Cardinal Health (CAH) 10-K risk factor changes: FY2019 vs FY2018

| [Table of [removed: Contents](#s6B4E99916A985F54B8E890823F03A361)] [added: Contents](#sF12C062ADA2B5B19A3748605BE141314)] | | |

For the fiscal year ended June 30, [removed: 2018][added: 2019]

| Ohio | [added: |] 31-0958666 |

| (State or other jurisdiction of incorporation or organization) | [added: |] (IRS Employer Identification No.) |

| 7000 Cardinal Place, Dublin, Ohio | [added: |] 43017 |

| (Address of principal executive offices) | [added: |] (Zip Code) |

| (614) 757-5000 | | [added: |]

| (Registrant’s telephone number, including area code) | | [added: |]

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

| Title of each class | [added: Trading Symbol(s) |] Name of each exchange on which registered |

| Common shares (without par value) | [added: CAH |] New York Stock Exchange |

| Securities registered pursuant to Section 12(g) of the Act: None | | [added: |]

| Non-accelerated filer o [removed: (Do not check if a smaller reporting company)] | Smaller reporting company o |

The aggregate market value of voting stock held by non-affiliates or registrant on December 31, [removed: 2017,] [added: 2018,] was the following: [removed: $19,248,647,885.][added: $13,267,580,148.]

The number of the registrant’s common shares, without par value, outstanding as of July 31, [removed: 2018,] [added: 2019,] was the following: [removed: 308,828,810.][added: 298,133,678.]

Portions of the registrant’s Definitive Proxy Statement to be filed for its [removed: 2018] [added: 2019] 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: 2018] [added: 2019] Form 10-K |

| [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sC2D36B9AF1AE5576A650F0B32CAF9061)] [added: Operations](#sDD89655F9A0153668BBD64DC63C58B22)] | [removed: [3](#sC2D36B9AF1AE5576A650F0B32CAF9061)] [added: [3](#sDD89655F9A0153668BBD64DC63C58B22)] |

| [Explanation and Reconciliation of Non-GAAP Financial [removed: Measures](#s76F9A60BF6255C22B44380348A4F8D58)] [added: Measures](#s785354BBC9CF5C5F9E2C79F0B3A16C4D)] | [removed: [19](#s76F9A60BF6255C22B44380348A4F8D58)] [added: [20](#s785354BBC9CF5C5F9E2C79F0B3A16C4D)] |

| [Selected Financial [removed: Data](#s01F3F09E3BDC53509151A36F0EBAA0A3)] [added: Data](#s9380AE7CE9EB53F4AB8C845AE5DB488B)] | [removed: [22](#s01F3F09E3BDC53509151A36F0EBAA0A3)] [added: [23](#s9380AE7CE9EB53F4AB8C845AE5DB488B)] |

| [Quantitative and Qualitative Disclosures about Market [removed: Risk](#s2AE775E709025D71B05D50157102F194)] [added: Risk](#s902BB3B4D6405C5B8462AEBB4CB6F549)] | [removed: [23](#s2AE775E709025D71B05D50157102F194)] [added: [24](#s902BB3B4D6405C5B8462AEBB4CB6F549)] |

| [Risk [removed: Factors](#sBB12E4C4F4605E4A86F9D7F2370DAF85)] [added: Factors](#s97BED87C4F8A59FA85C50EA15DCB5F40)] | [removed: [31](#sBB12E4C4F4605E4A86F9D7F2370DAF85)] [added: [32](#s97BED87C4F8A59FA85C50EA15DCB5F40)] |

| [Legal [removed: Proceedings](#s6186DB7C8CD259CEADD4AA4E9CE82914)] [added: Proceedings](#s54E532F00AC1502D89593C1D29ED0703)] | [removed: [36](#s6186DB7C8CD259CEADD4AA4E9CE82914)] [added: [37](#s54E532F00AC1502D89593C1D29ED0703)] |

| [Market for Registrant's Common [removed: Equity](#s9AB43F463DCA521FACF9F92464BB1BDE)] [added: Equity](#s86388EBBD727531099BBA669B1BC5DEA)] | [removed: [37](#s9AB43F463DCA521FACF9F92464BB1BDE)] [added: [38](#s86388EBBD727531099BBA669B1BC5DEA)] |

| [removed: [Reports](#sE1C605E2332C52338C0C2C3836480018)] [added: Reports] | [removed: [39](#sE1C605E2332C52338C0C2C3836480018)] | [added: |]

| [Financial Statements and Supplementary [removed: Data](#s18E5E4F6E0515514A1B83266C8D17008)] [added: Data](#sF12C6E30041059BCB658D352C9AD05DC)] | [removed: [42](#s18E5E4F6E0515514A1B83266C8D17008)] [added: [45](#sF12C6E30041059BCB658D352C9AD05DC)] |

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

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

| [removed: [Exhibits](#sBC576D7CF8B4559584BFB8292C7031BD)] [added: Exhibits] | [removed: [75](#sBC576D7CF8B4559584BFB8292C7031BD)] | [added: |]

| [Form 10-K Cross Reference [removed: Index](#s433124EBA35C5DC99B6E56BB534A8716)] [added: Index](#s2F0E76B65AB252DA924964B42F0E442D)] | [removed: [79](#s433124EBA35C5DC99B6E56BB534A8716)] [added: [84](#s2F0E76B65AB252DA924964B42F0E442D)] |

| 1 | Cardinal Health \| Fiscal [removed: 2018] [added: 2019] Form 10-K | |

References to fiscal [added: 2020,] 2019, 2018, 2017, [removed: 2016, 2015 and 2014] [added: 2016] and [added: 2015 are] to the fiscal years ended June 30, [added: 2020,] 2019, 2018, 2017, [removed: 2016, 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively.

Except as otherwise specified, information in this report is provided as of June 30, [removed: 2018.][added: 2019.]

In this report, including in the "Fiscal [removed: 2018] [added: 2019] 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”).

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge on our website (www.cardinalhealth.com), under the [removed: “Investors] [added: “Investor Relations] — Financial Reporting — SEC Filings” caption, as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC.

| | Cardinal Health \| Fiscal [removed: 2018] [added: 2019] Form 10-K | 2 |

Cardinal Health, Inc. is an Ohio corporation formed in 1979 and is a [removed: global,] [added: globally] integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices.

[added: |] Pharmaceutical [removed: Segment][added: segment revenue | 129,917 | | |]

Our Pharmaceutical segment distributes branded and generic pharmaceutical, specialty [removed: pharmaceutical,] [added: pharmaceutical] and over-the-counter healthcare and consumer products in the United States.

This segment also provides services to pharmaceutical manufacturers and healthcare providers [removed: to support the development, marketing, and distribution of] [added: for] specialty pharmaceutical products; operates nuclear pharmacies and radiopharmaceutical manufacturing facilities; provides pharmacy management services to hospitals, as well as medication therapy management and patient outcomes services to hospitals, other healthcare providers and payers; and repackages generic pharmaceuticals and over-the-counter healthcare products.

10-K 1 a19q4_10kx063019xform10-k.htm 10-K

| [Introduction](#s036642E9E8E25CC49B9A4B54DA25D34B) | [2](#s036642E9E8E25CC49B9A4B54DA25D34B) |

| [Business](#sA9FFD409620556479036BB620A458BB3) | [26](#sA9FFD409620556479036BB620A458BB3) |

| [Properties](#sE084D7A5C11D5FB99E18D68474FD47A3) | [37](#sE084D7A5C11D5FB99E18D68474FD47A3) |

| [Reports](#s4EB84DED395F5B1183CA759D7E4AD7E9) | [40](#s4EB84DED395F5B1183CA759D7E4AD7E9) |

| [Exhibits](#sA0257394CC1B5B0C89B5E343EF646474) | [79](#sA0257394CC1B5B0C89B5E343EF646474) |

| [Signatures](#sDB557CF189D95DE690C4A464C93A2CA0) | [85](#sDB557CF189D95DE690C4A464C93A2CA0) |

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

During fiscal 2019, GAAP operating earnings increased to $2.1 billion from $126 million during fiscal 2018.

The increase in GAAP operating earnings was primarily due to the goodwill impairment charge related to our Medical segment in the prior year and the current year gain from the divestiture of our naviHealth Holdings, LLC ("naviHealth") business.

These factors were partially offset by growth from our specialty pharmaceutical products and services business within our Pharmaceutical segment, the beneficial impact of enterprise-wide cost-savings measures and higher contribution from branded pharmaceutical sales and mix.

Non-GAAP diluted EPS increased 6 percent to $5.28.

Fiscal 2019 non-GAAP diluted EPS increased primarily due to a $0.49 per share impact from a lower non-GAAP effective tax rate in the current period compared to the higher prior year non-GAAP effective tax rate.

Also contributing to the increase in non-GAAP diluted EPS was a lower share count as a result of share repurchases.

These factors were partially offset by the decrease in non-GAAP operating earnings.

The non-GAAP effective tax rate is lower in the current year primarily because of the benefits from applying a lower federal statutory tax rate to our U.S. pre-tax earnings as a result of the Tax Act.

The increase in cash and equivalents during fiscal 2019 was due to $2.7 billion of net cash provided by operating activities and $737 million of net cash proceeds from the sale of our naviHealth business, offset by $1.1 billion of debt repayments, $600 million of share repurchases, $577 million of dividends, and $328 million of capital expenditures.

On August 7, 2019, we were authorized to incur restructuring costs in connection with certain cost-savings initiatives intended to optimize and simplify our operating model and cost structure.

We expect these cost-savings initiatives, which will affect various functional and commercial areas across the Company, to be substantially implemented during fiscal year 2020.

As a result of these initiatives, we expect to record restructuring charges of approximately $120 million to $145 million, the majority of which are expected to be expensed during fiscal year 2020.

We may incur additional restructuring charges in connection with other projects.

The increases were partially offset by the February 2018 divestiture of our China distribution business.

Fiscal 2019 Medical segment revenue was flat compared to fiscal 2018.

Sales growth from existing customers and the benefit from one additional month of contribution from the Patient Recovery acquisition were offset by the divestitures of our China distribution and naviHealth businesses.

Fiscal 2019 Compared to Fiscal 2018

Fiscal 2019 consolidated gross margin decreased $347 million (5 percent) due to lower contribution from our Pharmaceutical segment generics program, performance of Medical segment's Cardinal Health Brand products, the net impact of acquisitions and divestitures and the adverse impact of Pharmaceutical segment customer contract renewals.

These factors were partially offset by sales growth from our specialty pharmaceutical products and services business and higher contribution from branded pharmaceutical sales and mix.

Gross margin rate declined during fiscal 2019 mainly due to changes in product mix, lower contribution from our Pharmaceutical segment generics program, performance of Medical segment's Cardinal Health Brand products, and the adverse impact of Pharmaceutical segment customer contract renewals.

Fiscal 2019 Compared to Fiscal 2018

Fiscal 2019 SG&A expenses decreased due to the beneficial impact of divestitures and enterprise-wide cost-savings measures, largely offset by certain costs to exit transition service agreements for our Patient Recovery Business and legal expenses for opioid-related matters.

Fiscal 2019 Compared to Fiscal 2018

Fiscal 2019 Pharmaceutical segment profit decreased largely due to our generics program performance, the adverse impact of customer contract renewals and legal expenses for opioid-related matters.

The decreases were partially offset by growth from our specialty pharmaceutical products and services business, higher contribution from our branded pharmaceutical sales and mix and the beneficial impact of enterprise-wide cost-savings measures.

Fiscal 2019 Medical segment profit decreased largely due to the performance of Cardinal Health Brand products, including incremental supply chain costs, charges related to an exclusive distribution agreement with a Cordis supplier, and increased commodities prices.

This decrease was partially offset by the benefits from enterprise-wide and segment cost-savings measures and the prior-year impact of Cordis inventory challenges and increased operating costs specific to Cordis.

Medical segment profit comparison to the prior year also benefitted from acquisitions and divestitures, net, which includes the beneficial comparison to the impact in fiscal

2018 from the fair value step-up of inventory acquired with the Patient Recovery Business.

During fiscal 2019, we recognized $92 million of restructuring related costs in connection with enterprise-wide cost-savings measures that began in fiscal 2019.

During fiscal 2019, we recognized a pre-tax gain of $508 million related to the divestiture of our naviHealth business.

Fiscal 2019 interest expense decreased primarily due to lower debt outstanding.

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

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 the Form 10-K or any amendment to the Form 10-K.

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

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

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

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

You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.

You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Medical Segment

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

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

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.

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.

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.

On July 29, 2017, we acquired the Patient Care, Deep Vein Thrombosis, and Nutritional Insufficiency businesses (the "Patient Recovery Business") from Medtronic plc for $6.1 billion in cash.

China Distribution Business Divestiture

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 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.

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

The acquisition of the Patient Recovery Business increased Medical segment revenue and profit during fiscal 2018.

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.

We also expect the acquisition will increase amortization and acquisition-related costs in fiscal 2019 due to the size and complexity of the acquisition.

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.

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.

Additionally, we recognized a $936 million provisional net transitional tax benefit during fiscal 2018, consisting of the remeasurement of our U.S. deferred tax assets and liabilities at the lower tax rate partially offset by the expense for the repatriation tax.

We expect the lower federal statutory rate to be more beneficial in fiscal 2019 than in 2018; however, beginning in fiscal 2019, the Tax Act limits certain deductions and creates new taxes on certain foreign sourced earnings, which will offset some of the additional benefit.

We are still completing our accounting for the tax effects of the Tax Act because all of the necessary information is not currently available, prepared, or analyzed.

As such, the amounts we have recorded are provisional estimates and, as permitted by the SEC, we will continue to assess the impact of enactment of the Tax Act and we may record additional provisional amounts or adjustments to provisional amounts during the first half of fiscal 2019.

Fiscal 2017 Medical segment revenue grew primarily due to sales growth from new and existing customers and $212 million in contributions from acquisitions.

Fiscal 2017 consolidated gross margin was essentially flat versus the prior-year period.

Consolidated gross margin for fiscal 2017 was positively impacted by sales growth from pharmaceutical distribution customers ($260 million) and acquisitions in both segments ($132 million) and was negatively impacted by the previously disclosed loss of a large pharmaceutical distribution customer.