Cardinal Health (CAH) 10-K risk factor changes: FY2015 vs FY2014

The risks described below could materially and adversely affect our results of operations, financial condition, liquidity and cash flows.

These are not the only risks we face.

Our businesses also could be affected by risks that we are not presently aware of or that we currently consider immaterial to our operations.

The U.S. healthcare environment is changing in many ways, some of which may not be favorable to us.

The healthcare industry continues to undergo significant changes designed to increase access to medical care, improve safety, contain costs and increase efficiencies.

Medicare and Medicaid reimbursement levels have declined; the use of managed care has increased; distributors, manufacturers, healthcare providers and pharmacy chains have consolidated and have formed strategic alliances; and large purchasing groups are prevalent.

The industry also has experienced a shift away from traditional healthcare venues like hospitals and into clinics and physician offices, and, in some cases, patients’ homes.

We could be adversely affected directly or indirectly (if our customers are adversely affected) by these and other changes in the delivery or pricing of, or reimbursement for, pharmaceuticals, medical devices or healthcare services.

We could suffer the adverse effects of competitive pressures.

As described in greater detail in "Item 1: Business" above, we operate in markets that are highly competitive.

Because of competition, our businesses face continued pricing pressure from our customers and suppliers.

If we are unable to offset margin reductions caused by these pricing pressures through steps such as sourcing or cost control measures or additional service offerings, our results of operations and financial condition could be adversely affected.

In addition, in recent years, the healthcare industry has continued to consolidate.

Further consolidation among our customers and suppliers could give the resulting enterprises greater bargaining power, which may adversely impact our results of operations.

Our Pharmaceutical segment's margin may be affected by prices established by manufacturers, fewer or less profitable generic pharmaceutical launches and other factors that are beyond our control.

As described in greater detail in "Item 1: Business" above, gross margin in our Pharmaceutical segment is impacted by generic and branded pharmaceutical price appreciation and the number

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and value of generic pharmaceutical launches.

In past years, these items have been substantial drivers of Pharmaceutical segment profit.

Prices for generic pharmaceuticals generally decline over time.

But at times, some generic products experience price appreciation, which positively impacts our margins.

The frequency and magnitude of future generic product price appreciation is uncertain.

Prices for branded pharmaceuticals, on the other hand, generally increase over time.

The frequency and magnitude of branded product price appreciation also is uncertain, and branded manufacturers may determine not to increase prices or to implement only modest increases, which can limit our margin.

The number of new generic pharmaceutical launches varies from year to year, and the margin impact of new launches varies from product to product.

Fewer generic pharmaceutical launches or launches that are less profitable than those previously experienced will have an adverse effect on our year-over-year margins.

Our business is subject to rigorous regulatory and licensing requirements.

The healthcare industry is highly regulated.

As described in greater detail in "Item 1: Business" above, we are subject to regulation in the United States at both the federal and state level and in China and other foreign countries.

If we fail to comply with these 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, licenses and other regulatory approvals from, and to comply with operating and security standards of, numerous governmental bodies.

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

Products that we manufacture, source, distribute or market are required to comply with regulatory requirements.

Noncompliance or concerns over noncompliance may result in suspension of our ability to distribute, import or manufacture products, product recalls or seizures, or criminal or civil sanctions.

In addition, it can be costly and time-consuming to obtain regulatory approvals to market a medical device, and such approvals might not be granted on a timely basis, if at all.

We are required to comply with laws relating to healthcare fraud and abuse.

The discussion and analysis presented below refers to, and should be read in conjunction with, the consolidated financial statements and related notes included in this Form 10-K.

Unless otherwise indicated, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, we are referring to our continuing operations.

Overview

We are a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals and other healthcare providers focus on patient care while reducing costs, enhancing efficiency and improving quality.

We also provide medical products to patients in the home.

We report our financial results in two segments: Pharmaceutical and Medical.

During fiscal 2014, revenue decreased 10 percent to $91.1 billion largely due to the previously disclosed expiration of our pharmaceutical distribution contract with Walgreen Co. ("Walgreens") on August 31, 2013.

Gross margin increased 5 percent to $5.2 billion reflecting the positive impact of acquisitions and strong performance from generic programs, offset in part by the impact of the Walgreens contract expiration.

Operating earnings increased to $1.9 billion and earnings from continuing operations increased to $1.2 billion due primarily to an $829 million ($799 million, net of tax) non-cash goodwill impairment charge related to our Nuclear Pharmacy Services division in fiscal 2013.

Our cash and equivalents balance was $2.9 billion at June 30, 2014 compared to $1.9 billion at June 30, 2013.

The increase in cash and equivalents during fiscal 2014 was driven by net cash provided by operating activities of $2.5 billion, which includes the decrease in our net working capital associated with the Walgreens contract expiration.

Net cash provided by operating activities was deployed for share repurchases ($673 million), acquisitions ($519 million) and dividends ($415 million).

We plan to continue to execute a balanced deployment of available capital to position ourselves for sustainable competitive advantage and to enhance shareholder value.

Walgreens Contract

The Walgreens contract expiration unfavorably impacted period-over-period comparisons of revenue and operating earnings for fiscal 2014, but favorably affected net cash provided by operating activities due to a significant reduction in net working capital.

Because revenue from Walgreens was $3.3 billion during the first quarter of fiscal 2014, we expect the

contract expiration to have an adverse impact on our period-over-period comparisons of revenue and operating earnings during the first quarter of fiscal 2015.

Joint Venture With CVS Caremark

In July 2014, we established Red Oak Sourcing, LLC (“Red Oak Sourcing”), a U.S.-based generic pharmaceutical sourcing entity with CVS Caremark Corporation (“CVS”) with an initial term of 10 years.

Both companies have contributed sourcing and supply chain expertise to the 50/50 joint venture and have committed to source generic pharmaceuticals through arrangements negotiated by it.

Red Oak Sourcing will negotiate generic pharmaceutical supply contracts on behalf of both companies, but will not own products or hold inventory on behalf of either company.

We are required to pay 39 quarterly payments of $25.6 million to CVS commencing in October 2014 and, only if certain milestones are achieved, to pay additional predetermined amounts to CVS beginning in fiscal 2016.

The fixed payments of $25.6 million will be expensed evenly commencing with the ramp-up of the venture, which we expect to begin by the end of the first quarter of fiscal 2015.

No physical assets were contributed by either company to Red Oak Sourcing, and minimal funding has been provided to capitalize the entity.

Acquisitions

We have completed several acquisitions since July 1, 2011, the largest of which were AssuraMed, Inc. ("AssuraMed") in fiscal 2013 and Access Closure, Inc. ("AccessClosure") in fiscal 2014.

On May 9, 2014, we completed the acquisition of AccessClosure for $320 million in an all-cash transaction.

We funded the acquisition with cash on hand.

The acquisition of AccessClosure, a manufacturer and distributor of extravascular closure devices, expands the Medical segment's portfolio of self-manufactured products.

On March 18, 2013, we completed the acquisition of AssuraMed for $2.07 billion, net of cash acquired, in an all-cash transaction.

We funded the acquisition through the issuance of $1.3 billion in fixed rate notes and cash on hand.

The acquisition of AssuraMed, a provider of medical supplies to homecare providers and patients in the home, expands Medical segment's ability to serve this patient base.

The AssuraMed division is now known as our Cardinal Health at Home division ("Home division").

This acquisition increased revenue and operating earnings during fiscal 2014.

The increase in amortization and other acquisition-related costs during fiscal 2014 was primarily due to intangible assets from this acquisition.

We expect the amortization of acquisition-related intangible assets to continue to be a significant expense in future periods.

See Note 2 of the "Notes to Consolidated Financial Statements" for additional information on these acquisitions.

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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 these market exposures which employs operational, economic and derivative financial instruments in order to mitigate risk.

See Notes 1 and 12 of the “Notes to Consolidated

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Financial Statements” for further discussion regarding our use of derivative instruments.

Foreign Exchange Rate Sensitivity

By 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.

Principal drivers of this foreign exchange exposure include the Canadian dollar, Thai baht, Mexican peso, Chinese renminbi, European euro, Japanese yen, Singapore dollar, and Malaysian ringgit.

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.

As part of our risk management program, at the end of each fiscal year we perform a sensitivity analysis on our forecasted transactional exposure for the upcoming fiscal year.

These analyses include the estimated impact of our hedging program, which mitigates transactional exposure.

At June 30, 2014 and 2013, we had hedged approximately 48 and 45 percent of transactional exposures, respectively.

The following table summarizes the analysis as it relates to transactional exposure and the impact of a hypothetical 10 percent increase or decrease at June 30:

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| (in millions) | 2014 | | | | 2013 | | |

| Net estimated transactional exposure | $ | 378 | | | $ | 368 | |

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| Sensitivity gain/loss | $ | 38 | | | $ | 37 | |

| Estimated offsetting impact of hedges | (18 | | ) | | (17 | | ) |

| Estimated net gain/loss | $ | 20 | | | $ | 20 | |

Translational Exposure

We have exposure related to the translation of financial statements of our foreign operations into U.S. dollars, our functional currency.

We perform a similar analysis to that described above related to this translational exposure.

We do not typically hedge any of our translational exposure and no hedging impact was included in our analysis at June 30, 2014 and 2013.

The following table summarizes translational exposure and the impact of a hypothetical 10 percent strengthening or weakening in the U.S. dollar at June 30:

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| (in millions) | 2014 | | | | 2013 | | |

| Net estimated translational exposure | $ | 62 | | | $ | 53 | |

| Sensitivity gain/loss | 6 | | | | 5 | | |

General

Cardinal Health, Inc. is an Ohio corporation formed in 1979.

As used in this report, “we,” “our,” “us” and similar pronouns refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires otherwise.

We are a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals and other healthcare providers focus on patient care while reducing costs, enhancing efficiency and improving quality.

We also provide medical products to patients in the home.

Our fiscal year ends on June 30.

References to fiscal 2014, 2013 and 2012 are to the fiscal years ended June 30, 2014, 2013 and 2012, respectively.

Except as otherwise specified, information in this Form 10-K is provided as of June 30, 2014.

We report our financial results in two segments: Pharmaceutical and Medical.

Pharmaceutical Segment

In the United States, the Pharmaceutical segment:

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

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| • | maintains prime vendor relationships that streamline the purchasing process resulting in greater efficiency and lower costs for our customers; |

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| • | renders services to pharmaceutical manufacturers including distribution, inventory management, data reporting, new product launch support, and contract pricing and chargeback administration; |

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| • | provides pharmacy services to hospitals and other healthcare facilities; and |

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| • | franchises retail pharmacies under the Medicine Shoppe® and Medicap® brands; |

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| • | operates nuclear pharmacies and cyclotron facilities through its Nuclear Pharmacy Services division that manufacture, prepare and deliver radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and physician offices; and |

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| • | distributes specialty pharmaceutical products, provides services to pharmaceutical manufacturers, third-party payors and healthcare providers supporting the development, marketing, distribution and payment for specialty pharmaceutical products, and operates specialty pharmacies through its Specialty Solutions division. |

In China, the Pharmaceutical segment distributes branded, generic and specialty pharmaceutical, over-the-counter

healthcare and consumer products as well as provides logistics, marketing and other services and operates direct-to-patient specialty pharmacies through Cardinal Health China.

Pharmaceutical Distribution

Our Pharmaceutical Distribution division generates gross margin when the aggregate selling price to our customers exceeds the aggregate cost of products sold.

Gross margin includes margin from our generic pharmaceutical programs, margin from branded pharmaceutical distribution agreements and cash discounts.

Margin from our generic pharmaceutical programs includes price discounts and rebates and may include price appreciation on some products.

Our earnings on generic pharmaceuticals are generally highest during the period immediately following the initial launch of a generic product because generic pharmaceutical selling prices are generally highest during that period and tend to decline over time.

Margin from branded pharmaceutical distribution agreements refers primarily to fees we receive for rendering a range of distribution and related services to manufacturers and also includes benefits from pharmaceutical price appreciation.

In addition to the proceedings described below, the legal proceedings described in Note 9 of the "Notes to Consolidated Financial Statements" are incorporated in this "Item 3: Legal Proceedings" by reference.

In June 2012, Henry Stanley, Jr., a purported shareholder, filed a derivative action in the U.S. District Court for the Southern District of Ohio against the current and certain former members of our Board of Directors.

The complaint alleged that the defendants breached their fiduciary duties in connection with the DEA's past suspensions of our distribution centers’ registrations to distribute controlled substances.

In October 2012, the U.S. District Court dismissed the derivative action with prejudice, and in August 2013, the U.S. Court of Appeals affirmed the decision.

In September 2013, the same plaintiff made demand on our Board of Directors to take action against current and certain former members of our Board of Directors based on the allegations made in the derivative action.

A special committee of independent directors investigated the allegations made in the demand.

After receiving and evaluating the special committee's findings and recommendations, our Board of Directors determined in February 2014 that pursuing the claims set forth in the demand was not in the best interest of the company.

In May 2014, another purported shareholder made a similar demand on our Board of Directors.

Our Board of Directors, through the special committee, is in the process of reviewing the allegations made in this new demand.

10-K 1 a15q4_10kx63015xform10-k.htm ANNUAL REPORT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended June 30, 2015

or

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| o | 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


Cardinal Health, Inc.

(Exact name of registrant as specified in its charter)

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| Ohio | 31-0958666 |

| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |

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| 7000 Cardinal Place, Dublin, Ohio | 43017 |

| (Address of principal executive offices) | (Zip Code) |

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| (614) 757-5000 | |

| (Registrant’s telephone number, including area code) | |

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

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| Title of class | Name of each exchange on which registered |

| Common shares (without par value) | New York Stock Exchange |

10-K 1 a14q4_10kx063014xform10-k.htm ANNUAL REPORT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended June 30, 2014

or

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| o | 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


Cardinal Health, Inc.

(Exact name of registrant as specified in its charter)

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| Ohio | 31-0958666 |

| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |

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| 7000 Cardinal Place, Dublin, Ohio | 43017 |

| (Address of principal executive offices) | (Zip Code) |

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| (614) 757-5000 | |

| (Registrant’s telephone number, including area code) | |

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

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| Title of class | Name of each exchange on which registered |

| Common shares (without par value) | New York Stock Exchange |

Not applicable.

In the United States, at June 30, 2014, the Pharmaceutical segment operated 21 primary pharmaceutical distribution facilities and one national logistics center; three specialty distribution facilities; and over 140 nuclear pharmacy facilities.

The Medical segment operated 60 medical-surgical distribution, assembly, manufacturing and other facilities.

Our U.S. operating facilities are located in 45 states and in Puerto Rico.

Outside the United States, at June 30, 2014, our Medical segment operated over 20 facilities in Canada, the Dominican Republic, Malaysia, Malta, Mexico and Thailand that engage in manufacturing, distribution or research.

In addition, our Pharmaceutical and Medical segments utilized various distribution and pharmacy facilities in China.

At June 30, 2014, we owned over 70 operating facilities and leased more than 200 operating facilities.

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.

Not applicable.

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Executive Officers of the Registrant

The following is a list of our executive officers as of July 31, 2014:

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| Name | Age | Position |

| George S. Barrett | 59 | Chairman and Chief Executive Officer |

| Jeffrey W. Henderson | 49 | Chief Financial Officer |

| Michael C. Kaufmann | 51 | Chief Executive Officer, Pharmaceutical segment |

| Donald M. Casey Jr. | 54 | Chief Executive Officer, Medical segment |

| Craig S. Morford | 55 | Chief Legal and Compliance Officer |

| Carole S. Watkins | 54 | Chief Human Resources Officer |

| Mark R. Blake | 43 | Executive Vice President, Strategy and Corporate Development |

| Stephen T. Falk | 49 | Executive Vice President, General Counsel and Corporate Secretary |

The business experience summaries provided below for our executive officers describe positions held during the last five years (unless otherwise indicated).

Mr. Barrett has served as Chairman and Chief Executive Officer since August 2009.

From January 2008 to August 2009, he served as Vice Chairman of Cardinal Health and Chief Executive Officer, Healthcare Supply Chain Services.

Mr. Henderson has served as Chief Financial Officer since May 2005.

In June 2014, we announced that Mr. Henderson has decided to retire from the company.

To ensure an orderly transition, he will remain with the company until August 2015 and will step down as Chief Financial Officer when we name a successor to that role.

Mr. Kaufmann has served as Chief Executive Officer, Pharmaceutical segment, since August 2009.

From April 2008 until August 2009, he served as our Group President, Pharmaceutical Supply Chain.

Mr. Casey has served as Chief Executive Officer, Medical segment, since April 2012.

Before joining us, he served as Chief Executive Officer of the Gary and Mary West Wireless Health Institute, a non-profit research organization focused on lowering the cost of healthcare through novel technology solutions, from March 2010 to March 2012.

Prior to that, he served as World Wide Franchise Chairman, Comprehensive Care at Johnson & Johnson, a developer and manufacturer of health care products, from 2007 to 2009.

Mr. Morford has served as Chief Legal and Compliance Officer since May 2009.

Ms. Watkins has served as Chief Human Resources Officer since 2000.

Mr. Blake has served as Executive Vice President, Strategy and Corporate Development since October 2009.

From August 2006 until October 2009, he held various business development positions with Medco Health Solutions, Inc., a pharmacy benefits management services company, including Vice President, Business Development and Senior Director, Business Development.

Mr. Falk has served as Executive Vice President, General Counsel and Corporate Secretary since May 2009.

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Our common shares are listed on the New York Stock Exchange under the symbol “CAH.” The following table reflects the range of the reported high and low closing prices of our common shares as reported on the New York Stock Exchange Composite Tape and the per share dividends declared for the fiscal years ended June 30, 2014 and 2013.

It also reflects the range of the reported high and low closing prices of our common shares from July 1, 2014 through the period ended on July 31, 2014 and the per share dividends declared from July 1, 2014 through the period ended on August 6, 2014:

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| | High | | | | Low | | | | Dividends | | |

| Fiscal 2013 | | | | | | | | | | | |

| Quarter Ended: | | | | | | | | | | | |

| September 30, 2012 | $ | 43.50 | | | $ | 37.75 | | | $ | 0.2375 | |

| December 31, 2012 | 42.65 | | | | 39.29 | | | | 0.2750 | | |

| March 31, 2013 | 47.09 | | | | 41.62 | | | | 0.2750 | | |

| June 30, 2013 | 48.76 | | | | 41.85 | | | | 0.3025 | | |

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| Fiscal 2014 | | | | | | | | | | | |

| Quarter Ended: | | | | | | | | | | | |

| September 30, 2013 | $ | 53.57 | | | $ | 47.02 | | | $ | 0.3025 | |

| December 31, 2013 | 67.48 | | | | 52.95 | | | | 0.3025 | | |

| March 31, 2014 | 73.54 | | | | 65.26 | | | | 0.3025 | | |

| June 30, 2014 | 71.31 | | | | 63.80 | | | | 0.3425 | | |

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| Fiscal 2015 | $ | 72.75 | | | $ | 69.59 | | | $ | 0.3425 | |

At July 31, 2014 there were approximately 10,241 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.

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| Issuer Purchases of Equity Securities | | | | | | | | | | | | | |

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| 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) | | |

| Apr 2014 | 252 | | | $ | 69.23 | | | — | | | $ | 1,011 | |

| May 2014 | 1,661,576 | | | 67.32 | | | | 1,661,405 | | | 900 | | |

| Jun 2014 | 2,513,482 | | | 68.64 | | | | 2,513,288 | | | 727 | | |

| Total | 4,175,310 | | | $ | 68.12 | | | 4,174,693 | | | $ | 727 | |

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| (1) | Includes 252, 171 and 194 common shares purchased in April, May and June 2014, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan. |

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| (2) | On August 8, 2012, our Board of Directors approved a $750 million share repurchase program, which expires on August 31, 2015. During the three months ended June 30, 2014, we repurchased $11 million of our common shares, the remaining amount under this program. On October 29, 2013, our Board of Directors approved a $1.0 billion share repurchase program, which expires on December 31, 2016. During the three months ended June 30, 2014, we repurchased $273 million of our common shares under this program. On August 6, 2014, our Board of Directors authorized an additional $1.0 billion under this share repurchase program. |

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 “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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| (in millions, except per common share amounts) | 2014 | | | | 2013 (1) | | | | 2012 | | | | 2011 | | | | 2010 | | |

| Earnings Data: | | | | | | | | | | | | | | | | | | | |

| Revenue | $ | 91,084 | | | $ | 101,093 | | | $ | 107,552 | | | $ | 102,644 | | | $ | 98,503 | |

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| Earnings from continuing operations | $ | 1,163 | | | $ | 335 | | | $ | 1,070 | | | $ | 966 | | | $ | 587 | |

| Earnings/(loss) from discontinued operations (2) | 3 | | | | (1 | | ) | | (1 | | ) | | (7 | | ) | | 55 | | |

| Net earnings | $ | 1,166 | | | $ | 334 | | | $ | 1,069 | | | $ | 959 | | | $ | 642 | |

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| Basic earnings/(loss) per common share: | | | | | | | | | | | | | | | | | | | |

| Continuing operations | $ | 3.41 | | | $ | 0.98 | | | $ | 3.10 | | | $ | 2.77 | | | $ | 1.64 | |

| Discontinued operations (2) | 0.01 | | | | — | | | | — | | | | (0.02 | | ) | | 0.15 | | |

| Net basic earnings per common share | $ | 3.42 | | | $ | 0.98 | | | $ | 3.10 | | | $ | 2.75 | | | $ | 1.79 | |

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| Diluted earnings/(loss) per common share: | | | | | | | | | | | | | | | | | | | |

| Continuing operations | $ | 3.37 | | | $ | 0.97 | | | $ | 3.06 | | | $ | 2.74 | | | $ | 1.62 | |

| Discontinued operations (2) | 0.01 | | | | — | | | | — | | | | (0.02 | | ) | | 0.15 | | |

| Net diluted earnings per common share | $ | 3.38 | | | $ | 0.97 | | | $ | 3.06 | | | $ | 2.72 | | | $ | 1.77 | |

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| Cash dividends declared per common share | $ | 1.2500 | | | $ | 1.0900 | | | $ | 0.8825 | | | $ | 0.8000 | | | $ | 0.7200 | |

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| Balance Sheet Data: | | | | | | | | | | | | | | | | | | | |

| Total assets | $ | 26,033 | | | $ | 25,819 | | | $ | 24,260 | | | $ | 22,846 | | | $ | 19,990 | |

| Long-term obligations, less current portion | 3,171 | | | | 3,686 | | | | 2,418 | | | | 2,175 | | | | 1,896 | | |

| Shareholders’ equity | 6,401 | | | | 5,975 | | | | 6,244 | | | | 5,849 | | | | 5,276 | | |

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| (1) | During the fourth quarter of fiscal 2013, we recognized a non-cash goodwill impairment charge of $829 million ($799 million, net of tax) related to our Nuclear Pharmacy Services division. |

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| (2) | On August 31, 2009, we separated the clinical and medical products businesses from our other businesses through a pro rata distribution to shareholders of 81 percent of the then outstanding common stock of CareFusion and met the criteria for classification of these businesses as discontinued operations. |

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| [Table of Contents](#s1A9F0BC414C102CDF2EDD82F23F58472) | | Cardinal Health, Inc. and Subsidiaries |

| Financial Review | | |

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| --- | --- |

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| [Report of Independent Registered Public Accounting Firm](#sacb98540490e4cc7b2519ec5c692be14) | [25](#sacb98540490e4cc7b2519ec5c692be14) |

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| Consolidated Financial Statements and Schedule: | |

| [Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s7DD71D62396A0993B702D82F1CF10696) | [26](#s7DD71D62396A0993B702D82F1CF10696) |

| [Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s120B64E0A88467540701D82F1CD75F94) | [27](#s120B64E0A88467540701D82F1CD75F94) |

| [Consolidated Balance Sheets at June 30, 2014 and 2013](#sCACA9AB50A170AE8FA62D82F1CE35C3D) | [28](#sCACA9AB50A170AE8FA62D82F1CE35C3D) |

| [Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s0aa7095dd81a4351bc7afc2ae8018ce3) | [29](#s0aa7095dd81a4351bc7afc2ae8018ce3) |

| [Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s501CD089FC09435EA1B6D82F1E0D934A) | [30](#s501CD089FC09435EA1B6D82F1E0D934A) |

| [Notes to Consolidated Financial Statements](#s656A180340D5FB28332FD82F2543FE97) | [31](#s656A180340D5FB28332FD82F2543FE97) |

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| [Table of Contents](#s1A9F0BC414C102CDF2EDD82F23F58472) | | Cardinal Health, Inc. and Subsidiaries |

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Report of Independent Registered Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries as of June 30, 2014 and 2013, and the related consolidated statements of earnings, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2014.

Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2).

These financial statements and schedule are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cardinal Health, Inc. and subsidiaries at June 30, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2014, in conformity with U.S. generally accepted accounting principles.

Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Cardinal Health, Inc. and subsidiaries' internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated August 13, 2014 expressed an unqualified opinion thereon.

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| /s/ Ernst & Young LLP |

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| Columbus, Ohio |

| August 13, 2014 |

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None.

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, 2014.

Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of June 30, 2014 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 the policies or procedures has deteriorated or been circumvented.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2014.

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 (1992 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, 2014.

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 Item 9A 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, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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| [Table of Contents](#s1A9F0BC414C102CDF2EDD82F23F58472) | | Cardinal Health, Inc. and Subsidiaries |

| | | |

Report of Independent Registered Public Accounting Firm

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

We have audited Cardinal Health, Inc. and subsidiaries' internal control over financial reporting as of June 30, 2014, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria).

Cardinal Health, Inc. and subsidiaries' 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).

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.

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.

In our opinion, Cardinal Health, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of June 30, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Cardinal Health, Inc. and subsidiaries as of June 30, 2014 and 2013 and the related consolidated statements of earnings, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2014 of Cardinal Health, Inc. and subsidiaries and our report dated August 13, 2014 expressed an unqualified opinion thereon.

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| /s/ Ernst & Young, LLP |

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| Columbus, Ohio |

None.

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| [Table of Contents](#s1A9F0BC414C102CDF2EDD82F23F58472) | | Cardinal Health, Inc. and Subsidiaries |

| Part III | | |

In addition to the information set forth under the caption “Executive Officers of the Registrant” in Part I of this Form 10-K and set forth below regarding our Standards of Business Conduct, the information called for in this Item 10 is incorporated by reference to our Definitive Proxy Statement (which will be filed with the SEC pursuant to Regulation 14A under the Exchange Act) relating to 2014 Annual Meeting of Shareholders (our “2014 Proxy Statement”) under the captions “Proposal 1—Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance.”

We have adopted Standards of Business Conduct that apply to all of our directors, officers and employees.

The Standards of Business Conduct outline our corporate values and standards of integrity and behavior and are designed to protect and promote our reputation.

The full text of the Standards of Business Conduct is posted on our website at www.cardinalhealth.com under “About us — Corporate Governance — Environmental, Social and Governance — Ethics and Compliance.”

Any waiver of the Standards of Business Conduct for directors or executive officers must be approved by the Audit Committee.

We will disclose future amendments to our Standards of Business Conduct and waivers from the Standards of Business Conduct for our principal executive officer, principal financial officer, and principal accounting officer, or persons performing similar functions, and our other executive officers and directors on our website within four business days following the date of the amendment or waiver.

The information called for by this Item 11 is incorporated by reference to our 2014 Proxy Statement under the captions “Compensation Discussion and Analysis,” “Executive Compensation” and “Director Compensation.”

The information related to Security Ownership of Certain Beneficial Owners called for by this Item 12 is incorporated by reference to our 2014 Proxy Statement under the captions "Equity Compensation Plan Information" and “Share Ownership Information.”

The information called for by this Item 13 is incorporated by reference to our 2014 Proxy Statement under the captions

“Certain Relationships and Related Transactions” and “Corporate Governance.”

The information called for by this Item 14 is incorporated by reference to our 2014 Proxy Statement under the caption “Audit Committee Report and Audit Matters.”

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| [Table of Contents](#s1A9F0BC414C102CDF2EDD82F23F58472) | | Cardinal Health, Inc. and Subsidiaries |

| Part IV | | |

(a)(1) The following financial statements are included in Item 8 of this report:

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| [Report of Independent Registered Public Accounting Firm](#sacb98540490e4cc7b2519ec5c692be14) | [25](#sacb98540490e4cc7b2519ec5c692be14) |

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| Consolidated Financial Statements and Schedule: | |

| [Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s7DD71D62396A0993B702D82F1CF10696) | [26](#s7DD71D62396A0993B702D82F1CF10696) |

| [Consolidated Statements of Comprehensive Income for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s120B64E0A88467540701D82F1CD75F94) | [27](#s120B64E0A88467540701D82F1CD75F94) |

| [Consolidated Balance Sheets at June 30, 2014 and 2013](#sCACA9AB50A170AE8FA62D82F1CE35C3D) | [28](#sCACA9AB50A170AE8FA62D82F1CE35C3D) |

| [Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s0aa7095dd81a4351bc7afc2ae8018ce3) | [29](#s0aa7095dd81a4351bc7afc2ae8018ce3) |

| [Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2014, 2013 and 2012](#s501CD089FC09435EA1B6D82F1E0D934A) | [30](#s501CD089FC09435EA1B6D82F1E0D934A) |

| [Notes to Consolidated Financial Statements](#s656A180340D5FB28332FD82F2543FE97) | [31](#s656A180340D5FB28332FD82F2543FE97) |

(a)(2) The following Supplemental Schedule is included in this report:

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| [Schedule II - Valuation and Qualifying Accounts](#sf8cf45cbffb540bb8ef23c31cf3f8037) | [65](#sf8cf45cbffb540bb8ef23c31cf3f8037) |

All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in the Notes thereto.

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| Exhibit Number | Exhibit Description |

| 2.1 | Agreement and Plan of Merger, dated February 13, 2013, by and among Cardinal Health, Inc., AssuraMed, Inc., Mesa Merger Corp. and Clayton, Dubilier & Rice, LLC, as Representative of AssuraMed, Inc.’s stockholders (incorporated by reference to Exhibit 2.1 to Cardinal Health’s Current Report on Form 8-K filed on February 14, 2013, File No. 1-11373) |

| 3.1 | Amended and Restated Articles of Incorporation of Cardinal Health, Inc., as amended (incorporated by reference to Exhibit 3.1 to Cardinal Health’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, File No. 1-11373) |

| 3.2 | Cardinal Health, Inc. Restated Code of Regulations (incorporated by reference to Exhibit 3.2 to Cardinal Health’s Current Report on Form 8-K filed on August 10, 2012, File No. 1-11373) |

| 4.1 | Specimen Certificate for Common Shares of Cardinal Health, Inc. (incorporated by reference to Exhibit 4.01 to Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001, File No. 1-11373) |

| 4.2.1 | Indenture, dated as of April 18, 1997, between Cardinal Health, Inc. and Bank One, Columbus, NA, Trustee (incorporated by reference to Exhibit 1 to Cardinal Health’s Current Report on Form 8-K filed on April 21, 1997, File No. 1-11373) |

| 4.2.2 | Supplemental Indenture, dated October 3, 2006, between Cardinal Health, Inc. and The Bank of New York Trust Company, N.A., as trustee (successor to J.P. Morgan Trust Company, National Association, successor to Bank One, N.A., formerly known as Bank One, Columbus, N.A.) (incorporated by reference to Exhibit 4.3 to Cardinal Health’s Current Report on Form 8-K filed on October 4, 2006, File No. 1-11373) |

| 4.2.3 | Second Supplemental Indenture, dated June 8, 2007, between Cardinal Health, Inc. and The Bank of New York Trust Company, N.A., (successor to J.P. Morgan Trust Company, National Association, successor to Bank One, N.A., formerly known as Bank One, Columbus, N.A.), as trustee (incorporated by reference to Exhibit 4.01 to Cardinal Health’s Current Report on Form 8-K filed on June 8, 2007, File No. 1-11373) |

| 4.2.4 | 4.00% Notes due 2015 (incorporated by reference to Exhibit 4.2.8 to Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, File No. 1-11373) |

| 4.2.5 | 5.85% Notes due 2017 (incorporated by reference to Exhibit 4.2.9 to Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, File No. 1-11373) |

| 4.2.6 | 5.80% Notes due 2016 (incorporated by reference to Exhibit 4.2.11 to Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, File No. 1-11373) |

| 4.2.7 | 6.00% Notes due 2017 (incorporated by reference to Exhibit 4.2.12 to Cardinal Health’s Annual Report on Form 10-K for the fiscal year ended June 30, 2008, File No. 1-11373) |

| 4.3.1 | Indenture, dated as of June 2, 2008, between Cardinal Health, Inc. and The Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to Cardinal Health’s Current Report on Form 8-K filed on June 2, 2008, File No. 1-11373) |

| 4.3.2 | 4.625% Notes due 2020 (incorporated by reference to Exhibit 4.1 to Cardinal Health’s Current Report on Form 8-K filed on December 14, 2010, File No. 1-11373) |

| 4.3.3 | 1.900% Notes due 2017 (incorporated by reference to Exhibit 4.1 to Cardinal Health's Current Report on Form 8-K filed on May 21, 2012, File No. 1-11373) |

| 4.3.4 | 3.200% Notes due 2022 (incorporated by reference to Exhibit 4.2 to Cardinal Health's Current Report on Form 8-K filed on May 21, 2012, File No. 1-11373) |