The discussion and analysis presented below refers to and should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-K. Unless otherwise indicated, throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, discussion of matters in the Company's consolidated financial statements refers to continuing operations.

Company Overview

Strategic Overview

Cardinal Health, Inc. (the "Company") is an approximately $100 billion, global company serving the healthcare industry with products and services that help hospitals, physician offices and pharmacies reduce costs, improve safety and productivity, and deliver better care to patients.

Spin-Off of CareFusion Corporation

In 2008, the management of Cardinal Health commenced a review of long-term strategy for Cardinal Health's businesses. On September 29, 2008, the Company announced that it intended to separate its clinical and medical products businesses from its other businesses through a pro rata distribution to its shareholders (the "distribution" or "Spin-Off") of common stock of a wholly owned subsidiary, CareFusion Corporation ("CareFusion"), formed for the purpose of holding the majority of its clinical and medical products businesses. After the Spin-Off, the Company will retain certain surgical and exam gloves, surgical drapes and apparel and fluid management businesses that were previously part of its Clinical and Medical Products segment.

CareFusion manufactures medication infusion and dispensing products, respiratory equipment, surgical instruments and leading technologies and services that help hospitals prevent medication errors, reduce hospital-acquired infections and manage medications and supplies more efficiently. CareFusion products provide protection against medication errors using Alaris® infusion devices and Pyxis® medication dispensing systems. Infection prevention products include Convertors® brand surgical gowns, Esteem® brand medical gloves, Chloraprep® brand preoperative skin preparation products, as well as electronic infection surveillance through MedMined® services. CareFusion also leads in the respiratory care category through its AVEA ® respirators and other leading ventilation brands.

On July 10, 2009, the Company's Board of Directors approved the distribution to its shareholders of 80.1% or more of the shares of CareFusion common stock on the basis of 0.5 shares of CareFusion common stock for each Common Share of the Company. The distribution will be made after the close of trading on August 31, 2009 to the Company's shareholders of record as of 5 p.m. Eastern Daylight Time on August 25, 2009. Following the Spin-Off, the Company will retain no more than 19.9% of the outstanding shares of CareFusion common stock. The Company is required to dispose of the retained shares of CareFusion common stock within five years of the distribution.

The distribution is subject to a number of conditions, including, among others:

• the private letter ruling that the Company received from the IRS not being revoked or modified in any material respect;

• the receipt of opinions from counsel to the Company to the effect that the contribution and distribution will qualify as a transaction that is described in Sections 355(a) and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code");

• no rating agency action that is likely to result in either the Company or CareFusion being downgraded below investment grade; and

• the making of a cash distribution from CareFusion to the Company prior to the distribution.

The Company cannot assure you that any or all of these conditions will be met.

The Company currently anticipates expenditures associated with the Spin-Off to be approximately $261 million on a pre-tax basis, of which approximately $113 million were incurred in fiscal 2009, with the remainder expected to be incurred in fiscal 2010 and beyond. These expenditures primarily consist of functional area separation costs, stand-up costs, employee-related costs and other one-time transaction related costs. Approximately $222 million of these costs are expected to result in cash expenditures, of which approximately $96 million were incurred during fiscal 2009. The Company expects to fund the remainder of the costs through its current sources of liquidity including cash on hand. The Company expects the activities in connection with the Spin-Off to be completed by fiscal 2011. These estimated costs do not include costs expected to be incurred by CareFusion following the Spin-Off.

Upon completion of the Spin-Off, the Company also expects a tax charge of approximately $150 million related to the anticipated repatriation of a portion of cash currently loaned to the Company's entities within the United States.

Reasons for the Spin-Off

The Company's Board of Directors believes that separating the clinical and medical products businesses from the remainder of the Company is in the best interests of the Company and its shareholders because such separation is expected to:

• improve strategic planning, increase management focus and streamline decision-making by providing the flexibility to implement the unique strategic plans of each company and to respond more effectively to different customer needs of each company and the changing economic environment;

• facilitate incentive compensation arrangements for employees more directly tied to the performance of the relevant company's business, and enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives, while at the same time creating an independent equity structure that will facilitate CareFusion's ability to effect future acquisitions utilizing its common stock.

The Company's Board of Directors considered a number of potentially negative factors in evaluating the separation, including risks relating to the creation of a new public company, possible increased costs and one-time separation costs, but concluded that the potential benefits of the Spin-Off outweighed these factors.

Significance of CareFusion to the Company's Consolidated Results of Operations and Financial Position

Following the Spin-Off, the historical operating results of the CareFusion businesses will be reclassified to discontinued operations in the Company's consolidated statement of earnings. For the fiscal years ended June 30, 2009, 2008 and 2007, the CareFusion businesses constituted approximately the following percentages of the Company's consolidated operating results:

                                         2009      2008      2007

                    Revenue                 4 %       4 %       3 %

                    Gross margin           32 %      32 %      25 %

                    Operating earnings     31 %      33 %      36 %

At June 30, 2009 and 2008, the CareFusion businesses constituted approximately 28% and 30%, respectively, of the Company's consolidated assets and approximately 8% and 9%, respectively, of the Company's consolidated liabilities.

Impact of the Spin-Off on the Company's Capital Structure

Subsequent to fiscal 2009, the Company and CareFusion entered into several transactions in order to establish their respective capital structures after the Spin-Off. Immediately prior to the Spin-Off, CareFusion will distribute approximately $1.4 billion in cash to the Company. In order to finance the distribution, on July 1, 2009 CareFusion entered into a $1.4 billion senior unsecured bridge loan facility with a term of 364 days from the date of funding. Subsequently, on July 14, 2009 CareFusion obtained permanent financing of $1.4 billion in the form of fixed rate senior notes. As CareFusion was able to obtain permanent financing prior to the Spin-Off, the bridge loan facility will not be drawn upon and will be terminated upon Spin-Off. The net proceeds of the notes were placed into an escrow account and will be used to fund the $1.4 billion cash distribution to the Company. On August 27, 2009, the Company announced it will use up to $1.2 billion of the cash distribution to fund a debt tender offer for certain of its outstanding debt securities (other than the 7.80% Debentures due October 15, 2016 of Allegiance Corporation and the 7.00% Debentures due October 15, 2026 of Allegiance Corporation, the tender offer for which will be funded with the Company's cash on hand, as further described below). The remainder of the cash distribution will be used to pay off debt maturing in the second quarter of fiscal 2010. See discussion below for additional detail of the debt securities subject to the debt tender offer.

On August 27, 2009, the Company announced that it commenced a cash tender offer for an aggregate purchase price, including an early tender premium but excluding accrued interest, fees and expenses, of up to $1.2 billion of the following series of debt securities (listed in order of acceptance priority): (i) 7.80% Debentures due October 15, 2016 of Allegiance Corporation; (ii) 6.75% Notes due February 15, 2011 of the Company; (iii) 6.00% Notes due June 15, 2017 of the Company; (iv) 7.00% Debentures due October 15, 2026 of Allegiance Corporation;
(v) 5.85% Notes due December 15, 2017 of the Company; (vi) 5.80% Notes due October 15, 2016 of the Company; (vii) 5.65% Notes due June 15, 2012 of the Company; (viii) 5.50% Notes due June 15, 2013 of

the Company; and (ix) 4.00% Notes due June 15, 2015 of the Company. The amount of each series of debt securities that is purchased will be based on a $1.2 billion cap, and the order of priority set forth above. In addition, the Company is only offering to purchase 7.00% Debentures due October 15, 2026 of Allegiance Corporation with an aggregate purchase price, excluding accrued interest, fees and expenses, of up to $100,000,000 in the tender offer. The Company intends to fund the purchase of the 7.80% Debentures due October 15, 2016 of Allegiance Corporation and the 7.00% Debentures due October 15, 2026 of Allegiance Corporation from cash on hand. If 7.00% Debentures due 2026 are tendered such that the aggregate purchase price for the notes would exceed $100 million, they will be subject to proration. All debt securities of any series tendered having a higher acceptance priority level will be accepted before any debt securities of any series having a lower acceptance priority level. Debt securities of the series in the lowest acceptance priority level accepted for purchase in accordance with the terms and conditions of the tender offer may be subject to proration, as described in the offer to purchase and related letter of transmittal, each dated August 27, 2009, relating to the tender offer. The tender offer is conditioned upon the Company's receipt of the approximately $1.4 billion cash distribution from CareFusion and other customary conditions set forth in the offer to purchase and related letter of transmittal. The tender offer will expire on September 24, 2009, unless extended or earlier terminated by the Company.

Relationship between the Company and CareFusion following the Spin-Off

On July 22, 2009, the Company and CareFusion entered into a separation agreement to effect the Spin-Off and provide a framework for the relationship between the Company and CareFusion after the Spin-Off. In addition, the Company will enter into other agreements with CareFusion, including a transition services agreement, a tax matters agreement, an employee matters agreement, intellectual property agreements and certain other commercial agreements. These agreements, including the separation agreement, will provide for the allocation between the Company and CareFusion of the Company's assets, employees, liabilities and obligations (including its investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after CareFusion's separation from the Company and will govern certain relationships between the Company and CareFusion after the Spin-Off. The Company and CareFusion will also enter into a stockholder's and registration rights agreement pursuant to which, among other things, CareFusion will agree that, upon the request of the Company, CareFusion will use its commercially reasonable efforts to effect the registration under applicable federal and state securities laws of any shares of CareFusion common stock retained by Cardinal Health.

Remaining Products and Businesses

Cardinal Health's supply chain businesses consolidate pharmaceuticals and medical products from thousands of manufacturers into site-specific deliveries to retail pharmacies, hospitals, physician offices, surgery centers and alternate care facilities. Cardinal Health provides comprehensive financial, inventory, contract management and marketing services. Cardinal Health is also the largest provider of specialized nuclear pharmaceuticals, delivering nearly 10 million doses each year to hospitals and outpatient care centers.

For further information regarding the Company's businesses, see "Item 1-Business" within this Form 10-K.

Financial Overview

The Company has been negatively affected by the current economic downturn as exhibited by the deferral of hospital capital spending affecting the Clinical and Medical Products segment and increased bad debt expense within the Healthcare Supply Chain Services segment. However, customer demand within the Healthcare Supply Chain Services segment remained relatively strong resulting in increased revenue and slightly increased segment profit for fiscal 2009. Demand for the Company's products and services during fiscal 2009 led to revenue of $99.5 billion, up 9%. Operating earnings were approximately $1.9 billion, down 10% during fiscal 2009 primarily due to an increase in restructuring expenses ($99 million) and a decrease in gross margin ($53 million). Net earnings for fiscal 2009 were $1.2 billion and net diluted earnings per Common Share were $3.18.

Cash provided by operating activities totaled $1.6 billion during fiscal 2009. Included in cash provided by operating activities were $123 million of settlement proceeds related to the termination of certain

fixed-to-floating interest rate swaps. Cash used in investing activities was $543 million primarily due to capital spending ($533 million), which includes $151 million to repurchase assets previously under an operating lease arrangement. Cash used in financing activities was $468 million primarily due to the Company's repayment of certain long-term obligations ($305 million) and the payment of dividends ($200 million). In the fourth quarter of fiscal 2009, the Company's Board of Directors increased the regular quarterly dividend by 25% to $0.175 per share, which was payable on July 15, 2009 to shareholders of record on July 1, 2009. The Company anticipates that its quarterly dividend will remain $0.175 per share after the Spin-Off; the payment and amount of future dividends remain, however, within the discretion of the Company's Board of Directors and will depend upon the Company's future earnings, financial condition, capital requirements and other factors.

During the fourth quarter of fiscal 2009, the Company committed to plans to sell its United Kingdom-based Martindale injectable manufacturing business ("Martindale") and SpecialtyScripts, LLC ("SpecialtyScripts") within its Healthcare Supply Chain Services segment. The net assets of Martindale and SpecialtyScripts are presented separately as held for sale. The operating results of Martindale are presented within discontinued operations for all periods presented. The results of SpecialtyScripts are reported within earnings from continuing operations on the Company's consolidated statements of earnings.

Consolidated Results of Operations

The following table summarizes the Company's consolidated results of operations for the fiscal years ended June 30, 2009, 2008 and 2007 (in millions, except per Common Share amounts):

                                           Change (1)                   Consolidated Results of Operations
                                      2009            2008              2009           2008             2007
Revenue                                    9 %             5 %      $   99,512.4    $ 90,975.5       $ 86,755.0
Cost of products sold                     10 %             5 %          93,986.0      85,395.8         81,557.6

Gross margin                              (1 )%            7 %      $    5,526.4    $  5,579.7       $  5,197.4
Selling, general and
administrative expenses (2)                1 %            11 %           3,438.3       3,390.1          3,061.3
Impairments, (gain)/loss on sale
of assets and other, net                N.M.            N.M.                25.0         (32.0 )           17.3
Special items                           N.M.            N.M.               177.4         130.1            772.0

Operating earnings                       (10 )%           55 %      $    1,885.7    $  2,091.5       $  1,346.8
Interest expense and other                29 %            41 %             218.7         169.4            120.6

Earnings before income taxes and
discontinued operations                  (13 )%           57 %      $    1,667.0    $  1,922.1       $  1,226.2
Provision for income taxes               (16 )%           54 %             524.2         626.1            405.5

Earnings from continuing
operations                               (12 )%           58 %      $    1,142.8    $  1,296.0       $    820.7
Earnings from discontinued
operations, net                         N.M.            N.M.                 8.8           4.6          1,110.4

Net earnings                             (11 )%          (33 )%     $    1,151.6    $  1,300.6       $  1,931.1

Net diluted earnings per Common
Share                                    (11 )%          (25 )%     $       3.18    $     3.57       $     4.77

(1) Change is calculated as the percentage increase or (decrease) for a given year compared to the immediately preceding year.

(2) Equity-based compensation expense was $123 million, $122 million and $138 million, respectively, for the fiscal years ended June 30, 2009, 2008 and 2007.

Revenue

Revenue for fiscal 2009 increased $8.5 billion or 9% compared to the prior year. The increase was due to pharmaceutical price appreciation and increased volume from existing customers (the combined impact of these

two factors was $8.0 billion), the addition of new customers within the Healthcare Supply Chain Services segment ($954 million) and the impact of acquisitions ($887 million). The Company uses the internal metric "pharmaceutical price appreciation index" to evaluate the impact of pharmaceutical and consumer product price appreciation on revenue from the pharmaceutical supply chain business. This metric is calculated using the change in the manufacturer's published price at the beginning of the period compared to the end of the period weighted by the units sold by the pharmaceutical supply chain business during the period. The pharmaceutical price appreciation index was 8.8% for the trailing twelve months ended June 30, 2009. Revenue was negatively impacted during fiscal 2009 by the loss of customers ($972 million). Refer to "Segment Results of Operations" below for further discussion of the specific factors affecting revenue in each of the Company's reportable segments.

Revenue increased $4.2 billion or 5% during fiscal 2008. The increase was due to pharmaceutical price appreciation and increased volume from existing customers (the combined impact of these two factors was $4.9 billion), the impact of acquisitions ($817 million) and new customers ($643 million). The pharmaceutical price appreciation index was 7.7% for the trailing twelve months ended June 30, 2008. Revenue was negatively impacted during fiscal 2008 by the loss of customers ($2.1 billion) within the Healthcare Supply Chain Services segment. A portion of the customer losses was due to the DEA license suspensions and the Company's controlled substance anti-diversion efforts.

Cost of Products Sold

Cost of products sold increased $8.6 billion or 10% and $3.8 billion or 5%, respectively, for the fiscal years ended June 30, 2009 and 2008. The increases in cost of products sold were mainly due to the respective 9% and 5% growth in revenue for fiscal 2009 and 2008. See the "Gross Margin" discussion below for further discussion of additional factors impacting cost of products sold.

Gross Margin

Gross margin for fiscal 2009 decreased $53 million or 1%. The decline in gross margin primarily reflects the deferral in hospital capital spending, Alaris product recalls and reserves and the corrective action plan submitted to the FDA, and a hold on shipping certain infusion products within the Clinical and Medical Products segment. See Note 11 of "Notes to Consolidated Financial Statements" for more information regarding the corrective action plan and the hold on shipping certain infusion products. In addition, gross margin was negatively impacted by an increase in customer discounts within the Healthcare Supply Chain Services segment ($356 million). This increase was primarily due to increased sales volumes and customer repricings. Gross margin was also negatively impacted by foreign exchange ($99 million). Gross margin was favorably impacted by the 9% growth in revenue, which included the impact of acquisitions ($157 million). Gross margin was also favorably impacted by increased distribution service agreement fees and pharmaceutical price appreciation (combined impact of $164 million) and increased manufacturer cash discounts ($157 million) within the Healthcare Supply Chain Services segment. The increased distribution service agreement fees and manufacturer cash discounts were primarily the result of increased sales volume. Refer to the "Segment Results of Operations" below for further discussion of the specific factors affecting gross margin in each of the Company's reportable segments.

Due to the competitive markets in which the Company's businesses operate, the Company expects competitive pricing pressures to continue. In addition, the Company expects certain factors to negatively impact fiscal 2010 including the timing of generic launches and price deflation, the repricing of certain customer contracts and strategic positioning moves (such as repositioning Medicine Shoppe and transitioning a significant vendor relationship to a distribution service agreement).

Gross margin increased $382 million or 7% in fiscal 2008. The increase in gross margin was primarily due to the 5% growth in revenue, which includes the impact of acquisitions ($332 million), primarily the Viasys

acquisition. Other factors favorably impacting gross margin included increased sales of clinical and medical products and related services ($152 million), increased manufacturer cash discounts ($72 million), distribution service agreement fees and pharmaceutical price appreciation (combined impact of $84 million) and foreign exchange ($59 million). Gross margin was negatively impacted primarily by an increase in customer discounts within the Healthcare Supply Chain Services-Pharmaceutical segment ($307 million) as a result of the repricing of several large customer contracts and increased sales to bulk customers. Also negatively impacting gross margin was a decrease in sales to non-bulk customers.

Selling, General and Administrative Expenses

SG&A expenses for fiscal 2009 increased $48 million or 1% driven by the impact of acquisitions, net of divestitures ($69 million) and increased bad debt expense ($40 million) driven by the general economic conditions impacting certain customers and bankruptcy filings by four regional chain customers within the Healthcare Supply Chain Services segment. The Company is continuing to closely monitor its portfolio of outstanding accounts receivable to identify and mitigate customer credit risk; however, future results could be adversely impacted if there is a deterioration in the financial condition of one or more large customers. The increases in SG&A expenses were largely offset by cost control initiatives. Refer to "Segment Results of Operations" below for further discussion of the specific factors affecting SG&A expenses in each of the Company's reportable segments.

SG&A expenses increased $329 million or 11% in fiscal 2008 primarily in support of revenue growth, which includes the impact of acquisitions ($262 million). SG&A expenses were favorably impacted by a year-over-year reduction in incentive compensation expense ($46 million) and equity-based compensation expense ($16 million) in fiscal 2008 compared to the prior year. The reduction in equity-based compensation expense was due to changes made to the Company's employee equity compensation program.

Impairment, (Gain)/Loss on Sale of Assets and Other, net

The Company recognized impairments, (gain)/loss on sale of assets and other, net of $25 million in fiscal 2009, $(32) million in fiscal 2008 and $17 million in fiscal 2007. See Note 3 of "Notes to Consolidated Financial Statements" for additional detail regarding impairments, (gain)/loss on sale of assets and other, net.

Special Items

The following is a summary of the Company's special items for fiscal 2009, 2008
and 2007 (in millions):



                                                2009         2008      2007
             Restructuring charges             $ 164.3      $  65.7   $  40.1
             Acquisition integration charges      14.5         44.9     101.5
             Litigation and other                 (1.4 )       19.5     630.4

             Total special items               $ 177.4      $ 130.1   $ 772.0

Fiscal 2009 special items charges included restructuring charges of $164 million primarily related to the Spin-Off ($97 million), restructuring of the Company's segment operating structure ($31 million), and headcount reductions within the Clinical and Medical Products segment ($19 million).

Fiscal 2008 special items charges primarily related to the Company's restructuring programs and the integration costs of certain acquisitions. During fiscal 2008, the Company also recorded litigation charges totaling $74 million primarily related to the DEA matter ($34 million) and other matters. These charges were offset by $58 million of income related to the settlement of the Derivative Actions. See Note 3 of "Notes to Consolidated Financial Statements" for additional detail regarding the Derivative Action.

. . .