Cardinal Health (CAH) Risk Analysis

We maintain Cardinal Health, Inc. stock incentive plans (collectively, the “Plans”) for the benefit of certain of our officers, directors, and employees. Upon vesting these units convert to common shares without restrictions or future service requirements. At June 30, 2026, 16 million shares remain available for future grants under the Cardinal Health, Inc. 2021 Long-Term Incentive Plan ("2021 LTIP"). Under the 2021 LTIP's fungible share counting provisions, stock options are counted against the plan as one share for every share issued; awards other than stock options are counted against the plan as two and one-half shares for every share issued. This means that only 7 million shares could be issued under awards other than stock options while 16 million shares could be issued under stock options. Shares are issued out of treasury shares when stock options are exercised and when restricted share units and performance share units vest. There were no stock options granted to employees during fiscal 2026, 2025, or 2024. During fiscal 2026 and 2024, we modified the equity incentive awards of six and four employees, respectively, to amend provisions over involuntary termination. We recognized incremental share-based compensation expense of $1 million in fiscal 2026 and $9 million in fiscal 2024. Cardinal Health | Fiscal 2026 Form 10-K79Notes to Financial Statements The following table provides total share-based compensation expense by type of award:(in millions)202620252024 Restricted share unit expense$72 $71 $77 Performance share unit expense50 50 44 Total share-based compensation expense$122 $121 $121 The total tax benefit related to share-based compensation was $15 million, $14 million, and $16 million for fiscal 2026, 2025, and 2024, respectively. Share-based compensation expense is included in selling, general, and administrative expenses in the consolidated statements of earnings. Our consolidated statements of cash flows present our share-based compensation expense as a reconciling adjustment between net income and net cash provided by operating activities for all periods presented. 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 UnitsWeighted-AverageGrant Date FairValue per ShareNonvested at June 30, 20241.7 $70.98 Granted0.7 108.72 Vested(0.9)72.07 Canceled and forfeited(0.1)94.67 Nonvested at June 30, 20251.4 86.30 Granted0.6 158.85 Vested(0.8)90.67 Canceled and forfeited(0.1)124.98 Nonvested at June 30, 20261.1 $85.89 The following table provides additional data related to restricted share unit activity:(in millions)202620252024 Total compensation cost, net of estimated forfeitures, related to nonvested restricted share and share unit awards not yet recognized, pre-tax$74 $64 $71 Weighted-average period in years over which restricted share and share unit cost is expected to be recognized (in years)222 Total fair value of shares vested during the year$60 $60 $63 Performance Share Units Performance share units generally vest over a three-year performance period based on achievement of specific performance goals. Based on the extent to which the performance goals are achieved and the Company's TSR relative to the S&P 500 Health Care Index, 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)PerformanceShare UnitsWeighted-AverageGrant Date FairValue per ShareNonvested at June 30, 20241.3 $97.03 Granted0.5 113.88 Vested(0.3)108.79 Canceled and forfeited— — Nonvested at June 30, 20251.5 99.45 Granted0.5 153.66 Vested(0.7)92.71 Canceled and forfeited(0.1)125.34 Nonvested at June 30, 20261.2 $117.07 The following table provides additional data related to performance share unit activity:(in millions)202620252024 Total compensation cost, net of estimated forfeitures, related to nonvested performance share units not yet recognized, pre-tax$49 $47 $46 Weighted-average period over which performance share unit cost is expected to be recognized (in years)222 Total fair value of shares vested during the year$108 $49 $20 Employee Retirement Savings Plans Substantially all of our domestic non-union employees are eligible to be enrolled in our company-sponsored contributory retirement savings plans, which include features under Section 401(k) of the Internal Revenue Code of 1986 and provide for matching and discretionary contributions by us. The total expense for our employee retirement savings plans was $152 million, $89 million, and $65 million for fiscal 2026, 2025, and 2024, respectively. The Specialty Alliance Share-Based Compensation The Specialty Alliance, a majority-owned subsidiary of Cardinal Health, maintains standalone share-based compensation plans. Share-based compensation expense associated with these awards of $245 million and $123 million was recognized during fiscal 2026 and 2025, respectively. Of the expense recognized during fiscal 2026 and 2025, $238 million and $120 million is included in acquisition-related cash and share-based compensation costs and $7 million and $3 million is included in SG&A expenses in the consolidated statements of earnings, respectively. The liability and associated future expenses may vary based on the changes in the estimated fair value. 80Cardinal Health | Fiscal 2026 Form 10-K The following table summarizes the fair market value of The Specialty Alliance Units as of June 30, 2026:(in millions, except per share amounts)Specialty Alliance Share UnitsFair Valueper ShareNonvested at January 30, 2025216 $1.54 Granted47 1.46 Vested(56)1.46 Canceled and forfeited(1)1.46 Nonvested at June 30, 2025206 1.54 Vested at June 30, 2025548 1.54 Granted228 1.53 Vested(171)1.53 Canceled and forfeited3 1.53 Nonvested at June 30, 2026266 $1.53 Vested at June 30, 2026835 $1.53 The total fair value of The Specialty Alliance Units vested during fiscal 2026 and 2025 was $258 million and $82 million, respectively. During fiscal 2026 and 2025, we recognized adjustments to the fair value of the liability, resulting in income of $13 million and expense of $41 million, respectively, related to the vested Specialty Alliance Units, which is recognized in acquisition-related cash and share-based compensation costs. At June 30, 2026, the total pre-tax compensation cost related to nonvested Specialty Alliance Units not yet recognized was $407 million, which is expected to be recognized over a weighted-average period of approximately four years.