing 1.5% of dental net sales

for the year ended December 30, 2023.

The decrease in sales of PPE products is primarily due to lower

prices and loss of demand during the cybersecurity incident.

Our estimated internally generated local currency

sales, excluding PPE products were flat compared to the prior year.

Medical net sales for the year ended December 30, 2023 decreased 10.3%.

The components of our sales growth are

presented in the table above.

The internally generated local currency decrease in medical sales

attributable to the impact of the cybersecurity incident that occurred

during the fourth quarter of the year ended

December 30, 2023 and to lower sales of PPE products and COVID-19

test kits and other point-of-care diagnostic

We estimate that sales of PPE products and COVID-19 test kits were approximately $375 million and $797 million

for the years ended December 30, 2023 and December 31, 2022, respectively, representing an estimated decrease

$422 million or 52.9% versus the prior year, with the $422 million net decrease year-over-year representing 10.6%

of medical net sales for the year ended December 30, 2023.

The decrease in sales of these products is primarily due

to lower market prices of PPE, lower market demand of COVID-19

test kits, and loss of sales of both product

categories during the cybersecurity incident.

The estimated decrease in internally generated local currency

excluding PPE products and COVID-19 test kits was 2.2%.

Technology and value-added services

Technology and value-added services net sales for the year ended December 30, 2023 increased 11.4%.

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 remains

strong as we continued to increase the number of

cloud-based users.

We also experienced increased demand for our revenue cycle management solutions and our

analytical products.

The increase in sales during the year ended December 30, 2023

was 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.

This segment of our business was largely unaffected by the cybersecurity incident

in the fourth quarter.

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

Increase / (Decrease)

Health care distribution

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gross margins to recover investments in research and development.

Within our health care distribution segment, gross profit margins may vary from one period to the next.

the mix of products sold as well as changes in our customer mix have

been the most significant drivers affecting

our gross profit margin.

For example, sales of our corporate brand 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.

Health care distribution gross profit increased primarily due to the increase

in net sales discussed above.

overall increase in our health care distribution gross profit was attributable to

$67 million of gross profit from

acquisitions and gross margin expansion, mainly as a result of increased sales

mix of higher-margin products.

Technology and value-added services gross profit increased as a result of an increase in gross profit from internally

generated sales and gross profit from acquisitions, partially offset by a decrease in

gross margin rates.

margin rates decreased primarily due to lower gross margins of recently acquired companies in

services sector and our continued investment in product development and customer

Within our health care distribution segment, gross profit margins may vary between the periods as a result of

changes in the mix of products sold as well as changes in our customer

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.

Health care distribution gross profit for the year ended December 30, 2023

decreased compared to the prior-year-

period due to the decrease in sales resulting from the cybersecurity

incident and a reduction in sales of PPE

products and COVID-19 test kits, partially offset by gross profit from acquisitions

and gross margin expansion as a

result of a favorable impact of sales mix of higher-margin products.

Technology and value-added services gross profit increased as a result of a higher gross profit from internally

generated sales and gross profit from acquisitions, as well as an increase

in gross margin rates primarily due to

product mix and increases in productivity.

Operating Expenses

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Technology and value-added services

The net increase in operating expenses is attributable to the

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

Operating Costs

Restructuring and

Integration Costs

Operating Costs

Health care distribution

Technology and value-added services

The increase in restructuring and integration costs is attributable to our disposal

of an unprofitable business,

acceleration of amortization of right-of-use lease assets related

to the exit from one of the properties at our

corporate headquarters, severance costs, and other costs relating to

the exit of some facilities.

The increase in

operating costs includes a $20 million intangible assets impairment charge within

our health care distribution

segment, and increases in payroll and payroll related costs and travel and convention

expenses in both of our

reportable segments.

While the U.S.

economy has recently experienced inflationary

pressures and strengthening of

the U.S dollar, their impacts have not been material to our results of operations.

The increase in operating costs during the year ended December 30, 2023 includes

increases in payroll and payroll

related costs, travel, convention and consulting expenses in both of our reportable

segments and increased

acquisition expenses in our healthcare distribution 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, and were negatively impacted by

restructuring, an impairment of capitalized costs of $27 million and impairment

of intangible assets of $7 million

within our health care distribution segment.

During the year ended December 30, 2023, we also incurred $11

million of direct costs, primarily professional fees, for the remediation of

the cybersecurity incident.

restructuring and integration costs are primarily related to severance and

employee-related costs, accelerated

amortization of right-of-use lease assets and fixed assets, and other lease exit

Other Expense, Net

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increased borrowings and increased interest rates.

For the year ended December 31, 2022, our effective tax rate was 23.5% compared to 23.8%

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

for the prior year.

In 2022, the difference between our effective tax rate and the federal statutory tax rate primarily

state and foreign income taxes and interest expense.

In 2021, the difference between our effective tax rate and the

federal statutory tax rate was primarily due to state and foreign income

taxes and interest expense.

Gain on Sale of Equity Investment

In the third quarter of 2021, we received contingent proceeds of $10 million

from the 2019 sale of Hu-Friedy

resulting in the recognition of an additional after-tax gain of $7

No further proceeds are expected from this

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 Model 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 framework.

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 we operate in jurisdictions which have

adopted Pillar 2, we are continuing to analyze the implications to effectively manage

the impact for 2024 and

Liquidity and Capital Resources

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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

operations is dependent on the continued demand of our customers

for our products and services, and access to

products and services from our suppliers.

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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.

part of our BOLD+1 Strategic Plan, including pursuing focused mergers and acquisitions,

during the year ended

December 30, 2023 we have announced acquisitions of companies specializing

in implant systems, clear aligners,

homecare medical products delivered directly to patients, and dental practice

transition services.

Net cash provided by operating activities was $500 million for the

year ended December 30, 2023, compared to net

cash from continuing operations provided by operating activities of $710 million

for the prior year.

The net change

of $108 million was primarily due to unfavorable net cash used by our working

capital accounts, net of

acquisitions, driven by an impact of timing of payments which

resulted in an increase in other current assets and

relative decreases in accounts payable and accrued expenses, partially offset by the

relative year over year impact

of inventory increases (2021 increase was more significant than the

2022 increase).

Net cash used in investing activities was $276 million for the year

ended December 31, 2022, compared to $677

million for the prior year.

The net change of $401 million was primarily attributable to decreased payments

equity investments and business acquisitions.

Net cash used in financing activities was $315 million for the year

ended December 31, 2022, compared to net cash

used in financing activities of $333 million for the prior year.

The net change of $18 million was primarily due to

increased net borrowings from debt, partially offset by increased repurchases of common

cash provided by operating activities of $602 million for the prior year.

The net change of $102 million was

primarily attributable to lower cash net income.

During the quarter ended December 30, 2023, the cybersecurity

incident had several offsetting impacts to the operating cash flows from our working

capital, net of acquisitions,

including a decrease in operating cash flows from accounts receivable

due to delayed timing of billings and limited

collection efforts resulting from the impact of the cybersecurity incident, and an increase

in operating cash flows

resulting from reduced inventory purchases.

Net cash used in investing activities was $1,135 million for the

year ended December 30, 2023, compared to net

cash used in investing activities of $276 million for the prior year.

The net change of $859 million was primarily

attributable to increased payments for equity investments and business acquisitions,

and increased purchases of

fixed assets resulting from our continued investment in our facilities and operations.

Net cash provided by financing activities was $701 million for the year

ended December 30, 2023, compared to net

cash used in financing activities of $315 million for the prior year.

The net change of $1,016 million was primarily

due to increased net borrowings from debt

to finance our investments, partially offset by decreased repurchases of

common stock.

The following table summarizes selected measures of liquidity and capital

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trade accounts receivable

securitization at December 31, 2022 and December 25, 2021, respectively.

securitizations at December 30, 2023 and December 31, 2022, respectively.

Our cash and cash equivalents consist of bank balances and investments

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increased to 46.2 days as of December 30, 2023

from 41.8 days as of December 25, 2021.

During the years ended December 31, 2022 and December

wrote off approximately $10 million and $8 million, respectively, of fully reserved accounts receivable against our

trade receivable reserve.

Our inventory turns from operations was 4.7 as of December

31, 2022 and 5.2 as of

December 25, 2021.

Our working capital accounts may be impacted by current and

future economic conditions.

from 41.9 days as of December 31, 2022 due to delays in billings

leading to limited collections in the quarter ended

December 30, 2023 as a result of the cybersecurity incident.

During the years ended December 30, 2023 and

December 31, 2022, we wrote off approximately $16 million and $10 million, respectively, of fully reserved

accounts receivable against our trade receivable reserve.

Our inventory turns from operations was 4.5 as of

December 30, 2023 and 4.7 as of December 31, 2022.

Our working capital accounts may be impacted by current

and future economic conditions.

Contractual obligations

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and certain equipment.

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

19 years, some of

Our leases have remaining terms of less than one year to

approximately 18 years, some of

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

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Stock Repurchases

On March 8, 2021, we announced the reinstatement of our share repurchase

program, which had been temporarily

suspended in April of 2020.

On February 8, 2023, our Board authorized the repurchase of up

to an additional $400 million in shares of our

common stock.

From March 3, 2003 through December 30, 2023, we repurchased $4.7

billion, or 90,394,805 shares, under our

common stock repurchase programs, with $115 million available as of December 31, 2022 for future

common stock repurchase programs, with $265 million available

as of December 30, 2023 for future common stock

share repurchases.

On February 8, 2023, our Board of Directors authorized the repurchase

of up to an additional $400 million in shares

of our common stock.

Redeemable Noncontrolling Interests

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to acquire their ownership interest in those entities.

Accounting Standards Codification (“ASC”) Topic 480-10 is

applicable for noncontrolling interests where we are or may be required

to purchase all or a portion of the

outstanding interest in a consolidated subsidiary from the noncontrolling

interest holder under the terms of a put

option contained in contractual agreements.

As of December 31, 2022 and December 25, 2021, our balance

redeemable noncontrolling interests was $576 million and $613 million, respectively.

Redeemable Noncontrolling Interests

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 30, 2023 and December 31, 2022,

our balance for redeemable

noncontrolling interests was $864 million and $576 million, respectively.

Note 19 – Redeemable

Noncontrolling Interests

for further information.

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of “Notes to Consolidated Financial Statements,” we cannot

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

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

tax benefits, including accrued

interest, of $115 million as of December 30, 2023.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Our accounting policies are more fully described in

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

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

the preparation of our financial

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

of our consolidated financial

Inventories and Reserves

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the lower of cost or net realizable value.

determined by the first-in, first-out method for merchandise or actual cost

determined by the first-in, first-out method for merchandise and actual cost

for large equipment and high tech

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Business Combinations

The estimated fair value of acquired identifiable intangible assets (trademarks

and trade names, customer

relationships and lists, non-compete agreements and product development)

is based on critical estimates, judgments

and assumptions derived from:

analysis of market conditions;

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.

retention rates;

and estimated useful lives.

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

Note 5 – Business Acquisitions and Divestitures

discussion of our acquisitions.

Goodwill is subject to impairment analysis at least once annually as of

the first day of our fourth quarter, or if an

for further discussion of our acquisitions.

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 the fair value of a reporting unit

below its carrying value.

Such impairment analyses for goodwill require a comparison of

the fair value to the

carrying value of reporting units.

not reduce a reporting unit’s fair value below

carrying value.

We regard our reporting units to be our operating segments:

global dental,

medical, and technology and value-added services.

Goodwill is allocated to such reporting units, for the purposes

of preparing our impairment analyses, based on a specific identification

our global dental and medical

businesses, and technology and value-added services.

Goodwill is allocated to such reporting units, for the

purposes of preparing our impairment analyses, based on a specific identification

Application of the goodwill impairment test requires judgment, including

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cost of capital for each reporting unit.

On an annual basis, we prepare annual and

medium-term financial projections.

These projections are based on

input from our leadership and are presented annually to our Board of Directors.

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.

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

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

Our third-party valuation specialists provide inputs into our determination

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tax rate, equity risk premium, debt

to equity ratio

and pre-tax cost of debt.

to equity ratio and pre-tax cost of debt.

Long-term growth rates are applied to our estimation of future cash flows.

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composition of our global operations.

For the years ended December 30, 2023 and December 25, 2021, we believe

the fair value of each of our reporting

units sufficiently exceeds the carrying values and thus we did not record any amount

for goodwill impairment.

Based on our quantitative assessment for the year ended December 31, 2022,

we recorded a $20 million impairment

of goodwill relating to the disposal of an unprofitable business whose

estimated fair value was lower than its

of goodwill relating to the disposal of an unprofitable business for which

estimated fair value was lower than

carrying value.

As part of our analysis for the rest of the goodwill balance,

we performed a sensitivity analysis on

As part of our analysis for the rest of the goodwill balance, we performed

a sensitivity analysis on

the discount rate and long-term growth rate assumptions.

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Definite-Lived Intangible Assets

Annually, definite-lived intangible assets such as non-compete agreements, trademarks, trade names, customer

relationships and lists, and product development are reviewed for impairment

If any impairment

indicators exist, quantitative testing is performed on the asset.

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, probability-weighted value

of the 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 would perform a fair value assessment

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 years ended December 31, 2022, December 25, 2021

and December 26, 2020, we recorded total

impairment charges on intangible assets of approximately $49 million ($34 million

related to impairment of

customer lists and relationships attributable to customer attrition rates being higher

than expected in certain

businesses and $15 million due to the disposal of an unprofitable

business), $1 million and $20 million,

respectively.

For the year ended December 31, 2022 impairment charges were recorded

within our health care

distribution segment.

For the years ended December 25, 2021 and December 26,

2020, impairment charges were

recorded within our health care distribution and technology and value-added services

When determining if the realization of the deferred tax asset is likely by assessing

the need for a valuation

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

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

impairment charges related to businesses in

our health care distribution segment, the components of which were

$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.

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.

Note 15 – Plans of Restructuring and Integration Costs

for additional

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

impairment charges related to businesses in

our health care distribution segment, the components of which were

a $15 million charge related to the disposal of

an unprofitable business and a $34 million charge related to customer lists and relationships

attributable to

customer attrition rates being higher than expected in certain other

health care distribution businesses.

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

Note 15 – Plans of

Restructuring and Integration Costs

for additional details.

During the year ended December 25, 2021, we recorded a $1 million

impairment charge related ratably to a

business within our health care distribution segment and a business within

our technology and value-added services

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, expected future earnings and cash flows

and, if such earnings and cash flows are not

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

Note 1 – Basis of

Presentation and Significant Accounting Policies

Note 19 – Redeemable Noncontrolling Interests

for additional

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.

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ASC Topic 740 prescribes the accounting for uncertainty in income taxes recognized in the financial statements in

accordance with other provisions contained within this 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

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% likely of being realized upon ultimate

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

Such examinations may result in

future tax and interest assessments by these taxing authorities for uncertain

tax positions taken in respect of certain

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.

Note 14 – Income Taxes

for further discussion.

The FASB Staff Q&A, Topic

5, Accounting for Global Intangible Low-Taxed Income (“GILTI”), states

that an entity can make an accounting policy election to either recognize deferred

taxes for temporary differences

expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is

We elected to recognize the tax on GILTI

as a period expense in the period the tax is incurred.

The Financial Accounting Standards Board Staff Q&A, Topic 740 No.

5, Accounting for Global Intangible Low-

Taxed Income (“GILTI”),

states that an entity can make an accounting policy election to

either recognize deferred

taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related

to GILTI in the year the tax is incurred.

We have elected to recognize the tax on GILTI as a period expense in the

period the tax is incurred.

Accounting Standards Update

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis