
Table of Contents


~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K



☑			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, ~~2020~~2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-11373

~~1-11373~~

Cardinal Health, Inc.

(Exact name of registrant as specified in its charter)

Ohio

31-0958666

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

~~Ohio~~

~~31-0958666~~

~~(State or other jurisdiction of~~

~~incorporation or organization)~~

~~(IRS Employer~~

~~Identification No.)~~

7000 Cardinal Place

Dublin

Ohio

43017

(Address of principal executive offices)

(Zip Code)

(614)

757-5000

(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares (without par value)	CAH	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The aggregate market value of voting stock held by non-affiliates on December 31, ~~2019,~~2020, was the following: ~~$14,729,138,108.~~$15,693,865,917.

The number of the registrant’s common shares, without par value, outstanding as of July 31, ~~2020,~~2021, was the following: ~~292,444,079.~~290,441,408.

Documents Incorporated by Reference:

Portions of the registrant’s Definitive Proxy Statement to be filed for its ~~2020~~2021 Annual Meeting of Shareholders are incorporated by reference into the sections of this Form 10-K addressing the requirements of Part III of Form 10-K.



Cardinal Health Fiscal ~~2020~~2021 Form 10-K

Table of Contents



1			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



Introduction

Introduction

References to Cardinal Health and Fiscal Years

As used in this report, "we," "our," "us," "Cardinal Health" and similar pronouns refer to Cardinal Health, Inc. and its majority-owned subsidiaries, unless the context requires otherwise. Our fiscal year ends on June 30. References to fiscal 2022, 2021, 2020, 2019, 2018 ~~2017~~ and ~~2016~~2017 are to the fiscal years ended June 30, 2022, 2021, 2020, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. Except as otherwise specified, information in this report is provided as of June 30, ~~2020.~~2021.

Non-GAAP Financial Measures

In this report, including in the "Fiscal ~~2020~~2021 Overview" section of Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), we use financial measures that are derived from consolidated financial data but are not presented in our financial statements that are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These measures are considered “non-GAAP financial measures” under the Securities and Exchange Commission (“SEC”) rules. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the “Explanation and Reconciliation of Non-GAAP Financial Measures” section following MD&A in this report.

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

Our MD&A within this Form 10-K generally discusses fiscal ~~2020~~2021 and fiscal ~~2019~~2020 items and year-to-year comparisons between fiscal ~~2020~~2021 and fiscal ~~2019.~~2020. Fiscal ~~2018~~2019 items and discussions of year-to-year comparisons between fiscal ~~2019~~2020 and fiscal ~~2018~~2019 that are not included in this Form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2019.~~2020 (the "Fiscal 2020 Form 10-K").

Important Information Regarding Forward-Looking Statements

This report (including information incorporated by reference) includes forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. Many forward-looking statements appear in MD&A and Risk Factors, but there are others throughout this report, which may be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “would,” “project,” “continue,” “likely,” and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these risks and uncertainties are described in “Risk Factors” in this report and in Exhibit 99.1 to the Form 10-K included in this report. Forward-looking statements in this report speak only as of the date of this document. Except to the extent required by applicable law, we undertake no obligation to update or revise any forward-looking statement.

Available Information

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge on our website (www.cardinalhealth.com), under the “Investor Relations — Financial Reporting — SEC Filings” caption, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. The SEC also maintains a website (www.sec.gov) where you can search for annual, quarterly and current reports, proxy and information statements, and other information regarding us and other public companies.



2	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	2



MD&A			~~Results of Operations~~About Cardinal Health

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

About Cardinal Health

Cardinal Health, Inc. is, an Ohio corporation formed in 1979, ~~and~~ is a globally integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices and patients in the home. We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. We manage our business and report our financial results in two segments: Pharmaceutical and Medical.

Pharmaceutical Segment

Our Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products; operates nuclear pharmacies and radiopharmaceutical manufacturing facilities; provides pharmacy management services to hospitals, as well as medication therapy management and patient outcomes services to hospitals, other healthcare providers and payers; and repackages generic pharmaceuticals and over-the-counter healthcare products.

Medical Segment

Our Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets. In addition to distributing Cardinal Health branded products, this segment also distributes a broad range of medical, surgical and laboratory products known as national brand products and provides supply chain services and solutions to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers in the United States and Canada. This segment also distributes medical products to patients' homes in the United States through our Cardinal Health at-Home Solutions division.



3	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	3


MD&A			Results of Operations

Consolidated Results

Fiscal 2021 Overview


~~MD&A~~			~~Results of Operations~~

~~Consolidated Results~~

~~Fiscal 2020 Overview~~

Revenue

Revenue for fiscal ~~2020~~2021 was ~~$152.9~~$162.5 billion, a 56 percent increase from the prior year, primarily due to sales growth from pharmaceutical distribution and specialty solutions customers.

GAAP and Non-GAAP Operating ~~Earnings~~Earnings/(Loss)


(in millions)	2020			2019			Change		(in millions)	2021		2020		Change
GAAP operating earnings/(loss)	$	(4,098	)	$	2,060		N.M.		GAAP operating earnings/(loss)	$	472	$	(4,098)	N.M.
Surgical gown recall costs	85			—

Surgical gown recall costs/(income)									Surgical gown recall costs/(income)	(28)		85
State opioid assessment related to prior fiscal years	3			—					State opioid assessment related to prior fiscal years	38		3
Restructuring and employee severance	122			125					Restructuring and employee severance	114		122
Amortization and other acquisition-related costs	524			621					Amortization and other acquisition-related costs	451		524
Impairments and (gain)/loss on disposal of assets	7			(488		)			Impairments and (gain)/loss on disposal of assets	79		7
Litigation (recoveries)/charges, net	5,741			36					Litigation (recoveries)/charges, net	1,129		5,741
Non-GAAP operating earnings	$	2,384		$	2,353		1	%	Non-GAAP operating earnings	$	2,255	$	2,384	(5)	%

The sum of the components and certain computations may reflect rounding adjustments.

We had GAAP operating earnings of $472 million and a GAAP operating loss of $4.1 billion during fiscal 2021 and 2020, ~~primarily due to a~~respectively, which includes pre-tax charges of $1.17 billion and $5.63 billion, pre-tax charge we recognized for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications as described in the Significant Developments in Fiscal 2020 and Trends section in this MD&A and ~~Note 7~~ of the "Notes to Consolidated Financial Statements." GAAP operating earnings during fiscal 2019 were favorably impacted by a $508 million pre-tax gain from the divestiture of a majority interest in our naviHealth Holdings, LLC ("naviHealth") business.

The increase in non-GAAP operating earnings was primarily due to the beneficial impact of enterprise-wide cost-savings measures, a higher contribution from branded pharmaceutical sales mix, the favorable year-over-year impact of fiscal 2019 charges related to an exclusive distribution agreement with a Medical segment supplier and growth from specialty solutions, partially offset by the adverse impact of Pharmaceutical segment customer contract renewals and the adverse impact of the pandemic associated with the novel strain of coronavirus (“COVID-19”). See the Significant Developments in Fiscal 2020 and Trends section of this MD&A.

~~GAAP and Non-GAAP Diluted EPS~~

($ per share)
2020 ^{(2) (3)}

2019 ⁽²⁾
Change
GAAP diluted EPS⁽¹⁾
$ (12.61 ) $ 4.53
N.M.
Surgical gown recall costs 0.22
—

State opioid assessment related to prior fiscal years 0.01
—

Restructuring and employee severance 0.31
0.31

Amortization and other acquisition-related costs 1.34
1.57

Impairments and (gain)/loss on disposal of assets 0.02
(1.25 )
Litigation (recoveries)/charges, net 17.84
0.09

Loss on early extinguishment of debt 0.04
—

Gain on sale of equity interest in naviHealth (1.68 ) —

Transitional tax benefit, net (0.01 ) 0.03

Non-GAAP diluted EPS ⁽¹⁾
$ 5.45
$ 5.28
3 %

~~The sum of the components and certain computations may reflect rounding adjustments.~~


~~(1)~~	~~Diluted earnings/(loss) per share attributable to Cardinal Health, Inc. ("diluted EPS" or "diluted loss per share")~~


~~(2)~~	The reconciling items are presented within this table net of tax. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the "Explanation and Reconciliation of Non-GAAP Financial Measures."

~~(3)~~

For fiscal 2020, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 293 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2020 non-GAAP diluted EPS is calculated using a weighted average of 295 million common shares, which includes potentially dilutive shares.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	4



~~MD&A~~	~~Results of Operations~~

~~We had a $12.61 GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") during fiscal 2020 due to the charge we~~respectively, recognized for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications. See further description of opioid lawsuits in the Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements."

GAAP and Non-GAAP operating earnings during fiscal 2021 were adversely impacted by COVID-19, which includes an inventory reserve recorded to reduce the carrying value of certain Medical segment personal protective equipment, primarily certain categories of gloves, to net realizable value. Personal protective equipment ("PPE") refers to protective clothing, medical and non-medical grade gloves, face shields, face masks and other equipment designed to protect the wearer from injury or the spread of infection or illness. See Significant Developments in Fiscal 2021 and Trends section in this MD&A for additional information. Volume declines in our Pharmaceutical segment generics program, which includes the impact of COVID-19, also had an adverse impact. These factors were partially offset by the beneficial impact of enterprise-wide cost-savings measures, including global manufacturing efficiencies in the Medical segment, and higher contribution from branded pharmaceutical sales mix.

GAAP and Non-GAAP Diluted EPS


($ per share)	2021 (2)		2020 (2) (3)		Change
GAAP diluted EPS (1)	$	2.08	$	(12.61)	N.M.

Surgical gown recall costs/(income)	(0.07)		0.22
State opioid assessment related to prior fiscal years	0.10		0.01
Restructuring and employee severance	0.29		0.31
Amortization and other acquisition-related costs	1.13		1.34
Impairments and (gain)/loss on disposal of assets	0.21		0.02
Litigation (recoveries)/charges, net (4)	1.78		17.84
Loss on early extinguishment of debt	0.04		0.04
(Gain)/loss on sale of equity interest in naviHealth	0.01		(1.68)
Transitional tax benefit, net	—		(0.01)
Non-GAAP diluted EPS (1)	$	5.57	$	5.45	2	%

The ~~charge~~sum of the components and certain computations may reflect rounding adjustments.

(1)Diluted earnings/(loss) per share attributable to Cardinal Health, Inc. ("diluted EPS" or "diluted loss per share")

(2)The reconciling items are presented within this table net of tax, except for transitional tax benefit, net. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the section titled "Explanation and Reconciliation of Non-GAAP Financial Measures."


4			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

(3)For fiscal 2020, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 293 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2020 non-GAAP diluted EPS is calculated using a weighted average of 295 million common shares, which includes potentially dilutive shares.

(4)Litigation (recoveries)/charges, net, includes a tax benefit recorded during fiscal 2021 related to a net operating loss carryback. Our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and adjusted our taxable income for fiscal 2015, 2016, 2017 and 2018 as permitted under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The total benefit from the net operating loss carryback was $424 million; however, for purposes of Non-GAAP financial measures, we allocated $389 million of the benefit to litigation (recoveries)/charges, net, which is excluded from non-GAAP measures, based on the relative amount of the self-insurance pre-tax loss related to opioid litigation claims versus separate tax adjustments. The tax benefit allocated to the separate tax adjustments of $35 million is included in non-GAAP measures.

The charges we recognized in fiscal 2021 and 2020 for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications had a $(3.21) and $(17.54) per share ~~after tax~~after-tax impact on GAAP diluted ~~EPS.~~ EPS, respectively.

During fiscal 2021, GAAP and non-GAAP diluted EPS were positively impacted by $1.44 and $0.12 per share, respectively, due to a tax benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss, as further described in Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements."

GAAP diluted EPS during fiscal 2020 was favorably impacted by a $1.68 per share gain from the sale of the remainder of our equity interest in naviHealth described further in ~~Significant Developments in Fiscal 2020 and Trends section in this MD&A and~~ Note 2 of the "Notes to Consolidated Financial ~~Statements". GAAP diluted EPS during fiscal 2019 included a $1.26 per share gain from the divestiture of our majority interest in naviHealth.~~Statements."

Fiscal 2020 non-GAAP diluted EPS increased 3% to $5.45. This increase was primarily due to the factors discussed above impacting non-GAAP operating earnings, as well as a lower share count as a result of share repurchases and lower interest expense due to less debt outstanding and lower interest rates. The year-over-year comparison was unfavorably impacted by a higher effective tax rate due to the benefit in the prior-year from discrete tax items, largely related to international legal entity changes.

Cash and Equivalents

Our cash and equivalents balance was $3.4 billion at June 30, 2021 compared to $2.8 billion at June 30, ~~2020 compared to $2.5 billion at June 30, 2019.~~ 2020. The increase in cash during fiscal ~~2020~~2021 was due to net cash provided by operating activities of ~~$2.0~~$2.4 billion, ~~and $886 million of net cash proceeds from the sale of investments,~~ offset by cash deployed of ~~$1.4 billion~~$573 million for dividends, $570 million for debt repayments, ~~$569~~$400 million for ~~dividends~~capital expenditures, and ~~$350~~$200 million for share repurchases.



5	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	5


MD&A			Results of Operations

Significant Developments in Fiscal 2021 and Trends

COVID-19


~~MD&A~~			~~Results of Operations~~

~~Significant Developments in Fiscal 2020 and Trends~~

The COVID-19 pandemic ("COVID-19") continues to ~~severely impact~~affect the U.S. and global ~~economies. Our~~economies, and as previously disclosed, the pandemic began to materially affect our businesses ~~have been impacted in a variety of ways beginning in~~during the third quarter of fiscal ~~2020, as discussed~~2020. The length and severity of the pandemic and its impacts on our businesses and results of operations are uncertain.

COVID-19 had a negative impact on our consolidated operating earnings/(loss) in ~~the following paragraphs~~fiscal 2021 and ~~under “Results of Operations.”~~fiscal 2020. We estimate that the ~~COVID-19 pandemic had a net negative~~ impact toon fiscal 2021 operating earnings was approximately $200 million greater than on fiscal 2020 operating earnings, and we estimate that the impact on fiscal 2020 operating earnings/(loss) ofwas approximately $100 ~~million~~million.

Pharmaceutical segment profit has been negatively impacted by COVID-19 largely due to volume declines in our generics program and Nuclear and Precision Health Solutions. While fiscal ~~2020.~~

~~Within~~2021 volumes within our ~~manufacturing and distribution facilities, we have implemented sustained protocols designed~~generics program were lower than levels prior to ~~protect~~COVID-19, the ~~safety of our employees and maintain continuity of our operations, and have generally continued to operate our distribution and manufacturing facilities in~~impact on Pharmaceutical segment profit improved on a year-over-year basis during the ordinary course of business. Additionally, in line with various governmental recommendations to reduce large gatherings and practice social distancing, we have enabled most office-based employees to work remotely. These measures have created additional burdens on our infrastructure and information technology systems. Furthermore, if a significant number of our employees are unable to perform their duties for a period of time, we may experience difficulties in operating one or more of our facilities which could adversely impact our financial results.

~~Since the third~~fourth quarter of fiscal ~~2020, our~~2021. Similarly, in comparison to prior year, the impact of COVID-19 on Nuclear and Precision Health Solutions was positive for Pharmaceutical segment profit during the fourth quarter of fiscal 2021.

Our Medical segment ~~has seen~~experienced dramatically increased demand for certain personal protective equipment ~~(“PPE”~~due to COVID-19. Personal protective equipment ("PPE")~~, such as~~ refers to protective clothing, medical and non-medical grade gloves, face shields, face masks ~~gowns~~ and ~~gloves. We manufacture, source~~other equipment designed to protect the wearer from injury or the spread of infection or illness. The peak of this heightened demand was during the second and ~~distribute some PPE products and distribute PPE manufactured by others.~~third quarters of fiscal 2021. This increased demand resulted in ~~an increase in~~higher sales volume for certain products, ~~in fiscal 2020. The cost~~increased costs to manufacture and source ~~certain PPE products has also significantly increased, which had a slight negative impact on our margin for~~ these products ~~in fiscal 2020~~ and ~~is expected~~higher inventory levels to ~~have~~meet customer commitments. As a ~~larger negative impact in fiscal 2021. We continue to seek alternate and~~result, we sought out additional sources for these products and ~~otherwise~~to mitigate the impact of these cost ~~increases. We also are increasing~~increases, we have raised our selling prices for the affected products. During the fourth quarter of fiscal 2021, selling prices and customer demand for certain PPE ~~product~~decreased as compared to the peak, and we expect this decline to continue into fiscal 2022. This resulted in inventory cost above net realizable value, requiring an inventory reserve of $197 million, primarily related to certain categories of gloves, which adversely impacted Medical segment profit. Our estimates for customer demand and selling prices ~~to reflect some of~~are inherently uncertain and if customer demand or selling prices decline in the future beyond our ~~higher costs and are seeking to modify affected customer contracts. If these efforts are unsuccessful, our margins~~current assumptions, additional inventory reserves may be required that would adversely impact Medical segment profit. See Critical Accounting Policies and Sensitive Accounting Estimates section in this MD&A for additional information.

During fiscal 2021, COVID-19 benefited Medical segment profit in some ways as well. Higher volumes in our laboratory business and cost savings positively impacted ~~even more significantly.~~Medical segment profit. Additionally, despite declining customer demand and selling prices in some categories of PPE as described above, Medical segment profit was benefited by pricing actions intended to mitigate the impact of cost increases in certain other PPE categories. In addition, ~~we could experience decreased sales and customer disputes.~~

Federal, state and local governmental policies and orders and certain private initiatives designed to reduce the transmission of COVID-19 also resulted in, among other things, the cancellation or deferral of manywhile lower demand for surgical products resulting from reduced elective ~~medical~~ procedures ~~and some of our customers closing or severely curtailing their operations. As a result, our Medical segment has experienced decreased sales volume (apart from PPE products described above), which~~ had ~~a negative~~an adverse impact on Medical segment profit in fiscal 2020 and which we currently assume will have a negative impact in fiscal 2021. The decrease in elective procedures and physician office visits has also resulted in a significant decrease in sales by our Nuclear and Precision Health Solutions division in our Pharmaceutical segment in fiscal 2020. Fluctuating or decreasing elective procedure volume may have a greater or lesser adverse impact on the sales of these products and services than we anticipate.

~~Our Pharmaceutical Distribution and Specialty Solutions businesses experienced a temporary increase in sales volume~~ during the ~~third quarter~~first nine months of fiscal ~~2020, which we believe to be related to accelerated purchasing by some customers due to the COVID-19 pandemic and which was largely offset by a decrease in sales volume in~~2021, demand improved during the fourth quarter of fiscal ~~2020. We assume fiscal~~ 2021 ~~Pharmaceutical~~and was a positive contributor to year-over-year segment ~~revenue will be negatively impacted by COVID-19, and we are uncertain when sales volume will return to pre-COVID-19 levels.~~

Political, legal or regulatory actions taken in response to the COVID-19 pandemic in certain jurisdictions where we manufacture, source or distribute products have created supply disruptions within both our Medical and, to a lesser extent, our Pharmaceutical segments and are likely to cause additional supply disruptions or shortages in the future. We cannot currently predict the frequency, duration or scope of these governmental actions and supply disruptions. For example, several countries have increased or instituted new restrictions on the export of medical or pharmaceutical products that we distribute or use in our businesses, including key components or raw materials. Additionally, governmental authorities in many countries, including the U.S., are considering enacting legislative or regulatory changes to address the impact of the pandemic, which may restrict or require changes in our operations, increase our costs, or otherwise adversely affect our operations.

In March 2020, the U.S enacted the Coronavirus Aid, Relief and Economic Security Act, which provided a variety of benefits for businesses as a result of the COVID-19 pandemic. During fiscal 2020, we received a cash flow benefit related to the deferral of payroll and income tax payments and a small tax benefit from the employee retention credit under this Act.profit.

We currently anticipate that the negative impact of the COVID-19 pandemic on operating earnings will ~~have a further negative impact on~~be less in fiscal 2022 than it was in fiscal 2021, ~~consolidated operating earnings and Medical segment profit.~~which includes the inventory reserve of $197 million described above. As a result, in comparison to prior year, we expect the COVID-19 impact for fiscal 2022 will be positive. However, we cannot estimate the length or severity of the COVID-19 pandemic or of the related U.S. or global economic consequences on our ~~business~~businesses and results of operations, including whether and when historic economic and operating conditions will resume, or ~~the extent to which the disruption may~~its impact on our business, financial position, results of operations or cash ~~flow, and its~~flow. Its impact ~~maybe~~may be greater or less than we anticipate.

In July 2021, we announced that we and two other national distributors have negotiated a proposed settlement agreement (the “Proposed Settlement Agreement”) and settlement process that, if all conditions are satisfied (including Boards of Directors' approval), would result in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities.

West Virginia subdivisions and Native American tribes are not a part of this settlement process and we have been involved in separate negotiations with these groups. The settlement process does not contemplate participation by any non-governmental or non-political entities or individuals. In connection with the negotiations of the Proposed Settlement Agreement, we and the two other national distributors entered into a settlement with the State of New York and its participating subdivisions. If the Proposed Settlement Agreement becomes effective, New York and its participating subdivisions will become a part of it.


6			Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K			6



MD&A			Results of Operations

In October 2019, we agreed in principle to a global settlement framework with a leadership group of state attorneys general that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions, but not private plaintiffs (the "Settlement Framework"). ThisThe Proposed Settlement ~~Framework~~Agreement is subject to contingencies and ~~uncertainties~~will not become effective unless and until the Boards of Directors of the three distributors each make separate independent determinations that (1) following a sign-on period, a sufficient number of states have agreed to the Proposed Settlement Agreement (the “Settling States”); and, subsequently, (2) following a notice period, that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to the Agreement (or otherwise had their claims foreclosed) to proceed to effectiveness. Prior to the second determination, the Settling States will also have an opportunity to make a determination as to ~~final~~whether a sufficient number of political subdivisions have agreed to the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed with the Proposed Settlement Agreement. This process is currently contemplated to end in February 2022, although it may be extended by agreement. It is possible that a sufficient number of states and subdivisions will not agree to the Proposed Settlement Agreement or that other required contingencies will not be satisfied.

If these conditions are satisfied, the Proposed Settlement Agreement would become effective 60 days after the distributors determine that there is sufficient participation among political subdivisions. During this 60-day period, the Settling States and the distributors would cooperate to obtain consent judgments in each participating state embodying the terms ~~but is~~of the ~~basis for our negotiation of definitive terms and documentation.~~ Settlement.

The Proposed Settlement ~~Framework~~Agreement includes ~~(1)~~ a cash component, pursuant to which wethe Company would pay up to ~~$5.56~~$6.37 billion, the majority of which would be paid over ~~eighteen years~~18 years. The exact payment amount will depend on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions (e.g., laws barring opioid lawsuits by political subdivisions), and the extent to which political subdivisions in Settling States file additional opioid lawsuits against the Company after the Proposed Settlement Agreement becomes effective.

The Proposed Settlement Agreement also includes injunctive relief terms relating to settling distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) ~~development~~independence and ~~participation in a program~~training of the personnel operating our controlled substances monitoring program; (3) due diligence for ~~free or rebated distribution of opioid abuse treatment medications~~new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will be selected to oversee compliance with these provisions for a period of ~~ten years,~~five years. In addition, we and ~~(3) to-be specified industry-wide changes to distributor controlled substance anti-diversion programs. We also agreed, with~~the two other national distributors will engage a third-party vendor to act as a ~~$215 million settlement with two plaintiff counties. Our portion~~clearinghouse for data aggregation and reporting; distributors will fund the clearinghouse for ten years.

Additionally, a trial before a judge in West Virginia in the Cabell County and City of Huntington cases concluded in July 2021 and the judge has not yet issued a decision. In addition, a trial in the case brought by the Ohio Attorney General is scheduled to begin in September 2021 and a trial in the case brought by the Washington Attorney General is scheduled to begin in November 2021. The Ohio Attorney General has issued a press release indicating support for the Proposed Settlement Agreement; however, the Washington Attorney General has issued a press release stating that ~~settlement was $66 million, which was paid in January 2020.~~Washington will not agree to the Proposed Settlement Agreement.

In connection with ~~these matters,~~the opioid lawsuits and settlement negotiations, we have recorded a total pre-tax ~~charge~~charges of $1.17 billion and $5.63 billion ~~($5.14 billion after tax) during fiscal year 2020~~ in litigation charges/(recoveries)~~/charges,~~, net in the ~~consolidated statement~~years ended June 30, 2021 and 2020, respectively. In total, we have $6.73 billion accrued at June 30, 2021, of ~~earnings/(loss) for the cash component. We accrue for contingencies when it~~which $405 million is ~~probable that a liability has been incurred~~included in other accrued liabilities, as we expect to make our first annual settlement payment into escrow on or before September 30, 2021, and the ~~amount of~~remainder is included in deferred income taxes and other liabilities in the ~~loss can be reasonably estimated.~~consolidated balance sheets. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. Moreover, definitive terms for a settlement pursuant to the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

Tax Effect of Opioid Litigation Charges

~~Also in connection~~The net tax benefits associated with ~~these matters, we recorded a tax benefit of~~the opioid litigation charges are $228 million and $488 million ~~which is net of unrecognized~~for fiscal 2021 and 2020, respectively. Our tax benefits ~~of $469 million, during fiscal 2020, reflecting~~are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the ~~$5.63 billion~~ accrual taken in connection with the opioid ~~litigation. Tax~~litigation and are net of unrecognized tax benefits ~~from uncertain~~of $219 million and $469 million, respectively. The fiscal 2021 net tax ~~positions are recognized when it is more likely than not that the position will be sustained upon examination~~benefit and unrecognized tax benefits were primarily due to our assessment of the ~~technical merits~~specific terms of the position, including resolutions of any related appeals or litigation. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.Proposed Settlement Agreement. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment ~~since~~and the ~~definitive settlement terms and documentation, including provisions~~actual amount of tax benefit may differ materially from these estimates. See Note 8 of the "Notes to Consolidated Financial Statements" for additional information.

Tax Effects of Self-Insurance Pre-Tax Loss

During fiscal 2021, our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to ~~deductibility,~~opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and applied to adjust our taxable income for fiscal 2015, 2016, 2017, and 2018 as permitted under the ~~Settlement Framework have not been negotiated~~CARES Act enacted by the United States Congress in March 2020.


			Cardinal Health \| Fiscal 2021 Form 10-K			7


MD&A			Results of Operations

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the ~~U.S.~~current federal statutory income tax ~~law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act (“Tax Act”).~~ rate of 21 percent.

We have ~~made reasonable estimates~~filed for a U.S. federal income tax refund of $974 million as a result of the net operating loss carryback under the CARES Act, which we expect to receive within 12 months, and accordingly have recorded a current asset on our consolidated balance sheet at June 30, 2021. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 related to this matter.

We have recorded these amounts based on management's judgment and our current understanding of ~~the Tax Act. Further,~~tax law; however, it is possible that the tax authorities could challenge ~~our interpretation of~~these tax benefits or that the ~~Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits.~~tax law could change. The actual amount or timing of the tax benefit ~~related to uncertain tax positions~~ may differ ~~materially~~ from these ~~estimates.~~expectations. See Note 8 ~~of the “Notes to the Consolidated Financial Statements” for additional information.~~

~~Gain on Sale of Equity Interest in naviHealth~~

~~As described further in~~ ~~Note 2~~ of the "Notes to Consolidated Financial ~~Statements,"~~Statements" for additional information.

On March 12, 2021, we announced that we signed a definitive agreement to sell our Cordis business to Hellman & Friedman for proceeds of $927 million in ~~May 2020~~cash, subject to customary purchase price adjustments, and we ~~sold~~retained certain working capital accounts and product liability for lawsuits and claims related to inferior vena cava ("IVC") filters in the ~~remainder~~U.S. and Canada as described in Note 7 of ~~our equity interest in~~the “Notes to Consolidated Financial Statements.” The transaction closed on August 2, 2021, and we received proceeds of $927 million, net of cash transferred. In connection with the closing, we entered into a ~~partnership that owned naviHealth. We~~Transition Services Agreement ("TSA") with the buyer to provide support functions for a period of up to twenty-four months following the sale. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2021, we recognized a $60 million pre-tax ~~gain~~write-down of ~~$579~~the net assets held for sale in impairment and (gain)/loss on disposal of assets in the consolidated statement of earnings/(loss). We recorded a net tax expense of $9 million ~~($493~~associated with the impact of the write-down and the required tax adjustments related to held for sale accounting.

In connection with the divestiture, during fiscal 2021 we recognized costs of $28 million ~~after tax) from this~~associated with exit or disposal activities. We expect to record up to $100 million of additional costs associated with these activities, primarily during fiscal 2022. These costs are recorded in ~~gain on sale of equity interest in naviHealth~~restructuring and employee severance in our consolidated statements of earnings/(loss). We expect these charges to consist of approximately $83 million of professional, project management and other service fees to support the divestiture; $19 million of employee-related costs; and additional expenses from facility exits and other restructuring activities.

We expect the divestiture of the Cordis business will decrease annual Medical segment revenue by approximately $800 million and adversely impact Medical segment profit by approximately $80 million. The divestiture of our Cordis business is subject to risks and uncertainties that may further adversely impact Medical segment profit. For example, the TSA period may be extended beyond our current expectations or could have unintended consequences, and the costs associated with the exit or disposal activities and stranded costs could be greater than anticipated.

Pharmaceutical Segment

~~In addition to the trends and uncertainties described above under the caption Significant Developments in Fiscal 2020 and Trends, the~~The performance of our Pharmaceutical segment generics program ~~which includes generic pharmaceutical customer pricing changes and Red Oak Sourcing,~~ adversely impacted the year-over-year comparison of Pharmaceutical segment profit in fiscal ~~2019 and fiscal 2018; however,~~2021 due to volume declines in ~~fiscal 2020~~ our generics program, ~~had a slightly favorable~~including the impact onof COVID-19. The Pharmaceutical segment ~~profit. As is generally~~generics program includes, among other things, the ~~case,~~impact of generic pharmaceutical product launches, customer volumes, pricing changes and the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health"). In August 2021, we amended our agreement with CVS Health to extend the term of the Red Oak Sourcing agreement through June 2029. The frequency, timing, magnitude and profit impact of generic pharmaceutical customer volumes, pricing changes, customer contract renewals, and branded and generic pharmaceutical manufacturer pricing changes remain uncertain ~~and~~as does their impact on Pharmaceutical segment profit and consolidated operating earnings in fiscal 2022.

In the fourth quarter of fiscal 2021, ~~could be more or less than~~our Medical segment experienced increased supply chain costs, primarily related to transportation, labor and commodities. While we ~~expect.~~

are taking actions to mitigate the impact of these and other sourcing cost increases primarily through cost-savings measures, including global manufacturing efficiencies, we expect these increased costs to adversely impact Medical segment profit in fiscal 2022.

Cardinal Health | Fiscal ~~2020~~2021 Form 10-K


MD&A			Results of Operations

Information Technology Investments

Our Pharmaceutical segment is in a multi-year project to implement a replacement of certain finance and operating systems. Within the Medical segment, Cardinal Health at-Home Solutions is also investing in a system transformation. We expect that these investments will result in increased project-related expenses and depreciation related to capital expenditures, which will negatively impact operating earnings and segment profit in fiscal 2022 and beyond.


			Cardinal Health \| Fiscal 2021 Form 10-K			9


MD&A			Results of Operations

Results of Operations

Revenue


	Revenue
(in millions)	2021		2020		Change
Pharmaceutical	$	145,796	$	137,495	6	%
Medical	16,687		15,444		8	%
Total segment revenue	162,483		152,939		6	%
Corporate	(16)		(17)		N.M.
Total revenue	$	162,467	$	152,922	6	%

Revenue
(in millions) 2020 2019 Change
Pharmaceutical $ 137,495
$ 129,917
6 %
Medical 15,444
15,633
(1 )%
Total segment revenue 152,939
145,550
5 %
Corporate (17 ) (16 ) N.M.
Total revenue $ 152,922
$ 145,534
5 %

Fiscal ~~2020~~2021 Compared to Fiscal ~~2019~~

2020

Pharmaceutical Segment

Fiscal ~~2020~~2021 Pharmaceutical segment revenue grew by $8.3 billion primarily due to sales growth from pharmaceutical distribution and specialty solutions customers, which together increased revenue by ~~$7.6~~$8.1 billion.

Medical Segment

Fiscal ~~2020~~2021 Medical segment revenue ~~decreased~~increased primarily within products and distribution, which increased revenue by $1.1 billion, primarily due to a net benefit from COVID-19, including the ~~adverse~~positive impact of ~~the COVID-19 pandemic, partially offset by sales growth from Cardinal Health at-Home Solutions.~~PPE and higher volumes in our laboratory business.

Cost of Products Sold

Cost of products sold forfor fiscal ~~2020~~ 2021 increased ~~$7.4~~$9.6 billion (5(7 percent) due to the factors affecting the changes in revenue and gross margin.



10	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	8


MD&A			Results of Operations

Gross Margin



~~MD&A~~			~~Results of Operations~~


	Consolidated Gross Margin
(in millions)	2021		2020		Change
Gross margin	$	6,778	$	6,868	(1)	%

~~Gross Margin~~

Fiscal 2021 Compared to Fiscal 2020

Consolidated Gross Margin
(in millions) 2020 2019 Change
Gross margin $ 6,868
$ 6,834
— %

Fiscal ~~2020 Compared to Fiscal 2019~~

~~Fiscal 2020~~2021 consolidated gross margin ~~is essentially flat with growth from pharmaceutical specialty solutions~~decreased primarily due to the adverse impact of COVID-19, which includes an inventory reserve recorded to reduce the carrying value of certain Medical segment PPE, primarily certain categories of gloves, to net realizable value, partially offset by higher volumes in our laboratory business. For additional information regarding inventory reserves, see Significant Developments in Fiscal 2021 and Trends section in this MD&A. Volume declines in our Pharmaceutical segment generics program, which includes the impact of COVID-19, also had an adverse impact. These factors were partially offset by higher contribution from branded pharmaceutical sales ~~mostly offset by~~mix and the ~~adverse impact~~beneficial comparison of ~~Pharmaceutical segment customer contract renewals. Gross margin comparison to~~ the ~~prior~~current year ~~benefitted from~~insurance recoveries with the ~~fiscal~~ ~~2019~~ ~~charges related to an exclusive distribution agreement with a Medical segment supplier.~~

~~Gross margin rate declined during fiscal 2020 mainly due to the adverse impact of pharmaceutical customer contract renewals and changes in pharmaceutical distribution product mix.~~

~~Distribution, Selling, General and Administrative ("SG&A") Expenses~~

SG&A Expenses
(in millions) 2020 2019 Change
SG&A expenses $ 4,572
$ 4,480
2 %

~~Fiscal 2020 Compared to Fiscal 2019~~

~~Fiscal~~ ~~2020~~ ~~SG&A expenses increased due to higher costs to support sales growth and a $37 million~~prior-year charge in connection with a voluntary recall for ~~Association for the Advancement of Medical Instrumentation ("AAMI") Level 3~~certain surgical gowns and a voluntary recall and field actions for surgical procedure packs containing affected gowns (together, the "Recalls")~~, as described further within~~.

Gross margin rate declined during fiscal 2021 mainly due to changes in pharmaceutical distribution product sales mix and an inventory reserve recorded to reduce the carrying value of certain Medical segment PPE to net realizable value. While branded pharmaceutical sales contributed positively to gross margin dollars during fiscal 2021, they had a dilutive impact on our overall gross margin rate.


			Cardinal Health \| Fiscal 2021 Form 10-K			11


MD&A			Results of Operations

Distribution, Selling, General and Administrative ("SG&A") Expenses


	SG&A Expenses
(in millions)	2021		2020		Change
SG&A expenses	$	4,533	$	4,572	(1)	%

Fiscal 2021 Compared to Fiscal 2020

Fiscal 2021 SG&A expenses decreased primarily due to the beneficial impact of enterprise-wide cost-savings measures. The year-over-year comparison was also favorably impacted by the $37 million charge in connection with the Recalls recognized during fiscal 2020. These factors were partially offset by information technology investments and the $41 million assessment on prescription opioid medications that were sold or distributed in New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements". for additional information on the New York Opioid Stewardship Act.



912			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K


MD&A			Results of Operations

Segment Profit


~~MD&A~~			~~Results of Operations~~

We evaluate segment performance based on segment profit, among other measures. See Note 13 of the "Notes to Consolidated Financial Statements" for additional information on segment profit.

Fiscal ~~2020~~2021 Compared to Fiscal ~~2019~~

2020

Pharmaceutical Segment Profit

Fiscal ~~2020~~2021 Pharmaceutical segment profit ~~decreased largely~~was adversely impacted due to volume declines in our generics program, including the ~~adverse~~ impact of ~~customer contract renewals,~~COVID-19, partially offset by higher contribution from ~~our~~ branded pharmaceutical sales ~~mix and growth from specialty solutions.~~mix.

Pharmaceutical segment financial results do not include the $1.17 billion and $5.63 billion ~~charge~~charges associated with the opioid ~~litigation.~~litigation during fiscal 2021 and 2020, respectively. See Significant Developments in Fiscal ~~2020~~2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements" for additional information. In addition, Pharmaceutical segment financial results do not include the $41 million assessment on prescription opioid medications that were sold or distributed in New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the New York Opioid Stewardship Act.

~~Medical Segment Profit~~Cash and Equivalents

Fiscal 2020 Medical segment profit increased largely due to benefits from cost-savings measures and the favorable year-over-year impact of the fiscal 2019 charges related to an exclusive distribution agreement with a Medical segment supplier~~, partially offset by decreased sales resulting from the COVID-19 pandemic.~~

~~Medical segment financial results do not include the $85 million charge incurred during fiscal 2020 in connection with the Recalls, as described further within~~ ~~Note 7~~ ~~of the "Notes to Consolidated Financial Statements".~~

~~The changes in Corporate during fiscal 2020 are due to the factors discussed in the Other Components of Consolidated Operating Earnings/(Loss) section that follows.~~

Our cash and equivalents balance was $3.4 billion at June 30, 2021 compared to $2.8 billion at June 30, 2020. The increase in cash during fiscal 2021 was due to net cash provided by operating activities of $2.4 billion, offset by cash deployed of $573 million for dividends, $570 million for debt repayments, $400 million for capital expenditures, and $200 million for share repurchases.


			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			105


MD&A			Results of Operations

Significant Developments in Fiscal 2021 and Trends

COVID-19



~~MD&A~~			~~Results of Operations~~

The COVID-19 pandemic ("COVID-19") continues to affect the U.S. and global economies, and as previously disclosed, the pandemic began to materially affect our businesses during the third quarter of fiscal 2020. The length and severity of the pandemic and its impacts on our businesses and results of operations are uncertain.

COVID-19 had a negative impact on our consolidated operating earnings/(loss) in fiscal 2021 and fiscal 2020. We estimate that the impact on fiscal 2021 operating earnings was approximately $200 million greater than on fiscal 2020 operating earnings, and we estimate that the impact on fiscal 2020 operating earnings/(loss) was approximately $100 million.

~~Other Components~~Pharmaceutical segment profit has been negatively impacted by COVID-19 largely due to volume declines in our generics program and Nuclear and Precision Health Solutions. While fiscal 2021 volumes within our generics program were lower than levels prior to COVID-19, the impact on Pharmaceutical segment profit improved on a year-over-year basis during the fourth quarter of ~~Consolidated Operating Earnings/(Loss)~~fiscal 2021. Similarly, in comparison to prior year, the impact of COVID-19 on Nuclear and Precision Health Solutions was positive for Pharmaceutical segment profit during the fourth quarter of fiscal 2021.

Our Medical segment experienced dramatically increased demand for certain personal protective equipment due to COVID-19. Personal protective equipment ("PPE") refers to protective clothing, medical and non-medical grade gloves, face shields, face masks and other equipment designed to protect the wearer from injury or the spread of infection or illness. The peak of this heightened demand was during the second and third quarters of fiscal 2021. This increased demand resulted in higher sales volume for certain products, increased costs to manufacture and source these products and higher inventory levels to meet customer commitments. As a result, we sought out additional sources for these products and to mitigate the impact of these cost increases, we have raised our selling prices for the affected products. During the fourth quarter of fiscal 2021, selling prices and customer demand for certain PPE decreased as compared to the peak, and we expect this decline to continue into fiscal 2022. This resulted in inventory cost above net realizable value, requiring an inventory reserve of $197 million, primarily related to certain categories of gloves, which adversely impacted Medical segment profit. Our estimates for customer demand and selling prices are inherently uncertain and if customer demand or selling prices decline in the future beyond our current assumptions, additional inventory reserves may be required that would adversely impact Medical segment profit. See Critical Accounting Policies and Sensitive Accounting Estimates section in this MD&A for additional information.

During fiscal 2021, COVID-19 benefited Medical segment profit in some ways as well. Higher volumes in our laboratory business and cost savings positively impacted Medical segment profit. Additionally, despite declining customer demand and selling prices in some categories of PPE as described above, Medical segment profit was benefited by pricing actions intended to mitigate the impact of cost increases in certain other PPE categories. In addition, while lower demand for surgical products resulting from reduced elective procedures had an adverse impact on Medical segment profit during the first nine months of fiscal 2021, demand improved during the fourth quarter of fiscal 2021 and was a positive contributor to year-over-year segment profit.

We currently anticipate that the negative impact of the COVID-19 pandemic on operating earnings will be less in fiscal 2022 than it was in fiscal 2021, which includes the inventory reserve of $197 million described above. As a result, in comparison to prior year, we expect the COVID-19 impact for fiscal 2022 will be positive. However, we cannot estimate the length or severity of the COVID-19 pandemic or of the related U.S. or global economic consequences on our businesses and results of operations, including whether and when historic economic and operating conditions will resume, or its impact on our business, financial position, results of operations or cash flow. Its impact may be greater or less than we anticipate.

Opioid Lawsuits



6			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

The Proposed Settlement Agreement is subject to contingencies and will not become effective unless and until the Boards of Directors of the three distributors each make separate independent determinations that (1) following a sign-on period, a sufficient number of states have agreed to the Proposed Settlement Agreement (the “Settling States”); and, subsequently, (2) following a notice period, that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to the Agreement (or otherwise had their claims foreclosed) to proceed to effectiveness. Prior to the second determination, the Settling States will also have an opportunity to make a determination as to whether a sufficient number of political subdivisions have agreed to the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed with the Proposed Settlement Agreement. This process is currently contemplated to end in February 2022, although it may be extended by agreement. It is possible that a sufficient number of states and subdivisions will not agree to the Proposed Settlement Agreement or that other required contingencies will not be satisfied.

The Proposed Settlement Agreement includes a cash component, pursuant to which the Company would pay up to $6.37 billion, the majority of which would be paid over 18 years. The exact payment amount will depend on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions (e.g., laws barring opioid lawsuits by political subdivisions), and the extent to which political subdivisions in Settling States file additional opioid lawsuits against the Company after the Proposed Settlement Agreement becomes effective.

The Proposed Settlement Agreement also includes injunctive relief terms relating to settling distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) independence and training of the personnel operating our controlled substances monitoring program; (3) due diligence for new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will be selected to oversee compliance with these provisions for a period of five years. In addition, we and the two other national distributors will engage a third-party vendor to ~~revenue, gross margin,~~act as a clearinghouse for data aggregation and ~~SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted~~reporting; distributors will fund the clearinghouse for ten years.

(in millions) 2020 2019
Restructuring and employee severance $ 122
$ 125
Amortization and other acquisition-related costs 524
621
Impairments and (gain)/loss on disposal of assets, net 7
(488 )
Litigation (recoveries)/charges, net 5,741
36

~~Restructuring~~Ohio Attorney General is scheduled to begin in September 2021 and ~~Employee Severance~~

~~In fiscal 2020 and 2019, restructuring costs are primarily related~~a trial in the case brought by the Washington Attorney General is scheduled to ~~implementation of certain enterprise-wide cost-savings measures.~~

~~Amortization and Other Acquisition-Related Costs~~

~~Amortization of acquisition-related intangible assets was $512 million and $531 million~~begin in November 2021. The Ohio Attorney General has issued a press release indicating support for ~~fiscal 2020 and 2019, respectively.~~the Proposed Settlement Agreement; however, the Washington Attorney General has issued a press release stating that Washington will not agree to the Proposed Settlement Agreement.

~~Transaction and integration costs associated~~In connection with the ~~acquisition~~opioid lawsuits and settlement negotiations, we have recorded total pre-tax charges of $1.17 billion and $5.63 billion in litigation charges/(recoveries), net in the years ended June 30, 2021 and 2020, respectively. In total, we have $6.73 billion accrued at June 30, 2021, of which $405 million is included in other accrued liabilities, as we expect to make our first annual settlement payment into escrow on or before September 30, 2021, and the remainder is included in deferred income taxes and other liabilities in the consolidated balance sheets. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the ~~Patient Recovery Business were $7 million and $75 million during fiscal 2020~~ ~~and~~ ~~2019, respectively.~~"Notes to Consolidated Financial Statements" for additional information.

~~Impairments and (Gain)/Loss on Disposal~~Tax Effect of ~~Assets, Net~~

During fiscal 2019, we recognized a pre-tax gain of $508 million related to the divestiture of our majority interest in naviHealth. See also “Gain on Sale of Equity Interest in naviHealth” below with respect to the sale of the remainder of our equity interest in naviHealth in fiscal 2020.

Opioid Litigation ~~(Recoveries)/~~Charges ~~Net~~

~~During fiscal 2020, we recognized a pre-tax charge of $5.63 billion ($5.14 billion after tax)~~The net tax benefits associated with the opioid ~~litigation.~~litigation charges are $228 million and $488 million for fiscal 2021 and 2020, respectively. Our tax benefits are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $219 million and $469 million, respectively. The fiscal 2021 net tax benefit and unrecognized tax benefits were primarily due to our assessment of the specific terms of the Proposed Settlement Agreement. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment and the actual amount of tax benefit may differ materially from these estimates. See ~~Significant Developments in Fiscal 2020 and Trends section in this MD&A and~~ Note 78 of the "Notes to Consolidated Financial Statements" for additional information.

~~During fiscal 2020~~ ~~and~~ ~~2019, we recognized $103 million and $117 million, respectively, of estimated losses and legal defense costs associated with inferior vena cava ("IVC") filter product liability claims.~~

~~During fiscal 2020 and 2019, we recognized income~~Tax Effects of ~~$16 million and $94 million, respectively, for~~Self-Insurance Pre-Tax Loss~~recoveries in class action antitrust lawsuits in which we were a class member.~~

~~Other Components of Earnings/(Loss) Before Income Taxes~~

~~In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:~~

(in millions) 2020 2019 Change
Other (income)/expense, net $ (1 ) $ 15
N.M.
Interest expense, net 238
294
(19 )%
Loss on early extinguishment of debt 16
—
N.M.
Gain on sale of equity interest in naviHealth (579 ) —
N.M.

~~Interest Expense, Net~~

~~Fiscal 2020 interest expense decreased from fiscal 2019 primarily due to lower debt outstanding and lower interest rates.~~

~~Loss On Early Extinguishment Of Debt~~

~~During fiscal~~ ~~2020, we recognized a $16 million loss in connection with the redemption and early debt repurchases as described further in~~ ~~Note 6~~ ~~of the "Notes to Consolidated Financial Statements."~~

~~Gain on Sale of Equity Interest in naviHealth~~

~~During fiscal~~ ~~2020, we recognized a pre-tax gain of $579 million from the sale of our equity interest~~ ~~in a partnership that owned naviHealth, as described further in the Significant Developments in Fiscal 2020 and Trends section of this MD&A and~~ ~~Note 2~~ of the "Notes to Consolidated Financial Statements." See also “Impairments and (Gain)/Loss on Disposal of Assets, Net” above with respect to the fiscal 2019 sale of our majority interest in naviHealth.

During fiscal 2021, our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and applied to adjust our taxable income for fiscal 2015, 2016, 2017, and 2018 as permitted under the CARES Act enacted by the United States Congress in March 2020.


			Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K			7



MD&A			Results of Operations

~~Provision~~Accordingly, our provision for ~~Income Taxes~~

~~Generally, fluctuations in~~income taxes during fiscal 2021 included a $424 million benefit from the ~~effective tax rate are due~~net operating loss carryback primarily to ~~changes in~~reflect the ~~distribution of income among taxing jurisdictions with differing income tax rates and other reconciling items.~~

~~A reconciliation of the provision based on~~difference between the federal statutory income tax rate during the fiscal years from 2015 to ~~our effective~~2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.

We have filed for a U.S. federal income tax refund of $974 million as a result of the net operating loss carryback under the CARES Act, which we expect to receive within 12 months, and accordingly have recorded a current asset on our consolidated balance sheet at June 30, 2021. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 related to this matter.

We have recorded these amounts based on management's judgment and our current understanding of tax law; however, it is possible that the tax authorities could challenge these tax benefits or that the tax law could change. The actual amount or timing of the tax benefit may differ from ~~continuing operations is as follows~~these expectations. See ~~(see~~ Note 8 of the "Notes to Consolidated Financial Statements" for additional ~~information):~~information.

2020 (1) 2019 (2)
Provision at Federal statutory rate 21.0 % 21.0 %
State and local income taxes, net of federal benefit 2.5
0.9
Tax effect of foreign operations —
(0.7 )
Nondeductible/nontaxable items (0.1 ) 2.5
Tax Act 0.1
(0.8 )
Change in valuation allowances 1.5
4.5
Foreign tax credits 0.5
(1.0 )
Legal entity reorganization —
(3.6 )
Opioid litigation (23.2 ) —
Other (0.2 ) (0.7 )
Effective income tax rate 2.1 % 22.1 %

~~The fiscal 2020 effective income tax rate was impacted by~~ ~~the Settlement Framework, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A.~~

On March 12, 2021, we announced that we signed a definitive agreement to sell our Cordis business to Hellman & Friedman for proceeds of $927 million in cash, subject to customary purchase price adjustments, and we retained certain working capital accounts and product liability for lawsuits and claims related to inferior vena cava ("IVC") filters in the U.S. and Canada as described in Note 7 of the “Notes to Consolidated Financial Statements.” The transaction closed on August 2, 2021, and we received proceeds of $927 million, net of cash transferred. In connection with the closing, we entered into a Transition Services Agreement ("TSA") with the buyer to provide support functions for a period of up to twenty-four months following the sale. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2021, we recognized a $60 million pre-tax write-down of the net assets held for sale in impairment and (gain)/loss on disposal of assets in the consolidated statement of earnings/(loss). We recorded a net tax expense of $9 million associated with the impact of the write-down and the required tax adjustments related to held for sale accounting.

In connection with the divestiture, during fiscal 2021 we recognized costs of $28 million associated with exit or disposal activities. We expect to record up to $100 million of additional costs associated with these activities, primarily during fiscal 2022. These costs are recorded in restructuring and employee severance in our consolidated statements of earnings/(loss). We expect these charges to consist of approximately $83 million of professional, project management and other service fees to support the divestiture; $19 million of employee-related costs; and additional expenses from facility exits and other restructuring activities.

Pharmaceutical Segment

The performance of our Pharmaceutical segment generics program adversely impacted the year-over-year comparison of Pharmaceutical segment profit in fiscal 2021 due to volume declines in our generics program, including the impact of COVID-19. The Pharmaceutical segment generics program includes, among other things, the impact of generic pharmaceutical product launches, customer volumes, pricing changes and the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health"). In August 2021, we amended our agreement with CVS Health to extend the term of the Red Oak Sourcing agreement through June 2029. The frequency, timing, magnitude and profit impact of generic pharmaceutical customer volumes, pricing changes, customer contract renewals, and branded and generic pharmaceutical manufacturer pricing changes remain uncertain as does their impact on Pharmaceutical segment profit and consolidated operating earnings in fiscal 2022.

Medical Segment

In the fourth quarter of fiscal 2021, our Medical segment experienced increased supply chain costs, primarily related to transportation, labor and commodities. While we are taking actions to mitigate the impact of these and other sourcing cost increases primarily through cost-savings measures, including global manufacturing efficiencies, we expect these increased costs to adversely impact Medical segment profit in fiscal 2022.


8			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Information Technology Investments


			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			129


MD&A			Results of Operations

Results of Operations

Revenue


	Revenue
(in millions)	2021		2020		Change
Pharmaceutical	$	145,796	$	137,495	6	%
Medical	16,687		15,444		8	%
Total segment revenue	162,483		152,939		6	%
Corporate	(16)		(17)		N.M.
Total revenue	$	162,467	$	152,922	6	%

Fiscal 2021 Compared to Fiscal 2020

Pharmaceutical Segment

Fiscal 2021 Pharmaceutical segment revenue grew by $8.3 billion primarily due to sales growth from pharmaceutical distribution and specialty solutions customers, which together increased revenue by $8.1 billion.

Medical Segment

Fiscal 2021 Medical segment revenue increased primarily within products and distribution, which increased revenue by $1.1 billion, primarily due to a net benefit from COVID-19, including the positive impact of PPE and higher volumes in our laboratory business.

Cost of Products Sold

Cost of products sold for fiscal 2021 increased $9.6 billion (7 percent) due to the factors affecting the changes in revenue and gross margin.


10			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			~~Liquidity and Capital Resources~~Results of Operations

Gross Margin

~~Liquidity~~


	Consolidated Gross Margin
(in millions)	2021		2020		Change
Gross margin	$	6,778	$	6,868	(1)	%

Fiscal 2021 Compared to Fiscal 2020

Fiscal 2021 consolidated gross margin decreased primarily due to the adverse impact of COVID-19, which includes an inventory reserve recorded to reduce the carrying value of certain Medical segment PPE, primarily certain categories of gloves, to net realizable value, partially offset by higher volumes in our laboratory business. For additional information regarding inventory reserves, see Significant Developments in Fiscal 2021 and ~~Capital Resources~~Trends section in this MD&A. Volume declines in our Pharmaceutical segment generics program, which includes the impact of COVID-19, also had an adverse impact. These factors were partially offset by higher contribution from branded pharmaceutical sales mix and the beneficial comparison of the current year insurance recoveries with the prior-year charge in connection with a voluntary recall for certain surgical gowns and a voluntary recall and field actions for surgical procedure packs containing affected gowns (together, the "Recalls").


			Cardinal Health \| Fiscal 2021 Form 10-K			11


MD&A			Results of Operations

Distribution, Selling, General and Administrative ("SG&A") Expenses


	SG&A Expenses
(in millions)	2021		2020		Change
SG&A expenses	$	4,533	$	4,572	(1)	%

Fiscal 2021 Compared to Fiscal 2020

Fiscal 2021 SG&A expenses decreased primarily due to the beneficial impact of enterprise-wide cost-savings measures. The year-over-year comparison was also favorably impacted by the $37 million charge in connection with the Recalls recognized during fiscal 2020. These factors were partially offset by information technology investments and the $41 million assessment on prescription opioid medications that were sold or distributed in New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the New York Opioid Stewardship Act.


12			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Segment Profit

We ~~currently believe that,~~evaluate segment performance based on ~~available capital resources (cash~~segment profit, among other measures. See Note 13 of the "Notes to Consolidated Financial Statements" for additional information on ~~hand~~segment profit.


	Segment Profit and Operating Earnings
(in millions)	2021		2020		Change
Pharmaceutical	$	1,684	$	1,753	(4)	%
Medical	577		663		(13)	%
Total segment profit	2,261		2,416		(6)	%
Corporate	(1,789)		(6,514)		N.M.
Total consolidated operating earnings/(loss)	$	472	$	(4,098)	N.M.

Fiscal 2021 Compared to Fiscal 2020

Pharmaceutical Segment Profit

Fiscal 2021 Pharmaceutical segment profit was adversely impacted due to volume declines in our generics program, including the impact of COVID-19, partially offset by higher contribution from branded pharmaceutical sales mix.

Pharmaceutical segment financial results do not include the $1.17 billion and committed credit facilities) and projected operating cash flow, we have adequate capital resources to fund working capital needs; currently anticipated capital expenditures; currently anticipated business growth and expansion; contractual obligations; tax payments; and current and projected debt service requirements, early extinguishment of debt, dividends and share repurchases as well as potential opioid litigation settlement payments$5.63 billion charges associated with the ~~Settlement Framework. If we decide~~opioid litigation during fiscal 2021 and 2020, respectively. See Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to ~~engage~~Consolidated Financial Statements" for additional information. In addition, Pharmaceutical segment financial results do not include the $41 million assessment on prescription opioid medications that were sold or distributed in ~~one or more acquisitions, depending~~New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the size and timing of such transactions, we may need to access capital markets for additional financing. To-date, the COVID-19 pandemic has not resulted in material changes to our liquidity and capital resources and has not impacted our ability to comply with financial commitments.New York Opioid Stewardship Act.

Cash and Equivalents

Our cash and equivalents balance was $3.4 billion at June 30, 2021 compared to $2.8 billion at June 30, ~~2020~~ ~~compared to $2.5 billion at~~ ~~June 30, 2019~~.2020. The increase in cash during fiscal ~~2020~~2021 was due to net cash provided by operating activities of $2.4 billion, offset by cash deployed of $573 million for dividends, $570 million for debt repayments, $400 million for capital expenditures, and $200 million for share repurchases.


			Cardinal Health \| Fiscal 2021 Form 10-K			5


MD&A			Results of Operations

Significant Developments in Fiscal 2021 and Trends

COVID-19

Pharmaceutical segment profit has been negatively impacted by COVID-19 largely due to volume declines in our generics program and Nuclear and Precision Health Solutions. While fiscal 2021 volumes within our generics program were lower than levels prior to COVID-19, the impact on Pharmaceutical segment profit improved on a year-over-year basis during the fourth quarter of fiscal 2021. Similarly, in comparison to prior year, the impact of COVID-19 on Nuclear and Precision Health Solutions was positive for Pharmaceutical segment profit during the fourth quarter of fiscal 2021.

Opioid Lawsuits


6			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

The Proposed Settlement Agreement also includes injunctive relief terms relating to settling distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) independence and training of the personnel operating our controlled substances monitoring program; (3) due diligence for new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will be selected to oversee compliance with these provisions for a period of five years. In addition, we and the two other national distributors will engage a third-party vendor to act as a clearinghouse for data aggregation and reporting; distributors will fund the clearinghouse for ten years.

Additionally, a trial before a judge in West Virginia in the Cabell County and City of Huntington cases concluded in July 2021 and the judge has not yet issued a decision. In addition, a trial in the case brought by the Ohio Attorney General is scheduled to begin in September 2021 and a trial in the case brought by the Washington Attorney General is scheduled to begin in November 2021. The Ohio Attorney General has issued a press release indicating support for the Proposed Settlement Agreement; however, the Washington Attorney General has issued a press release stating that Washington will not agree to the Proposed Settlement Agreement.

In connection with the opioid lawsuits and settlement negotiations, we have recorded total pre-tax charges of $1.17 billion and $5.63 billion in litigation charges/(recoveries), net in the years ended June 30, 2021 and 2020, respectively. In total, we have $6.73 billion accrued at June 30, 2021, of which $405 million is included in other accrued liabilities, as we expect to make our first annual settlement payment into escrow on or before September 30, 2021, and the remainder is included in deferred income taxes and other liabilities in the consolidated balance sheets. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. See ~~$2.0~~Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

Tax Effect of Opioid Litigation Charges

The net tax benefits associated with the opioid litigation charges are $228 million and $488 million for fiscal 2021 and 2020, respectively. Our tax benefits are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $219 million and $469 million, respectively. The fiscal 2021 net tax benefit and unrecognized tax benefits were primarily due to our assessment of the specific terms of the Proposed Settlement Agreement. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment and the actual amount of tax benefit may differ materially from these estimates. See Note 8 of the "Notes to Consolidated Financial Statements" for additional information.

Tax Effects of Self-Insurance Pre-Tax Loss


			Cardinal Health \| Fiscal 2021 Form 10-K			7


MD&A			Results of Operations

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.

We have recorded these amounts based on management's judgment and our current understanding of tax law; however, it is possible that the tax authorities could challenge these tax benefits or that the tax law could change. The actual amount or timing of the tax benefit may differ from these expectations. See Note 8 of the "Notes to Consolidated Financial Statements" for additional information.

Cordis Divestiture

Pharmaceutical Segment

Medical Segment


8			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Information Technology Investments


			Cardinal Health \| Fiscal 2021 Form 10-K			9


MD&A			Results of Operations

Results of Operations

Revenue


	Revenue
(in millions)	2021		2020		Change
Pharmaceutical	$	145,796	$	137,495	6	%
Medical	16,687		15,444		8	%
Total segment revenue	162,483		152,939		6	%
Corporate	(16)		(17)		N.M.
Total revenue	$	162,467	$	152,922	6	%

Fiscal 2021 Compared to Fiscal 2020

Pharmaceutical Segment

Medical Segment

Cost of Products Sold

Cost of products sold for fiscal 2021 increased $9.6 billion (7 percent) due to the factors affecting the changes in revenue and gross margin.


10			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Gross Margin


	Consolidated Gross Margin
(in millions)	2021		2020		Change
Gross margin	$	6,778	$	6,868	(1)	%

Fiscal 2021 Compared to Fiscal 2020

Fiscal 2021 consolidated gross margin decreased primarily due to the adverse impact of COVID-19, which includes an inventory reserve recorded to reduce the carrying value of certain Medical segment PPE, primarily certain categories of gloves, to net realizable value, partially offset by higher volumes in our laboratory business. For additional information regarding inventory reserves, see Significant Developments in Fiscal 2021 and Trends section in this MD&A. Volume declines in our Pharmaceutical segment generics program, which includes the impact of COVID-19, also had an adverse impact. These factors were partially offset by higher contribution from branded pharmaceutical sales mix and the beneficial comparison of the current year insurance recoveries with the prior-year charge in connection with a voluntary recall for certain surgical gowns and a voluntary recall and field actions for surgical procedure packs containing affected gowns (together, the "Recalls").


			Cardinal Health \| Fiscal 2021 Form 10-K			11


MD&A			Results of Operations

Distribution, Selling, General and Administrative ("SG&A") Expenses


	SG&A Expenses
(in millions)	2021		2020		Change
SG&A expenses	$	4,533	$	4,572	(1)	%

Fiscal 2021 Compared to Fiscal 2020

Fiscal 2021 SG&A expenses decreased primarily due to the beneficial impact of enterprise-wide cost-savings measures. The year-over-year comparison was also favorably impacted by the $37 million charge in connection with the Recalls recognized during fiscal 2020. These factors were partially offset by information technology investments and the $41 million assessment on prescription opioid medications that were sold or distributed in New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the New York Opioid Stewardship Act.


12			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Segment Profit

We evaluate segment performance based on segment profit, among other measures. See Note 13 of the "Notes to Consolidated Financial Statements" for additional information on segment profit.


	Segment Profit and Operating Earnings
(in millions)	2021		2020		Change
Pharmaceutical	$	1,684	$	1,753	(4)	%
Medical	577		663		(13)	%
Total segment profit	2,261		2,416		(6)	%
Corporate	(1,789)		(6,514)		N.M.
Total consolidated operating earnings/(loss)	$	472	$	(4,098)	N.M.

Fiscal 2021 Compared to Fiscal 2020

Pharmaceutical Segment Profit

Pharmaceutical segment financial results do not include the $1.17 billion and $5.63 billion charges associated with the opioid litigation during fiscal 2021 and 2020, respectively. See Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements" for additional information. In addition, Pharmaceutical segment financial results do not include the $41 million assessment on prescription opioid medications that were sold or distributed in New York state in calendar years 2017 and 2018. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the New York Opioid Stewardship Act.

Medical Segment Profit

Fiscal 2021 Medical segment profit decreased largely due to the adverse impact of COVID-19, which primarily includes an inventory reserve recorded to reduce the carrying value of certain PPE, primarily certain categories of gloves, to net realizable value, partially offset by higher volumes in our laboratory business. In addition, enterprise-wide cost-savings measures, including global manufacturing efficiencies, had a positive impact on Medical segment profit.

Corporate

The changes in Corporate during fiscal 2021 are due to the factors discussed in the Other Components of Consolidated Operating Earnings/(Loss) section that follows.


			Cardinal Health \| Fiscal 2021 Form 10-K			13


MD&A			Results of Operations

Other Components of Consolidated Operating Earnings/(Loss)

In addition to revenue, gross margin, and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:


(in millions)	2021		2020
Restructuring and employee severance	$	114	$	122
Amortization and other acquisition-related costs	451		524
Impairments and (gain)/loss on disposal of assets, net	79		7
Litigation (recoveries)/charges, net	1,129		5,741

Restructuring and Employee Severance

In fiscal 2021, restructuring costs were primarily related to the implementation of certain enterprise-wide cost-savings measures and the divestiture of our Cordis business. In fiscal 2020, restructuring costs were primarily related to the implementation of certain enterprise-wide cost-savings measures.

Amortization and Other Acquisition-Related Costs

Amortization of acquisition-related intangible assets was $428 million and $512 million for fiscal 2021 and 2020, respectively.

Impairments and (Gain)/Loss on Disposal of Assets, Net

During fiscal 2021, we recognized a $60 million pre-tax write-down of the assets held for sale from the divestiture of our Cordis business. See the Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

Litigation (Recoveries)/Charges, Net

During fiscal 2021 and 2020, we recognized pre-tax charges of $1.17 billion and $5.63 billion, respectively, associated with certain opioid matters. See Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2021 and 2020, we recognized $56 million and $103 million, respectively, of estimated losses and legal defense costs associated with the IVC filter product liability claims.

During fiscal 2021 and 2020, we recognized income of $112 million and $16 million, respectively, forrecoveries in class action antitrust lawsuits in which we were a class member.

Other Components of Earnings/(Loss) Before Income Taxes

In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:



(in millions)	2021		2020		Change
Other (income)/expense, net	$	(47)	$	(1)	N.M.
Interest expense, net	180		238		(24)	%
Loss on early extinguishment of debt	14		16		N.M.
(Gain)/Loss on sale of equity interest in naviHealth	2		(579)		N.M.

Other (Income)/Expense, Net

During fiscal 2021, other (income)/expense, net was favorable compared to the prior-year period primarily due to an increase in the value of our deferred compensation plan investments, which offsets fluctuations included within SG&A expenses and is discussed further in Note 9 of the "Notes to Consolidated Financial Statements," gains on investments in non-marketable equity securities, and fluctuations in foreign exchange rates.

Interest Expense, Net

Fiscal 2021 interest expense decreased from fiscal 2020 primarily due to lower debt outstanding and lower short-term interest rates.

Loss On Early Extinguishment Of Debt

During fiscal 2021 and 2020, we recognized losses of $14 million and $16 million, respectively, in connection with the redemption and early debt repurchases as described further in Note 6 of the "Notes to Consolidated Financial Statements."

(Gain)/Loss on Sale of Equity Interest in naviHealth

During fiscal 2020, we recognized a pre-tax gain of $579 million from the sale of our equity interest in a partnership that owned naviHealth, as described further in Note 2 of the "Notes to Consolidated Financial Statements."


14			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Results of Operations

Provision for Income Taxes

Fluctuations in the effective tax rates are primarily due to the impact of opioid litigation in fiscal 2021 and 2020, as well as the impact of the carryback claim filed in accordance with the CARES Act provision in fiscal year 2021.

A reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows(see Note 8 of the "Notes to Consolidated Financial Statements" for additional information):


	2021 (1)		2020 (1)
Provision at Federal statutory rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	3.2		2.5
Tax effect of foreign operations	0.7		—
Nondeductible/nontaxable items (2)	1.6		0.2

Cordis Disposition	7.0		—
Withholding Taxes (2)	9.0		(0.3)
Change in Valuation Allowances	(1.4)		1.5
US Taxes on International Income (2)(3)	(6.7)		0.2
Impact of Resolutions with IRS and other related matters (2)	(13.6)		(0.4)



Opioid litigation	17.7		(23.2)
Loss Carryback Claims	(129.9)		—
Other (2)	1.7		0.6
Effective income tax rate	(89.7)	%	2.1	%

(1) The table represents the following: fiscal 2021 is pretax income with tax benefit and fiscal 2020 is pretax loss with tax benefit.

(2) Certain prior year amounts have been reclassified to conform to current year presentation.

(3) Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

Fiscal 2021

During fiscal 2021 and 2020, the effective tax rate was (89.7) percent and 2.1 percent, respectively. Included in the effective tax rate for fiscal 2021 was a $424 million benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss. Included in both 2021 and 2020 were net tax benefits related to the treatment of the tax impacts of the fiscal 2021 and 2020 opioid litigation charges.

Tax Effects of Self-Insurance Pre-tax Loss

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.

Tax Effect of Opioid Litigation Charges


			Cardinal Health \| Fiscal 2021 Form 10-K			15


MD&A			Results of Operations

Ongoing Audits

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. During fiscal 2021, we resolved all open issues with respect to the Company’s activity within fiscal years 2008 through 2014 with the U.S. Internal Revenue Service ("IRS"). This resolution resulted in an adjustment to our provision for income taxes, including an impact to reserves for later years. New challenges related to future audits may adversely affect our effective tax rate or tax payments.


16			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Liquidity and Capital Resources

Liquidity and Capital Resources

We currently believe that, based on available capital resources (cash on hand and committed credit facilities) and projected operating cash flow, we have adequate capital resources to fund working capital needs; currently anticipated capital expenditures; currently anticipated business growth and expansion; contractual obligations; tax payments; current and projected debt service requirements, early extinguishment of debt, dividends and share repurchases; and potential opioid litigation settlement payments associated with the Proposed Settlement Agreement. If we decide to engage in one or more acquisitions, depending on the size and timing of such transactions, we may need to access capital markets for additional financing.

Cash and Equivalents

During fiscal 2020, our cash and equivalents increased due to $2.0 billion of net cash provided by operating activities, which reflects increases to working capital associated with the timing of payments to vendors, and $886 million of net cash proceeds from the sale of investments, substantially all of which was related to the sale of our equity interest in naviHealth, offset by cash deployed of $1.4 billion for debt repayments, $569 million for dividends and $350 million for share repurchases.At ~~June 30, 2020, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.~~

During fiscal 2019, our cash and equivalents increased by $700 million due to $2.7 billion of net cash provided by operating activities and $737 million of net cash proceeds from the sale of our majority interest in naviHealth, offset by $1.1 billion paid for debt repayments, $600 million paid for share repurchases, $577 million paid in dividends and $328 million paid for capital expenditures.

Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer payments, inventory purchases, payments to vendors and tax

payments in the regular course of business, as well as

fluctuating working capital needs driven by customer and product mix.

The cash and equivalents balance at June 30, ~~2020~~2021 included ~~$476~~$523 million of cash and equivalents held by subsidiaries outside of the United States.

In June ~~2020,~~2021, we returned ~~$140~~$127 million of cash held by foreign subsidiaries to the U.S.

As of June 30, ~~2020~~,2021, foreign earnings of approximately ~~$800~~$825 million are considered indefinitely reinvested for working capital and other offshore investment needs. The computation of tax required if those earnings are repatriated is not practicable. For amounts not considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our financial statements in fiscal ~~2020.~~2021.

Other Financing Arrangements and Financial Instruments

Credit Facilities and Commercial Paper

In addition to cash and equivalents and operating cash flow, other sources of liquidity at June 30, ~~2020~~2021 include a $2.0 billion commercial paper program, backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility. At June 30, ~~2020,~~2021, we had no amounts outstanding under our commercial paper program, revolving credit facility or our committed receivables sales facility. During fiscal ~~2020~~,2021, under our commercial paper program and our committed receivables program, we had maximum combined total daily amounts outstanding of ~~$1.7 billion~~$200 million and an immaterial average combined daily amount ~~outstanding of $195 million.~~outstanding.

Our revolving credit and committed receivables sales facilities require us to maintain ~~as of the end of every fiscal quarter through December 2020,~~ a consolidated net leverage ratio of no more than ~~4.00-to-1. The maximum permitted ratio will reduce to 3.75-to-1 in March 2021 and as of the end of every quarter thereafter~~.3.75-to-1. As of June 30, ~~2020,~~2021, we were in compliance with this financial covenant.

Long-Term Obligations

At June 30, ~~2020,~~2021, we had total long-term obligations, including the current portion and other short-term borrowings of ~~$6.8~~$6.2 billion.

In June 2021, we redeemed all outstanding 3.2% Notes due June 2022 for $238 million and $262 million aggregate principle amount of 2.616% Notes due June 2022 at a redemption price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes. In connection with these redemptions, we recorded a $13 million loss on early extinguishment of debt.

During fiscal 2021, we also early repurchased $40 million of the Floating Rate Notes due 2022and $2 million of the 2.616% Notes due 2022 with available cash. In connection with the early debt repurchases, we recorded a $1 millionloss on early extinguishment of debt.

In June 2020, we redeemed $500 million aggregate principle amount of 4.625% Notes due December 2020 at a redemption


			Cardinal Health \| Fiscal 2021 Form 10-K			17


MD&A			Liquidity and Capital Resources

price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes. In connection with the redemption, we recorded a $7 million loss on early extinguishment of debt.

~~In November 2019, we repaid the full principal of the 2.4% Notes due 2019 at maturity for $450 million.~~

During fiscal 2020, we also early repurchased $247 million of the 2.616% Notes due 2022, $11 million of the 3.2% Notes due 2022, $20 million of the Floating Rate Notes due 2022, $104 million of the 3.41% Notes due 2027, $6 million of the 4.6% Notes due 2043, $5 million of the 4.9% Notes due 2045, and $35 million of the 4.368% Notes due 2047. In connection with these early debt



13	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~MD&A~~	~~Liquidity and Capital Resources~~

repurchases, we recognized a $9 million loss on early extinguishment of debt.

In fiscal 2019, we repaid $1.0 billion of 1.948% notes at maturity and repurchased a total of $100 million of notes due in 2022 and 2027. The loss on early extinguishment of debt from the fiscal 2019 early repurchases was immaterial.

The redemption and repurchases were paid for with available cash and other short-term borrowings.

On August 13, 2021, we announced our intention to early redeem all remaining outstanding 2.616% Notes due June 2022 on

September 15, 2021 at an expected redemption price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes.

Risk Management

We use interest rate swaps, foreign currency contracts and commodity contracts to manage our exposure to cash flow variability.

We also use interest rate swaps to protect the value of our debt and use foreign currency forward contracts to protect the value of our existing and forecasted foreign currency assets and liabilities. See the "Quantitative and Qualitative Disclosures About Market Risk" section as well as Note 1 and Note 10 of the “Notes to Consolidated Financial Statements” for information regarding the use of financial instruments and derivatives as well as foreign currency, interest rate and commodity exposures.

Anticipated Capital ~~Deployment~~

Resources

Tax Effects of Self-Insurance Pre-tax Loss

In connection with a tax benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss as described further in Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 8 of the "Notes to Consolidated Financial Statements," we have filed for a U.S. federal income tax refund of $974 million, which we expect to receive within 12 months. Accordingly, we have recorded a current asset for this amount on our consolidated balance sheet at June 30, 2021. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 related to this matter.

Cordis Divestiture

Capital Deployment

Opioid Settlement Framework

~~In October 2019, we agreed in principle~~We had $6.73 billion accrued at June 30, 2021 related to acertain opioid litigation, including the Proposed Settlement Framework which includes a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years. If a definitive agreement is reached, and subject to participation by states and political subdivisions, we expect payment amounts underAgreement, as further described within the Settlement Framework to be spread through the 18-year period. We cannot currently predict when those payments might begin, and it is possible that they may ultimately be made over a different time period, or not at all. See Significant Developments in Fiscal ~~2020~~2021 and Trends section in this MD&A and ~~for additional information.~~Note 7 of the "Notes to Consolidated Financial Statements." We expect the majority of the payment amounts to be spread over 18 years. We currently expect to make our first annual settlement payment under the Proposed Settlement Agreement in the amount of $405 million into escrow on or before September 30, 2021. If the Proposed Settlement Agreement does not become effective, this payment will be returned to us. We expect to make subsequent annual payments beginning in July 2022.

Capital Expenditures

Capital expenditures during fiscal 2021 and 2020 were $400 million and ~~2019 were~~ $375 million, ~~and $328 million,~~ respectively.

We expect capital expenditures in fiscal ~~2021~~2022 to be between $400 million and $450 million and to be primarily for information technology and infrastructure projects.


18			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Liquidity and Capital Resources

Dividends

During fiscal ~~2020~~,2021, we paid quarterly dividends totaling ~~$1.92~~$1.94 per share, an increase of 1 percent from fiscal ~~2019~~.2020.

On May ~~11, 2020,~~5, 2021, our Board of Directors approved a quarterly dividend of ~~$0.4859~~$0.4908 per share, or ~~$1.94~~$1.96 per share on an annualized basis, which was paid on July 15, ~~2020~~2021 to shareholders of record on July 1, ~~2020.~~2021.

On August ~~5, 2020,~~4, 2021, our Board of Directors approved a quarterly dividend of ~~$0.4859~~$0.4908 per share, payable on October 15, ~~2020~~2021 to shareholders of record on October 1, ~~2020.~~2021.

Share Repurchases

During fiscal ~~2020~~2021 and ~~2019,~~2020, we repurchased ~~$350~~$200 million and~~$600~~ $350 million,, respectively, of our common shares. We funded the repurchases with available cash and short-term ~~borrowing.~~borrowings. See Note 11 of the "Notes to Consolidated Financial Statements" for additional information. At June 30, ~~2020,~~2021, we had ~~$943~~$743 million authorized for share repurchases rremaining on a program that expires on December 31, 2021.~~emaining under all programs.~~



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			1419



MD&A			Other

Contractual Obligations

At June 30, ~~2020,~~2021, our contractual obligations, including estimated payments due by period, were as follows:


(in millions)	2022		2023 to 2024		2025 to 2026		There-after		Total
Long-term debt and short-term borrowings (1)	$	853	$	1,359	$	934	$	3,026	$	6,172
Interest on long-term debt	232		378		286		1,540		2,436
Finance lease obligations (2)	20		34		11		5		70

Operating lease obligations (3)	116		165		115		141		537
Purchase obligations and other payments (4)	715		488		189		273		1,665
Total contractual obligations (5) (6)	$	1,936	$	2,424	$	1,535	$	4,985	$	10,880

(in millions) 2021 2022 to 2023 2024 to 2025 There-after Total
Long-term debt and short-term borrowings (1) $ —
$ 1,967
$ 1,222
$ 3,552
$ 6,741
Interest on long-term debt 226
411
336
1,671
2,644
Finance lease obligations (2) 10
18
6
2
36
Operating lease obligations (3) 117
168
95
123
503
Purchase obligations and other payments (4) 623
481
210
36
1,350
Total contractual obligations (5) (6) $ 976
$ 3,045
$ 1,869
$ 5,384
$ 11,274
(1)Represents maturities of our long-term debt obligations and other short-term borrowings excluding finance lease obligations described below. See Note 6 of the “Notes to Consolidated Financial Statements” for further information.

~~(1)~~

(2)Represents minimum finance lease obligations included within current portion of long-term obligations and other short-term borrowings and long-term obligations, less current portion in our consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(3)Represents minimum operating lease obligations included within other accrued liabilities and deferred income taxes and other liabilities in our consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(4)~~Represents maturities of our long-term debt obligations and other short-term borrowings excluding finance lease obligations described below. See~~ ~~Note 6~~ ~~of the “Notes to Consolidated Financial Statements” for further information.~~


~~(2)~~	~~Represents minimum finance lease obligations included within long-term obligations in our consolidated balance sheet and further described in~~ ~~Note 5~~ ~~of the “Notes to Consolidated Financial Statements.”~~


~~(3)~~	~~Represents minimum operating lease obligations included within other accrued liabilities and deferred income taxes and other liabilities in our consolidated balance sheet and further described in~~ ~~Note 5~~ ~~of the “Notes to Consolidated Financial Statements.”~~


~~(4)~~	A purchase obligation is defined as an agreement to purchase goods or services that is legally enforceable and specifies all significant terms, including fixed or ~~services that is legally enforceable and specifies all significant terms, including fixed or~~

minimum quantities to be purchased; fixed, minimum or

variable price provisions; and approximate timing of the transaction. The purchase obligation amounts disclosed above represent estimates of the minimum for which we are obligated and the time period in which cash outflows will occur. Purchase orders and authorizations to purchase that involve no firm commitment from either party are excluded from the above table. In addition, contracts that can be unilaterally canceled with no termination fee or with proper notice are excluded from our total purchase obligations except for the amount of the termination fee or the minimum amount of goods that must be purchased during the requisite notice period. Purchase obligations and other payments also includes quarterly payments ~~of $45.6 million that we are required~~ to ~~pay~~ CVS Health Corporation ~~("CVS")~~ in connection with Red Oak Sourcing, ~~and will be in place for~~which also reflects the ~~remaining five years of~~August 2021 amendment to extend the ~~agreement.~~term through June 2029. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information.

~~(5)~~

(5)Long-term liabilities, such as unrecognized tax benefits, deferred taxes and other tax liabilities, have been excluded from the above table due to the inherent uncertainty of the underlying tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See Note 8 of the "Notes to Consolidated Financial Statements" for further discussion of income taxes.

(6)Total contractual obligations do not include payments that may be made in connection with the opioid litigation, as further described in Significant Developments in Fiscal 2021 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements." In July 2021, we announced that we and two other national distributors have negotiated the Proposed Settlement Agreement and settlement process that, if all conditions are satisfied, would result in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities. The Proposed Settlement Agreement is subject to certain contingencies and includes a cash component, pursuant to which the Company would pay up to approximately $6.37 billion, the majority of which would be paid over 18 years. We currently expect to make our first annual settlement payment of $405 million into escrow on or before September 30, 2021. If the settlement agreement does not become effective, this payment will be returned to us. We expect subsequent annual payments to be made beginning in July 2022.

Long-term liabilities, such as unrecognized tax benefits, deferred taxes and other tax liabilities, have been excluded from the above table due to the inherent uncertainty of the underlying tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See ~~Note 8~~ ~~of the "Notes to Consolidated Financial Statements" for further discussion of income taxes.~~

~~(6)~~

Total contractual obligations do not include payments that may be made in connection with the opioid litigation, as further described in Significant Developments in Fiscal 2020 and Trends section in this MD&A and ~~Note 7~~ of the "Notes to Consolidated Financial Statements." If a definitive agreement is reached, and subject to participation by states and political subdivisions, we expect payment amounts under the Settlement Framework to be spread through the 18-year period. We cannot currently predict when those payments might begin, and it is possible that they may ultimately be made over a different time period, or not at all. See ~~Note 7~~ ~~of the “Notes to Consolidated Financial Statements” for additional information.~~

Off-Balance Sheet Arrangements

We had no significant "off-balance sheet arrangements" at June 30, ~~2020,~~2021, as that term is defined in the SEC rules.

Recent Financial Accounting Standards

See Note 1 of the “Notes to Consolidated Financial Statements” for a discussion of recent financial accounting standards.



1520			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



MD&A			Critical Accounting Policies and Sensitive Accounting Estimates

Critical Accounting Policies and Sensitive Accounting Estimates

Critical accounting policies are those accounting policies that (i) can have a significant impact on our financial condition and results of operations and (ii) require the use of complex and subjective estimates based upon past experience and management’s judgment. Other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Because estimates are inherently uncertain, actual results may differ. In this section, we describe the significant policies applied in preparing our consolidated financial statements that management believes are the most dependent on estimates and assumptions. For further discussion of accounting policies for items within this section and of additional accounting policies, see Note 1 of the “Notes to Consolidated Financial Statements.”

The COVID-19 pandemic ~~has severely impacted, and~~ continues to ~~severely impact~~affect the U.S. and global economies, and ~~beginning in~~as previously disclosed, the pandemic began to materially affect our businesses during the third quarter of fiscal ~~2020, our businesses have been impacted in a variety of ways. We cannot estimate the~~2020. The length orand severity of the ~~COVID-19~~ pandemic ~~or the related U.S.~~ and ~~global economic consequences~~its impacts on our ~~business~~businesses and ~~operations, including whether and when normal economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position,~~ results of operations ~~or cash flow. Our estimates, judgments and assumptions related to the COVID-19 pandemic could ultimately differ over time~~.are uncertain.

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes general and specific reserves. We determine our allowance for doubtful accounts by reviewing accounts receivable aging, historical write-off trends, payment history, industry trends, customer financial strength, ~~and~~customer credit ~~standing, historical write-off trends and payment history.~~ratings or bankruptcies. We regularly evaluate how changes in economic conditions, including the economic impact of the COVID-19 pandemic, may affect credit risks. See Note 1 of the “Notes to Consolidated Financial Statements” for further information on our policy for Receivables and Allowance for Doubtful Accounts.

A hypothetical 0.1 percent increase or decrease in the reserve as a percentage of trade receivables at June 30, ~~2020,~~2021, would result in an increase or decrease in bad debt expense of $8$9 million. We believe the reserve maintained and expenses recorded in fiscal ~~2020~~2021 are appropriate.

At this time, we are not aware of any analytical findings or customer issues that are likely to lead to a significant future increase in the allowance for doubtful accounts as a percentage of revenue. In addition, the Financial Accounting Standards ~~Board~~’s Board’s

amended accounting guidance that requires entities to measure credit losses

on trade and other receivables using an "expected credit loss" model that considers historical experience, current conditions and reasonable and supportable forecasts iswas effective for us in the first quarter of fiscal 2021. ~~We have evaluated the impact of adopting this new~~This guidance ~~and have determined it will~~did not have a material impact on our consolidated financial statements or disclosures. The following table presents information regarding our allowance for doubtful accounts over the past three fiscal years:


(in millions, except percentages)	2020			2019			2018			(in millions, except percentages)	2021			2020			2019
Allowance for doubtful accounts at beginning of period	$	193		$	139		$	137		Allowance for doubtful accounts at beginning of period	$	206		$	193		$	139
Charged to costs and expenses	140			141			114			Charged to costs and expenses	130			140			141
Reduction to allowance for customer deductions and write-offs	(127		)	(87		)	(111		)	Reduction to allowance for customer deductions and write-offs	(94)			(127)			(87)
Allowance for doubtful accounts at end of period	$	206		$	193		$	139		Allowance for doubtful accounts at end of period	$	242		$	206		$	193
Allowance as a percentage of customer receivables	2.5		%	2.3		%	1.8		%	Allowance as a percentage of customer receivables	2.7		%	2.5		%	2.3		%
Allowance as a percentage of revenue	0.13		%	0.13		%	0.10		%	Allowance as a percentage of revenue	0.15		%	0.13		%	0.13		%

The sum of the components may not equal the total due to rounding.

Inventories

LIFO Inventory

A ~~substantial~~ portion of our inventories ((50 percent and 56 percent at ~~both~~ June 30, 2021 and 2020, ~~and 2019)~~respectively) are valued at the lower of cost, using the last-in, first-out ("LIFO") method, or market. These are primarily merchandise inventories at the core pharmaceutical distribution facilities within our Pharmaceutical segment (“distribution facilities”). The LIFO impact on the consolidated statements of earnings/(loss) depends on pharmaceutical manufacturer price appreciation or deflation and our fiscal year-end inventory levels, which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end. Historically, prices for branded pharmaceuticals have generally tended to rise, resulting in an increase in cost of products sold, whereas prices for generic pharmaceuticals generally tend to decline, resulting in a decrease in cost of products sold. See Note 1 of the “Notes to Consolidated Financial Statements” for further information on our policy for Inventories.

Using LIFO, if there is a decrease in inventory levels that have experienced pharmaceutical price appreciation, the result generally will be a decrease in future cost of products sold as our older inventory is held at a lower cost. Conversely, if there is a decrease in inventory levels that have experienced a pharmaceutical price decline, the result generally will be an increase in future cost of products sold as our older inventory is held at a higher cost.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			1621



MD&A			Critical Accounting Policies and Sensitive Accounting Estimates

We believe that the average cost method of inventory valuation provides a reasonable approximation of the current cost of replacing inventory within these distribution facilities. As such, the LIFO reserve is the difference between (a) inventory at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost method of inventory valuation. At June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, inventories valued at LIFO cost were ~~$411~~$565 million and $~~230~~411 million higher than the average cost value. We do not record inventories in excess of replacement cost. As such, we did not write-up the value of our inventory from average cost to LIFO cost at June 30, ~~2020~~2021 or ~~2019.~~2020.

FIFO Inventory

using the estimated selling prices and estimated sales demand in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ~~Inventories presented~~Due to the unprecedented demand for certain PPE as a result of COVID-19, our Medical segment manufactured and sourced inventory at higher costs than in periods prior to

COVID-19. As selling prices and customer demand have decreased compared to the peak of COVID-19, we recorded a reserve of $197 million, primarily related to certain categories of gloves, to reduce the carrying value of certain PPE to its net realizable value. Our estimates for selling prices and demand are inherently uncertain and if our assumptions decline in the ~~consolidated balance sheets are~~future, additional inventory reserves may be required. For example, a hypothetical 5 percent decline in the estimated selling prices would have decreased the estimated net realizable value of ~~reserves for excess and obsolete~~our inventory ~~which were $155~~by approximately $30 million ~~and $171 million at~~as of June 30, ~~2020~~2021.

Excess and ~~2019, respectively.~~ Obsolete Inventory

Inventories presented in the consolidated balance sheets are net of reserves for excess and obsolete inventory which were $185 million and $155 million at June 30, 2021 and 2020, respectively. If actual conditions are less favorable than our assumptions, additional inventory reserves may be required.

Goodwill and Other Indefinite-Lived Intangible Assets

Purchased goodwill and intangible assets with indefinite lives are tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There is an option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. We have elected to bypass the qualitative assessment for the annual goodwill impairment test in the current year. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment (also known as a component).

We have two operating segments, which are the same as our reportable segments: Pharmaceutical and Medical. These operating segments are comprised of divisions (which are components), for which discrete financial information is available. Components are aggregated into reporting units for purposes of goodwill impairment testing to the extent that they share similar economic characteristics. Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear and Precision Health Solutions division); Nuclear and Precision Health Solutions division; Medical operating segment (excluding our Cardinal Health

at-Home Solutions division) (“Medical Unit”); and Cardinal Health at-Home Solutions division.

Goodwill impairment testing involves judgment, including the identification of ~~reporting~~reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists and, if necessary, the estimation of the fair value of the applicable reporting unit.

Our determination of estimated fair value of our reporting units is based on a combination of the income-based and market-based approaches ~~(using~~(using discount rates ranging from 8.5 percent to ~~10.5 percent~~)11.5 percent). We use discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in our

internally-developed forecasts. Under the market-based guideline public company method, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the market-based guideline transaction method to determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. The use of alternate estimates and assumptions, changes in the industry or peer groups, or changes in weightings assigned to the discounted cash flow method, guideline public company method or guideline transaction method could materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment. If a reporting unit fails to achieve expected earnings or


22			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Critical Accounting Policies and Sensitive Accounting Estimates

operating cash flow, or otherwise fails to meet current financial plans, or if there were changes to any other key assumptions used in the tests, the reporting unit could incur a goodwill impairment in a future period.

We performed annual impairment testing in fiscal 2021, 2020, and 2019 and ~~2018 and, with the exception of our Medical Unit in fiscal 2018,~~ concluded that there were no impairments of goodwill as the estimated fair value of each reporting unit exceeded its carrying value.

Medical Unit Goodwill

Due to the planned divestiture of our Cordis business, we allocated $388 million of goodwill from the Medical Unit to the Cordis disposal group based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained.

For our annual impairment test in fiscal ~~2020,~~2021, the fair value of ~~our~~the Medical Unit (which includes the Cordis disposal group) exceeded its carrying value of ~~$10.1~~$10.2 billion by approximately 73 percent. For this test, we used a discount rate of 8.5 percent and a terminal growth rate of 2 percent. Additionally, we assigned a weighting of 80 percent to the discounted cash flow method, 10 percent to the guideline public company method, and 10 percent to the guideline transaction method. The goodwill balance for ~~our~~the Medical Unit was ~~$4.2~~$4.1 billion at June 30, ~~2020.~~2021.

~~Adverse~~Additional adverse changes in key assumptions, such as assumptions ~~related to~~about the impact of the Cordis divestiture and the COVID-19 pandemic, ~~which could cause a decrease in future cash flows;~~including estimated demand and selling prices for PPE; an increase in the discount rate; or a decrease in the terminal growth ~~rate,~~rate; or increases in tax rates, among other things, could result in a goodwill impairment for the Medical Unit. For example, if we were to ~~use a~~



17	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~MD&A~~	~~Critical Accounting Policies and Sensitive Accounting Estimates~~

increase the discount rate ~~of 9.5~~by a hypothetical 0.3 percent or decrease the terminal growth rate by a hypothetical 1 percent, the carrying value would have exceeded the fair value for ~~our~~the Medical Unit by ~~5.0~~approximately 1 percent for fiscal ~~2020. Similarly, if we~~2021. Additionally, the estimated tax rate used in goodwill impairment

testing is a market-based assumption, which is impacted by the U.S. federal statutory tax rate. If the U.S. federal statutory tax rate were to ~~use a terminal growth rate of 0.5~~increase to 28 percent and no other inputs were changed, the carrying value would have ~~exceed~~exceeded the fair value ~~for our~~of the Medical ~~Unit by less than 1.0 percent for fiscal 2020.~~Unit. For any of our other reporting units, the fair value would not have been less than the carrying amount for fiscal ~~2020~~2021 if we increased the discount rate by ~~1.0 percentage point~~1 percent or ~~decreased~~if the ~~terminal growth~~U.S. federal statutory tax rate ~~by 1.0 percentage point. As discussed further in~~ ~~Note 1~~were to increase to 28 percent.

We also performed goodwill impairment testing during the three months ended March 31, 2021 for the portion of the ~~"Notes to Consolidated Financial Statements," during the fourth quarter of fiscal 2018 we recognized a $1.4 billion goodwill impairment charge related to our~~ Medical Unit that would be retained. The carrying value of the Medical Unit that would be retained was $9.3 billion, of which ~~is included~~$4.1 billion was goodwill. The fair value of the reporting unit was estimated to exceed its carrying value, using a combination of the income-based approach and the market-based approach, based on assumptions as of March 31, 2021. There have been no known significant changes in ~~impairments and (gain)/loss on~~the relative fair values for the Medical Unit that would be retained or the Cordis disposal ~~of assets in our consolidated statements of earnings/(loss). There was no tax benefit related to the goodwill impairment charge.~~

group.

The impairment test for indefinite-lived intangibles other than goodwill (primarily ~~IPR&D)~~trademarks) involves first assessing qualitative factors to determine if it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If so, then a quantitative test is performed to compare the estimated fair value of the indefinite-lived intangible asset to the respective asset's carrying amount. Our qualitative evaluation requires the use of estimates and significant judgments and considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount.

See Note 1 of "Notes to Consolidated Financial Statements" for additional information regarding goodwill and other intangible assets.

Loss Contingencies and Self-Insurance

We regularly review contingencies and self-insurance accruals to determine whether our accruals and related disclosures are adequate. Any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs.

Loss Contingencies

Examples of such contingencies include various lawsuits related to the distribution of prescription opioid pain medications and the Cordis inferior vena cava ("Cordis IVC") filter lawsuits.

In connection with the opioid litigation as described further in the Significant Developments in Fiscal 2021 and Trends section in this MD&A, we recorded pre-tax charges of $1.17 billion and $5.63 billion during fiscal 2021 and 2020, respectively. In July 2021, we announced that we and two other national distributors have negotiated a proposed settlement agreement, subject to certain conditions and contingencies. There is no assurance that the contingencies to the proposed settlement agreement will be satisfied.


			Cardinal Health \| Fiscal 2021 Form 10-K			23


MD&A			Critical Accounting Policies and Sensitive Accounting Estimates

We ~~also~~develop and periodically update reserve estimates for the Cordis IVC claims, including those received to date and expected to be received in the future and related costs. To project future Cordis IVC claim costs, we use a methodology based largely on recent experience, including claim filing rates, estimated severity by claim type, sales data, implant and injury to report lag patterns and estimated defense costs.

Self-Insurance

We self-insure through a wholly-owned insurance subsidiary for employee healthcare, certain product liability matters, auto liability, property and workers' compensation and maintain insurance for ~~individual~~ losses exceeding certain ~~limits when available.~~limits.

Self-insurance accruals include an estimate for expected settlements on pending claims, defense costs, administrative fees, claims adjustment costs and an estimate for claims incurred but not reported. For certain types of exposures, we develop the estimate of expected ultimate costs to settle each claim based on specific information related to each claim if available. Other estimates are based on an assessment of outstanding claims, historical analysis and current payment trends. For claims incurred but not reported, the liabilities are calculated and derived in accordance with generally accepted actuarial practices or using an estimated lag period.

The amount of loss may differ materially from these estimates. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information regarding loss contingencies and product liability lawsuits.

~~Examples of such contingencies include various lawsuits related to the distribution of prescription opioid pain medications and the Cordis IVC filter lawsuits.~~

In connection with the opioid litigation as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, we recorded a pre-tax charge of $5.63 billion ($5.14 billion after tax) during fiscal 2020.
Definitive terms of a settlement under the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied.

We develop and periodically update reserve estimates for the Cordis inferior vena cava ("Cordis IVC") claims, including those received to date and expected to be received in the future and related costs. To project future Cordis IVC claim costs, we use a methodology based largely on recent experience, including claim filing rates, estimated indemnity severity by claim type, sales data, implant and injury to report lag patterns and estimated defense costs.

~~The amount of loss may differ materially from these estimates. See~~ ~~Note 7~~ ~~of the “Notes to Consolidated Financial Statements” for additional information regarding loss contingencies and product liability lawsuits.~~



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	18



~~MD&A~~	~~Critical Accounting Policies and Sensitive Accounting Estimates~~

Provision for Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. Our income tax expense, deferred income tax assets and liabilities, and unrecognized tax benefits reflect management’s assessment of estimated future taxes to be paid on items in the consolidated financial statements.

The following table presents information about our tax position at June 30:


(in millions)	2021		2020
Total deferred income tax assets (1)	$	1,808	$	1,412
Valuation allowance for deferred income tax assets (2)	(515)		(470)
Net deferred income tax assets	1,293		942
Total deferred income tax liabilities	(3,225)		(2,161)
Net deferred income tax liability	$	(1,932)	$	(1,219)

(in millions) 2020 2019
Total deferred income tax assets (1) $ 1,412
$ 864
Valuation allowance for deferred income tax assets (2) (470 ) (542 )
   Net deferred income tax assets 942
322
Total deferred income tax liabilities (2,161 ) (2,035 )
   Net deferred income tax liability $ (1,219 ) $ (1,713 )
(1)    Total deferred income tax assets included $805 million and $589 million of loss and tax credit carryforwards at June 30, 2021 and 2020, respectively.


~~(1)~~	~~Total deferred income tax assets included $589 million and $621 million of loss and tax credit carryforwards at June 30, 2020 and 2019, respectively.~~


~~(2)~~	~~The valuation allowance primarily relates to federal, state and international loss and credit carryforwards for which the ultimate realization of future benefits is uncertain.~~

(2) The valuation allowance primarily relates to federal, state and international loss and credit carryforwards for which the ultimate realization of future benefits is uncertain.

Expiring or unusable loss and credit carryforwards and the required valuation allowances are adjusted quarterly when it is more likely than not that at least a portion of the respective deferred tax assets will not be realized. After applying the valuation allowances, we do not anticipate any limitations on our use of any of the other net deferred income tax assets described above. We

operate in a complex multinational tax environment and are subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions that are subject to interpretation. Uncertainty in a tax position may arise as tax laws are subject to interpretation.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.

Tax Effects of Self-Insurance Pre-tax Loss

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal


24			Cardinal Health \| Fiscal 2021 Form 10-K


MD&A			Critical Accounting Policies and Sensitive Accounting Estimates

statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.

We have filed for a U.S. federal income tax refund of $974 million as a result of the net operating loss carryback under the CARES Act, which we expect to receive within 12 months, and accordingly have recorded a current asset on our consolidated balance sheets at June 30, 2021. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 related to this matter.

Tax Effects of Opioid Litigation Charges

In connection with the $1.17 billion and $5.63 billion pre-tax ~~charge~~charges for the opioid litigation, during fiscal year 2021 and 2020, respectively we recorded a tax benefit of $228 million and $488 million, ~~which is net of unrecognized~~respectively. Our tax benefits ~~of $469 million, reflecting~~are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be ~~paid.~~paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $219 million and $469 million, respectively. The fiscal 2021 net tax benefit and unrecognized tax benefits were primarily due to our assessment of the specific terms of the Proposed Settlement Agreement. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the ~~definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the~~ U.S. tax law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act ("Tax Act"). Further, it is possible that Congress or the tax authorities

could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit ~~related to uncertain tax positions~~ may differ materially from these estimates. See Note 8 ~~for more information regarding these matters.~~of the “Notes to the Consolidated Financial Statements.”

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years ~~2008~~2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. ~~Tax authorities have challenged some of our tax positions, including IRS challenges~~During fiscal 2021, we resolved all open issues with respect to the Company’s activity within fiscal years 2008 through 2014 with the U.S. Internal Revenue Service ("IRS"). This resolution resulted in an adjustment to our ~~international transfer pricing~~provision for ~~the periods from 2008~~income taxes, including an impact to ~~2014, and it is possible that they will challenge others. These~~reserves for later years. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Our assumptions and estimates around uncertain tax positions require significant judgment; the actual amount of tax benefit related to uncertain tax positions may differ from these estimates. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information regarding unrecognized tax benefits.

We believe that our estimates for the valuation allowances against deferred tax assets and unrecognized tax benefits are appropriate based on current facts and circumstances. The amount we ultimately pay when matters are resolved may differ from the amounts accrued. Changes in our current estimates due to

unanticipated market conditions, tax law changes or other factors could have a material effect on our ability to utilize deferred tax assets. For a further discussion on Provision for Income Taxes, see Note 8 of the “Notes to the Consolidated Financial Statements.”

The calculation of our tax liabilities includes estimates for uncertainties in the application of broad and complex changes to the U.S. tax code as per the Tax Act as enacted by the United States government on December 22, 2017. We have made reasonable estimates and recorded amounts based on management judgment and our current understanding of the Tax Act which is subject to further interpretation by the ~~Internal Revenue Service ("IRS").~~IRS. See Note 8 of the “Notes to Consolidated Financial Statements” for additional ~~information regarding the Tax Act.~~information.



19	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	25



Explanation and Reconciliation of Non-GAAP Financial Measures

Explanation and Reconciliation of Non-GAAP Financial Measures

This report, including the "Fiscal ~~2020~~2021 Overview" section within MD&A, contains financial measures that are not calculated in accordance with GAAP.

In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.

Exclusions from Non-GAAP Financial Measures

Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors’ assessment of the business for the reasons identified below:

•LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. We did not recognize any LIFO charges or credits during the periods presented.

•Surgical gown recall costs or income includes inventory write-offs and certain remediation and supply disruption costs, net of related insurance recoveries, arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for Presource Procedure Packs containing affected gowns. Income from surgical gown recall costs represents insurance recoveries of these certain costs. We have excluded these costs from our non-GAAP metrics to allow investors to better understand the underlying operating results of the business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.

•State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the period in which the expense is incurred. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Income from state opioid assessments related to prior fiscal years represents reversals of accruals when the underlying assessments were invalidated by a Court or reimbursed by manufacturers.

•Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business.

•Amortization and other acquisition-related costs, which include transaction costs, integration costs, and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.

•

~~LIFO charges and credits~~ are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. We did not recognize any LIFO charges or credits during the periods presented.

•

~~Surgical gown recall costs~~ includes inventory write-offs and certain remediation and supply disruption costs arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for Presource Procedure Packs containing affected gowns. We have excluded these costs from our non-GAAP metrics to allow investors to better understand the underlying operating results of the business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.

•

~~State opioid assessments related to prior fiscal years~~ is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the fiscal year of the initial assessment. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Reversals of these accruals have occurred when certain assessments were found by a Court unconstitutional.


•	~~Restructuring and employee severance costs~~ ~~are excluded because they are not part of the ongoing operations of our underlying business.~~

•

~~Amortization and other acquisition-related costs~~, which include transaction costs, integration costs, and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.


•	~~Impairments and gain or loss on disposal of assets~~ are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.


•	~~Litigation recoveries or charges, net~~ are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.



26	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	20



Explanation and Reconciliation of Non-GAAP Financial Measures

•Impairments and gain or loss on disposal of assets are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.

•

~~Loss on early extinguishment of debt~~ is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount. During fiscal 2021, we incurred a tax benefit related to a carryback of a net operating loss. Some pre-tax amounts, which contributed to this loss, relate to litigation charges. As a result, we allocated substantially all of the tax benefit to litigation charges.

•

~~Gain on sale of equity interest in naviHealth~~ ~~was~~ incurred in connection with the sale of our remaining equity interest in naviHealth in fiscal 2020. The equity interest was retained in connection with the initial sale of our majority interest in naviHealth during fiscal 2019. We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in the normal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest, which we exclude from non-GAAP results. The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAP measures.

•

~~Transitional tax benefit, net~~ related to the Tax Cuts and Jobs Act is excluded because it results from the one-time impact of a very significant change in the U.S. federal corporate tax rate and, due to the significant size of the benefit, obscures analysis of trends and financial performance. The transitional tax benefit includes the initial estimate and subsequent adjustments for the re-measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate and the repatriation tax on undistributed foreign earnings.

•Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.

•(Gain)/Loss on sale of equity interest in naviHealth was incurred in connection with the sale of our remaining equity interest in naviHealth in fiscal 2020. The equity interest was retained in connection with the initial sale of our majority interest in naviHealth during fiscal 2019. We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in the normal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest, which we exclude from non-GAAP results. The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAP measures.

•Transitional tax benefit, net related to the Tax Cuts and Jobs Act is excluded because it results from the one-time impact of a very significant change in the U.S. federal corporate tax rate and, due to the significant size of the benefit, obscures analysis of trends and financial performance. The transitional tax benefit includes the initial estimate and subsequent adjustments for the re-measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate and the repatriation tax on undistributed foreign earnings.

The tax effect for each of the items listed above, other than the transitional tax benefit item, is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.

Definitions

Growth rate calculation: growth rates in this report are determined by dividing the difference between current period results and prior period results by prior period results.

Non-GAAP operating earnings: operating earnings/(loss) excluding (1) LIFO charges/(credits), (2) surgical gown recall ~~costs,~~costs/(income), (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, and (7) litigation (recoveries)/charges, net.

Non-GAAP earnings before income taxes: earnings/(loss) before income taxes excluding (1) LIFO charges/(credits), (2) surgical gown recall ~~costs,~~costs/(income), (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on early extinguishment of debt and (9) ~~gain~~(gain)/loss on sale of equity interest in naviHealth.

Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings/(loss) attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) surgical gown recall ~~costs,~~costs/(income), (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on early extinguishment of debt and (9) ~~gain~~(gain)/loss on sale of equity interest in naviHealth, each net of tax, and (10) transitional tax benefit, net.

Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for (1) LIFO charges/(credits), (2) surgical gown recall ~~costs,~~costs/(income), (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net,, (8) loss on early extinguishment of debt and (9) ~~gain~~(gain)/loss on sale of equity interest in naviHealth, each net of tax, and (10) transitional tax benefit, net divided by (earnings before income taxes adjusted for the first nine items).

Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.


			Cardinal Health \| Fiscal 2021 Form 10-K			27


Explanation and Reconciliation of Non-GAAP Financial Measures

GAAP to Non-GAAP Reconciliations


(in millions, except per common share amounts)	Operating Earnings/(Loss)		Operating Earnings/(Loss) Growth Rate		Earnings/(Loss) Before Income Taxes		Provision for/(Benefit From) Income Taxes		Net Earnings/(Loss)1		Net Earnings/(Loss)1 Growth Rate		Effective Tax Rate		Diluted EPS1.2		Diluted EPS1 Growth Rate
	Fiscal Year 2021
GAAP	$	472	N.M.		$	323	$	(289)	$	611	N.M.		(89.7)	%	$	2.08	N.M.
Surgical gown recall costs/(income)	(28)				(28)		(7)		(21)						(0.07)
State opioid assessment related to prior fiscal years	38				38		9		29						0.10
Restructuring and employee severance	114				114		27		87						0.29
Amortization and other acquisition-related costs	451				451		118		333						1.13
Impairments and (gain)/loss on disposal of assets	79				79		15		64						0.21
Litigation (recoveries)/charges, net3	1,129				1,129		606		523						1.78
Loss on early extinguishment of debt	—				14		3		11						0.04
Loss on sale of equity interest in naviHealth investment	—				2		1		1						0.01

Non-GAAP	$	2,255	(5)	%	$	2,122	$	483	$	1,637	2	%	22.8	%	$	5.57	2	%

	Fiscal Year 2020
GAAP	$	(4,098)	N.M.		$	(3,772)	$	(79)	$	(3,696)	N.M.		2.1	%	$	(12.61)	N.M.
Surgical gown recall costs/(income)	85				85		22		63						0.22
State opioid assessment related to prior fiscal years	3				3		1		2						0.01
Restructuring and employee severance	122				122		29		93						0.31
Amortization and other acquisition-related costs	524				524		130		394						1.34
Impairments and (gain)/loss on disposal of assets	7				7		2		5						0.02
Litigation (recoveries)/charges, net3	5,741				5,741		514		5,227						17.84
Loss on early extinguishment of debt	—				16		4		12						0.04
Gain on sale of equity interest in naviHealth investment	—				(579)		(86)		(493)						(1.68)

Transitional tax benefit, net4	—				—		2		(2)						(0.01)
Non-GAAP	$	2,384	1	%	$	2,147	$	539	$	1,605	1 %		25.1 %		$	5.45	3	%

	Fiscal Year 2019
GAAP	$	2,060	N.M.		$	1,751	$	386	$	1,363	N.M.		22.1 %		$	4.53	N.M.
Restructuring and employee severance	125				125		32		93						0.31
Amortization and other acquisition-related costs	621				621		148		473						1.57
Impairments and (gain)/loss on disposal of assets5	(488)				(488)		(113)		(375)						(1.25)
Litigation (recoveries)/charges, net	36				36		10		26						0.09

Transitional tax benefit, net4	—				—		(9)		9						0.03
Non-GAAP	$	2,353	(9)	%	$	2,044	$	453	$	1,589	1 %		22.1 %		$	5.28	6 %

1 Attributable to Cardinal Health, Inc.

2For fiscal 2020, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 293 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2020, non-GAAP diluted EPS is calculated using a weighted average of 295 million common shares, which includes potentially dilutive shares.

3 Litigation (recoveries)/charges, net includes pre-tax charges of $1.17 billion and $5.63 billion recorded in fiscal 2021 and 2020, respectively, related to the opioid litigation. The net tax benefits associated with the opioid litigation charges are $228 million and $488 million for fiscal 2021 and 2020, respectively.

Litigation (recoveries)/charges, net, includes a tax benefit recorded during fiscal 2021 related to a net operating loss carryback. Our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and adjusted our taxable income for fiscal 2015, 2016, 2017 and 2018 as permitted under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. The total benefit from the net operating loss carryback was $424 million; however, for purposes of Non-GAAP financial measures, we allocated $389 million of the benefit to litigation (recoveries)/charges, net, which is excluded from non-GAAP measures, based on the relative amount of the self-insurance pre-tax loss related to opioid litigation claims versus separate tax adjustments. The tax benefit allocated to the separate tax adjustments of $35



2128			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



Explanation and Reconciliation of Non-GAAP Financial Measures

million is included in non-GAAP measures.

4 Reflects the net transitional benefit from the remeasurement of our deferred tax assets and liabilities partially offset by the repatriation tax on cash and earnings of foreign subsidiaries. See Note 8 of the "Notes to Consolidated Financial Statements" for more information.

~~GAAP to Non-GAAP Reconciliations~~5 During fiscal 2019, we sold our majority interest in naviHealth and recognized a pre-tax gain of $508 million ($378 million after tax).

(in millions, except per common share amounts) Operating Earnings/(Loss) Operating Earnings/(Loss) Growth Rate Earnings/(Loss) Before Income Taxes Provision for/(Benefit From) Income Taxes
Net Earnings/(Loss)¹
Net Earnings/(Loss)¹ Growth Rate
Effective Tax Rate
Diluted EPS^1.2
Diluted EPS¹ Growth Rate
Fiscal Year 2020
GAAP $ (4,098 ) N.M.
$ (3,772 ) $ (79 ) $ (3,696 ) N.M.
2.1 % $ (12.61 ) N.M.
Surgical gown recalls costs 85
85
22
63
0.22

State opioid assessment related to prior fiscal years 3
3
1
2
0.01

Restructuring and employee severance 122
122
29
93
0.31

Amortization and other acquisition-related costs 524
524
130
394
1.34

Impairments and (gain)/loss on disposal of assets 7
7
2
5
0.02

Litigation (recoveries)/charges, net³
5,741
5,741
514
5,227
17.84

Loss on early extinguishment of debt —
16
4
12
0.04

Gain on sale of equity interest in naviHealth —
(579 ) (86 ) (493 ) (1.68 )
Transitional tax benefit, net⁴
—
—
2
(2 ) (0.01 )
Non-GAAP $ 2,384
1 % $ 2,147
$ 539
$ 1,605
1 % 25.1 % $ 5.45
3 %

Fiscal Year 2019
GAAP $ 2,060
N.M.
$ 1,751
$ 386
$ 1,363
N.M.
22.1 % $ 4.53
N.M.
Restructuring and employee severance 125
125
32
93
0.31

Amortization and other acquisition-related costs 621
621
148
473
1.57

Impairments and (gain)/loss on disposal of assets⁵
(488 ) (488 ) (113 ) (375 ) (1.25 )
Litigation (recoveries)/charges, net 36
36
10
26
0.09

Transitional tax benefit, net⁴
—
—
(9 ) 9
0.03

Non-GAAP $ 2,353
(9 )% $ 2,044
$ 453
$ 1,589
1 % 22.1 % $ 5.28
6 %

Fiscal Year 2018
GAAP $ 126
(94 )% $ (228 ) $ (487 ) $ 256
(80 )% 213.8 % $ 0.81
(80 )%
Restructuring and employee severance 176
176
25
151
0.48

Amortization and other acquisition-related costs 707
707
176
531
1.69

Impairments and (gain)/loss on disposal of assets⁶
1,417
1,417
(44 ) 1,461
4.64

Litigation (recoveries)/charges, net 159
159
48
111
0.35

Loss on early extinguishment of debt —
2
1
1
—

Transitional tax benefit, net⁴
—
—
936
(936 ) (2.97 )
Non-GAAP $ 2,585
(7 )% $ 2,233
$ 655
$ 1,575
(9 )% 29.3 % $ 5.00
(7 )%


¹	~~Attributable to Cardinal Health, Inc.~~


³	~~Litigation (recoveries)/charges, net includes a pre-tax charge of $5.63 billion ($5.14 billion after tax) recorded in the first quarter of fiscal 2020 related to the opioid litigation.~~


⁴	~~Reflects the net transitional benefit from the remeasurement of our deferred tax assets and liabilities partially offset by the repatriation tax on cash and earnings of foreign subsidiaries. See~~ ~~Note 8~~ ~~of the "Notes to Consolidated Financial Statements" for more information on the Tax Act.~~


⁵	~~During fiscal 2019, we sold our majority interest in naviHealth and recognized a pre-tax gain of $508 million ($378 million after tax).~~


⁶	~~Fiscal year 2018 includes a goodwill impairment charge of $1.4 billion related to our Medical segment. There was no tax benefit related to this goodwill impairment charge.~~

The sum of the components and certain computations may reflect rounding adjustments.

We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			2229



~~Selected Financial Data~~

~~Selected Financial Data~~

The consolidated financial data below includes all business combinations as of the date of acquisition that occurred during these periods. The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes and MD&A.

(in millions, except per common share amounts)
2020^1,2,3

2019⁴

2018^5,6
2017 2016
Earnings Data:
Revenue $ 152,922
$ 145,534
$ 136,809
$ 129,976
$ 121,546

Operating earnings/(loss) (4,098 ) 2,060
126
2,120
2,459

Net earnings/(loss) (3,693 ) 1,365
259
1,294
1,431
Less: Net earnings attributable to noncontrolling interests (3 ) (2 ) (3 ) (6 ) (4 )
Net earnings/(loss) attributable to Cardinal Health, Inc. $ (3,696 ) $ 1,363
$ 256
$ 1,288
$ 1,427

Basic earnings/(loss) per common share attributable to Cardinal Health, Inc. $ (12.61 ) $ 4.55
$ 0.82
$ 4.06
$ 4.36

Diluted earnings/(loss) per common share attributable to Cardinal Health, Inc. $ (12.61 ) $ 4.53
$ 0.81
$ 4.03
$ 4.32

Cash dividends declared per common share $ 1.9292
$ 1.9100
$ 1.8635
$ 1.8091
$ 1.6099

Balance Sheet Data:
Total assets $ 40,766
$ 40,963
$ 39,951
$ 40,112
$ 34,122
Long-term obligations, less current portion 6,765
7,579
8,012
9,068
4,952
Total Cardinal Health, Inc. shareholders' equity 1,789
6,328
6,059
6,808
6,554

¹~~During fiscal 2020, we recorded a pre-tax charge of $5.63 billion ($5.14 billion after tax) related to the opioid litigation.~~

²~~During fiscal 2020, we recorded a total charge of $85 million in connection with the Recalls.~~

³During fiscal 2020, we sold the remainder of our equity interest in a partnership that owned naviHealth and recognized a pre-tax gain of $579 million ($493 million million after tax) within net earnings/(loss).

⁴~~During fiscal 2019, we sold our majority interest in naviHealth and recognized a pre-tax gain of $508 million ($378 million after tax) within operating earnings/(loss).~~

⁵During the fourth quarter of fiscal 2018, we recognized a non-cash goodwill impairment charge of $1.4 billion related to our Medical segment. There was no tax benefit related to this goodwill impairment charge.

⁶~~During fiscal 2018, the United States enacted the Tax Cuts and Jobs Act. In fiscal 2018 we recognized a net transitional tax benefit of $936 million related to the enactment of the act. See~~ ~~Note 8~~ ~~for more information.~~



23	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



Disclosures about Market Risk

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to cash flow and earnings fluctuations as a result of certain market risks. These market risks primarily relate to foreign exchange, interest rate, and commodity price-related changes. We maintain a hedging program to manage volatility related to some of these market exposures which employs operational, economic, and derivative financial instruments in order to mitigate risk. See Note 1 and Note 10 of the “Notes to Consolidated Financial Statements” for further discussion regarding our use of derivative instruments.

Foreign Exchange Rate Sensitivity

By the nature of our global operations, we are exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational in nature. The following foreign currencies represent the principal drivers of our foreign exchange exposure: Canadian dollar, euro, Thai baht, Mexican peso, Chinese renminbi, Australian dollar, British pound and Japanese yen.

We apply a Value-At-Risk ("VAR") methodology to our transactional and translational exposures. The VAR model is a risk estimation tool and is not intended to represent actual losses in fair value that could be incurred.

Transactional Exposure

Transactional exposure arises from the purchase and sale of goods and services in currencies other than our functional currency or the functional currency of our subsidiaries. At the end of each fiscal year

we perform sensitivity analyses on our

forecasted transactional exposure for the upcoming fiscal year. These analyses include the estimated impact of our hedging program, which is designed to mitigate transactional exposure. Applying a VAR methodology to our transactional exposure and including the impact of our hedging program, the potential maximum loss in earnings for the upcoming fiscal year is estimated to be ~~$12~~$16 million,, which is based on a one-year horizon and a 95 percent confidence level.

Translational Exposure

We have exposure related to the translation of financial statements of our foreign operations into U.S. dollars, our functional currency. Applying a VAR methodology to our translational exposure, the potential maximum loss in earnings for the upcoming fiscal year is estimated to be $5$5 million,, which is based on a one-year horizon and a 95 percent confidence level.

Interest Rate Sensitivity

We are exposed to changes in interest rates primarily as a result of our borrowing and investing activities to maintain liquidity and fund operations. The nature and amount of our long-term and short-term debt can be expected to fluctuate as a result of business requirements, market conditions and other factors. Our policy is to manage exposures to interest rates using a mix of fixed and floating rate debt as deemed appropriate by management. We utilize interest rate swap instruments to mitigate our exposure to interest rate movements.

As part of our risk management program, we perform an annual sensitivity analysis on our forecasted exposure to interest rates for the upcoming fiscal year. This analysis assumes a hypothetical 50 basis point change in interest rates. At June 30, ~~2020,~~2021, the potential increase or decrease in annual interest expense under this analysis as a result of this hypothetical change would be $5$2 million.

We are also exposed to market risk from changes in interest rates related to our cash and cash equivalents, which includes marketable securities that are carried at fair value in the consolidated balance sheets. The fair value of our cash and cash equivalents is subject to change primarily as a result of changes in market interest rates and investment risk related to the issuers' credit worthiness. At June 30, ~~2020,~~2021, a hypothetical increase or decrease of 50 basis points in interest rates would result in a hypothetical $5$10 million change in the estimated fair value.



30	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	24



~~Disclosures about Market Risk~~

~~Commodity Price Sensitivity~~



Disclosures about Market Risk

Commodity Price Sensitivity

We are directly exposed to market price changes for certain commodities, including oil-based resins, nitrile, cotton, diesel fuel and latex. We typically purchase raw materials at either market prices or prices tied to a commodity index and some finished goods at prices based in part on a commodity price index.

As part of our risk management program, we perform sensitivity analysis on our forecasted direct commodity exposure for the upcoming fiscal year. Our forecasted direct commodity exposure at June 30, ~~2020~~2021 increased approximately ~~$10~~$4 million from June 30, ~~2019.~~2020. At June 30, 2020, ~~and 2019,~~ we had hedged a portion of these direct commodity exposures (see Note 10 of the “Notes to Consolidated Financial Statements” for further discussion). There were no outstanding commodity contracts in our hedging program at June 30, 2021.

Our forecasted direct commodity exposures for the upcoming fiscal year is ~~$445~~$449 million. The potential gain/loss given a hypothetical 10 percent fluctuation in commodity prices, assuming pricing collectively shifts in the same direction and we are unable to change customer pricing in response to those shifts or otherwise offset, for the upcoming fiscal year is ~~$45~~$45 million at June 30, ~~2020.~~2021. The hypothetical offsetting impact of hedges in both periods was minimal.



25	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	31


Business

Business

General


~~Business~~

~~Business~~

~~General~~

Cardinal Health, Inc. is a global integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices and patients in the home. We provide medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency.

Pharmaceutical Segment

In the United States, our Pharmaceutical segment:

•through its Pharmaceutical Distribution division, distributes branded and generic pharmaceutical and over-the-counter healthcare and consumer products to retailers (including chain and independent drug stores and pharmacy departments of supermarkets and mass merchandisers), hospitals and other healthcare providers. This division:

▪maintains prime vendor relationships that streamline the purchasing process resulting in greater efficiency and lower costs for our retail, hospital and other healthcare provider customers;

▪provides services to pharmaceutical manufacturers, including distribution, inventory management, data reporting, new product launch support and chargeback administration;

▪through the ~~connected care~~Outcomes service offering, ~~provides~~connects pharmacists, payers and pharmaceutical companies and delivers health solutions for personalized medication therapy management, ~~telepharmacy~~digital patient engagement and ~~health messaging services and seeks to develop solutions to improve patient care through improved coordination of manufacturers, payers, pharmacies and patients;~~telepharmacy;

•provides pharmacy management services to hospitals and operates a limited number of pharmacies, including in community health centers; and

•repackages generic pharmaceuticals and over-the-counter healthcare products;

•through its Specialty Solutions division, distributes specialty pharmaceutical products to hospitals and other healthcare providers and provides consulting, patient support and other services for specialty pharmaceutical products to pharmaceutical manufacturers and healthcare providers; and

•through its Nuclear and Precision Health Solutions division, operates nuclear pharmacies and manufacturing facilities, which manufacture, prepare and deliver radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and physician offices. This division also contract manufactures a radiopharmaceutical treatment (Xofigo) and holds the North American rights to manufacture and distribute Lymphoseek, a radiopharmaceutical diagnostic imaging agent.

See Note 1513 of the “Notes to Consolidated Financial Statements” for Pharmaceutical segment revenue, profit and assets for fiscal 2021, 2020 ~~2019~~ and ~~2018.~~2019.

Pharmaceutical Distribution

Our Pharmaceutical Distribution division’s gross margin includes margin from our generic pharmaceutical program, from distribution services agreements with branded pharmaceutical manufacturers and from over-the-counter healthcare and consumer products. It also includes manufacturer cash discounts.

Margin from our generic pharmaceutical program includes price discounts and rebates from manufacturers and may in limited instances include price appreciation. Our earnings on generic pharmaceuticals are generally highest during the period immediately following the initial launch of a product, because generic pharmaceutical selling prices are generally highest during that period and tend to decline over time.

Margin from distribution services agreements with branded pharmaceutical manufacturers is derived from compensation we receive for providing a range of distribution and related services to manufacturers. Our compensation typically is a percentage of the wholesale acquisition cost that is set by manufacturers. In addition, under a limited number of agreements, branded pharmaceutical price appreciation, which is determined by the manufacturers, also serves as part of our compensation.

Sourcing Venture with CVS Health Corporation

~~In July 2014, we established~~ Red Oak Sourcing, LLC ("Red Oak Sourcing"), a U.S.-based generic pharmaceutical sourcing venture with CVS ~~with an initial term of 10 years. Red Oak Sourcing~~Health negotiates generic pharmaceutical supply contracts on behalf of both companies. In August 2021, we amended our agreement with CVS Health to extend the term of Red Oak Sourcing through June 2029.

Specialty Pharmaceutical Products and Services

We refer to products and services offered by our Specialty Solutions division as “specialty pharmaceutical products and services.” The Specialty Solutions division distributes oncology, rheumatology, urology, nephrology and other pharmaceutical products ("specialty pharmaceutical products") and human-derived plasma products to hospitals, dialysis clinics, physician offices and other healthcare providers; provides consulting, patient support, logistics, group purchasing and other services to pharmaceutical manufacturers and healthcare providers primarily supporting the development, marketing and distribution of specialty pharmaceutical products; and provides specialty pharmacy services. Our use of the terminology "specialty pharmaceutical products and services" may not be comparable to the terminology used by other industry participants.



32	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	26


Business

Medical Segment


~~Business~~

~~Medical Segment~~

Our Medical segment manufactures and sources Cardinal Health branded general and specialty medical, surgical and laboratory products and devices. These products include exam and surgical gloves; needle, syringe and sharps disposal; compression; incontinence; nutritional delivery; wound care; ~~cardiovascular and endovascular;~~ single-use surgical drapes, gowns and apparel; fluid suction and collection systems; urology; operating room supply; and electrode product lines. Our Cardinal Health Brand products are sold directly or through third-party distributors in the United States, Canada, Europe, Asia and other markets. These products are generally higher-margin products.

The Medical segment also distributes a broad range of medical, surgical and laboratory products known as national brand products

and provides supply chain services and solutions to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers in the United States and Canada and this segment also assembles and sells sterile and non-sterile procedure kits.

Through Cardinal Health at-Home Solutions, this segment also distributes medical products to patients' homes in the United States.

The Medical segment, through its Wavemark division, also provides an automated technology platform for inventory management.

Acquisitions and Divestitures

Acquisitions

We have acquired a number of businesses over the years that have enhanced our core strategic areas of Cardinal Health Brand medical products, generic pharmaceutical distribution and services, specialty pharmaceutical products and services, international and post-acute care. We expect to continue to pursue additional acquisitions in the future.

During the last five fiscal years, we completed several acquisitions. In July 2017, we acquired the ~~following three large acquisitions:~~



~~Date~~	~~Company~~	~~Location~~	~~Lines~~ ~~of Business~~	~~Acquisition~~ ~~Price~~ ~~(in billions)~~
~~07/17~~	~~Patient Recovery Business of Medtronic, plc~~	~~Mansfield, MA~~	~~Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency~~	~~$6.1~~
~~10/15~~	~~Cordis business of Johnson & Johnson~~	~~Fremont, CA~~	~~Cardiovascular and endovascular products~~	~~$1.9~~
~~07/15~~	~~The Harvard Drug Group~~	~~Livonia, MI~~	~~Pharmaceutical product distribution~~	~~$1.1~~

Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (the "Patient Recovery Business") from Medtronic plc for $6.1 billion in cash. We also completed several smaller acquisitions during the last five fiscal years, including, in fiscal 2017, the acquisition of the North

American rights to Lymphoseek, a radiopharmaceutical diagnostic imaging agent, from Navidea Biopharmaceuticals, Inc.

Date

Company

Location

Lines

of Business

Acquisition

Price

(in billions)

07/17

Patient Recovery Business of Medtronic, plc

Mansfield, MA

Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency

$6.1

Divestitures

Over the past ~~three~~five fiscal years, we have also completed several divestitures. ~~In February 2018,~~

On August 2, 2021, we completed the ~~sale~~divestiture of our ~~pharmaceutical and medical products distribution~~Cordis business ~~in China~~ to ~~Shanghai Pharmaceuticals Holding Co., Ltd.~~Hellman & Freidman ("H&F") for net proceeds of ~~$861~~$927 million ~~(after adjusting~~in cash, subject to customary purchase price adjustments. We have retained certain working capital accounts and product liability for ~~third party indebtedness~~lawsuits related to inferior vena cava filters in the U.S. and ~~preliminary transaction adjustments).~~Canada, as described in Note 7 of the Notes to the Consolidated Financial Statements. We acquired the Cordis business from Johnson & Johnson for $1.9 billion in October 2015. This divestiture also includes Access Closure, Inc., a manufacturer and distributor of extravascular closure devices, that we acquired for approximately $320 million in May 2014.

In August 2018, we completed the sale of our equity interest in naviHealth, Inc. to investor entities controlled by Clayton, Dubilier & Rice, LLC ("CD&R&R") for proceeds of $737 million (after adjusting for certain fees and expenses) and a noncontrolling equity interest in a partnership that owned naviHealth. In May 2020, we sold the remainder of our equity interest in naviHealth.

We had acquired our equity interest in naviHealth through a series of transactions beginning in fiscal 2016, when we acquired a majority equity interest.

In February 2018, we completed the sale of our pharmaceutical and medical products distribution business in China to Shanghai Pharmaceuticals Holding Co., Ltd. for proceeds of $861 million (after adjusting for third party indebtedness and preliminary transaction adjustments).



27	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	33

Our largest customers, CVS and OptumRx, accounted for 26 percent and 1415 percent of our fiscal ~~2020~~2021 revenue, respectively. In the aggregate, our five largest customers, including CVS and OptumRx, accounted for 4950 percent of our fiscal ~~2020~~2021 revenue.

In August 2021, we extended our pharmaceutical distribution agreements with CVS through June 2027.

We have agreements with group purchasing organizations (“GPOs”) that act as agents to negotiate vendor contracts on

behalf of their

members. Our two largest GPO relationships in terms of revenue are with Vizient, Inc. and Premier, Inc. Sales to members of these two GPOs, under numerous contracts across our businesses, collectively accounted for 1615 percent of our revenue in fiscal ~~2020.~~2021.

We rely on many different suppliers. Products obtained from our five largest suppliers accounted for an aggregate of 2830 percent of our revenue during fiscal ~~2020,~~2021, and our largest supplier’s products accounted for approximately 67 percent of revenue.

We operate in a highly competitive environment in the distribution of pharmaceuticals and consumer healthcare products. We also operate in a highly competitive environment in the manufacturing and distribution of medical devices and surgical products. We compete on many levels, including price, service offerings, support services, customer service, breadth of product lines and product quality and efficacy.

In the Pharmaceutical segment, we compete with wholesale distributors with national reach, including McKesson Corporation and AmerisourceBergen Corporation, regional wholesale distributors, self-warehousing chains, specialty distributors, third-party logistics companies, companies that provide specialty pharmaceutical services and nuclear pharmacies, among others.

In addition, the

Pharmaceutical segment has experienced competition from a number of organizations offering generic pharmaceuticals, including telemarketers. We also compete with manufacturers that sell their products directly.

In the Medical segment, we compete with many diversified healthcare companies and national medical product distributors, such as Medline Industries, Inc., Owens & Minor, Inc. and Becton, Dickinson and Company, as well as regional medical product distributors and companies that are focused on specific product categories. We also compete with companies that distribute medical products to patients' homes and third-party logistics companies.

Human Capital Management

We, through our employees, improve the lives of people every day by solving complex healthcare problems. As of June 30, 2021, we had approximately 47,300 employees globally, approximately 18,300 of whom are based outside the United States. Approximately 98% of our workforce is full time employees. Approximately 29,000 of our employees worked in our distribution centers, manufacturing facilities and pharmacies, and 18,300 worked in other functions, including finance, information technology, human resources and sales.

Approximately 3,230 employees were primarily associated with our Cordis business and were transferred in the divestiture in August 2021. Most of these employees are based outside the United States.

Additionally, we have engaged global professional services firms to perform certain business processes on our behalf, including within finance, information technology and human resources.

Diversity, Equity & Inclusion

At Cardinal Health, we are focused on building a diverse workforce and an inclusive workplace that values the unique perspectives and contributions of all of our employees.

We promote a culture of diversity, equity and inclusion through, for example, seven Employee Resource Groups (ERGs), including groups focused on various racial and ethnic groups, members of the LGBTQ community, employees with disabilities, veterans and women. They are designed to foster an inclusive and engaged workforce and develop future leaders. In addition, we have manager and broad-based unconscious bias and racial equity training courses. Our work is led by our senior executives with advice from a Diversity and Inclusion Steering Council which consists of senior leaders from across the company. Additionally, in December 2019, we created a new African American and Black Racial Equity Cabinet to provide guidance to our senior executives in addressing racism and social injustice.

Cardinal Health | Fiscal 2021 Form 10-K

We also monitor pay equity. We define pay equity as equal pay for people of all gender identities and ethnicities who are performing substantially similar work. We have a pay equity committee, which guides the ongoing analysis and benchmarking, in regular consultation with an independent third-party, to review and help inform our salary and compensation practices.

We have established long-range aspirational representation goals for specific under-represented groups in our manager-and-above level employee population.

Employee Health & Safety

The health, safety and security of our employees is an priority for us. We employ systems designed to continually monitor our facilities and work environment to promote employee safety and identify and prevent or mitigate any potential risks. This includes procedures and equipment for security. We routinely assess facilities to closely monitor adherence to established security and safety standards. Our employees receive specialized training related to their role, work setting, and equipment used in their work environment. As our processes evolve, we update relevant safety training modules, which may include new employee training programs.

COVID-19 Response

Protecting the health and safety of our employees and their families has been a priority throughout the COVID-19 pandemic.

In March, 2020, all employees who could work remotely began working from home. We expanded our technology infrastructure to help employees perform their duties remotely and continue to support customers, patients and our frontline colleagues. Many of these employees continue to work remotely.

Because Cardinal Health is part of a critical infrastructure industry, more than 30,000 of our employees have continued to report to work in distribution centers, supply chain operations, manufacturing sites, pharmacies and other clinical sites.

To help prevent the spread of COVID-19 and protect the safety of our frontline employees, all of our facilities are thoroughly cleaned regularly and we implemented safety measures, including mask and social distancing requirements, in accordance with the U.S.

Centers for Disease Control and Prevention and the World Health Organization guidelines. We also educated employees on how they can help keep themselves and their families safe and have training programs to help employees stay safe in their jobs. Our safety measures have helped us to avoid a wide spread outbreak of COVID-19 among our employees. Since June ~~30, 2020,~~2021, we ~~had approximately 30,000~~have provided clinics for employees, contractors and their families and friends to receive a COVID-19 vaccine.

Talent Retention & Culture

Talent Development and Learning

Cardinal Health’s talent development strategy is a segmented, multi-pronged approach to build capabilities, skills and competencies of leaders and employees throughout the enterprise ensuring employees capabilities connect to business needs and outcomes. This segmented approach includes broad based employee skill development and learning, manager capabilities and development, differentiated diverse talent development and executive development.

Culture

Cardinal Health’s culture is rooted in our values and behaviors and aligned to the ~~United States~~company’s strategic framework. Providing a positive work environment supports our ability to attract, retain and ~~approximately 18,000~~develop our employees ~~outside~~and enables business performance. We reinforce, monitor and assess our culture through a variety of ~~the United States.~~programs and processes which include performance management, talent/succession planning, employee engagement surveys and other listening strategies.

Intellectual Property

We rely on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions, and technical measures to protect our products, services and intangible assets. We hold patents, and continue to pursue patent protection throughout the world, relating to the manufacture, operation and use of various medical and surgical products, to certain distribution and logistics systems, to the production and distribution of our nuclear pharmacy products and to other service offerings. We also operate under licenses for certain proprietary technologies, and in certain instances we license our technologies to third parties.

We believe that we have taken all necessary steps to protect our proprietary rights, but no assurance can be given that we will be able to successfully enforce or protect our rights in the event that they are infringed upon by a third party. While all of these proprietary rights are important to our operations, we do not consider any particular patent, trademark, license, franchise or concession to be material to our overall business.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			2835


Business

Regulatory Matters


~~Business~~

~~Regulatory Matters~~

Our business is highly regulated in the United States, at both the federal and state level, and in foreign countries. Depending upon the specific business, we may be subject to regulation by government entities including:

•the U.S. Drug Enforcement Administration (the “DEA”);

•certain agencies within the U.S. Department of Health and Human Services, including the U.S. Food and Drug Administration (the “FDA”), the Centers for Medicare and Medicaid Services, the Office of Inspector General and the Office for Civil Rights;


~~��~~	~~state health departments, insurance departments, Medicaid departments or other comparable state agencies;~~

•state health departments, insurance departments, Medicaid departments or other comparable state agencies;

•state boards of pharmacy and other controlled substance authorities;

•the U.S. Nuclear Regulatory Commission (the “NRC”);

•the U.S. Federal Trade Commission (the "FTC");

•U.S. Customs and Border Protection; and

•agencies comparable to those listed above in markets outside the United States.

These regulatory agencies have a variety of civil, administrative and criminal sanctions at their disposal for failure to comply with applicable legal or regulatory requirements. They can suspend our ability to manufacture and distribute products, require us to initiate product recalls, seize products or impose criminal, civil and administrative sanctions.

Distribution

State Boards of Pharmacy, FDA, DEA and various other state authorities regulate the marketing, purchase, storage and distribution of pharmaceutical and medical products under various federal and state statutes including the federal Prescription Drug Marketing Act of 1987, Drug Quality and Security Act of 2013 (the “DQSA”), and Controlled Substances Act (the "CSA"). The CSA governs the sale, packaging, storage and distribution of controlled substances. Wholesale distributors of controlled substances must hold valid DEA registrations and state-level licenses, meet various security and operating standards including effective anti-diversion programs, and comply with the CSA. They must also comply with state requirements relating to controlled substances that differ from state to state.

The Proposed Settlement Agreement, as described in the Significant Developments in Fiscal 2021 and Trends section in MD&A and Note 7 of the Notes to Consolidated Financial Statements, if it becomes effective, also includes injunctive relief terms related to settling distributors' controlled substance anti-diversion programs, including with respect to: (1) governance; (2) independence and training of the personnel operating our controlled substances monitoring program; (3) due diligence for new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will be selected to oversee compliance with these provisions for a period

of five years. In addition, the settling distributors will engage a third-party vendor to act as a clearinghouse for data aggregation and reporting and will fund the clearinghouse for ten years.

Manufacturing, Sourcing and Marketing

We sell our manufactured products in the United States, Canada, Europe, Asia, Latin America and other markets. The FDA and other governmental agencies in the United States, as well as foreign governmental agencies, administer requirements that cover the design, testing, safety, effectiveness, manufacturing (including good manufacturing practices), quality systems, labeling, promotion and advertising (including restrictions on promoting or advertising a product other than for the product's cleared or approved uses), distribution, importation and post-market surveillance for most of our manufactured products. We are also ~~responsible for compliance with~~

subject to these requirements when we source certain Medical segment products from third-party manufacturers.

We need specific approval or clearance from, and registrations with, regulatory authorities before we can market and sell some products in the United States and certain other countries, including countries in the European Union ("EU").

In the United States, authorization to commercially market a medical device is generally received in one of two ways. The first, known as pre-market notification or the 510(k) process, requires us to demonstrate that a medical device is substantially equivalent to a legally marketed medical device. The second more rigorous process, known as pre-market approval (“PMA”), requires us to independently demonstrate that a medical device is safe and effective. Many of our Medical segment branded products are cleared through the 510(k) process and certain products must be approved through the PMA process.

In the EU, we are required to ~~comply with the Medical Device Directive ("MDD") and~~ obtain CE Mark Certification in order to market medical devices. In 2017, EU regulatory bodies finalized a new Medical Device Regulation ("MDR") ~~which will replace the MDD when it is implemented~~became effective in May 2021. Under the MDR, medical devices marketed in the EU ~~will~~ require significant ~~additional~~ pre-market and post-market ~~requirements, except that devices with valid CE Mark issued before May 2020 can be marketed until May 2024.~~requirements.

It can be costly and time-consuming to obtain regulatory approvals, clearances and registrations of medical devices, and they might not be granted on a timely basis, if at all. Even after we obtain approval or clearance to market a product or obtain product registrations, the product and our manufacturing processes are subject to continued regulatory oversight, including periodic inspection of manufacturing facilities by FDA and other regulatory authorities both in the United States and internationally.

From time to time, we may determine that products we manufacture or market do not meet our specifications, regulatory requirements or published standards. When we or a regulatory agency identify a quality or regulatory issue, we investigate and take appropriate corrective action, which may include recalling the product, correcting the product at the customer location, revising product labeling and notifying customers. For example, in January 2020, we issued a voluntary recall for ~~9.1 million AAMI Level 3~~certain surgical gowns and

Cardinal Health | Fiscal 2021 Form 10-K

two voluntary field actions ~~(a recall of some packs and a corrective action allowing overlabeling of other packs)~~ for ~~2.9 million~~certain Presource Procedure Packs ~~containing affected gowns~~ because one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved ~~sites with uncontrolled environments, resulting in us being unable to assure the sterility of the gowns.~~

sites.

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~

Any adverse regulatory action, depending on its magnitude, may limit our ability to effectively manufacture, source, market and sell our products, limit our ability to obtain future premarket approvals or result in a substantial modification to our business practices and operations. For additional information, please see our Risk Factor entitled "Our business is subject to rigorous quality regulatory and licensing requirements."

Privacy and Data Protection

We are subject to various and evolving privacy laws and regulations in many jurisdictions. Because we collect, handle and maintain patient-identifiable health information, we are subject to laws that require specified privacy and security measures and that regulate the use and disclosure of such information, including the U.S. Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as augmented by the Health Information Technology for Economic and Clinical Health Act as well as state laws, in the United States.

We also collect, handle, and maintain other sensitive personal and financial information. Within the U.S., these activities are regulated by certain federal and state laws. For example, the new California Consumer Privacy Act became effective in January 2020 and grants specified rights to consumers over the use of their personal information, including increased transparency. Other states have adopted or are considering adopting similar or different comprehensive privacy laws. Internationally, we are also subject to privacy and data protection laws that require significant compliance efforts, including the EU's General Data Protection Regulation (GDPR), Canada's Personal Information Protection and Electronic Documents Act (PIPEDA) and Japan's Act on the Protection of Personal Information (APPI), among many others.

Nuclear Pharmacies and Related Businesses

Our nuclear pharmacies and radiopharmaceutical manufacturing facilities (including for Xofigo) require licenses or permits and must abide by regulations issued by the NRC, applicable state boards of pharmacy and the radiologic health agency or department of health of each state in which we operate, including pharmacy sterile compounding standards and practices. In addition, our radiopharmaceutical manufacturing facilities also must comply with FDA regulations, including good manufacturing practices.

Product Tracing and Supply Chain Integrity

Title II of the DQSA, known as the Drug Supply Chain Security Act or "Track and Trace," establishes a phased-in national system for tracing pharmaceutical products through the pharmaceutical distribution supply chain to detect, prevent and rapidly respond to the introduction of drugs that may be counterfeit, diverted, stolen, adulterated, subject of a fraudulent transaction or otherwise unfit for distribution. The first phase of implementation began in 2015, and upon full implementation in 2023, we and other supply chain stakeholders will participate in an electronic, interoperable, prescription drug tracing system. In addition, the FDA also has issued regulations requiring most medical device labeling to bear a unique device identifier. ~~These regulations are being phased in through 2020.~~ The MDR, described above, also introduces a new unique device identifier requirement.


			Cardinal Health \| Fiscal 2021 Form 10-K			37

Government Healthcare Programs

We are subject to U.S. federal healthcare fraud and abuse laws. These laws generally prohibit persons from soliciting, offering, receiving or paying any compensation in order to induce someone to order, recommend or purchase products or services that are in any way paid for by Medicare, Medicaid or other federally-funded healthcare programs. They also prohibit submitting any fraudulent claim for payment by the federal government. There are similar state healthcare fraud and abuse laws that apply to Medicaid and other state-funded healthcare programs. Violations of these laws may result in criminal or civil penalties, as well as breach of contract claims and qui tam actions (false claims cases initiated by private parties purporting to act on behalf of federal or state governments).

Some businesses within each of our segments are Medicare-certified suppliers or participate in other federal and state healthcare

programs, such as state Medicaid programs and the federal 340B drug pricing program. These businesses are subject to accreditation and quality standards and other rules and regulations, including applicable reporting, billing, payment and record-keeping requirements. Other businesses within each segment manufacture pharmaceutical or medical products or repackage pharmaceuticals that are purchased or reimbursed through, or are otherwise governed by, federal or state healthcare programs. Failure to comply with applicable eligibility requirements, standards and regulations could result in civil or criminal sanctions, including the loss of our ability to participate in Medicare, Medicaid and other federal and state healthcare programs. For example, the United States Attorney’s Office for the District of Massachusetts has been conducting an investigation related to discounts and rebates offered or provided to certain Specialty Solutions customers as a result of qui tam actions. For more information on this investigation, see Note 7 to the Consolidated Financial Statements.

Our U.S. federal and state government contracts are subject to specific procurement requirements. Failure to comply with applicable rules or regulations or with contractual or other requirements may result in monetary damages and criminal or civil penalties as well as termination of our government contracts or our suspension or debarment from government contract work.

Environmental, Health and Safety Laws

In the United States and other countries, we are subject to various federal, state and local environmental laws, including laws regulating the production or use of hazardous substances, as well as laws relating to safe working conditions and laboratory practices.

Antitrust Laws

The U.S. federal government, most U.S. states and many foreign countries have laws that prohibit certain types of conduct deemed to be anti-competitive. Violations of these laws can result in various sanctions, including criminal and civil penalties. Private plaintiffs also could bring civil lawsuits against us in the United States for alleged antitrust law violations, including claims for treble damages.

Laws Relating to Foreign Trade and Operations

U.S. and foreign laws require us to abide by standards relating to the import and export of finished goods, raw materials and supplies and the handling of information. We also must comply with various export control and trade embargo laws, which may require licenses or other authorizations for transactions within some countries or with some counterparties.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	30

Similarly, we are subject to U.S. and foreign laws concerning the conduct of our foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other foreign anti-bribery laws. Among other things, these laws generally prohibit companies and their intermediaries from offering, promising or making payments to officials of foreign governments for the purpose of obtaining or retaining business. For example, in February 2020, we paid approximately $8.4 million to the Securities and Exchange Commission to settle charges that our internal controls were not sufficient to detect improper payments made by employees of our former China distribution business.

Cardinal Health | Fiscal ~~2020~~2021 Form 10-K

Although our agreements with manufacturers sometimes require us to maintain inventory levels within specified ranges, our distribution businesses are generally not required by our customers to maintain particular inventory levels other than as needed to meet service level requirements. Certain customer contracts require us to maintain sufficient inventory to meet emergency demands, but we do not believe those requirements materially affect inventory levels.

Our customer return policies generally require that the product be physically returned, subject to restocking fees. We only allow customers to return product for credit that can be added back to inventory and resold at full value, or that can be returned to vendors for credit.

We offer market payment terms to our customers.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			3239

The risks described below could materially and adversely affect our results of operations, financial condition, liquidity or cash flows. These are not the only risks we face. Our businesses also could be affected by risks ~~that~~we do not currently consider material to our operations or of which we are not presently ~~aware of or that we currently consider immaterial to our operations. In addition to the effects of the~~ aware.

COVID-19 pandemic and resulting global disruptions on our business and operations discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the risk factors below, additional or unforeseen effects from the COVID-19 pandemic and the global economic climate may arise or may amplify many of the risks discussed below.Risks

We have been and expect to continue to be negatively affected by the ongoing COVID-19 pandemic.

See the description of the actual and possible effects of the COVID-19 pandemic and resulting disruptions on our business and operations discussed above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition to the adverse impacts and uncertainties from the COVID-19 pandemic identified there, we continue to face additional possible adverse impacts, including those described below.

~~The cost~~During the COVID-19 pandemic, our Medical segment experienced dramatically increased demand for and industry shortages of certain PPE, such as masks, gowns and gloves. This increased demand resulted in increased costs to manufacture and source ~~certain PPE products has significantly increased, which negatively impacted our margins for~~ these products, ~~in fiscal 2020~~ and ~~is expected to negatively impact our Medical segment profit in fiscal 2021. While~~ultimately, higher inventory levels. As a result, we ~~are seeking alternate and~~have sought additional sources for these products and ~~otherwise seeking~~ to mitigate the cost increases, ~~as well as increasing~~we have raised our selling prices for affected products. During the fourth quarter of fiscal year 2021, selling prices and customer demand for certain PPE ~~product prices to reflect some of our higher costs and seeking to modify affected customer contracts, our segment profit may be adversely impacted more significantly than~~declined, which we expect to continue into fiscal year 2022. This has resulted in inventory reserves. Our estimates for demand and selling prices are inherently uncertain and if demand or selling prices or other market dynamics decline in the ~~extent~~future beyond our current assumptions, additional inventory reserves may be required, which would adversely impact Medical segment profit.

Additionally, pricing actions have mitigated the impact of the increased costs to manufacture and source PPE, as a result of the decreased demand and selling price, we may not be successful at continuing to mitigate the impact of these ~~efforts~~increased costs in the future.

Within our Pharmaceutical segment, COVID-19-related volume declines have negatively impacted our Pharmaceutical segment generics program, but are expected to moderate in fiscal year 2022. If demand for these products does not ~~successful. In addition,~~return to pre-COVID-19 levels, or returns more slowly than anticipated, the negative impact could be more prolonged or significant than we ~~could experience decreased sales and customer disputes.~~currently expect.

Federal, state and local government policies and initiatives designed to reduce the transmission of COVID-19 also resulted in the cancellation or deferral of many elective medical procedures and some of our customers closing or severely curtailing their operations. While lower demand for surgical products resulting from reduced elective procedures had an adverse impact on Medical segment profit during the first nine months of fiscal 2021, demand improved during the fourth quarter of fiscal 2021. If

governmental policies designed to reduce the transmission of COVID-19 return and demand for these procedures does not ~~return,~~increase or ~~if these policies remain effective over a sustained period~~decreases further, we could ~~experience a greater decrease in~~have less sales ~~for~~of the affected products and services than we currently expect. Additionally, sustained changes in the manner in which patients access healthcare may result in shifts in consumer preferences that may not be favorable to us.

Political, legal or regulatory actions as a result of the COVID-19 pandemic in jurisdictions where we manufacture, source or distribute products have created supply disruptions within both our Medical and, currently to a lesser extent, our Pharmaceutical segments and from time to time may cause additional supply disruptions or shortages in the future. We cannot currently predict the frequency, duration or scope of these governmental actions and supply disruptions. For example, several countries, including India and China, have increased or instituted new restrictions on the export of medical or pharmaceutical products that we distribute or use in our businesses, including key components or raw materials.~~Additionally,~~

governmental authorities in many countries, including the U.S., are enacting legislative or regulatory changes to address the impact of the pandemic, which may restrict or require changes in our operations, increase our costs, or otherwise have an adverse effect on our operations.

As a critical player in the global healthcare supply chain, we participated in industry-wide collaboration with the U.S. government and other distributors intended to increase the availability of PPE in the U.S. In connection with these efforts, we, along with other distributor participants, have received information requests from several members of the U.S. Congress.

Also, we may become subject to claims or lawsuits by employees, customers, suppliers or other parties regarding actions we take in our operations in response to the pandemic. Financial hardship to our customers and others could adversely impact the timing and collectability of payments to us from customers and require an increase in reserves against our accounts receivable.

We cannot estimate the continued length or severity of the COVID-19 pandemic or the related consequences on the U.S. and global economy and our business and operations, including whether and when normal economic and operating conditions will resume or the extent to which ~~the~~further disruption may impact our business, financial position, results of operations or cash flow. The COVID-19 pandemic has also ~~may give rise to new~~heightened other risks, ~~or heighten many of the risks we have previously identified,~~ including risks associated with competitive pressures, supplier relationships, international operations, regulatory and licensing, changes to the U.S. healthcare environment, cyber security, and access to capital markets. ~~COVID-19 may also adversely affect our operating and financial results in a manner that is not currently known to us or that we do not currently consider a significant risk.~~

~~We could continue to suffer the adverse effects of competitive pressures.~~

As described in greater detail in the "Business" section, we operate in markets that are highly competitive and dynamic. In addition, competitive pressures in our pharmaceutical and medical segments may be increased by new business models, new entrants, new regulations, changes in consumer demand or general competitive dynamics. Our businesses face continued pricing pressure from these factors, which adversely affects our margins. If we are unable to offset margin reductions caused by these pricing pressures through steps such as sourcing or cost control measures, additional service offerings and sales of higher margin products, our results of operations could continue to be adversely affected.

~~Our Pharmaceutical segment’s generic pharmaceutical program may be adversely affected by pricing changes and fewer product launches.~~

The performance of our Pharmaceutical segment’s generic pharmaceutical program declined in fiscal 2019, 2018 and 2017 and increased in fiscal 2020. Declines in earlier years were due, in large part, to generic pharmaceutical customer pricing deflation and less incremental benefit from new generic pharmaceutical launches,

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~

which more than offset the benefits from sourcing generic pharmaceuticals through our Red Oak Sourcing venture with CVS. If performance of our generic pharmaceutical program declines in future fiscal years and we are unable to offset the decline, our Pharmaceutical segment profit and consolidated operating earnings will be adversely affected.

The extent and magnitude of generic pharmaceutical pricing changes is uncertain in future fiscal years and may vary from what we anticipate. Similarly, the number of new generic pharmaceutical launches also varies from year to year, and the margin impact of these launches varies from product to product. Finally, the benefit from Red Oak Sourcing could be less than we anticipate.

~~Changes in manufacturer approaches to pricing branded pharmaceutical products could have an adverse effect on our Pharmaceutical segment’s margins.~~

Compensation under our contractual arrangements with manufacturers for the purchase of branded pharmaceutical products is generally based on the wholesale acquisition cost set by the manufacturer. Sales prices of branded pharmaceutical products to our customers generally are a percentage discount from wholesale acquisition cost.

Historically, pharmaceutical manufacturers have generally increased the wholesale acquisition cost of their branded pharmaceuticals each year. However, the U.S. government has announced plans to, among other things, adopt policies to encourage manufacturers to limit increases in (or reduce) wholesale acquisition cost. In fiscal 2019 and fiscal 2020, manufacturers, in the aggregate, increased prices less than in prior years. If manufacturers change their historical approach to setting and increasing wholesale acquisition cost and we are unable to negotiate alternative ways to be compensated by manufacturers or customers for the value of our services, our Pharmaceutical segment profit and consolidated operating earnings could be adversely affected.

Also, almost all of our distribution services agreements with branded pharmaceutical manufacturers generally provide that we receive fees from the manufacturers to compensate us for services we provide them. However, under a limited number of agreements, branded pharmaceutical price appreciation, which is determined by the manufacturers also serves as a part of our compensation. If manufacturers decide to reduce prices, not to increase prices or to implement only small increases and we are unable to negotiate alternative ways to be compensated by manufacturers or customers for the value of our services, our margins could be adversely affected.Legal, Regulatory & Compliance Risks

The public health crisis involving the abuse of prescription opioid pain medication and our efforts to resolve related claims could have additional or unexpected material negative effects on our business.

Our Pharmaceutical segment distributes prescription opioid pain medications. In recent years, the abuse of prescription opioid pain medication has become a public health crisis.

A significant number of states, counties, municipalities and other public plaintiffs, have filed lawsuits against pharmaceutical manufacturers, pharmaceutical wholesale distributors (including us),

retail chains and others relating to the manufacturing, marketing or distribution of prescription opioid pain ~~medications~~medications. In July 2021, we announced that, as a result of the previously disclosed settlement framework, we and ~~additional~~two other national distributors have negotiated a proposed settlement agreement and settlement process that, if all conditions are satisfied (including the approval of the Board of Directors), would result in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities (the “Proposed Settlement Agreement”). This Proposed Settlement Agreement is subject to contingencies and there is no assurance that a sufficient number of states and subdivisions will agree to the proposed settlement agreement or that the required contingencies will be satisfied. It is possible that we may fail to reach a final settlement. For more information on the proposed settlement and other opioid-related litigation matters, see Note 7 to the Consolidated Financial Statements.

A trial in the case brought by the Ohio Attorney General is scheduled to begin in September 2021 and a trial in the case brought by the Washington Attorney General is scheduled to begin in November 2021. The Ohio Attorney General has issued a press released indicating support for the Proposed Settlement Agreement; however, the Washington Attorney General has issued

Cardinal Health | Fiscal 2021 Form 10-K

a press release stating that Washington will not agree to the Proposed Settlement Agreement. These public ~~plaintiffs~~announcements are ~~likely to file similar lawsuits.~~ not binding and there is no assurance that any state that has made a public announcement of support for the Proposed Settlement Agreement will ultimately execute the Proposed Settlement Agreement. It is also possible that, even if the Proposed Settlement Agreement becomes effective, we could have trials for lawsuits brought by other states or subdivisions as well. West Virginia subdivisions and Native American Tribes are not a part of this settlement process and we are involved in separate negotiations with these groups.

In addition to the claims addressed by the Proposed Settlement Agreement, we are ~~currently~~also being sued by private plaintiffs, such as unions, other health and welfare funds, hospital systems, ~~and~~ other healthcare providers and individuals alleging personal injury for the same activities and could be named as a defendant in additional lawsuits.

We have ~~also~~ received federal grand jury subpoenas issued in connection with investigations being conducted by the U.S. ~~Attorney’s~~Attorney's Office for the Eastern District of New York and by the Fraud Section of the U.S. Department of Justice ~~(DOJ)~~("DOJ"). ~~The subpoenas seek documents and, with respect to the~~We have also received civil requests for information from other DOJ ~~investigation, testimony relating to~~offices. We believe that these investigations concern operation of our anti-diversion program, our anti-diversion policies and procedures, and ~~our~~ distribution of certain controlled substances.

In October 2019, we agreed in principle to a Settlement Framework that would resolve pending and future lawsuits and claims brought by states and political subdivisions. In connection with this development we recorded a pre-tax accrual of $5.56 billion in fiscal 2020. This Settlement Framework is subject to contingencies but is the basis for our negotiation of definitive terms and documentation. Definitive terms of a settlement under the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. The amount of ultimate loss may differ materially from this accrual. See ~~Note 7~~ ~~of the "Notes to Consolidated Financial Statements" for more information regarding these matters.~~

The defense and resolution of current and future lawsuits and ~~events relating to these lawsuits~~investigations are subject to uncertainty and could have a material adverse effect on our results of operations, financial condition, cash flows, liquidity, or our ability to pay dividends or repurchase our shares, beyond the amounts accrued. In addition, they could have adverse reputational or operational effects on our business.

Other legislative, regulatory or industry measures related to the public health crisis involving the abuse of prescription opioid pain medication and the distribution of these medications could affect our business in ways that we may not be able to predict. For example, several states have now adopted or proposed taxes or other fees on the sale of ~~opioids, and several other states have proposed similar legislative initiatives.~~opioids. These laws and proposals vary in the tax amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations unless we are able to mitigate them through operational changes or commercial arrangements where permitted.

Ongoing unfavorable publicity regarding the abuse or misuse of prescription opioid pain medications and the role of wholesale distributors in the supply chain of such prescription medications, as well as the continued proliferation of the opioid lawsuits, investigations, regulations and legislative actions, and unfavorable publicity in relation to those lawsuits could have a material adverse effect on our reputation or results of operations.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	34

~~Products that we manufacture, source and market are~~Our business is subject to ~~strict~~other rigorous quality, regulatory and ~~regulatory~~licensing requirements. The recalls of certain surgical gowns and related Presource Procedure Packs had a negative impact on our financial results in fiscal 2020 and may have additional negative financial and operational impacts.

As described in greater detail in the "Business" section, products that we manufacture, source, distribute or market must comply with quality and regulatory requirements. Noncompliance or

concerns over noncompliance, including noncompliance by third-party contract manufacturers, may result in suspension of our ability to distribute, import, manufacture or source products, as well as product bans, recalls, safety alerts or seizures, or criminal or civil sanctions, which, in turn, could result in product liability claims and lawsuits, including class actions. In addition, it can be costly and time-consuming to obtain regulatory approvals or product registrations to market a medical device or other product, and such approvals or registrations might not be granted on a timely basis, if at all.

In January, 2020, we issued a voluntary recall for 9.1 million AAMI Level 3 surgical gowns and two voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for 2.9 million Presource Procedure Packs containing affected gowns (together, the "Recalls") because one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved sites with uncontrolled environments. Because of this, we could not assure sterility of the gowns.

In connection with the Recalls, in fiscal year 2020, we recorded a total charge of $85 million, of which $48 million is within cost of products sold and $37 million is within SG&A in the consolidated statements of earnings/(loss). See ~~Note 7~~ ~~of the "Notes to Consolidated Financial Statements" for more information regarding these matters.~~

In addition, the Recalls may have other negative impacts, which could include government investigations and enforcement actions by the U.S. Food and Drug Administration or other regulators or U.S. or international governmental bodies, which could possibly result in the suspension or revocation of the authority to produce, distribute and sell products and other civil or criminal sanctions or penalties.

~~Our business is subject to other rigorous regulatory and licensing requirements.~~

~~In addition to regulatory requirements relating to manufacturing, sourcing and marketing our products described in the Risk Factor immediately above and~~Also as described in greater detail in the "Business" section, our business is highly regulated in the United States, at both the federal and state level, and in foreign countries. If we fail to comply with regulatory requirements, or if allegations are made that we fail to comply, our results of operations and financial condition could be adversely affected.

To lawfully operate our businesses, we are required to obtain and hold permits, product registrations, licenses and other regulatory approvals from, and to comply with operating and security standards of, numerous governmental bodies. For example, as a wholesale distributor of controlled substances, we must hold valid DEA registrations and state-level licenses, meet various security and

operating standards, and comply with the CSA. Failure to maintain or renew necessary permits, product registrations, licenses or approvals, or to comply with required standards, could have an adverse effect on our results of operations and financial condition.

We collect, handle and maintain patient-identifiable health information and other sensitive personal and financial information which are subject to federal, state and foreign laws that regulate the use and disclosure of such information. Regulations currently in place continue to evolve, and new laws in this area could further restrict our ability to collect, handle and maintain personal or patient information, or could require us to incur additional compliance costs, either of which could have an adverse impact on our results of operations. Violations of federal, state or foreign laws concerning privacy and data protection could subject us to civil or criminal penalties, breach of contract claims, costs for remediation and harm to our reputation.

We are required to comply with laws relating to healthcare fraud and abuse. The requirements of these laws are complex and subject to varying interpretations. From time to time, regulatory authorities investigate our policies or practices, and may challenge them. ~~If we fail to comply with these laws, we could be~~We are periodically subject to federal or state government investigations or qui tam actions (false claims cases initiated by private parties purporting to act on behalf of federal or state governments), which could result in civil or criminal sanctions, including the loss of licenses or the ability to participate in Medicare, Medicaid and other federal and state healthcare ~~programs.~~programs or other remedial measures. For example, the United States Attorney’s Office for the District of Massachusetts and the Department of Health and Human Services, Officer of Inspector General have been conducting an investigation related to discounts and rebates offered or provided to certain Specialty


			Cardinal Health \| Fiscal 2021 Form 10-K			41

Solutions customers as a result of qui tam actions. For more information on this investigation, see Note 7 to the Consolidated Financial Statements.

Some businesses within each of our segments are Medicare-certified suppliers or participate in other federal and state healthcare programs, such as state Medicaid ~~program~~programs and the federal 340B drug pricing program. In addition, some businesses manufacture pharmaceutical or medical products or repackage pharmaceuticals that are purchased or reimbursed through, or are otherwise governed by, federal or state healthcare programs. Failure to comply with applicable eligibility requirements, standards and regulations could result in civil or criminal sanctions, including the loss of our ability to participate in Medicare, Medicaid and other federal and state healthcare programs.

Industry participants, including us, rely on ethylene oxide (“EtO”) to sterilize certain medical products that we manufacture or distribute. Regulatory actions have been taken by certain environmental regulatory authorities to reduce EtO emissions during the sterilization and distribution process. If such measures become more widespread, we could experience increased costs to comply with reduced emissions standards and it is possible that we and other industry participants may be unable to effectively sterilize medical products, possibly resulting in industry-wide supply shortages or a reduction in surgical or medical procedures. Such increased costs or industry-wide reductions in surgical and medical procedures would have a negative impact on our Medical segment profit. It is also possible that these regulatory actions could adversely impact our ability to procure products to distribute, resulting in increased costs or industry supply disruptions.

Our government contracts are subject to specific procurement requirements. Failure to comply with applicable rules or regulations or with contractual or other requirements may result in monetary damages and criminal or civil penalties as well as termination of our government contracts or our suspension or debarment from government contract work.

Our global operations (including transition services in connection with divestitures) are ~~required~~subject to ~~comply with~~ the U.S. Foreign Corrupt Practices Act ("FCPA"), the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions and U.S. and foreign export control, trade embargo and customs laws. If we fail to comply, or are alleged to fail to comply, with any of these laws, we could be subject to investigations or suffer civil or criminal sanctions. For example, in February 2020, we paid approximately $8.4 million to the Securities and Exchange Commission to settle charges that our internal controls were not sufficient to detect improper payments made by employees of our former China distribution business.

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~

We could be subject to adverse changes in the tax laws or

challenges to our tax positions.

We are a large multinational corporation with operations in the United States and many foreign countries. As a result, we are subject to the tax laws of many jurisdictions.

From time to time, ~~initiatives~~proposals are ~~proposed~~made in the United States and other jurisdictions in which we operate that could adversely affect our tax positions, effective tax rate or tax payments. Specific

initiatives that may impact us include possible increases in U.S. or foreign corporate income tax rates or other changes in tax law to raise revenue, the repeal of the LIFO (last-in, first-out) method of inventory accounting for income tax purposes, the establishment or increase in taxation at the U.S. state level on the basis of gross revenues, recommendations of the recently completed base erosion and profit shifting project undertaken by the Organization for Economic Cooperation and Development and the European Commission’s investigation into illegal state aid.

Additionally, in connection with the $5.63 billion pre-tax charge for the opioid litigation taken in the fiscal year ended June 30, 2020, and the additional $1.17 billion pre-tax charge recorded in fiscal year 2021, we recorded ~~a tax benefit of~~ ~~$488 million, which is~~ net ~~of unrecognized~~ tax benefits of ~~$469~~$488 million, and $228 million, respectively, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant ~~judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the~~judgment.

The U.S. tax law governing deductibility was changed by the Tax ~~Act. Further,~~Act and the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these ~~benefits.~~benefits, or tax law could change again. The actual amount of tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 7 of the "Notes to Consolidated Financial Statements" for more information regarding these matters.

In fiscal year 2021, our provision for income taxes reflects a $424 million benefit from the tax benefits of a net operating loss carryback under the CARES Act. Also as a result of this net operating loss carryback, we have filed for a U.S. federal income tax refund of $974 million. In connection with this net operating loss carryback, certain industry participants, including us, received a letter from the U.S. House of Representatives’ Committee on Oversight and Reform questioning, among other things, our plans to take tax deductions for opioid-related losses, including our use of the net operating loss carryback provisions under the CARES Act and deductibility under the Tax Act. We have responded to the letter. Additionally, legislation has been proposed that would retroactively repeal the net operating loss carryback provision of the CARES Act. If these initiatives are successful, our effective tax rate could be adversely impacted.

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years ~~2008~~2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. Tax authorities have challenged some of our tax positions ~~including IRS challenges to our international transfer pricing~~ for the periods from 2011 to 2014. During fiscal year 2021, we resolved all open matters with the IRS for fiscal years 2008 to 2014, ~~and it is possible that they will challenge others. These challenges~~which also impacted reserves for later years. This resolution has resulted in an adjustment to our provision for income taxes. Proposed adjustments in future audits may adversely affect our effective tax rate or tax payments.

Cardinal Health | Fiscal 2021 Form 10-K

Changes to the U.S. healthcare environment may not be favorable to us.

Over a number of years, the U.S. healthcare industry has undergone significant changes designed to increase access to medical care, improve safety and patient outcomes, contain costs and increase efficiencies. These changes include a general decline in Medicare and Medicaid reimbursement levels, efforts by healthcare insurance companies to limit or reduce payments to pharmacies and providers, the basis for payments beginning to transition from a fee-for-service model to value-based payments and risk-sharing models, and the

industry shifting away from traditional healthcare venues like hospitals and into clinics, physician offices and patients’ homes.

We expect the U.S. healthcare industry to continue to change significantly in the future. Possible changes include further reduction or limitations on governmental funding at the state or federal level, efforts by healthcare insurance companies to further limit payments for products and services or changes in legislation or regulations governing prescription pharmaceutical pricing, healthcare services or mandated benefits. These possible changes, and the uncertainty surrounding these possible changes, may adversely affect us.

Legal proceedings could adversely impact our cash flows or results of operations.

Due to the nature of our business, which includes the distribution of controlled substances and other pharmaceutical products and the sourcing, marketing and manufacturing of medical products, we regularly become involved in disputes, litigation and regulatory matters. Litigation is inherently unpredictable and the unfavorable outcome of legal proceedings could adversely affect our results of operations or financial condition.

For example, we are subject to a number of lawsuits and investigations related to the national health crisis involving the abuse of opioid pain medication as described above in the Risk Factor titled "The public health crisis involving the abuse of prescription opioid pain medication and our efforts to resolve related claims could have additional or unexpected material negative effects on our business" and in Note 7 to the "Notes to Consolidated Financial Statements."

Additionally, some of the products that we distribute or manufacture have been and may in the future be alleged to cause personal injury, subjecting us to product liability claims. For example, we are a defendant in product liability lawsuits that allege personal injuries associated with the use of Cordis OptEase and TrapEase inferior vena cava (IVC) filter products and in lawsuits alleging impurities in the active pharmaceutical ingredients in certain pharmaceutical products. In addition, product liability insurance for these types of claims is becoming more limited and may not be available to us at amounts that we historically have obtained or that we would like to obtain. It is possible that a settlement of or judgment for a product liability claim may not be covered by insurance or exceed available insurance recoveries. If this happens, and if any such settlement or judgment is in excess

of any prior accruals, our results of operations and financial condition could be adversely affected.

We also operate in an industry characterized by extensive intellectual property litigation. Patent litigation can result in significant damage awards and injunctions that could prevent the manufacture and sale of affected products or force us to make royalty payments in order to continue selling the affected products.

Business & Operational Risks

Our business and operations depend on the proper functioning of information systems, business processes, critical facilities and distribution networks.

We rely on our and third-party service providers' information systems for a wide variety of critical operations, including to obtain, rapidly process, analyze and manage data to:

•facilitate the purchase and distribution of inventory items from numerous distribution centers;

•receive, process and ship orders on a timely basis;

•manage accurate billing and collections for thousands of customers;

•process payments to suppliers;

•facilitate manufacturing and assembly of medical products; and

•generate financial information.

Our business also depends on the proper functioning of our and our suppliers' business processes, critical facilities, including our national logistics center, and our distribution networks. Our results of operations could be adversely affected if our or a service provider's business processes, information systems, critical facilities or distribution networks are disrupted (including disruption of access), are damaged or fail, whether due to physical disruptions, such as fire, natural disaster, pandemic (as they have been by the COVID-19 pandemic, as discussed above) or power outage, or due to cyber-security incidents, ransomware or other actions of third parties, including labor strikes or shortages, political unrest and terrorist attacks. Manufacturing disruptions also can occur due to regulatory action, production quality deviations, safety issues or raw material shortages or defects, or because a key product or component is manufactured at a single manufacturing facility with limited alternate facilities.

From time to time, our businesses perform business process improvements or infrastructure modernizations or use service providers for key systems and processes, such as receiving and processing customer orders, customer service and accounts payable. For example, our Pharmaceutical segment is currently engaged in a multi-year project to implement a replacement of certain finance and operating information ~~systems.~~systems and we recently transitioned certain finance processes to a third-party service provider. If any of these initiatives are not successfully or efficiently implemented or maintained, they could adversely affect our business and our internal control over financial reporting.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			3643



Risk Factors

Our business and results of operations could be adversely affected if we experience a cyber-attack or other systems breach.

Our business relies on the secure transmission, storage and hosting of patient-identifiable health information, financial information and other sensitive protected information relating to our customers, company, workforce and ~~workforce.~~individuals with whom we and our customers conduct business. We have programs in place to detect, contain and respond to information security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, hardware, software or applications developed internally or procured from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security.

Unauthorized parties have gained access and will continue to attempt to gain access to our or a service provider's systems or facilities through fraud, trickery or other forms of deception. We have been the target of cyber attacks, including, in prior fiscal years, incidents where certain customer account information was accessed. Although we do not believe these incidents had a material impact on us, similar incidents or events in the future may negatively impact our business, reputation or financial results.

Any compromise of our or a service provider's information systems, including unauthorized access to or use or disclosure of sensitive information, could adversely impact our operations, results of operations or our ability to satisfy legal or regulatory requirements, including the ~~California Consumer Privacy Act (CCPA), the new~~ EU general data protection regulation (GDPR) and those related to patient-identifiable health information and other sensitive personal and financial information as further described in the Risk Factor titled “Our business is subject to rigorous regulatory and licensing requirements,” above.

In addition, insurance for losses arising from cyber-attacks or other breaches is becoming more costly and limited and may not be available to us at amounts that we historically have obtained or that we would like to obtain. It is possible that we could incur losses that may not be covered by insurance or that would exceed available insurance recoveries. If this happens, our results of operations and financial condition could be adversely affected.

Our sales and credit concentration is significant.

CVS is a large customer that generates a significant amount of our revenue. CVS accounted for 26 percent of our fiscal 2021 revenue and 24 percent of our gross trade receivable balance at June 30, 2021. If CVS terminates the agreements due to an alleged default by us, defaults in payment or significantly reduces its purchases from us, our results of operations and financial condition could be adversely affected.

Our results of operations could be adversely impacted if we fail to manage and complete divestitures.

We regularly evaluate our portfolio of businesses to determine whether an asset or business may no longer help us meet our objectives or whether there may be a more advantaged owner for

that business. For example, we recently completed the divestiture of our Cordis business, and in the past few years, we have also divested our pharmaceutical and medical products distribution business in China and our ownership interest in naviHealth, Inc. When we decide to sell assets or a business, we may encounter difficulty finding buyers or alternative exit strategies, which could delay the achievement of our strategic objectives. We could also incur higher costs or charges than planned or incur unexpected charges and could experience greater dis-synergies than expected, which could have a negative impact on our results of operations.

Our ability to manage and complete acquisitions could impact our strategic objectives and financial condition.

An important element of our growth strategy has been to acquire other businesses that expand or complement our existing businesses. Completion of acquisitions and the integration of acquired businesses involve a number of risks, including the following: we may overpay for a business or fail to realize the synergies and other benefits we expect from the acquisition; our management’s attention may be diverted to integration efforts; we may fail to retain key personnel of the acquired business; future developments may impair the value of our purchased goodwill or intangible assets; we may face difficulties or delays establishing, integrating or combining operations and systems, including manufacturing facilities; we may assume liabilities related to legal proceedings involving the acquired business; we may face challenges retaining the customers of the acquired business; or we may encounter unforeseen internal control, regulatory or compliance issues.

Our goodwill may be impaired, which would require us to record a significant charge to earnings in accordance with generally accepted accounting principles.

U.S. GAAP requires us to test our goodwill for impairment on an annual basis, or more frequently if indicators for potential impairment exist. For our annual impairment test in fiscal 2021, the fair value of the Medical Unit (which includes the Cordis disposal group) exceeded its carrying value by approximately three percent. This testing involves estimates and significant judgments by management. Additional adverse changes in key assumptions, including current assumptions about the impact of the Cordis divestiture and the COVID-19 pandemic, including estimated demand and selling prices for PPE; an increase in the discount rate; a decrease in the terminal growth rate or increases in tax rates, among other things, could result in a goodwill impairment in our Medical Unit. For example, if we were to increase the discount rate by a hypothetical 0.5 percent, the carrying value of our Medical Unit would have exceeded the fair value by approximately one percent in fiscal 2021.

It is also possible that we may record significant charges related to other reporting units. Any charge or charges could adversely affect our results of operations. See "Critical Accounting Policies and Sensitive Accounting Estimates" in MD&A above for more information regarding goodwill impairment testing.


44			Cardinal Health \| Fiscal 2021 Form 10-K


Risk Factors

Industry & Economic Risks

We could continue to suffer the adverse effects of competitive pressures.

As described in greater detail in the "Business" section, we operate in markets that are highly competitive and dynamic. In addition, competitive pressures in our pharmaceutical and medical segments may be increased by COVID-19, new business models, new entrants, new regulations, changes in consumer demand or general competitive dynamics. Our businesses face continued pricing pressure from these factors, which adversely affects our margins. If we are unable to offset margin reductions caused by these pricing pressures through steps such as sourcing or cost control measures, additional service offerings and sales of higher margin products, our results of operations could continue to be adversely affected.

Our Pharmaceutical segment’s profit margin could be adversely affected by changes in industry or market dynamics that we are not able to accurately predict.

In fiscal year 2021, our Pharmaceutical segment’s generics program was negatively impacted by volume declines. As has been the case for several years, the frequency, timing, magnitude and profit impact of generic pharmaceutical customer purchase volumes, pricing changes, customer contract renewals, generic pharmaceutical launches, and generic pharmaceutical manufacturer pricing changes remain uncertain as does their impact on Pharmaceutical segment profit and consolidated operating earnings. These factors have contributed to declines in some prior years and have more than offset the benefits from sourcing generic pharmaceuticals through our Red Oak Sourcing venture with CVS. If performance of our generic pharmaceutical program declines in future fiscal years and we are unable to offset the decline, our Pharmaceutical segment profit and consolidated operating earnings will be adversely affected.

With respect to branded pharmaceutical products, compensation under our contractual arrangements with manufacturers for the purchase of branded pharmaceutical products is generally based on the wholesale acquisition cost set by the manufacturer. Sales prices of branded pharmaceutical products to our customers generally are a percentage discount from wholesale acquisition cost.

Also, almost all of our distribution services agreements with branded pharmaceutical manufacturers provide that we receive fees from the manufacturers to compensate us for services we provide them. However, under certain agreements, branded pharmaceutical price appreciation, which is determined by the manufacturers also serves as a part of our compensation. In recent years, manufacturers have increased prices less than in prior years. If manufacturers, in the aggregate, change their historical approach to setting and increasing wholesale acquisition cost, decide to reduce prices, not to increase prices or to implement only small increases and we are unable to negotiate alternative ways to be compensated by manufacturers or customers for the value of our services, our margins could be adversely affected.

We depend on direct and indirect suppliers to make their products and raw materials available to us and are subject to fluctuations in costs, availability and ~~availability of~~regulatory risks associated with these products and raw materials.

We depend on others to manufacture some products that we market and distribute. Our operations are also dependent on various components, compounds, raw materials and energy supplied by others. We purchase many of these components, raw materials and energy, and source certain products from numerous suppliers in various countries. In some instances, for reasons of quality assurance, cost effectiveness, or availability, we procure certain components and raw materials from a sole supplier. ~~Any of our~~Our supplier relationships could be interrupted, become less favorable to us or be terminated and the supply of these components, compounds, raw materials or products could be interrupted or become insufficient. These ~~risks are currently heightened with respect to certain PPE products due to the current and expected future demand for such products. These~~ supply interruptions or other disruptions in manufacturing processes could be caused by events beyond our control, including natural disasters, supplier facility shut-downs, defective raw materials, the impact of epidemics or

pandemics, such as COVID-19, and actions by U.S. or international governments, including export restrictions or tariffs.

In addition, due to the stringent regulatory requirements regarding the manufacture and sourcing of our products, we may not be able to quickly establish additional or replacement sources for certain components, materials or products. A sustained supply reduction or interruption, and an inability to develop alternative and additional sources for such supply, could result in lost sales, increased cost, damage to our reputation, and may have an adverse effect on our business.

Our manufacturing businesses use oil-based resins, pulp, cotton, latex and other commodities as raw materials in many products. Prices of oil and gas also affect our distribution and transportation costs. Prices of these commodities are volatile and can fluctuate significantly, causing our costs to produce and distribute our products to fluctuate. Beginning in the fourth quarter of fiscal year 2021, we have experienced higher supply chain costs, primarily related to the sourcing of certain components, compounds, raw materials and commodities. Due to competitive dynamics and contractual limitations, we may be unable to pass along cost increases through higher prices. If we cannot fully offset cost increases through other cost reductions, or recover these costs through price increases or surcharges, our results of operations could continue to be adversely affected.

Consolidation in the U.S. healthcare industry may negatively impact our results of operations.

In recent years, U.S. healthcare industry participants, including distributors, manufacturers, suppliers, healthcare providers, insurers and pharmacy chains, have consolidated or formed strategic alliances. Consolidations create larger enterprises with greater negotiating power, and also could result in the possible loss of a customer where the combined enterprise selects one distributor from two incumbents. If this consolidation trend continues, it could adversely affect our results of operations.


			Cardinal Health \| Fiscal 2021 Form 10-K			45


Risk Factors

Changes or uncertainty in U.S. or international trade policiesand exposure to economic, political and currency risks, could disrupt our global operations or negatively impact our financial results.

We conduct our operations in various regions of the world outside of the United States, including Europe, Asia and Latin America. Global developments can affect our business in many ways. Our global operations are affected by local economic environments, including inflation, recession and competition. Additionally, divergent or unfamiliar regulatory systems and labor markets can increase the risks and burdens of operating in numerous countries.

Our foreign operations expose us to a number of risks related to trade protection laws, tariffs, excise or other border taxes on goods sourced from certain countries or on the importation or exportation of products or raw materials. Changes or uncertainty in U.S. or international trade policies or tariffs could impact our global operations, as well as our customers and suppliers. We may be required to spend more money to source certain products or materials that we need or to manufacture certain of our products. This could adversely impact our business and results of operations.

As a result of the COVID-19 pandemic, many governments, including the U.S., China and India have, or have considered, restrictions on exports of medical and pharmaceutical products. If these restrictions are implemented or not lifted, we may experience a significant disruption in our ability to source pharmaceutical and medical products and could experience increased prices and lost sales.

In addition, we conduct our business in U.S. dollars and various functional currencies of our foreign subsidiaries. Changes in foreign currency exchange rates could adversely affect our financial results, which are reported in U.S. dollars. We may not be able to hedge to protect us against these exposures, and any hedges may not successfully mitigate these exposures.



3746			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



~~Risk Factors~~

~~Our sales and credit concentration is significant.~~

CVS is a large customer that generates a significant amount of our revenue. CVS accounted for 26 percent of our fiscal 2020 revenue and 26 percent of our gross trade receivable balance at June 30, 2020. If CVS does not renew our agreements, terminates the agreements due to an alleged default by us, defaults in payment or significantly reduces its purchases from us, our results of operations and financial condition could be adversely affected.

~~Consolidation in the U.S. healthcare industry may negatively impact our results of operations.~~

~~Legal proceedings could adversely impact our cash flows or results of operations.~~

Due to the nature of our business, which includes the distribution of controlled substances and other pharmaceutical products and the sourcing, marketing and manufacturing of medical products, we regularly become involved in disputes, litigation and regulatory matters. Litigation is inherently unpredictable and the unfavorable outcome of one or more of these legal proceedings could adversely affect our results of operations or financial condition.

For example, we are subject to a number of lawsuits and investigations related to the national health crisis involving the abuse of opioid pain medication as described above in the Risk Factor titled "The public health crisis involving the abuse of prescription opioid pain medication and our efforts to resolve related claims could have additional or unexpected material negative effects on our business" and in ~~Note 7~~ ~~to the "Notes to Consolidated Financial Statements."~~

~~of affected products or force us to make royalty payments in order to continue selling the affected products.~~

~~Our results of operations could be adversely impacted if we fail to manage and complete divestitures.~~

We regularly evaluate our portfolio of businesses to determine whether an asset or business may no longer help us meet our objectives or whether there may be a more advantaged owner for that business. For example, in the past few years, we divested our pharmaceutical and medical products distribution business in China and our ownership interest in naviHealth, Inc. When we decide to sell assets or a business, we may encounter difficulty finding buyers or alternative exit strategies, which could delay the achievement of our strategic objectives. We could also experience greater dis-synergies than expected and the impact of the divestiture on our results of operations could be greater than anticipated.

~~Our ability to manage and complete acquisitions could impact our strategic objectives and financial condition.~~

~~We may not realize the expected benefits from planned cost-savings and business improvement initiatives.~~

As a part of an ongoing effort to optimize and simplify our operating model, we expect to transition portions of our finance operations to a global professional services firm and we are making structural changes to certain other functional and commercial areas of our organization as well. Additionally, our Pharmaceutical segment is in a multi-year project to implement a replacement of certain finance and operating information systems. These initiatives, and any similar initiatives identified and implemented in the future, could result in unexpected charges and expenses that negatively impact our financial results and we could fail to achieve the desired efficiencies and estimated cost savings. In addition, if we are not able to effectively implement these initiatives, or if they fail to operate as intended, our internal control over financial reporting could be adversely affected.

Additionally, these types of initiatives could yield unintended consequences such as distraction of management and employees, business disruption, an inability to attract or retain key personnel, which could negatively affect our business or financial condition and results of operations.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	38



~~Risk Factors~~

If we are not able to effectively develop, implement and manage our outsourcing or similar third-party relationships, we may experience operational difficulties and increased costs, which may adversely affect our results of operations.

~~Our goodwill may be further impaired, which would require us to record a significant charge to earnings in accordance with generally accepted accounting principles.~~

U.S. GAAP requires us to test our goodwill for impairment on an annual basis, or more frequently if indicators for potential impairment exist. In the fourth quarter of fiscal year 2018, we recorded a $1.4 billion impairment to goodwill within our Medical segment. The testing required by GAAP involves estimates and significant judgments by management. Although we believe our assumptions and estimates are reasonable and appropriate, any changes in key assumptions, including a failure to meet business plans or other unanticipated events and circumstances such as a rise in interest rates, may affect the accuracy or validity of such estimates. It is possible that we may record significant charges related to other reporting units or we may record additional charges in our Medical segment, which charge or charges could adversely affect our results of operations. See "Critical Accounting Policies and Sensitive Accounting Estimates" in MD&A above for more information regarding goodwill impairment testing.



39	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



Properties and Legal Proceedings

Properties

In the United States, at June 30, ~~2020,~~2021, the Pharmaceutical segment operated one national logistics center; a number of primary pharmaceutical and specialty distribution facilities as well as nuclear pharmacy and radiopharmaceutical manufacturing facilities.The Medical segment operated medical-surgical distribution, assembly, manufacturing and other operating facilities in the United States.

At June 30, ~~2020,~~2021, our Medical segment also operated manufacturing facilities in ~~the United States, including Puerto Rico,~~ Canada, Costa Rica, the Dominican Republic, Germany, Ireland, Japan, Malaysia, Malta, Mexico and Thailand.

Our principal executive offices are headquartered in an owned building located at 7000 Cardinal Place in Dublin, Ohio.

We consider our operating properties to be in satisfactory condition and adequate to meet our present needs. However, we regularly evaluate operating properties and may make further additions and improvements or consolidate locations as we seek opportunities to expand or enhance the efficiency of our business.


			Cardinal Health \| Fiscal 2021 Form 10-K			47


Properties and Legal Proceedings

Legal Proceedings

In addition to the proceedings described below, the legal proceedings described in Note 7 of the "Notes to Consolidated Financial Statements" are incorporated in this "Legal Proceedings" section by reference.

In June 2019, Melissa Cohen, a purported shareholder, filed an action on behalf of Cardinal Health, Inc. in the U.S. District Court for the Southern District of Ohio against certain current and former members of our Board of Directors alleging that the defendants breached their fiduciary duties by failing to effectively monitor Cardinal Health's distribution of controlled ~~substances.~~substances and approving certain payments of executive compensation. In December 2019 and January 2020, similar complaints were filed in the U.S. District Court for the Southern District of Ohio by purported shareholders, Stanley M. Malone and Michael Splaine, respectively. In January, 2020, the court consolidated the derivative cases under the caption In re Cardinal Health, Inc. Derivative Litigation and in March 2020, plaintiffs filed an amended complaint. The amended consolidated derivative complaint seeks, among other things, unspecified money damages against the defendants and an award of attorneys' fees. In ~~June 2020,~~February 2021, the ~~defendants filed a~~court granted in part and denied in part defendants' motion to dismiss. The court dismissed the claim with respect to executive compensation but declined to dismiss the ~~complaint.~~

failure to monitor claim.



48	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	40



Market for Registrant's Common Equity

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are listed on the New York Stock Exchange under the symbol “CAH.”

At July 31, ~~2020~~2021 there were approximately ~~7,324~~7,102 shareholders of record of our common shares.

We anticipate that we will continue to pay quarterly cash dividends in the future. The payment and amount of future dividends remain, however, within the discretion of our Board of Directors and will depend upon our future earnings, financial condition, capital requirements and other factors.

Issuer Purchases of Equity Securities




Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs (2)	Approximate Dollar Value of Shares That May Yet be Purchased Under the Programs (2) (in millions)
April 2021	1,311	$	60.84	—	$	743
May 2021	101	56.34		—	743
June 2021	304	57.03		—	743
Total	1,716	$	59.90	—	$	743

(1)Reflects 1,311, 101 and 304 common shares purchased in April, May and June 2021, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.

(2)On November 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2021. As of June 30, 2021, we have $743 million authorized for share repurchases remaining under this program.

Period Total Number
of Shares
Purchased (1) Average Price Paid per Share Total Number of Shares
Purchased
as Part of Publicly Announced Programs (2)
Approximate
Dollar Value of
Shares That May
Yet be Purchased
Under the Programs (2)
(in millions)
April 2020 1,406
$ 49.91
—
$ 943
May 2020 325
51.44
—
943
June 2020 217
52.38
—
943
Total 1,948
$ 50.44
—
$ 943


~~(1)~~	~~Reflects 1,406, 325 and 217 common shares purchased in April, May and June 2020, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.~~


~~(2)~~	On November 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2021. As of June 30, 2020, we have $943 million authorized for share repurchases remaining under this program.



41	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	49



Market for Registrant's Common Equity

Five Year Performance Graph

The following line graph compares the cumulative total return of our common shares with the cumulative total return of the Standard & Poor’s Composite—500 Stock Index (the "S&P 500 Index") and the Standard & Poor's Composite—500 Healthcare Index (the "S&P 500 Healthcare Index"). The line graph assumes, in each case, an initial investment of $100 invested at the closing price on June 30, ~~2015,~~2016, and is based on the market prices at the end of each fiscal year through and including June 30, ~~2020,~~2021, and reinvestment of dividends. The S&P 500 Index and S&P 500 Healthcare Index investments are weighted on the basis of market capitalization at the beginning of each period.

June 30
2015 2016 2017 2018 2019 2020
Cardinal Health, Inc. $ 100.00
$ 95.12
$ 97.26
$ 62.90
$ 63.11
$ 72.70
S&P 500 Index 100.00
103.99
122.60
140.23
154.83
166.45
S&P 500 Healthcare Index 100.00
97.98
110.19
118.02
133.35
147.89


	June 30
	2016		2017		2018		2019		2020		2021
Cardinal Health, Inc.	$	100.00	$	102.25	$	66.12	$	66.34	$	76.43	$	86.65
S&P 500 Index	100.00		117.89		134.82		148.86		160.01		225.25
S&P 500 Healthcare Index	100.00		112.47		120.46		136.11		150.95		193.09



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	42



~~Reports~~ 50			Cardinal Health \| Fiscal 2021 Form 10-K


Reports

Management Reports

Evaluation of Disclosure Controls and Procedures

We evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, ~~2020.~~2021. Based on this evaluation, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were effective as of June 30, ~~2020~~2021 to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, controls deemed effective now may become inadequate in the future because of changes in conditions, or because compliance with policies or procedures has deteriorated or been circumvented.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, ~~2020.~~2021. In making this assessment, management used the criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Based on management’s assessment and the COSO criteria, management believes that our internal control over financial reporting was effective as of June 30, ~~2020.~~2021.

Our independent registered public accounting firm, Ernst & Young LLP, has issued a report on our internal control over financial reporting. Ernst & Young LLP’s report appears following this "Management Reports" section and expresses an unqualified opinion on the effectiveness of our internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Implementation of Business Improvement Initiatives~~Pharmaceutical Segment Information Technology Initiative

We have certain business improvement initiatives underway that we expect to affect internal control over financial reporting in fiscal year 2021. During fiscal year 2021, as a part of an ongoing effort to optimize and simplify our operating model, we expect to transition portions of our finance operations to a global professional services firm. Additionally, theThe Pharmaceutical segment is in a multi-year project to implement a replacement of certain finance and operating information systems. During the fiscal year ended June 30, 2021, we transitioned selected processes to the new systems and expect that we will transition additional processes to the new systems throughout fiscal year 2022. If ~~either of~~ these ~~initiatives~~new systems are not effectively implemented, or fail to operate as intended, it could adversely affect ~~our~~ internal control over financial reporting.



43	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	51

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

The Shareholders and the Board of Directors of Cardinal Health, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Cardinal Health, Inc. and subsidiaries’ internal control over financial reporting as of June 30, ~~2020~~,2021, based on criteria established in Internal ~~Control-Integrated~~Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Cardinal Health, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, ~~2020~~,2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, ~~2020~~2021 and ~~2019~~,2020, the related consolidated statements of earnings/(loss), comprehensive income/(loss), shareholders' equity and cash flows for each of the three years in the period ended June 30, ~~2020~~,2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated August ~~13, 2020~~16, 2021 expressed an unqualified opinion thereon.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP

~~Grandview Heights, Ohio~~
~~August 13, 2020~~


				Grandview Heights, Ohio
			~~Cardinal Health~~ August 16, 2021\| ~~Fiscal 2020 Form 10-K~~	44



~~Reports~~ 52			Cardinal Health \| Fiscal 2021 Form 10-K


Reports

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Cardinal Health, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries (the Company) as of June 30, ~~2020~~2021 and ~~2019,~~2020, the related consolidated statements of earnings/(loss), comprehensive income/(loss), shareholders' equity and cash flows for each of the three years in the period ended June 30, ~~2020,~~2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, ~~2020~~2021 and ~~2019,~~2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, ~~2020,~~2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, ~~2020,~~2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August ~~13, 2020~~16, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.



	Medical Unit Goodwill
Description of the Matter		At June 30, ~~2020,~~2021, goodwill related to the Company’s Medical segment, including the Medical Unit was ~~$5.7~~$5.3 billion. As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. Auditing management’s goodwill impairment test for the Medical Unit was challenging because there is significant judgement required in determining the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant judgmental assumptions including the revenue growth rate, gross margin, distribution, selling, general and administrative expenses, and company specific risk premium, which are affected by expectations about future market or economic conditions.


			Cardinal Health \| Fiscal 2021 Form 10-K			53


Reports


How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. For example, we tested controls over management’s review of significant judgmental assumptions, including the revenue growth rate, gross margin, distribution, selling, general and administrative expenses, and company specific risk premium, among other assumptions. To test the estimated fair value of the Company’s Medical Unit, we performed audit procedures that included, among others, evaluating methodologies used, involving our valuation specialists in testing the significant assumptions described above and testing the underlying data used by the Company in its analysis for completeness and accuracy. We compared the significant assumptions used by management to current industry and economic trends, recent historical performance, changes to the reporting unit’s business model, customer base or product mix and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We evaluated the incorporation of the applicable assumptions into the model and tested the model’s computational accuracy. In addition, we inspected the Company’s reconciliation of the fair value of all reporting units to the market capitalization of the Company and assessed the result.



45	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~Reports~~



	Product Liability Lawsuits
Description of the Matter		As described in Note 1 and Note 7 to the consolidated financial statements, the Company is a defendant in various product liability claims in which individuals seek damages associated with the use of Cordis OptEase and TrapEase inferior vena cava (IVC) filter products. The Company accrues for losses and defense costs related to product liability at the time a loss is probable and the amount of loss can be reasonably estimated. The methodology used by the Company to project future Cordis IVC claim costs is based largely on recent experience, including claim filing rates, indemnity severity by claim type, sales data, implant and injury to report lag patterns, and defense costs. The Company periodically reviews such estimates and records adjustments for changes in reserves in the period in which the change in estimate occurs. At June 30, ~~2020,~~2021, the Company’s product liability reserve balance related to the Cordis IVC lawsuits totaled ~~$468~~$524 million, net of estimated insurance recoveries. The Company believes there is a range of estimated losses with respect to these matters. Because no amount within the range is a better estimate than any other amount within the range, the Company has accrued the minimum amount in the range. The Company estimates the high end of the range to be approximately ~~$919 million,~~$1.03 billion net of estimated insurance recoveries. Auditing management’s accounting for and disclosure of loss contingencies related to the Cordis IVC product liability lawsuits was challenging due to the significant judgment required to develop the key assumptions utilized in the model and the nature of information available given the early stages of these lawsuits and the limited claims history.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s evaluation of the product liability litigation reserve. For example, we tested controls over management’s review of the model used to estimate the product liability reserve amount and the significant assumptions as described above used within the model. We also tested management’s controls over the completeness and accuracy of the data used in the model. To test management’s assessment of the probability of occurrence of a loss and whether the loss was reasonably estimable, we evaluated, for example, claims data of the Company, we evaluated the legal letters obtained from internal and external legal counsel, and we discussed with internal and external legal counsel of the plaintiffs’ claims. Among other procedures we performed to test the measurement of the product liability litigation reserve, we evaluated the method of measuring the reserve for claims including analyses to determine the range of possible losses, obtained and performed audit procedures relative to the analysis, tested the accuracy and completeness of the data, and evaluated new or contrary information affecting the estimate. In addition, we involved internal actuarial specialists to assist with our procedures related to the measurement of the product liability reserve. We have also assessed the adequacy of the Company’s disclosures included in Note 7 in relation to these matters.
		Uncertain Tax Positions
Description of the Matter		As described in Note 8 to the consolidated financial statements, the Company’s unrecognized tax benefits related to its uncertain tax positions were approximately ~~$998~~$932 million at June 30, ~~2020.~~2021. Uncertain tax positions may arise as tax laws are subject to interpretation. The Company uses significant judgment in (1) determining if the tax position is more likely than not to be sustained upon examination, based on the technical merits of the position and (2) measuring the amount of tax benefit that qualifies for recognition. Auditing management's estimate of the amount of tax benefit related to the Company's uncertain tax positions that qualified for recognition was challenging because management's estimate required significant judgment in evaluating the technical merits of the positions, including interpretations of applicable tax laws and regulations.


54			Cardinal Health \| Fiscal 2021 Form 10-K


Reports


How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to assess the technical merits of its uncertain tax positions, including the Company’s assessment as to whether a tax position is more likely than not to be sustained and management’s process to measure the benefit of its tax positions. We involved our international tax, transfer pricing, and national tax professionals in assessing the technical merits of certain of the Company’s tax positions. Depending on the nature of the specific tax position and, where applicable, developments with the relevant tax authorities relating thereto, our procedures included obtaining and examining the Company’s analysis. For example, we evaluated the underlying facts upon which the tax positions are based, and, where applicable, obtained the Company’s correspondence with local tax authorities. We used our knowledge of international and local income tax laws, as well as historical settlement activity, where applicable, with local income tax authorities, to evaluate the Company’s accounting for its uncertain tax positions. We evaluated developments in the applicable tax jurisdictions to assess potential effects on the Company’s positions. We analyzed the Company’s assumptions and data used to evaluate the appropriateness of the Company’s measurement of tax benefits. We have also evaluated the Company’s income tax disclosures in relation to these matters.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	46



~~Reports~~



	Opioid Lawsuits
Description of the Matter		As discussed in Note 7 to the consolidated financial statements, the Company is a defendant in numerous lawsuits brought by certain state governments, Native American tribes, and other political subdivisions related to opioid matters. The Company accrues for losses related to legal matters at the time a loss is probable and the amount of loss can be reasonably estimated. In ~~October 2019,~~July 2021, the Company ~~agreed in principal to~~negotiated a global proposed settlement ~~framework~~agreement (the ~~“Settlement Framework”). The~~“Proposed Settlement ~~Framework~~Agreement”), however, the Proposed Settlement Agreement is subject to ~~contingencies~~contingencies. In addition, the Native American tribes and ~~uncertainties as to final terms, however, it is~~certain other sub-divisions are not included within the ~~basis for the Company’s negotiation of definitive terms.~~Proposed Settlement Agreement and are negotiated separately. The Company has accrued ~~$5.56~~$6.73 billion pretax under the cash component of the Proposed Settlement ~~Framework~~Agreement and for negotiations with Native American tribes and other sub-divisions as of June 30, ~~2020 and~~2021. The Company is unable to reasonably estimate the liability associated with other ~~components.~~plaintiffs that are not subject to the Proposed Settlement Agreement or other ongoing negotiations. Additionally, management is unable to estimate the range of possible loss associated with these matters. Auditing the Company’s accounting for, and disclosure of, loss contingencies related to the opioid lawsuits was challenging due to the significant judgment required to evaluate management’s assessment of the likelihood of a loss being incurred and management’s determination of whether a reasonable estimate of the range of loss can be made.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the identification and evaluation of this legal contingency. For example, we tested controls over management’s review of the assessment of the probability of occurrence of a loss and whether the loss was reasonably estimable and whether the assessment considered all relevant facts. To test the Company’s assessment of the probability of a loss and whether the loss was reasonably estimable, among other procedures, we read the Proposed Settlement ~~Framework,~~Agreement, requested and received internal and external legal counsel confirmation letters, met with internal counsel to discuss the status of the proceedings and negotiations of the Proposed Settlement ~~Framework,~~Agreement and negotiations with other plaintiffs, and evaluated the reasonableness of management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable. We also assessed the adequacy and the sufficiency of the Company’s disclosures included in Note 7 in relation to these matters.



/s/ Ernst & Young LLP
We have served as the Company's auditor since 2002.
Grandview Heights, Ohio
August ~~13, 2020~~16, 2021



47	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	55



Financial Statements

Financial Statements and Supplementary Data


			Page

			~~Page~~

Consolidated Financial Statements and Schedule:
Consolidated Statements of Earnings/(Loss) for the Fiscal Years Ended June 30, 2021, 2020 ~~2019~~ and ~~2018~~2019			4957
Consolidated Statements of Comprehensive Income/(Loss) for the Fiscal Years Ended June 30, 2021, 2020 ~~2019~~ and ~~2018~~2019			5058
Consolidated Balance Sheets at June 30, ~~2020~~2021 and ~~2019~~2020			5159
Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended June 30, 2021, 2020, ~~2019,~~ and ~~2018~~2019			5260
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2021, 2020 ~~2019~~ and ~~2018~~2019			5361
Notes to Consolidated Financial Statements			5462



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	48



~~Financial Statements~~

~~Consolidated Statements of Earnings/(Loss)~~

(in millions, except per common share amounts) 2020 2019 2018
Revenue $ 152,922
$ 145,534
$ 136,809
Cost of products sold 146,054
138,700
129,628
Gross margin 6,868
6,834
7,181

Operating expenses:
Distribution, selling, general and administrative expenses 4,572
4,480
4,596
Restructuring and employee severance 122
125
176
Amortization and other acquisition-related costs 524
621
707
Impairments and (gain)/loss on disposal of assets, net 7
(488 ) 1,417
Litigation (recoveries)/charges, net 5,741
36
159
Operating earnings/(loss) (4,098 ) 2,060
126

Other (income)/expense, net (1 ) 15
23
Interest expense, net 238
294
329
Loss on early extinguishment of debt 16
—
2
Gain on sale of equity interest in naviHealth

(579 ) —
—
Earnings/(loss) before income taxes (3,772 ) 1,751
(228 )

Provision for/(benefit from) income taxes (79 ) 386
(487 )
Net earnings/(loss) (3,693 ) 1,365
259

Less: Net earnings attributable to noncontrolling interests (3 ) (2 ) (3 )
Net earnings/(loss) attributable to Cardinal Health, Inc. $ (3,696 ) $ 1,363
$ 256

Earnings/(loss) per common share attributable to Cardinal Health, Inc.
Basic $ (12.61 ) $ 4.55
$ 0.82
Diluted (12.61 ) 4.53
0.81

Weighted-average number of common shares outstanding:
Basic 293
300
313
Diluted 293
301
315

~~The accompanying notes are an integral part of these consolidated statements.~~



4956			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



Financial Statements

Consolidated Statements of ~~Comprehensive Income/~~Earnings/(Loss)

(in millions) 2020 2019 2018
Net earnings/(loss) $ (3,693 ) $ 1,365
$ 259

Other comprehensive income/(loss):
Foreign currency translation adjustments and other 3
18
58
Amounts reclassified to earnings —
—
(23 )
Net unrealized gain/(loss) on derivative instruments, net of tax (28 ) (5 ) (2 )
Total other comprehensive income/(loss), net of tax (25 ) 13
33

Total comprehensive income/(loss) (3,718 ) 1,378
292

Less: comprehensive income attributable to noncontrolling interests (3 ) (2 ) (3 )
Total comprehensive income/(loss) attributable to Cardinal Health, Inc. $ (3,721 ) $ 1,376
$ 289

~~The accompanying notes are an integral part of these consolidated statements.~~



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	50



~~Financial Statements~~

~~Consolidated Balance Sheets~~

June 30
(in millions) 2020 2019
Assets
Current assets:
Cash and equivalents $ 2,771
$ 2,531
Trade receivables, net 8,264
8,448
Inventories, net 13,198
12,822
Prepaid expenses and other 1,707
1,946
Total current assets 25,940
25,747

Property and equipment, net 2,366
2,356
Goodwill and other intangibles, net 11,275
11,808
Other assets 1,185
1,052
Total assets $ 40,766
$ 40,963

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 21,374
$ 21,535
Current portion of long-term obligations and other short-term borrowings 10
452
Other accrued liabilities 2,231
2,122
Total current liabilities 23,615
24,109

Long-term obligations, less current portion 6,765
7,579
Deferred income taxes and other liabilities 8,594
2,945

Shareholders’ equity:
Preferred shares, without par value:
Authorized—500 thousand shares, Issued—none
—
—
Common shares, without par value:
Authorized—755 million shares, Issued—327 million shares at June 30, 2020 and 2019, respectively
2,789
2,763
Retained earnings 1,170
5,434
Common shares in treasury, at cost: 34 million shares and 28 million shares at June 30, 2020 and 2019, respectively
(2,066 ) (1,790 )
Accumulated other comprehensive loss (104 ) (79 )
Total Cardinal Health, Inc. shareholders' equity 1,789
6,328
Noncontrolling interests 3
2
Total shareholders’ equity 1,792
6,330
Total liabilities and shareholders’ equity $ 40,766
$ 40,963

~~The accompanying notes are an integral part of these consolidated statements.~~



51	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~Financial Statements~~

~~Consolidated Statements of Shareholders' Equity~~

Common Shares Treasury Shares Accumulated Other
Comprehensive
Loss Noncontrolling Interests Total
Shareholders’
Equity
(in millions) Shares Issued Amount Retained
Earnings Shares Amount
Balance at June 30, 2017 327
$ 2,697
$ 4,967
(11 ) $ (731 ) $ (125 ) $ 20
$ 6,828
Net earnings 256
(1 ) 255
Other comprehensive income, net of tax 33
33
Purchase of noncontrolling interests (19 ) (19 )
Employee stock plans activity, including tax benefit of $10 million —
33
1
57
90
Share repurchase program activity (8 ) (550 ) (550 )
Dividends declared (584 ) (584 )
Other 6
—
6
Balance at June 30, 2018 327
2,730
4,645
(18 ) (1,224 ) (92 ) —
6,059
Net earnings 1,363
2
1,365
Other comprehensive income, net of tax 13
13
Employee stock plans activity, net of shares withheld for employee taxes —
33
1
34
67
Share repurchase program activity

(11 ) (600 ) (600 )
Dividends declared (575 ) (575 )
Other 1
—
1
Balance at June 30, 2019 327
2,763
5,434
(28 ) (1,790 ) (79 ) 2
6,330
Net earnings/(loss) (3,696 ) 3
(3,693 )
Other comprehensive loss, net of tax (25 ) (25 )
Employee stock plans activity, net of shares withheld for employee taxes —
26
—
74
100
Share repurchase program activity

(7 ) (350 ) (350 )
Dividends declared (570 ) (570 )
Other 2
(2 ) —
Balance at June 30, 2020 327
$ 2,789
$ 1,170
(35 ) $ (2,066 ) $ (104 ) $ 3
$ 1,792


(in millions, except per common share amounts)	2021		2020		2019
Revenue	$	162,467	$	152,922	$	145,534
Cost of products sold	155,689		146,054		138,700
Gross margin	6,778		6,868		6,834

Operating expenses:
Distribution, selling, general and administrative expenses	4,533		4,572		4,480
Restructuring and employee severance	114		122		125
Amortization and other acquisition-related costs	451		524		621
Impairments and (gain)/loss on disposal of assets, net	79		7		(488)
Litigation (recoveries)/charges, net	1,129		5,741		36
Operating earnings/(loss)	472		(4,098)		2,060

Other (income)/expense, net	(47)		(1)		15
Interest expense, net	180		238		294
Loss on early extinguishment of debt	14		16		0
(Gain)/Loss on sale of equity interest in naviHealth	2		(579)		0
Earnings/(loss) before income taxes	323		(3,772)		1,751

Provision for/(benefit from) income taxes	(289)		(79)		386
Net earnings/(loss)	612		(3,693)		1,365

Less: Net earnings attributable to noncontrolling interests	(1)		(3)		(2)
Net earnings/(loss) attributable to Cardinal Health, Inc.	$	611	$	(3,696)	$	1,363

Earnings/(loss) per common share attributable to Cardinal Health, Inc.
Basic	$	2.09	$	(12.61)	$	4.55
Diluted	2.08		(12.61)		4.53

Weighted-average number of common shares outstanding:
Basic	292		293		300
Diluted	294		293		301

The accompanying notes are an integral part of these consolidated statements.



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			5257



Financial Statements

Consolidated Statements of ~~Cash Flows~~

Comprehensive Income/(Loss)

(in millions) 2020 2019 2018
Cash flows from operating activities:
Net earnings/(loss) $ (3,693 ) $ 1,365
$ 259
Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities:
Depreciation and amortization 913
1,000
1,032
Impairments and loss on sale of other investments —
3
6
Gain on sale of equity interest in naviHealth (579 ) —
—
—
Impairments and loss/(gain) on disposal of assets, net 7
(488 ) 1,417
Loss on early extinguishment of debt 16
—
2
Share-based compensation 90
82
85
Provision for/(benefit from) deferred income taxes (961 ) (83 ) (1,012 )
Provision for bad debts 106
88
74
Change in fair value of contingent consideration obligation —
—
(2 )
Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
Decrease/(increase) in trade receivables 82
(751 ) (871 )
Increase in inventories (409 ) (551 ) (1,211 )
Increase/(decrease) in accounts payable (162 ) 1,864
2,574
Other accrued liabilities and operating items, net 6,550
193
415
Net cash provided by operating activities 1,960
2,722
2,768
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired —
(82 ) (6,142 )
Additions to property and equipment (375 ) (328 ) (384 )
Purchase of other investments (20 ) (18 ) (9 )
Proceeds from sale of investments and available-for-sale securities 886
3
65
Proceeds from divestitures, net of cash sold, and disposal of property and equipment 2
763
862
Net cash provided by/(used in) investing activities 493
338
(5,608 )
Cash flows from financing activities:
Payment of contingent consideration obligation —
—
(35 )
Net change in short-term borrowings (2 ) —
(50 )
Purchase of noncontrolling interests —
—
(106 )
Proceeds from interest rate swap terminations 112
—
—
Proceeds from long-term obligations, net of issuance costs —
—
3
Reduction of long-term obligations (1,399 ) (1,102 ) (954 )
Net tax proceeds/(withholding) from share-based compensation 8
(14 ) (3 )
Dividends on common shares (569 ) (577 ) (581 )
Purchase of treasury shares (350 ) (600 ) (550 )
Net cash used in financing activities (2,200 ) (2,293 ) (2,276 )
Effect of exchange rates changes on cash and equivalents (13 ) 1
4
Cash reclassified to assets held for sale —
—
(4 )
Net increase/(decrease) in cash and equivalents 240
768
(5,116 )
Cash and equivalents at beginning of period 2,531
1,763
6,879
Cash and equivalents at end of period $ 2,771
$ 2,531
$ 1,763
Supplemental Information:
Cash payments for interest $ 226
$ 285
$ 320
Cash payments for income taxes 368
311
425


(in millions)	2021		2020		2019
Net earnings/(loss)	$	612	$	(3,693)	$	1,365

Other comprehensive income/(loss):
Foreign currency translation adjustments and other	46		3		18

Net unrealized gain/(loss) on derivative instruments, net of tax	24		(28)		(5)
Total other comprehensive income/(loss), net of tax	70		(25)		13

Total comprehensive income/(loss)	682		(3,718)		1,378

Less: comprehensive income attributable to noncontrolling interests	(1)		(3)		(2)
Total comprehensive income/(loss) attributable to Cardinal Health, Inc.	$	681	$	(3,721)	$	1,376

The accompanying notes are an integral part of these consolidated statements.



5358			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K



Financial Statements

Consolidated Balance Sheets


	June 30
(in millions)	2021		2020
Assets
Current assets:
Cash and equivalents	$	3,407	$	2,771
Trade receivables, net	9,103		8,264
Inventories, net	14,594		13,198
Prepaid expenses and other	2,843		1,707
Assets held for sale	1,101		0
Total current assets	31,048		25,940

Property and equipment, net	2,360		2,366
Goodwill and other intangibles, net	10,094		11,275
Other assets	951		1,185
Total assets	$	44,453	$	40,766

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	23,700	$	21,374
Current portion of long-term obligations and other short-term borrowings	871		10
Other accrued liabilities	2,957		2,231
Liabilities related to assets held for sale	96		0
Total current liabilities	27,624		23,615

Long-term obligations, less current portion	5,365		6,765
Deferred income taxes and other liabilities	9,670		8,594



Shareholders’ equity:
Preferred shares, without par value:
Authorized—500 thousand shares, Issued—NaN	0		0
Common shares, without par value:
Authorized—755 million shares, Issued— 327 million shares at June 30, 2021 and 2020	2,806		2,789
Retained earnings	1,205		1,170
Common shares in treasury, at cost: 36 million shares and 34 million shares at June 30, 2021 and 2020, respectively	(2,186)		(2,066)
Accumulated other comprehensive loss	(34)		(104)
Total Cardinal Health, Inc. shareholders' equity	1,791		1,789
Noncontrolling interests	3		3
Total shareholders’ equity	1,794		1,792
Total liabilities and shareholders’ equity	$	44,453	$	40,766

The accompanying notes are an integral part of these consolidated statements.


			Cardinal Health \| Fiscal 2021 Form 10-K			59


Financial Statements

Consolidated Statements of Shareholders' Equity


	Common Shares					Treasury Shares			Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Shareholders’ Equity
(in millions)	Shares Issued	Amount		Retained Earnings		Shares	Amount
Balance at June 30, 2018	327	$	2,730	$	4,645	(18)	$	(1,224)	$	(92)	$	0	$	6,059
Net earnings				1,363							2		1,365
Other comprehensive income, net of tax									13				13

Employee stock plans activity, net of shares withheld for employee taxes	0	33				1	34						67
Share repurchase program activity						(11)	(600)						(600)
Dividends declared				(575)									(575)
Other		0		1		0					0		1

Balance at June 30, 2019	327	2,763		5,434		(28)	(1,790)		(79)		2		6,330
Net earnings/(loss)				(3,696)							3		(3,693)
Other comprehensive loss, net of tax									(25)				(25)

Employee stock plans activity, net of shares withheld for employee taxes	0	26				0	74						100
Share repurchase program activity						(7)	(350)						(350)
Dividends declared				(570)									(570)
Other		0		2		0					(2)		0

Balance at June 30, 2020	327	2,789		1,170		(35)	(2,066)		(104)		3		1,792
Net earnings/(loss)				611							1		612
Other comprehensive income, net of tax									70				70

Employee stock plans activity, net of shares withheld for employee taxes	0	17				3	80						97
Share repurchase program activity						(4)	(200)						(200)
Dividends declared				(576)									(576)
Other		0		0		0					(1)		(1)

Balance at June 30, 2021	327	$	2,806	$	1,205	(36)	$	(2,186)	$	(34)	$	3	$	1,794

The accompanying notes are an integral part of these consolidated statements.


60			Cardinal Health \| Fiscal 2021 Form 10-K


Financial Statements

Consolidated Statements of Cash Flows


(in millions)	2021		2020		2019
Cash flows from operating activities:
Net earnings/(loss)	$	612	$	(3,693)	$	1,365
Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities:
Depreciation and amortization	783		913		1,000
Impairments and loss on sale of other investments	0		0		3
(Gain)/Loss on sale of equity interest in naviHealth	2		(579)		0
Impairments and (gain)/loss on disposal of assets, net	79		7		(488)
Loss on early extinguishment of debt	14		16		0
Share-based compensation	89		90		82
Provision for/(benefit from) deferred income taxes	496		(961)		(83)
Provision for bad debts	65		106		88

Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
(Increase)/decrease in trade receivables	(904)		82		(751)
Increase in inventories	(1,584)		(409)		(551)
Increase/(decrease) in accounts payable	2,325		(162)		1,864
Other accrued liabilities and operating items, net	452		6,550		193
Net cash provided by operating activities	2,429		1,960		2,722
Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired	(3)		0		(82)
Additions to property and equipment	(400)		(375)		(328)
Purchase of other investments	(22)		(20)		(18)
Proceeds from sale of investments	47		886		3


Proceeds from divestitures, net of cash sold, and disposal of property and equipment	0		2		763
Net cash provided by/(used in) investing activities	(378)		493		338
Cash flows from financing activities:

Net change in short-term borrowings	0		(2)		0

Proceeds from interest rate swap terminations	18		112		0

Reduction of long-term obligations	(570)		(1,399)		(1,102)
Net tax proceeds/(withholding) from share-based compensation	8		8		(14)

Dividends on common shares	(573)		(569)		(577)
Purchase of treasury shares	(200)		(350)		(600)
Net cash used in financing activities	(1,317)		(2,200)		(2,293)
Effect of exchange rates changes on cash and equivalents	11		(13)		1
Cash reclassified to assets held for sale	(109)		0		0
Net increase in cash and equivalents	636		240		768
Cash and equivalents at beginning of period	2,771		2,531		1,763
Cash and equivalents at end of period	$	3,407	$	2,771	$	2,531
Supplemental Information:
Cash payments for interest	$	182	$	226	$	285
Cash payments for income taxes	273		368		311

The accompanying notes are an integral part of these consolidated statements.


			Cardinal Health \| Fiscal 2021 Form 10-K			61


Notes to Financial Statements

Notes to Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Cardinal Health, Inc. is a globally integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. We provide pharmaceuticals and medical products ~~and pharmaceuticals~~ and cost-effective solutions that enhance supply chain efficiency. References to “we”, “our” and similar pronouns in these consolidated financial statements are to Cardinal Health, Inc. and its majority-owned or controlled subsidiaries unless the context otherwise requires.

Our fiscal year ends on June 30. References to fiscal 2021, 2020 ~~2019~~ and ~~2018~~2019 in these consolidated financial statements are to the fiscal years ended June 30, 2021, 2020 and 2019, ~~and 2018,~~ respectively.

Basis of Presentation

Our consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. The results of businesses acquired or disposed of are included in the consolidated financial statements from the date of the acquisition or up to the date of disposal, respectively.

Use of Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in accordance with GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates, judgments and assumptions are used in the accounting and disclosure related to, among other items, allowance for doubtful accounts, inventory valuation and reserves, goodwill and other intangible asset impairment, loss contingencies (including product liability and self-insurance accruals), and income taxes. Actual amounts could ultimately differ from these estimated amounts.

The ~~outbreak of the novel strain of coronavirus (“COVID-19”~~COVID-19 pandemic ("COVID-19") ~~has severely impacted, and~~ continues to ~~severely impact~~affect the U.S. and global economies, and ~~beginning in~~as previously disclosed, the pandemic began to materially affect our businesses during the third quarter of fiscal ~~2020, our businesses have been impacted in a variety of ways. We cannot estimate the~~2020. The length orand severity of the ~~COVID-19~~ pandemic ~~or the related U.S.~~ and ~~global economic consequences~~its impacts on our ~~business~~businesses and ~~operations, including whether and when historic economic and operating conditions will resume or the extent to which the disruption may impact our business, financial position,~~ results of operations ~~or cash flow. Our estimates, judgments and assumptions related to COVID-19 could ultimately differ over time~~.are uncertain.

Cash Equivalents

We consider liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates fair value.

Receivables and Allowance for Doubtful Accounts

Trade receivables are presented net of an allowance for doubtful accounts of ~~$206~~$242 million and ~~$193~~$206 million at June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. An account is considered past due on the first

day after its due date. In accordance with contract terms, we generally have the ability to charge customers service fees or higher prices if an account is considered past due. We regularly monitor past due accounts and establish appropriate reserves to cover potential losses, ~~which~~and consider historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop our allowance for credit losses. We review these factors quarterly to determine if any adjustments are ~~based primarily on historical collection rates and~~needed to the ~~credit worthiness of the customer.~~allowance. We write off any amounts deemed uncollectible against the established allowance for doubtful accounts.

We provide financing to various customers. Such financing arrangements range from 1 year to 5 years at interest rates that are generally subject to fluctuation. Interest income on these arrangements is recognized as it is earned. The financings may be collateralized, guaranteed by third parties or unsecured. Finance notes, net and related accrued interest were ~~$104~~$63 million (current portion ~~$12~~$7 million) and ~~$103~~$104 million (current portion $12 million) at June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and are included in other assets (current portion is included in prepaid expenses and other) in the consolidated balance sheets. Finance notes receivable allowance for doubtful accounts were ~~$27~~$12 million and ~~$14~~$27 million at June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We estimate an allowance for these financing receivables based on historical collection rates and the credit worthiness of the customer. We write off any amounts deemed uncollectible against the established allowance for doubtful accounts.

Concentrations of Credit Risk

We maintain cash depository accounts with major banks, and we invest in high quality, short-term liquid instruments, and in marketable securities. Our short-term liquid instruments mature within three months and we have not historically incurred any related losses.

Our trade receivables and finance notes and related accrued interest are exposed to a concentration of credit risk with certain large customers and with customers in the retail and healthcare sectors. Credit risk can be affected by changes in reimbursement and other economic pressures impacting the healthcare industry. With respect to customers in the retail and healthcare sectors, such credit risk is limited due to supporting collateral and the diversity of the customer base, including its wide geographic dispersion. We perform regular credit evaluations of our customers’ financial conditions and maintain reserves for losses through the established allowance for doubtful accounts. Historically, such losses have been within our expectations. Refer to the "Receivables and Allowance for Doubtful Accounts" section within this Note for additional information on the accounting treatment of reserves for allowance for doubtful accounts.


62			Cardinal Health \| Fiscal 2021 Form 10-K


Notes to Financial Statements

Major Customers

CVS Health Corporation ("CVS") and OptumRx, are our only customers that individually account for at least 10 percent of revenue



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	54



~~Notes to Financial Statements~~

and gross trade receivables. These customers are primarily serviced through our Pharmaceutical segment.

In August 2021, we extended our pharmaceutical distribution agreements with CVS through June 2027.

The following table summarizes historical percent of revenue and gross trade receivables from CVS and OptumRx:

Percent of Revenue Percent of Gross Trade Receivables at June 30
2020 2019 2018 2020 2019
CVS 26 % 26 % 25 % 26 % 24 %
OptumRx 14 % 13 % 11 % 6 % 4 %


	Percent of Revenue						Percent of Gross Trade Receivables at June 30
	2021		2020		2019		2021		2020
CVS	26	%	26	%	26	%	24	%	26	%
OptumRx	15	%	14	%	13	%	3	%	6	%

We have entered into agreements with group purchasing organizations (“GPOs”) which act as purchasing agents that negotiate vendor contracts on behalf of their members. Vizient, Inc. and Premier, Inc. are our 2 largest GPO member relationships in terms of revenue. Sales to members of these 2 GPOs collectively accounted for 1615 percent, 2216 percent and 22 percent of revenue for fiscal 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively. Our trade receivable balances are with individual members of the GPO, and therefore no significant concentration of credit risk exists with these types of arrangements.

Inventories

A ~~substantial~~ portion of our inventories ~~(56~~(50 percent and 56 percent at ~~both~~ June 30, ~~2020~~2021 and ~~2019~~)2020, respectively) are valued at the lower of cost, using the last-in, first-out ("LIFO") method, or market. These inventories are included within the core pharmaceutical distribution facilities of our Pharmaceutical segment (“distribution facilities”) and are primarily merchandise inventories. The LIFO method presumes that the most recent inventory purchases are the first items sold, so LIFO helps us better match current costs and revenue. We believe that the average cost method of inventory valuation provides a reasonable approximation of the current cost of replacing inventory within the distribution facilities. As such, the LIFO reserve is the difference between (a) inventory at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost method of inventory valuation.

At June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, inventories valued at LIFO cost were ~~$411~~$565 million and $~~230~~411 million higher than the average cost value. We do not record inventories in excess of replacement cost. As such, we did not write-up the value of our inventory from average cost to LIFO cost at June 30, ~~2020~~2021 or ~~2019.~~2020.

Our remaining inventory, including inventory in our Medical segment, that is not valued at the lower of LIFO cost or market is stated at the lower of cost, using the first-in, first-out method, or net realizable value. Net realizable value is defined as the estimated selling prices and estimated sales demand in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Due to the unprecedented demand for

~~Inventories presented~~

certain personal protective equipment as a result of COVID-19, our Medical segment manufactured and sourced inventory at higher costs than in periods prior to COVID-19. Personal protective equipment ("PPE") refers to protective clothing, medical and non-medical grade gloves, face shields, face masks and other equipment designed to protect the ~~consolidated balance sheets are~~wearer from injury or the spread of infection or illness. As selling prices and customer demand have decreased compared to the peak of COVID-19, we recorded a reserve of $197 million, primarily related to certain categories of gloves, to reduce the carrying value of certain PPE to its net ~~of reserves for excess and obsolete inventory which were $155 million and $171 million at June 30, 2020 and 2019, respectively.~~ realizable value.

We reserve for inventory obsolescence using estimates based on historical experience, historical and projected sales trends, specific categories of inventory, age and expiration dates of on-hand inventory and manufacturer return policies. Inventories presented in the consolidated balance sheets are net of reserves for excess and obsolete inventory which were $185 million and $155 million at June 30, 2021 and 2020, respectively.

Cash Discounts

Manufacturer cash discounts are recorded as a component of inventory cost and recognized as a reduction of cost of products sold as inventory is sold.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation. Property and equipment held for sale are recorded at the lower of cost less accumulated depreciation before the decision to dispose of the asset was made or fair value less cost to sell. When certain events or changes in operating conditions occur, an impairment assessment may be performed on the recoverability of the carrying amounts.

Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets, including finance lease assets which are depreciated over the terms of their respective leases. We generally use the following range of useful lives for our property and equipment categories: buildings and improvements—3 to 39 years; machinery and equipment—3 to 20 years; and furniture and fixtures—3 to 7 years. We recorded depreciation and amortization expense of $377 million, $405 million ~~$455 million~~ and ~~$446~~$455 million for fiscal 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively.

The following table presents the components of property and equipment, net at June 30:

(in millions) 2020 2019
Land, building and improvements $ 2,185
$ 1,992
Machinery and equipment 3,008
3,038
Furniture and fixtures 138
138
Total property and equipment, at cost 5,331
5,168
Accumulated depreciation and amortization (2,965 ) (2,812 )
Property and equipment, net $ 2,366
$ 2,356


(in millions)	2021		2020
Land, building and improvements	$	2,359	$	2,185
Machinery and equipment	3,093		3,008
Furniture and fixtures	136		138
Total property and equipment, at cost	5,588		5,331
Accumulated depreciation and amortization	(3,228)		(2,965)
Property and equipment, net	$	2,360	$	2,366

Repairs and maintenance expenditures are expensed as incurred. Interest on long-term projects is capitalized using a rate that approximates the weighted-average interest rate on long-term


			Cardinal Health \| Fiscal 2021 Form 10-K			63


Notes to Financial Statements

obligations, which was 3 percent at June 30, ~~2020.~~2021. The amount of capitalized interest was immaterial for all periods presented.

Goodwill and Other Intangible Assets

Purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment annually or when indicators of impairment exist.

Purchased goodwill is tested for impairment at least annually. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There is an option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. We have elected to bypass the qualitative assessment for our annual goodwill impairment test in the current year. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount.

Goodwill impairment testing involves judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists, and, if necessary, the estimation of the fair value of the applicable reporting unit.



55	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~Notes to Financial Statements~~

We have 2 operating segments, which are the same as our reportable segments: Pharmaceutical and Medical. These operating segments are comprised of divisions (components), for which discrete financial information is available. Components are aggregated into reporting units for purposes of goodwill impairment testing to the extent that they share similar economic characteristics. Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear and Precision Health Solutions division); Nuclear and Precision Health Solutions division; Medical operating segment (excluding our Cardinal Health at-Home Solutions division) (“Medical Unit”); and Cardinal Health at-Home Solutions division. Our Nuclear and Precision Health Solutions division was formerly referred to as our Nuclear Pharmacy Services division and our Cardinal Health at-Home Solutions division was formerly referred to as our Cardinal Health at Home division.

Fair value can be determined using market, income or cost-based approaches. Our determination of estimated fair value of the reporting units is based on a combination of the income-based and market-based approaches. Under the income-based approach, we use a discounted cash flow model in which cash flows anticipated over several future periods, plus a terminal value at the end of that time horizon, are discounted to their present value using an appropriate risk-adjusted rate of return. We use our internal forecasts to estimate future cash flows, which we believe are consistent with those of a market participant, and include an estimate of long-term growth rates based on our most recent views of the long-term outlook for each reporting unit. Actual results may differ materially from those used in our forecasts. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally-developed forecasts. Discount rates used in our reporting unit valuations ranged from 8.5 percent to ~~10.5~~11.5 percent. Under the market-based guideline public company method, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the guideline transaction method to

determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units. To further confirm fair value, we compare the aggregate fair value of our reporting units to our total market capitalization. Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including forecasted operating results. The use of alternate estimates and assumptions or changes in the industry or peer groups could materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment.

We performed annual impairment testing in fiscal 2021, 2020 and 2019 and ~~2018 and with the exception of our Medical Unit in fiscal 2018,~~ concluded that there were no0 impairments of goodwill as the estimated fair value of each reporting unit exceeded its carrying value.

In conjunction with the preparation of our consolidated financial statements for fiscal 2018, we completed our annual quantitative goodwill impairment test, which we perform annually in the fourth quarter. Using a combination of income and market-based approaches (using a discount rate of 8.5 percent), the carrying value

exceeded the fair value and resulted in an impairment charge of $1.4 billion related to our Medical Unit, which is included in impairments and loss on disposal of assets in our consolidated statements of earnings/(loss). Our fair value estimates utilize significant unobservable inputs and thus represent Level 3 fair value measurements.

~~The impairment was primarily driven by inventory and cost challenges within our Cordis business which furthered in the fourth quarter of fiscal~~ ~~2018. This impairment charge did not impact our liquidity, cash flows from operations, or compliance with debt covenants. There was no tax benefit related to the goodwill impairment charge.~~

The impairment test for indefinite-lived intangibles other than goodwill ~~(primarily IPR&D)~~ involves first assessing qualitative factors to determine if it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If so, then a quantitative test is performed to compare the estimated fair value of the indefinite-lived intangible asset to the respective asset's carrying amount. Our qualitative evaluation requires the use of estimates and significant judgments and considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount.

Intangible assets with finite lives, primarily customer relationships; trademarks, trade names and patents; and developed technology, are amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the asset over their estimated useful lives. We review intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment loss occurred requires a comparison of the carrying amount to the sum of the future forecasted undiscounted cash flows expected to be generated by the asset group. Actual results may differ materially from those used in our forecasts.

Assets Held for Sale

We classify assets and liabilities (the “disposal group”) as held for sale when management commits to a plan to sell the disposal group in its present condition and at a price that is reasonable in relation to its current fair value. We also consider whether an active program to locate a buyer has been initiated and if it is probable that the sale will occur within one year without significant changes to the plan to sell. Upon classification of the disposal group as held for sale, we test the assets for impairment and cease related depreciation and amortization.



64	Cardinal Health \|Fiscal ~~2020~~2021 Form 10-K	56



Notes to Financial Statements

lawsuits related to inferior vena cava filters in the U.S. and Canada as described in Note 7 of the “Notes to Consolidated Financial Statements.” The transaction closed on August 2, 2021. See Note 2 for additional information.

Investments

Investments in non-marketable equity securities are accounted for under the fair value, equity or net asset value method of accounting and are included in other assets in the consolidated balance sheets. For equity securities without a readily determinable fair value, we use the fair value measurement alternative and measure the securities at cost less impairment, if any, including adjustments for observable price changes in orderly transactions for an identical or similar investment of the same issuer. For investments in which we can exercise significant influence but do not control, we use the equity method of accounting. Our share of the earnings and losses are recorded in other (income)/expense, net in the consolidated statements of earnings/(loss). We monitor our investments for impairment by considering factors such as the operating performance of the investment and current economic and market conditions.

Vendor Reserves

In the ordinary course of business, our vendors may dispute deductions taken against payments otherwise due to them or assert other disputes. These disputes are researched and resolved based upon the findings of the research performed. At any given time, there are outstanding items in various stages of research and resolution. In determining appropriate reserves for areas of exposure with our vendors, we assess historical experience and current outstanding claims. We have established various levels of reserves based on the type of claim and status of review. Though the claim types are relatively consistent, we periodically refine our methodology by updating the reserve estimate percentages to reflect actual historical experience. The ultimate outcome of certain claims may be different than our original estimate and may require an adjustment. Adjustments to vendor reserves are included in cost of products sold. In addition, the reserve balance will fluctuate due to variations of outstanding claims from period-to-period, timing of settlements and specific vendor issues, such as bankruptcies. Vendor reserves were $77 million ~~and $53 million~~ at both June 30, ~~2020~~2021 and ~~2019, respectively,~~2020, excluding third-party returns. See Third-Party Returns section within this Note for a description of third-party returns.

Distribution Services Agreement and Other Vendor Fees

Our Pharmaceutical segment recognizes fees received from distribution services agreements and other fees received from vendors related to the purchase or distribution of the vendors’ inventory when those fees have been earned and we are entitled to payment. Since the benefit provided to a vendor is related to the purchase and distribution of the vendor’s inventory, we recognize the fees as a reduction in the carrying value of the inventory that generated the fees, and as such, a reduction of cost of products sold in our consolidated statements of earnings/(loss) when the inventory is sold.

Loss Contingencies and Self-Insurance

Loss Contingencies

We accrue for contingencies related to disputes, litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

In connection with the opioid litigation as described further in the Note 7, we recorded a pre-tax ~~charge~~charges of $1.17 billion and $5.63 billion ~~($5.14 billion after tax)~~ during fiscal ~~2020.~~ ~~Definitive terms of~~2021 and 2020 respectively which were retained at Corporate. In July 2021, we announced that we and two other national distributors have negotiated a proposed settlement ~~under the Settlement Framework continue~~agreement, subject to ~~be negotiated,~~certain conditions and ~~there~~contingencies. There is no assurance that the ~~necessary parties will agree to a definitive settlement agreement or that the~~ contingencies to ~~any~~the proposed settlement agreement will be satisfied.

Self-Insurance

We also self-insure for employee healthcare, general liability, certain product liability matters, auto liability, property and workers' compensation. Self-insurance accruals include an estimate for expected settlements or pending claims, defense costs, administrative fees, claim adjustment costs and an estimate for claims incurred but not reported.

Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur, assessing contingencies and other liabilities is highly subjective and requires judgments about future events. We regularly review contingencies and our self-insurance accruals to determine whether our accruals and related disclosures are adequate. Any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs.

The amount of ultimate loss may differ materially from these estimates. We recognize these estimated loss contingencies, income from favorable resolution of litigation and certain defense costs in litigation (recoveries)/charges in our consolidated statements of earnings/(loss). See Note 7 for additional information regarding loss contingencies and product liability lawsuits.

Guarantees

In the ordinary course of business, we agree to indemnify certain other parties under acquisition and disposition agreements, customer agreements, intellectual property licensing agreements, and other agreements. Such indemnification obligations vary in scope and, when defined, in duration. In many cases, a maximum obligation is not explicitly stated, and therefore the overall maximum amount of the liability under such indemnification obligations cannot be reasonably estimated. Where appropriate, such indemnification obligations are recorded as a liability. Historically, we have not, individually or in the aggregate, made


			Cardinal Health \| Fiscal 2021 Form 10-K			65


Notes to Financial Statements

payments under these indemnification obligations in any material amounts. In certain circumstances, we believe that existing insurance arrangements, subject to the general deduction and exclusion provisions, would cover portions of the liability that may arise from these indemnification obligations. In addition, we believe that the likelihood of a material

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~



~~Notes to Financial Statements~~

liability being triggered under these indemnification obligations is not probable.

From time to time we enter into agreements that obligate us to make fixed payments upon the occurrence of certain events. Such obligations primarily relate to obligations arising under acquisition transactions, where we have agreed to make payments based upon the achievement of certain financial performance measures by the acquired business. Generally, the obligation is capped at an explicit amount. There were no material obligations at June 30, ~~2020.~~2021.

Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we ~~operate~~.operate. We assess the realizability of deferred tax assets on a quarterly basis and provide a valuation allowance for deferred tax assets when it is more likely than not that at least a portion of the deferred tax assets will not be realized. The realizability of deferred tax assets depends on our ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction and also considers all available positive and negative evidence.

Deferred taxes for non-U.S. liabilities are not provided on the unremitted earnings of subsidiaries outside of the United States when it is expected that these earnings are indefinitely reinvested.

We operate in a complex multinational tax environment and are subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions that are subject to interpretation. Uncertainty in a tax position may arise as tax laws are subject to interpretation.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation processes. The amount recognized is measured as the largest ~~amoun~~tamount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.

See Note 8 for additional information regarding income taxes.

Other Accrued Liabilities

Other accrued liabilities represent various current obligations, including certain accrued operating expenses and taxes payable.

Noncontrolling Interests

Noncontrolling interests represent the portion of net earnings, comprehensive income and net assets that is not attributable to Cardinal Health, Inc.

Share-Based Compensation

Share-based compensation provided to employees is recognized in the consolidated statements of earnings/(loss) based on the grant date fair value of the awards. The fair value of restricted share units and performance share units is determined by the grant date market price of our common shares. The fair value of stock options is determined on the grant date using a lattice valuation model. The

compensation expense associated with nonvested performance share units is dependent on our periodic assessment of the probability of the targets being achieved and our estimate, which may vary over time, of the number of shares that ultimately will be issued. The compensation expense recognized for share-based awards is net of estimated forfeitures and is recognized ratably over the service period of the awards. All income tax effects of share-based awards are recognized in the consolidated statements of earnings/(loss) as awards vest or are settled. We classify share-based compensation expense in distribution, selling, general and administrative ("SG&A") expenses to correspond with the same line item as the majority of the cash compensation paid to employees. If awards are modified in connection with a restructuring activity, the incremental share-based compensation expense is classified in restructuring and employee severance. See Note 14 for additional information regarding share-based compensation.

Dividends

We paid cash dividends per common share of $1.94, $1.92 ~~$1.91~~ and ~~$1.85~~$1.91 in fiscal 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively.

Revenue Recognition

We recognize revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of goods or services to customers.

Revenue in both segments is primarily related to the distribution of pharmaceutical and medical products, which include both manufactured and sourced products, and we recognize at a point in time when title transfers to customers and we have no further obligation to provide services related to such merchandise. Service revenues are recognized over the period that services are provided to the customer. Revenues derived from services are not material for either segment for all periods presented.

We are generally the principal in a transaction, therefore our revenue is primarily recorded on a gross basis. When we are a principal in a transaction, we have determined that we control the ability to direct the use of the product or service prior to transfer to a customer, are primarily responsible for fulfilling the promise to provide the product or service to our customer, have discretion in establishing prices, and ultimately control the transfer of the product or services provided to the customer.

Sales Returns and Allowances

Revenue is recorded net of sales returns and allowances. Revenues are measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, discounts, rebates and other variable consideration. Sales returns are recorded based on estimates using historical

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

data. Our customer return policies generally require that the product be physically returned, subject to restocking fees. We only allow customers to return products for credit in a condition suitable to be added back to inventory and resold at full value (“merchantable product”) or returned to vendors for credit. Product returns are generally consistent throughout the year and typically are not specific to any particular product or customer.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	58



~~Notes to Financial Statements~~

We accrue for estimated sales returns and allowances at the time of sale based upon historical customer return trends, margin rates and processing costs. Our accrual for sales returns is reflected as a reduction of revenue and cost of products sold for the sales price and cost, respectively. At ~~both~~ June 30, ~~2020~~2021 and ~~2019,~~2020, the accrual for estimated sales returns and allowances was $689 million and $495 million, ~~and $479 million, the impact of~~respectively, which is reflected in trade receivables, net and inventories, net in the consolidated balance sheets. Sales returns and allowances were $2.6 billion, $2.3 billion ~~$2.2 billion~~ and ~~$2.4~~$2.2 billion, for fiscal 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively, and the net impact on net earnings/(loss) in the consolidated statements of earnings/(loss) was immaterial in fiscal 2021, 2020 ~~2019~~ and ~~2018.~~2019.

Third-Party Returns

We generally do not accept non-merchantable pharmaceutical product returns from our customers, so many of our customers return non-merchantable pharmaceutical products to the manufacturer through third parties. Since our customers generally do not have a direct relationship with manufacturers, our vendors pass the value of such returns to us (usually in the form of an accounts payable deduction). We, in turn, pass the value received to our customer. In certain instances, we pass the estimated value of the return to our customer prior to our receipt of the value from the vendor. Although we believe we have satisfactory protections, we could be subject to claims from customers or vendors if our administration of this overall process was deficient in some respect or our contractual terms with vendors are in conflict with our contractual terms with our customers. We have maintained reserves for some of these situations based on their nature and our historical experience with their resolution.

Shipping and Handling

Shipping and handling costs are primarily included in SG&A expenses in our consolidated statements of earnings/(loss) and include all delivery expenses as well as all costs to prepare the product for shipment to the end customer. Shipping and handling costs were $634 million, $620 million ~~$622 million~~ and ~~$543~~$622 million, for fiscal 2021, 2020 ~~2019~~ and ~~2018,~~2019, respectively.

Restructuring and Employee Severance

Restructuring activities are programs that are not part of the ongoing operations of our underlying business, such as divestitures, closing and consolidating facilities, changing the way we manufacture or distribute our products, moving manufacturing of a product to another location, changes in production or business process outsourcing or insourcing, employee severance (including rationalizing headcount or other significant changes in personnel) and realigning operations (including realignment of the management structure in response to changing market conditions). Also included within restructuring and employee severance are

employee severance costs that are not incurred in connection with a restructuring activity. See Note 3 for additional information regarding our restructuring activities.

Amortization and Other Acquisition-Related Costs

We classify certain costs incurred in connection with acquisitions as amortization and other acquisition-related costs in our consolidated statements of earnings/(loss). These costs consist of amortization of acquisition-related intangible assets, transaction costs, integration

costs and changes in the fair value of contingent consideration obligations. Transaction costs are incurred during the initial evaluation of a potential acquisition and primarily relate to costs to analyze, negotiate and consummate the transaction as well as due diligence activities. Integration costs relate to activities required to combine the operations of an acquired enterprise into our operations and, in the case of the Cordis and Patient Recovery businesses, to stand-up the systems and processes needed to support an expanded geographic footprint. We record changes in the fair value of contingent consideration obligations relating to acquisitions as income or expense in amortization and other acquisition-related costs. See Note 4 for additional information regarding amortization of acquisition-related intangible assets.

Translation of Foreign Currencies

Financial statements of our subsidiaries outside the United States are generally measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign subsidiaries into U.S. dollars are accumulated in shareholders’ equity through accumulated and other comprehensive loss ("AOCI") utilizing period-end exchange rates. Revenues and expenses of these foreign subsidiaries are translated using average exchange rates during the year.

The foreign currency translation gains/(losses) included in AOCI at June 30, ~~2020~~2021 and ~~2019~~2020 are presented in Note 11. Foreign currency transaction gains and losses for the period are included in the consolidated statements of earnings/(loss) in the respective financial statement line item.

Interest Rate, Currency and Commodity Risk

All derivative instruments are recognized at fair value on the consolidated balance sheets and all changes in fair value are recognized in net earnings or shareholders’ equity through AOCI, net of tax.

For contracts that qualify for hedge accounting treatment, the hedge contracts must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Hedge effectiveness is assessed periodically. Any contract not designated as a hedge, or so designated but ineffective, is adjusted to fair value and recognized immediately in net earnings. If a fair value or cash flow hedge ceases to qualify for hedge accounting treatment, the contract continues to be carried on the balance sheet at fair value until settled and future adjustments to the contract’s fair value are recognized immediately in net earnings. If a forecasted transaction is probable not to occur, amounts previously deferred in AOCI are recognized immediately in net earnings. Interest payments


			Cardinal Health \| Fiscal 2021 Form 10-K			67


Notes to Financial Statements

received from the cross currency swap are excluded from the net investment hedge effectiveness assessment and are recorded in interest expense, net in the consolidated statements of earnings/(loss).

See Note 10 for additional information regarding our derivative instruments, including the accounting treatment for instruments designated as fair value, cash flow, net investment and economic hedges.

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~



~~Notes to Financial Statements~~

Fair Value Measurements

Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are:


~~Level 1 -~~	~~Observable prices in active markets for identical assets and liabilities.~~


~~Level 2 -~~	~~Observable inputs other than quoted prices in active markets for identical assets and liabilities.~~


~~Level 3 -~~	~~Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.~~

Level 1 - Observable prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

See Note 9 for additional information regarding fair value measurements.

Recently Adopted Financial Accounting Standards

~~Derivatives and Hedging~~

~~In October 2018, the~~ ~~Financial Accounting Standards Board ("FASB")~~ issued amended accounting guidance related to derivatives and hedging which permits the use of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") as a benchmark interest rate for hedge accounting purposes. This guidance was effective beginning the first quarter of fiscal 2020. The adoption did not have a material impact on our consolidated financial statements.

~~Leases~~

In February 2016, the FASB issued amended accounting guidance that requires lessees to recognize most leases on the balance sheet as a lease liability and corresponding right-of-use asset. The guidance also requires disclosures that meet the objective of enabling financial statement users to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted this guidance during the first quarter of fiscal 2020 and elected the transition option which allows us to apply the guidance prospectively. The initial adoption in the first quarter of fiscal 2020 resulted in the recognition of lease liabilities in the amount of $422 million and did not have a material impact on our results of operations, liquidity or debt covenant compliance under our current debt agreements. The majority of our lease spend relates to certain real estate with the remaining lease spend primarily related to vehicles and equipment. The adoption required certain changes to our systems and processes. See ~~Note 5~~ ~~for additional information regarding leases.~~

~~Recently Issued Financial Accounting Standards Not Yet Adopted~~

Financial Instruments - Credit Losses

In June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued amended accounting guidance that will require entities to measure credit losses on trade and other receivables, held-to-maturity debt securities, loans and other instruments using an "expected credit loss" model that considers

historical experience, current conditions and reasonable supportable forecasts. This guidance also requires that credit losses on available-for-sale debt securities with unrealized losses be recognized as allowances rather than as deductions in the amortized cost of the securities. We consider historical experience, the current economic environment, customer credit ratings or bankruptcies, and reasonable and supportable forecasts to develop our allowance for credit losses. We review these factors quarterly to determine if any adjustments are needed to the allowance. This guidance ~~will be~~was effective ~~for us in~~beginning the first quarter of fiscal ~~2021. The adoption of this guidance will~~2021 and did not have a material impact on our consolidated financial statements.

Recently Issued Financial Accounting Standards Not Yet Adopted

We address the adoption impacts of recently issued accounting standards by the FASB on the our consolidated financial statements ~~or disclosures.~~as well as material updates to previous assessments, if any, from our fiscal 2020 Form 10-K. There were no accounting

standards issued in fiscal 2021 that will have a material impact on our consolidated financial statements.

2. Divestitures and Acquisitions

Divestitures

Cordis Assets Held for Sale

On March 12, 2021, we signed a definitive agreement with Hellman & Friedman to sell our Cordis business for gross proceeds of $927 million in cash, subject to customary purchase price adjustments, and we retained certain working capital accounts and certain liabilities. The transaction closed on August 2, 2021 and we received proceeds of $927 million, net of cash transferred. Cardinal Health will retain product liability associated with lawsuits and claims related to inferior vena cava ("IVC") filters in the U.S. and Canada, as well as authority for these matters discussed in Note 7.

Upon signing the agreement, we met the criteria for the related assets and liabilities of the Cordis business to be classified as held for sale. In connection with the divestiture, we allocated $388 million of goodwill from the Medical Unit (within our Medical Segment) to the Cordis disposal group based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. We determined that the sale of the Cordis business does not meet the criteria to be classified as discontinued operations.

At June 30, 2021, the book value of the disposal group exceeded its fair value less costs to sell. Accordingly, we recognized a $60 million pre-tax write-down on the disposal group in impairments and (gain)/loss on disposal of assets in our consolidated statement of earnings/(loss). This write-down includes a $3 million loss related to currency translation adjustments in accumulated other comprehensive loss. We recorded a net tax expense of $9 million associated with the impact of the write-down and the required tax adjustments related to held for sale accounting.

The following table presents information related to the assets and liabilities that were classified as held for sale at June 30, 2021 related to the Cordis divestiture in the consolidated balance sheets:


(in millions)	June 30, 2021
Cash and equivalents	$	109
Inventories, net	164
Property and equipment, net	90
Goodwill and other intangibles, net	778
Other assets	10
Write-down of assets held for sale	(60)
Total assets held for sale	$	1,091

Other accrued liabilities	$	61
Deferred income taxes and other liabilities	34
Total liabilities related to assets held for sale	$	95

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

naviHealth

In August 2018, we sold our majority ownership interest in naviHealth, which operated within our Medical segment in exchange for cash proceeds of $737 million (after adjusting for certain fees and expenses) and a noncontrolling equity interest in a partnership that owned naviHealth. We also had certain call rights to reacquire naviHealth.

As a result of this divestiture, during the fiscal year ended June 30, 2019, we recognized a pre-tax gain of $508 million in impairments and (gain)/loss on disposal of assets in our consolidated statements of earnings/(loss). This gain included our initial recognition of an equity method investment for $358 million and the derecognition of redeemable noncontrolling interests of $12 million. The fiscal 2019 tax expense as a result of this transaction was $130 million. We determined that the sale of the naviHealth business did not meet the criteria to be classified as discontinued operations.

InIn May 2020 we sold the remainder of our noncontrolling equity interest in a partnership that owned naviHealth. We recognized a pre-tax gain of $579 million from this disposal in gain on sale of equity interest in naviHealth in our consolidated statements of earnings/(loss). during fiscal year 2020.

Our proportionate share of naviHealth’s results, which was recorded in other (income)/expense, net in the consolidated statements of earnings/(loss), was income of $2 million and a loss of $10 million during fiscal 2020 and 2019, respectively.

~~China~~

~~In February 2018, we sold our pharmaceutical and medicalproducts distribution business in China ("China distribution business") for proceeds of $861 million (after adjusting for third party indebtedness and preliminary transaction adjustments).~~

We determined that the sale of the China distribution business did not meet the criteria to be classified as discontinued operations. The China distribution business primarily operated within our Pharmaceutical segment, and a smaller portion operated within our Medical segment.

~~During the fiscal year ended 2018, we recognized a pre-tax loss of $41 million related to this divestiture.~~



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	60



~~Notes to Financial Statements~~

Acquisitions

We did not complete any acquisitions d~~uring~~during fiscal 2020. While we completed several small acquisitions d~~uring~~during fiscal 2021 and 2019, the pro forma results of operations and the results of operations for acquired businesses since the acquisition dates have not been separately disclosed because the effects were not significant compared to the consolidated financial statements, individually or in the aggregate. The cash paid for these acquisitions, net of cash acquired was $3 million and $82 million for fiscal ~~2019.~~2021 and 2019, respectively.

~~Patient Recovery Business~~

On July 29, 2017, we acquired the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (the "Patient Recovery Business") from Medtronic plc for $6.1 billion in cash. The acquisition further expanded the Medical segment's portfolio of self-manufactured products.

Transaction and integration costs associated with the acquisition of the Patient Recovery Business were $7 million, $75 million, and $109 million for the fiscal years ended June 30, 2020, 2019 and 2018, respectively. These costs are included in amortization and other acquisition-related costs in the consolidated statement of earnings/(loss).

3. Restructuring and Employee Severance

The following tables summarize restructuring and employee severance costs:

(in millions) 2020 2019 2018
Employee-related costs $ 66
$ 95
$ 34
Facility exit and other costs 56
30
142
Total restructuring and employee severance $ 122
$ 125
$ 176


(in millions)	2021		2020		2019
Employee-related costs	$	53	$	66	$	95
Facility exit and other costs	61		56		30
Total restructuring and employee severance	$	114	$	122	$	125

Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated, duplicate payroll costs and retention bonuses incurred during transition periods. Facility exit and other costs primarily consist of ~~product distribution~~professional, project management and ~~lease contract termination costs,~~other service fees to support divestitures, vendor transition fees, accelerated depreciation, lease costs associated with vacant facilities, ~~accelerated depreciation,~~ equipment relocation costs, project consulting fees, ~~vendor transition fees,~~ costs

associated with restructuring our delivery of information technology infrastructure services and certain other divestiture-related costs.

In fiscal 2021, restructuring costs were primarily related to the implementation of certain enterprise-wide cost-savings measures and the divestiture of our Cordis business. In fiscal 2020 and 2019, restructuring costs ~~are~~were primarily related to the implementation of certain enterprise-wide cost-savings measures.

In fiscal 2018, we entered into an agreement to transition the distribution of our Medical segment's surgeon gloves in certain international markets from a third-party distribution arrangement to a direct distribution model. The costs associated with this restructuring included $125 million, on a pre-tax basis, in contract termination costs that were paid during fiscal 2018. These costs are reflected in restructuring and employee severance in the consolidated statements of earnings/(loss) during the fiscal year ended 2018.

The following table summarizes activity related to liabilities associated with restructuring and employee severance:

(in millions)
Employee-
Related Costs

Facility Exit
and Other Costs
Total
Balance at June 30, 2018 $ 24
$ 4
$ 28
Additions 84
8
92
Payments and other adjustments (44 ) (4 ) (48 )
Balance at June 30, 2019 64
8
72
Additions 85
24
109
Payments and other adjustments (81 ) (4 ) (85 )
Balance at June 30, 2020 $ 68
$ 28
$ 96


(in millions)	Employee- Related Costs		Facility Exit and Other Costs		Total
Balance at June 30, 2019	$	64	$	8	$	72
Additions	85		24		109
Payments and other adjustments	(81)		(4)		(85)
Balance at June 30, 2020	68		28		96
Additions	49		26		75
Payments and other adjustments	(64)		(28)		(92)
Balance at June 30, 2021	$	53	$	26	$	79

4. Goodwill and Other Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by segment and in total:


(in millions)	Pharmaceutical (1)		Medical (2)		Total
Balance at June 30, 2019	$	2,663	$	5,715	$	8,378
Goodwill acquired, net of purchase price adjustments	(5)		0		(5)
Foreign currency translation adjustments and other	(1)		(15)		(16)



Balance at June 30, 2020	2,657		5,700		8,357
Goodwill acquired, net of purchase price adjustments	2		0		2
Foreign currency translation adjustments and other	0		18		18
Cordis goodwill reclassified to assets held for sale	0		(388)		(388)
Balance at June 30, 2021	$	2,659	$	5,330	$	7,989

(in millions) Pharmaceutical (1) Medical (2) Total
Balance at June 30, 2018 $ 2,621
$ 5,695
$ 8,316
Goodwill acquired, net of purchase price adjustments 45
7
52
Foreign currency translation adjustments and other (3 ) 13
10
Balance at June 30, 2019 2,663
5,715
8,378
Goodwill acquired, net of purchase price adjustments (5 ) —
(5 )
Foreign currency translation adjustments and other (1 ) (15 ) (16 )
Balance at June 30, 2020 $ 2,657
$ 5,700
$ 8,357
(1) At June 30, 2021 and 2020, the Pharmaceutical segment accumulated goodwill impairment loss was $829 million.

(2) At June 30, 2021 and 2020, the Medical segment accumulated goodwill impairment loss was $1.4 billion.

In connection with the divestiture of our Cordis business, during fiscal 2021 we allocated and reclassified $388 million of goodwill from the Medical Unit (within our Medical Segment) to the Cordis disposal group based on the estimated relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained, discussed further in Note 2.


~~(1)~~	~~At June 30, 2020 and 2019, the Pharmaceutical segment accumulated goodwill impairment loss was $829 million.~~


~~(2)~~	~~At June 30, 2020 and 2019, the Medical segment accumulated goodwill impairment loss was $1.4 billion.~~



			Cardinal Health \| Fiscal ~~2020~~2021 Form 10-K			6169



Notes to Financial Statements

Other Intangible Assets

The following tables summarize other intangible assets by class at June 30:


	2021
(in millions)	Gross Intangible		Accumulated Amortization		Net Intangible		Weighted- Average Remaining Amortization Period (Years)
Indefinite-life intangibles:
Trademarks and patents	$	12	$	—	$	12	N/A
Total indefinite-life intangibles	12		—		12		N/A
Definite-life intangibles:
Customer relationships	3,330		1,989		1,341		11
Trademarks, trade names and patents	551		328		223		9
Developed technology and other	1,035		506		529		10
Total definite-life intangibles	4,916		2,823		2,093		10
Total other intangible assets	$	4,928	$	2,823	$	2,105	N/A


	2020								2020
(in millions)	Gross Intangible		Accumulated Amortization		Net Intangible		Weighted- Average Remaining Amortization Period (Years)	(in millions)	Gross Intangible		Accumulated Amortization		Net Intangible
Indefinite-life intangibles:								Indefinite-life intangibles:
IPR&D, trademarks and other	$	23	$	—	$	23	N/A	IPR&D, trademarks and other	$	23	$	—	$	23
Total indefinite-life intangibles	23		—		23		N/A	Total indefinite-life intangibles	23		—		23
Definite-life intangibles:								Definite-life intangibles:
Customer relationships	3,554		1,828		1,726		13	Customer relationships	3,554		1,828		1,726
Trademarks, trade names and patents	673		341		332		13	Trademarks, trade names and patents	673		341		332
Developed technology and other	1,604		767		837		11	Developed technology and other	1,604		767		837
Total definite-life intangibles	5,831		2,936		2,895		12	Total definite-life intangibles	5,831		2,936		2,895
Total other intangible assets	$	5,854	$	2,936	$	2,918	N/A	Total other intangible assets	$	5,854	$	2,936	$	2,918

2019
(in millions)
Gross
Intangible

Accumulated
Amortization

Net
Intangible
Indefinite-life intangibles:
IPR&D, trademarks and other $ 22
$ —
$ 22
Total indefinite-life intangibles 22
—
22
Definite-life intangibles:
Customer relationships 3,562
1,517
2,045
Trademarks, trade names and patents 672
295
377
Developed technology and other 1,602
616
986
Total definite-life intangibles 5,836
2,428
3,408
Total other intangible assets $ 5,858
$ 2,428
$ 3,430

Total amortization of intangible assets was $428 million, $512 million ~~$531 million~~ and ~~$574~~$531 million for fiscal 2021, 2020~~, 2019~~ and ~~2018,~~2019, respectively. The estimated annual amortization for intangible assets for fiscal ~~2021~~2022 through ~~2025~~2026 is as follows: ~~$442~~$315 million, ~~$408~~$287 million, ~~$358~~$264 million, ~~$329~~$238 million and ~~$277~~$212 million.

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

5. Leases

Our operating leases are primarily for corporate offices, distribution facilities, vehicles, and equipment. We determine if an arrangement is a lease at its inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Beginning July 1, 2019, operating lease right-of-use assets and corresponding operating lease liabilities are recognized in our consolidated balance ~~sheet~~sheets at lease commencement date based on the present value of lease payments over the lease term. Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable.

Our lease agreements contain lease components and non-lease components. For all asset classes, we have elected to account for both of these components as a single lease component. We also, from time to time, sublease portions of our real estate property, resulting in sublease income. Sublease income and the related assets and cash flows are not material to the consolidated financial statements at or for the fiscal ~~year~~years ended June 30, 2021 and 2020.

We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months. Short-term lease expense recognized in fiscal 2021 and 2020 was not material. In addition, upon adoption of the new lease standard, we elected the package of three practical expedients permitted under the transition guidance, which include the carry forward of our leases without reassessing 1) whether any contracts are leases or contain leases, 2) lease classification and 3) initial direct costs.

Our leases have remaining lease terms from less than 1 year up to approximately 2221 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain and there is a significant economic incentive to exercise that option.

The following table summarizes the components of lease cost:


(in millions)	2020		(in millions)	2021		2020
Operating lease cost	$	134	Operating lease cost	$	119	$	134

Finance lease cost	13		Finance lease cost	16		13

Variable lease cost	17		Variable lease cost	24		17

Total lease cost	$	164	Total lease cost	$	159	$	164

Variable lease cost primarily includes payments for property taxes, maintenance and insurance. Our rental expense relating to operating leases was $153 million ~~and $172 million~~ in fiscal ~~2019 and 2018, respectively.~~



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	62



~~Notes to Financial Statements~~

The following table summarizes supplemental balance sheet and other information related to leases at June 30:


(in millions)	2020		(in millions)	2021			2020
Operating Leases			Operating Leases
Operating lease right-of-use assets	$	426	Operating lease right-of-use assets	$	460		$	426

Current portion of operating lease liabilities	104		Current portion of operating lease liabilities	105			104
Long-term operating lease liabilities	341		Long-term operating lease liabilities	374			341
Total operating lease liabilities	445		Total operating lease liabilities	479			445

Finance Leases			Finance Leases
Finance lease right-of-use assets	33		Finance lease right-of-use assets	63			33

Current portion of finance lease liabilities	9		Current portion of finance lease liabilities	19			9
Long-term finance lease liabilities	25		Long-term finance lease liabilities	45			25
Total finance lease liabilities	$	34	Total finance lease liabilities	$	64		$	34

Weighted-average remaining lease term (years)			Weighted-average remaining lease term (years)
Operating leases			Operating leases	6.5 years			6.4 years
Finance leases			Finance leases	4.2 years			4.3 years

Weighted-average discount rate			Weighted-average discount rate
Operating leases			Operating leases	2.9		%	2.9		%
Finance leases			Finance leases	1.5		%	2.4		%

Operating leases are included in other assets, other accrued liabilities, and deferred income taxes and other liabilities in our consolidated balance sheet. Finance leases are included in property and equipment, net, current portion of long-term obligations and other short-term borrowings, and long-term obligations, less current portion in our consolidated balance sheet.

The following tables summarizes supplemental cash flow information related to leases:



(in millions)	2021		2020
Cash paid for lease liabilities:
Operating cash flows paid for operating leases	$	115	$	125

Financing cash flows paid for finance leases	15		7
Non-cash right-of-use assets obtained in exchange for lease obligations:
New operating leases	138		150
New finance leases	45		40
Amended lease standard adoption impact as of July 1, 2019 (1)	0		400

(1)Includes the effect of $22 million from reclassifying deferred rent as an offset to the lease right-of-use asset in accordance with the transition guidance.

(in millions) 2020
Cash paid for lease liabilities:
Operating cash flows paid for operating leases $ 125
Financing cash flows paid for finance leases 7
Non-cash right-of-use assets obtained in exchange for lease obligations:
New operating leases 150
New finance leases 40
Amended lease standard adoption impact as of July 1, 2019 ⁽¹⁾
400


~~(1)~~			~~Includes the effect of $22 million from reclassifying deferred rent as an offset to the lease right-of-use asset in accordance with the transition guidance.~~ Cardinal Health \| Fiscal 2021 Form 10-K			71

~~Our operating leases had a weighted-average remaining lease term of 6.4 years and a weighted-average discount rate of 2.9 percent. Our finance leases had a weighted-average remaining lease term of~~


Notes to Financial Statements

~~and a weighted-average discount rate of 2.4 percent .~~

Future lease payments under non-cancellable leases as of June 30, ~~2020~~2021 were as follows:


(in millions)	Operating Leases		Finance Leases		Total

2022	$	116	$	20	$	136
2023	93		20		113
2024	72		14		86
2025	65		8		73
2026	50		3		53
Thereafter	141		5		146
Total future lease payments	537		70		607
Less: leases not yet commenced (1)	3		0		3
Less: imputed interest	55		6		61
Total lease liabilities	$	479	$	64	$	543

(1)

(in millions) Operating Leases Finance Leases Total
2021 $ 117
$ 10
$ 127
2022 96
9
105
2023 72
9
81
2024 51
4
55
2025 44
2
46
Thereafter 123
2
125
Total future lease payments 503
36
539
Less: leases not yet commenced ⁽¹⁾
4
—
4
Less: imputed interest 54
2
56
Total lease liabilities $ 445
$ 34
$ 479


~~(1)~~	As of June 30, 2020, we had certain leases that were executed but did not have control of the underlying assets; therefore, the lease liabilities and right-of-use assets are not recorded in the consolidated balance sheet.

~~The future minimum rental payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year at~~ June 30, ~~2019 for fiscal 2020 through 2024~~2021, we had certain leases that were executed but did not have control of the underlying assets; therefore, the lease liabilities and ~~thereafter were as follows: $126 million, $100 million, $76 million, $54 million, $33 million and $94 million.~~

right-of-use assets are not recorded in the consolidated balance sheet.

6. Long-Term Obligations and Other Short-Term Borrowings

The following table summarizes long-term obligations and other short-term borrowings at June 30:

(in millions) (1) 2020 2019
2.4% Notes due 2019 $ —
$ 450
4.625% Notes due 2020 —
508
2.616% Notes due 2022 834
1,079
3.2% Notes due 2022 236
247
Floating Rate Notes due 2022 321
340
3.2% Notes due 2023 576
551
3.079% Notes due 2024 809
781
3.5% Notes due 2024 413
402
3.75% Notes due 2025 529
494
3.41% Notes due 2027 1,215
1,318
4.6% Notes due 2043 340
346
4.5% Notes due 2044 342
342
4.9% Notes due 2045 441
445
4.368% Notes due 2047 560
594
7.0% Debentures due 2026 124
124
Other Obligations 35
10
Total 6,775
8,031
Less: current portion of long-term obligations and other short-term borrowings 10
452
Long-term obligations, less current portion $ 6,765
$ 7,579


(in millions) (1)	2021		2020


2.616% Notes due 2022	$	572	$	834
3.2% Notes due 2022	0		236
Floating Rate Notes due 2022	281		321
3.2% Notes due 2023	564		576
3.079% Notes due 2024	794		809
3.5% Notes due 2024	410		413
3.75% Notes due 2025	524		529
3.41% Notes due 2027	1,216		1,215
4.6% Notes due 2043	341		340
4.5% Notes due 2044	342		342
4.9% Notes due 2045	441		441
4.368% Notes due 2047	560		560
7.0% Debentures due 2026	124		124
Other Obligations	67		35
Total	6,236		6,775
Less: current portion of long-term obligations and other short-term borrowings	871		10
Long-term obligations, less current portion	$	5,365	$	6,765

(1) Maturities are presented on a calendar year basis.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	63



~~Notes to Financial Statements~~

Maturities of existing long-term obligations and other short-term borrowings for fiscal ~~2021~~2022 through ~~2025~~2026 and thereafter are as follows: ~~$10~~$872 million, ~~$1.4 billion, $585~~$584 million, ~~$814~~$808 million, ~~$414~~$418 million, $525 million and ~~$3.6~~$3.0 billion.

Long-Term Debt

All the notes represent unsecured obligations of Cardinal Health, Inc. and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. The 7.0% Debentures represent unsecured obligations of Allegiance Corporation (a wholly-owned subsidiary), which Cardinal Health, Inc. has guaranteed. None of these obligations are subject to a sinking fund and the Allegiance obligations are not redeemable prior to maturity. Interest is paid pursuant to the terms of the obligations. These notes are effectively subordinated to the liabilities of our subsidiaries, including trade payables of $23.7 billion and $21.4 ~~billion.~~billion at June 30, 2021 and 2020, respectively.

During fiscal 2020, we redeemed $500 million aggregate principle amount of 4.625% Notes due December 2020 at a redemption price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes. In connection with the redemption, we recorded a $7 million loss on early extinguishment of debt.

~~During fiscal 2020, we~~ We also early repurchased $247 million of the 2.616% Notes due 2022, $11 million of the 3.2% Notes due 2022, $20 million of the Floating Rate Notes due 2022, $104 million of the 3.41% Notes due 2027, $6 million of the 4.6% Notes due 2043, $5 million of the 4.9% Notes due 2045, and $35 million of the 4.368% Notes due 2047. In connection with the early debt repurchases, we recognized a $9 million loss on early extinguishment of debt.

~~In November 2019, we~~ We also repaid the full principal of the $450 million 2.4% Notes due 2019 ~~at maturity for $450 million.~~as they became due.

~~The redemption and repurchases were paid for with available cash and other short-term borrowings.~~

InDuring fiscal 2019, we repurchased $67 million of the 2.616% Notes due 2022, $1 million of the 3.2% Notes due 2022, 8 million of the Floating Rate Notes due 2022, and $24 million of the 3.41% Notes due 2027 for a total of $100 million. The ~~repurchases were paid for with available cash. The~~ loss on early extinguishment of debt in connection with these early repurchases was immaterial. We also ~~paid off~~repaid the full principal of the $1.0 billion 1.948% Notes due 2019 as they became ~~due~~due.

The redemptions and repurchases were paid for with available ~~cash.~~cash and other short-term borrowings.

InOn August 13, 2021, we announced our intention to early redeem all remaining outstanding 2.616% Notes due June ~~2018, we repaid the full principal~~2022 on September 15, 2021 at an expected redemption price equal to 100% of the ~~1.95% Notes due 2018 at maturity for $550 million.~~principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes.

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

If we undergo a change of control, as defined in the notes, and if the notes receive specified ratings below investment grade by each of Standard & Poors Ratings Services, Moody’s Investors Services and Fitch Ratings, any holder of the notes, excluding the debentures, can require with respect to the notes owned by such holder, or we can offer, to repurchase the notes at 101% of the principal amount plus accrued and unpaid interest.

Other Financing Arrangements

In addition to cash and equivalents and operating cash flow, other sources of liquidity include a $2.0 billion commercial paper program

backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility.

In September 2019, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC (“CHF”) through September 30, 2022. CHF was organized for the sole purpose of buying receivables and selling undivided interests in those receivables to third-party purchasers. Although consolidated with Cardinal Health, Inc. in accordance with GAAP, CHF is a separate legal entity from Cardinal Health, Inc. and from our subsidiary that sells receivables to CHF. CHF is designed to be a special purpose, bankruptcy-remote entity whose assets are available solely to satisfy the claims of its creditors.

Our revolving credit and committed receivables sales facilities require us to maintain ~~as of the end of every fiscal quarter through December 2020,~~ a consolidated net leverage ratio of no more than ~~4.00-to-1. The maximum permitted ratio will reduce to 3.75-to-1 in March 2021 and as of the end of every quarter thereafter~~.3.75-to-1. As of June 30, ~~2020~~,2021, we were in compliance with this financial covenant.

At June 30, ~~2020~~2021 and ~~2019~~,2020, we had no0 amounts outstanding under the revolving credit facility; however, availability was reduced by outstanding letters of credit of $1 million ~~and $24 million~~ at both June 30, ~~2020~~2021 and ~~2019, respectively.~~2020.

Under our committed receivables sales facility program, we had a maximum amount outstanding of ~~$700~~$200 million and an ~~average~~immaterial daily amount outstanding ~~of $12 million~~ during fiscal ~~2020~~.2021. We ~~also~~ had no0 amounts outstanding as of June 30, 2021 under the committed receivables sales facility program; however, availability was reduced by outstanding standby letters of credit of ~~$29~~$31 million and ~~$30~~$29 million at June 30, 2021 and 2020, ~~and~~ ~~2019~~, respectively.

~~Under our commercial paper program we had a maximum amount outstanding of $1.7 billion and an average daily amount outstanding of $183 million during fiscal~~ ~~2020~~. We had no0 amounts outstanding under the commercial paper program as of June 30, ~~2020~~2021 and ~~2019~~.2020.

We also maintain other short-term credit facilities and an unsecured line of credit that allowed for borrowings up to $6 million ~~and $9 million~~ at both June 30, ~~2020~~2021 and ~~2019, respectively.~~2020. The ~~$35~~$67 million and ~~$10~~$35 million balance of other obligations at June 30, ~~2020~~2021 and ~~2019~~,2020, respectively, consisted of finance leases and short-term ~~borrowings and finance leases.~~borrowings.


			Cardinal Health \| Fiscal 2021 Form 10-K			73


Notes to Financial Statements

7. Commitments, Contingent Liabilities and Litigation

Commitments

Generic Sourcing Venture with CVS Health Corporation ("CVS Health")

In July 2014, we established Red Oak Sourcing, LLC ("Red Oak Sourcing") is, a U.S.-based generic pharmaceutical sourcing venture with CVS Health for an initial term ~~through June 2024.~~of 10 years. Red Oak Sourcing negotiates generic pharmaceutical supply contracts on behalf of its participants. ~~Due~~In August 2021, we amended our agreement to extend the ~~achievement of predetermined milestones, we~~term through June 2029. We are required to make quarterly payments of ~~$45.6 million~~to CVS Health for the ~~initial term.~~term of the arrangement. These payments are included as purchase obligations and other payments in the Contractual Obligations section of MD&A.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	64



~~Notes to Financial Statements~~

Contingencies

New York Opioid Stewardship Act

In April 2018, the State of New York passed a budget which included the Opioid Stewardship Act (the "OSA"). The OSA created an aggregate $100 million annual assessment on all manufacturers and distributors licensed to sell or distribute opioids in New York. Under the OSA, each licensed manufacturer and distributor would be required to pay a portion of the assessment based on its share of the total morphine milligram equivalents sold or distributed in New York during the applicable calendar year, beginning in 2017.

The constitutionality of portions of the OSA has been challenged in court. In December 2018, the OSA was ruled unconstitutional by the U.S. District Court for the Southern District of New York. Subsequently, New York ~~ruled~~passed a new statute that modified the assessment going forward and limited the OSA ~~is unconstitutional~~to two years (2017 and ~~enjoined its enforcement (the "Ruling")~~2018). The U.S. Court of Appeals for the Second Circuit reversed the district court's decision on procedural grounds. In ~~January 2019,~~February 2021, the ~~State filed notice~~Second Circuit stayed the effect of ~~its intent to appeal~~ the ~~Ruling. In April 2019, the State, among other things, amended the OSA so that the assessment would only cover opioid sales in 2017 and 2018, subject~~ruling pending a petition to the ~~State's pending appeal of~~U.S. Supreme Court to review the ~~Ruling.~~Second Circuit's opinion. If the U.S. Supreme Court declines to take the case, or if it ultimately upholds the Second Circuit's ruling, New York State would likely seek to collect amounts allegedly owed under the OSA.

We accrue contingencies if it is probable that a liability has been incurred and the amount can be estimated. AtBecause of the Second Circuit ruling, we recorded an aggregate accrual of $41 million for calendar years 2017 and 2018 in the fiscal year ended June 30, ~~2020, we have no amounts accrued for~~2021 based on the probable estimated payment amount, which is our best estimate of the OSA ~~because we do not believe it is~~payments probable ~~that a liability has been incurred.~~at June 30, 2021.

Legal Proceedings

We become involved from time to time in disputes, litigation and regulatory matters.

From time to time, we determine that products we source, manufacture or market do not meet our specifications, regulatory requirements, or published standards. When we or a regulatory agency identify a potential quality or regulatory issue, we investigate and take appropriate corrective action. Such actions

have led to product recalls, costs to repair or replace affected products, temporary interruptions in product sales, product liability claims and lawsuits and can lead to action by regulators. Even absent an identified regulatory or quality issue or product recall, we can become subject to product liability claims and lawsuits.

From time to time, we become aware through employees, internal audits or other parties of possible product quality, regulatory or compliance matters, such as complaints or concerns relating to accounting, internal accounting controls, financial reporting, auditing, or other ethical matters or relating to compliance with laws such as healthcare fraud and abuse, anti-corruption or anti-bribery laws. When we become aware of such possible compliance matters, we investigate internally and take appropriate corrective action. In addition, from time to time, we receive subpoenas or requests for information from various federal or state agencies relating to our business or to the business of a customer, supplier or other industry participants. Internal investigations, subpoenas or requests for information could directly or indirectly lead to the assertion of claims or the commencement of legal proceedings against us or result in sanctions.

We ~~may be~~have been named from time to time in qui tam actions initiated by private third parties. In such actions, the private parties purport to act on behalf of federal or state governments, allege that false claims have been submitted for payment by the government and may receive an award if their claims are successful. After a private party has filed

a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination. If the government declines to intervene, the private party may nonetheless continue to pursue the litigation on his or her own purporting to act on behalf of the ~~government~~.government.

We accrue for contingencies related to disputes, litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because these matters are inherently unpredictable and unfavorable developments or resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine whether our accruals and related disclosures are adequate. The amount of ultimate loss may differ from these estimates.

We recognize income from the favorable outcome of litigation when we receive the associated cash or assets.

We recognize estimated loss contingencies for certain litigation and regulatory matters and income from favorable resolution of litigation in litigation (recoveries)/charges in our consolidated statements of earnings/(loss).

Opioid Lawsuits and Investigations

Pharmaceutical wholesale distributors, including us, have been named as defendants in ~~over 3,000~~approximately 3,300 lawsuits relating to the distribution of prescription opioid pain medications. The lawsuits seek equitable relief and monetary damages based on a variety of legal theories including various common law claims, such as public nuisance, negligence and unjust enrichment as well

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

as violations of controlled substance laws, the Racketeer Influenced and Corrupt Organizations Act and various other statutes. These lawsuits also name pharmaceutical manufacturers, retail pharmacy chains and other entities as defendants.

States & Political Subdivisions

Approximately ~~2,800~~2,900 of these lawsuits have been filed by counties, municipalities, cities and political subdivisions in various federal, state, and other courts. The vast majority of these lawsuits were filed in U.S. federal court and have been transferred for consolidated pre-trial proceedings in a Multi-District Litigation proceeding in the U.S. District Court for the Northern District of Ohio (the “MDL”).

In January 2020, the complaints of Cabell County and City of Huntington, West Virginia were remanded from the MDL to U.S. District Court in West Virginia. A trial date has been set for October 2020. In addition, the complaints of San Francisco, California and the Cherokee Nation have been remanded to their original district courts.

In addition, 25 state attorneys general have filed lawsuits against distributors, including us, in various state courts. A trial in New York for cases brought by the New York Attorney General and Nassau and Suffolk counties was scheduled to begin in March 2020, but was deferred due to the COVID-19 pandemic. A trial is scheduled to begin in Madison County, Ohio, in October 2020 for the case brought by the Ohio Attorney General. A state court trial in a case brought by

~~Cardinal Health~~ | ~~Fiscal 2020 Form 10-K~~



~~Notes to Financial Statements~~

~~certain West Virginia political subdivisions is scheduled for March 2021. Additionally, we~~We have also received requests, civil investigative demands, subpoenas or requests for information from additional state attorneys general offices and governmental authorities.

In October 2019, we agreed in principle to a global settlement framework with a leadership group of state attorneys ~~general that~~general; the framework is designed to resolve ~~all~~ pending and future opioid lawsuits and claims by states and political subdivisions, but not private plaintiffs (the "Settlement Framework"). ~~This~~We continued to build out the Settlement Framework and to negotiate the terms of the settlement with the leadership group and other representatives of states and political subdivisions.

In July, 2021, we announced that we and two other national distributors have negotiated a proposed settlement agreement (the “Proposed Settlement Agreement”) and settlement process that, if all conditions are satisfied, would result in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities. West Virginia subdivisions and Native American tribes are not a part of this settlement process and we have been involved in separate negotiations with these groups. The settlement process does not contemplate participation by any non-governmental or non-political entities or individuals. In connection with the negotiations of the Proposed Settlement Agreement, we and the two other national distributors entered into a settlement with the State of New York and its participating subdivisions. If the Proposed Settlement Agreement becomes effective, New York and its participating subdivisions will become a part of it.

The Proposed Settlement Agreement is subject to contingencies and ~~uncertainties~~will not become effective unless and until the three distributors each make separate independent determinations that (1) following a sign-on period, a sufficient number of states have agreed to the Proposed Settlement Agreement (the “Settling States”); and, subsequently, (2) following a notice period, that a sufficient number of states and political subdivisions, including those that have not sued, have agreed to the Agreement (or otherwise had their claims foreclosed) to proceed to effectiveness. Prior to the second determination, the Settling States will also have an opportunity to make a determination as to ~~final~~whether a sufficient number of political subdivisions have agreed to the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed with the

Proposed Settlement Agreement. This process is currently contemplated to end in February 2022, although it may be extended by agreement. It is possible that a sufficient number of states and subdivisions will not agree to the Proposed Settlement Agreement or that other required contingencies will not be satisfied.

If these conditions are satisfied, the Proposed Settlement Agreement would become effective sixty (60) days after the distributors determine that there is sufficient participation among political subdivisions. During this 60-day period, the Settling States and the distributors would cooperate to obtain consent judgments in each participating state embodying the terms ~~but is~~of the ~~basis for our negotiation of definitive terms and documentation.~~Settlement.

The Proposed Settlement ~~Framework~~Agreement includes ~~(1)~~ a cash component,, pursuant to which wethe Company would pay up to ~~$5.56~~approximately $6.37 billion, the majority of which would be paid over ~~eighteen years,~~18 years. The exact payment amount will depend on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions (e.g., laws barring or limiting opioid lawsuits by political subdivisions), and the extent to which political subdivisions in Settling States file additional opioid lawsuits against the Company after the Proposed Settlement Agreement becomes effective.

The Proposed Settlement Agreement also includes injunctive relief terms related to settling distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) ~~development~~independence and ~~participation in a program~~training of the personnel operating our controlled substances monitoring program; (3) due diligence for ~~distribution of opioid abuse treatment medications~~new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will be selected to oversee compliance with these provisions for a period of five years. In addition, we and the two other settling distributors will engage a third-party vendor to act as a clearinghouse for data aggregation and reporting; distributors will fund the clearinghouse for ten years, and (3) to-be specified industry-wide changes to controlled substance anti-diversion programs. Definitive terms for a settlement pursuant to the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. years.

In ~~connection with these matters,~~total, we have ~~$5.56~~recorded total pre-tax charges of $1.17 billion and $5.63 billion in litigation charges/(recoveries), net in the years ended June 30, 2021 and 2020, respectively. In total, we have $6.73 billion accrued at June 30, ~~2020,~~2021, of which $405 million is included in other accrued liabilities and the remainder is included in deferred income taxes and other liabilities in the consolidated balance sheets, which represents the cash component. We are unable to estimate the range of possible loss associated with these matters. We are unable to reasonably estimate the liability or cost associated with the other components of the Settlement Framework, the potential distribution of treatment medications and any incremental costs for changes to our controlled substance anti-diversion program that we may agree to.sheets.

In the fiscal year ended June 30, 2020, we along with two other national distributors entered into a $215 million settlement with two Ohio counties, Cuyahoga and Summit, to resolve all claims in the first bellwether trial in the MDL, which had been set for trial for October 2019. In connection with this settlement, we incurred $66 million within litigation (recoveries)/charges, net during the fiscal year ended June 30, 2020.

In connection with these matters (including the settlement with two Ohio counties), we recorded a total pre-tax charge of $5.63 billion ($5.14 billion after tax) during the fiscal year ended June 30, 2020 in litigation (recoveries)/charges, net, in the consolidated statement of earnings/(loss) for the cash component. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this ~~accrual.~~accrual, whether as a result of settlement discussions, a judicial decision or verdict or otherwise, but we are not able to estimate a range of reasonably possible additional losses for these matters. We continue to strongly dispute the allegations made in these lawsuits and reaching an agreement in principle on a global settlement framework is not an admission of liability or wrongdoing.


			Cardinal Health \| Fiscal 2021 Form 10-K			75


Notes to Financial Statements

Additionally, a trial before a judge in West Virginia in the Cabell County and City of Huntington cases concluded in July 2021 and the judge has not yet issued a decision. In addition, a trial in the case brought by the Ohio Attorney General is scheduled to begin in September 2021 and a trial in the case brought by the Washington Attorney General is scheduled to begin in November 2021. The Ohio Attorney General has issued a press release indicating support for the Proposed Settlement Agreement; however, the Washington Attorney General has issued a press release stating that Washington will not agree to the Proposed Settlement Agreement. These public announcements are not binding and there is no assurance that any state that has made a public announcement of support for the Proposed Settlement Agreement will ultimately execute the Proposed Settlement Agreement.

Private Plaintiffs

The Proposed Settlement ~~Framework~~Agreement does not address claims by private ~~plaintiffs,~~parties, which includes unions and other health and welfare funds, hospital systems and other healthcare providers, businesses and

~~individuals.~~ individuals alleging personal injury. Private ~~plaintiffs~~parties had brought approximately ~~400~~442 lawsuits as of ~~July 28, 2020.~~August 10, 2021. Of these, ~~106~~128 are purported class actions. The causes of action asserted by these plaintiffs are similar to those asserted by public ~~plaintiffs relating~~plaintiffs. A trial in one case is currently scheduled to ~~the distribution of controlled substances.~~begin in October 2021. We are vigorously defending ourselves in these matters.

Insurance Litigation

We are involved in legal proceedings with two insurers related to the availability of insurance coverage for the lawsuits described above. In October 2020, we filed a complaint for declaratory judgment against National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) seeking a declaration that National Union is obligated to reimburse us for defense costs incurred in connection with the lawsuits described above. In January, 2021, Swiss Re International SE commenced an arbitration in London seeking a determination that it does not have an obligation to reimburse us for defense and indemnity expenses incurred in connection with the lawsuits described above. We have not recorded a receivable for any recoveries related to these insurance litigation matters as of June 30, 2021.

Department of Justice Investigations

We have received federal grand jury subpoenas issued in connection with investigations being conducted by the U.S. Attorney's Office for the Eastern District of New York and the Fraud Section of the U.S. Department of Justice ("DOJ"). ~~The subpoenas seek documents relating to~~We have also received civil requests for information from other DOJ offices. We believe that these investigations concern operation of our anti-diversion program, our anti-diversion policies and procedures, and ~~program, and our~~ distribution of certain controlled substances. We are cooperating with these requests. We are unable to predict the outcome of any of these investigations.

Cordis Product Liability Lawsuits

As of ~~July 28, 2020,~~August 10, 2021, we are named as a defendant in ~~334~~419 product liability lawsuits coordinated in Alameda County Superior Court in California involving claims by approximately ~~4,280~~5,427 plaintiffs that allege personal injuries associated with the use of Cordis OptEase and TrapEase inferior vena cava ~~(IVC)~~("IVC") filter products. Another 3132 lawsuits involving similar claims by approximately 3637 plaintiffs are pending in other jurisdictions. These lawsuits seek a variety of remedies, including unspecified monetary damages. In July 2021, we entered into an agreement to settle approximately 1,300 claims. This agreement is subject to certain contingencies. We continue to vigorously defend ourselves in these lawsuits and ~~have begun to engage~~are engaged in ~~preliminary~~ongoing resolution discussions with certain plaintiffs.

At June 30, ~~2020,~~2021, we had a total of ~~$468~~$524 million, net of estimated insurance recoveries, accrued for losses and legal defense costs, net of expected insurance recoveries, related to the Cordis IVC filter lawsuits ~~which are presented on a gross basis~~ in the consolidated balance sheets. We believe there is a range of estimated losses with respect to these matters. Because no amount within the range is a better estimate than any other amount within the range, we have accrued the minimum amount in the range. We estimate the high end of the range to be approximately ~~$919 million~~,$1.03 billion, net of estimated insurance recoveries. The sale of the Cordis disposal group does not include product liability related to the IVC filters in the U.S. and Canada, which we retained.

SEC Investigation

In February 2021, we received a subpoena from the U.S. Securities and Exchange Commission requesting the production of documents from 2015 through 2019 relating to inventory in the Cordis business, analysis of goodwill of the Medical segment and other matters. We are cooperating with this inquiry and cannot predict its outcome or duration.

Shareholder Securities Litigation

In August 2019, the Louisiana Sheriffs' Pension & Relief Fund filed a purported class action complaint against Cardinal Health and certain current and former officers and employees in the United States District Court for the Southern District of Ohio purportedly on behalf of all purchasers of our common shares between March 2015 and May 2018. In June 2020, the court appointed 1199 SEIU Health Care Employees Pension Fund as lead plaintiff and a consolidated amended complaint was filed in September 2020. The amended complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by making misrepresentations and omissions related to the acquisition integration of the Cordis business and inventory and supply chain problems within the Cordis business, and seeks to recover unspecified damages and equitable relief for the alleged misstatements and omissions. The complaint also alleges that one of the individual defendants violated Section 20A of the Exchange Act because he sold shares of Cardinal Health stock during the time period. In ~~June~~November 2020, we filed a motion to dismiss the ~~court appointed 1199 SEIU Health Care Employees Pension Fund as lead plaintiff.~~amended complaint. We believe that the claims asserted in this

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

complaint are without merit and intend to vigorously defend against them.

~~Surgical Gown Recalls~~Specialty Solutions DOJ Investigation

In ~~January 2020, we issued a voluntary recall~~November 2018, the United States Attorney’s Office for ~~9.1 million AAMI Level 3 surgical gowns~~the District of Massachusetts (the "USAO") commenced an investigation pertaining to the U.S. federal healthcare fraud and ~~two voluntary field actions (a recall~~abuse laws. These requests sought, among other things, documents and information relating to discounts and rebates offered or provided to certain Specialty Solutions customers. We are cooperating with these requests and are engaged in resolution discussions with the USAO and Department of ~~some packs~~Health and ~~a corrective action allowing overlabeling~~Human Services, Office of ~~other packs) for 2.9 million Presource Procedure Packs containing affected~~



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	66



~~Notes to Financial Statements~~

gowns (together, the "Recalls"). These Recalls were necessary because we discovered in December 2019 that one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved sites with uncontrolled manufacturing environments. Because of this, we could not assure sterility of the gowns.

Inspector General. In connection with these ~~Recalls, in~~discussions, we recorded $13 million of expense within litigation charges/(recoveries) on our consolidated statements of earnings/(loss) during the fiscal year ended June 30, ~~2020,~~2021. We cannot predict the outcome of the discussions and it is possible that we ~~recorded total charges~~may incur additional losses or agree to other remedial measures; however, we are not currently able to estimate a range of $85 million, of which $48 million is within cost of products sold and $37 million is within SG&A in the consolidated statements of earnings/(loss). This charge represents our best estimate of costs for the Recalls and includes inventory write-off costs and certain remediation and supply disruption costs, such as costs to replace recalled products. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events.reasonably possible additional losses.

Other Civil Litigation

Generic Pharmaceutical Pricing Antitrust Litigation

In December 2019, pharmaceutical distributors including us were added as defendants in a civil class action lawsuit filed by indirect purchasers of generic drugs, such as hospitals and retail pharmacies. The indirect purchaser case is part of a multidistrict litigation consisting of multiple individual class action matters consolidated in the Eastern District of Pennsylvania. The indirect purchaser plaintiffs allege that pharmaceutical distributors encouraged manufacturers to increase prices, provided anti-competitive pricing information to manufacturers and improperly engaged in customer allocation. We have filed a motion to dismiss the complaints and we intend to vigorously defend ~~ourselves in this matter.~~ourselves.

Active Pharmaceutical Ingredient Impurity Litigation

Many participants in the pharmaceutical supply chain, including active pharmaceutical ingredient ("API") manufacturers, finished dose manufacturers, repackagers, ~~(including us),~~ distributors, ~~(including us),~~ and retailers have been named as defendants in lawsuits arising out of recalls of certain medications due to alleged impurities in the active pharmaceutical ingredients or finished product.

In February 2019, a Multidistrict Litigation was created in the U.S. District Court for the District of New Jersey (the “Sartan MDL”) alleging API impurities in certain generic blood pressure medications. We ~~were recently~~have been named as a defendant in ~~a Multidistrict Litigation alleging API impurities in Zantac and its generic form, ranitidine.~~the Sartan MDL. We ~~intend to~~are vigorously ~~defend~~defending ourselves in ~~these matters.~~this matter.

Antitrust Litigation Proceeds

We received and recognized income resulting from settlements of lawsuits in which we were a class member or plaintiff of $112 million, $16 million,~~$94 million~~ and ~~$22~~$94 million during fiscal 2021, 2020, ~~2019,~~ and ~~2018,~~2019, respectively.

8. Income Taxes

Earnings/(Loss) before Income Taxes and Provision for/(Benefit From) Income Taxes

The following table summarizes earnings/(loss) before income taxes:

(in millions) 2020 2019 2018
U.S. operations $ (4,056 ) $ 1,478
$ 391
Non-U.S. operations 284
273
(619 )
Earnings/(loss) before income taxes $ (3,772 ) $ 1,751
$ (228 )


(in millions)	2021		2020		2019
U.S. operations	$	(47)	$	(4,056)	$	1,478
Non-U.S. operations	370		284		273
Earnings/(loss) before income taxes	$	323	$	(3,772)	$	1,751

The following table summarizes the components of provision for/(benefit from) income taxes:


(in millions)	2021		2020		2019
Current:
Federal	$	(989)	$	659	$	295
State and local	92		154		89
Non-U.S.	112		69		85
Total current	$	(785)	$	882	$	469

Deferred:
Federal	$	539	$	(822)	$	(28)
State and local	(28)		(127)		(37)
Non-U.S.	(15)		(12)		(18)
Total deferred	496		(961)		(83)
Provision for/(benefit from) income taxes	$	(289)	$	(79)	$	386

(in millions) 2020 2019 2018
Current:
Federal $ 659
$ 295
$ 341
State and local 154
89
41
Non-U.S. 69
85
143
Total current $ 882
$ 469
$ 525

Deferred:
Federal $ (822 ) $ (28 ) $ (1,003 )
State and local (127 ) (37 ) 16
Non-U.S. (12 ) (18 ) (25 )
Total deferred (961 ) (83 ) (1,012 )
Provision for/(benefit from) income taxes $ (79 ) $ 386
$ (487 )

Tax Effects of Self-Insurance Pre-Tax Loss

During fiscal 2021, our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and applied to adjust our taxable income for fiscal 2015, 2016, 2017, and 2018 as permitted under the Coronavirus Aid, Relief and Economic Security ("CARES") Act enacted by the United States Congress in March 2020.

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.


			Cardinal Health \| Fiscal 2021 Form 10-K			77


Notes to Financial Statements

liability by approximately $700 million during fiscal 2021 related to this matter.

Tax Effects of Opioid Litigation Charges

In connection with the $1.17 billion and $5.63 billion pre-tax charges for the opioid litigation, during fiscal 2021 and 2020, we recorded a tax benefit of $228 million and $488 million, respectively. Our tax benefits are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $219 million and $469 million, respectively.

We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the U.S. tax law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act ("Tax Act"). Further, it is possible Congress or the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit may differ materially from these estimates.

Effective Tax Rate

The following table presents a reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate:


	2021 (1)		2020 (1)		2019 (1)
Provision at Federal statutory rate	21.0	%	21.0	%	21.0	%
State and local income taxes, net of federal benefit	3.2		2.5		0.9
Tax effect of foreign operations	0.7		0		(0.7)
Nondeductible/nontaxable items (2)	1.6		0.2		0.8
Cordis Disposition	7.0		0		0
Withholding Taxes (2)	9.0		(0.3)		0.7
Change in Valuation Allowances	(1.4)		1.5		4.5
US Taxes on International Income (2)(3)	(6.7)		0.2		0.7

Impact of Resolutions with IRS and other related matters (2)	(13.6)		(0.4)		(0.1)
Legal Entity Reorganization	0		0		(3.6)

Opioid litigation	17.7		(23.2)		0
Loss Carryback Claims	(129.9)		0		0
Other (2)	1.7		0.6		(2.1)
Effective income tax rate	(89.7)	%	2.1	%	22.1	%

2020 (1) 2019 (2) 2018 (1)
Provision at Federal statutory rate 21.0 % 21.0 % 28.1 %
State and local income taxes, net of federal benefit 2.5
0.9
(16.0 )
Tax effect of foreign operations —
(0.7 ) (48.4 )
Nondeductible/nontaxable items (0.1 ) 2.5
(10.2 )
Goodwill impairment —
—
(124.7 )
Tax Act 0.1
(0.8 ) 410.9
Change in valuation allowances 1.5
4.5
(76.9 )
Foreign tax credits 0.5
(1.0 ) 27.3
China tax related to divestiture —
—
(25.8 )
Legal entity reorganization —
(3.6 ) 71.4
Opioid litigation (23.2 ) —
—
Other (0.2 ) (0.7 ) (21.9 )
Effective income tax rate 2.1 % 22.1 % 213.8 %
(1) The table represents the following: fiscal 2021 is pretax income with tax benefit, fiscal 2020 is pretax loss with tax benefit, and fiscal 2019 is pretax income with tax expense.


~~(1)~~	~~The effective income tax rate for fiscal 2020 and 2018 represents an income tax benefit tax rate.~~


~~(2)~~	~~The effective income tax rate for fiscal 2019 represents an income tax expense tax rate.~~

(2) Certain prior year amounts have been reclassified to conform to current year presentation.

(3) Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.



67	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~



~~Notes to Financial Statements~~

The income tax benefit rate was ~~2.1%~~89.7% and ~~213.8%~~2.1% in fiscal ~~2020~~2021 and fiscal ~~2018~~2020 compared to an income tax expense rate of 22.1% in fiscal 2019. Fluctuations in the effective tax rates are primarily due to the impact of opioid litigation in fiscal 2021 and 2020, ~~and~~as well as the impact of the ~~U.S. Tax Cuts and Jobs~~carryback claim filed in accordance with the CARES Act ~~("Tax Act")~~provision in fiscal ~~2018, both described further below, as well as the Medical Unit goodwill impairment in fiscal 2018, as described in~~ ~~Note 1. There were also changes in valuation allowances related to capital losses, credit carryforwards and net operating loss carryforwards in U.S. federal, U.S. state and international jurisdictions.~~

~~In connection with the $5.63 billion pre-tax charge for the opioid litigation, we recorded a tax benefit of $488 million~~ ~~in fiscal 2020~~, which is net of unrecognized tax benefits of $469 million, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the tax law; however, these estimates require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the Tax Act. Further, it is possible that the tax authorities could challenge our interpretation of the currently enacted tax law or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See ~~Note 7~~ ~~for more information regarding these matters.~~year 2021.

Our effective tax rate has benefits from negotiated lower than statutory tax rates in select foreign jurisdictions which individually are not material to our effective tax rate but in aggregate have a favorable tax impact of approximately ~~$17~~$20 million during fiscal ~~2020.~~2021.

~~On December 22, 2017, the United States enacted the Tax Act. The Tax Act made broad and comp~~lex changes to the U.S. tax code that affected fiscal 2018 and incrementally affected our fiscal year 2019 financial results in several ways. First, the U.S. statutory tax rate in fiscal 2019 was reduced to 21.0%. Second, the Tax Act established new tax provisions that affected us beginning July 1, 2018 including, (1) eliminating the U.S. manufacturing deduction; (2) establishing new limitations on deductible interest expense and certain executive compensation; (3) eliminating the corporate alternative minimum tax; (4) creating the base erosion anti-abuse tax; (5) creating a new provision designed to tax global intangible low-tax income (“GILTI”) and allow for a deduction related to foreign derived intangible income ("FDII"); (6) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; and (7) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

~~Regarding the new GILTI tax rules, we elected to treat taxes due on future GILTI inclusions in U.S. taxable income as a current period expense when incurred.~~

considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our financial statements in fiscal ~~2020.~~2021.

Deferred Income Taxes

Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities and operating loss and tax credit carryforwards for tax purposes.

The following table presents the components of the deferred income tax assets and liabilities at June 30:


(in millions)	2021		2020
Deferred income tax assets:
Receivable basis difference	$	40	$	39
Accrued liabilities	874		607
Share-based compensation	38		38
Loss and tax credit carryforwards	805		589
Deferred tax assets related to uncertain tax positions	35		52
Other	16		87
Total deferred income tax assets	1,808		1,412
Valuation allowance for deferred income tax assets	(515)		(470)
Net deferred income tax assets	$	1,293	$	942

Deferred income tax liabilities:
Inventory basis differences	$	(1,119)	$	(1,083)
Property-related	(375)		(327)
Goodwill and other intangibles	(733)		(751)
Self-Insurance	(975)		0
Other	(23)		0
Total deferred income tax liabilities	$	(3,225)	$	(2,161)
Net deferred income tax liability	$	(1,932)	$	(1,219)

(in millions) 2020 2019
Deferred income tax assets:
Receivable basis difference $ 39
$ 35
Accrued liabilities 607
133
Share-based compensation 38
39
Loss and tax credit carryforwards 589
621
Deferred tax assets related to uncertain tax positions 52
30
Other 87
6
Total deferred income tax assets 1,412
864
Valuation allowance for deferred income tax assets (470 ) (542 )
Net deferred income tax assets $ 942
$ 322

Deferred income tax liabilities:
Inventory basis differences $ (1,083 ) $ (1,056 )
Property-related (327 ) (171 )
Goodwill and other intangibles (751 ) (808 )
Total deferred income tax liabilities
$ (2,161 ) $ (2,035 )
Net deferred income tax liability $ (1,219 ) $ (1,713 )

Cardinal Health | Fiscal 2021 Form 10-K


Notes to Financial Statements

Deferred income tax assets and liabilities in the preceding table, after netting by taxing jurisdiction and for uncertain tax positions, are in the following captions in the consolidated balance sheets at June 30:


(in millions)	2021		2020
Noncurrent deferred income tax asset (1)	52		39
Noncurrent deferred income tax liability (2)	(1,981)		(1,258)
Noncurrent deferred income tax liability transferred to held for sale	(3)		0
Net deferred income tax liability	$	(1,932)	$	(1,219)

(in millions) 2020 2019
Noncurrent deferred income tax asset (1) $ 39
$ 36
Noncurrent deferred income tax liability (2) (1,258 ) (1,749 )
Net deferred income tax liability $ (1,219 ) $ (1,713 )

(1)Included in other assets in the consolidated balance sheets.


~~(1)~~	~~Included in other assets in the consolidated balance sheets.~~


~~(2)~~	~~Included in deferred income taxes and other liabilities in the consolidated balance sheets.~~

(2)Included in deferred income taxes and other liabilities in the consolidated balance sheets.

At June 30, ~~2020~~2021 we had gross federal, state and international loss and credit carryforwards of ~~$123~~$272 million, ~~$2.4~~$3.9 billion and ~~$2.2~~$2.3 billion, respectively, the tax effect of which is an aggregate deferred tax asset of ~~$589~~$805 million. Substantially all of these carryforwards are available for at least three years. Approximately ~~$461~~$477 million of the valuation allowance at June 30, ~~2020~~2021 applies to certain federal, state and international loss carryforwards that, in our opinion, are more likely than not to expire unutilized. However, to the extent that tax benefits related to these carryforwards are realized in the future, the reduction in the valuation allowance would reduce income tax expense.



	~~Cardinal Health~~ \| ~~Fiscal 2020 Form 10-K~~	68



~~Notes to Financial Statements~~



	Page
	Introduction	2
	Management's Discussion and Analysis of Financial Condition and Results of Operations	3
	Explanation and Reconciliation of Non-GAAP Financial Measures	2026
~~Selected Financial Data~~	23
	Quantitative and Qualitative Disclosures about Market Risk	2430
	Business	2632
	Risk Factors	3340
	Properties	4047
	Legal Proceedings	4048
	Market for Registrant's Common Equity	4149
	Reports	4351
	Financial Statements and Supplementary Data	4856
	Directors, Executive Officers, and Corporate Governance	7989

	Exhibits	8191
	Form 10-K Cross Reference Index	8595
	Signatures	8696



($ per share)	2020 ^{(2) (3)}			2019 ⁽²⁾			Change
GAAP diluted EPS⁽¹⁾	$	(12.61	)	$	4.53		N.M.
Surgical gown recall costs	0.22			—
State opioid assessment related to prior fiscal years	0.01			—
Restructuring and employee severance	0.31			0.31
Amortization and other acquisition-related costs	1.34			1.57
Impairments and (gain)/loss on disposal of assets	0.02			(1.25		)
Litigation (recoveries)/charges, net	17.84			0.09
Loss on early extinguishment of debt	0.04			—
Gain on sale of equity interest in naviHealth	(1.68		)	—
Transitional tax benefit, net	(0.01		)	0.03
Non-GAAP diluted EPS ⁽¹⁾	$	5.45		$	5.28		3	%



	2020 (1)		2019 (2)
Provision at Federal statutory rate	21.0	%	21.0	%
State and local income taxes, net of federal benefit	2.5		0.9
Tax effect of foreign operations	—		(0.7	)
Nondeductible/nontaxable items	(0.1	)	2.5
Tax Act	0.1		(0.8	)
Change in valuation allowances	1.5		4.5
Foreign tax credits	0.5		(1.0	)
Legal entity reorganization	—		(3.6	)
Opioid litigation	(23.2	)	—
Other	(0.2	)	(0.7	)
Effective income tax rate	2.1	%	22.1	%



(in millions)	2021		2022 to 2023		2024 to 2025		There-after		Total
Long-term debt and short-term borrowings (1)	$	—	$	1,967	$	1,222	$	3,552	$	6,741
Interest on long-term debt	226		411		336		1,671		2,644
Finance lease obligations (2)	10		18		6		2		36
Operating lease obligations (3)	117		168		95		123		503
Purchase obligations and other payments (4)	623		481		210		36		1,350
Total contractual obligations (5) (6)	$	976	$	3,045	$	1,869	$	5,384	$	11,274



(in millions, except per common share amounts)	2020^1,2,3			2019⁴			2018^5,6			2017			2016
Earnings Data:
Revenue	$	152,922		$	145,534		$	136,809		$	129,976		$	121,546

Operating earnings/(loss)	(4,098		)	2,060			126			2,120			2,459

Net earnings/(loss)	(3,693		)	1,365			259			1,294			1,431
Less: Net earnings attributable to noncontrolling interests	(3		)	(2		)	(3		)	(6		)	(4		)
Net earnings/(loss) attributable to Cardinal Health, Inc.	$	(3,696	)	$	1,363		$	256		$	1,288		$	1,427

Basic earnings/(loss) per common share attributable to Cardinal Health, Inc.	$	(12.61	)	$	4.55		$	0.82		$	4.06		$	4.36

Diluted earnings/(loss) per common share attributable to Cardinal Health, Inc.	$	(12.61	)	$	4.53		$	0.81		$	4.03		$	4.32

Cash dividends declared per common share	$	1.9292		$	1.9100		$	1.8635		$	1.8091		$	1.6099

Balance Sheet Data:
Total assets	$	40,766		$	40,963		$	39,951		$	40,112		$	34,122
Long-term obligations, less current portion	6,765			7,579			8,012			9,068			4,952
Total Cardinal Health, Inc. shareholders' equity	1,789			6,328			6,059			6,808			6,554



	June 30
	2015		2016		2017		2018		2019		2020
Cardinal Health, Inc.	$	100.00	$	95.12	$	97.26	$	62.90	$	63.11	$	72.70
S&P 500 Index	100.00		103.99		122.60		140.23		154.83		166.45
S&P 500 Healthcare Index	100.00		97.98		110.19		118.02		133.35		147.89



	2020 (1)		2019 (2)		2018 (1)
Provision at Federal statutory rate	21.0	%	21.0	%	28.1	%
State and local income taxes, net of federal benefit	2.5		0.9		(16.0	)
Tax effect of foreign operations	—		(0.7	)	(48.4	)
Nondeductible/nontaxable items	(0.1	)	2.5		(10.2	)
Goodwill impairment	—		—		(124.7	)
Tax Act	0.1		(0.8	)	410.9
Change in valuation allowances	1.5		4.5		(76.9	)
Foreign tax credits	0.5		(1.0	)	27.3
China tax related to divestiture	—		—		(25.8	)
Legal entity reorganization	—		(3.6	)	71.4
Opioid litigation	(23.2	)	—		—
Other	(0.2	)	(0.7	)	(21.9	)
Effective income tax rate	2.1	%	22.1	%	213.8	%


~~(1)~~	Included in fiscal 2018 additions for tax positions of prior years is $110 million related to exposures acquired as part of the Patient Recovery Business for which we are fully indemnified. Also for fiscal 2018 are settlements of $81 million related to the Patient Recovery Business as well as $11 million of statute expirations.


	2021
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	1,883	$	0	$	0	$	1,883

Other investments (1)	126		0		0		126
Forward contracts (2)	0		42		0		42


~~(1)~~			The other investments balance includes investments in mutual funds, which are used to offset fluctuations in deferred compensation liabilities. These mutual funds invest in the equity securities of companies with both large and small market capitalization and high-quality fixed income debt securities. The fair value of these investments is determined using quoted market prices. Cardinal Health \| Fiscal 2021 Form 10-K			79


~~(2)~~Notes to Financial Statements			The fair value of interest rate swaps, foreign currency contracts, net investment hedges and commodity contracts is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. The fair value of these derivative contracts, which are subject to master netting arrangements under certain circumstances, is presented on a gross basis in prepaid expenses and other, other assets, other accrued liabilities, and deferred income taxes and other liabilities within the consolidated balance sheets.


~~(2)~~	~~Included in prepaid expenses and other in the consolidated balance sheets.~~


~~(4)~~	~~Included in other accrued liabilities in the consolidated balance sheets.~~



	2020
(in millions)	Notional Amount		Maturity Date
Pay-floating interest rate swaps	$	550	Mar 2023


~~(1)~~			~~Included in revenue in the consolidated statements of earnings/(loss).~~ Cardinal Health \| Fiscal 2021 Form 10-K			81


~~(2)~~	~~Included in cost of products sold in the consolidated statements of earnings/(loss).~~


~~(3)~~Notes to Financial Statements			~~Included in SG&A expenses in the consolidated statements of earnings/(loss).~~


~~(4)~~	~~Included in interest expense, net in the consolidated statements of earnings/(loss).~~


~~(1)~~	~~Included in other income, net in the consolidated statements of earnings/(loss).~~


(in millions)	Foreign Currency Translation Adjustments and other		Unrealized Gain/(Loss) on Derivatives, net of tax		Accumulated Other Comprehensive Loss
Balance at June 30, 2019	$	(95)	$	16	$	(79)
Other comprehensive income/(loss), net before reclassifications	3		(23)		(20)
Amounts reclassified to earnings	0		(5)		(5)
Total other comprehensive income/(loss) attributable to Cardinal Health, Inc., net of tax of $4 million	3		(28)		(25)
Balance at June 30, 2020	(92)		(12)		(104)
Other comprehensive income, before reclassifications	46		22		68
Amounts reclassified to earnings	0		2		2
Total other comprehensive income/(loss) attributable to Cardinal Health, Inc., net of tax of $4 million	46		24		70
Balance at June 30, 2021	$	(46)	$	12	$	(34)



(in millions, except per share amounts)	2020			2019			2018
Net earnings/(loss)	$	(3,693	)	$	1,365		$	259
Net earnings attributable to noncontrolling interest	(3		)	(2		)	(3		)
Net earnings/(loss) attributable to Cardinal Health, Inc.	$	(3,696	)	$	1,363		$	256
Weighted-average common shares–basic	293			300			313
Effect of dilutive securities:
Employee stock options, restricted share units, and performance share units	—			1			2
Weighted-average common shares–diluted	293			301			315
Basic earnings/(loss) per common share attributable to Cardinal Health, Inc.:	$	(12.61	)	$	4.55		$	0.82
Diluted earnings/(loss) per common share attributable to Cardinal Health, Inc.:	(12.61		)	4.53			0.81


~~(1)~~	~~Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments.~~


~~(1)~~	~~Products and services offered by our Specialty Solutions division are referred to as “specialty pharmaceutical products and services"~~


~~(2)~~	~~Comprised of all Pharmaceutical segment businesses except for Nuclear and Precision Health Solutions division.~~


~~(3)~~	~~Comprised of all Medical segment businesses except for Cardinal Health at-Home Solutions division~~


(in millions, except per share amounts)	Restricted Share Units	Weighted-Average Grant Date Fair Value per Share
Nonvested at June 30, 2019	2	$	51.65
Granted	2	42.71
Vested	(1)	60.21
Canceled and forfeited	0	0
Nonvested at June 30, 2020	3	45.92
Granted	2	53.76
Vested	(1)	49.37
Canceled and forfeited	(1)	48.74
Nonvested at June 30, 2021	3	$	49.05



(in millions, except per share amounts)	Stock Options		Weighted-Average Exercise Price per Common Share
Outstanding at June 30, 2018	7		$	64.50
Granted	—		—
Exercised	—		—
Canceled and forfeited	(1	)	72.54
Outstanding at June 30, 2019	6		63.78
Granted	—		—
Exercised	(1	)	42.36
Canceled and forfeited	—		—
Outstanding at June 30, 2020	5		$	65.15
Exercisable at June 30, 2020	5		$	65.25



(in years)	2020	2019	2018
Weighted-average remaining contractual life of outstanding options	5	5	7
Weighted-average remaining contractual life of exercisable options	5	5	5
Weighted-average period over which stock option compensation cost is expected to be recognized	1	1	2



	2018
Risk-free interest rate	2.1%
Expected volatility	25%
Dividend yield	2.7%	-	2.8%
Expected life in years	7


(in millions, except per share amounts)	Performance Share Units	Weighted-Average Grant Date Fair Value per Share
Nonvested at June 30, 2019	0.9	$	51.45
Granted	0.7	44.03
Vested	(0.1)	48.40
Canceled and forfeited	(0.2)	50.92
Nonvested at June 30, 2020	1.3	54.24
Granted	0.4	55.45
Vested	(0.1)	42.72
Canceled and forfeited	(0.4)	53.71
Nonvested at June 30, 2021	1.2	$	54.89



(in millions, except per common share amounts)	First Quarter (1)			Second Quarter		Third Quarter			Fourth Quarter (2)
Fiscal 2020
Revenue	$	37,341		$	39,735	$	39,157		$	36,689
Gross margin	1,679			1,714		1,885			1,590
Distribution, selling, general and administrative expenses	1,107			1,163		1,165			1,137
Net earnings/(loss)	(4,921		)	220		351			657
Less: Net earnings attributable to noncontrolling interests	(1		)	—		(1		)	(1		)
Net earnings/(loss) attributable to Cardinal Health, Inc.	(4,922		)	220		350			656

Net earnings/(loss) attributable to Cardinal Health, Inc. per common share:
Basic	$	(16.65	)	$	0.75	$	1.20		$	2.25
Diluted	(16.65		)	0.75		1.19			2.23