Cardinal Health (CAH) 10-K risk factor changes: FY2023 vs FY2022

| [Table of [removed: Contents](#i06b8b3ff48e94029843042d968c5bda7_7)] [added: Contents](#ibd360c6108934d33aa2a235dd3fdd8d8_7)] | | | | | | | | |

For the fiscal year ended June 30, [removed: 2022][added: 2023]

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

| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange [removed: Act] [added: Act.] o | | | | | | | | | | | | | | | | | |

The aggregate market value of voting stock held by non-affiliates on December 31, [removed: 2021,] [added: 2022,] was the following: [removed: $14,223,756,327.][added: $19,775,475,828.]

The number of the registrant’s common shares, without par value, outstanding as of July 31, [removed: 2022,] [added: 2023,] was the following: [removed: 272,512,364.][added: 250,681,620.]

Portions of the registrant’s Definitive Proxy Statement to be filed for its [removed: 2022] [added: 2023] 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: 2022] [added: 2023] Form 10-K | | |

| | | | [Management's Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i06b8b3ff48e94029843042d968c5bda7_13)] [added: Operations](#ibd360c6108934d33aa2a235dd3fdd8d8_13)] | | | [removed: [3](#i06b8b3ff48e94029843042d968c5bda7_13)] [added: [3](#ibd360c6108934d33aa2a235dd3fdd8d8_13)] | | |

| | | | [Explanation and Reconciliation of Non-GAAP Financial [removed: Measures](#i06b8b3ff48e94029843042d968c5bda7_40)] [added: Measures](#ibd360c6108934d33aa2a235dd3fdd8d8_37)] | | | [removed: [23](#i06b8b3ff48e94029843042d968c5bda7_40)] [added: [21](#ibd360c6108934d33aa2a235dd3fdd8d8_37)] | | |

| | | | [Quantitative and Qualitative Disclosures about Market [removed: Risk](#i06b8b3ff48e94029843042d968c5bda7_49)] [added: Risk](#ibd360c6108934d33aa2a235dd3fdd8d8_46)] | | | [removed: [28](#i06b8b3ff48e94029843042d968c5bda7_49)] [added: [26](#ibd360c6108934d33aa2a235dd3fdd8d8_46)] | | |

| | | | [Risk [removed: Factors](#i06b8b3ff48e94029843042d968c5bda7_55)] [added: Factors](#ibd360c6108934d33aa2a235dd3fdd8d8_52)] | | | [removed: [39](#i06b8b3ff48e94029843042d968c5bda7_55)] [added: [36](#ibd360c6108934d33aa2a235dd3fdd8d8_52)] | | |

| | | | [Legal [removed: Proceedings](#i06b8b3ff48e94029843042d968c5bda7_61)] [added: Proceedings](#ibd360c6108934d33aa2a235dd3fdd8d8_58)] | | | [removed: [47](#i06b8b3ff48e94029843042d968c5bda7_61)] [added: [44](#ibd360c6108934d33aa2a235dd3fdd8d8_58)] | | |

| | | | [Market for Registrant's Common [removed: Equity](#i06b8b3ff48e94029843042d968c5bda7_64)] [added: Equity](#ibd360c6108934d33aa2a235dd3fdd8d8_61)] | | | [removed: [48](#i06b8b3ff48e94029843042d968c5bda7_64)] [added: [45](#ibd360c6108934d33aa2a235dd3fdd8d8_61)] | | |

| | | | [Financial Statements and Supplementary [removed: Data](#i06b8b3ff48e94029843042d968c5bda7_76)] [added: Data](#ibd360c6108934d33aa2a235dd3fdd8d8_76)] | | | [removed: [55](#i06b8b3ff48e94029843042d968c5bda7_76)] [added: [51](#ibd360c6108934d33aa2a235dd3fdd8d8_76)] | | |

| | | | [Directors, Executive [removed: Officers, and] [added: Officers](#ibd360c6108934d33aa2a235dd3fdd8d8_154) [and] Corporate [removed: Governance](#i06b8b3ff48e94029843042d968c5bda7_151)] [added: Governance](#ibd360c6108934d33aa2a235dd3fdd8d8_154)] | | | [removed: [89](#i06b8b3ff48e94029843042d968c5bda7_151)] [added: [82](#ibd360c6108934d33aa2a235dd3fdd8d8_154)] | | |

| | | | [Form 10-K Cross Reference [removed: Index](#i06b8b3ff48e94029843042d968c5bda7_160)] [added: Index](#ibd360c6108934d33aa2a235dd3fdd8d8_166)] | | | [removed: [95](#i06b8b3ff48e94029843042d968c5bda7_160)] [added: [89](#ibd360c6108934d33aa2a235dd3fdd8d8_166)] | | |

| 1 | | | Cardinal Health \| Fiscal [removed: 2022] [added: 2023] Form 10-K | | | | | |

References to fiscal [added: 2024,] 2023, 2022, 2021, [removed: 2020, 2019] [added: 2020] and [removed: 2018] [added: 2019] are to the fiscal years ended June 30, [added: 2024,] 2023, 2022, 2021, [removed: 2020, 2019] [added: 2020] and [removed: 2018,] [added: 2019,] respectively.

Except as otherwise specified, information in this report is provided as of June 30, [removed: 2022.][added: 2023.]

In this report, [removed: including in the "Fiscal 2022 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 MD&A within this Form 10-K generally discusses fiscal [removed: 2022] [added: 2023] and fiscal [removed: 2021] [added: 2022] items and [removed: year-to-year] [added: year-over-year] comparisons between fiscal [removed: 2022] [added: 2023] and fiscal [removed: 2021.][added: 2022.]

Fiscal [removed: 2020] [added: 2021] items and discussions of [removed: year-to-year] [added: year-over-year] comparisons between fiscal [removed: 2021] [added: 2022] and fiscal [removed: 2020] [added: 2021] that are not included in this Form 10-K can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended June 30, [removed: 2021] [added: 2022] (the "Fiscal [removed: 2021] [added: 2022] Form 10-K").

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

The SEC also maintains a website (www.sec.gov) where you can search for annual, quarterly and current reports, proxy and information [removed: statements,] [added: statements] and other information regarding us and other public companies.

| [removed: 2] | | | Cardinal Health \| Fiscal [removed: 2022] [added: 2023] Form 10-K | | | [added: 2] | | |

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

This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products; [removed: operates nuclear pharmacies and radiopharmaceutical manufacturing facilities;] provides pharmacy management services to [removed: hospitals, as well as medication therapy management] [added: hospitals] and [removed: patient outcomes services to hospitals, other healthcare providers] [added: operates a limited number of pharmacies, including pharmacies in community health centers; operates nuclear pharmacies] and [removed: payers;] [added: radiopharmaceutical manufacturing facilities;] and repackages generic pharmaceuticals and over-the-counter healthcare products.

Our Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and [removed: other markets.]

[removed: In addition to distributing Cardinal Health branded products, this] [added: This] segment also distributes a broad range of medical, surgical and laboratory products known as 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.

| | | | Cardinal Health \| Fiscal [removed: 2022] [added: 2023] Form 10-K | | | 3 | | |

Fiscal [removed: 2022] [added: 2023] Overview

[removed: Revenue for fiscal 2022 was $181.4 billion, a 12] [added: Fiscal 2023 Pharmaceutical segment revenue grew by 15] percent [removed: increase from the prior year,] primarily due to [removed: sales growth from pharmaceutical distribution] [added: branded] and specialty pharmaceutical [removed: customers, which largely consisted of branded pharmaceutical] sales [removed: to] [added: growth largely from] existing and net new [removed: customers.][added: customers, which increased revenue by $24.2 billion.]

| (in millions) | | | [removed: 2022] [added: 2023] | | | | | | [removed: 2021] [added: 2022] | | | | | | Change | | |

| GAAP operating earnings/(loss) | | | $ | [removed: (596)] [added: 727] | | | | | $ | [removed: 472] [added: (596)] | | | | | N.M. | | |

| Surgical gown recall costs/(income) | | | [removed: 1] [added: —] | | | | | | [removed: (28)] [added: 1] | | | | | | | | |

| State opioid assessment related to prior fiscal years | | | [removed: —] [added: (6)] | | | | | | [removed: 38] [added: —] | | | | | | | | |

| Restructuring and employee severance | | | [removed: 101] [added: 95] | | | | | | [removed: 114] [added: 101] | | | | | | [added: 114] | | |

| Amortization and other acquisition-related costs | | | [removed: 324] [added: 285] | | | | | | [removed: 451] [added: 324] | | | | | | [added: 451] | | |

| Impairments and (gain)/loss on disposal of [removed: assets] [added: assets, net] | | | [removed: 2,050] [added: 1,250] | | | | | | [removed: 79] [added: 2,050] | | | | | | | | |

| If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o | | | | | | | | | | | | | | | | | |

| Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o | | | | | | | | | | | | | | | | | |

| | | | [Introduction](#ibd360c6108934d33aa2a235dd3fdd8d8_10) | | | [2](#ibd360c6108934d33aa2a235dd3fdd8d8_10) | | |

| | | | [Properties](#ibd360c6108934d33aa2a235dd3fdd8d8_55) | | | [43](#ibd360c6108934d33aa2a235dd3fdd8d8_55) | | |

| | | | [Exhibits](#ibd360c6108934d33aa2a235dd3fdd8d8_160) | | | [84](#ibd360c6108934d33aa2a235dd3fdd8d8_160) | | |

| | | | [Signatures](#ibd360c6108934d33aa2a235dd3fdd8d8_169) | | | [90](#ibd360c6108934d33aa2a235dd3fdd8d8_169) | | |

Revenue for fiscal 2023 was $205.0 billion, a 13 percent increase from the prior year, primarily driven by Pharmaceutical segment sales growth.

| Shareholder cooperation agreement costs | | | 8 | | | | | | — | | | | | | | | |

GAAP operating earnings during fiscal 2023 were favorably impacted by litigation recoveries as described further in [Note 7](#ibd360c6108934d33aa2a235dd3fdd8d8_118) of the "Notes to Consolidated Financial Statements."

Non-GAAP operating earnings during fiscal 2023 increased 3 percent to $2.1 billion, primarily driven by an increase in Pharmaceutical segment profit, partially offset by a decrease in Medical segment profit.

| Shareholder cooperation agreement costs | | | 0.02 | | | | | | — | | | | | | | | |

During fiscal 2023, GAAP diluted EPS was favorably impacted by litigation recoveries.

Generics Program

Inflationary Impacts

Since that time, we have taken actions to partially mitigate these impacts, including implementing certain price increases and evolving our pricing and commercial contracting processes to provide us with greater pricing flexibility.

In addition, decreases in some product-related costs have been recognized as the higher-cost inventory moved through our supply chain and was replaced by lower cost inventory.

These net inflationary impacts negatively affected Medical segment profit during fiscal 2023.

We expect these net inflationary impacts to continue to affect Medical segment profit in fiscal 2024 and beyond, but to a significantly lesser extent than in fiscal 2023 and prior periods, due to our mitigation actions, together with continued decreases in certain product-related costs.

Volumes within Products and Distribution

Medical segment profit was adversely impacted during fiscal 2023 on a year-over-year basis in part due to lower volumes within products and distribution, which includes our Cardinal Health branded medical products.

We expect Cardinal Health branded medical products sales growth in fiscal 2024 and beyond.

Due to previously communicated changes in our long-term financial plan assumptions, including those related to Cardinal Health branded medical products sales growth, and increases in the risk-free interest rate, we performed goodwill impairment testing for the Medical operating segment (excluding our Cardinal Health at-Home Solutions division) (“Medical Unit”) during fiscal 2023.

Shareholder Cooperation Agreement

In September 2022, we entered into a Cooperation Agreement (the "Cooperation Agreement") with Elliott Associates, L.P. and Elliott International, L.P.(together, "Elliott") under which our Board of Directors (the "Board"), among other things, (1) appointed four new independent directors, including a representative from Elliott, and (2) formed an advisory Business Review Committee of the Board, which is tasked with undertaking a comprehensive review of our strategy, portfolio, capital-allocation framework and operations.

In May 2023, we extended the term of the Cooperation Agreement until the later of July 15, 2024 or until Elliott's representative ceases to serve on, or

resigns from, the Board.

In connection with this extension, the Board has extended the term of the Business Review Committee until July 15, 2024.

The evaluation and implementation of any actions recommended by the Business Review Committee and the Board have impacted and may continue to impact our business, financial position and results of operations during fiscal 2024 and beyond.

During fiscal 2023, we incurred $8 million of expenses related to the negotiation and finalization of the Cooperation Agreement and other consulting expenses.

We have incurred, and expect to continue to incur additional legal, consulting and other expenses related to the Cooperation Agreement and the activities of the Business Review Committee.

See "Risk Factors" section for additional detail related to risks associated with the Cooperation Agreement.

| (in millions) | | | 2023 | | | | | | 2022 | | | | | | Change | | |

| Pharmaceutical | | | $ | 190,009 | | | | | $ | 165,491 | | | | | 15 | | % |

| Medical | | | 15,014 | | | | | | 15,887 | | | | | | (5) | | % |

| Total segment revenue | | | 205,023 | | | | | | 181,378 | | | | | | 13 | | % |

| Total revenue | | | $ | 205,012 | | | | | $ | 181,364 | | | | | 13 | | % |

Fiscal 2023 Medical segment revenue decrease was driven by products and distribution, which decreased revenue by $1.1 billion, primarily related to lower sales, largely due to an adverse impact from personal protective equipment ("PPE") pricing and volumes.

This decrease was partially offset by sales growth in at-Home Solutions, which increased revenue by $215 million.

| (in millions) | | | 2023 | | | | | | 2022 | | | | | | Change | | |

Fiscal 2023 consolidated gross margin increased primarily due to the Pharmaceutical segment, which reflected the positive performance of our generics program and a higher contribution from branded and specialty pharmaceutical products.

| | | | | | | | | |

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| | | | [Introduction](#i06b8b3ff48e94029843042d968c5bda7_10) | | | [2](#i06b8b3ff48e94029843042d968c5bda7_10) | | |

| | | | [Business](#i06b8b3ff48e94029843042d968c5bda7_52) | | | [30](#i06b8b3ff48e94029843042d968c5bda7_52) | | |

| | | | [Properties](#i06b8b3ff48e94029843042d968c5bda7_58) | | | [46](#i06b8b3ff48e94029843042d968c5bda7_58) | | |

| | | | [Reports](#i06b8b3ff48e94029843042d968c5bda7_67) | | | [50](#i06b8b3ff48e94029843042d968c5bda7_67) | | |

| | | | [Exhibits](#i06b8b3ff48e94029843042d968c5bda7_157) | | | [91](#i06b8b3ff48e94029843042d968c5bda7_157) | | |

| | | | [Signatures](#i06b8b3ff48e94029843042d968c5bda7_163) | | | [96](#i06b8b3ff48e94029843042d968c5bda7_163) | | |

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| MD&A | | | Overview | | | | | |

During fiscal 2021, we recognized pre-tax charges of $1.17 billion for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications.

See further description of opioid lawsuits in the Significant Developments in Fiscal 2022 and Trends section in this MD&A and [Note 7](#i06b8b3ff48e94029843042d968c5bda7_118) of the "Notes to Consolidated Financial Statements."

Non-GAAP operating earnings during fiscal 2022 decreased 12 percent primarily due to the decrease in Medical segment profit, largely resulting from net inflationary impacts (which primarily related to increased transportation and commodities costs, partially offset by certain price increases) and the adverse impact of global supply chain constraints.

Our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation.

The total benefit from the net operating loss carryback was $424 million; however, for purposes of Non-GAAP financial measures, we allocated $389 million of the benefit to litigation (recoveries)/charges, net, which is excluded from non-GAAP measures, based on the relative amount of the self-insurance pre-tax loss related to opioid litigation claims versus separate tax adjustments.

During fiscal 2021, GAAP diluted EPS was positively impacted by $1.44 per share due to a tax benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss, as further described in [Note 8](#i06b8b3ff48e94029843042d968c5bda7_121) of the "Notes to Consolidated Financial Statements." The charges we recognized in fiscal 2021 for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications had a $(3.21) per share after-tax impact on GAAP diluted EPS.

The increase in cash during fiscal 2022 was due to net cash provided by operating activities of $3.1 billion.

Net cash provided by operating activities includes a refund of $966 million for the tax benefit from the net operating loss carryback related to a self-insurance pre-tax loss, and reflects the impact of $417 million of payments related to the settlement agreement (the "Settlement Agreement") to settle the vast majority of the opioid lawsuits filed by states and local governmental entities, payments under the separate New York, Ohio and Rhode Island settlements, as well as certain payments under the Cherokee Nation settlement.

Fiscal 2022 operating cash flow was also impacted by favorable timing of net working capital.

Opioid Lawsuits Developments

National Settlement

Beginning in fiscal year 2017, state attorneys general, counties and municipalities began filing lawsuits related to the distribution of prescription opioid pain medications against pharmaceutical wholesalers, including us, and other participants in the pharmaceutical supply chain.

By fiscal year 2022, Cardinal Health was a defendant in approximately 2,775 lawsuits brought by state attorneys general and counties, municipalities and other political subdivisions.

In July 2021, we and two other national distributors (collectively, the “Distributors”) announced a proposed settlement with a group of state attorneys general intended to resolve the vast majority of these lawsuits (the "National Settlement") as well as a proposed settlement agreement (the "Settlement Agreement") containing, among other things, a sign-on process to allow states and political subdivisions to participate in the National Settlement.

The Settlement Agreement includes a cash component, pursuant to which we will pay up to approximately $6.0 billion, the majority of which is expected to be paid over 18 years.

The exact payment amount will depend on several factors, including 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 opioid lawsuits against us.

Prior to the effective date of the Settlement Agreement, the Distributors had entered into separate settlement agreements with each of the states of Florida, New York, Ohio and Rhode Island.

When the Settlement Agreement became effective, each of these states and their participating subdivisions became a part of the National Settlement; however, the New York, Ohio and Rhode Island agreements required us to make certain payments separately from those required by the Settlement Agreement.

Accordingly, during fiscal 2022, we made payments under the separate New York, Ohio and Rhode Island settlements, as well as certain payments under the Cherokee Nation settlement.

In total, we paid $417 million in connection with these matters during fiscal 2022.

Other Settlements

In July 2022, a judgment in favor of the Distributors was entered.

In July 2022, the Distributors reached an agreement to settle the opioid-related claims of the majority of the remaining West Virginia subdivisions.

This agreement is subject to certain contingencies related to subdivision participation.

In September 2021, we announced that the Distributors had reached an agreement with the Cherokee Nation in connection with ongoing negotiations toward a broader agreement with Native American tribes.

In January 2022, the Distributors executed a term sheet with the Native American tribes.

In May 2022, the Distributors reached an agreement with the Washington Attorney General, under which Cardinal Health 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 amount that would have been allocated to Washington under the Settlement Agreement plus certain attorneys’ fees and costs.

The terms of this agreement are consistent with the Settlement Agreement.