CARDINAL HEALTH INC (Form: 10-K, Received: 10/26/2004 16:48:09)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2004

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

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             (I.R.S. Employer Identification No.)
incorporation or organization)

   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:

COMMON SHARES (WITHOUT PAR VALUE) NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which registered)

Securities Registered Pursuant to Section 12(g) of the Act: None.

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]

The aggregate market value of voting stock held by non-affiliates of the Registrant on December 31, 2003, based on the closing price on December 31, 2003, was approximately $26,147,514,930.

The number of Registrant's Common Shares outstanding as of October 25, 2004, was as follows: Common Shares, without par value: 432,043,722.

TABLE OF CONTENTS

ITEM PAGE
---- ----
Important Information Regarding Forward-Looking Statements.............................. 3

PART I

1. Business................................................................................ 3

2. Properties.............................................................................. 18

3. Legal Proceedings....................................................................... 18

4. Submission of Matters to a Vote of Security Holders..................................... 24

PART II

5. Market for the Registrant's Common Shares, Related Shareholder Matters and
Issuer Purchases of Equity Securities................................................... 25

6. Selected Financial Data................................................................. 26

7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 27

7a. Quantitative and Qualitative Disclosures About Market Risk.............................. 45

8. Financial Statements and Supplementary Data............................................. 46

9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................................... 104

9a. Controls and Procedures................................................................. 104

PART III

10. Directors and Executive Officers of the Registrant...................................... 106

11. Executive Compensation.................................................................. 110

12. Security Ownership of Certain Beneficial Owners and Management.......................... 116

13. Certain Relationships and Related Transactions.......................................... 118

PART IV

14. Principal Accounting Fees and Services.................................................. 119

15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 120

Signatures.............................................................................. 126

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Portions of this Annual Report on Form 10-K (including information incorporated by reference) include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. This includes, in particular, Part II, Item 7 of this Form 10-K. The words "believe," "expect," "anticipate," "project" and similar expressions, among others, generally identify "forward-looking statements," which speak only as of the date the statement was made. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these risks, uncertainties and other factors are described in this Form 10-K (including in the section titled "Risk Factors That May Affect Future Results" within "Item 1: Business") and in Exhibit 99.01 to this Form 10-K. Except to the limited extent required by applicable law, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

PART I

ITEM 1: BUSINESS

GENERAL

Cardinal Health, Inc., an Ohio corporation formed in 1979, is a holding company encompassing a number of operating subsidiaries that do business as Cardinal Health. The Company is a leading provider of products and services supporting the health care industry, and helping health care providers and manufacturers improve the efficiency and quality of health care. As used in this report, the terms the "Registrant" and the "Company" refer to Cardinal Health, Inc. and its subsidiaries, unless the context requires otherwise. Except as otherwise specified, information in this report is provided as of June 30, 2004 (the end of the Company's fiscal year).

The description of the Company's business should be read in conjunction with the financial statements and supplementary data included in this Form 10-K.

Accounting Investigations and Restatement

As previously reported, in October 2003, the Securities and Exchange Commission (the "SEC") initiated an informal inquiry regarding the Company. The SEC's request sought historical financial and related information including but not limited to the accounting treatment of certain recoveries from vitamin manufacturers. The SEC's request sought a variety of documentation, including the Company's accounting records for fiscal 2001 through fiscal 2003, as well as notes, memoranda, presentations, e-mail and other correspondence, budgets, forecasts and estimates. In connection with the SEC's informal inquiry, the Audit Committee of the Board of Directors of the Company commenced its own internal review in April 2004, assisted by independent counsel. On May 6, 2004, the Company was notified that the SEC had converted the informal inquiry into a formal investigation. On June 21, 2004, as part of the SEC's formal investigation, the Company received an additional SEC subpoena that included a request for the production of documents relating to revenue classification, and the methods used for such classification, in the Company's Pharmaceutical Distribution business as either "Operating Revenue" or "Bulk Deliveries to Customer Warehouses and Other." In addition, the Company learned that the U.S. Attorney for the Southern District of New York had also commenced an inquiry with respect to the Company that the Company understands relates to the revenue classification issue. On October 12, 2004, in connection with the SEC's formal investigation, the Company received a subpoena from the SEC requesting the production of documents relating to compensation information for specific current and former employees and officers. While the Company is continuing in its efforts to respond to the SEC's investigation and the Audit Committee's internal review and provide all information required, the Company cannot predict the outcome of the SEC investigation or the U.S. Attorney inquiry. The outcome of the SEC investigation, the U.S. Attorney inquiry and any related legal and administrative proceedings could include the institution of administrative, civil injunctive or criminal proceedings as well as the imposition of fines and other penalties, remedies and sanctions.

During September and October 2004, the Audit Committee reached certain conclusions with respect to findings to date from its internal review. These conclusions regarding certain items that impact revenue and earnings relate to four primary areas of focus: (1) classification of sales to customer warehouses between "Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other" within the Company's Pharmaceutical Distribution and Provider Services segment; (2) disclosure of the Company's practice, in certain reporting periods, of accelerating its receipt and recognition of cash discounts earned from suppliers for prompt payment; (3) timing of revenue recognition within the Company's Automation and Information Services segment; and (4) certain balance sheet reserve and accrual adjustments that have been identified in the internal review. The Audit Committee's internal review with respect to the financial statement impact of the matters reviewed to date is substantially complete. In connection with these conclusions, the Audit Committee has determined that the financial statements of the Company with respect to fiscal 2000, 2001, 2002 and 2003 as well as the first three quarters of fiscal 2004 should be restated to reflect the conclusions from its internal review to date, and as such, the previously published financial statements of the Company for such periods should no longer be relied upon. On September 13, 2004, the Company filed a Form 8-K disclosing the Audit Committee's determination as of such date.

In connection with the Audit Committee's conclusions with respect to findings to date from its internal review, the Company made certain reclassification and restatement adjustments to its fiscal 2004 and prior historical financial statements, as more fully described in Notes 1 and 2 of "Notes to Consolidated Financial Statements." Revenue previously disclosed separately as "Bulk Deliveries to Customer Warehouses and Others" has been aggregated with "Operating Revenue" resulting in combined "Revenue" being reported in the financial statements. In addition, the Company changed its accounting method for recognizing income from cash discounts. The Company also reduced its fourth quarter fiscal 2004 results of operations for premature revenue recognition within its Automation and Information Services segment after assessing the impact this segment's sales practice had on the Company's results of operations for the three year period ended June 30, 2004. Lastly, the Company restated its financial statements for fiscal 2000, 2001, 2002 and 2003 and the first three quarters of fiscal 2004 as a result of various misapplications of generally accepted accounting principles ("GAAP") and errors relating primarily to balance sheet reserve and accrual adjustments recorded in prior periods. As a result, the Company supplemented its historical disclosures within "Management's Discussion and Analysis of Financial Condition and Results of Operations" to reflect these reclassification and restatement adjustments on previously reported Company and business segment operating earnings performance. All prior period disclosures presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations" have been adjusted to reflect these changes.

As the Company continues to respond to the SEC's investigation and the Audit Committee's ongoing internal review, there can be no assurance that additional restatements will not be required or that the historical financial statements included in this Form 10-K will not change or require amendment. In addition, the Audit Committee may identify new issues, or make additional findings if it receives additional information, that may impact the Company's financial statements and the scope of the restatements described in this Form 10-K.

ALARIS Acquisition

On June 28, 2004, the Company acquired approximately 98.7% of the outstanding common stock of ALARIS Medical Systems, Inc. ("ALARIS"), a leading provider of intravenous medication safety products and services. On July 7, 2004, ALARIS merged with a subsidiary of the Company to complete the transaction. For additional information concerning the Company's acquisition of ALARIS, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 4 of "Notes to Consolidated Financial Statements." As of June 30, 2004, the Company had not made a determination as to the segment reporting for ALARIS. Therefore, the results for ALARIS are reported in the Corporate segment in this Form 10-K. Due to the short period of time between the completion of the acquisition and end of fiscal 2004, the impact of ALARIS' results is not material. As discussed below under "Business Segments," the Company recently announced the creation of a new segment, Clinical Technologies and Services, which will replace the Company's Automation and Information Services segment and will include ALARIS in addition to other of the Company's existing businesses.

BUSINESS SEGMENTS

As of June 30, 2004, the Company's operations were organized into four reporting segments. They are: Pharmaceutical Distribution and Provider Services, Medical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services.

On August 30, 2004, the Company announced the creation of a new segment, Clinical Technologies and Services, which will replace the Company's Automation and Information Services segment. This new segment will include ALARIS, the Company's existing businesses formerly within the Automation and Information Services segment and the Company's Clinical Services and Consulting business, which was formerly reported under the Pharmaceutical Distribution and Provider Services segment. The Company will begin reporting results for this new segment beginning with the first quarter fiscal 2005. In addition, effective first quarter fiscal 2005, the Company will transfer its Specialty Pharmaceutical Distribution business, formerly included within the Pharmaceutical Distribution and Provider Services segment, to the Medical Products and Services segment. All prior periods will be restated to reflect these transfers in fiscal 2005. See Note 18 of "Notes to Consolidated Financial Statements" for more information regarding the Company's reporting segments.

PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES

Through its Pharmaceutical Distribution and Provider Services segment, the Company distributes a broad line of pharmaceutical and other health care products and provides pharmacy management and related consulting services to hospital, retail and alternate-site pharmacies. The Company's Pharmaceutical Distribution business is one of the country's leading wholesale distributors of pharmaceutical and related health care products to independent and chain drug stores, hospitals, alternate care centers and the pharmacy departments of supermarkets and mass merchandisers located throughout the United States. Through the acquisition of The Intercare Group, plc ("Intercare"), this segment also operates a distribution network within the United Kingdom offering a specialized range of branded and generic pharmaceutical products. As a full-service wholesale distributor, the Company's Pharmaceutical Distribution business complements its distribution activities by offering a broad range of support services to assist the Company's customers and suppliers in maintaining and improving the efficiency and quality of

their services. These support services include: online procurement, fulfillment and information provided through cardinal.com; computerized order entry and order confirmation systems; generic sourcing programs; product movement and management reports; consultation on store operations and merchandising; and customer training. The Company's proprietary software systems feature customized databases specially designed to help its distribution customers order more efficiently, contain costs and monitor their purchases.

Through this segment, the Company also operates several specialty health care distribution businesses which offer services to the Company's customers and suppliers while providing the Company with additional opportunities for growth and profitability. For example, the Company operates a pharmaceutical repackaging and distribution program for both independent and chain drug store customers. In addition, the Company serves as a distributor of oncology products and other specialty pharmaceuticals to hospitals, clinics and other managed-care facilities on a nationwide basis through the utilization of telemarketing and direct mail programs.

Also through this segment, the Company provides services that help enhance performance in hospital pharmacies through integrated pharmacy management, consulting and temporary staffing and related services. In addition, the Company is a franchisor of apothecary-style retail pharmacies through its Medicine Shoppe International, Inc. ("Medicine Shoppe") and Medicap Pharmacies Incorporated ("Medicap") franchise systems. Additionally, through this segment, the Company operates a non-core wholesale-to-wholesale pharmaceutical trading business that sells excess pharmaceutical inventory.

MEDICAL PRODUCTS AND SERVICES

Through its Medical Products and Services segment, the Company provides medical products and cost-saving services to hospitals and other health care providers. The Company offers a broad range of medical and laboratory products, representing approximately 2,000 suppliers in addition to its own line of surgical and respiratory therapy products to hospitals and other health care providers. The Company also manufactures sterile and non-sterile procedure kits, single-use surgical drapes, gowns and apparel, exam and surgical gloves, fluid suction and collection systems, respiratory therapy products, surgical instruments, special procedure products and other products. The Company also assists its customers in reducing costs while helping improve the quality of patient care in a variety of ways, including online procurement, fulfillment and information provided through cardinal.com, supply-chain management and instrument repair.

PHARMACEUTICAL TECHNOLOGIES AND SERVICES

Through its Pharmaceutical Technologies and Services segment, the Company provides a broad range of technologies and services to the pharmaceutical, life sciences and consumer health industries. This segment's Oral Technologies business provides proprietary drug delivery technologies, including softgel capsules, controlled release forms and Zydis(R) fast dissolving wafers, and manufacturing for nearly all traditional oral dosage forms. The Biotechnology and Sterile Life Sciences business provides advanced aseptic blow/fill/seal technology, drug lyophilization and manufacturing for nearly all sterile dose forms, such as vials and prefilled syringes, as well as biologic development. The Packaging Services business provides pharmaceutical packaging services, folding cartons, inserts and labels, with proprietary expertise in child-resistant and unit dose/compliance package design. The Pharmaceutical Development business provides drug discovery, development, analytical science and regulatory consulting expertise, and clinical supplies manufacturing and packaging. The Healthcare Marketing Services business provides medical education, marketing and contract sales services, along with product logistics management. The Nuclear Pharmacy Services business operates centralized nuclear pharmacies that prepare and deliver radiopharmaceuticals for use in nuclear imaging and other procedures in hospitals and clinics. The Company also manufactures and markets generic injectible pharmaceutical products for sale to pharmacies in the United Kingdom and provides manufacturing services for oral potent drugs and sterile dose forms in Europe.

AUTOMATION AND INFORMATION SERVICES

The Company, through its Automation and Information Services segment, operates businesses focusing on meeting customer needs through unique and proprietary automation and information products and services. This segment develops, manufactures, leases, sells and services point-of-use systems that automate the distribution and management of medications and supplies in hospitals and other health care facilities, as well as bedside clinical verification and patient entertainment systems.

ALARIS

The Company's recently acquired subsidiary, ALARIS, develops and markets products for the safe delivery of intravenous ("IV") medications. ALARIS is a global leader in the design, development and marketing of IV medication safety and infusion therapy delivery systems, software applications, needle-free disposables and related patient monitoring equipment. ALARIS' "smart" infusion pumps, with proprietary Guardrails(R) Safety Software, help to reduce the risks and costs of medication errors, help to safeguard patients and clinicians and gather and record clinical information for review, analysis and interpretation. As discussed above, the Company recently announced the creation of a new segment, Clinical Technologies and Services, which will replace the Company's Automation and Information Services segment and will include ALARIS in addition to other of the Company's existing businesses.

For information on comparative segment revenues, profits and related financial information, see Note 18 of "Notes to Consolidated Financial Statements."

CARDINAL.COM

This Annual Report on Form 10-K as well as Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are made available on the Company's website (www.cardinal.com, under the "Investor Relations--SEC filings" captions) after the Company electronically files such materials with, or furnishes them to, the SEC. Required filings by the Company's officers, directors and third parties with respect to Cardinal Health furnished in electronic form are also made available on the Company's website as are proxy statements for the Company's shareholder meetings. These filings also may be read and copied at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Information relating to corporate governance at Cardinal Health, including the Company's Corporate Governance Guidelines and Standards of Business Ethics (as contained in the Cardinal Health Ethics Guide) for all of the Company's employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and the Company's directors; and information concerning the Company's directors and Board Committees, including Committee charters, is available on the Company's website (www.cardinal.com, under the "Investor Relations" caption). This information also is available in print (free of charge) to any shareholder who requests it from the Company's Investor Relations department.

ACQUISITIONS AND DIVESTITURES

Since June 30, 1999, the Company has completed a number of business combinations including the following (in millions):

                                                                                                      CONSIDERATION PAID
                                                                                            --------------------------------------
                                                                                                     STOCK OPTIONS
   DATE              COMPANY              LOCATION              LINE OF BUSINESS            SHARES    CONVERTED (1)        CASH
----------     -------------------     --------------   --------------------------------    ------  ------------------  ----------
                                                          Custom manufacturer of sterile
9/10/1999       Automatic Liquid        Woodstock,        liquid pharmaceuticals and
                Packaging, Inc.          Illinois         other health care products           8.7          -                   -

                                                           Distributor of medical,
                                                           surgical and laboratory
                                                        supplies to doctors' offices,
8/16/2000        Bergen Brunswig          Orange,          long-term care and nursing
               Medical Corporation       California       centers, hospitals and other           -          -           $     181
                                                              providers of care

                                                           Wholesale distributor of
2/14/2001       Bindley Western        Indianapolis,    pharmaceuticals and provider of
                Industries, Inc.         Indiana          nuclear pharmacy services           23.1        5.1                   -

                                                           Pharmaceutical contract
                                                           development organization
                                                           providing analytical and
4/15/2002           Magellan             Research          development services to
               Laboratories, Inc.      Triangle Park,          pharmaceutical and                -          -           $     221(2)
                                       North Carolina     biotechnological industries

                                                           Full-service provider of
                                                         strategic medical education
6/26/2002       Boron, LePore &         Wayne, New       solutions to the health care
                Associates, Inc.          Jersey                   industry                      -        1.0           $     189

1/1/2003      Syncor International     Woodland Hills,     Leading provider of nuclear        12.5        3.0                   -
                  Corporation           California            pharmacy services

                                                        Contract services manufacturer
12/16/2003     The Intercare Group,                           and distributor for
                      plc              United Kingdom       pharmaceutical companies             -          -           $     570(3)

                                                           Provider of intravenous
6/28/2004        ALARIS Medical         San Diego,      medication safety products and
                   Systems, Inc.        California                 services                      -        0.6           $   2,080(4)

(1) As a result of the acquisition, the outstanding stock options of the acquired company were converted into options to purchase the Company's Common Shares. This column represents the number of the Company's Common Shares subject to such converted stock options immediately following conversion giving effect to interim stock splits.

(2) Purchase price is before consideration of any tax benefits associated with the transaction.

(3) This includes the assumption of approximately $150 million in debt.

(4) This includes the assumption of approximately $358 million in debt.

The Company has also completed a number of smaller acquisitions (asset purchases, stock purchases and mergers) and divestitures during the last five fiscal years, including acquisitions of Med Surg Industries, Inc.; Rexam Cartons Inc.; International Processing Corporation; American Threshold Industries, Inc.; SP Pharmaceuticals, L.L.C.; Medicap; and Snowden Pencer Holdings, Inc.; and the divestiture of certain operations of the medical imaging business of Syncor International Corporation (which has been given the legal designation of Cardinal Health 414, Inc., and is referred to in this Form 10-K as "Syncor").

The Company evaluates possible candidates for merger or acquisition and intends to continue to seek opportunities to expand its operations and services across all reporting segments from time to time as appropriate. These acquisitions may involve the use of cash, stock or other securities as well as the assumption of indebtedness and liabilities. In addition, the Company evaluates from time to time as appropriate its portfolio of businesses to identify any non-core businesses for possible divestiture. For additional information concerning certain of the transactions described above, see Notes 4 and 17 of "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

CUSTOMERS AND SUPPLIERS

The Company's largest customer, CVS Corporation ("CVS"), accounted for approximately 18% of the Company's revenue (by dollar volume) for fiscal 2004 (15% relates to "Bulk Revenue," as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations"). All of the Company's business with CVS is included in its Pharmaceutical Distribution and Provider Services segment. The aggregate of the Company's five largest customers, including CVS, accounted for approximately 34% of the Company's revenue (by dollar volume) for fiscal 2004. The Company would be adversely affected if the business of these customers were lost. In addition, certain of the Company's businesses have entered into agreements with group purchasing organizations ("GPOs"), which organizations act as purchasing agents that negotiate vendor contracts on behalf of their members. Approximately 17% of revenue for fiscal 2004 was derived from GPO members through the contractual arrangements established with Novation, LLC ("Novation") and Premier Purchasing Partners, L.P. ("Premier")--the Company's two largest GPO relationships in terms of member revenue. Generally, compliance by GPO members with GPO vendor selections is voluntary. As such, the Company believes the loss of any of the Company's agreements with a GPO would not mean the loss of sales to all members of the GPO, although the loss of such an agreement could adversely affect the Company's operating results. See Note 13 in "Notes to Consolidated Financial Statements" for further information regarding the Company's concentrations of credit risk and major customers.

The Company obtains its products from many different suppliers, the largest of which, Pfizer, Inc., accounted for approximately 14% (by dollar volume) of the Company's revenue in fiscal 2004. The Company's five largest suppliers combined accounted for approximately 40% (by dollar volume) of the Company's revenue during fiscal 2004 and, overall, the Company believes its relationships with its suppliers are good. The Company's arrangements with its pharmaceutical suppliers typically may be canceled by either the Company or the supplier upon 30 to 90 days prior notice, although many of these arrangements are not governed by formal agreements and therefore may be subject to earlier cancellation. The loss of certain suppliers could adversely affect the Company's business if alternative sources of supply were unavailable at reasonable rates.

As previously reported, the Company's Pharmaceutical Distribution business is in the midst of a business model transition with respect to how it is compensated for the logistical, capital and administrative services that it provides to pharmaceutical manufacturers. Historically, the compensation received by the Pharmaceutical Distribution business from pharmaceutical manufacturers was based on each manufacturer's unique sales practices (e.g., volume of product available for sale, eligibility to purchase product, cash discounts for prompt payment, rebates, etc.) and pharmaceutical pricing practices (e.g., the timing, frequency and magnitude of product price increases). Specifically, a significant portion of the compensation the Pharmaceutical Distribution business received from manufacturers was derived through the Company's ability to purchase pharmaceutical inventory in advance of pharmaceutical price increases, hold that inventory as manufacturers increased pharmaceutical prices, and generate a higher operating margin on the subsequent sale of that inventory. This compensation system was dependent to a large degree upon the sales practices of each pharmaceutical manufacturer, including established policies concerning the volume of product available for purchase in advance of a price increase, and on stable and predictable pharmaceutical pricing practices. Beginning in fiscal 2003, pharmaceutical manufacturers began to seek greater control over the amount of pharmaceutical product available in the supply chain, and, as a result, began to change their sales practices by restricting the volume of product available for purchase by pharmaceutical wholesalers. In addition, manufacturers have increasingly sought more services from the Company, including the provision of data concerning product sales and distribution patterns. The Company believes these changes have been made to provide greater visibility to pharmaceutical manufacturers over product demand and movement in the market and to increase product safety and integrity by reducing the risks associated with product being available to, and distributed in, the secondary market. Nevertheless, the impact of these changes has significantly reduced the compensation received by the Company from pharmaceutical manufacturers. In addition, since the fourth quarter of fiscal 2004, pharmaceutical manufacturers' product pricing practices have become less predictable, as the frequency of product price increases generally has slowed versus historical levels. As a result of these actions by pharmaceutical manufacturers, the Company is no longer being adequately and consistently compensated for the reliable and consistent logistical, capital and administrative services being provided by the Company to these manufacturers.

In response to the developments described above, the Company is working to establish a compensation system that is no longer dependent on manufacturers' sales or pricing practices, but rather is based on the services provided by the Company to meet the unique distribution requirements of each manufacturer's products. To that end, the Company is working with individual pharmaceutical manufacturers to define fee-for-service terms that will adequately compensate the Company, in light of each product's unique distribution requirements, for the logistical, capital and administrative services being provided by the Company. To accelerate this process, in August 2004, the Company communicated to its pharmaceutical manufacturing vendors a new policy which sets April 1, 2005 or, for manufacturers with an existing agreement with the Company, the next anniversary date of such agreement, as the deadline by which manufacturers must have entered into a mutually satisfactory distribution services agreement with the Company providing for reliable, predictable and adequate compensation for the Company's services. For any manufacturer with which the

Company is unable to enter into such a mutually satisfactory agreement, the Company plans to assist such manufacturer in transitioning to another method of distribution. There can be no assurance that this business model transition will be successful, or of the timing of such a successful transition.

The Company's manufacturing businesses within the Medical Products and Services and Pharmaceutical Technologies and Services segments use a broad range of raw materials in the products they produce. These raw materials include for Medical Products and Services, latex, resin and fuel oil and, for Pharmaceutical Technologies and Services, resin, gelatin and active pharmaceutical ingredients, among others. In certain circumstances, the Company's operating results may be adversely affected by increases in raw materials costs because the Company may not be able to fully recover the increased costs from the customer or offset the increased cost through productivity improvements. In addition, although most of these raw materials are generally available, certain raw materials used by the Company's manufacturing businesses may be available only from a limited number of suppliers. There also may be cases where a particular raw material may be available from another supplier or several other suppliers, but the Company is constrained to use a particular supplier due to customer requirements, regulatory filings or product approvals. In either case where there are a limited number of suppliers, the Company may experience shortages in supply, and as a result, the Company's operating results could be adversely affected.

Certain of the Company's manufacturing vendors have adopted policies limiting the ability of distributors to purchase inventory on the secondary market. If this practice becomes more widespread, the Company's ability to source product on the secondary market, as well as its ability to sell excess inventories, may be impaired. This could adversely affect the Company's operating results.

While certain of the Company's operations may show quarterly fluctuations, the Company does not consider its business to be seasonal in nature on a consolidated basis.

COMPETITION

The markets in which the Company operates generally are highly competitive.

In the Pharmaceutical Distribution and Provider Services segment, the Company's pharmaceutical wholesale distribution business competes directly with two other national wholesale distributors (McKesson Corporation and AmerisourceBergen Corporation) and a number of smaller regional wholesale distributors, direct selling manufacturers, self-warehousing chains and specialty distributors on the basis of a value proposition that includes breadth of product lines, marketing programs, support services and pricing. The Company's pharmaceutical wholesale distribution operations have narrow profit margins and, accordingly, the Company's earnings depend significantly on its ability to distribute a large volume and variety of products efficiently, to provide quality support services, to effectively compete on the pricing of pharmaceutical products, and to maintain satisfactory arrangements with pharmaceutical manufacturers whereby the Company is compensated for its logistical, capital and administrative services. With respect to pharmacy franchising operations, several smaller franchisors compete with Medicine Shoppe and Medicap in the franchising of pharmacies, with competition being based primarily upon benefits offered to both the pharmacist and the customer, access to third-party programs, the reputation of the franchise and pricing. Medicine Shoppe and Medicap also need to be competitive with a pharmacist's ongoing options to operate or work for an independent or chain pharmacy. With respect to services that enhance performance in hospital pharmacies, the Company competes with both national and regional hospital pharmacy management firms, and self-managed hospitals and hospital systems on the basis of services offered, its established base of existing operations, the effective use of information systems, the development of clinical programs, the quality of the services it provides to its customers and price.

The Company's Medical Products and Services segment competes both domestically and internationally. Competitive factors within medical-surgical supply distribution include price, breadth of product offerings, product availability, order-filling accuracy (both invoicing and product selection) and service offerings. Within its distribution services, this segment competes across several customer classes with many different distributors, including Owens & Minor, Inc., Fisher Scientific International, Inc., and Henry Schein, Inc., among others. Competitive factors within medical-surgical product manufacturing include brand recognition and product innovation, performance, quality and price. This segment competes against many product manufacturers, some of which are larger and more diversified than Medical Products and Services. The Company believes that its key competitive strengths within this segment include its ability to work with customers to help them provide quality care while enhancing their competitiveness through cost-savings initiatives. This competitive strength is enhanced through the integration of products and services within both the Medical Products and Services segment and across other Company segments.

In the Pharmaceutical Technologies and Services segment, the Company competes on several fronts both domestically and internationally, including competition with other companies that provide outsourcing services to pharmaceutical manufacturers

based in North America, Europe and Asia and competition with those manufacturers that choose to retain these services in-house. Specifically, in this segment, the Company competes with providers of both new drug delivery technologies and existing delivery technologies as well as oral solid dose manufacturing; with other providers of sterile fill/finish manufacturing and lyophilization services; with providers of contract discovery, development, analytical laboratory and regulatory consulting services and manufacturing and packaging of clinical supplies; with companies that provide packaging components and packaging services; with other providers of medical education, marketing/product launch services, contract sales and product logistics services; and with other nuclear pharmacy companies and distributors engaged in the preparation and delivery of radiopharmaceuticals for use in nuclear imaging procedures in hospitals and clinics, which include numerous operators of radiopharmacies, numerous independent radiopharmacies and manufacturers and universities that have established their own radiopharmacies. The Company competes in this segment based upon a variety of factors, principally including quality, responsiveness, proprietary technologies or capabilities, customer service and price.

In the Automation and Information Services segment, the Company competes based upon quality, relationships with customers, customer service and support capabilities, patents and other intellectual property, its ability to interface with customer information systems, and price. Actual and potential competitors include both existing domestic and foreign companies, as well as emerging companies that supply products for specialized markets and other outside service providers. Such competitors include McKesson Corporation and Omnicell, Inc.

ALARIS competes based upon quality, technological innovation, the value proposition of improving patient outcomes while reducing overall costs associated with medication safety, and price. ALARIS' competitors include both domestic and foreign companies, including Baxter International, Inc., Abbott Laboratories, Inc. and B. Braun Medical, Inc.

EMPLOYEES

As of October 25, 2004, the Company had more than 55,000 employees in the U.S. and abroad, of which approximately 1,080 are subject to collective bargaining agreements. Overall, the Company considers its employee relations to be good.

INTELLECTUAL PROPERTY

The Company relies on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions and technical measures to protect its products, services and intangible assets. These proprietary rights are important to the Company's ongoing operations.

The Company has applied in the United States and certain foreign countries for registration of a number of trademarks and service marks, some of which have been registered, and also holds common law rights in various trademarks and service marks. It is possible that in some cases the Company may be unable to obtain the registrations for trademarks and service marks for which it has applied.

The Company holds patents relating to certain aspects of its automated pharmaceutical dispensing systems, automated medication management systems, medication packaging, medical devices, processes, products, formulations, infusion therapy systems, infusion administration sets, drug delivery systems and sterile manufacturing. The Company has a number of pending patent applications in the United States and certain foreign countries, and intends to pursue additional patents as appropriate.

The Company does not consider any particular patent, trademark, license, franchise or concession to be material to its overall business.

REGULATORY MATTERS

Certain of the Company's subsidiaries may be required to register for permits and/or licenses with, and comply with operating and security standards of, the United States Drug Enforcement Administration (the "DEA"), the Food and Drug Administration (the "FDA"), the United States Nuclear Regulatory Commission (the "NRC"), the Department of Health and Human Services (the "HHS"), and various state boards of pharmacy, state health departments and/or comparable state agencies as well as foreign agencies, and certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing and sale. These subsidiaries include those that distribute and/or manufacture prescription pharmaceuticals (including certain controlled substances) and/or medical devices; manage or own pharmacy operations; engage in or operate retail pharmacies or nuclear pharmacies; purchase pharmaceuticals; engage in logistics and/or manufacture infusion therapy systems or surgical and respiratory care and intravenous administration set products and devices; manufacture or package pharmaceutical products and devices; manufacture and market pharmaceutical products and provide outsourced pharmaceutical manufacturing services using

both proprietary and nonproprietary drug delivery formulations and outsourced analytical development services; develop, create, present or distribute accredited and unaccredited educational or promotional programs or materials; and provide consulting services that assist healthcare institutions and pharmacies in their operations as well as pharmaceutical manufacturers with regard to regulatory submissions and filings made to healthcare agencies such as the FDA.

In addition, certain of the Company's subsidiaries are subject to requirements of the Controlled Substances Act and the Prescription Drug Marketing Act of 1987 and similar state laws, which regulate the marketing, purchase, storage and distribution of prescription drugs and prescription drug samples under prescribed minimum standards. Certain of the Company's subsidiaries which manufacture medical devices are subject to the Federal Food, Drug and Cosmetic Act of 1938, as amended by the Medical Device Amendments of 1976, the Safe Medical Device Act of 1990, as amended in 1992, the Medical Device User Fee and Modernization Act of 2002, and comparable foreign regulations. In addition, certain of ALARIS' products are indirectly subject to the Needlestick Safety and Prevention Act.

Laws regulating the manufacture and distribution of products also exist in most other countries where certain of the Company's subsidiaries conduct business. In addition, the Medical Products and Services segment's international manufacturing operations, the Pharmaceutical Technologies and Services segment's international operations (including Intercare) and ALARIS' international operations are subject to local certification requirements, including compliance with domestic and/or foreign good manufacturing practices and quality system regulations established by the FDA and/or those applicable foreign jurisdictions. Intercare self-manufactures and markets sterile injectible products in the United Kingdom in accordance with applicable laws, rules and regulations of the United Kingdom and the European Union. Intercare also manufactures methadone syrup in the United Kingdom pursuant to the United Kingdom's regulations covering the manufacture of controlled opioid substances.

The Company's franchising operations, through Medicine Shoppe and Medicap, are subject to Federal Trade Commission regulations, and rules and regulations adopted by certain states, which require franchisors to make certain disclosures to prospective franchisees prior to the sale of franchises. In addition, certain states have adopted laws which regulate the franchisor-franchisee relationship. The most common provisions of such laws establish restrictions on the ability of franchisors to terminate or to refuse to renew franchise agreements. From time to time, similar legislation has been proposed or is pending in additional states.

The Company's Nuclear Pharmacy Services business operates nuclear pharmacies, imaging centers and related businesses such as cyclotron facilities used to produce positron emission tomography ("PET") products used in medical imaging. This group operates in a regulated industry which requires licenses or permits from the NRC, the radiologic health agency and/or department of health of each state in which it operates and the applicable state board of pharmacy. In addition, the FDA is also involved in the regulation of cyclotron facilities where PET products are produced.

Certain of the Company's businesses are subject to federal and state health care fraud and abuse, referral and reimbursement laws and regulations with respect to their operations. Certain of the Company's subsidiaries also maintain contracts with the federal government and are subject to certain regulatory requirements relating to government contractors.

Services and products provided by certain of the Company's businesses include access to health care information gathered and assessed for the benefit of health care clients. Greater scrutiny on a federal and state level is being placed on how patient identifiable health care information should be handled and in identifying the appropriate parties and means to do so. Future changes in regulations and/or legislation such as the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and its accompanying federal regulations, such as those pertaining to privacy and security, may affect how some of these information services or products are provided. In addition, certain of the Company's operations, depending upon their location, may be subject to additional state or foreign regulations affecting how information services or products are provided. Failure to comply with HIPAA and other such laws may subject the Company and/or its subsidiaries to civil and/or criminal penalties, which could be significant.

The Company is also subject to various federal, state and local laws, regulations and recommendations, both in the United States and abroad, relating to safe working conditions, laboratory and manufacturing practices and the use, transportation and disposal of hazardous or potentially hazardous substances. The Company's environmental policies mandate compliance with all applicable regulatory requirements concerning environmental quality and contemplate, among other things, appropriate capital expenditures for environmental protection for each of its subsidiaries. In addition, U.S. and international import and export laws and regulations require that the Company abide by certain standards relating to the importation and exportation of finished goods, raw materials and supplies and the handling of information. The Company is also subject to certain laws and regulations concerning the conduct of its foreign operations, including the U.S. Foreign Corrupt Practices Act and anti-bribery laws and laws pertaining to the accuracy of the Company's internal books and records.

There have been increasing efforts by various levels of government including state pharmacy boards and comparable agencies to regulate the pharmaceutical distribution system in order to prevent the introduction of counterfeit, adulterated or mislabeled drugs into the pharmaceutical distribution system. Certain states, such as Florida, have already adopted laws and regulations that are intended to protect the integrity of the pharmaceutical distribution system while other government agencies are currently evaluating their recommendations. These laws and regulations could increase the overall regulatory burden and costs associated with the Company's Pharmaceutical Distribution business, and may adversely affect the Company's operating results. The Company continues to work with its suppliers to help minimize the risks associated with counterfeit products in the supply chain.

The costs associated with complying with the various applicable federal regulations, as well as state and foreign regulations, could be significant and the failure to comply with all such legal requirements could have a significant impact on the Company's results of operations and financial condition.

INVENTORIES

The Company has historically maintained higher levels of inventory in its Pharmaceutical Distribution business in order to satisfy daily delivery requirements and take advantage of price changes as compensation for its services, but is not generally required by its customers to maintain particular inventory levels other than may be required to meet service level requirements. However, in connection with the business model transition discussed under "Customers and Suppliers" above, the Pharmaceutical Distribution business' inventory levels are significantly lower than historical levels. This trend, primarily attributable to reduced pharmaceutical investment buying opportunities and lower inventory levels negotiated with pharmaceutical manufacturers, is continuing. Certain supply contracts with U.S. Government entities require the Company's Pharmaceutical Distribution and Medical Products Distribution businesses to maintain sufficient inventory to meet emergency demands. The Company does not believe that the requirements contained in these U.S. Government supply contracts materially impact inventory levels. The Company's customer return policy requires that the product be physically returned, subject to restocking fees, and only allows customers to return products which can be added back to inventory and resold at full value, or which can be returned to vendors for credit. The Company's practice is to offer market payment terms to its customers. The Company is not aware of any material differences between its practices and those of other industry participants.

RESEARCH AND DEVELOPMENT

For information on company-sponsored research and development costs in the last three fiscal years, see Note 3 of "Notes to Consolidated Financial Statements."

REVENUE AND LONG-LIVED ASSETS BY GEOGRAPHIC AREA

For information on revenue and long-lived assets by geographic area, see Note 18 of "Notes to Consolidated Financial Statements."

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

Although it is not possible to predict all risks that may affect future results, these risks may include, but are not limited to, the following:

THE COMPANY'S PHARMACEUTICAL DISTRIBUTION BUSINESS IS TRANSITIONING ITS BUSINESS MODEL, WHICH SUBJECTS THE COMPANY TO RISKS AND UNCERTAINTIES. As discussed more fully under "Customers and Suppliers" within "Item 1: Business," the Company's Pharmaceutical Distribution business, which is the Company's largest business, is in the midst of a business model transition with respect to how it is compensated for the logistical, capital and administrative services it provides to pharmaceutical manufacturers. There can be no assurance that the Pharmaceutical Distribution business will ultimately succeed in transitioning its business model or, if such transition is successful, of the timing of that successful transition. If the transition does not succeed, the Company will not be adequately compensated for services it provides to pharmaceutical manufacturers, which will have the effect of reducing the Company's profitability in a potentially significant manner.

THE ONGOING SEC INVESTIGATION AND U.S. ATTORNEY INQUIRY COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS. As discussed
below under "Item 3: Legal Proceedings" and Note 1 of "Notes to Consolidated Financial Statements," the Company is the subject of a formal SEC investigation and has learned that the U.S. Attorney for the

Southern District of New York has commenced an inquiry with respect to the Company. In April 2004, the Company's Audit Committee commenced its own internal review, assisted by independent counsel. While the Company is continuing in its efforts to respond to the SEC's investigation and the Audit Committee's internal review and provide all information required, the Company cannot predict the outcome of the SEC investigation or the U.S. Attorney inquiry. There can be no assurance that the scope of the SEC investigation or the U.S. Attorney inquiry will not expand or that other regulatory agencies will not become involved. The outcome of and costs associated with the SEC investigation and the U.S. Attorney inquiry could adversely affect the Company's business, financial condition or operating results, and the investigations could divert the efforts and attention of its management team from the Company's ordinary business operations. The outcome of the SEC investigation and U.S. Attorney inquiry and any related legal and administrative proceedings could include the institution of administrative, civil injunctive or criminal proceedings against the Company and/or current or former Company officers or employees, the imposition of fines and penalties, suspensions or debarments from government contracting, and/or other remedies and sanctions.

ADDITIONAL RESTATEMENTS MAY BE REQUIRED AND THE HISTORICAL FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10-K MAY CHANGE OR REQUIRE AMENDMENT; THE AUDIT COMMITTEE MAY IDENTIFY NEW ISSUES, OR MAKE ADDITIONAL FINDINGS IF IT RECEIVES ADDITIONAL INFORMATION, THAT MAY IMPACT THE COMPANY'S FINANCIAL STATEMENTS AND THE SCOPE
OF THE RESTATEMENTS DESCRIBED IN THIS FORM 10-K. During September and October 2004, the Audit Committee reached certain conclusions with respect to findings to date from its internal review, which are discussed in Note 1 of "Notes to Consolidated Financial Statements." In connection with these conclusions, the Audit Committee has determined that the financial statements of the Company with respect to fiscal 2000, 2001, 2002 and 2003 as well as the first three quarters of fiscal 2004 should be restated to reflect the conclusions from its internal review to date. As the Company continues to respond to the SEC's investigation and the Audit Committee's internal review, there can be no assurance that additional restatements will not be required or that the historical financial statements included in this Form 10-K will not change or require amendment. In addition, the Audit Committee may identify new issues, or make additional findings if it receives additional information, that may impact the Company's financial statements and the scope of the restatements described in this Form 10-K.

THE COMPANY'S INTERNAL CONTROLS MAY NOT BE SUFFICIENT TO ENSURE TIMELY AND RELIABLE FINANCIAL INFORMATION. As discussed under Item 9a of this Form 10-K, in connection with the completion of its audit with respect to the Company's financial statements for fiscal 2004, including additional procedures resulting from the Audit Committee's internal review, the Company's independent auditor identified and communicated to the Company's management and the Audit Committee "material weaknesses" involving internal controls and their operation. In connection with the Audit Committee's internal review, since the end of fiscal 2004, the Company has adopted and is in the process of implementing various measures (as identified in Item 9a) in connection with the Company's ongoing efforts to improve its internal control processes and corporate governance. There can be no assurance that these improvements will adequately address the identified control weaknesses or that further improvements will not be required.

The Company's growth continues to place stress on its internal controls, and there can be no assurance that the Company's current control procedures will be adequate. Even after corrective actions have been implemented, the effectiveness of the Company's controls and procedures may be limited by a variety of risks, including faulty human judgment and simple errors, omissions and mistakes, collusion of two or more people, inappropriate management override of procedures, and risk that enhanced controls and procedures may still not be adequate to assure timely and reliable financial information. If the Company fails to have effective internal controls and procedures for financial reporting in place, it could be unable to provide timely and reliable financial information.

In addition, as a result of the Sarbanes-Oxley Act of 2002, the Company is subject to new rules requiring its management to report, in its Form 10-K for the fiscal year ending June 30, 2005, on the effectiveness of internal controls over financial reporting, and further requiring the Company's independent auditor to attest to this report. Significant additional resources will be required to make the requisite evaluation of the effectiveness of the Company's internal controls. There can be no assurance, however, that the Company will be able to complete the work necessary for the Company's management to issue its report in a timely manner or that management or the Company's independent auditor will conclude that the Company's internal controls are effective.

CHANGES IN THE UNITED STATES HEALTH CARE ENVIRONMENT MAY ADVERSELY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS. In recent years, the health care industry has undergone significant changes driven by various efforts to reduce costs. These efforts include, but are not limited to, potential national health care reform, trends toward managed care, cuts in Medicare, consolidation of competitors, suppliers and customers and the development of large, sophisticated purchasing groups, including the efforts in several states to establish pharmaceutical purchasing programs on behalf of their residents. This industry is expected to continue to undergo significant changes for the foreseeable future, which could have an adverse effect on the Company's business, financial condition or operating results. Other factors related to the health care industry that could adversely affect the Company's business, financial condition or operating results include, but are not limited to:

- changes in governmental support of, and reimbursement for, health care services;

- changes in the method by which health care services are delivered;

- changes in the prices for health care services;

- other legislation or regulations governing health care services or mandated benefits; and

- changes in pharmaceutical and medical-surgical manufacturers' pricing, selling, inventory, distribution or supply policies or procedures.

Healthcare and public policy trends indicate that the number of generic drugs will increase over the next few years as a result of the expiration of certain drug patents. An increase or a decrease in the availability of these generic drugs could have a material impact on the Company's net earnings.

There have been increasing efforts by various parties to introduce and pass legislation that would directly permit the importation of pharmaceutical products into the United States. If such efforts are successful, the price the Company receives for pharmaceutical products and related services could be adversely affected, thereby negatively impacting the Company's operating results.

The Company is subject to extensive and frequently changing local, state and federal laws and regulations relating to healthcare fraud. The federal government continues to increase its scrutiny over practices involving healthcare fraud affecting Medicare, Medicaid and other government healthcare programs. Furthermore, the Company's relationships with pharmaceutical manufacturers and healthcare providers subject its business to laws and regulations on fraud and abuse. Many of the regulations applicable to the Company, including those relating to marketing incentives offered by pharmaceutical or medical-surgical suppliers, are vague and could be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could require the Company to make changes in its operations. If the Company fails to comply with applicable laws and regulations, it could suffer civil and criminal penalties, including the loss of licenses or its ability to participate in Medicare, Medicaid and other federal and state healthcare programs.

THE OUTCOMES OF LAWSUITS BROUGHT AGAINST THE COMPANY MAY ADVERSELY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS. As discussed below under "Item 3: Legal Proceedings," the Company is subject to numerous lawsuits, including several class action lawsuits against the Company and certain of its former and present officers and directors. Any settlement of or judgment in one or more of these matters could adversely affect the Company's business, financial condition or operating results. There can be no assurance that all or any portion of the liability arising from these pending lawsuits will be covered by insurance policies that the Company currently maintains.

THE COMPANY COULD BE ADVERSELY AFFECTED BY THE LOSS OF ONE OR MORE SIGNIFICANT CUSTOMERS OR GROUP OF CUSTOMERS, OR BY A CHANGE IN CUSTOMER MIX. The Company's largest customer, CVS, accounted for approximately 18% of the Company's revenue (by dollar volume) for fiscal 2004. The aggregate of the Company's five largest customers, including CVS, accounted for approximately 34% of the Company's revenue (by dollar volume) for fiscal 2004. The Company's business and operating results could be adversely affected if the business of these customers were lost. In addition, certain of the Company's businesses have entered into agreements with GPOs. Approximately 17% of the Company's revenue for fiscal 2004 was derived from GPO members through the contractual arrangements established with Novation and Premier. Generally, compliance by GPO members with GPO vendor selections is voluntary. Notwithstanding this fact, the loss of such an agreement could adversely affect the Company's operating results. See the "Customers and Suppliers" discussion within "Item 1: Business" and Note 13 of "Notes to Consolidated Financial Statements" for further information regarding the Company's significant customers.

Changes in the Company's customer mix could also significantly impact its business, financial condition or operating results. Due to the diverse range of health care supply management and health care information technology products and services that the Company offers, such changes may adversely affect certain of the Company's businesses, while not affecting some of its competitors who offer a narrower range of products and services.

FAILURE TO COMPLY WITH EXISTING AND FUTURE REGULATORY REQUIREMENTS MAY ADVERSELY AFFECT THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS. The health care industry is highly regulated. The Company is subject to various local, state, federal, foreign and transnational laws and regulations, which include the operating and security standards of the DEA, the FDA, various state boards of pharmacy, state health departments, the NRC, the HHS, the European Union member states and other comparable agencies. Certain of the Company's subsidiaries may be required to register for permits and/or licenses with, and comply with operating and security standards of, the DEA, the FDA, the NRC, the HHS and various state boards of pharmacy, state health departments and/or comparable state agencies as well as foreign agencies and certain accrediting bodies depending upon the type of operations and location of product distribution, manufacturing and sale. Although the Company believes that it is in compliance, in all material respects, with applicable laws and regulations, there can be no assurance that a regulatory agency or tribunal would not reach a different conclusion concerning the compliance of the Company's operations with applicable laws and regulations. In addition, there can be no assurance that the Company will be able to maintain or renew existing permits and licenses or obtain without significant delay future permits and licenses needed for the operation of the Company's businesses. The Automation and Information Services segment's automated pharmaceutical dispensing systems are not currently required to be registered or submitted for pre-market notifications to the FDA. There can be no assurance, however, that FDA policy in this regard will not change.

The noncompliance by the Company with applicable laws and regulations or the failure to maintain, renew or obtain necessary permits and licenses could have an adverse effect on the Company's results of operations and financial condition. In addition, if changes were to occur to the laws and regulations applicable to the Company's businesses, such changes could adversely affect many of the Company's regulated operations, which include distributing prescription pharmaceuticals (including certain controlled substances), operating pharmacy businesses (including nuclear pharmacies), manufacturing medical/surgical products (including infusion therapy systems and intravenous administration set products and devices), manufacturing pharmaceuticals using proprietary drug delivery systems, manufacturing of oral and sterile pharmaceutical products, packaging pharmaceuticals and the sales and marketing of pharmaceuticals. Also, the health care regulatory environment may change in a manner that could restrict the Company's existing operations, limit the expansion of the Company's businesses, apply regulations to previously unregulated businesses or otherwise affect the Company adversely. The United Kingdom's Medicines and Healthcare products Regulatory Agency has raised certain issues regarding the appropriate use and commercial marketing of the ALARIS SmartSite(R) Needle-Free

Systems. The commercial availability of the product may be adversely affected if an unfavorable result is reached.

THE COMPANY'S OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY A DELAY IN, OR FAILURE TO RECEIVE, REGULATORY APPROVAL. The Company's pharmaceutical and medical device manufacturing businesses are heavily regulated and strict compliance with federal and foreign laws, rules, regulations and practices must be followed. By nature, the manufacturing of such products is a highly controlled process in which great strides are taken to avoid contamination in the products. Due to the regulatory issues and challenges, there is a risk of delay in approval of these products, which could adversely affect the Company's operating results.

CIRCUMSTANCES ASSOCIATED WITH THE COMPANY'S ACQUISITION STRATEGY AND INTERNAL GROWTH MAY ADVERSELY AFFECT THE COMPANY'S OPERATING RESULTS. An important element of the Company's growth strategy has been the pursuit of acquisitions of other businesses which expand or complement the Company's existing businesses. Over the past decade, the Company has expanded beyond its core pharmaceutical distribution business into areas such as medical-surgical product manufacturing and distribution, development and manufacturing of drug delivery systems, development and manufacturing of automation and information products, compounding and distribution of nuclear pharmaceutical products, and developing, manufacturing and distributing intravenous pumps and administration sets. Integrating businesses, however, involves a number of special risks, including the possibility that management may be distracted from regular business concerns by the need to integrate operations, unforeseen difficulties in integrating operations and systems, problems assimilating and retaining the Company's employees or the employees of the acquired company, accounting issues that could arise in connection with, or as a result of, the acquisition of the acquired company, regulatory or compliance issues that could exist at an acquired company, challenges in retaining the Company's customers or the customers of the acquired company following the acquisition and potential adverse short term effects on operating results through increased costs or otherwise. In addition, the Company may incur debt to finance future acquisitions and/or may issue securities in connection with future acquisitions which may dilute the holdings of its current and future shareholders. To the extent the Company continues to pursue acquisitions, its ability to complete such transactions may be adversely affected by the government investigations described above under the risk factor entitled "The ongoing SEC investigation and U.S. Attorney inquiry could adversely affect the Company's business, financial condition or operating results."

In addition to the risks associated with acquisition-related growth, the Company's business has grown in size and complexity over the past few years as a result of internal growth. This growth and increase in complexity have placed significant demands on management, systems, internal controls and financial and physical resources. To meet such demands, the Company intends to continue to invest in new technology, make other capital expenditures and, where appropriate, hire and/or train employees with expertise to handle these particular demands. If the Company is unable to successfully complete and integrate strategic acquisitions in a timely manner or if the Company fails to efficiently manage operations in a way that accommodates continued internal growth, its business, financial condition or operating results could be adversely affected.

DOWNGRADES OF THE COMPANY'S CREDIT RATINGS COULD ADVERSELY AFFECT THE COMPANY. The Company's senior debt credit ratings from S&P, Moody's and Fitch are BBB, Baa3 and BBB+, respectively, the commercial paper ratings are A-3, P-3 and F-2, respectively, and the ratings outlooks are "negative," "on review for possible further downgrade" and "negative," respectively. Although a ratings downgrade by any of the rating agencies will not trigger an acceleration of any of the Company's indebtedness, these events may adversely affect its ability to access capital and would result in an increase in the interest rates payable under the Company's credit facilities and future indebtedness. See also "Liquidity and Capital Resources" within "Management's Discussion and Analysis of Financial Condition and Results of Operations."

THE COMPANY COULD BE ADVERSELY AFFECTED IF TRANSITIONS IN SENIOR MANAGEMENT ARE NOT SUCCESSFUL. The Company's operations depend in a large extent on the efforts of its senior management, some of whom have recently been elevated to new positions at either the corporate level or at several of the Company's many businesses. Other new members of senior management, including the Company's interim Chief Financial Officer, have recently joined the Company. The Company seeks to develop and retain an effective management team through the proper positioning of existing key employees and the addition of new management personnel where necessary. The Company's operations could be adversely affected if transitions in senior management are not successful or if the Company is unable to sustain an effective management team.

INCREASED COSTS FOR RAW MATERIALS OR RAW MATERIAL SHORTAGES MAY ADVERSELY AFFECT THE COMPANY'S OPERATING RESULTS. As discussed more fully under "Customers and Suppliers" within "Item 1: Business," the Company's manufacturing businesses within the Medical Products and Services and Pharmaceutical Technologies and Services segments use a broad range of raw materials in the products they produce. In certain circumstances, the Company's operating results may be adversely affected by increases in raw materials costs because the Company may not be able to fully recover the increased costs from the customer or offset the increased cost through productivity improvements. In addition, in the case where there are a limited number of suppliers for a particular raw material or where the Company is constrained to use a particular supplier due to customer requirements, regulatory

filings or product approvals, the Company may experience shortages in supply. This, in turn, could adversely affect the Company's operating results.

PROPRIETARY TECHNOLOGY PROTECTIONS MAY NOT BE ADEQUATE AND PROPRIETARY RIGHTS MAY INFRINGE ON THE RIGHTS OF THIRD PARTIES. The Company relies on a combination of trade secret, patent, copyright and trademark laws, nondisclosure and other contractual provisions and technical measures to protect a number of its products, services and intangible assets. There can be no assurance that these protections will provide meaningful protection against competitive products or services or otherwise be commercially valuable or that the Company will be successful in obtaining additional intellectual property or enforcing its intellectual property rights against unauthorized users. There can be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology.

From time to time, third parties have asserted infringement claims against the Company and there can be no assurance that third parties will not assert infringement claims against the Company in the future. (See the discussion of the ICU Medical, Inc. litigation against ALARIS in the "Overview" section within "Management's Discussion and Analysis of Financial Condition and Results of Operations.") While the Company believes that the products it currently manufactures using its proprietary technology do not infringe upon proprietary rights of other parties or that meritorious defenses would exist with respect to any assertions to the contrary, there can be no assurance that the Company would not be found to infringe on the proprietary rights of others. Additionally, the Company may be subject to litigation or find it necessary to initiate litigation to protect its trade secrets, to enforce its patent, copyright and trademark rights and to determine the scope and validity of the proprietary rights of others. This type of litigation can be costly and time consuming and could generate significant expenses, damage payments or restrictions or prohibitions on the Company's use of its technology, which could adversely affect the Company's results of operations. In addition, if the Company were found to be infringing on proprietary rights of others, the Company may be required to develop non-infringing technology, obtain a license or cease making, using and/or selling the infringing products.

RISKS GENERALLY ASSOCIATED WITH THE COMPANY'S SOPHISTICATED INFORMATION SYSTEMS MAY ADVERSELY AFFECT THE COMPANY'S OPERATING RESULTS. The Company relies on sophisticated information systems in its business to obtain, rapidly process, analyze and manage data to: facilitate the purchase and distribution of thousands of inventory items from numerous distribution centers; receive, process and ship orders on a timely basis; manage the accurate billing and collections for thousands of customers; and process payments to suppliers. The Company's business and results of operations may be adversely affected if these systems are interrupted, damaged by unforeseen events or fail for any extended period of time, including due to the actions of third parties.

THE COMPANY COULD BECOME SUBJECT TO LIABILITY CLAIMS THAT ARE NOT ADEQUATELY COVERED BY INSURANCE, AND MAY HAVE TO PAY DAMAGES AND OTHER EXPENSES WHICH MAY HAVE AN ADVERSE AFFECT ON THE COMPANY'S OPERATING RESULTS. The Company's businesses expose it to risks that are inherent in the distribution and dispensing of pharmaceuticals and nuclear pharmaceuticals, the provision of ancillary services (such as pharmacy management and pharmacy staffing services), the development and manufacture of drug delivery systems and of pharmaceutical products for the Company or its customers, the development, presentation and distribution of medical education and marketing programs and materials, and the manufacture and distribution of medical/surgical products, automated drug dispensing units and infusion therapy systems and intravenous administration set products and devices. A successful product or professional liability claim not fully covered by the Company's insurance or any applicable contractual indemnity could have a material adverse effect on the Company's operating results.

THE LOSS OF THIRD PARTY LICENSES USED BY THE COMPANY'S AUTOMATION AND INFORMATION SERVICES SEGMENT MAY ADVERSELY AFFECT THE COMPANY'S OPERATING RESULTS. The Company licenses the rights to use certain technologies from third-party vendors to incorporate in or complement its Automation and Information Services segment's products and services. These licenses are generally nonexclusive, must be renewed periodically by mutual consent and may be terminated if the Company breaches the terms of the license. As a result, the Company may have to discontinue, delay or reduce product shipments until it obtains equivalent technology, which could adversely affect the Company's business. The Company's competitors may obtain the right to use any of the technology covered by these licenses and use the technology to compete directly with the Company. In addition, if the Company's vendors choose to discontinue support of the licensed technology in the future, the Company may not be able to modify or adapt certain of its own products.

TAX LEGISLATION INITIATIVES COULD ADVERSELY AFFECT THE COMPANY'S NET EARNINGS. The Company is a large multinational corporation with operations in the United States and international jurisdictions. As such, the Company is subject to the tax laws and regulations of the United States federal, state and local governments and of many international jurisdictions. From time to time, various legislative initiatives may be proposed that could adversely affect the Company's tax positions. There can be no assurance that the Company's effective tax rate will not be adversely affected by these initiatives. In addition, United States federal, state and local, as well as international, tax laws and regulations are extremely complex and subject to varying interpretations. Although the Company believes that its historical tax positions are sound and consistent with applicable laws,

regulations and existing precedent, there can be no assurance that the Company's tax positions will not be challenged by relevant tax authorities or that the Company would be successful in any such challenge.

ITEM 2: PROPERTIES

Domestically, the Company has 26 principal pharmaceutical distribution facilities and four specialty distribution facilities utilized by the Pharmaceutical Distribution and Provider Services segment. In its Pharmaceutical Technologies and Services segment, the Company has 196 domestic sites, 173 of which are Nuclear Pharmacy Services laboratory, manufacturing and distribution facilities, and the remainder of which are Packaging Services packaging and printed components facilities, Oral Technologies manufacturing and R&D facilities, Pharmaceutical Development facilities, Sterile Technologies manufacturing facilities and a Specialty Pharmaceutical Services facility. The Company also has three assembly operation facilities in its Automation and Information Services segment. Finally, the Company has 58 medical-surgical distribution facilities and 17 medical-surgical manufacturing facilities utilized by the Medical Products and Services segment. The Company's domestic facilities are located in 44 states and Puerto Rico.

Internationally, through the Intercare acquisition, the Company owns or leases 12 facilities through its Pharmaceutical Distribution and Provider Services segment, all located in the United Kingdom. The Company owns or leases 19 operating facilities through its Pharmaceutical Technologies and Services segment, located in Argentina, Australia, Belgium, Brazil, France, Germany, Ireland, Italy, Japan and the United Kingdom. The Company owns or leases 27 facilities through its Medical Products and Services segment, located in Australia, Canada, Dominican Republic, France, Germany, Japan, Malaysia, Malta, Mexico, the Netherlands and Thailand. The Company's international facilities are located in a total of 28 countries.

ALARIS operates three manufacturing and R&D facilities in the United States, and it also operates four manufacturing facilities in Mexico and the United Kingdom.

The Company owns 85 of its domestic and international operating facilities, and the balance are leased. The Company's principal executive offices are headquartered in a leased four-story building located at 7000 Cardinal Place in Dublin, Ohio.

The Company considers its operating properties to be in satisfactory condition and adequate to meet its present needs. However, the Company regularly evaluates its operating properties and may make further additions, improvements and consolidations as it continues to seek opportunities to expand its role as a provider of products and services to the health care industry.

For certain financial information regarding the Company's facilities, see Notes 10 and 11 of "Notes to Consolidated Financial Statements."

ITEM 3: LEGAL PROCEEDINGS

Latex Litigation

On September 30, 1996, Baxter International Inc. ("Baxter") and its subsidiaries transferred to Allegiance Corporation and its subsidiaries ("Allegiance"), which were acquired by the Company in February 1999, Baxter's U.S. health care distribution business, surgical and respiratory therapy business and health care cost-management business, as well as certain foreign operations (the "Allegiance Business") in connection with a spin-off of the Allegiance Business by Baxter (the "Baxter-Allegiance Spin-Off"). In connection with this spin-off, Allegiance Corporation, which merged with a subsidiary of the Company on February 3, 1999, agreed to indemnify Baxter, and to defend and indemnify Baxter Healthcare Corporation ("BHC"), as contemplated by the agreements between Baxter and Allegiance Corporation, for all expenses and potential liabilities associated with claims arising from the Allegiance Business, including certain claims of alleged personal injuries as a result of exposure to natural rubber latex gloves. The Company is not a party to any of the lawsuits and has not agreed to pay any settlements to the plaintiffs.

As of June 30, 2004, there were 36 lawsuits pending against BHC and/or Allegiance involving allegations of sensitization to natural rubber latex products, and some of these cases were proceeding to trial. The total dollar amount of potential damages cannot be reasonably quantified. Some plaintiffs plead damages in extreme excess of what they reasonably can expect to recover, some plead a modest amount and some do not include a request for any specific dollar amount. Not including cases that ask for no specific damages, the damage requests per action have ranged from $10,000 to $240 million. All of these cases name multiple defendants, in addition to Baxter/Allegiance. The average number of defendants per case exceeds 25. Based on the significant differences in the range of damages sought and, based on the multiple number of defendants in these lawsuits, Allegiance cannot

reasonably quantify the total amount of possible/probable damages. Therefore, Allegiance and the Company do not believe that these numbers should be considered as an indication of either reasonably possible or probable liability.

Since the inception of this litigation, Baxter/Allegiance have been named as a defendant in 834 cases. During the fiscal year ended June 30, 2002, Allegiance began settling some of these lawsuits with greater frequency. As of June 30, 2004, Allegiance had resolved more than 90% of these cases. About 20% of the lawsuits that have been resolved were concluded without any liability to Baxter/Allegiance. No individual claim has been settled for a material amount and all the settled claims through June 30, 2004 amounted to, in the aggregate, approximately $28 million. Due to the number of claims filed and the ongoing defense costs that will be incurred, Allegiance believes it is probable that it will incur substantial legal fees related to the resolution of the cases still pending. Although the Company continues to believe that it cannot reasonably estimate the potential cost to settle these lawsuits, the Company believes that the impact of such lawsuits upon Allegiance will be immaterial to the Company's financial position, liquidity or results of operations, and could be in the range of $0 to $20 million, net of insurance proceeds (with the range reflecting the Company's reasonable estimation of potential insurance coverage, and defense and indemnity costs). The Company believes a substantial portion of any liability will be covered by insurance policies Allegiance has with financially viable insurance companies, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company and Allegiance continue to believe that insurance recovery is probable.

Vitamins Litigation

On May 17, 2000, R.P. Scherer Corporation (which was acquired by the Company in August 1998, has been given the legal designation of Cardinal Health 409, Inc. and is referred to in this Form 10-K as "Scherer") filed a civil antitrust lawsuit in the United States District Court for the District of Illinois against certain of its raw material suppliers and other alleged co-conspirators alleging that the defendants unlawfully conspired to fix vitamin prices and allocate vitamin production volume and vitamin customers in violation of U.S. antitrust laws. The complaint seeks monetary damages and injunctive relief. After the lawsuit was filed, it was consolidated for pre-trial purposes with other similar cases. The case is pending in the United States District Court for the District of Columbia (where it was transferred). As of June 30, 2004, Scherer has entered into settlement agreements with the majority of the defendants in consideration of payments of approximately $144.7 million, net of attorney fees, payments due to other interested parties and expenses withheld prior to the disbursement of the funds to Scherer. The Company has settled all known claims with all but one of the defendants, and the Company believes that the total amount of any future recovery will not likely represent a material amount. As more fully described in Note 1 of "Notes to Consolidated Financial Statements," the Company has decided, as a result of discussions with the SEC staff, to reverse its previous recognition of estimated recoveries from vitamin manufacturers for amounts overcharged in prior years and to recognize the income from such recoveries as a special item in the period cash was received from the manufacturers.

Antitrust Litigation against Pharmaceutical Manufacturers

During the past five years, numerous class action lawsuits have been filed against certain prescription drug manufacturers alleging that the prescription drug manufacturer, by itself or in concert with others, took improper actions to delay or prevent generic drug competition against the manufacturer's brand name drug. The Company has not been a name plaintiff in any of these class actions, but has been a member of the direct purchasers' class (i.e., those purchasers who purchase directly from these drug manufacturers). None of the class actions have gone to trial, but some have settled in the past with the Company receiving proceeds from the settlement fund. Currently, there are several such class actions pending in which the Company is a class member. During the fourth quarter of fiscal 2004, the Company received its share of the settlement proceeds for one of these actions. Such amount, approximately $31.7 million, is reported as a special item in the Company's fourth quarter results. See Note 4 of "Notes to Consolidated Financial Statements" for a discussion of recoveries through June 30, 2004, which totaled $55.9 million. The Company is unable at this time to estimate definitively future recoveries, if any, it will receive as a result of these class actions.

Environmental Claims

Pennsauken Environmental Claim

In 1985, PCI Services, Inc. ("PCI"), purchased Burgess & Why Folding Carton Company ("Burgess"), located in Pennsauken, New Jersey. The Company acquired PCI in 1996. In 1991, the Pennsauken Solid Waste Management Authority sued various waste transporters and other parties, in New Jersey State court, alleging contamination of the Pennsauken landfill. One of the waste haulers sued by the Pennsauken Solid Waste Management Authority was Quick Way, Inc. ("Quick Way"), a waste hauling company used by Burgess from 1970 to 1982. Quick Way, in turn, joined several companies that it serviced, including Burgess. There are approximately 600 parties in the litigation. The Company reasonably believes that PCI's liability, if any, will be less

than $100,000, and the impact of this claim upon PCI, if any, will be immaterial to the Company's financial position, liquidity and results of operations.

Environmental Claims Relating to Allegiance

On September 30, 1996, Baxter and its subsidiaries transferred to Allegiance the Allegiance Business in connection with the Baxter-Allegiance Spin-Off. As a result of the Baxter-Allegiance Spin-Off , Allegiance agreed to defend and indemnify Baxter from the following environmental claims.

San Gabriel Environmental Claim

Allegiance, through Baxter and its predecessors-in-interest, owned a facility located in Irwindale, California (the "Irwindale Property"), from approximately 1961 to approximately 1999, where, among other things, plastics were manufactured, a chemical laboratory was operated, and certain research and development activity was carried out. San Gabriel is a Superfund site in the Los Angeles area that concerns ground water contamination of a local drinking water aquifer. The U.S. Environmental Protection Agency (the "U.S. EPA") is the lead government agency in charge of the San Gabriel Valley Groundwater Basin Superfund Sites, Areas 1-4, Baldwin Park Operable Unit (the "BPOU"). According to the U.S. EPA, the groundwater within the BPOU is contaminated. The Irwindale Property is located approximately one-mile away from the BPOU plume. The U.S. EPA named Allegiance as a potentially responsible party ("PRP") for the groundwater contamination in the BPOU, along with a number of other PRPs. In June 2000, the U.S. EPA issued a unilateral administrative order ("UAO") against a number of companies, including Allegiance. The UAO requires, among other things, the design and implementation of the Interim Groundwater Remedy selected by the U.S. EPA. This Interim Groundwater Remedy generally requires pumping contaminated groundwater from the aquifer and treating it in accordance with federal and state government standards in order to remove or reduce contaminants of concern and to stop the further migration of contaminants. Allegiance has maintained that the Irwindale Property did not contribute to the alleged ground water contamination. The levels of contaminants detected on the Irwindale Property are below any state or federal standard requiring remediation or monitoring. The U.S. EPA has been engaged in settlement discussions with Allegiance, and has not sued Allegiance in connection with the UAO or the BPOU. During the fourth quarter of fiscal 2004, Allegiance accepted the U.S. EPA's cash buy-out demand of $550,000 in satisfaction of Allegiance's share of costs for the Interim Groundwater Remedy. Allegiance also agreed to pay the California Department of Toxic Substances ("DTSC") $16,050 in settlement of DTSC's claims related to the Interim Groundwater Remedy. Allegiance has recorded environmental accruals, based upon information available, that it reasonably believes are adequate to satisfy known costs. The Company reasonably believes that the impact of this claim upon Allegiance will be immaterial to the Company's financial position, liquidity and results of operations.

A-1 Plainwell and A-1 Sunrise Environmental Claims

The Michigan Department of Environmental Quality brought suit against Baxter as a PRP along with a number of other PRPs, in 1994, in the Circuit Court of the State of Michigan for Ingham County, alleging contamination of the A-1 disposal site in Plainwell, Michigan ("A-1 Plainwell"). Among the contaminants at the site were solvent wastes generated by Burdick & Jackson ("Burdick") of Muskegon, Michigan. Baxter became a PRP through its acquisition of Burdick in 1986. Allegiance agreed to defend and indemnify Baxter, in this claim, as part of the Baxter-Allegiance Spin-Off. The principal relief sought was for the PRPs to clean up the site to applicable standards and to reimburse the government for its oversight and other costs at the site. In a related action, Allegiance, through its association with Baxter, and Burdick, was named a PRP to reimburse the State of Michigan for reimbursement costs associated with the construction of a landfill cap and continued operation, maintenance and monitoring of the A-1 Sunrise site in Michigan ("A-1 Sunrise"). Allegiance has paid approximately $95,000 for past remediation costs at the A-1 Plainwell site and approximately $230,000 at the A-1 Sunrise site. Remediation of the A-1 Plainwell site is substantially complete, subject to minimal operation, maintenance and monitoring of the site. Allegiance's share of future remediation at the A-1 Sunrise site is approximately 1.8%. Allegiance has recorded environmental accruals, based upon the information available, that it reasonably believes are adequate to satisfy known costs. The Company reasonably believes that the impact of these claims upon Allegiance will be immaterial to the Company's financial position, liquidity and results of operations.

Thermochem Environmental Claim

As a result of the Burdick acquisition, Baxter was identified, by the U.S. EPA, as a PRP for clean-up costs related to the Thermochem waste processing site in Muskegon, Michigan. Allegiance agreed to defend and indemnify Baxter, in this claim, as part of the Baxter-Allegiance Spin-Off. Based upon the information available, Allegiance reasonably believes the total clean-up cost of this site to be between approximately $17 million and $23 million. A well-funded PRP group, of which Baxter is a member, has spent approximately $10 million in clean-up costs. Allegiance reasonably believes that current available funding of the PRP group, along with Allegiance's additional recorded environmental accruals, are adequate to satisfy known costs. The

Company reasonably believes that the impact of this claim upon Allegiance will be immaterial to the Company's financial position, liquidity and results of operations.

Derivative Actions

On November 8, 2002, a complaint was filed by a purported shareholder against the Company and its directors in the Court of Common Pleas, Delaware County, Ohio, as a purported derivative action. Doris Staehr v. Robert D. Walter, et al., No. 02-CVG-11-639. On or about March 21, 2003, after the Company filed a Motion to Dismiss the complaint, an amended complaint was filed alleging breach of fiduciary duties and corporate waste in connection with the alleged failure by the Board of Directors of the Company to (a) renegotiate or terminate the Company's proposed acquisition of Syncor, and (b) determine the propriety of indemnifying Monty Fu, the former Chairman of Syncor. The Company filed a Motion to Dismiss the amended complaint and the plaintiffs subsequently filed a second amended complaint that added three new individual defendants and included new allegations that the Company improperly recognized revenue in December 2000 and September 2001 related to settlements with certain vitamin manufacturers. The Company filed a Motion to Dismiss the second amended complaint and, on November 20, 2003, the Court denied the motion. Discovery is proceeding in this action. The defendants intend to vigorously defend this action. The Company currently does not believe that the impact of this lawsuit will have a material adverse effect on the Company's financial position, liquidity or results of operations.

On July 9, 2004, a complaint, captioned Donald Bosley, Derivatively on behalf of Cardinal Health, Inc. v. David Bing, et al., was filed by a purported shareholder against the members of the Company's Board of Directors, and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants failed to implement adequate internal controls for the Company and thereby violated their fiduciary duty of good faith, GAAP and the Company's Audit Committee charter. The complaint seeks money damages and equitable relief against the defendant directors, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

On August 27, 2004, a complaint, captioned Sam Wietschner v. Robert D. Walter, et al., was filed by a purported shareholder against members of the Company's Board of Directors, current and former officers and/or employees of the Company and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants breached various fiduciary duties owed to the Company. The complaint seeks money damages and equitable relief against the individual defendants, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

On September 22, 2004, a complaint, captioned Green Meadow Partners, LLP, Derivatively on behalf of Cardinal Health, Inc. v. David Bing, et al., was filed by a purported shareholder against the members of the Company's Board of Directors, and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants failed to implement adequate internal controls for the Company and thereby violated their fiduciary duty of good faith, GAAP and the Company's Audit Committee charter. The complaint seeks money damages and equitable relief against the defendant directors, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

Shareholder/ERISA Litigation against Cardinal Health

Since July 2, 2004, ten purported class action complaints have been filed by purported purchasers of the Company's securities against the Company and certain of its officers and directors, asserting claims under the federal securities laws (collectively referred to as the "Cardinal Health federal securities actions"). To date, all of these actions have been filed in the United States District Court for the Southern District of Ohio. These cases include: Gerald Burger v. Cardinal Health, Inc., et al. (04 CV 575), Todd Fener
v. Cardinal Health, Inc., et al. (04 CV 579), E. Miles Senn v. Cardinal Health, Inc., et al. (04 CV 597), David Kim v. Cardinal Health, Inc. (04 CV 598), Arace Brothers v. Cardinal Health, Inc., et al. (04 CV 604), John Hessian v. Cardinal Health, Inc., et al. (04 CV 635), Constance Matthews Living Trust v. Cardinal Health, Inc., et al. (04 CV 636), Mariss Partners, LLP v. Cardinal Health, Inc., et al. (04 CV 849), The State of New Jersey v. Cardinal Health, Inc., et al. (04 CV 831) and First New York Securities, LLC v. Cardinal Health, Inc., et al. (04 CV 911). The Cardinal Health federal securities actions purport to be brought on behalf of all purchasers of the Company's securities during various periods beginning as early as October 24, 2000 and ending as late as July 26, 2004 and allege, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by issuing a series of false and/or misleading statements concerning the Company's financial results, prospects and condition. The alleged misstatements relate to the Company's accounting for recoveries relating to antitrust litigation against vitamin manufacturers, and to classification of revenue in the Company's Pharmaceutical Distribution business as either operating revenue or revenue from bulk deliveries to customer

warehouses, among other matters. The alleged misstatements are claimed to have caused an artificial inflation in the Company's stock price during the proposed class period. The complaints seek unspecified money damages and equitable relief against the defendants, and an award of attorney's fees. None of the defendants has yet responded to any of the complaints in the Cardinal Health federal securities actions.

Since July 2, 2004, fourteen purported class action complaints have been filed against the Company and certain officers, directors and employees of the Company by purported participants in the Cardinal Health Profit Sharing, Retirement and Savings Plan (collectively referred to as the "Cardinal Health ERISA actions"). To date, all of these actions have been filed in the United States District Court for the Southern District of Ohio. These cases include:
David McKeehan and James Syracuse v. Cardinal Health, Inc., et al. (04 CV 643), Timothy Ferguson v. Cardinal Health, Inc., et al. (04 CV 668), James DeCarlo v. Cardinal Health, Inc., et al. (04 CV 684), Margaret Johnson v. Cardinal Health, Inc., et al. (04 CV 722), Harry Anderson v. Cardinal Health, Inc., et al. (04 CV 725), Charles Heitholt v. Cardinal Health, Inc., et al. (04 CV 736), Dan Salinas and Andrew Jones v. Cardinal Health, Inc., et al. (04 CV 745), Daniel Kelley v. Cardinal Health, Inc., et al. (04 CV 746), Vincent Palyan v. Cardinal Health, Inc., et al. (04 CV 778), Saul Cohen v. Cardinal Health, Inc., et al. (04 CV 789), Travis Black v. Cardinal Health, Inc., et al. (04 CV 790), Wendy Erwin v. Cardinal Health, Inc., et al. (04 CV 803), Susan Alston v. Cardinal Health, Inc., et al. (04 CV 815), and Jennifer Brister v. Cardinal Health, Inc., et al. (04 CV 828). The Cardinal Health ERISA actions purport to be brought on behalf of participants in the Cardinal Health Profit Sharing, Retirement and Savings Plan (the "Plan"), and also on behalf of the Plan itself. The complaints allege that the defendants breached certain fiduciary duties owed under the Employee Retirement Income Security Act ("ERISA"), generally asserting that the defendants failed to make full disclosure of the risks to plan participants of investing in the Company's stock, to the detriment of the plan's participants and beneficiaries, and that Company stock should not have been made available as an investment alternative for plan participants. The misstatements alleged in the Cardinal Health ERISA actions significantly overlap with the misstatements alleged in the complaints in the Cardinal Health federal securities actions. The complaints seek unspecified money damages and equitable relief against the defendants, and an award of attorney's fees. None of the defendants has yet responded to any of the complaints in the Cardinal Health ERISA actions.

With respect to the proceedings described under the headings "Derivative Actions" and "Shareholder/ERISA Litigation against Cardinal Health," the Company currently believes that there will be some insurance coverage available under the Company's insurance policies in effect at the time the actions were filed. Such policies are with financially viable insurance companies, and are subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency.

Shareholder/ERISA Litigation against Syncor

Eleven purported class action lawsuits have been filed against Syncor and certain of its officers and directors, asserting claims under the federal securities laws (collectively referred to as the "Syncor federal securities actions"). All of these actions were filed in the United States District Court for the Central District of California. These cases include Richard Bowe v. Syncor Int'l Corp., et al., No. CV 02-8560 LGB (RCx) (C.D. Cal.), Alan Kaplan v. Syncor Int'l Corp., et al., No. CV 02-8575 CBM (MANx) (C.D. Cal), Franklin Embon, Jr. v. Syncor Int'l Corp., et al., No. CV 02-8687 DDP (AJWx) (C.D. Cal), Jonathan Alk v. Syncor Int'l Corp., et al., No. CV 02-8841 GHK (RZx) (C.D. Cal), Joyce Oldham v. Syncor Int'l Corp., et al., CV 02-8972 FMC (RCx) (C.D. Cal), West Virginia Laborers Pension Trust Fund v. Syncor Int'l Corp., et al., No. CV 02-9076 NM (RNBx) (C.D. Cal), Brad Lookingbill v. Syncor Int'l Corp., et al., CV 02-9248 RSWL (Ex) (C.D. Cal), Them Luu v. Syncor Int'l Corp., et al., CV 02-9583 RGK (JwJx) (C.D. Cal), David Hall v. Syncor Int'l Corp., et al., CV 02-9621 CAS (CWx) (C.D. Cal), Phyllis Walzer v. Syncor Int'l Corp., et al., CV 02-9640 RMT (AJWx) (C.D. Cal), and Larry Hahn v. Syncor Int'l Corp., et al., CV 03-52 LGB (RCx) (C.D. Cal.). The Syncor federal securities actions purport to be brought on behalf of all purchasers of Syncor shares during various periods, beginning as early as March 30, 2000, and ending as late as November 5, 2002. The actions allege, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act, by issuing a series of press releases and public filings disclosing significant sales growth in Syncor's international business, but omitting mention of certain allegedly improper payments to Syncor's foreign customers, thereby artificially inflating the price of Syncor shares. A lead plaintiff has been appointed by the court in the Syncor federal securities actions and a consolidated amended complaint was filed May 19, 2003, naming Syncor and 12 individuals, all former Syncor officers, directors and/or employees, as defendants. Syncor filed a Motion to Dismiss the consolidated amended complaint on August 1, 2003 and, on December 12, 2003, the Court granted the motion to dismiss without prejudice. A second amended consolidated class action complaint was filed on January 28, 2004, naming Syncor and 14 individuals, all former Syncor officers, directors and/or employees, as defendants. Syncor filed a Motion to Dismiss the second amended consolidated class action complaint on March 4, 2004. On July 6, 2004, the court granted Defendants' Motion to Dismiss without prejudice as to defendants Syncor, Monty Fu, Robert Funari and Haig Bagerdjian. As to the other individual defendants, the motion to dismiss was granted with prejudice. On September 14, 2004, lead plaintiff filed a Motion for Clarification of the Court's July 6, 2004 dismissal order.

On November 14, 2002, two additional actions were filed by individual stockholders of Syncor in the Court of Chancery of the State of Delaware (the "Delaware actions") against seven of Syncor's nine directors (the "director defendants"). The complaints in each of the Delaware actions were identical and alleged that the director defendants breached certain fiduciary duties to Syncor by failing to maintain adequate controls, practices and procedures to ensure that Syncor's employees and representatives did not engage in improper and unlawful conduct. Both complaints asserted a single derivative claim, for and on behalf of Syncor, seeking to recover all of the costs and expenses that Syncor incurred as a result of the allegedly improper payments (including the costs of the Syncor federal securities actions described above), and a single purported class action claim seeking to recover damages on behalf of all holders of Syncor shares in the amount of any losses sustained if consideration received in the merger by Syncor stockholders was reduced. On November 22, 2002, the plaintiff in one of the two Delaware actions filed an amended complaint adding as defendants the Company, its subsidiary Mudhen Merger Corporation and the remaining two Syncor directors, who are hereafter included in the term "director defendants." These cases have been consolidated under the caption In re: Syncor International Corp. Shareholders Litigation (the "consolidated Delaware action"). On August 14, 2003, the Company filed a Motion to Dismiss the operative complaint in the consolidated Delaware action. At the end of September 2003, plaintiffs in the consolidated Delaware action moved the court to file a second amended complaint. Plaintiffs' request was granted in February 2004. Monty Fu is the only named defendant in the second amended complaint. On September 15, 2004, the Court granted Monty Fu's Motion to Dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice.

On November 18, 2002, two additional actions were filed by individual stockholders of Syncor in the Superior Court of California for the County of Los Angeles (the "California actions") against the director defendants. The complaints in the California actions allege that the director defendants breached certain fiduciary duties to Syncor by failing to maintain adequate controls, practices and procedures to ensure that Syncor's employees and representatives did not engage in improper and unlawful conduct. Both complaints asserted a single derivative claim, for and on behalf of Syncor, seeking to recover costs and expenses that Syncor incurred as a result of the allegedly improper payments. These cases include Joseph Famularo v. Monty Fu, et al., Case No. BC285478 (Cal. Sup. Ct., Los Angeles Cty.), and Mark Stroup v. Robert G. Funari, et al., Case No. BC285480 (Cal. Sup. Ct., Los Angeles Cty.). An amended complaint was filed on December 6, 2002 in one of the cases, purporting to allege direct claims on behalf of a class of shareholders. The defendants' motion for a stay of the California actions pending the resolution of the Delaware actions (discussed above) was granted on April 30, 2003.

A purported class action complaint, captioned Pilkington v. Cardinal Health, et al, was filed on April 8, 2003, against the Company, Syncor and certain officers and employees of the Company by a purported participant in the Syncor Employees' Savings and Stock Ownership Plan (the "Syncor ESSOP"). A related purported class action complaint, captioned Donna Brown, et al. v. Syncor International Corp, et al., was filed on September 11, 2003, against the Company, Syncor and certain individual defendants. Another related purported class action complaint, captioned Thompson v. Syncor International Corp., et al., was filed on January 14, 2004, against the Company, Syncor and certain individual defendants. A consolidated complaint was filed on February 24, 2004 against Syncor and certain former Syncor officers, directors and/or employees alleging that the defendants breached certain fiduciary duties owed under ERISA based on the same underlying allegations of improper and unlawful conduct alleged in the federal securities litigation. On April 26, 2004, the defendants filed Motions to Dismiss the consolidated complaint. On August 24, 2004, the Court granted in part and denied in part Defendants' Motions to Dismiss. The Court dismissed, without prejudice, all claims against defendants Ed Burgos and Sheila Coop, all claims alleging co-fiduciary liability against all defendants, and all claims alleging that the individual defendants had conflicts of interest precluding them from properly exercising their fiduciary duties under ERISA. A claim for breach of the duty to prudently manage plan assets was upheld against Syncor, and a claim for breach of the alleged duty to "monitor" the performance of Syncor's Plan Administrative Committee was upheld against defendants Monty Fu and Robert Funari. In addition, the United States Department of Labor is conducting an investigation of the Syncor ESSOP with respect to its compliance with ERISA requirements. The Company has responded to a subpoena received from the Department of Labor and continues to cooperate in the investigation.

It is impossible to predict the outcome of the proceedings described under the heading "Shareholder/ERISA Litigation against Syncor" or their impact on the Company. However, the Company currently does not believe that the impact of these actions will have a material adverse effect on the Company's financial position, liquidity or results of operations. The Company believes the allegations made in the complaints described above are without merit and it intends to vigorously defend such actions. The Company has been informed that the individual director and officer defendants deny liability for the claims asserted in these actions and believe they have meritorious defenses and intend to vigorously defend such actions. The Company currently believes that a portion of any liability will be covered by insurance policies that the Company and Syncor have with financially viable insurance companies, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency.

DuPont Litigation

On September 11, 2003, E.I. Du Pont De Nemours and Company ("DuPont") filed a lawsuit against the Company and others in the United States District Court for the Middle District of Tennessee. E.I. Du Pont De Nemours and Company
v. Cardinal Health, Inc., BBA Materials Technology and BBA Nonwovens Simpsonville, Inc., No. 3-03-0848. The complaint alleges various causes of action against the Company relating to the production and sale of surgical drapes and gowns by the Company's Medical Products and Services segment. DuPont's claims generally fall into the categories of breach of contract, false advertising and patent infringement. The complaint does not request a specific amount of damages. The Company believes that the claims made in the complaint are without merit and it intends to vigorously defend this action. Although this action is in its early stages and it is impossible to accurately predict the outcome of the proceedings or their impact on the Company, the Company believes that it is owed a defense and indemnity from its co-defendants with respect to DuPont's claim for patent infringement. The Company currently does not believe that the impact of this lawsuit, if any, will have a material adverse effect on the Company's financial position, liquidity or results of operations.

SEC Investigation and U.S. Attorney Inquiry

On October 7, 2003, the Company received a request from the SEC, in connection with an informal inquiry, for historical financial and related information. The SEC's request sought a variety of documentation, including the Company's accounting records for fiscal 2001 through fiscal 2003, as well as notes, memoranda, presentations, e-mail and other correspondence, budgets, forecasts and estimates.

On May 6, 2004, the Company was notified that the pending SEC informal inquiry had been converted into a formal investigation. On June 21, 2004, as part of the SEC's formal investigation, the Company received an SEC subpoena that included a request for the production of documents relating to revenue classification, and the methods used for such classification, in the Company's Pharmaceutical Distribution business as either "Operating Revenue" or "Bulk Deliveries to Customer Warehouses and Other." The Company has learned that the U.S. Attorney's Office for the Southern District of New York has commenced an inquiry that the Company understands relates to this same subject. On October 12, 2004, in connection with the SEC's formal investigation, the Company received a subpoena from the SEC requesting the production of documents relating to compensation information for specific current and former employees and officers.

In connection with the SEC's inquiry, the Company's Audit Committee commenced its own internal review in April 2004, assisted by independent counsel. This internal review was prompted by documents contained in the production to the SEC that raised issues as to certain accounting matters, including but not limited to the establishment and adjustment of certain reserves and their impact on quarterly earnings. The Audit Committee and its independent counsel also have reviewed the revenue classification issue that is the subject of the SEC's June 21, 2004 subpoena and are reviewing other matters identified in the course of the Audit Committee's internal review. During September and October 2004, the Audit Committee reached certain conclusions with respect to findings to date from its internal review, which are discussed in Note 1 of "Notes to Consolidated Financial Statements." In connection with the Audit Committee's conclusions, the Company made certain reclassification and restatement adjustments to its fiscal 2004 and prior historical financial statements, as more fully described in Notes 1 and 2 of "Notes to Consolidated Financial Statements." The Audit Committee's review with respect to the financial statement impact of the matters reviewed to date is substantially complete. As the Company continues to respond to the SEC's investigation and the Audit Committee's internal review, there can be no assurance that additional restatements will not be required or that the historical financial statements included in this Form 10-K will not change or require amendment. In addition, the Audit Committee may identify new issues, or make additional findings if it receives additional information, that may impact the Company's financial statements and the scope of the restatements described in this Form 10-K.

While the Company is continuing in its efforts to respond to the SEC's investigation and the Audit Committee's internal review and provide all information required, the Company cannot predict the outcome of the SEC investigation or the U.S. Attorney inquiry. The outcome of the SEC investigation, the U.S. Attorney inquiry and any related legal and administrative proceedings could include the institution of administrative, civil injunctive or criminal proceedings as well as the imposition of fines and other penalties, remedies and sanctions.

Other Matters

In addition to the legal proceedings disclosed above, the Company also becomes involved from time-to-time in other litigation incidental to its business, including, without limitation, inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs as well as in connection with future and prior acquisitions. The Company intends to vigorously defend itself against this other litigation and does not currently believe that the outcome of this other litigation will have a material adverse effect on the Company's consolidated financial statements.

The health care industry is highly regulated and government agencies continue to increase their scrutiny over certain practices affecting government programs and otherwise. From time to time, the Company receives subpoenas or requests for information from various government agencies. The Company generally responds to such subpoenas and requests in a timely and thorough manner, which responses sometimes require considerable time and effort, and can result in considerable costs being incurred, by the Company. The Company expects to incur additional costs in the future in connection with existing and future requests.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None during the fiscal quarter ended June 30, 2004.

PART II

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON SHARES, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Common Shares are quoted on the New York Stock Exchange under the symbol "CAH." The following table reflects the range of the reported high and low closing sale prices of the Common Shares as reported on the New York Stock Exchange Composite Tape and the per share dividends declared for the fiscal years ended June 30, 2004 and 2003, and through the period ended on October 25, 2004, the last full trading day prior to the date of the filing of this Form 10-K.

                                HIGH           LOW        DIVIDENDS
                              ---------     ----------    ----------
FISCAL 2003
Quarter Ended:
  September 30, 2002          $   68.19     $    49.08    $    0.025
  December 31, 2002               71.16          57.99         0.025
  March 31, 2003                  63.48          50.31         0.025
  June 30, 2003                   66.19          52.17         0.030

FISCAL 2004
Quarter Ended:
  September 30, 2003          $   67.96     $    54.75    $    0.030
  December 31, 2003               63.73          55.99         0.030
  March 31, 2004                  68.90          59.13         0.030
  June 30, 2004                   75.98          65.61         0.030

FISCAL 2005
Quarter Ended:
  September 30, 2004          $   52.86     $    42.33    $    0.030
  Through October 25, 2004        44.21          37.65             -

As of October 25, 2004, there were approximately 19,300 shareholders of record of the Common Shares.

The Company anticipates that it will continue to pay quarterly cash dividends in the future. However, the payment and amount of future dividends remain 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.

ISSUER PURCHASES OF EQUITY SECURITIES

                                                            Total Number of
                                                            Shares Purchased
                                                               as Part of         Approximate Dollar
                           Total Number                        Publicly          Value of Shares that
                             of Shares       Average Price     Announced         May Yet Be Purchased
Period                       Purchased      Paid per Share    Program (1)         Under the Program
------                      -----------       -----------   -------------        --------------------
April 1-30, 2004                    874(2)    $     69.79               -        $         39,652,283
May 1-31, 2004                  242,000       $     70.73         242,000                           -
June 1-30, 2004                       -                 -               -                           -
                            -----------       -----------   -------------        --------------------
Total                           242,874       $     70.73         242,000                           -
                            ===========       ===========   =============        ====================

(1) The Company repurchased 242,000 Common Shares during the fourth quarter fiscal 2004 pursuant to a $500 million share repurchase program publicly announced on February 27, 2004 (the "Program"). Pursuant to the terms of the agreement between the Company and its broker-dealer, the Program expired on May 11, 2004 when the entire $500 million in the aggregate purchase price of Common Shares had been repurchased. The final volume weighted average price per Common Share was $70.07. In addition, the Common Shares repurchased under the Program during the third quarter of fiscal 2004 were subject to a future contingent purchase price adjustment. As a result, the Company settled the forward contract for $22.5 million in cash during the fourth quarter, which cost is included in the amount associated with Common Shares in treasury. See Note 12 of "Notes to Consolidated Financial Statements" for more information on the Program and the purchase price adjustment.

(2) Reflects Common Shares withheld from employees for payment of taxes due upon the vesting of Restricted Shares.

ITEM 6: SELECTED FINANCIAL DATA

In connection with certain conclusions made by the Audit Committee during September and October 2004 as part of its internal review to date, the Company made certain reclassification and restatement adjustments to its fiscal 2004 and prior historical financial statements, as more fully described in Notes 1 and 2 of "Notes to Consolidated Financial Statements." Revenue previously disclosed separately as "Bulk Deliveries to Customer Warehouses and Other" has been aggregated with "Operating Revenue" resulting in combined "Revenue" being reported in the financial statements. In addition, the Company changed its accounting method for recognizing income from cash discounts. The Company also reduced its fourth quarter fiscal 2004 results of operations for premature revenue recognition within its Automation and Information Services segment after assessing the impact this segment's sales practice had on the Company's results of operations for the three year period ended June 30, 2004. Lastly, the Company restated its financial statements for fiscal 2000, 2001, 2002 and 2003 and the first three quarters of fiscal 2004 as a result of various misapplications of GAAP and errors relating primarily to balance sheet reserve and accrual adjustments recorded in prior periods. The following selected consolidated financial data has been restated to reflect the impact of the adjustments.

The selected consolidated financial data of the Company was prepared giving retroactive effect to the business combinations with Automatic Liquid Packaging, Inc. (which has been given the legal designation of Cardinal Health 400, Inc.) on September 10, 1999 and Bindley Western Industries, Inc. (which has been given the legal designation of Cardinal Health 100, Inc., and is referred to in this Form 10-K as "Bindley") on February 14, 2001, both of which were accounted for as pooling-of-interests transactions. The consolidated financial data include all purchase transactions as of the date of acquisition that occurred during these periods.

The selected consolidated financial data below should be read in conjunction with the Company's consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

CARDINAL HEALTH, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)

                                                               At or For the Fiscal Year Ended
                                                                         June 30, (1)
                                            --------------------------------------------------------------------------
                                                2004          2003            2002            2001           2000
                                            -----------   -------------   -------------   ------------   -------------
                                                            Restated        Restated        Restated       Restated
EARNINGS DATA:
Revenue (2)                                 $  65,053.5   $    56,731.5   $    51,144.6   $   47,944.3   $    38,350.6

Earnings from continuing operations
  before cumulative effect of changes
  in accounting                             $   1,524.7   $     1,381.2   $     1,140.8   $      840.6   $       707.5
Loss from discontinued operations (3)             (11.7)           (6.1)              -              -               -
Cumulative effect of changes
  in accounting  (4) (5)                          (38.5)              -           (70.1)             -               -
                                            -----------   -------------   -------------   ------------   -------------
Net earnings                                $   1,474.5   $     1,375.1   $     1,070.7   $      840.6   $       707.5

Basic earnings per Common Share (6)
  Continuing operations                     $      3.51   $        3.10   $        2.53   $       1.90   $        1.61
  Discontinued operations (3)                     (0.03)          (0.02)              -              -               -
  Cumulative effect of changes
     in accounting (4) (5)                        (0.09)              -           (0.16)             -               -
                                            -----------   -------------   -------------   ------------   -------------
Net basic earnings per Common Share         $      3.39   $        3.08   $        2.37   $       1.90   $        1.61

Diluted earnings per Common Share (6)
  Continuing operations                     $      3.47   $        3.05   $        2.48   $       1.85   $        1.58
  Discontinued operations (3)                     (0.03)          (0.02)              -              -               -
  Cumulative effect of changes
     in accounting (4) (5)                        (0.09)              -           (0.15)             -               -
                                            -----------   -------------   -------------   ------------   -------------
Net diluted earnings per Common Share       $      3.35   $        3.03   $        2.33   $       1.85   $        1.58

Cash dividends declared
  per Common Share (6) (7)                  $     0.120   $       0.105   $       0.100   $      0.085   $       0.070

BALANCE SHEET DATA:
Total assets                                $  21,369.1   $    18,465.1   $    16,408.3   $   14,601.1   $    12,011.6
Long-term obligations,
  less current portion                      $   2,834.7   $     2,471.9   $     2,207.0   $    1,871.0   $     1,524.5
Shareholders' equity                        $   7,976.3   $     7,674.5   $     6,351.7   $    5,403.5   $     4,386.3

(1) Amounts reflect business combinations and the impact of merger-related costs and other special items in all periods presented. See Note 4 of "Notes to Consolidated Financial Statements" for a further discussion of merger-related costs and other special items affecting fiscal 2004, 2003 and 2002. Fiscal 2001 amounts reflect the impact of merger-related charges and other special items of $124.9 million ($85.3 million, net of tax). Fiscal 2000 amounts reflect the impact of merger-related charges and other special items of $64.7 million ($49.8 million, net of tax).

(2) Revenue previously classified within the Company's consolidated statements of earnings as "Bulk Deliveries to Customer Warehouses and Other" has been reclassified within this Form 10-K, in all periods presented, to conform to the fiscal 2004 presentation as a result of the Company's decision to aggregate revenue classes. These reclassifications have no effect on previously reported total revenue, earnings from continuing operations before cumulative effect of changes in accounting, net earnings or earnings per share amounts. For additional information concerning the reclassification, see Note 2 of "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(3) On January 1, 2003, the Company acquired Syncor. Prior to the acquisition, Syncor had announced the discontinuation of certain operations including the medical imaging business and certain overseas operations. The Company is proceeding with the discontinuation of these operations and has included additional international and non-core domestic businesses to the discontinued operations. For additional information regarding discontinued operations, see Note 21 of "Notes to Consolidated Financial Statements."

(4) Effective at the beginning of fiscal 2004, the method of recognizing cash discounts was changed from recognizing cash discounts as a reduction of costs of products sold primarily upon payment of vendor invoices to recording cash discounts as a component of inventory cost and recognizing such discounts as a reduction of cost of products sold upon sale of inventory. For more information regarding the change in accounting, see Note 16 of "Notes to Consolidated Financial Statements."

(5) In the first quarter of fiscal 2002, the method of recognizing revenue for pharmacy automation equipment was changed from recognizing revenue when the units are delivered to the customer to recognizing revenue when the units are installed at the customer site. For more information regarding the change in accounting, see Note 16 of "Notes to Consolidated Financial Statements."

(6) Basic earnings, diluted earnings and cash dividends per Common Share have been adjusted to retroactively reflect all stock dividends and stock splits through June 30, 2004.

(7) Cash dividends per Common Share exclude dividends paid by all entities with which subsidiaries of the Company have merged.

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis presented below refers to and should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Form 10-K.

In connection with certain conclusions made by the Audit Committee during September and October 2004 as part of its internal review to date, the Company made certain reclassification and restatement adjustments to its fiscal 2004 and prior historical financial statements, as more fully described in Notes 1 and 2 of "Notes to Consolidated Financial Statements." Revenue previously disclosed separately as "Bulk Deliveries to Customer Warehouses and Others" has been aggregated with "Operating Revenue" resulting in combined "Revenue" being reported in the financial statements. In addition, the Company changed its accounting method for recognizing income from cash discounts. The Company also reduced its fourth quarter fiscal 2004 results of operations for premature revenue recognition within its Automation and Information Services segment after assessing the impact this segment's sales practice had on the Company's results of operations for the three year period ended June 30, 2004. Lastly, the Company restated its financial statements for fiscal 2000, 2001, 2002 and 2003 and the first three quarters of fiscal 2004 as a result of various misapplications of GAAP and errors relating primarily to balance sheet reserve and accrual adjustments recorded in prior periods. As a result, the Company supplemented its historical disclosures within "Management's Discussion and Analysis of Financial Condition and Results of Operations" to reflect these reclassification and restatement adjustments on previously reported Company and business segment operating earnings performance. All prior period disclosures presented in "Management's Discussion and Analysis of Financial Condition and Results of Operations" have been adjusted to reflect these changes.

OVERVIEW

Cardinal Health is a leading provider of products and services supporting the health care industry. The Company helps health care providers and manufacturers improve the efficiency and quality of health care. For further information regarding the Company's business, please see "Part I, Item 1:
Business" within this Form 10-K.

Results of Operations

The following summarizes the Company's results of operations for the fiscal years ended June 30, 2004, 2003 and 2002.

(in millions, except per Common Share amounts)           Growth (1)               Results of Operations
                                                      -----------------   ------------------------------------
Years ended June 30,                                  2004       2003        2004         2003        2002
--------------------                                  ----     --------   ----------   ----------   ----------
                                                               Adjusted                 Restated     Restated
Revenue                                                15%        11%     $ 65,053.5   $ 56,731.5   $ 51,144.6
Operating earnings                                      6%        18%     $  2,337.3   $  2,196.0   $  1,857.4
Earnings from continuing operations before
   cumulative effect of change in accounting           10%        21%     $  1,524.7   $  1,381.2   $  1,140.8
Net earnings                                            7%        28%     $  1,474.5   $  1,375.1   $  1,070.7
Net diluted earnings per Common Share                  11%        30%     $     3.35   $     3.03   $     2.33

(1) Growth is calculated as change (increase or decrease) for a given year as compared to immediately preceding year.

During the fiscal years noted in the table above, the results of operations reflect the breadth of products and services the Company offers. The increasing demand for the Company's diverse portfolio of products and services led to revenue growth in every segment of the Company. The Company continues to experience strong demand for integrated solutions from health care providers. These integrated solutions include products and services from multiple lines of businesses within the Company. These arrangements currently represent nearly $7 billion of annual sales.

As of June 30, 2004, the Company's operations were organized into four operating business segments: Pharmaceutical Distribution and Provider Services, Medical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services (see Note 18 of "Notes to Consolidated Financial Statements" for discussion of changes to business segments resulting from the ALARIS acquisition which will impact fiscal 2005). The results of operations also reflect the increasing operating earnings contribution each segment outside of Pharmaceutical Distribution and Provider Services is making. The three segments outside of Pharmaceutical Distribution and Provider Services have gradually increased the amount of operating earnings contributed to the Company and currently represent more than one-half of the Company's operating earnings. The Company expects this trend to continue.

adequately and consistently compensated for the reliable and consistent logistical, capital and administrative services being provided by the Company to these manufacturers.

In response to the developments discussed above, the Company is working to establish a compensation system that is no longer dependent on manufacturers' sales or pricing practices, but rather is based on the services provided by the Company to meet the unique distribution requirements of each manufacturer's products. To that end, the Company is working with individual pharmaceutical manufacturers to define fee-for-service terms that will adequately compensate the Company, in light of each product's unique distribution requirements, for the logistical, capital and administrative services being provided by the Company. To accelerate this process, in August 2004, the Company communicated to its pharmaceutical manufacturing vendors a new policy which sets April 1, 2005 or, for manufacturers with an existing agreement with the Company, the next anniversary date of such agreement, as the deadline by which manufacturers must have entered into a mutually satisfactory distribution services agreement with the Company providing for reliable, predictable and adequate compensation for the Company's services. For any manufacturer with which the Company is unable to enter into such a mutually satisfactory agreement, the Company plans to assist such manufacturer in transitioning to another method of distribution. There can be no assurance that this business model transition will be successful, or of the timing of such a successful transition.

Revenue and operating earnings growth within the Company's Automation and Information Services segment during fiscal 2004 were lower than historical growth rates. These growth rates were adversely affected by softening demand, attributable to capital spending pressures experienced by hospitals and increased competition within the industry. The Company believes this trend may continue in the short-term; however, the Company remains confident in the long-term prospects for this segment as patient safety concerns combined with innovative new products continue to lead to future demand.

Government Investigations and Audit Committee Internal Review

The Company is currently the subject of a formal investigation by the SEC relating to certain accounting matters. The Company also learned that the U.S. Attorney for the Southern District of New York has commenced an inquiry with respect to the Company. Also, the Company's Audit Committee commenced its own internal review, assisted by independent counsel. For further information regarding these matters, see "Part I, Item 3: Legal Proceedings" and Note 1 of "Notes to Consolidated Financial Statements" in this Form 10-K.

Product Safety

As a leading provider of products and services supporting the health care industry, including the distribution of pharmaceuticals and other health care products, the Company is monitoring issues regarding importation of pharmaceuticals and other health care products. The Company is sensitive to the issue of pharmaceutical prices and the pricing disparity between domestic and international markets. However, the Company believes that for importation into the United States to be successful additional controls and protections would need to be implemented to ensure patients and consumers receive safe and effective pharmaceutical products. The Company will continue to work proactively with all participants and regulators in the pharmaceutical supply chain to help ensure any solution is safe and efficient. The Company continues to work with its suppliers to help minimize the risks associated with counterfeit products in the supply chain.

Acquisitions

On June 28, 2004, the Company acquired approximately 98.7% of the outstanding common stock of ALARIS, a leading provider of intravenous medication safety products and services. On July 7, 2004, ALARIS merged with a subsidiary of the Company to complete the transaction. The value of the transaction, including the assumption of ALARIS' debt, totaled nearly $2.1 billion. For further information regarding the ALARIS acquisition, the valuation of the acquisition's intangibles, and the impact on segment reporting, see Notes 4, 17 and 18 of "Notes to Consolidated Financial Statements." Prior to the completion of the ALARIS acquisition, on June 16, 2004, ICU Medical, Inc. filed a patent infringement lawsuit against ALARIS in the United States District Court for the Southern District of California. In the lawsuit, ICU claims that the ALARIS SmartSite(R) family of needle-free valves and systems infringes upon ICU patents. ICU seeks monetary damages plus permanent injunctive relief preventing ALARIS from selling SmartSite(R) products. On July 30, 2004, the Court denied ICU's application for a preliminary injunction finding, among other things, that ICU had failed to show a substantial likelihood of success on the merits. The Company intends to vigorously defend this action.

During December 2003, the Company completed its acquisition of Intercare, a leading European pharmaceutical products and services company. This acquisition increased the Company's scale of proprietary sterile manufacturing and broadened its participation in the fast-growing European generic (including manufacturing capabilities) and injectible product market. The cash

transaction was valued at approximately $570 million, including the assumption of approximately $150 million in Intercare debt. See Note 18 of "Notes to Consolidated Financial Statements" for further information regarding the impact this acquisition had on the Company's segment reporting.

During fiscal 2004, 2003 and 2002, the Company completed numerous acquisitions, including, but not limited to, ALARIS, Intercare and Syncor. The Company's trend with regard to acquisitions has been to expand its role as a provider of services to the health care industry. This trend has resulted in expansion into areas which (a) complement the Company's existing operations, and
(b) provide opportunities for the Company to develop synergies with, and thus strengthen, the acquired business. As the health care industry continues to change, the Company evaluates possible candidates for merger or acquisition and intends to continue to seek opportunities to expand its role as a provider of services to the health care industry through all its reporting segments. There can be no assurance that the Company will be able to successfully pursue any such opportunity or consummate any such transaction, if pursued. To the extent the Company continues to pursue acquisitions, its ability to complete such transactions may be adversely affected by the government investigations described under "Part I, Item 3: Legal Proceedings" and Note 1 of "Notes to Consolidated Financial Statements" in this Form 10-K. If additional transactions are pursued or consummated, the Company would incur additional merger- and acquisition-related costs, and may need to enter into funding arrangements for such mergers or acquisitions. There can be no assurance that the integration efforts associated with any such transaction would be successful.

RESULTS OF OPERATIONS

The following sections provide additional detail regarding the results of operations of the Company and, where applicable, the results of operations of the Company's reportable segments.

Revenue

Revenue for the Company and its reportable segments are as follows:

(in millions)                                   2004              2003             2002
                                            -------------    -------------    --------------
                                                                Restated         Restated
Pharmaceutical Distribution and Provider
  Services ("PDPS")
          Direct Sales to Customers         $    36,222.0    $    31,833.6    $     29,317.3
          Bulk Revenue (1)                       18,009.0         15,426.5          13,680.7
                                            -------------    -------------    --------------
          Total PDPS                             54,231.0         47,260.1          42,998.0

Medical Products and Services                     7,357.6          6,614.7           6,256.7
Pharmaceutical Technologies and Services          2,804.1          2,250.0           1,417.5
Automation and Information Services                 680.8            666.7             560.2
Corporate (2)                                       (20.0)           (60.0)            (87.8)
                                            -------------    -------------    --------------
Total Company Revenue                       $    65,053.5    $    56,731.5    $     51,144.6
                                            =============    =============    ==============

(1) See discussion below under "Bulk Deliveries to Customer Warehouses and Other" for the Company's definition of Bulk Revenue.

(2) Corporate revenue primarily consists of foreign currency translation adjustments and the elimination of intersegment revenue.

The following table summarizes the revenue growth rates for the Company and its reportable segments, as well as the percent of Company revenue, excluding Corporate, each segment represents:

                                                                               Percent of Company
                                                         Growth (1)                  Revenue
                                                     ------------------    ---------------------------
Years ended June 30,                                 2004       2003       2004     2003        2002
--------------------                                 ----    ----------    ----   --------    --------
                                                              Adjusted            Adjusted    Adjusted
Pharmaceutical Distribution and Provider Services     15%        10%        84%      83%         84%
Medical Products and Services                         11%         6%        11%      12%         12%
Pharmaceutical Technologies and Services              25%        59%         4%       4%          3%
Automation and Information Services                    2%        19%         1%       1%          1%

Total Company                                         15%        11%       100%     100%        100%

(1) Growth is calculated as change (increase or decrease) for a given year as compared to immediately preceding year.

TOTAL COMPANY. Revenue increased 15% and 11% during fiscal 2004 and 2003, respectively. The revenue growth in these fiscal years resulted from a higher sales volume across each of the Company's segments; revenue growth from existing customers; addition of new customers, some of which resulted from new corporate arrangements with health care providers that integrate the Company's diverse offerings; addition of new products; and pharmaceutical price increases averaging approximately 6% and 5%, respectively, during fiscal 2004 and 2003. In addition, acquisitions completed by the Company during fiscal 2004 and 2003 accounted for approximately 1% of the overall growth for fiscal 2004 and 2003. These increases during fiscal 2004 were partially offset by slower sales growth within the Pharmaceutical Technologies and Services and Automation and Information services segments.

PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES. This segment's revenue growth of 15% in fiscal 2004 resulted primarily from strong sales to existing customers, sales to new customers and pharmaceutical price increases. Sales growth to existing customers within the retail chain and alternate site categories in this segment's Pharmaceutical Distribution business showed particular strength. This segment also benefited from (1) contract wins during fiscal 2004, (2) pharmaceutical price increases averaging approximately 6% during fiscal 2004, and (3) an extra business day. These revenue gains were partially dampened by continued reduction in business with Kmart Holding Corp. ("Kmart") due to Kmart's closure of various stores and certain contract losses during fiscal 2004 in this segment's Pharmaceutical Distribution business.

This segment's revenue growth of 10% in fiscal 2003 resulted from strong sales to customers within the segment's core Pharmaceutical Distribution business, some of which were generated from the addition of new contracts, and pharmaceutical price increases averaging approximately 5%. The most significant growth was in the alternate site and chain pharmacy businesses. The chain pharmacy growth rate would have been stronger had it not experienced a reduction in business with Kmart due to Kmart's closure of various stores in connection with its reorganization. This segment's overall revenue growth was partially dampened by the loss of certain customers.

MEDICAL PRODUCTS AND SERVICES. This segment's revenue growth of 11% in fiscal 2004 resulted from increased sales momentum from new and existing contracts within the distribution business as well as increased sales volume from the segment's international businesses. New contracts drove increased sales of both distributed and self-manufactured products, with sales from the distribution business particularly strong during fiscal 2004. The international businesses also generated strong revenue growth, increasing nearly 19% from the prior fiscal year. Approximately 14% of the international business revenue growth, however, related to changes in foreign currency rates. Sales of new self-manufactured products, particularly enhancements within surgeon glove products, also contributed to the overall revenue growth. This segment's revenue growth was above industry averages during fiscal 2004.

This segment's revenue growth of 6% in fiscal 2003 resulted from increased sales of both distributed and self-manufactured products. The addition of several new contracts with hospitals and health care networks, as well as increased market share in the growing surgery center market contributed to increased sales of distributed and self-manufactured products. Increased demand for certain existing self-manufactured products, including medical gloves, Medi-vac(R) suction canisters, Procedure Based Delivery System(R) kits and other minor procedure trays, accounted for a portion of this segment's revenue growth. The addition of new, self-manufactured products also contributed to the overall revenue growth in this segment. Some examples of these new, self-manufactured products include the Esteem(R) surgeon gloves and the Tiburon(TM) and Astound(TM) fabrics within the Convertors(R) business.

PHARMACEUTICAL TECHNOLOGIES AND SERVICES. This segment's revenue growth of 25% in fiscal 2004 resulted from acquisitions and sales momentum within the Pharmaceutical Development, Nuclear Pharmacy Services and Packaging Services businesses. Approximately 5% of this segment's revenue growth was due to the inclusion of Intercare, an acquisition completed during December 2003. Intercare's results of operations are not included in the prior period amounts. Intercare's operations have shown considerable sales momentum since the acquisition was completed, particularly the fourth quarter fiscal 2004. Also, this segment's revenue growth benefited from the inclusion of Syncor, an acquisition that was completed on January 1, 2003. Syncor's results of operations are not included in the amounts for the first half fiscal 2003. Excluding the impact of acquisitions within this segment, revenue growth would have been approximately 2% during fiscal 2004. This segment's revenue growth was partially dampened by a delay in startup of commercial manufacturing of key sterile products from signed contracts as certain regulatory inspections and product approvals were delayed in the Biotechnology and Sterile Life Sciences business. This segment's revenue growth is not impacted by foreign exchange fluctuations as the Company applies constant exchange rates to translate its foreign operations' revenue into U.S. dollars. The impact of actual foreign exchange rate changes for translation purposes is retained within the Corporate segment (see footnote 6 of the table in Note 18 in "Notes to Consolidated Financial Statements").

This segment's revenue growth of 59% in fiscal 2003 resulted from acquisitions and increased demand within the Oral Technologies, Biotechnology and Sterile Life Sciences, and Packaging Services businesses. The acquisitions of Syncor, effective January 1, 2003, and Boron, LePore & Associates, Inc. (which has been given the legal designation of Cardinal Health 401, Inc., and is referred to in this Form 10-K as "BLP"), effective June 2002, resulted in significant revenue growth in fiscal 2003. BLP's revenue includes customer reimbursements of out-of-pocket expenses, which generally comprise travel expenses and other incidental costs incurred to fulfill the services required by various contracts and are recorded as gross revenue. Excluding the impact of acquisitions within this segment, revenue growth would have been approximately 7% during fiscal 2003. Product sales from this segment's businesses that showed particular strength included Lilly's Zyprexa(R) Zydis(R), an anti-psychotic; Mylan's Amnesteem(TM), a generic drug for the treatment of acne; and Sepracor's Xoponex(R), a respiratory drug. The growth within the Biotechnology and Sterile Life Sciences business was negatively impacted by the planned shutdown for twelve weeks of a domestic sterile manufacturing facility to expand capacity.

AUTOMATION AND INFORMATION SERVICES. This segment's revenue growth of 2% in fiscal 2004 is reflective of the premature revenue recognition adjustment resulting from the Audit Committee's internal review as more fully described in Note 1 of "Notes to Consolidated Financial Statements." Operationally, this segment's revenue growth in fiscal 2004 included sales growth within the medication product lines (such as the Pyxis MedStation(R) system) and addition of new products. This segment was adversely affected by a softening of demand at the hospital level. The Company believes this softening is primarily attributable to capital spending pressures experienced by hospitals and an increasingly competitive market. These factors were also seen in the weakening of this segment's committed contract backlog. The Company believes this trend may continue in the short-term; however, the Company remains confident in the long-term prospects for this segment as patient safety concerns combine with innovative new products to drive future demand. In order to aid in the comparability of this segment's operating results, during fiscal 2004, the Company recorded a Corporate allocation adjustment to this segment's revenue of $21 million representing an estimate of interest income this segment would have earned had the Company not completed sales of its lease receivables. This allocation was recorded within revenue, consistent with the recording of interest income received from sales-type leases. The allocation was recorded for comparative purposes to reflect the segment's growth rate excluding the impact of the Corporate-initiated lease sales. Excluding the impact of this allocation entry, this segment's revenue growth would have been negative 1% for fiscal 2004. For more information, see footnote 6 to the table in Note 18 in "Notes to Consolidated Financial Statements."

This segment's revenue growth of 19% in fiscal 2003 resulted from strong sales of new and existing patient safety and supply management product lines, including Pyxis MedStation(R), Pyxis Anesthesia System(TM), Pyxis Connect(TM) and Pyxis SupplyStation(R) systems. In addition, the segment's revenue benefited in fiscal 2003 from gains of approximately $10 million, realized upon sales of its sales-type lease receivables.

Bulk Deliveries to Customer Warehouses and Other

As presented historically, the Pharmaceutical Distribution and Provider Services segment's revenue was classified into two categories ("Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other"). "Bulk Deliveries to Customer Warehouses and Other" has historically included revenue arising from sales where the Company ordered pharmaceutical product in bulk on behalf of a specific warehousing customer and either the manufacturer ships the product directly to the customer's warehouse or the product is shipped to the customer's warehouse shortly after it is received by the Company and is not put into the Company's inventory (in either case, "Bulk Revenue"). For all Bulk Revenue, the product was shipped to the customer in the same bulk form in which it was received by the Company from the manufacturers. The Company previously (since fiscal 2002) followed an internal policy for distinguishing between Operating Revenue and Bulk Revenue based on how long the product was in the Company's possession prior to being shipped to customers. If the product was in the possession of the Company for more than 24 hours prior to being shipped to customers, then, regardless of other characteristics of the transaction or the reason for the product being held for more than 24 hours, the sale of that product was deemed to be Operating Revenue. The Company's internal policy

also provided that customer orders for bulk shipments filled from inventory within the Company's warehouse were deemed to be Operating Revenue if the order for the product had been placed with the manufacturer prior to the Company receiving the bulk order from one of its customers ("Just-in-Time"). Operating Revenue for bulk shipments for product that was in the possession of the Company for more than 24 hours prior to being shipped to customers (other than with respect to certain bulk shipments intentionally held for more than 24 hours as described in the text following the table) and Just-in-Time bulk shipments by quarter for the three year period ended June 30, 2004 was approximately as follows:

                              24 Hour Rule                     Just-in-Time
                       ---------------------------     ----------------------------
(in millions)          Fiscal year ended June 30,      Fiscal year ended June 30,
                       ---------------------------     ----------------------------
                        2004      2003     2002          2004      2003     2002
                       -------- --------- --------     --------- --------- --------
First Quarter            $191    $  208        -         $ 13     $  351        -
Second Quarter            187       200      156           74        265        -
Third Quarter             148       360      155           31        252      157
Fourth Quarter            149       232      155            -        334      325
                       -------- --------- --------     --------- --------- --------
Total Year               $675    $1,000     $466         $118     $1,202     $482
                       ======== ========= ========     ========= ========= ========

Based on results of the internal review conducted by the Audit Committee, the Company has concluded that certain bulk shipments ordered by customers were intentionally held for more than 24 hours so that, pursuant to the internal policy, such shipments were classified as Operating Revenue in four quarters within fiscal 2003 and 2002. The Company estimates that approximately $813 million and $414 million being improperly classified as Operating Revenue in fiscal 2003 and 2002, respectively. The impact of this practice was not previously quantified and disclosed as part of the Company's reported Operating Revenue. The improper classification between Bulk Revenue and Operating Revenue had no impact on the Company's previously reported total revenue or operating or net earnings for these periods.

The following table shows the estimated amount of Bulk Revenue that was improperly classified as Operating Revenue in the manner described above, and shows the estimated impact from adjusting each of Bulk Revenue and Operating Revenue for the periods in which these improper classifications occurred:

                         Bulk Revenue               Operating Revenue
                  --------------------------    --------------------------
                  Fiscal Year Ended June 30,    Fiscal Year Ended June 30,
(in millions)         2003         2002            2003          2002
-------------        -------    ---------        ---------     ---------
First Quarter        $     -    $       -        $       -     $       -
Second Quarter         673.0         82.0           (673.0)        (82.0)
Third Quarter          140.0            -           (140.0)            -
Fourth Quarter             -        332.0                -        (332.0)
                     -------    ---------        ---------     ---------
Total Year           $ 813.0    $   414.0        $  (813.0)    $  (414.0)
                     =======    =========        =========     =========

In response to the internal review conducted by the Company's Audit Committee (see "Part I, Item 3: Legal Proceedings" and Note 1 of "Notes to Consolidated Financial Statements") and a review of Company policies, the Company has changed its definition of Bulk Revenue. Transactions with the following characteristics will now be defined as Bulk Revenue: (a) deliveries to customer warehouses whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products, (b) delivery of products to the customer in the same bulk form as the products are received from the manufacturer, (c) warehouse to customer warehouse or process center deliveries, or (d) deliveries to customers in large or high volume full case quantities. Bulk Revenue under this new definition was $18.0 billion in fiscal 2004, $15.4 billion in fiscal 2003 and $13.7 billion in fiscal 2002. The increase in Bulk Revenue during fiscal 2004 primarily relates to additional volume from existing customers. The increase in Bulk Revenue during fiscal 2003 primarily relates to new customers and additional volume from existing customers.

For fiscal 2004, the Company decided to aggregate revenue classes within this Form 10-K. "Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other" have been combined for all periods presented so that revenue and cost of products sold are presented as single amounts in the consolidated statements of earnings. These reclassifications have no effect on previously reported total revenue, related cost of products sold, net earnings or earnings per share. However, these reclassifications do impact previously reported growth rates which focused solely on Operating Revenue. Beginning with this Form 10-K, information concerning the portion of the Company's revenue that arises from Bulk Revenue will be discussed in the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations."

In the past, "Bulk Deliveries to Customer Warehouses and Other" also included certain revenue relating to the Pharmaceutical Technologies and Services segment. The Pharmaceutical Technologies and Services segment's revenue classified as "Bulk Deliveries to Customer Warehouses and Other" represented reimbursement from customers of certain out-of-pocket expenses incurred by the Company on behalf of customers and totaled $200.5 million in fiscal 2003. These customer reimbursements will not be included within the Company's definition of Bulk Revenue going forward.

Operating Earnings

Operating earnings for the Company and its reportable segments are as follows:

(in millions)                                             2004          2003            2002
-------------                                         ------------   -----------    ------------
                                                                      Restated        Restated
Pharmaceutical Distribution and Provider Services     $    1,173.4   $   1,188.1    $    1,081.0
Medical Products and Services                                666.0         591.8           545.2
Pharmaceutical Technologies and Services                     465.4         368.3           265.0
Automation and Information Services                          270.2         266.0           209.2
Corporate (1)                                               (237.7)       (218.2)         (243.0)
                                                      ------------   -----------    ------------
Total Company Operating Earnings                      $    2,337.3   $   2,196.0    $    1,857.4
                                                      ============   ===========    ============

(1) See Note 18 of "Notes to Consolidated Financial Statements" for a description of Corporate operating earnings.

The following table summarizes the operating earnings growth rates for the Company and its reportable segments, as well as the percent of Company operating earnings, excluding Corporate, each segment represents:

                                                                                 Percent of Company
                                                            Growth (1)           Operating Earnings
                                                        ---------------       --------------------------
Years ended June 30,                                    2004       2003       2004       2003       2002
--------------------                                    ----       ----       ----       ----       ----
                                                                 Adjusted              Adjusted   Adjusted
Pharmaceutical Distribution and Provider Services        (1)%       10%        46%        49%        51%
Medical Products and Services                            13%         9%        26%        25%        26%
Pharmaceutical Technologies and Services                 26%        39%        18%        15%        13%
Automation and Information Services                       2%        27%        10%        11%        10%

Total Company (2)                                         6%        18%       100%       100%       100%

(1) Growth is calculated as change (increase or decrease) for a given year as compared to immediately preceding year.

(2) The Company's overall operating earnings growth of 6% and 18%, respectively, in fiscal 2004 and 2003 includes the effect of special items. Special items are not allocated to the segments. See Note 4 in "Notes to Consolidated Financial Statements" for further information regarding the Company's special items.

TOTAL COMPANY. Total operating earnings increased 6% and 18% during fiscal 2004 and 2003, respectively. The following paragraphs provide a description of the varying dynamics affecting the total Company's operating earnings for fiscal 2004 and 2003.

FISCAL 2004. Operating earnings increased 6% during fiscal 2004 primarily as a result of the Company's revenue growth of 15% during the same time period, which yielded a gross margin increase of 6%. Gross margins grew at a slower rate than revenue primarily as a result of: (1) continued dampening effect of reduced vendor margins and competitive pricing within the Pharmaceutical Distribution business driven by changes to its business model (see the "Overview" section for further discussion); (2) increased mix of lower-margin distribution business within the Medical Products and Services segment; (3) increased mix of lower margin business, primarily Nuclear Pharmacy Services, within the Pharmaceutical Technologies and Services segment; and (4) competitive product and pricing actions within the Automation and Information Services segment. The overall increase in gross margin reflects the increased contributions from the Company's operating segments outside of the Pharmaceutical Distribution and Provider Services segment, which generate higher gross margins and operating earnings (as a percentage of revenue). These segments currently account for more than one-half of the Company's operating earnings. The Company expects this trend to continue. Acquisitions completed by the Company accounted for approximately 3% of the operating earnings growth.

The increases in revenue and gross margin were partially offset by a 4% increase in selling, general and administrative expenses during fiscal 2004, as well as an increase of $17.5 million in the Company's special items. The overall increase in operating expenses was primarily a result of the additional expenses resulting from acquisitions, higher personnel costs associated with overall business growth and an increase in depreciation and amortization costs. Additionally, the Company continues to invest in research and development and strategic initiatives that will benefit future periods. Investments of approximately $115 million in fiscal 2004 were charged against current operating earnings as incurred. These increases in selling, general and administrative

expenses were offset partially by: (1) reduction versus the prior fiscal year in incentive compensation expenses of approximately $64 million due to the performance of the Company's consolidated operations relative to management's expectations and established financial performance metrics, such reductions affecting all of the Company's business segments; and (2) adjustments of certain trade receivable reserves and lower bad debt expenses, combined impact approximately $10 million, due to changes in customer-specific credit exposures, as well as improvements in customer credit, billing and collection processes yielding significant reductions in past due and uncollectible accounts.

FISCAL 2003. The Company attributes the operating earnings increase of 18% during fiscal 2003 to its revenue growth of 11% during the same time period, which yielded a gross margin increase of 11%. Selling, general and administrative expenses grew 8% during this period primarily due to additional expenses resulting from acquisitions, higher personnel costs associated with the overall business growth and an increase in depreciation and amortization costs. However, selling, general and administrative expenses grew at a slower rate than gross margin which contributed to the overall percentage increase in operating earnings. In addition, a significant contributor of the overall operating earnings increase was a decrease of $76.7 million in the Company's special items due to the recognition of special item income of $101.5 million related to net litigation settlements received by the Company in fiscal 2003 as compared to $33.8 million received in fiscal 2002.

PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES. This segment's operating earnings declined 1% during fiscal 2004 primarily due to reduced vendor margins caused by the changing business model within the Pharmaceutical Distribution business (as further described in the "Overview" section) and the impact of competitive pricing. Other adjustments which negatively impacted this segment in fiscal 2004 included the following items within the Pharmaceutical Distribution business: (a) an increase in inventory valuation and vendor dispute reserves in the fourth quarter, $11.7 million, and (b) an adverse adjustment in the third quarter, $9.2 million, for vendor margins. In addition, one of several aspects of the business model transition adversely impacting Pharmaceutical Distribution's year over year operating earnings is the change in estimation of vendor margin with generic, health and beauty products and pharmaceutical manufacturers, approximately $15.3 million. These declines were partially offset by the following:

- segment revenue growth of 15% coupled with expense control;

- change in accounting for cash discounts resulting in additional gross margin of $20.0 million in fiscal 2004 (see additional discussion of the accounting change in Notes 16 and 19 of "Notes to Consolidated Financial Statements");

- favorable year over year impact, $14.7 million, from changes in last-in, first-out ("LIFO") reserve;

- favorable year over year impact of lower incentive compensation expense;

- favorable year over year impact of certain non-recurring expenses recorded in fiscal 2003 relating to operations from the Bindley acquisition; and

- favorable year over year impact of $34 million charge recorded in fiscal 2003 relating to the segment's vendor margins with its generic suppliers.

This segment's operating earnings increase of 10% during fiscal 2003 resulted primarily from the following:

- segment revenue growth of 10%;

- change in timing of income recognition for pharmaceutical manufacturers' payments under existing inventory management agreements from a modified cash basis to an accrual basis resulting in a favorable gross margin impact of approximately $13 million recorded in the third quarter;

- expense controls, which resulted in a decrease of 6% in selling, general and administrative expenses; and

- favorable year over year impact, $12.4 million, relating to changes in Corporate expenses allocated to this segment.

Also contributing to the improvement in fiscal 2003 year over year performance were certain non-recurring expenses of approximately $40 million recorded in fiscal 2002 associated with operations acquired as part of the Bindley acquisition. These non-recurring expenses in fiscal 2002 were partially offset by a $23 million benefit recognized in the same period as a result of changes in the Company's LIFO calculation with respect to generic products in order to more accurately reflect inflationary indices. The segment's operating earnings in fiscal 2003 were negatively impacted by the $5.2 million year over year impact within the Pharmaceutical Distribution business of the business model transition impacting its vendor margins with generic, health and beauty products and pharmaceutical vendors.

MEDICAL PRODUCTS AND SERVICES. This segment's operating earnings growth of 13% during fiscal 2004 resulted primarily from this segment's revenue growth of 11% during the same time period, led by sales momentum from distribution contracts and gains within international markets. This segment also realized manufacturing productivity improvements resulting in gross margin gains. In addition, operating earnings benefited from lower incentive compensation expense versus prior year. This segment's operating earnings growth was partially dampened by the increased mix of lower margin distributed products, competitive pricing within the industry and an increase of approximately $9 million in raw material prices.

This segment's operating earnings growth of 9% during fiscal 2003 resulted from this segment's revenue growth of 6% during the same time period and the ability to leverage this revenue growth into additional gross margin gains. This segment's gross margin was positively impacted by increased sales of existing and new higher-margin, self-manufactured products, manufacturing efficiencies achieved during the fiscal year and outsourcing of some product manufacturing to more cost efficient areas. In

addition, operating earnings benefited from various required balance sheet reserve adjustments, approximately $8.2 million, recorded during the year relating to historical customer and vendor disputes. The operating earnings growth rate was negatively affected by: (1) impact of new distribution agreements which increased sales of lower-margin distributed products in fiscal 2003; (2) increased Corporate expenses, $2.5 million, allocated to this segment; and (3) a one-time adjustment recorded in fiscal 2002 to transfer the segment's incentive compensation expenses, approximately $15 million, to the Corporate segment. This adjustment was recorded in the Corporate segment as the business segment's stand-alone incentive compensation program in effect at the time would have resulted in no incentive compensation expense for the year; however, a corporate management decision was made to include the segment's employees in the Company's overall incentive compensation program in advance of integrating various employee benefit programs.

PHARMACEUTICAL TECHNOLOGIES AND SERVICES. This segment's operating earnings growth of 26% during fiscal 2004 resulted primarily from this segment's revenue growth of 25% during the same time period, with sales momentum in the Pharmaceutical Development, Nuclear Pharmacy Services and Packaging Services businesses showing particular strength. This segment also benefited from acquisitions completed by the Company, specifically Intercare and Syncor. The acquisition of Intercare was completed during the second quarter fiscal 2004 and, therefore, its results of operations are not included in the prior period. Also, Syncor's results of operations are not included in the first half of fiscal 2003 since the acquisition was completed on January 1, 2003. Excluding the impact of acquisitions within this segment, operating earnings growth would have been approximately 8% during fiscal 2004. This segment's gross margin as a percentage of revenue was negatively impacted by the increase in services provided by the Nuclear Pharmacy Services business, which has a lower gross margin ratio as compared to the other businesses within this segment. The segment's operating earnings also benefited year over year by reduced incentive compensation expenses. Operating earnings growth was dampened by the delay in startup of commercial manufacturing of certain sterile products as discussed in this segment's revenue discussion. In addition, this segment's operating earnings growth is not impacted by foreign exchange fluctuations as the Company applies constant exchange rates to translate its foreign operations' operating earnings into U.S. dollars. The impact of actual foreign exchange rate changes for translation purposes is retained within the Corporate segment (see footnote 6 to the table in Note 18 in "Notes to Consolidated Financial Statements").

This segment's operating earnings growth of 39% during fiscal 2003 resulted primarily from this segment's revenue growth of 59% during the same time period, as discussed above in the "Revenue" section. Excluding the impact of acquisitions within this segment, operating earnings growth would have been approximately 13% during fiscal 2003. The deleveraging effect between gross margin and revenue within this segment was primarily driven by the addition of Syncor's Nuclear Pharmacy Services business and the addition of BLP's customer reimbursements of out-of-pocket expenses incurred to fulfill services required by various contracts. Syncor has a lower gross margin ratio than the other businesses within this segment, and BLP records these customer reimbursements gross within revenue and cost of products sold, but generates no margin from them.

AUTOMATION AND INFORMATION SERVICES. This segment's operating earnings growth of 2% during fiscal 2004 was impacted by the premature revenue recognition adjustment resulting from the Audit Committee's internal review as more fully described in Note 1 of "Notes to Consolidated Financial Statements." This segment's operating earnings growth during fiscal 2004 resulted, in part, from this segment's revenue growth of 2% during the same time period in conjunction with operational improvements and favorable product mix. In addition, this segment benefited from a reduction in receivable reserves and lower bad debt expenses, combined impact approximately $8.2 million, due to improvements in customer-specific credit matters, as well as general improvements in customer credit, billing and collection procedures, resulting in significant reductions in past due and uncollectible accounts. The segment's operating earnings also benefited year over year from reduced (a) incentive compensation expenses, and (b) Corporate expense allocation of $1.5 million. As mentioned in this segment's revenue discussion, the Company recorded, for comparative purposes, a Corporate allocation of $21 million to this segment representing estimated interest income this segment would have earned had the Company not initiated the sale of its lease receivables. Excluding the impact of this allocation, this segment's operating earnings growth would have been negative 6% during fiscal 2004. See this segment's discussion under "Revenue" for additional information regarding this allocation entry.

This segment's operating earnings growth of 27% during fiscal 2003 resulted primarily from this segment's revenue growth of 19% during the same time period in conjunction with an improved mix of higher-margin products sold and productivity gains realized from operational improvements. In addition, operating earnings during fiscal 2003 included gains of approximately $10 million from sales of sales-type leases.

Special Items

The following is a summary of the Company's special items:

                                                     Fiscal Year Ended June 30,
(in millions, except per Common Share amounts)      2004       2003        2002
----------------------------------------------     ------     -------     -------
                                                                         Restated
   Merger-related costs                            $ 44.7     $  74.4     $ 131.9
   Restructuring costs                               37.1        67.0        18.5
   Litigation settlements, net                      (62.3)     (101.5)      (33.8)
   Other special items                               37.9           -           -
                                                   ------     -------     -------
Total special items                                $ 57.4     $  39.9     $ 116.6
                                                   ======     =======     =======

See Note 4 of "Notes to Consolidated Financial Statements" for detail of the Company's special items during fiscal 2004, 2003 and 2002.

Interest Expense and Other

The decrease in interest expense and other of $16.4 million during fiscal 2004 and $17.2 million during fiscal 2003 resulted from lower interest rates and borrowing levels due to the Company's strong operating cash flow. The Company manages its exposure to interest rates using various hedging strategies (see Notes 3 and 7 in "Notes to Consolidated Financial Statements"). Also included within interest expense and other are gains and losses recognized from transactions outside of the Company's ordinary course of business (e.g., sales of lines of businesses or individual facilities as well as adjustments of equity investments). The following summarizes the more significant transactions that occurred during fiscal 2004, 2003 and 2002.

- During fiscal 2004, the Company recorded net gains of approximately $11.9 million and $6.3 million related to the sale of non-strategic businesses within its Pharmaceutical Technologies and Services and Medical Products and Services segments. The Company also recorded a $6.8 million gain related to the sale of land within its Medical Products and Services segment. In addition, the Company recorded a $4.2 million asset impairment charge relating to domestic intellectual property rights within its Automation and Information Services segment.

- During fiscal 2003, the Company recorded a net gain of approximately $17.6 million related to the sale of a non-strategic business within the Pharmaceutical Distribution and Provider Services segment and a gain of $8.0 million as a result of a payment the Company received in exchange for amending a contract within the Automation and Information Services segment (releasing the Company's exclusivity rights in a designated territory). Also within fiscal 2003, the Company recorded a loss of $7.9 million related to the write-off of certain obsolete assets as a result of a system implementation within the Pharmaceutical Technologies and Services segment.

- During fiscal 2002, the Company recorded a net gain of approximately $22.4 million related to the sale of a non-strategic business which was partially offset by losses related to asset abandonments within the Pharmaceutical Technologies and Services segment, $11.5 million, and Medical Products and Services segment, $4.6 million.

Provision for Income Taxes

The provisions for income taxes relative to earnings before income taxes, discontinued operations and cumulative effect of changes in accounting were 31.9% of pretax earnings in fiscal 2004, 33.6% in fiscal 2003 and 33.8% in fiscal 2002. Fluctuations in the effective tax rate are primarily due to changes within state and foreign effective tax rates resulting from the Company's business mix and changes in the tax impact of special items, which may have unique tax implications depending on the nature of the item and the taxing jurisdiction. The Company's effective tax rate reflects tax benefits derived from increasing operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35 percent. During fiscal 2004, the Company's provision for income taxes benefited from increased profits from production in lower tax international countries (e.g., Thailand and the Dominican Republic). The Company has subsidiaries operating in Puerto Rico under a tax incentive agreement expiring in 2019, as well as a tax agreement in place with Thailand that expires in 2013.

Loss from Discontinued Operations

See Note 21 in "Notes to Consolidated Financial Statements" for information on the Company's discontinued operations.

CRITICAL ACCOUNTING POLICIES AND SENSITIVE ACCOUNTING ESTIMATES

Critical accounting policies are those accounting policies that can have a significant impact on the presentation of the Company's financial condition and results of operations, and require use of complex and subjective estimates based upon past experience and management's judgment. Because of the uncertainty inherent in such estimates, actual results may differ from these estimates. Below are those policies applied in preparing the Company's financial statements that management believes are the most dependent on the application of estimates and assumptions. For additional accounting policies, see Note 3 of "Notes to Consolidated Financial Statements."

- ALLOWANCE FOR DOUBTFUL ACCOUNTS. Trade receivables comprise amounts owed to the Company through its operating activities and are presented net of an allowance for doubtful accounts. The Company also provides financing to various customers. Such financing arrangements range from one year to ten years at interest rates that generally fluctuate with the prime rate. These financings may be collateralized, guaranteed by third parties or unsecured. Finance notes and accrued interest receivables are recorded net of an allowance for doubtful accounts and are included in other assets. Extending credit terms and calculating the required allowance for doubtful accounts involve the use of judgment by the Company's management.

In determining the appropriate allowance for doubtful accounts, which includes general and specific reserves, the Company reviews accounts receivable agings, industry trends, customer financial strength, credit standing and payment history to assess the probability of collection. The Company continuously monitors the collectibility of its receivable portfolio by analyzing the aging of its accounts receivable, assessing credit worthiness of its customers and evaluating the impact of changes in economic conditions that may impact credit risks. If the frequency or severity of customer defaults increases due to changes in customers' financial condition or general economic conditions, the Company's allowance for uncollectible accounts may require adjustment.

The allowance for doubtful accounts as a percentage of customer receivables was 3.3% and 4.1% at June 30, 2004 and 2003, respectively. The decrease was a result of adjustments to certain trade receivable reserves due to changes in customer-specific credit exposures, as well as improvements in customer credit, billing and collections processes. A hypothetical 0.1% increase or decrease in the reserve as a percentage of trade receivables to the fiscal 2004 reserve would result in an increase or decrease in bad debt expense of approximately $4.2 million. The Company believes the reserve maintained and expenses recorded in fiscal year 2004 are appropriate and consistent with historical methodologies employed. The favorable net effect results from improvements in the Company's credit and collection practices and actual experiences. The total reserve at June 30, 2004 and 2003 exceeds the total Company receivable balance greater than 60 days past due at those same dates. See Schedule II included in this Form 10-K which includes a rollforward of activity for these allowance reserves.

- INVENTORIES. A majority of inventories (approximately 66% in 2004 and 68% in 2003) are stated at the lower of cost, using the LIFO method, or market, and are primarily merchandise inventories. The remaining inventory is primarily stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market. If the Company had used the FIFO method of inventory valuation, which approximates current replacement cost, inventories would have increased $57.8 million and $61.4 million in fiscal 2004 and 2003, respectively.

Below is a reconciliation of FIFO inventory to LIFO inventory:

                                           June 30,
                                  ---------------------------
(in millions)                        2004           2003
-------------                     -----------   -------------
                                                  Restated
FIFO inventory                    $   7,529.1   $     7,632.3
LIFO reserve valuation                  (57.8)          (61.4)
                                  -----------   -------------
Total inventory                   $   7,471.3   $     7,570.9
                                  ===========   =============

Inventories recorded on the Company's consolidated balance sheets are net of reserves for excess and obsolete inventory. The Company reserves for inventory obsolescence using estimates based on historical experiences, sales trends, specific categories of inventory and age of on-hand inventory. If actual conditions are less favorable than the Company's assumptions, additional inventory reserves may be required, however these would not be expected to have a material adverse impact on the Company's financial statements.

- GOODWILL. The Company accounts for goodwill in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." Under SFAS No. 142, purchased goodwill and intangible assets with indefinite lives are no longer amortized, but instead tested for impairment annually or when indicators of impairment exist. Accordingly, the Company does not amortize goodwill and intangible assets with indefinite lives. Intangible assets with finite lives, primarily customer relationships and patents and trademarks, continue to be amortized over their useful lives.

In conducting the impairment test, the fair value of the Company's reporting units is compared to its carrying amount including goodwill. If the fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the fair value, further analysis is performed to assess impairment.

The Company's impairment analysis is based on a review of the price/earnings ratio for companies similar in nature, scope and size. The use of alternative estimates, peer groups or changes in the industry could affect the estimated fair value of the assets and potentially result in impairment. Any identified impairment would result in adjustment to the Company's results of operations. The Company completed the required impairment testing in fiscal 2004 and 2003 and did not incur any impairment charges.

- BUSINESS COMBINATIONS. Assumptions and estimates are used in determining the fair value of assets acquired and liabilities assumed in a business combination. A significant portion of the purchase price in many of the Company's acquisitions is assigned to intangible assets which require management to use significant judgment in determining fair value. The Company typically utilizes third-party valuation experts ("Valuation Experts") for this process. In addition, current and future amortization expense for such intangibles is impacted by purchase price allocations as well as the assessment of estimated useful lives of such intangibles, excluding goodwill. The Company believes the assets recorded and the useful lives established are appropriate based upon current facts and circumstances.

In conjunction with the review of a transaction, the Valuation Experts assess the status of the acquired company's research and development projects to determine the existence of in-process research and development ("IPR&D"). The Company has not historically recorded significant costs related to IPR&D. However, in conjunction with the recent acquisition of ALARIS, the Company was required to estimate the fair value of acquired IPR&D which required selecting an appropriate discount rate and estimating future cash flows for each project. Management also assessed the current status of development, nature and timing of efforts to complete such development, uncertainties and other factors when estimating the fair value. Costs were not assigned to IPR&D unless future development was probable. Once the fair value was determined, an asset was established and immediately written-off as a special item in the Company's consolidated statement of earnings. The Company recorded $12.7 million as a special item in fiscal 2004 representing an estimate of ALARIS' IPR&D (see Note 4 of "Notes to Consolidated Financial Statements").

- SPECIAL ITEMS. The Company's special items consist primarily of costs that relate to the integration of previously acquired companies or costs of restructuring operations to improve productivity. Integration costs from acquisitions accounted for under the pooling of interests method have been recorded in accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)," and SEC Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges." Certain costs related to these acquisitions, such as employee and lease terminations and other facility exit costs, were recognized at the date the integration plan was adopted by management. Certain other integration costs that did not meet the criteria for accrual at the commitment date have been expensed as the integration plan has been implemented.

The costs associated with integrating acquired companies under the purchase method are recorded in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." Certain costs to be incurred by the Company, as the acquirer, such as employee and lease terminations and other facility exit costs, are recognized at the date the integration plan is formalized and adopted by management. Certain other integration costs that do not meet the criteria for accrual at the commitment date are expensed as the integration plan is implemented.

At the beginning of the third quarter fiscal 2003, the Company implemented SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," to account for costs incurred in restructuring activities. Under this standard, a liability for an exit cost is recognized as incurred. As discussed above, the Company previously accounted for costs associated with restructuring activities under EITF Issue No. 94-3, which required the Company to recognize a liability for restructuring costs on the date of the commitment to an exit plan.

The majority of the special items related to acquisitions and restructurings can be classified in one of the following categories:
employee-related costs, exit costs (including lease termination costs), asset impairments and other integration costs. Employee costs include severance and termination benefits. Lease termination costs include lease cancellation fees, forfeited deposits and remaining payments due under existing lease agreements less estimated sublease income. Other facility exit costs include costs to move equipment or inventory out of a facility as well as other costs incurred to shut down a facility. Asset impairment costs include the remaining net book value of assets no longer used as a result of the integration or restructuring activities. Other integration costs primarily include charges directly related to the integration plan such as consulting costs related to information systems and employee benefit plans as well as relocation and travel costs directly associated with the integration plan. Actual costs could differ from management's estimates. If actual results are different from original estimates, the Company will record additional expense or reverse previously recorded expenses. These adjustments will be recorded as special items.

The Company also records settlements of significant lawsuits that are infrequent, non-recurring or unusual in nature as special items. See Note 4 of "Notes to Consolidated Financial Statement" for additional information.

- VENDOR RESERVES. In determining an appropriate vendor reserve, the Company assesses historical experience and current outstanding claims. The Company researches and resolves contested transactions based on discussions with vendors, Company policy and findings of research performed. At any given time, there are outstanding items in various stages of research and resolution. The ultimate outcome of certain claims may be different than the Company's original estimate and may require adjustment. However, the Company believes reserves recorded for such disputes are adequate based upon current facts and circumstances.

- INCOME TAX RESERVES. The Company has established an estimated liability for federal, state and foreign income tax exposures that arise and meet the criteria for accrual under SFAS No. 5, "Accounting for Contingencies." This liability addresses a number of issues for which the Company may have to pay additional taxes (and interest) when all examinations by taxing authorities are concluded.

The Company has developed a methodology for estimating its tax liability related to such matters and has consistently followed such methodology from period to period. The liability amounts for such matters are based on an evaluation of the underlying facts and circumstances, a thorough research of the technical merits of the Company's arguments, and an assessment of the chances of the Company prevailing in its arguments. In all cases, the Company considers previous IRS findings. The Company generally consults with external tax advisers in researching its conclusions. Amounts accrued for a particular period are not adjusted upward or downward unless a significant change in facts or circumstances has occurred and been formally documented.

- LOSS CONTINGENCIES. The Company accrues for contingencies related to litigation in accordance with SFAS No. 5, "Accounting for Contingencies," which requires the Company to assess contingencies to determine degree of probability and range of possible settlement. An estimated loss contingency is accrued in the Company's consolidated financial statements if it is probable that a liability has been incurred and the amount of the settlement can be reasonably estimated. Assessing contingencies is highly subjective and requires judgments about future events. The Company regularly reviews contingencies to determine the adequacy of the accruals and related disclosures. The amount of ultimate settlement may differ from these estimates.

- SELF INSURANCE ACCRUALS. The Company is self-insured for employee medical and dental insurance programs. The Company had recorded liabilities totaling $23.0 million and $12.8 million for estimated costs related to outstanding claims at June 30, 2004 and 2003, respectively. These costs include an estimate for expected settlements on pending claims, administrative fees and an estimate for claims incurred but not reported. These estimates are based on the Company's assessment of outstanding claims, historical analysis and current payment trends. The Company records an estimate for the claims incurred but not reported using an estimated lag period. This lag period assumption has been consistently applied for the periods presented. If the lag period was adjusted by a period equal to a half month, the impact on earnings would be $4.7 million. However, the Company believes the liabilities recorded are adequate based upon current facts and circumstances.

The Company is also self-insured for various general liability and workers' compensation claims. The Company had recorded liabilities totaling $48.0 million and $39.2 million for anticipated costs related to general liability and workers' compensation at June 30, 2004 and 2003, respectively. These costs include an estimate for expected settlements on pending claims, defense costs and an estimate for claims incurred but not reported. These estimates are based on the Company's assessment of outstanding claims, historical analysis, actuarial information and current payment trends. The amount of ultimate liability in respect to these matters may differ from these estimates.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

The following table summarizes the Company's Consolidated Statements of Cash Flows for fiscal 2004, 2003 and 2002:

                                               Fiscal Years Ended June 30,
                                     ----------------------------------------------
(in millions)                         2004                2003              2002
-----------------------------------------------------------------------------------
                                                        Restated           Restated
Cash provided by/(used in):
    Operating activities             $2,624.7           $1,398.0           $  983.9
    Investing activities            ($2,437.0)         ($  343.7)         ($  650.9)
    Financing activities            ($  815.7)         ($  712.3)          $  114.9

OPERATING ACTIVITIES. Cash provided by operating activities nearly doubled during fiscal 2004 as compared to fiscal 2003 primarily due to an increase in accounts payable and increased earnings from continuing operations. The primary driver of the increase in accounts payable was due to the timing of payments at fiscal year-end, as well as inventory buys executed shortly before fiscal year-end within the Company's Pharmaceutical Distribution business. In addition, as a result of certain non-recurring end of year arrangements, payments to vendors in fiscal 2004 were reduced by $258 million due to the acceleration of payments at June 30, 2003 to selected pharmaceutical vendors. Such arrangements resulted in changes to the original payment terms with the vendors for which an economic consideration was exchanged between both parties. The Company's overall investment in inventories declined during fiscal 2004 as compared to fiscal 2003 due primarily to the changing business model of the Pharmaceutical Distribution business (see the "Overview" section earlier within "Management's Discussion and Analysis of Financial Condition and Results of Operations"). This business model change should continue to have a positive impact on the Company's operating cash flows in the near-term, reducing the Company's inventory on-hand and moderating historical seasonal fluctuations in working capital. For further discussion of changes within the Company's earnings from continuing operations, see the "Results of Operations" section. Additionally, the Company's operating cash flow benefited by approximately $99.3 million during fiscal 2004 due to sales of lease receivables from the Company's Automation and Information Services segment. See Note 10 in "Notes to Consolidated Financial Statements" for information regarding sales of lease receivables.

Cash provided by operating activities during fiscal 2003 increased $414.1 million as compared to fiscal 2002 primarily due to (a) increased earnings from continuing operations, and (b) sales of lease receivables, which benefited the Company's operating cash flow by $247.6 million in fiscal 2003 as compared to $97.8 million in fiscal 2002. These positive factors were partially offset by year over year impact of (i) end of year payments to selected pharmaceutical vendors, approximately $370 million, for which economic consideration was exchanged between both parties; and (ii) accelerated end of year customer receipts, approximately $152 million, for which economic consideration was exchanged between both parties. The positive factors were also partially offset by increases in trade receivables and inventories. The increase in trade receivables was driven by the Company's revenue growth. The increase in inventories resulted primarily from increased sales across each of the Company's segments. The rate of increase in inventories was less than in prior years due to the impact of branded to generic product conversions, vendor inventory policies and inventory management agreements. Synergies realized from the Bindley integration also lowered the Company's investment in inventory.

INVESTING ACTIVITIES. Cash used in investing activities during fiscal 2004, 2003 and 2002 primarily represents the Company's use of cash to complete acquisitions which expand its role as a provider of services to the health care industry (see "Acquisitions and Divestitures" within "Part I, Item 1: Business" for further information regarding the Company's acquisitions); and develop and enhance the Company's infrastructure, including facilities, information systems and other machinery and equipment. During these fiscal years, the Company has focused on developing the infrastructure within its Pharmaceutical Technologies and Services segment. The uses of cash noted above were partially offset by proceeds received from the sale of property, equipment and other assets, as well as proceeds from the sale of discontinued operations during fiscal 2004 and 2003.

FINANCING ACTIVITIES. The Company's financing activities utilized cash of $815.7 million and $712.3 million during fiscal 2004 and 2003, respectively, and provided cash of $114.9 million during fiscal 2002. Cash used in financing activities during fiscal 2004 and 2003 primarily reflects the Company's decision to repurchase its shares as authorized by its Board of Directors (see "Share Repurchases" below for additional information). These cash outflows for fiscal 2004 and 2003 were partially offset by net proceeds received from the Company's debt facilities (see "Capital Resources" below for additional information) and proceeds received from shares issued under various employee stock plans. Cash provided by financing activities during fiscal 2002 primarily reflects the issuance of $300 million of Notes, partially offset by repurchase of the Company's shares.

International Cash

The Company's cash balance of approximately $1.1 billion as of June 30, 2004, includes $299.3 million of cash held by its subsidiaries outside of the United States. Although the vast majority of cash held outside the United States is available for repatriation, doing so could subject it to United States federal income tax.

Share Repurchases

During fiscal 2004, 2003 and 2002, the Company's Board of Directors approved, and management completed, several share repurchase programs. These share repurchase programs, in the aggregate, allowed the Company to repurchase $3.0 billion of the Company's shares. During fiscal 2004, the Company repurchased approximately 24.2 million shares having an average price paid per share of $62.03. During fiscal 2003, the Company repurchased approximately 19.6 million shares having an average price paid per share of $60.77. During fiscal 2002, the Company repurchased approximately 5.1 million shares having an average price paid per share of $60.24. The repurchased shares were placed into treasury to be used for general corporate purposes. See "Issuer Purchases of Equity Securities" within "Part I, Item 5: Market for the Registrant's Common Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities" for further information regarding the Company's most recent share repurchase program.

Capital Resources

In addition to cash, the Company's sources of liquidity include a $1.5 billion commercial paper program backed by $1.5 billion of bank revolving credit facilities, a $150 million extendible commercial note program and a committed receivables sales facility program with capacity to sell $500 million in receivables. Subsequent to June 30, 2004, the capacity under the committed receivables sales facility program was increased to $800 million and the Company sold in the aggregate $800 million in receivables under the program (for more information regarding this committed receivables sales facility program, see Note 10 of "Notes to Consolidated Financial Statements"). Also subsequent to June 30, 2004, the Company received a commitment letter for a $500 million committed borrowing facility to be used for general corporate purposes. This facility is in the process of being negotiated. As of June 30, 2004, $634.2 million of commercial paper was backed by the $1.5 billion of bank revolving credit facilities, with the remaining facilities unused. The Company also has lines of credit of approximately $183.7 million, of which $68.4 million was outstanding as of June 30, 2004.

The Company maintains two $750 million bank revolving credit facilities. These facilities are available for general corporate purposes; however, they are primarily used as backstop liquidity for the Company's commercial paper program. During the third quarter of fiscal 2004, the Company refinanced its maturing 364-day, $750 million revolving credit facility with a new five-year, $750 million revolving credit facility. Management believes that the extension to a five-year facility enhanced the Company's liquidity profile by reducing refinancing risk at nominal marginal cost. In connection with adding the new five-year revolving credit facility, the Company also amended its existing five-year $750 million revolving credit facility during the third quarter of fiscal 2004 to administratively conform it to the new five-year revolving credit facility. Subsequent to June 30, 2004, the Company borrowed $1.25 billion in the aggregate on its revolving credit facilities. The proceeds from the Company's revolving credit facilities were utilized to repay a significant portion of the Company's commercial paper program, none of which remained outstanding as of the filing date of this Form 10-K, and for general corporate purposes, including the establishment of pharmaceutical inventory at the Pharmaceutical Distribution business' National Logistics Center in Groveport, Ohio.

The Company had an asset securitization facility which allowed the Company to sell receivables generated from its radiopharmaceutical operations to a wholly-owned subsidiary, which in turn sold the receivables to a multi-seller conduit administered by a third party bank. This facility allowed for borrowings up to $65 million. This securitization facility was terminated in fiscal 2004.

During fiscal 2004, the Company retired two series of $100 million Notes which matured in 2004. During fiscal 2003 and 2002, the Company issued $500 million of 4.00% Notes (due 2015) and $300 million of 4.45% Notes (due 2005), respectively. The proceeds of the debt issuances were used for repayment of a portion of the Company's indebtedness and general corporate purposes, including working capital, capital expenditures, acquisitions and investments. As of June 30, 2004, the Company, pursuant to a shelf registration statement filed with the SEC, has the capacity available for issuance of up to $500 million of equity and debt securities.

From time to time, the Company considers and engages in acquisition transactions in order to expand its role as a leading provider of services to the health care industry. The Company evaluates possible candidates for merger or acquisition and intends to continue to seek opportunities to expand its role as a provider of services to the health care industry through all its reporting segments. If additional transactions are entered into or consummated, the Company may need to enter into funding arrangements for such mergers or acquisitions.

The Company currently believes that, based upon existing cash, operating cash flows, available capital resources (as discussed above) and other available market transactions, it has adequate capital resources at its disposal to fund currently anticipated capital

expenditures, business growth and expansion, contractual obligations and current and projected debt service requirements, including those related to business combinations.

Debt Ratings/Covenants

The Company's senior debt credit ratings from S&P, Moody's and Fitch are BBB, Baa3 and BBB+, respectively, the commercial paper ratings are A-3, P-3 and F-2, respectively, and the ratings outlooks are "negative," "on review for possible further downgrade" and "negative," respectively. Further reductions in the Company's credit ratings could negatively impact its ability to access capital as well as its ability to issue additional debt securities at currently available interest rates.

The Company's various borrowing facilities and long-term debt, except for the preferred debt securities as discussed below, are free of any financial covenants other than minimum net worth which cannot fall below $4.1 billion at any time. As of June 30, 2004, the Company was in compliance with this covenant.

The Company's preferred debt securities contain a minimum adjusted tangible net worth covenant (adjusted tangible net worth cannot fall below $3.0 billion) and certain financial ratio covenants. As of June 30, 2004, the Company was in compliance with these covenants. A breach of any of these covenants would be followed by a grace period during which the Company may discuss remedies with the security holders, or extinguish the securities, without causing an event of default.

Interest Rate and Currency Risk Management

The Company uses forward currency exchange contracts, currency options and interest rate swaps to manage its exposure to cash flow variability. The Company also uses foreign currency forward contracts and interest rate swaps to protect the value of its existing foreign currency assets and liabilities and the value of its debt. See Notes 3 and 7 of "Notes to Consolidated Financial Statements" for information regarding the use of financial instruments and derivatives, including foreign currency hedging instruments. As a matter of policy, the Company rarely engages in "speculative" transactions involving derivative financial instruments. During fiscal 2003, the Company entered into one speculative interest rate swap transaction resulting in a gain of approximately $6.7 million. This gain was recorded in interest expense and other per the consolidated statement of earnings.

Contractual Obligations

As of June 30, 2004, the Company's contractual obligations, including estimated payments due by period, are as follows:

                                                      Payments Due by Period
                                                      ----------------------
(in millions)                          2005       2006-2007     2008-2009     Thereafter       Total
-------------                        --------     ---------     ---------     ----------     --------
On Balance Sheet:
Long-term debt (1)                   $  849.9      $  808.4      $  803.3      $1,200.9      $3,662.5
Capital lease obligations (2)             5.1           8.8           5.5           7.8          27.2
Other long-term liabilities (3)           7.3          15.5          11.6          36.6          71.0

Off-Balance Sheet:

Operating leases (4)                    109.1         137.7          79.4         109.1         435.3
Purchase obligations (5) (6)          2,412.3          57.5          11.7          10.2       2,491.7
                                     --------      --------      --------      --------      --------
Total financial obligations          $3,383.7      $1,027.9      $  911.5      $1,364.6      $6,687.7
                                     ========      ========      ========      ========      ========

(1) Represents maturities of the Company's long-term debt obligations, as shown on the balance sheet. See Note 6 in "Notes to Consolidated Financial Statements" for further information.

(2) Represents maturities of the Company's capital lease obligations, included within long-term debt on the Company's balance sheet.

(3) Represents cash outflows by period for certain of the Company's long-term liabilities in which cash outflows could be reasonably estimated. The primary items included are estimates of the Company's pension and other post-retirement benefit obligations as well as accrued marketing fees and other long-term liabilities. Certain long-term liabilities, such as deferred taxes, have been excluded from the table above as there are no cash outflows associated with the liabilities or the timing of the cash outflows cannot reasonably be estimated.

(4) Represents minimum rental payments for operating leases having initial or remaining non-cancelable lease terms as described in Note 11 of "Notes to Consolidated Financial Statements." The Company also has required lease payments based upon LIBOR

which are not included in the above amounts due to variability related to such payments. See description of these leases in Note 10 of "Notes to Consolidated Financial Statements."

(5) Purchase obligations are defined as an agreement to purchase goods or services that is enforceable and legally binding and specifying all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and approximate timing of the transaction. The purchase obligation amounts disclosed above represent estimates of the minimum for which the Company is obligated and the time period in which cash outflows will occur. Purchase orders and authorizations to purchase that involve no firm commitment from either party are excluded from the above table. In addition, contracts that can be unilaterally cancelled with no termination fee or with proper notice are excluded from the Company's total purchase obligations except for the amount of the termination fee or the minimum amount of goods that must be purchased during the requisite notice period. The significant amount disclosed within fiscal 2005, as compared to other periods, primarily represents obligations to purchase inventories within the Pharmaceutical Distribution and Provider Services segment.

(6) The Company has certain obligations to repurchase franchisee pharmacies from its Medicine Shoppe and Medicap businesses at the end of the term of the franchise renewal agreement. These obligations are determined through third-party appraisals and are for periods beyond fiscal 2009. At this time, the Company cannot estimate the amount of these obligations and therefore has not included them in this presentation.

OFF-BALANCE SHEET ARRANGEMENTS

See Note 10 in "Notes to Consolidated Financial Statements" for a discussion of off-balance sheet arrangements.

OTHER

RECENT FINANCIAL ACCOUNTING STANDARDS. See Note 3 in "Notes to Consolidated Financial Statements" for a discussion of recent financial accounting standards.

RECENT DEVELOPMENTS. See Notes 1 and 2 in "Notes to Consolidated Financial Statements" for a discussion of the SEC investigation, U.S. Attorney inquiry and Audit Committee internal review, and certain reclassification and restatement adjustments the Company made to its fiscal 2004 and prior historical financial statements in connection with certain conclusions made by the Audit Committee during September and October 2004 as part of its internal review to date. See also Note 22 in "Notes to Consolidated Financial Statements" for discussion of subsequent events after June 30, 2004.

ITEM 7a: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to cash flow and earnings fluctuations as a result of certain market risks. These market risks primarily relate to foreign exchange, interest rate, and commodity related changes. The Company maintains a comprehensive hedging program to manage volatility related to these market exposures. It employs operational, economic, and derivative financial instruments in order to mitigate risk. See Notes 3 and 7 of "Notes to Consolidated Financial Statements" for further discussion regarding the Company's use of derivative instruments.

FOREIGN EXCHANGE RATE SENSITIVITY. By nature of the Company's global operations, it is exposed to cash flow and earnings fluctuations resulting from foreign exchange rate variation. These exposures are transactional and translational in nature. Since the Company manufactures and sells its products throughout the world, its foreign currency risk is diversified. Principal drivers of this diversified foreign exchange exposure include the European euro, Mexican peso, British pound and the Thai bhat.

Transactional Exposure

The Company's transactional exposure arises from the purchase and sale of goods and services in currencies other than the functional currency of the parent or its subsidiaries. As part of its risk management program, at the end of each fiscal year the Company performs a sensitivity analysis on its forecasted transactional exposure for the upcoming fiscal year. This analysis assumes a hypothetical 10% strengthening or weakening of the U.S. dollar. Included in the analysis is the estimated impact of its hedging program, which mitigates the Company's transactional exposure. At June 30, 2004 and 2003, the Company had hedged approximately 52% and 61% of its transactional exposures, respectively. The following table summarizes the analysis as it relates to the Company's transactional exposure (in millions):

                                            2004         2003
                                           ------       ------
Net estimated transactional exposure       $332.8       $221.8

Sensitivity gain/loss (1)                    33.3         22.2
Estimated offsetting impact of hedges       (17.2)       (13.4)
                                           ------       ------
Estimated net gain/loss                    $ 16.1       $  8.8
                                           ======       ======

(1) Impact of a hypothetical 10% strengthening or weakening of the U.S dollar.

Translational Exposure

The Company also has exposure related to the translation of financial statements of its foreign divisions into U.S dollars, functional currency of the parent. It performs a similar analysis as described above related to this translational exposure. The Company does not typically hedge any of its translational exposure and no hedging impact was included in the Company's analysis at June 30, 2004 and 2003. The following table summarizes the Company's translational exposure and the impact of a hypothetical 10% strengthening or weakening in the U.S dollar (in millions):

                                           2004        2003
                                          ------      ------
Net estimated translational exposure      $208.3      $108.8
Sensitivity gain/loss (1)                 $ 20.8      $ 10.9

(1) Impact of a hypothetical 10% strengthening or weakening of the U.S dollar.

The increase in net estimated translational exposure between fiscal 2004 and 2003 resulted primarily from international acquisitions completed during fiscal 2004.

INTEREST RATE SENSITIVITY. The Company is exposed to changes in interest rates primarily as a result of its borrowing and investing activities to maintain liquidity and fund business operations. The nature and amount of the Company's long-term and short-term debt can be expected to fluctuate as a result of business requirements, market conditions, and other factors. The Company's policy is to manage exposures to interest rates using a mix of fixed and floating rate debt as deemed appropriate by management. The Company utilizes interest rate swap instruments to mitigate its exposure to interest rate movements.

As part of its risk management program, the Company annually performs a sensitivity analysis on its forecasted exposure to interest rates for the following fiscal year. This analysis assumes a hypothetical 10% change in interest rates. At June 30, 2004 and 2003, the potential increase or decrease in interest expense under this analysis as a result of this hypothetical change was $6.4 million and $3.2 million, respectively.

COMMODITY PRICE SENSITIVITY. The Company purchases certain commodities for use in its manufacturing processes, which include rubber, heating oil, diesel fuel, and polystyrene. The Company typically purchases these commodities at market prices, and as a result, is affected by price fluctuations. As part of its risk management program, the Company performs sensitivity analysis on its forecasted commodity exposure for the following fiscal year. At June 30, 2004 and 2003, the Company had not hedged any of these exposures. The table below summarizes the Company's analysis of these forecasted commodity exposures and a hypothetical 10% fluctuation in commodity prices as of June 30, 2004 and 2003 (in millions):

                                  2004       2003
                                  -----      -----
Estimated commodity exposure      $32.4      $33.3
Sensitivity gain/loss (1)         $ 3.2      $ 3.3

(1) Impact of a hypothetical 10% change in commodity market prices.

The Company also has exposure to certain energy related commodities, including natural gas and electricity through its normal course of business. These exposures result primarily from operating the Company's distribution, manufacturing, and corporate facilities. In certain deregulated markets, the Company from time to time enters into long-term purchase contracts to supply these items at a specific price.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements and Schedule:
     Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 2004, 2003 and 2002
     Consolidated Balance Sheets at June 30, 2004 and 2003
     Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 2004, 2003 and 2002
     Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2004, 2003 and 2002
     Notes to Consolidated Financial Statements
     Schedule II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the
Board of Directors of Cardinal Health, Inc.:

We have audited the accompanying consolidated balance sheets of Cardinal Health, Inc. and subsidiaries (the "Company") as of June 30, 2004 and 2003, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2004. Our audits also included the financial statement schedule listed in the Index at Item
15(a)(2). These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2004, in conformity with the U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

We also audited the adjustments described in Note 1 to the consolidated financial statements that were applied to restate opening retained earnings as of July 1, 2002. In our opinion, such adjustments are appropriate and have been properly applied.

As discussed in Note 16 to the consolidated financial statements, the Company changed its method of recognizing cash discounts effective at the beginning of fiscal year 2004 and, in the first quarter of fiscal 2002, the Company changed its method of recognizing revenue for pharmacy automation equipment.

/s/ Ernst & Young LLP

ERNST & YOUNG LLP
Columbus, Ohio
October 25, 2004

CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)

                                                              FISCAL YEAR ENDED JUNE 30,
                                                        ----------------------------------------
                                                           2004           2003           2002
                                                        ----------------------------------------
                                                                        RESTATED       RESTATED
Revenue                                                 $ 65,053.5     $ 56,731.5     $ 51,144.6
Cost of products sold                                     60,312.3       52,249.3       47,099.6
                                                        ----------     ----------     ----------

Gross margin                                               4,741.2        4,482.2        4,045.0

Selling, general and administrative expenses               2,346.5        2,246.3        2,071.0

Special items - merger charges                                44.7           74.4          131.9
              - foundation contribution                       31.7              -              -
              - other                                        (19.0)         (34.5)         (15.3)
                                                        ----------     ----------     ----------

Operating earnings                                         2,337.3        2,196.0        1,857.4

Interest expense and other                                    98.9          115.3          132.5
                                                        ----------     ----------     ----------

Earnings before income taxes, discontinued
   operations, and cumulative effect of changes
   in accounting                                           2,238.4        2,080.7        1,724.9

Provision for income taxes                                   713.7          699.5          584.1
                                                        ----------     ----------     ----------
Earnings from continuing operations before
   cumulative effect of changes in accounting              1,524.7        1,381.2        1,140.8

Loss from discontinued operations
   (net of tax of $7.4 and $2.5 for the year-to-date
   periods ending June 30, 2004 and 2003,
   respectively)                                             (11.7)          (6.1)             -

Cumulative effect of changes in accounting                   (38.5)             -         (70.1)
                                                        ----------     ----------     ----------

Net earnings                                            $  1,474.5     $  1,375.1     $  1,070.7
                                                        ==========     ==========     ==========

Basic earnings per Common Share:
   Continuing operations                                $     3.51     $     3.10     $     2.53
   Discontinued operations                                   (0.03)         (0.02)             -
   Cumulative effect of changes in accounting                (0.09)             -          (0.16)
                                                        ----------     ----------     ----------

   Net basic earnings per Common Share                  $     3.39     $     3.08     $     2.37
                                                        ==========     ==========     ==========

Diluted earnings per Common Share:
   Continuing operations                                $     3.47     $     3.05     $     2.48
   Discontinued operations                                   (0.03)         (0.02)             -
   Cumulative effect of changes in accounting                (0.09)             -          (0.15)
                                                        ----------     ----------     ----------

   Net diluted earnings per Common Share                $     3.35     $     3.03     $     2.33
                                                        ==========     ==========     ==========

Weighted average number of shares outstanding:
   Basic                                                     434.4          446.0          450.1
   Diluted                                                   440.0          453.3          459.6

The accompanying notes are an integral part of these consolidated statements.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

                                                                                JUNE 30,     JUNE 30,
                                                                                 2004          2003
                                                                               ---------     ---------
                                                                                             RESTATED
ASSETS
     Current assets:
        Cash and equivalents                                                   $ 1,096.0     $ 1,724.0
        Trade receivables, net                                                   3,432.7       2,784.4
        Current portion of net investment in sales-type leases                     202.1         171.8
        Inventories                                                              7,471.3       7,570.9
        Prepaid expenses and other                                                 795.4         776.0
        Assets held for sale from discontinued operations                           60.4         170.1
                                                                               ---------     ---------

           Total current assets                                                 13,057.9      13,197.2
                                                                               ---------     ---------
     Property and equipment, at cost:
        Land, buildings and improvements                                         1,412.6       1,218.8
        Machinery and equipment                                                  2,734.3       2,401.4
        Furniture and fixtures                                                     153.2         135.1
                                                                               ---------     ---------
           Total                                                                 4,300.1       3,755.3
        Accumulated depreciation and amortization                               (1,936.1)     (1,665.8)
                                                                               ---------     ---------
        Property and equipment, net                                              2,364.0       2,089.5

     Other assets:
        Net investment in sales-type leases, less current portion                  546.0         557.3
        Goodwill and other intangibles, net                                      4,938.8       2,332.3
        Other                                                                      462.4         288.8
                                                                               ---------     ---------

           Total                                                               $21,369.1     $18,465.1
                                                                               =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY
     Current liabilities:
        Notes payable and other short term borrowings                          $     5.6     $       -
        Current portion of long-term obligations                                   855.0         228.7
        Accounts payable                                                         6,432.4       5,288.8
        Other accrued liabilities                                                2,021.3       1,728.4
        Liabilities from discontinued operations                                    55.1          64.3
                                                                               ---------     ---------

           Total current liabilities                                             9,369.4       7,310.2
                                                                               ---------     ---------

     Long-term obligations, less current portion                                 2,834.7       2,471.9
     Deferred income taxes and other liabilities                                 1,188.7       1,008.5

     Shareholders' equity:
        Preferred Stock, without par value
           Authorized - 0.5 million shares, Issued - none                              -             -
        Common Shares, without par value
           Authorized - 755.0 million shares, Issued - 473.1 million shares
           and 467.2 million shares at June 30, 2004 and 2003, respectively      2,653.8       2,403.7
        Retained earnings                                                        7,888.0       6,465.2
        Common Shares in treasury, at cost, 42.2 million shares and 18.8
            million shares at June 30, 2004 and 2003, respectively              (2,588.1)     (1,135.8)
        Other comprehensive income / (loss)                                         28.9         (50.7)
        Other                                                                       (6.3)         (7.9)
                                                                               ---------     ---------
           Total shareholders' equity                                            7,976.3       7,674.5
                                                                               ---------     ---------

           Total                                                               $21,369.1     $18,465.1
                                                                               =========     =========

The accompanying notes are an integral part of these consolidated statements.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)

                                               COMMON SHARES
                                            -----------------                TREASURY SHARES        OTHER                  TOTAL
                                            SHARES             RETAINED    ------------------  COMPREHENSIVE           SHAREHOLDERS'
                                            ISSUED   AMOUNT    EARNINGS     SHARES   AMOUNT    INCOME/(LOSS)   OTHER      EQUITY
                                            ------ ----------  ----------  -------  ---------  -------------  -------  -------------
BALANCE, JUNE 30, 2001                      456.2  $  1,893.1  $  4,146.0    (7.5)  $  (457.2) $    (140.3)   $  (4.5) $    5,437.1
Adjustment for restated beginning balance                           (33.6)                                                    (33.6)
Comprehensive income:
  Net earnings                                                    1,070.7                                                   1,070.7
  Foreign currency translation adjustments                                                            24.0                     24.0
  Unrealized loss on derivatives                                                                     (10.4)                   (10.4)
  Unrealized gain on investments                                                                       2.6                      2.6
  Reclassification adjustment for investment
   losses included in net earnings                                                                     3.2                      3.2
  Net change in minimum pension liability                                                            (22.1)                   (22.1)
                                                                                                                       ------------
Total comprehensive income                                                                                                  1,068.0
Employee stock plans activity,
  including tax benefits of $73.6 million     4.5       191.6                 0.5        28.1                    (6.0)        213.7
Treasury shares acquired                                                     (5.1)     (308.3)                               (308.3)
Dividends declared                                                  (45.0)                                                    (45.0)
Stock issued for acquisitions and other       0.3        20.5        (1.1)   (0.1)        0.4                                  19.8
                                            ------ ----------  ----------  ------   ---------  -----------    -------  ------------

BALANCE, JUNE 30, 2002 (Restated)           461.0  $  2,105.2  $  5,137.0   (12.2)  $  (737.0) $    (143.0)   $ (10.5) $    6,351.7
Comprehensive income:
  Net earnings                                                    1,375.1                                                   1,375.1
  Foreign currency translation adjustments                                                            99.7                     99.7
  Unrealized gain on derivatives                                                                       2.0                      2.0
  Net change in minimum pension liability                                                             (9.4)                    (9.4)
                                                                                                                       ------------
Total comprehensive income                                                                                                  1,467.4
Employee stock plans activity,
  including tax benefits of $65.5 million     6.2       227.8                 0.5        35.6                     2.5         265.9
Treasury shares acquired                                                    (19.6)   (1,191.7)                             (1,191.7)
Dividends declared                                                  (47.0)                                                    (47.0)
Stock issued for acquisitions and other                  70.7         0.1    12.5       757.3                     0.1         828.2
                                            ------ ----------  ----------  ------   ---------  -----------    -------  ------------

BALANCE, JUNE 30, 2003 (Restated)           467.2  $  2,403.7  $  6,465.2   (18.8)  $(1,135.8) $     (50.7)   $  (7.9) $    7,674.5
Comprehensive income:
  Net earnings                                                    1,474.5                                                   1,474.5
  Foreign currency translation adjustments                                                            68.3                     68.3
  Unrealized gain on derivatives                                                                      11.7                     11.7
  Unrealized loss on investments                                                                      (1.3)                    (1.3)
  Net change in minimum pension liability                                                              0.9                      0.9
                                                                                                                       ------------
Total comprehensive income                                                                                                  1,554.1
Employee stock plans activity,
  including tax benefits of $66.4 million     5.9       237.2                 0.8        47.7                     1.6         286.5
Treasury shares acquired                                                    (24.2)   (1,500.0)                             (1,500.0)
Dividends declared                                                  (51.8)                                                    (51.8)
Stock issued for acquisitions and other                  12.9         0.1                                                      13.0
                                            ------ ----------  ----------  ------   ---------  -----------    -------  ------------
BALANCE, JUNE 30, 2004                      473.1  $  2,653.8  $  7,888.0   (42.2)  $(2,588.1) $      28.9    $  (6.3) $    7,976.3
                                            ====== ==========  ==========  ======   =========  ===========    =======  ============

The accompanying notes are an integral part of these consolidated statements.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)

                                                                              FISCAL YEAR ENDED JUNE 30,
                                                                          --------------------------------
                                                                            2004        2003        2002
                                                                          --------    --------    --------
                                                                                      RESTATED    RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES:
    Earnings from continuing operations before cumulative effect
      of changes in accounting                                            $1,524.7    $1,381.2    $1,140.8
    Adjustments to reconcile earnings from continuing operations before
      cumulative effect of changes in accounting to net cash from
      operations:
    Depreciation and amortization                                            299.2       265.8       243.5
    Provision for deferred income taxes                                      105.1       215.2       239.7
    Provision for bad debts                                                    1.5        22.2        42.6
    Change in operating assets and liabilities,
       net of effects from acquisitions:
      Decrease/(increase) in trade receivables                              (457.1)     (413.7)      142.7
      Decrease/(increase) in inventories                                     245.5      (217.9)   (1,065.9)
      Decrease/(increase) in net investment in sales-type leases              (7.2)      107.8        71.2
      Increase/(decrease) in accounts payable                              1,014.6      (278.5)      178.6
      Other accrued liabilities and operating items, net                    (101.6)      315.9        (9.3)
                                                                          --------    --------    --------

    Net cash provided by operating activities                              2,624.7     1,398.0       983.9
                                                                          --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of subsidiaries, net of cash acquired                     (2,089.7)      (26.8)     (383.8)
    Proceeds from sale of property and equipment                              19.5        57.7        18.3
    Additions to property and equipment                                     (410.2)     (423.2)     (285.4)
    Proceeds from sale of discontinued operations                             43.4        48.6           -
                                                                          --------    --------    --------

    Net cash used in investing activities                                 (2,437.0)     (343.7)     (650.9)
                                                                          --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Net change in commercial paper and short-term debt                       646.2         8.5        (9.7)
    Reduction of long-term obligations                                      (464.3)     (191.0)      (19.6)
    Proceeds from long-term obligations, net of issuance costs               338.0       509.4       362.3
    Proceeds from issuance of Common Shares                                  216.7       197.3       140.0
    Dividends on Common Shares                                               (52.3)      (44.8)      (45.0)
    Purchase of treasury shares                                           (1,500.0)   (1,191.7)     (308.3)
    Other                                                                        -           -        (4.8)
                                                                          --------    --------    --------

    Net cash provided by/(used in) financing activities                     (815.7)     (712.3)      114.9
                                                                          --------    --------    --------

NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS                             (628.0)      342.0       447.9

CASH AND EQUIVALENTS AT BEGINNING OF YEAR                                  1,724.0     1,382.0       934.1
                                                                          --------    --------    --------

CASH AND EQUIVALENTS AT END OF YEAR                                       $1,096.0    $1,724.0    $1,382.0
                                                                          ========    ========    ========

The accompanying notes are an integral part of these consolidated statements.

CARDINAL HEALTH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING INVESTIGATIONS AND RESTATEMENT

As previously reported, in October 2003, the Securities and Exchange Commission (the "SEC") initiated an informal inquiry regarding Cardinal Health, Inc. (the "Company"). The SEC's request sought historical financial and related information including but not limited to the accounting treatment of certain recoveries from vitamin manufacturers. The SEC's request sought a variety of documentation, including the Company's accounting records for fiscal 2001 through fiscal 2003, as well as notes, memoranda, presentations, e-mail and other correspondence, budgets, forecasts and estimates. In connection with the SEC's informal inquiry, the Audit Committee of the Board of Directors of the Company commenced its own internal review in April 2004, assisted by independent counsel. On May 6, 2004, the Company was notified that the SEC had converted the informal inquiry into a formal investigation. On June 21, 2004, as part of the SEC's formal investigation, the Company received an additional SEC subpoena that included a request for the production of documents relating to revenue classification, and the methods used for such classification, in the Company's Pharmaceutical Distribution business as either "Operating Revenue" or "Bulk Deliveries to Customer Warehouses and Other." In addition, the Company learned that the U.S. Attorney for the Southern District of New York had also commenced an inquiry with respect to the Company that the Company understands relates to the revenue classification issue. On October 12, 2004, in connection with the SEC's formal investigation, the Company received a subpoena from the SEC requesting the production of documents relating to compensation information for specific current and former employees and officers. The Company continues to respond to the SEC's investigation and the Audit Committee's internal review and provide all information required.

During September and October 2004, the Audit Committee reached certain conclusions with respect to findings to date from its internal review. These conclusions regarding certain items that impact revenue and earnings relate to four primary areas of focus: (1) classification of sales to customer warehouses between "Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other" within the Company's Pharmaceutical Distribution and Provider Services segment; (2) disclosure of the Company's practice, in certain reporting periods, of accelerating its receipt and recognition of cash discounts earned from suppliers for prompt payment; (3) timing of revenue recognition within the Company's Automation and Information Services segment; and (4) certain balance sheet reserve and accrual adjustments that have been identified in the internal review. The Audit Committee's internal review with respect to the financial statement impact of the matters reviewed to date is substantially complete. In connection with these conclusions, the Audit Committee has determined that the financial statements of the Company with respect to fiscal 2000, 2001, 2002 and 2003 as well as the first three quarters of fiscal 2004 should be restated to reflect the conclusions from its internal review to date. As the Company continues to respond to the SEC's investigation and the Audit Committee's internal review, there can be no assurance that additional restatements will not be required or that the historical financial statements included in this Form 10-K will not change or require amendment. In addition, the Audit Committee may identify new issues, or make additional findings if it receives additional information, that may impact the Company's financial statements and the scope of the restatements described in this Form 10-K.

The conclusions of the Audit Committee's internal review to date are as follows:

REVENUE IMPACT: Classification of Sales To Customer Warehouses Between "Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other" Within the Company's Pharmaceutical Distribution and Provider Services Segment

As presented historically since 1998, the Pharmaceutical Distribution and Provider Services segment's revenue was classified into two categories ("Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other"). "Bulk Deliveries to Customer Warehouses and Other" has historically included revenue arising from sales where the Company ordered pharmaceutical product in bulk on behalf of a specific warehousing customer and either the manufacturer ships the product directly to the customer's warehouse or the product is shipped to the customer's warehouse by the Company shortly after it is received by the Company and is not put into the Company's inventory (in either case, "Bulk Revenue"). For all Bulk Revenue, the product was shipped to the customer in the same bulk form in which it was received by the Company from the manufacturers. The Company previously since November 2001 followed an internal policy for distinguishing between Operating Revenue and Bulk Revenue based on how long the product was in the Company's possession prior to being shipped to customers. If the product was in the possession of the Company for more than 24 hours prior to being shipped to customers, then, regardless of other characteristics of the transaction or the reason for the product being held more than 24 hours, the sale of that product was deemed to be Operating Revenue. The Company's internal policy also provided that customer orders for bulk shipments filled from inventory within the Company's warehouse were deemed to be Operating Revenue if the order for the product had been placed with the manufacturer prior to the Company receiving the bulk order from its customer. Based on results of the internal review conducted by the Audit Committee, the Company concluded that certain bulk shipments ordered by customers were intentionally held beyond 24 hours so that, pursuant to the internal policy, such shipments were classified as Operating Revenue in four quarters within fiscal 2003 and 2002. The impact of this practice was not previously quantified and disclosed as part of the Company's reported Operating Revenue. The improper classification between Bulk Revenue and Operating Revenue had no impact on the Company's previously reported total revenue or operating or net earnings for these periods. See Note 2 for further discussion of these matters.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNDISCLOSED EARNINGS IMPACT: Disclosure of the Company's Practice, in Certain Reporting Periods, of Accelerating Its Receipt and Recognition of Cash Discounts Earned From Suppliers for Prompt Payment

Historically, the Company recognized cash discounts as a reduction of cost of products sold primarily upon payment of vendor invoices. Cash discounts are discounts the Company receives from some vendors for timely payment of invoices. The Company had a practice of accelerating payment of vendor invoices at the end of certain reporting periods in order to accelerate the recognition of cash discounts, which had the effect of improving operating results for those reporting periods. Although the effect of these accelerated payments were properly included in the Company's reported earnings, the impact of this acceleration practice was not separately quantified and disclosed in the periods in which the Company benefited from this practice. The net increase (decrease) in net earnings as a result of this practice for fiscal 2004, 2003 and 2002 is as follows:

                      Fiscal        Fiscal         Fiscal
(in millions)          2004          2003           2002
                      ------        ------         ------
First Quarter         $ (0.2)       $   -         $  (3.3)
Second Quarter           3.0          2.0               -
Third Quarter           (0.3)         5.5               -
Fourth Quarter          (1.2)         1.3               -
                      ------        -----         -------
Total                 $  1.3        $ 8.8         $  (3.3)
                      ======        =====         =======

During the fourth quarter fiscal 2004, the Company changed its accounting method for recognizing cash discounts from recognition primarily upon payment of vendor invoices to recording cash discounts as a component of inventory cost and recognizing such discounts as a reduction to cost of products sold upon sale by the Company of the purchased inventory. The Company believes the change in accounting method provides a more objectively determinable method of recognizing cash discounts and a better matching of inventory cost to revenues. This change will be retroactively effective to the beginning of fiscal 2004. As a result, the Company restated its previously reported fiscal 2004 quarterly results to reflect this change. See Note 16 for further discussion of this change in accounting.

REVENUE AND EARNINGS IMPACT: Timing of Revenue Recognition Within the Company's Automation and Information Services Segment

Within its Automation and Information Services segment, the Company's revenue recognition policy for equipment systems installed at a customer's site is to recognize revenue once the Company's installation obligations are complete and the equipment is functioning according to the material specifications of the user's manual and the customer has accepted the equipment as evidenced by signing an equipment confirmation document. The Company learned of concerns during the Audit Committee's internal review that some equipment confirmation documents were being executed prior to the time when installations were complete and revenue could be recognized. In order to assess the implications of any premature execution of equipment confirmations and corresponding revenue recognition, the Audit Committee review included: (a) document and process reviews including a sample of equipment confirmation forms; (b) certifications for selected employees involved in the installation process; (c) interviews of selected employees across regions within the U.S. and at various levels of the Company; (d) interviews of certain former employees of the Company; and (e) interviews of selected customers across all regions within the U.S.

This inquiry indicated some equipment confirmations, particularly in some sales regions, had been prematurely executed by customers at the request of certain Company employees, including certain situations where inducements to the customer (such as deferral of payments) were offered to obtain premature execution. As a result, there was a material weakness in internal controls because the Company did not have internal controls in place to assure that equipment installations were in fact completed before the equipment confirmations were executed. The Company concluded the impact of such actions was as follows:

- Equipment confirmations in the last several weeks of a quarter were the most likely to be executed early by the customer due to requests from certain Company employees.

- No evidence was discovered of fictitious sales being recorded by the Company.

- Revenue was recognized early primarily by one quarter. In most cases, installations were completed in the following quarter.

- Impact on the Company's financial results was not deemed material for any individual quarter or annually.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

- Net impact of this premature revenue recognition was assessed as of June 30, 2004 based upon interviews of customers as of June 30, 2004 representing a substantial percentage of the segment's end of quarter reported revenues resulting in approximately 10.8% of revenue in the last 10 days of the quarter being recognized prematurely (based upon an extrapolation). The Company recorded an $8.3 million reduction of revenue and a $5.3 million reduction of operating earnings during the fourth quarter fiscal 2004 to adjust for premature revenue recognition that was determined to have occurred within that quarter. These revenues and operating earnings will be recognized in the first quarter fiscal 2005.

The Company does not maintain accounting records that allow it to determine the precise impact of this matter on prior quarters. However, during the investigation there was sufficient data accumulated independent of the accounting systems to estimate the impact using a variety of methods. These methods were utilized solely to test the materiality of prior periods and are not necessarily indicative of what the actual results would have been. If the results of the June 30, 2004 interviews were applied to prior years (i.e., utilizing the 10.8% exception rate) as was utilized in the fourth quarter fiscal 2004 adjustment, the net increase (decrease) on revenue and operating earnings for fiscal 2002 and each previously reported quarter of fiscal 2003 and 2004, and the related percentage of the Automation and Information Services segment's reported amounts, would have been as follows:

                                              Operating
                    Revenue     % Change       Earnings      % Change
                    -------     --------      ---------      --------
FISCAL 2002         $  (8.3)       (1.5%)     $    (5.3)       (2.5%)

FISCAL 2003
  First Quarter     $   2.6         1.9%      $     1.7         3.6%
  Second Quarter        0.2         0.1%            0.1         0.1%
  Third Quarter        (0.3)       (0.2%)          (0.2)       (0.3%)
  Fourth Quarter       (3.8)       (1.9%)          (2.4)       (2.8%)
                    -------                   ---------
  Total Year        $  (1.3)       (0.2%)     $    (0.8)       (0.3%)
                    =======                   =========

FISCAL 2004
  First Quarter     $   3.7         2.6%      $     2.4         4.5%
  Second Quarter        0.1         0.0%              -         0.0%
  Third Quarter        (1.9)       (1.1%)          (1.2)       (1.7%)
                    -------                   ---------
  Year-To-Date      $   1.9         0.4%      $     1.2         0.6%
                    =======                   =========

Using different estimation methods than the methodology used to derive the table above, the percentage change in operating earnings for the periods noted above would range from less than 1% to a high of 6.6%. There were two quarters in which the estimated impact was over 5% (first quarter fiscal 2003 negative impact of 6.6% and third quarter of fiscal 2004 negative impact of 5.5%). The Company believes the impact of the adjustments resulting from the estimation methods are not material to previously reported results as such estimated adjustments do not distort trends in revenue and operating earnings growth that were previously reported and would not alter the Company's previous disclosures related to the Automation and Information Services segment.

The Company has recently reiterated the revenue recognition policy for equipment systems installed at a customer's site for its Automation and Information Services segment, and instructed all employees to strictly adhere to this policy.

The Company is in the process of implementing the following corrective actions in response to these initial conclusions:

- Adoption of new customer contracts and equipment confirmation forms that clarify when the installation is complete and the confirmation is to be executed.

- Revision of policies and procedures for equipment installation and revenue recognition processes.

- Enhanced level of internal training for those Company employees involved in equipment installation and revenue recognition processes.

- Reemphasizing availability of the Company's ethics and compliance hotline for reporting questions about appropriateness of the Company's business and accounting practices, including channels of communication to the Company's Audit Committee.

- Enhanced random audits of the Company's equipment confirmation process. Such random audits will be performed by the Company's internal audit department and such procedures will be reviewed and periodically tested by its independent auditors.

- Within the next year, it is expected that system enhancements will be implemented that will allow for the automated audit of installation of equipment at the customer's location.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RESTATED EARNINGS: Certain Balance Sheet Reserve and Accrual Adjustments

The Audit Committee's internal review included a review to determine if period-end adjustments to balance sheet reserve accounts and other accruals recorded in fiscal 2000 through fiscal 2004 were properly recorded in accordance with generally accepted accounting principles ("GAAP"). Based upon the Audit Committee's internal review, the Company determined there were various situations where (a) amount of reserve, (b) timing of reserve recognition, or
(c) timing of reserve adjustments could not be substantiated or was in error. As a result, the financial statements for certain prior fiscal quarters and years have been restated by the Company.

The types of balance sheet reserves and accrual adjustments that were restated consist of the following:

1. Errors arising from misapplication of GAAP. These errors primarily include (a) reductions in reserve accounts made in periods subsequent to the period in which the excess had been identified by the Company, (b) a last-in, first-out ("LIFO") inventory adjustment, and (c) a change in accounting policy for dividends to recognition when declared versus when paid.

2. Errors made in previous periods which were identified and appropriately corrected in a subsequent period when discovered. These items were not reported as prior period corrections at the time of their discovery because they were deemed immaterial. At this time, however, the Company has restated its prior financial statements to correct for such items identified during the internal review.

3. As a result of discussions with the SEC staff, the Company decided to reverse its previous recognition of estimated recoveries from vitamin manufacturers for amounts overcharged in prior years and to recognize the income from such recoveries as a special item in the period cash was received from the manufacturers. The Company recognized $10.0 million of operating earnings ($6.5 million net of taxes) in the second quarter of fiscal 2001 and $12.0 million of operating earnings ($7.9 million net of taxes) in the first quarter of fiscal 2002 based on its estimate of amounts that would subsequently be received. The actual cash payments received from manufacturers did not exceed the amounts previously recorded until the fourth quarter of fiscal 2002. The SEC staff had previously advised the Company that, in its view, the Company did not have an appropriate basis for recognizing the income in advance of receiving the cash.

The following table summarizes the restatement impact on previously reported net earnings as defined above for fiscal 2004, 2003 and 2002:

                           Misapplication                 Vitamin          Total
  (in millions)               of GAAP       Errors      Litigation      Restatement
  -------------               -------       ------      ----------      -----------
Fiscal 2004:
 First Quarter                 $ (0.3)      $ (4.5)       $    -          $  (4.8)
 Second Quarter                  (0.4)        (4.5)            -             (4.9)
 Third Quarter                      -         (5.7)            -             (5.7)
                               ------       ------        ------          -------
 Total Year-to-Date            $ (0.7)      $(14.7)       $    -          $ (15.4)
                               ======       ======        ======          =======

Fiscal 2003:
 First Quarter                 $ (3.1)      $ (3.8)       $    -          $  (6.9)
 Second Quarter                  (1.1)         3.7             -              2.6
 Third Quarter                   (9.1)        (5.4)            -            (14.5)
 Fourth Quarter                  (2.3)        (9.6)            -            (11.9)
                               ------       ------        ------          -------
 Total Year                    $(15.6)      $(15.1)       $    -          $ (30.7)
                               ======       ======        ======          =======

Fiscal 2002:
 First Quarter                 $  2.8       $ (5.9)       $ (7.9)         $ (11.0)
 Second Quarter                  (0.6)        (2.1)            -             (2.7)
 Third Quarter                    2.1          4.4             -              6.5
 Fourth Quarter                   0.8          7.5          13.4             21.7
                               ------       ------        ------          -------
 Total Year                    $  5.1       $  3.9        $  5.5          $  14.5
                               ======       ======        ======          =======

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the restatement impact on previously reported earnings per Common Share amounts for fiscal 2003 and 2002:

                                              Fiscal 2003                        Fiscal 2002
                                       -------------------------          ------------------------
                                          As               As                As              As
                                       Reported         Restated          Reported        Restated
                                       --------         --------          --------        --------
Earnings from continuing
operations per Common Share:
  Basic                                 $ 3.17           $ 3.10            $ 2.50          $ 2.53
  Diluted                               $ 3.12           $ 3.05            $ 2.45          $ 2.48

The Company reduced its June 30, 2001 retained earnings balance of $4,146.0 million by $33.6 million due to the restatement adjustments. This restatement amount consists of a $3.6 million decrease for misapplication of GAAP, a $23.5 million decrease for errors and a $6.5 million decrease for vitamin litigation.

See Note 19 for the restatement impact on previously reported quarterly earnings per Common Share amounts for fiscal 2004 and 2003.

The SEC investigation, the U.S. Attorney inquiry and the Audit Committee internal review remain ongoing. While the Company is continuing in its efforts to respond to the SEC's investigation and the Audit Committee's internal review and provide all information required, the Company cannot predict the outcome of the SEC investigation or the U.S. Attorney inquiry. The outcome of the SEC investigation, the U.S. Attorney inquiry and any related legal and administrative proceedings could include the institution of administrative, civil injunctive or criminal proceedings as well as the imposition of fines and other penalties, remedies and sanctions.

2. RECLASSIFICATIONS

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

customers, then, regardless of other characteristics of the transaction or the reason for the product being held more than 24 hours, the sale of that product was deemed to be Operating Revenue. The Company's internal policy also provided that customer orders for bulk shipments filled from inventory within the Company's warehouse were deemed to be Operating Revenue if the order for the product had been placed with the manufacturer prior to the Company receiving the bulk order from its customer. Based on results of the internal review conducted by the Audit Committee, the Company concluded that certain bulk shipments ordered by customers were intentionally held beyond 24 hours so that, pursuant to the internal policy, such shipments were classified as Operating Revenue in four quarters within fiscal 2003 and 2002. The impact of this practice was not previously quantified and disclosed as part of the Company's reported Operating Revenue. The improper classification between Bulk Revenue and Operating Revenue had no impact on the Company's previously reported total revenue or operating or net earnings for these periods.

The following table shows the amount of Bulk Revenue that was estimated to be improperly classified as Operating Revenue in the manner described above and the impact from adjusting each of Bulk Revenue and Operating Revenue for the periods in which these improper classifications occurred:

                                Bulk Revenue                           Operating Revenue
                                ------------                           -----------------
                         Fiscal Year Ended June 30,                Fiscal Year Ended June 30,
                        ----------------------------             -----------------------------
(in millions)             2003                 2002                 2003                 2002
-------------           -------              -------             --------             --------
First Quarter           $     -              $     -             $      -             $      -
Second Quarter            673.0                 82.0               (673.0)               (82.0)
Third Quarter             140.0                    -               (140.0)                   -
Fourth Quarter                -                332.0                    -               (332.0)
                        -------              -------             --------             --------
Total Year              $ 813.0              $ 414.0             $ (813.0)            $ (414.0)
                        =======              =======             ========             ========

During fiscal 2004, the Company decided to aggregate revenue classes within this Form 10-K. "Operating Revenue" and "Bulk Deliveries to Customer Warehouses and Other" have been combined for all periods presented so that total revenue and total cost of products sold are presented as single amounts in the consolidated statements of earnings. These reclassifications have no effect on previously reported total revenue, related cost of products sold, operating earnings, net earnings or earnings per share. Beginning with this Form 10-K, information concerning the portion of the Company's revenue that arises from Bulk Revenue will be discussed in the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Certain other insignificant reclassifications have been made to conform prior period amounts to the current presentation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company is a leading provider of products and services supporting the health care industry, and helping health care providers and manufacturers improve the efficiency and quality of health care. As of June 30, 2004, the Company conducted its business within the following four business segments:
Pharmaceutical Distribution and Provider Services; Medical Products and Services; Pharmaceutical Technologies and Services; and Automation and Information Services. See Note 18 for information related to the Company's business segments.

BASIS OF PRESENTATION. The consolidated financial statements of the Company include the accounts of all majority-owned subsidiaries. In addition, all significant intercompany accounts and transactions have been eliminated upon consolidation.

During fiscal 2004, 2003 and 2002, the Company completed several acquisitions, which were accounted for under the purchase method of accounting. The consolidated financial statements include the results of operations from each of these business combinations as of the date of acquisition. Additional disclosure related to the Company's acquisitions is provided in Note 4.

The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates include, but are not limited to, inventory valuation, allowance for doubtful accounts, goodwill and intangible asset impairment, vendor reserves and restructuring charge reserves. Actual amounts may differ from these estimated amounts.

CASH EQUIVALENTS. The Company considers all liquid investments purchased with a maturity of three months or less to be cash equivalents. The carrying value of these cash equivalents approximates fair value. Cash payments for interest were $112.7 million, $115.3 million and $116.5 million and cash payments for income taxes were $566.3 million, $256.8 million and $246.0 million for fiscal 2004, 2003 and 2002, respectively. See Note 4 for additional information regarding non-cash investing activities.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RECEIVABLES. Trade receivables are primarily comprised of amounts owed to the Company through its pharmaceutical and other health care service activities and are presented net of an allowance for doubtful accounts of $119.1 million and $121.3 million at June 30, 2004 and 2003, respectively. An account is considered past due on the first day after its due date. In accordance with contract terms, the Company generally has the ability to charge a customer service fees or higher prices if an account is considered past due. The Company continuously monitors past due accounts and establishes appropriate reserves to cover potential losses. The Company will write off any amounts deemed uncollectible against an established bad debt reserve.

The Company provides financing to various customers. Such financing arrangements range from one year to ten years, at interest rates that generally fluctuate with the prime rate. Interest income on these accounts is recognized by the Company as it is earned. The financings may be collateralized, guaranteed by third parties or unsecured. Finance notes and accrued interest receivables were $35.4 million and $30.8 million at June 30, 2004 and 2003, respectively (current portions were $17.2 million and $14.9 million, respectively), and are included in other assets. These amounts are reported net of an allowance for doubtful accounts of $4.1 million and $4.5 million at June 30, 2004 and 2003, respectively.

The Company has formed special purpose entities with the sole purpose of buying receivables or sales type leases from various legal entities of the Company and selling those receivables or sales type leases to certain multi-seller conduits administered by banks or other third-party investors. See Note 10 for additional disclosure regarding off-balance sheet financing.

INVENTORIES. A majority of inventories (approximately 66% in 2004 and 68% in 2003) are stated at the lower of cost, using the LIFO method, or market and are primarily merchandise inventories. The remaining inventory is primarily stated at the lower of cost, using the first-in, first-out ("FIFO") method, or market. If the Company had used the FIFO method of inventory valuation, which approximates current replacement cost, inventories would have been higher than the LIFO method reported at June 30, 2004 and 2003 by $57.8 million and $61.4 million, respectively.

GOODWILL AND OTHER INTANGIBLES. The Company accounts for purchased goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." Under SFAS No. 142, purchased goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment at least annually. Intangible assets with finite lives, primarily customer relationships and patents and trademarks, continue to be amortized over their useful lives. The Company performed its annual impairment test in fiscal 2004 which did not result in the recognition of any impairment charges. See Note 17 for additional disclosure regarding goodwill and other intangible assets.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Depreciation expense for financial reporting purposes is primarily computed using the straight-line method over the estimated useful lives of the assets, including capital lease assets which are depreciated over the terms of their respective leases. The Company uses the following range of useful lives for its property and equipment categories: buildings and improvements - 1 to 50 years; machinery and equipment - 3 to 20 years; furniture and fixtures - 7 years. Depreciation expense was $278.0 million, $249.0 million and $231.2 million for fiscal 2004, 2003 and 2002, respectively. The Company expenses repairs and maintenance expenditures as incurred. The Company capitalizes interest on long-term fixed asset projects using a rate of 5.0%, which approximates the Company's weighted average interest rate on long-term debt. The amount of capitalized interest was immaterial for all fiscal years presented.

OTHER ACCRUED LIABILITIES. Other accrued liabilities represent various obligations of the Company including certain accrued operating expenses and taxes payable. For the fiscal years ended June 30, 2004 and 2003, the largest component of other accrued liabilities was deferred tax liabilities of approximately $530.2 million and $566.1 million, respectively. Other significant components of other accrued liabilities were current taxes payable and employee compensation and related benefit accruals. For fiscal 2004 and 2003, current taxes payable were $286.4 million and $224.7 million, respectively, while employee compensation and related benefit accruals were $310.8 million and $373.6 million, respectively.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

REVENUE RECOGNITION

Pharmaceutical Distribution and Provider Services

This segment records distribution revenue when title transfers to its customers and the business has no further obligation to provide services related to such merchandise. This revenue is recorded net of sales returns and allowances (see "Sales Returns and Allowances" below for further information).

This segment also records Bulk Revenue, defined as transactions having any one or more of the following characteristics: (a) deliveries to customer warehouses whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products, (b) delivery of products to the customer in the same form as the products are received from the manufacturer, (c) warehouse to customer warehouse or process center deliveries, or (d) deliveries to customers in large or high volume full case quantities. See Notes 1 and 2 for a further discussion of Bulk Revenue.

This segment also owns certain consignment inventory and recognizes revenue when that inventory is sold to a third party by the segment's customer.

This segment earns franchise and origination fees from its apothecary-style pharmacy franchisees. Franchise fees represent monthly fees based upon franchisees' sales and are recognized as revenue when they are earned. Origination fees from signing new franchise agreements are recognized as revenue when the new franchise store is opened.

Pharmacy management and other service revenue is recognized as the services are rendered according to the contracts established. A fee is charged under such contracts through a capitated fee, a dispensing fee, a monthly management fee or an actual costs-incurred arrangement. Under certain contracts, fees for services are guaranteed by the Company not to exceed stipulated amounts or have other risk-sharing provisions. Revenue is adjusted to reflect the estimated effects of such contractual guarantees and risk-sharing provisions.

Medical Products and Services

This segment records distribution and self-manufactured medical product revenue when title transfers to its customers and the business has no further obligation to provide services related to such merchandise. This revenue is recorded net of sales returns and allowances (see "Sales Returns and Allowances" below for further information).

Pharmaceutical Technologies and Services

Manufacturing and packaging revenue is recognized either upon shipment or delivery of the product, in accordance with the terms of the contract which specify when transfer of title occurs. Radiopharmaceutical revenue is recognized upon delivery of the product to the customer. Other revenue from services provided, such as development or sales and marketing services, is recognized upon the completion of such services.

Drug delivery system revenue is recognized upon shipment of products to the customer. Non-product revenue includes annual exclusivity fees, option fees to extend exclusivity agreements and milestone payments for attaining certain regulatory approvals. This segment receives exclusivity payments from certain manufacturers in return for its commitment not to enter into agreements to manufacture competing products. The revenue related to these agreements is recognized over the term of the exclusivity or the term of the option agreement unless a particular milestone is designated, in which case revenue is recognized when all obligations of performance have been completed.

Analytical science revenue from fixed contracts is recorded as projects are completed and billed. Projects are primarily for a short-term duration. Certain contracts contain provisions for price redetermination for cost overruns. Such amounts are included in service revenue when realization is assured and the amounts are reasonably determined.

Automation and Information Services

Revenue is recognized from sales-type leases of point-of-use systems once the Company's installation obligations are complete and the equipment is functioning according to material specifications of the user's manual and the customer has accepted the equipment, as evidenced by signing an equipment confirmation document. At this point, the lease becomes noncancellable (see Note 16 for additional information). Interest income on sales-type leases is recognized in revenue using the interest method. Sales of point-of-use systems are recognized upon installation at the customer site. Revenue for systems installed under operating lease arrangements is recognized over the lease term as such amounts become receivable according to the provisions of the lease.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ALARIS Medical Systems, Inc. ("ALARIS")

The Company's recently acquired subsidiary, ALARIS, recognizes revenue, net of an allowance for estimated returns and credits, upon delivery and/or installation (depending on the product) and once transfer of title and risk of loss have occurred. ALARIS frequently enters into revenue arrangements with multiple deliverables, which, depending on the nature of the contract terms, are subject to the provisions of SEC Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" or Statement of Position 97-2, "Software Revenue Recognition."

SALES RETURNS AND ALLOWANCES. Pharmaceutical distribution revenue is recorded net of sales returns and allowances. The Pharmaceutical Distribution business recognizes sales returns as a reduction of revenue and cost of sales for the sales price and cost, respectively, when products are returned. The Pharmaceutical Distribution business' customer return policy requires that the product be physically returned, subject to restocking fees, and only allows customers to return products which can be added back to inventory and resold at full value, or which can be returned to vendors for credit. Product returns are generally consistent throughout the year, and typically are not specific to any particular product or customer. Amounts recorded in revenue and cost of sales under this accounting policy closely approximate what would have been recorded under SFAS No. 48, "Revenue Recognition When Right of Return Exists." Applying the provisions of SFAS No. 48 would not materially change the Company's financial position and results of operations. Sales returns and allowances for the Pharmaceutical Distribution business were approximately $1.3 billion, $1.2 billion, and $1.0 billion in fiscal 2004, 2003 and 2002, respectively.

Distributed and self-manufactured medical product revenue is recorded net of sales returns and allowances. The Medical Products and Services segment has established a reserve against returned goods in accordance with SFAS No. 48. This reserve amount was immaterial for all periods presented. This segment's customer return policy requires that the product be physically returned, subject to restocking fees, and only allows customers to return products which can be added back to inventory and resold at full value, or which can be returned to vendors for credit. Product returns are generally consistent throughout the year, and typically are not specific to any particular product or customer. Sales returns and allowances for the Medical Products and Services segment were approximately $56.9 million, $55.6 million and $53.1 million in fiscal 2004, 2003 and 2002, respectively.

CASH DISCOUNTS. Cash discounts are recorded as a component of inventory cost and recognized as a reduction of cost of products sold when related inventory is sold. See Note 16 for further information regarding cash discounts and the change in accounting method adopted in 2004.

ACCOUNTING FOR VENDOR RESERVES. In the ordinary course of business, vendors may challenge deductions or billings taken against payments otherwise due them from the Company. These contested transactions are researched and resolved based upon Company policy and findings of the research performed. At any given time, there are outstanding items in various stages of research and resolution. In determining an appropriate vendor reserve, the Company assesses historical information and current outstanding claims. The ultimate outcome of certain claims may be different than the Company's original estimate and may require adjustment.

SHIPPING AND HANDLING. Shipping and handling costs are included in selling, general and administrative expenses in the consolidated statements of earnings. Shipping and handling costs include all delivery expenses as well as all costs to prepare the product for shipment to the end customer. Shipping and handling costs totaled $250.3 million, $213.8 million and $211.9 million for fiscal 2004, 2003 and 2002, respectively. Shipping and handling revenue received was immaterial for all periods presented.

TRANSLATION OF FOREIGN CURRENCIES. Financial statements of the Company's subsidiaries outside the U.S. generally are measured using the local currency as the functional currency. Adjustments to translate the assets and liabilities of these foreign subsidiaries into U.S. dollars are accumulated in a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the consolidated statements of earnings and were immaterial for the fiscal years ended June 30, 2004, 2003 and 2002.

INTEREST RATE AND CURRENCY RISK MANAGEMENT. The Company accounts for derivative instruments in accordance with SFAS No. 133, as amended, "Accounting for Derivatives and Hedging Activity." Under this standard, all derivative instruments are recorded at fair value on the balance sheet and all changes in fair value are recorded to net earnings or shareholders' equity through other comprehensive income.

The Company uses forward currency exchange contracts, currency options and interest rate swaps to manage its exposures to the variability of cash flows primarily related to the foreign exchange rate changes of future foreign currency transaction costs and to the interest rate changes on borrowing costs. These contracts are designated as cash flow hedges.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also uses interest rate swaps to hedge changes in the value of fixed rate debt due to variations in interest rates. Both the derivative instruments and underlying debt are adjusted to market value through "interest expense and other" at the end of each period. The Company uses foreign currency forward contracts to protect the value of existing foreign currency assets and liabilities. The remeasurement adjustments for any foreign currency denominated assets or liabilities are included in "interest expense and other." The remeasurement adjustment is offset by the foreign currency forward contract settlements which are also classified in "interest expense and other." Both interest rate swaps and foreign currency forward contracts are designated as fair value hedges.

The Company generally does not use derivative instruments for trading or speculative purposes. During fiscal 2003, the Company entered into one speculative interest rate swap transaction resulting in a gain of approximately $6.7 million.

The Company's derivative contracts are adjusted to current market values each period and qualify for hedge accounting under SFAS No.133. Periodic gains and losses of contracts designated as cash flow hedges are deferred in other comprehensive income until the underlying transactions are recognized. Upon recognition, such gains and losses are recorded in net earnings as an adjustment to the carrying amounts of underlying transactions in the period in which these transactions are recognized. For those contracts designated as fair value hedges, resulting gains or losses are recognized in net earnings offsetting the exposures of underlying transactions. Carrying values of all contracts are included in other assets or liabilities.

The Company's policy requires contracts used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Hedging effectiveness is assessed periodically. Any contract not designated as a hedge, or so designated but ineffective, is adjusted to market value and recognized in net earnings immediately. If a fair value or cash flow hedge ceases to qualify for hedge accounting or is terminated, the contract would continue to be carried on the balance sheet at fair value until settled and future adjustments to the contract's fair value would be recognized in earnings immediately. If a forecasted transaction were no longer probable to occur, amounts previously deferred in other comprehensive income would be recognized immediately in earnings. Additional disclosure related to the Company's hedging contracts is provided in Note 7.

RESEARCH AND DEVELOPMENT COSTS. Costs incurred in connection with development of new products and manufacturing methods are charged to expense as incurred. Research and development expenses were $56.5 million, $56.9 million and $65.1 million in fiscal 2004, 2003 and 2002, respectively.

INCOME TAXES. In accordance with provisions of SFAS No. 109, "Accounting for Income Taxes," the Company accounts for income taxes using the asset and liability method. The asset and liability method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities. No provision is made for U.S. income taxes on undistributed earnings of foreign subsidiaries because those earnings are considered permanently reinvested in the operations of those subsidiaries.

EARNINGS PER COMMON SHARE. Basic earnings per Common Share ("Basic") is computed by dividing net earnings (the numerator) by the weighted average number of Common Shares outstanding during each period (the denominator). Diluted earnings per Common Share is similar to the computation for Basic, except that the denominator is increased by the dilutive effect of stock options, computed using the treasury stock method.

DIVIDENDS. Excluding dividends paid by all entities with which the Company has merged, the Company paid cash dividends per Common Share of $0.12, $0.10 and $0.10 for the fiscal years ended June 30, 2004, 2003 and 2002, respectively.

RECENT FINANCIAL ACCOUNTING STANDARDS. In December 2003, the Financial Accounting Standards Board ("FASB") issued a revision to SFAS No. 132, "Employers Disclosures about Pensions and Other Postretirement Benefits." The revision relates to employers' disclosures about pension plans and other postretirement benefit plans. The revision does not alter the measurement or recognition provisions of the original SFAS No. 132. The revision requires additional disclosures regarding assets, obligations, cash flows and net periodic benefit costs of

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pension plans and other defined benefit postretirement plans. Excluding certain disclosure requirements, the revised SFAS No. 132 is effective for financial statements with fiscal years ended after December 15, 2003 (see Note 9 for the Company's disclosures).

In December 2003, the FASB issued a revision to Interpretation No. 46, "Consolidation of Variable Interest Entities." This revised Interpretation defines when a business enterprise must consolidate a variable interest entity. The revised Interpretation provisions are effective for variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. The revised Interpretation provisions apply to all other types of variable interest entities for financial statement periods ending after March 15, 2004. As of June 30, 2004, the Company did not hold a significant variable interest in a variable interest entity in which the Company is not the primary beneficiary. See Note 6 for discussion of the Company's accounts receivable and financing entity which is included in the consolidated financial statements as the Company is the primary beneficiary of the variable interest entity. Adoption of the subsequent provisions of the Interpretation did not have a material impact on the Company's financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies the financial accounting and reporting requirements as originally established in SFAS No. 133 for derivative instruments and hedging activities. SFAS No. 149 provides greater clarification of the characteristics of a derivative instrument so that contracts with similar characteristics will be accounted for consistently. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, as well as for hedging relationships designated after June 30, 2003, excluding certain implementation issues that have been effective prior to this date under SFAS No. 133. The adoption of SFAS No. 149 did not have a material effect on the Company's financial position or results of operations.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING FOR STOCK-BASED COMPENSATION. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends SFAS No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123. The transition guidance and annual disclosure provisions (shown below) are effective for fiscal years ending after December 15, 2002. The adoption of this statement did not have a material effect on the Company's financial position or results of operations.

At June 30, 2004, the Company maintained several stock incentive plans for the benefit of certain employees, which are more fully described in Note 14. The Company accounts for these plans in accordance with Accounting Principles Bulletin ("APB") 25, and related interpretations. Except for costs related to restricted shares and restricted share units, no compensation expense has been recognized in net earnings, as all options granted had an exercise price equal to the market value of the underlying stock on the date of grant. The following tables illustrate the effect on net earnings and earnings per share if the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

                                                                               Fiscal Year Ended June 30,
                                                              --------------------------------------------------------
                                                                 2004                    2003                   2002
                                                              --------------------------------------------------------
(in millions, except per Common Share amounts)                                         Restated               Restated
Net Earnings, as reported                                     $ 1,474.5               $ 1,375.1              $ 1,070.7
Restricted share amortization included in net
  earnings, net of related tax effects                              2.0                     1.8                    2.7
Total stock-based employee compensation expense
  determined under fair value method for all awards,
  net of related tax effects (1)                                 (104.3)                  (91.6)                 (79.1)
                                                              ---------               ---------              ---------
Pro Forma net earnings                                        $ 1,372.2               $ 1,285.3              $   994.3
                                                              =========               =========              =========

                                                                               Fiscal Year Ended June 30,
                                                              --------------------------------------------------------
                                                                 2004                    2003                   2002
                                                              --------------------------------------------------------
                                                                                       Restated               Restated
Basic earnings per Common Share:
  As reported                                                 $    3.39               $    3.08              $    2.37
  Pro Forma basic earnings per Common Share                   $    3.16               $    2.88              $    2.21

Diluted earnings per Common Share
  As reported                                                 $    3.35               $    3.03              $    2.33
  Pro Forma diluted earnings per Common Share (2)             $    3.14               $    2.85              $    2.17

(1) The total stock-based employee compensation expense was adjusted to include employee stock purchase plan expense of $8.4 million, $6.8 million and $6.9 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively.

(2) The Company uses the treasury stock method when calculating diluted earnings per Common Share as presented in the table above. Under the treasury stock method, diluted shares outstanding is adjusted for the weighted-average unrecognized compensation component should the Company adopt SFAS 123.

The information in the table above has been revised with respect to an option award previously granted to the Company's Chairman and Chief Executive Officer in November 1999. For more information, see Note 14.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. BUSINESS COMBINATIONS, SPECIAL ITEMS & MERGER-RELATED COSTS

POLICY

The Company's special items primarily consist of costs relating to the integration of previously acquired companies or costs of restructuring operations to improve productivity. Integration costs from acquisitions accounted for under the pooling of interests method have been recorded in accordance with EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs incurred in a Restructuring)," and SAB No. 100, "Restructuring and Impairment Charges." Certain costs related to these acquisitions, such as employee and lease terminations and other facility exit costs, were recognized at the date the integration plan was adopted by management. Certain other integration costs not meeting the criteria for accrual at the commitment date have been expensed as the integration plan has been implemented.

Costs associated with integrating acquired companies under the purchase method are recorded in accordance with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination." Certain costs to be incurred by the Company, as the acquirer, such as employee and lease terminations and other facility exit costs, are recognized at the date the integration plan is formalized and adopted by management. Certain other integration costs not meeting the criteria for accrual at the commitment date are expensed as the integration plan is implemented.

At the beginning of the third quarter of fiscal 2003, the Company implemented SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," to account for costs incurred in restructuring activities. Under this standard, a liability for an exit cost is recognized as incurred. As discussed above, the Company previously accounted for costs associated with restructuring activities under EITF Issue No. 94-3, which required the Company to recognize a liability for restructuring costs on the date of the commitment to an exit plan.

The Company records settlements of significant lawsuits that are infrequent, non-recurring or unusual in nature as special items. Also, the Company records, from time to time, material charges that are one-time, unusual or infrequent in nature as special items.

BUSINESS COMBINATIONS

FISCAL 2004. On June 28, 2004, the Company acquired approximately 98.7% of the outstanding common stock of ALARIS, a San Diego, California-based company which is a leading provider of intravenous medication safety products and services. On July 7, 2004, ALARIS merged with a subsidiary of the Company to complete the transaction. The acquisition extends the Company's portfolio of market leading products and services to health care providers, and increases its presence in strategic markets outside the United States. With complementary operations, product lines, distribution networks and geographic presence, the acquisition will enable the Company to broaden integrated product and service offerings, better serve customers globally and deliver a comprehensive suite of medication safety solutions.

This acquisition was accounted for under the purchase method of accounting. The cash transaction was valued at approximately $2.1 billion, including the assumption of approximately $358 million of debt. Under the agreement, the Company agreed to make a cash tender offer to acquire all of the outstanding shares of ALARIS common stock at a price of $22.35 per share. ALARIS employees with outstanding stock options either elected to receive a cash payment or convert their options into an option to purchase the Company's Common Shares. In July 2004, certain ALARIS employees elected to convert their options for the right to purchase a total of approximately 0.6 million Common Shares of the Company.

The preliminary allocation of the ALARIS purchase price resulted in an allocation to goodwill of approximately $1.5 billion and an allocation to identifiable intangible assets of $413.2 million. The Company valued intangible assets related to trademarks, trade names, patents and customer relationships. The detail by category is as follows:

                                                         Amount       Average
                Category                             (in millions)  Life (Years)
                --------                             -------------  ------------
Trademarks and trade names                              $ 153.8      Indefinite
Patents                                                   108.2          10
Customer relationships                                    151.2           8
                                                        -------
         Total intangible assets acquired               $ 413.2
                                                        =======

Given the size and timing of the acquisition, the allocation of the purchase price is not yet finalized and is subject to adjustment. The Company worked with a third-party valuation expert to determine the fair value of in-process research and development ("IPR&D") and the fair value of identifiable intangible assets. As required by SFAS 141 "Business Combinations,"

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amounts assigned to tangible and intangible assets to be used in research and development projects that have no alternate future use were charged to expense at the acquisition date. The Company recorded a charge of $12.7 million, within special items in the Company's consolidated statement of earnings, for an estimate of acquired IPR&D.

Supplemental pro forma results of operations are not disclosed as the impact to the Company from the ALARIS acquisition was not material. The consolidated financial statements include the results of operations as of June 28, 2004.

Prior to the completion of the ALARIS acquisition, on June 16, 2004, ICU Medical, Inc. filed a patent infringement lawsuit against ALARIS in the United States District Court for the Southern District of California. In the lawsuit, ICU claims that the ALARIS SmartSite(R) family of needle-free valves and systems infringes upon ICU patents. ICU seeks monetary damages plus permanent injunctive relief preventing ALARIS from selling SmartSite(R) products. On July 30, 2004, the Court denied ICU's application for a preliminary injunction finding, among other things, that ICU had failed to show a substantial likelihood of success on the merits. The Company intends to vigorously defend this action.

During December 2003, the Company completed its acquisition of The Intercare Group, plc ("Intercare"), a leading European pharmaceutical products and services company. This acquisition increased the Company's scale of proprietary sterile manufacturing and broadened its participation in the fast-growing European generic (including manufacturing capabilities) and injectible product market. The cash transaction was valued at approximately $570 million, including the assumption of approximately $150 million in Intercare debt.

In addition, during fiscal 2004, the Company also completed other acquisitions that individually were not material and were accounted for under the purchase method of accounting. The aggregate purchase price of these individually immaterial acquisitions, which was paid in cash, was approximately $168 million. Assumed liabilities of acquired businesses, including those of ALARIS and Intercare, were approximately $1.1 billion. The consolidated financial statements include the results of operations from each of these business combinations as of the date of acquisition. Had the transactions, including ALARIS and Intercare, occurred on July 1, 2001, results of operations would not have differed materially from reported results.

FISCAL 2003. On January 1, 2003, the Company completed the acquisition of Syncor International Corporation, a Woodland Hills, California-based company (which has been given the legal designation of Cardinal Health 414, Inc., and is referred to in these "Notes to Consolidated Financial Statements" as "Syncor"), which is a leading provider of nuclear pharmacy services. This acquisition was accounted for under the purchase method of accounting. The Company issued approximately 12.5 million Common Shares, valued at approximately $780 million, to Syncor stockholders and Syncor's outstanding stock options were converted into options to purchase approximately 3.0 million Common Shares. The Company also assumed approximately $120 million in debt. In connection with this acquisition, certain operations of Syncor have been or will be sold (see Note 21) and other operations have been integrated with the Company's existing Nuclear Pharmacy Services business, a component of the Pharmaceutical Technologies and Services segment.

In addition, during fiscal 2003, the Company also completed other acquisitions that individually were not material and were accounted for under the purchase method of accounting. The aggregate purchase price of these individually immaterial acquisitions, which was paid in cash, was approximately $14.4 million. Assumed liabilities of the acquired businesses, including those of Syncor, were approximately $340.1 million. The consolidated financial statements include the results of operations from each of these business combinations as of the date of acquisition. Had the transactions, including Syncor, occurred on July 1, 2001, results of operations would not have differed materially from reported results.

FISCAL 2002. During fiscal 2002, the Company completed several acquisitions that individually were not material and were accounted for under the purchase method of accounting. These business combinations primarily focused on expanding the service offerings within the Pharmaceutical Technologies and Services segment to include contract pharmaceutical development and integrated medical education. The aggregate purchase price, which was paid primarily in cash, was approximately $418.0 million. The Company issued approximately 0.3 million Common Shares to stockholders and outstanding stock options were converted into options to purchase a total of approximately 1.0 million Common Shares. Assumed liabilities of the acquired businesses were approximately $93.5 million, including debt of $11.1 million. The consolidated financial statements include the results of operations from each of these business combinations subsequent to the date of acquisition. Had these transactions occurred on July 1, 2001, results of operations would not have differed materially from reported results.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SPECIAL ITEMS & MERGER-RELATED COSTS.

The following is a summary of the Company's special items for fiscal years ended June 30, 2004, 2003 and 2002.

                                                                  Fiscal Year Ended June 30,
                                                           ---------------------------------------
(in millions, except per Common Share amounts)               2004          2003             2002
----------------------------------------------             ---------------------------------------
                                                                                          Restated
   Merger-related costs                                    $  44.7       $   74.4          $ 131.9
   Restructuring costs                                        37.1           67.0             18.5
   Litigation settlements, net                               (62.3)        (101.5)           (33.8)
   Other special items                                        37.9              -                -
                                                           -------       --------          -------

Total special items                                           57.4           39.9            116.6
Tax effect of special items (1)                              (21.8)          (6.7)           (42.9)
                                                           -------       --------          -------
Net earnings effect of special items                          35.6           33.2             73.7
                                                           =======       ========          =======
Net decrease on Diluted EPS                                $  0.08       $   0.07          $  0.16
                                                           =======       ========          =======

(1) The Company applies varying tax rates to its special items depending upon the tax jurisdiction where the item was incurred. The overall effective tax rate varies each period depending upon the unique nature of the Company's special items and the tax jurisdiction where the item was incurred.

Merger-Related Costs

Costs of integrating operations of various merged companies are recorded as merger-related costs when incurred. The merger-related costs incurred during fiscal 2004 were primarily a result of the Syncor acquisition. Merger-related costs incurred during fiscal 2003 and 2002 were primarily a result of the Bindley Western Industries, Inc. (which has been given the legal designation of Cardinal Health 100, Inc., and is referred to in these "Notes to Consolidated Financial Statements" as "Bindley") acquisition. During the fiscal years noted above, the Company also incurred merger-related costs for numerous smaller acquisitions. The following table and paragraphs provide additional detail regarding the types of merger-related costs incurred by the Company.

                                                                 Fiscal Year Ended June 30,
                                                            -------------------------------------
(in millions)                                                2004            2003            2002
-------------                                               -------------------------------------
Merger-related costs:
   Employee-related costs                                   $11.9          $18.7           $ 23.7
   Pharmaceutical distribution center consolidation           0.1           22.7             52.4
   Asset impairments & other exit costs                       0.9            5.4              9.0
   In-Process research & development                         12.7              -                -
   Integration costs and other                               19.1           27.6             46.8
                                                            -----          -----           ------
Total merger-related costs                                  $44.7          $74.4           $131.9
                                                            =====          =====           ======

EMPLOYEE-RELATED COSTS. During fiscal 2004, 2003 and 2002, the Company incurred employee-related costs associated with certain merger and acquisition transactions of $11.9 million, $18.7 million and $23.7 million, respectively. These costs primarily consist of severance, stay bonuses, non-compete agreements and other forms of compensatory payouts made to employees as a direct result of the mergers or acquisitions. In addition to these types of costs, during fiscal 2003, the Company incurred a charge of $8.8 million related to an approved plan to curtail defined benefit pension plans within the Pharmaceutical Technologies and Services segment. This curtailment resulted from the plan to conform the employee benefit plans of R.P. Scherer Corporation (which was acquired in August 1998, has been given the legal designation of Cardinal Health 409, Inc. and is referred to in these "Notes to Consolidated Financial Statements" as "Scherer") to the Company's benefit plan structure at the time of the Scherer merger.

PHARMACEUTICAL DISTRIBUTION CENTER CONSOLIDATION. During fiscal 2004, 2003 and 2002, the Company incurred charges of $0.1 million, $22.7 million and $52.4 million, respectively, primarily associated with the Company's plans to close and consolidate a total of 16 Bindley distribution centers, Bindley's corporate office and one of the Company's data centers as a result of the Bindley acquisition. These charges include, but are not limited to, the following: (1) employee-related costs, primarily from the termination of approximately 1,250 employees due to the closures and consolidations noted above; (2) exit costs to consolidate and close the various facilities mentioned above, including asset impairment charges, inventory move costs and contract/lease termination costs; and (3) duplicate salary costs incurred during the shutdown periods.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ASSET IMPAIRMENTS & OTHER EXIT COSTS. During fiscal 2004, 2003 and 2002, the Company incurred asset impairment and other exit costs of $0.9 million, $5.4 million and $9.0 million, respectively. The asset impairment and other exit costs incurred during fiscal 2004 related primarily to plans to consolidate operations as a result of the Syncor acquisition. The asset impairment and other exit costs incurred during fiscal 2003 and 2002 related primarily to plans to close and consolidate facilities as a result of the Bergen Brunswig Medical Corporation acquisition as well as asset impairments, lease terminations and other exit costs incurred internationally as a result of the Scherer acquisition.

IN-PROCESS RESEARCH & DEVELOPMENT. During the fourth quarter of fiscal 2004, the Company recorded a charge of $12.7 million related to the writeoff of in-process research and development costs associated with the ALARIS acquisition.

OTHER INTEGRATION COSTS. During fiscal 2004, 2003 and 2002, the Company incurred integration costs and other of $19.1 million, $27.6 million and $46.8 million, respectively. The costs included in this category generally relate to expenses incurred to integrate merged or acquired companies' operations and systems into the Company's pre-existing operations and systems. These costs include, but are not limited to, the integration of information systems, employee benefits and compensation, accounting/finance, tax, treasury, internal audit, risk management, compliance, administrative services, sales and marketing and others.

Restructuring Costs

The following table segregates the Company's restructuring costs into the various reporting segments the restructuring projects impacted. See the paragraphs that follow for additional information regarding the Company's restructuring plans.

                                                                 Fiscal Year Ended June 30,
                                                            -------------------------------------
(in millions)                                               2004            2003            2002
-------------                                               ------------------------------------
Restructuring costs:
   Pharmaceutical Distribution and Provider Services            -          $ 1.4           $  0.3
   Medical Products and Services                              8.7           23.6             14.9
   Pharmaceutical Technologies and Services                  23.3           40.7              2.8
   Automation and Information Services                        4.2              -                -
   Other                                                      0.9            1.3              0.5
                                                            -----          -----           ------
Total restructuring costs                                   $37.1          $67.0           $ 18.5
                                                            =====          =====           ======

PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES. During the fiscal years noted above, the Company has initiated very few restructuring projects that impacted the Pharmaceutical Distribution and Provider Services segment. Costs incurred during fiscal 2003 and 2002 primarily comprised employee-related costs incurred to reduce headcount for certain businesses within the segment and to realign the management structure of those businesses. These restructuring projects resulted in approximately 30 employees being terminated, the majority of which occurred during fiscal 2003. The restructuring projects that impacted the Pharmaceutical Distribution and Provider Services segment were substantially completed by the end of fiscal 2003.

MEDICAL PRODUCTS AND SERVICES. During fiscal 2004, 2003 and 2002, the Company incurred costs of $8.7 million, $23.6 million and $14.9 million, respectively, to restructure operations both domestically and internationally. These restructuring plans focused on various aspects of the segment's operations, specifically to close and consolidate certain manufacturing operations, rationalize headcount both domestically and internationally, and align certain distribution and manufacturing operations in the most strategic and cost efficient structure. In connection with the implementation of these restructuring plans, the Company incurred costs which included, but are not limited to, the following: (1) employee-related costs, the majority of which represents severance accrued upon either communication of terms to employees or management's commitment to the restructuring plan, depending upon the project; and (2) exit costs, including asset impairment charges, costs incurred to relocate physical assets and project management costs. The earliest of these restructuring plans was initiated during fiscal 2002, with others being implemented throughout fiscal 2003 and 2004. Some of these restructuring plans were completed during fiscal 2003 and 2004, while other plans will be completed throughout fiscal 2005. Overall, these restructuring plans will result in termination of approximately 2,200 employees, of which approximately 1,900 had been terminated as of June 30, 2004.

PHARMACEUTICAL TECHNOLOGIES AND SERVICES. During fiscal 2004, 2003 and 2002, the Company incurred costs of $23.3 million, $40.7 million and $2.8 million, respectively, to restructure operations both domestically and internationally. These restructuring plans focused on various aspects of the segment's operations, specifically to close and consolidate certain manufacturing and other

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

business facilities, exit non-strategic businesses, integrate and align operations in the most strategic and cost efficient manner and rationalize headcount both domestically and internationally as a result of integration plans and market changes. In connection with the implementation of these restructuring plans, the Company incurred costs which included, but are not limited to, the following: (1) employee-related costs, the majority of which represents severance accrued upon communication of terms to employees; (2) asset impairment charges, including the writedown of physical assets as well as goodwill writeoffs from the exit of non-strategic and non-integrated businesses; and (3) other exit costs, including lease/contract termination costs, costs to dismantle and move machinery, equipment and other physical assets and costs to transfer certain technologies to other existing facilities. The earliest of these restructuring plans was initiated during fiscal 2001, with others being implemented throughout fiscal 2003 and 2004. Some of the restructuring plans were completed during fiscal 2003 and 2004, while other plans will be completed throughout fiscal 2005. Overall, these restructuring plans will result in the termination of approximately 1,000 employees, of which approximately 900 had been terminated as of June 30, 2004.

AUTOMATION AND INFORMATION SERVICES. During fiscal 2004, the Company incurred restructuring costs of $4.2 million related to plans to exit or dispose of certain non-strategic businesses as well as close a manufacturing facility within this segment. In connection with the implementation of these restructuring plans, the Company incurred employee-related costs, primarily severance accrued upon communication of terms to employees, asset impairment charges and facility exit costs. The Company expects these restructuring plans to be completed during fiscal 2005. Overall, these restructuring plans will result in the termination of approximately 35 employees, of which approximately 10 had been terminated as of June 30, 2004.

OTHER. During fiscal 2004, 2003 and 2002, the Company incurred costs of $0.9 million, $1.3 million and $0.5 million related to restructuring plans that impacted more than just one segment. These costs related primarily to a plan to restructure the Company's delivery of information technology infrastructure services. These plans were initiated during fiscal 2003 and are expected to be completed during fiscal 2005. Overall, these restructuring plans resulted in the termination of approximately 20 employees, all of which had been terminated as of June 30, 2004.

Litigation Settlements, Net

The following table summarizes the Company's net litigation settlements during fiscal 2004, 2003 and 2002.

                                                                    Fiscal Year Ended June 30,
                                                              --------------------------------------
(in millions)                                                  2004           2003             2002
-------------                                                 --------------------------------------
                                                                                             Restated
Litigation settlements, net:
   Vitamin litigation                                         ($ 6.5)       ($102.9)          ($35.3)
   Pharmaceutical manufacturer antitrust litigation            (55.9)             -                -
   Other litigation                                              0.1            1.4              1.5
                                                              ------        -------           ------
Total litigation settlements, net                             ($62.3)       ($101.5)          ($33.8)
                                                              ======        =======           ======

VITAMIN LITIGATION. During fiscal 2004, 2003 and 2002, the Company recorded income of $6.5 million, $102.9 million and $35.3 million, respectively, resulting from the recovery of antitrust claims against certain vitamin manufacturers for amounts overcharged in prior years. The total recovery of antitrust claims against certain vitamin manufacturers through June 30, 2004 was $144.7 million (net of attorney fees, payments due to other interested parties and expenses withheld). See Note 1 for additional information regarding the periods in which these recoveries were recorded. The Company has settled all but one known claim, and the total amount of any future recovery is not likely to be a material amount.

PHARMACEUTICAL MANUFACTURER ANTITRUST LITIGATION. During fiscal 2004, the Company recorded income of $55.9 million resulting from settlement of antitrust claims alleging certain prescription drug manufacturers took improper actions to delay or prevent generic drug competition.

OTHER LITIGATION. During fiscal 2004, 2003 and 2002, the Company recorded settlement charges of $0.1 million, $1.4 million and $1.5 million, respectively, related to certain immaterial litigation matters, all of which have been fully resolved.

Other Special Items

FISCAL 2004. During fiscal 2004, the Company incurred other special items totaling $37.9 million. This total comprises two items. First, the Company executed a special contribution to The Cardinal Health Foundation during the fourth quarter which totaled approximately $31.7 million. The special contribution was executed as a direct result of a large pharmaceutical manufacturer antitrust litigation settlement received during the fourth quarter. The Cardinal Health Foundation is the

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

primary vehicle used by the Company to provide charitable support to the community and various organizations. Prior contributions to the Cardinal Health Foundation were immaterial. Second, the Company incurred costs of $6.2 million during the fourth quarter related to the SEC investigation and the Audit Committee's internal review. These costs primarily represent legal fees and document preservation and production costs incurred in responding to requests related to the SEC's investigation and the Audit Committee's internal review. Prior costs incurred related to these matters were immaterial. For further information regarding the SEC's investigation and the Audit Committee's internal review, see Note 1.

Special Items Accrual Rollforward

The following table summarizes activity related to liabilities associated with the Company's special items.

                                                      Fiscal Year Ended June 30,
                                              ---------------------------------------
($ in millions)                                 2004             2003          2002
                                              ---------------------------------------
Balance at beginning of year                  $   45.7         $   64.7      $   34.7
Additions (1)                                    119.8            142.8         151.9
Payments                                        (125.6)          (161.8)       (121.9)
                                              --------         --------      --------
Balance at end of year                        $   39.9         $   45.7      $   64.7
                                              ========         ========      ========

(1) Amounts represent items that have been expensed as incurred or accrued in accordance with GAAP. These amounts do not include gross litigation settlement income recorded during fiscal 2004, 2003 and 2002 of $62.4 million, $102.9 million and $35.3 million, respectively, which were recorded as special items.

Purchase Accounting Accruals

In connection with restructuring and integration plans related to Intercare, the Company accrued, as part of its acquisition adjustments, a liability of $10.4 million related to employee termination and relocation costs and $11.0 million related to closing of certain facilities. During fiscal 2004, the Company paid $1.5 million of employee-related costs. No payments were made associated with the facility closures during fiscal 2004.

In connection with restructuring and integration plans related to Syncor, the Company accrued, as part of its acquisition adjustments, a liability of $15.1 million related to employee termination and relocation costs and $10.4 million related to closing of duplicate facilities. As of June 30, 2004, the Company had paid $12.0 million of employee related costs, $1.0 million associated with the facility closure and $1.5 million of other restructuring costs.

Other

Certain merger, acquisition and restructuring costs are based upon estimates. Actual amounts paid may ultimately differ from these estimates. If additional costs are incurred or recorded amounts exceed costs, such changes in estimates will be recorded in special items when incurred.

The Company estimates it will incur additional costs in future periods associated with various mergers, acquisitions and restructuring activities totaling approximately $70 million (approximately $45 million net of tax). The Company believes it will incur these costs to properly integrate and rationalize operations, a portion of which represents facility rationalizations and implementing efficiencies regarding information systems, customer systems, marketing programs and administrative functions, among other things. Such amounts will be expensed as special items when incurred. This estimate does not include costs associated with the integration of ALARIS or the Company-wide restructuring project announced in September 2004 as the Company is still in the process of determining the costs associated with these projects.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. LEASES

SALES-TYPE LEASES. The Company's sales-type leases are for terms generally ranging up to five years. Lease receivables are generally collateralized by the underlying equipment. The components of the Company's net investment in sales-type leases are as follows (in millions):

                                                                 June 30,       June 30,
                                                                   2004           2003
                                                                 --------       ---------
Future minimum lease payments receivable                        $   844.0      $    840.5
Unguaranteed residual values                                         21.6            18.6
Unearned income                                                    (101.8)         (112.2)
Allowance for uncollectible minimum lease payments
   receivable                                                       (15.7)          (17.8)
                                                                ---------      ----------
Net investment in sales-type leases                                 748.1           729.1
       Less: current portion                                        202.1           171.8
                                                                ---------      ----------
Net investment in sales-type leases, less current portion       $   546.0      $    557.3
                                                                =========      ==========

Future minimum lease payments to be received pursuant to sales-type leases during the next five fiscal years and thereafter are:

(in millions)                 2005     2006    2007     2008    2009   Thereafter    Total
-------------                 ------------------------------------------------------------
Minimum lease  payments      $228.7   $215.7  $182.4   $138.5  $71.8     $  6.9     $ 844.0

During fiscal 2004 and 2003, the Company entered into four separate agreements (two in fiscal 2004 and two in fiscal 2003) to transfer ownership of certain lease receivables along with a security interest in the related leased equipment to the leasing subsidiary of a bank. The net book value of the leases sold was $314.2 million and $356.0 million for fiscal 2004 and 2003, respectively (see Note 10 for additional information).

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. NOTES PAYABLE & LONG-TERM OBLIGATIONS

NOTES PAYABLE, BANKS. The Company has entered into an unsecured, uncommitted line-of-credit arrangement that allows for borrowings up to $7.3 million at June 30, 2004, at an interest rate of 55 basis points over three month Euro Libor. At June 30, 2004, $5.6 million was outstanding under this arrangement, at an effective interest rate of 2.13%. Total available but unused lines of credit at June 30, 2004 were $1.7 million. At June 30, 2003, there were no notes payable outstanding.

LONG-TERM OBLIGATIONS. Long-term obligations consist of the following (in millions):

                                                                 June 30,       June 30,
                                                                   2004           2003
                                                                 --------       ---------
4.00% Notes due 2015                                            $   432.9      $    475.7
4.45% Notes due 2005                                                305.5           317.8
6.00% Notes due 2006                                                151.6           158.0
6.25% Notes due 2008                                                150.0           150.0
6.50% Notes due 2004                                                    -           100.0
6.75% Notes due 2011                                                497.0           495.4
6.75% Notes due 2004                                                    -           100.0
7.25% Senior subordinated notes due 2011                            195.3               -
7.30% Notes due 2006                                                130.3           135.2
7.80% Debentures due 2016                                            75.7            75.7
7.00% Debentures due 2026                                           192.0           192.0
Bank term loan due 2009                                             162.6               -
Commercial paper                                                    634.2               -
Preferred debt securities                                           650.0           400.0
Short-term borrowings, reclassified                                  15.0            21.0
Other obligations; interest averaging 4.65% in 2004 and
    5.29% in 2003, due in varying installments
    through 2015                                                     97.6            79.8
                                                                ---------      ----------
Total                                                             3,689.7         2,700.6
Less: current portion                                               855.0           228.7
                                                                ---------      ----------

Long-term obligations, less current portion                     $ 2,834.7      $  2,471.9
                                                                =========      ==========

The 4.00%, 4.45%, 6.00%, 6.25% and 6.50% Notes and the 6.75% Notes due 2011 represent unsecured obligations of the Company, and the 6.75% Notes due 2004 represent unsecured obligations of Scherer, which are guaranteed by the Company. The 7.30% Notes and the 7.80% and 7.00% Debentures represent unsecured obligations of Allegiance Corporation, which are guaranteed by the Company. These obligations are not subject to a sinking fund and are not redeemable prior to maturity, except for the 7.00% Debentures which included put options that expired on September 15, 2003, without any put options being exercised. Interest is paid pursuant to the terms of the notes. These notes are structurally subordinated to the liabilities of the Company's subsidiaries, including trade payables of $6.4 billion and $650.0 million of preferred debt securities.

As part of the Company's acquisition of ALARIS, the Company assumed $195.3 million of Senior subordinated notes due 2011, which includes a premium of $20.3 million based on the fair value of the debt. The Senior subordinated notes bear interest at an annual rate of 7.25%, which is payable semi-annually in arrears on July 1 and January 1 of each year, commencing January 1, 2004, and mature on July 1, 2011. The Senior subordinated notes are redeemable at the option of the Company, in whole or in part, at any time on or after July 1, 2007 at an initial redemption price of 103.625%, plus accrued and unpaid interest, if any, to the date of redemption, with the redemption price declining annually thereafter. In addition, subject to certain limitations, the Company may redeem up to 35% of the Senior subordinated notes on or before July 1, 2006 with the net cash proceeds of one or more equity offerings, at a price of 107.25%, plus accrued and unpaid interest, if any, to the date of redemption. In the event of a change of control, as defined in the indenture governing the Senior subordinated notes, holders may require the Company to purchase their Senior subordinated notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The Senior subordinated notes are subject to certain restrictive and reporting covenants. As of June 30, 2004, the Company was in compliance with all such covenants. Subsequent to June 30, 2004, the Company paid off $183.6 million of the Senior subordinated notes and amended the bond indenture to remove the restrictive covenants. The remaining $11.7 million

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

balance is callable at any time on or after July 1, 2007.

Also related to the ALARIS acquisition, the Company acquired a bank credit facility consisting of a six-year $245 million term loan and a five-year $30 million revolving credit facility. At June 30, 2004, $162.6 million was outstanding under the term loan. The term loan bears interest at an annual rate equal to current LIBOR or a fluctuating base rate, plus a margin of 2.25% as of June 30, 2004. The Company can elect to use either a one-, two-, three-, or six-month LIBOR rate. ALARIS has made elections resulting in a weighted average interest rate at June 30, 2004 of 3.36% per annum (1.11% plus the margin of 2.25%). Subsequent to June 30, 2004, the Company paid off the term loan and terminated the credit facility.

The Company has a commercial paper program, providing for the issuance of up to $1.5 billion in aggregate maturity value of commercial paper. The Company had $634.2 million outstanding under this program at June 30, 2004 with a market interest rate based upon LIBOR. The Company also had an extendible commercial notes program providing for the issuance of up to $150.0 million of extendible commercial notes. The Company did not have any borrowings outstanding under this extendible commercial notes program at June 30, 2004. The Company also maintains other short-term credit facilities that allow for borrowings up to $176.4 million. At June 30, 2004 and 2003, $62.8 million and $21.0 million, respectively, were outstanding under these uncommitted facilities. The June 30, 2004 balance includes $15 million in short-term borrowings reclassified. The effective interest rate as of June 30, 2004 and 2003 was 1.68% and 2.28%, respectively. The balance also includes $47.8 million which is classified in other obligations. The remaining $49.8 million balance of other obligations consists primarily of additional notes, loans and capital leases.

The Company also has two unsecured $750 million bank revolving credit facilities, which provide for up to an aggregate of $1.5 billion in borrowings. One of these facilities expires on March 24, 2008 and the other expires on March 23, 2009. At expiration, these revolving credit facilities can be extended upon mutual consent of the Company and the lending institutions. These revolving credit facilities exist largely to support issuances of commercial paper as well as other short-term borrowings and remained unused at June 30, 2004, except for $37.3 million of standby letters of credit issued on behalf of the Company. At June 30, 2004, $500.0 million of commercial paper and $15.0 million of other short-term borrowings were reclassified as long-term. At June 30, 2003, $21.0 million of other short-term borrowings were reclassified as long-term. These reclassifications reflect the Company's intent and ability, through the existence of the unused revolving credit facilities, to refinance these borrowings. The remaining $134.2 million of commercial paper outstanding at June 30, 2004 was classified as short-term.

During fiscal 2001, the Company entered into an agreement to periodically sell trade receivables to a special purpose accounts receivable and financing entity (the "Accounts Receivable and Financing Entity"), which is exclusively engaged in purchasing trade receivables from, and making loans to, the Company. The Accounts Receivable and Financing Entity, which is consolidated by the Company, issued $250 million and $400 million in preferred variable debt securities to parties not affiliated with the Company during fiscal 2004 and 2001, respectively. These preferred debt securities are classified as long-term debt in the Company's consolidated balance sheet. These preferred debt securities must be retired or redeemed by the Accounts Receivable and Financing Entity before the Company, or its creditors, can have access to the Accounts Receivable and Financing Entity's receivables. At June 30, 2004 and 2003, the Accounts Receivable and Financing Entity owned approximately $506.9 million and $463.6 million, respectively, of receivables that are included in the Company's consolidated balance sheet. The effective interest rate as of June 30, 2004 and 2003 was 2.36% and 2.81%, respectively. Other than for loans made to the Company or for breaches of certain representations, warranties or covenants, the Accounts Receivable and Financing Entity does not have any recourse against the general credit of the Company.

At June 30, 2003, the Company had an asset securitization facility available which allows the Company to sell receivables generated from its radiopharmaceutical operations to a wholly-owned subsidiary, which in turn sells the receivables to a multi-seller conduit administered by a third party bank. This securitization program allowed the Company to borrow up to $65.0 million. This securitization facility was terminated in fiscal year 2004.

During fiscal 2003, the Company issued $500 million of 4.00% Notes due 2015. The proceeds of the debt issuance were used for general corporate purposes, including working capital, capital expenditures, acquisitions, investments and repurchases of our debt and equity securities. After such issuance, the Company has the capacity to issue approximately $500 million of additional equity or debt securities pursuant to effective shelf registration statements filed with the SEC.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain long-term obligations are collateralized with property and equipment of the Company with an aggregate book value of approximately $70 million at June 30, 2004. Maturities of long-term obligations for future fiscal years are:

(in millions)                            2005     2006     2007    2008    2009    Thereafter    Total
--------------------------------------------------------------------------------------------------------
Maturities of long-term obligations     $855.0   $680.7   $136.5   $4.5   $804.3   $ 1,208.7    $3,689.7

7. FINANCIAL INSTRUMENTS

INTEREST RATE RISK MANAGEMENT. The Company is exposed to the impact of interest rate changes. The Company's objective is to manage the impact of interest rate changes on earnings and cash flows and on the market value of its borrowings. The Company maintains fixed rate debt as a percentage of its net debt within a certain range.

The Company utilizes a mix of debt maturities along with both fixed-rate and variable-rate debt to manage changes in interest rates. In addition, the Company enters into interest rate swaps to further manage its exposure to interest rate variations related to its borrowings and to lower its overall borrowing costs.

At June 30, 2004, the Company held two pay-fixed interest rate swaps acquired through the ALARIS acquisition. These pay-fixed interest rate swaps were utilized by ALARIS to hedge a bank term loan. The swaps were unwound subsequent to June 30, 2004 upon the Company's election to pay down the bank term loan (see Note 6). These swaps did not have a material impact upon the Company's financial statements. At June 30, 2003, the Company held pay-fixed interest rate swaps to hedge the variability of cash flows related to changes in interest rates on borrowing costs of variable-rate debt. These contracts were classified as cash flow hedges and matured through January 2004. The Company adjusted the pay-fixed interest rate swaps to current market values through other comprehensive income, as the contracts were effective in offsetting the interest rate exposure of the forecasted interest rate payments hedged. The Company did not recognize any material gains/(losses) related to contracts that were not effective or forecasted transactions that did not occur during fiscal 2003.

The Company also held pay-floating interest rate swaps to hedge the change in fair value of the fixed-rate debt related to fluctuations in interest rates. These contracts are classified as fair value hedges and mature through June 2015. The gain/(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/(loss) recorded in interest expense and other.

The following table represents the notional amount hedged, fair value of the interest rate swaps outstanding at June 30, 2004 and 2003 included in other assets/liabilities and the amount of net gain/(loss) for pay-floating interest rate swaps recognized through interest expense and other during fiscal 2004 and 2003.

(in millions)                              2004       2003     Classification of net gain/loss
---------------------------------        --------   --------   -------------------------------
Pay-fixed interest rate swaps:
     Notional amount                     $  171.0   $  125.0
     Assets                                   0.8          -
     Liabilities                                -        3.5
Pay-floating interest rate swaps:
     Notional amount                     $1,327.8   $1,077.8
     Assets                                  10.6       33.2
     Liabilities                             67.1       24.4
     Gain/(loss)                             34.8       27.1   Interest expense and other

At June 30, 2003, the Company had net deferred losses on pay-fixed interest rate swaps of $3.5 million, recorded in other comprehensive income. During fiscal 2004 and 2003, the Company recognized losses of $4.5 million and $11.9 million, respectively, within interest expense and other related to these interest rate swaps.

The counterparties to these contracts are major financial institutions and the Company does not have significant exposure to any one counterparty. Management believes the risk of loss is remote and in any event would not be material.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CURRENCY RISK MANAGEMENT. The Company conducts business in several major international currencies and is subject to risks associated with changing foreign exchange rates. The Company's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its business operations. Accordingly, the Company enters 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. The gains and losses on these contracts offset changes in the value of the underlying transactions as they occur.

At June 30, 2004 and 2003, the Company held forward contracts expiring through June 2005 to hedge probable, but not firmly committed, revenue and expenses. These hedging contracts are classified as cash flow hedges and, accordingly, are adjusted to current market values through other comprehensive income until the underlying transactions are recognized. Upon recognition, such gains and losses are recorded in operations as an adjustment to the recorded amounts of the underlying transactions in the period in which these transactions are recognized. The principal currencies hedged are the European euro, British pound, Mexican peso, and the Thai bhat.

At June 30, 2004 and 2003, the Company also held forward contracts expiring in December 2013 and September 2003, respectively, to hedge the value of foreign currency assets and liabilities. These forward contracts are classified as fair value hedges and are adjusted to current market values through interest expense and other, directly offsetting the adjustment of the foreign currency asset or liability.

The following table represents the notional amount hedged, the value of the forward contracts outstanding at June 30, 2004 and 2003 included in other assets or liabilities and the amount of net gain/(loss) related to fair value forward contracts recognized through interest expense and other during fiscal 2004 and 2003.

(in millions)                              2004       2003     Classification of net gain/loss
---------------------------------        --------   --------   -------------------------------
Forward contracts - cash flow hedge:
     Notional amount                     $  276.9   $  240.5
     Assets                                   1.4        4.7
     Liabilities                              4.9       14.2
Forward contracts - fair value hedge:
     Notional amount                     $  489.0   $  114.0
     Assets                                     -        0.3
     Liabilities                             19.5        1.1
     Gain/(loss)                            (12.7)      (8.1)  Interest expense and other

At June 30, 2004 and 2003, the Company had net deferred losses related to forward contract cash flow hedges of $3.5 million and $9.5 million, respectively, recorded in other comprehensive income. During fiscal 2004 and 2003, the Company recognized losses of $14.9 million and $12.2 million, respectively, within net earnings related to these forward contracts.

The income/loss recorded on the forward contract fair value hedge is 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 interest expense and other at the end of each period. The Company did not recognize any material gains/(losses) related to contracts that were not effective or forecasted transactions that did not occur during fiscal 2004 and 2003.

In connection with the Company's acquisition of ALARIS, the Company acquired certain options hedging European euro, Australian dollar, Canadian dollar, and British pound. These options were entered into by ALARIS to reduce the risk of earnings and cash flow volatility related to certain forecasted transactions. As of June 30, 2004, exercise of these options would not result in a material impact to the Company.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and equivalents, trade receivables, accounts payable, notes payable-banks, other short-term borrowings and other accrued liabilities at June 30, 2004 and 2003, approximate their fair value because of the short-term maturities of these items.

Cash balances are invested in accordance with the Company's investment policy. These investments are exposed to market risk from interest rate fluctuations and credit risk from the underlying issuers, although this is mitigated through diversification.

The estimated fair value of the Company's long-term obligations was $3,787.1 million and $2,926.1 million as compared to the carrying amounts of $3,689.7 million and $2,700.6 million at June 30, 2004 and 2003, respectively. The fair value of the Company's long-term obligations is estimated based on either the quoted market prices for the same or similar issues and the current interest rates offered for debt of the same remaining maturities or estimated discounted cash flows.

The following is a summary of the fair value gain/(loss) of the Company's derivative instruments, based upon the estimated amount that the Company would receive (or pay) to terminate the contracts as of June 30. The fair values are based on quoted market prices for the same or similar instruments.

(in millions)                                 2004                     2003
----------------------------------   ----------------------   ----------------------
                                     Notional   Fair Value    Notional   Fair Value
                                      Amount    Gain/(Loss)    Amount    Gain/(Loss)
                                     --------   -----------   --------   -----------
Foreign currency forward contracts   $  765.9   $    (23.0)   $  354.5   $    (10.3)
Interest rate swaps                  $1,498.8   $    (55.7)   $1,202.8   $      5.3

8. INCOME TAXES

Earnings before income taxes, discontinued operations and cumulative effect of changes in accounting are as follows (in millions):

                              Fiscal Year Ended June 30,
                            ------------------------------
                              2004       2003       2002
                            --------   --------   --------
                                       Restated   Restated
U.S. Based Operations       $1,845.1   $1,733.8   $1,486.8
Non-U.S. Based Operations      393.3      346.9      238.1
                            --------   --------   --------
                            $2,238.4   $2,080.7   $1,724.9
                            ========   ========   ========

The provision for income taxes from continuing operations before cumulative effect of changes in accounting consists of the following (in millions):

                         Fiscal Year Ended June 30,
                      --------------------------------
                        2004        2003        2002
                      --------    --------    --------
                                  Restated    Restated
Current:
  Federal             $  547.3    $  426.5    $  296.2
  State                   39.1        29.5        23.8
  Foreign                 22.2        28.3        24.4
                      --------    --------    --------
    Total                608.6       484.3       344.4

Deferred:
  Federal                 99.8       191.0       208.5
  State                    7.1        27.1        29.8
  Foreign                 (1.8)       (2.9)        1.4
                      --------    --------    --------
    Total                105.1       215.2       239.7
                      --------    --------    --------
    Total provision   $  713.7    $  699.5    $  584.1
                      ========    ========    ========

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the provision based on the federal statutory income tax rate to the Company's effective income tax rate from continuing operations before cumulative effect of changes in accounting is as follows:

                              Fiscal Year Ended June 30,
                              --------------------------
                                2004     2003     2002
                               ------   ------   ------
Provision at federal
   statutory rate              35.0%    35.0%    35.0%
State income taxes, net of
   federal benefit              2.0      1.7      2.6
Foreign tax rates              (4.0)    (3.2)    (3.2)
Nondeductible expenses          0.3      0.5      0.2
Other                          (1.4)    (0.4)    (0.8)
                               ----     ----     ----
   Effective income tax rate   31.9%    33.6%    33.8%
                               ====     ====     ====

The Company's effective tax rate reflects tax benefits derived from significant operations outside the United States, which are generally taxed at rates lower than the U.S. statutory rate of 35%. During fiscal 2004, the Company's results of operations benefited from a lower effective tax rate due to increased profits from production in lower tax international countries such as the Dominican Republic and Thailand. In addition, the Company has subsidiaries operating in Puerto Rico under a tax incentive agreement expiring in 2019.

No provision for income taxes has been made on approximately $1.2 billion of undistributed earnings of foreign subsidiaries because those earnings are considered permanently reinvested in the operations of those subsidiaries. It is not practicable to estimate the amount of tax that might be payable on the eventual remittance of such earnings.

Deferred income taxes arise from temporary differences between financial reporting and tax reporting bases of assets and liabilities, and operating loss and tax credit carryforwards for tax purposes. The components of the deferred income tax assets and liabilities are as follows (in millions):

                                                         June 30,      June 30,
                                                           2004          2003
                                                        ----------    ----------
Deferred income tax assets:
   Receivable basis difference                          $     32.5    $     55.6
   Accrued liabilities                                       146.8          86.3
   Net operating loss carryforwards                           21.6          35.3
                                                        ----------    ----------
     Total deferred income tax assets                        200.9         177.2
   Valuation allowance for deferred income tax assets        (15.8)        (20.7)
                                                        ----------    ----------
     Net deferred income tax assets                     $    185.1    $    156.5
                                                        ----------    ----------
Deferred income tax liabilities:
   Inventory basis differences                              (498.8)       (521.1)
   Property-related                                         (339.2)       (359.4)
   Revenues on lease contracts                              (231.2)       (207.8)
   Other                                                    (153.3)       (112.2)
                                                        ----------    ----------
     Total deferred income tax liabilities                (1,222.5)     (1,200.5)
                                                        ----------    ----------
       Net deferred income tax liabilities              $ (1,037.4)   $ (1,044.0)
                                                        ==========    ==========

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The above amounts are classified in the consolidated balance sheets as follows (in millions):

                                                June 30,    June 30,
                                                 2004        2003
                                               ---------   ---------
Other current assets and current liabilities   $  (175.8)  $  (204.3)
Deferred income taxes and other liabilities       (861.6)     (839.7)
                                               ---------   ---------
  Net deferred income tax liabilities          $(1,037.4)  $(1,044.0)
                                               =========   =========

The Company had state net operating loss carryforwards of $866.6 million at June 30, 2004. A valuation allowance of $9.9 million at June 30, 2004 has been provided for the state net operating loss, as utilization of such carryforwards within the applicable statutory periods is uncertain. The state net operating loss carryforwards expire through 2024. Expiring state net operating loss carryforwards and the required valuation allowances have been adjusted annually. The Company also has federal capital loss carryovers of $15.6 million at June 30, 2004 for which a 100% valuation allowance has been established since usage of these carryovers is uncertain at this time. After application of the valuation allowances described above, the Company anticipates no limitations will apply with respect to utilization of any of the other net deferred income tax assets described above.

Under a tax-sharing agreement with Baxter International Inc., Allegiance Corporation will pay for increases and be reimbursed for decreases to the net deferred tax assets transferred on the date of the Baxter-Allegiance Spin-Off (as hereinafter defined in Note 11). Such increases or decreases may result from audit adjustments to Baxter's prior period tax returns.

9. EMPLOYEE RETIREMENT BENEFIT PLANS

The Company sponsors various retirement and pension plans, including defined benefit, other postretirement benefit and defined contribution plans. Substantially all of the Company's domestic non-union employees are eligible to be enrolled in Company-sponsored contributory profit sharing and retirement savings plans, which include features under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"), and provide for Company matching and profit sharing contributions. The Company's contributions to the plans are determined by the Board of Directors subject to certain minimum requirements as specified in the plans.

The total expense for employee retirement benefit plans (excluding defined benefit and other postretirement benefit plans, see below) was $54.5 million, $64.2 million and $59.0 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively.

DEFINED BENEFIT AND OTHER POSTRETIREMENT BENEFIT PLANS. The Company has several defined benefit plans covering substantially all Scherer salaried and hourly employees. The Company also assumed defined benefit plans through the Intercare and ALARIS acquisitions. The Company's domestic defined benefit plans provide defined benefits based on years of service and level of compensation. Foreign subsidiaries provide for pension benefits in accordance with local customs or law. The Company funds its pension plans at amounts required by applicable regulations.

The Company also has a postretirement medical plan and a postretirement life insurance plan that covers all eligible Scherer participants.

The Company uses a measurement date of March 31 for substantially all its pension and postretirement benefit plans.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Obligations and Funded Status

The following table provides a reconciliation of the change in projected benefit obligation (in millions):

                                          Pension Benefits    Other Postretirement Benefits
                                          ----------------    -----------------------------
                                           2004      2003            2004      2003
                                          ------    ------          ------    ------
Projected benefit obligation at
beginning of year                         $161.0    $128.8          $  5.6    $ 10.6
         Service cost                        1.6       4.6               -       0.6
         Interest cost                       9.2       8.4             0.2       0.7
         Plan participant contributions      0.3       1.2               -         -
         Actuarial (gain)/loss               0.4      14.1            (0.6)      4.7
         Benefits paid                      (5.9)     (4.5)           (0.1)     (0.1)
         Special termination benefits          -         -               -       1.2
         Translation                        15.2      14.6               -         -
         Curtailments                       (7.3)     (4.8)              -     (12.1)
         Settlements                           -      (1.4)              -         -
         Plan amendments                     0.1         -               -         -
         Business combinations              21.0         -               -         -
                                          ------    ------          ------    ------
Projected benefit obligation at end
of year                                   $195.6    $161.0          $  5.1    $  5.6
                                          ======    ======          ======    ======

The following table provides a reconciliation of the change in fair value of plan assets (in millions):

                                            Pension Benefits    Other Postretirement Benefits
                                            ----------------    -----------------------------
                                             2004      2003             2004      2003
                                            ------    ------           ------    ------
Fair value of plan assets at beginning of
year                                        $ 74.0    $ 68.4           $    -    $    -
        Actual return on plan assets           8.5      (2.9)               -         -
        Employer contributions                16.4       5.4                -         -
        Plan participant contributions         0.3       1.2              0.1       0.1
        Benefits paid                         (5.5)     (3.9)            (0.1)     (0.1)
        Settlements                              -      (1.4)               -         -
        Translation                            5.7       7.2                -         -
        Business combinations                 20.1         -                -         -
                                            ------    ------           ------    ------
Fair value of plan assets at end of year    $119.5    $ 74.0           $    -    $    -
                                            ======    ======           ======    ======

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table provides a reconciliation of the net amount recognized in the consolidated balance sheets (in millions):

                                         Pension Benefits  Other Postretirement Benefits
                                         ----------------  -----------------------------
                                          2004       2003          2004      2003
                                         ------    ------         ------    ------
Funded status                            $(76.1)   $(87.0)        $ (5.1)   $ (5.6)
Unrecognized net actuarial (gain)/loss     48.5      49.8           (2.5)     (2.0)
Unrecognized net transition asset          (0.2)     (0.3)             -         -
Unrecognized prior service cost             0.1       0.1              -         -
Other                                       1.5       0.5              -       0.1
                                         ------    ------         ------    ------
Net amount recognized                    $(26.2)   $(36.9)        $ (7.6)   $ (7.5)
                                         ======    ======         ======    ======

Consolidated Balance Sheets:
Other comprehensive income               $ 30.6    $ 31.5         $    -    $    -
Prepaid benefit cost                        4.0         -              -         -
Accrued benefit liability                 (60.8)    (68.4)          (7.6)     (7.5)
                                         ------    ------         ------    ------
Net amount recognized                    $(26.2)   $(36.9)        $ (7.6)   $ (7.5)
                                         ======    ======         ======    ======

The projected benefit obligation and fair value of plan assets for pension plans and other postretirement plans with projected benefit obligations in excess of plan assets are as follows (in millions):

                               Pension Benefits   Other Postretirement Benefits
                               ----------------   -----------------------------
                                2004      2003           2004     2003
                               ------   -------         ------   ------
Projected benefit obligation   $178.5    $161.0         $  5.1   $  5.6
Fair value of plan assets      $101.8    $ 74.0         $    -   $    -

The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets are as follows (in millions):

                                Pension Benefits
                                ----------------
                                  2004     2003
                                 ------   ------
Accumulated benefit obligation   $174.6   $151.2
Fair value of plan assets        $101.8   $ 74.0

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Periodic Benefit Cost

Components of the Company's net periodic benefit costs are as follows (in millions):

                                                Pension Benefits         Other Postretirement Benefits
                                           --------------------------    -----------------------------
                                            2004      2003      2002      2004        2003       2002
                                           ------    ------    ------    ------      ------     ------
Components of net periodic benefit cost:
         Service cost                      $  1.6    $  4.6    $  4.1    $    -      $  0.6     $  0.6
         Interest cost                        9.2       8.4       7.2       0.3         0.7        0.7
         Expected return on plan assets      (5.6)     (5.4)     (4.8)        -           -          -
         Net amortization and other (1)       2.8       1.2       0.7      (0.1)          -        0.1
                                           ------    ------    ------    ------      ------     ------
Net amount recognized                      $  8.0    $  8.8    $  7.2    $  0.2      $  1.3     $  1.4
                                           ======    ======    ======    ======      ======     ======

(1) Amount primarily represents the amortization of unrecognized actuarial losses, as well as the amortization of the transition obligation and prior service costs.

Assumptions

The weighted average assumptions used in determining benefit obligations are as follows:

                                               Pension Benefits      Other Postretirement Benefits
                                               ----------------      -----------------------------
                                               2004        2003              2004   2003
                                               ----        ----              ----   ----
Discount rate                                  5.60%       6.00%             6.00%  6.25%
Rate of increase in compensation levels        3.50%       3.80%              N/A    N/A

The weighted average assumptions used in determining net periodic pension cost are as follows:

                                                  Pension Benefits       Other Postretirement Benefits
                                               ----------------------    -----------------------------
                                               2004     2003     2002     2004       2003        2002
                                               ----     ----     ----     ----       ----        ----
Discount rate                                  5.50%    6.00%    6.30%    6.25%      7.25%       7.25%
Rate of increase in compensation levels        3.50%    3.80%    4.00%     N/A        N/A         N/A
Expected long-term rate of return on
  plan assets (1)                              6.30%    6.90%    7.20%     N/A        N/A         N/A

(1) To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This rate is gross of any investment or administrative expenses.

Health Care Cost Trend Rates

The health care cost trend rates assumed for next year for other postretirement benefits at December 31 are 11.2% and 11.6% for Pre-Medicare and Post-Medicare, respectively. The health care cost trend rates are assumed to decline to 5.6% for Pre-Medicare and Post-Medicare by 2014. A one percentage point change in the assumed health care cost trend rates would not have a material impact on total service cost, total interest cost or the accumulated postretirement benefit obligation.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Plan Assets

The Company's weighted average asset allocations at the measurement date and the target asset allocations by category are as follows:

                       2004      2003
                      Actual    Actual    Target
                      ------    ------    ------
Asset Category
  Equity Securities       46%       50%       52%
  Debt Securities         29%       30%       28%
  Real Estate              0%        0%        6%
  Other                   25%       20%       14%
                      ------    ------    ------
Total                    100%      100%      100%

The investment policy reflects the long-term nature of the plans' funding obligations. The assets are invested to provide the opportunity for both income and growth of principal. This objective is pursued as a long-term goal designed to provide required benefits for participants without undue risk. It is expected that this objective can be achieved through a well-diversified asset portfolio. All equity investments are made within the guidelines of quality, marketability and diversification mandated by the Employee Retirement Income Security Act ("ERISA") and other relevant statutes. Investment managers are directed to maintain equity portfolios at a risk level approximately equivalent to that of the specific benchmark established for that portfolio. Assets invested in fixed income securities and pooled fixed income portfolios are managed actively to pursue opportunities presented by changes in interest rates, credit ratings or maturity premiums.

Contributions

The total estimated contributions for the 2005 measurement year are $5.4 million.

Estimated Future Benefit Payments

Future benefit payments, which reflect expected future service, as appropriate, during the next five fiscal years, and in the aggregate for the five fiscal years thereafter, are (in millions):

                                Pension     Other
Fiscal Year Ended June 30,     Benefits   Benefits
----------------------------   --------   --------
2005                           $    5.1   $    0.5
2006                           $    6.3   $    0.5
2007                           $    5.3   $    0.5
2008                           $    5.5   $    0.5
2009                           $    5.8   $    0.5
2010 - 2014                    $   35.0   $    2.2

10. OFF-BALANCE SHEET ARRANGEMENTS

The Company periodically enters into certain off-balance sheet arrangements, primarily receivable sales and operating leases, in order to maximize diversification of funding and return on assets. The receivable sales, as described below, also provide for the transfer of credit risk to third parties.

Lease Receivable-Related Arrangements

During fiscal 2004 and 2003, the Company entered into four separate agreements (two in fiscal 2004 and two in fiscal 2003) to transfer ownership of certain equipment lease receivables, plus security interests in the related equipment, to the leasing subsidiary of a bank in the amounts of $164.2 million and $150.0 million in fiscal 2004 and $156.0 million and $200.0 million in fiscal 2003. These transactions resulted in immaterial gains or losses classified by the Company as revenue within its results of operations. In order to qualify for sale treatment under SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," the Company formed wholly-owned, special purpose, bankruptcy-remote subsidiaries (the "Pyxis SPEs") of Pyxis Corporation (which has been given the legal designation of Cardinal Health 301, Inc. and is referred to in this Form 10-K as "Pyxis"), and each of the Pyxis SPEs formed wholly-owned, qualified special purpose subsidiaries (the "QSPEs") to effectuate the removal of the lease receivables from the Company's consolidated financial statements. In accordance with SFAS

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

No. 140, the Company consolidates the Pyxis SPEs and does not consolidate the QSPEs. Both the Pyxis SPEs and QSPEs are separate legal entities that maintain separate financial statements from the Company and Pyxis. The assets of the Pyxis SPEs and QSPEs are available first and foremost to satisfy the claims of their respective creditors.

The Company formed Pyxis Funding LLC ("Pyxis Funding") for the sole purpose of acquiring a pool of leases and the related leased equipment from Pyxis and ultimately selling the lease receivables to a multi-seller conduit administered by a third-party bank. Pyxis Funding is a wholly-owned, special purpose, bankruptcy-remote subsidiary of Pyxis. Pyxis Funding II LLC ("Pyxis Funding II") was formed for the sole purpose of acquiring lease receivables from Pyxis Funding and issuing notes secured by its assets to a multi-seller conduit administered by a third-party bank. Pyxis Funding II is a wholly-owned, qualified special purpose subsidiary of Pyxis Funding. The transaction qualifies for sale treatment under SFAS No. 140. Accordingly, the related receivables are not included in the Company's consolidated financial statements. As required by U.S. GAAP, the Company consolidates Pyxis Funding and does not consolidate Pyxis Funding II. Both Pyxis Funding and Pyxis Funding II are separate legal entities that maintain separate financial statements from the Company and Pyxis. The assets of Pyxis Funding and Pyxis Funding II are available first and foremost to satisfy the claims of their creditors. The notes held by investors had a principal balance of $16.0 million on June 30, 2004, and the investors are provided with credit protection in the form of 20% ($4.0 million) over-collateralization. As of June 30, 2003, the notes had a principal balance of $51.5 million, and $12.9 million of credit protection was provided.

Other Receivable-Related Arrangements

Cardinal Health Funding ("CHF") and Medicine Shoppe Capital Corporation ("MSCC") were organized for the sole purpose of buying receivables and selling those receivables to multi-seller conduits administered by third party banks or other third party investors. MSCC and CHF were designed to be special purpose, bankruptcy-remote entities. Although consolidated in accordance with GAAP, MSCC and CHF are separate legal entities from the Company, Medicine Shoppe International, Inc. and the Company's Financial Shared Services business. The sale of receivables by MSCC and CHF qualify for sales treatment under SFAS No. 140 and accordingly are not included in the Company's consolidated financial statements.

At June 30, 2004, the Company had a committed receivables sales facility program available through CHF with capacity to sell $500.0 million in receivables. Recourse is provided under the CHF program by the requirement that CHF retain a percentage subordinated interest in the sold receivables. At June 30, 2004, the Company had no outstanding receivables or subordinated interests related to this facility. During fiscal 2004, the Company terminated and liquidated MSCC resulting in an immaterial loss.

At June 30, 2003, the Company had $280.0 million in committed receivables sales facility programs available through CHF and MSCC. There were no receivables outstanding or subordinated interests related to CHF at June 30, 2003. The total amount of receivables outstanding under the MSCC program was $5.4 million. Recourse was provided under the MSCC program by the requirement that MSCC retain a 20% subordinated interest in the sold receivables. Subordinated interests were $1.3 million at June 30, 2003.

Cash Flows from all Receivable-Related Arrangements

The Company's net cash flow benefit related to receivable transfers for fiscal 2004, 2003 and 2002 were as follows:

(in millions)                                         2004     2003     2002
--------------------------------------------------   ------   ------   ------
Proceeds received on transfer of receivables         $321.4   $375.8   $295.4
Cash collected in servicing of related receivables      3.9      2.2      1.2
Proceeds received on subordinated interests             8.9     18.3     58.4
                                                     ------   ------   ------
Cash inflow to the Company                            334.2    396.3    355.0
Cash collection remitted to the bank                  226.0    131.0    257.2
Cash collection remitted to QSPE                        8.9     17.7        -
                                                     ------   ------   ------
Net benefit to the Company's Cash Flow               $ 99.3   $247.6   $ 97.8
                                                     ======   ======   ======

Pyxis, MSCC and CHF are required to repurchase any receivables sold only if it is determined that the representations and warranties with regard to the related receivables were not accurate on the date sold.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Leases

The Company has entered into operating lease agreements with several third party banks for the construction of various new facilities and equipment. The initial terms of the lease agreements have varied maturity dates ranging from February 2005 through June 2013, with optional renewal periods, generally five years. In the event of termination, the Company is required (at its election) to either purchase the facility or vacate the property and make reimbursement for a portion of any unrecovered property cost. The maximum portion of unrecovered property costs that the Company could be required to reimburse does not exceed the amount expended to acquire and/or construct the facilities. As of June 30, 2004, the amount expended to acquire and/or construct the facilities was $525.6 million. The agreements provide for maximum funding of $575.0 million, which is currently greater than the estimated cost to complete the construction projects. The required lease payments equal the interest expense for the period on the amounts drawn. Lease payments under the agreements are based primarily upon LIBOR and are subject to interest rate fluctuations. As of June 30, 2004, the weighted average interest rate on the agreements approximated 1.79%. The Company's estimated minimum annual lease payments under the agreements at June 30, 2004 were approximately $9.4 million.

11. COMMITMENTS AND CONTINGENT LIABILITIES

The future minimum rental payments for operating leases (excluding those referenced in Note 10) having initial or remaining non-cancelable lease terms in excess of one year at June 30, 2004 are:

(in millions)              2005     2006     2007     2008     2009    Thereafter    Total
------------------------------------------------------------------------------------------
Minimum rental payments   $109.1   $ 79.1   $ 58.6   $ 44.8   $ 34.6   $    109.1   $435.3

Rental expense relating to operating leases (including those referenced in Note 10) was approximately $120.6 million, $102.8 million and $77.6 million in fiscal 2004, 2003 and 2002, respectively. Sublease rental income was not material for any period presented herein.

Latex Litigation

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

portion of any liability will be covered by insurance policies Allegiance has with financially viable insurance companies, subject to self-insurance retentions, exclusions, conditions, coverage gaps, policy limits and insurer solvency. The Company and Allegiance continue to believe that insurance recovery is probable.

Derivative Actions

On November 8, 2002, a complaint was filed by a purported shareholder against the Company and its directors in the Court of Common Pleas, Delaware County, Ohio, as a purported derivative action. On or about March 21, 2003, after the Company filed a Motion to Dismiss the complaint, an amended complaint was filed alleging breach of fiduciary duties and corporate waste in connection with the alleged failure by the Board of Directors of the Company to (a) renegotiate or terminate the Company's proposed acquisition of Syncor, and (b) determine the propriety of indemnifying Monty Fu, the former Chairman of Syncor. The Company filed a Motion to Dismiss the amended complaint and the plaintiffs subsequently filed a second amended complaint that added three new individual defendants and included new allegations that the Company improperly recognized revenue in December 2000 and September 2001 related to settlements with certain vitamin manufacturers. The Company filed a Motion to Dismiss the second amended complaint and, on November 20, 2003, the Court denied the motion. Discovery is proceeding in this action. The defendants intend to vigorously defend this action. The Company currently does not believe that the impact of this lawsuit will have a material adverse effect on the Company's financial position, liquidity or results of operations.

On July 9, 2004, a complaint was filed by a purported shareholder against the members of the Company's Board of Directors, and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants failed to implement adequate internal controls for the Company and thereby violated their fiduciary duty of good faith, GAAP and the Company's Audit Committee charter. The complaint seeks money damages and equitable relief against the defendant directors, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

On August 27, 2004, a complaint was filed by a purported shareholder against members of the Company's Board of Directors, current and former officers and/or employees of the Company and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants breached various fiduciary duties owed to the Company. The complaint seeks money damages and equitable relief against the individual defendants, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

On September 22, 2004, a complaint was filed by a purported shareholder against the members of the Company's Board of Directors, and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. The complaint alleges that the individual defendants failed to implement adequate internal controls for the Company and thereby violated their fiduciary duty of good faith, GAAP and the Company's Audit Committee charter. The complaint seeks money damages and equitable relief against the defendant directors, and an award of attorney's fees. None of the defendants has responded to the complaint yet, nor has the Company.

Shareholder/ERISA Litigation against Cardinal Health

Since July 2, 2004, ten purported class action complaints have been filed by purported purchasers of the Company's securities against the Company and certain of its officers and directors, asserting claims under the federal securities laws (collectively referred to as the "Cardinal Health federal securities actions"). To date, all of these actions have been filed in the United States District Court for the Southern District of Ohio. The Cardinal Health federal securities actions purport to be brought on behalf of all purchasers of the Company's securities during various periods beginning as early as October 24, 2000 and ending as late as July 26, 2004 and allege, among other things, that the defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by issuing a series of false and/or misleading statements concerning the Company's financial results, prospects and condition. The alleged misstatements relate to the Company's accounting for recoveries relating to antitrust litigation against vitamin manufacturers, and to classification of revenue in the Company's Pharmaceutical Distribution business as either operating revenue or revenue from bulk deliveries to customer warehouses, among other matters. The alleged misstatements are claimed to have caused an artificial inflation in the Company's stock price during the proposed class period. The complaints seek unspecified money damages and equitable relief against the defendants, and an award of attorney's fees. None of the defendants has yet responded to any of the complaints in the Cardinal Health federal securities actions.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Shareholder/ERISA Litigation against Syncor

On November 14, 2002, two additional actions were filed by individual stockholders of Syncor in the Court of Chancery of the State of Delaware (the "Delaware actions") against seven of Syncor's nine directors (the "director defendants"). The complaints in each of the Delaware actions were identical and alleged that the director defendants breached certain fiduciary duties to Syncor by failing to maintain adequate controls, practices and procedures to ensure that Syncor's employees and representatives did not engage in improper and unlawful conduct. Both complaints asserted a single derivative claim, for and on behalf of Syncor, seeking to recover all of the costs and expenses that Syncor incurred as a result of the allegedly improper payments (including the costs of the Syncor federal securities actions described above), and a single purported class action claim seeking to recover damages on behalf of all holders of Syncor shares in the amount of any losses sustained if consideration received in the merger by Syncor stockholders was reduced. On November 22, 2002, the plaintiff in one of the two Delaware actions filed an amended complaint adding as defendants the Company, its subsidiary Mudhen Merger Corporation and the remaining two Syncor directors, who are hereafter included in the term "director defendants." These cases have been consolidated into one action (the "consolidated Delaware action"). On August 14, 2003, the Company filed a Motion to Dismiss the operative complaint in the consolidated Delaware action. At the end of September 2003, plaintiffs in the consolidated Delaware action moved the court to file a second amended complaint. Plaintiffs' request was granted in February 2004. Monty Fu is the only named defendant in the second amended complaint. On September 15, 2004, the Court granted Monty Fu's Motion to Dismiss the second amended complaint. The Court dismissed the second amended complaint with prejudice.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On November 18, 2002, two additional actions were filed by individual stockholders of Syncor in the Superior Court of California for the County of Los Angeles (the "California actions") against the director defendants. The complaints in the California actions allege that the director defendants breached certain fiduciary duties to Syncor by failing to maintain adequate controls, practices and procedures to ensure that Syncor's employees and representatives did not engage in improper and unlawful conduct. Both complaints asserted a single derivative claim, for and on behalf of Syncor, seeking to recover costs and expenses that Syncor incurred as a result of the allegedly improper payments. An amended complaint was filed on December 6, 2002 in one of the cases, purporting to allege direct claims on behalf of a class of shareholders. The defendants' motion for a stay of the California actions pending the resolution of the Delaware actions (discussed above) was granted on April 30, 2003.

A purported class action complaint was filed on April 8, 2003, against the Company, Syncor and certain officers and employees of the Company by a purported participant in the Syncor Employees' Savings and Stock Ownership Plan (the "Syncor ESSOP"). A related purported class action complaint was filed on September 11, 2003, against the Company, Syncor and certain individual defendants. Another related purported class action complaint was filed on January 14, 2004, against the Company, Syncor and certain individual defendants. A consolidated complaint was filed on February 24, 2004 against Syncor and certain former Syncor officers, directors and/or employees alleging that the defendants breached certain fiduciary duties owed under ERISA based on the same underlying allegations of improper and unlawful conduct alleged in the federal securities litigation. On April 26, 2004, the defendants filed Motions to Dismiss the consolidated complaint. On August 24, 2004, the Court granted in part and denied in part Defendants' Motions to Dismiss. The Court dismissed, without prejudice, all claims against defendants Ed Burgos and Sheila Coop, all claims alleging co-fiduciary liability against all defendants, and all claims alleging that the individual defendants had conflicts of interest precluding them from properly exercising their fiduciary duties under ERISA. A claim for breach of the duty to prudently manage plan assets was upheld against Syncor, and a claim for breach of the alleged duty to "monitor" the performance of Syncor's Plan Administrative Committee was upheld against defendants Monty Fu and Robert Funari. In addition, the United States Department of Labor is conducting an investigation of the Syncor ESSOP with respect to its compliance with ERISA requirements. The Company has responded to a subpoena received from the Department of Labor and continues to cooperate in the investigation.

DuPont Litigation

On September 11, 2003, E.I. Du Pont De Nemours and Company ("DuPont") filed a lawsuit against the Company and others in the United States District Court for the Middle District of Tennessee. The complaint alleges various causes of action against the Company relating to the production and sale of surgical drapes and gowns by the Company's Medical Products and Services segment. DuPont's claims generally fall into the categories of breach of contract, false advertising and patent infringement. The complaint does not request a specific amount of damages. The Company believes that the claims made in the complaint are without merit and it intends to vigorously defend this action. Although this action is in its early stages and it is impossible to accurately predict the outcome of the proceedings or their impact on the Company, the Company believes that it is owed a defense and indemnity from its co-defendants with respect to DuPont's claim for patent infringement. The Company currently does not believe that the impact of this lawsuit, if any, will have a material adverse effect on the Company's financial position, liquidity or results of operations.

Other Matters

The Company also becomes involved from time-to-time in other litigation incidental to its business, including, without limitation, inclusion of certain of its subsidiaries as a potentially responsible party for environmental clean-up costs. The Company intends to vigorously defend itself against this other litigation and does not currently believe that the outcome of this other litigation now pending will have a material adverse effect on the Company's consolidated financial statements.

See also the discussion of the SEC investigation and U.S. Attorney inquiry in Note 1.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. SHAREHOLDERS' EQUITY

At June 30, 2004 and 2003, the Company's authorized capital shares consisted of (a) 750 million common shares, without par value ("Class A common shares"); (b) 5 million Class B common shares, without par value; and (c) 0.5 million non-voting preferred shares, without par value. The Class A common shares and Class B common shares are collectively referred to as "Common Shares." Holders of Class A and Class B common shares are entitled to share equally in any dividends declared by the Company's Board of Directors and to participate equally in all distributions of assets upon liquidation. Generally, the holders of Class A common shares are entitled to one vote per share and the holders of Class B common shares are entitled to one-fifth of one vote per share on proposals presented to shareholders for vote. Under certain circumstances, the holders of Class B common shares are entitled to vote as a separate class. Only Class A common shares were outstanding as of June 30, 2004 and 2003.

On February 27, 2004, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $500 million. Pursuant to this authorization, the Company repurchased approximately 6.9 million Common Shares under an accelerated share repurchase program having an aggregate cost of approximately $460.3 million. The initial price paid per share was $66.80. The approximately 6.9 million shares repurchased under the program were subject to a future contingent purchase price adjustment which was settled during the fourth quarter of fiscal 2004. The purchase price adjustment was based upon the volume weighted average price during the actual repurchase period and was subject to certain provisions which establish a cap and a floor for the average share price in the Company's agreement with its broker-dealer who executed the repurchase transactions.

The accelerated share repurchase program was completed on May 11, 2004. The final volume weighted average price was $70.07. As a result, the Company settled the forward contract for $22.5 million in cash, which cost was included in the amount associated with Common Shares in treasury. The Company used the remaining $17.2 million of the initial authorization to repurchase additional shares of approximately 0.2 million having an average price paid per share of $70.73. The repurchased shares were placed into treasury to be used for general corporate purposes.

On August 1, 2003, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $1.0 billion. Pursuant to this authorization, the Company repurchased approximately 17.0 million Common Shares having an aggregate cost of approximately $1.0 billion during the three months ended September 30, 2003. The average price paid per share was $58.65. This repurchase was completed during the first quarter of fiscal 2004, and the repurchased shares were placed into treasury to be used for general corporate purposes.

In January 2003, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $500 million. Pursuant to this authorization, the Company repurchased approximately 8.6 million Common Shares having an aggregate cost of approximately $500 million. This repurchase was completed in February 2003, and the repurchased shares were placed into treasury shares to be used for general corporate purposes.

In August 2002, the Company's Board of Directors authorized the repurchase of Common Shares up to an aggregate amount of $500 million. Pursuant to this authorization, the Company repurchased approximately 7.8 million Common Shares having an aggregate cost of approximately $500 million. This repurchase was completed in January 2003, and the repurchased shares were placed into treasury shares to be used for general corporate purposes.

13. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

The Company invests cash in deposits with major banks throughout the world and in high quality short-term liquid instruments. Such investments are made only in instruments issued or enhanced by high quality institutions. These investments mature within three months and the Company has not incurred any related losses.

The Company's trade receivables, finance notes and accrued interest receivables, and lease receivables are exposed to a concentration of credit risk with customers in the retail and health care sectors. Credit risk can be affected by changes in reimbursement and other economic pressures impacting the hospital and acute care sectors of the health care industry. However, such credit risk is limited due to supporting collateral and the diversity of the customer base, including its wide geographic dispersion. The Company performs ongoing credit evaluations of its customers' financial conditions and maintains reserves for credit losses. Such losses historically have been within the Company's expectations.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes all of the Company's customers which individually account for at least 10% of the Company's revenue. The customer in the table below is serviced through the Pharmaceutical Distribution and Provider Services segment.

                               Percent of Revenues
                             ------------------------
                             2004    2003      2002
                             ----  --------  --------
                                   Adjusted  Adjusted
CVS                          18%      18%       19%

At June 30, 2004 and 2003, CVS Corporation ("CVS") accounted for 18% of the Company's gross trade receivable balance.

Certain of the Company's businesses have entered into agreements with group purchasing organizations ("GPOs"), which organizations act as purchasing agents that negotiate vendor contracts on behalf of their members. In fiscal 2004, 2003 and 2002, approximately 17%, 17% and 18%, respectively, of revenue was derived from GPO members through the contractual arrangements established with Novation, LLC and Premier Purchasing Partners, L.P.-- the Company's two largest GPO relationships in terms of revenue. However, the Company's trade receivable balances are with individual members of the GPO and therefore no significant concentration of credit risk exists with these types of arrangements.

14. STOCK OPTIONS AND RESTRICTED SHARES

The Company maintains several stock incentive plans (the "Plans") for the benefit of certain officers, directors and employees. Options granted generally vest over three years and are exercisable for periods up to ten years from the date of grant at a price which equals fair market value at the date of grant.

The information in the following tables in this Note 14 has been revised to reflect the maximum number of shares that could be granted under the Company's Amended and Restated Equity Incentive Plan, as amended (the "Equity Incentive Plan"), with respect to an option award that the Board of Directors and its Human Resources and Compensation Committee (the "Compensation Committee") granted to the Company's Chairman and Chief Executive Officer in November 1999 for 1,425,000 shares (giving effect to stock splits occurring after the date of grant). The maximum number of shares that could be granted pursuant to the terms of the Equity Incentive Plan was 562,500 shares. The Compensation Committee is currently exploring alternatives to substitute the remaining portion of the stock option granted to this individual in November 1999 in excess of the 562,500 shares with equivalent value.

EQUITY COMPENSATION PLAN INFORMATION

Certain plans are subject to shareholder approval while other plans have been authorized solely by the Board of Directors (the "Board"). The following is a description of the Company's plans that have not been approved by shareholders:

Broadly-based Equity Incentive Plan, as amended

The Company's Broadly-based Equity Incentive Plan, as amended (the "Broadly-based Equity Incentive Plan"), was adopted by the Board effective November 15, 1999 and further amended pursuant to resolutions of the Board adopted on August 8, 2001. The plan provides for grants in the form of nonqualified stock options, restricted shares and restricted share units to employees of the Company. The aggregate number of Common Shares authorized for issuance pursuant to the plan is 36 million with generally no more than 10% of the authorized amount issuable in the form of restricted shares and restricted share units having a restriction period of less than three years. The plan is not intended to qualify under Section 401(a) of the Code and is not subject to any of the provisions of ERISA.

Outside Directors Equity Incentive Plan

The Company's Outside Directors Equity Incentive Plan was adopted by the Board effective May 10, 2000. The plan reserves and makes available for distribution an aggregate of 1.5 million Common Shares for grants in the form of nonqualified stock options and restricted shares to members of the Board who are not employees of the Company. The plan is not intended to qualify under Section 401(a) of the Code and is not subject to any of the provisions of ERISA.

Deferred Compensation Plan, as amended

The Company's Deferred Compensation Plan, as amended (the "Deferred Compensation Plan"), was adopted by the Board effective April 7, 1994 and has been subsequently amended several times since then, most recently on May 25, 2004. The plan permits certain management

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

employees of the Company to defer salary, bonus and long-term incentive plan payments into one of several investment alternatives, including a stock equivalent account. In addition, the Company may, in its discretion, make additional matching or fixed contributions to the deferred balances of participating management employees. Deferrals into the stock equivalent account are valued as if each deferral were invested in the Company's Common Shares as of the deferral date. Deferred balances are paid upon retirement, termination from employment, death or disability. The maximum aggregate number of Common Shares that can be credited to stock equivalent accounts pursuant to the plan is 2.25 million. Deferred balances are paid in cash, or in Common Shares in kind, with any fractional shares paid in cash. The plan contains a dividend reinvestment feature for the stock equivalent account with dividends generally being reinvested in investment options other than the stock equivalent account for reporting persons under Section 16 of the Exchange Act. The plan is not intended to qualify under Section 401(a) of the Code and is exempt from many of the provisions of ERISA as a "top hat" plan for a select group of management or highly compensated employees.

Directors Deferred Compensation Plan, as amended and restated

The Company's Directors Deferred Compensation Plan, as amended and restated (the "Directors Deferred Compensation Plan"), was adopted by the Board effective August 11, 1999 and was recently amended and restated on May 1, 2004. The plan permits directors of the Company to defer board fees into one of several investment alternatives, including a stock equivalent account. Deferrals into the stock equivalent account are valued as if each deferral were invested in the Company's Common Shares as of the deferral date. Deferred balances are paid upon retirement or other termination from board service, death or disability. The maximum aggregate number of Common Shares that can be credited to stock equivalent accounts pursuant to the plan is 90,000. Deferred balances are paid in cash, or in Common Shares in kind, with any fractional shares paid in cash. The plan contains a dividend reinvestment feature for the stock equivalent account with dividends generally being reinvested in investment options other than the stock equivalent account. The plan is not intended to qualify under Section 401(a) of the Code and is not subject to any of the provisions of ERISA.

Global Employee Stock Purchase Plan

The Company's Global Employee Stock Purchase Plan was adopted by the Board effective August 11, 1999. The plan permits the Company's international employees to purchase Common Shares through payroll deductions. The total number of Common Shares made available for purchase under the plan is 4.5 million. International employees who have been employed by the Company for at least 30 days are eligible to contribute from 1% to 15% of eligible compensation. The purchase price is determined by the lower of 85% of the closing market price on the first day of the offering period or 85% of the closing market price on the last day of the offering period. During any given calendar year, there are two offering periods: January 1-June 30; and July 1-December 31. The plan is not intended to qualify under Section 401(a) of the Code and is not subject to any of the provisions of ERISA.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes information relating to the Company's equity compensation plans at June 30, 2004:

                                          Outstanding
                             ------------------------------------
                               Number of Common       Weighted
                             Shares to be Issued       Average       Common Shares
                               Upon Exercise of    Exercise Price    Available for
                             Outstanding Options     per Common     Future Issuance
                                (in millions)           Share        (in millions)
                             -------------------   --------------   ---------------
Plans approved by
     shareholders (1)                11.8 (2)       $   52.31 (2)          22.6 (3)
Plans not approved by
     shareholders                    25.2 (4)       $   62.01 (4)          14.0 (5)
Plans acquired through
     acquisition (6)                  5.8 (6)       $   33.63                 -
                              ------------------    -------------    --------------
Balance at June 30, 2004             42.8           $   55.52              36.6
                              ==================    =============    ==============

(1) Under the Company's Equity Incentive Plan, which was approved by the Company's shareholders in November 1995, the total number of Common Shares available for grant of awards under the plan is an amount equal to the sum of
(a) 1.5% of the total outstanding Common Shares as of the last day of the Company's immediately preceding fiscal year, plus (b) the number of Common Shares available for grant under the plan as of November 23, 1998, plus (c) any Common Shares related to awards that expire or are unexercised, forfeited, terminated, cancelled, settled in such a manner that all or some of the Common Shares covered by an award are not issued to a participant, or returned to the Company in payment of the exercise price or tax withholding obligations in connection with outstanding awards, plus (d) any unused portion of the Common Shares available under clause (a) above for the previous two fiscal years as a result of not being used in such previous two fiscal years.

(2) In addition to stock options outstanding under the Company's Equity Incentive Plan, also includes 430,302 restricted share units outstanding under the Equity Incentive Plan that are payable solely in Common Shares. Restricted share units do not have an exercise price, and therefore were not included for purposes of computing the weighted-average exercise price.

(3) Includes approximately 4.2 million Common Shares available for issuance under the Company's Employee Stock Purchase Plan.

(4) In addition to stock options outstanding under the Company's Broadly-based Equity Incentive Plan and Outside Director Equity Incentive Plan, also includes 10,000 restricted share units outstanding under the Company's Broadly-based Equity Incentive Plan that are payable solely in Common Shares. Also includes 22,564 and 4,076 Common Share units, respectively, outstanding under the Company's Directors Deferred Compensation Plan and Deferred Compensation Plan that are payable solely in Common Shares. These awards do not have an exercise price, and therefore were not included for purposes of computing the weighted-average exercise price.

(5) Includes approximately 4.3 million Common Shares available for issuance under the Company's Global Employee Stock Purchase Plan.

(6) Includes options to purchase approximately 3.4 million Common Shares in the aggregate that were assumed by the Company in connection with acquisitions that were approved by the Company's shareholders. The remaining options to purchase approximately 2.4 million Common Shares in the aggregate were assumed by the Company in connection with acquisitions that were not approved by the Company's shareholders.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following summarizes all stock option transactions for the Company under the Plans from July 1, 2001 through June 30, 2004, giving retroactive effect to conversions of options in connection with merger transactions and stock splits (in millions, except per Common Share amounts):

                                          Weighted Average
                             Options       Exercise Price
                           Outstanding    per Common Share
                           -----------    ----------------
Balance at June 30, 2001          32.4    $          34.92
Granted                            8.7               68.02
Exercised                         (4.5)              23.40
Canceled                          (1.4)              51.75
Other                              1.0               47.32
                           -----------    ----------------
Balance at June 30, 2002          36.2    $          43.95
Granted                            9.5               67.49
Exercised                         (6.2)              27.04
Canceled                          (2.5)              63.29
Other                              3.0               49.23
                           -----------    ----------------
Balance at June 30, 2003          40.0    $          51.35
Granted                           11.8               61.48
Exercised                         (5.9)              29.78
Canceled                          (4.2)              65.30
Other                              0.6               34.24
                           -----------    ----------------
Balance at June 30, 2004          42.3    $          55.52
                           ===========    ================

Additional information concerning stock options outstanding as of June 30, 2004 is presented below:

                                       Outstanding                                Exercisable
                    -------------------------------------------------   ------------------------------
                                        Weighted          Weighted                         Weighted
     Range of                            average          average                           average
 exercise prices                        remaining      exercise price                   exercise price
    per Common         Options      contractual life     per Common        Options        per Common
      Share         (in millions)       in years            Share       (in millions)       Share
-----------------   -------------   ----------------   --------------   -------------   --------------
$ 0.92 - $ 29.96              4.2                2.9   $        18.76             4.2   $        18.76
$29.99 - $ 59.19              8.2                5.3   $        38.62             7.9   $        38.12
$59.60 - $ 64.11             11.8                9.3   $        61.47             0.1   $        63.00
$64.40 - $ 67.90             11.5                7.7   $        67.24             4.0   $        66.08
$67.98 - $132.23              6.6                7.3   $        69.07             0.8   $        75.16
----------------    -------------   ----------------   --------------   -------------   --------------
$ 0.92 - $132.23             42.3                7.1   $        55.52            17.0   $        41.71
----------------    -------------   ----------------   --------------   -------------   --------------

The Company accounts for the Plans in accordance with APB Opinion No. 25, under which no compensation cost has been recognized. See Note 3 for table illustrating the effect on net income and earnings per share if the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock Based Compensation."

The weighted average fair value of options granted during fiscal 2004, 2003 and 2002 are $22.78, $21.96 and $25.95, respectively.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair values of the options granted to Company employees and directors were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for grants in the respective periods:

                                      As of June 30,
                             --------------------------------
                               2004         2003        2002
                             -------      -------     -------
Risk-free interest rate        3.17%        2.32%       3.84%
Expected life                5 years      4 years     5 years
Expected volatility              37%          38%         36%
Dividend yield                 0.19%        0.18%       0.15%

The market values of restricted shares and restricted share units awarded by the Company are recorded in the "Other" component of shareholders' equity in the accompanying consolidated balance sheets. The restricted shares are amortized to expense over the period in which participants perform services, generally one to seven years. The restricted share units are generally amortized over a five-year vesting period. As of June 30, 2004, approximately 0.3 million shares and share units remained restricted and subject to forfeiture.

The Company has employee stock purchase plans under which the sale of 12.0 million of the Company's Common Shares has been authorized. All employees who have been employed by the Company for at least 30 days are eligible to contribute from 1% to 15% of eligible compensation. The purchase price is determined by the lower of 85% of the closing market price on the first day of the offering period or 85% of the closing market price on the last day of the offering period. During any given calendar year, there are two offering periods:
January 1-June 30; and July 1-December 31. At June 30, 2004, subscriptions of 0.4 million shares were outstanding. Through June 30, 2004, 3.0 million shares had been issued to employees under the plans.

15. EARNINGS PER SHARE

The following table reconciles the number of Common Shares used to compute basic and diluted earnings per Common Share for the three years ending June 30, 2004:

(in millions)                      2004     2003     2002
-------------------------------   ------   ------   ------
Weighted-average shares-basic      434.4    446.0    450.1
Effect of dilutive securities:
     Employee stock options          5.6      7.3      9.5
                                  ------   ------   ------
Weighted-average shares-diluted    440.0    453.3    459.6
                                  ======   ======   ======

The potentially dilutive employee stock options that were antidilutive for fiscal 2004, 2003 and 2002 were 18.4 million, 22.5 million and 0.9 million, respectively.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. CHANGE IN ACCOUNTING

Effective fiscal 2004, the Company changed its method of recognizing cash discounts from recognizing cash discounts as a reduction of cost of products sold primarily upon payment of vendor invoices to recording cash discounts as a component of inventory cost and recognizing such discounts as a reduction to cost of products sold upon the sale of inventory. The Company believes the change in accounting method provides a more objectively determinable method of recognizing cash discounts and a better matching of inventory cost to revenue.

The Company recorded a $38.5 million (net of tax of $22.5 million) cumulative effect of change in accounting in the consolidated statements of earnings. The cumulative effect reduced net diluted earnings per Common Share by $0.09. The impact of this change for the fiscal year ended June 30, 2004 was an increase in earnings from continuing operations before cumulative effect of change in accounting by approximately $13.2 million. This resulted in an increase in diluted earnings per Common Share from continuing operations of $0.03 for fiscal 2004. The pro forma effect of this accounting change on prior periods is as follows:

(in millions, except per Common Share amounts)    2003           2002
------------------------------------------------------------------------
 Earnings from continuing operations before
cumulative effect of changes in accounting:
                                As restated     $ 1,381.2      $ 1,140.8
                                  Pro forma     $ 1,368.4      $ 1,142.9

                              Net earnings:
                                As restated     $ 1,375.1      $ 1,070.7
                                  Pro forma     $ 1,362.3      $ 1,072.8

       Basic earnings per Common Share from
                     continuing operations:
                                As restated     $    3.10      $    2.53
                                  Pro forma     $    3.07      $    2.54

     Diluted earnings per Common Share from
                     continuing operations:
                                As restated     $    3.05      $    2.48
                                  Pro forma     $    3.02      $    2.49

       Net basic earnings per Common Share:
                                As restated     $    3.08      $    2.37
                                  Pro forma     $    3.05      $    2.38

     Net diluted earnings per Common Share:
                                As restated     $    3.03      $    2.33
                                  Pro forma     $    3.01      $    2.33

In fiscal 2002, the method of recognizing revenue for pharmacy automation equipment was changed from recognizing revenue when the units were delivered to the customer to recognizing revenue when the units are installed at the customer site. Management believes that the change in accounting method provides for a more objectively determinable method of revenue recognition. In addition, the Company implemented other changes to better service its customers and leverage operational efficiencies. The Company recorded a cumulative effect of change in accounting of $70.1 million (net of tax of $44.6 million) in the consolidated statement of earnings during fiscal 2002. The after tax dilutive impact of the cumulative effect is $0.15 per diluted share. The effect of the change for the fiscal year ended June 30, 2002 was to reduce net earnings before the cumulative effect by approximately $18.6 million. This change reduced diluted earnings per share by $0.04 for the fiscal year ended June 30, 2002. The pro-forma effect of this accounting change on prior periods has not been presented as the required information is not available.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table summarizes the changes in the carrying amount of goodwill for the three years ended June 30, 2004, in total and by reporting segment:

                                              Pharmaceutical
                                               Distribution      Medical      Pharmaceutical   Automation and
                                               and Provider      Products      Technologies     Information
(in millions)                                    Services      and Services    and Services       Services       ALARIS     Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001                      $         86.9   $      671.7   $        358.3   $         41.7          -   $1,158.6
-----------------------------------------------------------------------------------------------------------------------------------
 Goodwill acquired, net of purchase
   price adjustments, foreign currency
   translation adjustments and other                     3.6            3.7            350.4              9.0          -      366.7
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002                      $         90.5   $      675.4   $        708.7   $         50.7          -   $1,525.3
-----------------------------------------------------------------------------------------------------------------------------------
 Goodwill acquired, net of purchase
   price adjustments, foreign currency
   translation adjustments and other                     5.6           19.3            723.6                -          -      748.5
 Goodwill write-off                                        -              -             (9.1)               -          -       (9.1)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003                      $         96.1   $      694.7   $      1,423.2   $         50.7          -   $2,264.7
-----------------------------------------------------------------------------------------------------------------------------------
 Goodwill acquired, net of purchase
   price adjustments, foreign currency
   translation adjustments and other (1)(2)             83.3           14.1            428.0                -    1,536.8    2,062.2
-----------------------------------------------------------------------------------------------------------------------------------
 Goodwill related to the divestiture/
    closure of businesses                                  -              -             (7.6)               -          -       (7.6)
-----------------------------------------------------------------------------------------------------------------------------------
 Transfer (3)                                           31.6          (31.6)               -                -          -          -
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004                      $        211.0   $      677.2   $      1,843.6   $         50.7   $1,536.8   $4,319.3
===================================================================================================================================

(1) During the fourth quarter fiscal 2004, the Company acquired approximately 98.7% of the outstanding common stock of ALARIS and ALARIS merged with a subsidiary of the Company to complete the transaction on July 7, 2004. See Note 4 for additional information regarding this acquisition. As of June 30, 2004, the acquisition of ALARIS resulted in a preliminary goodwill allocation of $1,536.8 million. During the second quarter fiscal 2004, the Company completed the acquisition of Intercare. As of June 30, 2004, the Company finalized the Intercare purchase price allocation, resulting in a goodwill allocation of $430.9 million. During the six months ended December 31, 2003, the Company also finalized the Syncor purchase price allocation resulting in a goodwill reduction of $6.9 million. The remaining amounts represent goodwill acquired from other immaterial acquisitions, purchase price adjustments from prior period acquisitions and foreign currency translation adjustments.

(2) For segment reporting purposes, as of June 30, 2004, a goodwill allocation of $66.4 million was included within the Pharmaceutical Distribution and Provider Services segment related to Intercare's specialty pharmaceutical distribution business. All other goodwill allocations for Intercare are included within the Pharmaceutical Technologies and Services segment.

(3) During the first quarter fiscal 2004, the Company transferred its Consulting and Services business, previously reported within the Medical Products and Services segment, to its Clinical Services and Consulting business within the Pharmaceutical Distribution and Provider Services segment to better align business operations. This transfer resulted in approximately $31.6 million of goodwill being reclassed between the two segments.

The purchase price allocation for ALARIS and other immaterial acquisitions are not yet finalized and are subject to adjustment. Due to the short period of time between the ALARIS acquisition date and fiscal year end, the Company had not determined ALARIS's reporting segment treatment as of June 30, 2004. See Note 18 for information regarding the recently announced new segment which will include ALARIS.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible assets with limited lives are being amortized using the straight-line method over periods that range from five to forty years. The detail of other intangible assets by class for the three years ended June 30, 2004 is as follows:

                                Gross      Accumulated       Net
      (in millions)           Intangible   Amortization   Intangible
--------------------------------------------------------------------
June 30, 2002
    Trademarks and patents    $     30.0   $       20.4   $      9.6
    Non-compete agreements          20.4           19.1          1.3
    Other                           16.8            8.9          7.9
--------------------------------------------------------------------
      Total                   $     67.2   $       48.4   $     18.8
--------------------------------------------------------------------
June 30, 2003
    Trademarks and patents    $     48.1   $       20.8   $     27.3
    Non-compete agreements          27.3           21.9          5.4
    Customer relationships          12.5            1.2         11.3
    Other                           37.1           13.5         23.6
--------------------------------------------------------------------
      Total                   $    125.0   $       57.4   $     67.6
--------------------------------------------------------------------
June 30, 2004
    Trademarks and patents    $    345.9   $       23.4   $    322.5
    Non-compete agreements          32.0           24.8          7.2
    Customer relationships         231.4            6.8        224.6
    Other                           82.4           17.2         65.2
--------------------------------------------------------------------
      Total                   $    691.7   $       72.2   $    619.5
====================================================================

Additions of intangible assets for fiscal 2003 primarily relate to the Syncor acquisition (see Note 4).

Additions of intangible assets for fiscal 2004 primarily relate to the ALARIS and Intercare acquisitions (see Note 4).

Amortization expense for the years ended June 30, 2004, 2003 and 2002 was $13.9 million, $6.7 million and $3.0 million, respectively. Amortization expense is estimated to be (in millions):

                              -------------------------------------------------------------
                                 2005          2006           2007        2008       2009
                              -------------------------------------------------------------
Amortization expense          $  47.5      $   47.2         $ 46.3      $ 43.5     $ 41.6

18. SEGMENT INFORMATION

The Company's operations are principally managed on a products and services basis and are comprised of four reportable business segments:
Pharmaceutical Distribution and Provider Services, Medical Products and Services, Pharmaceutical Technologies and Services and Automation and Information Services. During the first quarter fiscal 2004, the Company transferred its Consulting and Services business, previously included within the Medical Products and Services segment, to its Clinical Services and Consulting business within the Pharmaceutical Distribution and Provider Services segment. Also during the first quarter fiscal 2004, the Company transferred its clinical information business, previously included within the Automation and Information Services segment, to its Clinical Services and Consulting business within the Pharmaceutical Distribution and Provider Services segment. These transfers were done to better align business operations. Prior period financial results have not been restated as each of these businesses is not significant within the respective segments, and, therefore, the transfers did not have a material impact on each segment's growth rates.

During fiscal 2003, the Company reclassified Central Pharmacy Services, Inc. and Cord Logistics, Inc. from the Pharmaceutical Distribution and Provider Services segment to the Pharmaceutical Technologies and Services segment and therefore restated these segments' financial results. All prior period financial results presented in this Form 10-K have been restated to reflect this reclassification. In addition, with the completion of the Syncor acquisition on January 1, 2003, Syncor was included within the Pharmaceutical Technologies and Services segment.

In December 2003, the Company acquired Intercare, which operates specialty pharmaceutical distribution and pharmaceutical manufacturing operations in Europe (see Notes 4 and 17 for further discussion of the Intercare acquisition). For the fiscal year ended June 30, 2004, the results of operations of Intercare's specialty pharmaceutical distribution business, which is similar to the Company's

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pharmaceutical distribution business, were included within the Pharmaceutical Distribution and Provider Services segment (see Note 3 in the table below for further information). All other results of operations for Intercare were included within the Pharmaceutical Technologies and Services segment. For segment reporting purposes, Intercare's results of operations will continue to be reported in this manner. This classification was not reported during the second quarter fiscal 2004 immediately following the acquisition as the Company was still assessing the appropriate segment reporting treatment. Intercare's results of operations for the second quarter of fiscal 2004 were not material to the Company or the Company's individual segments.

The Company acquired approximately 98.7% of the outstanding common stock of ALARIS and ALARIS merged with a subsidiary of the Company to complete the transaction on July 7, 2004. The results of ALARIS' operations for the period following the completion of the transaction have been included within the Corporate segment for the year ended June 30, 2004. Due to the short period of time between the acquisition date and year end, the impact of the results is not material. See Notes 4 and 17 for additional information regarding the ALARIS acquisition.

On August 30, 2004, the Company announced the creation of a new segment, Clinical Technologies and Services, which will replace the Company's Automation and Information Services segment and will include ALARIS, the Company's existing businesses formerly within the Automation and Information Services segment and the Company's existing Clinical Services and Consulting business, which was formerly reported under the Pharmaceutical Distribution and Provider Services segment. The Company will begin reporting results for this new segment beginning with the first quarter fiscal 2005. In addition, effective first quarter fiscal 2005, the Company will transfer its Specialty Pharmaceutical Distribution business, previously included within the Pharmaceutical Distribution and Provider Services segment, to the Medical Products and Services segment. All prior periods will be restated to reflect these transfers beginning in fiscal 2005.

The Pharmaceutical Distribution and Provider Services segment involves the distribution of a broad line of pharmaceuticals, health care, and other specialty pharmaceutical products and other items typically sold by hospitals, retail drug stores and other health care providers. In addition, this segment provides services to the health care industry through integrated pharmacy management, temporary pharmacy staffing, as well as franchising of apothecary-style retail pharmacies.

The Medical Products and Services segment involves the manufacture of medical, surgical and laboratory products and the distribution of these products as well as products not manufactured internally to hospitals, physician offices, surgery centers and other health care providers.

The Pharmaceutical Technologies and Services segment provides services to the health care industry through the design and manufacture of proprietary drug delivery systems including softgel capsules, controlled release forms, Zydis(R) fast dissolving wafers and advanced sterile delivery technologies. This segment also provides sterile injectible pharmaceutical products for pharmacies in the United Kingdom. It also provides comprehensive packaging, radiopharmaceutical manufacturing, pharmaceutical development and analytical science expertise, as well as medical education, marketing and contract sales services.

The Automation and Information Services segment provides services, to hospitals and other health care providers, focusing on meeting customer needs through unique and proprietary automation and information products and services. In addition, this segment markets point-of-use supply systems for use in the life sciences market.

The Company evaluates the performance of the segments based on operating earnings after the corporate allocation of administrative expenses. Information about interest income and expense and income taxes is not provided on a segment level. In addition, special charges are not allocated to the segments. The accounting policies of the segments are the same as described in the summary of significant accounting policies.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables include revenue and operating earnings for each business segment and reconciling items necessary to agree to amounts reported in the consolidated financial statements for the fiscal years ended June 30, 2004, 2003 and 2002:

                                                                               Revenue (1)
                                                                   ------------------------------------
(in millions)                                                         2004         2003         2002
                                                                   ------------------------------------
                                                                                 Restated     Restated
Revenue:
   Pharmaceutical Distribution and Provider Services (1) (2) (3)   $ 54,231.0   $ 47,260.1   $ 42,998.0
   Medical Products and Services                                      7,357.6      6,614.7      6,256.7
   Pharmaceutical Technologies and Services (1) (4)                   2,804.1      2,250.0      1,417.5
   Automation and Information Services (6)                              680.8        666.7        560.2
   Corporate (5)                                                        (20.0)       (60.0)       (87.8)
                                                                   ------------------------------------
Total revenue                                                      $ 65,053.5   $ 56,731.5   $ 51,144.6
                                                                   ====================================

                                                                            Operating Earnings
                                                                   ------------------------------------
(in millions)                                                         2004         2003         2002
                                                                   ------------------------------------
                                                                                 Restated     Restated
   Pharmaceutical Distribution and Provider Services (3)           $  1,173.4   $  1,188.1   $  1,081.0
   Medical Products and Services                                        666.0        591.8        545.2
   Pharmaceutical Technologies and Services (6)                         465.4        368.3        265.0
   Automation and Information Services (6)                              270.2        266.0        209.2
   Corporate (6)                                                       (237.7)      (218.2)      (243.0)
                                                                   ------------------------------------
Total operating earnings                                           $  2,337.3   $  2,196.0   $  1,857.4
                                                                   ====================================

The following tables include depreciation and amortization expense and capital expenditures for the fiscal years ended June 30, 2004, 2003 and 2002 for each segment as well as reconciling items necessary to total the amounts reported in the consolidated financial statements:

                                                                   Depreciation and Amortization Expense
                                                                   ------------------------------------
(in millions)                                                         2004         2003         2002
                                                                   ------------------------------------
   Pharmaceutical Distribution and Provider Services               $     56.2   $     62.3   $     61.2
   Medical Products and Services                                         88.2         87.7         87.7
   Pharmaceutical Technologies and Services                             106.6         82.7         65.2
   Automation and Information Services                                   16.3         16.9         14.3
   Corporate                                                             31.9         16.2         15.1
                                                                   ------------------------------------
Total depreciation and amortization expense                        $    299.2   $    265.8   $    243.5
                                                                   ====================================

                                                                           Capital Expenditures
                                                                   ------------------------------------
(in millions)                                                         2004         2003         2002
                                                                   ------------------------------------
   Pharmaceutical Distribution and Provider Services               $     64.0   $     67.3   $     60.4
   Medical Products and Services                                        100.7         85.4         88.0
   Pharmaceutical Technologies and Services                             192.9        182.9        104.4
   Automation and Information Services                                   25.1         10.9         15.1
   Corporate                                                             27.5         76.7         17.5
                                                                   ------------------------------------
Total capital expenditures                                         $    410.2   $    423.2   $    285.4
                                                                   ====================================

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table includes total assets for the fiscal years ended June 30, 2004 and 2003 for each segment as well as reconciling items necessary to total the amounts reported in the consolidated financial statements:

                                                               Assets
                                                       -----------------------
(in millions)                                             2004         2003
                                                       -----------------------
                                                                     Restated
   Pharmaceutical Distribution and Provider Services   $  9,011.1   $  8,729.6
   Medical Products and Services                          3,431.9      3,350.2
   Pharmaceutical Technologies and Services               4,389.3      3,094.7
   Automation and Information Services                    1,192.3      1,203.2
   Corporate (7)                                          3,344.5      2,087.4
                                                       -----------------------
Total assets                                           $ 21,369.1   $ 18,465.1
                                                       =======================

(2) The Pharmaceutical Distribution and Provider Services segment's revenue is derived from three main product categories. These product categories and their respective contributions to revenue are as follows:

Product Category                               2004        2003         2002
------------------------------------------------------------------------------
                                                         Adjusted     Adjusted
Pharmaceuticals and Health Care Products         95%        95%          95%
Specialty Pharmaceutical Products                 3%         3%           3%
Other Products & Services                         2%         2%           2%
                                               -------------------------------
Total                                           100%       100%         100%
                                               ===============================

(3) Operating results for Intercare, acquired in December 2003, include a specialty pharmaceutical distribution business that is similar to the Company's pharmaceutical distribution business. For segment reporting purposes, this specialty pharmaceutical distribution business was included in the Pharmaceutical Distribution and Provider Services segment for the fiscal year ended June 30, 2004. This classification was not reported during the second quarter of fiscal 2004 immediately following the acquisition as the Company was still assessing the appropriate segment reporting treatment. Intercare's results of operations for the second quarter of fiscal 2004 were not material to the Company or the Company's individual segments.

(4) The Pharmaceutical Technologies and Services segment's revenue is derived from three main product categories. These product categories and their respective contributions to revenue are as follows:

Product Category                               2004        2003         2002
------------------------------------------------------------------------------
                                                         Adjusted     Adjusted
Manufactured Products and
  Radiopharmaceuticals                           66%        63%          68%
Packaged Products                                14%        18%          27%
Other Products & Services                        20%        19%           5%
                                               -------------------------------
Total                                           100%       100%         100%
                                               ===============================

(5) Corporate revenue primarily consists of foreign currency translation adjustments and the elimination of intersegment revenue.

(6) Corporate operating earnings consist of special items of $57.4 million, $39.9 million and $116.6 million for the fiscal years ended June 30, 2004, 2003 and 2002, respectively (see Note 4 for discussion of special items). Corporate costs are allocated to the business segments generally based on certain factors such as revenue, operating earnings and employee base. In addition, the Company attempts to maintain a relatively consistent year over year rate of Corporate allocated costs per segment's net revenue. These Corporate cost allocations may change from period to period depending upon an individual segment's use of Corporate services. The Company does not allocate any Corporate costs for human resources, finance and technology. Corporate operating earnings include unallocated Corporate administrative expenses, costs not attributable to the operations of the segments and certain other Corporate directed costs, as follows:

- Investment spending - the Company has encouraged its business units to identify investment projects which will provide future returns.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

These projects typically require incremental strategic investments in the form of additional capital or operating expenses. As approval decisions for such projects are dependent upon Corporate management, the expenses for such projects are retained at the Corporate segment. Investment spending for fiscal years, 2004, 2003 and 2002 was $48.3 million, $58.0 million and $30.6 million, respectively.

- Interest income adjustment - At the direction of Corporate management, the Automation and Information Services segment sold portions of its leased asset portfolio and transferred the proceeds to Corporate. As the capital proceeds associated with these sales have not been redeployed within the business segment, but utilized for other general corporate purposes, the segment was allocated a benefit by Corporate for the interest income that would have been earned associated with these sold leases. In fiscal 2004, the segment received a $21 million allocation from Corporate.

- Foreign exchange adjustments - The Company assesses the financial performance of its Pharmaceutical Technologies and Services business by applying constant foreign exchange rates to translate foreign business units operating results into U.S. dollars. For fiscal 2004, 2003 and 2002, $11.2 million, $17.5 million and $17.4 million of expenses were allocated to Corporate representing the difference between "constant rates" and "actual" exchange rates.

- At the beginning fiscal 2003, the Company began expanding the use of its shared service center, which previously supported the Medical Products and Services segment, to benefit and support company-wide initiatives and other business segments. Accordingly, the cost of the shared service center, which was previously reported within the Medical Products and Services segment, has been classified within Corporate operating earnings for fiscal 2004 and 2003. The cost of these services was approximately $18.4 million and $19.0 million, respectively, for fiscal 2004 and fiscal 2003.

(7) Includes ALARIS assets of approximately $2.4 billion of which approximately $1.5 billion relates to the preliminary goodwill allocation and $413.2 million relates to intangible assets. The remaining assets primarily include Corporate cash and cash equivalents, Corporate net property and equipment and unallocated deferred taxes.

The following table presents revenue and long-lived assets by geographic area (in millions):

                              Revenue                           Long-Lived Assets
                ------------------------------------   ------------------------------------
                 For The Fiscal Year Ended June 30,               As of June 30,
                ------------------------------------   ------------------------------------
                   2004         2003         2002         2004         2003         2002
                ---------------------------------------------------------------------------
                              Restated     Restated
United States   $ 63,627.3   $ 55,673.1   $ 50,193.9   $  1,932.1   $  1,693.5   $  1,416.6
International      1,426.2      1,058.4        950.7        431.9        396.0        477.8
                ------------------------------------   ------------------------------------
Total           $ 65,053.5   $ 56,731.5   $ 51,144.6   $  2,364.0   $  2,089.5   $  1,894.4
                ====================================   ====================================

Long-lived assets include property and equipment, net of accumulated depreciation.

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is selected quarterly financial data (in millions, except per Common Share amounts) for fiscal 2004 and 2003. The sum of the quarters may not equal year-to-date due to rounding.

                                                            First Quarter                             Second Quarter
                                                ----------------------------------------  ----------------------------------------
                                                              Change in                                 Change in
                                                 Reported   Accounting (2)  Restated (2)   Reported   Accounting (2)  Restated (2)
                                                ----------------------------------------  ----------------------------------------
FISCAL 2004
Revenue (1)                                     $ 15,388.7  $     15,388.7  $   15,388.2  $ 16,350.4  $     16,350.4  $   16,350.8

Gross margin                                       1,083.2         1,080.0       1,072.8     1,170.7         1,167.2       1,161.0

Selling, general and administrative expenses         547.6           547.6         547.6       586.9           586.9         588.0

Earnings from continuing operations before
cumulative effect of change in accounting            330.4           328.2         323.5       380.9           378.5         373.6
Loss from discontinued operations                     (1.8)           (1.8)         (1.8)       (5.1)           (5.1)         (5.1)
Cumulative effect of change in accounting                -           (38.5)        (38.5)          -               -             -
                                                ----------------------------------------  ----------------------------------------
Net earnings                                    $    328.6  $        287.9  $      283.2  $    375.8  $        373.4  $      368.5

Earnings from continuing operations before
cumulative effect of change in accounting
per Common Share:

Basic                                           $     0.75  $         0.75  $       0.73  $     0.88  $         0.87  $       0.86
Diluted                                         $     0.74  $         0.73  $       0.72  $     0.87  $         0.86  $       0.85

                                                            Third Quarter                 Fourth Quarter
                                                ----------------------------------------  --------------
                                                              Change in
                                                 Reported   Accounting (2)  Restated (2)     Reported
                                                ----------------------------------------    ----------
FISCAL 2004
Revenue (1)                                     $ 16,392.3  $     16,392.3  $   16,391.8    $ 16,922.7

Gross margin                                       1,280.8         1,291.0       1,283.4       1,224.0

Selling, general and administrative expenses         608.0           608.0         608.9         602.1

Earnings from continuing operations before
cumulative effect of change in accounting            428.9           435.8         430.1         397.4
Loss from discontinued operations                     (0.8)           (0.8)         (0.8)         (3.9)
Cumulative effect of change in accounting                -               -             -             -
                                                ----------------------------------------    ----------
Net earnings                                    $    428.1  $        435.0  $      429.3    $    393.5

Earnings from continuing operations before
cumulative effect of change in accounting
per Common Share:

Basic                                           $     0.99  $         1.01  $       1.00    $     0.92
Diluted                                         $     0.98  $         0.99  $       0.99    $     0.91

100

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                         First Quarter           Second Quarter          Third Quarter           Fourth Quarter
                                     ----------------------  ----------------------  ----------------------  ----------------------
                                      Reported    Restated    Reported    Restated    Reported    Restated    Reported    Restated
                                     ----------------------  ----------------------  ----------------------  ----------------------
FISCAL 2003
Revenue (1)                          $ 13,086.1  $ 13,085.0  $ 14,091.0  $ 14,096.6  $ 14,371.3  $ 14,366.1  $ 15,188.6  $ 15,183.8

Gross margin                            1,006.9     1,005.8     1,079.5     1,085.5     1,194.1     1,175.4     1,229.5     1,215.5

Selling, general and administrative
expenses                                  520.7       530.0       526.2       528.3       576.1       579.0       605.2       609.0

Earnings from continuing operations       288.3       281.4       367.5       370.1       384.9       370.5       371.2       359.2
Loss from discontinued operations             -           -           -           -        (1.8)       (1.8)       (4.3)       (4.3)
                                     ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
Net earnings                         $    288.3  $    281.4  $    367.5  $    370.1  $    383.1  $    368.7  $    366.9  $    354.9

Earnings from continuing operations
per Common Share:
Basic                                $     0.65  $     0.63  $     0.83  $     0.84  $     0.86  $     0.83  $     0.83  $     0.80
Diluted                              $     0.64  $     0.62  $     0.82  $     0.82  $     0.85  $     0.82  $     0.82  $     0.79

(1) Revenue previously classified as "Bulk Deliveries to Customer Warehouses and Other" has been reclassified within this Form 10-K, in all periods presented, as a result of the Company's decision to aggregate revenue classes. These reclassifications have no effect on previously reported total revenue, gross margins, earnings from continuing operations, net earnings or earnings per Common Share amounts. For additional information concerning the reclassification, see Note 2.

(2) During fiscal 2004, the Company changed its method of recognizing cash discounts for payments made to vendors (See Note 16). Fiscal 2004 quarterly financial information has been restated from previously issued quarterly financial statements to reflect this change in accounting. The "change in accounting" column reflects the reported numbers restated for the change in accounting. The "restated" column includes all restatements including the change in accounting.

As discussed in Note 4, merger-related costs and other special items were recognized in various quarters in fiscal 2004 and 2003. The following table summarizes the impact of such costs on net earnings and diluted earnings per Common Share in the quarters in which they were recorded (in millions, except per Common Share amounts):

                                             First   Second    Third   Fourth
                                            Quarter  Quarter  Quarter  Quarter
                                            -------  -------  -------  -------
Fiscal 2004
     Net earnings                           $  (8.7) $   3.3  $  (4.9) $ (25.3)
     Diluted net earnings per Common Share  $ (0.02) $  0.01  $ (0.01) $ (0.06)
                                            -------  -------  -------  -------
Fiscal 2003
     Net earnings                           $ (15.6) $  22.1  $  (6.4) $ (33.3)
     Diluted net earnings per Common Share  $ (0.03) $  0.05  $ (0.01) $ (0.07)
                                            -------  -------  -------  -------

20. GUARANTEES

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." This interpretation enhances a guarantor's disclosure requirements in its interim and annual financial statements regarding obligations under certain guarantees. The Company adopted the enhanced disclosure requirements in the second quarter of fiscal 2003. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002.

The Company has contingent commitments related to certain operating lease agreements (see Note 10). These operating leases consist of certain real estate and equipment used in the operations of the Company. In the event of termination of these operating leases, which range in length from one to ten years, the Company guarantees reimbursement for a portion of any unrecovered

101

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

property cost. At June 30, 2004, the maximum amount the Company could be required to reimburse was $396.9 million. Based upon current information, the Company believes that the proceeds from the sale of properties under these operating lease agreements would exceed this contingent obligation. In accordance with FASB Interpretation No. 45, the Company has recorded $4.3 million related to these guarantees.

In the ordinary course of business, the Company, from time to time, agrees to indemnify certain other parties under agreements with the Company, including under acquisition agreements, customer agreements, and intellectual property licensing agreements. Such indemnification obligations vary in scope and, when defined, in duration. In many cases, a maximum obligation is not explicitly stated and, therefore, the overall maximum amount of the liability under such indemnification obligations cannot be reasonably estimated. Where appropriate, such indemnification obligations are recorded as a liability. Historically, the Company has not, individually or in the aggregate, made payments under these indemnification obligations in any material amounts. In certain circumstances, the Company believes that its existing insurance arrangements, subject to the general deduction and exclusion provisions, would cover portions of the liability that may arise from these indemnification obligations. In addition, the Company believes that the likelihood of material liability being triggered under these indemnification obligations is not significant.

In the ordinary course of business, the Company, from time to time, enters into agreements that obligate the Company to make fixed payments upon the occurrence of certain events. Such obligations primarily relate to obligations arising under acquisition transactions, where the Company has agreed to make payments based upon the achievement of certain financial performance measures by the acquired business. Generally, the obligation is capped at an explicit amount. The Company's aggregate exposure for these obligations, assuming the achievement of all financial performance measures, is not material. Any potential payment for these obligations would be treated as an adjustment to the purchase price of the related entity and would have no impact on the Company's results of operations.

21. DISCONTINUED OPERATIONS

In connection with the acquisition of Syncor, the Company acquired certain operations of Syncor that were or will be discontinued. Prior to the acquisition, Syncor announced the discontinuation of certain operations including the medical imaging business and certain overseas operations. The Company is continuing with these plans and has added additional international and non-core domestic businesses to the discontinued operations of Syncor. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the net assets and results of operations of these businesses are presented as discontinued operations. The Company is currently overseeing the planned sale of the discontinued operations and is actively marketing these businesses. The Company expects to sell substantially all of the remaining discontinued operations by the end of the second quarter of fiscal 2005. The net assets for the discontinued operations are included within the Pharmaceutical Technologies and Services segment.

The results of discontinued operations for the fiscal years ended June 30, 2004 and 2003 are summarized as follows:

                                    Fiscal Year
                                   Ended June 30,
(in millions)                       2004    2003
-------------------------------------------------
Revenue                            $ 77.1  $ 92.5
                                   ==============

Loss before income taxes           $(19.1) $ (8.6)
Income tax benefit                    7.4     2.5
                                   --------------
Loss from discontinued operations  $(11.7) $ (6.1)
                                   ==============

Interest expense allocated to discontinued operations was $0.2 million and $0.5 million for the fiscal years ended June 30, 2004 and 2003, respectively. Interest expense was allocated to the discontinued operations based upon a ratio of the net assets of discontinued operations versus the overall net assets of Syncor.

102

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2004 and 2003 the major components of assets and liabilities of the discontinued operations were as follows:

                                  Fiscal Year
                                  Ended June 30,
(in millions)                   2004           2003
---------------------------------------------------
Current Assets               $    21.2     $   49.9
Property and Equipment            22.0         63.2
Other Assets                      17.2         57.0
                             ---------     --------
  Total Assets               $    60.4     $  170.1
                             =========     ========

Current Liabilities          $    30.9     $   35.6
Long Term Debt and Other          24.2         28.7
                             ---------     --------
  Total Liabilities          $    55.1     $   64.3
                             =========     ========

Cash flows generated from the discontinued operations are immaterial to the Company and, therefore, are not disclosed separately.

22. SUBSEQUENT EVENTS

Subsequent to June 30, 2004, the Company borrowed $1.25 billion in the aggregate on its two $750 million bank revolving credit facilities. The proceeds of this borrowing were utilized to repay a significant portion of the Company's commercial paper, none of which remained outstanding as of the filing date of this Form 10-K, and for general corporate purposes, including the establishment of pharmaceutical inventory at the Pharmaceutical Distribution business' National Logistics Center in Groveport, Ohio. See Note 6 for further discussion regarding the nature and terms of the Company's bank revolving credit facilities.

Also, subsequent to June 30, 2004, the Company received a commitment letter for a $500 million committed borrowing facility to be used for general corporate purposes. This facility is in the process of being negotiated.

Additionally, subsequent to June 30, 2004, the Company sold in the aggregate $800 million of receivables under its committed receivables sales facility program. The capacity under the committed receivables sales facility program was increased from $500 million to $800 million in September 2004. See Note 10 for further information regarding this facility.

103

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9a: CONTROLS AND PROCEDURES

The Company carried out an evaluation, as required by Exchange Act Rule 13a-15(b), with the participation of the Company's principal executive officer and principal financial officer, of the effectiveness of the Company's disclosure controls and procedures, as of the end of the period covered by this report. This evaluation, which has taken into account conclusions reached to date in connection with the internal review conducted by the Audit Committee of the Company's Board of Directors, has allowed the Company to make conclusions, as set forth below, regarding the state of its disclosure controls and procedures. As noted below, material weaknesses have been identified in the Company's internal controls.

The Company's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in its reports filed under the Exchange Act, such as this Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. The Company's disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. The Company's internal controls are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its financial statements in conformity with GAAP.

As disclosed in Notes 1 and 2 in "Notes to Consolidated Financial Statements" and described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Company has taken certain actions as a result of the internal review undertaken by the Audit Committee with respect to certain accounting matters. These actions include: a restatement of the Company's financial statements for fiscal 2000, 2001, 2002 and 2003 and the first three quarters of fiscal 2004; a reclassification of certain categories of revenue; and expanded disclosure with respect to various items in this Form 10-K.

In connection with the Audit Committee's internal review, since the end of fiscal 2004, the Company has adopted and is in the process of implementing various measures in connection with the Company's ongoing efforts to improve its internal control processes and corporate governance. These measures include the following:

- appointment of an interim Chief Financial Officer with substantial accounting and public company financial expertise, who is familiar with the design and operation of effective accounting and disclosure processes;

- creation of an Office of the Chief Compliance Officer and appointment of such officer to help ensure that the Company is following best practices with respect to regulatory and compliance matters;

- appointment of a Chief Accounting Officer, separate from the Controller, who will be primarily responsible for keeping the Company apprised of contemporary accounting issues;

- appointment of a new Treasurer;

- enhancement of the internal audit function by increasing the number of internal audit staff and recruiting seasoned audit professionals;

- adoption of additional governance processes relating to operation of the Company's Disclosure Committee;

- development of written procedures for, among other items, reviewing unusual financial statement adjustments and allocating costs to the Company's segments;

- adoption of process improvements concerning the Company's financial statement close process;

- adoption of policy, procedure and oversight improvements concerning the timing of revenue recognition within the Company's Automation and Information Services segment (as more fully discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 of "Notes to Consolidated Financial Statements");

- development of systems enhancements to enable automated audit verifications of installed automatic dispensing equipment at customer locations;

- adoption of process improvements for the establishment and adjustment of reserves;

- adoption of improved accounting and reporting controls for complex vendor and customer relationships;

- development of additional training programs for the Company's finance and accounting personnel;

- development of enhanced educational programs for personnel at all levels in ethics, corporate compliance, disclosure, procedures for anonymous reporting of concerns and mechanisms for enforcing Company policies; and

- implementation of an enhanced certification process from the Company's finance, accounting and operations personnel in connection with the financial statement close process, which enhancements are, in part, intended to ensure operating decisions are based on appropriate business considerations.

The Company is in the process of implementing the control enhancements discussed above, which are intended to improve the Company's control procedures and address the issues resulting in the material weaknesses identified by the Company's independent auditor.

In connection with the completion of its audit with respect to the Company's financial statements for fiscal 2004, including additional procedures resulting from the Audit Committee's internal review, the Company's independent auditor identified and communicated to the Company's management and the Audit Committee a "material weakness" (as defined under standards established by the American Institute of Certified Public Accountants) in the Company's entity level controls relating to the Company's control environment through June 30, 2004. Specifically, the Company's independent auditor communicated that its conclusion was based on the following:

- bulk sales revenue recognition policy was inappropriately applied to certain sales in several quarters during fiscal 2003 and 2002;

- errors or lack of substantiation with respect to the amount of certain reserves and the timing of the release of certain reserves;

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- lack of effective communication relating to balance sheet reserves and bulk sales treatment; and

- restatement of the Company's financial statements for prior fiscal years and corresponding expanded disclosures with respect to those years.

In addition, the Company's independent auditor stated that the circumstances described above raised questions regarding whether the overall tone set by the Company's management clearly communicated a strong commitment to sound financial reporting practices.

Further, the independent auditor concluded that a material weakness existed with respect to the timing of revenue recognition within the Company's Automation and Information Services segment. As described in Note 1 in "Notes to Consolidated Financial Statements," the Company became aware that some equipment confirmation forms were being executed prior to completion of installation of Pyxis equipment. Equipment revenue is recognized upon completion of equipment confirmation forms. See Note 1 in "Notes to Consolidated Financial Statements" for a description of this revenue recognition policy. The Company did not have controls in place to assure that installations had in fact occurred before customer acceptance.

The independent auditor also acknowledged that in connection with the Audit Committee's internal review, since the end of fiscal 2004, the Company has adopted and is in the process of implementing various measures in connection with the Company's ongoing efforts to improve its internal control process and corporate governance and address the independent auditor's material weakness conclusions.

The Company believes that the implementation of the enhancements identified above in this Item 9a and in Note 1 of "Notes to Consolidated Financial Statements" will correct these material weaknesses for future periods, and the Company will continue to examine this issue for possible further enhancements to its control processes.

In addition, the Company and the Audit Committee will continue to implement enhancements in the Company's control processes as necessary in response to specific accounting and reporting issues arising out of the Audit Committee's internal review. The Company will continue to develop policies and procedures and reinforce compliance with existing policies and procedures in the Company's effort to constantly improve its internal control environment.

The Company's management, including its principal executive officer and the principal financial officer, does not expect that the Company's disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. The Company monitors its disclosure controls and procedures and internal controls and makes modifications as necessary; the Company's intent in this regard is that the disclosure controls and procedures and the internal controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Based on the evaluation of the effectiveness of the Company's disclosure controls and procedures as of June 30, 2004, which included an evaluation of the effectiveness of the Company's disclosure controls and procedures applicable to the period covered by and existing through the filing of this periodic report, and subject to the matters described in this Item 9a, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures needed improvement and were not effective as of June 30, 2004. There were no changes in the Company's internal controls over financial reporting during the quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. The Company believes, and its principal executive officer and principal financial officer have concluded, that the implementation in fiscal 2005 of the improvements and enhancements described above should be sufficient to provide for adequate and effective disclosure controls and procedures for future periods.

Appearing as exhibits to this Form 10-K are the certifications of the Company's principal executive officer and the principal financial officer required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. The disclosures set forth in this Item 9a contain information concerning the evaluation of the Company's disclosure controls and procedures, and changes in internal control over financial reporting, referred to in paragraphs 4(b) and
(c) of the certifications. This Item 9a should be read in conjunction with the certifications for a more complete understanding of the topics presented.

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PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, principal occupation for the last five years and selected biographical information for each of the directors and executive officers of the Company are set forth below. With respect to the principal occupations held by directors during the past five years, unless otherwise stated, the occupations listed below have been held during the entire past five years. All information is provided as of October 25, 2004.

DIRECTORS

ROBERT D. WALTER (Age 59) Director, Chairman of the Board and Chief Executive Officer of the Company since its formation in 1979, and with the Company's predecessor business since its formation in 1971. Mr. R. Walter also serves as a director of the American Express Company, a travel, financial and network services company; and Viacom Inc., a media company. Mr. R. Walter is the father of Matthew D. Walter, a director of the Company. Mr. R. Walter's term as a director of the Company expires in 2006.

DAVE BING (Age 60) Director of the Company since 2000; Chairman and Chief Executive Officer of The Bing Group, L.L.C., an automotive parts manufacturer. Mr. Bing also serves as a director of DTE Energy Company. Mr. Bing's term as a director of the Company expires in 2006.

GEORGE H. CONRADES (Age 65) Director of the Company since 1999; Chairman and Chief Executive Officer of Akamai Technologies, Inc., an e-business infrastructure provider ("Akamai"), since April 1999; Venture partner in Polaris Venture Partners, an early stage investment company, since August 1998. Mr. Conrades also serves as a director of Akamai and Harley-Davidson, Inc., a motorcycle manufacturer. Mr. Conrades' term as a director of the Company expires in 2004.

JOHN F. FINN (Age 56) Director of the Company since 1994; Chairman and Chief Executive Officer of Gardner, Inc., an outdoor power equipment distributor. Mr. Finn also serves as a director of the One Group Mutual Funds, a registered investment company. Mr. Finn's term as a director of the Company expires in 2006.

ROBERT L. GERBIG (Age 59) Director of the Company since its formation in 1979, and with the Company's predecessor business since 1975; Retired Chairman and Chief Executive Officer of Gerbig, Snell/Weisheimer & Associates, Inc., an advertising agency. Mr. Gerbig's term as a director of the Company expires in 2004.

JOHN F. HAVENS (Age 77) Director of the Company since 1979; Director Emeritus and retired Chairman of Bank One Corporation, a bank holding company ("Bank One"). Mr. Havens' term as a director of the Company expires in 2006.

J. MICHAEL LOSH (Age 58) Director of the Company since 1996; Chief Financial Officer of the Company on an interim basis since July 2004; Chairman of Metaldyne Corporation, an automotive parts manufacturer ("Metaldyne"), October 2000 to April 2002; Chief Financial Officer of General Motors Corporation, an automobile manufacturer, 1994 to August 2000. Mr. Losh also serves as a director of AMB Property Corporation, an industrial real estate owner and operator; Aon Corporation, an insurance brokerage, consulting and underwriting company ("Aon"); H.B. Fuller Company, a specialty chemicals and industrial adhesives manufacturer; Masco Corp., a manufacturer of home improvement and building products; Metaldyne; and TRW Automotive Holdings Corp., a supplier of automotive systems, modules and components. Mr. Losh's term as a director of the Company expires in 2005.

JOHN B. MCCOY (Age 61) Director of the Company since 1987; Retired Chairman of Corillian Corporation, an online banking and software services company, June 2000 to January 2004; Chief Executive Officer of Bank One, 1984 to December 1999. Mr. McCoy also serves as a director of the Federal Home Loan Mortgage Corporation, a corporation supporting homeownership and rental housing; and SBC Communications, Inc., a telecommunications systems company. Mr. McCoy's term as a director of the Company expires in 2005.

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RICHARD C. NOTEBAERT (Age 57) Director of the Company since 1999; Chairman and Chief Executive Officer of Qwest Communications International Inc., a telecommunications systems company ("Qwest"), since July 2002; President and Chief Executive Officer of Tellabs, Inc., a communications equipment and services provider, September 2000 to July 2002; Chairman and Chief Executive Officer of Ameritech Corporation, a full-service communications company, April 1994 to December 1999. Mr. Notebaert also serves as a director of Qwest and Aon. Mr. Notebaert's term as a director of the Company expires in 2004.

MICHAEL D. O'HALLERAN (Age 54) Director of the Company since 1999; Senior Executive Vice President of Aon since September 2004; President and Chief Operating Officer of Aon, April 1999 to September 2004. Mr. O'Halleran also serves as a director of Aon. Mr. O'Halleran's term as a director of the Company expires in 2005.

DAVID W. RAISBECK (Age 55) Director of the Company since 2002; Vice Chairman of Cargill, Incorporated, a marketer, processor and distributor of agricultural, food, financial and industrial products and services ("Cargill"), since November 1999, and other merchandising and management positions with Cargill prior to that. Mr. Raisbeck also serves as a director of Eastman Chemical Company, a plastics, chemicals and fibers manufacturer. Mr. Raisbeck's term as a director of the Company expires in 2006.

JEAN G. SPAULDING, M.D (Age 57) Director of the Company since 2002; Consultant, Duke University Health System, a non-profit academic health care system, since January 2003; Trustee, The Duke Endowment, a charitable trust, since January 2002; Private medical practice in psychiatry since 1977; Associate Clinical Professorships at Duke University Medical Center, a non-profit academic hospital, since 1998; Vice Chancellor for Health Affairs, Duke University Health System, 1998 to 2002. Dr. Spaulding's term as a director of the Company expires in 2005.

MATTHEW D. WALTER (Age 35) Director of the Company since 2002; Chief Executive Officer of BoundTree Medical Products, Inc., a provider of medical equipment to the emergency medical market, since November 2000; Managing Partner of Talisman Capital, a private investment company, since June 2000; Vice President and General Manager of National PharmPak, Inc., a subsidiary of the Company, July 1996 to September 2000. Mr. M. Walter also serves as a director of Bancinsurance Corporation, an insurance holding company. Mr. M. Walter is the son of Robert D. Walter, Chairman and Chief Executive Officer of the Company. Mr. M. Walter's term as a director of the Company expires in 2005.

EXECUTIVE OFFICERS

Of the above directors, Messrs. R. Walter and Losh also are executive officers of the Company.

GEORGE L. FOTIADES (Age 51) President and Chief Operating Officer since February 2004; President and Chief Executive Officer - Life Sciences Products and Services, December 2002 to February 2004; Executive Vice President and President and Chief Operating Officer - Pharmaceutical Technologies and Services, November 2000 to December 2002; Executive Vice President and Group President of Scherer, a subsidiary of the Company, August 1998 to October 2000. Mr. Fotiades serves as a director of ProLogis.

RONALD K. LABRUM (Age 48) Chairman and Chief Executive Officer - Integrated Provider Solutions and Cardinal Health - International since August 2004; President and Chief Executive Officer - Integrated Provider Solutions, February 2004 to August 2004; Executive Vice President and Group President - Medical Products and Services, November 2000 to February 2004; President, Manufacturing and Distribution of Allegiance, a subsidiary of the Company, October 2000 to November 2000; Corporate Vice President, Regional Companies/Health Systems of Allegiance, January 1997 to October 2000.

MARK W. PARRISH (Age 49) Chairman and Chief Executive Officer - Pharmaceutical Distribution and Provider Services since August 2004; Executive Vice President and Group President - Pharmaceutical Distribution, January 2003 to August 2004; President, Medicine Shoppe, a subsidiary of the Company, July 2001 to January 2003; Executive Vice President - Retail Sales and Marketing, June 1999 to July 2001.

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DAVID L. SCHLOTTERBECK (Age 57) Chairman and Chief Executive Officer - Clinical Technologies and Services since August 2004; President of ALARIS, a subsidiary of the Company, June 2004 to August 2004; President and Chief Executive Officer and a director of ALARIS, November 1999 to June 2004; President and Chief Operating Officer of ALARIS, April 1999 to November 1999.

JODY R. DAVIDS (Age 48) Executive Vice President and Chief Information Officer since March 2003; Senior Vice President - Information Technology - Pharmaceutical Distribution, January 2000 to March 2003; Director of Technology Services of NIKE, Inc., a designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for sports and fitness activities, April 1997 to January 2000.

GARY D. DOLCH (Age 57) Executive Vice President - Quality and Regulatory Affairs since December 2002; Senior Vice President of Quality and Regulatory Affairs of the American Red Cross, May 2001 to December 2002; Vice President, Quality Assurance for the pharmaceutical operations of BASF, a chemical company, under the Knoll name, April 1995 to May 2001.

BRENDAN A. FORD (Age 46) Executive Vice President - Corporate Development since November 1999; Senior Vice President - Corporate Development, February 1996 to November 1999.

ANTHONY J. RUCCI (Age 54) Executive Vice President and President of Strategic Corporate Resources since August 2004; Executive Vice President and Chief Administrative Officer, January 2000 to August 2004; Executive Vice President - Human Resources, November 1999 to January 2000; Dean of the University of Illinois at Chicago's College of Business Administration, 1998 to November 1999.

CAROLE S. WATKINS (Age 44) Executive Vice President - Human Resources since August 2000; Senior Vice President - Human Resources - Pharmaceutical Distribution and Provider Services, February 2000 to August 2000; Vice President
- Human Resources - Cardinal Distribution, November 1996 to February 2000.

PAUL S. WILLIAMS (Age 45) Executive Vice President, Chief Legal Officer and Secretary since April 2001; Senior Vice President, Deputy General Counsel and Assistant Secretary, January 2001 to March 2001; Vice President, Deputy General Counsel and Assistant Secretary, July 1999 to January 2001. Mr. Williams serves as a director of State Auto Financial Corporation.

APPOINTMENT OF NEW PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER

Effective as of July 26, 2004, Mr. Losh was appointed the Company's Chief Financial Officer on an interim basis and its principal financial officer, replacing Richard J. Miller. Effective as of October 24, 2004, Mr. Losh was appointed the Company's principal accounting officer, replacing Gary S. Jensen, who remains the Company's Controller. Mr. Losh's biographical information appears above. The Company entered into an employment agreement with Mr. Losh effective July 26, 2004, the material terms of which are described below in "Item 11: Executive Compensation," under the heading "Employment Agreements and Other Arrangements." The compensation to be provided to Mr. Losh under the employment agreement will not be adjusted as a result of Mr. Losh taking on the additional role of principal accounting officer.

COMPOSITION OF BOARD COMMITTEES

Messrs. Finn (Chairman), Bing, Conrades, Gerbig, O'Halleran and Raisbeck are the current members of the Audit Committee of the Company's Board of Directors. Messrs. McCoy (Chairman), Havens and Notebaert and Dr. Spaulding are the current members of the Board's Human Resources and Compensation Committee (the "Compensation Committee"). Messrs. Conrades (Chairman), Finn, Havens and McCoy are the current members of the Board's Nominating and Governance Committee.

AUDIT COMMITTEE FINANCIAL EXPERTS

The Board of Directors has determined that each of Messrs. Finn and O'Halleran is an "audit committee financial expert" for purposes of the SEC rules. In addition, the Board of Directors has determined that each of Messrs. Finn and O'Halleran is independent, as defined by the New York Stock Exchange.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to the Company during fiscal 2004 and any written representations regarding the same, except as set forth below, all officers and directors of the Company, as well as the beneficial holders of more than 10% of the Company's Common Shares, timely filed all reports required under Section 16(a) of the Exchange Act during fiscal 2004. Nine of the Company's directors and one executive officer inadvertently did not report de minimis exempt acquisitions consisting of dividends that were reinvested in Common Share units in the Company's

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non-qualified deferred compensation plans. The aggregate number of Common Share units acquired by these directors and the executive officer as a result of dividend reinvestment was 35. The directors have correctly reported the balance of their holdings in the deferred compensation plans in all filings to date. The executive officer has correctly reported the balance of his holdings in the deferred compensation plans in subsequent filings.

POLICIES ON BUSINESS ETHICS

All of the Company's employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as well as its directors, are required to comply with the Company's Standards of Business Ethics to ensure that the Company's business is conducted in a consistently legal and ethical manner. The full text of the Cardinal Health Ethics Guide, which includes the Standards of Business Ethics, is posted on the Company's website, at www.cardinal.com, under the "Investor Relations--Ethics policy" captions. This information also is available in print (free of charge) to any shareholder who requests it from the Company's Investor Relations department. The Company will disclose future amendments to, or waivers from, its Standards of Business Ethics for its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions on its website within four business days following the date of the amendment or waiver. In addition, the Company also will disclose any waiver from its Standards of Business Ethics for its executive officers and its directors on its website.

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ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION TABLES

The following information is set forth with respect to the Company's Chief Executive Officer, each of the Company's four other most highly compensated executive officers, and one additional individual for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the Company at June 30, 2004.

SUMMARY COMPENSATION TABLE

                                                                                              LONG-TERM
                                                                                            COMPENSATION
                                                ANNUAL COMPENSATION                              AWARDS
                                  -------------------------------------------------    ---------------------------
                                                                         OTHER         RESTRICTED       SECURITIES
                                                                         ANNUAL           STOCK         UNDERLYING   ALL OTHER
            NAME AND              FISCAL     SALARY        BONUS      COMPENSATION        AWARDS          OPTIONS   COMPENSATION
       PRINCIPAL POSITION          YEAR        ($)          ($)          ($)(1)          ($)(2)            (#)        ($)(3)
       ------------------         ------   ----------    ----------   ------------     ----------      ----------- -------------
Robert D. Walter                   2004    $1,037,500    $        0    $112,363(4)     $         0       507,086   $   12,349
Chairman and                       2003    $1,015,144    $2,112,135    $111,374(4)     $         0       486,009   $   36,473(5)
Chief Executive Officer            2002    $1,000,000    $2,701,370    $173,545(4)     $10,354,500(6)    440,529   $  208,938
                                   ----    ----------    ----------    --------        -----------       -------   ----------
George L. Fotiades                 2004    $  622,692    $        0        --          $         0       225,000   $   11,278
President and                      2003    $  531,633    $  387,412        --          $         0       250,000   $   35,957
Chief Operating Officer            2002    $  495,692    $  498,482        --          $         0        67,915   $1,052,667(7)(8)
                                   ----    ----------    ----------    --------        -----------       -------   ----------

Ronald K. Labrum                   2004    $  488,540    $        0        --          $   306,900(6)     85,280   $    7,321
Chairman and Chief Executive       2003    $  429,423    $  247,562        --          $         0        53,019   $   29,512
Officer - Integrated Provider      2002    $  418,462    $  317,886        --          $         0        44,604   $   28,444
Solutions and Cardinal             ----    ----------    ----------    --------        -----------       -------   ----------
Health - International

Anthony J. Rucci                   2004    $  445,800    $        0        --          $         0        57,021   $    8,864
Executive Vice President and       2003    $  433,639    $  279,068        --          $         0        48,822   $   34,061
President of Strategic Corporate   2002    $  416,219    $  398,263        --          $         0        48,164   $  383,729(7)
Resources                          ----    ----------    ----------    --------        -----------       -------   ----------

Stephen S. Thomas                  2004    $  427,662    $        0        --          $         0             0   $  784,958(9)
Former Executive Vice President    2003    $  397,331    $  378,727        --          $         0        91,237   $   37,493
and Group President -              2002    $  380,694    $  372,003        --          $         0        38,546   $  698,229(7)
Automation and Information         ----    ----------    ----------    --------        -----------       -------   ----------
Services

Richard J. Miller                  2004    $  407,400    $        0        --          $         0        52,134   $    8,624
Former Executive Vice President    2003    $  396,309    $  247,555        --          $         0        44,686   $   34,789
and Chief Financial Officer        2002    $  371,361    $  343,000        --          $         0        41,233   $  309,729(7)
                                   ----    ----------    ----------    --------        -----------       -------   ----------

(1) "--" indicates that the aggregate amount of perquisites and other personal benefits, securities or property in the aggregate did not exceed the lesser of $50,000 or 10% of the total of Salary and Bonus, and the executive had no other compensation reportable under this category.

(2) Aggregate restricted share unit holdings and values on June 30, 2004 (based upon the closing price of the Common Shares on the New York Stock Exchange on that date, the last trading day of fiscal 2004) for the named executive officers are as follows: Mr. R. Walter - 264,644 shares, $18,538,312; Mr. Fotiades - 26,362 shares, $1,846,658; Mr. Labrum - 5,000 shares, $350,250; Mr. Rucci - 25,620 shares, $1,794,681; Mr. Thomas - 31,039 shares, $2,174,282; and Mr. Miller - 8,325 shares, $583,166. Dividend equivalents are paid in cash on restricted share units.

(3) Amounts shown represent Company contributions to the executive's account under the Company's Profit Sharing, Retirement and Savings Plan and Deferred Compensation Plan for fiscal 2004 as follows: Mr. R. Walter - $12,349; Mr. Fotiades - $11,278; Mr. Rucci - $8,864; Mr. Labrum - $7,321; Mr. Thomas - $8,703; and Mr. Miller - $8,624.

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(4) Includes $112,363, $111,012 and $160,827 as the incremental cost to the Company, and related gross-up for taxes, relating to personal use by Mr. R. Walter of a Company airplane for fiscal 2004, 2003 and 2002, respectively.

(5) Includes $2,364 for premiums paid by the Company on a split-dollar life insurance arrangement entered into on April 16, 1993 between the Company, Mr. R. Walter and a trust for Mr. R. Walter's family. This arrangement terminated by its terms on January 12, 2003, and the Company recovered the then-current cash surrender value of the underlying insurance policy.

(6) Includes restricted share units that vest as follows: Mr. R. Walter - 150,000 shares vesting on January 15, 2006; and Mr. Labrum - 5,000 shares vesting on November 17, 2006.

(7) Includes the vesting of cash incentive awards, granted in fiscal 2000, as follows: Mr. Fotiades - $878,750; Mr. Rucci - $351,500; Mr. Thomas - $666,000; and Mr. Miller - $277,500. Employment agreements between the Company and each of these executive officers during fiscal 2000 provided for such cash incentive awards if the executive officer remained employed by the Company through February 9, 2002. The agreements with Messrs. Fotiades and Thomas have since been replaced and superceded. See "Employment Agreements and Other Arrangements" below. The agreements with Messrs. Rucci and Miller have since expired.

(8) Includes $166,667 paid to Mr. Fotiades as an incentive fee pursuant to certain provisions contained in an employment agreement entered into between the Company and Mr. Fotiades at the time the Company acquired Scherer. The agreement has since been replaced and superceded. See "Employment Agreements and Other Arrangements" below.

(9) Includes $776,255 in severance payable to Mr. Thomas pursuant to certain provisions of an employment agreement entered into between the Company and Mr. Thomas during fiscal 2003. See "Employment Agreements and Other Arrangements" below.

With respect to the bonus determinations made for executive officers for fiscal 2004, the Compensation Committee Report that will be included in the Company's fiscal 2004 proxy statement for its annual meeting of shareholders states, in part: "Although the Company achieved double-digit earnings per share growth during fiscal 2004, actual operating earnings were well below the Company's internal performance goals for the year, particularly during the third and fourth quarters. Based on this shortfall and other qualitative factors considered by the Compensation Committee, overall funding of the Company's Management Incentive Plan incentive award pool for the Company's management level employees was significantly below targeted amounts. However, in light of the Company's pay-for-performance philosophy, it was determined that the Company's executive officers (including Mr. R. Walter) would not share in that incentive award pool, and therefore would receive no incentive awards for fiscal 2004. The Compensation Committee determination of a zero incentive award payout for the Company's executive officers was based upon the factors described above applicable to fiscal 2004, and does not reflect the Company's overall objectives concerning annual cash incentives for its executive officers."

OPTION GRANTS IN LAST FISCAL YEAR (1)

                            INDIVIDUAL GRANTS
----------------------------------------------------------------------------
                                                                                         POTENTIAL REALIZABLE
                                      PERCENT OF                                           VALUE AT ASSUMED
                         NUMBER OF       TOTAL                                             ANNUAL RATES OF
                        SECURITIES      OPTIONS                                              STOCK PRICE
                        UNDERLYING    GRANTED TO                                           APPRECIATION FOR
                          OPTIONS      EMPLOYEES     EXERCISE                               OPTION TERM (4)
                          GRANTED      IN FISCAL       PRICE     EXPIRATION    ----------------------------------
        NAME              (#)(1)       YEAR (2)      ($/SH)(3)      DATE       0% ($)      5% ($)       10% ($)
        ----            ----------    ----------    ----------   ----------    ------   -----------   -----------
Robert D. Walter          507,086        4.3%         $61.38     11/17/2013    $0.00    $19,574,307   $49,605,136
George L. Fotiades        225,000        1.9%         $64.11       2/1/2014    $0.00    $ 9,071,648   $22,989,337
Ronald K. Labrum           85,280        0.7%         $61.38     11/17/2013    $0.00    $ 3,291,940   $ 8,342,423
Anthony J. Rucci           57,021        0.5%         $61.38     11/17/2013    $0.00    $ 2,201,099   $ 5,578,017
Stephen S. Thomas               0          0%             --             --    $0.00             --            --
Richard J. Miller          52,134        0.4%         $61.38     11/17/2013    $0.00    $ 2,012,453   $ 5,099,952

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(1) All options granted during the fiscal year to the named executive officers are nonqualified stock options granted under the Company's Amended and Restated Equity Incentive Plan, as amended (the "Equity Incentive Plan"), are exercisable in full on and after the third anniversary from the date of grant, and have a term of 10 years.

(2) Based on total options to purchase 11,842,030 Common Shares granted to all employees during fiscal 2004 under the Company's Equity Incentive Plan and Broadly-based Equity Incentive Plan, as amended.

(3) Market price on date of grant.

(4) These amounts are based on hypothetical annual appreciation rates of 0%, 5% and 10% over the full term of the applicable option and are not intended to forecast the actual future appreciation of the Company's stock price. No gain to optionees is possible without an actual increase in the price of the Company's Common Shares, which benefits all of the Company's shareholders.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES

                                                        NUMBER OF SECURITIES
                                                       UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                             OPTIONS AT               IN-THE-MONEY OPTIONS AT
                         SHARES        VALUE                  FY-END (#)                    FY-END ($)(2)
                      ACQUIRED ON     REALIZED       --------------------------    ----------------------------
      NAME            EXERCISE (#)     ($)(1)        EXERCISABLE  UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
      ----            ------------   ----------      -----------  -------------    -----------    -------------
Robert D. Walter         -0-         $        0        1,624,517      1,433,624    $52,550,526       $7,000,887
George L. Fotiades       -0-         $        0          434,728        542,915    $13,865,595       $2,006,434
Ronald K. Labrum         -0-         $        0          249,084        182,903    $11,681,379       $  940,346
Anthony J. Rucci         -0-         $        0          136,043        154,007    $ 3,699,066       $  693,259
Stephen S. Thomas      45,000        $1,447,545          133,768        129,783    $ 3,512,092       $  466,324
Richard J. Miller        -0-         $        0          179,095        138,053    $ 5,427,275       $  628,481

(1) Value calculated as the amount by which the fair market value of the Common Shares on the date of exercise exceeds the option exercise price before payment of any taxes.

(2) Value calculated as the amount by which the market value of the Common Shares, based upon the closing price per Common Share of $70.05 on June 30, 2004 (the last trading day of fiscal 2004), exceeds the option exercise price.

EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS

During fiscal 2004, the Company amended and restated employment agreements with Mr. R. Walter (the "Walter Agreement"), Mr. Fotiades (the "Fotiades Agreement") and Mr. Labrum (the "Labrum Agreement"). Mr. Thomas' employment, which has been terminated, was governed by an employment agreement dated February 5, 2003 (the "Thomas Agreement"). In addition, in July 2004, the Company entered into an employment agreement with Mr. Losh, who was appointed Chief Financial Officer of the Company on an interim basis. Each of Messrs. R. Walter, Fotiades, Labrum, Thomas and Losh agreed under their respective agreements to comply with certain non-compete and non-solicitation covenants during the term of their employment and generally for a period ranging from one to two years thereafter. In addition, Messrs. R. Walter, Fotiades, Labrum, Thomas and Losh are obligated to keep the Company's proprietary information and trade secrets confidential.

The Walter Agreement amends and restates as of February 1, 2004, the employment agreement dated November 20, 2001 (the "Initial Walter Agreement") between the Company and Mr. R. Walter. Under the Walter Agreement, the Company agreed to employ Mr. R. Walter as Chairman and Chief Executive Officer until February 1, 2007. However, commencing on February 1, 2006, the term shall be extended each day by one day to create a new one year term until, at any time at or after such date, either party provides written notice of termination to be effective one year from the notice date.

The Walter Agreement provides for an annual base salary of not less than $1,000,000, which will be reviewed simultaneously with the salaries of all the Company's executive officers, and eligibility for an annual cash bonus target of at least 250% of annual base salary (although no bonus was awarded to Mr. R. Walter for fiscal 2004). The Walter Agreement

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further provides for equity and non-equity awards under the Company's long-term incentive compensation plans consistent with past practice and competitive pay practices, including an annual stock option award with a value of no less than 3,000% of annual base salary in terms of dollars at work. The Initial Walter Agreement provided Mr. R. Walter with 150,000 shares of deferrable restricted share units effective November 20, 2001. The Walter Agreement, as revised in fiscal 2004, extends the vesting date of those restricted share units from June 30, 2004 to January 15, 2006 and the vesting date of certain options from November 19, 2004 to January 15, 2006.

Under the Walter Agreement, if the Company terminates Mr. R. Walter's employment other than for cause, death or disability, or if Mr. R. Walter terminates his own employment for good reason, then he is paid: (i) any earned but unpaid salary; (ii) a prorated portion of his recent average bonus (based on the average bonus earned in the three previous fiscal years, but not less than his annual target bonus); and (iii) two times the sum of his annual salary then in effect and recent average bonus (or three times such sum if a change of control has occurred within the last three years). If Mr. R. Walter's employment is terminated by death or disability, then he is paid: (i) any earned but unpaid salary; and (ii) a prorated portion of his recent average bonus. If Mr. R. Walter's employment is terminated for any of the reasons above, any stock options, restricted shares and restricted share units held by Mr. R. Walter vest immediately and are exercisable until the end of the applicable term of such award (except that under the Walter Agreement Mr. R. Walter will be treated as a consulting employee and these awards continue to vest in accordance with their terms where Mr. R. Walter's employment is terminated by disability or retirement and the award agreement does not provide for immediate vesting). If the Company terminates Mr. R. Walter's employment for cause or if Mr. R. Walter terminates his own employment without good reason, then he is paid any earned but unpaid salary but no portion of his bonus. If Mr. R. Walter's employment is terminated for any of the reasons above, to the extent not already provided or paid, he will also receive any other benefits to which he is entitled pursuant to, and in accordance with the terms of, existing Company programs and plans. In the event that any payments made to Mr. R. Walter would be subject to the excise tax imposed on "parachute payments" by the Internal Revenue Code of 1986, as amended (the "Code"), under the Walter Agreement, the Company will "gross-up" Mr. R. Walter's compensation for all such excise taxes and any federal, state and local taxes applicable to such gross-up payment (including any penalties and interest).

The Company recently identified an issue with respect to an option award that the Board of Directors and its Compensation Committee granted to Mr. R. Walter in November 1999 for 1,425,000 shares (giving effect to stock splits occurring after the date of grant). This option award was in excess of that permitted to be granted to a single individual during any fiscal year under the Company's Equity Incentive Plan. The maximum number of shares that could be granted pursuant to the terms of the Equity Incentive Plan was 562,500 shares (although the Company would have been permitted at the time to make a larger grant outside of such Plan). The information set forth in the "Aggregated Option Exercises in Last Fiscal Year and FY-End Values" table above under the heading "Equity Compensation Tables" and the beneficial ownership table and equity compensation plan information under "Item 12: Security Ownership of Certain Beneficial Owners and Management" below with respect to Mr. R. Walter has been revised to reflect the maximum number of shares that could be granted under the Plan. The Compensation Committee is currently exploring alternatives to substitute the remaining portion of the stock option granted to him in November 1999 in excess of 562,500 shares with equivalent value.

The Fotiades Agreement replaced the employment agreement previously in place between the Company and Mr. Fotiades. Under the Fotiades Agreement, the Company agreed to employ Mr. Fotiades as President and Chief Operating Officer for three years commencing on February 1, 2004. The Fotiades Agreement provides for an annual base salary of not less than $725,000 and an annual bonus target equal to 160% of annual base salary payable under the terms of the bonus plan for which Mr. Fotiades is eligible (although no bonus was awarded to Mr. Fotiades for fiscal 2004). The Fotiades Agreement further provides for an initial stock option grant of 225,000 shares (the "2004 Option"), eligibility for annual stock option grants beginning in fiscal year 2006 and relocation benefits.

Under the Fotiades Agreement, if the Company terminates Mr. Fotiades' employment without cause before February 1, 2009, if Mr. Fotiades' employment is terminated within one year after a change of control (other than because of death, incapacity, retirement or for cause) or if he terminates his employment within one year after a change of control that leads to a qualifying material diminution of his duties, then he receives: (i) two times the sum of his salary in effect on the day immediately prior to termination and his annual bonus target; (ii) any vested benefits required to be paid or provided in law; and
(iii) all benefits provided in the 2004 Option agreement and a November 18, 2002 option agreement. If Mr. Fotiades terminates his employment or if his employment is terminated by incapacity, death, retirement or for cause, then he receives:
(i) any earned but unpaid salary; (ii) benefits under any long-term disability insurance coverage (in the event of termination due to incapacity); (iii) any vested benefits required to be paid or provided in law; and (iv) any benefits provided for under his then-outstanding equity incentive awards.

The Labrum Agreement replaced the employment agreement previously in place between the Company and Mr. Labrum. Under the Labrum Agreement, the Company agreed to employ Mr. Labrum as Executive Vice President and Group President - Medical Products and Services for three years commencing on November 5, 2003. The Labrum Agreement

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provides for an annual base salary of not less than $480,000 and an annual bonus target equal to 90% of annual base salary payable under the terms of the bonus plan for which Mr. Labrum is eligible (although no bonus was awarded to Mr. Labrum for fiscal 2004). The Labrum Agreement further provides for a stock option grant of 25,000 shares (the "FY2004 Option") and a grant of 5,000 restricted share units effective November 17, 2003.

Under the Labrum Agreement, if the Company terminates Mr. Labrum's employment without cause, if Mr. Labrum's employment is terminated within one year after a change of control (other than because of death, incapacity or for cause) or if he terminates his employment within one year after a change of control that leads to a material diminution of his duties, then he receives: (i) the sum of his salary in effect on the day immediately prior to termination and his annual bonus target; (ii) any vested benefits required to be paid or provided in law; and (iii) all benefits provided for under the FY2004 Option. If Mr. Labrum terminates his employment or if his employment is terminated by incapacity, death or for cause, then he receives: (i) any earned but unpaid salary; (ii) benefits under any long-term disability insurance coverage (in the event of termination due to incapacity); (iii) any vested benefits required to be paid or provided in law; and (iv) any benefits provided for under the FY2004 Option.

Mr. Thomas' employment with the Company terminated on June 14, 2004. Under the Thomas Agreement, the Company agreed to employ Mr. Thomas as Executive Vice President and Group President - Automation and Information Services for three years commencing on February 5, 2003. The Thomas Agreement provided for an annual base salary of not less than $408,000 and an annual bonus target equal to 90% of annual base salary payable under the terms of the bonus plan for which Mr. Thomas was eligible (although no bonus was awarded to Mr. Thomas for fiscal 2004). The Thomas Agreement further provided for an initial stock option grant of 50,000 shares (the "FY2003 Option").

The Thomas Agreement also provided for severance payments and benefits to Mr. Thomas if the Company terminated Mr. Thomas' employment without cause prior to the end of his employment period, including (i) payment of the sum of his salary in effect on the day immediately prior to termination and his annual bonus target; (ii) any vested benefits required to be paid or provided in law; and (iii) all benefits provided for under the FY2003 Option. The termination by the Company of Mr. Thomas' employment was without cause, and pursuant to the terms of the Thomas Agreement, a severance payment of $776,255 is payable to Mr. Thomas in twelve equal monthly installments beginning January 2005.

The Company recently entered into an employment agreement with Mr. Losh (the "Losh Agreement"). Under the Losh Agreement, the Company agreed to employ Mr. Losh as interim Chief Financial Officer for one year commencing on July 26, 2004. As compensation for the services rendered thereunder, the Losh Agreement provides for an option grant to purchase 210,000 shares at an exercise price of $44 per share, the closing price of the Common Shares on July 27, 2004. The option becomes exercisable in full on July 27, 2007. The Losh Agreement also provides that Mr. Losh is eligible to receive reimbursement for reasonable expenses incurred by Mr. Losh during his employment (including travel and living expenses) in accordance with policies, practices and procedures of the Company applicable to Mr. Losh. During his employment, Mr. Losh is not eligible to receive annual option grants during fiscal 2005, unless approved by the Compensation Committee, or compensation payable solely to nonemployee directors of the Company.

The Company's Equity Incentive Plan, as well as the Company's Stock Incentive Plan, as amended (the "Stock Incentive Plan"), which has been replaced by the Equity Incentive Plan as to ongoing grants, provide for acceleration of the vesting of stock options, restricted share awards and restricted share unit awards based upon the occurrence of a change of control of the Company. Messrs. R. Walter and Miller continue to hold stock options that remain outstanding under the Stock Incentive Plan.

PENSION PLAN

Mr. Fotiades participates in a defined benefit and supplemental plan (the "Pension Plan") which was assumed by the Company when it acquired Scherer in 1998.

Benefits payable under the Pension Plan at retirement are determined primarily by average final compensation and years of service. The compensation covered by the Pension Plan for Mr. Fotiades is substantially the same as that set forth in the Salary and Bonus columns of the Summary Compensation Table above under the heading "Equity Compensation Tables." The defined benefit plan was frozen as of December 31, 2002, and the supplemental plan was frozen as of December 31, 2001. No additional benefits will be earned and no compensation or credited service will be considered beyond these dates. Mr. Fotiades has 6.5 years of service credited under the defined benefit plan and 5.5 years of service credited under the supplemental plan.

The annual amount payable to Mr. Fotiades upon retirement is $20,645. The benefits are payable as a straight-life annuity beginning at age 65. These benefits are not subject to any deduction for Social Security or any other offset amounts.

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COMPENSATION OF DIRECTORS

During fiscal 2004, the Company's directors each were paid a retainer of $10,000 per quarter. The chairperson of the Audit Committee and each director serving as the chairperson of another Board committee received an additional $3,000 and $1,500 per quarter, respectively, for such service during fiscal 2004. Effective as of the beginning of fiscal 2005, the fees for the chairperson of the Audit Committee were increased to $3,750 per quarter, and the fees for the chairperson of the Compensation Committee were increased to $2,000 per quarter. The fees for the chairperson of the Nominating and Governance Committee remain at $1,500 per quarter. Also effective as of fiscal 2005, the retainer for each director serving on the Company's Audit Committee was increased to $10,500 per quarter, and the retainer for the Company's non-management presiding director, currently Mr. McCoy, was increased to $12,500 per quarter. In addition to regular compensation paid to the chairpersons of each Committee, the members of the Audit Committee and the presiding director, directors may receive additional compensation for the performance of duties assigned by the Board or its committees that are considered beyond the scope of the ordinary responsibilities of directors or committee members. Directors may elect to defer payment of their fees into the Company's Directors Deferred Compensation Plan, one of the investment alternatives for which is a Company Common Shares Fund. The Company also reimburses directors for out-of-pocket travel expenses incurred in connection with attendance at Board and committee meetings.

Directors receive an annual option grant to purchase Common Shares with an aggregate exercise price of $300,000. Each director also receives, upon first appointment or election to the Board, an option grant to purchase Common Shares with an aggregate exercise price of $300,000. The exercise price per share of these options is the fair market value of a Common Share on the date of grant. The actual value of the options will be the difference between the market value of the underlying Common Shares on the exercise date and the exercise price. In determining the value of the director options and, thus, the total compensation to directors, the Board of Directors made certain assumptions about the future increase in the market value of the Company's Common Shares over the term of the options. The options are granted pursuant to the Company's Equity Incentive Plan and Outside Directors Equity Incentive Plan. All grants to directors generally vest immediately and are exercisable for 10 years from the date of grant. Options granted to directors are treated as nonqualified options under the Code. On November 17, 2003, Messrs. Bing, Conrades, Finn, Gerbig, Havens, Losh, McCoy, Notebaert, O'Halleran, Raisbeck and M. Walter and Dr. Spaulding each were granted options to purchase 5,084 Common Shares (having an aggregate exercise price of $300,000) in accordance with the provisions of the Equity Incentive Plan and the Outside Directors Equity Incentive Plan. Mr. R. Walter does not receive any of the compensation described in this paragraph or the preceding paragraph. Since his appointment on July 26, 2004 as Chief Financial Officer on an interim basis, Mr. Losh has not received, and does not currently receive, any of the compensation described in this paragraph or the preceding paragraph.

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ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial ownership of the Company's Common Shares as of October 25, 2004, by:
(a) the Company's directors; (b) each other person who is known by the Company to own beneficially more than 5% of the outstanding Common Shares; (c) the Company's Chief Executive Officer and the other executive officers named in the Summary Compensation Table under the heading "Equity Compensation Tables" in "Item 11: Executive Compensation" above; and (d) the Company's executive officers and directors as a group. Except as otherwise described in the notes below, the following beneficial owners have sole voting and investment power with respect to all Common Shares set forth opposite their names:

                                                    NUMBER OF
                                                   COMMON SHARES
NAME OF BENEFICIAL OWNER                          BENEFICIALLY OWNED   PERCENT OF CLASS
------------------------                          ------------------   ----------------
FMR Corp.(1)                                         50,197,132             11.6%
Wellington Management Company, LLP(2)                25,256,727              5.8%
Robert D. Walter(3)(4)(5)(6)                          6,091,835              1.4%
Matthew D. Walter(7)(8)                               1,385,009                 *
George L. Fotiades(4)(5)(6)                             545,368                 *
Ronald K. Labrum (4)(5)(6)                              313,849                 *
Richard J. Miller (4)(5)(6)(9)                          240,174                 *
Anthony J. Rucci(4)(5)(6)                               232,022                 *
John B. McCoy(7)(10)(11)                                124,375                 *
Robert L. Gerbig(7)                                      89,530                 *
John F. Havens(7)(11)(12)                                69,264                 *
John F. Finn(7)(11)(13)                                  60,358                 *
Richard C. Notebaert(7)(11)                              36,917                 *
J. Michael Losh(7)(11)(14)                               34,492                 *
Stephen S. Thomas(4)(5)(6)(15)                           31,748                 *
Michael D. O'Halleran(7)                                 26,095                 *
Dave Bing(7)(11)                                         25,143                 *
George H. Conrades(7)(11)                                22,494                 *
David W. Raisbeck(7)(11)                                 16,895                 *
Jean G. Spaulding(7)(11)                                 13,609                 *
All Executive Officers and Directors as a
   Group (23 Persons)(16)                             9,916,196              2.3%

* Indicates beneficial ownership of less than 1% of the outstanding Common Shares.

(1) Based on information obtained from a Schedule 13G/A jointly filed with the SEC on February 17, 2004 by FMR Corp. ("FMR"), Edward C. Johnson, III and Abigail P. Johnson. The address of FMR is 82 Devonshire Street, Boston, Massachusetts 02109. FMR reported that it has sole voting power with respect to 781,067 Common Shares and sole dispositive power with respect to all Common Shares held. The number of shares held by FMR may have changed since the filing of the Schedule 13G/A.

(2) Based on information obtained from a Schedule 13G filed with the SEC on February 12, 2004 by Wellington Management Company, LLP ("Wellington"). The address of Wellington is 75 State Street, Boston, Massachusetts 02109. Wellington reported that it has shared voting power with respect to 10,663,495 Common Shares, and shared dispositive power with respect to all Common Shares held. The number of shares held by Wellington may have changed since the filing of the Schedule 13G.

(3) Includes a total of 2,283,564 Common Shares held in Mr. R. Walter's four grantor retained annuity trusts and 500,000 Common Shares beneficially owned by Mr. R. Walter through a limited liability company in which Mr. R. Walter holds the controlling interest and is the sole manager.

(4) Common Shares and the percent of class listed as being beneficially owned by the Company's named executive officers include outstanding options to purchase Common Shares which are exercisable within 60 days of October 25, 2004, as follows: Mr. R. Walter - 1,624,517 shares; Mr. Fotiades - 502,643 shares; Mr. Labrum - 293,688 shares; Mr. Rucci - 184,207 shares (such options being held in a trust of which Mr. Rucci is trustee and the sole beneficiary during his life); Mr. Thomas - 0 shares; and Mr. Miller - 220,328 shares.

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(5) Common Shares and the percent of class listed as being beneficially owned by the Company's named executive officers include restricted share units as of October 25, 2004, as follows: Mr. R. Walter - 264,644 shares; Mr. Fotiades - 26,362 shares; Mr. Labrum - 12,000 shares; Mr. Rucci - 35,620 shares; Mr. Thomas - 31,039 shares; and Mr. Miller - 8,325 shares. Such restricted share units are not deemed to be "beneficially owned" under the SEC rules, but are included in the table above for the convenience of the reader.

(6) Common Shares and the percent of class listed as being beneficially owned by the Company's named executive officers include Common Shares in the Company's Employee Stock Purchase Plan as of October 25, 2004, as follows: Mr. R. Walter - 2,386 shares; Mr. Fotiades - 0 shares; Mr. Labrum - 2,376 shares; Mr. Rucci - 0 shares; Mr. Thomas - 709 shares; and Mr. Miller - 1,946 shares.

(7) Common Shares and the percent of class listed as being beneficially owned by the listed Company directors (except for Mr. R. Walter) include outstanding options to purchase Common Shares which are exercisable within 60 days of October 25, 2004, as follows: Mr. Bing - 22,217 shares; Mr. Conrades - 20,284 shares; Mr. Finn - 26,408 shares; Mr. Gerbig - 26,408 shares; Mr. Havens - 33,226 shares; Mr. Losh - 26,488 shares; Mr. McCoy - 29,540 shares; Mr. Notebaert - 20,284 shares; Mr. O'Halleran - 18,595 shares; Mr. Raisbeck - 12,220 shares; Dr. Spaulding - 12,211 shares; and Mr. M. Walter - 12,211 shares.

(8) Includes 38,872 Common Shares held in trust for the benefit of Mr. M. Walter; 1,112,663 Common Shares beneficially owned by Mr. M. Walter through a limited liability company; 100,000 Common Shares held in Mr. M. Walter's grantor retained annuity trust; 3,150 Common Shares held in trusts for the benefit of Mr. M. Walter's children; and 705 Common Shares held by Mr. M. Walter's spouse.

(9) Mr. Miller resigned as Executive Vice President and Chief Financial Officer of the Company effective July 25, 2004. Includes Common Shares beneficially owned by Mr. Miller as of July 25, 2004, except as otherwise indicated in footnotes (4), (5) and (6) above.

(10) Includes 34,137 Common Shares held in trust for the benefit of Mr. McCoy, 6,436 Common Shares held in trust for the benefit of Mr. McCoy's son and 50,773 Common Shares held in the aggregate in Mr. McCoy's two grantor retained annuity trusts.

(11) Includes Common Share units held under the Company's Directors Deferred Compensation Plan as follows: Mr. Bing - 2,926 share units; Mr. Conrades - 1,210 share units; Mr. Finn - 3,651 share units; Mr. Havens - 3,033 share units; Mr. McCoy - 3,489 share units; Mr. Notebaert - 3,033 share units; Mr. Raisbeck - 1,675 share units; Dr. Spaulding - 1,248 share units; and Mr. Losh - 3,129 share units. Such Common Share units are not deemed to be "beneficially owned" under the SEC rules, but are included in the table above for the convenience of the reader. Mr. Losh's participation in this Plan was suspended as of July 26, 2004, the effective date of his appointment, on an interim basis, as Chief Financial Officer of the Company.

(12) Includes 26,034 Common Shares held in trust for the benefit of Mr. Havens' spouse and children.

(13) Includes 1,032 Common Shares held by Mr. Finn's spouse.

(14) Includes 1,500 Common Shares held in trust for the benefit of Mr. Losh's daughters.

(15) Mr. Thomas ceased serving as Executive Vice President and Group President - Automation and Information Services of the Company effective May 15, 2004, and ceased his employment with the Company effective June 14, 2004. Includes Common Shares beneficially owned by Mr. Thomas as of June 14, 2004, except as otherwise indicated in footnotes (4), (5) and (6) above.

(16) Common Shares and percent of class listed as being beneficially owned by all executive officers and directors as a group include (i) outstanding options to purchase an aggregate of 3,583,767 Common Shares which are exercisable within 60 days of October 25, 2004, (ii) 380,001 restricted share units held by all executive officers as a group; and
(iii) 23,394 Common Share units held by all directors as a group under the Company's Directors Deferred Compensation Plan. The restricted share units and Common Share units are not deemed to be "beneficially owned" under the SEC rules, but are included in the table above for the convenience of the reader.

Information with respect to equity compensation plans of the Company appears in Note 14 of "Notes to Consolidated Financial Statements" and is incorporated herein by reference.

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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A property which includes parts of the Company's former Columbus food distribution center was previously leased by the Company from a limited partnership, the limited partners of which include four adult children of Mr. Havens, one individually and the other three through separate trusts. The lease expired in accordance with its terms in February 2004. Prior to expiration of the lease, the rent payable by the Company to the limited partnership was $92,000 per annum (approximately $0.72 per sq. ft.), which amount is substantially below fair market value for the rental property. From July 1, 2003 through February 28, 2004 (the expiration date of the lease), the Company paid base rent to the partnership in the amount of approximately $61,000. During fiscal 2004, the Company had subleased the property to a third party for approximately $223,000, generating a gross profit net of real estate taxes of approximately $112,000 for the Company. The Company and the partnership have entered into a joint listing agreement offering both the formerly-leased property (owned by the partnership) and the adjoining property (owned by the Company) for sale as a single parcel. The listing agreement calls for allocation of proceeds of any eventual sale of the joint parcel in proportion to the relative square footage of the respective parcels (which results in an allocation of proceeds of approximately 67% for the partnership and 33% for the Company).

The Company owns a 28.7% equity interest in ArcLight Systems, LLC ("ArcLight"). In April 2002, ArcLight subleased office space from inChord Communications, Inc. ("inChord") for a term expiring on June 30, 2008. Mr. M. Walter is a director and minority shareholder of inChord, and his two brothers own substantially all of the remainder of inChord. In December 2003, in connection with the sale of certain of ArcLight's assets, the sublease was assigned by Arclight to an unaffiliated third party. As a result of the assignment, ArcLight has no further obligations under the sublease. During fiscal 2004 ArcLight paid base rent to inChord of approximately $81,000 with respect to periods prior to the assignment.

inChord and its subsidiaries also perform health care marketing and recruiting services on behalf of the Company and its subsidiaries from time to time in the ordinary course of business and on arm's-length terms. During fiscal 2004, the Company paid inChord approximately $87,000 for time and services rendered on the Company's behalf.

In October 2003, the Company and inChord entered into a joint marketing program ("RxPedite") designed to promote a comprehensive package of product commercialization services to pharmaceutical manufacturers. This program provides a mechanism for the parties to share the joint costs of the RxPedite marketing effort, and is terminable by either party at any time. During fiscal 2004, the Company's share of co-marketing expenses incurred in connection with the RxPedite program was approximately $201,000.

Mr. M. Walter and his two brothers own a majority of BoundTree Medical Products, Inc. ("BMP"), a company engaged in the pre-hospital emergency medical supply business. Mr. M. Walter also is an officer and director of BMP. During fiscal 2004, BMP and its affiliates purchased approximately $2,751,000 of product from the Company and its subsidiaries in the ordinary course of business and on arm's-length terms. This amount represented less than 3% of BMP's consolidated gross revenues for its last full fiscal year.

Ms. Beth E. Simonetti, Senior Vice President - Shared Services of the Company, is the sister-in-law of Ms. Carole S. Watkins, Executive Vice President
- Human Resources of the Company. There is no current reporting relationship between Ms. Simonetti and Ms. Watkins.

Pursuant to the Company's Restated Code of Regulations, as amended, and certain indemnification agreements, the Company is obligated to advance legal fees under certain circumstances to current and former employees, including executive officers and directors, subject to limitations of the Ohio Revised Code. As part of that obligation, the Company has advanced legal fees relating to the representation of its directors by counsel in connection with various derivative actions against the Company and its directors, and relating to the representation of certain of its officers by counsel in connection with the SEC investigation and related investigations described under "Item 3: Legal Proceedings" of this Form 10-K, under the headings "Derivative Actions" and "SEC Investigation and U.S. Attorney Inquiry," respectively. The Company has advanced a total of approximately $1.4 million relating to these matters since July 1, 2003.

The description of the Losh Agreement under "Item 11: Executive Compensation," under the heading "Employment Agreements and Other Arrangements" is incorporated herein by reference.

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PART IV

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT FEES. Audit fees include fees paid by the Company to Ernst & Young related to the annual audit of the Company's consolidated financial statements, the review of financial statements included in the Company's Quarterly Reports on Form 10-Q, statutory audits of various international subsidiaries, and additional procedures implemented as a result of the Audit Committee's internal review commenced in April 2004 that is ongoing. Audit fees also include fees for services performed by Ernst & Young that are closely related to the audit and in many cases could only be provided by the Company's independent accountant, such as comfort letters and consents related to SEC registration statements. The aggregate fees billed to the Company by Ernst & Young for audit services rendered to the Company and its subsidiaries for fiscal 2003 and 2004 totaled $3,797,895 and $8,015,584, respectively.

AUDIT-RELATED FEES. Audit-related services include due diligence services related to mergers and acquisitions, audit-related research and assistance, document production and employee benefit plan audits. The aggregate fees billed to the Company by Ernst & Young for audit-related services rendered to the Company and its subsidiaries for fiscal 2003 and 2004 totaled $3,193,960 and $2,927,687, respectively.

TAX FEES. Tax fees include tax compliance and other tax-related services. The aggregate fees billed to the Company by Ernst & Young for tax services rendered to the Company and its subsidiaries for fiscal 2003 and 2004 totaled $1,916,880 and $2,053,411, respectively.

ALL OTHER FEES. The aggregate fees billed to the Company by Ernst & Young for all other services rendered to the Company and its subsidiaries for such matters as litigation assistance and internal audit services for fiscal 2003 and 2004 totaled $14,500 and $289,986, respectively.

AUDIT COMMITTEE AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY

Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent accountants. As part of this responsibility, the Audit Committee is required to pre-approve the audit and permissible non-audit services performed by the independent accountants in order to assure that such services do not impair the accountants' independence from the Company. To implement these provisions of the Act, the SEC has issued rules specifying the types of services that the independent accountants may not provide to their audit client, as well as the audit committee's administration of the engagement of the independent accountants. Accordingly, the Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval Policy (the "Policy") which sets forth the procedures and the conditions under which services proposed to be performed by the independent accountants must be pre-approved.

Pursuant to the Policy, certain proposed services may be pre-approved on a periodic basis so long as the services do not exceed certain pre-determined cost levels. If not pre-approved on a periodic basis, proposed services must otherwise be separately pre-approved prior to being performed by the independent accountants. In addition, any proposed services that were pre-approved on a periodic basis but later exceed the pre-determined cost level would require separate pre-approval of the incremental amounts by the Audit Committee.

The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for proposed services to be performed by the independent accountants for up to $500,000. Pursuant to such Policy, in the event the Chairman pre-approves services, the Chairman is required to report decisions to the full Audit Committee at its next regularly-scheduled meeting. Proposed services equal to or exceeding $500,000 require full Audit Committee approval.

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ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following financial statements are included in Item 8 of this report:

                                                                                                                PAGE
                                                                                                                ----
Independent Auditors' Reports..............................................................................     47
Financial Statements:
Consolidated Statements of Earnings for the Fiscal Years Ended June 30, 2004, 2003 and 2002................     48
Consolidated Balance Sheets at June 30, 2004 and 2003......................................................     49
Consolidated Statements of Shareholders' Equity for the Fiscal Years Ended June 30, 2004, 2003 and 2002....     50
Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2004, 2003 and 2002..............     51
Notes to Consolidated Financial Statements.................................................................     52

(a)(2) The following Supplemental Schedule is included in this report:

                                                                                                               PAGE
                                                                                                               ----
Schedule II - Valuation and Qualifying Accounts............................................................    128

All other schedules not listed above have been omitted as not applicable or because the required information is included in the Consolidated Financial Statements or in notes thereto.

(a)(3) Exhibits required by Item 601 of Regulation S-K:

EXHIBIT
 NUMBER                                 EXHIBIT DESCRIPTION
-------                                 -------------------
   3.01        Amended and Restated Articles of Incorporation, as amended

   3.02        Restated Code of Regulations, as amended (14)

   4.01        Specimen Certificate for the Registrant's Common Shares (17)

   4.02        Indenture, dated as of May 1, 1993, between the Registrant and Bank One, Indianapolis,
               NA, Trustee, relating to the Registrant's 6 1/2% Notes Due 2004 and 6% Notes Due 2006 (1)

   4.03        Indenture, dated as of April 18, 1997, between the Registrant and Bank One, Columbus, NA,
               Trustee, relating to the Registrant's 6 1/4% Notes Due 2008, 6 3/4% Notes Due 2011, 4.45%
               Notes Due 2005 and 4.00% Notes Due 2015 (2)

   4.04        Indenture, dated as of October 1, 1996, between Allegiance Corporation and PNC Bank, Kentucky,
               Inc. ("PNC"), Trustee; and First Supplemental Indenture, dated as of February 3, 1999, by and
               among Allegiance Corporation, the Registrant and Chase Manhattan Trust Company, National
               Association (as successor in interest to PNC), Trustee (3)

   4.05        Indenture, dated as of January 1, 1994, between R.P. Scherer International Corporation and
               Comerica Bank, Trustee; First Supplemental Indenture, dated as of February 28, 1995, by and
               among R.P. Scherer International Corporation, R.P. Scherer Corporation and Comerica Bank,
               Trustee; and Second Supplemental Indenture, dated as of August 7, 1998, by and among
               R.P. Scherer Corporation, the Registrant and NBD Bank (4)

   4.06        Form of Warrant Certificate to Purchase the Registrant's Common Shares (5)

   4.07        Form of Debt Securities (16)

  10.01        Pharmaceutical Services Agreement, dated as of  August 1, 1996, between the Registrant and
               Kmart Corporation, as amended (Confidential treatment has been requested for confidential
               commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act,
               with respect to the last amendment filed) (9), (15) and (19)

120

EXHIBIT
 NUMBER                                 EXHIBIT DESCRIPTION
-------                                 -------------------
  10.02        Wholesale Supply Agreement, dated January 1, 2004, between the Registrant and CVS Pharmacy,
               Inc. (Confidential treatment has been requested for confidential commercial and financial
               information, pursuant to Rule 24b-2 under the Exchange Act)

  10.03        First Amendment to Wholesale Supply Agreement, dated May 26, 2004, between the Registrant
               and CVS Pharmacy, Inc. (Confidential treatment has been requested for confidential
               commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act)

  10.04        Second Amendment to Wholesale Supply Agreement, dated June 2, 2004, between the Registrant
               and CVS Pharmacy, Inc. (Confidential treatment has been requested for confidential
               commercial and financial information, pursuant to Rule 24b-2 under the Exchange Act)

  10.05        Prime Vendor Agreement, dated as of July 1, 2001, between the Registrant and Express
               Scripts, Inc., as amended on January 15, 2003 (Confidential treatment has been requested
               for confidential commercial and financial information, pursuant to Rule 24b-2 under the
               Exchange Act) (20)

  10.06        Second Amendment to Prime Vendor Agreement, dated as of November 19, 2003, between the
               Registrant and Express Scripts, Inc. (Confidential treatment has been requested for
               confidential commercial and financial information, pursuant to Rule 24b-2 under the
               Exchange Act)

  10.07        Third Amendment to Prime Vendor Agreement, dated as of April 9, 2004, between the
               Registrant and Express Scripts, Inc. (Confidential treatment has been requested for
               confidential commercial and financial information, pursuant to Rule 24b-2 under the
               Exchange Act)

  10.08        Form of Commercial Paper Dealer Agreement 4(2) Program, dated as of August 26, 1999,
               between the Registrant, as Issuer, and certain entities, each as Dealer, concerning notes
               to be issued pursuant to Issuing and Paying Agency Agreement, dated as of June 28, 1999,
               between the Issuer and The First National Bank of Chicago, as Issuing and Paying Agent (15)

  10.09        Five-year Credit Agreement, dated as of March 27, 2003, between the Registrant, certain
               subsidiaries of the Registrant, certain lenders, Bank One, NA, as Administrative Agent,
               Bank of America N.A., as Syndication Agent, Wachovia Bank, National Association, as
               Syndication Agent, Barclays Bank PLC, as Documentation Agent, Credit Suisse First Boston,
               as Documentation Agent, Deutsche Bank Securities, Inc., as Documentation Agent, and Banc
               One Capital Markets, Inc., as Lead Arranger and Book Manager (20)

  10.10        First Amendment to Credit Agreement, Agency Agreement and Amendment to Guaranty, dated as
               of March 24, 2004, between the Registrant, certain subsidiaries of the Registrant,
               certain lenders, Bank One, NA and Wachovia Bank, National Association (23)

  10.11        Five-year Credit Agreement, dated as of March 23, 2004, between the Registrant, certain
               subsidiaries of the Registrant, certain lenders, Wachovia Bank, National Association, as
               Administrative Agent, Bank One, NA, as Syndication Agent, Bank of America N.A., as
               Syndication Agent, Barclays Bank PLC, as Documentation Agent, Deutsche Bank Securities,
               Inc., as Documentation Agent, Wachovia Capital Markets, LLC, as Lead Arranger and Book
               Manager, and Banc One Capital Markets, Inc., as Lead Arranger and Book Manager(23)

  10.12        Partnership Agreement of R.P. Scherer GmbH & Co. KG (4)

  10.13        Stock Incentive Plan, as amended (6)*

  10.14        Directors' Stock Option Plan, as amended and restated (6)*

  10.15        Amended and Restated Equity Incentive Plan, as amended (15) and (17)*

  10.16        Form of Nonqualified Stock Option Agreement under the Amended and Restated Equity
               Incentive Plan, as amended (21)*

121

EXHIBIT
 NUMBER                                 EXHIBIT DESCRIPTION
-------                                 -------------------
  10.17        Form of Restricted Share Units Agreement under the Amended and Restated Equity Incentive
               Plan, as amended (21)*

  10.18        Form of Directors' Stock Option Agreement under the Amended and Restated Equity Incentive
               Plan, as amended (21)*

  10.19        Outside Directors Equity Incentive Plan (11)*

  10.20        Form of Directors' Stock Option Agreement under the Outside Directors Equity Incentive
               Plan (21)*

  10.21        Broadly-based Equity Incentive Plan, as amended (18)

  10.22        Deferred Compensation Plan, as amended and restated (10)*

  10.23        First Amendment to Deferred Compensation Plan (21)*

  10.24        Second Amendment to Deferred Compensation Plan*

  10.25        Directors Deferred Compensation Plan, as amended and restated*

  10.26        Global Employee Stock Purchase Plan

  10.27        Performance-Based Incentive Compensation Plan, as amended (13)*

  10.28        R.P. Scherer Corporation 1997 Stock Option Plan (8)*

  10.29        R.P. Scherer Corporation 1990 Nonqualified Performance Stock Option Plans, as amended (8)*

  10.30        Allegiance Corporation 1996 Incentive Compensation Program (7)*

  10.31        Allegiance Corporation 1998 Incentive Compensation Program (7)*

  10.32        Allegiance Corporation 1996 Outside Director Incentive Compensation Plan (7)*

  10.33        Amended and Restated Employment Agreement, effective as of February 1, 2004, between
               the Registrant and Robert D. Walter (22)*

  10.34        Employment Agreement, effective as of February 1, 2004, between the Registrant and
               George L. Fotiades (22)*

  10.35        Employment Agreement, dated and effective as of February 5, 2003, between the Registrant
               and Stephen S. Thomas (19)*

  10.36        Employment Agreement, dated and effective as of November 5, 2003, between the Registrant
               and Ronald K. Labrum (21)*

  10.37        Employment Agreement, dated and effective as of July 26, 2004, between the Registrant and
               J. Michael Losh*

  10.38        Form of Indemnification Agreement between the Registrant and individual Directors*

  10.39        Form of Indemnification Agreement between the Registrant and individual Officers*

  10.40        Restricted Share Units Agreement, dated October 15, 2001, between the Registrant and
               Robert D. Walter (18)*

  10.41        Nonqualified Stock Option Agreement, dated November 19, 2001, between the Registrant and
               Robert D. Walter (10)*

122

EXHIBIT
 NUMBER                                 EXHIBIT DESCRIPTION
-------                                 -------------------
  10.42        Restricted Share Units Agreement, dated November 20, 2001, between the Registrant and
               Robert D. Walter (10)*

  10.43        Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and
               Robert D. Walter (18)*

  10.44        Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and
               George L. Fotiades (10)*

  10.45        Restricted Share Units Agreement, dated December 31, 2001, between the Registrant and
               Stephen S. Thomas (10)*

  10.46        Form of Restricted Share Units Agreement, dated December 31, 2001, between the Registrant
               and each of Messrs. Miller and Rucci (10)*

  10.47        Restricted Share Units Agreement, dated February 1, 2002, between the Registrant and
               Robert D. Walter (18)*

  10.48        Restricted Share Units Agreement, dated February 1, 2002, between the Registrant and
               Robert D. Walter (18)*

  10.49        Restricted Share Units Agreement, dated April 2002, between the Registrant and Stephen
               S. Thomas (18)*

  18.01        Letter Regarding Change in Accounting Principle (14)

  18.02        Letter Regarding Change in Accounting Principle

  21.01        List of Subsidiaries of the Registrant

  23.01        Consent of Ernst and Young LLP

  31.01        Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002

  31.02        Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
               Act of 2002

  32.01        Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  32.02        Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  99.01        Statement Regarding Forward-Looking Information

  99.02        Special Code Section 401(a)(9) Amendment to the Cardinal Health Profit Sharing, Retirement
               and Savings Plan

  99.03        First Amendment to the Cardinal Health Profit Sharing, Retirement and Savings Plan (Amended
               and Restated Effective as of July 1, 1998) (Revised as of 2002)

  99.04        First Amendment to the Cardinal Health Profit Sharing, Retirement and Savings Plan (As
               amended and restated July 1, 2002)

  99.05        Second Amendment to the Cardinal Health Profit Sharing, Retirement and Savings Plan (As
               amended and restated July 1, 2002)

  99.06        Cardinal Health, Inc. Employee Stock Purchase Plan, as amended

* Management contract or compensation plan or arrangement.

(1) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (File No. 1-11373) and incorporated herein by reference.

123

(2) Included as an exhibit to the Registrant's Current Report on Form 8-K filed April 21, 1997 (File No. 1-11373) and incorporated herein by reference.

(3) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-74761) and incorporated herein by reference.

(4) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1998 (File No. 1-11373) and incorporated herein by reference.

(5) Included as an exhibit to the Registrant's Registration Statement on Form S-4 (No. 333-30889) and incorporated herein by reference.

(6) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1994 (File No. 1-11373) and incorporated herein by reference.

(7) Included as an exhibit to the Registrant's Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-68819) and incorporated herein by reference.

(8) Included as an exhibit to the Registrant's Post-effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (No. 333-56655) and incorporated herein by reference.

(9) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-11373) and incorporated herein by reference.

(10) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 (File No. 1-11373) and incorporated herein by reference.

(11) Included as an exhibit to the Registrant's Registration Statement on Form S-8 (No. 333-38192) and incorporated herein by reference.

(12) Included as an exhibit to the Company's Post-Effective Amendment No. 1 of Form S-8 to Form S-4 Registration Statement (No. 333-53394) and incorporated herein by reference.

(13) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998 (File No. 1-11373) and incorporated herein by reference.

(14) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-11373) and incorporated herein by reference.

(15) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (File No. 1-11373) and incorporated herein by reference.

(16) Included as an exhibit to the Registrant's Registration Statement on Form S-3 (No. 333-62944) and incorporated herein by reference.

(17) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2001 (File No. 1-11373) and incorporated herein by reference.

(18) Included as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (File No. 1-11373) and incorporated herein by reference.

(19) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2002 (File No. 1-11373) and incorporated herein by reference.

(20) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (File No. 1-11373) and incorporated herein by reference.

124

(21) Included as an exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2003 (File No. 1-11373) and incorporated herein by reference.

(22) Included as an exhibit to the Registrant's Current Report on Form 8-K filed February 6, 2004 (File No. 1-11373) and incorporated herein by reference.

(23) Included as an exhibit to the Registrant's Current Report on Form 8-K filed October 20, 2004 (File No 1-11373) and incorporated herein by reference.

(b) Reports on Form 8-K:

On May 17, 2004, the Company filed a Current Report on Form 8-K under Item 5 which filed as an exhibit a press release providing a chronology and supplemental information on the SEC matter. On May 19, 2004, the Company filed a Current Report on Form 8-K under Items 5 and 7 which filed as an exhibit a press release announcing the Company's proposed acquisition of ALARIS Medical Systems, Inc.

125

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, on October 26, 2004.

CARDINAL HEALTH, INC.

By:/s/ ROBERT D. WALTER
   ------------------------------
   Robert D. Walter, Chairman and
     Chief Executive Officer

126

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on October 26, 2004.

          SIGNATURE                            TITLE
          ---------                            -----
/s/ ROBERT D. WALTER                Chairman, Chief Executive Officer and
---------------------------------   Director (principal executive officer)
Robert D. Walter

/s/ J. MICHAEL LOSH                 Chief Financial Officer and Director
---------------------------------   (principal financial officer and
J. Michael Losh                     principal accounting officer)

/s/ DAVE BING                       Director
---------------------------------
Dave Bing

/s/ GEORGE H. CONRADES              Director
---------------------------------
George H. Conrades

/s/ JOHN F. FINN                    Director
---------------------------------
John F. Finn

/s/ ROBERT L. GERBIG                Director
---------------------------------
Robert L. Gerbig

/s/ JOHN F. HAVENS                  Director
---------------------------------
John F. Havens

/s/ JOHN B. MCCOY                   Director
---------------------------------
John B. McCoy

/s/ RICHARD C. NOTEBAERT            Director
---------------------------------
Richard C. Notebaert

/s/ MICHAEL D. O'HALLERAN           Director
---------------------------------
Michael D. O'Halleran

/s/ DAVID W. RAISBECK               Director
---------------------------------
David W. Raisbeck

/s/ JEAN G. SPAULDING               Director
---------------------------------
Jean G. Spaulding

/s/ MATTHEW D. WALTER               Director
---------------------------------
Matthew D. Walter

127

CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)

                                                BALANCE AT      CHARGED TO         CHARGED TO                           BALANCE AT
                                                 BEGINNING      COSTS AND             OTHER                                END
           DESCRIPTION                           OF PERIOD       EXPENSES       ACCOUNTS (1) (2)      DEDUCTIONS (3)    OF PERIOD
-----------------------------------------       -----------    -------------    ------------------    --------------    ----------
Fiscal Year 2004:
      Accounts receivable                       $     121.3    $        6.4       $       12.8        $       (21.4)    $    119.1
      Finance notes receivable                          4.5             0.3                1.5                 (2.2)           4.1
      Net investment in sales-type leases              17.8            (5.2)               2.2                  0.9           15.7
                                                -----------    ------------       ------------        -------------     ----------

                                                $     143.6    $        1.5       $       16.5        $       (22.7)    $    138.9
                                                ===========    ============       ============        =============     ==========

Fiscal Year 2003 (Restated):
      Accounts receivable (4)                   $     122.9    $       19.1       $        5.9        $       (26.6)    $    121.3
      Finance notes receivable                          4.7             0.6                0.6                 (1.4)           4.5
      Net investment in sales-type leases              16.0             2.5                  -                 (0.7)          17.8
                                                -----------    ------------       ------------        -------------     ----------

                                                $     143.6    $       22.2       $        6.5        $       (28.7)    $    143.6
                                                ===========    ============       ============        =============     ==========

Fiscal Year 2002 (Restated):
      Accounts receivable (4)                   $     136.7    $       37.6       $        0.2        $       (51.6)    $    122.9
      Finance notes receivable                          4.8             1.7                0.3                 (2.1)           4.7
      Net investment in sales-type leases              16.1             3.3                  -                 (3.4)          16.0
                                                -----------    ------------       ------------        -------------     ----------

                                                $     157.6    $       42.6       $        0.5        $       (57.1)    $    143.6
                                                ===========    ============       ============        =============     ==========

(1) During fiscal 2004, 2003 and 2002 recoveries of amounts provided for or written off in prior years were $3.8 million, $2.4 million and $1.5 million, respectively.

(2) In fiscal 2004 and 2003, $13.9 million and $7.1 million, respectively, relates to the beginning balance for acquisitions accounted for as purchase transactions.

(3) Write-off of uncollectible accounts.

(4) Amounts have been restated to include trade receivable valuation reserves related to service charges and pricing, not previously included within this schedule.

128

Exhibit 3.01

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

CARDINAL DISTRIBUTION, INC.

These constitute the amended and restated articles of incorporation of Cardinal Distribution, Inc., a corporation for profit formed under the Ohio General Corporation Law, which amended and restated articles of incorporation supersede the previously existing articles of incorporation of the corporation, as heretofore amended:

        FIRST:   The name of the corporation shall be "Cardinal Dis-
tribution, Inc."

        SECOND:  The place in Ohio where the principal office of the

corporation is to be located is the City of Columbus, Franklin County.

THIRD: The purpose or purposes for which the corporation is formed are to engage in any lawful act or activity for which corpora- tions may be formed under Sections 1701.01 to 1701.98, inclusive, of the Ohio Revised Code and any amendments heretofore or hereafter made thereto.

FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 10,500,000, consisting of 10,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value.

Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series:

(a) the division of such shares into series and the designation and authorized number of shares of each series,

(b) the dividend rate,

(d) liquidation price,

(e) redemption rights and price,

(f) sinking fund requirements,

(g) conversion rights, and

(h) restrictions on the issuance of such shares.

Prior to the issuance of any shares of a series, but after adoption by the board of directors of the resolution establishing such series, the appropriate officers of the corporation shall file such documents with the State of Ohio as may be required by law including, without limitation, an amendment to these Articles of Incorporation.

Section 3. COMMON SHARES. Each common share shall entitle the holder thereof to one vote, in person or by proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings. Subject to the preferences of any outstanding preferred shares, each common share shall be entitled to participate equally in such dividends as may be declared by the board of directors out of funds legally available therefor, and to participate equally in all distributions of assets upon liquidation.

FIFTH: The amount of stated capital with which the corporation will begin business shall be not less than five hundred dollars ($500).

SIXTH: The board of directors may fix and determine, and vary, the amount of working capital of the corporation; determine whether any (and, if any, what part) of the surplus, however created or arising, shall be used or disposed of or declared in dividends or paid to share- holders; and, without action by the shareholders, use and apply such surplus, or any part thereof, or such part of the stated capital of the corporation as is permitted under the laws of the State of Ohio, at any time or from time to time, in the purchase or acquisition of shares of any class, voting-trust certificates for shares, bonds, deben- tures, notes, scrip, warrants, obligations, evidence of indebtedness of the corporation, or other securities of the corporation, to such extent or amount and in such manner and upon such terms as the board of directors shall deem expedient and without regard to any provisions which may hereafter be contained in the corporation's articles of incor- poration with respect to the redemption of shares of any class at the option of the corporation.

SEVENTH: Every statute of the State of Ohio hereafter enacted, whereby rights or privileges of the shareholders of a corporation organ-

-2-

ized under the Ohio General Corporation Law are increased, diminished, or in any way affected, or whereby effect is given to any action author- ized, ratified, or approved by less than all the shareholders of any such corporation, shall apply to the corporation and shall bind every shareholder to the same extent as if such statute had been in force at the date of the filing of these articles of incorporation.

EIGHTH: A director or officer of the corporation shall not be disqualified by his office from dealing or contracting with the corporation as a vendor, purchaser, employee, agent, or otherwise. No transaction or contract or act of the corporation shall be void or voidable or in any way affected or invalidated by reason of the fact that any director or officer, or any firm of which any director or officer is a shareholder, director, or trustee, or any trust of which any director or officer is a trustee or beneficiary, is in any way interested in such transaction or contract or act. No director or officer shall be accountable or responsible to the corporation for or in respect to any transaction or contract or act of the corporation or for any gains or profits directly or indirectly realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director, or trustee, or any trust of which he is a trustee or beneficiary, is interested in such transaction or contract or act; provided the fact that such director or officer or such firm or corporation or such trust is so interested shall have been disclosed or shall have been known to the board of directors or such members thereof as shall be present at any meeting of the board of directors at which action upon such contract or transaction or act shall have been taken. Any director may be counted in determining the existence of a quorum at any meeting of the board of directors which shall authorize or take action in respect to any such contract or transaction or act, and may vote thereat to authorize, ratify, or approve any such contract or transaction or act, and any officer of the corporation may take any action within the scope of his authority respecting such contract or transaction or act with like force and effect as if he or any firm of which he is a member, or any corporation of which he is a shareholder, director, or trustee, or any trust of which he is a trustee or beneficiary, were not interested in such transaction or contract or act. Without limiting or qualifying the foregoing, if in any judicial or other inquiry, suit, cause, or proceeding, the question of whether a director or officer of the corpora- tion has acted in good faith is material, then notwithstanding any statute or rule of law or of equity to the contrary (if any there be), his good faith shall be presumed, in the absence of proof to the contrary by clear and convincing evidence.

NINTH: No holder of shares of any class of the corporation shall be entitled as such, as a matter of right, to subscribe for or purchase shares of any class, now or hereafter authorized, or to purchase or to subscribe for securities convertible into or exchangeable for shares of the corporation, or to which shall appertain or be attached

-3-

any warrants or rights entitling the holder thereto to subscribe for or purchase shares, except such rights of subscription or purchase, if any, at such price or prices, and upon such terms and conditions as the board of directors in its discretion may from time to time deter- mine.

TENTH: Except as otherwise provided in these Articles of Incorporation or the Code of Regulations of the corporation, notwithstand- ing any provision of any statute of the State of Ohio, now or hereafter in force, requiring for any purpose the vote, consent, waiver, or release of the holders of shares entitling them to exercise two-thirds or any other proportion of the voting power of the corporation or of any class or classes of shares thereof, any action may be taken by the vote of the holders of shares entitling them to exercise a majority of the voting power of the corporation, or of such class or classes, unless the proportion designated by such statute cannot be altered by these articles.

-4-

CERTIFICATE OF AMENDMENT

TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

CARDINAL DISTRIBUTION, INC.

Robert D. Walter and Michael E. Moritz hereby certify that they are the duly elected and acting chairman and secretary, respectively, of Cardinal Distribution, Inc., an Ohio corporation (the "Company"), and further certify that the following is a true copy of a resolution amending the Company's Amended and Restated Articles of Incorporation duly adopted by the affirmative vote of the holders of shares of the Company entitling them to exercise a majority of the voting power of the Company at the annual meeting of shareholders duly held on August 30, 1989:

RESOLVED, That the Amended and Restated Articles of Incorporation of the Company be amended by deleting ARTICLE FOURTH thereof in its entirety and by substituting in lieu thereof the following ARTICLE FOURTH:

FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 20,500,000, consisting of 20,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value.

Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series:

(a) the division of such shares into series and the designation and authorized number of shares of each series,

(b) the dividend rate,

(d) liquidation price,

(e) redemption rights and price,

(f) sinking fund requirements,

(g) conversion rights, and

(h) restrictions on the issuance of such shares.

August 30, 1989                          CARDINAL DISTRIBUTION, INC.



                                         By  /s/ ROBERT D. WALTER
                                            ------------------------------
                                             Robert D. Walter, Chairman


                                         By  /s/ MICHAEL E. MORITZ
                                            ------------------------------
                                             Michael E. Moritz, Secretary

-2-

CERTIFICATE OF AMENDMENT

TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF

CARDINAL DISTRIBUTION, INC.

Robert D. Walter and George H. Bennett, Jr. hereby certify that they are the duly elected and acting chairman and assistant secretary, respectively, of Cardinal Distribution, Inc., an Ohio corporation (the "Company"), and further certify that the following is a true copy of a resolution amending the Company's Amended and Restated Articles of Incorporation duly adopted by the affirmative vote of the holders of shares of the Company entitling them to exercise a majority of the voting power of the Company at the annual meeting of shareholders duly held on August 15, 1991:

REVOLVED, that Article FOURTH of the Company's Amended and Restated Articles of Incorporation be, and the same hereby is, deleted in its entirety and there is substituting the following:

FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 40,500,000 consisting of 40,000,000 common shares without par value and 500,000 nonvoting preferred shares without par value.

Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any other series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series:

(a) the division of such shares into series and the designation and authorized number of shares of each series,
(b) the divided rate,
(c) the dates of payment of dividends and the dates from which they are cumulative,

(d) liquidation price,
(e) redemption rights and price,
(f) sinking fund requirements,
(g) conversion rights, and
(h) restrictions on the issuance of such shares.

August 15, 1991 CARDINAL DISTRIBUTION, INC.

By   /s/ ROBERT D. WALTER
    ---------------------------
    Robert D. Walter, Chairman

By   /s/ GEORGE H. BENNETT, JR.
    ---------------------------
    George H. Bennett, Jr., Assistant
    Secretary

-2-

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED
OF
CARDINAL DISTRIBUTION, INC.

ROBERT D. WALTER, Chairman, and MICHAEL E. MORITZ, Secretary, of Cardinal Distribution, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on January 27, 1994, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the resolutions attached hereto as Exhibit A were duly adopted.

IN WITNESS WHEREOF, Robert D. Walter, Chairman, and Michael E. Moritz, Secretary, of Cardinal Distribution, Inc., acting for and on its behalf, do hereunto subscribe their names this 1st day of February, 1994.

/s/ Robert D. Walter
--------------------------------
Robert D. Walter, Chairman



/s/ Michael E. Moritz
--------------------------------
Michael E. Moritz, Secretary

EXHIBIT A
TO
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED
OF
CARDINAL DISTRIBUTION, INC.

Resolved, that Article FIRST, of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Distribution, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following:

FIRST: The name of the corporation shall be "Cardinal Health, Inc."

Resolved, that Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Distribution, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following:

FOURTH: Section 1. AUTHORIZED SHARES. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 65,500,000, consisting of 60,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

Section 2. ISSUANCE OF PREFERRED SHARES. The board of directors is authorized at any time, and from time to time, to provide for the issuance of nonvoting preferred shares in one or more series, and to determine to the extent permitted by law the designations, preferences, limitations, and relative or other rights of the nonvoting preferred shares or any series thereof. For each series, the board of directors shall determine, by resolution or resolutions adopted prior to the issuance of any shares thereof, the designations, preferences, limitations, and relative or other rights thereof, including but not limited to the following relative rights and preferences, as to which there may be variations among different series:

(a) the division of such shares into series and the designation and authorized number of shares of each series,

(b) the dividend rate,

(d) liquidation price,

(e) redemption rights and price,

(f) sinking fund requirements,

(g) conversion rights, and

(h) restrictions on the issuance of such shares.

Section 3. COMMON SHARES.

All common shares shall be identical and will entitle the holders thereof to the same rights and privileges, except as otherwise provided herein.

A. VOTING RIGHTS.

1. CLASS A COMMON SHARES. Except as set forth herein or as otherwise required by law, each outstanding Class A Common Share shall entitle the holder thereof to one vote, in person or by

proxy, at any and all meetings of the shareholders of the corporation, on all propositions before such meetings.

2. CLASS B COMMON STOCK. Except as set forth herein or as otherwise required by law, each outstanding Class B Common Share shall entitle the holder thereof to one-fifth (1/5) of one vote, in person or by proxy, at any and all meetings of shareholders of the corporation, on all propositions before such meetings. Notwithstanding the foregoing, holders of the Class B Common Shares shall be entitled to vote as a separate class on any amendment to this paragraph 2 of this
Section A, on the issuance in the aggregate by the corporation of additional Class B Common Shares in excess of the number of Class B Common Shares held by Chemical Equity Associates and its Affiliates or issuable pursuant to Section 3(c) hereof and on any amendment, repeal or modification of any provision of these Articles that adversely affects the powers, preferences or special rights of the holders of the Class B Common Shares.

B. DIVIDENDS; LIQUIDATION. Subject to the preferences of any preferred shares, each Common Share shall be entitled to participate equally in such dividends as may be declared by its board of directors out of funds legally available therefor or to participate equally in all distributions of assets upon liquidation; provided, that in the case of dividends payable in Common Shares of the Corporation, or options, warrants or rights to acquire such Common Shares, or securities convertible into or exchangeable for such Common Shares, the shares, options, warrants, rights or securities so payable shall be payable in shares of, or options, warrants or rights to acquire, or securities convertible into or exchangeable for, Common Shares of the same class upon which the dividend or distribution is being paid.

C. CONVERSION.

1. CONVERSION OF CLASS A COMMON SHARES. Any Regulated Shareholder (defined below) shall be entitled to convert, at any time and from time to time, any or all of the Class A Common Shares held by such shareholder into the same number of Class B Common Shares.

2. CONVERSION OF CLASS B COMMON SHARES. Each holder of Class B Common Shares may convert such shares into Class A Common Shares if such holder reasonably believes that such converted shares will be transferred within fifteen (15) days pursuant to a Conversion Event (defined below) and such holder agrees not to vote any such Class A Common Shares prior to such Conversion Event and undertakes to promptly convert such shares back into Class B Common Shares if such shares are not transferred pursuant to a Conversion Event. Each Regulated Shareholder may provide for further restrictions or limitations upon the conversion of any Class B Common Shares by providing the corporation with signed, written instructions specifying such additional restrictions and legending such shares as to the existence of such restrictions.

3. CONVERSION PROCEDURE. Each conversion of Common Shares of the corporation into shares of another class of Common Shares of the Corporation shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the "Converting Shares") at the principal office of the corporation (or such other office or agency of the corporation as the corporation may designate by written notice to the holders of common shares) at any time during its usual business hours, together with written notice by the holder of such Converting Shares, stating that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the class into which such shares may be converted (the "Converted Shares"). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. Promptly after such surrender and the receipt of such written notice, the corporation will issue and deliver in accordance with the surrendering holder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the corporation will deliver to the converting holder a certificate representing any shares which were represented by the certificate or certificates that were delivered to the corporation with such conversion, but which were not converted.

-2-

Such conversion shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received by the corporation, and at such time the rights of the holder of the Converting Shares as such holder shall cease and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares. Upon issuance of shares in accordance with this Section C, such Converted Shares shall be deemed to be duly authorized, validly issued, fully paid and non-assessable.

Each holder of Class B Common Shares shall be entitled to convert Class B Common Shares in connection with any Conversion Event if such holder reasonably believes that such Conversion Event will be consummated, and a written request for conversion from any holder of Class B Common Shares to the corporation stating such holder's reasonable belief that a Conversion Event shall occur shall be conclusive and shall obligate the corporation to effect such conversion in a timely manner so as to enable each such holder to participate in such Conversion Event. The corporation will not cancel the Class B Common Shares so converted before the 15th day following such Conversion Event and will reserve such shares until such 15th day for reissuance in compliance with the next sentence. If any Class B Common Shares are converted into Class A Common Shares in connection with a Conversion Event and such Class A Common Shares are not actually distributed, disposed of or sold pursuant to such Conversion Event, such Class A Common Shares shall be promptly converted back into the same number of Class B Common Shares.

4. STOCK SPLITS; ADJUSTMENTS. If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding Class A Common Shares or the Class B Common Shares, then the outstanding shares of each other class of common shares shall be subdivided or combined, as the case may be, to the same extent, share and share alike, and effective provision shall be made for the protection of the conversion rights hereunder.

In the case of any reorganization, reclassification or change of shares of the Class A Common Shares or Class B Common Shares (other than a change in par value or from par to no par value as a result of a subdivision or combination), or in case of any consolidation of the corporation with one or more corporations or a merger of the corporation with another corporation (other than a consolidation or merger in which the corporation is the resulting or surviving corporation and which does not result in any reclassification or change of outstanding Class A Common Shares or Class B Common Shares), each holder of Class A Common Shares or Class B Common Shares shall have the right at any time thereafter, so long as the conversion right hereunder with respect to such share would exist had such event not occurred, to convert such share into the kind and amount of shares of stock and other securities and properties (including cash) receivable upon such reorganization, reclassification, change, consolidation or merger by a holder of the number of Class A Common Shares or Class B Common Shares into which such Class A Common Shares or Class B Common Shares, as the case may be, might have been converted immediately prior to such reorganization, reclassification, change, consolidation or merger. In the event of any such reorganization, reclassification, change, consolidation or merger which will have the effect of causing any Regulated Shareholder's direct or indirect ownership of shares of capital stock of the resulting or surviving corporation immediately following such transaction to equal or exceed 5% of the voting power thereof (calculated as if all such Regulated Shareholder's Class B Common Shares were converted to Class A Common Shares immediately prior to consummation of such transaction) then provision shall be made in the certificate of incorporation of the resulting or surviving corporation for the protection of the conversion rights of Class A Common Shares and Class B Common Shares that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of such Class A Common Shares or Class B Common Shares into which such Class A Common Shares or Class B Common Shares might have been converted prior to such event.

-3-

5. RESERVATION OF SHARES. The Corporation shall at all times reserve and keep available out of its authorized but unissued Class A Common Shares and Class B Common Shares or its treasury shares, for the purpose of issuance upon the conversion of Class A Common Shares and Class B Common Shares, such number of shares of such class as are then issuable upon the conversion of all outstanding shares of Class A Common Shares and Class B Common Shares which may be converted.

6. NO CHARGE. The issuance of certificates for shares of any class of common shares upon conversion of shares of any other class of common shares shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of common shares; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the common shares converted.

D. As used herein, the following terms shall have the meanings shown below:

1. "AFFILIATES" shall mean with respect to any Person, any other person, directly or indirectly controlling, controlled by or under common control with such Person. For the purpose of the above definition, the term "control" (including with correlative meaning, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise.

2. "CONVERSION EVENT" shall mean (a) any public offering or public sale of securities of the Corporation (including a public offering registered under the Securities Act of 1933 and a public sale pursuant to Rule 144 of the Securities and Exchange Commission or any similar rule then in force), (b) any sale of securities of the corporation to a person or group of persons (within the meaning of the Securities Exchange Act of 1934, as amended (the "1934 Act")) if, after such sale, such person or group of persons in the aggregate would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the corporation's directors (provided that such sale has been approved by the corporation's Board of Directors or a committee thereof), (c) any sale of securities of the corporation to a person or group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons in the aggregate would own or control securities of the corporation (excluding any Class B Common Shares being converted and disposed of in connection with such Conversion Event) which possess in the aggregate the ordinary voting power to elect a majority of the corporation's directors, (d) any sale of securities of the corporation to a person or group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than two percent (2%) of the outstanding securities or any class of voting securities of the corporation (for purposes of this clause, treating Class A Common Stock and Class B Common Stock as a single class), and (e) a merger, consolidation or similar transaction involving the corporation if, after such transaction, a person or group of persons (within the meaning of the 1934 Act) in the aggregate would own or control securities which possess in the aggregate the ordinary voting power to elect a majority of the surviving corporation's directors (provided that the transaction has been approved by the corporation's Board of Directors or a committee thereof).

3. "PERSON" or "PERSON" shall mean an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization or a government or any department or agency thereof.

4. "REGULATED SHAREHOLDER" shall mean Chemical Equity Associates and its Affiliates.

-4-

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
OF
CARDINAL HEALTH, INC.

Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on November 14, 1995, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted:

Resolved, that Section 1 of Article FOURTH of the Amended and Restated Articles of Incorporation, as amended, of Cardinal Health, Inc. be, and the same hereby is, deleted in its entirety and there is substituted therefor the following:

FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 105,500,000, consisting of 100,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

IN WITNESS WHEREOF, Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., acting for and on its behalf, do hereunto subscribe their names this 14th day of November, 1995.

/s/ ROBERT D. WALTER
------------------------------
Robert D. Walter, Chairman


/s/ GEORGE H. BENNETT, JR.
------------------------------
George H. Bennett, Jr.

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
OF
CARDINAL HEALTH, INC.

Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on October 29, 1996, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted;

FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 155,500,000, consisting of 150,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

 /s/ ROBERT D. WALTER
 -----------------------------------
     Robert D. Walter, Chairman


/s/ GEORGE H. BENNETT, JR.
-------------------------------------
    George H. Bennett, Jr., Secretary

CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
OF
CARDINAL HEALTH, INC.

Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on February 20, 1998, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted:

FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 305,500,000 consisting of 300,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

/s/ ROBERT D. WALTER
------------------------------
Robert D. Walter, Chairman



/s/ GEORGE H. BENNETT, JR.
------------------------------
George H. Bennett, Jr., Secretary

CERTIFICATE OF AMENDMENT
TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
OF
CARDINAL HEALTH, INC.

Robert D. Walter, Chairman, and George H. Bennett, Jr., Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), do hereby certify that a meeting of the shareholders of the Company was duly called and held on November 23, 1998, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted:

FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 505,500,000 consisting of 500,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

/s/ Robert D. Walter
---------------------------------
Robert D. Walter, Chairman



/s/ George H. Bennett, Jr.
---------------------------------
George H. Bennett, Jr., Secretary

CERTIFICATE OF AMENDMENT
TO AMENDED AND RESTATED ARTICLES OF INCORPORATION, AS AMENDED,
OF CARDINAL HEALTH, INC.

Steven Alan Bennett, Executive Vice President, Chief Legal Officer and Secretary, of Cardinal Health, Inc., an Ohio corporation (the "Company"), does hereby certify that a meeting of the shareholders of the Company was duly called and held on November 1, 2000, at which meeting a quorum of the shareholders was present in person or by proxy, and by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company on a proposal to amend the Company's Amended and Restated Articles of Incorporation, as amended, the following resolution was duly adopted:

FOURTH: Section 1. Authorized Shares. The maximum aggregate number of shares which the corporation is authorized to have outstanding is 755,500,000 consisting of 750,000,000 common shares, without par value ("Class A Common Shares"), 5,000,000 Class B common shares, without par value ("Class B Common Shares") (the Class A Common Shares and the Class B Common Shares are sometimes referred to herein collectively as the "Common Shares"), and 500,000 nonvoting preferred shares, without par value.

IN WITNESS WHEREOF, Steven Alan Bennett, Executive Vice President, Chief Legal Officer and Secretary, of Cardinal Health, Inc., acting for and on its behalf, does hereunto subscribe his name this 1st day of November, 2000.

  /s/ Steven Alan Bennett
-----------------------------------
Steven Alan Bennett
Executive Vice President, Chief Legal
  Officer and Secretary

Exhibit 10.02

[***] indicates the omission of confidential portions for which confidential treatment has been requested. Such confidential information has been filed separately with the Commission.

January 1, 2004

WHOLESALE SUPPLY AGREEMENT

This letter will confirm the agreement ("AGREEMENT") between Cardinal Health* ("CARDINAL") and CVS Pharmacy Inc. ("CVS") under which CVS will purchase certain pharmaceutical and other products from Cardinal on the following terms and conditions:

SECTION 1. DESIGNATION AS [***].

(a) Retail Pharmacies. During the term of this Agreement, CVS will designate Cardinal as [***] operated by CVS (collectively, the "PHARMACIES" and individually, a "PHARMACY") subject to Section 1(a) Disclosure Schedule. A list of the Pharmacies (the "[***]") will be provided by CVS to Cardinal from time to time during the term of this Agreement.

(b) Distribution Centers. During the term of this Agreement, CVS will designate Cardinal as [***] operated by CVS ("CVS PHARMACY DCS") subject to Section 1(b) Disclosure Schedule. A comprehensive list [***] as of January 1, 2004 (the date of this agreement) (the "Total DC List") is set forth in the Section 1(b) Disclosure Schedule.

(d) CVS Commitment. This Agreement pertains only [***] to Pharmacies.

SECTION 2. SALE OF MERCHANDISE AND [***].

(a) Primary Requirements. [***] and the CVS Pharmacy [***] purchase from Cardinal during the term of this Agreement its [***] (as defined in the
Section 2(a) Disclosure Schedule) of pharmaceutical products ("RX PRODUCTS"), which consist of purchases of Rx Products for (a) [***] ("[***] PURCHASES"); and (b) [***] ("[***] PURCHASES"). CVS may purchase from Cardinal, at CVS' discretion, [***] its health and beauty aids, home health care products and other inventory carried by Cardinal ("[***] PURCHASES"). For purposes of this Agreement, the term "[***]" with respect to a period means all purchases of Merchandise [***] by CVS (and in some circumstances, either the CVS Pharmacy [***]) from Cardinal during that period, [***]. For purposes of this Agreement, the term "MERCHANDISE" will mean the Rx Products (and [***] Purchases, with respect to the Pharmacies only).

Notwithstanding anything in this Agreement to the contrary, CVS retains the right [***] Rx Products [***].

(b) [***]. The Section 2(b) Disclosure Schedule describes the terms by which CVS will make its [***] through Cardinal.

(c) Discontinued Merchandise. Cardinal will [***], subject to such credit considerations concerning the applicable manufacturer as Cardinal may reasonably consider appropriate (including but not limited to, potential insolvency or outstanding balance owed to Cardinal without legitimate reason for dispute). CVS [***] detailed in Section 2(c) Disclosure Schedule will be purchased from each of Cardinal's distribution centers servicing CVS Pharmacies per month. If Cardinal notifies CVS that
[***], then Cardinal [***]. If Cardinal [***], CVS will [***]. Cardinal will use reasonable efforts to ensure that [***], which may include, but not be limited to, [***]. Alternatively, Cardinal and CVS may mutually agree to [***].

(d) Generally. CVS will be liable for any payment owed to Cardinal from any [***] for purchases made hereunder. [***] to determine what Merchandise it will carry based upon product quality, manufacturer indemnity, insurance, and other policies, and other standards determined by it, and may [***] items of Merchandise with limited or no movement activity [***]. Notwithstanding the foregoing, Cardinal's decision [***] for reasons other than product quality (relative to FDA instructions), manufacturer indemnity, and insurability shall not excuse Cardinal from complying with the [***] in Section 2(b) Disclosure Schedule and Section 9 Disclosure Schedule. Both parties agree that Cardinal's inability to provide CVS with the [***] Section 2(b) Disclosure Schedule and Section 9 Disclosure Schedule represents a material breach of this Agreement.

(e) Representation of Status. Cardinal represents that it is, and will continue to be during the term of this Agreement, [***].

SECTION 3. PURCHASE PRICE. As further described in Sections 3(a) and 3(b) Disclosure Schedules, CVS will pay a purchase price ("COST OF GOODS") for products purchased under this Agreement as follows:

(a) [***] Purchases and [***] Purchases. CVS will pay a Cost of Goods for Merchandise in an amount equal to Cardinal's Cost plus the percentage set forth in the Section 3(a) Disclosure Schedule. The term "CARDINAL'S COST" as used herein means [***] for Merchandise as of the date [***], adjusted to reflect [***].

By way of illustration only and not as a limitation, the [***]. In the event that a [***] Cardinal would [***] (Pharmacies and CVS Pharmacy
[***], if applicable). Notwithstanding the foregoing, Cardinal will not
[***] without CVS' expressed written consent. It will be Cardinal's sole responsibility to notify in writing [***] (with copy to CVS subject to
Section 13) [***].

As set forth in Section 3(a) Disclosure Schedule, the purchase price for selected Merchandise, including but not limited to, [***] will not be based upon Cardinal's [***] described above but will instead be [***] for such Merchandise. Merchandise described in this paragraph is sometimes referred to as [***]. CVS may, but will have no obligation to, [***].

(b) [***]. CVS will pay a purchase price for all [***] in an amount equal to the cost set forth on the Section 3(b) Disclosure Schedule.

(c) Cost of Goods [***]. CVS' Cost of Goods for [***] Purchases and
[***] Purchases will be subject to [***] as described in the Section 3(c) Disclosure Schedule.

(d) Generally. Each party hereto acknowledges and agrees that its obligation to pay the purchase price for all [***] and other amounts due or to become due under this Agreement will not be [***] for any reason, except as further described in this Agreement.

Each party acknowledges and agrees that its obligation to pay the other amounts due under this Agreement or become due under this Agreement will
[***] for any reason, except as further described in this Agreement. If a party to this Agreement that is obligated to pay monies hereunder (the "Payor") fails to pay the other party (the "Payee") amounts due under this Agreement (which Payee reasonably believes it is due), [***] amounts due Payor. Any [***] incorrectly or improperly recognized (i.e., excluding legitimately disputed amounts) by Payee will be paid to Payor as soon as possible and in any event no later than [***] following notification from Payor of such [***] provided Payee agrees that [***] was [***]. Payee agrees to pay when due any amounts not in dispute.

CVS and Cardinal commit to work with each other to mutually resolve any disputed amounts.

Furthermore, it is both parties intention that all Agreement components and [***] stand on their own; there will be [***].

SECTION 4. PAYMENT TERMS.

(a) [***] Purchases and [***] Purchases. CVS will cause Cardinal to receive payment in full and remittance by [***] for all [***] Purchases and [***] Purchases according to the schedule set forth in the Section 4 Disclosure Schedule subject to the terms and conditions of this Agreement.

(b) [***]. CVS will cause Cardinal to receive payment in full [***] according to the schedule set forth in the Section 4 Disclosure Schedule subject to the terms and conditions of this Agreement.

(c) [***]. All payments made by CVS to Cardinal under this Agreement will be [***], so as to provide Cardinal with good funds immediately available to

Cardinal on the date such payment is due according to the schedule set forth in the Section 4 Disclosure Schedule. In the event [***] temporarily interrupted or cannot be utilized, CVS and Cardinal will seek alternative payment methods to ensure that Cardinal receives good funds as soon as practical. To the extent that a specific payment is unnecessarily delayed due to an issue [***], CVS agrees to work with Cardinal to make such payment as expeditiously as possible. As indicated in Section 4 Disclosure Schedule, CVS and Cardinal may mutually agree to a payment arrangement that is reflective of a change in normal terms to accommodate for [***] due to the fact that [***].

(d) Generally. If Cardinal reasonably believes that CVS [***], then Cardinal has the right to request that CVS provide it with information within [***] from the date CVS receives the request (i.e., if CVS receives Cardinal's request at 3:00 p.m. [***] (as applicable), in reasonable detail, [***], and that may resolve any such [***] by Cardinal. In addition, CVS agrees to [***] Cardinal in the event CVS [***] with respect to its [***], including, but not limited to an [***]. If Cardinal has requested such information or CVS has notified Cardinal as set forth above and Cardinal and CVS cannot [***] any such issues pursuant to a reasonable solution, then Cardinal may (i) [***] thereafter to the [***] of CVS'
[***] during the immediately preceding [***]; (ii) [***], and (iii) in the event that [***] (as defined below), give CVS notice of the [***] under this Agreement by 10:00 a.m. Eastern Standard Time on a business day and require [***] of payment of such amount by [***] by 2:00 p.m. Eastern Standard Time on the [***]. As used within this paragraph, a "[***]" shall mean [***]. [***], the parties will meet every approximate [***] following the execution of such action to review [***], and to reasonably consider reinstating the [***] of such action. [***], then CVS may choose to [***] if it finds Cardinal's [***] unacceptable. If the Agreement is [***] pursuant to this Section 4(d), the Agreement shall [***] (unless mutually agreed upon in writing by the parties) until [***] of the [***].

If CVS reasonably believes that Cardinal has suffered [***] that has materially, adversely affected (or will imminently materially, adversely affect) Cardinal's [***] any term or condition of this Agreement or Cardinal's [***] due CVS, then CVS has the right to request that Cardinal provide it with information within [***] from the date Cardinal receives the request (i.e., if Cardinal receives CVS' request at 3:00 p.m. [***] that further [***] (as applicable), in reasonable detail, [***], and that may resolve any such concerns raised by CVS. In addition, Cardinal agrees to [***] CVS in the event Cardinal believes it [***] with respect to its
[***], including an [***], that has materially, adversely effected (or will imminently materially, adversely affect) Cardinal's ability to [***], or Cardinal's [***]. If CVS has requested such information or Cardinal has notified CVS as set forth above, then CVS may (i) [***] of any [***] or any [***] CVS, (ii) [***], and (iii) in the event that Cardinal is in
[***] (as defined below), give Cardinal notice of the [***] under this Agreement by 10:00 a.m. Eastern Standard Time on a business day and require [***] of payment of such amount by [***] by 2:00 p.m. Eastern Standard Time on the [***]. As used within this paragraph, a "[***]" shall mean [***]. If any of the [***], the parties will meet every approximate

[***] following the execution of such action to review [***], and to reasonably consider reinstating the [***] of such action. [***], then Cardinal may choose to [***] written notice if it finds CVS' [***] unacceptable. If the Agreement is [***] pursuant to this Section 4(d), the Agreement shall [***] (unless mutually agreed upon in writing by the parties) until [***] of the [***].

(e) [***]. As an inducement for Cardinal to supply Merchandise and provide services to [***] CVS, whether [***], CVS Corporation [***] from CVS to Cardinal under this Agreement.

SECTION 5. DELIVERY/ORDER SUBMISSION PROCEDURES. Cardinal will deliver the Merchandise [***] and exercise its [***] provide an efficient delivery schedule designed to meet the [***] Cardinal and the Pharmacies. All deliveries will be accompanied by an invoice and all delivery costs ([***]) absorbed by Cardinal. Cardinal will deliver Merchandise to [***] or other Pharmacies mutually agreed upon by the parties from time to time) as [***] (exclusive of holidays, etc.). Any additional deliveries will constitute emergency deliveries, which if required, will [***] at Cardinal's [***] for such deliveries. Delivery schedules and purchase order deadlines may be reviewed and changed from time to time
[***]. Delivery of [***] will be subject to the terms and conditions set forth in the Section 2(b) Disclosure Schedule.

The [***] will submit all orders, except for orders for [***], for all Merchandise to Cardinal via [***] (to be provided by Cardinal) or other [***]. Any such equipment supplied by Cardinal will be returned to Cardinal by CVS upon the expiration or termination of this Agreement for any reason, [***], Cardinal's proprietary rights are threatened. In the event that [***] temporarily interrupted for reasons beyond the control of CVS or Cardinal, CVS may place [***] parties will [***] to rectify the problem.

DEA Form 222 may be [***] Cardinal distribution center, or other mutually agreed upon method. Schedule II orders will be delivered within [***] of Cardinal's receipt of the signed original DEA Form 222. CVS acknowledges that if CVS gives the DEA Form 222s to the delivery driver, [***] the DEA Form 222 to the applicable Cardinal distribution center. Notwithstanding the foregoing, no Schedule II orders will be delivered other than in compliance with DEA regulations.

Additionally, CII orders must be shipped [***] and courier must be [***] when order is received and checked in by CVS, CVS reserves the right to refuse any CII order that contains any [***].

SECTION 6. OTHER SERVICES.

(a) CardinalCHOICE-HQ(TM). Cardinal will license [***] CardinalCHOICE-HQ(TM) software systems to CVS' headquarters on the terms set forth in the Section 6(a) Disclosure Schedule. Such licensing will be pursuant to the terms and conditions of [***]. In addition, Cardinal will provide CVS with the related hardware as described in the Section 6(a) Disclosure Schedule, pursuant to [***].

Cardinal [***] to all CVS locations ([***], and support locations) access to Cardinal.com.

(b) Management Information Services. Cardinal will provide to CVS those programs and services described in the Base Service Package set forth in
Section 6(b) Disclosure Schedule on the terms and conditions described in that schedule.

(d) [***].

(i) CVS will [***] a Pharmacy [***] with the necessary skill set to act as a liaison between Cardinal and CVS. During the term of this Agreement and for a [***] period thereafter, Cardinal will not directly or indirectly employ, engage, or otherwise solicit for employment or engagement such employee, or induce or encourage such employee to terminate or otherwise modify such employee's relationship with CVS. Furthermore, [***] as detailed in Section
6(d) Disclosure Schedules. [***] shall keep any and all information disclosed by Cardinal confidential pursuant to Section 17.

(ii) Cardinal will also [***] a Pharmacy employee with the necessary skill set to act as a liaison between Cardinal and CVS and work on matters related to this Agreement. This employee will [***] to CVS
[***] basis and perform [***] on average. CVS and Cardinal will mutually agree on the appropriate candidate to fill this position as it becomes necessary from time to time. During the term of this Agreement and for a [***] period thereafter, CVS will not directly or indirectly employ, engage, or otherwise solicit for employment or engagement such employee, or induce or encourage such employee to terminate or otherwise modify such employee's relationship with Cardinal. The Cardinal Employee shall keep any and all information disclosed by CVS confidential pursuant to Section 17.

(e) [***]. CVS will [***] as it relates to CVS' Authorized [***], as more fully described in the Section 6(e) Disclosure Schedule.

SECTION 7 CVS [***] AND [***] PROGRAM.

(a) Cardinal understands that CVS has established [***], which includes items CVS stocks in [***] and certain other products as CVS designates (the "[***]"). Whenever a Pharmacy orders a [***] Cardinal will [***] the corresponding [***] if applicable. [***] be defined as a [***] as detailed by First Data Bank's (FDB) NDDF Plus(TM) data dictionary. A [***] will have the following values assigned to the NDC level by FDB:

- [***]

All drug products classified with a [***] and [***] will be considered
[***]. In the event CVS, for [***] purposes, decides to elect certain items as [***]; CVS will furnish Cardinal with notification and the drug shall be [***] as instructed by CVS.

Cardinal will regularly update its files to ensure all [***] set forth above is refreshed expeditiously to ensure [***] reflects current marketplace conditions.

As stated above, whenever a Pharmacy orders a [***] Cardinal will [***] to the corresponding [***] item if applicable. [***] will be [***] on the
[***] or as specifically directed by CVS. In addition, the program will ensure the [***] is shipped to the store in a [***] to or [***] the [***], unless otherwise specifically directed by CVS.

For example; [***]. CVS' required [***] is further defined in Section 7(a) Disclosure Schedule.

CVS will have the ability to [***]. For example, [***]. Although the
[***]. In addition, [***].

Cardinal will also [***].

For example, [***].

If the item ordered [***] have a corresponding item on the [***] or if the item is unavailable, Cardinal will [***] such item with the corresponding
[***], if any, from the [***] (the "[***]") in the [***] ordered.

In the event that the [***] item is [***], then Cardinal will [***] the item with the [***] corresponding item under the [***] (the "[***]") in the [***] ordered. If a corresponding item [***], Cardinal will ship the item as [***]. Notwithstanding anything in the foregoing to the contrary, CVS reserves the right to [***] Cardinal from [***] from the [***] for corresponding items on the [***].

CVS has provided Cardinal with [***] as of January 1, 2004 (the date of this Agreement). As items on the [***] change from time to time, CVS [***] with electronic notice of such changes including the proposed effective date of such change. As it pertains to [***] only, Cardinal will [***], and have available for [***] within [***] of receipt of such notice. In the event that [***] level of any product being deleted from the [***], then Cardinal will [***] and Cardinal and CVS will mutually agree upon
[***]. In addition, CVS will provide Cardinal [***], in an [***], with a list setting forth all items on [***] as of the end of the previous month. Cardinal will use the information on such files to verify its records of
[***] and notify CVS of any discrepancies so that such discrepancies may be reconciled and corrected.

Cardinal will [***] upon request by CVS. [***] are defined as items for which either the [***] in FDB are not [***]. This definition specifically excludes items for which Cardinal has been notified by CVS to designate in a manner regardless of the [***]. In cases where an existing [***] or changed and a [***], Cardinal will seek approval from CVS prior to any
[***] to said new item.

Cardinal will accommodate [***].

CVS may in the future decide to institute an [***] similar to the [***]. Cardinal will support any [***] as designed by CVS. [***] will be based entirely on the [***].

Any and all [***] and ([***]) must be in accordance with the most recent First Data Bank data that is available. Cardinal [***] and [***] data
[***] and [***] will not be passed to CVS. CVS may instruct Cardinal to
[***], specifically as it relates to [***].

(b) CVS will be [***] to a [***] (in the form of a [***]) based on the
[***] of [***] Rx Products purchased by the Pharmacies as described in the
Section 7(b) Disclosure Schedule.

SECTION 8. CONTRACT ADMINISTRATION.

Cardinal will [***] subject to their continued validity in accordance with applicable laws and subject to such [***] concerning the applicable [***]. Notwithstanding the foregoing, [***] shall not excuse Cardinal from complying with the [***] detailed in Section 9 Disclosure Schedule or extending the applicable [***] to CVS (i.e., [***]). Cardinal will begin [***] within the later of: (i) [***] after Cardinal has received a copy of the [***] from CVS, or
(ii) the [***] date of the [***] by Cardinal directly from [***] must be forwarded to CVS within [***] for CVS' written approval [***].

SECTION 9. [***].

Cardinal will provide CVS with the [***] in the Section 9 Disclosure Schedule and Section 2(b) Disclosure Schedules.

SECTION 10. [***] POLICY.

(a) Cardinal will accept [***] in accordance with the [***] process as detailed in Section 10(a) Disclosure Schedule. Set forth in the Section
2(b) Disclosure Schedule [***].

(b) As it relates to [***] CVS and Cardinal will work in accordance with the [***] set forth in the Section 10(b) Disclosure Schedule.

(c) As it relates to [***], CVS shall use commercially reasonable efforts to immediately [***] (whether alleged or verified) to Cardinal for
[***]. Cardinal will [***] CVS at CVS' [***] for any and all [***] Cardinal by CVS and all other [***] incurred by CVS as it pertains to
[***] and Cardinal's instructions related to [***].

SECTION 11. TERM.

(a) The term of this Agreement will begin on [***] (the "COMMENCEMENT DATE"), and will continue for [***] thereafter (the "INITIAL TERM"). This Agreement may be renewed for successive renewal periods of one (1) year each upon mutual written agreement of the parties. In the event either party desires not to renew the Agreement at the expiration of the Initial Term or any renewal term, that party shall provide the other party with
[***] written notice prior to the expiration of the then current term. In the event such notification is not provided with at least the [***] notice or if no notice is given, the then current term shall be extended for a period of [***] after the expiration of such term to provide for an adequate transition period. Any reference in this Agreement to the "term of this Agreement" will include the Initial Term and any renewal term.

(b) Either party may effect an [***] of this Agreement [***] giving written notice to the other party, provided such party has first given written notice to the other party of the occurrence of a material breach of this Agreement (which notice will specify the nature of such breach) and the other party has failed to cure such breach within [***] following its receipt of such notice or, in the event such breach is not capable of being cured in such [***] period, the breaching party's failure to diligently prosecute such cure thereafter. Notwithstanding the foregoing, any failure to make any payment when due under this Agreement or any failure by the other party to perform as described within this Agreement which negatively impacts the other party's ability to perform their respective business functions, such period in which to [***] will be
[***].

(c) Either party will have the [***] upon notice to the other party following the commencement of any [***] with respect to such other party or its assets, the [***] by such other party, or the [***] by or for such other party.

(d) CVS' and [***] to each other which have accrued to date of termination or expiration will survive termination or expiration of this Agreement as shall all other obligations which by their nature extend beyond the term of the agreement, including but not limited to the obligation in Sections 16, 17, and 18. CVS and Cardinal will mutually agree on the transition of services provided by the other.

(e) Upon termination of this Agreement for any reason, CVS' rights as a licensee of CardinalCHOICE-HQ(TM) software and other Cardinal software will automatically expire, and CVS will (upon request) [***] software and any related hardware not purchased by CVS to [***]. Upon termination of this Agreement

for any reason, Cardinal [***] provide CVS with access to CVS' historical purchase data.

(f) This Agreement will supersede and replace that certain Wholesale Supply Agreement dated August 16, 2000 by and between Cardinal and CVS (the "ORIGINAL AGREEMENT"), and all extensions thereof. Upon commencement of this Agreement, the Original Agreement will terminate and be of no further force or effect whatsoever.

(g) For purposes of this Agreement the term "PROGRAM YEAR" means the twelve (12) month period beginning on January 1st and ending on December 31st, except for the final Program Year, which will be a six (6) month period beginning January 1st and ending [***].

(h) In addition to all other [***] rights set forth in this Agreement, either party shall have the right to [***] this Agreement for [***] with
[***] advance written notice [***] as described in the Section 11(h) Disclosure Schedule.

SECTION 12. [***].

CVS and Cardinal will implement a [***] as described in the Section 12 Disclosure Schedule.

SECTION 13. NOTICES.

All notices required or permitted under this Agreement will be in writing to the other party at the address set forth below (or such other address as that party may give to the other party by written notice hereunder) and will be [***].

If to:

CVS Pharmacy, INC.               CARDINAL HEALTH

One CVS Drive                    7000 Cardinal Place
Woonsocket, RI 02895             Dublin, Ohio  43017
Attn: Vice President,            Attn:  Senior Vice President,
      Pharmacy Merchandising            Retail Sales and Marketing
Telecopy:  (401) 769-9473        Telecopy:  (614) 757-8787

with copy to:                    with copy to:

General Counsel                  Chief Legal Officer at the same address
at the same address              Telecopy:  (614) 757-8919
Telecopy: (401) 765-7887

SECTION 14. TAXES/COMPLIANCE WITH LAWS.

[***] any sales, use, excise, gross receipts, or other federal, state, or local taxes or other assessments ([***]) and related interest and penalties in connection with or arising out of the transactions contemplated by this Agreement. [***].

If and to the extent any [***] or applied by Cardinal with respect to the Merchandise and/or [***] purchased under this Agreement, then applicable provisions of the Medicare/Medicaid and state health care fraud and abuse/anti-kickback laws (collectively, "fraud and abuse laws") may require disclosure of the applicable price reduction on CVS' claim or cost reports for reimbursement from governmental or other third parties. [***] applicable provisions of the fraud and abuse laws and [***] for any failure on [***].

[***] that all of the Pharmacies are properly and completely licensed in compliance with all applicable state and federal laws, regulations, rules and orders. [***] will be provided in the form of a schedule listing all of the Pharmacies, and their respective [***] Cardinal with an updated good faith schedule no later than [***] which will include information for the [***].

SECTION 15. FORCE MAJEURE.

One or more of Cardinal's or CVS' obligations under this Agreement will be excused if, but only if, and to the extent that any delay or failure to perform such obligations is due to fire or other casualty, validated (by Cardinal and CVS) product or material shortages, strikes or labor disputes, transportation delays, validated (by Cardinal and CVS) manufacturer out-of-stocks or delivery disruptions, acts of God, validated (by Cardinal and CVS)seasonal supply disruptions, or other causes beyond the reasonable control of Cardinal or CVS (a "FORCE MAJEURE EVENT"). [***] in the Section 3(a) Disclosure Schedule shall be
[***] the event of force majeure.

SECTION 16. RECORDS AND AUDIT.

(a) Cardinal will maintain records pertaining to the Merchandise purchased by CVS under this Agreement as required by applicable federal, state and local laws, rules and regulations. Not more than [***] and following [***] advance written notice to Cardinal, or as required by administrative ruling or court order, CVS will have the right to appoint one or more of its agents or employees to review [***] for the sole purpose of verifying compliance with the [***] of this Agreement or compliance with any other material terms of this Agreement. Any such review will be [***] of historical information as of the date such review begins, except if Cardinal is required by applicable law to maintain records pertaining to the Merchandise purchased by CVS under this Agreement for a [***] months, then Cardinal will also allow CVS to access such information. The information will be subject to [***] the information prior to beginning the review. Notwithstanding the foregoing, [***]. Further, with respect to [***] which must remain [***] relating to such
[***] through an employee [***] deemed reasonably [***] to

verify compliance with the [***] of such [***]. Such [***] complied with the [***] otherwise disclose to [***].

(b) CVS will maintain records pertaining to the Merchandise purchased all Pharmacies and CVS Pharmacy DCs, whether now or hereafter owned, managed or operated by CVS, under this Agreement as required by applicable federal, state and local laws, rules and regulations. Not more than [***] or as required by administrative ruling or court order, and following
[***] advance written notice to CVS, Cardinal will have the right to appoint one or more of its employees or agents to review [***] Rx Products for the sole purposes of verifying that [***] CVS Pharmacy DC [***] from Cardinal, as further described in the Section 2(a) Disclosure Schedule or compliance with any other material terms of this Agreement. Any such review will be of [***] historical information as of the date such review begins, except if CVS is required by applicable law to maintain records pertaining to the Merchandise purchased by CVS under this Agreement for a
[***], then CVS will allow Cardinal to access such information also. The information will be subject to [***] the information prior to beginning the review. Notwithstanding the foregoing, [***] and Cardinal. Further, with respect to [***] which must remain [***] through an employee to verify compliance with the [***]. Such [***] of this Agreement, but [***] otherwise disclose to [***].

SECTION 17. CONFIDENTIALITY.

Each party acknowledges that as a result of this Agreement, that party and its employees and agents, will learn confidential information of the other party (including, but not limited to, the information Cardinal provides to CVS pursuant to the [***] set forth in the Section 12 Disclosure Schedule). Neither party will disclose any confidential information of the other party to any person or entity, or use, or permit any person or entity to use, any of such confidential information, excepting only: [***] is provided only on an aggregate or "blinded" basis and not identified specifically as CVS information other than as otherwise contemplated or described in this Agreement. The specific material terms of this Agreement will be deemed to be confidential information of each party. Each party will be responsible for any breach of this confidentiality provision by its representatives.

The obligations of confidentiality hereunder will survive the termination of this Agreement for a period of two (2) years. Upon termination of this Agreement (for any reason) each party will promptly: (i) return to the other party all documentation and other materials (including copies of original documentation or other materials) containing any confidential information of the other party; or
(ii) certify to the other party, pursuant to a certificate in form and substance reasonably satisfactory to the other party, as to the destruction of all such documentation and other materials. Notwithstanding the foregoing, each party may keep one copy of any documentation containing confidential information of the other party, provided that such copy will be retained and used solely by the legal department of that party.

SECTION 18. INDEMNITY.

Cardinal will indemnify and hold harmless CVS and all future parent corporations, subsidiaries and affiliates and each of their officers, directors, employees and representatives (collectively referred to in this paragraph as CVS) from and against [***] in accordance with this Agreement or in accordance with applicable law, it being understood, however, that other [***] than as specifically stated in this paragraph. In addition, Cardinal will [***] to CVS (on a non-exclusive basis) any [***] and [***]. Notwithstanding anything to the contrary herein, Cardinal reserves its own rights [***].

CVS will indemnify and hold harmless Cardinal and all future parent corporations, subsidiaries and affiliates and each of their officers, directors, employees and representatives (collectively referred to in this paragraph as Cardinal) from and against [***], it being understood, however, that [***] is being provided other than as specifically stated in this paragraph. The parties agree that neither CVS nor Cardinal will be obligated under this section 18 with respect to any claim that results solely from the [***] of the other party.

SECTION 19. INSURANCE.

Cardinal and CVS agree to maintain the insurance as set forth in the Section 19 Disclosure Schedule.

SECTION 20. ENTIRE AGREEMENT; SUCCESSORS.

This Agreement, together with the Disclosure Schedules referenced herein, constitutes the entire Agreement and understanding of the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, proposals, and understandings between the parties relative to the subject matter hereof. [***] If all or substantially all of the stock or assets of CVS Corporation are acquired by an unrelated third party (which expressly excludes a merger where CVS Corporation is the surviving entity), then Cardinal
[***], by providing written notice to CVS of its [***] to the intended [***]. Further, if all or substantially all of the stock or assets of Cardinal Health, Inc. are acquired by an unrelated third party (which expressly excludes a merger where Cardinal Health, Inc. is the surviving entity), then CVS [***] this [***], by providing written notice to Cardinal of its [***] to the intended [***]. This Agreement will be binding on, and inure to the benefit of, and be enforceable by and against the respective successors and assigns of each party to this Agreement.

SECTION 21. AMENDMENTS.

No changes to this Agreement will be made or be binding on any party unless made in writing and signed by each party to this Agreement.

SECTION 22. WAIVER.

Neither party's failure to enforce any provision of this Agreement will be considered a waiver of any future right to enforce such provision.

SECTION 23. GOVERNING LAW.

This Agreement will be governed by the laws of the State of Ohio, without regard to choice of law principles.

SECTION 24. RELATIONSHIP OF THE PARTIES.

The relationship of the parties is and will be that of independent contractors. This Agreement does not establish or create a partnership or joint venture among the parties.

SECTION 25. SEVERABILITY.

The intention of the parties is to fully comply with all applicable laws and public policies, and this Agreement will be construed consistently with all such laws and policies to the extent possible. If and to the extent that a court of competent jurisdiction determines that it is impossible to so construe any provision of this Agreement and consequently holds that provision to be invalid, such holding will in no way affect the validity of the other provisions of this Agreement, which will remain in full force and effect.

SECTION 26. ANNOUNCEMENTS.

CVS will not issue any press release or other public announcement, verbally or in writing, referring to Cardinal or any entity which is controlled by or under common control with Cardinal Health, Inc., without Cardinal's prior written consent and advice of counsel. CVS will provide Cardinal's Executive Vice President, Retail Sales and Marketing, 7000 Cardinal Place, Dublin, Ohio 43017, with a written copy of any such press release or other public announcement [***] prior to CVS' intent to issue such release or announcement. CVS is responsible for confirming in writing that Cardinal's Executive Vice President, Retail Sales and Marketing has received any such proposed press release. Any such press release or other public announcement proposed by CVS will be subject to Cardinal's revision and final approval. Nothing contained herein will limit the right of CVS to issue a press release if, in the opinion of CVS' counsel, such press release is required pursuant to state or federal securities laws, rules or regulations.

Cardinal will not issue any press release or other public announcement, verbally or in writing, referring to CVS or any entity which is controlled by or under common control with CVS Pharmacy, Inc., without CVS' prior written consent and advice of counsel. Cardinal will provide CVS' Vice President of Pharmacy Merchandising and Director of Corporate Communications, One CVS Drive, Woonsocket, Rhode Island 02895, with a written copy of any such press release or other public announcement [***] prior to Cardinal's intent to issue such release or announcement. Cardinal is responsible for confirming in writing that CVS' Vice President of Pharmacy Merchandising and Director

of Corporate Communications has received any such proposed press release. Any such press release or other public announcement proposed by Cardinal will be subject to CVS' revision and final approval. Nothing contained herein will limit the right of Cardinal to issue a press release if, in the opinion of Cardinal's counsel, such press release is required pursuant to state or federal securities laws, rules or regulations.

SECTION 27. AUTHORIZED SIGNATORIES.

All signatories to this Agreement represent that they are authorized by their respective companies to execute and deliver this Agreement on behalf of their respective companies, and to bind such companies to the terms herein.

Accepted and Agreed to by:

Cardinal Health*

By: /s/ Mark W. Parrish
    --------------------------------
Its: Group President
     -------------------------------
Date: May 17, 2004
      ------------------------------

CVS Pharmacy, INC.

By: /s/ Matthew J. Leonard
    --------------------------------
Its: VP Pharmacy Merchandising
     -------------------------------
Date: June 1, 2004
      ------------------------------

[***]

*The term "CARDINAL HEALTH" means the following pharmaceutical distribution companies: Cardinal Health 106, Inc. (formerly known as James W. Daly, Inc.), a Massachusetts corporation (Peabody, Massachusetts); Cardinal Health 103, Inc. (formerly known as Cardinal Southeast, Inc.), a Mississippi corporation (Madison, Mississippi); Cardinal Health 110, Inc. (formerly known as Whitmire Distribution Corporation), a Delaware corporation (Folsom, California) and any other subsidiary of Cardinal Health, Inc., an Ohio corporation ("CHI"), as may be designated by CHI.

SECTION 1(a) DISCLOSURE SCHEDULE

DETERMINATION OF PHARMACIES THAT WILL DESIGNATE CARDINAL AS [***]

As of the Commencement Date, and throughout the term of this Agreement, CVS will designate Cardinal as [***].

In the event CVS [***] representing: (a) [***] of CVS' Pharmacies as of [***], then CVS [***] Cardinal [***] pursuant to the terms and conditions of this Agreement in a timeframe so as not to compromise CVS' business operations; or
(b) [***] of CVS' Pharmacies as of [***], then CVS [***] Cardinal [***] at CVS' sole discretion (in which case Cardinal and CVS will [***]).

In no event will CVS [***] which may exist related to any retail pharmacies CVS
[***].

[***]

Upon [***], as often as quarterly, CVS will provide [***] from Cardinal, as further described in the Section 2(a) Disclosure Schedule.

SECTION 1(b) DISCLOSURE SCHEDULE

[***]

TOTAL DC LIST

CVS New York, Inc.                 CVS D.S., Inc.
Three Berry Drive                  10017 Kingston Pike
Lumberton, NJ 08048                Knoxville, TN 37922

CVS Pharmacy, Inc.                 CVS IN Distribution, Inc.
150 Industrial Drive               7590 Empire Drive
North Smithfield, RI 02896         Indianapolis, IN 46219

CVS Texas Distribution L.P.
700 CVS Drive
Ennis, TX 75119
(expected open date TBD)

As CVS [***] to support Pharmacies [***] or additional Pharmacies [***] of the Pharmacies [***], CVS will [***] such [***] pursuant to the terms and conditions of this Agreement.

[***]

CVS will keep the [***] and notify Cardinal of anticipated additions to or deletions from the [***] at least thirty (30) days prior to such addition or deletion. If such addition or deletion could not have been reasonably foreseen
[***], CVS will notify Cardinal as soon as possible thereafter. In no event will Cardinal [***] pursuant to the terms of this Agreement until [***] after CVS first notified Cardinal that the [***].

If CVS [***], CVS may [***] in a timeframe so as not to compromise CVS' business operations. In no event will CVS [***].

SECTION 2(a) DISCLOSURE SCHEDULE

[***]

The term "[***]" means:

(a) with respect to the [***], Cardinal will [***] Rx Products [***]. Furthermore, CVS will [***] (as described in the Section 3(a) Disclosure Schedule).

(b) with respect to [***], CVS will [***] Rx Products [***] in and subject to Section 12 Disclosure Schedule, excluding [***].

Notwithstanding anything in this Agreement to the contrary, CVS retains the right to [***] Rx Products which are [***].

SECTION 2(b) DISCLOSURE SCHEDULE

[***] -- TERMS AND CONDITIONS

A. ORDERING/DELIVERY.

All CVS [***] for [***] Rx Products (except for [***]) will be [***]. All orders referenced in this Section 2(b) Disclosure Schedule are intended to refer to
[***] will be handled through [***] located at its corporate headquarters or such other departments designated by [***]. All references [***] Section 2(b) Disclosure Schedule are to [***] or other such designated department. [***] will be generated by specified manufacturer and will include the NDC number, complete product description and to which [***]. Quantities ordered will [***].

[***], at its option, [***] described in Section 12 Disclosure Schedule with
[***]. The price for such product from [***] will be equal to the [***] as of
[***]. Within [***] of receipt of the order for product, Cardinal will [***] to the [***] Payment for such product [***] will be due at [***] of [***] or [***] (by [***] as [***] and detailed in Section 12 Disclosure Schedule). Cardinal will [***] with respect to [***] and [***] subject to Section 12 Disclosure Schedule.

B. RECEIVING AND SHIPPING DISCREPANCIES.

1. GENERALLY.

In the event a discrepancy in quantity arises with respect to any shipment, the applicable [***] notify Cardinal of the discrepancy within
[***] of the receipt date of the shipment, and will pay the undisputed amount of any such shipment, in accordance with the [***] within this disclosure schedule. In turn, Cardinal may [***] relative to the disputed quantity or pricing.

If CVS [***] and CVS [***] to CVS, then CVS will [***] in the amount of
[***]. Cardinal may, at its sole discretion, correspondingly [***]. and will make such documentation, upon request, available to [***] the requesting party. Cardinal and CVS will [***] are not supported [***].

2. [***].

[***] is defined as one of the following scenarios:

[***] [***]

Each [***] will provide the applicable [***], which will be transmitted electronically or via facsimile) of all inbound receiving [***] discrepancies within. The WDN must be [***] associate with a copy to [***] Department. Cardinal will use all reasonable efforts to respond to a WDN within [***] of receipt of each such WDN. [***] CVS

will process a [***] (subject to Section 2(b) Disclosure Schedule) for the value of the discrepancy. Cardinal may request and CVS will provide additional written documentation in support of [***]. If Cardinal, through its own review, has documentation which refutes CVS' claim, then CVS and Cardinal shall review such documentation and any necessary adjustment will be made. Discrepancies that remain unresolved [***] following the date of the WDN will be presented to senior management at both Cardinal and CVS, for resolution.

3. [***].

[***] is defined as one or more of the following scenarios:

[***] [***]

[***] department will provide Cardinal with notice of all [***] on or before the [***] for the applicable invoice. Prior to submitting such notice to Cardinal, CVS agrees to re-verify the CVS [***] of the [***]. The written notice for [***] will take the form of [***] which will be generated and provided to Cardinal by [***] (the "ADN"). This ADN will include the purchase order number, items involved, quantities, amounts and nature of the exception. [***] (subject to Section 2(b) Disclosure Schedule) for the value of the discrepancy. Cardinal may request and CVS will provide additional written documentation in support [***]. If Cardinal, through its own review, has documentation which refutes CVS' claim, then CVS and Cardinal shall review such documentation and any necessary adjustment will be made. Cardinal and CVS will use all reasonable efforts to resolve the [***] discrepancies within [***] of receipt from CVS of the fully completed ADN. Discrepancies that remain unresolved [***] following the date of the ADN will be presented to senior management at both Cardinal and CVS for resolution.

4. [***].

a. [***].

[***] by reason of overage, wrong item, unapproved, short-dated or damage relating to [***] (subject to Section 12 Disclosure Schedule) to the applicable Cardinal servicing division within [***] of physical receipt of the product. CVS will label the product [***], attach a completed WDN, and [***]. CVS will process [***] due Cardinal in the [***] of the [***] subject to Section 2(b) Disclosure Schedule.

b. [***].

[***] by reason of overage, wrong item, unapproved, short-dated or damage relating to replenishment [***] and [***] (subject to Section 12 Disclosure Schedule) [***], within [***] of physical receipt of the product. In addition, if CVS [***] a [***] or [***] relating to [***] of such [***] (that arises while such [***]), then CVS will [***] such [***]. CVS will provide the applicable Cardinal servicing division with a

completed WDN. CVS will [***] Cardinal in the [***] of the [***] subject to Section 2(b) Disclosure Schedule

c. [***].

[***] resulting from [***] (subject to Section 12 Disclosure Schedule)
[***]. CVS will [***] from [***] CVS owes Cardinal with respect to such
[***] subject to Section 12 Disclosure Schedule.

[***] (but not related to [***]) or [***]to CVS' [***], or [***] to the
[***], as CVS [***].

[***] will be handled on an [***] with a process to be mutually agreed upon by both CVS and Cardinal.

C. CVS [***] DISCREPANCIES

The following provisions apply to [***].

1. [***].

A [***] is defined as one of the following scenarios:

[***] [***]

The Cardinal [***] CVS DC Pharmacy DC with a WDN [***] receiving discrepancies between physical product and the accompanying CVS packing list. Cardinal will use its reasonable efforts to notify CVS within [***] of physical receipt of product; however, in order to [***] CVS, [***] will be [***] which could [***] of [***] up to an [***] (except for [***], which Cardinal will [***] notify CVS of physical receipt within [***]). The WDN must be transmitted directly to the [***] associate with a copy to CVS' corporate purchasing department. CVS will use all reasonable efforts to respond to a WDN within [***] of receipt of each such WDN; however, in order to [***] such notification may be delayed, but not to exceed [***] will communicate the [***] and corresponding resolution to their respective [***] departments. CVS will [***] Cardinal (subject to Section
2(b) Disclosure Schedule) for the value of the discrepancy. Cardinal may request and CVS will provide additional written documentation in support
[***]. If Cardinal, through its own review, has documentation which refutes CVS' claim, then CVS and Cardinal shall review such documentation and any necessary adjustment will be made. Discrepancies that remain unresolved [***] following the date of the WDN will be presented to senior management at CVS and Cardinal distribution centers, for resolution.

2. [***].

[***] is defined as one or more of the following scenarios:

[***] [***]

As a result of the [***] of a [***] (in an [***]) created by CVS, Cardinal will [***] that exist between the [***]. Prior to submitting [***] report to CVS, Cardinal [***] to re-[***] the Cardinal DC's claim of the [***]. The [***] for will take the form of a standard exception report (in a form mutually agreed to by both Cardinal and CVS) which will be generated and
[***]. The ADN must include the CVS packing list, items involved, quantities received by [***], pricing and nature of the exception. CVS will [***] (subject to Section 2(b) Disclosure Schedule) for the [***]. Cardinal may request and CVS will provide additional written documentation in support of [***]. If Cardinal, through its own review, has documentation which refutes CVS' claim, then CVS and Cardinal shall review such documentation and any necessary adjustment will be made. Cardinal and CVS will use all reasonable efforts to resolve the [***] within [***] of receipt from CVS of the fully completed ADN. Discrepancies that remain unresolved [***] following the date of the ADN will be presented to senior management at both Cardinal and CVS for resolution.

D. [***]

                                 [***]

                                 [***]

[***]                   - [***]

                                 [***]

[***]                   - [***]

                                 [***]

[***]                   - [***]

[***]

[***] - [***]

E. [***]

The process relating to [***] is described in the Section 10(b) Disclosure Schedule. The following process applies to all other [***]. If CVS then will
[***]. Cardinal may, at its sole discretion, correspondingly [***] Cardinal owes to such [***]. CVS and Cardinal will be responsible to maintain detailed support documentation for any [***] and will make such documentation, upon request, available to the requesting party. Cardinal and CVS will not allow [***] if such
[***] are [***] by detailed documentation. The following terms and conditions apply to the [***]:

a. CVS will [***] which CVS reasonably believes are [***]. Cardinal may, at its sole discretion, correspondingly [***] owes to such [***].

b. CVS and Cardinal will [***] of their [***]. CVS will or [***] to [***] to for [***]. From time to time, CVS may identify a need to process a
[***] for which Cardinal has a [***], in these cases, CVS will process [***] to Cardinal for [***] CVS. Upon request, CVS will provide Cardinal with documentation [***] to substantiate each [***]. This documentation may exclude
[***] if such information is deemed to be confidential information, as reasonably determined by CVS.

c. Cardinal, at its sole discretion, will [***] from the [***].

d. CVS and Cardinal will work together to mutually [***].

F. [***]

Cardinal and CVS recognize the importance of maintaining adequate inventory of all CVS warehoused items, without compromising the [***] embedded in this Agreement. To that end, Cardinal will provide CVS with a [***]. The [***] shall be defined as the [***]. The [***] will be [***] using the following [***]:

[***]

This [***] is inclusive of any [***].

The [***] shall be maintained with the aggregate number of inventory days in each of the [***] to not exceed [***]. Execution of the [***] detailed in
Section 12 Disclosure Schedule will not [***] CVS' [***], or CVS' [***] to [***] Rx Products.

With respect to the [***] (as defined in Section 12 Disclosure Schedule) if CVS
[***] Cardinal that the aggregate [***] to the [***] during any [***] is less than [***], then Cardinal will [***] to [***] with CVS to [***] its [***] commitments.

Additionally, Cardinal commits to [***] by [***] that will lead to a [***] at CVS Pharmacy DCs and Pharmacies.

SECTION 2(c) DISCLOSURE SCHEDULE

[***] MERCHANDISE

As of January 1, 2004, Cardinal is [***] on CVS' behalf.

SECTION 3(a) DISCLOSURE SCHEDULE

PHARMACIES PURCHASE PRICE

[***]

During the term of this Agreement [***] through [***], the Pharmacies' aggregate purchases of [***] (collectively referred to herein as the "[***]").

During Cardinal's quarterly business review, Cardinal will provide CVS with purchasing information to substantiate the [***] performance.

COST OF GOODS FOR [***]

CVS will pay to Cardinal a Cost of Goods for [***] as follows [***]:

Rx Products (FDB branded)          [***]%
[***]                              [***]
[***]                              [***]
Home Health Care/DME               [***]
HBC/OTC                            [***]
[***]                              [***]

For the purpose of this Agreement "[***]" shall mean CVS will [***] (i.e. a
[***]) for all Merchandise for which a purchase order has been issued as of the date the Merchandise was [***].

CII orders must be shipped [***]. CVS reserves the [***] any CII order that
[***] any [***].

All Merchandise being delivered from Cardinal to CVS Pharmacies must have at least [***]. Under no circumstances will Merchandise be delivered to Pharmacies with [***] without expressed written approval by CVS' Vice President of Pharmacy Merchandising for each occurrence. Furthermore, Cardinal represents that it is, and will continue to be during the term of this Agreement, an industry leader in implementation of processes, practices and safeguards to prevent the distribution of Merchandise will [***] to Pharmacies.

The foregoing Cost of Goods does not apply to Merchandise which is subject to a
[***], which will instead be [***] at the [***] for the Pharmacies. Cardinal
[***] the Cost of Goods of [***]of Merchandise in the event that the [***] of such item [***] which [***] the [***] effective on the Commencement Date with respect to such item. The [***] to the [***] for such item [***].

SECTION 3(b) DISCLOSURE SCHEDULE

COST OF GOODS [***]

CVS will [***] to Cardinal its [***] with respect to all [***]. [***] means the
[***] for [***]. CVS will [***] and the [***] (except as set forth in the
Section 12 Disclosure Schedule) on its [***] at the time the [***] Cardinal's
[***].

SECTION 3(c) DISCLOSURE SCHEDULE

[***]

Pharmacies will be eligible for the following Cost of Goods [***] based upon the
[***]:

[***]           [***]         [***]           [***]
-----           -----         -----           -----
[***]           [***]         [***]           [***]

If CVS' [***] during a calendar quarter is less than [***] will be mutually determined [***].

At the end of each calendar quarter, Cardinal and CVS will evaluate CVS' [***] during such quarter (i.e., Purchases and [***] Purchases only) of all Pharmacies
[***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs.

The [***] will be [***] as follows: Cardinal and CVS will [***]. Utilizing this calculation Cardinal and CVS will [***]to 1 for the [***].

For example, during a calendar quarter, CVS' [***] then CVS' [***] Cardinal's Cost [***]. Conversely, if CVS' [***] during a calendar quarter, then CVS' [***] Cardinal's Cost [***].

The [***] is a "[***]" as such term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C. 1320a-7b(b)(3)(a). [***] and any other "[***]" received by CVS from Cardinal under any state or federal program which provides cost or charge-based reimbursement to CVS for the Merchandise purchased by CVS under this Agreement.

SECTION 4 DISCLOSURE SCHEDULE

PAYMENT TERMS

[***] PURCHASES AND [***] PURCHASES.

(i) Payment Term. Not later than the [***], CVS will cause Cardinal to
[***] for all Merchandise delivered and services performed [***].

(ii) Form of Remittance. Each payment by CVS to Cardinal will be accompanied by a remittance in a form deemed acceptable to Cardinal and CVS ([***]).

(iii) [***]. At the end of each calendar quarter, Cardinal will evaluate
[***] based on [***] in accordance with the table set forth below, adjusted to reflect legitimately disputed amounts (such as duplicative invoices and incorrect billing information). CVS and Cardinal acknowledge that CVS' Cost of Goods is based upon [***] days sales outstanding. CVS will pay Cardinal [***]% (an effective annual percentage rate of [***]%) that CVS' [***] (i.e., where CVS' [***] are greater than [***]), up to
[***] days, calculated in accordance with the formula set forth below. CVS will pay Cardinal a penalty for [***]% (an effective annual percentage rate of [***]%) per [***], from the first day, that CVS' [***] in excess of [***] (i.e., where CVS' [***] are greater than [***]). Cardinal will pay CVS [***] amount equal to [***] (an effective annual percentage rate of [***]%) per [***] CVS' [***] (i.e., where CVS' [***] are less than
[***]). Notwithstanding the foregoing, [***] either by CVS or Cardinal in the event that CVS' [***] are greater than [***] but equal to or less than
[***] (i.e., [***]).

For example:

[***]      [***]      [***]     [***]     [***]     [***]     [***]
-----      -----      -----     -----     -----     -----     -----
[***]      [***]      [***]     [***]     [***]     [***]     [***]

Cardinal will deliver to CVS an analysis of CVS' [***] in aggregate format, or other mutually acceptable format, on a weekly basis for informational purposes [***] (i.e., to assist CVS in managing its[***]). If the above calculation indicates[***], then CVS will pay Cardinal such amounts within for [***] such amounts. If the above calculation indicates that[***], then Cardinal will [***] in the form of [***] within [***] days following the end of the applicable quarter.

The parties may, but will not be obligated to, agree to a [***] whereby [***]. In such event, [***] (other than that to which the parties mutually agree)
[***].

[***]

CVS will cause Cardinal to receive payment in full for all [***] that are [***] not later than [***] prior to the date upon which Cardinal [***]. If payment is due on Saturday, CVS will cause Cardinal to receive payment in full on the[***], and if payment is due on

Sunday, CVS will cause Cardinal to receive payment in full[***]. CVS will cause Cardinal to receive payment in full for [***] that are [***] not later than
[***] after the date of the invoice (invoice date will equal ship date) for such product.

Notwithstanding the above paragraph, Cardinal and CVS agree to [***] for [***] in order to [***] of CVS [***] as detailed in Section 12 Disclosure Schedule.

Cardinal and CVS agree and acknowledge that [***]. Accordingly, in the event Cardinal or CVS [***], Cardinal or CVS will [***], and the [***]. If the problem is not cured to Cardinal's or CVS' satisfaction, then such party will [***], as further described below, that applies [***]. Notwithstanding the foregoing, CVS or Cardinal will [***]. Any [***] or [***] by Cardinal or CVS to [***]. Cardinal and CVS will work together in obtaining full value for such [***] as further set forth in the [***] described in Section 2(b) Disclosure Schedule. Further, CVS and Cardinal will be responsible to maintain detailed support documentation
[***] and will make such documentation, upon request, available to the requesting party. Cardinal and CVS will not [***] if such [***] are not supported by detailed documentation.

With respect to [***], CVS will [***] or [***].

With respect to all [***], or [***] CVS, Cardinal will [***].

The parties may, but will not be obligated to, agree to a [***] whereby [***]. In such event, [***] (other than that to which the parties mutually agree), as long as payments are made when due in accordance with the agreed upon schedule.

SECTION 6(a) DISCLOSURE SCHEDULE

CARDINAL COMPUTER SERVICES

[***]

CARDINALCHOICE(R)-HQ

                                           CVS' Cost
                                           ---------
Hardware Estimate                          [***]
          [***]                            [***]

Software Initialization
          [***]                            [***]
          [***]                            [***]
          [***]
          [***]                            [***]

Support
          [***]                            [***]

Cardinal [***] to all CVS' locations ([***], and support locations) Cardinal.com. CVS may access Cardinal.com, a healthcare internet web portal,
[***], during the term of this Agreement. Cardinal will assist in the transitioning of CVS locations to Cardinal.com by [***] to their [***] and as needed [***].

[***] CVS Pharmacies to be [***] or.

                                                SECTION 6(b) DISCLOSURE SCHEDULE

                              BASE SERVICE PACKAGE

PROGRAMS & SERVICES                                  FREQUENCY

[***]                                                    [***]

REPORTS                                              FREQUENCY

[***]                                                    [***]

BASE PACKAGE FEE: [***]
                  [***]

                                                SECTION 6(d) DISCLOSURE SCHEDULE

EMPLOYEE [***]

[***] of a CVS [***] Manager ("EMPLOYEE") who will serve as an intermediary between Cardinal and CVS specifically related to the management of the Store Rx Purchases. It is understood that the Employee shall be [***] and that the Employee's [***] and [***] shall be the [***] for all claims and liabilities, whether alleged or actual, relating to the Employee.

Cardinal will [***] of this Employee pursuant to the schedule defined below:

[***] [***]

SECTION 6(e) DISCLOSURE SCHEDULE

[***] PROGRAM

The [***] program allows CVS Pharmacies to purchase selected[***]. These Rx Products have been acquired from a division of Cardinal Health registered with the Food and Drug Administration ("FDA"), that [***] from a larger quantity or bulk containers into smaller quantities. [***] into FDA approved [***] are driven by the difference [***] smaller package size. Depending on [***], Cardinal establishes a [***] that is applied to the smaller equivalent package size. CVS' [***] is also factored [***] to further [***]. For example:

[***]

In order to maximize overall efficiency and profitability Cardinal will [***] any [***] item which [***] the CVS Authorized [***] as amended from time to time by CVS. CVS' Authorized [***] as of execution of this Agreement is detailed below. Cardinal will also [***] items and detailed within Section 6(e) Disclosure Schedule.

As part of this program, Cardinal will invoice CVS' Pharmacies at [***] for such Rx Product as of CVS' PO date for all [***] items purchased by Pharmacies. Then on a monthly basis [***] in the form of a [***] so that CVS receives such [***] within [***] from the close of said month. The [***] will be mailed in hard copy form to CVS' Manager of Wholesaler Programs Cardinal will provide CVS with [***] equal to the [***] related to all [***] items. Such [***] will be accompanied by a report detailing CVS' [***] for said [***]. The accompanying report will include but not be limited to: label name, manufacturer, CVS item number, NDC, quantity, [***]

CVS AUTHORIZED [***]

                            [***]
                            [***]
                                                    ITEM
       LABEL NAME           MANUFACTURER           NUMBER           NDC
                            [***]
[***]  [***]         [***]                             [***]           [***]

[***]

[***]

SECTION 7(a) DISCLOSURE SCHEDULE

[***]

SECTION 7(b) DISCLOSURE SCHEDULE

[***] FOR THE PHARMACIES

CVS will be [***] for the following [***] Rx Product [***]:

[***]                                         [***]
-----                                         -----
[***]                                         [***]

Cardinal will provide CVS with a monthly report detailing the Pharmacies' [***] Rx Products [***]. At the end of each Program Year, Cardinal and CVS will [***] Rx Products [***] during such Program Year. The [***] will be [***] (as set forth in the table above) of CVS' [***] Rx Products by the Pharmacies during the applicable Program Year. The [***], if any, will be [***] in the [***] so that
[***] from the close of said Program Year. The [***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs. In the event that the [***] will [***] for any reason, Cardinal will use reasonable efforts to give CVS notice no later than [***] prior to the end of the then-current Program Year.

The [***] is a "[***] " as such term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C. 1320a-7b(b)(3)(a). [***] and any other "[***] " received by CVS from Cardinal under any state or federal program which provides cost or charge-based reimbursement to CVS for the Merchandise purchased by CVS under this Agreement.

SECTION 9 DISCLOSURE SCHEDULE

PHARMACIES [***]

Cardinal will exercise best efforts to provide the Pharmacies with the following
[***] (as defined within this disclosure schedule), calculated [***] as described below: (a) [***] adjusted with respect to [***] Rx Products; (b) [***] adjusted with respect to [***]; (c) [***] adjusted with respect to [***]; and
(d) [***] with respect to [***] (the "[***]").

[***]

For purposes of this Agreement, "[***] for during [***] will be calculated using the following formula:

[***] Rx Products [***].

[***] submitted to Cardinal will be included in the [***], including, but not limited to: [***].

The following items of merchandise are excluded from the [***] and in aggregate constitute all "AUTHORIZED ADJUSTMENTS":

1. [***] - [***] will [***] upon agreement between Cardinal and CVS that [***]. Cardinal will verbally communicate any [***] for which an adjustment [***] is requested to CVS' Assistant Category [***], in the event that person is unavailable, Cardinal will notify the Director, Category [***]. Notification to CVS should only be made after Cardinal has [***] such product [***] on its own. Upon notification from Cardinal, CVS will [***] or [***]. Upon CVS [***], the [***] will be considered an Authorized Adjustment. [***].

2. CVS [***]- CVS may specifically request that [***]; CVS' Assistant Category [***] will notify Cardinal in writing of these items. In addition, [***]; if the Pharmacy specifically requests (phone in orders without a documented detailed specific request by CVS will
[***] Authorized Adjustment) Cardinal [***], then said item will be considered an Authorized Adjustment. Cardinal will provide CVS on a monthly basis a report by item of the number of store [***] to include but not be limited to: CVS store number, NDC, item description, date, and quantity. Reports should be provided no later than five (5) days following the close of the respective month.

3. [***] - an adjustment to the [***] will be [***] or CVS' [***] as provided from time to time, which [***]. Adjustment amount will only be for the [***].

For example, if [***].

4. [***]- CVS [***] in CVS commits to the timely notification of all such changes in an electronic format; in addition, on a monthly basis CVS will provide an

updated complete [***]. Cardinal will make available to CVS [***] within [***] from notification. [***] will be adjusted for the
[***]following CVS notification, during which Cardinal may [***] CVS stores [***] if applicable.

Cardinal's [***] commitment for CVS will become effective as of [***], however, CVS will not be eligible for [***] until [***].

Both Cardinal and CVS agree the achievement of the [***] on a monthly basis represents a material aspect of this Agreement. Failure by Cardinal to maintain a monthly [***] of [***] with respect to the [***] (which includes [***] Rx Products [***]) (a "[***]") will [***] CVS [***] for its [***] (as defined herein). For purposes of this Schedule 9 Disclosure Schedule, the term "[***]" means [***]. CVS will calculate and present [***], if any, to Cardinal before processing any [***] related to any [***] to CVS in connection with [***].

For example, if the [***] is calculated at [***] for any given month, [***].

Cardinal and CVS agree to meet at CVS' Support Center as necessary to review the
[***] performance and to [***] in order to [***] defined within this Section 9 Disclosure Schedule.

[***]

Cardinal recognizes [***] can have on CVS' ability [***] their customers. Therefore, both Cardinal and CVS agree that the [***]. To that end, Cardinal and CVS will mutually agree to terms that will reflect the significance of [***]. The terms will be specific towards each party's responsibilities, the calculation of [***], and remedies [***]. CVS and Cardinal agree that the arrived at structure of the [***].

SECTION 10(a) DISCLOSURE SCHEDULE

PHARMACIES MERCHANTABLE PRODUCT [***]

GENERAL POLICY.

The parties acknowledge that [***]. Product in "merchantable condition" (as defined below) may generally be returned to Cardinal from which the product was originally purchased if the return is made within the timeframes and subject to the terms and conditions described below: [***].

RETURN MADE WITHIN:                 NORMAL CREDIT AMOUNT:

[***] Days from Invoice Date        [***] of original invoice amount paid by
                                    customer. This policy [***].

More than [***] Days                [***] of [***] or other "cost" paid by
                                    customer (i.e., not including any [***].

Merchandise will be considered to be in "MERCHANTABLE CONDITION" except for the following:

A. Any item which has been [***], is without all original packaging, labeling, inserts, or operating manuals, or that is stickered, marked,
[***], or otherwise [***].

B. [***] outdated, or [***] and items purchased on a [***].

C. [***] and is specially assured that such merchandise was properly stored and protected at all times and such merchandise is returned separately in a package marked as such and accompanied by a separate credit request form.

D. In order for CVS to achieve compliance [***], CVS will return product (in Merchantable Condition) to Cardinal [***] in the CVS Pharmacy DCs ([***] Rx Products [***]). Further, CVS agrees that Cardinal may [***] in the CVS Pharmacy DCs, as indicated in the CVS monthly on-hand inventory electronic report provided to Cardinal by CVS.

CONTROLLED SUBSTANCES.

Credit for the return of controlled substances requires a separate Merchandise Return Authorization Form ("MRA FORM") and must comply with all federal and state procedures and requirements in addition to the terms and conditions described herein.

SHORTS AND DAMAGED MERCHANDISE.

Claims of order shortages (i.e., invoiced but not received), order errors and damage must be reported within [***] from the applicable invoice date. Controlled substance shortage claims must be reported immediately per DEA requirements.

[***]

CVS Pharmacy returns in dollars [***] of qualified monthly purchases of all of the Pharmacies (in dollars, each calendar month) excluding [***]. Because [***] to Cardinal if such [***] (excluding [***]), CVS and Cardinal mutually agree that Cardinal will [***] of those items which are included in the CVS monthly on-hand inventory electronic report provided to Cardinal by CVS. This [***] is designed to [***]. CVS and Cardinal may agree from time to time to implement a
[***] in cases where CVS Pharmacies are [***]. The parties will agree to the
[***] on an individual basis. [***].

[***] AND CARDINAL CREDIT REQUEST FORM.

Prior to returning any product to Cardinal, each customer must [***] verifying that all returned merchandise has been kept [***]. All requests for credit must be submitted [***]. A fully completed [***] must accompany [***]. A fully completed form includes, but is not limited to, the following information: the invoice number and invoice date for the merchandise to be returned. All return credit memos will have corresponding reference numbers that will provide CVS with a complete audit trail for reconciliation.

[***]

[***] must be placed in a proper shipping container and, for merchandise valued at more than [***] when the product is picked up. All MRAs will be reviewed by Cardinal for compliance with the [***] within this Section 10(a) Disclosure Schedule. Cardinal will process credits within [***] of receipt of merchantable product from CVS. In instance were credit has not been received for product
[***] to Cardinal for which Cardinal has no record of said [***].

MONTHLY REPORTING.

Cardinal will provide an electronic report on a monthly basis, which will detail
(1) [***], (2) [***], (3) information relating to returns in excess of [***], and (4) [***].

OTHER RESTRICTIONS.

This policy is further subject to modification as may be deemed necessary to comply with applicable federal and/or state regulations, FDA guidelines, and state law.

SECTION 10(b) DISCLOSURE SCHEDULE

[***]

The process relating to [***] is described in the Section 2(b) Disclosure Schedule. The following process applies to [***]"

GENERAL POLICY.

The following process applies to [***]. If CVS [***] and CVS reasonably believes
[***] (as determined by [***]), then CVS and Cardinal will follow the process detailed below to [***]. CVS and Cardinal will [***].

Instead of [***], CVS will [***] as in effect from time to time will be the basis of valuing all of [***].

Product may be returned to [***] (a) with which [***], (b) are not either [***], or (c) which do not have [***]. If CVS elects to [***]. CVS may decide at its own discretion the most efficient process to [***] to [***], if applicable. Any
[***] selected by CVS must enter into a confidentiality agreement, in a form mutually acceptable to Cardinal and CVS, prior to accepting [***].

[***]

CVS and Cardinal will [***] under this policy to its selected [***], if applicable. [***] will [***]. CVS will instruct the [***] to provide [***] on behalf of CVS.

CVS will instruct each [***] by CVS and is returned through a [***], and to
[***] prepared by the [***]. CVS and Cardinal acknowledge that CVS will handle,
[***] manufacturer or supplier with which [***].

CVS will pay [***] for all of such [***] fees relating [***] hereunder, including, but not limited to, [***] delivery and [***], reporting, EDI transactions, which will be [***].

CVS' account will be adjusted in accordance with the following procedure:

1) Once per week, Cardinal will [***]. Cardinal will [***] and will provide said information to CVS upon request in a mutually acceptable electronic format.

2) Cardinal will [***] received by Cardinal which has been [***]. CVS may [***]. Cardinal may, at its sole discretion, correspondingly [***].

3) In addition, Cardinal [***]. CVS and Cardinal recognize that this general process will vary [***] with respect to the methods as well as the associated timelines. That being said, CVS [***]. CVS will use all reasonable means to expeditiously resolve identified issues to the satisfaction of all associated parties. For [***], Cardinal will [***].

4) At the end of each calendar week, Cardinal will [***] and CVS will [***]. This [***] will consist of [***] from the following detailed transactions completed in the current calendar week: [***] Cardinal will [***]. Accordingly, Cardinal will [***]. Cardinal may not [***]. CVS, at its discretion, may notify Cardinal in writing in order to change either of the [***] detailed in the preceding sentence. Cardinal will not [***]. Furthermore, CVS stipulates [***]. Therefore, Cardinal may [***]. In addition, upon Cardinal's request (as often as monthly), CVS will provide Cardinal on a confidential basis (subject to Section 17 of this Agreement) a report that summarizes [***]. Cardinal will not contact any manufacturer related to the information contained in [***]. In return for Cardinal's strict confidentiality as it pertains to [***], CVS will [***] listed in the [***]. Any [***] memo identified in the [***] shall be [***]. CVS will not be financially responsible if Cardinal takes actions that are not consistent with this Section 10 (b) Disclosure Schedule.

The [***] will not be subject to Section 16 of this Agreement; instead the following audit process will apply. Not more than once in any [***] period, and following [***] advance written notice to CVS, Cardinal will have the right to appoint an agent(s) (as further described below) to review those relevant records applicable to such [***]. Said audit will be strictly limited to verifying the following: 1) [***], and 2) that [***]. No other terms or conditions contained within the [***] or any other information gained through such audit process shall be disclosed to Cardinal. Cardinal may only review records relating to the [***] through an employee of one of the top national accounting firms deemed reasonably acceptable to CVS (i.e., not a Cardinal employee). Any such review will be limited to [***] of historical information as of the date such review begins. The information will be subject to a confidentiality agreement prepared by CVS and signed by Cardinal and its agent(s) who will have access to the information prior to beginning the review. Notwithstanding the foregoing, Cardinal may only appoint agents who are employees of one of the top national accounting firms, as may be deemed reasonably acceptable to CVS.

In addition, the parties hereby acknowledge and agree that upon reasonable written request from Cardinal, CVS shall deliver to Cardinal a [***]. The [***] provided will indicate that: (i) CVS has [***], (ii) CVS will [***] and (iii) Cardinal has, and will have, [***] contained in the [***] so long as Cardinal does not take actions that are inconsistent with the provisions of this Disclosure Schedule.

If Cardinal believes it will be harmed due to [***], then Cardinal may at its option [***]. This resolution process will be executed so that the related transactions [***]. With that being said, CVS will work with Cardinal to resolve all [***] to the mutual satisfaction of both parties.

5) As long as CVS causes the [***] (if applicable) to transmit to Cardinal information required by Cardinal [***] acceptable to Cardinal, then Cardinal will [***]. However, due to the excessive labor expenses Cardinal will incur if the information is not transmitted in an [***] acceptable to Cardinal, including but not limited to [***], CVS will [***]. In addition, Cardinal will use its reasonable efforts to notify CVS promptly if the [***] is unable to deliver the required information in [***].

With the weekly credit information, Cardinal will [***]. As well, as often as monthly, Cardinal will provide CVS with [***]. Cardinal [***].

If Cardinal [***], Cardinal will [***].

[***]

If Cardinal is unable to execute the process detailed within this disclosure schedule with [***] for any reason, then CVS may [***] in accordance with the financial process established within this disclosure schedule. Cardinal may, at its sole discretion, correspondingly [***] according to its [***] to the applicable manufacturer or supplier. With that being said, CVS will work with Cardinal to resolve [***] to the mutual satisfaction of both parties.

[***]

CVS currently [***]. In the event that [***] (Pharmacies and CVS Pharmacy DCs, if applicable). Notwithstanding the foregoing, Cardinal will not [***]. It will be [***] sole responsibility [***] (with copy to [***] subject to Section 13)
[***] that CVS utilizes its [***].

Cardinal and CVS may mutually agree to modify this [***] in writing from time to time, except where required by law (in which case, Cardinal or CVS may modify this [***] without mutual agreement).

SECTION 11(h) DISCLOSURE SCHEDULE

[***]

[***] Agreement [***] to Section 11(h) [***] the expiration of the Initial Term, then [***] within [***] after the date of [***], an amount equal to [***] (the "[***]").

In the event [***] this Agreement [***] pursuant to Section 11(h) [***] the expiration of the Initial Term, then [***] an amount equal to [***] within [***] after the date of [***] (the "[***]").

The parties hereby acknowledge and agree that the amount of the [***] represents, among other factors, [***] during the Initial Term of this Agreement. The parties hereby acknowledge and agree that the amount of the
[***], among other factors, a [***] during the Initial Term of this Agreement. Furthermore, the parties acknowledge and agree that the [***] negotiated in good faith and [***]. Finally, upon [***] of this Agreement for any reason, CVS will work with Cardinal in accordance with a reasonable schedule agreed to by the parties so that all outstanding amounts due and owing to Cardinal are paid [***] date and all outstanding issues are resolved.

SECTION 12 DISCLOSURE SCHEDULE

[***]

The goal of the [***] is to [***] under which Cardinal will [***] which are or become part of this Agreement. The parties agree and acknowledge that this [***] is part of this Agreement, and is not a separate or distinct agreement.

Notwithstanding anything in this Agreement to the contrary, the [***].

The [***] is designed to [***]. CVS will [***].

As part of the [***], Cardinal will [***] (in addition to [***]) for the respective [***] during the term of this Agreement. The [***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs. Additionally, Cardinal will [***] with the [***] detailed in Section 2(b) Disclosure Schedule [***]. In return for [***] and the [***], Cardinal [***] through certain [***] as described below.

[***] as of the execution of this Agreement with the exception of [***] (as detailed in and subject to Section 12 Disclosure Schedule) . Cardinal will
[***]. In return for [***] from [***] until [***], by [***], Cardinal will
[***]. The timing of [***].

CVS will not be required to [***] sole determination. The [***] Exhibit below details [***] CVS will [***] to Section 12 Disclosure Schedule) and the corresponding [***] to be amended in writing pursuant to Section 13 upon mutual agreement of CVS and Cardinal. While CVS and Cardinal may both agree that it is in the best interest of both parties to [***] and will occur at [***].

CVS is under no obligation to [***] at its sole discretion. With that said, CVS and Cardinal may [***] sole discretion. So that Cardinal and CVS can [***], Cardinal will provide to CVS in an electronic format a detailed weekly report detailing said [***] The [***] will include but not be limited to the following elements as it pertains to Cardinal [***]. As it pertains to [***] Report only, Cardinal will [***]. All other data elements will be updated [***] and immediately sent to CVS [***] accurately representing Cardinal's [***] available to CVS as of the creation of the [***].

[***]

For all of [***] etc, CVS will [***] within [***] of the end of each CVS fiscal quarter in the form of [***] (in addition to [***]) [***] during the term of this Agreement. [***]. CVS and Cardinal will agree with [***].

For example; [***], then Cardinal will [***].

Further terms and conditions of the [***] are as follows:

1) CVS and Cardinal will [***] within [***]of the respective CVS fiscal month's end or as soon as practical.

2) The [***] will not be applied [***]. The [***] will be automatically applied [***].

3) CVS contract pricing on [***].

4) The [***] is based on the assumption that Cardinal will not [***].

5) Cardinal will not [***]. However, Cardinal will [***]:

a. [***].

b. [***].

c. [***].

6) At the start of this Agreement, Cardinal will [***]. To that end, CVS and Cardinal have agreed that [***] under this Agreement.

7) [***] For example, if [***].

8) For all [***].

9) If CVS [***], then Cardinal will not [***].

10) If CVS [***] (as defined below) [***], then Cardinal will not [***].

[***]

As a function of the [***], Cardinal will [***] as defined below. Through the
[***], Cardinal will [***] as further defined below. Notwithstanding anything else in this Agreement to the contrary, Cardinal will [***].

The "[***]" for the [***] are limited to:

[***]
[***]
[***].

Further terms and conditions of the [***] are as follows:

1) CVS will [***]; CVS will not be required to [***].

2) CVS [***]to include but not limited to:

[***]

3) [***]In the event that [***] (Pharmacies and CVS Pharmacy DCs, if applicable). Notwithstanding the foregoing, Cardinal will [***]. It will be [***] sole responsibility to notify [***] in writing (with copy to
[***] subject to Section 13) [***] related to [***].

4) CVS will only accept product [***] to CVS Pharmacy DCs that has at least
[***]. All products shipped with less than [***] will be considered "[***]". On an exception basis, CVS will [***] with at least [***]. However, both parties agree that no more than [***]. In addition, upon CVS request (as often as monthly), Cardinal will provide CVS a [***]. The
[***] will contain all [***] and will [***] (both CVS and Cardinal agree that the [***] will be made available to CVS no later than September 1, 2004). Notwithstanding anything in this Agreement to the contrary, at no time will Cardinal ship [***] with less than [***] to CVS Pharmacy DCs. With that said, CVS will [***].

Additional terms and conditions of the [***] are as follows:

1. Term - The [***] will commence as of [***], and terminate upon [***].

2. [***] - Cardinal will [***]

3. [***] - If Cardinal's [***], and if CVS is [***] then CVS will, upon request by Cardinal, [***]. With respect to the foregoing [***], CVS will
[***]. CVS will [***].

(a) [***]. On the same day as CVS receives a shipment of [***] ordered as part of a [***] related to this [***], CVS will [***]. Cardinal will [***]. CVS will [***] and CVS will [***] based on the applicable payment terms. CVS will [***] and Cardinal will [***]. The process outlined in the Section 2(b) Disclosure Schedule will apply to any discrepancies.

(b) [***]. As it pertains to [***] purchases only, on the same day as CVS receives the shipment of [***]

As it pertains to the payment of [***], Cardinal will receive an invoice from the applicable manufacturer for the [***], and Cardinal will [***], based on the applicable payment terms. As the [***] for such [***] in accordance with the terms of this Agreement. The process outlined in the
Section 2(b) Disclosure Schedule will apply to any discrepancies.

4. Purchase Information - CVS will provide Cardinal with [***] on behalf of the CVS Pharmacy DCs pursuant to the [***]. Such information will include details regarding all [***] and other information reasonably required by Cardinal to administer the [***]. To assist Cardinal with [***], CVS will provide Cardinal with information reasonably requested by Cardinal including but not limited to [***], and a change in CVS Pharmacy DC that services a particular Pharmacy.

5. Limitations - All [***]. All [***]. CVS will not [***] (outside of this
[***]) on behalf of the Pharmacies [***]. It is understood and agreed that Cardinal will not [***]. Furthermore, the parties acknowledge and agree that all information associated with the [***] is confidential information subject to the provisions of Section 17 of this Agreement.

6. Records, Audit and Confidentiality - The [***] is subject to the record keeping and audit provisions set forth in Section 16 of this Agreement. Cardinal may [***]. Cardinal will notify CVS in writing (subject to
Section 13) prior to the [***] Further, Cardinal will use reasonable efforts to [***]CVS if needed.

7. [***] - All payments for invoicing under the [***] will be made [***].

8. Waiver - [***]

9. [***] Relating to the [***] - CVS and Cardinal acknowledge that either party may from time to time may, in good faith,[***]. In the event that either party [***], each party agrees to use all reasonable efforts to resolve all such [***] as expeditiously as possible on a fair and equitable basis. To that end, Cardinal and CVS will assemble a panel consisting of [***] (the "EXECUTIVE COMMITTEE") to resolve [***] and address other issues as they may determine. With respect to [***], a copy of the terms of this Agreement, as amended from time to time, agreed upon facts and [***], and a concise summary of the basis for each side's contentions will be provided to the executives who will review the same, confer, and attempt to reach a mutual resolution of the issue within [***] following either party's receipt of notice of [***].

[***] EXHIBIT.

      [***]                                 [***]
      -----                                 -----
[***]                                       [***]

                               45

                                          SECTION 19 DISCLOSURE SCHEDULE

INSURANCE

During the term of the Agreement, CVS and Cardinal will each maintain commercial general liability insurance having a limit of not less than $[***], pursuant to one or more insurance policies with reputable insurance carriers. Upon request, each party will deliver to the other certificates evidencing such insurance. Cardinal's certificate of insurance to CVS will reflect that CVS [***]. Neither party will cause nor permit such insurance to be canceled or modified (exclusive of appropriate replacement policies) to materially reduce its scope or limits of coverage during the term of the Agreement.

Exhibit 10.03

[***] indicates the omission of confidential portions for which confidential treatment has been requested. Such confidential information has been filed separately with the Commission.

FIRST AMENDMENT TO
WHOLESALE SUPPLY AGREEMENT[GRAPHIC OMITTED]

This first amendment ("FIRST AMENDMENT") dated May 26, 2004 amends the Wholesale Supply Agreement dated January 1, 2004 ("AGREEMENT") between CVS and Cardinal Health. CVS and Cardinal Health ("PARTIES") desire to enter into this First Amendment to amend Sections 1(a), 1(b), 3(c), 6(d), 7(b), 10(a), and 12 Disclosure Schedules all as more particularly set forth below.

The Parties agree as follows:

1. Effective Date of Amendment. This First Amendment shall be effective
[***]. In the event that the [***] does not close on or [***], then this First Amendment shall become null and void and shall be of no force or effect.

2. Scope. Notwithstanding anything else in the Agreement or this First Amendment, in no event will CVS be required to designate [***] as a
[***] as a CVS [***] under the Agreement, if such [***] to [***] by CVS for any reason, or which, [***] by CVS would or could, in CVS' reasonable business judgment, [***], or [***].

3. Disclosure Schedules. The Agreement is amended by deleting therefrom the following disclosure schedules in their entirety:

"Section 1(a) Disclosure Schedule", "Section 1(b) Disclosure Schedule", "Section 3(c) Disclosure Schedule", "Section 6(d) Disclosure Schedule", "Section 7(b) Disclosure Schedule", "Section 10(a) Disclosure Schedule", and "Section 12 Disclosure Schedule"

and replacing them with the following new Disclosure Schedules:

Executed First Amendment 7-26-04 1

attached to this First Amendment and incorporated into this First Amendment and into the Agreement by this reference, which shall be attached by the Parties to their respective copies of the Agreement.

4. Generally. It is the Parties' intent for the Agreement and this Amendment ([***]) to be applied and construed as a single instrument. The Agreement, as modified by this First Amendment, remains in full force and effect and constitutes the entire agreement among the Parties regarding this subject matter and supersedes all prior or contemporaneous writings and understandings among the Parties with respect thereto. This First Amendment will be binding on the Parties and their successor and assigns. If any term or provision of this First Amendment is determined to be illegal or unenforceable by a court of competent jurisdiction, the remaining terms and provisions of this First Amendment and the Agreement will remain in full force and effect. Only a subsequent writing signed by both Parties may amend this First Amendment or further amend the Agreement.

CVS Pharmacy, Inc                         Cardinal Health*

By: /s/ Matthew J. Leonard                By: /s/ Michael J. Bender
    ----------------------------              ----------------------------------
Print Name: Matthew J. Leonard            Print Name: Michael J. Bender
            --------------------                      --------------------------
Title: VP Pharmacy Merchandising          Title: EVP, Retail Sales and Marketing
       -------------------------                 -------------------------------

Executed First Amendment 7-26-04 2

SECTION 1(A) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

DETERMINATION OF PHARMACIES THAT WILL DESIGNATE CARDINAL AS
[***]

As of the Commencement Date, and throughout the term of this Agreement, CVS will designate Cardinal as [***]. Furthermore, CVS will designate Cardinal [***] which are located in the States of [***] and which Cardinal was designated as the [***] (approximately [***]), and which remain open and continue to operate
[***].

In the event CVS [***] representing: (a) [***] of CVS' Pharmacies as of [***], then CVS will designate Cardinal as [***] pursuant to the terms and conditions of this Agreement in a timeframe so as not to compromise CVS' business operations; or (b) [***] of CVS' Pharmacies as of [***], then CVS [***] Cardinal
[***] at CVS' sole discretion (in which case Cardinal and CVS will [***]).

In no event will CVS [***] which may exist related to any retail pharmacies CVS
[***].

[***]

Upon [***], as often as quarterly, CVS will provide [***] from Cardinal, as further described in the Section 2(a) Disclosure Schedule.

Executed First Amendment 7-26-04 3

SECTION 1(B) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

[***]

TOTAL DC LIST

CVS New York, Inc.                   CVS D.S., Inc.
Three Berry Drive                    10017 Kingston Pike
Lumberton, NJ 08048                  Knoxville, TN 37922

CVS Pharmacy, Inc.                   CVS IN Distribution, Inc.
150 Industrial Drive                 7590 Empire Drive
North Smithfield, RI 02896           Indianapolis, IN 46219

CVS Texas Distribution L.P.          CVS Garland TX Distribution, L.P.
700 CVS Drive                        4409 Action Street
Ennis, TX 75119                      Garland TX 75042
(expected open date TBD)

CVS Conroe TX Distribution, L.P.     CVS Orlando FL Distribution, L.L.C.
Name TBD                             Name TBD
100 Trade Center Blvd.               8201 Chancellor Drive
Conroe TX 77385                      Orlando FL 32809

As CVS [***] to support Pharmacies [***] or additional Pharmacies [***] of the Pharmacies [***], CVS will [***] such pursuant to the terms and conditions of this Agreement.

[***]

CVS will keep the [***] and notify Cardinal of anticipated additions to or deletions from one [***] at least thirty (30) days prior to such addition or deletion. If such addition or deletion could not have been reasonably foreseen
[***], CVS will notify Cardinal as soon as possible thereafter. In no event will Cardinal [***] pursuant to the terms of this Agreement until [***] after CVS first notified Cardinal that the [***].

If CVS [***], CVS may [***] Cardinal as the [***] to such [***] in a timeframe so as not to compromise CVS' business operations. In no event will CVS [***].

Executed First Amendment 7-26-04 4

SECTION 3(A) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

PHARMACIES PURCHASE PRICE

PHARMACY [***].

During the term of this Agreement (through, the Pharmacies' aggregate purchases of [***] (collectively referred to herein as the "[***]").

During Cardinal's quarterly business review, Cardinal will provide CVS with purchasing information to substantiate the [***] performance.

Cost of Goods for [***]

CVS will pay to Cardinal a Cost of Goods for [***] as follows:

Rx Products (FDB branded)  [***]%
[***]                      [***]
[***]                      [***]
Home Health Care/DME       [***]
HBC/OTC                    [***]
[***]                      [***]

For the purpose of this Agreement [***] shall mean CVS will [***] (i.e. a [***]) for all Merchandise for which a purchase order has been issued as of the date the Merchandise was [***].

CII orders must be shipped [***]. CVS reserves the [***] any CII order that
[***] any [***].

All Merchandise being delivered from Cardinal to CVS Pharmacies must have at least [***]. Under no circumstances will Merchandise be delivered to Pharmacies with less than [***] without expressed written approval by CVS' Vice President of Pharmacy Merchandising for each occurrence. Furthermore, Cardinal represents that it is, and will continue to be during the term of this Agreement, an industry leader in implementation of processes, practices and safeguards to prevent the distribution of Merchandise will [***] to Pharmacies.

The foregoing Cost of Goods does not apply to Merchandise which is subject to a
[***], which will instead be [***] at the [***] for the Pharmacies. Cardinal
[***] the Cost of Goods of [***] of Merchandise in the event that the [***] of such item [***] which the effective on the Commencement Date with respect to such item. The [***] to the Cost of Goods for such item [***].

Executed First Amendment 7-26-04 5

SECTION 3(C) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

[***]

Pharmacies will be eligible for the following Cost of Goods [***] based upon the
[***]:

-------------------------------------------------------------------------------
            [***]                    [***]         [***]              [***]
-------------------------------------------------------------------------------
            [***]                    [***]         [***]              [***]
-------------------------------------------------------------------------------

If CVS' [***] during a calendar quarter is less than [***] will be mutually determined [***]. At the end of each calendar quarter, Cardinal and CVS will evaluate CVS' [***] during such quarter (i.e., [***] Purchases and [***] Purchases only) of all Pharmacies [***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs.

The [***] will be [***] as follows: Cardinal and CVS will [***]. Utilizing this calculation Cardinal and CVS will [***] to [***] for the [***].

For example, during a calendar quarter, CVS' [***], then CVS' [***] Cardinal's Cost [***] Conversely, if CVS' [***] during a calendar quarter, then CVS' [***] Cardinal's Cost [***].

In addition, if CVS [***] CVS' qualified monthly purchases per Pharmacy [***], then CVS may elect to [***], and [***] following the date of [***] only. If CVS
[***] Cardinal [***] Cardinal [***] or CVS [***] of the [***], then such [***]. Regardless of whether the [***] are included or excluded in the determination of the [***], said [***]. To that end, it has been agreed that the [***] will not be included in the determination of the [***] volume category only, until [***]. However, the [***] and [***] of such Pharmacies will [***] (Pharmacies excluding
[***]).

The [***] is a "[***]" as such term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C. 1320a-7b(b)(3)(a). [***] and any other [***] received by CVS from Cardinal under any state or federal program which provides cost or charge-based reimbursement to CVS for the Merchandise purchased by CVS under this Agreement.

Executed First Amendment 7-26-04 6

SECTION 6(d) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

EMPLOYEE [***]

[***] of a CVS Manager ("Employee") who will serve as an intermediary between Cardinal and CVS specifically related to the management of the Store Rx Purchases. It is understood that the Employee shall be [***] and that the Employee's [***] and [***] shall be the [***] for all claims and liabilities, whether alleged or actual, relating to the Employee.

Cardinal will [***] of this Employee pursuant to the schedule defined below:

[***] [***]

Executed First Amendment 7-26-04 7

SECTION 7(B) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

[***] FOR THE PHARMACIES

CVS will be [***] for the following [***] Rx Product [***]:

------------------------------------------------------------------------
                   [***]                              [***]
------------------------------------------------------------------------
                   [***]                              [***]
------------------------------------------------------------------------

Cardinal will provide CVS with a monthly report detailing the Pharmacies' [***] Rx Products [***] At the end of each Program Year, Cardinal and CVS will [***] during such Program Year. The [***] will be [***] (as set forth in the table above) of CVS' [***] Rx Products by the Pharmacies during the applicable Program Year. The [***], if any, will be [***] in the [***] so that [***] from the close of said Program Year. The [***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs. In the event that the [***] will [***] for any reason, Cardinal will use reasonable efforts to give CVS notice no later than [***] prior to the end of the then-current Program Year.

The "[***]" is a [***] as such term is used under section 1128(B)(3)(A) of the Social Security Act, 42 U.S.C. 1320a-7b(b)(3)(a). [***] and any other "[***]" received by CVS from Cardinal under any state or federal program which provides cost or charge-based reimbursement to CVS for the Merchandise purchased by CVS under this Agreement.

Executed First Amendment 7-26-04 8

SECTION 9 DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

PHARMACIES [***]

[***]

For purposes of this Agreement, "[***]" for [***] during [***] will be calculated using the following formula:

[***].

[***] submitted to Cardinal will be included in the [***] including, but not limited to: [***].

The following items of merchandise are excluded from the [***] and in aggregate constitute all "AUTHORIZED ADJUSTMENTS":

2. CVS [***] - CVS may specifically request that [***]; CVS' Assistant Category [***] will notify Cardinal in writing of these items. In addition, [***]; if the Pharmacy specifically requests (phone in orders without a documented detailed specific request by CVS will
[***] Authorized Adjustment) Cardinal [***], then said item will be considered an Authorized Adjustment. Cardinal will provide CVS on a monthly basis a report by item of the number of store [***] to include but not be limited to: CVS store number, NDC, item description, date, and quantity. Reports should be provided no later than five (5) days following the close of the respective month.

3. [***] - an adjustment to the [***] will be [***] or CVS' [***] as provided from time to time, which [***] Adjustment amount will only be for the [***].

For example, if [***]

4. [***] - CVS [***] in [***]. CVS commits to the timely notification of all such changes in an electronic format; in addition, on a monthly basis CVS will provide an updated complete [***]. Cardinal will make available to CVS [***] within [***] will be adjusted

Executed First Amendment 7-26-04 9

for the [***] following CVS notification, during which Cardinal may
[***] CVS stores [***] if applicable.

Cardinal's [***] commitment for CVS will become effective as of [***], however, CVS will not be eligible for [***] until [***]. As it relates to the [***] only, CVS will not be eligible for [***] until [***]. As an inducement for CVS to make the preceding concession, Cardinal will [***].

Both Cardinal and CVS agree the achievement of the [***] on a monthly basis represents a material aspect of this Agreement. Failure by Cardinal to maintain a monthly [***] with respect to the [***] (which includes [***] Rx Products
[***]) (a "[***]") will [***] CVS [***] for its [***] (as defined herein). For purposes of this Schedule 9 Disclosure Schedule, the term "[***]" means [***]. CVS will calculate and present [***], if any, to Cardinal before processing any
[***] related to any [***] to CVS in connection with [***].

For example, if the [***] is calculated at [***] for any given month, [***].

Cardinal and CVS agree to meet at CVS' Support Center as necessary to review the
[***] performance and to [***] in order to [***] defined within this Section 9 Disclosure Schedule.

[***]

Executed First Amendment 7-26-04 10

SECTION 10(A) DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

PHARMACIES MERCHANTABLE PRODUCT [***]

GENERAL POLICY.

RETURN MADE WITHIN:                 NORMAL CREDIT AMOUNT:

[***] Days from Invoice Date        [***] of original invoice amount paid by
                                    customer.  This policy [***].

[***] Days                          [***] of [***] or other "cost" paid by
                                    customer (i.e., not including any [***] to
                                    [***]) [***]

Merchandise will be considered to be in "MERCHANTABLE CONDITION" except for the following:

A. Any item which has been [***], is without all original packaging, labeling, inserts, or operating manuals, or that is stickered, marked,
[***], or otherwise [***].

B. [***] outdated, or [***] and items purchased on a [***].

D. In order for CVS to achieve compliance [***], CVS will return product (in Merchantable Condition) to Cardinal [***] in the CVS Pharmacy DCs (excluding [***] Rx Products [***]). Further, CVS agrees that Cardinal may
[***] in the CVS Pharmacy DCs, as indicated in the CVS monthly on-hand inventory electronic report provided to Cardinal by CVS.

CONTROLLED SUBSTANCES.

SHORTS AND DAMAGED MERCHANDISE.

Executed First Amendment 7-26-04 11

[***]

CVS Pharmacy returns in dollars [***] of qualified monthly purchases of all of the Pharmacies (in dollars, each calendar month) excluding [***]. Because [***] to Cardinal if such [***] (excluding [***]), CVS and Cardinal mutually agree that Cardinal will [***] of those items which are included in the CVS monthly on-hand inventory electronic report provided to Cardinal by CVS. This "[***]" is designed to [***]. CVS and Cardinal may agree from time to time to implement a
[***] in cases where CVS Pharmacies are [***]. The parties will agree [***].

Cardinal will fully participate in assisting CVS with a [***] associated with the [***] under this initiative will be valued at [***] and will have at least
[***].

[***] AND CARDINAL CREDIT REQUEST FORM.

[***]

[***] must be placed in a proper shipping container and, for merchandise valued at more than [***] when the product is picked up. All MRAs will be reviewed by Cardinal for compliance with the [***] within this Section 10(a) Disclosure Schedule. Cardinal will process credits within [***] of receipt of merchantable product from CVS. In instance were credit has not been received for product returned to Cardinal for which Cardinal has no record of said Monthly Reporting.

MONTHLY REPORTING.

Cardinal will provide an electronic report on a monthly basis, which will detail
(1) [***], (2) [***] and [***], (3) [***] returns in excess of [***] (4) [***].

OTHER RESTRICTIONS.

This policy is further subject to modification as may be deemed necessary to comply with applicable federal and/or state regulations, FDA guidelines, and state law.

Executed First Amendment 7-26-04 12

SECTION 12 DISCLOSURE SCHEDULE AMENDED MAY 26, 2004

[***]

Notwithstanding anything in this Agreement to the contrary, the [***].

The [***] is designed to [***]. CVS will [***].

[***] as of the execution of this Agreement with the exception of [***] (as detailed in and subject to Section 12 Disclosure Schedule). Cardinal will [***]. In return for from until [***], by [***], Cardinal will [***]. The timing of
[***].

CVS will not be required to [***] sole determination. The [***] Exhibit below details [***] CVS will [***] (subject to Section 12 Disclosure Schedule) and the corresponding [***] to be amended in writing pursuant to Section 13 upon mutual agreement of CVS and Cardinal. While CVS and Cardinal may both agree that it is in the best interest of both parties to and will occur at [***].

CVS is under no obligation to [***] at its sole discretion. With that said, CVS and Cardinal may [***] sole discretion. So that Cardinal and CVS can [***], Cardinal will provide to CVS in an electronic format a detailed weekly report detailing said [***]. The [***] will include but not be limited to the following elements as it pertains to Cardinal [***]. As it pertains to [***] Report only, Cardinal will [***]. All other data elements will be updated [***] immediately sent to CVS [***] accurately representing Cardinal's [***] available to CVS as of the creation of the [***].

[***]

For all of CVS [***] ([***], etc), CVS will [***] within [***] of the end of each CVS fiscal quarter in the form of [***] (in addition to [***]) for [***] during the term of this Agreement. [***]. CVS and Cardinal will agree with
[***]. For example; [***] then Cardinal will [***]. Further terms and conditions of the [***] are as follows:

1) CVS and Cardinal will [***] within [***] of the respective CVS fiscal month's end or as soon as practical.

Executed First Amendment 7-26-04 13

2) The [***] will not be applied [***]. The [***] will be automatically applied [***].

3) CVS contract pricing on [***].

4) The [***] is based on the assumption that Cardinal will not [***].

5) Cardinal will not [***]. However, Cardinal will [***]

a. [***].
b. [***].
c. [***].

6) At the start of this Agreement, Cardinal will [***]. To that end, CVS and Cardinal have agreed that [***] under this Agreement.

7) [***] For example, if [***].

8) For all [***].

9) If CVS [***] then Cardinal will not [***].

10) If CVS (as defined below) then Cardinal will not [***].

[***]

As a function of the [***], Cardinal will [***] as defined below. Through the
[***] Cardinal will [***] as further defined below. Notwithstanding anything else in this Agreement to the contrary, Cardinal will not [***]. The [***] for the [***] are limited to:

[***]
[***]
[***]

Further terms and conditions of the [***] are as follows:

1) CVS will [***]; CVS will not be required to [***].

2) CVS [***] to include but not limited to:
[***]
[***]
[***]
[***]

3) [***]. In the event that [***] (Pharmacies and CVS Pharmacy DCs, if applicable). Notwithstanding the foregoing, Cardinal will [***]. It will be [***] sole responsibility to notify [***] in writing (with copy to
[***] subject to Section 13) related to.

Executed First Amendment 7-26-04 14

Additional terms and conditions of the [***] are as follows:

1. Term - The [***] will commence as of [***], and terminate upon [***].

2. [***] - Cardinal will [***].

3. [***] - If Cardinal's [***], and if CVS is [***], then CVS will, upon request by Cardinal, [***]. With respect to the foregoing [***], CVS will
[***]. CVS will [***].

(a) [***]. On the same day as CVS receives a shipment of [***] ordered as part of a [***] related to this [***], CVS will [***]. Cardinal will [***] CVS will [***], and CVS will [***], based on the applicable payment terms. CVS will [***], and Cardinal will [***]. The process outlined in the Section 2(b) Disclosure Schedule will apply to any discrepancies.

(b) [***]. As it pertains to [***] purchases only, on the same day as CVS receives the shipment of [***].

6. Records, Audit and Confidentiality - The [***] is subject to the record keeping and audit provisions set forth in Section 16 of this Agreement. Cardinal may [***]. Cardinal will

Executed First Amendment 7-26-04 15

notify CVS in writing (subject to Section 13) prior to the [***]. Further, Cardinal will use reasonable efforts to [***] CVS if needed.

7. [***] All payments for invoicing under the [***] will be made [***].

8. Waiver - [***].

9. [***] Relating to the [***] - CVS and Cardinal acknowledge that either party may from time to time may, in good faith, [***]. In the event that either party [***], each party agrees to use all reasonable efforts to resolve all such [***] expeditiously as possible on a fair and equitable basis. To that end, Cardinal and CVS will assemble a panel consisting of
[***] (the "EXECUTIVE COMMITTEE") to resolve [***] and address other issues as they may determine. With respect to [***], a copy of the terms of this Agreement, as amended from time to time, agreed upon facts and
[***], and a concise summary of the basis for each side's contentions will be provided to the executives who will review the same, confer, and attempt to reach a mutual resolution of the issue within [***] following either party's receipt of notice of [***].

[***] EXHIBIT.

[***] [***]
[***]

Executed First Amendment 7-26-04 16

Exhibit 10.04

[***] indicates the omission of confidential portions for which confidential treatment has been requested. Such confidential information has been filed separately with the Commission.

SECOND AMENDMENT TO
WHOLESALE SUPPLY AGREEMENT

This second amendment ("SECOND AMENDMENT") dated June 2, 2004 amends the Wholesale Supply Agreement dated January 1, 2004 ("AGREEMENT") and subsequently amended on May 26, 2004 between CVS and Cardinal Health. CVS and Cardinal Health ("PARTIES") desire to enter into this Second Amendment to amend Section 1 and
Section 12 Disclosure Schedule [***].

The Parties agree as follows:

1. Effective Date of Amendment. This Second Amendment shall be effective as of [***]. In the event that the [***] does not [***], then this Second Amendment shall become null and void and shall be of no force or effect. Furthermore, CVS reserves the right to provide Cardinal with notification ("NOTICE") before the close of the [***] that CVS has determined in its sole discretion that it will not undertake the wholesale supply arrangement as described in the Second Amendment in which case this Second Amendment shall become null and void and shall be of no force or effect.

2. Scope. Notwithstanding anything else in the Agreement, as amended, in no event will CVS, at any time, be obligated to designate [***] by CVS or its affiliates for any reason, or which, [***] by CVS or its affiliates in its business judgment, [***], or [***].

3. Disclosure Schedules. The Agreement is amended by deleting therefrom the following disclosure schedules in their entirety:

"Section 1", and
"Section 12 Disclosure Schedule"

and replacing them with the following new Disclosure Schedules:

"Section 1", and
"Section 12 Disclosure Schedule"

attached to this Second Amendment and incorporated into this Second Amendment and into the Agreement by this reference, which shall be attached by the Parties to their respective copies of the Agreement.

4. Generally. It is the Parties' intent for the Agreement and this Amendment [***] to be applied and construed as a single instrument. The Agreement, as modified by this Second Amendment, remains in full force and effect and constitutes the entire agreement

among the Parties regarding this subject matter and supersedes all prior or contemporaneous writings and understandings among the Parties with respect thereto. This Second Amendment will be binding on the Parties and their successor and assigns. If any term or provision of this Second Amendment is determined to be illegal or unenforceable by a court of competent jurisdiction, the remaining terms and provisions of this Second Amendment and the Agreement will remain in full force and effect. Only a subsequent writing signed by both Parties may amend this Second Amendment or further amend the Agreement.

CVS Pharmacy, Inc                         Cardinal Health*

By: /s/ Matthew J. Leonard                By: /s/ Michael J. Bender
    ----------------------------              ----------------------------------
Print Name: Matthew J. Leonard            Print Name: Michael J. Bender
            --------------------                      --------------------------
Title: VP Pharmacy Merchandising          Title: EVP, Retail Sales and Marketing
       -------------------------                 -------------------------------

Cc: Tina Egan, Assistant General Counsel CVS Paul Williams, General Counsel Cardinal Health

SECTION 1

AMENDED JUNE 2, 2004

SECTION 1. DESIGNATION AS [***].

(c) [***]. This Agreement [***] purchases which are made by CVS on behalf of the CVS [***] In return [***] as described in the Section 12 Disclosure Schedule, CVS will [***] from a CVS Pharmacy DC being serviced by Cardinal for a period of [***]. If at anytime after [***], CVS [***] from a CVS Pharmacy DC being serviced by Cardinal, then s described in the Section 12 Disclosure Schedule will [***]. If CVS
[***] from a CVS Pharmacy DC being serviced by Cardinal after the
[***], then the [***] as described in the Section 12 Disclosure Schedule will for as long as CVS [***] from a CVS Pharmacy DC being serviced by Cardinal.

This Agreement specifically excludes [***] on behalf of the [***].

As it concerns [***], in the event either party desires not to [***] from a [***] being serviced by Cardinal at the expiration of the First Term or any renewal term, that party shall provide the other party with at least [***] notice prior to the expiration of the then current term. In the event such notification is not provided with at least the [***] notice or if no notice is given, the then current term shall be [***] for a period of [***] after the expiration of such term to provide for
[***].

(d) CVS Commitment. This Agreement pertains only to [***] Pharmacies.

SECTION 12 DISCLOSURE SCHEDULE

AMENDED JUNE 2, 2004

[***]

Notwithstanding anything in this Agreement to the contrary, the [***].

The [***] is designed to [***]. CVS will [***].

As part of the [***], Cardinal will [***] (in addition to [***] for the respective [***] during the term of this Agreement. The [***] will be faxed and subsequently mailed in hard copy form to CVS' Manager of Wholesaler Programs. Additionally, Cardinal will [***] with the [***] detailed in Section 2(b) Disclosure Schedule [***]. In return for [***] and the [***], Cardinal will
[***] through certain [***] as defined below.

[***] as of the execution of this Agreement with the exception of [***] (as detailed in and subject to Section 12 Disclosure Schedule). Cardinal will
[***]. In return for [***] from [***] until [***] by [***], Cardinal will
[***]"). The timing of [***].

CVS is under no obligation to [***] at its sole discretion. With that said, CVS and Cardinal may [***] sole discretion. So that Cardinal and CVS can [***], Cardinal will provide to CVS in an electronic format a detailed weekly report detailing said [***]. The [***] will include but not be limited to the following elements as it pertains to Cardinal [***]. As it pertains to [***] Report only, Cardinal will [***]. All other data elements will be updated [***] and immediately sent to CVS [***] accurately representing Cardinal's [***] available to CVS as of the creation of the [***].

[***]

For example; [***], then Cardinal will [***].

Further terms and conditions of the [***] are as follows:

1) CVS and Cardinal will [***]; within [***] of the respective CVS fiscal month's end or as soon as practical.

2) The [***] will not be applied [***]. The [***] will be automatically applied [***].

3) CVS contract pricing on [***].

4) The [***] is based on the assumption that Cardinal will not [***].

5) Cardinal will not [***]. However, Cardinal will [***].
a. [***].
b. [***].
c. [***].

6) At the start of this Agreement, Cardinal will [***]. To that end, CVS and Cardinal have agreed that [***] under this Agreement.

7) [***] For example, if [***].

8) For all [***].

9) If CVS [***] then Cardinal will not [***].

10) If CVS [***] (as defined below) [***], then Cardinal will not [***].

[***]

As a function of the [***] Cardinal will [***] as defined below. Through the
[***], Cardinal will [***] as further defined below. Notwithstanding anything else in this Agreement to the contrary, Cardinal will [***].

The "[***]" for the [***] are limited to:

[***].

Further terms and conditions of the [***] are as follows:

1) CVS will [***]; CVS will not be required to [***].

2) CVS [***] to include but not limited to:
[***]
[***]
[***]
[***]

3) [***] In the event that [***] (Pharmacies and CVS Pharmacy DCs, if applicable). Notwithstanding the foregoing, Cardinal will [***] It will be
[***] sole responsibility to notify [***] in writing (with copy to [***] subject to Section 13) [***] related to [***].

4) CVS will only accept product [***] to CVS Pharmacy DCs that has at least
[***]. All products shipped with less than [***] will be considered "[***]". On an exception basis, CVS will [***] with at least [***]. However, both parties agree that no more than [***]. In addition, upon CVS request (as often as monthly), Cardinal will provide CVS [***]. The [***] will contain all [***] and will [***] (both CVS and Cardinal agree that the
[***] will be made available to CVS no later than September 1, 2004). Notwithstanding anything in this Agreement to the contrary, at no time will Cardinal ship [***] with less than [***] to CVS Pharmacy DCs. With that said, CVS will [***].

Additional terms and conditions of the [***] are as follows:

1. Term - The [***] will commence as of [***], and terminate upon [***].

2. [***] - Cardinal will [***].

3. [***] - If Cardinal's [***], and if CVS is [***], then CVS will, upon request by Cardinal, [***]. With respect to the foregoing [***], CVS will
[***]. CVS will [***].

(a) [***] On the same day as CVS receives a shipment of [***] ordered as part of a [***] related to this [***], CVS will [***]. Cardinal will [***]. CVS will [***], and CVS will [***] based on the applicable payment terms. CVS will [***], and Cardinal will [***]. The process outlined in the Section 2(b) Disclosure Schedule will apply to any discrepancies.

(b) [***] As it pertains to [***] purchases only, on the same day as CVS receives the shipment of [***].

As it pertains to the payment of [***], Cardinal will receive an invoice from the applicable manufacturer for the ordered Rx Product, and Cardinal will [***], based on the applicable payment terms. As the [***] for such
[***] in accordance with the terms of this Agreement. The process outlined in the Section 2(b) Disclosure Schedule will apply to any discrepancies.

4. Purchase Information - CVS will provide Cardinal with [***] on behalf of the CVS Pharmacy DCs pursuant to the [***]. Such information will include details regarding all [***] and other information reasonably required by Cardinal to administer the [***]. To assist Cardinal with [***] CVS will provide Cardinal with information reasonably requested by Cardinal including but not limited to [***], and a change in CVS Pharmacy DC that services a particular Pharmacy.

5. Limitations - All [***]. All [***]. CVS will not [***] (outside of this
[***]) on behalf of the Pharmacies. It is understood and agreed that Cardinal will not [***]. Furthermore, the parties acknowledge and agree that all information

associated with the [***] is confidential information subject to the provisions of Section 17 of this Agreement.

6. Records, Audit and Confidentiality - The [***] is subject to the record keeping and audit provisions set forth in Section 16 of this Agreement. Cardinal may [***]. Cardinal will notify CVS in writing (subject to Section 13) prior to the [***]. Further, Cardinal will use reasonable efforts to
[***] CVS if needed.

7. [***] - All payments for invoicing under the [***] will be made via [***].

8. Waiver - [***]

9. [***] Relating to the [***] - CVS and Cardinal acknowledge that either party may from time to time may, in good faith, [***]. In the event that either party [***], each party agrees to use all reasonable efforts to resolve all such [***] as expeditiously as possible on a fair and equitable basis. To that end, Cardinal and CVS will assemble a panel consisting of
[***] (the "EXECUTIVE COMMITTEE") to resolve [***] and address other issues as they may determine. With respect to [***], a copy of the terms of this Agreement, as amended from time to time, agreed upon facts and [***], and a concise summary of the basis for each side's contentions will be provided to the executives who will review the same, confer, and attempt to reach a mutual resolution of the issue within [***] following either party's receipt of notice of [***].

[***] EXHIBIT.

[***] [***]
[***] [***]

Exhibit 10.06

[***] indicates the omission of confidential portions for which confidential treatment has been requested. Such confidential information has been filed separately with the Commission.

SECOND AMENDMENT TO
PRIME VENDOR AGREEMENT

THIS SECOND AMENDMENT TO PRIME VENDOR AGREEMENT ("SECOND AMENDMENT") is among Cardinal Health*, formerly known as Cardinal Distribution, ("CARDINAL"), and Express Scripts, Inc. ("BUYER").

WHEREAS, Cardinal and Buyer executed a Prime Vendor Agreement, dated July 1, 2001 (the "AGREEMENT"), and executed a First Amendment to Prime Vendor Agreement, dated January ___, 2003 ("FIRST AMENDMENT").

WHEREAS, the parties desire to further amend the Agreement, as amended, to reflect the terms of a new returned goods policy for unmerchantable product.

NOW THEREFORE, in consideration of the foregoing recitals, the parties hereby agree as follows:

1. RETURNED GOODS POLICY FOR UNMERCHANTABLE PRODUCT. Attached as EXHIBIT A and incorporated herein by reference is a returned goods policy for unmerchantable product, which describes a return process whereby Cardinal will assist Buyer in receiving value for certain unmerchantable product.

2. MISCELLANEOUS. Capitalized terms not defined herein will have the same meaning ascribed to them in the Agreement, as amended by the First Amendment, it being the intent of the parties that the Agreement, as amended by the First Amendment, and this Second Amendment will be applied and construed as a single instrument. The Agreement, as amended by the First Amendment and as modified by this Second Amendment, constitutes the entire agreement between Cardinal and Buyer regarding the subject matter of the Agreement, as amended by the First Amendment, and this Second Amendment and supersedes all prior or contemporaneous writings and understandings between the parties regarding the same. This Second Amendment will be binding upon the parties, their heirs, legal representatives, successors and assigns. The terms and provisions of this Second Amendment are severable. If any term or provision of this Second Amendment is determined to be illegal or unenforceable by a court of competent jurisdiction, the remaining terms and provisions of this Second Amendment and the Agreement, as amended by the First Amendment will remain in full force and effect. This Second Amendment may only be amended in a writing signed by Cardinal and Buyer.

3. EFFECTIVE DATE. This Second Amendment shall be effective as of the date of full execution ("EFFECTIVE DATE"). Except as otherwise amended herein, the terms and conditions of the Restated Agreement shall remain in full force and effect.

CARDINAL HEALTH* EXPRESS SCRIPTS, INC.

BY:    /s/ John E. Grimm                    BY:    /s/ George Paz
       -------------------------------             -----------------------------

NAME:  John E. Grimm                        NAME:  George Paz
       -------------------------------             -----------------------------

TITLE: SVP, Alternate Care                  TITLE: President
       -------------------------------             -----------------------------

DATE:  11-19-03                             DATE:  11/12/03
       -------------------------------             -----------------------------

*The term "CARDINAL HEALTH" means the following pharmaceutical distribution companies including: Cardinal Health 106, Inc. (formerly known as James W. Daly, Inc.), a Massachusetts corporation (Peabody, Massachusetts); Cardinal Health 103, Inc. (formerly known as Cardinal Southeast, Inc.), a Mississippi corporation (Madison, Mississippi); Cardinal Health 110, Inc. (formerly known as Whitmire Distribution Corporation), a Delaware corporation (Folsom, California) and any other subsidiary of Cardinal Health, Inc., an Ohio corporation ("CHI"), as may be designated by CHI.

EXHIBIT A

RETURNED GOODS POLICY FOR UNMERCHANTABLE PRODUCT

Cardinal and Buyer have agreed to pursue a return process whereby Cardinal will assist Buyer in receiving value for certain unmerchantable Product. Product which may not be returned pursuant to Cardinal's Standard Returned Goods Policy may be returned to an authorized manufacturer through a third party pursuant to this policy. Products which are "UNMERCHANTABLE" include, but are not limited to, those items which Cardinal determines are not in "merchantable condition" (as defined in Cardinal's Returned Goods Policy), and the following:

A. Any item which has been used or opened, is a partial dispensing unit or unit of sale, is without all original packaging, labeling, inserts or operating manuals, or that is stickered, marked, damaged, defaced or otherwise cannot readily be resold by Cardinal for any reason.

B. Short-dated (less than seven (7) months expiration dating), outdated, or seasonal product and items purchased on a "special order" basis, including non-stock and drop ship items.

C. Any sterile or refrigerated Merchandise, unless Cardinal is specially assured that such Merchandise was properly stored and protected at all times and such Merchandise is returned separately in a package marked as such and accompanied by a separate credit request form.

D. Any low stability product, including Epogen(TM), Eminase(TM), or other products which are usually sensitive to temperature and handling conditions.

E. Any product not intended for return to a wholesaler in accordance with the return policies of the applicable manufacturer.

Product in "unmerchantable condition" may generally be returned to vendors (a) with which Cardinal has a current relationship, (b) are not either insolvent or subject to a petition in bankruptcy, or (c) which do not have an outstanding balance due Cardinal at the date on which such Product is submitted for return (each such vendor, an "ACTIVE MANUFACTURER"). Unmerchantable Product may only be returned through a third party return processor ("THIRD PARTY") in accordance with the terms and conditions described in this policy. Cardinal will provide the Third Party selected by Buyer with a current list of all Active Manufacturers. Any Third Party selected by Buyer must enter into a Confidentiality Agreement, in a form acceptable to Cardinal, prior to accepting any returns from Buyer.

PROCEDURES FOR RETURNS

Buyer and Cardinal will notify each Active Manufacturer of their relationship as customer/wholesaler. Buyer will send all returns of unmerchantable Product to its selected Third Party. The amount identified by the Third Party as the amount to which Buyer is entitled in exchange for the return will be determined in accordance with the return policy of the applicable Active Manufacturer as described in the Third Party's database, which will reflect Buyer's cost of goods purchased through Cardinal. Buyer will instruct the Third Party to provide Cardinal with documentation (either in paper or electronic format) to substantiate each debit memo submitted to Active Manufacturers on behalf of Buyer.

Buyer will instruct each Active Manufacturer to issue any and all credits to Cardinal for Merchandise that was purchased by Buyer from Cardinal and is returned through a Third Party in unmerchantable condition, and to reference the debit memo number corresponding to the debit memo prepared by the Third Party. Buyer and Cardinal acknowledge that Buyer will handle, without Cardinal's involvement, all matters relating to returns to manufacturers with which Buyer has a direct contracting relationship (whether or not such manufacturer is an Active Manufacturer).

Buyer will pay the Third Party directly for all of such Third Party's fees. In addition, Buyer will reimburse Cardinal for all costs billed by the Third Party to Cardinal that relate to Buyer's returns hereunder, including, but not limited to, processing fees, postage, delivery and destruction fees.

Cardinal will be paid [***]% of the net returns received by Cardinal from all Active Manufacturers as a processing fee (the "PROCESSING FEE") in accordance with the following procedure:

(1) Cardinal will adjust Buyer's account upon the earlier of receipt of an actual credit from an Active Manufacturer, or within sixty (60) days following the date of a debit memo submitted to an Active Manufacturer. Buyer will not deduct from any UNAUTHORIZED amounts owed to Cardinal, any UNAUTHORIZED amounts relating to the return of Merchandise through a Third Party.

(2) Each calendar month, Cardinal will (a) track credits due Buyer's account in the amount received by Cardinal from each Active Manufacturer during such month for Buyer returns (or, if not received within sixty (60) days, the amount anticipated to be received as shown on the debit memo), and (b) adjust previously made credits to Buyer's account to reflect actual credits authorized to Cardinal for returned Product, so that a net credit may be determined.

(3) Within five (5) business days after the end of the previous calendar month, Cardinal will credit Buyer's account with the net amount due Buyer for all Third Party Returns activities during the previous month, less the Processing Fee.

With the monthly credit, Cardinal will provide Buyer with a report of all Active Manufacturer credits and debit memos posted during such month. Cardinal will not perform a detail line reconciliation of the amounts authorized by Active Manufacturers as compared to the original debit memo.

Notwithstanding the foregoing, if the applicable Active Manufacturer (a) is in a debit balance in Cardinal's accounts payable system, or (b) is subject to a petition in bankruptcy or is deemed insolvent, then no credit will be issued to Buyer, and the credit will accrue to Cardinal's benefit, until such time as the Active Manufacturer is no longer in a debit balance, bankruptcy proceeding or insolvent. In addition, the Third Party will be exclusively responsible for resolving discrepancies relating to returned Product through such Third Party.

To the extent that Buyer desires to return Product to a supplier which is not an approved Active Manufacturer, Cardinal will credit Buyer's account only after Cardinal receives payment either through check, money order or wire transfer. If check, wire transfer or any other payment method is employed which does not guarantee Cardinal immediately available funds, Cardinal will credit Buyer's account only upon receiving such funds in Cardinal's account. Buyer may not offset payments due from Buyer to Cardinal for Product purchases against any amounts Buyer deems are due and owing pursuant to this Third Party Returned Goods Policy.

Cardinal may modify this Third Party Returned Goods Policy in its reasonable discretion from time to time. The Buyer is to be notified within thirty (30) days of a modification and such modification is subject to mutual agreement.

Exhibit 10.07

[***] indicates the omission of confidential portions for which confidential treatment has been requested. Such confidential information has been filed separately with the Commission.

THIRD AMENDMENT TO
PRIME VENDOR AGREEMENT

THIS THIRD AMENDMENT TO PRIME VENDOR AGREEMENT ("THIRD AMENDMENT") is among Cardinal Health*, formerly known as Cardinal Distribution, ("CARDINAL"), and Express Scripts, Inc. ("BUYER").

WHEREAS, Cardinal and Buyer executed a Prime Vendor Agreement, dated July 1, 2001, executed a First Amendment to Prime Vendor Agreement, dated January 15, 2003 ("FIRST AMENDMENT"), and a Second Amendment to Prime Vendor Agreement, dated November 19, 2003 ("SECOND AMENDMENT"), (collectively, the "AGREEMENT").

WHEREAS, the parties desire to further amend the Agreement as further set forth herein.

NOW THEREFORE, in consideration of the foregoing recitals, the parties hereby agree as follows:

1. SECTION 2, SALE OF MERCHANDISE. The following language shall be deleted in its entirety from the definition of Primary Requirements as set forth in
Section 2, Sale of Merchandise, as amended by the First Amendment: "and Monthly".

2. SECTION 3, PURCHASE PRICE. The second paragraph of Section 3 shall be amended to add "[***]" to the definition of [***].

3. SECTION 5, PAYMENT TERMS. Section 5(a)(i), as amended by the First Amendment, shall be deleted in its entirety and replaced with the following:

"The payment terms applicable to Buyer for all DIRECT STORE DELIVERY PURCHASES shall be [***] calculated pursuant to either of the options set forth below. Buyer will notify Cardinal of its desire to switch from one option to the other no less than thirty (30) days prior to the effective date of such change, unless otherwise agreed to in writing by Buyer and Cardinal. In the event a payment due date falls on a Saturday, that payment due date will become the preceding Friday. In the event a payment due date falls on a Sunday, that payment due date will become the following Monday. In the event a due date falls on a Monday holiday, invoices due on Sunday and Monday will be due on Tuesday. In the event a due date falls on a Tuesday through Friday holiday, payment will be due the preceding day.

OPTION 1

[***] day of the preceding calendar month and ending on the last day of such preceding calendar month.

OPTION 2

The payment terms applicable to Buyer for all DIRECT STORE DELIVERY PURCHASES shall be [***] as follows: Buyer will cause Cardinal to receive payment in full: (1) by the [***] of each calendar month of the amount due for all invoiced Merchandise delivered and services provided from and including the [***] calendar day of each calendar month through and including the [***] of each calendar month; (2) by the [***] of each calendar month of the amount due for all invoiced Merchandise delivered and services provided from and including the
[***] calendar day of each calendar month through and including the
[***] calendar day of each calendar month; (3) by the last Business Day (as hereinafter defined) of each calendar month of the amount due for all invoiced Merchandise delivered and services provided from and including the [***] calendar day of each calendar month through and including the [***] calendar day of each calendar month; (4) by the
[***] day of each calendar month of the amount due for all invoiced Merchandise delivered and services provided from and including the
[***] calendar day of each preceding calendar month through and including the [***] calendar day of each preceding calendar month; (5) by the [***] day of each calendar month of the amount due for all invoiced Merchandise delivered and services provided from and including the [***] of each preceding calendar month through and including the [***] of the each calendar [***].

For purposes of this Agreement, the term "Business Day" shall be defined as Monday through Friday, with the exception of the following holidays: New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day."

4. SECTION 5, PAYMENT TERMS. The first sentence of the third paragraph of
Section 5(b) shall be deleted in its entirety and replaced with the following:

"All payments for invoiced Merchandise delivered and services provided by Cardinal will be made to the applicable servicing division specified in Cardinal's invoice (or as otherwise specified by Cardinal) by electronic funds transfer or other method acceptable to Cardinal so as to provide Cardinal with good funds by the due date; provided, however, if Option 2 (as set forth in
Section 5(a)(i)) is chosen by Buyer, then Buyer will have the option to make the payment due on the last Business Day of the month via check (instead of ACH/electronic funds transfer) as long as the check is delivered to Cardinal on the last Business Day of the month at the address designated by Cardinal for these payments."

5. SECTION 6, ORDERING AND DELIVERY. The third sentence of Section 6, Ordering and Delivery, as amended by the First Amendment shall be deleted in its entirety and replaced with the following:

"Pharmacies having Qualified Monthly Purchases in excess of $[***] (except Pharmacies located outside of the contiguous United States or other Pharmacies mutually agreed upon by the parties from time to time) will have two delivery options:

OPTION 1

[***] In addition, Pharmacies may receive [***] deliveries; provided, however, such deliveries will be at a charge equal to Cardinal's cost for such delivery.

OPTION 2

[***].

All [***] deliveries will be subject to the order cut-off times at the applicable servicing distribution center."

5. SECTION 12, SERVICE LEVEL. Section 12, Service Level, as amended by the First Amendment, shall be further amended as follows: all references to the average monthly service level on Rx Products (excluding Buyer's Top [***] Items (as defined in the First Amendment)) shall be changed from [***] percent ([***]%) to [***] percent ([***]%), and all references to the average monthly service level on Buyer's Top [***] Items shall be changed from [***] percent ([***]%) to [***] percent ([***]%).

6. SECTION 13, RETURNED GOODS POLICY. The second paragraph and items 1-6 of
Section 13 related to the annual inventory clean-ups shall be deleted in their entirety. The following paragraph shall be added to Section 13 of the Agreement, as if fully rewritten therein:

"Subject to the requirements of the Cardinal Returns Policy, Buyer may return Merchandise for up to [***] from the date of purchase for [***]% of original invoice amount paid by Buyer (i.e., Buyer's contract or other "cost" plus the applicable mark-up or less the applicable mark down), provided: (i) [***]; (ii) [***]; (iii) [***]; (iv) [***]; (v) and [***]. After [***] months from the date of purchase, Merchandise may not be returned; provided, however, this [***] limitation shall not apply for
[***]."

In addition, the following paragraph shall be added to Section 13, as if fully rewritten therein:

"Unless otherwise notified by the servicing distribution center, returned goods will be processed within five (5) Business Days of receipt of the returned goods at the Cardinal distribution center, and credit for those returned goods will be issued within three (3) Business Days following processing."

7. SECTION 14, TERM. The initial term of the Agreement shall be extended
[***].

8. NEW SECTION 30, GENERIC PURCHASE REQUIREMENT. The following paragraph shall be added to the Agreement as a new Section 30, titled "Generic Purchase Requirement":

"During calendar years 2004 and 2005, calculated on a quarterly basis, Buyer will use commercially reasonable efforts to cause not less than
[***]% of Buyer's total Qualified Purchases from Cardinal to be generic Rx Products. During calendar year 2006 and the initial six (6) months of calendar year 2007, calculated on a quarterly basis, Buyer will use commercially reasonable efforts to cause not less than [***]% of Buyer's total Qualified Purchases from Cardinal to be generic Rx Products. The foregoing requirements shall be referred to as the "Generic Purchase Requirements." To support Buyer's achievement of the Generic Purchase Requirements, Cardinal will use commercially reasonable efforts to make generic Rx Products available to Buyer at prices that are equal to or better than those prices that Buyer can obtain directly from the generic Rx Product manufacturers. Pricing for Buyer's purchases of generic Rx Products shall be pursuant to Cardinal's Mail Order Preferred Source program.

If Buyer does not achieve the Generic Purchase Requirements, Cardinal and Buyer will meet to review Buyer's purchases of generic Rx Products and develop a strategy to support Buyer's achievement of the Generic Purchase Requirements during the quarter following the quarter in which the Generic Purchase Requirements were not met. If, during such following quarter, Buyer does not achieve the Generic Purchase Requirements, Buyer shall be considered in breach of the then current agreement between Buyer and Cardinal, pursuant to Section 14 of this Agreement, and Buyer shall have
[***]([***]) days to cure such breach to the reasonable satisfaction of Cardinal. In the event that Buyer does not cure such breach within such
[***] ([***]) day period, Cardinal may terminate this Agreement immediately in accordance with Section 14 hereof."

9. NEW SECTION 31, EDI INITIATIVES. The following sentence shall be added to the Agreement as a new Section 31, titled "EDI Initiatives":

"Cardinal will support mutually agreed upon Buyer standards, policies and service level agreements for all existing business-to-business processes and new initiatives. These processes and initiatives include, but are not limited to, EDI, VAN, Direct Connect, Collaborative Commerce, and adding new transactions (e.g., 832). Buyer will work closely with Cardinal to ensure seamless connectivity and smooth processing of data between the two parties is achieved."

10. EXHIBIT A, PHARMACIES. The following Pharmacies shall be deleted from Exhibit A, as amended by the First Amendment:

Express Access Pharmacy, Inc. dba Express Scripts, Inc. 767 Electronic Drive
Horsham, Pennsylvania 19020

Central Fill, Inc.
721 Ridgedale Avenue
East Hanover, New Jersey 07936

11. EXHIBIT B, PRICING MATRIX. Section 1 of Exhibit B, Pricing Matrix, as amended by the First Amendment, shall be deleted in its entirety and replaced with Section 1 of Exhibit A attached to this Amendment.

12. EXHIBIT D, DEDICATED RESOURCES. The Dedicated Resource section of Exhibit D shall be amended to provide [***] Cardinal employees who will be dedicated to servicing Buyer's account and will act as a liaison between Buyer and Cardinal in order to enhance Buyer-Cardinal relations. The Cardinal employees will be based in the St. Louis, Bensalem and Tempe Pharmacies.

13. MISCELLANEOUS. Capitalized terms not defined herein will have the same meaning ascribed to them in the Agreement, it being the intent of the parties that the Agreement and this Third Amendment will be applied and construed as a single instrument. The Agreement, as modified by this Third Amendment, constitutes the entire agreement between Cardinal and Buyer regarding the subject matter of the Agreement and this Third Amendment and supersedes all prior or contemporaneous writings and understandings between the parties regarding the same. This Third Amendment will be binding upon the parties, their heirs, legal representatives, successors and assigns. The terms and provisions of this Third Amendment are severable. If any term or provision of this Third Amendment is determined to be illegal or unenforceable by a court of competent jurisdiction, the remaining terms and provisions of this Third Amendment and the Agreement will remain in full force and effect. This Third Amendment may only be amended in a writing signed by Cardinal and Buyer.

14. EFFECTIVE DATE. This Third Amendment shall be effective as of January 1, 2004 ("EFFECTIVE DATE"). Except as otherwise amended herein, the terms and conditions of the Agreement shall remain in full force and effect.

CARDINAL HEALTH* EXPRESS SCRIPTS, INC.

BY:    /s/ Mark W. Parrish                  BY:    /s/ Barrett Toan
       -------------------------------             -----------------------------

NAME:  Mark W. Parrish                      NAME:  Barrett Toan
       -------------------------------             -----------------------------

TITLE: Group President                      TITLE: CEO
       -------------------------------             -----------------------------

DATE:  4/9/04                               DATE:  3-30-04
       -------------------------------             -----------------------------

EXHIBIT A

1. [***] The [***] has been established based upon [***]:

(a) [***] (as defined in Section 2 of this Agreement) and Generic Purchase Requirements (as defined in Section 8 of the Third Amendment) [***];

(b) [***] Dollars ($[***]).

(collectively referred to herein as the "[***]"). If, for any reason, [***] Dollars ($[***]) [***]%. [***], beginning on the Commencement Date of this Agreement.

Subject to the [***] of this Agreement regarding [***] (that is [***] or subject to a Manufacturer Contract) for [***]:

    [***]                                                 [***]
=============                                             ======
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - [***]                                             [***]%
[***] - greater                                           [***]%

Buyer's pricing will be reviewed on a [***] basis and any [***] based on [***] during such [***]; provided, however, that such [***]. [***] of the
[***]. In all instances, [***]. For example, [***].

The pricing set forth above [***] (as hereinafter defined) [***]. [***] that include, but are not limited to, [***]. In the event that [***] during the term of this Agreement [***], or in the event the [***], then [***]. In such event, [***]. If the [***]; provided, however, [***] to [***] shall be the pricing in effect as of the date of the notice to Buyer hereunder.

ANNUAL DISCOUNT. Within seven (7) calendar days of January 1, 2004, 2005 and 2006, provided Buyer is in compliance with the terms and conditions of this Agreement, Buyer will be eligible to receive a discount in an amount equal to
[***] Dollars ($[***]) to be applied to Buyer's purchases of Merchandise under this Agreement during such month. The discount will be provided in the form of a credit memo. This discount constitutes a "discount or other reduction in price," as such terms are defined under the Medicare/Medicaid Anti-Kickback Statute, on the Merchandise purchased by Buyer under the terms of this Agreement. Cardinal and Buyer agree to use their best efforts to comply with any and all requirements imposed on sellers and buyers, respectively, under 42 U.S.C.
Section 1320a-7b(b)(3)(A) and the "safe harbor" regulations regarding discounts or other reductions in price set forth in 42 C.F.R. Section 1001.952(h). In this regard, Buyer may have an obligation to accurately report, as may be required, under any state or federal program which provides cost or charge based reimbursement for the products or services covered by this Agreement, or as otherwise requested or required by any governmental agency, the net cost actually paid by Buyer.

Exhibit 10.24

SECOND AMENDMENT
TO THE
CARDINAL HEALTH, INC.
DEFERRED COMPENSATION PLAN
(As amended and restated January 1, 2002)

BACKGROUND INFORMATION

A. Cardinal Health, Inc. ("Cardinal Health") established and maintains the Cardinal Health, Inc. Deferred Compensation Plan (the "Shadow Plan") for the benefit of selected highly compensated and management employees and their beneficiaries.

B. The Cardinal Health, Inc. Employee Benefits Policy Committee (the "Policy Committee") oversees the administration of the Shadow Plan and is authorized to amend the Shadow Plan.

C. The Policy Committee desires to amend the Shadow Plan to restrict dividend reinvestments in the Cardinal Stock Account of Reporting Persons who had established such Accounts prior to their becoming Reporting Persons and make other changes with respect to Reporting Persons' Accounts under the Shadow Plan.

D. Section 7.1 of the Shadow Plan permits the amendment of the Shadow Plan at any time.

AMENDMENT OF THE SHADOW PLAN

1. The fifth sentence of the first paragraph of Section 3.6 of the Shadow Plan shall be replaced by the following sentences:

In no event shall a Participant who is a Reporting Person be permitted to change any amounts invested in any other investment alternative to a Cardinal Stock Account. In addition, a Participant who is a Reporting Person shall not be permitted to change any investment in a Cardinal Stock Account (as defined below) to any other investment alternative, except that a Participant who becomes a Reporting Person after commencing participation in the Shadow Plan and who has an investment in a Cardinal Stock Account may make a one-time election to direct all or a portion of the investment in a Cardinal Stock Account into an alternate investment option available under the Plan. A Participant who ceases to be a Reporting Person may again change investments into or out of a Cardinal Stock Account without regard to the above restrictions.

2. The first paragraph of Section 3.7 of the Shadow Plan shall be amended to add the following sentences to the end thereof:

A Participant who ceases to be a Reporting Person may again elect to invest future contributions in his Account in Shares subject to this
Section 3.7.

3. The third paragraph of Section 3.7 of the Shadow Plan shall be amended to read as follows:

In the case of the Cardinal Stock Account (if any) of a Participant other than a Reporting Person (as of the Dividend Payment Date), the earnings (or losses) credited to such

account shall consist solely of dividend equivalent credits pursuant to this paragraph. Whenever a dividend or other distribution is made with respect to the Shares, then the Cardinal Stock Account of a Participant who is not a Reporting Person (as of the Dividend Payment Date) shall be credited, on the payment date for such dividend or other distribution (the "Dividend Payment Date"), with a number of additional Shares having a Value, as of the Dividend Payment Date, based upon the number of Shares deemed to be held in the Participant's Cardinal Stock Account as of the record date for such dividend or other distribution (the "Dividend Record Date"), if such Shares were outstanding. If such dividend or other distribution is in the form of cash, the number of Shares so credited shall be a number of Shares (and fractions thereof) having a Value, as of the Dividend Payment Date, equal to the amount of cash that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. If such dividend or other distribution is in the form of Shares, the number of Shares so credited shall equal the number of such Shares (and fractions thereof) that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. If such dividend or other distribution is in the form of property other than cash or Shares, the number of Shares so credited shall be a number of Shares (and fractions thereof) having a Value, as of the Dividend Payment Date, equal to the value of the property that would have been distributed with respect to the Shares deemed to be held in the Participant's Cardinal Stock Account as of the Dividend Record Date, if such Shares were outstanding. The value of such property shall be its fair market value as of the Dividend Payment Date, determined by the Board based upon market trading if available and otherwise based upon such factors as the Board deems appropriate.

With respect to a Participant who is a Reporting Person on the Dividend Payment Date, the cash value of the dividend or other distribution shall be invested in an alternate investment option under the Plan, as determined by the Committee in its sole discretion. To the extent that the dividend or other distribution is made in a form other than cash, the Shares or other property shall be liquidated to cash as soon as administratively practicable and thereafter invested as indicated herein.

4. All other provisions of the Shadow Plan shall remain in full force and effect.

CARDINAL HEALTH, INC.

By: /s/ Susan Nelson
    ----------------------------------------
    Susan Nelson, Vice President, Benefits

Date: 5/25/04

Exhibit 10.25

CARDINAL HEALTH, INC.

DIRECTORS DEFERRED COMPENSATION PLAN

AMENDED AND RESTATED EFFECTIVE MAY 1, 2004

CARDINAL HEALTH, INC.
DIRECTORS DEFERRED COMPENSATION PLAN
(THE "PLAN")

PURPOSE

Cardinal Health, Inc. and its affiliates (collectively, the "Company") is willing to provide nonemployee members of its Board of Directors (the "Board") with the opportunity to defer the payment of their Board fees for retirement savings purposes. The Company's goal is to retain and reward its Board members by helping them to accumulate benefits for a comfortable retirement. The Plan was originally effective as of January 1, 2000.

ELIGIBILITY

All members of the Board are eligible to participate in the Plan. If you elect to participate in the Plan, you will sign a Directors Deferred Compensation Agreement which details the requirements you must satisfy to be eligible to receive this supplemental retirement benefit from the Company.

III

DEFERRED COMPENSATION ACCUMULATIONS

A. UNFUNDED NATURE OF PLAN

The Plan is considered to be an "unfunded" arrangement as amounts generally will not be set aside or held by the Company in a trust, escrow, or similar account or fiduciary relationship on your behalf. Each participant's rights to benefits under the Plan are equivalent to the rights of any unsecured general creditor of the Company. However, the Company may open accounts with one or more investment companies selected by the Chairman, in his discretion, and may invest funds subject to this Plan in those investment companies. The Company also may establish a deferred compensation trust (rabbi or otherwise) in connection with the Plan. Each participant may be permitted to direct how the portion of the Company's funds allocable to him or her is invested from among the available alternatives, if such investment accounts are established. The Company currently expects any such alternatives to be similar to those available under its tax-qualified retirement plan for employees, but is not obligated to make these or any other particular investment options available. If a participant is permitted to direct how the portion of the Company's funds allocable to him or her is invested among the available alternatives, the participant may be permitted to change such direction from time to time; provided, however, that in no event shall a participant who is a current Board member or who has been a Board member during the last six (6) months be permitted to change any investment in a Cardinal Stock Account (as defined below) to any other investment alternative or change any investment in any other investment alternative to a Cardinal Stock Account, except, in either case, as to future director's fees to be earned as provided below under the heading "Election to Defer into Common Shares". After a participant's board membership has been terminated for at least six (6) months, a participant may elect to change his or her investment in a Cardinal Stock Account to any other investment alternative or change

his or her investment in any other investment alternative to a Cardinal Stock Account without regard to the restrictions set forth in the preceding sentence. All investments shall at all times continue to be a part of the Company's general assets.

B. ACCUMULATIONS

To measure the amount of the Company's obligations to a participant in this Plan, the Company will maintain a bookkeeping record or account of each participant's "Accumulations".

You may elect (within 30 days of when you first become eligible to participate in the Plan for your initial calendar year of participation or, for subsequent calendar years, not later than the December 31 prior to each such year) to defer payment of a portion or all of your director's fees to be earned during the balance of the current or next calendar year, as applicable, as a credit to your Accumulations. Once made, any such election (including without limitation the percentage of director's fees to be deferred) shall be irrevocable for all director's fees earned during the calendar year for which the election is made. If you desire, your election can continue in effect from year to year until you change it, but any change will be effective only as of the January 1 of the calendar year following the calendar year in which you change your election. The minimum amount you may defer is 20% and the maximum is 100% of all fees expected to be paid to you as a director of the Company.

C. ELECTION TO DEFER INTO COMMON SHARES

Subject to the provisions of this Article III, whenever you make a deferral election pursuant to the preceding paragraph, you may also elect to have all or a portion of the deferred fees to be deemed invested in common shares, without par value ("Common Shares"), of the Company (such deferred fees, the "Share Election Fees"). On the date when your Share Election Fees would otherwise be payable to you (if you had not elected to defer such payment) (the "Payment Date"), the Company will credit to a separate account (your "Cardinal Stock Account") a number of hypothetical Common Shares (and fractions thereof) having a Value equal to the Share Election Fees. For purposes of this Plan, the "Value" of a Common Share on a particular day shall mean the closing price of a Common Share on the New York Stock Exchange on that day (or, if there is no trading of the Common Shares on that day, on the most recent previous date on which trading occurred). Any election made pursuant to this paragraph shall be irrevocable for all director's fees earned during the calendar year for which the election is made. Any election made pursuant to this paragraph shall remain in effect for fees payable in subsequent calendar years unless you deliver a written notice to the Secretary of the Company setting forth a different deferral election, which shall be applied to future calendar years until further written notice is received by the Secretary of the Company pursuant to this section. Notwithstanding the foregoing, if any deferral election into Common Shares would make a transaction between the Company and any other entity ineligible for pooling-of-interests accounting under APB No. 16 that but for the nature of such deferral would otherwise be eligible for such accounting treatment, such deferral election shall be treated as a deferral election into the other available funds pro-rata.

If any recapitalization, reorganization, reclassification, consolidation, merger of Cardinal Health, Inc. ("Cardinal") or the Company or any sale of all or substantially all of Cardinal's or the Company's assets to another person or entity or other transaction which is effected in such a way that holders of Common Shares are entitled to receive (either directly or upon subsequent liquidation) stock, securities, or assets with respect to or in exchange for Common Shares (each an "Organic Change") shall occur, then your Cardinal Stock Account (if any) shall be adjusted so as to contain such shares of stock, securities or assets (including cash) as would have been issued or payable with respect to or in exchange for the number of Common Shares credited thereto immediately before such Organic Change, if such

Common Shares had been outstanding. If the assets held in your Cardinal Stock Account immediately after such adjustment are not equity securities, then you shall be permitted to re-direct the investment thereof into the other investment choices then available under this Plan.

D. EARNINGS (OR LOSSES)

At least once each calendar year while you have a credit balance in your Accumulations, the Company will credit your Accumulations with earnings (or losses), if any, for the period since the last such crediting and determine the value of your Accumulations at that time. The earnings (or losses) shall be credited on the basis of the earnings (or losses) allocable to your directed investments. The Company also reserves the right to adjust the earnings (or losses) credited to your Accumulations and to determine the value of your Accumulations as of any date by adjusting such earnings (or losses) or such fair market value for the Company's tax and other costs of providing this Plan.

In the case of your Cardinal Stock Account (if any), the earnings (or losses) credited to such account shall consist solely of dividend equivalent credits pursuant to this paragraph. Whenever a dividend or other distribution is made with respect to the Common Shares, then the cash value of such dividend or other distribution shall be credited, on the payment date for such dividend or other distribution (the "Dividend Payment Date"), to an alternative investment option under the Plan, as determined by the Committee in its sole discretion. Such cash value shall be based upon the number of Common Shares deemed to be held in your Cardinal Stock Account as of the record date for such dividend or other distribution (the "Dividend Record Date"), if such Common Shares were outstanding. If such dividend or other distribution is in the form of cash, the cash value so credited shall be equal to the amount of cash that would have been distributed with respect to the Common Shares deemed to be held in your Cardinal Stock Account as of the Dividend Record Date, if such Common Shares were outstanding. If such dividend or other distribution is in the form of Common Shares, the cash value so credited shall be equal to the value, as of the Dividend Payment Date, of the number of such Common Shares (and fractions thereof) that would have been distributed with respect to the Common Shares deemed to be held in your Cardinal Stock Account as of the Dividend Record Date, if such Common Shares were outstanding. If such dividend or other distribution is in the form of property other than cash or Common Shares, the cash value so credited shall be equal to the value, as of the Dividend Payment Date, of the property that would have been distributed with respect to the Common Shares deemed to be held in your Cardinal Stock Account as of the Dividend Record Date, if such Common Shares were outstanding. The value of such property shall be its fair market value as of the Dividend Payment Date, determined by the Board based upon market trading if available and otherwise based upon such factors as the Board deems appropriate.

Under the federal income tax rules in effect as of the adoption of this Plan, the amounts credited to your Accumulations, including earnings, will not be taxable income to you in the year they are credited to your account. You, or your beneficiaries in the event of your death, will generally be taxed on these amounts and the credited earnings only if and when benefits are actually paid to you or your beneficiaries.

BENEFITS

A. VESTING

All contributions to the Plan will always be 100% "vested". This means you will always be entitled to receive benefits from your Accumulations.

B. PAYMENT OF BENEFITS

1. RETIREMENT BENEFITS. You will be eligible to receive retirement benefits under the Plan upon your retirement from the Board after attaining age 65. Retirement benefits will generally be paid as an annual benefit payable for 10 years. The amount of your benefit will equal the amount necessary to amortize your total Accumulations over the 10-year period. The amount payable each year will either be based on an approximately equal amortization of principal plus actual earnings (or less actual losses) or an amortization based on an assumed interest rate declared by the Company from time to time during the period of distribution. You must give the Company at least 30 days advance written notice of your intention to retire and receive retirement benefits. Actual benefit payments will begin on the first day of the second month following your satisfaction of all requirements for payment.

2. DISABILITY BENEFITS. If you become totally disabled before satisfying the requirements for retirement benefits, you will be eligible to receive payment of the amounts credited to your Accumulations as an annual benefit payable for 10 years. The amount of the benefit will be determined in the same manner as retirement benefits. For this purpose, "total disability" means a physical or mental condition which totally and presumably permanently prevents you from engaging in your usual occupation or any occupation for which you are qualified by reason of training, education, or experience. It is up to the Company to determine whether you qualify as being totally disabled and the Company may require you to submit to periodic medical examinations to confirm that you are, and continue to be, totally disabled. If your disability ends, your disability benefit payments will stop. However, you could continue to qualify for benefits under another provision of the Plan.

3. DEATH BENEFITS. In the event of your death while receiving benefit payments under the Plan, the Company will pay the beneficiary or beneficiaries designated by you any remaining payments due under the terms of your Deferred Compensation Agreement, using the same method of distribution in effect to you at the date of your death. In the event of death prior to beginning to receive benefits under the Deferred Compensation Agreement, the Company will pay benefits to your beneficiary or beneficiaries, beginning as soon as practicable after your death. In this case, benefits will generally be paid as an annual benefit payable for 10 years computed in the same manner as retirement benefits. The Company will provide you with the form for designating your beneficiary or beneficiaries. If you fail to make a beneficiary designation, or if your designated beneficiary predeceases you or cannot be located, any death benefits will be paid to your estate.

4. OTHER TERMINATION OF BOARD MEMBERSHIP. If your membership on the Board terminates for any reason other than retirement, death, or total disability, then your Accumulations will be paid to you as an annual benefit payable for 10 years computed in the same manner as retirement benefits, beginning as soon as administratively practicable after your term of office ends.

5. PAYMENT ALTERNATIVES. At the Company's election, or upon your request, benefits may be paid in a lump sum or over a shorter or longer period of time than the 10 years generally called for, as described above. However, no request by you or your beneficiaries for a different payment method will be binding on the Company, and any accelerated or deferred payment of benefits shall be made only in the sole discretion of the Company. In addition, the Company may alter the payment method in effect from time to time in its discretion. If the payment method is altered, the amount you or your beneficiaries will receive will be computed under one of the alternative methods for determining payment amounts provided for under the normal form of distribution for your Accumulations, determined by the Company in its discretion.

6. CHANGE IN CONTROL. If a Change in Control occurs, and your membership on the Board terminates within the 2-year period immediately following a Change in Control, then you shall be entitled to receive your Accumulations in a single lump sum within 30 days of your termination of office, notwithstanding any other provision of this Plan or your Directors Deferred Compensation Agreement. Also, following a Change in Control, the Company's discretion to alter the payment methodology (described in Subsection 5, above) is limited to accelerating your benefits; the Company cannot, after a Change in Control, defer the commencement of payments or extend the period of distribution beyond the normal periods described in the preceding Subsections.

For purposes of the Plan, a "Change of Control" means: (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty-five percent (25%) or more of either (A) the then outstanding Shares of the Company (the "Outstanding Shares") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company or any corporation controlled by the Company, (II) any acquisition by the Company or any corporation controlled by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (IV) any acquisition by any corporation that is a Non-Control Acquisition (as defined in Subsection (iii) of this Section); or (ii) individuals who, as of the Effective Date of this Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened

solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or shares of another corporation (a "Business Combination"), unless, such Business Combination is a Non-Control Acquisition. A "Non-Control Acquisition" shall mean a Business Combination where: (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Shares and Outstanding Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Shares and Outstanding Voting Securities, as the case may be, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty-five percent (25%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination (including any ownership that existed in the Company or the company being acquired, if any) and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

MISCELLANEOUS PROVISIONS

A. NO RIGHT TO COMPANY ASSETS

As explained previously, this Plan is an unfunded arrangement and the agreement you will enter into with the Company does not create a trust of any kind or a fiduciary relationship between the Company and you, your designated beneficiaries or any other person. To the extent you, your designated beneficiaries, or any other person acquires a right to receive payments from the Company under this Plan or your Directors Deferred Compensation Agreement, that right is no greater than the right of any unsecured general creditor of the Company.

B. GENERAL RESTRICTIONS

Notwithstanding any other provision of this Plan or any Directors Deferred Compensation Agreement, the Company shall not be required to issue or deliver any certificate or certificates for Common Shares under this Plan prior to fulfillment of all of the following conditions:

(i) Listing or approval for listing upon official notice of issuance of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be a market for the Common Shares;

(ii) Any registration or other qualification of such shares under any state or federal law or regulation, or the maintaining in effect of any such registration or other qualification which the Chairman shall, in his absolute discretion upon the advice of counsel, deem necessary or advisable; and

(iii) Obtaining any other consent, approval, or permit from any state or federal governmental agency which the Chairman shall, in his absolute discretion after receiving the advise of counsel, determine to be necessary or advisable.

Nothing contained in this Plan shall prevent the Company from adopting other or additional compensation arrangements for the participants.

C. COMMON SHARES AVAILABLE

The maximum aggregate number of Common Shares which may be credited to Cardinal Stock Accounts pursuant to this Plan is 60,000. Common Shares issuable under the Plan may be taken from authorized but unissued shares, treasury shares, shares held in a trust for purposes of the Plan, or purchased on the open market. No single participant may acquire under the Plan more than 30,000 Common Shares.

In the event of any stock dividend, stock split, share combination, corporate separation or division (including, but not limited to, split-up, spin-off, split-off or distribution to Cardinal's shareholders other than a normal cash dividend), or partial or complete liquidation, or any other corporate transaction or event having any effect similar to any of the foregoing, then the aggregate number of Common Shares reserved for issuance under the Plan shall be appropriately substituted for new shares or adjusted, as determined by the Compensation and Personnel Subcommittee in its sole discretion.

D. MODIFICATION OR REVOCATION

Your Directors Deferred Compensation Agreement will continue in effect until revoked, terminated, or all benefits are paid. However, the Directors Deferred Compensation Agreement and this Plan may be amended or revoked at any time, in whole or in part, by the Company in its sole discretion. Unless you agree otherwise, you will still be entitled to the benefit, if any, that you have earned through the date of any amendment or revocation. Such benefits will be payable at the times and in the amounts provided for in the Directors Deferred Compensation Agreement, or the Company may elect to accelerate distribution and immediately pay all amounts due.

E. RIGHTS PRESERVED

Nothing in the Directors Deferred Compensation Agreement or this Plan gives any director the right to continue to hold such office. The relationship between you and the Company shall continue to be determined by the applicable provisions of the governing documents of the Company and by applicable law.

F. CONTROLLING DOCUMENTS

This is merely a summary of the key provisions of the Directors Deferred Compensation Agreement currently in use by the Company. In the event of any conflict between the provisions of this Plan and the Directors Deferred Compensation Agreement, the Directors Deferred Compensation Agreement shall in all cases control.

Exhibit 10.26

CARDINAL HEALTH, INC.
GLOBAL EMPLOYEE STOCK PURCHASE PLAN

SECTION 1 - PURPOSE

The Cardinal Health, Inc. Employee Stock Purchase Plan is adopted and established by Cardinal Health, Inc., an Ohio corporation, on the date set forth below, effective as of July 1, 2000, for the general benefit of the Employees of the Company and of certain of its Subsidiaries. The purpose of the Plan is to facilitate the purchase of Shares by Eligible Employees.

SECTION 2 - DEFINITIONS

a. "ACT" shall mean the Securities Act of 1933, as amended.

b. "ADMINISTRATOR" shall mean the Board of Directors of the Company, a designated committee thereof, or the person(s) or entity delegated the responsibility of administering the Plan, which initially shall be the Cardinal Health, Inc. Profit Sharing and Retirement Savings Plan Committee.

c. "AGENT" shall mean the bank, brokerage firm, financial institution, or other entity or person(s) engaged, retained or appointed to act as the agent of the Employer and of the Participants under the Plan, which initially shall be Merrill Lynch, Pierce, Fenner, & Smith, Inc.

d. "BOARD" shall mean the Board of Directors of the Company.

e. "CLOSING VALUE" shall mean, as of a particular date, the value of a Share determined by the closing sales price for such Share (or the closing bid, if no sales were reported) as quoted on The New York Stock Exchange for the last market trading day prior to the date of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable.

f. "CODE" shall mean the Internal Revenue Code of 1986, as amended and currently in effect, or any successor body of federal tax law.

g. "COMPANY" shall mean Cardinal Health, Inc., including any successor thereto.

h. "COMPENSATION", unless otherwise required by local law, shall mean wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Employer (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses) including amounts excludible from the Employee's gross income under Code Section 402(a)(8)
(relating to a Code Section 401(k) arrangement), Code Section 402(h) (relating to a Simplified Employee Pension), Code Section 125 (relating to a cafeteria plan) or Code Section 403(b) (relating to a tax-sheltered annuity) and compensation paid by the Employer to an Employee through another person under the common paymaster provisions of Code Sections 3121(s) and 3306(p) or under applicable savings or pension plans of Employer of the Employee. Compensation does not include, unless otherwise required by local law: (1) amounts realized from the exercise or sale of a non-qualified stock option, or (2) amounts realized when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture or becomes fully owned by the Employee, or (3) amounts realized from the exercise, sale, exchange, or other disposition of stock acquired under a qualified or incentive stock option, (4) moving allowances, automobile allowances, tuition reimbursement, financial/tax planning reimbursement, lunch vouchers, house allowances, and other allowances that receive special tax benefits,

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other extraordinary compensation, including tax "gross-up" payments, and imputed income from other employer-provided benefits, and (5) other amounts that receive special tax benefits, such as premiums for group term life insurance or contributions made by the Employer (whether or not under salary reduction agreement) or mandatory payments made by the Employer to the Employee under the applicable law of the jurisdiction in which the Employer of this Employee is located or the Employee is employed or resides.

i. "DESIGNATED SUBSIDIARIES" shall mean all Subsidiaries whose Employees have been designated by the Administrator, in its sole discretion, as eligible to participate in the Plan.

j. "ELIGIBLE EMPLOYEE" shall mean an Employee of the Designated Subsidiary who is designated to participate in the Plan at the sole discretion of the Designated Subsidiary; provided, however, that such discretion shall not be exercised in violation of the applicable labor or other laws relating to discrimination based on gender, race, disability, age, national or social origin, political opinion, union membership or religious belief, or collective bargaining or other negotiated agreements.

k. "EMPLOYEE" shall mean individual who is a regular full time or part time Employee of the Employer for at least 30 days. An Employee may work either full time or part time work schedule and is normally included in the authorized staffing target and budget. Employee also includes the Employee who has been hired on a temporary contract but who is expected to fill a permanent staffing need and who is classified as a "PRN" or "on-call Employee". The Employee shall not include unionized Employee as defined by the regular practices of the Employer participating in the Plan to the extent permissible under local law.

l. "EMPLOYER" means, individually and collectively, the Company and the Designated Subsidiaries.

m. "ENROLLMENT PERIOD" shall mean the period immediately preceding the Offering Period that is designated by the Administrator in its discretion as the period during which an Eligible Employee may elect to participate in the Plan.

n. "OFFERING PERIOD" shall mean the period during which Participants in the Plan authorize payroll deductions or provide alternative contributions to fund the purchase of Shares on their behalf under the Plan pursuant to the options granted to them hereunder or the period during which participants in the Plan provide alternative contributions. Alternative contributions for the purpose of this Plan shall mean payment of contributions through personal checks of the Participants or such other means of contributing to the Plan as authorized by the Administrator.

o. "PARTICIPANT" shall mean any Eligible Employee who has elected to participate in the Plan for an Offering Period by authorizing payroll deductions or by making alternative contributions and following all applicable procedures established by the Administrator during the Enrollment Period for such Offering Period.

p. "PLAN" shall mean this Cardinal Health, Inc. Global Employee Stock Purchase Plan as amended from time to time.

q. "PLAN ACCOUNT" shall mean the individual account established for each Participant for purposes of accounting for and/or holding each Participant's payroll deductions, alternative contributions, Shares, etc.

r. "PLAN YEAR" shall mean the fiscal year of the Company.

s. "PURCHASE PRICE" shall mean, for each Share purchased in accordance with
Section 4 hereof, an amount equal to the lesser of (1) eighty-five percent (85%) of the Closing Value of a Share on the first Trading Day of each Offering Period (which for Plan purposes shall be deemed to be the date the option to purchase such Shares was granted to each Eligible Employee who is, or elects to become, a Participant); or (2) eighty-five percent (85%) of the Closing Value of such Share on the last Trading Day of the Offering Period (which for Plan purposes shall be deemed to be the date each such option to purchase such Shares was exercised).

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t. "SHARES" means the Class A common shares, without par value, of the Company.

u. "SUBSIDIARY" shall mean a corporation or other entity, domestic or foreign, of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary (except for the U.K. in which this term shall mean a corporation or other entity, domestic or foreign, of which more than fifty percent (50%) ownership of the voting shares are held by the Company or a Subsidiary) whether or not such corporation or other entity now exists or is hereafter organized or acquired by the Company or a Subsidiary (or as otherwise may be defined in Code Section 424).

v. "TRADING DAY" shall mean a day on which The New York Stock Exchange is open for trading.

SECTION 3 - ELIGIBLE EMPLOYEES

a. In General. Participation in the Plan is voluntary. All Eligible Employees of an Employer are eligible to participate in the Plan. All Eligible Employees granted options to purchase Shares hereunder shall have the same rights and privileges as every other such Eligible Employee, and only Eligible Employees of an Employer satisfying the applicable requirements of the Plan will be entitled to be granted options hereunder.

b. Limitations on Rights. An Employee who otherwise is an Eligible Employee shall not be entitled to purchase Shares under the Plan if such purchase would cause such Eligible Employee to own Shares (including any Shares which would be owned if such Eligible Employee purchased all of the Shares made available for purchase by such Eligible Employee under all options or rights then held by such Eligible Employee, whether or not then exercisable) representing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary.

SECTION 4 - ENROLLMENT AND OFFERING PERIODS

a. Enrolling in the Plan. To participate in the Plan, an Eligible Employee must enroll in the Plan. Enrollment for a given Offering Period will take place during the Enrollment Period for such Offering Period. The Administrator shall designate the initial Enrollment Period and each subsequent Enrollment Period and the Offering Period to which each Enrollment Period relates. Participation in the Plan with respect to any one or more of the Offering Periods shall neither limit nor require participation in the Plan for any other Offering Period.

b. The Offering Period. Any Employee who is an Eligible Employee and who desires to be granted options to purchase Shares hereunder must enroll in accordance with the procedures established by the Administrator during an Enrollment Period. Such authorization shall be effective for the Offering Period immediately following such Enrollment Period. The duration of an Offering Period shall be determined by the Administrator prior to the Enrollment Period and shall commence on the first day (or the first Trading Day) of the Offering Period and end on the last day (or the last Trading Day) of the Offering Period; provided, however, that if the Administrator terminates the Plan during an Offering Period, pursuant to its authority in Section 17 of the Plan, such Offering Period shall be deemed to end on the date the Plan is terminated. The termination of the Plan and the Offering Period shall end the Participant's rights to contribute amounts to the Plan or continue participation in the Offering Period. The date of termination of the Plan shall be deemed to be the final day of the Offering Period for purposes of determining the Purchase Price under the Offering Period and all amounts contributed during the Offering Period will be used as of such termination date to purchase Shares in accordance with the provisions of Section 9 of this Plan.

The Administrator may designate one or more Offering Periods during each Plan Year during the term of this Plan. On the first day (or the First Trading Day) of each Offering Period, each Participant shall be granted an option to purchase Shares under the Plan. Each option granted hereunder shall expire at the end of the Offering Period for which it was granted. In no event may an option granted hereunder be exercised after the expiration of 27 months from the date of grant.

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c. Changing Enrollment. The offering of Shares pursuant to options granted under the Plan shall occur only during an Offering Period and shall be made only to Participants. Once an Eligible Employee is enrolled in the Plan, the Administrator or Employer will inform the Agent of such fact. Once enrolled, a Participant shall continue to participate in the Plan for each successive Offering Period (s) until he or she terminates his or her participation by revoking his or her payroll deduction authorization or by revoking his or her alternative contribution authorization or not contributing his or her alternative contributions or ceases to be an Eligible Employee. Once a Participant has elected to participate under the Plan, that Participant's payroll deduction authorization or alternative contribution authorization shall apply to all subsequent Offering Periods unless and until the Participant ceases to be an Eligible Employee, or modifies or terminates said authorization. If a Participant desires to change his or her rate of contribution, he or she may do so effective for the next Offering Period by following the procedures established by the Administrator during the Enrollment Period immediately preceding such Offering Period.

SECTION 5 - TERM OF PLAN

This Plan shall be in effect from July 1, 2000, until it is terminated by action of the Board.

SECTION 6 - NUMBER OF SHARES TO BE MADE AVAILABLE

Subject to adjustment as provided in Section 16 hereof, the total number of Shares made available for purchase by Participants granted options which are exercised under Section 9 hereof is 3 million, which may consist of authorized but unissued shares, treasury shares, or shares purchased by the Plan in the open market. The provisions of Section 9 b. shall control in the event the number of Shares covered by options which are exercised for any Offering Period exceeds the number of Shares available for sale under the Plan. If all of the Shares authorized for sale under the Plan have been sold, the Plan shall either be continued through additional authorizations of Shares made by the Board (such authorizations must, however, comply with Section 17 hereof), or shall be terminated in accordance with Section 17 hereof.

SECTION 7 - USE OF FUNDS

All payroll deductions or alternative contributions received or held by an Employer under the Plan will be used to purchase Shares in accordance with the provisions of this Plan. Any amounts held by an Employer or other party holding amounts in connection with or as a result of payroll withholding or alternative contribution made pursuant to the Plan and pending the purchase of Shares hereunder shall be considered a non-interest-bearing, unsecured indebtedness extended to the Employer or other party by the Participants, unless otherwise required under applicable local law or securities regulatory body requirements of the country in which the Employer of the Employee is located or the Employee is employed or resides, as the case may be. Administrative expenses of the Plan shall be allocated to each Participant's Plan Account unless such expenses are paid by the Employer.

SECTION 8 - AMOUNT OF CONTRIBUTION; METHOD OF PAYMENT

a. Payroll Withholding or Payroll Deduction or Alternative Contributions. Except as otherwise specifically provided herein, the Purchase Price will be payable by each Participant by means of payroll withholding. The withholding or alternative contributions shall be in increments of one percent (1%). Unless otherwise authorized by the Administrator, the minimum withholding or alternative contributions permitted shall be an amount equal to one percent (1%) of a Participant's Compensation and the maximum withholding or alternative contributions shall be an amount equal to fifteen percent (15%) of a Participant's Compensation. In any event, the total withholding or alternative contributions permitted to be made by any Participant for a calendar year shall be limited to the sum of legal currency equivalent of U.S. $21,250. The actual percentage of Compensation to be deducted or contributed shall be specified by a Participant in his or her authorization to participate in the Plan. Unless otherwise authorized by the Administrator, Participants may not deposit any separate cash payments into their Plan Accounts.

b. Application of Withholding Rules. Payroll withholding will commence with the first payroll issued during the Offering Period and will, except as otherwise provided herein, continue with each payroll

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throughout the entire Offering Period, except for pay periods for which such Participant receives no compensation (e.g., uncompensated personal leave, leave of absence). A pay period which ends at such time that it is administratively impracticable to credit any payroll for such pay period to the then-current Offering Period will be credited in its entirety to the immediately subsequent Offering Period. A pay period which overlaps Offering Periods will be credited in its entirety to the Offering Period in which it is paid. Alternative contributions will be made in accordance with the procedure established by the Administrator. Payroll withholding or alternative contributions shall be retained by the Employer or other party, designated by the Administrator or the Employer as the case may be, until applied to the purchase of Shares as described in Section 9 hereof and the satisfaction of any related federal, state, local or other tax withholding obligations (including any employment tax obligations).

At the time the Shares are purchased, or at the time some or all of the Shares issued under the Plan are disposed of, Participants must make adequate provision for the Employer's federal, state, local or other tax withholding obligations (including employment taxes), if any, which arise upon the purchase or disposition of the Shares. At any time, the Employer may withhold from each Participant's Compensation the amount necessary for the Employer to meet applicable withholding obligations, including any withholding required to make available to the Employer any tax deductions or benefits attributable to the sale or early disposition of Shares by the Participant. Each Participant, as a condition of participating under the Plan, agrees to bear responsibility for all federal, state, local and other income taxes required to be withheld from his or her Compensation as well as the Participant's portion of FICA (both the OASDI and Medicare components), and other applicable social security or similar such taxes, with respect to any Compensation arising on account of the purchase or disposition of Shares. The Employer may increase income and/or employment tax withholding on a Participant's Compensation after the purchase or disposition of Shares in order to comply with federal, state, local and other tax laws, and each Participant agrees to sign any and all appropriate documents to facilitate such withholding.

SECTION 9 - PURCHASING, TRANSFERRING SHARES

a. Maintenance of Plan Account. Upon the exercise of a Participant's initial option to purchase Shares under the Plan, the Agent shall establish a Plan Account in the name of such Participant. At the close of each Offering Period, the aggregate amount deducted during such Offering Period by the Employer from a Participant's Compensation, or alternative contributions made to the Plan by the Participant (and credited to an account maintained by the Employer or other party for bookkeeping purposes) will be communicated by the Employer to the Agent and shall thereupon be credited by the Agent to such Participant's Plan Account (unless the Participant has given notice to the Administrator of his or her revocation of authorization prior to the date such communication is made). As of the last day of each Offering Period, or as soon thereafter as is administratively practicable, each Participant's option to purchase Shares will be exercised automatically for him or her by the Agent with respect to those amounts reported to the Agent by the Administrator or Employer as creditable to that Participant's Plan Account. On the date of exercise, the amount then credited to the Participant's Plan Account for the purpose of purchasing Shares hereunder will be divided by the Purchase Price and there shall be transferred to the Participant's Plan Account by the Agent the number of whole and/or fractional shares which results, as permitted by local law.

The Agent shall hold in its name, or in the name of its nominee, all Shares so purchased and allocated. No certificate will be issued to a Participant for Shares held in his or her Plan Account unless he or she so requests in writing or unless such Participant's active participation in the Plan is terminated due to death, disability, separation from service or retirement. Participation in the Plan, purchase, ownership and sale of Shares under the Plan, is subject to risk of fluctuation in Shares' price and currency exchange.

b. Insufficient Number of Available Shares. In the event the number of Shares covered by options which are exercised for any Offering Period exceeds the number of Shares available for sale under the Plan, the number of Shares actually available for sale hereunder shall be limited to the remaining number of Shares authorized for sale under the Plan and shall be allocated by the Agent among the Participants in proportion to each Participant's Compensation during the Offering Period over the total Compensation of all Participants during the Offering Period. Any excess amounts withheld and credited to Participants' Plan Accounts then shall be returned to the Participants as soon as is administratively practicable.

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c. Handling Excess Shares. In the event that the number of Shares which would be credited to any Participant's Plan Account in any Offering Period exceeds the limit specified in Section 3 b. hereof, such Participant's Plan Account shall be credited with the maximum number of Shares permissible, and the remaining amounts will be refunded in cash as soon as administratively practicable.

d. Status Reports. Statements of each Participant's Plan Account shall be given to Participants at least annually.

SECTION 10 - DIVIDENDS AND OTHER DISTRIBUTIONS

a. Reinvestment of Dividends. Subject to applicable law, cash dividends and other cash distributions received by the Agent on Shares held in its custody hereunder will be credited to the Plan Accounts of individual Participants in accordance with such Participants' interests in the Shares with respect to which such dividends or distributions are paid or made, and will be applied, as soon as practical after the receipt thereof by the Agent, to the purchase in the open market at prevailing market prices of the number of whole Shares capable of being purchased with such funds (after deduction of any bank service fees, brokerage charges, transfer taxes, and any other transaction fee, expense or cost payable in connection with the purchase of such Shares and not otherwise paid by the Employer and subject to the Company's obligation to withhold federal, state, or other local taxes ).

b. Shares to Be Held in Agent's Name. All purchases of Shares made pursuant to this Section will be made in the name of the Agent or its nominee, shall be held as provided in Section 9 hereof, and shall be transferred and credited to the Plan Account(s) of the individual Participant(s) to which such dividends or other distributions were credited. Dividends paid in the form of Shares will be allocated by the Agent, as and when received, with respect to Shares held in its custody hereunder to the Plan Accounts of individual Participants in accordance with such Participants' interests in such Shares with respect to which such dividends were paid. Property, other than Shares or cash, received by the Agent as a distribution on Shares held in its custody hereunder, shall be sold by the Agent for the accounts of the Participants, and the Agent shall treat the proceeds of such sale in the same manner as cash dividends received by the Agent on Shares held in its custody hereunder.

c. Tax Responsibilities. The automatic reinvestment of dividends under the Plan will not relieve a Participant (or Eligible Employee with a Plan Account) of any income or other tax that may be due on or with respect to such dividends. The Agent shall report to each Participant (or Eligible Employee with a Plan Account) the amount of dividends credited to his or her Plan Account.

SECTION 11 - VOTING OF SHARES

A Participant shall have no interest or voting right in the Shares covered by his or her option until such option has been exercised. Shares held for a Participant (or Eligible Employee with a Plan Account) in his or her Plan Account will be voted in accordance with the Participant's (or Eligible Employee's) express directions. In the absence of any such directions, such Shares will not be voted.

SECTION 12 - IN-SERVICE DISTRIBUTION OR SALE OF SHARES

a. Sale of Shares. Subject to the provisions of Section 19 hereof, a Participant may at any time, and without withdrawing from the Plan, by giving notice to the Agent, direct the Agent to sell all or part of the Shares held on behalf of the Participant. Upon receipt of such a notice, the Agent shall, as soon as practicable after receipt of such notice, sell such Shares in the marketplace at the prevailing market price and transmit the net proceeds of such sale (less any bank service fees, brokerage charges, transfer taxes, and any other transaction fee, expense or cost) to the Participant.

b. In-Service Share Distributions. A Participant may, without withdrawing from the Plan, request that a certificate for all or part of the whole number of Shares held in his or her Plan Account be sent to him or her after the relevant Shares have been purchased and allocated subject to the requirement that such Shares be held in the Participant's Plan Account for a period of at least 24 months after the date of exercise, as described in

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Section 9 a., above. All such requests must be submitted in writing to the Agent. No certificate for a fractional Share will be issued; the fair value of fractional Shares on the date of withdrawal of all Shares credited to a Participant's Plan Account shall be paid in cash to such Participant. The Plan may impose a reasonable charge, to be paid by the Participant, for each stock certificate so issued prior to the date active participation in the Plan ceases; such charge shall be paid by the Participant to the Administrator or Employer prior to the date any distribution of a certificate evidencing ownership of such Shares occurs.

SECTION 13 - CESSATION OF ACTIVE PARTICIPATION

A Participant may at any time, by giving notice to the Administrator or Employer, revoke his or her authorization for payroll deduction or alternative contributions for the Offering Period in which such revocation is made. A Participant who revokes authorization or does not make alternative contributions for payroll deduction may not again participate under the Plan until the next Offering Period immediately subsequent to the Offering Period during which the Participant revoked payroll deduction authorization or did not make alternative contributions with respect thereto.

SECTION 14 - SEPARATION FROM EMPLOYMENT

Separation from employment for any reason, including death, disability, termination or retirement shall be deemed to be a cessation of active participation in the Plan as described under Section 13 hereof.

SECTION 15 - ASSIGNMENT

Neither payroll deductions nor alternative contributions credited to a Participant's Plan Account nor any rights to purchase Shares under the Plan may be assigned, alienated, transferred, pledged, or otherwise disposed of in any way by a Participant other than by will or the laws of descent and distribution. Any such assignment, alienation, transfer, pledge, or other disposition shall be without effect, except that the Administrator may treat such act as an election to withdraw from the Plan. A Participant's right to purchase Shares under this Plan may be exercisable during the Participant's lifetime only by the Participant. A Participant's Plan Account shall be payable to the Participant's estate upon his or her death.

SECTION 16 - ADJUSTMENT OF AND CHANGES IN SHARES

If at any time after the effective date of the Plan the Company shall subdivide or reclassify the Shares which have been or may be optioned under the Plan, or shall declare thereon any stock split or dividend payable in Shares, or shall alter the capital structure of the Shares or the Company in any similar manner, then the number and class of shares held in the Plan and which may thereafter be optioned (in the aggregate and to any Participant) shall be adjusted accordingly, and in the case of each option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to such option and the Purchase Price shall be adjusted accordingly, as necessary to preserve the rights of the holder(s) of such Shares and option(s).

SECTION 17 - AMENDMENT OR TERMINATION OF THE PLAN

The Board shall have the right, at any time, to amend, modify or terminate the Plan without notice; provided, however, that no Participant's existing options shall be adversely affected by any such amendment, modification or termination, except to comply with applicable law, stock exchange rules or accounting rules. Notwithstanding the foregoing, the Board shall have the right to terminate the Plan with respect to all future payroll deductions and related purchases at any time. Such termination of the Plan shall also terminate any current Offering Period in accordance with Section 4 of the Plan.

Designations of participating corporations may be made from time to time from among a group of corporations consisting of the Employer, its parent and its Subsidiaries (including corporations that become Subsidiaries or a parent after the adoption and approval of the Plan).

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The Company may amend or modify the Plan or make regulations for the operation of the Plan that are not inconsistent with these rules to apply to Employees and Participants who are employed or resident outside of the United States of America in accordance with the relevant law. "Relevant law" shall mean the applicable law of the jurisdiction in which the Employer of the Employee is located or where the Employee is employed or resides and the securities regulatory body requirements and the taxation requirements of that same jurisdiction.

SECTION 18 - ADMINISTRATION

a. Administration. The Plan shall be administered by the Administrator. The Administrator shall be responsible for the administration of all matters under the Plan which have not been delegated to the Agent. The Administrator shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Any rule or regulation adopted by the Administrator shall remain in full force and effect unless and until altered, amended or repealed by the Administrator.

b. Specific Responsibilities. The Administrator's responsibilities shall include, but shall not be limited to:

(1) interpreting the Plan (including issues relating to the definition and application of "Compensation");

(2) identifying and compiling a list of persons who are Eligible Employees for an Offering Period;

(3) identifying those Eligible Employees not entitled to be granted options or other rights for an Offering Period on account of the limitations described in Section 3 b. hereof; and

(4) providing to Participants upon request Company financial statements which are publicly available.

The Administrator may from time to time adopt rules and regulations for carrying out the terms of the Plan. Interpretation or construction of any provision of the Plan by the Administrator shall be final and conclusive on all persons, absent specific and contrary action taken by the Board. Any interpretation or construction of any provision of the Plan by the Board shall be final and conclusive.

SECTION 19 - SECURITIES LAW AND OTHER RESTRICTIONS

Notwithstanding any provision of the Plan to the contrary, no payroll deductions or alternative contributions shall take place and no Shares may be purchased under the Plan until a registration statement has been filed and become effective with respect to the issuance of the Shares covered by the Plan under the Act and any other required action has been taken under any other applicable law of the jurisdiction in which the Employer of the Employee is located or the Employee is employed or resides. Prior to the effectiveness of such registration statement, Shares subject to purchase under the Plan may be offered to Eligible Employees only pursuant to an exemption from the registration requirements of the Act and pursuant to any other action that is required under any other applicable law of the jurisdiction in which the Employer of the Employee is located or the Employee is employed or resides.

SECTION 20 - NO INDEPENDENT EMPLOYEE'S RIGHTS

Nothing in the Plan shall be construed to be a contract of employment between an Employer or its parent or any Subsidiary and any Employee, or any group or category of Employees (whether for a definite or specific duration or otherwise), or to prevent the Employer, its parent or any Subsidiary from terminating any Employee's employment at any time, without notice or recompense to the extent permissible under local law.

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Nothing in this Plan shall be construed as conferring any rights of a shareholder in any Employee or any other person until the option to purchase shares granted to the Employee hereunder has been exercised.

SECTION 21 - APPLICABLE LAW

The Plan shall be construed, administered and governed in all respects under the laws of the State of Ohio to the extent such laws are not preempted or controlled by federal law.

SECTION 22 - MERGER OR CONSOLIDATION

If the Company shall at any time merge into or consolidate with another corporation or business entity, each Participant will thereafter be entitled to receive at the end of the Offering Period (during which such merger or consolidation occurs) the securities or property which a holder of Shares was entitled to upon and at the time of such merger or consolidation. A sale of all or substantially all of the assets of the Company shall be deemed a merger or consolidation for the foregoing purposes.

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Exhibit 10.37

EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated and effective as of July 26, 2004 (the "Effective Date"), is made and entered into by and between Cardinal Health, Inc., an Ohio corporation (the "Company"), and J. Michael Losh (the "Executive").

WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and conditions under which the Executive will render services to the Company as interim Chief Financial Officer from and after the Effective Date.

NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, agree as follows:

1. EMPLOYMENT PERIOD. The Company shall employ, or shall cause one of its subsidiaries or affiliates to employ, the Executive, and the Executive shall serve the Company, on the terms and conditions set forth in this Agreement, during the one-year period beginning on the Effective Date and ending on the first (1st) anniversary of the Effective Date, unless prior to such date the employment of the Executive terminates in accordance with Section 4 of this Agreement (such period, the "Employment Period"). This Agreement shall not impact the Executive's continued service as a member of the Company's Board of Directors.

2. POSITION AND DUTIES. (a) During the Employment Period, the Executive shall serve as the interim Chief Financial Officer of the Company, with the duties and responsibilities customarily assigned to such position, and such other duties and responsibilities as the Chief Executive Officer of the Company shall from time to time assign to the Executive.

(b) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled under the practices and policies of the Company as in effect from time to time, the Executive shall devote the Executive's full business attention and time to the business and affairs of the Company, and shall use the Executive's reasonable best efforts to carry out such responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to (A) continue to serve on the corporate boards or committees on which he is serving as of the Effective Date in the same capacity, in which he is serving as of the Effective Date and, with the prior written consent of the Chief Executive Officer of the Company, additional corporate boards or committees, (B) serve on civic or charitable boards or committees, (C) deliver lectures, fulfill speaking engagements or teach at educational institutions and (D) manage personal investments, so long as such activities under clauses (C) and (D) do not materially interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement.

(c) As of the Effective Date, the Executive's services shall be performed primarily at the Company's corporate headquarters in Dublin, Ohio.

3. COMPENSATION. (a) OPTION GRANT. As compensation for the Executive's services hereunder, as of July 27, 2004, the Company shall grant the Executive an option to purchase 210,000 common shares, without par value, of the Company (the "Option") pursuant to the terms and conditions set forth in the Nonqualified Stock Option Agreement attached to this Agreement as Exhibit A (the "Option Agreement"). The exercise price per common share of the Option shall be equal to the closing price of the common shares of the Company on the New York Stock Exchange on July 27, 2004. The Executive acknowledges and agrees that he will not be eligible to receive annual grants of options to purchase common shares of the Company during the Company's fiscal 2005 year, unless any such grant is authorized by the Human Resources and Compensation Subcommittee of the Board of Directors of the Company. During the Employment Period, the Executive will not be eligible to receive compensation payable solely to non-employee directors of the Company.

(a) EMPLOYEE BENEFITS. During the Employment Period, the Executive shall be entitled to receive life insurance, travel accident insurance and accidental death and disability insurance at no cost to the Executive as well as vacation to the same extent as, and on the same terms and conditions as, other similarly situated executives of the Company from time to time.

(b) EXPENSES. The Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive during the Employment Period in carrying out the Executive's duties under this Agreement (including travel and living expenses for him and his spouse in the Columbus, Ohio living area), provided that the Executive complies with the policies, practices and procedures of the Company then applicable to the Executive for submission of expense reports, receipts, or similar documentation of such expenses.

4. EMPLOYMENT TERMINATION. The Executive or the Company may terminate the Executive's employment during the Employment Period for any reason upon 30 days advanced written notice to the Company or to the Executive, as applicable (the date on which the Executive ceases to be an employee of the Company shall be referred to as the "Date of Termination").

5. COVENANTS. (a) INTRODUCTION. The parties acknowledge that the provisions and covenants contained in this Section 5 are ancillary and material to this Agreement and the Option Agreement and that the limitations contained herein are reasonable in geographic and temporal scope and do not impose a greater restriction or restraint than is necessary to protect the goodwill and other legitimate business interests of the Company. The parties also acknowledge and agree that the provisions of this Section 5 do not adversely affect the Executive's ability to earn a living in any capacity that does not violate the covenants contained herein. The parties further acknowledge and agree that the provisions of Section 11(a) below are accurate and necessary because (i) this Agreement is entered into in

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the State of Ohio, (ii) Ohio has a substantial relationship to the parties and to this transaction, (iii) Ohio is the headquarters state of the Company, which has operations nationwide and has a compelling interest in having its employees treated uniformly within the United States, (iv) the use of Ohio law provides certainty to the parties in any covenant litigation in the United States, and
(v) enforcement of the provision of this Section 5 would not violate any fundamental public policy of Ohio or any other jurisdiction.

(b) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company and all of its subsidiaries, partnerships, joint ventures, limited liability companies, and other affiliates (collectively, the "Cardinal Group"), all secret or confidential information, knowledge or data relating to the Cardinal Group and its businesses (including, without limitation, any proprietary and not publicly available information concerning any processes, methods, trade secrets, research, secret data, costs, names of users or purchasers of their respective products or services, business methods, operating procedures or programs or methods of promotion and sale) that the Executive has obtained or obtains during the Executive's employment by the Cardinal Group and that is not public knowledge (other than as a result of the Executive's violation of this Section 5(b)) ("Confidential Information"). For the purposes of this Section 5(b), information shall not be deemed to be publicly available merely because it is embraced by general disclosures or because individual features or combinations thereof are publicly available. The Executive shall not communicate, divulge or disseminate Confidential Information at any time during or after the Executive's employment with the Cardinal Group, except with the prior written consent of the Cardinal Group, as applicable, or as otherwise required by law or legal process. All records, files, memoranda, reports, customer lists, drawings, plans, documents and the like that the Executive uses, prepares or comes into contact with during the course of the Executive's employment shall remain the sole property of the Company and/or the Cardinal Group, as applicable, and shall be turned over to the applicable Cardinal Group company upon termination of the Executive's employment.

(c) NON-RECRUITMENT OF EMPLOYER'S EMPLOYEES, ETC. Executive shall not, at any time during the Restricted Period (as defined in this Section 5(c)), without the prior written consent of Cardinal Health, Inc., directly or indirectly, contact, solicit, recruit, or employ (whether as an employee, officer, director, agent, consultant or independent contractor) any person who was or is at any time during the previous twenty four months an employee, representative, officer or director of the Cardinal Group. Further, during the Restricted Period, Executive shall not take any action that could reasonably be expected to have the effect of encouraging or inducing any employee, representative, officer or director of the Cardinal Group to cease their relationship with the Cardinal Group for any reason. This provision does not apply to recruitment of employees within or for the Cardinal Group. The "Restricted Period" means the period of Executive's employment with the Cardinal Group and the additional period that ends 24 months after the Executive's Date of Termination.

(d) NO COMPETITION--SOLICITATION OF BUSINESS. During the Restricted Period, the Executive shall not (either directly or indirectly or as an officer, agent, employee, partner

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or director of any other company, partnership or entity) solicit, service, or accept on behalf of any competitor of the Cardinal Group the business of (i) any customer of the Cardinal Group at the time of the Executive's employment or Date of Termination, or (ii) potential customer of the Cardinal Group which the Executive knew to be an identified, prospective purchaser of services or products of the Cardinal Group.

(e) NO COMPETITION--EMPLOYMENT BY COMPETITOR. During the Restricted Period, the Executive shall not invest in (other than in a publicly traded company with a maximum investment of no more than 1% of outstanding shares), counsel, advise, or be otherwise engaged or employed by, any entity or enterprise that competes with the Cardinal Group, by developing, manufacturing or selling any product or service of a type, respectively, developed, manufactured or sold by the Cardinal Group. It shall not be considered a violation of the foregoing for the Executive to continue to serve on the corporate boards or committees on which he is serving as of the Effective Date and, with the prior written consent of the Chief Executive Officer of the Company, additional corporate boards or committees.

(f) NO DISPARAGEMENT. (i) The Executive shall at all times refrain from taking actions or making statements, written or oral, that (A) denigrate, disparage or defame the goodwill or reputation of the Cardinal Group or any of its trustees, officers, security holders, partners, agents or former or current employees and directors, or (B) are intended to, or may be reasonably expected to, adversely affect the morale of the employees of the Cardinal Group. The Executive further agrees not to make any negative statements to third parties relating to the Executive's employment or any aspect of the businesses of the Cardinal Group and not to make any statements to third parties about the circumstances of the termination of the Executive's employment, or about the Cardinal Group or its trustees, officers, security holders, partners, agents or former or current employees and directors, except as may be required by a court or governmental body.

(ii) The Executive further agrees that, following termination of employment for any reason, the Executive shall assist and cooperate with the Company with regard to any matter or project in which the Executive was involved during the Executive's employment with the Company, including but not limited to any litigation that may be pending or arise after such termination of employment. Further, the Executive agrees to notify the Company at the earliest opportunity of any contact that is made by any third parties concerning any such matter or project. The Company shall not unreasonably request such cooperation of Executive and shall compensate the Executive for any lost wages or expenses associated with such cooperation and assistance.

(g) ACKNOWLEDGMENT AND ENFORCEMENT. (i) The Executive acknowledges and agrees that: (A) the purpose of the foregoing covenants, including without limitation the noncompetition covenants of Sections 5(d) and (e), is to protect the goodwill, trade secrets and other Confidential Information of the Company; (B) because of the nature of the business in which the Cardinal Group is engaged and because of the nature of the Confidential Information to which the Executive has access, the Company would suffer irreparable harm

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and it would be impractical and excessively difficult to determine the actual damages of the Cardinal Group in the event the Executive breached any of the covenants of this Section 5; and (C) remedies at law (such as monetary damages) for any breach of the Executive's obligations under this Section 5 would be inadequate. The Executive therefore agrees and consents that if the Executive commits any breach of a covenant under this Section 5 or threatens to commit any such breach, the Company shall have the right (in addition to, and not in lieu of, any other right or remedy that may be available to it) to temporary and permanent injunctive relief from a court of competent jurisdiction, without posting any bond or other security and without the necessity of proof of actual damage.

(ii) In addition, in the event of a violation of this Section 5, the Company shall have the right to require the Executive to pay to the Company all or any portion of the Clawback Amount (as defined below) within 30 days following written notice by the Company to the Executive (the "Company Notice") that it is imposing such requirement. The "Clawback Amount" means: if the Executive has exercised any stock options granted to the Executive by the Cardinal Group under the Cardinal Health, Inc. Equity Incentive Plan within three years before a violation of Section 5(b), 5(c) or 5(f) or within one year before a violation of Section 5(d) or 5(e), an amount equal to the gross option gain realized or obtained by the Executive or any transferee resulting from the exercise of such stock option, measured at the date of exercise (i.e., the difference between the fair market value of the purchased stock on the date of exercise and the exercise price paid by the Executive therefor).

In addition to the foregoing, in the event of a violation of this Section 5, all outstanding stock options granted to the Executive by the Cardinal Group (or any part thereof) under the Cardinal Health, Inc. Equity Incentive Plan that have not been exercised shall immediately and automatically terminate, be forfeited, and cease to be exercisable at any time.

(iii) With respect to any provision of this Section 5 finally determined by a court of competent jurisdiction to be unenforceable, the Executive and the Company hereby agree that such court shall have jurisdiction to reform this Agreement or any provision hereof so that it is enforceable to the maximum extent permitted by law, and the parties agree to abide by such court's determination. If any of the covenants of this Section 5 are determined to be wholly or partially unenforceable in any jurisdiction, such determination shall not be a bar to or in any way diminish the Company's right to enforce any such covenant in any other jurisdiction.

6. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Cardinal Group for which the Executive may qualify, nor shall anything in this Agreement limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Cardinal Group. Vested benefits and other amounts that the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Cardinal Group on or after the Date of Termination

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shall be payable in accordance with such plan, policy, practice, program, contract or agreement, as the case may be, except as explicitly modified by this Agreement.

7. NO MITIGATION. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced, regardless of whether the Executive obtains other employment.

8. NOTICES. (a) METHODS. Each notice, demand, request, consent, report, approval or communication (hereinafter, "Notice") which is or may be required to be given by any party to any other party in connection with this Agreement, shall be in writing, and given by facsimile, personal delivery, receipted delivery services, or by certified mail, return receipt requested, prepaid and properly addressed to the party to be served as shown in Section 8(b) below.

(b) ADDRESSES. Notices shall be effective on the date sent via facsimile, the date delivered personally or by receipted delivery service, or three days after the date mailed:

If to the Company:              Cardinal Health, Inc.
                                7000 Cardinal Place
                                Dublin, OH  43017

                                Attn.:  Chief Legal Officer

                                Facsimile: (614) 757-6948

If to the Executive:            At the Executive's residence address
                                most recently on the books and
                                records of the Company.

(c) CHANGES. Each party may designate by Notice to the other in writing, given in the foregoing manner, a new address to which any Notice may thereafter be so given, served or sent.

9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof.

10. SUCCESSORS. (a) EXECUTIVE. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives.

( b) THE COMPANY. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

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(c) The Company may assign this Agreement to any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company that expressly agrees to assume and perform this Agreement in the same manner and to the same extent that the Company would have been required to perform it if no such assignment had taken place. As used in this Agreement, "Company" shall mean both the Company as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

11. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of Ohio, without reference to principles of conflict of laws. In addition, all legal actions or proceedings relating to this Agreement shall be brought in state or federal courts located in Franklin County, Ohio, and the parties executing this Agreement hereby consent to the personal jurisdiction of such courts. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives.

(b) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. If any provision of this Agreement shall be held invalid or unenforceable in part, the remaining portion of such provision, together with all other provisions of this Agreement, shall remain valid and enforceable and continue in full force and effect to the fullest extent consistent with law.

(c) TAX WITHHOLDING. Notwithstanding any other provision of this Agreement, the Company may withhold from amounts payable under this Agreement all federal, state, local and foreign taxes that are required to be withheld by applicable laws or regulations.

(d) NO WAIVER. The Executive's or the Company's failure to insist upon strict compliance with any provision of, or to assert any right under, this Agreement shall not be deemed to be a waiver of such provision or right or of any other provision of or right under this Agreement.

(e) WARRANTY. The Executive hereby warrants that the Executive is free to enter into this Agreement and to perform the services described herein.

(f) HEADINGS. The Section headings contained in this Agreement are for convenience only and in no manner shall be construed as part of this Agreement.

(g) COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument

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(h) SURVIVAL. The obligations under this Agreement of the Executive and the Company that by their nature and terms require (or may require) satisfaction after the end of the Employment Period shall survive such event and shall remain binding upon such parties.

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IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization of the Human Resources and Compensation Subcommittee of its Board of Directors, the Company has caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written.

EXECUTIVE

/s/ J. Michael Losh
------------------------------------
J. Michael Losh

CARDINAL HEALTH, INC.

By  /s/ Robert D. Walter
    --------------------------------
    Robert D. Walter
    Chief Executive Officer

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EXHIBIT A

CARDINAL HEALTH, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

Grant Date: July 27, 2004

Exercise Price:

Grant Vesting Date: July 27, 2007

Grant Expiration Date: July 27, 2014

Cardinal Health, Inc., an Ohio corporation (the "Company"), has granted to J. Michael Losh ("Grantee"), an option (the "Option") to purchase 210,000 common shares, without par value, of the Company (the "Shares") for a total purchase price of , (i.e., the equivalent of [stock price] for each full Share). The Option has been granted under the Cardinal Health, Inc. Amended and Restated Equity Incentive Plan, as amended (the "Plan"), and will include and be subject to all provisions of the Plan, which are incorporated herein by reference, and will be subject to the provisions of this agreement. Capitalized terms used in this agreement which are not specifically defined will have the meanings ascribed to such terms in the Plan. Subject to the terms of this agreement, this Option shall be exercisable at any time on or after July 27, 2007 and prior to July 27, 2014.

By:
Robert D. Walter
Chairman and CEO

1. Method of Exercise and Payment of Price.

(a) Method of Exercise. At any time when the Option is exercisable under the Plan and this agreement, the Option may be exercised from time to time by written notice to the Company which will:

(i) state the number of Shares with respect to which the Option is being exercised; and

(ii) if the Option is being exercised by anyone other than Grantee, be accompanied by proof satisfactory to counsel for the Company of the right of such person or persons to exercise the Option under the Plan and all applicable laws and regulations.

(b) Payment of Price. The full exercise price for the Option shall be paid to the Company as provided in the Plan.

2. Transferability. The Option shall be transferable (I) at Grantee's death, by Grantee by will or pursuant to the laws of descent and distribution, and (II) by Grantee during Grantee's lifetime, without payment of consideration, to (a) the spouse, former spouse, parents, stepparents, grandparents, parents-in-law, siblings, siblings-in-law, children, stepchildren, children-in-law, grandchildren, nieces or nephews of Grantee, or any other persons sharing Grantee's household (other than tenants or employees) (collectively, "Family Members"), (b) a trust or trusts for the primary benefit of Grantee or such Family Members, (c) a foundation in which Grantee or such Family Members control the management of assets, or (d) a partnership in which Grantee or such Family Members are the majority or controlling partners; provided, however, that subsequent transfers of the transferred Option shall be prohibited, except (X) if the transferee is an individual, at the transferee's death by the transferee by will or pursuant to the laws of descent and distribution, and (Y) without payment of consideration to the individuals or entities listed in subparagraphs II(a), (b) or (c), above, with respect to the original Grantee. The Human Resources and Compensation Committee of the Board of Directors of the Company (the "Committee") may, in its discretion, permit transfers to other persons and entities as permitted by the Plan. Neither a transfer under a domestic relations order in settlement of marital property rights nor a transfer to an entity in which more than 50% of the voting interests are owned by Grantee or Family Members in exchange for an interest in that entity shall be considered to be a transfer for consideration. Within 10 days of any transfer, Grantee shall notify the Stock Option Administrator of the Company in writing of the transfer. Following transfer, the Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer and, except as otherwise provided in the Plan or this agreement, references to the original Grantee shall be deemed to refer to the transferee. The events of termination of services of Grantee provided in paragraph 3 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the transferee for the periods specified in paragraph 3. The Company shall have no obligation to notify any transferee of Grantee's termination of

employment with the Company for any reason. The conduct prohibited of Grantee in paragraphs 5 and 6 hereof shall continue to be prohibited of Grantee following transfer to the same extent as immediately prior to transfer and the Option (or its economic value, as applicable) shall be subject to forfeiture by the transferee and recoupment from Grantee to the same extent as would have been the case of Grantee had the Option not been transferred. Grantee shall remain subject to the recoupment provisions of paragraphs 5 and 6 of this agreement and tax withholding provisions of Section 13(d) of the Plan following transfer of the Option.

3. Termination of Relationship.

(a) Termination by Death or Disability. If Grantee's provision of services to the Company and its subsidiaries (collectively, the "Cardinal Group") terminates by reason of death or disability (as defined in the Plan), then, any unvested portion of the Option shall vest upon Grantee's termination of provision of services and become exercisable in full through the Grant Expiration Date (the "Exercise Period"). The Option may following Grantee's death be exercised by any transferee of Grantee, if applicable, or by the legal representative of the estate or by the legatee of Grantee under the will of Grantee. Grantee's services as a member of the Board of Directors of the Company will be treated as the provision of services under this agreement.

(b) Voluntary Termination of Services Prior to the Grant Vesting Date or For Cause. If Grantee's provision of services to the Cardinal Group terminates prior to the Grant Vesting Date as a result of Grantee's voluntary termination of services (subject to Section 10 of the Plan regarding acceleration of the vesting of the Option upon a Change of Control) or terminates at any time for Cause, the Option will automatically terminate on the date of such termination. If the vesting of the Option is accelerated upon a Change of Control, the Option will remain exercisable through the expiration of the Exercise Period.

(c) Other Termination of Services. If Grantee's provision of services to the Cardinal Group terminates for any reason other than pursuant to the terminations described in paragraphs 3(a) and (b) above, then (i) if such termination is prior to the Grant Vesting Date, any unvested portion of the Option shall vest upon Grantee's termination of provision services and (ii) following any such termination of provision of services, the Option shall become exercisable in full through the expiration of the Exercise Period. Notwithstanding the foregoing, if Grantee dies after the Option vests but before the expiration of the Exercise Period, the Option may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of Grantee under the will of Grantee following Grantee's death, through the expiration of the Exercise Period.

4. Restrictions on Exercise. The Option is subject to all restrictions in this agreement and/or in the Plan. As a condition of any exercise of the Option, the Company may require Grantee or his or her transferee or successor to make any representation and

warranty to comply with any applicable law or regulation or to confirm any factual matters (including Grantee's compliance with the terms of paragraphs 5 and 6 of this agreement or any employment or severance agreement between any member of the Cardinal Group and Grantee) reasonably requested by the Company.

5. Triggering Conduct/Competitor Triggering Conduct. As used in this agreement, "Triggering Conduct" shall include disclosing or using in any capacity other than as necessary in the performance of duties assigned by the Cardinal Group any confidential information, trade secrets or other business sensitive information or material concerning the Cardinal Group; violation of Company policies, including conduct which would constitute a breach of any of the Certificates of Compliance with Company Policies and/or the Certificates of Compliance with Company Business Ethics Policies signed by Grantee; directly or indirectly employing, contacting concerning employment, or participating in any way in the recruitment for employment of (whether as an employee, officer, director, agent, consultant or independent contractor), any person who was or is an employee, representative, officer or director of the Cardinal Group at any time within the 12 months prior to the termination of Grantee's provision of services to the Cardinal Group; any action by Grantee and/or his or her representatives that either does or could reasonably be expected to undermine, diminish or otherwise damage the relationship between the Cardinal Group and any of its customers, potential customers, vendors and/or suppliers that were known to Grantee; and breaching any provision of any employment or severance agreement with a member of the Cardinal Group. As used in this agreement, "Competitor Triggering Conduct" shall include, either during Grantee's provision of services or within one year following Grantee's termination of provision of services to the Cardinal Group, accepting employment with or serving as a consultant or advisor or in any other capacity to an entity that is in competition with the business conducted by any member of the Cardinal Group (a "Competitor"), including, but not limited to, employment or another business relationship with any Competitor if Grantee has been introduced to trade secrets, confidential information or business sensitive information during Grantee's provision of services to the Cardinal Group and such information would aid the Competitor because the threat of disclosure of such information is so great that, for purposes of this agreement, it must be assumed that such disclosure would occur.

6. Special Forfeiture/Repayment Rules. For so long as Grantee continues to provide services to the Cardinal Group and for three years following Grantee's termination of provision of services to the Cardinal Group regardless of the reason, Grantee agrees not to engage in Triggering Conduct. If Grantee engages in Triggering Conduct during the time period set forth in the preceding sentence or in Competitor Triggering Conduct during the time period referenced in the definition of "Competitor Triggering Conduct" set forth in paragraph 5 above, then:

(a) the Option (or any part thereof that has not been exercised) shall immediately and automatically terminate, be forfeited, and shall cease to be exercisable at any time; and

(b) Grantee shall, within 30 days following written notice from the Company, pay the Company an amount equal to the gross option gain realized or obtained by Grantee or any transferee resulting from the exercise of such Option, measured at the date of exercise (i.e., the difference between the market value of the Shares underlying the Option on the exercise date and the exercise price paid for such Shares underlying the Option), with respect to any portion of the Option that has already been exercised at any time within three years prior to the Triggering Conduct (the "Look-Back Period"), less $1.00. If Grantee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Grantee's termination of employment with the Cardinal Group, but including any period between the time of Grantee's termination and engagement in Competitor Triggering Conduct. Grantee may be released from Grantee's obligations under this paragraph 6 only if the Committee (or its duly appointed designee) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Nothing in this paragraph 6 constitutes a so-called "noncompete" covenant. This paragraph 6 does, however, prohibit certain conduct while Grantee is associated with the Cardinal Group and thereafter and does provide for the forfeiture or repayment of the benefits granted by this agreement under certain circumstances, including, but not limited to, Grantee's acceptance of employment with a Competitor. Grantee agrees to provide the Company with at least 10 days written notice prior to directly or indirectly accepting employment with or serving as a consultant or advisor or in any other capacity to a Competitor, and further agrees to inform any such new employer, before accepting employment, of the terms of this paragraph 6 and Grantee's continuing obligations contained herein. No provisions of this agreement shall diminish, negate or otherwise impact any separate noncompete or other agreement to which Grantee may be a party, including, but not limited to, any of the Certificates of Compliance with Company Policies and/or the Certificates of Compliance with Company Business Ethics Policies; provided, however, that to the extent that any provisions contained in any other agreement are inconsistent in any manner with the restrictions and covenants of Grantee contained in this agreement, the provisions of this agreement shall take precedence and such other inconsistent provisions shall be null and void. Grantee acknowledges and agrees that the restrictions contained in this agreement are being made for the benefit of the Company in consideration of Grantee's receipt of the Option, in consideration of employment, in consideration of exposing Grantee to the Company's business operations and confidential information, and for other good and valuable consideration, the adequacy of which consideration is hereby expressly confirmed. Grantee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Grantee and that the Company is unwilling to provide the Option to Grantee without including the restrictions and covenants of Grantee contained in this agreement. Further, the parties agree and acknowledge that the provisions contained in paragraphs 5 and 6 are ancillary to, or part of, an otherwise enforceable agreement at the time the agreement is made.

7. Governing Law/Venue. This agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of law, except to the extent superceded by the laws of the United States of America. The parties agree and acknowledge that the

laws of the State of Ohio bear a substantial relationship to the parties and/or this agreement and that the Option and benefits granted herein would not be granted without the governance of this agreement by the laws of the State of Ohio. In addition, all legal actions or proceedings relating to this agreement shall be brought in state or federal courts located in Franklin County, Ohio and the parties executing this agreement hereby consent to the personal jurisdiction of such courts. Grantee acknowledges that the covenants contained in paragraphs 5 and 6 of this agreement are reasonable in nature, are fundamental for the protection of the Company's legitimate business and proprietary interests, and do not adversely affect Grantee's ability to earn a living in any capacity that does not violate such covenants. The parties further agree that in the event of any violation by Grantee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law. In the event of any violation or attempted violations of the restrictions and covenants of Grantee contained in this agreement, the Cardinal Group shall be entitled to specific performance and injunctive relief or other equitable relief, including the issuance ex parte of a temporary restraining order, without any showing of irreparable harm or damage, such irreparable harm being acknowledged and admitted by Grantee, and Grantee hereby waives any requirement for the securing or posting of any bond in connection with such remedy, without prejudice to the rights and remedies afforded the Cardinal Group hereunder or by law. In the event that it becomes necessary for the Cardinal Group to institute legal proceedings under this agreement, Grantee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings. Any provision of this agreement which is determined by a court of competent jurisdiction to be invalid or unenforceable should be construed or limited in a manner that is valid and enforceable and that comes closest to the business objectives intended by such provision, without invalidating or rendering unenforceable the remaining provisions of this agreement.

8. Action by the Committee. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the good faith province and discretion of the Committee. The parties agree to be bound by the decisions of the Committee with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Committee may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Committee (hereinafter the "designee"). In fulfilling its responsibilities hereunder, the Committee or its designee may rely upon documents, written statements of the parties or such other material as the Committee or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Committee or its designee and that any decision of the Committee or its designee relating to this agreement, including without limitation whether particular conduct constitutes Triggering Conduct or Competitor Triggering Conduct, shall be final and binding unless such decision is arbitrary and capricious.

9. Prompt Acceptance of Agreement. The Option grant evidenced by this agreement shall, at the discretion of the Committee, be forfeited if this agreement is not executed by

Grantee and returned to the Company within 90 days of the Grant Date set forth on the first page of this agreement.

10. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to the Option grant under and participation in the Plan or future options that may be granted under the Plan by electronic means or to request Grantee's consent to participate in the Plan by electronic means. Grantee hereby consents to receive such documents by electronic delivery and, if requested, to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.

ACCEPTANCE OF AGREEMENT

Grantee hereby: (a) acknowledges receiving a copy of the Plan, which has either been previously delivered or is provided with this agreement, and represents that he or she is familiar with and understands all provisions of the Plan and this agreement; and (b) voluntarily and knowingly accepts this agreement and the Option granted to him or her under this agreement subject to all provisions of the Plan and this agreement. Grantee further acknowledges receiving a copy of the Company's most recent Annual Report and other communications routinely distributed to the Company's shareholders and a copy of the Plan Description dated November 17, 2003 pertaining to the Plan.

Signature

Print Name

Grantee's Social Security Number

Date

Exhibit 10.38

INDEMNIFICATION AGREEMENT

This agreement is made on ____________, at Dublin, Ohio, between Cardinal Health, Inc., an Ohio corporation (the "Company"), and ____________ (the "Director").

Background Information

A. The Director is a member of the Company's Board of Directors (the "Board") and, in that capacity, is performing valuable services for the Company.

B. The shareholders of the Company have adopted a Restated Code of Regulations, as amended (the "Regulations"), providing for indemnification of the directors of the Company in accordance with Section 1701.13 of the Ohio Revised Code (the "Statute"). The Regulations and the Statute specifically provide that they are not exclusive, and contemplate that contracts may be entered into between the Company and directors with respect to indemnification of directors.

C. The Company and Director recognize the substantial cost of carrying directors and officers liability insurance ("D&O Insurance") and that the Company may elect not to carry D&O Insurance from time to time.

D. The Company and Director further recognize that officers and directors may be exposed to certain risks not covered by D&O Insurance.

E. These factors with respect to the coverage and cost to the Company of D&O Insurance and issues concerning the scope of indemnity under the Statute and Regulations generally have raised questions concerning the adequacy and reliability of the protection presently afforded to directors.

F. In order to address such issues and induce the Director to continue to serve as a member of the Board, the Company has determined to enter into this agreement with the Director.

Statement of Agreement

In consideration of the Director's continued service as a member of the Board after the date of this agreement, the Company and the Director hereby agree as follows:

Section 1. Indemnity of Director. Subject only to the limitations set forth in Section 2, below, the Company shall indemnify the Director to the full extent not otherwise prohibited by the Statute or other applicable law, including without limitation indemnity:

(a) Against any and all costs and expenses (including legal, expert, and other professional fees and expenses), judgments, damages, fines (including excise taxes with respect to employee benefit plans), penalties, and amounts paid

in settlement actually and reasonably incurred by the Director (collectively, "Expenses"), in connection with any threatened, pending, or completed action, suit or proceeding, or arbitration or other alternative dispute resolution mechanism (whether civil, criminal, administrative, or investigative and including without limitation an action by or in the right of the Company) (each a "Proceeding") to which the Director is or at any time becomes a party, or is threatened to be made a party as a result, directly or indirectly, of serving at any time: (i) as a director, officer, employee, or agent of the Company; or (ii) at the request of the Company as a director, officer, employee, trustee, fiduciary, manager, member, or agent of a corporation, partnership, trust, limited liability company, employee benefit plan, or other enterprise or entity; and

(b) Otherwise to the fullest extent that the Director may be indemnified by the Company under the Regulations and the Statute, including without limitation the non-exclusivity provisions thereof.

Section 2. Limitations on Indemnity. No indemnity pursuant to Section 1 shall be paid by the Company:

(a) Except to the extent that the aggregate amount of losses to be indemnified exceed the aggregate amount of such losses for which the Director is actually paid or reimbursed pursuant to D&O Insurance, if any, which may be purchased and maintained by the Company or any of its subsidiaries;

(b) On account of any Proceeding in which judgment is rendered against the Director for an accounting of profits made from the purchase or sale of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;

(c) On account of the Director's conduct which is determined (pursuant to the Statute) to have been knowingly fraudulent, deliberately dishonest, or willful misconduct, except to the extent such indemnity is otherwise permitted under the Statute;

(d) With respect to any remuneration paid to the Director determined, by a court having jurisdiction in the matter in a final adjudication from which there is no further right of appeal, to have been in violation of law;

(e) If it shall have been determined by a court having jurisdiction in the matter, in a final adjudication from which there is no further right of appeal, that indemnification is not lawful;

(f) On account of the Director's conduct to the extent it relates to any matter that occurred prior to the time such individual became a director of the Company; provided, however, that this limitation shall not apply to the extent such matter occurred while the Director was a director, officer, employee or agent

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of the Company or its subsidiaries (other than prior to the time such entity became a subsidiary of the Company); or

(g) With respect to Proceedings initiated or brought voluntarily by the Director and not by way of defense, except pursuant to Section 8 with respect to proceedings brought to enforce rights or to collect money due under this agreement; provided however that indemnity may be provided by the Company in specific cases if the Board finds it to be appropriate.

In no event shall the Company be obligated to indemnify the Director pursuant to this agreement to the extent such indemnification is prohibited by applicable law.

Section 3. Advancement of Expenses. Subject to Section 7 of this agreement, the Expenses incurred by the Director in connection with any Proceeding shall be promptly reimbursed or paid by the Company as they become due; provided the Director submits a written request to the Company for such payment together with reasonable supporting documentation for such Expenses; and provided further that the Director, at the request of the Company, submits to the Company an undertaking to the effect stated in Section 7, below, and to reasonably cooperate with the Company concerning such Proceeding.

Section 4. Insurance and Self Insurance. The Company shall not be required to maintain D&O Insurance in effect if and to the extent that such insurance is not reasonably available or if, in the reasonable business judgment of the Board, either (a) the premium cost of such insurance is disproportionate to the amount of coverage, or (b) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. To the extent the Company determines not to maintain D&O Insurance, the Company shall be deemed to be self-insured within the meaning of Section 1701.13(E)(7) of the Statute and shall, in addition to the Director's other rights hereunder, provide protection to the Director similar to that which otherwise would have been available to the Director under such insurance.

Section 5. Continuation of Obligations. All obligations of the Company under this agreement shall apply retroactively beginning on the date the Director commenced as, and shall continue during the period that the Director remains, a director of the Company or is, as described above, a director, officer, employee, trustee, fiduciary, manager, member, or agent of another corporation, partnership, limited liability company, trust, employee benefit plan, or other enterprise and shall continue thereafter as long as the Director may be subject to any possible claim or any threatened, pending or completed Proceeding as a result, directly or indirectly, of being such a director, officer, employee, trustee, fiduciary, manager, member, or agent.

Section 6. Notification and Defense of Claim. Promptly after receipt by the Director of notice of the commencement of any Proceeding, if a claim is to be made against the Company under this agreement, the Director shall notify the Company of the commencement thereof, but the delay or omission to so notify the Company shall not relieve the Company from any liability which it may have to the Director under this agreement, except to the extent the Company is materially prejudiced by such delay or

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omission. With respect to any such Proceeding of which the Director notifies the Company of the commencement:

(a) The Company shall be entitled to participate therein at its own expense;

(b) The Company shall be entitled to assume the defense thereof, jointly with any other indemnifying party similarly notified, with counsel selected by the Company and approved by the Director, which approval shall not unreasonably be withheld. After notice from the Company to the Director of the Company's election to assume such defense, the Company shall not be liable to the Director under this agreement for any legal or other Expenses subsequently incurred by the Director in connection with the defense thereof except as otherwise provided below. The Director shall have the right to employ his own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of such defense shall be the expenses of the Director unless (i) the employment of such counsel by the Director has been authorized by the Company,
(ii) the Director, upon the advice of counsel, shall have reasonably concluded that there may be a conflict of interest between the Company and the Director in the conduct of such defense, or (iii) the Company has not in fact employed counsel to assume such defense, in any of which cases the fees and expenses of such counsel shall be the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Director, upon the advice of counsel, shall have made the conclusion described in (ii), above. In the event the Company assumes the defense of any Proceeding as provided in this Section 6(b), the Company may defend or settle such Proceeding as it deems appropriate; provided, however, the Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Director without the Director's written consent, which consent shall not be unreasonably withheld.

(c) The Company shall not be required to indemnify the Director under this agreement for any amounts paid in settlement of any Proceeding without the Company's written consent, which consent shall not be unreasonably withheld.

(d) The Director shall cooperate with the Company in all ways reasonably requested by it in connection with the Company fulfilling its obligations under this agreement.

Section 7. Repayment of Expenses. The Director shall reimburse the Company for all Expenses paid by the Company pursuant to Section 3 of this agreement or otherwise in defending any Proceeding against the Director if and only to the extent that a determination shall have been made by a court in a final adjudication from which there is no further right of appeal that it has been shown by clear and convincing evidence that the Director's action or failure to act involved an act or omission undertaken with deliberate

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intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company.

Section 8. Enforcement. The Company expressly confirms that it has entered into this agreement and has assumed the obligations of this agreement in order to induce the Director to continue as a director of the Company and acknowledges that the Director is relying upon this agreement in continuing in that capacity. If the Director is required to bring an action to enforce rights or to collect money due under this agreement, the Company shall reimburse the Director for all of the Director's reasonable fees and expenses (including legal, expert, and other professional fees and expenses) in bringing and pursuing such action, unless the court determines that each of the material assertions made by the Director as a basis for such action were not made in good faith or were frivolous. The Company shall have the burden of proving that indemnification is not required under this agreement, unless a prior determination has been made by the shareholders of the Company or a court of competent jurisdiction that indemnification is not required hereunder.

Section 9. Rights Not Exclusive. The indemnification provided by this agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under the Company's articles of incorporation, Regulations, any vote of the shareholders or disinterested directors of the Company, the Statute, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

Section 10. Separability. Each of the provisions of this agreement is a separate and distinct agreement and independent of the others so that, if any provisions of this agreement shall be held to be invalid and unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions of this agreement.

Section 11. Modification to Applicable Law. In the event there is a change, after the date of this agreement, in any applicable law (including without limitation the Statute) which: (a) expands the right of an Ohio corporation to indemnify a member of its board of directors or an officer, such change shall be automatically included within the scope of the Director's rights and Company's obligations under this agreement; or (b) narrows the right of an Ohio corporation to indemnify a member of its board of directors or an officer, such change, to the extent not otherwise required by such law, shall have no effect on this agreement or the parties' rights and obligations hereunder.

Section 12. Partial Indemnity. If the Director is entitled under any provision of this agreement to indemnity by the Company for some or a portion of the Expenses actually or reasonably incurred by him in the investigation, defense, appeal, or settlement of any Proceeding, but not for the total amount thereof, the Company shall nevertheless indemnify the Director for the portion of such Expenses to which the Director is entitled.

Section 13. Governing Law. This agreement shall be interpreted and enforced in accordance with the laws of the State of Ohio, without regard to choice of law principles.

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Section 14. Successors. This agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the Director and the Company and their respective heirs, successors, and assigns. The Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, expressly, absolutely, and unconditionally to assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place.

Section 15. Prior Agreements. This agreement shall supersede any other agreements entered into prior to the date of this agreement between the Company and the Director concerning the subject matter of this agreement.

Section 16. Consent to Jurisdiction. The Company and the Director each hereby irrevocably consents to the jurisdiction of the courts of the State of Ohio for all purposes in connection with any action or proceeding which arises out of or relates to this agreement and hereby waives any objections or defenses relating to jurisdiction with respect to any lawsuit or other legal proceeding initiated in or transferred to such courts.

CARDINAL HEALTH, INC.

DIRECTOR:

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Exhibit 10.39

INDEMNIFICATION AGREEMENT

This agreement is made ____________, at Dublin, Ohio, between Cardinal Health, Inc., an Ohio corporation (the "Company"), and _________ (the "Officer").

Background Information

A. The Officer is an officer and employee of the Company and/or one or more of its subsidiaries and, in that capacity, is performing valuable services for the Company.

B. The shareholders of the Company have adopted a Restated Code of Regulations, as amended (the "Regulations"), providing for indemnification of the officers of the Company in accordance with Section 1701.13 of the Ohio Revised Code (the "Statute"). The Regulations and the Statute specifically provide that they are not exclusive, and contemplate that contracts may be entered into between the Company and officers with respect to indemnification of officers.

C. The Company and Officer recognize the substantial cost of carrying directors and officers liability insurance ("D&O Insurance") and that the Company may elect not to carry D&O Insurance from time to time.

D. The Company and Officer further recognize that officers and directors may be exposed to certain risks not covered by D&O Insurance.

F. In order to address such issues and induce the Officer to continue to serve as an officer and employee of the Company or one of its subsidiaries, the Company has determined to enter into this agreement with the Officer.

Statement of Agreement

In consideration of the Officer's continued service as an officer of the Company or one of its subsidiaries after the date of this agreement, the Company and the Officer hereby agree as follows:

Section 1. Indemnity of Officer. Subject only to the limitations set forth in Section 2, below, the Company shall indemnify the Officer to the full extent not otherwise prohibited by the Statute or other applicable law, including without limitation indemnity:

in settlement actually and reasonably incurred by the Officer (collectively, "Expenses"), in connection with any threatened, pending, or completed action, suit or proceeding, or arbitration or other alternative dispute resolution mechanism (whether civil, criminal, administrative, or investigative and including without limitation an action by or in the right of the Company) (each a "Proceeding") to which the Officer is or at any time becomes a party, or is threatened to be made a party, as a result, directly or indirectly, of serving at any time: (i) as an officer, employee, or agent of the Company; or (ii) at the request of the Company as a director, officer, employee, trustee, fiduciary, manager, member, or agent of a corporation, partnership, trust, limited liability company, employee benefit plan, or other enterprise or entity; and

(b) Otherwise to the fullest extent that the Officer may be indemnified by the Company under the Regulations and the Statute, including without limitation the non-exclusivity provisions thereof.

Section 2. Limitations on Indemnity. No indemnity pursuant to Section 1 shall be paid by the Company:

(a) Except to the extent that the aggregate amount of losses to be indemnified exceed the aggregate amount of such losses for which the Officer is actually paid or reimbursed pursuant to D&O Insurance, if any, which may be purchased and maintained by the Company or any of its subsidiaries;

(b) On account of any Proceeding in which judgment is rendered against the Officer for an accounting of profits made from the purchase or sale of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended;

(c) On account of the Officer's conduct which is determined (pursuant to the Statute) to have been knowingly fraudulent, deliberately dishonest, or willful misconduct, except to the extent such indemnity is otherwise permitted under the Statute;

(d) With respect to any remuneration paid to the Officer determined, by a court having jurisdiction in the matter in a final adjudication from which there is no further right of appeal, to have been in violation of law;

(e) If it shall have been determined by a court having jurisdiction in the matter, in a final adjudication from which there is no further right of appeal, that indemnification is not lawful;

(f) On account of the Officer's conduct to the extent it relates to any matter that occurred prior to the time such individual became an officer of the Company; provided, however, that this limitation shall not apply to the extent such matter occurred while the Officer was an officer, employee or agent of the Company or its subsidiaries (other than prior to the time such entity became a subsidiary of the Company); or

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(g) With respect to Proceedings initiated or brought voluntarily by the Officer and not by way of defense, except pursuant to Section 8 with respect to proceedings brought to enforce rights or to collect money due under this agreement; provided however that indemnity may be provided by the Company in specific cases if the Board finds it to be appropriate.

In no event shall the Company be obligated to indemnify the Officer pursuant to this agreement to the extent such indemnification is prohibited by applicable law.

Section 3. Advancement of Expenses. Subject to Section 7 of this agreement, the Expenses incurred by the Officer in connection with any Proceeding shall be promptly reimbursed or paid by the Company as they become due; provided the Officer submits a written request to the Company for such payment together with reasonable supporting documentation for such Expenses; and provided further that the Officer, at the request of the Company, submits to the Company an undertaking to the effect stated in Section 7, below.

Section 4. Insurance and Self Insurance. The Company shall not be required to maintain D&O Insurance in effect if and to the extent that such insurance is not reasonably available or if, in the reasonable business judgment of the Board, either (a) the premium cost of such insurance is disproportionate to the amount of coverage, or (b) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. To the extent the Company determines not to maintain D&O Insurance, the Company shall be deemed to be self-insured within the meaning of Section 1701.13(E)(7) of the Statute and shall, in addition to the Officer's other rights hereunder, provide protection to the Officer similar to that which otherwise would have been available to the Officer under such insurance.

Section 5. Continuation of Obligations. All obligations of the Company under this agreement shall apply retroactively beginning on the date the Officer commenced as, and shall continue during the period that the Officer remains, an officer, employee, or agent of the Company or is, as described above, a director, officer, employee, trustee, fiduciary, manager, member, or agent of another corporation, partnership, limited liability company, trust, employee benefit plan, or other enterprise and shall continue thereafter as long as the Officer may be subject to any possible claim or any threatened, pending or completed Proceeding as a result, directly or indirectly, of being such a director, officer, employee, trustee, fiduciary, manager, member, or agent.

Section 6. Notification and Defense of Claim. Promptly after receipt by the Officer of notice of the commencement of any Proceeding, if a claim is to be made against the Company under this agreement, the Officer shall notify the Company of the commencement thereof, but the delay or omission to so notify the Company shall not relieve the Company from any liability which it may have to the Officer under this agreement, except to the extent the Company is materially prejudiced by such delay or omission. With respect to any such Proceeding of which the Officer notifies the Company of the commencement:

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(a) The Company shall be entitled to participate therein at its own expense;

(b) The Company shall be entitled to assume the defense thereof, jointly with any other indemnifying party similarly notified, with counsel selected by the Company and approved by the Officer, which approval shall not unreasonably be withheld. After notice from the Company to the Officer of the Company's election to assume such defense, the Company shall not be liable to the Officer under this agreement for any legal or other Expenses subsequently incurred by the Officer in connection with the defense thereof except as otherwise provided below. The Officer shall have the right to employ his own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of such defense shall be the expenses of the Officer unless (i) the employment of such counsel by the Officer has been authorized by the Company, (ii) the Officer, upon the advice of counsel, shall have reasonably concluded that there may be a conflict of interest between the Company and the Officer in the conduct of such defense, or (iii) the Company has not in fact employed counsel to assume such defense, in any of which cases the fees and expenses of such counsel shall be the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Officer, upon the advice of counsel, shall have made the conclusion described in (ii), above. In the event the Company assumes the defense of any Proceeding as provided in this Section 6(b), the Company may defend or settle such Proceeding as it deems appropriate; provided, however, the Company shall not settle any Proceeding in any manner which would impose any penalty or limitation on the Officer without the Officer's written consent, which consent shall not be unreasonably withheld.

(c) The Company shall not be required to indemnify the Officer under this agreement for any amounts paid in settlement of any Proceeding without the Company's written consent, which consent shall not be unreasonably withheld.

(d) The Officer shall cooperate with the Company in all ways reasonably requested by it in connection with the Company fulfilling its obligations under this agreement.

Section 7. Repayment of Expenses. The Officer shall reimburse the Company for all Expenses paid by the Company pursuant to Section 3 of this agreement or otherwise in defending any Proceeding against the Officer if and only to the extent that a determination shall have been made by a court in a final adjudication from which there is no further right of appeal that the Officer is not entitled to indemnification by the Company for such Expenses under the Statute, the Regulations, this agreement, or otherwise.

Section 8. Enforcement. The Company expressly confirms that it has entered into this agreement and has assumed the obligations of this agreement in order to induce the Officer to continue as an officer and employee of the Company and acknowledges that the Officer is relying upon this agreement in continuing in that capacity. If the Officer is

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required to bring an action to enforce rights or to collect money due under this agreement, the Company shall reimburse the Officer for all of the Officer's reasonable fees and expenses (including legal, expert, and other professional fees and expenses) in bringing and pursuing such action, unless the court determines that each of the material assertions made by the Officer as a basis for such action were not made in good faith or were frivolous. The Company shall have the burden of proving that indemnification is not required under this agreement, unless a prior determination has been made by the shareholders of the Company or a court of competent jurisdiction that indemnification is not required hereunder.

Section 9. Rights Not Exclusive. The indemnification provided by this agreement shall not be deemed exclusive of any other rights to which the Officer may be entitled under the Company's articles of incorporation, Regulations, any vote of the shareholders or disinterested directors of the Company, the Statute, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

Section 11. Modification to Applicable Law. In the event there is a change, after the date of this agreement, in any applicable law (including without limitation the Statute) which: (a) expands the right of an Ohio corporation to indemnify a member of its board of directors or an officer, such change shall be automatically included within the scope of the Officer's rights and Company's obligations under this agreement; or (b) narrows the right of an Ohio corporation to indemnify a member of its board of directors or an officer, such change, to the extent not otherwise required by such law, shall have no effect on this agreement or the parties' rights and obligations hereunder.

Section 12. Partial Indemnity. If the Officer is entitled under any provision of this agreement to indemnity by the Company for some or a portion of the Expenses actually or reasonably incurred by him in the investigation, defense, appeal, or settlement of any Proceeding, but not for the total amount thereof, the Company shall nevertheless indemnify the Officer for the portion of such Expenses to which the Officer is entitled.

Section 13. Governing Law. This agreement shall be interpreted and enforced in accordance with the laws of the State of Ohio, without regard to choice of law principles.

Section 14. Successors. This agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the Officer and the Company and their respective heirs, successors, and assigns. The Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, expressly, absolutely, and unconditionally to assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place.

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Section 15. Prior Agreements. This agreement shall supersede any other agreements entered into prior to the date of this agreement between the Company and the Officer concerning the subject matter of this agreement.

Section 16. Consent to Jurisdiction. The Company and the Officer each hereby irrevocably consents to the jurisdiction of the courts of the State of Ohio for all purposes in connection with any action or proceeding which arises out of or relates to this agreement and hereby waives any objections or defenses relating to jurisdiction with respect to any lawsuit or other legal proceeding initiated in or transferred to such courts.

CARDINAL HEALTH, INC.

OFFICER:

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Exhibit 18.02

October 25, 2004

J. Michael Losh
Chief Financial Officer
Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017

Dear Mr. Losh:

Note 16 of the Notes to the Consolidated Financial Statements of Cardinal
Health, Inc. and subsidiaries included in its Form 10-K for the fiscal year ended June 30, 2004 describes a change in the method of accounting for cash discounts from recognizing cash discounts as a reduction of cost of products sold upon payment of vendor invoices to recording cash discounts as a component of inventory cost. We conclude that such change in the method of accounting is to an acceptable alternative method, which, based on your business judgment to make this change and for the stated reason, is preferable in your circumstances.

Very truly yours,

/s/ Ernst & Young LLP

.
.
Exhibit 21.01

SUBSIDIARIES OF THE REGISTRANT
AS AT 06/30/04

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Abilene Nuclear, LLC Delaware
o 80% Scela, Inc.

Academy of Managed Care Medicine, L.L.C. Delaware

ALARIS Medical Systems, Inc. Delaware

ALARIS Consent Corporation Delaware

ALARIS Release Corporation Delaware

ALARIS Medical U.K. Limited United Kingdom

ALARIS Medical Espana, S.L. Spain

ALARIS Medical Holland B.V. Netherlands

ALARIS Medical France S.A. France

ALARIS Medical Norway A/S Norway

ALARIS Medical Italia S.P.A. Italy

ALARIS Medical New Zealand Limited New Zealand

ALARIS Medical Australia Pty Limited Australia

ALARIS Medical Nordic AB Sweden

ALARIS Medical Systems Deutschland, GmbH Germany

ALARIS Medical Canada Ltd. Canada

ALARIS Medical Systems, S.A. Proprietary Limited South Africa

ALARIS Medical Systems Foreign Sales Corporation Barbados

ALARIS Medical Luxembourg I S.a.r.l. Luxembourg

ALARIS Medical Luxembourg II S.a.r.l. Luxembourg

ALARIS Medical Luxembourg I S.a.r.l., S.C.S. Luxembourg

ALARIS Medical (Suisse) 1, S.a.r.l. Switzerland

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
ALARIS Medical (Suisse) 2, S.a.r.l. Switzerland

ALARIS Medical Cayman Islands Cayman Islands

Alcon - Building Branch Puerto Rico

Allcaps Weichgelatinkapseln GmbH & Co. KG Germany

Allcaps Weichgelatinkapseln Verwaltungs GmbH Germany

Allegiance (BVI) Holdings Co. Ltd. British Virgin Islands

Allegiance Corporation Delaware

Allegiance Healthcare (Labuan) Pte. Ltd. Malaysia

Allegiance Healthcare Deutschland Holding GmbH Germany

Allegiance Healthcare Distribution GmbH Austria

Allegiance Healthcare Holding B.V. Netherlands

Allegiance Healthcare International GmbH Austria

Allegiance K. K. Japan

Allegiance Labuan Holdings Pte. Ltd. Malaysia

Anem-IX S.A.R.L. France

API (Suppliers) Limited United Kingdom

Arclight Systems LLC Delaware

Armand Scott, LLC Delaware

Aurum Pharmaceuticals Limited United Kingdom

Bauer Branch Dominican Republic

Beckloff Associates, Inc. Kansas

C. International, Inc. Ohio

Cardal II, LLC Delaware

Cardal, Inc. Ohio

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Distribution Holding Corporation - I Nevada

Cardinal Distribution Holding Corporation - II Nevada

Cardinal Health (Bermuda) 224 Ltd. Bermuda

Cardinal Health 100, Inc. Indiana
(f/k/a Bindley Western Industries, Inc.)

Cardinal Health 101, Inc. Delaware
(f/k/a Cardinal Health Provider Pharmacy Services, Inc.)

Cardinal Health 102, Inc. Ohio
(f/k/a Cardinal Health Staffing Network, Inc.)

Cardinal Health 103, Inc. Mississippi
(f/k/a Cardinal Southeast, Inc.)

Cardinal Health 104 LP Ohio
(f/k/a Cardinal Distribution LP)

Cardinal Health 105, Inc. Ohio
(f/k/a CORD Logistics, Inc.)

Cardinal Health 106, Inc. Massachusetts
(f/k/a James W. Daly, Inc.)

Cardinal Health 107, Inc. Ohio
(f/k/a National Pharmpak Services, Inc.)

Cardinal Health 108, Inc. Tennessee
(f/k/a National Specialty Services, Inc.)

Cardinal Health 109, Inc. Texas
(f/k/a Owen Healthcare, Inc.)

Cardinal Health 110, Inc. Delaware
(f/k/a Whitmire Distribution Corporation)

Cardinal Health 111, LLC Delaware

Cardinal Health 112, LLC Delaware

Cardinal Health 2, Inc. Nevada
(f/k/a The Griffin Group, Inc.)

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Health 200, Inc. Delaware
(f/k/a Allegiance Healthcare Corporation)

Cardinal Health 201, Inc. Delaware
(f/k/a Allegiance Healthcare International, Inc.)

Cardinal Health 222 (Thailand) Ltd. Thailand
(f/k/a Allegiance Healthcare (Thailand) Ltd.)

Cardinal Health 3, Inc. Nevada
(f/k/a Red Wing Data Corporation)

Cardinal Health 301, Inc. Delaware
(f/k/a Pyxis Corporation)

Cardinal Health 302, LLC Delaware

Cardinal Health 400, Inc. Illinois
(f/k/a Automatic Liquid Packaging, Inc.)

Cardinal Health 406, LLC Delaware

Cardinal Health 409, Inc. Delaware
(f/k/a R.P. Scherer Corporation)

Cardinal Health 411, Inc. Ohio
(f/k/a RedKey, Inc.)

Cardinal Health 414, Inc. Delaware
(f/k/a Syncor International Corporation)

Cardinal Health 415, Inc. Delaware
(f/k/a Syncor Management Corporation)

Cardinal Health 416, Inc. Delaware
(f/k/a PCI Services II, Inc.)

Cardinal Health 417, Inc. Delaware
(f/k/a PCI Services III, Inc.)

Cardinal Health 418, Inc. Delaware
(f/k/a Syncor Pharmaceuticals, Inc.)

Cardinal Health 419, LLC Delaware
(f/k/a Syncor Radiation Management, LLC)

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Health 420, LLC Delaware
(f/k/a Syncor Advanced Isotopes, LLC)

Cardinal Health 421 Limited Partnership Scotland

Cardinal Health 421, Inc. Delaware
(f/k/a RPS Technical Services, Inc.)

Cardinal Health 422, Inc. Alabama
(f/k/a Central Source, Inc.)

Cardinal Health 422 Limited Ireland

Cardinal Health 5, LLC Delaware

Cardinal Health 6, Inc. Nevada
(f/k/a Physicians Purchasing, Inc.)

Cardinal Health Argentina 400 S.A.I.C. Argentina
(f/k/a R.P. Scherer Argentina S.A.I.C.)

Cardinal Health Australia 200 Pty Ltd Australia
(f/k/a Allegiance Healthcare Pty Ltd)

Cardinal Health Australia 300 Pty Ltd Australia
(f/k/a Axiom Healthcare Services Pty. Ltd.)

Cardinal Health Australia 401 Pty Ltd Australia
(f/k/a R.P. Scherer Holdings Pty. Ltd.)

Cardinal Health Belgium 202 S.P.R.L. Belgium
(f/k/a Allegiance S.P.R.L.)

Cardinal Health Brasil 402 Ltda. Brazil
(f/k/a R.P. Scherer do Brasil Encapsulacoes, Ltda.)

Cardinal Health Canada 204, Inc. Canada
(f/k/a Allegiance Healthcare Canada Inc.)

Cardinal Health Canada 301, Inc. Canada
(f/k/a H.E.N. Inc.)

Cardinal Health Canada 302, Inc. Canada
(f/k/a Pyxis Healthcare Systems, Inc.)

Cardinal Health Canada 403, Inc. Canada
(f/k/a R.P. Scherer Canada Inc.)

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
Cardinal Health Capital Corporation                                                               Ohio

Cardinal Health Corporate Solutions, LLC                                                         Nevada
(f/k/a Cardinal Health 4, LLC)

Cardinal Health D.R. 203 Ltd.                                                                   Bermuda
(f/k/a Allegiance International Manufacturing (Bermuda) Ltd.)

Cardinal Health Finance                                                                      United Kingdom

Cardinal Health France 205 S.A.S.                                                                France
(f/k/a Allegiance Sante S.A.S.)

Cardinal Health France 404 S.A.                                                                  France
(f/k/a R.P. Scherer S.A.)
o    Cardinal Health 409, Inc. (f/k/a R.P. Scherer Corporation) -
     684,664 shares - 99.7083%
o    F&F Holding GmbH - 1,000 shares - 0.1456%

Cardinal Health Funding, LLC                                                                     Nevada

Cardinal Health GbR                                                                             Germany

Cardinal Health Germany 206 GmbH                                                                Germany
(f/k/a Allegiance Healthcare Deutschland GmbH)

Cardinal Health Germany 405 GmbH                                                                Germany
(f/k/a Cardinal Health Germany GmbH)

Cardinal Health Germany Holdings GmbH                                                           Germany

Cardinal Health Holding GmbH                                                                    Germany

Cardinal Health Holding International, Inc.                                                    New Jersey

Cardinal Health Holding Pty Ltd                                                                Australia

Cardinal Health Holdings Limited                                                             United Kingdom

Cardinal Health International Ventures, Ltd.                                                    Barbados

Cardinal Health Ireland 406 Ltd.                                                                Ireland
(f/k/a Cardinal Health Technologies Ltd.)

Cardinal Health Ireland 419 Limited                                                             Ireland

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Health Italy 208 S.r.l. Italy
(f/k/a Allegiance Medica S.R.L.)

Cardinal Health Italy 407 S.p.A. Italy
(f/k/a R.P. Scherer S.p.A.)

Cardinal Health Japan 408 K.K. Japan
(f/k/a R.P. Scherer K.K.)

Cardinal Health Lease Funding 2002A, LLC Delaware

Cardinal Health Lease Funding 2002AQ, LLC Delaware

Cardinal Health Lease Funding 2003A, LLC Delaware

Cardinal Health Lease Funding 2003AQ, LLC Delaware

Cardinal Health Lease Funding 2003B, LLC Delaware

Cardinal Health Lease Funding 2003BQ, LLC Delaware

Cardinal Health Lease Funding 2004A, LLC Delaware

Cardinal Health Lease Funding 2004AQ, LLC Delaware

Cardinal Health Luxembourg 420 S.a.r.l. Luxembourg

Cardinal Health Malaysia 211 Sdn. Bhd. Malaysia
(f/k/a Allegiance Healthcare Sdn. Bhd.)

Cardinal Health Malta 212 Limited Malta
(f/k/a Eurovac Limited)

Cardinal Health Mexico 213 S.A. de C.V. Mexico
(f/k/a Allegiance De Mexico, S.A. de C.V.)

Cardinal Health N.Z. 217 Limited New Zealand
(f/k/a Cardinal Health (N.Z.) Limited)

Cardinal Health Netherlands 214 B.V. Netherlands
(f/k/a Allegiance B.V.)

Cardinal Health Netherlands Financing C.V. Netherlands

Cardinal Health Netherlands Holding B.V. Netherlands

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Health P.R. 218, Inc. Puerto Rico
(f/k/a Allegiance PRO, Inc.)

Cardinal Health P.R. 409 B.V. Netherlands
(f/k/a Cardinal Health Manufacturing Services B. V.)

Cardinal Health P.R. 410, Inc. Puerto Rico
(f/k/a PCI Services I, Inc.)

Cardinal Health PTS, LLC Delaware

Cardinal Health Singapore 225 Pte. Ltd. Singapore

Cardinal Health Singapore 303 Pte. Ltd. Singapore

Cardinal Health Spain 219 S.L. Spain
(f/k/a Allegiance S.L.)

Cardinal Health Sweden 220 AB Sweden
(f/k/a Allegiance AB)

Cardinal Health Switzerland 221 GmbH Switzerland
(f/k/a Allegiance Healthcare GmbH)

Cardinal Health Switzerland 412 GmbH Switzerland
(f/k/a Cardinal Health (Europe) GmbH)

Cardinal Health Switzerland 413 AG Switzerland
(f/k/a R.P. Scherer (Europe) AG)

Cardinal Health Systems, Inc. Ohio

Cardinal Health Technologies Switzerland GmbH Switzerland

Cardinal Health Technologies, LLC Nevada

Cardinal Health Trading (Shanghai) Co. Ltd. China

Cardinal Health U.K. 223 Limited United Kingdom
(f/k/a Allegiance Healthcare Limited)

Cardinal Health U.K. 414 Limited United Kingdom
(f/k/a R.P. Scherer Limited)

Cardinal Health U.K. 415 Limited United Kingdom
(f/k/a R.P. Scherer Holdings Limited)

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Cardinal Health U.K. 416 Limited United Kingdom
(f/k/a Scherer DDS Limited)

-Cardinal Health U.K. 417 Limited United Kingdom
(f/k/a Unipack, Ltd.)

Cardinal Health U.K. 418 Limited United Kingdom

Cardinal.com Holdings, Inc. Nevada

Cascade Development, Inc. Nevada

Caseview (P.L.) Limited United Kingdom

CCB, Inc. Iowa

CDI Investments, Inc. Delaware

Centralia Pharmacy, Inc. Illinois

Centricity, LLC Delaware
(f/k/a Boron LePore, Inc.)

Cirmex de Chihuahua S.A. de C.V. Mexico

Cirpro de Delicias S.A. de C.V. Mexico

CMI Net, Inc. Delaware

Comprehensive Medical Imaging-Anaheim Hills, Inc. Delaware

Comprehensive Medical Imaging-Apple Valley, Inc. Delaware

Comprehensive Medical Imaging-Boynton Beach, Inc. Delaware

Comprehensive Medical Imaging-Downey, Inc. Delaware

Comprehensive Medical Imaging-Encino, Inc. Delaware

Comprehensive Medical Imaging-Fort Lauderdale, Inc. Delaware

Comprehensive Medical Imaging-Hesperia, Inc. Delaware

Comprehensive Medical Imaging-Huntington Beach, Inc. Delaware

Comprehensive Medical Imaging-Palm Beach Gardens, Inc. Delaware

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Comprehensive Medical Imaging-Palm Springs, Inc. Delaware

Comprehensive Medical Imaging-Rancho Cucamonga, Inc. Delaware

Comprehensive Medical Imaging-Rancho Mirage, Inc. Delaware

Comprehensive Medical Imaging-Salisbury, Inc. Delaware

Comprehensive Medical Imaging-Santa Maria, Inc. Delaware

Comprehensive Medical Imaging-Sherman Oaks, Inc. Delaware

Comprehensive Medical Imaging-Tempe, Inc. Delaware

Comprehensive Medical Imaging-Van Nuys, Inc. Delaware

Comprehensive Medical Imaging-Victorville, Inc. Delaware

Comprehensive Medical Imaging-Westlake Village, Inc. Delaware

Comprehensive OPEN MRI-Carmichael, Inc. Delaware

Comprehensive OPEN MRI-Folsom, Inc. Delaware

Comprehensive OPEN MRI-Fullerton, Inc. Delaware

Comprehensive OPEN MRI-Laguna Hills, Inc. Delaware

Comprehensive OPEN MRI-Sacramento, Inc. Delaware

Consumer2Patient, LLC. Delaware

Converters Branch Dominican Republic

Convertors de Mexico S.A. de C.V. Mexico

Corona Regional Medical Imaging, LLC Delaware

CR Medicap, Inc. Iowa

Craig Generics Limited United Kingdom

Crossject S.A. France

Cytokine Pharmasciences Delaware
o ALARIS Medical Systems, Inc. - 5.6%

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
Daniels Pharmaceuticals Limited                                                              United Kingdom
Desert PET, LLC                                                                                California

Diagnostic Purchasing Group, Inc.                                                               Delaware

Dover Communications, LLC                                                                       Delaware
(f/k/a BLP-Dover Acquisition Corp.)

DuQuoin Pharmacy, Inc.                                                                          Illinois

Dutch American Manufacturers (D.A.M.) B.V.                                                    Netherlands

East Iowa Pharmacies, Inc.                                                                        Iowa

EGIS Holdings, Inc.                                                                             Delaware

Ellipticare, LLC                                                                                Delaware

EPIC Insurance Company                                                                          Vermont

Eurochem Limited                                                                             United Kingdom

European Pharmaceuticals Group Ltd.                                                          United Kingdom

Europharm of Worthing Limited                                                                United Kingdom

F&F Holding GmbH                                                                                Germany

Federa France                                                                                    France

Federa Limoges                                                                                   France

Federa S.A.                                                                                     Belgium

Freeman Pharmaceuticals Limited                                                              United Kingdom

GCP Innovative Dynamics, LLC                                                                     Kansas

Glacier Guaranty Corporation                                                                    Vermont

Glamorgan Pharmaceuticals Limited                                                            United Kingdom

Global Healthcare Exchange, LLC                                                                 Delaware

Grand Avenue Pharmacy, Inc.                                                                       Iowa

Griffin Capital, LLC                                                                             Nevada

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
Griffin Group Document Management Services, Inc.                                                 Nevada
(f/k/a Supplyline Holdings, Inc.)

Herd Mundy Richardson (Holdings) Limited                                                     United Kingdom

Herd Mundy Richardson Limited                                                                United Kingdom

Homecare (North-West) Limited                                                                United Kingdom

IMI Diagnostic Center, Inc.                                                                     Delaware

IMI of Boca Raton, Inc.                                                                         Delaware

IMI of Miami, Inc.                                                                              Delaware

IMI of North Miami Beach, Inc.                                                                  Delaware

IMI-NET, Inc.                                                                                   Delaware

Impharm Nationwide Limited                                                                   United Kingdom

InGel Technologies Ltd.                                                                      United Kingdom

Inland Empire Regional PET Center, LLC                                                         California

InteCardia-Tennessee East Catheterization, LLC                                               North Carolina
o    75% Syncor Cardiology Services, LLC

InteCardia-Tennessee East Diagnostic, LLC                                                    North Carolina

Intercare Holdings Limited                                                                   United Kingdom

Intercare Investments Limited                                                                United Kingdom

Intercare Pharmaceuticals Distribution Limited                                               United Kingdom
(f/k/a Europharm of Worthing Limited)

Intercare Properties Plc                                                                     United Kingdom

International Capsule Company S.r.l.                                                             Italy

International Medical Products B.V.                                                           Netherlands
(f/k/a Mepro Medische Produkten B.V.)

Iowa Falls Pharmacy, Inc.                                                                         Iowa

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
IPD Group Limited                                                                            United Kingdom
(f/k/a European Pharmaceuticals Group Limited)

IVAC Overseas Holdings, Inc.                                                                    Delaware

JRG, Ltd.                                                                                         Iowa

Killilea Development Company, Ltd.                                                                Ohio

Lake Charles Pharmaceutical and Medical Equipment Supply Company, L.L.C.                       Louisiana
o    A Louisiana limited liability company formed by Owen Shared
     Services, Inc. and Lake Charles Memorial Hospital, Inc.

LCO Sante                                                                                        France

Leader Drugstores, Inc.                                                                         Delaware

Liberty Communications Network, LLC                                                             Delaware
(f/k/a BLP-Liberty Acquisition Corp.)

Macarthy Group Limited                                                                       United Kingdom

Macarthy Group Trustees Limited                                                              United Kingdom

Macarthy Limited                                                                             United Kingdom

Macarthy's Laboratories Limited                                                              United Kingdom

Cardinal Health MPB, Inc.                                                                       Missouri
(f/k/a Managed Pharmacy Benefits, Inc.)

Martindale Pharmaceuticals Limited                                                           United Kingdom

Medcon S.A.                                                                                    Luxembourg

Medesta Associates, LLC                                                                         Delaware

Medical Diagnostic Leasing, Inc.                                                                Delaware

Medical Education Systems, LLC                                                                  Delaware

Medical Media Communications, LLC                                                               Delaware

Medicap Pharmacies Incorporated                                                                   Iowa

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
Medicine Shoppe Capital Corporation Nevada
Medicine Shoppe International, Inc. Delaware

Medicine Shoppe Internet, Inc. Missouri

Medihealth Solutions, Inc. Iowa

MediQual Systems, Inc. Delaware

Midland Pharmacies, Inc. Iowa

Moresville, Limited United Kingdom

MRI Equipment Partners, Ltd. Texas
o 59.16% Comprehensive Medical Imaging, Inc.

Multi-Medica S.A. Belgium

Multipharm Limited United Kingdom

Nationwide Ostomy Supplies Limited United Kingdom

NewHealthCo LLC Delaware

OnPointe Medical Communications, LLC Delaware

Owen Shared Services, Inc. Texas

PCI Holdings (UK) Co. United Kingdom

Pharmaceutical and Diagnostic Services, Inc. Utah
o 50% Cardinal Health 414, Inc.

Pharmacy Operations of New York, Inc. New York

Pharmacy Operations, Inc. Delaware

Pharmapar S.A. Belgium

Phillipi Holdings, Inc. Ohio

Physicians Purchasing, Inc. Nevada

Pinnacle Intellectual Property Services International, Inc. Nevada

Pinnacle Intellectual Property Services, Inc. Nevada

SUBSIDIARY NAME STATE / JURISDICTION OF INCORPORATION
--------------- -------------------------------------
PlastiMedical S.p.A. Italy
Poweshiek Pharmacy, Inc. Iowa

Practicome Solutions, LLC Delaware

Princeton Diagnostic Isotopes, Inc. West Virginia

Productos Urologos de Mexico S.A. de C.V. Mexico

Pyxis Funding II, LLC Delaware

Pyxis Funding, LLC Delaware

Quiroproductos de Cuauhtemoc S.A. de C.V. Mexico

R.P. Scherer (Spain) S.A. Spain

R.P. Scherer DDS B.V. Netherlands

R.P. Scherer Egypt Egypt

R.P. Scherer GmbH & Co. KG Germany
o F & F Holdings GmbH - 50.94%
o R.P. Scherer Verwaltungs GmbH - 0.11%

R.P. Scherer Holdings II Limited United Kingdom

R.P. Scherer Technologies, Inc. Nevada

R.P. Scherer Verwaltungs GmbH Germany
o F & F Holdings GmbH - 51%

Radiopharmacy of Boise, Inc. Delaware

Radiopharmacy of Northern California, Inc. California

Ransdell Surgical, Inc. Kentucky

RBP Pharma S.A. France

River Medical, Inc. Delaware

Riverside MRI, JV Texas

RxealTIME, Inc. Nevada

RxPedite, LLC Ohio

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
Santa Cruz Comprehensive Imaging LLC                                                            Delaware
o    57% Cardinal Health 414, Inc.

Scela, Inc.                                                                                     Delaware

SFO S.A.                                                                                         France

Sierra Radiopharmacy, LLC                                                                        Nevada
o    51% Cardinal Health 414, Inc.

Simolo (GL) Limited                                                                          United Kingdom

Sistemas Medicos ALARIS, S.A. de C.V.                                                            Mexico

SOS Medical System S.A.R.L.                                                                      France

Source Medical Corporation                                                                       Canada
o    Allegiance Healthcare Canada Inc. controls with 50%  of common
     shares & 100% of preferred share (1 share)

SRx, Inc.                                                                                         Iowa

STI Deutschland GmbH Surgical Technologies                                                      Germany
International

Strategic Implications International, LLC                                                       Delaware

Supplyline Technologies Limited                                                                 Ireland

Surgical Technologies B.V.                                                                    Netherlands

Surgi-Tech Europa Divisione Surgi-Tech Italia SRL                                                Italy

Syncor Belgium SPRL                                                                             Belgium

Syncor Cardiology Services, LLC                                                                 Delaware

Syncor Diagnostics Dallas, LLC                                                                   Texas

Syncor Diagnostics Encino, LLC                                                                 California

Syncor Diagnostics Fullerton LLC                                                               California

Syncor Diagnostics Laguna Hills LLC                                                            California

Syncor Diagnostics Plano, LLC                                                                    Texas

SUBSIDIARY NAME                                                                  STATE / JURISDICTION OF INCORPORATION
---------------                                                                  -------------------------------------
Syncor Financing Corporation                                                                    Delaware

Syncor Italy s.r.l.                                                                              Italy

Syncor Midland, Inc.                                                                             Texas

The Intercare Group Limited                                                                  United Kingdom

Toledo Pharmacy Co.                                                                               Iowa

Top Shot Publishers Limited                                                                     Ireland

Venture Laminate Limited                                                                        Ireland

Venture Packaging Limited                                                                       Ireland

Veramic S.A.                                                                                    Belgium

Virginia Imaging Center, LLC                                                                    Virginia
o    90% Syncor Cardiology Services, LLC

Vistant Corporation                                                                             Delaware

Vistant Holdings, Inc.                                                                           Nevada

Wardwood, Inc.                                                                                    Iowa

West Texas Nuclear Pharmacy Partners                                                             Texas
o    Syncor Midland, Inc. (50%)

Wholesale (PI) Limited                                                                       United Kingdom

Yorkshire Pharmacy, Inc.                                                                        Nebraska

Exhibit 23.01

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration Statements No. 333-101907, No. 333-62944, No. 333-24483, No. 333-46482, No. 33-62198 and No. 33-57223 of Cardinal Health, Inc. on Form S-3, Registration Statements No. 333-62938 and No. 333-74761 of Cardinal Health, Inc. on Form S-4, and Registration Statements No. 33-20895, No. 33-38022, No. 33-52537, No. 33-38021, No. 33-52539, No. 333-42357, No. 333-52535, No. 33-64337, No. 333-72727, No. 333-91849, No. 33-63283, No. 33-63283-01, No. 333-01927-01, No. 333-11803-01, No. 333-21631-01, No. 333-21631-02, No. 333-30889-01, No. 333-56655-01, No. 333-71727, No. 333-68819-01, No. 333-90417, No. 333-90423, No. 333-90415, No. 333-92841, No. 333-38198, No. 333-38190, No. 333-38192, No. 333-56006, No. 333-56008, No. 333-56010, No. 333-53394, No. 333-91598, No. 333-91600, No. 333-102369 and No. 333-100564 of Cardinal Health, Inc. on Form S-8, of our report dated September 27, 2004, with respect to the consolidated financial statements and schedule of Cardinal Health, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the Fiscal Year Ended June 30, 2004.

/s/ Ernst & Young LLP
Columbus, Ohio
October 25, 2004

Exhibit 31.01

I, Robert D. Walter, certify that:

1. I have reviewed this Form 10-K of Cardinal Health, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: October 26, 2004

             /s/ Robert D. Walter
             -------------------------------------
             Robert D. Walter
             Chairman and Chief Executive Officer

Exhibit 31.02

I, J. Michael Losh, certify that:

1. I have reviewed this Form 10-K of Cardinal Health, Inc.;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: October 26, 2004


             /s/ J. Michael Losh
             -----------------------
             J. Michael Losh
             Chief Financial Officer

Exhibit 32.01

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert D. Walter, Chairman and Chief Executive Officer of Cardinal Health, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, that:

(1) the Annual Report on Form 10-K for the fiscal year ended June 30, 2004 (the "Periodic Report"), containing the financial statements of the Company, which this statement accompanies, fully complies with the requirements of Section 13(a)* or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), and

(2) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

* Except to the extent that Exchange Act Rule 13a-15(a), if applicable to this certification, is ever deemed violated with respect to the matters described in Item 9a of the Periodic Report.

Dated: October 26, 2004


              /s/ Robert D. Walter
              --------------------------------
              Robert D. Walter
              Chairman and
              Chief Executive Officer

Exhibit 32.02

CERTIFICATION BY 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

I, J. Michael Losh, Chief Financial Officer of Cardinal Health, Inc. (the "Company"), certify, pursuant to 18 U.S.C. Section 1350, that:

(2) the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

* Except to the extent that Exchange Act Rule 13a-15(a), if applicable to this certification, is ever deemed violated with respect to the matters described in Item 9a of the Periodic Report.

Dated: October 26, 2004



                     /s/ J. Michael Losh
                     ------------------------------
                     J. Michael Losh
                     Chief Financial Officer

Exhibit 99.01

The Private Securities Litigation Reform Act of 1995, as amended (the "Act"), provides a "safe harbor" for "forward-looking statements" (as defined in the Act). The Company's filings with the Securities and Exchange Commission (the "SEC"), including its Annual Report on Form 10-K, Annual Report to Shareholders, Forms 10-Q and Forms 8-K (along with any exhibits to such filings as well as any amendments to such filings), press releases, other written or oral statements made by or on behalf of the Company, may include, reference or incorporate by reference forward-looking statements which reflect the Company's current view (as of the date such forward-looking statement is made) with respect to future events, prospects, projections and/or financial performance. These forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those contemplated, projected, anticipated or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:

- uncertainties relating to general economic, political, business, industry, regulatory and market conditions;

- the loss of one or more key customer or supplier relationships, such as pharmaceutical and medical/surgical manufacturers for which alternative supplies may not be available or easily replaceable, or unfavorable changes to the terms of those relationships, or changes in customer mix;

- changes in manufacturers' pricing, selling, inventory, distribution or supply policies or practices, including policies concerning price inflation;

- uncertainties related to the timing, negotiation and likelihood of success of the Company's Pharmaceutical Distribution business model transition with respect to how the Company is compensated for the logistical, capital and administrative services that it provides to pharmaceutical manufacturers, and the continued dependence until such transition is completed, if ever, upon pharmaceutical price inflation, which price inflation is often unpredictable;

- changes in the distribution or outsourcing pattern for pharmaceutical and medical/surgical products and services, including an increase in direct distribution or a decrease in contract packaging by pharmaceutical manufacturers;

- potential liabilities associated with warranties of the Company's information systems, and the malfunction or failure of the Company's information systems or those of third parties with whom the Company do business, such as malfunctions or failures associated with date-related issues, incompatible software, improper coding and disruption to internet-related operations;

- the costs, difficulties, and uncertainties related to the integration of recently acquired businesses, including liabilities related to the operations or activities of such businesses prior to their acquisition;

- changes to the presentation of financial results and position resulting from adoption of new accounting principles or upon the advice of the Company's independent accountants or the staff of the SEC;

- weaknesses in internal controls and procedures under Section 404 of the Sarbanes-Oxley Act of 2002;

- difficulties and costs associated with enhancing the Company's accounting systems and internal controls and complying with financial reporting requirements;

- changes in government regulations or the Company's failure to comply with those regulations or other applicable laws;

- the results, effects or timing of any inquiry or investigation by any regulatory authority and any related legal and administrative proceedings, which may include the institution of administrative, civil injunctive or criminal proceedings against the Company and/or current or former Company officers or employees, the imposition of fines and penalties, suspensions or debarments from government contracting, and/or other remedies and sanctions;

- the costs and effects of commercial disputes, shareholder claims, derivative claims or other legal proceedings;

- downgrades of the Company's credit ratings, and the potential that such downgrades could negatively impact the Company's access to capital;

- increased costs for the raw materials used by the Company's manufacturing businesses or shortages in these raw materials;

- the risks of counterfeit products in the supply chain;

- the possible adverse effects on the Company of the importation of pharmaceuticals and/or other health care products;

- injury to person or property resulting from the Company's manufacturing, packaging, repackaging, drug delivery system development and manufacturing, information systems, or pharmacy management services;

- competitive factors in the Company's healthcare service businesses, including pricing pressures;

- unforeseen changes in the Company's existing agency and distribution arrangements;

- the continued financial viability and success of the Company's customers, suppliers, and franchisees;

- difficulties encountered by the Company's competitors, whether or not the Company faces the same or similar issues;

- technological developments and products offered by competitors;

- failure to retain or continue to attract senior management or key personnel;

- uncertainties related to transitions in senior management positions;

- risks associated with international operations, including fluctuations in currency exchange ratios;

- costs associated with protecting the Company's trade secrets and enforcing its patent, copyright and trademark rights, and successful challenges to the validity of its patents, copyrights or trademarks;

- difficulties or delays in the development, production, manufacturing, and marketing of new products and services, including difficulties or delays associated with obtaining requisite regulatory consents or approvals associated with those activities;

- strikes or other labor disruptions;

- labor, pension and employee benefit costs;

- changes in hospital buying groups or hospital buying practices; and

- other factors described in the Company's Annual Report on Form 10-K or Quarterly Reports on Form 10-Q or the other documents the Company files with the SEC including, but not limited to the section entitled "Risk Factors That May Affect Future Results" in the Company's Annual Report on Form 10-K.

The words "believe," "expect," "anticipate," "project," and similar expressions generally identify "forward-looking statements," which speak only as of the date the statement was made. The Company undertakes no obligation (nor does it intend) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required under applicable law.

EXHIBIT 99.02

SPECIAL CODE SECTION 401(a)(9) AMENDMENT

TO THE
CARDINAL HEALTH PROFIT SHARING,
RETIREMENT AND SAVINGS PLAN

BACKGROUND INFORMATION

A. Cardinal Health, Inc. (the "Company") maintains the Cardinal Health Profit Sharing, Retirement and Savings Plan (the "Plan") for the benefit of its eligible employees and their beneficiaries.

B. The Company desires to amend the Plan to comply with the requirements of Section 401(a)(9) of the Internal Revenue Code of 1986, as amended (the "Code") and the final and temporary regulations issued thereunder and intends this Special Amendment as good faith compliance with the requirements of the model plan amendment issued in Rev. Proc. 2002-29 and the guidance issued thereunder.

C. Section 13.02 of the Plan permits the Company to amend the Plan at any time.

AMENDMENT OF THE PLAN

The Plan is hereby amended as set forth below effective January 1, 2003, unless some later effective date is specified.

1. A new Article VI.A. referencing the minimum distribution requirements is hereby added to the Plan to read in its entirety as follows:

ARTICLE VI.A.

REVISED MINIMUM REQUIRED DISTRIBUTIONS

Section 6A.01. EFFECTIVE DATES. The provisions of this Article VI.A. will apply for purposes of determining the required minimum distributions for calendar years beginning on or after January 1, 2003.

Section 6A.02. DEFINITIONS. For purposes of this Article VI.A., the following definitions shall apply:

A. "Designated Beneficiary" is the individual who is designated as the beneficiary under Plan Section 1.03 and is the Designated Beneficiary under Code
Section 401(a)(9) and Section 1.401(a)(9)-1, Q&A-4 of the Treasury Regulations.

B. "Distribution Calendar Year" is a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the participant's Required Beginning Date. For distributions beginning after the Participant's death, the first Distribution Calendar Year is the calendar year in which the distributions are required to begin under Section 6.03.B. The required minimum distribution for the Participant's first Distribution Calendar Year will be made on or before the Participant's Required Beginning Date. The required minimum distribution for other Distribution Calendar Years, including the required minimum distribution for the Distribution Calendar Year in which the Participant's Required Beginning Date occurs, will be made on or before December 31 of that Distribution Calendar Year.

C. "Life Expectancy" is a beneficiary's life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury Regulations.

D. "RMD Account Balance" is the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (the "VALUATION CALENDAR YEAR") increased by the amount of any contributions made and allocated or forfeitures allocated to the account balance as of dates in the Valuation Calendar Year after the valuation date and decreased by distributions made in the Valuation Calendar Year after the valuation date. The account balance for the Valuation Calendar Year includes any amounts rolled over or transferred to the Plan either in the Valuation Calendar Year or in the Distribution Calendar Year if distributed or transferred in the Valuation Calendar Year.

E. "Special Election" is a provision of the Plan included in this Article which supersedes the general presumptions set forth in Code Section 401(a)(9) and the Treasury Regulations thereunder. To the extent that this Article does not include any provisions for Special Elections, the default provisions of Code Section 401(a)(9), as set forth below shall apply.

Section 6A.03. TIME AND MANNER OF DISTRIBUTION. Subject to any Special Election set forth in this Article, the following rules shall apply:

A. Required Beginning Date. The Participant's entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant's Required Beginning Date.

B. Death of Participant Before Distributions Begin. If the Participant dies before distributions begin, the Participant's entire interest will be distributed, or begin to be distributed, no later than as follows:

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(i) If the Participant's surviving spouse is the Participant's sole Designated Beneficiary, then, except as provided herein, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later.

(ii) If the Participant's surviving spouse is not the Participant's sole Designated Beneficiary, then, except as provided herein, distributions to the Designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(iii) If there is no Designated Beneficiary as of September 30 of the year following the year of the Participant's death, the Participant's entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant's death.

(iv) If the Participant's surviving spouse is the Participant's sole Designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 6A.03.B., other than Section 6A.03.B.(i)], will apply as if the surviving spouse were the Participant.

For purposes of this Section 6A.03.B. and Section 6A.05., unless Section 6A.03.B.(iv) applies, distributions are considered to begin on the Participant's Required Beginning Date. If Section 6A.03.B.(iv) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 6A.03.B.(i). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant's Required Beginning Date (or to the Participant's surviving spouse before the date distributions are required to begin to the surviving spouse under Section 6A.03.B.(i)), the date distributions are considered to begin is the date distributions actually commence.

C. Forms of Distribution. Unless the Participant's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the Required Beginning Date, as of the first Distribution Calendar Year distributions will be made in accordance with Sections 6A.04. and 6A.05. of this Article VI.A. If the Participant's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with Code Section 401(a)(9) and the Treasury Regulations.

Section 6A.04. REQUIRED MINIMUM DISTRIBUTIONS DURING PARTICIPANT'S LIFETIME. Subject to any Special Election set forth in this Article, the following rules shall apply:

A. Amount of Required Minimum Distributions for Each Distribution Calendar Year. During the Participant's lifetime, the minimum amount that will be distributed for each Distribution Calendar Year is the lesser of:

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(i) the quotient obtained by dividing the RMD Account Balance by the distribution period in the Uniform Lifetime Table set forth in Treasury Regulations Section 1.401(a)(9)-9, using the Participant's age as of the Participant's birthday in the Distribution Calendar Year; or

(ii) if the Participant's sole Designated Beneficiary for the Distribution Calendar Year is the Participant's spouse, the quotient obtained by dividing the RMD Account Balance by the number in the Joint and Last Survivor Table set forth in Treasury Regulations Section 1.401(a)(9)-9, using the Participant's and the Spouse's attained ages as of the Participant's and spouse's birthdays in the Distribution Calendar Year.

B. Lifetime Required Minimum Distributions Continue Through Year of Participant's Death. Required minimum distributions will be determined under this Section 6A.04 beginning with the first Distribution Calendar Year and up to and including the Distribution Calendar Year that includes the Participant's date of death.

Section 6A.05. REQUIRED MINIMUM DISTRIBUTIONS AFTER PARTICIPANT'S DEATH. Subject to any Special Election set forth in this Article, the following rules shall apply:

A. Death On or After Date Distributions Begin.

(i). Participant Survived by Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant's death is the quotient obtained by dividing the RMD Account Balance by the longer of the remaining Life Expectancy of the Participant or the remaining Life Expectancy of the Participant's Designated Beneficiary, determined as follows:

(1) The Participant's remaining Life Expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2) If the Participant's surviving spouse is the Participant's sole Designated Beneficiary, the remaining Life Expectancy of the surviving spouse is calculated for each Distribution Calendar Year after the year of the Participant's death using the surviving spouse's age as of the spouse's birthday in that year. For Distribution Calendar Years after the year of the surviving spouse's death, the remaining Life Expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse's birthday in the calendar year of the spouse's death, reduced by one for each subsequent calendar year.

(3) If the Participant's surviving spouse is not the Participant's sole Designated Beneficiary, the Designated Beneficiary's remaining Life Expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant's death, reduced by one for each subsequent year.

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(ii). No Designated Beneficiary. If the Participant dies on or after the date distributions begin and there is no Designated Beneficiary as of September 30 of the year after the year of the Participant's death, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant's death is the quotient obtained by dividing the RMD Account Balance by the Participant's remaining Life Expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

B. Death Before Date Distributions Begin.

(i) Participant Survived by Designated Beneficiary. Except as provided herein, if the Participant dies before the date distributions begin and there is a Designated Beneficiary, the minimum amount that will be distributed for each Distribution Calendar Year after the year of the Participant's death is the quotient obtained by dividing the Participant's Account Balance by the remaining Life Expectancy of the Participant's Designated Beneficiary, determined as provided in Section 6A.05.A.

(ii) No Designated Beneficiary. If the Participant dies before the date distributions begin and there is no Designated Beneficiary as of September 30 of the year following the year of the Participant's death, distribution of the Participant's entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death.

(iii) Death of Surviving Spouse Before Distributions to Surviving Spouse are Required to Begin. If the Participant dies before the date distributions begin, the Participant's surviving spouse is the Participant's sole Designated Beneficiary, and the surviving spouse dies before distributions are required to being to the surviving spouse under Section 6A.03.B.(i), this
Section 6A.05.B. will apply as if the surviving spouse were the Participant.

Section 6A.06 EARLY EFFECTIVE DATE AND GENERAL RULES

A. Coordination with Minimum Distribution Requirements Previously in Effect. If Plan Section 6A.01 above specifies an effective date of this Article
VI.A. that is earlier than January 1, 2003, required minimum distributions for 2002 under this Article VI.A. will be determined as follows:

(i) If the total amount of 2002 required minimum distributions under the Plan made to the Distributee prior to the effective date of this Article
VI.A. equals or exceeds the required minimum distributions determined under this Article VI.A., then no additional distributions will be required to be made for 2002 on or after such date to the Distributee.

(ii) If the total amount of 2002 required minimum distributions under the Plan made to the Distributee prior to the effective date of this Article
VI.A. is less than the amount determined under this Article VI.A., then required minimum distributions for 2002 on and after such date will be determined so that the total amount of required minimum distributions for 2002 made to the Distributee will be the amount determined under this Article VI.A.

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B. Precedence. The requirements of this Article VI.A. will supersede any contrary provisions of the Plan.

C. Requirements of Treasury Regulations Incorporated. All distributions required under this Article VI.A. will be determined and made in accordance with the Treasury Regulations under Code Section 401(a)(9).

D. TEFRA Section 242(b)(2) Elections. Notwithstanding the other provisions of this Article VI.A., distributions may be made under a designation made before January 1, 1984, in accordance with section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act ("TEFRA") and the provisions of the Plan that relate to TEFRA Section 242(b)(2).

2. All other Plan provisions remain in full force and effect.

CARDINAL HEALTH, INC.

By:   /s/ Carole Watkins
      ---------------------------------

Its: EVP, HR

Date: 8-19-03

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Exhibit 99.03

FIRST AMENDMENT
TO THE
CARDINAL HEALTH PROFIT SHARING,
RETIREMENT AND SAVINGS PLAN
(AMENDED AND RESTATED EFFECTIVE AS OF JULY 1, 1998)

(REVISED AS OF 2002)

BACKGROUND INFORMATION

A. Cardinal Health, Inc., an Ohio corporation (the "Corporation"), maintains a profit sharing plan known as the Cardinal Health Profit Sharing, Retirement and Savings Plan (the "Plan") for the benefit of its employees and their beneficiaries.

B. Pursuant to Section 13.02 of the Plan, the Corporation may amend the Plan at any time.

C. The Cardinal Health Profit Sharing, Retirement and Savings Plan Committee (the "Committee") assists in the administration of the Plan and is empowered to amend the Plan on behalf of the Corporation by action of a majority of its members then in office.

D. The Committee desires to amend the Plan to clarify the appropriate effective date for the change in the definition of the "Required Beginning Date" pursuant Section 401(a)(9) of the Internal Revenue Code of 1986, as amended (the "Code") in order to satisfy the review of the Plan by the Internal Revenue Service for a favorable determination.

AMENDMENT TO THE PLAN

1. A new Section 3.11.C. is hereby added to the Plan to read as follows:

Coordination of Excess Elective Deferrals and Excess Compensation Deferrals. In accordance with Treas. Reg. Section 1.401(k)-1(f)(5)(i), the amount of Excess Compensation Deferrals to be distributed or re-characterized shall be reduced by Excess Elective Deferrals previously distributed for the taxable year ending in the same Plan Year and Excess Elective Deferrals shall be reduced by Excess Compensation Deferrals previously distributed or re-characterized for the Plan Year beginning in such taxable year.

2. The definition of "Required Beginning Date" in Section 6.03.B. of the Plan shall be amended to add the introductory phrase "On and after January 1, 1999," to the first sentence of such section.

3. All other provisions of the Plan shall remain in full force and effect.

Dated October 20, 2003.                    CARDINAL HEALTH, INC.


                                           By: /s/ Susan Nelson
                                               --------------------------------

                                           Its:
                                               --------------------------------

EXHIBIT 99.04

FIRST AMENDMENT
TO THE
CARDINAL HEALTH PROFIT SHARING,
RETIREMENT AND SAVINGS PLAN
(As amended and restated July 1, 2002)

BACKGROUND INFORMATION

A. Cardinal Health, Inc. ("Cardinal Health") established and maintains the Cardinal Health Profit Sharing, Retirement and Savings Plan (the "Plan") for the benefit of participants and their beneficiaries.

B. The Cardinal Health, Inc. Employee Benefits Policy Committee (the "Committee") oversees the administration of the Plan and is authorized to amend the Plan.

C. The Committee desires to amend the Plan to reflect (1) use of forfeiture amounts from a current plan year to fund contributions attributable to a prior or future plan year; (2) changes to the provisions relating to participant direction of investments; (3) certain recent corporate acquisitions, which will become participating employers; (4) the merger of certain acquired plans with and into the Cardinal Health Plan; and (5) special eligibility, full vesting and additional employer contributions to former employees of Cardinal Health 409, Inc. whose employment with Cardinal Health was terminated as part of the divestiture of the paintball manufacturing division.

D. Section 13.02 of the Plan permits the amendment of the Plan at any time.

AMENDMENT OF THE PLAN

1. Section 3.17 of the Plan is hereby amended in its entirety to read as follows:

Section 3.17 ALLOCATION OF FORFEITURES. Subject to any restoration allocation required under Section 5.05, the Committee shall allocate and use all or a portion of the amount of a Participant's benefit forfeited under the Plan either to pay reasonable expenses of the Plan (to the extent not paid by the Employer) or to reduce its Profit Sharing Contribution, Special Contribution, Matching Contribution and/or other contributions payable under the Plan for the Plan Year in which the forfeiture occurs or any prior or future Plan Year, as determined by the Committee.

2. Section 9.05 of the Plan is hereby amended in its entirety to read as follows:

Section 9.05. PARTICIPANT DIRECTION OF INVESTMENT. The Committee and the Trustee shall establish rules governing the administration of Investment Funds and procedures for Participant direction of investment, including rules governing the timing, frequency and manner of making investment elections. The Committee and the Employer reserve the right to change the investment options available under the Plan and rules governing investment designations from time to time. Nothing in this or any other

provision of the Plan shall require the Trustee, the Employer or the Committee to implement Participant investment directions or changes in such directions, or to establish any procedures, other than on an administratively practicable basis, as determined by the Employer in its discretion.

Each Participant shall, in accordance with procedures established by the Committee and the Trustee, direct that his Account and contributions thereto be invested and reinvested in any one or more of the Investment Funds. The investment of any such monies shall be subject to such restrictions as the Committee may determine, in its sole discretion, to be advisable or necessary under the circumstances. Moreover, in accordance with procedures established by the Trustee and agreed to by the Committee, Participants may, when administratively practicable, be permitted to change their current and prospective investment designations through telephone, "on-line" or similar instructions to the Trustee or its authorized agent on a frequency established under such procedures, as in effect from time to time.

The exercise of investment direction by a Participant will not cause the Participant to be a fiduciary solely by reason of such exercise, and neither the Trustee nor any other fiduciary of this Plan will be liable for any loss or any breach that results from the exercise of investment direction by the Participant. The investment designation procedures established under the Plan shall be and are intended to be in compliance with the requirements of ERISA Section 404(c) and the regulations thereunder.

In no event shall Participants be permitted to direct that such Accounts and/or such additional contributions be invested in the Employer Common Stock Fund until Cardinal Health, Inc., the Plan, the Trustee and all other relevant parties have fully complied with such requirements, including, but not limited to, federal and state securities laws, as the Committee has determined to be applicable. The Committee may restrict the ability of any person covered under Section 16 of the Securities Exchange Act of 1934, as amended, or any other corporate insider of the Employer to direct the investment of his Account in the Employer Common Stock Fund. Notwithstanding any provision to the contrary, the Committee may, in its sole discretion and where the terms of any relevant investment contracts, regulated investment companies or pooled or group trusts so require, impose special terms, conditions and restrictions upon a Participant's right to direct the investment in, or transfer into or out of, such contracts, companies or trusts.

3. Section 9.06 of the Plan is amended in its entirety to read as follows:

Section 9.06. CHANGE OF INVESTMENT DESIGNATIONS. Each Participant who is entitled to direct the investment of additional contributions to be allocated to his Account in accordance with Section 9.05 hereof may select how such additional contributions are to be invested. Such investment directions shall be made in accordance with applicable rules or procedures established by the Trustee and the Committee.

Each Participant may prospectively re-elect how those amounts then held in his Account are to be reinvested in the various Investment Funds until otherwise changed or modified. Such investment directions shall be made in accordance with applicable rules or procedures established by the Trustee and the Committee.

Notwithstanding the foregoing to the contrary, the Committee may, in its sole discretion and where the terms of any relevant investment contracts, regulated investment companies or pooled or group trusts so require, or where ERISA fiduciary obligations and considerations so merit, impose special terms, conditions and restrictions upon a Participant's right to direct the investment in, or transfer into or out of, such contracts, companies or trusts. In addition, with respect to Shares held under the Plan that were previously maintained under the Owen Healthcare, Inc. Employee Stock Ownership Plan (the "ESOP Shares"), no more than 25% of the original number of ESOP Shares of any Participant transferred to this Plan may be exchanged, sold or distributed in any calendar quarter. This restriction on the disposition of ESOP Shares shall expire on July 1, 2001.

4. Schedule II to the Plan, Schedule of Merging Plans, is hereby amended by the addition of the following merging plans as of the dates to be determined by the Corporate Benefits Department of Cardinal Health.

Beckloff Associates, Inc. 401(k) Profit Sharing Plan Snowden Pencer Inc. 401(k) Profit Sharing Plan

5. Appendix A to the Plan, Participating Employers, is hereby amended by the addition of the following participating employers (in appropriate alphabetical order) as of the dates set forth herein.

Beckloff Associates, LLC                             July 1, 2004
Medicap Pharmacies Incorporated                      July 1, 2004
Snowden Pencer, Inc.                                 July 1, 2004

6. A new Appendix N is hereby added to the Plan to reflect special eligibility, vesting and contributions for former employees of Cardinal Health 409, Inc. whose employment was terminated as a result of the divestiture of the paintball manufacturing division in the form attached to this Second Amendment as Exhibit A.

7. All other provisions of the Plan shall remain in full force and effect.

CARDINAL HEALTH, INC.

By:   /s/ Susan Nelson
      --------------------------------------
      Susan Nelson, Vice President, Benefits

Date: 5/25/04
      --------------------------------------

EXHIBIT 99.05

SECOND AMENDMENT
TO THE
CARDINAL HEALTH PROFIT SHARING,
RETIREMENT AND SAVINGS PLAN
(As amended and restated July 1, 2002)

BACKGROUND INFORMATION

B. The Cardinal Health, Inc. Employee Benefits Policy Committee (the "Committee") oversees the administration of the Plan and is authorized to amend the Plan.

C. The Committee desires to amend the Plan to permit the determination of the amount of contributions to be allocated to certain defined groups of employees as profit sharing contributions.

D. The Committee also desires to reflect the participation of certain affiliates of Cardinal Health 414, Inc. in the Plan effective as of July 1, 2004.

E. Section 13.02 of the Plan permits the amendment of the Plan at any time.

AMENDMENT OF THE PLAN

1. A new sentence is hereby inserted as the fifth sentence of Section 3.02 of the Plan to read as follows:

Effective as of January 1, 2004, the amount of Profit Sharing Contributions to be allocated to Eligible Employees under the Plan, if any, shall be determined separately (including separately within each QSLOB, if applicable) for two classes of employees consisting of (1) Employees who are eligible to receive stock options from Cardinal Health (as referenced in the Cardinal Health HRIS (PeopleSoft) System) and (2) all other employees.

2. Appendix A to the Plan, Participating Employers, is hereby amended by the addition of the following participating employers (in appropriate alphabetical order) as of the dates set forth herein.

Abilene Nuclear, LLC                                July 1, 2004
Pharmaceutical & Diagnostic, Inc.                   July 1, 2004
West Texas Nuclear Pharmacy Partners                July 1, 2004

3. All other provisions of the Plan shall remain in full force and effect.

CARDINAL HEALTH, INC. EMPLOYEE
BENEFITS POLICY COMMITTEE

By:   /s/ Susan Nelson
      -------------------------------------
      Susan Nelson, Secretary

Date: June 29, 2004
      -------------------------------------

EXHIBIT 99.06

Cardinal Health, Inc.
Employee Stock Purchase Plan

SECTION 1 -- PURPOSE

The Cardinal Health, Inc. Employee Stock Purchase Plan is adopted and established by Cardinal Health, Inc., an Ohio corporation, on the date set forth below, effective as of January 3, 2000, for the general benefit of the Employees of the Company and of certain of its Subsidiaries. The purpose of the Plan is to facilitate the purchase of Shares by Eligible Employees.

SECTION 2 -- DEFINITIONS

a. "ACT" shall mean the Securities Act of 1933, as amended.

d. "BOARD" shall mean the Board of Directors of the Company.

f. "CODE" shall mean the Internal Revenue Code of 1986, as amended and currently in effect, or any successor body of federal tax law.

g. "COMPANY" shall mean Cardinal Health, Inc., including any successor thereto.

h. "COMPENSATION" shall mean wages, salaries, fees for professional service and other amounts received for personal services actually rendered in the course of employment with the Employer (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses) including amounts excludible from the Employee's gross income under Code Section 402(a)(8) (relating to a Code Section 401(k) arrangement), Code Section 402(h) (relating to a Simplified Employee Pension), Code Section 125 (relating to a cafeteria plan) or Code Section 403(b) (relating to a tax-sheltered annuity) and compensation paid by the Employer to an Employee through another person under the common paymaster provisions of Code Sections 3121(s) and 3306(P). Compensation does not include: (1) amounts realized from

the exercise of a non-qualified stock option, or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture, (2) amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option,
(3) moving allowances, automobile allowances, tuition reimbursement, financial/tax planning reimbursement, other extraordinary compensation, including tax "gross-up" payments, and imputed income from other employer-provided benefits, and (4) other amounts that receive special tax benefits, such as premiums for group term life insurance or contributions made by the Employer (whether or not under salary reduction agreement) towards the purchase of an annuity contract described in Code Section 403(b) (whether or not the contributions are excludible from the gross income of the Employee), other than amounts described above.

i. "DESIGNATED SUBSIDIARIES" shall mean all Subsidiaries whose Employees have been designated by the Administrator, in its sole discretion, as eligible to participate in the Plan.

j. "ELIGIBLE EMPLOYEE" means any Employee who (1) has worked as an employee of an Employer for at least thirty (30) days and (2) is customarily employed for at least five (5) months each calendar year or who is classified as a "PRN" or on-call Employee.

k. "EMPLOYEE" means any person who performs services as a common law employee of an Employer, and does not include "leased employees," as that term is defined under Code Section 414(n), or other individuals providing services to an Employer in a capacity as an independent contractor.

l. "EMPLOYER" means, individually and collectively, the Company and the Designated Subsidiaries.

n. "OFFERING PERIOD" shall mean the period during which Participants in the Plan authorize payroll deductions to fund the purchase of Shares on their behalf under the Plan pursuant to the options granted to them hereunder.

o. "PARTICIPANT" means any Eligible Employee who has elected to participate in the Plan for an Offering Period by authorizing payroll deductions and following all applicable procedures established by the Administrator during the Enrollment Period for such Offering Period.

p. "PLAN" shall mean this Cardinal Health, Inc. Employee Stock Purchase Plan.

q. "PLAN ACCOUNT" shall mean the individual account established by the Agent for each Participant for purposes of accounting for and/or holding each Participant's payroll deductions, Shares, etc.

r. "PLAN YEAR" shall mean the fiscal year of the Company.

s. "PURCHASE PRICE" shall mean, for each Share purchased in accordance with
Section 4 hereof, an amount equal to the lesser of (1) eighty-five percent (85%) of the Closing Value of a Share on the first Trading Day of each Offering Period (which for Plan purposes shall be deemed to be the date the option to purchase such Shares was granted to each Eligible Employee who is, or elects to become, a Participant); or (2) eighty-five percent (85%) of the Closing Value of such Share on the last Trading Day of the Offering Period, (which for Plan purposes shall be deemed to be the date each such option to purchase such Shares was exercised).

t. "SHARES" means the Class A common shares, without par value, of the Company.

u. "SUBSIDIARY" shall mean a corporation, domestic or foreign, of which not less than fifty percent (50%) of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary (or as otherwise may be defined in j Code Section 424).

v. "TRADING DAY" shall mean a day on which national stock exchanges and The New York Stock Exchange are open for trading.

SECTION 3 -- ELIGIBLE EMPLOYEES

a. IN GENERAL. Participation in the Plan is voluntary. All Eligible Employees of an Employer are eligible to participate in the Plan. All Eligible Employees granted options to purchase Shares hereunder shall have the same rights and privileges as every other such Eligible Employee, and only Eligible Employees of an Employer satisfying the applicable requirements of the Plan will be entitled to be granted options hereunder.

b. LIMITATIONS ON RIGHTS. An Employee who otherwise is an Eligible Employee shall not be entitled to purchase Shares under the Plan: (1) if such purchase would cause such Eligible Employee to own Shares (including any Shares which would be owned if such Eligible Employee purchased all of the Shares made available for purchase by such Eligible Employee under all options or rights then held by such Eligible Employee, whether or not then exercisable) representing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary; or (2) to the extent that such purchase would cause such Eligible Employee to have options or rights to purchase more than $25,000 of Shares under the Plan (and under all other employee stock purchase plans of the Company and its Subsidiary corporations which qualify for treatment under Section 423 of the Code) for any calendar year in which such rights are outstanding (based on the Closing Value of such Shares, determined as of the date such rights are granted. For purposes of clause (l) of this subsection b, the attribution rules set forth in Section 424(d) of the Code and related regulations shall apply.

SECTION 4 -- ENROLLMENT AND OFFERING PERIODS

a. ENROLLING IN THE PLAN. To participate in the Plan, an Eligible Employee must enroll in the Plan. Enrollment for a given Offering Period will take place during the Enrollment Period for such Offering Period. The Administrator shall designate the initial Enrollment Period and each

subsequent Enrollment Period and the Offering Period to which each Enrollment Period relates. Participation in the Plan with respect to anyone or more of the Offering Periods shall neither limit nor require participation in the Plan for any other Offering Period.

b. THE OFFERING PERIOD. Any Employee who is an Eligible Employee and who desires to be granted options to purchase Shares hereunder must enroll in accordance with the procedures established by the Administrator during an Enrollment Period. Such authorization shall be effective for the Offering Period immediately following such Enrollment Period. The duration of an Offering Period shall be determined by the Administrator prior to the Enrollment Period and shall commence on the first day (or the First Trading Day) of the Offering Period and end on the last day (or the last Trading Day) of the Offering Period; provided, however, that if the Administrator terminates the Plan during an Offering Period, pursuant to its authority in Section 17 of the Plan, such Offering Period shall be deemed to end on the date the Plan is terminated. The termination of the Plan and the Offering Period shall end the Participant's rights to contribute amounts to the Plan or continue participation in the Offering Period. The date of termination of the Plan shall be deemed to be the final day of the Offering Period for purposes of determining the Purchase Price under the Offering Period and all amounts contributed during the Offering Period will be used as of such termination date to purchase Shares in accordance with the general provisions of Section 9.

c. CHANGING ENROLLMENT. The offering of Shares pursuant to options granted hereunder the Plan shall occur only during an Offering Period and shall be made only to Participants. Once an Eligible Employee is enrolled in the Plan, the Administrator or Employer will inform the Agent of such fact. Once enrolled, a Participant shall continue to participate in the Plan for each succeeding Offering Period until he or she terminates his or her participation by revoking his or her payroll deduction authorization or ceases to be an Eligible Employee. Once a Participant has elected to participate under the Plan, that Participant's payroll deduction authorization shall apply to all subsequent Offering Periods unless and until the Participant ceases to be an Eligible Employee, or modifies or terminates said authorization. If a Participant desires to change his or her rate of contribution, he or she may do so effective for the next Offering Period by following the procedures established by the Administrator during the Enrollment Period immediately preceding such Offering Period.

SECTION 5 -- TERM OF PLAN

This Plan shall be in effect from January 3, 2000, until it is terminated by action of the Board.

SECTION 6 -- NUMBER OF SHARES TO BE MADE AVAILABLE

Subject to adjustment as provided in Section 16 hereof, the total number of Shares made available for purchase by Participants granted options which are exercised under Section 9 hereof is 5,000,000, which may consist of authorized but unissued shares, treasury shares, or shares purchased by the Plan in the open market. The provisions of Section 9b shall control in the event the number of Shares covered by options which are exercised for any Offering Period exceeds the number of Shares available for sale under the Plan. If all of the Shares authorized for sale under the Plan have been sold, the Plan shall either be continued through additional authorizations of Shares made by the Board (such authorizations must, however, comply with Section 17 hereof), or shall be terminated in accordance with Section 17 hereof.

SECTION 7 -- USE OF FUNDS

All payroll deductions received or held by an Employer under the Plan may be used by the Employer for any corporate purpose, and the Employer shall not be obligated to segregate such payroll deductions. Any amounts held by an Employer or other party holding amounts in connection with or as a result of payroll withholding made pursuant to the Plan and pending the purchase of Shares hereunder shall be considered a non-interest-bearing, unsecured indebtedness extended to the Employer or other party by the Participants. Administrative expenses of the Plan shall be allocated to each Participant's Plan Account unless such expenses are paid by the Employer.

SECTION 8 -- AMOUNT OF CONTRIBUTION

METHOD OF PAYMENT

a. PAYROLL WITHHOLDING. Except as otherwise specifically provided herein, the Purchase Price will be payable by each Participant by means of payroll withholding. The withholding shall be in increments of one percent (1%). The minimum withholding permitted shall be an amount equal to one percent (1%) of a Participant's Compensation and the maximum withholding shall be an amount equal to fifteen percent (15%) of a Participant's Compensation. In any event, the total withholding permitted to be made by any Participant for a calendar year shall be limited to the sum of $21,250. The actual percentage of Compensation to be deducted shall be specified by a Participant in his or her authorization for payroll withholding. Participants may not deposit any separate cash payments into their Plan Accounts.

b. APPLICATION OF WITHHOLDING RULES. Payroll withholding will commence with the first paycheck issued during the Offering Period and will, except as otherwise provided herein, continue with each paycheck throughout the entire Offering Period, except for pay periods for which such Participant receives no compensation (e.g., uncompensated personal leave, leave of absence). A pay period which ends at such time that it is administratively impracticable to credit any paycheck for such pay period to the then-current Offering Period will be credited in its entirety to the immediately subsequent Offering Period. A pay period which overlaps Offering Periods will be credited in its entirety to the Offering Period in which it is paid. Payroll withholding shall be retained by the Employer or other party responsible for making such

payment to the Participant, until applied to the purchase of Shares as described in Section 9 and the satisfaction of any related federal, state or local withholding obligations (including any employment tax obligations).

At the time the Shares are purchased, or at the time some or all of the Shares issued under the Plan are disposed of, Participants must make adequate provision for the Employer's federal, state, local or other tax withholding obligations (including employment taxes), if any, which arise upon the purchase or disposition of the Shares. At anytime, the Employer may, but shall not be obligated to, withhold from each Participant's Compensation the amount necessary for the Employer to meet applicable withholding obligations, including any withholding required to make available to the Employer any tax deductions or benefits attributable to the sale or early disposition of Shares by the Participant. Each Participant, as a condition of participating under the Plan, agrees to bear responsibility for all federal, state, and local income taxes required to be withheld from his or her Compensation as well as the Participant's portion of FICA (both the OASDI and Medicare components) with respect to any Compensation arising on account of the purchase or disposition of Shares. The Employer may increase income and/or employment tax withholding on a Participant's Compensation after the purchase or disposition of Shares in order to comply with federal, state and local tax laws, and each Participant agrees to sign any and all appropriate documents to facilitate such withholding.

SECTION 9 -- PURCHASING, TRANSFERRING SHARES

a. MAINTENANCE OF PLAN ACCOUNT. Upon the exercise of a Participant's initial option to purchase Shares under the Plan, the Agent shall establish a Plan Account in the name of such Participant. At the close of each Offering Period, the aggregate amount deducted during such Offering Period by the Employer from a Participant's Compensation (and credited to a non-interest-bearing account maintained by the Employer or other party for bookkeeping purposes) will be communicated by the Employer to the Agent and shall thereupon be credited by the Agent to such Participant's Account (unless the Participant has given notice to the Administrator of his or her revocation of authorization prior to the date such communication is made). As of the last day of each Offering Period, or as soon thereafter as is administratively practicable, each Participant's option to purchase Shares will be exercised automatically for him or her by the Agent with respect to those amounts reported to the Agent by the Administrator or Employer as creditable to that Participant's Plan Account. On the date of exercise, the amount then credited to the Participant's Plan Account for the purpose of purchasing Shares hereunder will be divided by the Purchase Price and there shall be transferred to the Participants Plan Account by the Agent the number of full and fractional shares which results.

The Agent shall hold in its name, or in the name of its nominee, all Shares so purchased and allocated. No certificate will be issued to a Participant for Shares held in his or her Plan Account unless he or she so requests in writing or unless such Participant's active participation in the Plan is terminated due to death, disability, separation from service or retirement. Notwithstanding any provision herein to the contrary, no certificates shall be issued for Shares until such Shares have been held in the Participant's Plan Account for a period of at least 24 months following the date of exercise of the option to purchase such Shares.

b. INSUFFICIENT NUMBER OF AVAILABLE SHARES. In the event the number of Shares covered by options which are exercised for any Offering Period exceeds the number of Shares available for sale under the Plan, the number of Shares actually available for sale hereunder shall be limited to the remaining number of Shares authorized for sale under the Plan and shall be allocated by the Agent among the Participants in proportion to each Participant's Compensation during the Offering Period over the total Compensation of all Participants during the Offering Period. Any excess amounts withheld and credited to Participants' Accounts then shall be returned to the Participants as soon as is administratively practicable.

c. HANDLING EXCESS SHARES. In the event that the number of Shares which would be credited to any Participant's Plan Account in any Offering Period exceeds the limit specified in Section 3b hereof, such Participant's Account shall be credited with the maximum number of Shares permissible, and the remaining amounts will be refunded in cash as soon as administratively practicable.

d. STATUS REPORTS. Statements of each Participant's Plan Account shall be given to participating Employees at least annually.

SECTION 10 -- DIVIDENDS AND OTHER DISTRIBUTIONS

a. REINVESTMENT OF DIVIDENDS. Cash dividends and other cash distributions received by the Agent on Shares held in its custody hereunder will be credited to the Plan Accounts of individual Participants in accordance with such Participants' interests in the Shares with respect to which such dividends or distributions are paid or made, and will be applied, as soon as practical after the receipt thereof by the Agent, to the purchase in the open market at prevailing market prices of the number of whole Shares capable of being purchased with such funds (after deduction of any bank service fees, brokerage charges, transfer taxes, and any other transaction fee, expense or cost payable in connection with the purchase of such Shares and not otherwise paid by the Employer).

b. SHARES TO BE HELD IN AGENT'S NAME. All purchases of Shares made pursuant to this Section will be made in the name of the Agent or its nominee, shall be held as provided in Section 9 hereof, and shall be transferred and credited to the Plan Account(s) of the individual Participant(s) to which such dividends or other distributions were credited. Dividends paid in the form of Shares will be allocated by the Agent, as and when received, with respect to Shares held in its custody hereunder to the Plan Accounts of individual Participants in accordance with such Participants' interests in such Shares with respect to which such dividends were paid. Property, other than Shares or cash, received by the Agent as a distribution on Shares held in its custody hereunder, shall be sold by the Agent for the accounts of the Participants, and the Agent shall treat the proceeds of such sale in the same manner as cash dividends received by the Agent on Shares held in its custody hereunder.

c. TAX RESPONSIBILITIES. The automatic reinvestment of dividends under the Plan will not relieve a Participant (or Eligible Employee with a Plan Account) of any income or other tax that may be due on or with respect to such dividends. The Agent shall report to each Participant (or

Eligible Employee with a Plan Account) the amount of dividends credited to his or her Plan Account.

SECTION 11 -- VOTING OF SHARES

SECTION 12 -- IN-SERVICE DISTRIBUTION OR SALE OF SHARES

a. SALE OF SHARES. Subject to the provisions of Section 19, a Participant may at anytime, and without withdrawing from the Plan, by giving notice to the Agent, direct the Agent to sell all or part of the Shares held on behalf of the Participant. Upon receipt of such a notice, the Agent shall, as soon as practicable after receipt of such notice, sell such Shares in the marketplace at the prevailing market price and transmit the net proceeds of such sale (less any bank service fees, brokerage charges, transfer taxes, and any other transaction fee, expense or cost) to the Participant.

b. IN-SERVICE SHARE DISTRIBUTIONS. A Participant may, without withdrawing from the Plan, request that a certificate for all or part of the full Shares held in his or her Plan Account be sent to him or her after the relevant Shares have been purchased and allocated subject to the requirement that such Shares be held in the Participant's Plan Account for a period of at least 24-months after the date of exercise, as described in section 9a, above. All such requests must be submitted in writing to the Agent. No certificate for a fractional Share will be issued; the fair value of fractional Shares on the date of withdrawal of all Shares credited to a Participant's Plan Account shall be paid in cash to such Participant. The Plan may impose a reasonable charge, to be paid by the Participant, for each stock certificate so issued prior to the date active participation in the Plan ceases; such charge shall be paid by the Participant to the Administrator or Employer prior to the date any distribution of a certificate evidencing ownership of such Shares occurs.

SECTION 13 -- CESSATION OF ACTIVE PARTICIPATION

A Participant may at anytime, by giving notice to the Administrator or Employer, revoke his or her authorization for payroll deduction for the Offering Period in which such revocation is made. A Participant who revokes authorization for payroll deduction may not again participate under the Plan until the next Offering Period immediately subsequent to the Offering Period during which the Participant revoked payroll deduction authorization with respect thereto.

SECTION 14 -- SEPARATION FROM EMPLOYMENT

Separation from employment for any reason, including death, disability, termination or retirement shall be treated automatically as a withdrawal from the Plan.

SECTION 15 -- ASSIGNMENT

Neither payroll deductions credited to a Participant's Plan Account nor any rights with regard to options or Shares held under the Plan may be assigned, alienated, transferred, pledged, or otherwise disposed of in any way by a Participant other than by will or the laws of descent and distribution. Any such assignment, alienation, transfer, pledge, or other disposition shall be without effect, except that the Administrator may treat such act as an election to withdraw from the Plan. A Participant's right to purchase Shares under this plan may be exercisable during the Participant's lifetime only by the Participant. A Participant's Plan Account shall be payable to the Participant's estate upon his or her death.

SECTION 16 -- ADJUSTMENT OF AND CHANGES IN SHARES

If at anytime after the effective date of the Plan the Company shall subdivide or reclassify the Shares which have been or may be optioned under the Plan, or shall declare thereon any stock split or dividend payable in Shares, or shall alter the capital structure of the Shares or the Company in any similar manner, then the number and class of shares held in the Plan and which may thereafter be optioned (in the aggregate and to any Participant) shall be adjusted accordingly, and in the case of each option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to such option and the Purchase Price shall be adjusted accordingly, as necessary to preserve the rights of the holder(s) of such Shares and options(s).

SECTION 17 -- AMENDMENT OR TERMINATION OF THE PLAN

Notwithstanding the foregoing, the Board shall have the right to terminate the Plan with respect to all future payroll deductions and related purchases at anytime. Such termination of the Plan shall also terminate any current Offering Period in accordance with Section 4 of the Plan.

Designations of participating corporations may be made from time to time among a group of corporations consisting of the Employer, its parent and its Subsidiaries (including corporations that become Subsidiaries or a parent after the adoption and approval of the Plan).

SECTION 18 -- ADMINISTRATION

a. ADMINISTRATION. The Plan shall be administered by the Administrator. The Administrator shall be responsible for the administration of all matters under the Plan which have not been delegated to the Agent. The Administrator shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Any rule or regulation adopted by the Administrator shall remain in full force and effect unless and until altered, amended or repealed by the Administrator.

b. SPECIFIC RESPONSIBILITIES. The Administrator's responsibilities shall include, but shall not be limited to:

(1) interpreting the Plan (including issues relating to the definition and application of "Compensation");

(2) identifying and compiling a list of persons who are Eligible Employees for an Offering Period; and

(3) identifying those Eligible Employees not entitled to be granted options or other rights for an Offering Period on account of the limitations described in Section 3b hereof.

SECTION 19 -- SECURITIES LAW RESTRICTIONS

Notwithstanding any provision of the Plan to the contrary, no payroll deductions shall take place and no Shares may be purchased under the Plan until a registration statement has been filed and become effective with respect to the issuance of the Shares covered by the Plan under the Act. Prior to the effectiveness of such registration statement, Shares subject to purchase under the Plan may be offered to Eligible Employees only pursuant to an exemption from the registration requirements of the Act.

SECTION 20 -- NO INDEPENDENT EMPLOYEE'S RIGHTS

Nothing in the Plan shall be construed to be a contract of employment between an Employer or Subsidiary and any Employee, or any group or category of Employees (whether for a definite or specific duration or otherwise), or to prevent the Employer, its parent or any Subsidiary from terminating any Employee's employment at anytime, without notice or recompense. No Employee shall have any rights as a share holder until the option to purchase Shares, granted to him or her hereunder, has been exercised.

SECTION 21 -- APPLICABLE LAW

The Plan shall be construed, administered and governed in all respects under the laws of the State of Ohio to the extent such laws are not preempted or controlled by federal law.

SECTION 22 -- MERGER OR CONSOLIDATION