CARDINAL HEALTH INC - Quarter Report: 2019 December (Form 10-Q)



Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 1-11373

Cardinal Health, Inc.

(Exact name of registrant as specified in its charter)



Ohio					31-0958666
(State or other jurisdiction of incorporation or organization)					(IRS Employer Identification No.)

7000 Cardinal Place	,	Dublin	,	Ohio	43017
(Address of principal executive offices)					(Zip Code)

				(614)	757-5000
(Registrant’s telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares (without par value)	CAH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of the registrant’s common shares, without par value, outstanding as of January 31, 2020, was the following: 291,783,533.

Cardinal Health

Q2 Fiscal 2020 Form 10-Q

Table of Contents



	Page
Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Explanation and Reconciliation of Non-GAAP Financial Measures	16
Quantitative and Qualitative Disclosures about Market Risk	21
Controls and Procedures	21
Legal Proceedings	21
Risk Factors	21
Unregistered Sales of Equity Securities and Use of Proceeds	23
Financial Statements	24
Exhibits	43
Form 10-Q Cross Reference Index	44
Signatures	45

About Cardinal Health

Cardinal Health, Inc. is an Ohio corporation formed in 1979 and is a globally integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. We provide medical products and pharmaceuticals 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. As used in this report, “we,” “our,” “us,” and similar pronouns refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires otherwise. Our fiscal year ends on June 30. References to fiscal 2020 and fiscal 2019 are to the fiscal years ending or ended June 30, 2020 and June 30, 2019, respectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 (this "Form 10-Q") (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 Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), but there are others in this Form 10-Q, 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, trends 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 made, projected or implied. The most significant of these risks and uncertainties are described in Exhibit 99.1 to this Form 10-Q and in "Risk Factors" in this form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (our “2019 Form 10-K”). Forward-looking statements in this Form 10-Q 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.

Non-GAAP Financial Measures

In the "Overview of Consolidated Results" section of MD&A, we use financial measures that are derived from our consolidated financial data but are not presented in our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). These measures are considered "non-GAAP financial measures" under the United States Securities and Exchange Commission ("SEC") rules. The reasons we use these non-GAAP financial measures and the reconciliations to their most directly comparable GAAP financial measures are included in the “Explanation and Reconciliation of Non-GAAP Financial Measures” section following MD&A in this Form 10-Q.




1	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Overview

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

The discussion and analysis presented below is concerned with material changes in financial condition and results of operations between the periods specified in our condensed consolidated balance sheets at December 31, 2019 and June 30, 2019, and in our condensed consolidated statements of earnings/(loss) for the three and six months ended December 31, 2019 and 2018. All comparisons presented are with respect to the prior-year period, unless stated otherwise. This discussion and analysis should be read in conjunction with the MD&A included in our 2019 Form 10-K.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	2



MD&A	Overview

Overview of Consolidated Results

Revenue

During the three and six months ended December 31, 2019, revenue increased 5 percent to $39.7 billion and 6 percent to $77.1 billion, respectively, primarily due to sales growth from pharmaceutical distribution and specialty solutions customers.

GAAP and Non-GAAP Operating Earnings/(Loss)



	Three Months Ended December 31,								Six Months Ended December 31,
(in millions)	2019			2018			Change		2019			2018			Change
GAAP operating earnings/(loss)	$	334		$	504		(34	)%	$	(4,930	)	$	1,320		N.M
Surgical gown recall costs	96			—					96			—
State opioid assessment related to prior fiscal years	(1		)	(29		)			4			—
Restructuring and employee severance	56			12					86			44
Amortization and other acquisition-related costs	133			157					265			314
Impairments and (gain)/loss on disposal of assets	7			8					8			(503		)
Litigation (recoveries)/charges, net	21			(15		)			5,694			3
Non-GAAP operating earnings	$	646		$	637		1	%	$	1,223		$	1,178		4	%

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

GAAP operating earnings during the three months ended December 31, 2019 were unfavorably impacted by a $96 million charge in connection with a voluntary recall for Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and a voluntary recall and field actions for surgical procedure packs containing affected gowns, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements." Also contributing to the decrease in GAAP operating earnings during the three months ended were restructuring costs mainly as a result of certain enterprise-wide cost-saving initiatives and the adverse impact of Pharmaceutical segment customer contract renewals.

The decrease in GAAP operating earnings during the six months ended December 31, 2019 was primarily due to a $5.63 billion pre-tax charge we recognized 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. As described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements", in October 2019, we agreed in principle to a global settlement framework with a leadership group of four state attorneys general that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions. GAAP operating earnings during the six months ended December 31, 2018 were favorably impacted by a $508 million pre-tax gain from the divestiture of our naviHealth Holdings, LLC ("naviHealth") business.

Non-GAAP operating earnings during the three months ended December 31, 2019 were essentially flat due to the performance of our Pharmaceutical segment generics program offset by the adverse impact of Pharmaceutical segment customer contract renewals.




3	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Overview

The increase in non-GAAP operating earnings during the six months ended December 31, 2019 was primarily due to the beneficial impact of enterprise-wide cost-savings measures, growth from specialty solutions and the performance of our Pharmaceutical segment generics program. These positive factors were partially offset by the adverse impact of Pharmaceutical segment customer contract renewals.

GAAP and Non-GAAP Diluted EPS



	Three Months Ended December 31,								Six Months Ended December 31,
($ per share)	2019 ⁽²⁾			2018 ⁽²⁾			Change		2019 ^{(2) (3)}			2018⁽²⁾			Change
GAAP diluted EPS ⁽¹⁾	$	0.75		$	0.93		(19	)%	$	(15.99	)	$	2.88		N.M
Surgical gown recall costs	0.24			—					0.24			—
State opioid assessment related to prior fiscal years	—			(0.07		)			0.01			—
Restructuring and employee severance	0.14			0.03					0.22			0.11
Amortization and other acquisition-related costs	0.34			0.40					0.67			0.79
Impairments and (gain)/loss on disposal of assets	0.02			0.02					0.02			(1.22		)
Litigation (recoveries)/charges, net	0.06			(0.04		)			17.66			0.01
Loss on extinguishment of debt	0.01			—					0.01			—
Transitional tax benefit, net	(0.04		)	0.01					(0.04		)	0.01
Non-GAAP diluted EPS ⁽¹⁾	$	1.52		$	1.29		18	%	$	2.80		$	2.58		9	%

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


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


(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 "Explanation and Reconciliation of Non-GAAP Financial Measures."

(3)

For the six months ended December 31, 2019, GAAP diluted loss per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 294 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. Year-to-date fiscal 2020 non-GAAP diluted EPS is calculated using a weighted average of 295 million common shares, which includes potentially dilutive shares.

During the three months ended December 31, 2019, GAAP diluted earnings per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") decreased primarily due to factors discussed above impacting GAAP operating earnings, partially offset by a lower effective tax rate due to favorable changes in jurisdictional mix and discrete tax items.

During the six months ended December 31, 2019, we had a $(15.99) GAAP diluted loss per share due to the charge we recognized 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. The charge had a $(17.49) per share after tax impact on GAAP diluted EPS during the six months ended December 31, 2019. GAAP diluted EPS during the six months ended December 31, 2018 was favorably impacted by a $1.25 per share gain from the divestiture of naviHealth.

During the three months ended December 31, 2019, non-GAAP diluted EPS increased 18 percent to $1.52 per share. This increase was primarily due to the factors discussed above impacting non-GAAP operating earnings, a lower effective tax rate due to favorable changes in jurisdictional mix and a lower share count as a result of share repurchases.

During the six months ended December 31, 2019, non-GAAP diluted EPS increased 9 percent to $2.80 per share. This increase was primarily due to the factors discussed above impacting non-GAAP operating earnings, a lower share count as a result of share repurchases and lower interest expense due to less debt outstanding. The year-over-year comparison was unfavorably impacted by the prior-year benefit from discrete tax items, largely related to international legal entity changes.

Cash and Equivalents

Our cash and equivalents balance was $1.7 billion at December 31, 2019 compared to $2.5 billion at June 30, 2019. During the six months ended December 31, 2019, net cash provided by operating activities was $44 million and we deployed $793 million for long-term debt repayments, $350 million for share repurchases, and $287 million for cash dividends. At December 31, 2019, we had $458 million outstanding under our commercial paper program and $225 million outstanding under our committed receivables sales facility.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	4



MD&A	Overview

Significant Developments in Fiscal 2020 and Trends

Opioid Lawsuits Development

In October 2019, we agreed in principle to a global settlement framework with a leadership group of state attorneys general that is designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions (the "Settlement Framework"). This Settlement Framework is subject to contingencies and uncertainties as to final terms, but is the basis for our negotiation of definitive terms and documentation. The Settlement Framework includes (1) a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years, (2) development and participation in a program for free or rebated distribution of opioid abuse treatment medications for a period of ten years, and (3) industry-wide changes to be specified to controlled substance anti-diversion programs. In order to continue working on the Settlement Framework, we also agreed, with two other national distributors, to a $215 million settlement with two plaintiffs counties of a trial that had been scheduled for October 2019; our portion of that settlement is $66 million, which was paid in January 2020.

In connection with these matters, we recorded a total pre-tax charge of $5.63 billion ($5.14 billion after tax) during the six months ended December 31, 2019 in litigation (recoveries)/charges, net, in the condensed consolidated statement of earnings for the cash component. We accrue for contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. Final terms of a settlement under the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. We will regularly review these opioid litigation matters to determine whether our accrual is adequate. We are unable to reasonably estimate the liability associated with any potential distribution of treatment medications and any incremental costs for changes to our controlled substance anti-diversion program that we may agree to under the Settlement Framework. The amount of ultimate loss may differ materially from this accrual. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for additional information.

Also in connection with these matters, we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, during the six months ended December 31, 2019, reflecting our current assessment of the estimated future deductibility of the amount that may be paid under the $5.63 billion accrual taken in connection with the opioid litigation. 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. Our assumptions and estimates around this benefit and uncertain tax position require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act (“Tax Act”). We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act which is subject to further interpretation by the U.S. Internal Revenue Service ("IRS"). Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the “Notes to the Condensed Consolidated Financial Statements” for additional information.

Surgical Gown Recalls

In January, 2020, we issued a voluntary recall for 9.1 million AAMI Level 3 surgical gowns and two voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for 2.9 million Presource Procedure Packs containing affected gowns (together, the "Recalls"). These Recalls were necessary because we discovered in December 2019 that one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved sites with uncontrolled environments. Because of this, we could not assure sterility of the gowns.

In connection with these Recalls, in the three months ended December 31, 2019, we recorded a total charge of $96 million, of which $56 million is within cost of products sold and $40 million is within SG&A in the condensed consolidated statements of earnings. This charge represents our best estimate of costs for the Recalls and include inventory write-off costs and certain remediation and supply disruption costs, such as costs to replace recalled products. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The amount of ultimate loss may differ materially from this accrual. This charge, and any future increases or adjustments, will be excluded from our non-GAAP results and the results of our Medical segment. See Note 7 of the "Notes to Condensed Consolidated Financial Statements" for additional information.




5	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Overview

In addition to the charge for the three months ended December 31, 2019, we expect that the Recalls will have other negative impacts, which could include: government investigations and enforcement actions by the U.S. Food and Drug Administration or other regulators or U.S. or international governmental bodies (possibly resulting in product seizures, additional recalls, the issuance of safety alerts, the suspension or revocation of the authority to produce, distribute and sell products and other civil or criminal sanctions); losses due to patient claims, including product liability claims and lawsuits; and customer claims unrelated to their direct costs from the supply chain disruption.

Additionally, these surgical gowns and procedure packs are used in surgeries throughout the United States and internationally. Due to quality standards, it is challenging to quickly establish additional or replacement suppliers. These Recalls are expected to result in sustained supply reductions and market shortages. We understand that, due to these supply shortages, surgeries have been delayed or canceled, and we expect that additional surgeries will be delayed or canceled over a period of several weeks or months. This and other aspects of the Recalls could result in reputational harm and loss of customers and sales.

Trends

Within our Pharmaceutical segment, segment profit increased during the six months ended December 31, 2019 compared to the prior-year period due, in part, to performance from our generics program, while for the past two fiscal years, Pharmaceutical segment profit had decreases compared to the prior year due, in part, to performance from our generics program. As is generally the case, the frequency, timing, magnitude and profit impact of generic pharmaceutical customer and manufacturer pricing changes remain uncertain and their impact on Pharmaceutical segment profit and consolidated operating earnings in fiscal 2020 could be more or less than we expect.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	6



MD&A	Results of Operations

Results of Operations

Revenue



	Three Months Ended December 31,								Six Months Ended December 31,
(in millions)	2019			2018			Change		2019			2018			Change
Pharmaceutical	$	35,714		$	33,740		6	%	$	69,142		$	65,155		6	%
Medical	4,023			4,006			—	%	7,940			7,807			2	%
Total segment revenue	39,737			37,746			5	%	77,082			72,962			6	%
Corporate	(2		)	(6		)	N.M		(6		)	(9		)	N.M
Total revenue	$	39,735		$	37,740		5	%	$	77,076		$	72,953		6	%

Pharmaceutical Segment

Pharmaceutical segment revenue growth was primarily due to sales growth from pharmaceutical distribution and specialty solutions customers, which together increased revenue by $2.0 billion and $4.0 billion during the three and six months ended December 31, 2019, respectively.

Medical Segment

Medical segment revenue was essentially flat during the three months ended December 31, 2019 with sales growth from Cardinal Health at-Home Solutions offset by lower sales from products and distribution.

Medical segment revenue increased slightly during the six months ended December 31, 2019 primarily due to sales growth from Cardinal Health at-Home Solutions and products and distribution. The increase was partially offset by the divestiture of naviHealth in the prior year.

Cost of Products Sold

Cost of products sold for the three and six months ended December 31, 2019 increased $2.0 billion (6 percent) and $4.1 billion (6 percent) compared to the respective prior-year periods as a result of the factors affecting the changes in revenue and gross margin.




7	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Results of Operations

Gross Margin



	Three Months Ended December 31,						Six Months Ended December 31,
(in millions)	2019		2018		Change		2019		2018		Change
Gross margin	$	1,714	$	1,730	(1	)%	$	3,393	$	3,397	—	%

Gross margin was essentially flat versus prior-year periods during both the three and six months ended December 31, 2019.

Gross margin rate declined 27 basis points during the three months ended December 31, 2019 mainly due to a $56 million charge in connection with the Recalls, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, the adverse impact of pharmaceutical customer contract renewals, and changes in pharmaceutical distribution product mix, partially offset by the performance of our Pharmaceutical segment generics program.

Gross margin rate declined 26 basis points during the six months ended December 31, 2019 mainly due to the adverse impact of pharmaceutical customer contract renewals, the $56 million charge in connection with the Recalls, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, and changes in pharmaceutical distribution product mix.

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



	Three Months Ended December 31,						Six Months Ended December 31,
(in millions)	2019		2018		Change		2019		2018		Change
SG&A expenses	$	1,163	$	1,064	9	%	$	2,270	$	2,219	2	%

During the three months ended December 31, 2019, SG&A expenses increased primarily due to a $40 million charge in connection with the Recalls as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, higher costs to support sales growth and fluctuations in deferred compensation liabilities, partially offset by the beneficial impact of enterprise-wide cost saving measures. During the three months ended December 31, 2018, SG&A expenses benefited from the reversal of the $34 million that we accrued in the first quarter of fiscal 2019 for the New York Opioid Stewardship Act assessment for opioids sold or distributed in New York state when the New York Opioid Stewardship Act was ruled unconstitutional.

During the six months ended December 31, 2019, SG&A expenses increased slightly due to the higher costs to support the sales growth, the $40 million charge in connection with the Recalls, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, and fluctuations in deferred compensation liabilities, mostly offset by the beneficial impact of enterprise-wide cost saving measures.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	8



MD&A	Results of Operations

Segment Profit

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



	Three Months Ended December 31,								Six Months Ended December 31,
(in millions)	2019			2018			Change		2019			2018		Change
Pharmaceutical	$	462		$	443		4	%	$	860		$	851	1	%
Medical	195			188			4	%	365			323		13	%
Total segment profit	657			631			4	%	1,225			1,174		4	%
Corporate	(323		)	(127		)	154	%	(6,155		)	146		N.M
Total consolidated operating earnings/(loss)	$	334		$	504		(34	)%	$	(4,930	)	$	1,320	N.M

Pharmaceutical Segment Profit

Pharmaceutical segment profit during the three months ended December 31, 2019 increased due to the performance of our generics program and growth from specialty solutions, partially offset by the adverse impact of customer contract renewals.

Pharmaceutical segment profit during the six months ended December 31, 2019 increased slightly due to the beneficial impact of cost-savings measures, growth from specialty solutions and the performance of our generics program, mostly offset by the adverse impact of customer contract renewals.

Medical Segment Profit

Medical segment profit during the three months ended December 31, 2019 increased primarily due to the beneficial impact of cost-savings measures, partially offset by the performance of products and distribution.

Medical segment profit during the six months ended December 31, 2019 increased primarily due to beneficial impact of cost-savings measures.

Medical segment financial results do not include the $96 million charge incurred during the three and six months ended December 31, 2019 in connection with the Recalls, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A.

Corporate

The changes in Corporate during the three and six months ended December 31, 2019 were due to the factors discussed in the Other Components of Consolidated Operating Earnings/(Loss) section that follows. Corporate was also adversely impacted by the $96 million charge incurred during the three and six months ended December 31, 2019 in connection with the Recalls, as described further within the Significant Developments in Fiscal 2020 and Trends section in this MD&A. The Recalls charge is included within Corporate to allow investors to better understand the underlying operating results of the Medical segment and to facilitate comparison of Medical segment current financial results to historical financial results and the results of peers.




9	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Results of Operations

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:



	Three Months Ended December 31,					Six Months Ended December 31,
(in millions)	2019		2018			2019		2018
Restructuring and employee severance	$	56	$	12		$	86	$	44
Amortization and other acquisition-related costs	133		157			265		314
Impairments and (gain)/loss on disposal of assets, net	7		8			8		(503		)
Litigation (recoveries)/charges, net	21		(15		)	5,694		3

Restructuring and Employee Severance

We incurred $42 million and $8 million during the three months ended December 31, 2019 and 2018, respectively, and $62 million and $34 million, during the six months ended December 31, 2019 and 2018, respectively, of expenses in connection with our implementation of certain enterprise-wide cost-saving measures.

Amortization and Other Acquisition-Related Costs

Amortization of acquisition-related intangible assets was $127 million and $133 million for the three months ended December 31, 2019 and 2018, respectively, and $256 million and $266 million for the six months ended December 31, 2019 and 2018, respectively.

Transaction and integration costs associated with the acquisition of the Patient Recovery Business were $3 million and $22 million for the three months ended December 31, 2019 and 2018, respectively, and $4 million and $44 million for the six months ended December 31, 2019 and 2018, respectively.

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

During the six months ended December 31, 2018, we recognized a pre-tax gain of $508 million related to the divestiture of our naviHealth business.

Litigation (Recoveries)/Charges, Net

During the six months ended December 31, 2019, we recognized a pre-tax charge of $5.63 billion ($5.14 billion after tax) associated with the opioid litigation. See Significant Developments in Fiscal 2020 and Trends section in this MD&A for additional information.

The costs we recognized in connection with the IVC filter product liability claims during the three months ended December 31, 2019 and 2018 were $17 million and $32 million, respectively, and $62 million and $45 million during the six months ended December 31, 2019 and 2018, respectively.

Recoveries in class action antitrust lawsuits recognized were $14 million and $47 million for the three months ended December 31, 2019 and 2018, respectively, and $16 million and $47 million for the six months ended December 31, 2019 and 2018, respectively.

Earnings/(Loss) Before Income Taxes

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



	Three Months Ended December 31,							Six Months Ended December 31,
(in millions)	2019			2018		Change		2019		2018		Change
Other (income)/expense, net	$	(12	)	$	21			$	2	$	25
Interest expense, net	63			76		(17	)%	129		152		(15	)%
Loss on extinguishment of debt	4			—		N.M		4		—		N.M

Other (Income)/Expense, Net

During the three and six months ended December 31, 2019, other (income)/expense, net was favorable compared to the respective prior-year periods primarily due to increased returns from investments, which are used to offset fluctuations in deferred compensation liabilities as discussed further in Note 9.

Interest Expense, Net

The decrease in interest expense during the three and six months ended December 31, 2019 was primarily due to less debt outstanding.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	10



MD&A	Results of Operations

Provision for/(Benefit from) Income Taxes

During the three months ended December 31, 2019 and 2018, the effective tax rate was 21.0 percent and 31.0 percent, respectively. The change in the effective tax rate for the three months ended December 31, 2019 compared to the prior period was primarily due to the favorable impact from changes in jurisdictional mix and discrete items recognized in the second quarter of fiscal 2020, largely driven by changes as a result of tax reform.

During the six months ended December 31, 2019 and 2018, the effective tax rate was 7.2 percent and 23.5 percent, respectively. The change in the effective tax rate for the six months ended December 31, 2019 compared to the prior period was primarily due to the net tax benefit of $487 million related to the opioid litigation pre-tax charge of $5.63 billion, as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A.




11	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Liquidity and Capital Resources

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; tax payments; and current and projected debt service requirements, early extinguishment of debt, dividends and share repurchases as well as potential opioid litigation settlement payments associated with the Settlement Framework. 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 $1.7 billion at December 31, 2019 compared to $2.5 billion at June 30, 2019. At December 31, 2019, our cash and equivalents were held in cash depository accounts with major banks or invested in high quality, short-term liquid investments.

During the six months ended December 31, 2019, net cash provided by operating activities was $44 million and we deployed $793 million for long-term debt repayments, $350 million for share repurchases, and $287 million for cash dividends.

Changes in working capital, which impact operating cash flow, can vary significantly depending on factors such as the timing of customer

payments, inventory purchases and payments to vendors 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 December 31, 2019 includes $788 million of cash held by subsidiaries outside of the United States.

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 December 31, 2019 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 December 31, 2019, we had $458 million outstanding under our commercial paper program and $225 million outstanding under committed receivables sales facility. During the six months ended December 31, 2019, we had maximum amounts outstanding under our commercial paper program and our committed receivables program of $960 million and $700 million, respectively. The maximum combined total daily amounts outstanding was $1.2 billion and the average daily amount outstanding was $88 million.

In September 2019, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC (“CHF”) through September 30, 2022. Our revolving credit and committed receivables sales facilities require us to maintain, as of the end of every fiscal quarter through December 2020, a consolidated net leverage ratio of no more than 4.00-to-1. The maximum permitted ratio will reduce to 3.75-to-1 in March 2021 and as of the end of every quarter thereafter. As of December 31, 2019, we were in compliance with this financial covenant.

Long-Term Debt and Other Short-Term Borrowings

At December 31, 2019, we had total long-term obligations, including the current portion and other short-term borrowings, of $7.9 billion. In November 2019, we repaid the full principal of the 2.4% Notes due 2019 at maturity for $450 million. During the six months ended December 31, 2019, we early repurchased $207 million of the 2.616% Notes due 2022, $10 million of the 3.2% Notes due 2022, $14 million of the Floating Rate Notes due 2022, $81 million of the 3.41% Notes due 2027, $6 million of the 4.6% Notes due 2043, $2 million of the 4.9% Notes due 2045, and $21 million of the 4.368% Notes due 2047. The repurchases were paid for with available cash and other short-term borrowings. In connection with the early debt repurchases, we recorded a $4 million loss on extinguishment of debt.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	12



MD&A	Liquidity and Capital Resources

Capital Deployment

Opioid Settlement Framework

In October 2019, we agreed in principle to a Settlement Framework which includes a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years. We currently expect payment amounts under the Settlement Framework to be spread through the 18-year period subject to participation by states and political subdivisions. See Significant Developments in Fiscal 2020 and Trends section in this MD&A for additional information.

Capital Expenditures

Capital expenditures during the six months ended December 31, 2019 and 2018 were $149 million and $116 million, respectively.

Dividends

On each of May 8, 2019, August 7, 2019 and November 6, 2019, our Board of Directors approved a quarterly dividend of $0.4811 per share, or $1.92 per share on an annualized basis, which were paid on July 15, 2019, October 15, 2019 and January 15, 2020, respectively.

Share Repurchases

During the six months ended December 31, 2019, we repurchased $350 million of our common shares under an accelerated share repurchase ("ASR") program. We funded the ASR program with available cash and short-term borrowings. See Note 11 of the "Notes to Condensed Consolidated Financial Statements" for additional information. At December 31, 2019, we had $943 million authorized for share repurchases.




13	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Other Items

Other Items

The MD&A in our 2019 Form 10-K addresses our contractual obligations and off-balance sheet arrangements, as of and for the fiscal year ended June 30, 2019. There have been no subsequent material changes outside of the ordinary course of business to those items except for the agreement in principle on a global settlement framework designed to resolve all pending and future opioid lawsuits and claims brought by states and political subdivisions described in the Significant Developments in Fiscal 2020 and Trends section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements."




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	14



MD&A	Critical Accounting Policies and Sensitive Accounting Estimates

Critical Accounting Policies and Sensitive Accounting Estimates

The discussion and analysis presented below is a supplemental disclosure to the critical accounting policies and sensitive accounting estimates specified in our consolidated balance sheet at June 30, 2019. This discussion and analysis should be read in conjunction with the Critical Accounting Policies and Sensitive Accounting Estimates included in our 2019 Form 10-K and our From 10-Q for the quarter ended September 30, 2019.

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.

Goodwill

Purchased goodwill is 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 elected to bypass the qualitative assessment for our annual impairment test in fiscal 2019. 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.

Medical Unit Goodwill

For our annual impairment test in fiscal 2019, the fair value of our Medical Unit exceeded its carrying value of $10.8 billion by approximately 4 percent. Although we believe the assumptions used to arrive at the estimate of fair value during the fourth quarter of fiscal 2019 continue to be reasonable and appropriate, changes in key assumptions during fiscal 2020, including a failure to meet expected earnings or other financial plans, or other unanticipated events and circumstances, such as an increase in interest rates or a significant change in industry or economic trends, may affect future estimates.

As noted within the Significant Developments in Fiscal 2020 and Trends section in this MD&A and Note 7 of the "Notes to Condensed Consolidated Financial Statements", we recorded a charge of $96 million within Corporate during the three and six months ended December 31, 2019 in connection with the Recalls that would be allocated to the Medical Unit for purposes of goodwill impairment testing. The Recalls could result in loss of customers and sales. However, at this time, we do not expect these impacts to be meaningfully sustained such that they would indicate the fair value of the Medical Unit is less than its carrying amount.

Adverse changes in key assumptions, including related to our current assumptions about the impact of the Recalls, may result in a decline in fair value below the carrying value in the future resulting in an impairment in our Medical Unit in future periods, which could adversely affect our results of operations.

Loss Contingencies

In connection with the opioid litigation as described further in the Significant Developments in Fiscal 2020 and Trends section in this MD&A, we recorded a pre-tax charge of $5.63 billion ($5.14 billion after tax) during the six months ended December 31, 2019. We accrue for contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. Final terms of a settlement under the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the

contingencies to any agreement will be satisfied. We will regularly review opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual.




15	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



MD&A	Critical Accounting Policies and Sensitive Accounting Estimates

Provision for Income Taxes

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.

changed by the Tax Act. Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the Notes to the "Condensed Consolidated Financial Statements" for more information regarding these matters.

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 2008 through the current fiscal year. Tax laws are complex and subject to varying interpretations. Tax authorities have challenged some of our tax positions, including IRS challenges to our international transfer pricing for the periods from 2008 to 2014, and it is possible that they will challenge others. These challenges may adversely affect our effective tax rate or tax payments.

Explanation and Reconciliation of Non-GAAP Financial Measures

The "Overview of Consolidated Results" section within MD&A in this Form 10-Q 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, in most cases, 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.

•

Surgical gown recall costs includes inventory write-offs and certain remediation and supply disruption costs 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. 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.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	16



Explanation and Reconciliation of Non-GAAP Financial Measures

•

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 fiscal year of the initial assessment. 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. Reversals of these accruals have occurred when certain assessments were declared unconstitutional.


•	Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business.

•

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.


•	Impairments and gain or loss on disposal of assets 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 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.

•

Transitional tax benefit, net related to the Tax Cuts and Jobs Act is excluded because it results from the one-time impact of a very significant change in the U.S. federal corporate tax rate and, due to the significant size of the benefit, obscures analysis of trends and financial performance. The transitional tax benefit includes the initial estimate and subsequent adjustments for the re-measurement of deferred tax assets and liabilities due to the reduction of the U.S. federal corporate income tax rate and the repatriation tax on undistributed foreign earnings.

The tax effect for each of the items listed above, other than the transitional tax benefit item, 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.

Definitions

Growth rate calculation: growth rates in this Form 10-Q are determined by dividing the difference between current-period results and prior-period results by prior-period results.

Non-GAAP operating earnings: operating earnings/(loss) excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, and (7) litigation (recoveries)/charges, net.

Non-GAAP earnings before income taxes: earnings/(loss) before income taxes excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, and (8) loss on extinguishment of debt.

Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings/(loss) attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on extinguishment of debt, each net of tax, and (9) transitional tax benefit, net.

Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for (1) LIFO charges/(credits), (2) surgical gown recall costs, (3) state opioid assessment related to prior fiscal years, (4) restructuring and employee severance, (5) amortization and other acquisition-




17	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Explanation and Reconciliation of Non-GAAP Financial Measures

related costs, (6) impairments and (gain)/loss on disposal of assets, (7) litigation (recoveries)/charges, net, (8) loss on extinguishment of debt, and (9) transitional tax benefit, (net) divided by (earnings/(loss) before income taxes adjusted for the first eight items).

Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	18



Explanation and Reconciliation of Non-GAAP Financial Measures

GAAP to Non-GAAP Reconciliation



(in millions, except per common share amounts)	Operating Earnings/(Loss)			Operating Earnings Growth Rate		Earnings/(Loss) Before Income Taxes			Provision for/(Benefit from) Income Taxes			Net Earnings/(Loss)¹			Net Earnings/(Loss)¹ Growth Rate		Diluted EPS^1,2			Diluted EPS¹ Growth Rate
	Three Months Ended December 31, 2019
GAAP	$	334		(34	)%	$	279		$	59		$	220		(21	)%	$	0.75		(19	)%
Surgical gown recall costs	96					96			25			71					0.24
State opioid assessment related to prior fiscal years	(1		)			(1		)	—			(1		)			—
Restructuring and employee severance	56					56			14			42					0.14
Amortization and other acquisition-related costs	133					133			33			100					0.34
Impairments and (gain)/loss on disposal of assets, net	7					7			2			5					0.02
Litigation (recoveries)/charges, net	21					21			3			18					0.06
Loss on extinguishment of debt	—					4			1			3					0.01
Transitional tax benefit, net	—					—			11			(11		)			(0.04		)
Non-GAAP	$	646		1	%	$	596		$	148		$	448		16	%	$	1.52		18	%
	Three Months Ended December 31, 2018
GAAP	$	504		26	%	$	407		$	126		$	280		(73	)%	$	0.93		(72	)%
State opioid assessment related to prior fiscal years	(29		)			(29		)	(8		)	(21		)			(0.07		)
Restructuring and employee severance	12					12			3			9					0.03
Amortization and other acquisition-related costs	157					157			39			119					0.40
Impairments and (gain)/loss on disposal of assets, net	8					8			1			7					0.02
Litigation (recoveries)/charges, net	(15		)			(15		)	(4		)	(11		)			(0.04		)
Transitional tax benefit, net	—					—			(3		)	3					0.01
Non-GAAP	$	637		(13	)%	$	540		$	154		$	385		(19	)%	$	1.29		(15	)%
	Six Months Ended December 31, 2019
GAAP	$	(4,930	)	N.M		$	(5,065	)	$	(364	)	$	(4,702	)	N.M		$	(15.99	)	N.M
Surgical gown recall costs	96					96			25			71					0.24
State opioid assessment related to prior fiscal years	4					4			1			3					0.01
Restructuring and employee severance	86					86			21			65					0.22
Amortization and other acquisition-related costs	265					265			67			198					0.67
Impairments and (gain)/loss on disposal of assets, net	8					8			2			6					0.02
Litigation (recoveries)/charges, net³	5,694					5,694			501			5,193					17.66
Loss on extinguishment of debt	—					4			1			3					0.01
Transitional tax benefit, net	—					—			11			(11		)			(0.04		)
Non-GAAP	$	1,223		4	%	$	1,092		$	265		$	826		6	%	$	2.80		9	%
	Six Months Ended December 31, 2018
GAAP	$	1,320		100	%	$	1,143		$	269		$	873		(25	)%	$	2.88		(22	)%
Restructuring and employee severance	44					44			11			33					0.11
Amortization and other acquisition-related costs	314					314			74			240					0.79
Impairments and (gain)/loss on disposal of assets, net	(503		)			(503		)	(133		)	(370		)			(1.22		)
Litigation (recoveries)/charges, net	3					3			—			3					0.01
Transitional tax benefit, net	—					—			(3		)	3					0.01
Non-GAAP	$	1,178		(12	)%	$	1,001		$	218		$	782		(5	)%	$	2.58		(1	)%




19	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Explanation and Reconciliation of Non-GAAP Financial Measures


¹	Attributable to Cardinal Health, Inc.


³	Litigation (recoveries)/charges, net includes a pre-tax charge of $5.63 billion ($5.14 billion after tax) recorded in the first quarter of fiscal 2020 related to the opioid litigation.

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

We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	20



Other

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the quantitative and qualitative market risk disclosures included in our 2019 Form 10-K since the end of fiscal 2019 through December 31, 2019.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of December 31, 2019. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of December 31, 2019, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Legal Proceedings

In addition to the proceeding described below, the legal proceedings described in Note 7 of the "Notes to Condensed Consolidated Financial Statements" are incorporated in this "Legal Proceedings" section by reference.

In June 2019, Melissa Cohen, a purported shareholder, filed an action on behalf of Cardinal Health, Inc. in the U.S. District Court for the Southern District of Ohio against certain current and former members of our Board of Directors alleging that the defendants breached their fiduciary duties by failing to effectively monitor Cardinal Health's distribution of controlled substances. The derivative complaint seeks, among other things, unspecified money damages against the defendants and an award of attorneys' fees. In December 2019 and January 2020, similar complaints were filed in the U.S. District Court for the Southern District of Ohio by purported shareholders, Stanley M. Malone and Michael Splaine, respectively. In January, 2020, the court granted the plaintiffs' unopposed motion to consolidate the derivative cases under the caption In re Cardinal Health, Inc. Derivative Litigation.

Risk Factors

You should carefully consider the information in this Form 10-Q, including the risk factors below, and the risk factors discussed in "Risk Factors" and other risks discussed in our 2019 Form 10-K, our Form 10-Q for the quarter ended September 30, 2019, and other filings with the SEC since June 30, 2019. These risks could materially and adversely affect our results of operations, financial condition, liquidity, and cash flows. Our business also could be affected by risks that we are not presently aware of or that we currently consider immaterial to our operations.

The recalls of certain surgical gowns and related Presource Procedure Packs had a negative impact on our financial results in the three months ended December 31, 2019, and are expected to have additional negative financial and operational impacts.

In January, 2020, we issued a voluntary recall for 9.1 million AAMI Level 3 surgical gowns and two voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for 2.9 million Presource Procedure Packs containing affected gowns (together, the "Recalls"). The Recalls were necessary because we discovered in December 2019 that one of our FDA-registered suppliers in China had shifted production of some gowns to unapproved sites with uncontrolled environments. Because of this, we could not assure sterility of the gowns.

In connection with the Recalls, in the three months ended December 31, 2019, we recorded a total charge of $96 million, of which $56

million is within cost of products sold and $40 million is within SG&A in the condensed consolidated statements of earnings. This charge represents our best estimate of costs for the Recalls and includes inventory write-off costs and certain remediation and supply disruption costs, such as costs to replace recalled products. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The amount of ultimate loss may differ materially from this accrual.




21	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Other

suspension or revocation of the authority to produce, distribute and sell products and other civil or criminal sanctions); losses due to patient claims, including product liability claims and lawsuits; and customer claims unrelated to their direct costs from the supply disruption.

The public health crisis involving the abuse of prescription opioid pain medication and our efforts to resolve related claims could have additional or unexpected material negative effects on our business.

Our Pharmaceutical segment distributes prescription opioid pain medications. In recent years, the abuse of prescription opioid pain medication has become a public health crisis.

A significant number of counties, municipalities and other plaintiffs, including a number of state attorneys general, have filed lawsuits against pharmaceutical manufacturers, pharmaceutical wholesale distributors (including us), retail chains and others relating to the manufacturing, marketing or distribution of prescription opioid pain medications. In addition, we are currently being investigated or sued by other states for the same activities and could be named as a defendant in additional lawsuits. The defense and resolution of current and future lawsuits and events relating to these lawsuits are subject to uncertainty and could have a material adverse effect on our results of operations, financial condition, cash flows, liquidity, our ability to pay dividends or repurchase our shares, or have adverse reputational or operational effects on our business.

In October 2019, we agreed in principle to a Settlement Framework and in connection with this development we recorded a pre-tax accrual of $5.56 billion in the six months ended December 31, 2019. This Settlement Framework is subject to contingencies but is the basis for our negotiation of definitive terms and documentation. Final terms of a settlement under the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. We will regularly review 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 Condensed Consolidated Financial Statements" for more information regarding these matters.

Other legislative, regulatory or industry measures related to the public health crisis involving the abuse of prescription opioid pain medication and the distribution of these medications could affect our business in ways that we may not be able to predict. For example,

several states have now adopted taxes or other fees on the sale of opioids, and several other states have proposed similar legislative initiatives. These laws and proposals vary in the tax amounts imposed and the means of calculation. Liabilities for taxes or assessments under any such laws could have an adverse impact on our results of operations unless we are able to mitigate them through operational changes or commercial arrangements where permitted.

Ongoing unfavorable publicity regarding the abuse or misuse of prescription opioid pain medications and the role of wholesale distributors in the supply chain of such prescription medications, as well as the continued proliferation of the opioid lawsuits, investigations, regulations and legislative actions, and unfavorable publicity in relation to those lawsuits could have a material adverse effect on our reputation or results of operations.

We could be subject to adverse changes in the tax laws or challenges to our tax positions.

We are a large multinational corporation with operations in the United States and many foreign countries. As a result, we are subject to the tax laws of many jurisdictions.

From time to time, initiatives are proposed in the United States and other jurisdictions in which we operate that could adversely affect our tax positions, effective tax rate or tax payments. Specific initiatives that may impact us include the repeal of the LIFO (last-in, first-out) method of inventory accounting for income tax purposes, the establishment or increase in taxation at the U.S. state level on the basis of gross revenues, recommendations of the recently completed base erosion and profit shifting project undertaken by the Organization for Economic Cooperation and Development and the European Commission’s investigation into illegal state aid.

Additionally, in connection with the $5.63 billion pre-tax charge for the opioid litigation, in the six months ended December 31, 2019, we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the Tax Act. Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 8 of the "Notes to Condensed Consolidated Financial Statements" for more information regarding these matters.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	22



Other

some of our tax positions, including IRS challenges to our international transfer pricing for the periods from 2008 to 2014, and it is possible that they will challenge others. These challenges may adversely affect our effective tax rate or tax payments.

Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Programs (2,3)	Approximate Dollar Value of Shares That May Yet be Purchased Under the Program (3) (in millions)
October 2019	1,214	$	48.05	—	$	1,013
November 2019	255	52.92		—	1,013
December 2019	894,064	48.00		893,696	943
Total	895,533	$	48.00	893,696	$	943


(1)	Reflects 1,214, 255 and 368 common shares purchased in October, November and December 2019, respectively, through a rabbi trust as investments of participants in our Deferred Compensation Plan.

(2)

On August 20, 2019, we entered into an accelerated share repurchase ("ASR") program to purchase common shares for an aggregate purchase price of $350 million, which was completed on December 4, 2019. During the six months ended December 31, 2019, we repurchased 7.3 million common shares at a weighted average price of $48.00 under this program. During December 2019, the ASR program closed and upon settlement, we received 893,696 remaining common shares. Upon closing of the ASR program we have $943 million remaining under our program. See Note 11 of the "Notes to Condensed Consolidated Financial Statements" for additional information.


(3)	On February 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2020. On November 7, 2018, our Board of Directors approved a $1.0 billion share repurchase program that expires on December 31, 2021 and as of December 31, 2019, we have $943 million authorized for share repurchases remaining under this program.




23	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Financial Statements

Condensed Consolidated Statements of Earnings/(Loss)

(Unaudited)



	Three Months Ended December 31,						Six Months Ended December 31,
(in millions, except per common share amounts)	2019			2018			2019			2018
Revenue	$	39,735		$	37,740		$	77,076		$	72,953
Cost of products sold	38,021			36,010			73,683			69,556
Gross margin	1,714			1,730			3,393			3,397

Operating expenses:
Distribution, selling, general and administrative expenses	1,163			1,064			2,270			2,219
Restructuring and employee severance	56			12			86			44
Amortization and other acquisition-related costs	133			157			265			314
Impairments and (gain)/loss on disposal of assets, net	7			8			8			(503		)
Litigation (recoveries)/charges, net	21			(15		)	5,694			3
Operating earnings/(loss)	334			504			(4,930		)	1,320

Other (income)/expense, net	(12		)	21			2			25
Interest expense, net	63			76			129			152
Loss on extinguishment of debt	4			—			4			—
Earnings/(loss) before income taxes	279			407			(5,065		)	1,143

Provision for/(benefit from) income taxes	59			126			(364		)	269
Net earnings/(loss)	220			281			(4,701		)	874

Less: Net earnings attributable to noncontrolling interests	—			(1		)	(1		)	(1		)
Net earnings/(loss) attributable to Cardinal Health, Inc.	$	220		$	280		$	(4,702	)	$	873

Earnings/(loss) per common share attributable to Cardinal Health, Inc.:
Basic	$	0.75		$	0.94		$	(15.99	)	$	2.90
Diluted	0.75			0.93			(15.99		)	2.88

Weighted-average number of common shares outstanding:
Basic	292			299			294			302
Diluted	294			300			294			303

Cash dividends declared per common share	$	0.4811		$	0.4763		$	0.9622		$	0.9526

See notes to condensed consolidated financial statements.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	24



Financial Statements

Condensed Consolidated Statements of Comprehensive Income/(Loss)

(Unaudited)



	Three Months Ended December 31,						Six Months Ended December 31,
(in millions)	2019			2018			2019			2018
Net earnings/(loss)	$	220		$	281		$	(4,701	)	$	874

Other comprehensive loss:
Foreign currency translation adjustments and other	(1		)	(26		)	(18		)	(29		)
Net unrealized loss on derivative instruments, net of tax	(1		)	(1		)	(6		)	(2		)
Total other comprehensive loss, net of tax	(2		)	(27		)	(24		)	(31		)

Total comprehensive income/(loss)	218			254			(4,725		)	843

Less: comprehensive income attributable to noncontrolling interests	—			(1		)	(1		)	(1		)
Total comprehensive income/(loss) attributable to Cardinal Health, Inc.	$	218		$	253		$	(4,726	)	$	842

See notes to condensed consolidated financial statements.




25	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Financial Statements

Condensed Consolidated Balance Sheets

(Unaudited)



(in millions)	December 31, 2019			June 30, 2019
Assets
Current assets:
Cash and equivalents	$	1,659		$	2,531
Trade receivables, net	8,280			8,448
Inventories, net	13,799			12,822
Prepaid expenses and other	1,998			1,946
Total current assets	25,736			25,747

Property and equipment, net	2,301			2,356
Goodwill and other intangibles, net	11,523			11,808
Other assets	1,482			1,052
Total assets	$	41,042		$	40,963

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	21,459		$	21,535
Current portion of long-term obligations and other short-term borrowings	1,192			452
Other accrued liabilities	2,239			2,122
Total current liabilities	24,890			24,109

Long-term obligations, less current portion	6,742			7,579
Deferred income taxes and other liabilities	8,408			2,945

Shareholders’ equity:
Preferred shares, without par value:
Authorized—500 thousand shares, Issued—none	—			—
Common shares, without par value:
Authorized—755 million shares, Issued—327 million shares at December 31, 2019 and June 30, 2019, respectively	2,752			2,763
Retained earnings	449			5,434
Common shares in treasury, at cost: 35 million shares and 28 million shares at December 31, 2019 and June 30, 2019, respectively	(2,099		)	(1,790		)
Accumulated other comprehensive loss	(103		)	(79		)
Total Cardinal Health, Inc. shareholders' equity	999			6,328
Noncontrolling interests	3			2
Total shareholders’ equity	1,002			6,330
Total liabilities and shareholders’ equity	$	41,042		$	40,963

See notes to condensed consolidated financial statements.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	26



Financial Statements

Condensed Consolidated Statements of Shareholders' Equity

(Unaudited)



	Common Shares						Treasury Shares					Accumulated Other Comprehensive Loss			Noncontrolling Interests		Total Shareholders’ Equity
(in millions)	Shares Issued	Amount		Retained Earnings			Shares		Amount			Accumulated Other Comprehensive Loss			Noncontrolling Interests		Total Shareholders’ Equity
	Three Months Ended December 31, 2019
Balance at September 30, 2019	327	$	2,669	$	371		(34	)	$	(2,039	)	$	(101	)	$	3	$	903
Net earnings				220											—		220
Other comprehensive loss, net of tax												(2		)			(2		)
Employee stock plans activity, net of shares withheld for employee taxes	—	13							10								23
Share repurchase program activity		70					(1	)	(70		)						—
Dividends declared				(143		)											(143		)
Other				1											—		1
Balance at December 31, 2019	327	$	2,752	$	449		(35	)	$	(2,099	)	$	(103	)	$	3	$	1,002



	Three Months Ended December 31, 2018
Balance at September 30, 2018	327	$	2,590	$	5,097		(27	)	$	(1,678	)	$	(96	)	$	—		$	5,913
Net earnings				280											1			281
Other comprehensive loss, net of tax												(27		)				(27		)
Employee stock plans activity, net of shares withheld for employee taxes	—	18							3									21
Share repurchase program activity		120					(2	)	(120		)							—
Dividends declared				(143		)												(143		)
Other				(1		)									(1		)	(2		)
Balance at December 31, 2018	327	$	2,728	$	5,233		(29	)	$	(1,795	)	$	(123	)	$	—		$	6,043



	Six Months Ended December 31, 2019
Balance at June 30, 2019	327	$	2,763		$	5,434		(28	)	$	(1,790	)	$	(79	)	$	2	$	6,330
Net earnings/(loss)					(4,702		)									1		(4,701		)
Other comprehensive loss, net of tax													(24		)			(24		)
Employee stock plans activity, net of shares withheld for employee taxes	—	(11		)						41								30
Share repurchase program activity		—						(7	)	(350		)						(350		)
Dividends declared					(284		)											(284		)
Other					1											—		1
Balance at December 31, 2019	327	$	2,752		$	449		(35	)	$	(2,099	)	$	(103	)	$	3	$	1,002



	Six Months Ended December 31, 2018
Balance at June 30, 2018	327	$	2,730		$	4,645		(18	)	$	(1,224	)	$	(92	)	$	—		$	6,059
Net earnings					873											1			874
Other comprehensive loss, net of tax													(31		)				(31		)
Employee stock plans activity, net of shares withheld for employee taxes	—	(2		)						29									27
Share repurchase program activity		—						(11	)	(600		)							(600		)
Dividends declared					(286		)												(286		)
Other					1											(1		)	—
Balance at December 31, 2018	327	$	2,728		$	5,233		(29	)	$	(1,795	)	$	(123	)	$	—		$	6,043

See notes to condensed consolidated financial statements.




27	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Financial Statements

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended December 31,
(in millions)	2019			2018
Cash flows from operating activities:
Net earnings/(loss)	$	(4,701	)	$	874

Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities:
Depreciation and amortization	464			498
Impairments and loss on sale of other investments	—			2
Impairments and (gain)/loss on disposal of assets, net	8			(503		)
Loss on extinguishment of debt	4			—
Share-based compensation	41			41
Provision for bad debts	47			40
Change in operating assets and liabilities, net of effects from acquisitions and divestitures:
(Increase)/decrease in trade receivables	121			(191		)
Increase in inventories	(991		)	(753		)
Increase/(decrease) in accounts payable	(77		)	941
Other accrued liabilities and operating items, net	5,128			(213		)
Net cash provided by operating activities	44			736

Cash flows from investing activities:
Acquisition of subsidiaries, net of cash acquired	—			(21		)
Additions to property and equipment	(149		)	(116		)
Purchase of investments	(6		)	(10		)
Proceeds from sale of investments	2			2
Proceeds from divestitures, net of cash sold, and disposal of property and equipment	2			740
Net cash provided by/(used in) investing activities	(151		)	595

Cash flows from financing activities:
Net change in short-term borrowings	681			—
Reduction of long-term obligations	(793		)	(2		)
Net tax withholdings from share-based compensation	(11		)	(13		)
Dividends on common shares	(287		)	(293		)
Purchase of treasury shares	(350		)	(600		)
Net cash used in financing activities	(760		)	(908		)

Effect of exchange rates changes on cash and equivalents	(5		)	(4		)

Net increase/(decrease) in cash and equivalents	(872		)	419
Cash and equivalents at beginning of period	2,531			1,763
Cash and equivalents at end of period	$	1,659		$	2,182

See notes to condensed consolidated financial statements.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	28



Notes to Financial Statements

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Our condensed consolidated financial statements include the accounts of all majority-owned or controlled subsidiaries, and all significant intercompany transactions and amounts have been eliminated. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Refer to Note 4 for further information on our equity method investments.

References to "we," "our," and similar pronouns in in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 (this "Form 10-Q") refer to Cardinal Health, Inc. and its majority-owned or controlled subsidiaries unless the context requires otherwise.

Our fiscal year ends on June 30. References to fiscal 2020 and 2019 in these condensed consolidated financial statements are to the fiscal years ending or ended June 30, 2020 and June 30, 2019, respectively.

Our condensed consolidated financial statements have been prepared in accordance with the United States Securities and Exchange Commission ("SEC") instructions to Quarterly Reports on Form 10-Q and include the information and disclosures required by accounting principles generally accepted in the United States ("GAAP") for interim financial reporting. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Except as disclosed elsewhere in this Form 10-Q, all such adjustments are of a normal and recurring nature. To conform to the current year presentation, certain prior year amounts have been reclassified. In addition, financial results presented for this fiscal 2020 interim period are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2020. These condensed consolidated financial statements are unaudited and, accordingly, should be read in conjunction with the audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 (the "2019 Form 10-K").

Recently Adopted Financial Accounting Standards

Derivatives and Hedging

In October 2018, the Financial Accounting Standards Board ("FASB") issued amended accounting guidance related to derivatives and hedging which permits the use of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") as a benchmark interest rate for hedge accounting purposes. This guidance is

effective beginning the first quarter of fiscal 2020 and must be applied on a prospective basis. The adoption did not have a material impact on our consolidated financial statements.

Leases

In February 2016, the FASB issued amended accounting guidance that requires lessees to recognize most leases on the balance sheet as a lease liability and corresponding right-of-use asset. The guidance also requires disclosures that meet the objective of enabling financial statement users to assess the amount, timing and uncertainty of cash flows arising from leases. We adopted this guidance during the first quarter of fiscal 2020 and elected the transition option which allows us to apply the guidance prospectively. The adoption resulted in the recognition of lease liabilities in the amount of $422 million and did not have a material impact on our results of operations, liquidity or debt covenant compliance under our current debt agreements. The majority of our lease spend relates to certain real estate with the remaining lease spend primarily related to vehicles and equipment. The adoption required certain changes to our systems and processes. See Note 5 for additional information regarding leases.

Recently Issued Financial Accounting Standards Not Yet Adopted

Financial Instruments - Credit Losses

In June 2016, the FASB issued amended accounting guidance that will require entities to measure credit losses on trade and other receivables, held-to-maturity debt securities, loans and other instruments using an "expected credit loss" model that considers historical experience, current conditions and reasonable supportable forecasts. This guidance also requires that credit losses on available-for-sale debt securities with unrealized losses be recognized as allowances rather than as deductions in the amortized cost of the securities. This guidance will be effective for us in the first quarter of fiscal 2021. We are currently evaluating the impact of adoption on our consolidated financial statements.




29	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

2. Restructuring and Employee Severance

The following table summarizes restructuring and employee severance costs:



	Three Months Ended December 31,
(in millions)	2019		2018
Employee-related costs (1)	$	42	$	12
Facility exit and other costs (2)	14		—
Total restructuring and employee severance	$	56	$	12



	Six Months Ended December 31,
(in millions)	2019		2018
Employee-related costs (1)	$	62	$	41
Facility exit and other costs (2)	24		3
Total restructuring and employee severance	$	86	$	44


(1)	Employee-related costs primarily consist of termination benefits provided to employees who have been involuntarily terminated, duplicate payroll costs and retention bonuses incurred during transition periods.


(2)	Facility exit and other costs primarily consist of product distribution and lease contract termination costs, lease costs associated with vacant facilities, accelerated depreciation, equipment relocation costs, project consulting fees, costs associated with restructuring our delivery of information technology infrastructure services and certain other divestiture-related costs.

During fiscal 2020 and 2019, we implemented certain enterprise-wide cost-saving initiatives affecting various functional and commercial areas intended to optimize and simplify our operating model and cost structure. We incurred $42 million and $8 million during the three months ended December 31, 2019 and 2018, respectively, and $62 million and $34 million for the six months ended December 31, 2019 and 2018, respectively, in expenses related to these cost savings initiatives, which are reflected in restructuring and employee severance in the condensed consolidated statements of earnings/(loss).

The following table summarizes activity related to liabilities associated with restructuring and employee severance:



(in millions)	Employee- Related Costs			Facility Exit and Other Costs			Total
Balance at June 30, 2019	$	64		$	8		$	72
Additions	56			8			64
Payments and other adjustments	(21		)	(3		)	(24		)
Balance at December 31, 2019	$	99		$	13		$	112

3. Goodwill and Other Intangible Assets

Goodwill

The following table summarizes the changes in the carrying amount of goodwill by segment and in total:



(in millions)	Pharmaceutical			Medical			Total
Balance at June 30, 2019	$	2,663		$	5,715		$	8,378
Goodwill acquired, net of purchase price adjustments	(5		)	—			(5		)
Foreign currency translation adjustments and other	—			(17		)	(17		)
Balance at December 31, 2019	$	2,658		$	5,698		$	8,356

Other Intangible Assets

The following tables summarize other intangible assets by class at:



	December 31, 2019
(in millions)	Gross Intangible		Accumulated Amortization		Net Intangible		Weighted- Average Remaining Amortization Period (Years)
Indefinite-life intangibles:
IPR&D, trademarks and other	$	22	$	—	$	22	N/A
Total indefinite-life intangibles	22		—		22		N/A

Definite-life intangibles:
Customer relationships	3,550		1,670		1,880		13
Trademarks, trade names and patents	673		318		355		13
Developed technology and other	1,603		693		910		11
Total definite-life intangibles	5,826		2,681		3,145		12
Total other intangible assets	$	5,848	$	2,681	$	3,167	N/A




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	30



Notes to Financial Statements



	June 30, 2019
(in millions)	Gross Intangible		Accumulated Amortization		Net Intangible
Indefinite-life intangibles:
IPR&D, trademarks and other	$	22	$	—	$	22
Total indefinite-life intangibles	22		—		22

Definite-life intangibles:
Customer relationships	3,562		1,517		2,045
Trademarks, trade names and patents	672		295		377
Developed technology and other	1,602		616		986
Total definite-life intangibles	5,836		2,428		3,408
Total other intangible assets	$	5,858	$	2,428	$	3,430

Total amortization of intangible assets was $127 million and $133 million for the three months ended December 31, 2019 and 2018, respectively, and $256 million and $266 million for the six months ended December 31, 2019 and 2018, respectively. Estimated annual amortization of intangible assets for the remainder of fiscal 2020 through 2024 is as follows: $258 million, $442 million, $408 million, $358 million and $328 million.

4. Investments

In August 2018, we sold our 98 percent ownership interest in naviHealth Holdings, LLC ("naviHealth") to investor entities controlled by Clayton, Dubilier & Rice in exchange for cash proceeds of $737 million (after adjusting for certain fees and expenses) and a 44 percent equity interest in a partnership that owns 100 percent of the equity interest of naviHealth. We also have certain call rights to reacquire naviHealth. We are accounting for this investment using the equity method of accounting and on a one-month reporting lag.

During the six months ended December 31, 2018, we recognized a pre-tax gain of $508 million related to this divestiture in impairments and (gain)/loss on disposal of assets in our condensed consolidated statements of earnings.

The carrying value of this investment was $330 million and $334 million as of December 31, 2019 and June 30, 2019, respectively. During the three and six months ended December 31, 2019, our proportionate share of naviHealth’s net loss, which was recorded in other (income)/ expense, net in the condensed consolidated statements of earnings/(loss), was immaterial.

5. Leases

We primarily have operating leases for corporate offices, distribution facilities, vehicles, and equipment. We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the ability to direct the use of the asset. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.

Beginning July 1, 2019, operating lease right-of-use assets and corresponding operating lease liabilities are recognized in our condensed consolidated balance sheet at commencement date based on the present value of lease payments over the lease term. Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable.

Our lease agreements include leases that contain lease components and non-lease components. For all asset classes, we have elected to account for both of these provisions as a single lease component. We also, from time to time, sublease portions of our real estate property, resulting in sublease income. Sublease income and the related assets and cash flows are not material to the condensed consolidated financial statements at or for the three and six months ended December 31, 2019.

We also have elected to apply a practical expedient for short-term leases whereby we do not recognize a lease liability and right-of-use asset for leases with a term of less than 12 months. Short-term lease expense recognized in the three and six months ended December 31, 2019 was not material. In addition, we elected the package of three practical expedients permitted under the transition guidance, which include the carry forward of our leases without reassessing 1) whether any contracts are leases or contain leases, 2) lease classification and 3) initial direct costs.

Our leases have remaining lease terms from less than 1 year up to approximately 23 years. Our lease terms may include options to extend or terminate the lease when it is reasonably certain and there is a significant economic incentive to exercise that option.




31	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

The following table summarizes the components of lease cost:



	Three Months Ended December 31,		Six Months Ended December 31,
(in millions)	2019		2019
Operating lease cost	$	30	$	61
Finance lease cost
Amortization of right-of-use assets	4		8
Total finance lease cost	4		8
Variable lease cost⁽¹⁾	11		12
Total lease cost	$	45	$	81


(1)	Primarily includes payments for property taxes, maintenance and insurance.

The following table summarizes supplemental balance sheet information related to leases:



(in millions)	December 31, 2019
Operating Leases
Operating lease right-of-use assets	$	404

Current portion of operating lease liabilities	102
Long-term operating lease liabilities	324
Total operating lease liabilities	426

Finance Leases
Finance lease right-of-use assets	14

Current portion of finance lease liabilities	4
Long-term finance lease liabilities	11
Total finance lease liabilities	$	15

Operating leases are included in other assets, other accrued liabilities, and deferred income taxes and other liabilities in our condensed consolidated balance sheet. Finance leases are included in property and equipment, net, current portion of long-term obligations and other short-term borrowings, and long-term obligations, less current portion in our condensed consolidated balance sheet.

The following tables summarizes supplemental cash flow information related to leases:



	Six Months Ended December 31,
(in millions)	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	61
Financing cash flows paid for finance leases	3
Non-cash right-of-use assets obtained in exchange for lease obligations:
New operating leases	54
New finance leases	17
Amended lease standard adoption impact as of July 1, 2019 ⁽¹⁾	400


(1)	Includes the effect of $22 million from reclassifying deferred rent as an offset to the lease right-of-use asset in accordance with the transition guidance.

Our operating leases had a weighted-average remaining lease term of 6.3 years and a weighted-average discount rate of 2.9 percent.

Future lease payments under non-cancellable leases as of December 31, 2019 were as follows:



(in millions)	Operating Leases		Finance Leases		Total
Years Ending December 31,
Remainder of 2020	$	59	$	2	$	61
2021	108		6		114
2022	89		4		93
2023	67		4		71
2024	47		1		48
Thereafter	166		—		166
Total future lease payments	536		17		553
Less: leases not yet commenced ⁽¹⁾	61		—		61
Less: imputed interest	49		2		51
Total lease liabilities	$	426	$	15	$	441


(1)	As of December 31, 2019, we had certain leases that were executed but did not have control of the underlying assets; therefore, the lease liabilities and right-of-use assets are not recorded in the condensed consolidated balance sheets.

The future minimum rental payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year at June 30, 2019 for fiscal 2020 through 2024 and thereafter were as follows: $126 million, $100 million, $76 million, $54 million, $33 million and $94 million.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	32



Notes to Financial Statements

6. Long-Term Obligations and Other Short-Term Borrowings

Long-Term Debt and Other Short-Term Borrowings

At December 31, 2019 and June 30, 2019, we had total long-term obligations, including the current portion and other short-term borrowings, of $7.9 billion and 8.0 billion, respectively. All the notes represent unsecured obligations of Cardinal Health, Inc. and rank equally in right of payment with all of our existing and future unsecured and unsubordinated indebtedness. Interest is paid pursuant to the terms of the obligations. These obligations are effectively subordinated to the liabilities of our subsidiaries, including trade payables of 21.5 billion at both December 31, 2019 and June 30, 2019.

In November 2019, we repaid the full principal of the 2.4% Notes due 2019 at maturity for $450 million. During the six months ended December 31, 2019, we early repurchased $207 million of the 2.616% Notes due 2022, $10 million of the 3.2% Notes due 2022, $14 million of the Floating Rate Notes due 2022, $81 million of the 3.41% Notes due 2027, $6 million of the 4.6% Notes due 2043, $2 million of the 4.9% Notes due 2045, and $21 million of the 4.368% Notes due 2047. The repurchases were paid for with available cash and other short-term borrowings. In connection with the early debt repurchases, we recorded a $4 million loss on extinguishment of debt.

The following table summarizes long-term obligations and other short-term borrowings at:



(in millions) (1)	December 31, 2019		June 30, 2019
2.4% Notes due 2019	$	—	$	450
4.625% Notes due 2020	506		508
2.616% Notes due 2022	873		1,079
3.2% Notes due 2022	238		247
Floating Rate Notes due 2022	326		340
3.2% Notes due 2023	553		551
3.079% Notes due 2024	780		781
3.5% Notes due 2024	402		402
3.75% Notes due 2025	497		494
3.41% Notes due 2027	1,238		1,318
4.6% Notes due 2043	340		346
4.5% Notes due 2044	342		342
4.9% Notes due 2045	443		445
4.368% Notes due 2047	574		594
7.0% Debentures due 2026	124		124
Other Obligations (2)	698		10
Total	7,934		8,031
Less: current portion of long-term obligations and other short-term borrowings	1,192		452
Long-term obligations, less current portion	$	6,742	$	7,579


(1)	Maturities are presented on a calendar year basis.


(2)	Includes $458 million outstanding under our commercial paper program and $225 million outstanding under our committed receivables sales facility.

Other Financing Arrangements

In addition to cash and equivalents and operating cash flow, other sources of liquidity 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 December 31, 2019, we had $458 million outstanding under our commercial paper program, $225 million outstanding under committed receivables sales facility and no amount outstanding under our revolving credit facility.

In September 2019, we renewed our committed receivables sales facility program through Cardinal Health Funding, LLC (“CHF”) through September 30, 2022. CHF was organized for the sole purpose of buying receivables and selling undivided interests in those receivables to third-party purchasers. Although consolidated with Cardinal Health, Inc. in accordance with GAAP, CHF is a separate legal entity from Cardinal Health, Inc. and from our subsidiary that sells receivables to CHF. CHF is designed to be a special purpose, bankruptcy-remote entity whose assets are available solely to satisfy the claims of its creditors.

Our revolving credit and committed receivables sales facilities require us to maintain, as of the end of every fiscal quarter through December 2020, a consolidated net leverage ratio of no more than 4.00-to-1. The maximum permitted ratio will reduce to 3.75-to-1 in March 2021




33	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

and as of the end of every quarter thereafter. As of December 31, 2019, we were in compliance with this financial covenant.

7. Commitments, Contingent Liabilities and Litigation

Commitments

Generic Sourcing Venture with CVS Health Corporation ("CVS Health")

In July 2014, we established Red Oak Sourcing, LLC ("Red Oak Sourcing"), a U.S.-based generic pharmaceutical sourcing venture with CVS Health for an initial term of 10 years. Red Oak Sourcing negotiates generic pharmaceutical supply contracts on behalf of its participants. Due to the achievement of predetermined milestones, we are required to make quarterly payments of $45.6 million to CVS Health for the remainder of the initial term.

Legal Proceedings

We become involved from time to time in disputes, litigation and regulatory matters.

We are named from time to time in qui tam actions initiated by private third parties. In such actions, the private parties purport to act on behalf of federal or state governments, allege that false claims have been submitted for payment by the government and may receive an award if their claims are successful. After a private party has filed a qui tam action, the government must investigate the private party's claim and determine whether to intervene in and take control over the litigation. These actions may remain under seal while the government makes this determination. If the government declines to intervene, the private party may nonetheless continue to pursue the litigation on his or her own purporting to act on behalf of the government.

From time to time, we become aware through employees, internal audits or other parties of possible compliance matters, such as complaints or concerns relating to accounting, internal accounting controls, financial reporting, auditing, or other ethical matters or relating to compliance with laws such as healthcare fraud and abuse, anti-corruption or anti-bribery laws. When we become aware of such possible compliance matters, we investigate internally and take appropriate corrective action. In addition, from time to time, we receive subpoenas or requests for information from various federal or state agencies relating to our business or to the business of a customer, supplier or other industry participants. Internal investigations, subpoenas or requests for information have led, and may in the future lead, to the assertion of claims or the commencement of legal proceedings against us or result in sanctions.

From time to time, we determine that products we manufacture or market do not meet our specifications, regulatory requirements, or published standards. When we or a regulatory agency identify a potential quality or regulatory issue, we investigate and take appropriate corrective action. Such actions can lead to product recalls, costs to repair or replace affected products, temporary interruptions in product sales, action by regulators and product

liability claims and lawsuits, including class actions. Even absent an identified regulatory or quality issue or product recall, we can become subject to product liability claims and lawsuits.

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 resolutions can occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine whether our accruals and related disclosures are adequate. The amount of ultimate loss may differ from these estimates. Except as otherwise disclosed in this footnote, it is not possible for us to reasonably estimate the amount of any possible loss or range of possible losses in the matters described below.

We recognize income from the favorable outcome of litigation when we receive the associated cash or assets.

We recognize estimated loss contingencies for certain litigation and regulatory matters and income from favorable resolution of litigation in litigation (recoveries)/charges in our condensed consolidated statements of earnings.

Opioid Lawsuits and Investigations

Pharmaceutical wholesale distributors, including us, have been named as defendants in approximately 3,000 lawsuits relating to the distribution of prescription opioid pain medications. The lawsuits seek equitable relief and monetary damages based on a variety of legal theories including various common law claims, such as public nuisance, negligence and unjust enrichment as well as violations of controlled substance laws, the Racketeer Influenced and Corrupt Organizations Act and various other statutes. These lawsuits also name pharmaceutical manufacturers, retail pharmacy chains and other entities as defendants.

States & Political Subdivisions

Approximately 2,500 of these lawsuits have been filed by counties, municipalities, cities and political subdivisions in various federal, state, and other courts. The vast majority of these lawsuits were filed in U.S. federal court and have been transferred for consolidated pre-trial proceedings in a Multi-District Litigation proceeding in the U.S. District Court for the Northern District of Ohio (the “MDL”).

In addition, 23 state attorneys general have filed lawsuits against distributors, including us, in various state courts. A trial in New York for cases brought by the New York Attorney General and Nassau and Suffolk counties is scheduled to begin in March 2020.

Additionally, 43 state attorneys general have formed a multi-state task force to investigate the manufacturing, distribution, dispensing and prescribing practices of opioid medications. We have received requests related to the multi-state investigation, as well as separate civil investigative demands, subpoenas or requests for information from these and other state attorneys general offices and governmental authorities.

In October 2019, we agreed in principle to a global settlement framework with a leadership group of state attorneys general that is




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	34



Notes to Financial Statements

designed to resolve all pending and future opioid lawsuits and claims by states and political subdivisions (the "Settlement Framework"). This Settlement Framework is subject to contingencies and uncertainties as to final terms, but is the basis for our negotiation of definitive terms and documentation.

The Settlement Framework includes (1) a cash component, pursuant to which we would pay up to $5.56 billion over eighteen years, (2) development and participation in a program for free or rebated distribution of opioid abuse treatment medications for a period of ten years, and (3) industry-wide changes to be specified to controlled substance anti-diversion programs. Final terms for a settlement pursuant to the Settlement Framework continue to be negotiated, and there is no assurance that the necessary parties will agree to a definitive settlement agreement or that the contingencies to any agreement will be satisfied. In connection with these matters, in the six months ended December 31, 2019, we accrued $5.56 billion, included in deferred income taxes and other liabilities in the condensed consolidated balance sheets, which represents the cash component. We are unable to reasonably estimate the liability associated with the other components of the Settlement Framework, the potential distribution of treatment medications and any incremental costs for changes to our controlled substance anti-diversion program that we may agree to.

In the six months ended December 31, 2019, we along with two other national distributors entered into a $215 million settlement with two Ohio counties, Cuyahoga and Summit, to resolve all claims in the first bellwether trial in the MDL, which had been set for trial for October 2019. In connection with this settlement, we accrued $66 million in the six months ended December 31, 2019. This accrual is included in other accrued liabilities in the condensed consolidated balance sheets.

Private Plaintiffs

The Settlement Framework does not address claims by private plaintiffs, which includes unions and other health and welfare funds, hospital systems and other healthcare providers, businesses and individuals. Private plaintiffs had brought approximately 365 lawsuits as of February 4, 2020. Of these, 105 are purported class actions. The causes of action asserted by these plaintiffs are similar to those asserted by public plaintiffs. We will continue to vigorously defend ourselves in these matters.

Department of Justice Investigations

We have received grand jury subpoenas issued on behalf of the District Courts for the Eastern District of New York and the District of Columbia seeking documents and, in the District of Columbia, testimony, related to our anti-diversion policies and procedures, and our distribution of certain controlled substances. We are cooperating with these requests.

Cordis Product Liability Lawsuits

As of February 4, 2020, we are named as a defendant in 299 product liability lawsuits coordinated in Alameda County Superior Court in California involving claims by approximately 3,773 plaintiffs that allege personal injuries associated with the use of Cordis OptEase and TrapEase inferior vena cava (IVC) filter products. Another 29 lawsuits involving similar claims by approximately 35 plaintiffs are pending in other jurisdictions. These lawsuits seek a variety of remedies, including unspecified monetary damages. We are vigorously defending ourselves in these lawsuits.

At December 31, 2019, we had a total of $441 million accrued for losses and legal defense costs related to the Cordis IVC filter lawsuits. We believe there is a range of estimated losses with respect to these matters. Because no amount within the range is a better estimate than any other amount within the range, we have accrued the minimum amount in the range. We estimate the high end of the range to be approximately $885 million.

Shareholder Securities Litigation

In August 2019, the Louisiana Sheriffs' Pension & Relief Fund filed a purported class action complaint against Cardinal Health and certain current and former officers and employees in the United States District Court for the Southern District of Ohio purportedly on behalf of all purchasers of our common shares between March 2015 and May 2018. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by making misrepresentations and omissions related to the integration of the Cordis business and inventory and supply chain problems within the Cordis business, and seeks to recover unspecified damages and equitable relief for the alleged misstatements and omissions. We believe that the claims asserted in this complaint are without merit and intend to vigorously defend against them.

Surgical Gown Recalls

In connection with these Recalls, in the three months ended December 31, 2019, we recorded a total charge of $96 million, of which $56 million is within cost of products sold and $40 million is




35	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

within SG&A in the condensed consolidated statements of earnings. In our condensed consolidated balance sheet at December 31, 2019, we had $38 million reserved within inventories, net, and $58 million included in other accrued liabilities related to this charge. This charge represents our best estimate of costs for the Recalls and include inventory write-off costs and certain remediation and supply disruption costs, such as costs to replace recalled products. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. The amount of ultimate loss may differ materially from this accrual.

Other Civil Litigation

Generic Pharmaceutical Antitrust Litigation

In December 2019, pharmaceutical distributors including us were added as defendants in a civil multidistrict litigation consisting of multiple individual and class action lawsuits filed by indirect purchasers of generic drugs, such as hospitals and retail pharmacies. The plaintiffs allege that pharmaceutical distributors encouraged manufacturers to increase prices, provided anti-competitive pricing information to manufacturers and informed manufacturers that they wished to maintain current customer allocations for the purpose of avoiding price erosion. We intend to vigorously defend ourselves in these matters.

Blood Pressure Medication Recall Litigation

Many participants in the pharmaceutical supply chain, including manufacturers, repackagers (including us), distributors (including us), and retailers have been named as defendants in Multidistrict Litigation in the U.S. District Court for the District of New Jersey (the “Blood Pressure Medication Recall MDL”), which was created in February 2019. The claims arise out of a series of recalls of generic blood pressure medications due to alleged impurities in active pharmaceutical ingredients. In December 2019, two additional medications were added to the Blood Pressure Medication Recall MDL. In January 2020, manufacturers recalled another medication and the FDA continues to investigate other drugs for possible recall. We intend to vigorously defend ourselves in these matters.

8. Income Taxes

Fluctuations in our provision for/(benefit from) income taxes as a percentage of pretax earnings (“effective tax rate”) are generally due to changes in international and U.S. state effective tax rates resulting from our business mix and discrete items.

Opioid Settlement Framework

In connection with the $5.63 billion pre-tax charge for the opioid litigation, during the six months ended December 31, 2019 we recorded a tax benefit of $487 million, which is net of unrecognized tax benefits of $468 million, reflecting our current assessment of the estimated future deductibility of the amount that may be paid. We have made reasonable estimates and recorded amounts based on management's judgment and our current understanding of the Tax Act; however, these estimates require significant judgment since the definitive settlement terms and documentation, including provisions related to deductibility, under the Settlement Framework have not been negotiated and the U.S. tax law governing deductibility was changed by the U.S. Tax Cuts and Jobs Act ("Tax Act"). Further, it is possible that the tax authorities could challenge our interpretation of the Tax Act or the estimates and assumptions used to assess the future deductibility of these benefits. The actual amount of the tax benefit related to uncertain tax positions may differ materially from these estimates. See Note 7 for more information regarding these matters.

Effective Tax Rate

During the three months ended December 31, 2019 and 2018, the effective tax rate was 21.0 percent and 31.0 percent, respectively. The change in the effective tax rate from prior period is primarily due to the favorable impact from changes in jurisdictional mix and discrete items recognized in the second quarter of fiscal 2020, largely driven by changes as a result of tax reform.

During the six months ended December 31, 2019 and 2018, the effective tax rate was 7.2 percent and 23.5 percent, respectively. The change in the effective tax rate from fiscal 2019 to fiscal 2020 is primarily due to the net effects of the Settlement Framework.

Unrecognized Tax Benefits

At December 31, 2019 and June 30, 2019, we had $940 million and $456 million of unrecognized tax benefits, respectively. The December 31, 2019 and June 30, 2019 balances include $791 million and $303 million of unrecognized tax benefits, respectively, that if recognized, would have an impact on the effective tax rate.

At December 31, 2019 and June 30, 2019, we had $132 million and $122 million, respectively, accrued for the payment of interest and penalties related to unrecognized tax benefits, which we recognize in the provision for/(benefit from) income taxes in the condensed consolidated statements of earnings/(loss). These balances are gross amounts before any tax benefits and are included in deferred income taxes and other liabilities in the condensed consolidated balance sheets.

It is reasonably possible that there could be a change in the amount of unrecognized tax benefits within the next 12 months due to




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	36



Notes to Financial Statements

activities of the U.S. Internal Revenue Service ("IRS") or other taxing authorities, possible settlement of IRS and other audit issues, reassessment of existing unrecognized tax benefits or the expiration of statutes of limitations. We estimate that the range of the possible change in unrecognized tax benefits within the next 12 months is between zero and a net decrease of up to $350 million, exclusive of penalties and interest.

Other Tax Matters

We are a party to a tax matters agreement with CareFusion Corporation ("CareFusion"), a subsidiary of Becton, Dickinson and Company. Under the tax matters agreement, CareFusion is obligated to indemnify us for certain tax exposures and transaction taxes prior to our fiscal 2010 spin-off of CareFusion. The indemnification receivable was $171 million and $165 million at December 31, 2019 and June 30, 2019, respectively, and is included in other assets in the condensed consolidated balance sheets.

As a result of the acquisition of the Patient Recovery Business, Medtronic plc is obligated to indemnify us for certain tax exposures and transaction taxes related to periods prior to the acquisition under the purchase agreement. The indemnification receivable was $21 million and $22 million at December 31, 2019 and June 30, 2019, respectively, and is included in other assets in the condensed consolidated balance sheet.

Future adjustments to the financial statements may be necessary as final tax regulations related to U.S. Tax Reform are issued. We will assess any impact as additional guidance is issued.

9. Fair Value Measurements

The following tables present the fair values for assets and (liabilities) measured on a recurring basis at:



	December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	199	$	—	$	—	$	199
Other investments (1)	116		—		—		116
Forward Contracts (2)	—		73		—		73



	June 30, 2019
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Other investments (1)	$	118	$	—	$	—	$	118
Forward Contracts (2)	—		53		—		53


(1)	The other investments balance includes investments in mutual funds, which are used to offset fluctuations in deferred compensation liabilities. These mutual funds invest in the equity securities of companies with both large and small market capitalization and high quality fixed income debt securities. The fair value of these investments is determined using quoted market prices.

(2)

The fair value of interest rate swaps, foreign currency contracts, commodity contracts, and net investment hedges is determined based on the present value of expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Observable Level 2 inputs are used to determine the present value of expected future cash flows. The fair value of these derivative contracts, which are subject to master netting arrangements under certain circumstances, is presented on a gross basis in prepaid expenses and other, other assets, other accrued liabilities, and deferred income taxes and other liabilities within the condensed consolidated balance sheets.

10. Financial Instruments

We utilize derivative financial instruments to manage exposure to certain risks related to our ongoing operations. The primary risks managed through the use of derivative instruments include interest rate risk, currency exchange risk, and commodity price risk. We do not use derivative instruments for trading or speculative purposes. While the majority of our derivative instruments are designated as hedging instruments, we also enter into derivative instruments that are designed to hedge a risk, but are not designated as hedging instruments. These derivative instruments are adjusted to fair value through earnings at the end of each period. We are exposed to counterparty credit risk on all of our derivative instruments. Accordingly, we have established and maintain strict counterparty credit guidelines and only enter into derivative instruments with major financial institutions that are rated investment grade or better. We do not have significant exposure to any one counterparty and we believe the risk of loss is remote. Additionally, we do not require collateral under these agreements.




37	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

Interest Rate Risk Management

We are exposed to the impact of interest rate changes. Our objective is to manage the impact of interest rate changes on cash flows and the market value of our borrowings. We utilize a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, we enter into interest rate swaps to further manage our exposure to interest rate variations related to our borrowings and to lower our overall borrowing costs.

Currency Exchange Risk Management

We conduct business in several major international currencies and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce volatility in earnings, cash flow and net investments in certain subsidiaries to allow management to focus its attention on business operations. Accordingly, we enter into various contracts that change in value as foreign exchange rates change to protect the value of existing foreign currency assets and liabilities, commitments and anticipated foreign currency revenue and expenses.

Commodity Price Risk Management

We are exposed to changes in the price of certain commodities. Our objective is to reduce earnings and cash flow volatility associated with forecasted purchases of these commodities to allow management to focus its attention on business operations. Accordingly, we enter into derivative contracts when possible to manage the price risk associated with certain forecasted purchases.

Fair Value Hedges

We enter into pay-floating interest rate swaps to hedge the changes in the fair value of fixed-rate debt resulting from fluctuations in interest rates. These contracts are designated and qualify as fair value hedges. Accordingly, the gain or loss recorded on the pay-floating interest rate swaps is directly offset by the change in fair value of the underlying debt. Both the derivative instrument and the underlying debt are adjusted to market value at the end of each period with any resulting gain or loss recorded in interest expense in the condensed consolidated statements of earnings. For the three and six months ended December 31, 2019 and 2018, there was no gain or loss recorded to interest expense as changes in the market value of our derivative instruments offset changes in the market value of the underlying debt.

During the six months ended December 31, 2019 and 2018, no new pay-floating interest rate swaps were executed. In connection with the debt redemption as described in Note 6, two pay-floating interest rate swaps with notional amounts of $200 million matured in the second quarter of fiscal 2020.

Cash Flow Hedges

We enter into derivative instruments to hedge our exposure to changes in cash flows attributable to interest rate, foreign currency and commodity price fluctuations associated with certain forecasted transactions. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the gain or loss on the derivative instrument is reported as a component of other comprehensive income/(loss) and reclassified into earnings in the

same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings.

During the six months ended December 31, 2019, we entered into forward interest rate swaps with a total notional amount of $100 million to hedge probable, but not firmly committed, future transactions associated with our debt.

Gains and losses recognized in accumulated other comprehensive loss and reclassified into earnings were immaterial for the three and six months ended December 31, 2019 and 2018. All gains and losses currently included within accumulated other comprehensive loss associated with our foreign exchange forward contracts that are expected to be reclassified into net earnings within the next 12 months are immaterial.

Net Investment Hedges

We hedge the foreign currency risk associated with certain net investment positions in foreign subsidiaries. To accomplish this, we enter into cross-currency swaps that are designated as hedges of net investments.

In August 2019, we entered into a ¥64.0 billion ($600 million) cross-currency swap maturing in 2022.

In September 2018, we entered into a €200 million ($233 million) cross-currency swap maturing in 2023.

Cross-currency swaps designated as net investment hedges are marked-to-market using the current spot exchange rate as of the end of the period, with gains and losses included in the foreign currency translation component of accumulated other comprehensive income/(loss) until the sale or substantial liquidation of the underlying net investments. To the extent the cross-currency swaps designated as net investment hedges are not highly effective, changes in carrying value attributable to the change in spot rates are recorded in earnings. There was no ineffectiveness in our net investment hedges during the six months ended December 31, 2019.

Economic (Non-Designated) Hedges

We enter into foreign currency contracts to manage our foreign exchange exposure related to sales transactions, intercompany financing transactions and other balance sheet items subject to revaluation that do not meet the requirements for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period through earnings. The gain or loss recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability. The settlement of the derivative instrument and the remeasurement adjustment on the foreign currency denominated asset or liability are both recorded in other (income)/expense, net. We recorded a $7 million and $8 million expense during the six months ended December 31, 2019 and 2018, respectively. The principal currencies managed through foreign currency contracts are the euro, Canadian dollar, British pound, Japanese yen, and Chinese renminbi.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	38



Notes to Financial Statements

Fair Value of Financial Instruments

The carrying amounts of cash and equivalents, trade receivables, accounts payable and other accrued liabilities at December 31, 2019 and June 30, 2019 approximate fair value due to their short-term maturities.

The following table summarizes the estimated fair value of our long-term obligations and other short-term borrowings compared to the respective carrying amounts at:



(in millions)	December 31, 2019		June 30, 2019
Estimated fair value	$	8,078	$	8,065
Carrying amount	7,934		8,031

The fair value of our long-term obligations and other short-term borrowings is estimated based on either the quoted market prices for the same or similar issues or other inputs derived from available market information, which represents a Level 2 measurement.

11. Shareholders' Equity

During the six months ended December 31, 2019, we repurchased 7.3 million common shares having an aggregate cost of $350 million. The average price paid per common share was $48.00. These repurchases were made under an accelerated share repurchase ("ASR") program, which began on August 20, 2019 and was completed on December 4, 2019.

During the six months ended December 31, 2018, we repurchased 11.5 million common shares having an aggregate cost of $600 million. The average price paid per common share was $52.32.

We funded the repurchases with available cash and short-term borrowings. The common shares repurchased are held in treasury to be used for general corporate purposes.

Accumulated Other Comprehensive Loss

The following table summarizes the changes in the balance of accumulated other comprehensive loss by component and in total:



(in millions)	Foreign Currency Translation Adjustments			Unrealized Gain/(Loss) on Derivatives, net of tax			Accumulated Other Comprehensive Loss
Balance at June 30, 2019	$	(95	)	$	16		$	(79	)
Other comprehensive loss, before reclassifications	(18		)	—			(18		)
Amounts reclassified to earnings	—			(6		)	(6		)
Other comprehensive loss, net of tax	(18		)	(6		)	(24		)
Balance at December 31, 2019	$	(113	)	$	10		$	(103	)

12. Earnings Per Share Attributable to Cardinal Health, Inc.

The following table reconciles the number of common shares used to compute basic and diluted earnings per share attributable to Cardinal Health, Inc.:



	Three Months Ended December 31,
(in millions)	2019	2018
Weighted-average common shares–basic	292	299
Effect of dilutive securities:
Employee stock options, restricted share units and performance share units	2	1
Weighted-average common shares–diluted	294	300



	Six Months Ended December 31,
(in millions)	2019	2018
Weighted-average common shares–basic	294	302
Effect of dilutive securities:
Employee stock options, restricted share units and performance share units	—	1
Weighted-average common shares–diluted	294	303

The potentially dilutive employee stock options, restricted share units and performance share units that were anti-dilutive were 4 million for the three months ended December 31, 2019 and 6 million for the six months ended December 31, 2019 (1 million of which would be anti-dilutive as a result of the year-to-date net loss).

The potentially dilutive employee stock options, restricted share units and performance share units that were anti-dilutive were 5 million during both three months and six months ended December 31, 2018.

13. Segment Information

Our operations are principally managed on a products and services basis and are comprised of two operating segments, which are the same as our reportable segments: Pharmaceutical and Medical. The factors for determining the reportable segments include the manner in which management evaluates performance for purposes of allocating resources and assessing performance combined with the nature of the individual business activities.

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.




39	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

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 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.

Revenue

The following tables present revenue for each reportable segment and disaggregated revenue within our two reportable segments and Corporate:



	Three Months Ended December 31,
(in millions)	2019			2018
Pharmaceutical Distribution and Specialty Solutions (1) (2)	$	35,501		$	33,534
Nuclear and Precision Health Solutions	213			206
Pharmaceutical segment revenue	35,714			33,740
Medical distribution and products (3)	3,498			3,527
Cardinal Health at-Home Solutions	525			479
Medical segment revenue	4,023			4,006
Total segment revenue	39,737			37,746
Corporate (4)	(2		)	(6		)
Total revenue	$	39,735		$	37,740



	Six Months Ended December 31,
(in millions)	2019			2018
Pharmaceutical Distribution and Specialty Solutions (1) (2)	$	68,713		$	64,742
Nuclear and Precision Health Solutions	429			413
Pharmaceutical segment revenue	69,142			65,155
Medical distribution and products (3)	6,944			6,907
Cardinal Health at-Home Solutions	996			900
Medical segment revenue	7,940			7,807
Total segment revenue	77,082			72,962
Corporate (4)	(6		)	(9		)
Total revenue	$	77,076		$	72,953


(1)	Products and services offered by our Specialty Solutions division are referred to as “specialty pharmaceutical products and services."


(2)	Comprised of all Pharmaceutical segment businesses except for Nuclear and Precision Health Solutions division.


(3)	Comprised of all Medical segment businesses except for Cardinal Health at-Home Solutions division.


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

The following tables present revenue by geographic area:



	Three Months Ended December 31,
(in millions)	2019			2018
United States	$	38,670		$	36,716
International	1,067			1,030
Total segment revenue	39,737			37,746
Corporate (1)	(2		)	(6		)
Total revenue	$	39,735		$	37,740



	Six Months Ended December 31,
(in millions)	2019			2018
United States	$	74,980		$	70,960
International	2,102			2,002
Total segment revenue	77,082			72,962
Corporate (1)	(6		)	(9		)
Total revenue	$	77,076		$	72,953


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

Segment Profit

We evaluate segment performance based on segment profit, among other measures. Segment profit is segment revenue, less segment cost of products sold, less segment distribution, selling, general and administrative ("SG&A") expenses. Segment SG&A expenses include share-based compensation expense as well as allocated corporate expenses for shared functions, including corporate management, corporate finance, financial, and customer care shared services, human resources, information technology, and legal and compliance, including certain litigation defense costs. Corporate expenses are allocated to the segments based on headcount, level of benefit provided and other ratable allocation methodologies. The results attributable to noncontrolling interests are recorded within segment profit.

We do not allocate the following items to our segments: last-in first-out, or ("LIFO"), inventory charges/(credits); surgical gown recall costs; restructuring and employee severance; amortization and other acquisition-related costs; impairments and (gain)/loss on disposal of assets; litigation (recoveries)/charges, net; state opioid assessment related to prior fiscal years; other (income)/expense, net; interest expense, net; loss on extinguishment of debt; and provision for income taxes.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	40



Notes to Financial Statements

In addition, certain investment spending, certain portions of enterprise-wide incentive compensation and other spending are not allocated to the segments. Investment spending generally includes the first-year spend for certain projects that require incremental investments in the form of additional operating expenses. Because approval for these projects is dependent on executive management, we retain these expenses at Corporate. Investment spending within Corporate was $17 million and $12 million for the three months ended December 31, 2019 and 2018, respectively, and $20 million and $19 million for the six months ended December 31, 2019 and 2018, respectively.

In connection with the opioid litigation as discussed further in Note 7, we recognized a pre-tax charge of $5.63 billion during the six months ended December 31, 2019, which was retained at Corporate.

In connection with the surgical gown recall as discussed further in Note 7, we recognized a pre-tax charge of $96 million during the three and six months ended December 31, 2019, which was retained at Corporate.

In connection with the naviHealth divestiture, we recognized a pre-tax gain of $508 million during the six months ended December 31, 2018, which was retained at Corporate.

The following tables present segment profit by reportable segment and Corporate:



	Three Months Ended December 31,
(in millions)	2019			2018
Pharmaceutical	$	462		$	443
Medical	195			188
Total segment profit	657			631
Corporate	(323		)	(127		)
Total operating earnings	$	334		$	504



	Six Months Ended December 31,
(in millions)	2019			2018
Pharmaceutical	$	860		$	851
Medical	365			323
Total segment profit	1,225			1,174
Corporate	(6,155		)	146
Total operating earnings/(loss)	$	(4,930	)	$	1,320

The following table presents total assets for each reportable segment and Corporate at:



(in millions)	December 31, 2019		June 30, 2019
Pharmaceutical	$	23,143	$	22,446
Medical	15,490		15,284
Corporate	2,409		3,233
Total assets	$	41,042	$	40,963

14. Share-Based Compensation

We maintain stock incentive plans (collectively, the “Plans”) for the benefit of certain of our officers, directors and employees.

The following table provides total share-based compensation expense by type of award:



	Three Months Ended December 31,
(in millions)	2019		2018
Restricted share unit expense	$	16	$	16
Employee stock option expense	1		2
Performance share unit expense	4		4
Total share-based compensation	$	21	$	22



	Six Months Ended December 31,
(in millions)	2019		2018
Restricted share unit expense	$	33	$	30
Employee stock option expense	2		6
Performance share unit expense	6		5
Total share-based compensation	$	41	$	41

The total tax benefit related to share-based compensation was $3 million and $4 million for the three months ended December 31, 2019 and 2018, respectively, and $7 million and $8 million for the six months ended December 31, 2019 and 2018, respectively.

Restricted Share Units

Restricted share units granted under the Plans generally vest in equal annual installments over three years. Restricted share units accrue cash dividend equivalents that are payable upon vesting of the awards.

The following table summarizes all transactions related to restricted share units under the Plans:



(in millions, except per share amounts)	Restricted Share Units		Weighted-Average Grant Date Fair Value per Share
Nonvested at June 30, 2019	2		$	51.65
Granted	2		42.40
Vested	(1	)	60.37
Canceled and forfeited	—		—
Nonvested at December 31, 2019	3		$	46.49

At December 31, 2019, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested restricted share units not yet recognized was $110 million, which is expected to be recognized over a weighted-average period of two years.

Stock Options

Employee stock options granted under the Plans generally vest in equal annual installments over three years and are exercisable for ten years from the grant date. All stock options are exercisable at a price equal to the market value of the common shares underlying the option on the grant date.




41	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Notes to Financial Statements

The following table summarizes all stock option transactions under the Plans:



(in millions, except per share amounts)	Stock Options	Weighted-Average Exercise Price per Common Share
Outstanding at June 30, 2019	6	$	63.78
Granted	—	—
Exercised	—	—
Canceled and forfeited	—	—
Outstanding at December 31, 2019	6	$	63.52
Exercisable at December 31, 2019	6	$	63.43

At December 31, 2019, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested stock options not yet recognized was $2 million, which is expected to be recognized over a weighted-average period of one year.

The following tables provide additional detail related to stock options:



(in millions)	December 31, 2019		June 30, 2019
Aggregate intrinsic value of outstanding options at period end	$	14	$	10
Aggregate intrinsic value of exercisable options at period end	14		10



(in years)	December 31, 2019	June 30, 2019
Weighted-average remaining contractual life of outstanding options	5	5
Weighted-average remaining contractual life of exercisable options	5	5

Performance Share Units

Performance share units vest over a three-year performance period based on achievement of specific performance goals. Based on the extent to which the targets are achieved, vested shares may range from zero to 240 percent of the target award amount. Performance share units accrue cash dividend equivalents that are payable upon vesting of the awards.

The following table summarizes all transactions related to performance share units under the Plans (based on target award amounts):



(in millions, except per share amounts)	Performance Share Units		Weighted-Average Grant Date Fair Value per Share
Nonvested at June 30, 2019	0.9		$	51.45
Granted	0.6		43.68
Vested	(0.1	)	48.40
Canceled and forfeited	(0.1	)	50.58
Nonvested at December 31, 2019	1.3		$	52.71

At December 31, 2019, the total pre-tax compensation cost, net of estimated forfeitures, related to nonvested performance share units not yet recognized was $28 million, which is expected to be recognized over a weighted-average period of two years if targets are achieved.




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	42



Exhibits

Exhibits



Exhibit Number	Exhibit Description
3.1	Amended and Restated Articles of Incorporation of Cardinal Health, Inc., as amended (incorporated by reference to Exhibit 3.1 to Cardinal Health’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, File No. 1-11373)
3.2	Cardinal Health, Inc. Restated Code of Regulations (incorporated by reference to Exhibit 3.2 to Cardinal Health’s Current Report on Form 8-K filed on November 12, 2019, File No. 1-11373)
10.1	First Amendment to the Cardinal Health, Inc. Senior Executive Severance Plan
10.2	Second Amendment to the Amended Cardinal Health, Inc. 2011 Long-Term Incentive Plan
10.3	Form of Restricted Share Units Agreement under the Amended Cardinal Health, Inc. 2011 Long-Term Incentive Plan
10.4	Cardinal Health Deferred Compensation Plan, Amended and Restated effective January 1, 2020
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Statement Regarding Forward-Looking Information
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - formatted in Inline XBRL (included as Exhibit 101)

Cardinal Health Website

Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations and information about upcoming presentations and events is routinely posted and accessible at ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive e-mail alerts when the company posts news releases, SEC filings and certain other information on its website.




43	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q



Form 10-Q Cross Reference Index

Form 10-Q Cross Reference Index



Item Number		Page

	Part I. Financial Information
Item 1	Financial Statements	24
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4	Controls and Procedures	21

	Part II. Other Information
Item 1	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3	Defaults Upon Senior Securities	N/A
Item 4	Mine Safety Disclosures	N/A
Item 5	Other Information	N/A
Item 6	Exhibits	43
	Signatures	45



N/A	Not applicable




	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q	44



Additional Information

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		Cardinal Health, Inc.

Date:	February 6, 2020	/s/ MICHAEL C. KAUFMANN
		Michael C. Kaufmann
		Chief Executive Officer

		/s/ DAVID C. EVANS
		David C. Evans
		Chief Financial Officer




45	Cardinal Health \| Q2 Fiscal 2020 Form 10-Q