Cardinal Health (CAH) 10-K risk factor changes: FY2018 vs FY2017

| [Table of [removed: Contents](#s055E4903FB40583A93B96702EC9AFB64)] [added: Contents](#s6B4E99916A985F54B8E890823F03A361)] | | |

For the fiscal year ended June 30, [removed: 2017][added: 2018]

| Title of [added: each] class | Name of each exchange on which registered |

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Website, if any,] every Interactive Data File required to be submitted and posted 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 and post such files).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of [removed: this] [added: the] Form 10-K or any amendment to [removed: this] [added: the] Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: a] smaller reporting company, or an emerging growth company.

The aggregate market value of voting stock held by non-affiliates or registrant on December 31, [removed: 2016,] [added: 2017,] was the following: [removed: $22,624,332,824.][added: $19,248,647,885.]

The number of the registrant’s common shares, without par value, outstanding as of July 31, [removed: 2017,] [added: 2018,] was the following: [removed: 316,453,664.][added: 308,828,810.]

Portions of the registrant’s Definitive Proxy Statement to be filed for its [removed: 2017] [added: 2018] 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 [removed: 2017] [added: 2018] Form 10-K |

| [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sAFBF884C3D695128B6832C27EC1719FE)] [added: Operations](#sC2D36B9AF1AE5576A650F0B32CAF9061)] | [removed: [3](#sAFBF884C3D695128B6832C27EC1719FE)] [added: [3](#sC2D36B9AF1AE5576A650F0B32CAF9061)] |

| [Explanation and Reconciliation of Non-GAAP Financial [removed: Measures](#s459BDF5FB8AD5136B5EDD444781D6272)] [added: Measures](#s76F9A60BF6255C22B44380348A4F8D58)] | [removed: [18](#s459BDF5FB8AD5136B5EDD444781D6272)] [added: [19](#s76F9A60BF6255C22B44380348A4F8D58)] |

| [Selected Financial [removed: Data](#s87FAA54B16A05585A500912438C9E258)] [added: Data](#s01F3F09E3BDC53509151A36F0EBAA0A3)] | [removed: [21](#s87FAA54B16A05585A500912438C9E258)] [added: [22](#s01F3F09E3BDC53509151A36F0EBAA0A3)] |

| [Quantitative and Qualitative Disclosures about Market [removed: Risk](#s53A5F815B6C95B06B68570EFA3707927)] [added: Risk](#s2AE775E709025D71B05D50157102F194)] | [removed: [22](#s53A5F815B6C95B06B68570EFA3707927)] [added: [23](#s2AE775E709025D71B05D50157102F194)] |

| [removed: [Risk Factors](#sEE7978EC988F5403B3C4C986C8D9DE81)] [added: Risk Factors] | [removed: [30](#sEE7978EC988F5403B3C4C986C8D9DE81)] | [added: |]

| [Legal [removed: Proceedings](#s56E91AA25B1D5B1E8C54E3E3C8F714FD)] [added: Proceedings](#s6186DB7C8CD259CEADD4AA4E9CE82914)] | [removed: [34](#s56E91AA25B1D5B1E8C54E3E3C8F714FD)] [added: [36](#s6186DB7C8CD259CEADD4AA4E9CE82914)] |

| [Market for Registrant's Common [removed: Equity](#s6E3944262FA25D4788CF536132E22962)] [added: Equity](#s9AB43F463DCA521FACF9F92464BB1BDE)] | [removed: [35](#s6E3944262FA25D4788CF536132E22962)] [added: [37](#s9AB43F463DCA521FACF9F92464BB1BDE)] |

| [Financial Statements and Supplementary [removed: Data](#s26F47C9298505ED3A7A0A45413942811)] [added: Data](#s18E5E4F6E0515514A1B83266C8D17008)] | [removed: [40](#s26F47C9298505ED3A7A0A45413942811)] [added: [42](#s18E5E4F6E0515514A1B83266C8D17008)] |

| [Directors, Executive Officers, and Corporate [removed: Governance](#s81C625B764595000B964FB2E790220BA)] [added: Governance](#s625E511814BC584AA4A2D9461A76BA39)] | [removed: [70](#s81C625B764595000B964FB2E790220BA)] [added: [73](#s625E511814BC584AA4A2D9461A76BA39)] |

| [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s0F4099D644675C1EBF73B7611CD3A0AF)] [added: Matters](#s900892DF9ECC568284E54E9492B1363E)] | [removed: [71](#s0F4099D644675C1EBF73B7611CD3A0AF)] [added: [74](#s900892DF9ECC568284E54E9492B1363E)] |

| [Form 10-K Cross Reference [removed: Index](#s86414693644450D1BD77863A79818361)] [added: Index](#s433124EBA35C5DC99B6E56BB534A8716)] | [removed: [76](#s86414693644450D1BD77863A79818361)] [added: [79](#s433124EBA35C5DC99B6E56BB534A8716)] |

| [removed: [Signatures](#s5EFC69C27D6B509BA6D686B01308024B)] [added: Signatures] | [removed: [77](#s5EFC69C27D6B509BA6D686B01308024B)] | [added: |]

| 1 | Cardinal Health \| Fiscal [removed: 2017] [added: 2018] Form 10-K | |

As used in this report, "we," "our," "us," "Cardinal Health" and similar pronouns refer to Cardinal Health, Inc. and its [added: majority-owned] subsidiaries, unless the context requires otherwise.

References to fiscal [added: 2019, 2018,] 2017, 2016, [removed: 2015, 2014 and 2013] [added: 2015] and [removed: to FY17, FY16, FY15, FY14] [added: 2014] and [removed: FY13 are] to the fiscal years ended June 30, [added: 2019, 2018,] 2017, 2016, [removed: 2015, 2014] [added: 2015] and [removed: 2013,] [added: 2014,] respectively.

Except as otherwise specified, information in this report is provided as of June 30, [removed: 2017.][added: 2018.]

In this report, including in the "Fiscal [removed: 2017] [added: 2018] 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”).

| | Cardinal Health \| Fiscal [removed: 2017] [added: 2018] Form 10-K | 2 |

In addition to distributing Cardinal Health branded products, this segment also distributes a broad range of national brand products and provides supply chain services and solutions to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers in the United [removed: States, Canada] [added: States] and [removed: China.][added: Canada .]

| 3 | Cardinal Health \| Fiscal [removed: 2017] [added: 2018] Form 10-K | |

[removed: ][added: ]

Fiscal [removed: 2017] [added: 2018] Overview

Revenue for fiscal [removed: 2017] [added: 2018] was [removed: $130.0] [added: $136.8] billion, a [removed: 7] [added: 5] percent increase from the prior year, due primarily to sales growth from pharmaceutical distribution [added: and specialty pharmaceutical] customers.

| (in millions) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | Change | |

| GAAP | $ | [removed: 2,120] [added: 126] | | | $ | [removed: 2,459] [added: 2,120] | | | [removed: (14] [added: (94] | )% |

[removed: |] Restructuring and [removed: employee severance | 56 | | | | 25 | | | | | |][added: Employee Severance]

| Amortization and other acquisition-related costs | [removed: 527] [added: 707] | | | | [removed: 459] [added: 527] | | | | [added: 459] | | [added: |]

| Impairments and (gain)/loss on disposal of assets | [removed: 18] [added: 1,417] | | | | [removed: 21] [added: 18] | | | | | |

| Litigation (recoveries)/charges, net | [removed: 48] [added: 159] | | | | [removed: (69] [added: 48] | | [removed: )] | | | |

| Non-GAAP | $ | [removed: 2,769] [added: 2,585] | | | $ | [removed: 2,895] [added: 2,769] | | | [removed: (4] [added: (7] | )% |

10-K 1 a18q4_10kx063018xform10-k.htm 10-K

| [Introduction](#s61C0FB41B61C5936AB03BD5276411E4B) | [2](#s61C0FB41B61C5936AB03BD5276411E4B) |

| [Business](#sEAB852AC9F4752A19743B81449F20023) | [25](#sEAB852AC9F4752A19743B81449F20023) |

| [Properties](#sCB6862173AB255ADA503607EB60E4D1C) | [36](#sCB6862173AB255ADA503607EB60E4D1C) |

| [Reports](#sE1C605E2332C52338C0C2C3836480018) | [39](#sE1C605E2332C52338C0C2C3836480018) |

| [Exhibits](#sBC576D7CF8B4559584BFB8292C7031BD) | [75](#sBC576D7CF8B4559584BFB8292C7031BD) |

| [Signatures](#sA5C4ED1CD5155738BDEAC8FD94AFF776) | [80](#sA5C4ED1CD5155738BDEAC8FD94AFF776) |

In addition to distributing Cardinal Health branded products, this segment also distributes a broad range of 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.

The Patient Recovery Business acquisition also contributed to the increase in revenue in fiscal 2018.

The decrease in GAAP operating earnings was primarily due to a non-cash goodwill impairment charge related to our Medical segment; increased amortization of acquisition-related intangible assets as a result of the Patient Recovery Business acquisition; contract termination restructuring costs 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; performance from Cardinal Health Brand products, primarily Cordis; performance from our Pharmaceutical segment generics program; litigation charges associated with inferior vena cava (IVC) filter product liability claims; and the adverse impact of pharmaceutical customer contract renewals.

These factors were partially offset by contributions from the Patient Recovery Business acquisition.

The decrease in non-GAAP operating earnings was primarily due to performance from Cardinal Health Brand products, primarily Cordis; performance from our Pharmaceutical segment generics program; and the adverse impact of pharmaceutical customer contract renewals.

These factors were partially offset by contributions from the Patient Recovery Business acquisition.

| Transitional tax benefit, net | (2.97 | | ) | | $ | — | | | | |

Fiscal 2018 GAAP diluted EPS decreased primarily due to the factors impacting GAAP operating earnings and increased interest expense.

These were partially offset by the net benefit from the U.S. Tax Cuts and Jobs Act ("Tax Act"), which includes a provisional transitional tax benefit of $936 million as well as the benefit from applying a lower federal tax rate to our U.S. pre-tax earnings.

Fiscal 2018 non-GAAP diluted EPS decreased primarily due to the factors impacting non-GAAP operating earnings and an increase in interest expense, partially offset by the benefit of applying a lower U.S. federal statutory tax rate under the Tax Act to U.S. pre-tax non-GAAP earnings.

The decrease in cash and equivalents during fiscal 2018 was due to $6.1 billion paid for acquisitions, $954 million paid for debt repayments, $581 million paid in dividends, $550 million paid for share repurchases and $384 million paid for capital expenditures.

These cash decreases were offset in part by $2.8 billion of net cash provided by operating activities and $861 million of cash proceeds from the sale of our China distribution business.

Acquisitions and Divestitures

The acquisition further expanded the Medical segment's portfolio of Cardinal Health Brand products.

China Distribution Business Divestiture

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

The proceeds are not reflective of tax obligations due in connection with the sale, for which we have recorded a liability of $59 million.

We recognized a pre-tax loss of $41 million related to this divestiture.

In June 2018, we signed a securities purchase agreement and a contribution and rollover agreement with investor entities controlled by Clayton, Dubilier & Rice ("CD&R") to sell our ownership interest in naviHealth for proceeds of $736 million (after adjusting for certain fees and expenses) and a 44% equity interest in a partnership that owns naviHealth.

We also have certain call rights to reacquire naviHealth.

We do not expect a cash tax impact from this transaction because the capital gain will be offset by capital loss carry-forwards.

The transaction closed on August 1, 2018.

We expect to record a pre-tax gain of more than $500 million in the first quarter of fiscal 2019.

Within our Pharmaceutical segment, we expect fiscal 2019 segment profit to be less than our fiscal 2018 segment profit due to the adverse impact of customer contract renewals, generics program performance, and the previously announced loss of a large pharmaceutical distribution customer.

Our generics program performance includes the negative impact of generic pharmaceutical customer pricing changes partially offset by the benefits of Red Oak Sourcing.

We expect the acquisition to increase Medical segment profit further during fiscal 2019 due to the one additional month of results and the fiscal 2018 negative impact of the inventory fair value step up.

The performance of our Cordis business within our Medical segment declined significantly due to inventory challenges and increased operating costs in fiscal 2018.

We expect Cordis performance to stabilize in fiscal 2019.

In early fiscal 2019, we implemented certain enterprise-wide cost-saving measures, which we expect to reduce our future operating expenses.

Tax Cuts and Jobs Act

The Tax Act was enacted in December 2017.

The Tax Act, among other things, reduced the U.S. federal corporate tax rate from 35 percent to 21 percent and required companies to pay a one-time tax to repatriate, for U.S. purposes, earnings of certain foreign subsidiaries that were previously deferred for tax purposes.

The rate change was effective at the beginning of calendar year 2018 and the application of the lower federal tax rate to our U.S. pre-tax earnings resulted in a significant favorable impact to our tax provision in fiscal 2018.

10-K 1 a17q4_10kx63017xform10-k.htm 10-K

| |

| [Introduction](#s0C2FC776BEFF5889A27DD870B09F6466) | [2](#s0C2FC776BEFF5889A27DD870B09F6466) |

| [Business](#s398C51F48E335CE8AC9820A8AD9A2B9B) | [24](#s398C51F48E335CE8AC9820A8AD9A2B9B) |

| [Properties](#s29A32854D6D65214A7FB468F1A784F05) | [34](#s29A32854D6D65214A7FB468F1A784F05) |

| [Reports](#s20CF09ABBDEC52ADA8847F70BA2D1783) | [37](#s20CF09ABBDEC52ADA8847F70BA2D1783) |

| [Exhibits](#s25DA39E18060560FA5DEE8FE171BD59A) | [72](#s25DA39E18060560FA5DEE8FE171BD59A) |

We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management.

This segment also imports and distributes pharmaceuticals, over-the-counter healthcare and consumer products and provides specialty pharmacy and other services in China.

This segment also distributes medical products to patients' homes and provides post-acute care management and transition services and software to hospitals, other healthcare providers and payers in the United States.

The decreases in both GAAP and non-GAAP operating earnings were primarily due to generic pharmaceutical customer pricing changes and the previously disclosed loss of a large pharmaceutical distribution customer.

The decreases were partially offset by the benefits of Red Oak Sourcing within our Pharmaceutical segment generics program and growth from our Medical segment.

Changes in litigation (recoveries)/charges, net and amortization of acquisition-related intangible assets related to the acquisition of Cordis also contributed to the decrease in GAAP operating earnings during fiscal 2017.

GAAP diluted EPS decreased due to lower GAAP operating earnings, partially offset by a lower effective tax rate and fewer shares outstanding as a result of share repurchases.

Non-GAAP diluted EPS increased primarily due to a lower effective tax rate and fewer shares outstanding as a result of share repurchases, partially offset by lower non-GAAP operating earnings.

Within our Pharmaceutical segment, we expect fiscal 2018 segment profit to be less than our fiscal 2017 segment profit due primarily to generic pharmaceutical customer pricing changes, which also negatively impacted Pharmaceutical segment profit during fiscal 2017.

Fiscal 2016 Compared to Fiscal 2015

Acquisitions also contributed $2.1 billion to revenue growth.

Fiscal 2016 Medical segment revenue grew primarily due to acquisitions, net of divestitures, which contributed $645 million, and sales growth from existing businesses.

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Fiscal 2016 consolidated gross margin increased $831 million (15 percent), and was favorably impacted by sales growth from pharmaceutical distribution customers ($510 million) and acquisitions, net of divestitures ($576 million).

Gross margin rate contracted during fiscal 2016, primarily due to changes in product mix driven by the on-boarding of a new mail order customer, OptumRx, starting in October 2015, and also due to the adverse impact of customer pricing changes.

Our gross margin rate was favorably impacted by performance under our Pharmaceutical segment generics program.

Our generics program had strong year-over-year performance from Red Oak Sourcing.

Fiscal 2016 SG&A expenses increased primarily due to acquisitions, net of divestitures ($370 million).


These were partially offset by the benefits of Red Oak Sourcing within our generics program.

As discussed further in sections that follow, the principal drivers for the change in Corporate during fiscal 2017 were the change in litigation (recoveries)/charges, net and higher amortization and other acquisition-related costs.

Acquisitions also contributed to Pharmaceutical segment profit growth.

Our generics program benefited from strong year-over-year performance from Red Oak Sourcing.

Fiscal 2016 Medical segment profit increased due to the contribution from Cardinal Health branded products.

Fiscal 2016 Medical segment profit growth was partially offset by a decline in the results from our Canada business.

As discussed further in sections that follow, the principal driver for the change in Corporate in fiscal 2016 was increased amortization and other acquisition-related costs primarily related to the acquisitions of Cordis and Harvard Drug, partially offset by litigation recoveries.

| | | | | | | | | | | | |

During fiscal 2017, we incurred litigation charges of $45 million due to accrued expenses relating to the Cordis-related IVC filter product liability claims and the settlement of the State of West Virginia matter.

During fiscal 2015, we incurred litigation charges of $68 million related to government investigations.

Fiscal 2017 interest expense increased primarily due to $5.2 billion of new long-term debt issued in June 2017, $4.5 billion of which was used to fund the acquisition of the Patient Recovery Business in July 2017.

Fees relating to a commitment for an unsecured bridge term loan facility obtained in connection with the acquisition also contributed to the increase in interest expense.

No amounts were drawn under the bridge loan facility and we terminated the commitment letter in June 2017.