HENRY SCHEIN INC (HSIC)

CIK: 0001000228. SIC: 5047 Wholesale-Medical, Dental & Hospital Equipment & Supplies. Latest 10-K as of: 2026-02-24.

SIC breadcrumb: Wholesale Trade > SIC Major Group 50 > SIC 5047 Wholesale-Medical, Dental & Hospital Equipment & Supplies

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1000228. Latest filing source: 0001000228-26-000013.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-24. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001000228.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-24. Report date: 2025-12-27.

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, including

anticipated results of restructuring and

value creation initiatives; risks related to the Strategic Partnership Agreement

with KKR Hawaii Aggregator L.P.

entered into in January 2025; transitions in senior company leadership;

our ability to develop or acquire and

maintain and protect new products (particularly technology and specialty

products) and services and utilize new

technologies that achieve market acceptance with acceptable margins; transitional

challenges associated with

acquisitions 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;

political, economic and regulatory influences on 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, fluctuations in

energy pricing and the value of the U.S. dollar as compared to foreign currencies

and changes to other economic

indicators; 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; the threat or outbreak of war (including, without

limitation, geopolitical wars), 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, including changes to

international trade agreements and the current imposition of (and the

potential for additional) tariffs by the U.S. on

numerous countries and retaliatory tariffs; supply chain disruption; litigation

risks; new or unanticipated litigation

developments and the status of litigation matters; our dependence on

our senior management (including, without

Table of Contents

Index to Financial Statements

49

limitation, the transition to a new Chief Executive Officer), 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.

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

Chief Executive Officer

On January 12, 2026, we announced the appointment of Frederick

M. Lowery as our new CEO, effective March 2,

2026, at which time Mr. Lowery will join our Board of Directors.

Mr. Lowery succeeds Stanley M. Bergman, who

will remain as our CEO through March 1, 2026, at which time Mr. Bergman will retire as CEO, but will remain as

Chairman of the Board.

Cyber Incident

As previously reported, in October 2023 Henry Schein experienced

a cyber incident that primarily affected the

operations of our North American and European dental and medical

distribution businesses.

During the years ended December 28, 2024 and December 30, 2023, we had

a sales decrease in our dental and

medical distribution businesses, which we believe was primarily a

result of lower sales to episodic customers

following the cyber incident.

With respect to the October 2023 cyber incident, we had a $60 million insurance policy, following a $5 million

retention.

During the years ended December 27, 2025, December 28, 2024

and December 30, 2023, we incurred $0

million, $9 million and $11 million, respectively, of direct expenses related to the cyber incident, mostly consisting

of professional fees.

During the years ended December 27, 2025 and December

28, 2024, we received insurance

proceeds of $20 million and $40 million, respectively, representing insurance recovery of losses related to the cyber

incident.

The expenses and insurance recoveries related to the cyber incident

are included in the selling, general

and administrative line in our consolidated statements of income.

Tariffs and Related Economic Conditions

The U.S. has adopted new and increased tariffs on imports from countries, which

tariffs remain subject to

frequently evolving exemptions and modifications, as well as to court

challenges, including a recent invalidation in

the Supreme Court of many of the tariffs.

Some countries have imposed retaliatory tariffs and other restrictions on

imports from the U.S.

These developments, and anticipated future developments,

have created a volatile

environment for global trade, and new trade policies with individual countries.

It is unclear whether, or the extent

to which, the current tariffs on trade with numerous countries will remain in place,

or change, the exceptions that

may apply, and their timing.

The tariffs did not have a material impact on our results of operations during fiscal

year 2025, although sales of

U.S. dental equipment were temporarily impacted by market uncertainty

related to tariffs in the second half of the

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Index to Financial Statements

50

quarter ended June 28, 2025.

It is unclear whether, or the extent to which, the current tariffs on trade with

numerous countries will remain in place, or change, the exceptions that

may apply, and their timing.

One Big Beautiful Bill Act

In the United States, the OBBBA, signed into law on July 4, 2025, includes

a number of provisions that are

expected to result in reductions in the number of Medicaid enrollees, which

will reduce utilization of services and

covered products generally.

There are also several provisions that will reduce federal funding to state

Medicaid

programs.

The OBBBA, in combination with tariffs, will likely have an adverse impact on

utilization, Medicaid

payment and cost of production (if foreign components are used).

The OBBBA also includes changes to corporate tax rates, limitations

on certain deductions and modifications to

international tax provisions.

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51

Executive-Level Overview

Henry Schein, Inc. is a solutions company for health care professionals powered

by a network of people and

technology.

We

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.

We

serve more than one million customers

worldwide including dental practitioners, laboratories, physician practices and

ambulatory surgery centers, as well

as government, institutional health care clinics, home health providers, and

other alternate care clinics.

We

believe

that we have a strong brand identity due to our more than 94 years of experience

distributing health care products.

We

are headquartered in Melville, New York, employ more than 25,000 people (of which approximately 13,000 are

based outside of the United States) and have operations or affiliates in 34 countries and

territories.

Our broad

global footprint has evolved over time through our organic growth as well as through

contribution from strategic

acquisitions.

We

have established strategically located distribution centers around

the world to enable us to better serve our

customers and increase our operating efficiency.

This infrastructure, together with broad product and service

offerings at competitive prices, and a strong commitment to customer service, enables

us to be a single source of

supply for our customers’ needs.

As a distributor, we market and sell branded products as well as our own corporate brand portfolio of

cost-effective,

high-quality consumable merchandise products.

We

also manufacture, source and sell a range of company-owned

manufactured products, primarily implants, biomaterial products, endodontics, handpiece

and small equipment,

hand instrument and repair, restoratives, orthodontics, wound care, orthopedics and dental lab products.

We

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.

Our reportable segments 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, 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.

We

believe that the trend towards cost containment has

the potential to favorably affect demand for technology solutions, including software, which

can enhance the

efficiency and facilitation of practice management.

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52

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.

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.

We

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

on

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 2025 and 2035, the 45 and older

population is expected to grow by approximately 10%.

Between 2025 and 2045, this age group is expected to grow

by approximately 17%.

This compares with expected total U.S. population growth rates of

approximately 4%

between 2025 and 2035 and approximately 6% between 2025 and 2045.

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53

According to the U.S. Census Bureau’s International Database, in 2025 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 15% during

the same period.

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

continue to increase in the

United States.

We

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 $5.3 trillion in 2024, or 18.0% 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 $8.6 trillion by 2033, or 20.3% of the nation’s projected gross domestic product.

We

believe similar demographic changes are also occurring in other

markets we serve outside the U.S.

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

54

Results of Operations

Refer to Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations in

our 2024 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results

of operations for the fiscal year 2024 compared to fiscal year 2023.

The following tables summarize the significant components of our operating

results and cash flows for each of the

three years ended December 27, 2025, December 28, 2024, and December

30, 2023 (in millions):

Years

Ended

December 27,

December 28,

December 30,

2025

2024

2023

Operating results:

Net sales

$

13,184

$

12,673

$

12,339

Cost of sales

9,079

8,657

8,479

Gross profit

4,105

4,016

3,860

Operating expenses:

Selling, general and administrative

3,084

3,034

2,956

Depreciation and amortization

263

251

209

Restructuring and related costs

105

110

80

Operating income

$

653

$

621

$

615

Other expense, net

$

(120)

$

(108)

$

(73)

Income taxes

(126)

(128)

(120)

Net income

419

398

436

Net income attributable to Henry Schein, Inc.

398

390

416

Years

Ended

December 27,

December 28,

December 30,

2025

2024

2023

Cash flows:

Net cash provided by operating activities

$

712

$

848

$

500

Net cash used in investing activities

(400)

(430)

(1,135)

Net cash provided by (used in) financing activities

(188)

(510)

701

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Index to Financial Statements

55

Plans of Restructuring and Related Costs

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

Plan”) to integrate our acquisitions, right-size

operations and further increase efficiencies.

We currently expect this plan to be completed at the end of 2027.

During the years ended December 27, 2025 and December 28, 2024, we recorded

restructuring and related charges

associated with the 2024 Plan of $105 million and $73 million, respectively.

The restructuring and related costs for

these periods primarily related to severance and employee-related costs, accelerated

amortization of right-of-use

assets and fixed assets, and other exit costs.

We expect to record restructuring and related charges associated with

the 2024 Plan through the end of 2027; however, an estimate of the amount of these charges for 2026 through 2027

has not yet been determined.

During the year ended December 27, 2025, in connection with the 2024 Plan,

we recorded a loss of $1 million and

$12 million related to the disposal of businesses in the Global Distribution

and Value

-Added Services and Global

Specialty Product segments, respectively, and a net gain related to disposal of a business in the Global Technology

segment.

These amounts are included in the $105 million of restructuring and

related charges discussed above.

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 in the Global

Specialty Products segment.

This impairment is included in the $73 million of restructuring and

related charges

discussed above.

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 was

completed as of July 31, 2024.

During the years ended December 28, 2024 and December 30, 2023, in

connection

with our 2022 Plan, we recorded restructuring and related costs of $37 million

and $80 million, respectively, which

primarily related to severance and employee-related costs, accelerated amortization

of right-of-use assets and fixed

assets, 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 in

the Global Specialty Products segment.

This

impairment is included in the $80 million of restructuring and related costs discussed

above.

The disposal was

completed during the first quarter of 2024.

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Index to Financial Statements

56

2025 Compared to 2024

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.

Our reportable segments are determined based on how our Chairman

and Chief Executive Officer manages the

business, assesses performance and allocates resources.

We have three reportable segments: (i) Global Distribution

and Value

-Added Services; (ii) Global Specialty Products; and (iii) Global

Technology.

Net Sales

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

as follows:

% of

% of

Increase / (Decrease)

2025

Total

2024

Total

$

%

Global Distribution and Value

-Added Services

Global Dental Merchandise

(1)

$

4,831

36.6

%

$

4,723

37.3

%

$

108

2.2

%

Global Dental Equipment

(2)

1,799

13.6

1,723

13.6

76

4.4

Global Value

-Added Services

(3)

238

1.8

233

1.8

5

2.2

Global Dental

6,868

52.0

6,679

52.7

189

2.8

Global Medical

(4)

4,270

32.5

4,081

32.2

189

4.6

Total Global Distribution and Value

-Added Services

11,138

84.5

10,760

84.9

378

3.5

Global Specialty Products

(5)

1,544

11.7

1,446

11.4

98

6.7

Global Technology

(6)

675

5.1

630

5.0

45

7.1

Eliminations

(173)

(1.3)

(163)

(1.3)

(10)

n/a

Total

$

13,184

100.0

%

$

12,673

100.0

%

$

511

4.0

(1)

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

services 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, home solutions products, 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 the development and distribution of practice management software, e-services and other technology-enabled products

for health care providers.

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

Constant Currency

Growth/(Decline)

Total Constant

Currency Growth

Foreign

Exchange

Impact

Total Sales

Growth

Local Internal

Growth/(Decline)

Acquisition

Growth

Global Distribution and Value

-Added Services

Global Dental Merchandise

1.4

%

0.2

%

1.6

%

0.6

%

2.2

%

Global Dental Equipment

2.7

0.5

3.2

1.2

4.4

Global Value

-Added Services

(2.0)

4.0

2.0

0.2

2.2

Global Dental

1.6

0.4

2.0

0.8

2.8

Global Medical

3.1

1.5

4.6

-

4.6

Total Global Distribution and Value

-Added Services

2.2

0.8

3.0

0.5

3.5

Global Specialty Products

3.3

2.4

5.7

1.0

6.7

Global Technology

6.7

-

6.7

0.4

7.1

Total

2.6

0.9

3.5

0.5

4.0

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Index to Financial Statements

57

Global Sales

Global net sales for the year ended December 27, 2025 increased 4.0%,

attributable to internal growth of 2.6%,

acquisition growth of 0.9%, and an increase in foreign exchange of 0.5%.

The components of our sales increase are

presented in the table above.

Global Distribution and Value-Added Services Sales

Global Distribution and Value-Added Services net sales for the year ended December 27, 2025 increased 3.5%.

The components of our sales increase are presented in the table

above.

The 1.6% increase in internally generated local currency dental sales was

primarily due to sales growth in U.S

dental merchandise and international dental merchandise,

as well as growth in traditional dental equipment in the

U.S. and growth in traditional and digital dental equipment in international

markets.

The 3.1% increase in internally generated local currency medical sales was

attributable to growth of our Home

Solutions business,

dialysis products and pharmaceuticals.

The 2.0% decrease in internally generated local currency value-added services

sales was attributable primarily to

lower sales in our practice transitions business, partially offset by sales growth from our international

businesses.

Global Specialty Products

Global Specialty Products net sales for the year ended December 27, 2025

increased 6.7%.

The components of our

sales increase are presented in the table above.

The 3.3% increase in internally generated local currency sales was attributable

to growth in our implant and

biomaterial businesses, and orthopedics, partially offset by a decline in orthodontic

sales.

Global Technology

Global Technology net sales for the year ended December 27, 2025 increased 7.1%.

The components of sales

growth are presented in the table above.

The internally generated local currency increase of 6.7% in Global Technology sales was primarily attributable to

the adoption of our core practice management solutions, particularly

our cloud-based platforms, as well as an

increase in revenue cycle management solutions.

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58

Gross Profit

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

Gross

Gross

Increase

2025

Margin %

2024

Margin %

$

%

Global Distribution and Value

-Added Services

$

2,786

25.0

%

$

2,776

25.8

%

$

10

0.4

%

Global Specialty Products

847

54.8

802

55.4

45

5.5

Global Technology

457

67.7

424

67.4

33

7.6

Corporate

15

n/a

14

n/a

1

n/a

Total

$

4,105

31.1

$

4,016

31.7

$

89

2.2

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 products we develop

and manufacture within our Global Specialty Products segment compared

to products distributed 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 fluctuate between the

periods as a result of the changes in product mix and customer mix.

With respect to customer mix, sales to our

large-group customers are typically completed at lower gross margins as a result of

higher sales volumes, while

sales to office-based practitioners generally carry higher gross margins due to lower volumes.

The increase in Global Distribution and Value-Added Services gross profit for the year ended December 27, 2025

compared to the prior-year-period is due primarily to increased internally generated sales volume as described

above.

The decrease in gross margin rates was attributable primarily to the impact

of targeted promotional

programs and product mix.

The increase in Global Specialty Products gross profit primarily reflects

increased internally generated sales

volume and gross profit from acquisitions.

The decrease in gross margin rates was due to product mix and pricing.

The increase in Global Technology gross profit is the result primarily of higher internally generated sales.

The

increase in gross margin rates was due to product mix.

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59

Operating Expenses

Operating expenses (consisting of selling, general and administrative

expenses; depreciation and amortization; and

restructuring and related costs) by segment were as follows:

% of

% of

Respective

Respective

Increase / (Decrease)

2025

Sales

2024

Sales

$

%

Global Distribution and Value

-Added Services

$

2,106

18.9

%

$

2,080

19.3

%

$

26

1.3

%

Global Specialty Products

605

39.2

624

43.2

(19)

(3.1)

Global Technology

277

41.0

272

43.2

5

1.5

Corporate

145

n/a

91

n/a

54

60.8

3,133

23.8

3,067

24.2

66

2.1

Adjustments

(1)

319

n/a

328

n/a

(9)

n/a

Total operating expenses

$

3,452

26.2

$

3,395

26.8

$

57

1.7

(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 ($179 million vs. $184 million), (ii)

restructuring and related costs ($105 million vs. $110 million), (iii) change in contingent consideration ($(2) million vs. $45

million), (iv) litigation settlements ($5 million vs. $6 million), (v) cyber incident-insurance proceeds, net of

third-party advisory

expenses ($(20) million net proceeds vs. $(31) million net proceeds), (vi) impairment of intangible assets ($16 million vs. $0

million), (vii) impairment of capitalized assets ($0 million vs. $12 million), and (viii) costs associated with shareholder advisory

matters and select value creation consulting costs ($36 million vs. $2 million).

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

Operating Costs

(excluding

acquisitions)

Acquisitions

Adjustments

Total

Global Distribution and Value

-Added Services

$

3

$

23

$

-

$

26

Global Specialty Products

(23)

4

-

(19)

Global Technology

5

-

-

5

Corporate

54

-

-

54

39

27

-

66

Adjustments

-

-

(9)

(9)

Total operating expenses

$

39

$

27

$

(9)

$

57

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

in the table above.

The increase in

operating costs (excluding acquisitions) during the year ended December 27,

2025 was attributable to an increase in

Corporate investments in technology supporting the launch of our Global E-Commerce

Platform

(www.henryschein.com), depreciation expense,

the impact of certain compensation related costs and timing of

certain non-income tax credits during the year ended December 28, 2024,

partially offset by cost savings from our

restructuring activities, certain changes in estimates and other operating

cost efficiencies.

In addition, during the

year ended December 27, 2025,

our operating costs were impacted by recognition of a benefit related

to the

remeasurement to fair value of previously held equity investments of $29

million within our Global Specialty

Products segment and $9 million within our Global Distribution and Value-Added Services segment.

During the

year ended December 28, 2024,

our operating costs were impacted by recognition of a remeasurement gain

related

to the remeasurement to fair value of a previously held equity investments of $18

million within our Global

Distribution and Value-Added Services segment.

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Index to Financial Statements

60

Other Expense, Net

Other expense, net was as follows:

Variance

2025

2024

$

%

Interest income

$

33

$

24

$

9

37.1

%

Interest expense

(150)

(131)

(19)

(14.2)

Other, net

(3)

(1)

(2)

n/a

Other expense, net

$

(120)

$

(108)

$

(12)

10.9

Interest income increased primarily due to increased interest rates.

Interest expense increased primarily due to

increased borrowings.

Income Taxes

Our effective tax rate was 23.7% for the year ended December 27, 2025, compared to 24.9%

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, as well as the tax treatment associated with

the acquisition of a controlling

interest of a previously held non-controlling equity investment.

On July 4, 2025, President Trump signed the reconciliation tax bill, commonly known as the “One Big Beautiful

Bill Act” (OBBBA), into law.

Corporate provisions in the OBBBA include immediate expensing of domestic

research and experimental expenditures, limitations on certain deductions,

and modifications to international tax

provisions.

The changes resulting from the OBBBA did not have a significant impact

to the total tax provision.

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 27, 2025, the impact of the Pillar Two

rules to our financial statements was immaterial.

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Index to Financial Statements

61

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.

Our acquisition strategy is focused on investments in companies, including

high growth high margin businesses

aligned with our BOLD+1 strategy, 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.

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.

Net cash provided by operating activities was $712 million for the

year ended December 27, 2025, compared to net

cash provided by operating activities of $848 million for the prior year.

The net change of $136 million was

primarily attributable to changes in working capital accounts (primarily

accounts receivable, inventory, and

accounts payable and accrued expenses),

partially offset by an increase in operating income.

Our operating cash

flows during the year ended December 28, 2024 were positively

affected by the residual impacts of the 2023 cyber

incident and included a higher-than-normal level of cash collections.

Our cash collections normalized during the

second half of the year ended December 28, 2024.

Net cash used in investing activities was $400 million for the year ended

December 27, 2025, compared to net cash

used in investing activities of $430 million for the prior year.

The net change of $30 million was primarily

attributable to lower acquisition activity.

Net cash used in financing activities was $188 million for the year

ended December 27, 2025, compared to net cash

used in financing activities of $510 million for the prior year.

The net change of $322 million was primarily due to

increased net borrowings from debt,

proceeds received from the issuance of common stock, and a

reduction in

acquisitions of noncontrolling interests in subsidiaries, partially offset by increased

repurchases of common stock.

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Index to Financial Statements

62

The following table summarizes selected measures of liquidity and capital

resources:

December 27,

December 28,

2025

2024

Cash and cash equivalents

$

156

$

122

Working

capital

(1)

1,236

1,180

Debt:

Bank credit lines

$

764

$

650

Current maturities of long-term debt

33

56

Long-term debt

2,310

1,830

Total debt

$

3,107

$

2,536

Leases:

Current operating lease liabilities

$

78

$

75

Non-current operating lease liabilities

251

259

(1)

Includes $491 million and $241 million of certain accounts receivable which serve as security for U.S. trade accounts receivable

securitization at December 27, 2025 and December 28, 2024, 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 decreased

to 44.8 days as of December 27, 2025

from 47.3 days as of December 28, 2024, which was primarily attributable

to the impact that the cyber incident had

on the cash collections during the first half of 2024.

During the years ended December 27, 2025 and December 28,

2024, we wrote off approximately $18 million and $12 million, respectively, of fully reserved accounts receivable

against our trade receivable reserve.

Our inventory turns from operations decreased to 4.8 as of December

27, 2025

from 5.0 as of December 28, 2024.

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 4.62%), as well as

inventory purchase commitments and operating lease obligations

as of December 27, 2025:

Payments due by period

 1 year

2 - 3 years

4 - 5 years

 5 years

Total

Contractual obligations:

Long-term debt, including interest

$

133

$

942

$

1,066

$

656

$

2,797

Inventory purchase commitments

8

1

-

-

9

Operating lease obligations

91

133

84

63

371

Finance lease obligations, including interest

3

3

1

-

7

Total

$

235

$

1,079

$

1,151

$

719

$

3,184

For information relating to our debt please see

Note 14 – Debt

.

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Index to Financial Statements

63

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 23 years, some of

which may include options to extend the leases for up to 10 years.

As of December 27, 2025, our right-of-use

assets related to operating leases were $301 million and our current and

non-current operating lease liabilities were

$78 million and $251 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.

On May 19, 2025, we executed an accelerated share repurchase program

to repurchase a total of $250 million of

our outstanding common stock based on volume-weighted average

prices.

In May 2025, we received 3,122,832

shares at an estimated fair value of $224 million.

In July 2025, we received an additional 368,651 shares at an

estimated fair value of $26 million, representing the final amount of shares

to be received under this accelerated

share repurchase program.

On September 8, 2025, our Board authorized the repurchase of up to

an additional $750 million in shares of our

common stock.

From March 3, 2003 through December 27, 2025, we repurchased $6.0

billion, or 107,876,628 shares, under our

common stock repurchase programs, with $780 million available

as of December 27, 2025 for future common stock

share repurchases.

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 27, 2025 and December 28, 2024, our balance

for

redeemable noncontrolling interests was $895 million and $806 million,

respectively.

Please see

Note 20 –

Redeemable Noncontrolling Interests

for further information.

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Index to Financial Statements

64

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:

Inventories and Reserves

Inventories consist primarily of finished goods, raw materials and

work-in-process and are stated 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-technology equipment and drop-shipments.

Inventory costs for manufactured products

include direct materials, labor, and an allocation of related fixed and variable overhead.

The determination of

inventory carrying values requires management to make significant

estimates and judgments.

In assessing the need

for inventory reserves and evaluating net realizable value, we consider

multiple factors, including inventory

condition, on-hand quantities, historical and forecasted sales, product

life cycles, and prevailing market and

economic conditions.

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 assessment 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 conduct our goodwill impairment testing at the reporting unit level.

We identify our reporting

units by assessing whether two or more components are economically

similar and therefore should be aggregated.

Our reporting units are identified as our operating segments.

Goodwill is allocated to such reporting units for the

purposes of our impairment assessment.

For the year ended December 27, 2025, our reporting structure was:

(i)

Global Distribution and Value-Added Services reportable segment, which included the following

operating segments (a) US Distribution Group; (b) Europe, Middle East,

and Africa Distribution Group;

(c) Americas Non-US Distribution Group; and (d) Asia-Pacific and Australia

Distribution Group;

(ii)

Global Specialty Products reportable segment, which included the following

operating segments (a) Global

Oral Reconstruction Group; and (b) Healthcare Specialty Group; and

(iii)

Global Technology,

which is both a reportable segment and an operating segment.

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65

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.

In performing the annual goodwill impairment assessment, we prepare forward-looking

financial projections for

each reporting unit based on input from our leadership and approved operating

plans.

These projections incorporate

assumptions related to planned strategic initiatives, the continued integration

of recent acquisitions, and prevailing

macroeconomic and market conditions.

Changes in these assumptions could materially affect the estimated fair

values of the reporting units.

Our third-party valuation specialists provide inputs into our determination

of the discount rate.

The rate is

dependent on a number of underlying assumptions, including the risk-free rate,

tax rate, equity risk premium, debt

to equity ratio and pre-tax cost of debt.

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

The long-term growth rates are tied to

growth rates we expect to achieve beyond the years for which we have

forecasted operating results.

We also

consider external benchmarks, and other data points which we believe are

applicable to our industry and the

composition of our global operations.

We performed our annual quantitative goodwill assessment, and the estimated fair value of each of our reporting

units sufficiently exceeded its respective carrying value.

As a result, no goodwill impairments were recorded

during the years ended December 27, 2025, December 28, 2024, and December

30, 2023.

For the year ended December 28, 2024, in connection with our restructuring

initiatives, 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.

Definite-Lived Intangible Assets

Annually or if we identify an impairment indicator, definite-lived intangible assets such as customer

relationships

and lists, trademarks, trade names, product development and non-compete

agreements 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 27, 2025, we recorded $16 million of

impairment charges related to businesses in

our Global Distribution and Value-Added Services segment.

The impairment charges included $14 million

primarily related to customer lists and relationships attributable

to lower than anticipated operating margins in these

businesses.

The remaining impairment charges of $2 million related to trade names

and non-compete agreements.

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

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Index to Financial Statements

66

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.

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.

The impairment charges for the years ended December 27, 2025, December 28, 2024,

and December 30, 2023 were

measured as the excess of the carrying values over the estimated fair values

of the related intangible assets,

determined using discounted estimates of future cash flows and the

relief-from-royalty method.

Please see

Note 16 – Plans of Restructuring and Related Costs

for additional details.

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

Determining whether a deferred tax asset will be realized requires significant

estimates and judgment to assess

whether a valuation allowance is necessary.

We

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.

We

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

67