CARDINAL HEALTH INC (CAH)

Management's Discussion and Analysis of Financial Condition and Results of Operations

About Cardinal Health

Cardinal Health, Inc., an Ohio corporation formed in 1979, is a 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. We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination.

Effective January 1, 2024, we began operating under an updated organizational structure and re-aligned our financial reporting structure under two reportable segments: Pharmaceutical and Specialty Solutions ("Pharma") segment and Global Medical Products and Distribution ("GMPD") segment. All remaining operating segments that are not significant enough to require separate reportable segment disclosures are included in Other, which is comprised of Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics.

Pharmaceutical and Specialty Solutions Segment

Our Pharmaceutical and Specialty Solutions segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products; provides pharmacy management services to hospitals and operates a limited number of pharmacies, including pharmacies in community health centers; and repackages generic pharmaceuticals and over-the-counter healthcare products.

Global Medical Products and Distribution Segment

Our GMPD segment manufactures, sources and distributes Cardinal Health brand medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets. In addition to distributing Cardinal Health brand products, this segment also distributes a broad range of medical, surgical and laboratory products known as national brand products to hospitals, ambulatory surgery centers, clinical laboratories and other healthcare providers in the United States and Canada.

Consolidated Results

In connection with the preparation of our Consolidated Financial Statements for fiscal 2024, we identified an accounting error related to revenue recognition from third party payors within the at-Home Solutions operating segment. We evaluated the materiality of the error and determined that the impacts were not material, individually or in the aggregate, to our previously issued Consolidated Financial Statements for any of the prior quarters or annual periods in which they occurred. In this report, we present revised prior period financial statements to correct this error, as well as other unrelated immaterial errors, including an adjustment to an uncertain tax position. These other immaterial errors were previously corrected in the periods they were identified; however, they are now reflected in the periods they originated. The revisions ensure comparability across all periods reflected herein. Refer to Note 1 of the "Notes to Consolidated Financial Statements" for additional information regarding the immaterial corrections to our results of prior periods.

Overview

Revenue

Revenue increased 11 percent to $226.8 billion for fiscal 2024 and 13 percent to $205.0 billion for fiscal 2023 compared to their respective prior-year periods, primarily due to branded and specialty pharmaceutical sales growth from existing customers.

GAAP and Non-GAAP Operating Earnings/(Loss)

The sum of the components and certain computations may reflect rounding adjustments.

We had GAAP operating earnings of $1.2 billion and $752 million during fiscal 2024 and 2023, respectively, which included $675 million and $1.2 billion pre-tax non-cash goodwill impairment charges related to the GMPD segment. See the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 5 of the "Notes to Consolidated Financial Statements" for additional detail.

GAAP operating earnings during fiscal 2023 were favorably impacted by litigation recoveries as described further in the "Results of Operations" section of this MD&A and Note 8 of the "Notes to Consolidated Financial Statements."

We had a GAAP operating loss of $607 million during fiscal 2022, which included $2.1 billion pre-tax non-cash goodwill impairment charges related to the GMPD segment. See the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 5 of the "Notes to Consolidated Financial Statements" for additional detail.

GAAP and Non-GAAP operating earnings increased during fiscal 2024, driven by increases in GMPD and Pharmaceutical and Specialty Solutions segment profit as described further in the "Results of Operations" section of this MD&A.

Non-GAAP operating earnings increased during fiscal 2023, driven by an increase in Pharmaceutical and Specialty Solutions segment profit, partially offset by a decrease in GMPD segment profit as described further in the "Results of Operations" section of this MD&A.

GAAP and Non-GAAP Diluted EPS

The sum of the components and certain computations may reflect rounding adjustments.

(1)Diluted earnings/(loss) per share attributable to Cardinal Health, Inc. ("diluted EPS" or "diluted loss per share").

(2)The reconciling items are presented within this table net of tax. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the section titled "Explanation and Reconciliation of Non-GAAP Financial Measures."

(3)For fiscal 2022, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 279 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2022 non-GAAP diluted EPS is calculated using a weighted average of 280 million common shares, which includes potentially dilutive shares.

(4)For fiscal 2024, 2023 and 2022, impairments and (gain)/loss on disposals of assets, net includes pre-tax goodwill impairment charges of $675 million, $1.2 billion and $2.1 billion related to the GMPD segment, respectively. For fiscal 2024, 2023 and 2022, the net tax benefit related to these charges was $58 million, $92 million and $140 million, respectively, and were included in the annual effective tax rate.

The increases in fiscal 2024 and 2023 GAAP diluted EPS were primarily due to the factors impacting GAAP operating earnings. During fiscal 2024, 2023 and 2022, GAAP diluted EPS was adversely impacted by the goodwill impairment charges related to the GMPD segment, which had $(2.50), $(4.33) and $(6.97) per share after-tax impacts, respectively. See the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 5 and Note 9 of the "Notes to Consolidated Financial Statements" for additional detail.

During fiscal 2024, non-GAAP diluted EPS increased 29 percent to $7.53 due to the factors impacting non-GAAP operating earnings described above and a lower share count.

During fiscal 2023, non-GAAP diluted EPS increased 15 percent to $5.85 due to a lower share count, the factors impacting non-GAAP operating earnings described above and lower interest expense, net.

Cash and Equivalents

Our cash and equivalents balance was $5.1 billion at June 30, 2024 compared to $4.1 billion at June 30, 2023. During fiscal 2024, net cash provided by operating activities was $3.8 billion, which includes the impact of our annual payment of $378 million and prepayments of $239 million primarily related to the agreement to settle the vast majority of the opioid lawsuits filed by states and local governmental entities (the "National Opioid Settlement Agreement"). During fiscal 2024, we issued additional long-term debt and received net proceeds of $1.14 billion, of which $200 million is invested in short-term time deposits with initial effective maturities of more than three months and classified as prepaid expenses and other in our consolidated balance sheet as of June 30, 2024. In addition, during fiscal 2024 we deployed $1.2 billion for the Specialty Networks acquisition, $783 million for debt repayments, $750 million for share repurchases, $511 million for capital expenditures and $499 million for cash dividends.

Our cash and equivalents balance was $4.1 billion at June 30, 2023 compared to $4.7 billion at June 30, 2022. During fiscal 2023, net cash provided by operating activities was $2.8 billion, which was offset by $2.0 billion for share repurchases, $579 million for debt repayments, $525 million for cash dividends and $481 million for capital expenditures.

Significant Developments in Fiscal 2024 and Trends

Operating and Segment Reporting Structure Changes

Effective January 1, 2024, we began operating under an updated organizational structure and re-aligned our financial reporting structure under two reportable segments: Pharmaceutical and Specialty Solutions segment and GMPD segment. All remaining operating segments that are not significant enough to require separate reportable segment disclosures are included in Other. The following indicates the changes from the second quarter of fiscal 2024 to the new reporting structure:

•Pharmaceutical and Specialty Solutions segment: This reportable segment is comprised of all businesses formerly within our Pharmaceutical segment except Nuclear and Precision Health Solutions.

•GMPD segment: This reportable segment is comprised of all businesses formerly within our Medical segment except at-Home Solutions and OptiFreight® Logistics.

•Other: This is comprised of the remaining operating segments, Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics.

Our previously reported segment results have been recast to conform to our new reporting structure and reflect changes in the elimination of inter-segment revenue and allocated corporate technology and shared function expenses, which are driven by the reporting structure change.

Pharmaceutical and Specialty Solutions Segment

OptumRx Contracts

On April 22, 2024, we announced that our pharmaceutical distribution contracts with OptumRx would expire at the end of June 2024. Sales to OptumRx generated 17 percent of our consolidated revenue in fiscal 2024; however, due to the class of trade, sales to OptumRx generated a meaningfully lower operating margin than the overall Pharmaceutical and Specialty Solutions segment. We expect the expiration of the OptumRx contracts to adversely impact our results of operations, including segment profit, financial condition and cash flows in fiscal 2025. In particular, we expect the unwinding of the negative net working capital associated with the contract to negatively impact operating cash flow in fiscal 2025.

Specialty Networks Acquisition

On March 18, 2024, we completed the acquisition of Specialty Networks for a purchase price of $1.2 billion in cash, subject to certain adjustments. Specialty Networks creates clinical and economic value for independent specialty providers and partners across multiple specialty group purchasing organizations ("GPOs"): UroGPO, Gastrologix and GastroGPO, and United Rheumatology. Specialty Networks’ PPS Analytics platform analyzes data from electronic medical records, practice management, imaging, and dispensing systems and transforms it into meaningful and actionable insights for providers and other stakeholders by using artificial intelligence and modern data analytics capabilities. The acquisition further expands our offerings in key therapeutic areas, accelerates our upstream data and research opportunities with biopharma manufacturers, and creates a platform for our expansion across therapeutic areas. We expect the Specialty Networks acquisition to positively impact Pharmaceutical and Specialty Solutions segment revenue and profit while increasing amortization and other acquisition-related costs during fiscal 2025 and beyond.

Branded Pharmaceuticals

During fiscal 2024, we saw increased demand for GLP-1 pharmaceuticals, and our sales increased significantly, despite periodic supply shortages. These increased sales positively impacted our Pharmaceutical segment and consolidated revenue for the year; however, GLP-1 sales did not meaningfully contribute to segment profit. Future demand for these medications is unpredictable and our ability to meet demand may be impacted by additional supply constraints.

During fiscal 2024, we began distributing commercially available COVID-19 vaccines following U.S. Food and Drug Administration (“FDA”) approval. Distribution of these vaccines had a greater than anticipated benefit to Pharmaceutical and Specialty Solutions segment profit in fiscal year 2024. Updated COVID-19 vaccines for 2025 also require FDA approval. We expect COVID-19 vaccine distribution to favorably impact Pharmaceutical and Specialty Solutions segment profit in fiscal 2025, but to a lesser extent.

Generics Program

The performance of our Pharmaceutical and Specialty Solutions segment generics program positively impacted the year-over-year comparison of Pharmaceutical and Specialty Solutions segment profit. The Pharmaceutical and Specialty Solutions segment generics program includes, among other things, the impact of generic pharmaceutical product launches, customer volumes, pricing changes, the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health") and generic pharmaceutical contract manufacturing and sourcing costs.

The frequency, timing, magnitude and profit impact of generic pharmaceutical customer volumes, pricing changes, customer contract renewals, generic pharmaceutical manufacturer pricing changes and generic pharmaceutical contract manufacturing and sourcing costs all impact Pharmaceutical and Specialty Solutions segment profit and are subject to risks and uncertainties. These risks and uncertainties may impact Pharmaceutical and Specialty Solutions segment profit and consolidated operating earnings during fiscal 2025 and beyond.

Global Medical Products and Distribution Segment

Inflationary Impacts

Beginning in fiscal 2022, GMPD segment profit was negatively affected by incremental inflationary impacts, primarily related to transportation (including ocean and domestic freight), commodities and labor, and global supply chain constraints. 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 GMPD segment profit during fiscal 2023. The net inflationary impacts were less significant during fiscal 2024 and had a favorable impact on GMPD segment profit on a year-over-year basis.

We expect these inflationary impacts to continue to affect GMPD segment profit in fiscal 2025 and beyond, but we expect that they will be substantially offset due to our mitigation actions. However, these inflationary costs are difficult to predict and may be greater than we expect or continue longer than our current expectations. Our actions to increase prices and evolve our contracting strategies are subject to contingencies and uncertainties and it is possible that our results of operations will be adversely impacted to a greater extent than we currently anticipate or that we may not be able to mitigate the negative impact to the extent or on the timeline we anticipate.

Volumes

GMPD segment profit was adversely impacted during fiscal 2023 in part due to lower volumes, which included our Cardinal Health brand medical products. We experienced Cardinal Health brand medical products sales growth during fiscal 2024 and expect further growth in fiscal 2025 and beyond. The timing, magnitude and profit impact of this anticipated sales growth is subject to risks and uncertainties, which may impact GMPD segment profit.

Goodwill

The change in segment structure as discussed above resulted in changes to the composition of our reporting units. Accordingly, we were required to reallocate the goodwill in reporting units affected by the change using a relative fair value approach and assess goodwill for impairment both before and after the reallocation. During the three months ended March 31, 2024, we allocated $90 million and $48 million of goodwill from the former Medical segment excluding our at-Home Solutions division (the "Medical Unit") to the GMPD reporting unit and the OptiFreight® Logistics reporting unit, respectively. We also assessed GMPD's goodwill for impairment and determined there was an impairment of GMPD’s remaining goodwill balance of $90 million, resulting in GMPD goodwill being fully impaired. See the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 5 of the "Notes to Consolidated Financial Statements" for additional detail.

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 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 extended the term of the Business Review Committee until July 15, 2024. On that date, the Business Review Committee disbanded in accordance with its charter. The Cooperation Agreement remains in effect.

The evaluation and implementation of 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 2025 and beyond. During fiscal 2024 and 2023, we incurred $1 million and $8 million of expenses related to the negotiation and finalization of the Cooperation Agreement and other consulting expenses, respectively. We have incurred, and may incur additional legal, consulting and other expenses related to the Cooperation Agreement.

Results of Operations

Revenue

(1)Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments.

Fiscal 2024 Compared to Fiscal 2023

Pharmaceutical and Specialty Solutions

Fiscal 2024 Pharmaceutical and Specialty Solutions segment revenue grew by 11 percent primarily due to branded and specialty pharmaceutical sales growth largely from existing customers, which increased revenue by $20.1 billion.

Global Medical Products and Distribution

Fiscal 2024 GMPD segment revenue increased primarily due to higher volumes from existing customers, which increased revenue by $275 million. The increase was partially offset by the adverse impact of personal protective equipment ("PPE") pricing.

Other

Fiscal 2024 Other revenue increased due to growth across the at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight® Logistics operating segments.

Fiscal 2023 Compared to Fiscal 2022

Pharmaceutical and Specialty Solutions

Fiscal 2023 Pharmaceutical and Specialty Solutions segment revenue grew by 15 percent primarily due to branded and specialty pharmaceutical sales growth from existing and net new customers, which increased revenue by $24.2 billion.

Global Medical Products and Distribution

Fiscal 2023 GMPD segment revenue decreased primarily due to lower sales, largely due to an adverse impact of PPE pricing and volumes.

Other

Fiscal 2023 Other revenue increased due to growth across the Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics operating segments.

Cost of Products Sold

Cost of products sold for fiscal 2024 and 2023 increased $21.3 billion (11 percent) and $23.3 billion (13 percent) compared to their respective prior-year periods as a result of the same factors affecting the changes in revenue and gross margin.

Gross Margin

Fiscal 2024 Compared to Fiscal 2023

Fiscal 2024 consolidated gross margin increased primarily due to the beneficial comparison of the prior-year net inflationary impacts in the GMPD segment and the positive performance of our generics program in the Pharmaceutical and Specialty Solutions segment.

Gross margin rate declined 8 basis points during fiscal 2024 mainly due to changes in overall product mix, primarily driven by increased pharmaceutical distribution branded sales, which have a dilutive impact on our overall gross margin rate. This decline in gross margin rate was partially offset by the beneficial comparison to the prior-year net inflationary impacts in the GMPD segment.

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Fiscal 2023 Compared to Fiscal 2022

Fiscal 2023 consolidated gross margin increased primarily due to the Pharmaceutical and Specialty Solutions segment, which reflected the positive performance of our generics program and a higher contribution from branded and specialty pharmaceutical products. This increase was partially offset by the GMPD segment, primarily driven by lower volumes and unfavorable product sales mix, partially offset by a net positive contribution from PPE.

Gross margin rate declined 23 basis points during fiscal 2023 mainly due to changes in overall product mix, primarily driven by increased pharmaceutical distribution branded sales, which have a dilutive impact on our overall gross margin rate. This decline in gross margin rate was partially offset by a net positive contribution from PPE.

Distribution, Selling, General and Administrative ("SG&A") Expenses

Fiscal 2024 Compared to Fiscal 2023

Fiscal 2024 SG&A expenses increased primarily due to compensation related costs, investment projects and higher costs to support sales growth. These increases were partially offset by the beneficial impact of enterprise-wide cost-savings measures.

Fiscal 2023 Compared to Fiscal 2022

Fiscal 2023 SG&A expenses increased primarily due to higher costs to support sales growth, compensation related costs and inflationary impacts. These increases were partially offset by the beneficial impact of enterprise-wide cost-savings measures.

Segment Profit

We evaluate segment performance based on segment profit, among other measures. See Note 14 of the "Notes to Consolidated Financial Statements" for additional information on segment profit.

Fiscal 2024 Compared to Fiscal 2023

Pharmaceutical and Specialty Solutions

Fiscal 2024 Pharmaceutical and Specialty Solutions segment profit increased primarily due to the positive performance of our generics program.

Global Medical Products and Distribution

Fiscal 2024 GMPD segment profit increased primarily due to the beneficial comparison to the prior-year inflationary impacts, net of the effects of mitigation actions.

Other

Fiscal 2024 Other segment profit increased primarily due to the performance of OptiFreight® Logistics.

Corporate

The changes in Corporate during fiscal 2024 are due to the factors discussed in the "Other Components of Consolidated Operating Earnings/(Loss)" section that follows.

Fiscal 2023 Compared to Fiscal 2022

Pharmaceutical and Specialty Solutions

Fiscal 2023 Pharmaceutical and Specialty Solutions segment profit increased primarily due to the positive performance of our generics program and an increased contribution from branded and specialty pharmaceutical products, partially offset by inflationary impacts, primarily related to increased transportation and labor costs.

Global Medical Products and Distribution

Fiscal 2023 GMPD segment profit decreased primarily due to net inflationary impacts, lower volumes and unfavorable product sales mix, partially offset by a net positive contribution from PPE.

Other

Fiscal 2023 Other segment profit increased primarily due to the performance of OptiFreight® Logistics.

Corporate

The changes in Corporate during fiscal 2023 are due to the factors discussed in the "Other Components of Consolidated Operating Earnings/(Loss)" section that follows.

Other Components of Consolidated Operating Earnings/(Loss)

In addition to revenue, gross margin and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:

Restructuring and Employee Severance

Restructuring and employee severance costs in fiscal 2024, 2023 and 2022 include costs related to the implementation of certain enterprise-wide cost-savings measures, which include certain initiatives to rationalize our manufacturing operations. The increase in fiscal 2024 restructuring costs are primarily due to estimated severance costs related to these cost-savings measures and costs related to certain projects resulting from the reviews of our strategy, portfolio, capital-allocation framework and operations. During fiscal 2023 and 2022, restructuring and employee severance included costs related to the divestiture of the Cordis business. During fiscal 2022, restructuring also included facility-exit costs related to decreasing our overall office space.

Amortization and Other Acquisition-Related Costs

Amortization of acquisition-related intangible assets was $264 million, $281 million and $311 million for fiscal 2024, 2023 and 2022, respectively.

Impairments and (Gain)/Loss on Disposal of Assets, Net

During fiscal 2024, 2023 and 2022, we recognized $675 million, $1.2 billion and $2.1 billion of pre-tax non-cash goodwill impairment charges, respectively, related to our GMPD segment, as discussed further in the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 5 of the "Notes to Consolidated Financial Statements."

Litigation (Recoveries)/Charges, Net

During fiscal 2024, we recognized expense of $340 million in connection with opioid-related matters, including agreements in principle with counsel representing classes of third-party payors and acute care hospitals, the case brought by the City of Baltimore, and a settlement with the State of Alabama. This expense was partially offset by a benefit of $105 million related to certain prepayments and $34 million in insurance recoveries. We also recognized income of $117 million for net recoveries in class action lawsuits in which we were a class member or plaintiff.

During fiscal 2023, we recognized income of $130 million for net recoveries in class action lawsuits in which we were a class member or plaintiff. We recognized income of $103 million primarily related to a reduction of the reserve for the estimated settlement and defense costs for the Cordis OptEase and TrapEase inferior vena cava ("IVC") product liability due to the execution of certain settlement agreements. We also recognized income of $93 million due to net proceeds from the settlement of a shareholder derivative litigation matter.

During fiscal 2022, we recognized estimated losses and legal defense costs associated with the IVC filter product liability claims of $70 million. We also recognized income of $18 million for net recoveries in class action antitrust lawsuits in which we were a class member or plaintiff.

See Note 8 of the "Notes to Consolidated Financial Statements" for additional information.

Other Components of Earnings/(Loss) Before Income Taxes

In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:

Interest Expense, Net

Fiscal 2024 and 2023 interest expense, net decreased primarily due to increased interest income from cash and equivalents. The decrease in Fiscal 2024 interest expense, net was partially offset by lower interest income from financial instruments.

Loss On Early Extinguishment of Debt

During fiscal 2022, we recognized a loss of $10 million in connection with the debt redemption as described further in Note 7 of the "Notes to Consolidated Financial Statements."

Provision for Income Taxes

Fluctuations in the effective tax rates are primarily due to the impact of the goodwill impairment charges recognized in fiscal 2024, 2023 and 2022 related to the GMPD segment.

A reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows (see Note 9 of the "Notes to Consolidated Financial Statements" for additional information):

(1)     This table reflects fiscal 2024 and 2023 pretax income with tax expense and fiscal 2022 pretax loss with tax expense.

(2)    Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

During fiscal 2024, 2023, and 2022, the effective tax rate was 28.9 percent, 50.0 percent and (19.5) percent, respectively. Included in the effective tax rate for fiscal 2024, 2023, and 2022, was $58 million, $92 million and $140 million, respectively, of benefit related to the goodwill impairment charges related to GMPD.

Ongoing Audits

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Liquidity and Capital Resources

We currently believe that, based on available capital resources and projected operating cash flow, we have adequate capital resources to fund our operations and expected future cash needs as described below. If we decide to engage in one or more acquisitions, depending on the size and timing of such transactions, we may need to access capital markets for additional financing.

Cash and Equivalents

Our cash and equivalents balance was $5.1 billion at June 30, 2024 compared to $4.1 billion at June 30, 2023.

During fiscal 2024, net cash provided by operating activities was $3.8 billion, which includes the impact of our annual payment of $378 million and prepayments of $239 million primarily related to the National Opioid Settlement Agreement. During fiscal 2024, we issued additional long-term debt and received net proceeds of $1.14 billion, of which $200 million is invested in short-term time deposits with initial effective maturities of more than three months and classified as prepaid expenses and other in our consolidated balance sheet as of June 30, 2024. In addition, we deployed cash of $783 million for debt repayments, $750 million for share repurchases, $511 million for capital expenditures and $499 million for cash dividends. At June 30, 2024, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

On March 18, 2024, we completed the acquisition of Specialty Networks for a purchase price of $1.2 billion in cash, subject to certain adjustments. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

At June 30, 2023, our cash and equivalents were $4.1 billion. During fiscal 2023, net cash provided by operating activities was $2.8 billion, which includes the impact of our second annual payment of $372 million related to the National Opioid Settlement

Agreement. In addition, we deployed $2.0 billion for share repurchases, $579 million for debt repayments, $525 million for cash dividends and $481 million for capital expenditures.

Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer payments, inventory purchases, payments to vendors and tax payments in the regular course of business, as well as fluctuating working capital needs driven by customer and product mix. We expect the unwinding of the negative net working capital associated with the OptumRx contract to negatively impact operating cash flow in fiscal 2025.

The cash and equivalents balance at June 30, 2024 includes $497 million of cash and equivalents held by subsidiaries outside of the United States.

In fiscal 2024, we returned $384 million of cash held by foreign subsidiaries to the United States.

At June 30, 2024, foreign earnings of approximately $1.0 billion are considered indefinitely reinvested for working capital and other offshore investment needs. The computation of tax required if those earnings are repatriated is not practicable. For amounts not considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our consolidated financial statements in fiscal 2024.

Other Financing Arrangements and Financial Instruments

Credit Facilities and Commercial Paper

In addition to cash and equivalents and operating cash flow, other sources of liquidity at June 30, 2024 include a $2.0 billion commercial paper program, backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility. At June 30, 2024, we had no amounts outstanding under our commercial paper program, revolving credit facility or our committed receivables sales facility. During fiscal 2024, under our commercial paper program and our committed receivables program, we had maximum combined total daily amounts outstanding of $1.3 billion.

In February 2023, we extended our revolving credit facility through February 25, 2028. In September 2022, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC ("CHF") through September 30, 2025. In September 2023, Cardinal Health 23 Funding, LLC was added as a seller under our committed receivables sales facility.

Our revolving credit and committed receivables sales facilities require us to maintain a consolidated net leverage ratio of no more

than 3.75-to-1. As of June 30, 2024, we were in compliance with this financial covenant.

Long-Term Obligations

At June 30, 2024, we had total long-term obligations, including the current portion and other short-term borrowings of $5.1 billion.

In February 2024, we issued additional debt with the aggregate principal amount of $1.15 billion to fund the repayment of all of the aggregate principal amount outstanding of our 3.5% Notes due 2024 and 3.079% Notes due 2024, at their respective maturities, and for general corporate purposes. In June 2024, we repaid the full principal of $750 million of the 3.079% Notes due 2024. The notes issued are $650 million aggregate principal amount of 5.125% Notes that mature on February 15, 2029 and $500 million aggregate principal amount of 5.45% Notes that mature on February 15, 2034. The proceeds of the notes issued, net of discounts, premiums, and debt issuance costs were $1.14 billion. A portion of the proceeds was invested in short-term time deposits of $550 million with initial effective maturities of more than three months. At June 30, 2024, we had $200 million remaining in those

short-term time deposits and classified as prepaid expenses and other in our consolidated balance sheets.

During fiscal 2023, we repaid the full principal of $550 million of the 3.2% Notes due 2023. The repayment was funded with available cash.

Capital Deployment

Opioid Litigation Settlement Agreement

We have $5.4 billion accrued at June 30, 2024 related to certain opioid litigation, as further described within Note 8 of the "Notes to Consolidated Financial Statements." We expect the majority of the remaining payment amounts to occur through 2038. During fiscal 2024, we paid our third annual payment of $378 million under the National Opioid Settlement Agreement. In July 2024, we made our fourth annual payment of $366 million under the National Opioid Settlement Agreement. The amounts of future annual payments may differ from the payments that we have already made.

In January 2024, we made additional payments of approximately $239 million to prepay at a prenegotiated discount certain future payment amounts totaling approximately $344 million owed under each of the National Opioid Settlement Agreement, West Virginia Subdivisions Settlement Agreement and settlement agreements with Native American tribes and Cherokee Nation. The majority of the prepayment relates to the seventh annual payment due under the National Opioid Settlement Agreement. As a result of these prepayments, we recognized income of $105 million in litigation charges/(recoveries), net in our consolidated statements of earnings/(loss) during fiscal 2024.

Capital Expenditures

Capital expenditures during fiscal 2024 and 2023 were $511 million and $481 million, respectively.

We expect capital expenditures in fiscal 2025 to be approximately between $500 million and $550 million and primarily related to manufacturing and distribution infrastructure projects and technology investments.

Dividends

During fiscal 2024, we paid quarterly dividends totaling $2.00 per share, an increase of 1 percent from fiscal 2023.

On May 7, 2024, our Board of Directors approved a quarterly dividend of $0.5056 per share, or $2.02 per share on an annualized basis, which was paid on July 15, 2024, to shareholders of record on July 1, 2024.

Share Repurchases

During fiscal 2024 and 2023, we deployed $750 million and $2.0 billion, respectively, for repurchases of our common shares in the aggregate under accelerated share repurchase ("ASR") programs. We funded the ASR programs with available cash. See Note 12 of the "Notes to Consolidated Financial Statements" for additional information.

On June 7, 2023, our Board of Directors approved a $3.5 billion share repurchase program, which will expire on December 31, 2027. As of June 30, 2024, we had $3.5 billion remaining under our existing share repurchase authorization.

Specialty Networks Acquisition

On March 18, 2024, we completed the acquisition of Specialty Networks for a purchase price of $1.2 billion in cash, subject to certain adjustments. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

Contractual Obligations and Cash Requirements

At June 30, 2024, our contractual obligations and future cash requirements, including estimated payments due by period, were as follows:

(1)Represents maturities of our long-term debt obligations and other short-term borrowings excluding finance lease obligations described below. See Note 7 of the “Notes to Consolidated Financial Statements” for further information.

(2)Represents minimum finance lease obligations included within current portion of long-term obligations and other short-term borrowings and long-term obligations, less current portion in our consolidated balance sheets and further described in Note 6 of the “Notes to Consolidated Financial Statements.”

(3)Represents minimum operating lease obligations included within other accrued liabilities and deferred income taxes and other liabilities in our

consolidated balance sheets and further described in Note 6 of the “Notes to Consolidated Financial Statements.”

(4)A purchase obligation is defined as an agreement to purchase goods or services that is legally enforceable and specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and approximate timing of the transaction. The purchase obligation amounts disclosed above represent estimates of the minimum for which we are obligated and the time period in which cash outflows will occur. Purchase orders and authorizations to purchase that involve no firm commitment from either party are excluded from the above table. In addition, contracts that can be unilaterally canceled with no termination fee or with proper notice are excluded from our total purchase obligations except for the amount of the termination fee or the minimum amount of goods that must be purchased during the requisite notice period. Purchase obligations and other payments also includes quarterly payments to CVS Health in connection with Red Oak Sourcing. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information.

(5)Represents future cash obligations under the National Opioid Settlement Agreement as well as future cash obligations under separate settlement agreements. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information.

(6)Long-term liabilities, such as unrecognized tax benefits, deferred taxes and other tax liabilities, have been excluded from the above table due to the inherent uncertainty of the underlying tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See Note 9 of the "Notes to Consolidated Financial Statements" for further discussion of income taxes.

Recent Financial Accounting Standards

See Note 1 of the “Notes to Consolidated Financial Statements” for further information.

Critical Accounting Policies and Sensitive Accounting Estimates

Critical accounting policies are those accounting policies that (i) can have a significant impact on our financial condition and results of operations and (ii) require the use of complex and subjective estimates based upon past experience and management’s judgment. Other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Because estimates are inherently uncertain, actual results may differ. In this section, we describe the significant policies applied in preparing our consolidated financial statements that management believes are the most dependent on estimates and assumptions.

In connection with the preparation of our Consolidated Financial Statements for fiscal 2024, we identified an accounting error related to revenue recognition from third party payors within the at-Home Solutions operating segment. We evaluated the materiality of the error and determined that the impacts were not material, individually or in the aggregate, to our previously issued Consolidated Financial Statements for any of the prior quarters or annual periods in which they occurred. Amounts have been revised to correct this error, as well as other unrelated immaterial errors, including an adjustment to an uncertain tax position. These other immaterial errors were previously corrected in the periods they were identified; however, they are now reflected in the periods they originated. See Note 1 of the "Notes to Consolidated Financial Statements" for further discussion.

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes general and specific reserves. We determine our allowance for doubtful accounts by reviewing accounts receivable aging, historical write-off trends, payment history, pricing discrepancies, industry trends, customer financial strength, customer credit ratings or bankruptcies. We regularly evaluate how changes in economic conditions may affect credit risks.

A hypothetical 0.1 percent increase or decrease in the reserve as a percentage of trade receivables at June 30, 2024, would result in an increase or decrease in operating earnings of $12 million. We believe the reserve maintained and expenses recorded in fiscal 2024 are appropriate.

At this time, we are not aware of any analytical findings or customer issues that are likely to lead to a significant future

increase in the allowance for doubtful accounts as a percentage of revenue. The following table presents information regarding our allowance for doubtful accounts over the past three fiscal years.

Inventories

LIFO Inventory

A portion of our inventories (50 percent and 54 percent at June 30, 2024 and 2023, respectively) are valued at the lower of cost, using the last-in, first-out ("LIFO") method, or market. These are primarily merchandise inventories at the core pharmaceutical distribution facilities within our Pharmaceutical and Specialty Solutions segment (“distribution facilities”). The LIFO impact on the consolidated statements of earnings/(loss) depends on pharmaceutical manufacturer price appreciation or deflation and our fiscal year-end inventory levels, which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end. Historically, prices for branded pharmaceuticals have generally tended to rise, resulting in an increase in cost of products sold, whereas prices for generic pharmaceuticals generally tend to decline, resulting in a decrease in cost of products sold.

Using LIFO, if there is a decrease in inventory levels that have experienced pharmaceutical price appreciation, the result

generally will be a decrease in future cost of products sold as our older inventory is held at a lower cost. Conversely, if there is a decrease in inventory levels that have experienced a pharmaceutical price decline, the result generally will be an increase in future cost of products sold as our older inventory is held at a higher cost.

We believe that the average cost method of inventory valuation provides a reasonable approximation of the current cost of replacing inventory within these distribution facilities. As such, the LIFO reserve is the difference between (a) inventory at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost method of inventory valuation. At June 30, 2024 and 2023, respectively, inventories valued at LIFO cost were $749 million and $476 million higher than the average cost value. We do not record inventories in excess of replacement cost. As such, we did not write-up the value of our inventory from average cost to LIFO cost at June 30, 2024 or 2023.

FIFO Inventory

Our remaining inventory, including inventory in our GMPD segment and certain inventory in our Pharmaceutical and Specialty Solutions segment, that is not valued at the lower of LIFO cost or market is stated at the lower of cost, using the first-in, first-out ("FIFO") method, or net realizable value. We reserve for the lower of cost or net realizable value using the estimated selling prices and estimated sales demand in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Our estimates for selling prices and demand are inherently uncertain and if our assumptions decline in the future, additional inventory reserves may be required.

Excess and Obsolete Inventory

We reserve for inventory obsolescence using estimates based on historical experience, historical and projected sales trends,

specific categories of inventory, age and expiration dates of on-hand inventory and manufacturer return policies. Inventories presented in the consolidated balance sheets are net of reserves for excess and obsolete inventory which were $149 million and $139 million at June 30, 2024 and 2023, respectively. If actual conditions are less favorable than our assumptions, additional inventory reserves may be required.

Goodwill and Other Indefinite-Lived Intangible Assets

Purchased goodwill and intangible assets with indefinite lives are tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There is an option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. We have elected to bypass the qualitative assessment for the annual goodwill impairment test in the current year. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment (also known as a component).

Goodwill impairment testing involves judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists and, if necessary, the estimation of the fair value of the applicable reporting unit. Our qualitative evaluation considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. The use of alternate estimates and assumptions, changes in the industry or peer groups, or changes in weightings assigned to the discounted cash flow method, guideline public company method or guideline transaction method could materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment. If a reporting unit fails to achieve expected earnings or

operating cash flow, or otherwise fails to meet current financial plans, or if there were changes to any other key assumptions used in the tests, the reporting unit could incur a goodwill impairment in a future period.

As discussed in the Overview section of this MD&A, effective January 1, 2024, we implemented a new enterprise operating and segment reporting structure. The updated structure is comprised of two reportable segments: Pharmaceutical and Specialty Solutions segment and Global Medical Products and Distribution segment. All remaining operating segments that are not significant enough to require separate reportable segment disclosures are included in Other.

This change in segment structure resulted in changes to the composition of the former Medical Unit. Effective January 1, 2024, our reporting units are: Pharmaceutical and Specialty Solutions, GMPD, Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics. GMPD and OptiFreight® Logistics comprised the former Medical Unit.

Accordingly, we allocated $90 million and $48 million of goodwill from the former Medical Unit to GMPD and OptiFreight® Logistics, respectively, based on the estimated relative fair values of the reporting units. We also assessed goodwill for impairment for these reporting units before and after the reallocation and determined there was no impairment for the Medical Unit and OptiFreight® Logistics during the three months ended March 31, 2024 as their fair values substantially exceeded their carrying values. However, the quantitative test resulted in an impairment of GMPD’s remaining goodwill balance of $90 million, resulting in GMPD goodwill being fully impaired as of March 31, 2024.

Our previously reported goodwill balances have been recast to conform to the new structure. Prior-period goodwill impairment charges related to the former Medical Unit were primarily driven by the performance and long-term financial plan assumptions of GMPD and have been fully allocated to GMPD under the new structure.

We also performed annual impairment testing in fiscal 2024, 2023 and 2022 for Pharmaceutical and Specialty Solutions, Nuclear and Precision Health Solutions and at-Home Solutions, and in fiscal 2024 for OptiFreight® Logistics. We concluded that there were no impairments of goodwill for these reporting units as the estimated fair value of each reporting unit exceeded its carrying amounts. GMPD had no goodwill balance remaining as of April 1, 2024. See additional detail regarding GMPD goodwill below.

During our fiscal 2024 annual impairment test, at-Home Solutions fair value exceeds its carrying amount by less than 1 percent. The decrease in at-Home Solutions fair value was primarily due to changes in operating expense estimates to better reflect the fair value from an external perspective. Our determination of estimated fair value of at-Home Solutions was based on a combination of the income-based approach (using a discount rate of 10 percent and a terminal growth rate of 3 percent) and the market-based approach. We assigned a weighting of 75 percent to the discounted cash flow method and 25 percent to the guideline public company method. The goodwill balance as of June 30, 2024 was $1.1 billion. A decrease in future cash flows, an increase in the discount rate or a decrease in the terminal growth rate, among other things, could result in a goodwill impairment for at-Home Solutions. For example, if we were to increase the discount rate by 0.5 percent to 10.5 percent, the carrying amount would have exceeded the fair value for at-Home Solutions by approximately 6 percent for fiscal 2024.

Global Medical Products and Distribution Goodwill

GMPD goodwill was fully impaired in the third quarter of fiscal 2024. Our determination of estimated fair value of GMPD was based on a combination of the income-based approach (using a discount rate of 11 percent and a terminal growth rate of 2 percent) and market-based approaches at January 1, 2024. Additionally, we assigned a weighting of 80 percent to the discounted cash flow method, 10 percent to the guideline public company method, and 10 percent to the guideline transaction method.

During the three months ended December 31, 2023, we did not identify any indicators of impairment within our reporting units.

During the three months ended September 30, 2023, we elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing for the former Medical Unit due to an increase in the risk-free interest rate used in the discount rate. The carrying amount exceeded the fair value, which resulted in a pre-tax impairment charge of $585 million for the former Medical Unit, which was recognized during the three months ended September 30, 2023 and is included in impairments and (gain)/loss on disposal of assets, net in our consolidated statements of earnings/(loss). This impairment charge was driven by an increase of 1 percent in the discount rate primarily due to an increase in the risk-free interest rate.

During fiscal 2023 and 2022, we performed quantitative goodwill impairment testing for the former Medical Unit which resulted in cumulative pre-tax impairment charges $1.2 billion and $2.1 billion, respectively, which were included in impairments and (gain)/loss on disposal of assets, net in our consolidated statements of earnings/(loss).

Other indefinite-lived intangibles

The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks) involves first assessing qualitative factors to determine if it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If so, then a quantitative test is performed to compare the estimated fair value of the indefinite-lived intangible asset to the respective asset's carrying amount. Our qualitative evaluation requires the use of estimates and significant judgments and considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount.

See Note 1 of "Notes to Consolidated Financial Statements" for additional information regarding goodwill and other intangible assets.

Loss Contingencies and Self-Insurance

We regularly review contingencies and self-insurance accruals to determine whether our accruals and related disclosures are adequate. Any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs.

Loss Contingencies

We accrue for contingencies related to disputes, litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because these matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events.

Examples of such contingencies include various lawsuits related to the distribution of prescription opioid pain medications and the IVC filter lawsuits.

In connection with the opioid litigation as described further in Note 8 of the “Notes to Consolidated Financial Statements," during fiscal 2024, we have reached agreements in principle with counsel representing classes of third-party payors and acute care hospitals, and we are engaged in resolution discussions with the City of Baltimore. As of June 30, 2024, we have accrued $363 million, which reflects our current estimate of probable loss for these matters. The agreements in principle remain subject to contingencies.

We develop and periodically update reserve estimates for IVC claims received to date and expected to be received in the future and related costs. In April 2023, we executed a settlement agreement that, if certain conditions are satisfied, will resolve approximately 4,375 IVC filter product liability claims for $275 million. These settlements will not resolve all IVC filter product liability claims and we intend to continue to vigorously defend ourselves in the remaining lawsuits. To project future IVC claim costs, we use a methodology based largely on recent experience, including claim filing rates, blended average payout influenced by claim severity, historical sales data, implant and injury to report lag patterns and estimated defense costs.

Self-Insurance

We self-insure through a wholly-owned insurance subsidiary for employee healthcare, certain product liability matters, auto liability, property and workers' compensation and maintain insurance for losses exceeding certain limits.

Self-insurance accruals include an estimate for expected settlements on pending claims, defense costs, administrative fees,

claims adjustment costs and an estimate for claims incurred but not reported. For certain types of exposures, we develop the estimate of expected ultimate costs to settle each claim based on specific information related to each claim if available. Other estimates are based on an assessment of outstanding claims, historical analysis and current payment trends. For claims incurred but not reported, the liabilities are calculated and derived in accordance with generally accepted actuarial practices or using an estimated lag period.

The amount of loss may differ materially from these estimates. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information regarding loss contingencies and product liability lawsuits.

Provision for Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. Our income tax expense, deferred income tax assets and liabilities and unrecognized tax benefits reflect management’s assessment of estimated future taxes to be paid on items in the consolidated financial statements.

The following table presents information about our tax position at June 30:

(1)    Total deferred income tax assets included $512 million and $672 million of loss and tax credit carryforwards at June 30, 2024 and 2023, respectively.

(2)    The valuation allowance primarily relates to federal, state and international loss and credit carryforwards for which the ultimate realization of future benefits is uncertain.

Expiring or unusable loss and credit carryforwards and the required valuation allowances are adjusted quarterly when it is more likely than not that at least a portion of the respective deferred tax assets will not be realized. After applying the valuation allowances, we do not anticipate any limitations on our use of any of the other net deferred income tax assets described previously.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation. The amount

recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement. For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.

We operate in a complex multinational tax environment and are subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions that are subject to interpretation. Uncertainty in a tax position may arise as tax laws are subject to interpretation.

Tax Effects of Goodwill Impairment Charges

During fiscal 2024, 2023, and 2022 we recognized cumulative pre-tax goodwill impairment charges of $675 million, $1.2 billion, and $2.1 billion, respectively, related to the GMPD segment. The net tax benefits related to these charges were $58 million, $92 million, and $140 million, respectively.

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Our assumptions and estimates around uncertain tax positions require significant judgment; the actual amount of tax benefit related to uncertain tax positions may differ from these estimates. See Note 9 of the “Notes to Consolidated Financial Statements” for additional information regarding unrecognized tax benefits.

We believe that our estimates for the valuation allowances against deferred tax assets and unrecognized tax benefits are appropriate based on current facts and circumstances. The amount we ultimately pay when matters are resolved may differ from the

amounts accrued. Changes in our current estimates due to unanticipated market conditions, tax law changes or other factors could have a material effect on our ability to utilize deferred tax assets. For a further discussion on Provision for Income Taxes, see Note 9 of the “Notes to the Consolidated Financial Statements.”

Explanation and Reconciliation of Non-GAAP Financial Measures

Explanation and Reconciliation of Non-GAAP Financial Measures

This report, including the "Fiscal 2024 Overview" section within MD&A, contains financial measures that are not calculated in accordance with GAAP.

In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.

Exclusions from Non-GAAP Financial Measures

Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors’ assessment of the business for the reasons identified below:

•LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. We did not recognize any LIFO charges or credits during the periods presented.

•State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the period in which the expense is incurred. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Income from state opioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlying assessments were invalidated by a Court or reimbursed by manufacturers.

•Shareholder cooperation agreement costs includes costs such as legal, consulting and other expenses incurred in relation to the agreement (the "Cooperation Agreement") entered into among Elliott Associates, L.P., Elliott International, L.P. (together, "Elliott") and Cardinal Health, including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the Business Review Committee of the Board of Directors, which was formed under this Cooperation Agreement. We have excluded these costs from our non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscure analysis of trends and financial performance.

•Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business and include, but are not limited to, costs related to divestitures, closing and consolidating facilities, changing the way we manufacture or distribute our products, moving manufacturing of a product to another location, changes in production or business process outsourcing or insourcing, employee severance and realigning operations.

•Amortization and other acquisition-related costs, which include transaction costs, integration costs and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.

Explanation and Reconciliation of Non-GAAP Financial Measures

•Impairments and gain or loss on disposal of assets, net are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.

•Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.

•Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.

•(Gain)/Loss on sale of equity interest in naviHealth was incurred in connection with the sale of our remaining equity interest in naviHealth in fiscal 2020. The equity interest was retained in connection with the initial sale of our majority interest in naviHealth during fiscal 2019. We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in the normal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest, which we exclude from non-GAAP results. The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAP measures.

The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Our MD&A within this Form 10-K generally discusses fiscal 2023 and fiscal 2022 items and year-over-year comparisons between fiscal 2023 and fiscal 2022. Fiscal 2021 items and discussions of year-over-year comparisons between fiscal 2022 and fiscal 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, 2022 (the "Fiscal 2022 Form 10-K").

Important Information Regarding Forward-Looking Statements

This report (including information incorporated by reference) includes forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. Many forward-looking statements appear in MD&A and Risk Factors, but there are others throughout this report, which may be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “would,” “project,” “continue,” “likely,” and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these risks and uncertainties are described in “Risk Factors” in this report and in Exhibit 99.1 to the Form 10-K included in this report. Forward-looking statements in this report speak only as of the date of this document. Except to the extent required by applicable law, we undertake no obligation to update or revise any forward-looking statement.

Available Information

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 “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 statements and other information regarding us and other public companies.

Management's Discussion and Analysis of Financial Condition and Results of Operations

About Cardinal Health

Cardinal Health, Inc., an Ohio corporation formed in 1979, is a 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. We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. We manage our business and report our financial results in two segments: Pharmaceutical and Medical.

Pharmaceutical Segment

Our Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products; provides pharmacy management services to hospitals and operates a limited number of pharmacies, including pharmacies in community health centers; operates nuclear pharmacies and radiopharmaceutical manufacturing facilities; and repackages generic pharmaceuticals and over-the-counter healthcare products.

Medical Segment

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 other markets. 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. This segment also distributes medical products to patients' homes in the United States through our Cardinal Health at-Home Solutions division.

Consolidated Results

Fiscal 2023 Overview

Revenue

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

GAAP and Non-GAAP Operating Earnings/(Loss)

The sum of the components and certain computations may reflect rounding adjustments.

We had GAAP operating earnings of $727 million and a GAAP operating loss of $596 million during fiscal 2023 and 2022, respectively, which included $1.2 billion and $2.1 billion pre-tax non-cash goodwill impairment charges related to the Medical segment, respectively. See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements" for additional detail. GAAP operating earnings during fiscal 2023 were favorably impacted by litigation recoveries as described further in Note 7 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.

GAAP and Non-GAAP Diluted EPS

The sum of the components and certain computations may reflect rounding adjustments.

(1)Diluted earnings/(loss) per share attributable to Cardinal Health, Inc. ("diluted EPS" or "diluted loss per share").

(2)The reconciling items are presented within this table net of tax. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the section titled "Explanation and Reconciliation of Non-GAAP Financial Measures."

(3)For fiscal 2022, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 279 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2022 non-GAAP diluted EPS is calculated using a weighted average of 280 million common shares, which includes potentially dilutive shares.

(4)Impairments and (gain)/loss on disposals of assets, net includes pre-tax goodwill impairment charges of $1.2 billion and $2.1 billion, respectively, related to the Medical segment recorded during fiscal 2023 and 2022. The net tax benefits related to these charges were $82 million and $150 million, respectively.

During fiscal 2023 and 2022, GAAP diluted EPS was adversely impacted by the goodwill impairment charges related to the Medical segment, which had a $(4.38) and $(6.94) per share after-tax impact, respectively. See "Critical Accounting Policies and Sensitive

Accounting Estimates" section of this MD&A, and Note 4 and Note 8 of the "Notes to Consolidated Financial Statements" for additional detail.

During fiscal 2023, GAAP diluted EPS was favorably impacted by litigation recoveries. See Note 7 of the "Notes to Consolidated Financial Statements."

During fiscal 2023, non-GAAP diluted EPS increased 14 percent to $5.79 due to a lower share count, the factors impacting non-GAAP operating earnings described above and lower interest expense, net.

Cash and Equivalents

Our cash and equivalents balance was $4.0 billion at June 30, 2023 compared to $4.7 billion at June 30, 2022. During fiscal 2023, net cash provided by operating activities was $2.8 billion, which was offset by $2.0 billion in share repurchases, $579 million in debt repayments, $525 million of dividends and $481 million of capital expenditures.

Significant Developments in Fiscal 2023 and Trends

Pharmaceutical Segment

Generics Program

The performance of our Pharmaceutical segment generics program positively impacted the year-over-year comparison of Pharmaceutical segment profit in fiscal 2023. The Pharmaceutical segment generics program includes, among other things, the impact of generic pharmaceutical product launches, customer volumes, pricing changes, the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health") and generic pharmaceutical contract manufacturing and sourcing costs.

The frequency, timing, magnitude and profit impact of generic pharmaceutical customer volumes, pricing changes, customer contract renewals, generic pharmaceutical manufacturer pricing changes and generic pharmaceutical contract manufacturing and sourcing costs all impact Pharmaceutical segment profit and are subject to risks and uncertainties. These risks and uncertainties may impact Pharmaceutical segment profit and consolidated operating earnings in fiscal 2024.

Medical Segment

Inflationary Impacts

Beginning in fiscal 2022, Medical segment profit was negatively affected by inflationary impacts, primarily related to transportation (including ocean and domestic freight), commodities, labor and global supply chain constraints. 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. However, these inflationary costs are difficult to predict and may be greater than we expect or continue longer than our current expectations. Our actions to increase prices and evolve our contracting strategies are subject to contingencies and uncertainties and it is possible that our results of operations will be adversely impacted to a greater extent than we currently anticipate or that we may not be able to mitigate the negative impact to the extent or on the timeline we anticipate.

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. The timing, magnitude and profit impact of this anticipated sales growth is subject to risks and uncertainties, which may impact Medical segment profit.

Medical Unit Goodwill

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. This testing resulted in cumulative pre-tax charges of $1.2 billion which were included in impairments and (gain)/loss on disposal of assets, net in our consolidated statements of earnings/(loss). See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements" for additional detail. Adverse changes in key assumptions or a significant change in industry or economic trends during fiscal 2024 could result in additional goodwill impairment.

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.

Results of Operations

Revenue

(1)Corporate revenue consists of the elimination of inter-segment revenue and other revenue not allocated to the segments.

Pharmaceutical Segment

Fiscal 2023 Pharmaceutical segment revenue grew by 15 percent primarily due to branded and specialty pharmaceutical sales growth largely from existing and net new customers, which increased revenue by $24.2 billion.

Medical Segment

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.

Cost of Products Sold

Cost of products sold for fiscal 2023 increased $23.3 billion (13 percent) due to the factors affecting the changes in revenue and gross margin.

Gross Margin

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. This increase was partially offset by the performance of products and distribution within the Medical segment, primarily driven by lower volumes and unfavorable product sales mix, partially offset by a net positive contribution from PPE.

Gross margin rate declined 25 basis points during fiscal 2023 mainly due to changes in overall product mix, primarily driven by increased pharmaceutical distribution branded sales, which have a dilutive impact on our overall gross margin rate. This decline in gross margin rate was partially offset by a net positive contribution from PPE.

Distribution, Selling, General and Administrative ("SG&A") Expenses

Fiscal 2023 SG&A expenses increased primarily due to inflationary impacts, primarily related to increased transportation and labor costs, higher operating expenses, including higher costs to support sales growth, and enterprise-wide incentive compensation. These increases were partially offset by the beneficial impact of enterprise-wide cost-savings measures.

Segment Profit

We evaluate segment performance based on segment profit, among other measures. See Note 13 of the "Notes to Consolidated Financial Statements" for additional information on segment profit.

Pharmaceutical Segment Profit

Fiscal 2023 Pharmaceutical segment profit increased primarily due to the positive performance of our generics program and an increased contribution from branded and specialty pharmaceutical products, partially offset by inflationary impacts, primarily related to increased transportation and labor costs.

Medical Segment Profit

Fiscal 2023 Medical segment profit decreased primarily due to the performance of products and distribution, largely driven by net inflationary impacts, lower volumes and unfavorable product sales mix, partially offset by a net positive contribution from PPE.

Corporate

The changes in Corporate during fiscal 2023 are due to the factors discussed in the "Other Components of Consolidated Operating Earnings/(Loss)" section that follows.

Other Components of Consolidated Operating Earnings/(Loss)

In addition to revenue, gross margin and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:

Restructuring and Employee Severance

Restructuring and employee severance costs during fiscal 2023 and 2022 were primarily related to the implementation of certain enterprise-wide cost-savings measures and the divestiture of the Cordis business. During fiscal 2023, we also incurred restructuring costs related to certain projects resulting from reviews of our strategy, portfolio, capital-allocation framework and operations. During fiscal 2022, restructuring costs also included facility exit costs related to decreasing our overall office space.

Amortization and Other Acquisition-Related Costs

Amortization of acquisition-related intangible assets was $281 million and $311 million for fiscal 2023 and 2022, respectively.

Impairments and (Gain)/Loss on Disposal of Assets, Net

During fiscal 2023 and 2022, we recognized $1.2 billion and $2.1 billion of pre-tax non-cash goodwill impairment charges, respectively, related to our Medical segment, as discussed further in the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements."

Litigation (Recoveries)/Charges, Net

During fiscal 2023, we recognized income of $103 million, primarily related to a reduction of the reserve for the estimated settlement and defense costs for the Cordis OptEase and TrapEase inferior vena cava ("IVC") product liability due to the execution of certain settlement agreements. During fiscal 2022, we recognized estimated losses and legal defense costs associated with the IVC filter product liability claims of $87 million. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2023, we recognized income of $93 million due to net proceeds from the settlement of a shareholder derivative litigation matter as described further in the "Legal Proceedings" section.

During fiscal 2023 and 2022, we recognized income of $130 million and $18 million, respectively, for net recoveries in class action antitrust lawsuits in which we were a class member or plaintiff.

Other Components of Earnings/(Loss) Before Income Taxes

In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:

Interest Expense, Net

Fiscal 2023 interest expense decreased from fiscal 2022 primarily due to increased interest income from cash and equivalents.

Loss On Early Extinguishment of Debt

During fiscal 2022, we recognized a loss of $10 million connection with the debt redemption as described further in Note 6 of the "Notes to Consolidated Financial Statements."

Provision for Income Taxes

Fluctuations in the effective tax rates are primarily due to the impact of the goodwill impairment charges recognized in fiscal 2023 and 2022 related to the Medical segment .

A reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows (see Note 8 of the "Notes to Consolidated Financial Statements" for additional information):

(1)     This table reflects fiscal 2023 pretax income with tax expense and fiscal 2022 pretax loss with tax expense.

(2)    Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

During fiscal 2023 and 2022, the effective tax rate was 58.9 percent and (21.2) percent, respectively. Included in the effective tax rate for fiscal 2023 and 2022 was $82 million and $150 million, respectively, of benefit related to the goodwill impairment charges related to the Medical Unit.

Ongoing Audits

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Liquidity and Capital Resources

We currently believe that, based on available capital resources and projected operating cash flow, we have adequate capital resources to fund our operations and expected future cash needs as described below. If we decide to engage in one or more acquisitions, depending on the size and timing of such transactions, we may need to access capital markets for additional financing.

Cash and Equivalents

Our cash and equivalents balance was $4.0 billion at June 30, 2023 compared to $4.7 billion at June 30, 2022. Net cash provided by operating activities was $2.8 billion, which includes the impact of our second annual payment of $372 million related to the April 2022 agreement to settle the vast majority of the opioid lawsuits filed by states and local governmental entities (the "National Opioid Settlement Agreement"). In addition, we deployed $2.0 billion for share repurchases, $579 million for debt repayments, $525 million for dividends and $481 million for capital expenditures. At June 30, 2023, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

At June 30, 2022, our cash and equivalents were $4.7 billion. During fiscal 2022, net cash provided by operating activities of $3.1 billion included a refund of $966 million for the tax benefit from the net operating loss carryback related to a self-insurance pre-tax loss. We also received proceeds of $923 million, net of cash transferred, from the divestiture of the Cordis business and we deployed $1.0 billion for share repurchases, $885 million for debt repayments, $559 million for dividends and $387 million for capital expenditures.

Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer payments, inventory purchases, payments to vendors and tax payments in the regular course of business, as well as fluctuating working capital needs driven by customer and product mix.

The cash and equivalents balance at June 30, 2023 included $533 million of cash and equivalents held by subsidiaries outside of the United States.

In fiscal 2023, we returned $189 million of cash held by foreign subsidiaries to the U.S.

At June 30, 2023, foreign earnings of approximately $976 million are considered indefinitely reinvested for working capital and other offshore investment needs. The computation of tax required if those earnings are repatriated is not practicable. For amounts not considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our consolidated financial statements in fiscal 2023.

Other Financing Arrangements and Financial Instruments

Credit Facilities and Commercial Paper

In addition to cash and equivalents and operating cash flow, other sources of liquidity at June 30, 2023 include a $2.0 billion commercial paper program, backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility. At June 30, 2023, we had no amounts outstanding under our commercial paper program, revolving credit facility or our committed receivables sales facility. During fiscal 2023, under our commercial paper program and our committed receivables program, we had maximum combined total daily amounts outstanding of $445 million.

In February 2023, we extended our revolving credit facility through February 25, 2028. In September 2022, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC ("CHF") through September 30, 2025.

Our revolving credit and committed receivables sales facilities require us to maintain a consolidated net leverage ratio of no more than 3.75-to-1. As of June 30, 2023, we were in compliance with this financial covenant.

Long-Term Obligations

At June 30, 2023, we had total long-term obligations, including the current portion and other short-term borrowings of $4.7 billion.

During fiscal 2023, we repaid the full principal of $550 million of the 3.2% Notes due 2023.

During fiscal 2022, we redeemed all outstanding $572 million principal amount of 2.616% Notes due 2022 and recorded a $10 million loss on early extinguishment of debt. We also repaid the full principal of the $282 million Floating Rate Notes due 2022 as they became due.

The early redemption and repayments were funded with available cash.

Capital Deployment

Opioid Litigation Settlement Agreement

We had $5.87 billion accrued at June 30, 2023 related to certain opioid litigation, as further described within Note 7 of the "Notes to Consolidated Financial Statements." We expect the majority of payments to occur through 2038. During fiscal 2023, we paid our second annual payment of $372 million under the National Opioid Settlement Agreement. In July 2023, we made our third annual payment of $378 million under the National Opioid Settlement Agreement. The amounts of these future payments may differ from the payments that we have already made.

Capital Expenditures

Capital expenditures during fiscal 2023 and 2022 were $481 million and $387 million, respectively.

We expect capital expenditures in fiscal 2024 to be approximately $500 million and primarily related to manufacturing and distribution infrastructure projects and technology investments.

Dividends

During fiscal 2023, we paid quarterly dividends totaling $1.98 per share, an increase of 1 percent from fiscal 2022.

On May 11, 2023, our Board of Directors approved a quarterly dividend of $0.5006 per share, or $2.00 per share on an annualized basis, which was paid on July 15, 2023, to shareholders of record on July 3, 2023.

On August 9, 2023, our Board of Directors approved a quarterly dividend of $0.5006 per share, or $2.00 per share on an annualized basis, which will be paid on October 15, 2023, to shareholders of record on October 3, 2023.

Share Repurchases

During fiscal 2023 and 2022, we deployed $2.0 billion and $1.0 billion, respectively, for repurchases of our common shares. We funded the repurchases with available cash. See Note 11 of the "Notes to Consolidated Financial Statements" for additional information.

On November 4, 2021, our Board of Directors approved a $3.0 billion share repurchase program, which will expire on December 31, 2024. On June 7, 2023, our Board of Directors approved a $3.5 billion share repurchase program, which will expire on December 31, 2027. At June 30, 2023, we had $4.3 billion remaining authorized for share repurchases under these programs.

Contractual Obligations and Cash Requirements

At June 30, 2023, our contractual obligations and future cash requirements, including estimated payments due by period, were as follows:

(1)Represents maturities of our long-term debt obligations and other short-term borrowings excluding finance lease obligations described below. See Note 6 of the “Notes to Consolidated Financial Statements” for further information.

(2)Represents minimum finance lease obligations included within current portion of long-term obligations and other short-term borrowings and long-term obligations, less current portion in our consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(3)Represents minimum operating lease obligations included within other accrued liabilities and deferred income taxes and other liabilities in our

consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(4)A purchase obligation is defined as an agreement to purchase goods or services that is legally enforceable and specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and approximate timing of the transaction. The purchase obligation amounts disclosed above represent estimates of the minimum for which we are obligated and the time period in which cash outflows will occur. Purchase orders and authorizations to purchase that involve no firm commitment from either party are excluded from the above table. In addition, contracts that can be unilaterally canceled with no termination fee or with proper notice are excluded from our total purchase obligations except for the amount of the termination fee or the minimum amount of goods that must be purchased during the requisite notice period. Purchase obligations and other payments also includes quarterly payments to CVS Health in connection with Red Oak Sourcing. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information.

(5)Represents future cash obligations under the National Opioid Settlement Agreement as well as future cash obligations under separate settlement agreements with the States of Oklahoma, Washington and West Virginia and the Cherokee Nation. We have $5.87 billion accrued at June 30, 2023, of which $426 million is included in other accrued liabilities, and the remainder is included in deferred income taxes and other liabilities in our consolidated balance sheets. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information.

(6)Long-term liabilities, such as unrecognized tax benefits, deferred taxes and other tax liabilities, have been excluded from the above table due to the inherent uncertainty of the underlying tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See Note 8 of the "Notes to Consolidated Financial Statements" for further discussion of income taxes.

Recent Financial Accounting Standards

See Note 1 of the “Notes to Consolidated Financial Statements” for further information.

Critical Accounting Policies and Sensitive Accounting Estimates

Critical accounting policies are those accounting policies that (i) can have a significant impact on our financial condition and results of operations and (ii) require the use of complex and subjective estimates based upon past experience and management’s judgment. Other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Because estimates are inherently uncertain, actual results may differ. In this section, we describe the significant policies applied in preparing our consolidated financial statements that management believes are the most dependent on estimates and assumptions. See Note 1 of the “Notes to Consolidated Financial Statements” for further discussion.

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes general and specific reserves. We determine our allowance for doubtful accounts by reviewing accounts receivable aging, historical write-off trends, payment history, pricing discrepancies, industry trends, customer financial strength, customer credit ratings or bankruptcies. We regularly evaluate how changes in economic conditions may affect credit risks.

A hypothetical 0.1 percent increase or decrease in the reserve as a percentage of trade receivables at June 30, 2023, would result in an increase or decrease in bad debt expense of $11 million. We believe the reserve maintained and expenses recorded in fiscal 2023 are appropriate.

At this time, we are not aware of any analytical findings or customer issues that are likely to lead to a significant future

increase in the allowance for doubtful accounts as a percentage of revenue. The following table presents information regarding our allowance for doubtful accounts over the past three fiscal years:

Inventories

LIFO Inventory

A portion of our inventories (55 percent and 52 percent at June 30, 2023 and 2022, respectively) are valued at the lower of cost, using the last-in, first-out ("LIFO") method, or market. These are primarily merchandise inventories at the core pharmaceutical distribution facilities within our Pharmaceutical segment (“distribution facilities”). The LIFO impact on the consolidated statements of earnings/(loss) depends on pharmaceutical manufacturer price appreciation or deflation and our fiscal year-end inventory levels, which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end. Historically, prices for branded pharmaceuticals have generally tended to rise, resulting in an increase in cost of products sold, whereas prices for generic pharmaceuticals generally tend to decline, resulting in a decrease in cost of products sold.

Using LIFO, if there is a decrease in inventory levels that have experienced pharmaceutical price appreciation, the result generally will be a decrease in future cost of products sold as our older inventory is held at a lower cost. Conversely, if there is a decrease in inventory levels that have experienced a pharmaceutical price decline, the result generally will be an increase in future cost of products sold as our older inventory is held at a higher cost.

We believe that the average cost method of inventory valuation provides a reasonable approximation of the current cost of replacing inventory within these distribution facilities. As such, the

LIFO reserve is the difference between (a) inventory at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost method of inventory valuation. At June 30, 2023 and 2022, respectively, inventories valued at LIFO cost were $476 million and $416 million higher than the average cost value. We do not record inventories in excess of replacement cost. As such, we did not write-up the value of our inventory from average cost to LIFO cost at June 30, 2023 or 2022.

FIFO Inventory

Our remaining inventory, including inventory in our Medical segment and certain inventory in our Pharmaceutical segment, that is not valued at the lower of LIFO cost or market is stated at the lower of cost, using the first-in, first-out ("FIFO") method, or net realizable value. We reserve for the lower of cost or net realizable value using the estimated selling prices and estimated sales demand in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. In fiscal 2021, we recorded a reserve of $197 million, primarily related to certain categories of gloves, to reduce the carrying value of certain PPE to its net realizable value. Our estimates for selling prices and demand are inherently uncertain and if our assumptions decline in the future, additional inventory reserves may be required.

Excess and Obsolete Inventory

We reserve for inventory obsolescence using estimates based on historical experience, historical and projected sales trends, specific categories of inventory, age and expiration dates of on-hand inventory and manufacturer return policies. Inventories presented in the consolidated balance sheets are net of reserves

for excess and obsolete inventory which were $139 million and $147 million at June 30, 2023 and 2022, respectively. If actual conditions are less favorable than our assumptions, additional inventory reserves may be required.

Goodwill and Other Indefinite-Lived Intangible Assets

Purchased goodwill and intangible assets with indefinite lives are tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There is an option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. We have elected to bypass the qualitative assessment for the annual goodwill impairment test in the current year. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment (also known as a component).

We have two operating segments, which are the same as our reportable segments: Pharmaceutical and Medical. These operating segments are comprised of divisions (which are components), for which discrete financial information is available. Components are aggregated into reporting units for purposes of goodwill impairment testing to the extent that they share similar economic characteristics. Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear and Precision Health Solutions division); Nuclear and Precision Health Solutions division; Medical operating segment (excluding our Cardinal Health at-Home Solutions division) (“Medical Unit”); and Cardinal Health at-Home Solutions division.

Goodwill impairment testing involves judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists and, if necessary, the estimation of the fair value of the applicable reporting unit.

Our determination of estimated fair value of our reporting units in fiscal 2023 was based on a combination of the income-based and market-based approaches (using discount rates ranging from 9.5 to 11 percent). We use discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in our internally-developed forecasts. Under the market-based guideline public company method, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the market-based guideline transaction method to

determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. The use of alternate estimates and assumptions, changes in the industry or peer groups, or changes in weightings assigned to the discounted cash flow method, guideline public company method or guideline transaction method could materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment. If a reporting unit fails to achieve expected earnings or operating cash flow, or otherwise fails to meet current financial plans, or if there were changes to any other key assumptions used in the tests, the reporting unit could incur a goodwill impairment in a future period.

We performed annual impairment testing in fiscal 2023, 2022 and 2021 and concluded that there were no impairments of goodwill for Pharmaceutical operating segment (excluding our Nuclear and Precision Health Solutions division); Nuclear and Precision Health Solutions division; and Cardinal Health at-Home Solutions division as the estimated fair value of each reporting unit exceeded its carrying value. See additional detail on Medical Unit goodwill below.

Medical Unit Goodwill

Due to previously communicated changes in our long-term financial plan assumptions made during fiscal 2023, including those related to Cardinal Health branded medical products sales growth and net inflationary impacts, we elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing for the Medical Unit at June 30, 2023. This quantitative testing resulted in the carrying amount of the Medical Unit exceeding the fair value, resulting in a pre-tax impairment charge of $368 million in the fourth quarter and cumulative pre-tax impairment charges of $1.2 billion due to the impairment charges recognized during the second and first quarters of fiscal 2023 as described further below. The fourth quarter impairment charge was primarily driven by the impact of the reductions in our long-term financial plan assumptions. The impairment charges are included in impairments and (gain)/loss on disposal of assets, net in our consolidated statements of earnings/(loss). The carrying value of the Medical Unit at June 30, 2023 after recognizing the impairment charges was $5.7 billion, of which $725 million was goodwill. See Note 4 of the "Notes to Consolidated Financial Statements" for further discussion.

We performed interim quantitative goodwill impairment testing for the Medical Unit at December 31, 2022 and September 30, 2022, which resulted in pre-tax impairment charges of $709 million and $154 million, respectively. The impairment charge recognized in the second quarter was driven by certain reductions in our long-term financial plan assumptions, and the impairment charge recognized in the first quarter was driven by an increase in the discount rate primarily due to an increase in the risk-free interest rate. We also performed quantitative goodwill impairment testing at March 31, 2023 and concluded that there was no impairment of goodwill at March 31, 2023 as the estimated fair value of the Medical Unit exceeded its carrying value by approximately 4 percent.

Our determinations of the estimated fair value of the Medical Unit were based on a combination of the income-based approach (using a terminal growth rate of 2 percent), and the market-based approaches. Additionally, we assigned a weighting of 80 percent to the discounted cash flow method, 10 percent to the guideline public company method and 10 percent to the guideline transaction method. For the income-based approach, we used discount rates of 10 percent, 10 percent, 10.5 percent and 10.5 percent for fourth, third, second and first quarters, respectively. The decrease in the discount rate for the testing performed at March 31, 2023 and June 30, 2023 was primarily due to a decrease in the risk-free interest rate.

While we consider the assumptions used in our determination of the estimated fair value of the Medical Unit to be reasonable and appropriate, they are complex and subjective, and additional adverse changes in one key assumption or a combination of key assumptions during fiscal 2024 may significantly affect future estimates. These assumptions include, among other things, a failure to meet expected earnings or other financial plans, including the execution of key initiatives related to optimizing and growing sales of Cardinal Health branded medical products, increasing growth in certain strategic divisions within our Medical segment, and driving simplification efforts and cost optimization projects, or unanticipated events and circumstances, such as changes in assumptions about the duration and magnitude of increased

supply chain and commodities costs and our efforts to mitigate such impact, including price increases or surcharges; further disruptions in the supply chain; manufacturing cost inefficiencies resulting from lower than anticipated sales volume; an increase in the discount rate; a decrease in the terminal growth rate; increases in tax rates; or a significant change in industry or economic trends.

Adverse changes in key assumptions may result in a decline in fair value below the carrying value in the future and therefore, an impairment of our Medical Unit goodwill in future periods, which could adversely affect our results of operations. For example, if we were to increase the discount rate by a hypothetical 0.5 percent to 10.5 percent or decrease the terminal growth rate by a hypothetical 1.75 percent to 0.25 percent, the fair value for the Medical Unit would have further decreased by approximately $250 million. Additionally, a hypothetical 25 basis point decrease in long-term gross margin rates, which could be impacted by changes in Cardinal Health branded medical product sales growth rate assumptions, would have increased the impairment charge by approximately $220 million.

Other indefinite-lived intangibles

The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks) involves first assessing qualitative factors to determine if it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount. If so, then a quantitative test is performed to compare the estimated fair value of the indefinite-lived intangible asset to the respective asset's carrying amount. Our qualitative evaluation requires the use of estimates and significant judgments and considers the weight of evidence and significance of all identified events and circumstances and most relevant drivers of fair value, both positive and negative, in determining whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying amount.

See Note 1 of "Notes to Consolidated Financial Statements" for additional information regarding goodwill and other intangible assets.

Loss Contingencies and Self-Insurance

We regularly review contingencies and self-insurance accruals to determine whether our accruals and related disclosures are adequate. Any adjustments for changes in reserves are recorded in the period in which the change in estimate occurs.

Loss Contingencies

We accrue for contingencies related to disputes, litigation and regulatory matters if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because these matters are inherently unpredictable and unfavorable developments or outcomes can occur, assessing contingencies is highly subjective and requires judgments about future events.

Examples of such contingencies include various lawsuits related to the distribution of prescription opioid pain medications and the IVC filter lawsuits.

We develop and periodically update reserve estimates for all litigation matters, including IVC claims, received to date and expected to be received in the future and related costs. In April 2023, we executed a settlement agreement that, if certain conditions are satisfied, will resolve approximately 4,376 IVC filter product liability claims for $275 million. These settlements will not resolve all IVC filter product liability claims and we intend to continue to vigorously defend ourselves in the remaining lawsuits. To project future IVC claim costs, we use a methodology based largely on recent experience, including claim filing rates, blended average payout influenced by claim severity, historical sales data, implant and injury to report lag patterns and estimated defense costs.

Self-Insurance

We self-insure through a wholly-owned insurance subsidiary for employee healthcare, certain product liability matters, auto liability, property and workers' compensation and maintain insurance for losses exceeding certain limits.

Self-insurance accruals include an estimate for expected settlements on pending claims, defense costs, administrative fees, claims adjustment costs and an estimate for claims incurred but not reported. For certain types of exposures, we develop the estimate of expected ultimate costs to settle each claim based on specific information related to each claim if available. Other estimates are based on an assessment of outstanding claims, historical analysis and current payment trends. For claims incurred but not reported, the liabilities are calculated and derived in accordance with generally accepted actuarial practices or using an estimated lag period.

The amount of loss may differ materially from these estimates. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information regarding loss contingencies and product liability lawsuits.

Provision for Income Taxes

We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are measured using enacted tax rates in the respective jurisdictions in which we operate. Our income tax expense, deferred income tax assets and liabilities and unrecognized tax benefits reflect management’s assessment of estimated future taxes to be paid on items in the consolidated financial statements.

The following table presents information about our tax position at June 30:

(1)    Total deferred income tax assets included $671 million and $778 million of loss and tax credit carryforwards at June 30, 2023 and 2022, respectively.

(2)    The valuation allowance primarily relates to federal, state and international loss and credit carryforwards for which the ultimate realization of future benefits is uncertain.

Expiring or unusable loss and credit carryforwards and the required valuation allowances are adjusted quarterly when it is more likely than not that at least a portion of the respective deferred tax assets will not be realized. After applying the valuation allowances, we do not anticipate any limitations on our use of any of the other net deferred income tax assets described previously.

Tax benefits from uncertain tax positions are recognized when it is more likely than not that the position will be sustained upon examination of the technical merits of the position, including resolutions of any related appeals or litigation. The amount recognized is measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement.

For tax benefits that do not qualify for recognition, we recognize a liability for unrecognized tax benefits.

We operate in a complex multinational tax environment and are subject to tax treaty arrangements and transfer pricing guidelines for intercompany transactions that are subject to interpretation. Uncertainty in a tax position may arise as tax laws are subject to interpretation.

Tax Effects of Goodwill Impairment Charges

During fiscal 2023 and 2022, we recognized cumulative pre-tax goodwill impairment charges of $1.2 billion and $2.1 billion, respectively, related to the Medical Unit. The net tax benefits related to these charges were $82 million and $150 million, respectively.

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. During fiscal 2021, we resolved all open issues with respect to the Company’s activity within fiscal years 2008 through 2014 with the U.S. Internal Revenue Service ("IRS"). This resolution resulted in an adjustment to our provision for income taxes, including an impact to reserves for later years. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Our assumptions and estimates around uncertain tax positions require significant judgment; the actual amount of tax benefit related to uncertain tax positions may differ from these estimates. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information regarding unrecognized tax benefits.

We believe that our estimates for the valuation allowances against deferred tax assets and unrecognized tax benefits are appropriate based on current facts and circumstances. The amount we

ultimately pay when matters are resolved may differ from the amounts accrued. Changes in our current estimates due to unanticipated market conditions, tax law changes or other factors could have a material effect on our ability to utilize deferred tax assets. For a further discussion on Provision for Income Taxes, see Note 8 of the “Notes to the Consolidated Financial Statements.”

The calculation of our tax liabilities includes estimates for uncertainties in the application of broad and complex changes to the U.S. tax code as per the Tax Act as enacted by the United States government on December 22, 2017. We have made reasonable estimates and recorded amounts based on management judgment and our current understanding of the Tax Act which is subject to further interpretation by the IRS. See Note 8 of the “Notes to Consolidated Financial Statements” for additional information.

Explanation and Reconciliation of Non-GAAP Financial Measures

Explanation and Reconciliation of Non-GAAP Financial Measures

This report, including the "Fiscal 2023 Overview" section within MD&A, contains financial measures that are not calculated in accordance with GAAP.

In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.

Exclusions from Non-GAAP Financial Measures

Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors’ assessment of the business for the reasons identified below:

•LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. We did not recognize any LIFO charges or credits during the periods presented.

•Surgical gown recall costs or income includes inventory write-offs and certain remediation and supply disruption costs, net of related insurance recoveries, arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for Presource Procedure Packs containing affected gowns. Income from surgical gown recall costs represents insurance recoveries of these certain costs. We have excluded these costs from our non-GAAP metrics to allow investors to better understand the underlying operating results of the business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies’ financial results.

•State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the period in which the expense is incurred. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Income from state opioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlying assessments were invalidated by a Court or reimbursed by manufacturers.

•Shareholder cooperation agreement costs includes costs such as legal, consulting and other expenses incurred in relation to the agreement (the "Cooperation Agreement") entered into among Elliott Associates, L.P., Elliott International, L.P. (together, "Elliott") and Cardinal Health, including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the Business Review Committee of the Board of Directors, which was formed under this Cooperation Agreement. We have excluded these costs from our non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscure analysis of trends and financial performance.

•Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business and include, but are not limited to, costs related to divestitures, closing and consolidating facilities, changing the way we manufacture or distribute our products, moving manufacturing of a product to another location, changes in production or business process outsourcing or insourcing, employee severance and realigning operations.

•Amortization and other acquisition-related costs, which include transaction costs, integration costs and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group

Explanation and Reconciliation of Non-GAAP Financial Measures

companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.

•Impairments and gain or loss on disposal of assets, net are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.

•Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount. During fiscal 2022, we incurred a one-time contingent attorneys' fee of $18 million related to the finalization of the settlement agreement (the “National Opioid Settlement Agreement”) resulting in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities. Due to the unique nature and significance of the National Opioid Settlement Agreement, and the one-time, contingent nature of the fee, this fee was included in litigation recoveries or charges, net. Additionally, during fiscal 2022 our Pharmaceutical segment profit was positively impacted by a $16 million judgment for lost profits. This judgment was the result of an ordinary course intellectual property rights claim and, therefore, is not adjusted in calculating the litigation recoveries or charges, net adjustment. During fiscal 2021, we incurred a tax benefit related to a carryback of a net operating loss. Some pre-tax amounts, which contributed to this loss, relate to litigation charges. As a result, we allocated substantially all of the tax benefit to litigation charges.

•Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.

•(Gain)/Loss on sale of equity interest in naviHealth was incurred in connection with the sale of our remaining equity interest in naviHealth in fiscal 2020. The equity interest was retained in connection with the initial sale of our majority interest in naviHealth during fiscal 2019. We exclude this significant gain because gains or losses on investments of this magnitude do not typically occur in the normal course of business and are similar in nature to a gain or loss from a divestiture of a majority interest, which we exclude from non-GAAP results. The gain on the initial sale of our majority interest in naviHealth in fiscal 2019 was also excluded from our non-GAAP measures.

The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Our MD&A within this Form 10-K generally discusses fiscal 2022 and fiscal 2021 items and year-to-year comparisons between fiscal 2022 and fiscal 2021. Fiscal 2020 items and discussions of year-to-year comparisons between fiscal 2021 and fiscal 2020 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, 2021 (the "Fiscal 2021 Form 10-K").

Important Information Regarding Forward-Looking Statements

This report (including information incorporated by reference) includes forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. Many forward-looking statements appear in MD&A and Risk Factors, but there are others throughout this report, which may be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “would,” “project,” “continue,” “likely,” and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these risks and uncertainties are described in “Risk Factors” in this report and in Exhibit 99.1 to the Form 10-K included in this report. Forward-looking statements in this report speak only as of the date of this document. Except to the extent required by applicable law, we undertake no obligation to update or revise any forward-looking statement.

Available Information

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 “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 statements, and other information regarding us and other public companies.

Management's Discussion and Analysis of Financial Condition and Results of Operations

About Cardinal Health

Cardinal Health, Inc., an Ohio corporation formed in 1979, is a globally integrated 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. We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. We manage our business and report our financial results in two segments: Pharmaceutical and Medical.

Pharmaceutical Segment

Our Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers 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.

Medical Segment

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 other markets. In addition to distributing Cardinal Health branded products, 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. This segment also distributes medical products to patients' homes in the United States through our Cardinal Health at-Home Solutions division.

Consolidated Results

Fiscal 2022 Overview

Revenue

Revenue for fiscal 2022 was $181.4 billion, a 12 percent increase from the prior year, primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which largely consisted of branded pharmaceutical sales to existing and net new customers.

GAAP and Non-GAAP Operating Earnings/(Loss)

The sum of the components and certain computations may reflect rounding adjustments.

We had a GAAP operating loss of $596 million during fiscal 2022 due to $2.1 billion pre-tax non-cash goodwill impairment charges related to the Medical segment. See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements" for additional detail. 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 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.

GAAP and Non-GAAP Diluted EPS

The sum of the components and certain computations may reflect rounding adjustments.

(1)Diluted earnings/(loss) per share attributable to Cardinal Health, Inc. ("diluted EPS" or "diluted loss per share").

(2)The reconciling items are presented within this table net of tax. See quantification of tax effect of each reconciling item in our GAAP to Non-GAAP Reconciliations in the section titled "Explanation and Reconciliation of Non-GAAP Financial Measures."

(3)For fiscal 2022, GAAP diluted loss per share attributable to Cardinal Health, Inc. and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 279 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the period. Fiscal 2022 non-GAAP diluted EPS is calculated using a weighted average of 280 million common shares, which includes potentially dilutive shares.

(4)Impairments and (gain)/loss on disposals of assets, net includes pre-tax goodwill impairment charges of $2.1 billion related to the Medical segment recorded during fiscal 2022. The net tax benefit related to these charges was $150 million.

(5)Litigation (recoveries)/charges, net, includes a tax benefit recorded during fiscal 2021 related to a net operating loss carryback. Our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and adjusted our taxable income for fiscal 2015, 2016, 2017 and 2018 as permitted under the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. 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. The tax benefit allocated to the separate tax adjustments of $35 million is included in non-GAAP measures.

During fiscal 2022, GAAP diluted EPS was adversely impacted by the goodwill impairment charges related to the Medical segment, which had a $(6.94) per share after-tax impact. See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A, and Note 4 and Note 8 of the "Notes to Consolidated Financial Statements" for additional detail.

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 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.

During fiscal 2022, non-GAAP diluted EPS decreased 9 percent to $5.06 due to factors impacting non-GAAP operating earnings, partially offset by a lower share count as a result of share repurchases.

Cash and Equivalents

Our cash and equivalents balance was $4.7 billion at June 30, 2022 compared to $3.4 billion at June 30, 2021. 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.

We also received proceeds of $923 million, net of cash transferred, from the divestiture of the Cordis business, and we deployed $1.0 billion for share repurchases, $885 million for debt repayments, $559 million for dividends and $387 million for capital expenditures.

Significant Developments in Fiscal 2022 and Trends

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.

In February 2022, the Distributors announced that each company had determined that a sufficient number of states and political subdivisions had agreed to participate in the National Settlement to proceed to effectiveness of that settlement. The Settlement Agreement became effective on April 2, 2022.

Parties to the National Settlement include 46 out of 49 eligible states as well as the District of Columbia and all eligible territories. As of August 9, 2022, over 99 percent of eligible political subdivisions (as calculated by population under the Settlement Agreement) that had brought opioid-related suits against the companies have joined the settlement or otherwise had their claims addressed by state legislation.

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.

The Settlement Agreement also includes injunctive relief terms related to distributors’ controlled substance anti-diversion programs, including with respect to: (1) governance; (2) independence and training of the personnel operating controlled substances monitoring programs; (3) due diligence for new and existing customers; (4) ordering limits for certain products; and (5) suspicious order monitoring. A monitor will oversee compliance with these provisions for a period of five years. In addition, the Distributors will engage a third-party vendor to act as a clearinghouse for data aggregation and reporting, which the Distributors will fund for ten years.

During fiscal 2022, we made our first annual payment under the Settlement Agreement. 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. We have $6.36 billion accrued at June 30, 2022, of which $532 million is included in other accrued liabilities, and the remainder is included in deferred income taxes and other liabilities in our consolidated balance sheets. In July 2022, we made our second annual payment of $374 million under the Settlement Agreement.

Other Settlements

West Virginia subdivisions and Native American tribes are not a part of the National Settlement and we had separate negotiations with these groups. A bench trial before a federal judge in West Virginia in a case brought by Cabell County and City of Huntington against the Distributors concluded in July 2021. 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. Under this agreement, Cardinal Health agreed to pay eligible West Virginia subdivisions up to approximately $124 million over an eleven-year period. 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. This agreement is subject to certain contingencies, including the rate of subdivision participation.

In June 2022, the Distributors reached an agreement with the State of Oklahoma to resolve the opioid-related claims of the state and its political subdivisions. Under this agreement, Cardinal Health agreed to pay up to approximately $95 million to the State and its participating

subdivisions. This amount is consistent with the amount that would have been allocated to Oklahoma under the Settlement Agreement. The terms of this agreement are consistent with the terms of the Settlement Agreement. This agreement is subject to certain contingencies, including the rate of subdivision participation. If this agreement and the Washington agreement are finalized, Oklahoma and Washington would be subject to the Settlement Agreement and 48 of 49 eligible states would then be subject to the Settlement Agreement.

In addition to the lawsuits and claims brought by states and governmental entities, described above, we are involved in other opioid-related litigation and investigations, which are described further in Note 7 of the “Notes to Consolidated Financial Statements.”

Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

Inflationary Impacts and Global Supply Chain Constraints

Medical segment profit was significantly negatively affected by inflationary impacts, primarily related to transportation (including ocean and domestic freight), commodities, labor, and global supply chain constraints in fiscal 2022.

We expect these inflationary impacts and global supply chain constraints to continue to adversely impact Medical segment profit in fiscal 2023 and beyond. In order to partially mitigate this impact, we have implemented initial phases of price increases and we intend to implement additional price increases. We are also evolving our commercial contracting processes to provide us with greater pricing flexibility and investing in additional supply chain capacity. These increased costs and global supply chain constraints are difficult to predict and may be greater than we expect or continue longer than our current expectations. In the event these costs decrease, the benefit to Medical segment profit will be delayed until the higher-cost inventory has moved through our supply chain. Our plans to increase prices and evolve our contracting strategies are subject to contingencies and uncertainties and it is possible that our results of operations will be adversely impacted to a greater extent than we currently anticipate.

To a lesser extent, inflationary impacts, primarily related to increased transportation and labor costs, also adversely impacted Pharmaceutical segment profit during fiscal 2022. We expect these inflationary costs to continue to adversely impact Pharmaceutical segment profit in fiscal 2023.

PPE Demand and Pricing

Personal protective equipment ("PPE") refers to protective clothing, medical and non-medical grade gloves, face shields, face masks and other equipment designed to protect the wearer from injury or the spread of infection or illness. Demand for PPE has fluctuated during fiscal 2022 and 2021, resulting in variability in sales volumes, inventory levels and costs to manufacture and source these products.

PPE adversely impacted Medical segment profit on a year-over-year basis during fiscal 2022 primarily due to declines in volume and the prior-year positive impact of the timing of PPE cost mitigation efforts (primarily pricing). The demand and pricing for PPE is subject to risks and uncertainties, which may impact Medical segment profit and consolidated operating earnings in fiscal 2023.

The year-over-year comparison was also impacted by an inventory reserve of $197 million, primarily related to certain categories of gloves, which adversely impacted Medical segment profit in fiscal 2021. See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A for additional detail.

Medical Goodwill

Due to the adverse impact on our financial results from, the risks and uncertainties related to inflationary impacts, global supply chain constraints and PPE demand and pricing, and increases in the risk-free interest rate, we performed goodwill impairment testing for the Medical reporting unit within the Medical segment during fiscal 2022. This testing resulted in cumulative pre-tax charges of $2.1 billion, which are included in impairments and (gain)/loss on disposal of assets in our consolidated statements of earnings/(loss). See "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements" for additional detail.

Adverse changes in key assumptions or a significant change in industry or economic trends during fiscal 2023 could result in additional goodwill impairment.

Pharmaceutical Segment Generics Program

The performance of our Pharmaceutical segment generics program positively impacted the year-over-year comparison of Pharmaceutical segment profit in fiscal 2022, which includes improvement in volumes compared to the prior-year period. The Pharmaceutical segment generics program includes, among other things, the impact of generic pharmaceutical product launches, customer volumes, pricing changes and the Red Oak Sourcing, LLC venture ("Red Oak Sourcing") with CVS Health Corporation ("CVS Health"). The frequency, timing, magnitude and profit impact of generic pharmaceutical customer volumes, pricing changes, customer contract renewals, and branded and generic pharmaceutical manufacturer pricing changes all impact Pharmaceutical segment profit and are subject to risks and uncertainties. These risks and uncertainties may impact Pharmaceutical segment profit and consolidated operating earnings in fiscal 2023.

Cordis Divestiture

In August 2021, we sold the Cordis business to Hellman & Friedman for proceeds of $923 million, net of cash transferred, and we retained certain working capital accounts and certain liabilities. Cardinal Health will retain product liability associated with lawsuits and claims related to inferior vena cava ("IVC") filters in the U.S. and Canada, as well as authority for these matters discussed in Note 7 of the "Notes to Consolidated Financial Statements." In connection with the closing, we entered into a Transition Services Agreement ("TSA") with the buyer to provide support functions for a period of up to twenty-four months following the sale. See Note 2 of the "Notes to Consolidated Financial Statements" for additional information.

As anticipated, Medical segment revenue and Medical segment profit were adversely impacted by approximately $700 million and $70 million, respectively, in fiscal 2022 due to the divestiture of the Cordis business. The divestiture also resulted in a decrease in amortization of acquisition-related intangible assets during fiscal 2022. The divestiture of the Cordis business is subject to risks and uncertainties that may further adversely impact Medical segment profit. For example, the TSA period may be extended beyond our current expectations or could have unintended consequences, and the costs associated with the exit or disposal activities and stranded costs could be greater than anticipated.

Results of Operations

Revenue

Fiscal 2022 Compared to Fiscal 2021

Pharmaceutical Segment

Fiscal 2022 Pharmaceutical segment revenue grew by $19.6 billion primarily due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which largely consisted of branded pharmaceutical sales to existing and net new customers.

Medical Segment

Fiscal 2022 Medical segment revenue decreased by $800 million, primarily due to the impact of the divestiture of the Cordis business. Medical segment revenue was also adversely impacted by lower volumes within products and distribution, which was partially offset by sales growth in at-Home Solutions.

Cost of Products Sold

Cost of products sold for fiscal 2022 increased $19.1 billion (12 percent) due to the factors affecting the changes in revenue and gross margin.

Gross Margin

Fiscal 2022 Compared to Fiscal 2021

Fiscal 2022 consolidated gross margin decreased primarily due to the divestiture of the Cordis business and increased costs in the Medical segment due to net inflationary impacts and the adverse impact of global supply chain constraints, partially offset by the performance of our Pharmaceutical segment generics program and an improvement in volumes, primarily in generic and branded pharmaceuticals, compared to the prior-year period. The year-over-year comparison was also favorably impacted by the prior-year inventory reserve recorded in the Medical segment to reduce the carrying value of certain PPE, primarily certain categories of gloves, to net realizable value.

Gross margin rate declined 56 basis points during fiscal 2022 mainly due to changes in overall product mix, primarily driven by increased pharmaceutical distribution branded sales, which have a dilutive impact on our overall gross margin rate. The performance of Medical segment products and distribution, which reflects the divestiture of the Cordis business and increased costs due to net inflationary impacts and the adverse impact of global supply chain constraints, also had an adverse impact on gross margin rate. The year-over-year comparison was favorably impacted by the prior-year inventory reserve recorded in the Medical segment to reduce the carrying value of certain PPE, primarily certain categories of gloves, to net realizable value.

Distribution, Selling, General and Administrative ("SG&A") Expenses

Fiscal 2022 Compared to Fiscal 2021

SG&A expenses increased slightly during fiscal 2022 largely due to inflationary impacts, primarily related to increased transportation and labor costs, increased costs related to investments in information technology infrastructure and higher costs to support sales growth, primarily offset by the impact of the divestiture of the Cordis business.

The year-over-year comparison was also favorably impacted by the prior-year $41 million accrual for our estimated portion of the assessment on prescription opioid medications that were sold or distributed in New York state in calendar year 2017 and 2018 which was recognized during fiscal 2021. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information on the New York Opioid Stewardship Act.

Segment Profit

We evaluate segment performance based on segment profit, among other measures. See Note 13 of the "Notes to Consolidated Financial Statements" for additional information on segment profit.

Fiscal 2022 Compared to Fiscal 2021

Pharmaceutical Segment Profit

Fiscal 2022 Pharmaceutical segment profit increased due to the performance of our generics program, partially offset by increased costs related to investments in information technology infrastructure and inflationary impacts, primarily related to increased transportation and labor costs. Pharmaceutical segment profit was also positively impacted by improvement in volumes, primarily in generic and branded pharmaceuticals, compared to the prior-year period.

Pharmaceutical segment profit includes opioid-related litigation defense and compliance costs, but does not include a one-time contingent attorneys' fee of $18 million recorded in fiscal 2022, which related to the finalization of the Settlement Agreement. Due to the unique nature and significance of the Settlement Agreement, and the one-time, contingent nature of the fee, this fee was included in litigation (recoveries)/charges, net in the consolidated statements of earnings/(loss).

Fiscal 2022 Pharmaceutical segment profit was positively impacted by a $16 million judgment for lost profits related to an ordinary course intellectual property rights claim.

Medical Segment Profit

Fiscal 2022 Medical segment profit decreased largely due to net inflationary impacts (which primarily related to increased transportation and commodities costs, partially offset by price increases), the adverse impact of global supply chain constraints and the divestiture of the Cordis business. The year-over-year comparison of Medical segment profit was also impacted favorably by the prior-year inventory reserve recorded to reduce the carrying value of certain PPE, primarily certain categories of gloves, to net realizable value, and unfavorably by the prior-year net positive impact of PPE sales.

Corporate

The changes in Corporate during fiscal 2022 are due to the factors discussed in the Other Components of Consolidated Operating Earnings/(Loss) section that follows.

Other Components of Consolidated Operating Earnings/(Loss)

In addition to revenue, gross margin, and SG&A expenses discussed previously, consolidated operating earnings/(loss) were impacted by the following:

Restructuring and Employee Severance

In fiscal 2022, restructuring costs were primarily related to the implementation of certain enterprise-wide cost-savings measures, which includes facility exit costs related to decreasing our overall office space, and the divestiture of the Cordis business.

Amortization and Other Acquisition-Related Costs

Amortization of acquisition-related intangible assets was $311 million and $428 million for fiscal 2022 and 2021, respectively. The decrease in amortization of acquisition-related intangible assets was primarily due to the divestiture of the Cordis business.

Impairments and (Gain)/Loss on Disposal of Assets, Net

During fiscal 2022, we recognized $2.1 billion of pre-tax non-cash goodwill impairment charges related to our Medical segment, as discussed further in the "Critical Accounting Policies and Sensitive Accounting Estimates" section of this MD&A and Note 4 of the "Notes to Consolidated Financial Statements."

During fiscal 2021, we recognized a $60 million pre-tax write-down of the assets held for sale from the divestiture of the Cordis business.

Litigation (Recoveries)/Charges, Net

During fiscal 2022 and 2021, we recognized estimated losses and legal defense costs associated with the IVC filter product liability claims of $87 million and $56 million, respectively. See Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2022, we incurred a one-time contingent attorneys' fee of $18 million related to the finalization of the Settlement Agreement resulting in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities. Due to the unique nature and significance of the Settlement Agreement, and the one-time, contingent nature of the fee, this fee was included in litigation (recoveries)/charges, net.

During fiscal 2022 and 2021, we recognized income of $18 million and $112 million, respectively, for recoveries in class action antitrust lawsuits in which we were a class member.

During fiscal 2021, we recognized pre-tax charges of $1.17 billion associated with certain opioid matters. See Significant Developments in Fiscal 2022 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

During fiscal 2021, we recognized a $13 million charge in connection with a civil investigation by the United States Attorney’s Office for the District of Massachusetts related to discounts and rebates offered or provided to certain Specialty Solutions customers, as described further in Note 7 of the "Notes to Consolidated Financial Statements" for additional information.

Other Components of Earnings/(Loss) Before Income Taxes

In addition to the items discussed above, earnings/(loss) before income taxes was impacted by the following:

Other (Income)/Expense, Net

During fiscal 2022, other (income)/expense, net was unfavorable compared to the prior-year period primarily due to a decrease in the value of our deferred compensation plan investments, which offsets fluctuations included within SG&A expenses and is discussed further in Note 9 of the "Notes to Consolidated Financial Statements." The year-over-year comparison was also adversely impacted from net losses on investments in non-marketable equity securities recognized during fiscal 2022 compared to net gains recognized in fiscal 2021.

Interest Expense, Net

Fiscal 2022 interest expense decreased from fiscal 2021 primarily due to less debt outstanding.

Loss On Early Extinguishment of Debt

During fiscal 2022 and 2021, we recognized losses of $10 million and $14 million, respectively, in connection with the redemption and early debt repurchases as described further in Note 6 of the "Notes to Consolidated Financial Statements."

Provision for Income Taxes

Fluctuations in the effective tax rates are primarily due to the impact of the goodwill impairment charges recognized in the Medical segment in fiscal 2022, the opioid litigation accrual recognized in fiscal 2021, as well as the impact of the carryback claim filed in accordance with the CARES Act provision in fiscal year 2021.

A reconciliation of the provision based on the federal statutory income tax rate to our effective income tax rate from continuing operations is as follows (see Note 8 of the "Notes to Consolidated Financial Statements" for additional information):

(1)     The table represents the following: fiscal 2022 is pretax loss with tax expense and fiscal 2021 is pretax income with tax benefit.

(2)     Certain prior year amounts have been reclassified to conform to current year presentation.

(3)    Includes the tax impact of Global Intangible Low-Taxed Income ("GILTI") tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

Fiscal 2022 Compared to Fiscal 2021

During fiscal 2022 and 2021, the effective tax rate was (21.2) percent and (89.7) percent, respectively. Included in the effective tax rate for fiscal 2022 was $150 million of benefit related to the impairment of goodwill within the Medical segment. Included in the effective tax rate for fiscal 2021 was a $424 million benefit from the net operating loss carryback primarily related to a self-insurance pre-tax loss and net tax benefits related to the treatment of the tax impacts of the fiscal 2021 opioid litigation charges.

Tax Effects of Goodwill Impairment Charge

During fiscal 2022, we recognized year-to-date cumulative pre-tax charges of $2.1 billion for goodwill impairment related to the Medical Unit. The net tax benefit related to these charges was $150 million for fiscal 2022.

Tax Effects of Self-Insurance Pre-tax Loss

During fiscal 2021, our wholly-owned insurance subsidiary recorded a self-insurance pre-tax loss in its fiscal 2020 statutory financial statements primarily related to opioid litigation. This self-insurance pre-tax loss, which did not impact our pre-tax consolidated results, was deducted on our fiscal 2020 consolidated federal income tax return and contributed to a significant net operating loss for tax purposes. The net operating loss was carried back and applied to adjust our taxable income for fiscal 2015, 2016, 2017, and 2018 as permitted under the CARES Act enacted by the United States Congress in March 2020.

Accordingly, our provision for income taxes during fiscal 2021 included a $424 million benefit from the net operating loss carryback primarily to reflect the difference between the federal statutory income tax rate during the fiscal years from 2015 to 2018 (35 percent for fiscal 2015, 2016, and 2017 and 28 percent for fiscal 2018) and the current federal statutory income tax rate of 21 percent.

During fiscal 2022, we received a U.S. federal income tax refund of $966 million in connection with this matter. We also increased our non-current deferred tax liability by approximately $700 million during fiscal 2021 related to this matter.

Tax Effect of Opioid Litigation Charges

The net tax benefits associated with the opioid litigation charges were $228 million for fiscal 2021. Our tax benefits are estimates, which reflect our current assessment of the estimated future deductibility of the amount that may be paid under the accrual taken in connection with the opioid litigation and are net of unrecognized tax benefits of $219 million. The fiscal 2021 net tax benefit and unrecognized tax benefits were primarily due to our assessment of the specific terms of the Settlement Agreement. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment and the actual amount of tax benefit may differ materially from these estimates.

Ongoing Audits

We file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and various foreign jurisdictions. With few exceptions, we are subject to audit by taxing authorities for fiscal years 2015 through the current fiscal year. Tax laws are complex and subject to varying interpretations. New challenges related to future audits may adversely affect our effective tax rate or tax payments.

Liquidity and Capital Resources

We currently believe that, based on available capital resources (cash on hand and committed credit facilities) and projected operating cash flow, we have adequate capital resources to fund working capital needs; currently anticipated capital expenditures; currently anticipated business growth and expansion; contractual obligations and cash requirements; tax payments; current and projected debt service requirements, dividends and share repurchases; and known opioid litigation settlement payments. If we decide to engage in one or more acquisitions, depending on the size and timing of such transactions, we may need to access capital markets for additional financing.

Cash and Equivalents

Our cash and equivalents balance was $4.7 billion at June 30, 2022 compared to $3.4 billion at June 30, 2021. 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 and we expect some of this favorability to be offset in fiscal 2023. We also received proceeds of $923 million, net of cash transferred, from the divestiture of the Cordis business. We deployed $1.0 billion for share repurchases, $885 million for debt repayments, $559 million for dividends and $387 million for capital expenditures. At June 30, 2022, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

During fiscal 2021, our cash and equivalents increased due to $2.4 billion of net cash provided by operating activities, offset by cash deployed of $573 million for dividends, $570 million for debt repayments, $400 million for capital expenditures and $200 million for share repurchases.

Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer payments, inventory purchases, payments to vendors and tax payments in the regular course of business, as well as fluctuating working capital needs driven by customer and product mix.

The cash and equivalents balance at June 30, 2022 included $588 million of cash and equivalents held by subsidiaries outside of the United States.

In June 2022, we returned $160 million of cash held by foreign subsidiaries to the U.S.

At June 30, 2022, foreign earnings of approximately $833 million are considered indefinitely reinvested for working capital and other offshore investment needs. The computation of tax required if those earnings are repatriated is not practicable. For amounts not considered indefinitely reinvested, we have recorded an immaterial amount of income tax expense in our consolidated financial statements in fiscal 2022.

Other Financing Arrangements and Financial Instruments

Credit Facilities and Commercial Paper

In addition to cash and equivalents and operating cash flow, other sources of liquidity at June 30, 2022 include a $2.0 billion commercial paper program, backed by a $2.0 billion revolving credit facility. We also have a $1.0 billion committed receivables sales facility. At June 30, 2022, we had no amounts outstanding under our commercial paper program, revolving credit facility or our committed receivables sales facility. During fiscal 2022, under our commercial paper program and our committed receivables program, we had maximum combined total daily amounts outstanding of $1.2 billion and an average combined daily amount outstanding of $19 million.

In May 2022, we amended our receivables sales facility to temporarily increase the maximum permitted delinquency ratio.

Our revolving credit and committed receivables sales facilities require us to maintain a consolidated net leverage ratio of no more

than 3.75-to-1. As of June 30, 2022, we were in compliance with this financial covenant.

Long-Term Obligations

At June 30, 2022, we had total long-term obligations, including the current portion and other short-term borrowings of $5.3 billion.

During fiscal 2022, we redeemed all outstanding $572 million principal amount of 2.616% Notes due 2022 at a redemption price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes. In connection with this redemption, we recorded a $10 million loss on early extinguishment of debt. We also repaid the full principal of the $282 million Floating Rate Notes due 2022 as they became due.

During fiscal 2021, we redeemed all outstanding 3.2% Notes due June 2022 for $238 million and $262 million aggregate principal amount of 2.616% Notes due June 2022 at a redemption price equal to 100% of the principal amount and accrued but unpaid interest, plus the make-whole premium applicable to the notes. In connection with these redemptions, we recorded a $13 million loss on early extinguishment of debt. We also early repurchased $40 million of the Floating Rate Notes due 2022 and $2 million of the 2.616% Notes due 2022 with available cash. In connection with the early debt repurchases, we recorded a $1 million loss on early extinguishment of debt.

The redemption and repurchases were paid for with available cash and other short-term borrowings.

Risk Management

We use interest rate swaps, foreign currency contracts and commodity contracts to manage our exposure to cash flow variability. We also use interest rate swaps to protect the value of our debt and use foreign currency forward contracts to protect the value of our existing and forecasted foreign currency assets and liabilities. See the "Quantitative and Qualitative Disclosures About Market Risk" section as well as Note 1 and Note 10 of the “Notes to Consolidated Financial Statements” for information regarding the use of financial instruments and derivatives as well as foreign currency, interest rate and commodity exposures.

Capital Deployment

Opioid Litigation Settlement Agreement

We had $6.36 billion accrued at June 30, 2022 related to certain opioid litigation, as further described within the Significant Developments in Fiscal 2022 and Trends section in this MD&A and Note 7 of the "Notes to Consolidated Financial Statements." We expect the majority of the payment amounts to be spread over 18 years. During fiscal 2022, we paid our first annual payment under the Settlement Agreement. We also made certain payments under the separate New York, Ohio and Rhode Island settlements, as well as certain payments under the Cherokee Nation Settlement. The effective date of the Settlement Agreement was April 2, 2022. In July 2022, we made our second annual payment of $374 million under the Settlement Agreement. We expect to make subsequent annual payments under the Settlement Agreement every July for the term of the Settlement Agreement. The amounts of these future payments may differ from the payments that we have already made.

Capital Expenditures

Capital expenditures during fiscal 2022 and 2021 were $387 million and $400 million, respectively.

We expect capital expenditures in fiscal 2023 to be around $500 million and to be primarily related to manufacturing and distribution infrastructure projects.

Dividends

During fiscal 2022, we paid quarterly dividends totaling $1.96 per share, an increase of 1 percent from fiscal 2021.

On May 10, 2022, our Board of Directors approved a quarterly dividend of $0.4957 per share, or $1.98 per share on an annualized basis, which was paid on July 15, 2022 to shareholders of record on July 1, 2022.

On August 10, 2022, our Board of Directors approved a quarterly dividend of $0.4957 per share, payable on October 15, 2022 to shareholders of record on October 3, 2022.

Share Repurchases

During fiscal 2022 and 2021, we repurchased $1.0 billion and $200 million, respectively, of our common shares. We funded the repurchases with available cash. See Note 11 of the "Notes to Consolidated Financial Statements" for additional information.

At June 30, 2021, we had $743 million authorized for share repurchases remaining on a program that expired on December 31, 2021. On November 4, 2021, our Board of Directors approved a $3.0 billion share repurchase program, which will expire on December 31, 2024. At June 30, 2022, we had $2.7 billion remaining authorized for share repurchases under this program.

Contractual Obligations and Cash Requirements

At June 30, 2022, our contractual obligations and future cash requirements, including estimated payments due by period, were as follows:

(1)Represents maturities of our long-term debt obligations and other short-term borrowings excluding finance lease obligations described below. See Note 6 of the “Notes to Consolidated Financial Statements” for further information.

(2)Represents minimum finance lease obligations included within current portion of long-term obligations and other short-term borrowings and long-term obligations, less current portion in our consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(3)Represents minimum operating lease obligations included within other accrued liabilities and deferred income taxes and other liabilities in our consolidated balance sheets and further described in Note 5 of the “Notes to Consolidated Financial Statements.”

(4)A purchase obligation is defined as an agreement to purchase goods or services that is legally enforceable and specifies all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or

variable price provisions; and approximate timing of the transaction. The purchase obligation amounts disclosed above represent estimates of the minimum for which we are obligated and the time period in which cash outflows will occur. Purchase orders and authorizations to purchase that involve no firm commitment from either party are excluded from the above table. In addition, contracts that can be unilaterally canceled with no termination fee or with proper notice are excluded from our total purchase obligations except for the amount of the termination fee or the minimum amount of goods that must be purchased during the requisite notice period. Purchase obligations and other payments also includes quarterly payments to CVS Health in connection with Red Oak Sourcing. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information.

(5)Represents future cash obligations under the Settlement Agreement, which became effective on April 2, 2022, as well as future cash obligations under the separate settlement agreements with the States of Oklahoma, Washington and West Virginia and the Cherokee Nation. We have $6.36 billion accrued at June 30, 2022, of which $532 million is included in other accrued liabilities, and the remainder is included in deferred income taxes and other liabilities in our consolidated balance sheets. Excluded from the table is $41 million that remained in escrow at June 30, 2022, which is included in prepaid expenses and other assets in our consolidated balance sheets. 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, the conditions of the state agreements being satisfied, and the extent to which additional political subdivisions in participating states continue to litigate against us. See Note 7 of the “Notes to Consolidated Financial Statements” for additional information.

(6)Long-term liabilities, such as unrecognized tax benefits, deferred taxes and other tax liabilities, have been excluded from the above table due to the inherent uncertainty of the underlying tax positions or because of the inability to reasonably estimate the timing of any cash outflows. See Note 8 of the "Notes to Consolidated Financial Statements" for further discussion of income taxes.

Recent Financial Accounting Standards

See Note 1 of the “Notes to Consolidated Financial Statements” for a discussion of recent financial accounting standards.

Critical Accounting Policies and Sensitive Accounting Estimates

Critical accounting policies are those accounting policies that (i) can have a significant impact on our financial condition and results of operations and (ii) require the use of complex and subjective estimates based upon past experience and management’s judgment. Other people applying reasonable judgment to the same facts and circumstances could develop different estimates. Because estimates are inherently uncertain, actual results may differ. In this section, we describe the significant policies applied in preparing our consolidated financial statements that management believes are the most dependent on estimates and assumptions. For further discussion of accounting policies for items within this section and of additional accounting policies, see Note 1 of the “Notes to Consolidated Financial Statements.”

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes general and specific reserves. We determine our allowance for doubtful accounts by reviewing accounts receivable aging, historical write-off trends, payment history, pricing discrepancies, industry trends, customer financial strength, customer credit ratings or bankruptcies. We regularly evaluate how changes in economic conditions may affect credit risks. See Note 1 of the “Notes to Consolidated Financial Statements” for further information on our policy for Receivables and Allowance for Doubtful Accounts.

A hypothetical 0.1 percent increase or decrease in the reserve as a percentage of trade receivables at June 30, 2022, would result in an increase or decrease in bad debt expense of $11 million. We believe the reserve maintained and expenses recorded in fiscal 2022 are appropriate.

At this time, we are not aware of any analytical findings or customer issues that are likely to lead to a significant future

increase in the allowance for doubtful accounts as a percentage of revenue. The following table presents information regarding our allowance for doubtful accounts over the past three fiscal years:

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

Inventories

LIFO Inventory

A portion of our inventories (52 percent and 50 percent at June 30, 2022 and 2021, respectively) are valued at the lower of cost, using the last-in, first-out ("LIFO") method, or market. These are primarily merchandise inventories at the core pharmaceutical distribution facilities within our Pharmaceutical segment (“distribution facilities”). The LIFO impact on the consolidated statements of earnings/(loss) depends on pharmaceutical manufacturer price appreciation or deflation and our fiscal year-end inventory levels, which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end. Historically, prices for branded pharmaceuticals have generally tended to rise, resulting in an increase in cost of products sold, whereas prices for generic pharmaceuticals generally tend to decline, resulting in a decrease in cost of products sold. See Note 1 of the “Notes to Consolidated Financial Statements” for further information on our policy for Inventories.

Using LIFO, if there is a decrease in inventory levels that have experienced pharmaceutical price appreciation, the result generally will be a decrease in future cost of products sold as our older inventory is held at a lower cost. Conversely, if there is a decrease in inventory levels that have experienced a pharmaceutical price decline, the result generally will be an

increase in future cost of products sold as our older inventory is held at a higher cost.

We believe that the average cost method of inventory valuation provides a reasonable approximation of the current cost of replacing inventory within these distribution facilities. As such, the LIFO reserve is the difference between (a) inventory at the lower of LIFO cost or market and (b) inventory at replacement cost determined using the average cost method of inventory valuation. At June 30, 2022 and 2021, respectively, inventories valued at LIFO cost were $416 million and $565 million higher than the average cost value. We do not record inventories in excess of replacement cost. As such, we did not write-up the value of our inventory from average cost to LIFO cost at June 30, 2022 or 2021.

FIFO Inventory

Our remaining inventory, including inventory in our Medical segment, that is not valued at the lower of LIFO cost or market is stated at the lower of cost, using the first-in, first-out ("FIFO") method, or net realizable value. We reserve for the lower of cost or net realizable value using the estimated selling prices and estimated sales demand in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Due to the unprecedented demand for certain PPE

as a result of the COVID-19 pandemic ("COVID-19") in fiscal 2021 and 2020, our Medical segment manufactured and sourced inventory at higher costs than in periods prior to COVID-19. As selling prices and customer demand decreased compared to the peak of COVID-19, we recorded a reserve of $197 million in fiscal 2021, primarily related to certain categories of gloves, to reduce the carrying value of certain PPE to its net realizable value. The remaining reserve at June 30, 2022 was $42 million, primarily due to sales of certain PPE during fiscal 2022. Our estimates for selling prices and demand are inherently uncertain and if our assumptions decline in the future, additional inventory reserves may be required.

Excess and Obsolete Inventory

We reserve for inventory obsolescence using estimates based on historical experience, historical and projected sales trends, specific categories of inventory, age and expiration dates of on-hand inventory and manufacturer return policies. Inventories presented in the consolidated balance sheets are net of reserves for excess and obsolete inventory which were $147 million and $185 million at June 30, 2022 and 2021, respectively. If actual conditions are less favorable than our assumptions, additional inventory reserves may be required.

Goodwill and Other Indefinite-Lived Intangible Assets

Purchased goodwill and intangible assets with indefinite lives are tested for impairment annually or when indicators of impairment exist. Goodwill impairment testing involves a comparison of the estimated fair value of reporting units to the respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. Qualitative factors are first assessed to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. There is an option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test. We have elected to bypass the qualitative assessment for the annual goodwill impairment test in the current year. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment (also known as a component).

We have two operating segments, which are the same as our reportable segments: Pharmaceutical and Medical. These operating segments are comprised of divisions (which are components), for which discrete financial information is available. Components are aggregated into reporting units for purposes of goodwill impairment testing to the extent that they share similar economic characteristics. Our reporting units are: Pharmaceutical operating segment (excluding our Nuclear and Precision Health Solutions division); Nuclear and Precision Health Solutions division; Medical operating segment (excluding our Cardinal Health at-Home Solutions division) (“Medical Unit”); and Cardinal Health at-Home Solutions division.

Goodwill impairment testing involves judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists and, if necessary, the estimation of the fair value of the applicable reporting unit.

Our determination of estimated fair value of our reporting units is based on a combination of the income-based and market-based approaches (using discount rates ranging from 10 to 12 percent). We use discount rates that are commensurate with the risks and uncertainty inherent in the respective reporting units and in our

internally-developed forecasts. Under the market-based guideline public company method, we determine fair value by comparing our reporting units to similar businesses or guideline companies whose securities are actively traded in public markets. We also use the market-based guideline transaction method to determine fair value based on pricing multiples derived from the sale of companies that are similar to our reporting units.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. The use of alternate estimates and assumptions, changes in the industry or peer groups, or changes in weightings assigned to the discounted cash flow method, guideline public company method or guideline transaction method could materially affect the determination of fair value for each reporting unit and potentially result in goodwill impairment. If a reporting unit fails to achieve expected earnings or operating cash flow, or otherwise fails to meet current financial plans, or if there were changes to any other key assumptions used in the tests, the reporting unit could incur a goodwill impairment in a future period.

We performed annual impairment testing in fiscal 2022, 2021 and 2020 and, with the exception of the Medical Unit in fiscal 2022, concluded that there were no impairments of goodwill as the estimated fair value of each reporting unit exceeded its carrying value.

Medical Unit Goodwill

During fiscal 2022, the Medical Unit experienced adverse financial results related to inflationary impacts and the adverse impact of global supply chain constraints and lower volumes from PPE. Due to the risks and uncertainties related to these impacts and an increase in the risk-free interest rate used in the discount rate, we elected to bypass the qualitative assessment and perform quantitative goodwill impairment testing for the Medical Unit at June 30, 2022. This quantitative testing resulted in the carrying amount of the Medical Unit exceeding the fair value, resulting in a pre-tax impairment charge of $303 million and cumulative pre-tax impairment charges of $2.1 billion recognized during fiscal 2022, due to the impairment charges recognized during the third and second quarters of fiscal 2022 as described further below. This