cah-20210930


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 September 30, 2021


☐			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 ☑ No ☐

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 ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☐

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

The number of the registrant’s common shares, without par value, outstanding as of October 31, 2021, was the following: 281,788,002.


Cardinal Health Q1 Fiscal 2022 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			15
			Quantitative and Qualitative Disclosures about Market Risk			18
			Controls and Procedures			18
			Legal Proceedings			19
			Risk Factors			20
			Unregistered Sales of Equity Securities and Use of Proceeds			21
			Financial Statements			22
			Exhibits			39
			Form 10-Q Cross Reference Index			40
			Signatures			41

About Cardinal Health

Cardinal Health, Inc., an Ohio corporation formed in 1979, is a globally integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices and patients in the home. We provide pharmaceuticals and medical products and cost-effective solutions that enhance supply chain efficiency. We connect patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. We manage our business and report our financial results in two segments: Pharmaceutical and Medical. 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 2022 and fiscal 2021 and to FY22 and FY21 are to the fiscal years ending or ended June 30, 2022 and June 30, 2021, respectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (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 various accruals and estimates. 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 this Form 10-Q, including Risk Factors, Exhibit 99.1, and in "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (our “2021 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 U.S. generally accepted accounting principles ("GAAP"). These measures are considered "non-GAAP financial measures" under the 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 \| Q1 Fiscal 2022 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 September 30, 2021 and June 30, 2021, and in our condensed consolidated statements of earnings/(loss) for the three months ended September 30, 2021 and 2020. 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 2021 Form 10-K.



2			Cardinal Health \| Q1 Fiscal 2022 Form 10-Q


MD&A			Overview

Overview of Consolidated Results

Revenue

Revenue for the three months ended September 30, 2021 increased 13 percent to $44.0 billion due to sales growth from pharmaceutical distribution and specialty pharmaceutical customers, which primarily consisted of branded pharmaceutical sales to large customers.

GAAP and Non-GAAP Operating Earnings/(Loss)


	Three Months Ended September 30,
(in millions)	2021		2020		Change
GAAP operating earnings/(loss)	$	415	$	(624)	N.M.
Surgical gown recall costs/(income)	—		(1)
State opioid assessment related to prior fiscal years	—		41
Restructuring and employee severance	18		37
Amortization and other acquisition-related costs	79		118
Impairments and (gain)/loss on disposal of assets	(2)		9
Litigation (recoveries)/charges, net	18		1,038
Non-GAAP operating earnings	$	527	$	618	(15)	%

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

We had GAAP operating earnings of $415 million during the three months ended September 30, 2021. We had a GAAP operating loss of $624 million during the three months ended September 30, 2020 due to a $1.02 billion pre-tax charge for the estimated liability associated with lawsuits and claims brought against us by states and political subdivisions relating to the distribution of prescription opioid pain medications. See further description of opioid lawsuits in the Significant Developments in Fiscal 2022 and Trends section in this MD&A and Note 6 of the "Notes to Condensed Consolidated Financial Statements."

The 15 percent decrease in non-GAAP operating earnings to $527 million was primarily due to a decline in Medical segment profit resulting from increased supply chain costs, primarily related to commodities, transportation, and labor, and the adverse impact of the prior-year net favorable impact due to COVID-19.



			Cardinal Health \| Q1 Fiscal 2022 Form 10-Q			3


MD&A			Overview

GAAP and Non-GAAP Diluted EPS


	Three Months Ended September 30,
($ per share)	2021 (2)		2020 (2) (3)		Change
GAAP diluted EPS (1)	$	0.94	$	(0.86)	N.M.

State opioid assessment related to prior fiscal years	—		0.10
Restructuring and employee severance	0.04		0.09
Amortization and other acquisition-related costs	0.20		0.30
Impairments and (gain)/loss on disposal of assets	0.03		(0.02)
Litigation (recoveries)/charges, net	0.05		1.91
Loss on early extinguishment of debt	0.03		—

Non-GAAP diluted EPS (1)	$	1.29	$	1.51	(15)	%

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

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

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

(3) First quarter fiscal 2021 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 293 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 quarter. First quarter fiscal 2021 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 September 30, 2021 and 2020, we had GAAP diluted earnings per share attributable to Cardinal Health, Inc. ("GAAP diluted EPS") of $0.94 and GAAP diluted loss per share attributable to Cardinal Health, Inc. of $(0.86), respectively. GAAP diluted EPS in the three months ended September 30, 2020 was 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. This opioid charge had a $(1.87) after tax impact on GAAP diluted EPS during the three months ended September 30, 2020. Refer to the Significant Developments in Fiscal 2022 and Trends section in this MD&A and Note 6 of the "Notes to Condensed Consolidated Financial Statements" for additional detail.

During the three months ended September 30, 2021, non-GAAP diluted EPS decreased 15 percent to $1.29 per share. This decrease was primarily due to the factors discussed above impacting non-GAAP operating earnings.

Cash and Equivalents

Our cash and equivalents balance was $2.5 billion at September 30, 2021 compared to $3.4 billion at June 30, 2021. The decrease in cash during the three months ended September 30, 2021 was due to net cash used in operating activities of $646 million, primarily driven by increases in working capital and the payment into escrow of our first annual settlement payment under the Proposed Settlement Agreement related to state and local governmental opioid claims. See the Significant Developments in Fiscal 2022 and Trends section in this MD&A and Note 6 of the "Notes to Condensed Consolidated Financial Statements" for additional detail related to opioid lawsuits and claims. In addition, we deployed cash of $587 million for early debt repayment and $500 million for share repurchases, which was partially offset by proceeds of $927 million, net of cash transferred, received from the divestiture of the Cordis business.



4			Cardinal Health \| Q1 Fiscal 2022 Form 10-Q


MD&A			Overview

Significant Developments in Fiscal 2022 and Trends

Opioid Lawsuits Development

In July 2021, we announced that we and two other national distributors have negotiated a proposed settlement agreement (the “Proposed Settlement Agreement”) and settlement process that, if all conditions are satisfied, would result in the settlement of the vast majority of opioid lawsuits filed by state and local governmental entities.

In September 2021, the three distributors determined that enough states had agreed to participate in the Proposed Settlement Agreement to proceed to the next phase of the settlement process, which is the subdivision sign-on period. However, the Proposed Settlement Agreement is still subject to contingencies and will not become effective unless and until the three distributors each make separate independent determinations that a sufficient number of political subdivisions, including those that have not sued, have agreed to participate in the Agreement (or otherwise have had their claims foreclosed) to proceed to effectiveness. Prior to that determination, the participating states will also have an opportunity to make a determination as to whether a sufficient number of political subdivisions have agreed to the Proposed Settlement Agreement (or otherwise had their claims foreclosed) to proceed with the Proposed Settlement Agreement. This process is currently contemplated to end in February 2022, although it may be extended by agreement. It is possible that a sufficient number of subdivisions will not agree to the Proposed Settlement Agreement or that other required contingencies will not be satisfied.

If the required contingencies are satisfied, the Proposed Settlement Agreement would become effective 60 days after the distributors determine that there is sufficient participation to proceed to effectiveness. During this 60-day period, the participating states and the distributors would cooperate to obtain consent judgments embodying the terms of the Settlement in each participating state.

The Proposed Settlement Agreement includes a cash component, pursuant to which the Company would pay up to approximately $6.37 billion, the majority of which would be paid over 18 years. The exact payment amount will depend on several factors, including the participation rate of states and political subdivisions, the extent to which states take action to foreclose opioid lawsuits by political subdivisions (e.g., laws barring or limiting opioid lawsuits by political subdivisions), and the extent to which political subdivisions in participating states file additional opioid lawsuits against the Company after the Proposed Settlement Agreement becomes effective.

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

In connection with the Proposed Settlement Agreement, we and the two other national distributors entered into settlements with each of the States of New York and Ohio and their participating subdivisions. If the Proposed Settlement Agreement becomes effective, New York and Ohio and their participating subdivisions will become a part of the broader agreement.

West Virginia subdivisions and Native American tribes are not a part of this settlement process and we have been involved in separate negotiations with these groups. In September 2021 we announced that we, along with two other national distributors, had reached an agreement with the Cherokee Nation in connection with ongoing negotiations toward a broader agreement with Native American tribes.

Additionally, a trial before a federal judge in West Virginia, brought by Cabell County and City of Huntington against the Company and two other national distributors, concluded in July 2021. The judge has not yet issued a decision. A trial in the case brought by the Washington Attorney General against the Company and the same two other national distributors is scheduled to begin in November 2021, and the Washington Attorney General has issued a press release stating that Washington will not agree to the Proposed Settlement Agreement. A trial in the case brought by the Rhode Island Attorney General against the Company and the same two other national distributors is scheduled to go to trial in January 2022 and a trial in the Dallas County case is scheduled to begin in Texas in February 2022.

During the three months ended September 30, 2021, we paid into escrow the majority of our first annual payment under the Proposed Settlement Agreement. We also made certain payments under the separate New York and Ohio settlements. In total, we have $6.68 billion accrued at September 30, 2021, of which $441 million is included in other accrued liabilities, and the remainder is included in deferred income taxes and other liabilities in our condensed consolidated balance sheets. Because loss contingencies are inherently unpredictable and unfavorable developments or resolutions can occur, the assessment is highly subjective and requires judgments about future events. We regularly review these opioid litigation matters to determine whether our accrual is adequate. The amount of ultimate loss may differ materially from this accrual, whether as a result of settlement discussions, a judicial decision or verdict or otherwise. See Note 6 of the "Notes to Condensed Consolidated Financial Statements" for additional information.



			Cardinal Health

SEC Form 10-Q filed by Cardinal Health, Inc.