The acquisition of Specialty Networks for $1.2 billion in cash was completed in March 2024. This acquisition is expected to positively impact Pharmaceutical and Specialty Solutions segment revenue and profit while increasing amortization and other acquisition-related costs during fiscal 2025 and beyond.

Pharmaceutical distribution contracts with OptumRx will expire at the end of June 2024. Sales to OptumRx generated 17% of consolidated revenue in fiscal 2024, but a meaningfully lower operating margin than the overall Pharmaceutical and Specialty Solutions segment. The unwinding of the negative net working capital associated with the contract is expected to negatively impact operating cash flow in fiscal 2025.

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

Effective January 1, 2024, the company began operating under an updated organizational structure and re-aligned its financial reporting structure under two reportable segments: Pharmaceutical and Specialty Solutions segment and GMPD segment. Previously reported segment results have been recast to conform to the new reporting structure.

Restructuring and employee severance costs include costs related to the implementation of certain enterprise-wide cost-savings measures, which include certain initiatives to rationalize manufacturing operations. The increase in fiscal 2024 restructuring costs are primarily due to estimated severance costs related to these cost-savings measures and costs related to certain projects resulting from the reviews of our strategy, portfolio, capital-allocation framework and operations.

Revolving credit and committed receivables sales facilities require maintenance of a consolidated net leverage ratio of no more than 3.75-to-1. As of June 30, 2024, the company was in compliance with this financial covenant.

Cardinal Health, along with other pharmaceutical wholesalers and other participants in the pharmaceutical supply chain, was named as a defendant in lawsuits related to the distribution of opioid pain medications. Plaintiffs in these lawsuits included state attorneys general, counties and municipalities. The National Opioid Settlement Agreement did not resolve all lawsuits brought by political subdivisions. We continue to engage in resolution discussions with certain nonparticipating political subdivisions.

Products that we manufacture, source, distribute or market must comply with U.S. federal, state and foreign and regulatory requirements. Noncompliance or concerns over noncompliance, including noncompliance by suppliers, has in the past, and may in the future result in suspension of our ability to distribute, import, manufacture or source products, recalls, safety alerts or seizures, or criminal or civil sanctions, which, in turn, could result in product liability claims and lawsuits, including class actions.

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, proposals are made in the United States and other jurisdictions in which we operate that could adversely affect our tax positions, effective tax rate or tax payments.

We operate in a highly competitive environment in the distribution of pharmaceuticals and consumer healthcare products. We also operate in a highly competitive environment in the manufacturing and distribution of medical devices and surgical products. We compete on many levels, including price, service offerings, support services, customer service, breadth of product lines and product quality and efficacy.

In the GMPD segment, we compete with many diversified healthcare companies and national medical product distributors, such as Medline Industries, Inc., Owens & Minor, Inc. and Becton, Dickinson and Company, as well as regional medical product distributors and companies that are focused on specific product categories.

We have agreements with group purchasing organizations (“GPOs”) that act as agents to negotiate vendor contracts on behalf of their members. Our two largest GPO relationships in terms of revenue are with Vizient, Inc. and Premier, Inc. Sales to members of these two GPOs, under numerous contracts across our businesses, collectively accounted for 16 percent of our revenue in fiscal 2024.

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

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

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

Specialty Networks' PPS Analytics platform analyzes data from electronic medical records, practice management, imaging, and dispensing systems and transforms it into meaningful and actionable insights for providers and other stakeholders by using artificial intelligence and modern data analytics capabilities.

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

Title II of the DQSA, known as the Drug Supply Chain Security Act (“DSCSA”) or “Track and Trace” establishes a phased-in national system for tracing pharmaceutical products through the pharmaceutical distribution supply chain to detect, prevent and rapidly respond to the introduction of drugs that may be counterfeit, diverted, stolen, adulterated, subject of a fraudulent transaction or otherwise unfit for distribution.

During fiscal 2024, we deployed $1.2 billion for the Specialty Networks acquisition, $783 million for debt repayments, $750 million for share repurchases, $511 million for capital expenditures and $499 million for cash dividends.

During fiscal 2024, we issued additional long-term debt and received net proceeds of $1.14 billion, of which $200 million is invested in short-term time deposits with initial effective maturities of more than three months and classified as prepaid expenses and other in our consolidated balance sheet as of June 30, 2024.

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

Our Board of Directors assesses and monitors our corporate culture and how it enables our business strategies. To inform the Board about human capital and cultural health, we have developed and annually share with the Board a culture scorecard.

At Cardinal Health, we are focused on building a diverse workforce and an inclusive workplace that values the unique perspectives and contributions of all of our employees. As of the end of fiscal year 2024, 50% of our Board of Directors were women and 25% were ethnically diverse.

The health, safety and security of our employees and contractors is a priority for us. We employ systems designed to continually monitor our facilities and work environment to promote worker safety and identify and prevent or mitigate any potential risks.

Over a number of years, the U.S. healthcare industry has undergone significant changes designed to increase access to medical care, improve safety and patient outcomes, contain costs and increase efficiencies. These changes include a general decline in Medicare and Medicaid reimbursement levels, efforts by healthcare insurance companies to limit or reduce payments to pharmacies and providers, the basis for payments beginning to transition from a fee-for-service model to value-based payments and risk-sharing models and the industry shifting away from traditional healthcare venues like hospitals and into clinics, physician offices and patients' homes.

As described in the “Business” section, products that we manufacture, source, distribute or market must comply with rigorous quality requirements. In addition, no assurance can be given that we will remain in compliance with applicable FDA and other regulatory requirements. Such events cause the company to incur additional time, cost and effort to ensure compliance with complex regulations.

As described in greater detail in the “Business” section, we operate in markets that are highly competitive and dynamic. In addition, competitive pressures in each of our businesses may be increased by new business models, new entrants, new regulations or changes in enforcement priorities, changes in consumer demand or general competitive dynamics. If we are unable to offset margin reductions caused by these pressures through steps such as sourcing or cost control measures, additional service offerings and sales of higher margin products, our results of operations could continue to be adversely affected.