Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

This Quarterly Report on Form 10-Q for the quarter ended September 30,December 31, 2021 (this "Form 10-Q") (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 Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), but there are others in this Form 10-Q, 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, trends or guidance, statements of outlook and various accruals and estimates.expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those made, projected or implied. The most significant of these risks and uncertainties are described in this Form 10-Q, including Risk Factors, Exhibit 99.1, and in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (our “2021 Form 10-K”). Forward-looking statements in this Form 10-Q 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.

In the "Overview of Consolidated Results" section of MD&A, we use financial measures that are derived from our consolidated financial data but are not presented in our condensed consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). These measures are considered "non-GAAP financial measures" under the United States 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 Form 10-Q.

The discussion and analysis presented below is concerned with material changes in financial condition and results of operations between the periods specified in our condensed consolidated balance sheets at September 30,December 31, 2021 and June 30, 2021, and in our condensed consolidated statements of earnings/(loss)earnings for the three and six months ended September 30,December 31, 2021 and 2020. All comparisons presented are with respect to the prior-year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the MD&A included in our 2021 Form 10-K.

During the three and six months ended September 30,December 31, 2021, non-GAAP diluted EPS decreased 1527 percent and 21 percent to $1.29$1.27 and $2.56 per share.share, respectively. This decrease was primarily due to the factors discussed above impacting non-GAAP operating earnings.earnings and the prior-year tax benefit from the net operating loss carryback, partially offset by lower share count as a result of share repurchases.

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.

The Proposed Settlement Agreement also includes injunctive relief terms related to distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) independence and training of the personnel operating controlled substances monitoring programs; (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 settling distributors will engage a third-party vendor to act as a clearinghouse for data aggregation and reporting, which distributors will fund for ten years.

In September 2021, the three distributors determined that a sufficient number of states had agreed to participate in the Proposed Settlement Agreement to proceed to the next phase of the settlement process, which was the subdivision sign-on period. The subdivision sign-on period ended January 26, 2022. Each participating state will now make a determination as to whether a sufficient number of its political subdivisions have agreed to the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed with the Proposed Settlement Agreement. Following that determination by participating states, each of the three distributors will independently determine whether a sufficient number of subdivisions, including both those litigating and those that have not sued, have agreed to participate in the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed to execution. This process is currently contemplated to end in February 2022. The Proposed Settlement Agreement remains subject to contingencies. 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.

In connection with the negotiations of the Proposed Settlement Agreement, we and the two other national distributors have entered into settlementsa settlement with each of the States of Florida, New York, Ohio and OhioRhode Island and their participating subdivisions. If the Proposed Settlement Agreement becomes effective, New York and Ohiothese states and their participating subdivisions will become a part of the broader agreement.it.

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. In September 2021 we announced that we, along with two other national distributors, had reached an agreement with the Cherokee Nation in connection with ongoing negotiations toward a broader agreement with Native American tribes. In January 2022, we, along with two other national distributors, executed a term sheet with the Native American tribes.

We expect these increased costsinflationary impacts and global supply chain constraints to continue to adversely impact Medical segment profit forprofit. In order to partially mitigate the remainder of fiscal 2022. Whileimpact, we expect these costs will continue to adversely impact fiscal 2022, we are also taking cost-savings measures and intend to implement price increase actions, which we expect to partially mitigate the impact.increases. If these increased costs and the adverse impact of supply chain disruptions are greater than we expect, continue beyond our expectations, or we are unable to increase prices or achieve the cost-savings measures that we expect, our results of operations will be adversely impacted to a greater extent than we currently anticipate.

In the Pharmaceutical segment, weWe also experienced increased costs in the Pharmaceutical segment, primarily related to transportation and labor, during the three and six months ended September 30,December 31, 2021. However, we do not expect the impact to be meaningful to Pharmaceutical segment profit for fiscal 2022.

The COVID-19 pandemic ("COVID-19") had a net negative impact on our consolidated operating earnings during the three and six months ended September 30,December 31, 2021.

In the Pharmaceutical segment, volumes within our generics program continue to bewere lower compared to levels prior to COVID-19, which negatively impacted Pharmaceutical segment profit.profit during the six months ended December 31, 2021. However, onvolumes within our generics program continued to improve and approximated levels prior to COVID-19 during the three months ended December 31, 2021. On a year-over-year basis, the impact to segment profit was favorable due to improvement in volume during the three and six months ended September 30,December 31, 2021.

Medical segment profit was negatively impacted by COVID-19 during the three and six months ended September 30,December 31, 2021 and on a year-over-year basis primarily due to increased supply chain costs as discussed above,the net impact of personal protective equipment ("PPE"), which we expect to continue to have an adverse impact on Medical segment profit forimprove during the remainder of fiscal 2022. In addition, while lowerDuring the three months and six ended December 31, 2021, demand for surgical products resulting from reducedrelated to elective procedures continuedwas comparable to have a modest adverse impact on Medical segment profit, we expect demand to continue to improve during fiscal 2022.levels in the prior year. Higher volumes in our laboratory business continued to positively impact Medical segment profit, but did not have a meaningful impact on a year-over-year basis due to relatively higher volumes in the prior period.periods.

We currently anticipate that the negative impact of the COVID-19 pandemic on consolidated operating earnings will be less in fiscal 2022 than in the prior year, which included an inventory reserve of $197 million for certain Medical segment personal protective equipment ("PPE")PPE during the fourth quarter of fiscal 2021. As a result, we expect the COVID-19 impact for fiscal 2022 will be positive in comparison to prior year. 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.

As anticipated, Medical segment revenue and Medical segment profit were adversely impacted during the three and six months ended September 30,December 31, 2021 due to the divestiture of the Cordis business. We expect the divestiture will decrease Medical segment revenue by approximately $700 million and adversely impact Medical segment profit by approximately $70 million in fiscal 2022. The divestiture of the Cordis business resulted in a decrease in amortization of acquisition-related intangible assets during the three and six months ended September 30,December 31, 2021, which we expect to continue for the remainder of fiscal 2022. The divestiture of the 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 segmentDuring the three and six months ended December 31, 2021, revenue increased during the three months ended September 30, 2021primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which together increased revenue by $4.7$4.1 billion and primarily$8.8 billion, respectively, and largely consisted of branded pharmaceutical sales to large customers.

During the three and six months ended September 30,December 31, 2021, and 2020, restructuring costs primarily related to the implementation of certain enterprise-wide cost-savings measures. Restructuring costs during the three months ended September 30, 2021 also included costs related to the divestiture of the Cordis business.

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, including due to the risk factorsrisks discussed in "Risk Factors" and other risks discussed in our 2021 Form 10-K and our other filings with the SEC since June 30, 2021.

The "Overview of Consolidated Results" section within MD&A in this Form 10-Q 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.

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:

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.