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 DecemberMarch 31, 20212022 (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 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 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 DecemberMarch 31, 20212022 and June 30, 2021, and in our condensed consolidated statements of earningsearnings/(loss) for the three and sixnine months ended DecemberMarch 31, 20212022 and 2020.2021. 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 sixnine months ended DecemberMarch 31, 2021,2022, non-GAAP diluted EPS decreased 275 percent and 2116 percent to $1.27$1.45 and $2.56$4.01 per share, respectively. This decrease was primarily due to the factors impacting non-GAAP operating earnings, and the prior-year tax benefit from the net operating loss carryback, partially offset by a lower share count as a result of share repurchases. The year-over-year comparison also benefited from a lower non-GAAP effective tax rate due to favorable discrete items during the three months ended March 31, 2022 and the impact of adverse tax matters in the prior year, including adjustments to our tax provision for the resolution of certain open matters with the U.S. Internal Revenue Service ("IRS").

In July 2021, we announced thatFebruary 2022, we and two other national distributors have negotiatedannounced that each company had determined that a proposedsufficient number of political subdivisions had agreed to participate in the previously disclosed settlement agreement (the “Proposed Settlement“Settlement Agreement”) and settlement process that, if all conditions are satisfied, would result in the settlement ofto settle the vast majority of the opioid lawsuits filed by statestates and local governmental entities. This Settlement Agreement became effective on April 2, 2022.

The Proposed Settlement Agreement includes a cash component, pursuant to which we wouldwill pay up to approximately $6.37$6.0 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., by passing laws barring or limiting opioid lawsuits by political subdivisions), and the extent to which additional political subdivisions in participating states file additional opioid lawsuits against us after the Proposed Settlement Agreement becomes effective.us.

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 addition, a bench trial in the case brought byMay 2022, we and two other national distributors reached an agreement with the Washington Attorney General, against usunder which we will pay up to approximately $160 million to the State of Washington and its participating political subdivisions to resolve opioid-related claims. This amount is consistent with the same two other national distributors began in November 2021 inamount that would have been allocated to Washington state court. A trial in a case brought by private plaintiffsunder the Settlement Agreement, had Washington agreed to participate, plus certain attorneys’ fees and costs. The terms of this agreement are consistent with the Settlement Agreement. This agreement is scheduledsubject to begin in state court in Georgia in March 2022. Trials are inherently unpredictable and it is possible thatcertain contingencies, including the outcomerate of these trials, either individually or in the aggregate, could materially negatively impact our financial results, cash flows or results of operations.subdivision participation.

During the sixnine months ended DecemberMarch 31, 2021,2022, we paid into escrow the majority of our first annual payment under the Proposed Settlement Agreement. We also made certain payments under the separate New York, Ohio and Ohio settlements.Rhode Island settlements, as well as certain payments under Cherokee Nation settlement and Native American term sheet. During the nine months ended March 31, 2022, we paid $348 million in connection with these matters. In total, we have $6.68$6.70 billion accrued at DecemberMarch 31, 2021,2022, of which $480$738 million is included in other accrued liabilities, and the remainder is included in deferred income taxes and other liabilities in our condensed consolidated balance sheets.

We expect these inflationary impacts and global supply chain constraints to continue to adversely impact Medical segment profit. In order to partially mitigate the impact, we have implemented an initial phase of price increases and we are taking cost-savings measuresevolving our commercial contracting processes and intend to implement price increases.investing in additional supply chain capacity. If these increased costs and the adverse impact of global supply chain disruptionsconstraints 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.

We also experienced increased costs in the Pharmaceutical segment, primarily related to transportation and labor, during the three and sixnine months ended DecemberMarch 31, 2022.

We experienced the peak of heightened demand for PPE during the second and third quarters of fiscal 2021. However,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 do not expectsought 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 be meaningfulthe peak. This resulted in inventory cost above net realizable value, requiring an inventory reserve of $197 million, primarily related to Pharmaceuticalcertain categories of gloves, which adversely impacted Medical segment profit for fiscal 2022.profit.

The COVID-19 pandemic ("COVID-19"(“COVID-19”) had a net negative impact onbegan to materially affect our consolidated operating earningsbusinesses during the threethird quarter of fiscal 2020. However, due to the passage of time, intervening events and six months ended December 31, 2021.other market dynamics, the comparison to pre-COVID-19 operations has become less meaningful as a basis for us to assess our financial condition.

In the Pharmaceutical segment, volumes within our generics program were lower compared to levels prior to COVID-19, which negatively impacted Pharmaceutical segment profithave rebounded and stabilized from the declines we experienced during the six months ended December 31, 2021. However, volumes withinheight of COVID-19 and we believe fluctuations between periods are driven by current market dynamics, rather than the ongoing effects of COVID-19.

Our Medical segment continues to experience the effects of inflation, global supply chain constraints and PPE dynamics, which we consider to be independent of COVID-19 for purposes of assessing our generics program continuedfinancial results and which are discussed separately above. Due to improve and approximated levels prior to COVID-19 during the three months ended December 31, 2021. On a year-over-year basis,magnitude of the impact to segment profit was favorable due to improvement in volume during the three and six months ended December 31, 2021.

As anticipated, Medical segment revenue and Medical segment profit were adversely impacted during the three and sixnine months ended DecemberMarch 31, 20212022 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 sixnine months ended DecemberMarch 31, 2021,2022, 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.

During the three and sixnine months ended DecemberMarch 31, 2021,2022, revenue increased primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which together increased revenue by $4.1$5.8 billion and $8.8$14.6 billion, respectively, and largely consisted of branded pharmaceutical sales to largeexisting and net new customers.

Medical segment revenue decreased during the three months ended DecemberMarch 31, 20212022 primarily due to the impact of the divestiture of the Cordis business.business and lower volumes within products and distribution, including the adverse impact of global supply chain constraints.

Medical segment revenue was flat duringDuring the sixnine months ended DecemberMarch 31, 2021. The2022, the adverse impact of the divestiture of the Cordis business was partially offset primarily due to the positive impact of PPE within products and distribution andby sales growth in at-Home solutions.

Gross margin during the three and sixnine months ended DecemberMarch 31, 20212022 was adversely impacted due to the divestiture of the Cordis business and increased costs in the Medical segment due to inflationary impacts and the adverse impact of global supply chain constraints.constraints, partially offset by the performance of our generics program, which includes an improvement in volumes compared to the prior-year periods.

Gross margin rate declined 7286 basis points and 6974 basis points during the three and sixnine months ended DecemberMarch 31, 2021,2022, respectively, mainly due to changes in overall product mix resulting primarily from increased pharmaceutical distribution branded sales, which have a dilutive impact on our overall gross margin rate. The performance of Medical segment products and distribution, which reflects the divestiture of the Cordis business and increased costs due to inflationary impacts and the adverse impact of global supply chain constraints, also had an adverse impact on gross margin rate.

During the three and sixnine months ended DecemberMarch 31, 2021,2022, SG&A expenses were flat primarily due toadversely impacted by higher operations expenses and increased expenses related to investments in information technology infrastructure, and higher operations expenses, mostly offset by the divestiture of the Cordis business.

During the three and sixnine months ended DecemberMarch 31, 2021,2022, Pharmaceutical segment profit increased primarilydecreased due to the performance of our generics program, including an improvement in volumes compared to the prior year, which were adversely impacted by COVID-19. This was partially offset by increased expenses related to investments in information technology infrastructure. Duringinfrastructure and higher operations expenses, partially offset by the three months ended December 31, 2021,performance of our generics program. Pharmaceutical segment profit during the nine months ended March 31, 2022 was also adverselypositively impacted by higher operations expenses.improvement in volumes compared to the prior-year period.

Pharmaceutical segment profit during the three and sixnine months ended DecemberMarch 31, 20212022 was positively impacted by a $16 million judgment for lost profits related to an ordinary course intellectual property rights claim.

Gross margin and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:

ImpairmentsGross margin rate declined 86 basis points and (Gain)/Loss74 basis points during the three and nine months ended March 31, 2022, respectively, mainly due to changes in overall product mix resulting primarily from increased pharmaceutical distribution branded sales, which have a dilutive impact on Disposalour overall gross margin rate. The performance of Assets, NetMedical segment products and distribution, which reflects the divestiture of the Cordis business and increased costs due to inflationary impacts and the adverse impact of global supply chain constraints, also had an adverse impact on gross margin rate.

During the three and sixnine months ended DecemberMarch 31, 2021, we recognized a $1.3 billion pre-tax non-cash goodwill impairment charge2022, SG&A expenses were adversely impacted by higher operations expenses and increased expenses related to our Medical segment, as discussed furtherinvestments in information technology infrastructure, mostly offset by the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4divestiture of the "Notes to Condensed Consolidated Financial Statements."

During the three and nine months ended DecemberMarch 31, 2021 and 2020, the effective tax rate was 105.0 percent and (47.6) percent, respectively. The effective tax rate for the three months ended December 31, 2021 reflects the impact of the tax effect of the goodwill impairment charge being included in our estimated annual effective tax rate. The estimated annual effective tax rate for the three months ended December 31, 2020 included a benefit from the net operating loss carryback primarily2022, Pharmaceutical segment profit decreased due to increased expenses related to a self-insurance pre-tax loss,investments in information technology infrastructure and higher operations expenses, partially offset by the treatmentperformance of our generics program. Pharmaceutical segment profit during the tax impacts of the opioid litigation accrual.

Pharmaceutical segment profit includes opioid-related litigation defense and 2020,compliance costs, but does not include a one-time contingent attorney fee of $18 million incurred during the effective tax rate was 153.1 percentthree and 259.7 percent. The effective tax rate for the sixnine months ended DecemberMarch 31, 2021 reflects the impact of the tax effect of the goodwill impairment charge being included in our estimated annual effective tax rate. The effective tax rate for the six months ended December 31, 2020 included a benefit from a net operating loss carryback primarily related to a self-insurance pre-tax loss and the net tax benefit2022 related to the treatmentfinalization of the tax impacts of opioid litigation charges.

Pharmaceutical segment profit during the three months and sixnine months ended DecemberMarch 31, 2021 and prepaid expenses and other assets in the condensed consolidated balance sheets at December 31, 2021. This interim tax benefit will reverse in future quarters of fiscal 2022.