10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

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

For The Quarter Ended December 31, 2005 Commission File Number 1-11373

Cardinal Health, Inc.

(Exact name of registrant as specified in its charter)

Ohio
(State or other jurisdiction
of incorporation or organization) 31-0958666
(I.R.S. Employer
Identification No.)

7000 CARDINAL PLACE, DUBLIN, OHIO 43017
(Address of principal executive offices and zip code)

(614) 757-5000
(Registrant’s telephone number, including area code)

     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 þ                                          Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

     Large accelerated filer þ           Accelerated filer o           Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                                         Noþ

     The number of Registrant’s Common Shares outstanding at the close of business on January 31, 2006 was as follows:

Common Shares, without par value: 421,951,129

CARDINAL HEALTH, INC. AND SUBSIDIARIES

Index *

		Page No.
Part I.	Financial Information:
Item 1.	Financial Statements:
	Condensed Consolidated Statements of Earnings for the Three and Six Months Ended December 31, 2005 and 2004 (unaudited)		3
	Condensed Consolidated Balance Sheets at December 31, 2005 and June 30, 2005 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2005 and 2004 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		39
Item 4.	Controls and Procedures		40
Part II.	Other Information:
Item 1.	Legal Proceedings		41
Item 1A.	Risk Factors		43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 4.	Submission of Matters to a Vote of Security Holders		44
Item 6.	Exhibits		45
EX-10.01
EX-10.02
EX-10.03
EX-10.04
EX-12.01
EX-31.01
EX-31.02
EX-32.01
EX-32.02
EX-99.01
EX-99.02
EX-99.03

* Items not listed are inapplicable.

Page 2

PART I. FINANCIAL INFORMATION— Item 1: Financial Statements

CARDINAL HEALTH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

(in millions, except per Common Share amounts)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
Revenue	$	19,919.0		$	18,547.1		$	39,292.4		$	36,339.4
Cost of products sold		18,611.8			17,337.8			36,772.0			34,039.6
Gross margin		1,307.2			1,209.3			2,520.4			2,299.8
Selling, general and administrative expenses		796.7			699.1			1,612.3			1,391.6
Impairment charges and other		5.1			80.9			7.6			84.7
Special items – restructuring charges		14.4			105.1			23.5			112.6
– merger charges		7.5			10.2			15.3			27.1
– other		(0.9	)		(12.2	)		4.9			(4.7	)
Operating earnings		484.4			326.2			856.8			688.5
Interest expense and other		33.9			16.7			65.6			54.1
Earnings before income taxes and discontinued operations		450.5			309.5			791.2			634.4
Provision for income taxes		146.5			100.3			252.6			202.9
Earnings from continuing operations		304.0			209.2			538.6			431.5
Earnings/(loss) from discontinued operations (net of tax $0.1 and $(6.5), respectively, for the three months ended 2005 and 2004 and $0.2 and $(3.5), respectively, for the six months ended December 31, 2005 and 2004)		—			4.8			(6.3	)		(4.2	)
Net earnings	$	304.0		$	214.0		$	532.3		$	427.3
Basic earnings per Common Share:
Continuing operations	$	0.71		$	0.48		$	1.26		$	1.00
Discontinued operations		—			0.01			(0.02	)		(0.01	)
Net basic earnings per Common Share	$	0.71		$	0.49		$	1.24		$	0.99
Diluted earnings per Common Share:
Continuing operations	$	0.70		$	0.48		$	1.25		$	0.99
Discontinued operations		—			0.01			(0.02	)		(0.01	)
Net diluted earnings per Common Share	$	0.70		$	0.49		$	1.23		$	0.98
Weighted average number of Common Shares outstanding:
Basic		425.5			432.1			425.9			431.7
Diluted		431.9			437.1			431.7			436.3
Cash dividends declared per Common Share	$	0.06		$	0.03		$	0.12		$	0.06

See notes to condensed consolidated financial statements.

Page 3

CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)

	(Unaudited)
	December 31,			June 30,
	2005			2005
ASSETS
Current assets:
Cash and equivalents	$	2,223.9		$	1,401.2
Short-term investments available for sale		419.0			99.8
Trade receivables, net		3,543.8			3,446.8
Current portion of net investment in sales-type leases		260.5			238.2
Inventories		7,276.7			7,376.1
Prepaid expenses and other		862.1			860.6
Assets held for sale from discontinued operations		26.6			36.0
Total current assets		14,612.6			13,458.7
Property and equipment, at cost		4,781.3			4,616.2
Accumulated depreciation and amortization		(2,291.3	)		(2,148.2	)
Property and equipment, net		2,490.0			2,468.0
Other assets:
Net investment in sales-type leases, less current portion		733.1			693.8
Goodwill and other intangibles, net		5,082.6			5,097.4
Other		311.9			341.3
Total assets	$	23,230.2		$	22,059.2
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term obligations and other short-term borrowings	$	441.3		$	307.9
Accounts payable		8,116.6			7,612.2
Other accrued liabilities		2,324.0			2,175.3
Liabilities from discontinued operations		8.8			9.6
Total current liabilities		10,890.7			10,105.0
Long-term obligations, less current portion and other short-term borrowings		2,568.3			2,319.9
Deferred income taxes and other liabilities		1,020.2			1,041.3
Shareholders’ equity:
Preferred Shares, without par value Authorized – 0.5 million shares, Issued — none		—			—
Common Shares, without par value Authorized – 755.0 million shares, Issued – 479.0 million shares and 476.5 million shares, respectively, at December 31, 2005 and June 30, 2005		2,912.2			2,765.5
Retained earnings		9,354.3			8,874.2
Common Shares in treasury, at cost, 57.1 million shares and 50.3 million shares, respectively, at December 31, 2005 and June 30, 2005		(3,491.6	)		(3,043.6	)
Other comprehensive (loss)/income		(23.9	)		20.2
Other		—			(23.3	)
Total shareholders’ equity		8,751.0			8,593.0
Total liabilities and shareholders’ equity	$	23,230.2		$	22,059.2

See notes to condensed consolidated financial statements.

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CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)

	Six Months Ended
	December 31,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings from continuing operations	$	538.6		$	431.5
Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities:
Depreciation and amortization		201.3			192.3
Asset impairments		5.5			153.7
Equity compensation		138.7			4.9
Provision for bad debts		16.4			0.8
Change in operating assets and liabilities, net of effects from acquisitions:
(Increase)/decrease in trade receivables		(114.7	)		623.2
Decrease/(increase) in inventories		95.3			(705.4	)
Increase in net investment in sales-type leases		(61.9	)		(95.4	)
Increase in accounts payable		504.2			795.3
Other accrued liabilities and operating items, net		61.5			119.7
Net cash provided by operating activities		1,384.9			1,520.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries, net of divestitures and cash acquired		(72.5	)		(273.2	)
Proceeds from sale of property and equipment		7.6			4.1
Additions to property and equipment		(218.2	)		(210.5	)
Purchase of investment securities available for sale		(319.2	)		—
Proceeds from sale of discontinued operations		0.2			39.5
Net cash used in investing activities		(602.1	)		(440.1	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in commercial paper and short-term borrowings		6.0			(562.7	)
Reduction of long-term obligations		(99.8	)		(1,621.4	)
Proceeds from long-term obligations, net of issuance costs		508.4			1,264.8
Proceeds from issuance of Common Shares		68.5			47.8
Tax benefits from exercises of stock options		20.9			—
Dividends on Common Shares		(51.2	)		(25.9	)
Purchase of treasury shares		(412.9	)		—
Net cash provided by/(used in) financing activities		39.9			(897.4	)
NET INCREASE IN CASH AND EQUIVALENTS		822.7			183.1
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD		1,401.2			1,091.2
CASH AND EQUIVALENTS AT END OF PERIOD	$	2,223.9		$	1,274.3

See notes to condensed consolidated financial statements.

Page 5

CARDINAL HEALTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation. The condensed consolidated financial statements of Cardinal Health, Inc. include the accounts of all majority-owned subsidiaries, and all significant inter-company amounts have been eliminated. (References to the “Company” in these condensed consolidated financial statements shall be deemed to be references to Cardinal Health, Inc. and its majority-owned subsidiaries unless the context otherwise requires.) Certain reclassifications have been made to conform prior period amounts to the current presentation.

     Effective the first quarter of fiscal 2006, the Company reclassified its sterile pharmaceutical manufacturing business in Humacao, Puerto Rico to discontinued operations. Prior period financial results were reclassified to conform to this change in presentation. See Note 12 for additional information.

     Effective the second quarter of fiscal 2005, the Company presented certain asset impairments and gains and losses from the sale of operating and corporate assets in “impairment charges and other” as a separate component of operating earnings on the Company’s consolidated statements of earnings. These asset impairment charges were included within the corporate segment’s results. Prior period financial results were reclassified to conform to this change in presentation. See Note 11 for additional information.

     These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by United States generally accepted accounting principles (“GAAP”) for interim reporting. In the opinion of management, all adjustments necessary for a fair presentation have been included. Except as disclosed elsewhere in this Form 10-Q, all such adjustments are of a normal and recurring nature.

     The condensed consolidated financial statements included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes contained in Exhibit 99.1 to the Company’s Current Report on Form 8-K dated December 6, 2005 (the “December 6, 2005 Form 8-K”). Without limiting the generality of the foregoing, Note 3 of the “Notes to Consolidated Financial Statements” from the December 6, 2005 Form 8-K is specifically incorporated into this Form 10-Q by reference.

     Recent Financial Accounting Standards. In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs-an amendment of ARB No. 43, Chapter 4.” The Statement requires abnormal amounts of idle capacity and spoilage costs to be excluded from the cost of inventory and expensed when incurred. SFAS No. 151 is applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this Statement did not have a material impact on the Company’s financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets-an amendment of Accounting Principles Board (“APB”) Opinion No. 29.” This Statement requires exchanges of productive assets to be accounted for at fair value, rather than at carryover basis, unless: (a) neither the asset received nor the asset surrendered has a fair value that is determinable within reasonable limits; or (b) the transactions lack commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this Statement did not have a material impact on the Company’s financial position or results of operations.

     In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which revises SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends SFAS No. 95, “Statement of Cash Flows.” This Statement requires that a public entity measure the cost of equity-based service awards based on the grant date fair value of the award. All share-based payments to employees, including grants of employee stock options, are required to be recognized in the income statement based on their fair value. The Company adopted this Statement on July 1, 2005 (see Note 3 for the Company’s disclosure).

Page 6

     In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations.” This Interpretation clarifies the term of conditional asset retirement obligations as used in SFAS No. 143, “Accounting for Asset Retirement Obligations.” This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The Company is in the process of determining the impact of adopting this Interpretation.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 is a replacement of APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements.” This Statement requires voluntary changes in accounting to be accounted for retrospectively and all prior periods to be restated as if the newly adopted policy had always been used, unless it is impracticable. APB Opinion No. 20 previously required most voluntary changes in accounting to be recognized by including the cumulative effect of the change in accounting in net income in the period of change. This Statement also requires a change in method of depreciation, amortization or depletion for a long-lived asset be accounted for as a change in estimate that is affected by a change in accounting principle. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. Once adopted by the Company, this Statement could have an impact on prior year consolidated financial statements if the Company has a change in accounting.

     In November 2005, the FASB issued FASB Staff Position (“FSP”) No. SFAS 115-1 and SFAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and SFAS No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” This FSP provides guidance on the determination of when an investment is considered impaired, whether that impairment is other-than-temporary and the measurement of an impairment loss. This FSP also requires disclosure about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP is effective in reporting periods beginning after December 15, 2005. The adoption of this FSP is not expected to have a material impact on the Company’s financial position or results of operations.

     In November 2005, the FASB issued FSP No. FAS 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This FSP provides that companies may elect to use a specified “short-cut” method to calculate the historical pool of windfall tax benefits upon adoption of SFAS No. 123(R). The option to use the “short-cut” method is available regardless of whether SFAS No. 123(R) was adopted using the modified prospective or modified retrospective application transition method, and whether it is has the ability to calculate its pool of windfall tax benefits in accordance with the guidance in paragraph 81 of SFAS No. 123(R). This method only applies to awards that are fully vested and outstanding upon adoption of SFAS No. 123(R). This FSP became effective after November 10, 2005. The Company has elected the specified “short cut” method to calculate its beginning pool of additional paid-in capital related to equity-based compensation, and this election had no impact on the Company’s financial statements (see Note 3 for the Company’s disclosure).

Page 7

2. EARNINGS PER SHARE AND SHAREHOLDERS’ EQUITY

     Basic earnings per Common Share (“Basic EPS”) 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 (“Diluted EPS”) is similar to the computation for Basic EPS, except that the denominator is increased by the dilutive effect of stock options outstanding and unvested restricted shares and share units, computed using the treasury stock method.

     The following table reconciles the number of Common Shares used to compute Basic EPS and Diluted EPS for the three and six months ended December 31, 2005 and 2004:

	For the Three Months Ended				For the Six Months Ended
	December 31,				December 31,
(in millions)	2005		2004		2005		2004
Weighted-average Common Shares – basic		425.5		432.1		425.9		431.7
Effect of dilutive securities:
Employee stock options and unvested restricted shares and share units		6.4		5.0		5.8		4.6
Weighted-average Common Shares – diluted		431.9		437.1		431.7		436.3

     The potentially dilutive employee stock options that were antidilutive for the three months ended December 31, 2005 and 2004 were 28.7 million and 29.4 million, respectively, and for the six months ended December 31, 2005 and 2004 were 27.6 million and 29.5 million, respectively.

3. EQUITY-BASED COMPENSATION

     The Company maintains several stock incentive plans (collectively, the “Plans”) for the benefit of certain of its officers, directors and employees. Historically, employee options granted under the Plans generally vested in full on the third anniversary of the grant date and were exercisable for periods up to ten years from the date of grant at a price equal to the fair market value of the Common Shares underlying the option at the date of grant. Employee options granted under the Plans during the first and second quarters of fiscal 2006 generally vest in equal annual installments over four years and are exercisable for periods up to seven years from the date of grant at a price equal to the fair market value of the Common Shares underlying the option at the date of grant.

     During the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” applying the modified prospective method. This Statement requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statement of earnings based on the grant date fair value of the award. Under the modified prospective method, the Company is required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption. The fair values of stock options granted after the Company adopted SFAS No. 123(R) were determined using a lattice valuation model and all options granted prior to adoption of SFAS No. 123(R) were valued using a Black-Scholes model.

     In anticipation of the adoption of SFAS No. 123(R), the Company did not modify the terms of any previously granted options. The Company made significant changes to its equity compensation program with its annual equity grant in the first quarter of fiscal 2006, including reducing the overall number of employee options granted and utilizing a mix of restricted share and option awards. The Company also moved generally from three-year cliff vesting to installment vesting over four years for employee option awards and shortened the option term from ten to seven years.

     The fair value of restricted shares and restricted share units is determined by the number of shares granted and the grant date market price of the Company’s Common Shares. The compensation expense recognized for all equity-based awards is net of estimated forfeitures and is recognized over the awards’ service period. In accordance with Staff Accounting Bulletin (“SAB”) No. 107, the Company classified equity-based compensation within selling, general and administrative expenses to correspond with the same line item as the majority of the cash compensation paid to employees. The Company does not allocate the equity-based compensation to its reportable segments.

Page 8

     In accordance with FSP No. FAS 123(R)-3 issued in November 2005, the Company elected the specified “short cut” method to calculate its beginning pool of additional paid-in capital related to equity-based compensation. This accounting policy election had no impact on the Company’s financial statements.

     The following table illustrates the impact of equity-based compensation on reported amounts:

	For Three Months Ended					For the Six Months Ended
	December 31, 2005 (1)					December 31, 2005 (1)
			Impact of					Impact of
			Equity-Based					Equity-Based
(in millions, except per share amounts)	As Reported		Compensation			As Reported		Compensation
Operating earnings (2) (3) (4) (5)	$	484.4	$	(55.8	)	$	856.8	$	(138.7	)
Earnings from continuing operations	$	304.0	$	(35.9	)	$	538.6	$	(88.2	)
Net earnings	$	304.0	$	(35.9	)	$	532.3	$	(88.2	)
Net basic earnings per Common Share	$	0.71	$	(0.08	)	$	1.24	$	(0.21	)
Net diluted earnings per Common Share	$	0.70	$	(0.08	)	$	1.23	$	(0.20	)

(1)	Prior to the first quarter of fiscal 2006, the Company accounted for equity-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25 and related Interpretations.
(2)	The total equity-based compensation expense includes gross employee stock option expense of approximately $41.6 million and $85.1 million, respectively, during the three and six months ended December 31, 2005. The expense related to stock options represents the unvested portion of previously granted stock option awards outstanding as of the date of adoption and expense for all awards granted after the date of adoption.
(3)	The total equity-based compensation expense includes gross stock appreciation rights (“SARs”) expense of approximately $5.1 million and $37.7 million, respectively, during the three and six months ended December 31, 2005. This expense primarily relates to the previously reported August 3, 2005 SAR grant to the Company’s Chairman and Chief Executive Officer, Robert D. Walter, that satisfied the Company’s original intent and understanding with respect to a 1999 option award that was in excess of the number of shares permitted to be granted to a single individual during any fiscal year under the relevant equity compensation plan. The significant impact during the first quarter of fiscal 2006 resulted from the vesting of the SARs upon issuance with an exercise price significantly below the then-current price of the Company’s Common Shares. In subsequent quarters, the fair value of the SARs will be remeasured until they are settled, and any increase in fair value will be recorded as equity-based compensation. Any decrease in the fair value of the SARs will only be recognized to the extent of the expense previously recorded.
(4)	The total equity-based compensation expense includes gross restricted share and restricted share unit expense of approximately $6.5 million and $10.8 million, respectively, during the three and six months ended December 31, 2005.
(5)	The total equity-based compensation expense also includes gross employee stock purchase plan expense of approximately $2.6 million and $5.1 million, respectively, during the three and six months ended December 31, 2005.

Page 9

     The following summarizes all stock option transactions for the Company under the Plans from July 1, 2005 through December 31, 2005:

						Weighted Average
	Options			Weighted Average		Remaining		Aggregate
	Outstanding			Exercise Price		Contractual Life in		Intrinsic Value
	(in millions)			per Common Share		Years		(in millions)
Balance at June 30, 2005		47.6		$	53.64
Granted		4.7		$	58.22
Exercised		(1.7	)	$	35.55
Canceled		(2.4	)	$	59.32
Balance at December 31, 2005		48.2		$	54.48		6.6	$	436.9
Exercisable at December 31, 2005		22.5		$	55.40		5.0	$	227.8

     The weighted average fair value of options granted during the six months ended December 31, 2005 is $18.20.

     The fair values of the options granted to the Company’s employees during the first and second quarters of fiscal 2006 were estimated on the date of grant using a lattice valuation model. The lattice valuation model incorporates ranges of assumptions that are disclosed in the table below. The risk-free rate is based on the United States Treasury yield curve at the time of the grant. The Company analyzed historical data to estimate option exercise behaviors and employee terminations to be used within the lattice model. The Company calculated separate option valuations for three separate groups of employees with similar historical exercise behaviors. The expected life of the options granted was calculated from the option valuation model and represents the length of time in years that the options granted are expected to be outstanding. The range of expected lives below results from the separate groups of employees identified by the Company based on their option exercise behaviors. Expected volatilities are based on implied volatility from traded options on the Company’s Common Shares and historical volatility over a period of time commensurate with the contractual term of the option grant (7 years). The following table provides the range of assumptions used for stock options valued during the six months ended December 31, 2005:

	As of December 31,
	2005
Risk-free interest rate		3.3 % - 4.6	%
Expected life in years	5.6 - 7.0 years
Expected volatility		20.9% - 27.0	%
Dividend yield		0.35% - 0.42	%

Page 10

Fair Value Disclosures — Prior to Adopting SFAS No. 123(R)

     Prior to the first quarter of fiscal 2006, the Company accounted for equity-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25 and related Interpretations. Therefore, except for costs related to restricted shares and share units, SARs and an insignificant number of amended options requiring a new measurement date, no compensation expense was 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 had adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” for the three and six months ended December 31, 2004:

	For the Three			For the Six
	Months Ended			Months Ended
(in millions, except per share amounts)	December 31, 2004
Net earnings, as reported	$	214.0		$	427.3
Equity-based compensation expense included in net earnings, net of related tax effects		1.8			3.1
Total equity-based compensation expense determined under fair value method for all awards, net of related tax effects (1)		(35.2	)		(70.6	)
Pro forma net earnings	$	180.6		$	359.8
Net basic earnings per Common Share:
As reported	$	0.49		$	0.99
Pro forma basic earnings per Common Share	$	0.42		$	0.83
Net diluted earnings per Common Share:
As reported	$	0.49		$	0.98
Pro forma diluted earnings per Common Share (2)	$	0.42		$	0.83

(1)	The total equity-based compensation expense included net employee stock purchase plan expense of $1.8 million and $3.6 million, respectively, for the three and six months ended December 31, 2004.
(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 No. 123.

4. COMPREHENSIVE INCOME

     The following is a summary of the Company’s comprehensive income for the three and six months ended December 31, 2005 and 2004:

	For the Three Months Ended					For the Six Months Ended
	December 31,					December 31,
(in millions)	2005			2004		2005			2004
Net earnings	$	304.0		$	214.0	$	532.3		$	427.3
Foreign currency translation adjustment		(38.3	)		110.0		(56.4	)		119.1
Net unrealized gain on derivative instruments		9.0			2.5		14.4			3.3
Net change in minimum pension liability		(2.1	)		—		(2.1	)		—
Total comprehensive income	$	272.6		$	326.5	$	488.2		$	549.7

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5. SPECIAL ITEMS

     The following is a summary of the special items for the three and six months ended December 31, 2005 and 2004:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in millions, except for Diluted EPS amounts)	2005			2004			2005			2004
Restructuring costs	$	14.4		$	105.1		$	23.5		$	112.6
Merger-related costs		7.5			10.2			15.3			27.1
Litigation settlements, net		(13.5	)		(21.2	)		(13.6	)		(21.2	)
Other		12.6			9.0			18.5			16.5
Total special items		21.0			103.1			43.7			135.0
Tax effect of special items (1)		(4.0	)		(32.0	)		(12.3	)		(43.9	)
Net earnings effect of special items		17.0			71.1			31.4			91.1
Net decrease on Diluted EPS	$	0.04		$	0.16		$	0.07		$	0.21

(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 jurisdictions where the items were incurred.

Restructuring Costs

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

	Three Months Ended					Six Months Ended
	December 31,					December 31,
(in millions)	2005			2004		2005			2004
Restructuring costs:
Global restructuring program:
Pharmaceutical Distribution and Provider Services	$	0.2		$	3.2	$	1.0		$	3.4
Medical Products and Services		2.3			18.8		4.3			19.4
Pharmaceutical Technologies and Services		1.2			71.6		2.8			73.0
Clinical Technologies and Services		—			0.7		—			0.7
Other		7.3			8.2		11.4			8.5
Other restructuring programs:
Pharmaceutical Distribution and Provider Services		0.3			—		0.3			—
Medical Products and Services		(0.5	)		2.1		(0.5	)		2.8
Pharmaceutical Technologies and Services		4.0			—		4.6			4.0
Clinical Technologies and Services		—			0.4		—			0.4
Other		(0.4	)		0.1		(0.4	)		0.4
Total restructuring costs	$	14.4		$	105.1	$	23.5		$	112.6

     Global Restructuring Program. As previously reported, during fiscal 2005, the Company launched a global restructuring program in connection with its One Cardinal Health initiative with a goal of increasing the value that the Company provides its customers through better integration of existing businesses and improved efficiency from a more disciplined approach to procurement and resource allocation. The Company expects the program to be implemented in two phases and substantially completed by the end of fiscal 2008.

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     The first phase of the program, announced in December 2004 (“Phase I”), focuses on business consolidations and process improvements, including rationalizing facilities worldwide, reducing the Company’s global workforce, and rationalizing and discontinuing overlapping and under-performing product lines. The second phase of the program, announced in August 2005 (“Phase II”), focuses on longer term integration activities that will enhance service to customers through improved integration across the Company’s segments and continue to streamline internal operations.

     The following tables summarize the significant costs recorded within special items for the three and six months ended December 31, 2005 and December 31, 2004, respectively, in connection with Phase I and Phase II and the year in which the project activities are expected to be completed, the expected headcount reductions and the actual headcount reductions to date.

	Three Months				Six Months
	Ended				Ended
	December 31,				December 31,
(in millions)	2005		2004		2005		2004
Global restructuring program costs:
Pharmaceutical Distribution and Provider Services
Employee-related costs (1)	$	—	$	1.2	$	0.1	$	1.2
Facility exit and other costs (2)		0.1		2.0		0.8		2.2
Asset impairments (3)		0.1		—		0.1		—
Total Pharmaceutical Distribution and Provider Services		0.2		3.2		1.0		3.4
Medical Products and Services
Employee-related costs (1)		0.5		16.2		0.8		16.8
Facility exit and other costs (2)		1.8		2.6		3.5		2.6
Total Medical Products and Services		2.3		18.8		4.3		19.4
Pharmaceutical Technologies and Services
Employee-related costs (1)		1.0		3.8		2.3		5.2
Facility exit and other costs (2)		0.2		0.3		0.5		0.3
Asset impairments (3)		—		67.5		—		67.5
Total Pharmaceutical Technologies and Services		1.2		71.6		2.8		73.0
Clinical Technologies and Services
Employee-related costs (1)		—		0.7		—		0.7
Total Clinical Technologies and Services		—		0.7		—		0.7
Other
Employee-related costs (1)		3.0		—		4.4		—
Facility exit and other costs (2)		4.3		8.2		7.0		8.5
Total Other		7.3		8.2		11.4		8.5
Total global restructuring program costs	$	11.0	$	102.5	$	19.5	$	105.0

(1)	Employee-related costs consist primarily of severance accrued upon either communication of terms to employees or management’s commitment to the restructuring plan when a defined severance plan exists. Duplicate payroll costs during transition periods are also included within this classification.
(2)	Facility exit and other costs consist of accelerated depreciation, equipment relocation costs, project consulting fees and costs associated with restructuring the Company’s delivery of information technology infrastructure services.
(3)	Asset impairments were recognized to record the related assets at net realizable value.

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	Expected/Actual		Headcount Reduction
	Fiscal Year of				As of
	Completion		Expected (1)		December 31, 2005
Global restructuring programs:
Pharmaceutical Distribution and Provider Services		2006		75		75
Medical Products and Services		2008		2,724		472
Pharmaceutical Technologies and Services		2007		947		509
Clinical Technologies and Services		2005		15		15
Other		2009		1,842		8
Total global restructuring programs				5,603		1,079

(1) Represents projects that have been initiated as of December 31, 2005.

     The Company incurred costs of $11.0 million and $19.5 million during the three and six months ended December 31, 2005, respectively, as compared to $102.5 million and $105.0 million during the three and six months ended December 31, 2004, respectively, related to projects associated with Phase I and Phase II of the global restructuring program.

     The costs incurred within the Pharmaceutical Distribution and Provider Services segment for the three and six months ended December 31, 2005, primarily related to the closing of multiple Company-owned pharmacies within Medicine Shoppe International, Inc. and consolidation of distribution sites. The costs incurred within this segment for the three and six months ended December 31, 2004 primarily related to the outsourcing of information technology functions, closing of multiple Company-owned pharmacies within Medicine Shoppe International, Inc. and consolidation of distribution sites.

     The costs incurred within the Medical Products and Services segment during the three and six months ended December 31, 2005, respectively, primarily related to improvements within the manufacturing business through consolidation of production from higher cost facilities to lower cost facilities or outsourcing. The costs incurred within this segment during the three and six months ended December 31, 2004, respectively, primarily related to improvements within the manufacturing business through consolidation or outsourcing of production from higher cost facilities to lower cost facilities, centralizing management functions within the distribution business and transitioning to a customer needs-based sales representative model in the ambulatory care business.

     The costs incurred within the Pharmaceutical Technologies and Services segment for the three and six months ended December 31, 2005, respectively, primarily related to planned reductions of headcount within existing operations and consolidation of overlapping operations. The costs incurred within this segment for the three and six months ended December 31, 2004, respectively, primarily related to planned reductions of headcount, consolidation of overlapping operations and plans to sell portions of existing operations.

     Of the $67.5 million in asset impairments incurred within the Pharmaceutical Technologies and Services segment for the three and six months ended December 31, 2004, the Company incurred costs of approximately $67.2 million during the three months ended December 31, 2004 to sell two facilities and transfer business from a third facility within this segment. The Company is transferring portions of each of the businesses to be sold to other existing Company facilities and is selling the remaining portions. The Company completed the sale of one of the facilities in fiscal 2005 and expects to complete the sale of the remaining facility in fiscal 2006. The carrying amount of the asset groups to be sold was $64.6 million, which included $15.4 million of goodwill allocated in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” As the Company determined that the plan of sale criteria in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” had been met during the three months ended December 31, 2004, the carrying value of the asset groups being sold was adjusted to $22.0 million, the estimated fair market values less costs to sell. As a result, the Company recognized asset impairment charges of $42.6 million associated with the two businesses during the three months ended December 31, 2004. The Company also committed to a plan to transfer production from one of its Pharmaceutical Technologies and Services facilities to another existing Company facility during the three months ended December 31, 2004. Production is expected to continue at the original facility through fiscal 2007. The Company recorded an asset impairment of $24.6 million during the three months ended December 31, 2004 based on an analysis of discounted cash flows in accordance with SFAS No. 144.

Page 14

     The costs incurred within the Clinical Technologies and Services segment during the three months ended December 31, 2004 related to a planned reduction of headcount within existing operations and consolidation of overlapping functions.

     The costs categorized as “Other” incurred for projects that impacted multiple segments during the three and six months ended December 31, 2005, respectively, primarily related to design and implementation of the Company’s restructuring plans for certain administrative functions, restructuring the Company’s delivery of information technology infrastructure services and consolidation of existing customer service operations into two locations. The costs categorized as “Other” incurred for projects that impacted multiple segments during the three and six months ended December 31, 2004, respectively, primarily related to design and implementation of the Company’s overall restructuring plan and restructuring the Company’s delivery of information technology infrastructure services.

     Other Restructuring Programs. Separate from the global restructuring program discussed above, the Company incurred costs to restructure operations within the segments described in the restructuring costs table above. The total costs across these segments were $3.4 million and $4.0 million, respectively, during the three and six months ended December 31, 2005 and $2.6 million and $7.6 million, respectively, during the three and six months ended December 31, 2004. The restructuring plans within these segments focused on various aspects of operations, including closing and consolidating certain manufacturing operations, rationalizing headcount both domestically and internationally and aligning operations into a strategic and cost-efficient structure. In connection with implementing these restructuring plans, the Company incurred costs that included employee-related costs, the majority of which represent severance accrued upon either communication of terms to employees or management’s commitment to the restructuring plan when a defined severance plan exists, and exit costs, including asset impairment charges, costs incurred to relocate physical assets and project management costs. The Company also incurred costs to restructure the delivery of information technology infrastructure services during the three and six months ended December 31, 2005, and for the comparable periods in 2004.

     With respect to other restructuring programs, the following table summarizes the year in which the project activities are expected to be completed, the expected headcount reductions and the actual headcount reductions to date:

	Expected Fiscal		Headcount Reduction
	Year of				As of
	Completion		Expected (1)		December 31, 2005
Other restructuring program:
Pharmaceutical Distribution and Provider Services		2007		89		43
Medical Products and Services		2007		2,305		2,185
Pharmaceutical Technologies and Services		2007		1,100		1,063
Total other restructuring program				3,494		3,291
1

(1) Represents projects that have been initiated as of December 31, 2005.

Merger-Related Costs

     Costs of integrating the operations of various merged companies are recorded as merger-related costs when incurred. The merger-related costs recognized during the three and six months ended December 31, 2005 were primarily a result of the acquisitions of ALARIS Medical Systems, Inc. (which has been given the legal designation of Cardinal Health 303, Inc. and is referred to in this Form 10-Q as “Alaris”) and Syncor International Corporation (which has been given the legal designation of Cardinal Health 414, Inc. and is referred to in this Form 10-Q as “Syncor”). The following table and paragraphs provide additional detail regarding the types of merger-related costs incurred by the Company:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(in millions)	2005		2004		2005		2004
Merger-related costs:
Employee-related costs	$	1.8	$	4.4	$	5.6	$	9.0
Asset impairments and other exit costs		0.9		0.2		1.0		0.6
Debt issuance cost write-off		—		0.1		—		8.8
Integration costs and other		4.8		5.5		8.7		8.7
Total merger-related costs	$	7.5	$	10.2	$	15.3	$	27.1

Page 15

     Employee-Related Costs. During the three and six months ended December 31, 2005, the Company incurred employee-related costs of $1.8 million and $5.6 million, respectively, as compared to $4.4 million and $9.0 million, respectively, during the comparable prior year periods. The costs incurred in all periods presented consisted primarily of severance and retention bonuses accrued over the service period as a result of the Alaris acquisition. In addition, the costs incurred in the six months ended December 31, 2005 and 2004 included severance and retention bonuses accrued over the service period as a result of the Syncor acquisition.

     Debt Issuance Cost Write-off. During the three and six months ended December 31, 2004, the Company incurred charges of $0.1 million and $8.8 million, respectively, related to the write-off of debt issuance costs and other debt tender offer costs related to the Company’s decision to retire certain Alaris debt instruments that carried higher interest rates than the Company’s cost of debt. As a result, the Company retired such debt instruments in advance of their original maturity dates.

     Integration Costs and Other. The Company incurred integration and other costs during the three and six months ended December 31, 2005 of $4.8 million and $8.7 million, respectively, as compared to $5.5 million and $8.7 million, respectively, during the comparable prior year periods. The costs included in this category generally relate to expenses incurred to integrate the merged or acquired company’s operations and systems into the Company’s pre-existing operations and systems. These costs include 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.

Litigation Settlements, Net

     The following table summarizes the Company’s net litigation settlements during the three and six months ended December 31, 2005 and 2004:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Litigation settlements, net:
Vitamin litigation	$	—		$	(0.6	)	$	—		$	(0.6	)
Pharmaceutical manufacturer antitrust litigation		(13.5	)		(20.6	)		(13.6	)		(20.6	)
Total litigation settlements, net	$	(13.5	)	$	(21.2	)	$	(13.6	)	$	(21.2	)

     Vitamin Litigation. During the three and six months ended December 31, 2004 the Company recorded income of $0.6 million 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 December 31, 2004 was $145.3 million (net of attorney fees, payments due to other interested parties and expenses withheld). There have been no recoveries since December 31, 2004, and the Company has settled all known claims, and the total amount of any future recovery is not likely to be material.

     Pharmaceutical Manufacturer Antitrust Litigation. During the three and six months ended December 31, 2005, the Company recorded income of $13.5 million and $13.6 million, respectively, as compared to income of $20.6 million in the comparable periods ending December 31, 2004 related to settlement of pharmaceutical manufacturer antitrust claims alleging certain prescription drug manufacturers took improper actions to delay or prevent generic drug competition. The total recovery of antitrust claims against certain prescription drug manufacturers through December 31, 2005 was $111.2 million (net of attorney fees, payments due to other interested parties and expenses withheld).

Other

     During the three and six months ended December 31, 2005 the Company incurred costs totaling $12.6 million and $18.5 million, respectively. These costs primarily relate to settlement reserves and document preservation and production costs incurred in connection with the Securities and Exchange Commission (“SEC”) investigation and the Audit Committee internal review and related matters. As previously disclosed, the Company continues to engage in settlement discussions with the staff of the SEC and has now reached an agreement-in-principle on the basic terms of a potential settlement involving the Company that the SEC staff has indicated it is prepared to recommend to the

Page 16

Commission. The proposed settlement is subject to the completion of definitive documentation as well as acceptance and authorization by the Commission and would, among other things, require the Company to pay a $35 million penalty. The Company accordingly recorded a reserve of $10 million in the quarter ended December 31, 2005 in addition to the $25 million reserve recorded during the fiscal year ended June 30, 2005. There can be no assurance that the Company’s efforts to resolve the SEC’s investigation with respect to the Company will be successful, or that the amount reserved will be sufficient, and the Company cannot predict the timing or the final terms of any settlement. For further information regarding these matters, see Note 8.

     During the three and six months ended December 31, 2004, the Company incurred costs totaling $9.0 million and $16.5 million, respectively. These costs relate to legal fees and document preservation and production costs incurred in connection with the SEC investigation and the Audit Committee internal review and related matters.

Special Items Accrual Rollforward

     The following table summarizes activity related to the liabilities associated with the Company’s special items during the six months ended December 31, 2005:

	Six Months Ended
(in millions)	December 31, 2005
Balance at June 30, 2005	$	86.3
Additions (1)		57.3
Payments		(53.6	)
Balance at December 31, 2005	$	90.0

(1) Amount represents items that have been either expensed as incurred or accrued according to GAAP. These amounts do not include gross litigation settlement income of $13.6 million recorded as a special item during the six months ended December 31, 2005.

Purchase Accounting Accruals

     In connection with restructuring and integration plans related to the acquisition of The Intercare Group, plc (which has been given the legal designation of Cardinal Health U.K. 432 Limited and is referred to in this Form 10-Q as “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 the closing of certain facilities. As of December 31, 2005, the Company had paid $3.0 million of employee-related costs. During fiscal 2005, the Company reversed a $1.5 million accrual against goodwill as it was no longer necessary. No payments have been made associated with the facility closures.

     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 December 31, 2005, the Company had paid $13.9 million of employee related costs, $6.2 million associated with the facility closures and $1.1 million of other restructuring costs.

Summary of Estimated Future Costs

     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 if recorded amounts exceed costs, such changes in estimates will be recorded as 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 $175 million (approximately $114 million net of tax). These estimated costs are primarily associated with the Company’s previously-announced global restructuring program and the Alaris acquisition. The Company believes it will incur these costs to properly restructure, 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.

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6. LONG-TERM OBLIGATIONS AND OTHER SHORT-TERM OBLIGATIONS

     On November 18, 2005, the Company entered into a new $1 billion revolving credit agreement, which replaced two $750 million revolving credit agreements. The new facility expires on November 18, 2010. At expiration, this facility can be extended upon mutual consent of the Company and the lending institutions. This facility exists largely to support general corporate purposes.

     On December 15, 2005, the Company issued $500 million of 5.85% Notes due 2017. The proceeds of the debt issuance are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, investments, repayment of indebtedness and repurchases of equity securities.

     For additional information regarding long-term obligations and other short-term obligations, see Note 6 of “Notes to Consolidated Financial Statements” in the December 6, 2005 Form 8-K.

7. SEGMENT INFORMATION

     The Company’s operations are principally managed on a products and services basis and are comprised of four reportable segments: Pharmaceutical Distribution and Provider Services; Medical Products and Services; Pharmaceutical Technologies and Services; and Clinical Technologies and Services. During the first quarter of fiscal 2006, the Company changed its methodology for allocating corporate costs to the reportable segments to better align corporate spending with the segments that receive the related benefits. Prior period results were adjusted to reflect this change in methodology.

     In addition, during the first quarter of fiscal 2006, the Company transferred certain businesses and administrative support functions to better align business operations. Prior period financial results have not been adjusted because each of these transfers was not significant within its segment and did not have a material impact on its segment’s growth rates.

     The Pharmaceutical Distribution and Provider Services segment distributes pharmaceuticals, health care products and other items typically sold by hospitals, retail drug stores and other health care providers. This segment operates a distribution network within the United Kingdom offering a specialized range of branded and generic pharmaceutical products. This segment provides distribution and other services to certain pharmaceutical manufacturers. The segment also provides support services complementing its distribution activities. In addition, this segment franchises and operates apothecary-style retail pharmacies.

     The Medical Products and Services segment manufactures medical and surgical products and distributes these self-manufactured products, as well as medical, surgical and laboratory products manufactured by other suppliers, to hospitals, physician offices, surgery centers and other health care providers. In addition, the segment distributes oncology, therapeutic plasma and other specialty pharmaceutical and biotechnology products to hospitals, clinics and other providers.

     The Pharmaceutical Technologies and Services segment provides products and services to the health care industry through pharmaceutical development and manufacturing services in nearly all oral and sterile dose forms, including those incorporating the Company’s proprietary drug delivery systems, such as softgel capsules, controlled release forms, Zydis® fast dissolving wafers and advanced sterile delivery technologies. This segment also provides packaging, radiopharmaceutical manufacturing and distribution, pharmaceutical development and analytical science services and scientific and regulatory consulting, as well as medical education, marketing and contract sales services. It also manufactures and markets generic injectible pharmaceutical products for sale to hospitals, clinics and pharmacies in the United Kingdom.

     The Clinical Technologies and Services segment provides products and services to hospitals and other health care providers that focus on patient safety. This segment designs, develops, manufactures, sells and services intravenous medication safety and infusion therapy delivery systems and designs, 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. In addition, this segment provides services to the health care industry through integrated pharmacy management and temporary pharmacy staffing.

Page 18

     The Company evaluates the performance of the segments based on operating earnings after the corporate allocation of certain administrative expenses. Information about interest income and expense and income taxes is not provided on a segment level. In addition, equity-based compensation, special items, impairment charges, and investment spending are not allocated to the segments. See Notes 3 and 5 above for further discussion of the Company’s equity-based compensation and special items and Note 11 below for a discussion of impairment charges and other. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

     The following tables include revenue and operating earnings for each reportable segment and reconciling items necessary to agree to amounts reported in the condensed consolidated financial statements for the three and six months ended December 31, 2005 and 2004:

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Revenue:
Pharmaceutical Distribution and Provider Services	$16,201.5			$	15,058.5		$	31,969.3		$	29,460.4
Medical Products and Services		2,595.2			2,426.8			5,156.2			4,819.9
Pharmaceutical Technologies and Services (1)		759.8			752.4			1,473.1			1,454.2
Clinical Technologies and Services		602.8			546.6			1,179.2			1,070.9
Corporate (2)		(240.3	)		(237.2	)		(485.4	)		(466.0	)
Total revenue	$	19,919.0		$	18,547.1		$	39,292.4		$	36,339.4

	For the Three Months Ended						For the Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Operating earnings: (3)
Pharmaceutical Distribution and Provider Services (4)	$	240.1		$	207.1		$	439.5		$	366.4
Medical Products and Services		152.9			154.2			303.8			279.0
Pharmaceutical Technologies and Services (1)		78.7			82.8			123.8			160.9
Clinical Technologies and Services		94.1			70.3			172.3			111.9
Corporate (5)		(81.4	)		(188.2	)		(182.6	)		(229.7	)
Total operating earnings	$	484.4		$	326.2		$	856.8		$	688.5

     The following table includes total assets at December 31, 2005 and June 30, 2005 for each segment as well as reconciling items necessary to total the amounts reported in the condensed consolidated financial statements:

(in millions)	At December 31, 2005		At June 30, 2005
Assets:
Pharmaceutical Distribution and Provider Services	$	8,986.0	$	9,112.3
Medical Products and Services		4,360.3		4,144.1
Pharmaceutical Technologies and Services		4,339.9		4,344.6
Clinical Technologies and Services		3,995.4		3,868.1
Corporate (6)		1,548.6		590.1
Total assets	$	23,230.2	$	22,059.2

(1)	The Pharmaceutical Technologies and Services segment amounts were adjusted to reflect the classification of its sterile pharmaceutical manufacturing business in Humacao, Puerto Rico as discontinued operations. Prior period amounts were adjusted to reflect this change in classification. See Note 12 below for additional information regarding discontinued operations.
(2)	Corporate revenue primarily consists of the elimination of inter-segment revenue.
(3)	During the first quarter of fiscal 2006, the Company changed its methodology for allocating corporate costs to the reportable segments to better align corporate spending with the segments that receive the related benefits. Prior period results were adjusted to reflect this change in methodology.

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(4)	During the first quarter of fiscal 2006, the Company’s Pharmaceutical Distribution and Provider Services segment discovered that it had inadvertently and erroneously failed to process credits owed to a vendor in prior years. After a thorough review, the Company determined that it had failed to process similar credits for a limited number of additional vendors. These processing failures, specific to a limited area of vendor credits, resulted from system programming, interface and data entry errors relating to these vendor credits which occurred over a period of years. As a result, the Company recorded a charge of $31.8 million in the first quarter of fiscal 2006 reflecting the credits owed to these vendors of which a portion related to fiscal 2005, 2004 and 2003. During the second quarter of fiscal 2006, the Company reduced the charge by $3.5 million based on additional analysis performed and the results of ongoing settlement discussions with vendors who were impacted.
(5)	Corporate operating earnings include special items of $21.0 million and $103.1 million, respectively, for the three months ended December 31, 2005 and 2004, and $43.7 million and $135.0 million, respectively, for the six months ended December 31, 2005 and 2004. See Note 5 for further discussion of the Company’s special items. In addition, corporate operating earnings include equity-based compensation of $55.8 million and $138.7 million, respectively, for the three and six months ended December 31, 2005 and $2.8 million and $4.9 million, respectively, for the comparable prior year periods. The year-over-year increase in equity-based compensation is primarily a result of the Company implementing SFAS No. 123(R) applying the modified prospective method and the impact of SARs granted during the first quarter of fiscal 2006. The equity-based compensation expense recognized during the first and second quarters of fiscal 2005 represents the amortization of restricted share and restricted share unit awards. See Note 3 for further discussion of the Company’s equity-based compensation. Corporate operating earnings also include $5.1 million and $7.6 million, respectively, of operating asset impairments and gains and losses from the sale of operating and corporate assets for the three and six months ended December 31, 2005 and $80.9 million and $84.7 million, respectively, during the three and six months ended December 31, 2004. Unallocated corporate administrative expenses and investment spending are also included in corporate operating earnings.
(6)	The corporate assets primarily include cash and cash equivalents, short-term investments available for sale, corporate net property and equipment and unallocated deferred taxes.

8. COMMITMENTS AND CONTINGENT LIABILITIES

Derivative Actions

     As previously disclosed, 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 renegotiate or terminate the Company’s proposed acquisition of Syncor, and to 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, among other things, 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. On April 14, 2005, the Court stayed the action for an indeterminate period pending certain decisions in certain of the Shareholder/ERISA litigation matters discussed below. The defendants intend to vigorously defend this action. The Company currently does not believe that this lawsuit will have a material adverse effect on the Company’s financial position, liquidity or results of operations.

     As previously disclosed, since July 1, 2004, three complaints have been filed by purported shareholders against the members of the Company’s Board of Directors, certain of its officers and employees and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as purported derivative actions (collectively referred to as the “Cardinal Health Franklin County derivative actions”). These cases include Donald Bosley, Derivatively on behalf of Cardinal Health, Inc. v. David Bing, et al., Sam Wietschner v. Robert D. Walter, et al. and Green Meadow Partners, LLP, Derivatively on behalf of Cardinal Health, Inc. v. David Bing, et al. The Cardinal Health Franklin County derivative actions allege 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 complaints in the Cardinal Health Franklin County derivative actions seek money damages and equitable relief against the defendant directors and an award of attorney’s fees. On November 22, 2004, the Cardinal Health Franklin County derivative actions were transferred to be heard by the same judge. Furthermore, by agreement of the parties, the Cardinal Health Franklin County derivative actions are being

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held in abeyance with the understanding of the parties and the Court. None of the defendants has responded to the complaints yet, nor has the Company.

     On December 6, 2005, a complaint was filed by a purported shareholder against certain members of the Human Resources and Compensation Committee of the Company’s Board of Directors, certain of its current and former officers and the Company as a nominal defendant in the Court of Common Pleas, Franklin County, Ohio, as a purported derivative action. Vernon Bean v. John F. Havens, et al., No. 05CVH-12-13644. The complaint alleges that the individual defendants breached their fiduciary duties with respect to the timing of the Company’s stock option grants in August 2004 and that the officer defendants were unjustly enriched with respect to such grants. The complaint seeks money damages, disgorgement of stock options, equitable relief against the individual defendants and an award of attorney’s fees. None of the defendants has responded to the complaints yet, nor has the Company.

Shareholder/ERISA Litigation Against Cardinal Health

     As previously disclosed, since July 2, 2004, 10 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 Securities Exchange Act of 1934, as amended (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. Certain of the complaints also allege violations of Section 11 of the Securities Act of 1933, as amended, claiming material misstatements or omissions in prospectuses issued by the Company in connection with its acquisition of Bindley Western Industries, Inc. in 2001 and Syncor in 2003. 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, and other accounting and business model transition issues, including reserve accounting. 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. On December 15, 2004, the Cardinal Health federal securities actions were consolidated into one action captioned In re Cardinal Health, Inc. Federal Securities Litigation, and on January 26, 2005, the Court appointed the Pension Fund Group as lead plaintiff in this consolidated action. On April 22, 2005, the lead plaintiff filed a consolidated amended complaint naming the Company, certain current and former officers and employees and the Company’s external auditors as defendants. The complaint seeks unspecified money damages and other unspecified relief against the defendants. On August 22, 2005, the Company and certain defendants filed a Motion to Dismiss the consolidated amended complaint.

     As previously disclosed, since July 2, 2004, 15 purported class action complaints (collectively referred to as the “Cardinal Health ERISA actions”) 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 (now known as the Cardinal Health 401(k) Savings Plan, or the “401(k) Plan”). 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), Jennifer Brister v. Cardinal Health, Inc., et al. (04 CV 828) and Gint Baukus v. Cardinal Health, Inc., et al. (05 C2 101). The Cardinal Health ERISA actions purport to be brought on behalf of participants in the 401(k) Plan and the Syncor Employees’ Savings and Stock Ownership Plan (the “Syncor ESSOP,” and together with the 401(k) Plan, the “Plans”), and also on behalf of the Plans themselves. The complaints allege that the defendants

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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 the Plans’ participants of investing in the Company’s stock, to the detriment of the Plans’ participants and beneficiaries, and that Company stock should not have been made available as an investment alternative for the Plans’ participants. The misstatements alleged in the Cardinal Health ERISA actions significantly overlap with the misstatements alleged 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. On December 15, 2004, the Cardinal Health ERISA actions were consolidated into one action captioned In re Cardinal Health, Inc. ERISA Litigation. On January 14, 2005, the court appointed lead counsel and liaison counsel for the consolidated Cardinal Health ERISA action. On April 29, 2005, the lead plaintiff filed a consolidated amended ERISA complaint naming the Company, certain current and former directors, officers and employees, the Company’s Employee Benefits Policy Committee and Putnam Fiduciary Trust Company as defendants. The complaint seeks unspecified money damages and other unspecified relief against the defendants. On August 22, 2005, the Company and certain defendants filed a Motion to Dismiss the consolidated amended ERISA complaint. On December 1, 2005, the lead plaintiff filed a Motion for Class Certification. The parties have agreed to leave the Motion for Class Certification pending while the Court considers the Motion to Dismiss.

     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

     As previously disclosed, 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. The consolidated complaint seeks unspecified money damages and other unspecified relief against the 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, the lead plaintiff filed a Motion for Clarification of the Court’s July 6, 2004 dismissal order. The court clarified its July 6, 2004 dismissal order on November 29, 2004 and the lead plaintiff filed a third amended consolidated complaint on December 29, 2004. Syncor filed a Motion to Dismiss the third amended consolidated complaint on January 31, 2005. On April 15, 2005, the Court granted the Motion to Dismiss with prejudice. The lead plaintiff has appealed this decision. Both parties have filed their appellate briefs and are awaiting further action from the Appellate Court.

     As previously disclosed, 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 ESSOP. A related purported class action complaint, captioned Donna Brown, et

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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. Each of these actions was brought in the United States District Court for the Central District of California. 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. The consolidated complaint seeks unspecified money damages and other unspecified relief against the defendants. 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. On January 10, 2006, the Court entered summary judgment in favor of all defendants on all remaining claims. Consistent with that ruling, on January 11, 2006, the Court entered a final order dismissing this case.

     The Company currently does not believe that the impact of the proceedings described under the heading “Shareholder/ERISA Litigation Against Syncor” will have a material adverse effect on the Company’s financial position, liquidity or results of operations. 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

     As previously disclosed, 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. On September 12, 2005, the Court granted summary judgment in favor of the Company on all of DuPont’s patent infringement claims. On October 14, 2005, the magistrate judge assigned to this case recommended that summary judgment be granted in favor of the Company on DuPont’s federal false advertising claims and that DuPont’s remaining breach of contract claims be dismissed for lack of jurisdiction. On November 7, 2005, the Court granted summary judgment in favor of the Company on DuPont’s federal false advertising claims and dismissed all of Dupont’s remaining claims for lack of jurisdiction.

     As previously disclosed, on October 17, 2005, DuPont filed a lawsuit against the Company in the Circuit Court for Davidson County, Tennessee. E.I. DuPont De Nemours and Company v. Cardinal Health 200, Inc., No. 05C3191. This lawsuit essentially repeats the breach of contract claims from DuPont’s earlier federal lawsuit. 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. 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 learned that the U.S. Attorney’s Office for the Southern District of New York had also commenced an inquiry that the Company understands relates to this same subject. On October 12, 2004, 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 of the Company. The Company was notified in April 2005 that certain current and former employees and directors received subpoenas from the SEC requesting the production of documents. The subject matter of these requests is consistent with the subject matter of the subpoenas that the Company had previously received from the SEC.

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     In connection with the SEC’s informal 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 and financial reporting matters, including, but not limited to, the establishment and adjustment of certain reserves and their impact on the Company’s 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 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 from its internal review. In connection with the Audit Committee’s conclusions reached in September and October 2004, the Company made certain reclassification and restatement adjustments to its fiscal 2004 and prior historical consolidated financial statements. The Audit Committee’s conclusions were disclosed, and the reclassification and restatement adjustments were reflected, in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004, as amended by the Form 10-K/A filed on November 8, 2005 (the “2004 Form 10-K”), the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005 (the “2005 Form 10-K”) and the December 6, 2005
Form 8-K.

     Following the conclusions reached by the Audit Committee in September and October 2004, the Audit Committee began the task of assigning responsibility for the financial statement matters described above which were reflected in the 2004 Form 10-K, and, in January 2005, took disciplinary actions with respect to the Company’s employees who it determined bore responsibility for these matters, other than with respect to the accounting treatment of certain recoveries from vitamin manufacturers for which there was a separate Board committee internal review (discussed below). The disciplinary actions ranged from terminations or resignations of employment to required repayments of some or all of fiscal 2003 bonuses from certain employees to letters of reprimand. These disciplinary actions affected senior financial and managerial personnel, as well as other personnel, at the corporate level and in the four business segments. In connection with the determinations made by the Audit Committee, the Company’s former controller resigned effective February 15, 2005. The Audit Committee has completed its determinations of responsibility for the financial statement matters described above which were reflected in the 2004 Form 10-K, although responsibility for matters relating to the Company’s accounting treatment of certain recoveries from vitamin manufacturers was addressed by a separate committee of the Board as discussed below. The Audit Committee internal review is substantially complete.

     In connection with the SEC’s formal investigation, a committee of the Board of Directors, with the assistance of independent counsel, separately initiated an internal review to assign responsibility for matters relating to the Company’s accounting treatment of certain recoveries from vitamin manufacturers. In the 2004 Form 10-K, as part of the Audit Committee’s internal review, the Company reversed its previous recognition of estimated recoveries from vitamin manufacturers for amounts overcharged in prior years and recognized the income from such recoveries as a special item in the period in which cash was received from the manufacturers. 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. In August 2005, the separate Board committee reached certain conclusions with respect to findings from its internal review and determined that no additional disciplinary actions were required beyond the disciplinary actions already taken by the Audit Committee, as described above. The separate Board committee internal review is complete.

     As previously disclosed, the Company continues to engage in settlement discussions with the staff of the SEC and has now reached an agreement-in-principle on the basic terms of a potential settlement involving the Company that the SEC staff has indicated it is prepared to recommend to the Commission. The proposed settlement is subject to the completion of definitive documentation as well as acceptance and authorization by the Commission and would, among other things, require the Company to pay a $35 million penalty. The Company accordingly recorded a reserve of $10 million in the quarter ended December 31, 2005 in addition to the $25 million reserve recorded during the fiscal year ended June 30, 2005. There can be no assurance that the Company’s efforts to resolve the SEC’s investigation with respect to the Company will be successful, or that the amount reserved will be sufficient, and the Company cannot predict the timing or the final terms of any settlement.

     The SEC investigation, the U.S. Attorney inquiry and the Audit Committee internal review remain ongoing, although the Audit Committee internal review is substantially complete. Although the Company is continuing in its efforts to respond to these inquiries and provide all information required, the Company cannot predict the outcome of the SEC investigation, the U.S. Attorney inquiry or the Audit Committee internal review. 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 involving the Company and/or current or former Company employees, officers and/or directors, as well as the imposition of fines and other penalties, remedies and sanctions.

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     In addition, there can be no assurance that additional restatements will not be required, that the historical consolidated financial statements included in the Company’s previously-filed public reports will not change or require amendment, or that additional disciplinary actions will not be required in such circumstances. As the SEC’s investigation, the U.S. Attorney’s inquiry and the Audit Committee’s internal review continue, the Audit Committee may identify new issues, or make additional findings if it receives additional information, that may have an impact on the Company’s consolidated financial statements and the scope of the restatements described in the Company’s previously-filed public reports.

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 litigation in connection with acquisitions. The Company intends to vigorously defend itself against such other litigation and does not currently believe that the outcome of any such other litigation will have a material adverse effect on the Company’s consolidated financial statements.

9. GOODWILL AND OTHER INTANGIBLE ASSETS

     Changes in the carrying amount of goodwill for the six months ended December 31, 2005 were as follows:

	Pharmaceutical			Medical
	Distribution and			Products		Pharmaceutical			Clinical
	and Provider			and		Technologies			Technologies
(in millions)	Services			Services		and Services			and Services			Total
Balance at June 30, 2005	$	179.4		$	673.5	$	1,902.4		$	1,754.1		$	4,509.4
Goodwill acquired — net of purchase price adjustments, foreign currency translation adjustments and other (1)		(11.3	)		35.1		(13.7	)		(0.7	)		9.4
Balance at December 31, 2005	$	168.1		$	708.6	$	1,888.7		$	1,753.4		$	4,518.8

(1) The increase within the Medical Products and Services segment primarily relates to the acquisition of the remaining minority interest of a Canadian distribution business resulting in a goodwill allocation of $38.5 million. The remaining amounts represent purchase price adjustments and other foreign currency translation adjustments.

     The allocation of the purchase price related to the acquisition within the Medical Products and Services segment and certain immaterial acquisitions are not yet finalized and are subject to adjustment as the Company assesses the value of the pre-acquisition contingencies and certain other matters. The Company expects any future adjustments to the allocation of the purchase price to be recorded to goodwill.

     Intangible assets with definite lives are being amortized using the straight-line method over periods that range from one to forty years. The detail of other intangible assets by class as of June 30 and December 31, 2005 was as follows:

	Gross		Accumulated		Net
(in millions)	Intangible		Amortization		Intangible
June 30, 2005
Unamortized intangibles:
Trademarks and patents	$	184.6	$	0.4	$	184.2
Total unamortized intangibles	$	184.6	$	0.4	$	184.2
Amortized intangibles:
Trademarks and patents	$	152.7	$	24.3	$	128.4
Non-compete agreements		9.2		4.0		5.2
Customer relationships		234.9		35.2		199.7
Other		98.7		28.2		70.5
Total amortized intangibles	$	495.5	$	91.7	$	403.8
Total intangibles	$	680.1	$	92.1	$	588.0

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	Gross		Accumulated		Net
(in millions)	Intangible		Amortization		Intangible
December 31, 2005
Unamortized intangibles:
Trademarks and patents	$	184.6	$	0.4	$	184.2
Total unamortized intangibles	$	184.6	$	0.4	$	184.2
Amortized intangibles:
Trademarks and patents	$	163.6	$	32.0	$	131.6
Non-compete agreements		8.7		5.1		3.6
Customer relationships		232.4		49.5		182.9
Other		92.0		30.5		61.5
Total amortized intangibles	$	496.7	$	117.1	$	379.6
Total intangibles	$	681.3	$	117.5	$	563.8

     There were no significant acquisitions of other intangible assets for the periods presented. Amortization expense for the three and six months ended December 31, 2005 was $14.2 million and $28.3 million, respectively, and $12.7 million and $25.0 million, respectively, during the comparable prior year periods.

     Amortization expense for each of the next five fiscal years is estimated to be:

(in millions)	2006		2007		2008		2009		2010
Amortization expense	$	56.8	$	53.5	$	47.3	$	44.9	$	43.9

10. GUARANTEES

     The Company has contingent commitments related to certain lease agreements. These leases consist of certain real estate and equipment used in the operations of the Company. In the event of termination of these leases, which range in length from five to ten years, the Company guarantees reimbursement for a portion of any unrecovered property cost. At December 31, 2005, the maximum amount the Company could be required to reimburse was $164.0 million. In accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” the Company has a liability of $3.6 million recorded as of December 31, 2005 related to these agreements. The Company’s maximum amount to be reimbursed decreased significantly during the second quarter of fiscal 2006 due to the Company’s decision to repurchase certain buildings and equipment of approximately $139.5 million which were previously under lease agreements.

     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 and disposition 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.

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11. IMPAIRMENT CHARGES AND OTHER

     The Company classifies certain asset impairments related to restructurings in special items, which are included in operating earnings within the consolidated statements of earnings. Asset impairments not eligible to be classified as special items and gains and losses from the sale of assets were historically classified in “interest expense and other” within the consolidated statements of earnings. Significant asset impairments were incurred during fiscal 2005 and are expected to be incurred in the future due to the Company’s global restructuring program and ongoing strategic planning efforts. Effective the second quarter of fiscal 2005, the Company presented asset impairments and gains and losses not eligible to be classified as special items within “impairment charges and other” within the consolidated statements of earnings. These asset impairment charges were included within the corporate segment’s results. Prior period financial results were reclassified to conform to this change in presentation.

     For the three and six months ended December 31, 2005, the Company incurred charges of $5.1 million and $7.6 million, respectively.

     For the three and six months ended December 31, 2004, the Company incurred charges of $80.9 million and $84.7 million, respectively. With respect to the more significant impairments recorded during the three months ended December 31, 2004, the Company incurred the following impairments:

• Impairments of approximately $65.7 million within the Pharmaceutical Technologies and Services segment. The impairments related primarily to recognizing reductions in the value of assets within the Oral Technologies business based on discounted cash flow analyses performed in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” as a result of strategic business decisions during the second quarter of fiscal 2005.

• Impairments of approximately $8.3 million related to operating lease agreements for certain real estate and equipment used in the operations of the Company.

• Impairment of $5.2 million on an aircraft within its corporate entity, which was repurchased from an operating lease. The aircraft met all criteria to be classified as held for sale during the second quarter of fiscal 2005. The impairment recognized reduced the cost of the aircraft to its fair market value based upon quoted market prices of similar assets. The Company subsequently sold the aircraft during the third quarter of fiscal 2005 and no significant gain or loss was recognized.

12. DISCONTINUED OPERATIONS

     As previously announced, during the fourth quarter of fiscal 2005, the Company decided to discontinue its sterile pharmaceutical manufacturing business in Humacao, Puerto Rico as part of its global restructuring program and committed to sell the assets of the Humacao operations, thereby meeting the held for sale criteria set forth in SFAS No. 144. During the fourth quarter of fiscal 2005, the Company recognized an asset impairment to write the carrying value of the Humacao assets down to fair value, less costs to sell. During the first quarter of fiscal 2006, the Company subsequently decided not to transfer production from Humacao to other Company-owned facilities, thereby meeting the criteria for classification of discontinued operations in accordance with SFAS No. 144 and Emerging Issues Task Force Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations.” In accordance with SFAS No. 144, the net assets and results of operations of Humacao are presented as discontinued operations. The net assets at December 31, 2005 and June 30, 2005 for the discontinued operations are included within the Pharmaceutical Technologies and Services segment.

     In connection with the acquisition of Syncor in fiscal 2004, the Company acquired certain operations of Syncor that were discontinued. Prior to the acquisition, Syncor announced the discontinuation of certain operations, including the medical imaging business and certain overseas operations. The Company continued with these plans and added additional international and non-core domestic businesses to the discontinued operations. In accordance with SFAS No. 144, the results of operations of these businesses are presented as discontinued operations. The Company sold all of the remaining Syncor discontinued operations prior to the end of fiscal 2005.

     During the three months ended December 31, 2004, the Company recorded a gain of approximately $18.7 million related to the sale of the Radiation Management Services business within the Company’s Pharmaceutical Technologies and Services segment. This business unit was not previously classified as discontinued operations because it did not qualify in accordance with SFAS No. 144 until the second quarter of fiscal 2005. The assets and liabilities and the results of operations related to the business were not classified as discontinued operations as the amounts were not significant.

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     The results of discontinued operations for the three and six months ended December 31, 2005 and 2004 are summarized as follows:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Revenue	$	9.0		$	8.4		$	13.2		$	15.0
Gain from sale of business unit		—			18.7			—			18.7
Earnings/(loss) before income taxes		(0.1	)		11.3			(6.5	)		(0.7	)
Income tax benefit/(expense)		0.1			(6.5	)		0.2			(3.5	)
Earnings/(loss) from discontinued operations	$	—		$	4.8		$	(6.3	)	$	(4.2	)

     At December 31, 2005 and June 30, 2005, the major components of assets and liabilities of the discontinued operations were as follows:

	December 31,		June 30,
(in millions)	2005		2005
Current assets	$	14.6	$	20.0
Property and equipment, net		12.0		16.0
Total assets	$	26.6	$	36.0
Current liabilities	$	8.8	$	9.6
Total liabilities	$	8.8	$	9.6

     Operating cash flows generated from the discontinued operations were immaterial to the Company and, therefore, are not disclosed separately.

13. OFF-BALANCE SHEET TRANSACTIONS

     Cardinal Health Funding (“CHF”) was 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. CHF was designed to be a special purpose, bankruptcy-remote entity. Although consolidated in accordance with GAAP, CHF is a separate legal entity from the Company. The sale of receivables by CHF qualifies for sales treatment under SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and, accordingly, is not included in the Company’s consolidated financial statements.

     At December 31, 2005, the Company had a committed receivables sales facility program available through CHF with capacity to sell $800 million in receivables. During the three and six months ended December 31, 2005, the Company did not have activity under its committed receivables sales facility program. At December 31, 2005, the Company had $550 million of receivable sales outstanding. Recourse is provided under the program by the requirement that CHF retain a percentage subordinated interest in the sold receivables. The Company provided a secured interest in the existing receivables of $263.3 million at December 31, 2005, as required under this program.

     For additional information regarding off-balance sheet arrangements, see Note 10 of “Notes to Consolidated Financial Statements” in the December 6, 2005 Form 8-K.

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14. EMPLOYEE RETIREMENT BENEFIT PLANS

     Components of the Company’s net periodic benefit costs for the three and six months ended December 31, 2005 and 2004, were as follows:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Components of net periodic benefit cost:
Service cost	$	0.4		$	0.4		$	0.8		$	0.7
Interest cost		2.7			2.6			5.4			5.1
Expected return on plan assets		(2.1	)		(1.8	)		(4.1	)		(3.5	)
Net amortization and other (1)		0.7			0.6			1.4			1.2
Net periodic benefit costs	$	1.7		$	1.8		$	3.5		$	3.5

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

     The Company sponsors other postretirement benefit plans which are immaterial for all periods presented.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The discussion and analysis presented below is concerned with material changes in financial condition and results of operations for the Company’s condensed consolidated balance sheets as of December 31, 2005 and June 30, 2005, and for the condensed consolidated statements of earnings for the three and six month periods ended December 31, 2005 and 2004. This discussion and analysis should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s December 6, 2005 Form 8-K.

     Portions of this Form 10-Q (including information incorporated by reference) include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to materially differ from those made, projected or implied. The most significant of such risks, uncertainties and other factors are described in Exhibit 99.01 to this Form 10-Q and in the 2005 Form 10-K (including in the section entitled “Risk Factors That May Affect Future Results” under “Item 1: Business,” as updated by Part II, Item 1A of this Form 10-Q) and are incorporated in this Form 10-Q by reference. 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.

Overview

     The following summarizes the Company’s results of operations for the three and six months ended December 31, 2005 and 2004:

				Three Months Ended								Six Months Ended
(in millions, except per Common Share	December 31,								December 31,
amounts)	Growth (1)			2005		2004			Growth (1)			2005		2004
Revenue		7	%	$	19,919.0		$	18,547.1		8	%	$	39,292.4	$	36,339.4
Operating earnings		48	%	$	484.4		$	326.2		24	%	$	856.8	$	688.5
Earnings from continuing operations		45	%	$	304.0		$	209.2		25	%	$	538.6	$	431.5
Net earnings		42	%	$	304.0		$	214.0		25	%	$	532.3	$	427.3
Net diluted earnings per Common Share		43	%	$	0.70		$	0.49		26	%	$	1.23	$	0.98

(1) Growth is calculated as the change for the three and six months ended December 31, 2005 compared to the three and six months ended December 31, 2004.

     The results of operations during the three and six months ended December 31, 2005 reflect the increasing demand for the Company’s diverse portfolio of products and services, which led to revenue growth in each of the Company’s four segments. The Company continues to experience strong demand from health care providers for the Company to provide integrated solutions. These integrated solutions include products and services from multiple lines of businesses within the Company, and currently represent approximately $9 billion of annualized sales.

     The Company has four reportable segments: Pharmaceutical Distribution and Provider Services; Medical Products and Services; Pharmaceutical Technologies and Services; and Clinical Technologies and Services. See Note 7 of “Notes to Condensed Consolidated Financial Statements” for additional information regarding the Company’s reportable segments.

Future Organizational Changes

     During the first quarter of fiscal 2006, the Company announced expected future organizational changes that will combine its pharmaceutical distribution, medical products distribution and nuclear pharmacy services businesses into a single operating unit focused on addressing customer needs for greater information, efficiency and innovation in their supply chains. As a result of these expected changes, the Company plans to report future results in the following four reportable segments beginning in fiscal 2007: Supply Chain Services; Medical Products Manufacturing; Pharmaceutical Technologies and Services; and Clinical Technologies and Services.

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Adoption of SFAS No. 123(R) and Equity-Based Compensation Expense

     During the first quarter of fiscal 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” applying the modified prospective method. SFAS No. 123(R) requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated statement of earnings based on the grant date fair value of the award. Prior to the adoption of SFAS No. 123(R), the Company accounted for equity-based awards under the intrinsic value method, which followed the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations and equity-based compensation was included as pro forma disclosure within the notes to the financial statements.

     In anticipation of the adoption of SFAS No. 123(R), the Company did not modify the terms of any previously granted options. The Company made significant changes to its equity compensation program with its annual equity grant in the first quarter of fiscal 2006, including reducing the overall number of options granted and utilizing a mix of restricted share and option awards. The Company also moved generally from three-year cliff vesting to installment vesting over four years for employee option awards and shortened the option term from ten to seven years.

     Total Company operating earnings for the three and six months ended December 31, 2005 were adversely affected by the impact of equity-based compensation due to the implementation of SFAS No. 123(R) and the impact of SARs granted during the three months ended September 30, 2005. The Company recorded $55.8 million and $138.7 million, respectively, for equity-based compensation during the three and six months ended December 31, 2005 compared to $2.8 million and $4.9 million, respectively, in the comparable prior year periods. The Company expects that equity compensation expense for fiscal 2006 will be approximately $220 million to $230 million based on current outstanding awards and assumptions applied. However, any significant awards granted during the remainder of fiscal 2006, required changes in the estimated forfeiture rates or significant changes in the market price of the Company’s Common Shares may impact this estimate. Beyond the current fiscal year, the Company expects the equity-based compensation expense to decline year-over-year due in part to the significant changes made to the Company’s equity compensation program, including a reduction in the overall number of employee options granted. See Note 3 of “Notes to Condensed Consolidated Financial Statements” for additional information.

Global Restructuring Program

     As previously reported, during fiscal 2005, the Company launched a global restructuring program in connection with its One Cardinal Health initiative with the goal of increasing the value the Company provides its customers through better integration of existing businesses and improved efficiency from a more disciplined approach to procurement and resource allocation. The Company expects the program to be substantially completed by the end of fiscal 2008 and to improve operating earnings and position the Company for future growth.

     The Company expects the global restructuring program to be implemented in two phases. The first phase of the program, which was announced in December 2004 (“Phase I”), focuses on business consolidations and process improvements, including rationalizing the Company’s facilities worldwide, reducing the Company’s global workforce, and rationalizing and discontinuing overlapping and under-performing product lines. The second phase of the program, which was announced in August 2005 (“Phase II”), focuses on longer term integration activities that will enhance service to customers through improved integration across the Company’s segments, and continue to streamline internal operations. See Note 5 of “Notes to Condensed Consolidated Financial Statements” for discussion of the restructuring costs incurred by the Company during the three and six months ended December 31, 2005 related to both phases of the global restructuring program.

Government Investigations and Board Committee Internal Reviews

     The Company is currently the subject of a formal investigation by the SEC relating to certain accounting and financial reporting matters and the U.S. Attorney’s Office for the Southern District of New York is conducting an inquiry with respect to the Company. The Company’s Audit Committee also is conducting its own internal review, assisted by independent counsel. The Audit Committee internal review is ongoing, but is substantially complete.

     As previously disclosed, the Company continues to engage in settlement discussions with the staff of the SEC and has now reached an agreement-in-principle on the basic terms of a potential settlement involving the Company that the SEC staff has indicated it is prepared to recommend to the Commission. The proposed settlement is subject to the completion of definitive documentation as well as acceptance and authorization by the Commission and would, among other things, require the Company to pay a $35 million penalty. The Company accordingly recorded a reserve of $10 million in the quarter ended December 31, 2005 in addition to the $25 million reserve recorded during the fiscal year ended June 30, 2005. There can be no assurance that the Company’s efforts to resolve the SEC’s investigation with respect to the Company will be successful, or that the amount reserved will be sufficient, and the

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Company cannot predict the timing or the final terms of any settlement. For further information regarding these matters see Note 8 of “Notes to Condensed Consolidated Financial Statements.”

Results of Operations

Revenue

	Three Months Ended									Six Months Ended
	December 31,									December 31,
				Percent of Company									Percent of Company
				Revenue									Revenue
	Growth (1)			2005			2004			Growth (1)			2005			2004
Pharmaceutical Distribution and Provider Services		8	%		80	%		80	%		9	%		80	%		80	%
Medical Products and Services		7	%		13	%		13	%		7	%		13	%		13	%
Pharmaceutical Technologies and Services		1	%		4	%		4	%		1	%		4	%		4	%
Clinical Technologies and Services		10	%		3	%		3	%		10	%		3	%		3	%
Total Company		7	%		100	%		100	%		8	%		100	%		100	%

(1) Growth is calculated as the change in revenue for the three and six months ended December 31, 2005 compared to the three and six months ended December 31, 2004.

     Total Company. Revenue for the three and six months ended December 31, 2005 increased 7% and 8%, respectively, compared to the same period in the prior year. These increases resulted from the following:

• a higher sales volume across each of the Company’s segments;

• revenue growth from existing customers;

• the addition of new customers, some of which resulted from new corporate agreements with health care providers that integrate the Company’s diverse offerings; and

• the addition of new products.

     Pharmaceutical Distribution and Provider Services. The Pharmaceutical Distribution and Provider Services segment’s revenue growth of 8% and 9%, respectively, during the three and six months ended December 31, 2005 resulted from strong sales to retail chain customers. The most significant growth was in “Bulk Revenue” (defined below), which increased approximately 23% during the three and six months ended December 31, 2005. See the Bulk Revenue discussion below. In addition, annualized pharmaceutical price increases of approximately 3.6% and 4.0%, respectively, during the three and six months ended December 31, 2005 contributed to the growth in this segment.

     The Pharmaceutical Distribution and Provider Services segment reports transactions with the following characteristics as “Bulk Revenue”:

• deliveries to customer warehouses whereby the Company acts as an intermediary in the ordering and delivery of pharmaceutical products;

• delivery of products to the customer in the same bulk form as the products are received from the manufacturer;

• warehouse to customer warehouse or process center deliveries; or

• deliveries to customers in large or high volume full case quantities.

     Bulk Revenue for the three months ended December 31, 2005 and 2004 was $7.1 billion and $5.8 billion, respectively, and for the six months ended December 31, 2005 and 2004 was $13.9 billion and $11.3 billion, respectively. The increase in Bulk Revenue primarily relates to additional volume from existing and new customers as well as market growth within the mail order business. The increase from existing customers is primarily due to certain customers deciding to purchase from the Company rather than directly from the manufacturer.

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     Medical Products and Services. The Medical Products and Services segment’s revenue growth of 7% during the three and six months ended December 31, 2005 resulted primarily from the following:

• revenue growth within the segment’s manufactured gloves and respiratory products primarily due to new customer accounts;

• revenue growth of 4% during the three and six months ended December 31, 2005 within the segment’s distribution business primarily due to new customer accounts and increased volume from existing customers;

• international revenue growth, primarily in Canada; and

• increased revenue of 17% and 13%, respectively, during the three and six months ended December 31, 2005 within the Specialty Distribution business.

     As previously disclosed, the Specialty Distribution business’ largest customer notified the Company that they will begin self distribution on January 1, 2006 which will significantly impact revenue and operating earnings for this business during the second half of fiscal 2006. This customer represented approximately $1.5 billion or 16% of this segment’s fiscal 2005 revenue.

     Pharmaceutical Technologies and Services. The Pharmaceutical Technologies and Services segment’s revenue growth of 1% during the three and six months ended December 31, 2005 resulted primarily from increased prices and volume on certain sterile products as well as increased demand for the Company’s controlled release and Zydis formulations. In addition, during the three months ended December 31, 2005, the Biotechnology and Sterile Life Sciences business received a payment of approximately $14.0 million from an ongoing customer for commitments through the current quarter and for the cancellation of a future commitment. The segment’s growth was adversely affected by competitive pressures within the Nuclear Pharmacy Services business and the loss of customers within contract sales services.

     Clinical Technologies and Services. The Clinical Technologies and Services segment’s revenue growth of 10% during the three and six months ended December 31, 2005 resulted primarily from revenue growth within the Pyxis products and Alaris products businesses. Pyxis products revenue increased approximately 13% and 18%, respectively, during the three and six months ended December 31, 2005 due to improvements within the sales and installation cycle and increased demand for the Medstation 3000 product. Revenue increased approximately 14% during the three and six months ended December 31, 2005 within the Alaris products business due to continued demand for its core products and the introduction of new products into the market. These strong revenue increases were tempered by revenue growth of 8% and 6%, respectively, during the three and six months ended December 31, 2005 within the Clinical Services and Consulting business.

Operating Earnings

	Three Months Ended									Six Months Ended
	December 31,									December 31,
				Percent of Company									Percent of Company
				Operating Earnings									Operating Earnings
	Growth (1)			2005			2004			Growth (1)			2005			2004
Pharmaceutical Distribution and Provider Services (2)		16	%		42	%		40	%		20	%		42	%		40	%
Medical Products and Services (2)		(1	)%		27	%		30	%		9	%		29	%		30	%
Pharmaceutical Technologies and Services (2)		(5	)%		14	%		16	%		(23	)%		12	%		18	%
Clinical Technologies and Services (2)		34	%		17	%		14	%		54	%		17	%		12	%
Total Company (2) (3)		48	%		100	%		100	%		24	%		100	%		100	%

(1)

Growth is calculated as the change in operating earnings for the three and six months ended December 31, 2005 compared to the three and six months ended December 31, 2004.

(2)

During the first quarter of fiscal 2006, the Company modified the way in which corporate costs are allocated to the reportable segments to better align corporate spending with the segments that receive the related benefits. Prior period results were adjusted to reflect this change. The change in the allocation methodology and the increase in corporate expenses adversely impacted growth rates within all four of the Company’s reportable segments. The increase in corporate expenses primarily relates to incentive compensation, costs associated with the One Cardinal Health initiative and increased legal expenses.

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     (3) The Company’s overall operating earnings increase of 48% and 24% during the three and six months ended December 31, 2005 includes the effect of special items, equity-based compensation and impairment charges. Special items, equity-based compensation and impairment charges are not allocated to the segments. See Notes 3, 5 and 11 in “Notes to Condensed Consolidated Financial Statements” for further information regarding the Company’s equity-based compensation, special items and impairment charges and other.

     Total Company. Total Company operating earnings for the three months ended December 31, 2005 increased 48% compared to the same period in the prior year, while operating earnings for the six months ended December 31, 2005 increased 24% compared to the same period in prior year. The overall increase resulted from operating earnings growth in two of the Company’s four reportable segments and the favorable year-over-year impact of special items and impairment charges and other. See Notes 5 and 11 of “Notes to Condensed Consolidated Financial Statements” for additional information regarding special items and impairment charges and other.

     Total Company selling, general and administrative expenses increased 14% and 16%, respectively, during the three and six months ended December 31, 2005 due in part to the impact of equity-based compensation, which represented 8% and 10%, respectively, of the total increase in selling, general and administrative expenses during these periods. The Company recorded $55.8 million and $138.7 million, respectively, for equity-based compensation during the three and six months ended December 31, 2005 compared to $2.8 million and $4.9 million, respectively, in the comparable prior year periods. See the “Overview” section above and Note 3 of “Notes to Condensed Consolidated Financial Statements” for additional information. In addition, operating earnings for the three and six months ended December 31, 2005 were adversely impacted by the following:

• an increase in incentive compensation expense of approximately $13.9 million and $32.3 million, respectively, during the three and six months ended December 31, 2005;

• incremental selling, general and administrative expenses associated with the One Cardinal Health initiative to streamline the Company’s operations and develop new capabilities in shared services, which are expected to lower costs across the Company in the future;

• increased legal expenses; and

• other general expense increases.

     Pharmaceutical Distribution and Provider Services. The Pharmaceutical Distribution and Provider Services segment’s operating earnings increased 16% and 20%, respectively, during the three and six months ended December 31, 2005 primarily as a result of the year-over-year positive impact of signed distribution service agreements with branded pharmaceutical manufacturers. The signed distribution service agreements are expected to result in less seasonal volatility as the majority of the segment’s earnings under such agreements are no longer contingent on price increases. During the three and six months ended December 31, 2005, the segment experienced strong earnings growth due to the favorable year-over-year comparatives. However, the Company does not expect this growth trend to continue in the second half of fiscal 2006, due to less favorable comparatives in the second half of fiscal 2005. This segment benefited from the impact of price increases during the second half of fiscal 2005, a seasonal fluctuation which is dampened this year due to the distribution service agreements now in place.

     Operating earnings during the three and six months ended December 31, 2005 also benefited from the following:

• the segment’s revenue growth of 8% and 9%, respectively, during the three and six months ended December 31, 2005;

• strength within generic pharmaceutical margins due to new products in the market;

• the benefit of a last in, first out (“LIFO”) credit provision of approximately $13.0 million recorded during the three months ended December 31, 2005, primarily due to price deflation within generic pharmaceutical inventories;

• expense control; and

• the incremental year-over-year benefit from the segment’s National Logistics Center, which became operational in August 2004.

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     As previously disclosed, during the first quarter of fiscal 2006 the Company discovered that it had inadvertently and erroneously failed to process credits owed to a vendor in prior years. After a thorough review, the Company determined that it had failed to process similar credits for a limited number of additional vendors. These processing failures, specific to a limited area of vendor credits, resulted from system programming, interface and data entry errors relating to these vendor credits which occurred over a period of years. As a result, the Company recorded a charge of $31.8 million in the first quarter of fiscal 2006 reflecting the credits owed to these vendors of which a portion related to fiscal 2005, 2004 and 2003. During the second quarter of fiscal 2006, the Company reduced the charge by $3.5 million based on additional analysis performed and the results of ongoing settlement discussions with vendors who were impacted.

     Medical Products and Services. The Medical Products and Services segment’s operating earnings decreased 1% during the three months ended December 31, 2005 primarily due to the increased selling, general and administrative expenses allocated to the segment. This adverse impact was partially offset by revenue growth of 7% during the three months ended December 31, 2005. During the six months ended December 31, 2005, the Medical Products and Services segment’s operating earnings increased 9% due to revenue growth of 7%, manufacturing cost reductions and expense control, partially related to the Company’s global restructuring program. A $16.4 million latex litigation charge taken during the first quarter of fiscal 2005 also contributed to the favorable year-over-year comparison.

     Pharmaceutical Technologies and Services. The Pharmaceutical Technologies and Services segment’s operating earnings decreased 5% during the three months ended December 31, 2005 primarily due to the increased selling, general and administrative expenses allocated to the segment and the decline in revenue within the contract sales service organization. Operating earnings during the three months ended December 31, 2005 benefited from a $14 million payment from an ongoing customer within the Biotechnology and Sterile Life Sciences business for commitments through the current quarter and for the cancellation of a future commitment. In addition, operating earnings benefited from progress made to address operational issues within certain sterile manufacturing facilities. During the six months ended December 31, 2005 operating earnings decreased 23% primarily due to the following:

• existing sterile manufacturing facilities operating below optimum capacity;

• the decline in revenue in the contract sales service organization;

• the impact of competitive pressures and pricing within the Nuclear Pharmacy Services business; and

• the increased selling, general and administrative expenses allocated to the segment.

     Clinical Technologies and Services. The Clinical Technologies and Services segment’s operating earnings increased 34% and 54%, respectively, during the three and six months ended December 31, 2005 primarily due to the 10% revenue growth during these periods and increased operating efficiencies which improved both gross and operating margins. Operating earnings within the Pyxis products business increased 84% and 87%, respectively, during the three and six months ended December 31, 2005 primarily from the following:

• increased revenues of 13% and 18%, respectively, during the three and six months ended December 31, 2005;

• improvements in the sales and installation cycles;

• favorable manufacturing efficiencies;

• higher unit margins due to favorable year-over-year sales mix; and

• integration synergies from the Alaris acquisition.

     Charges of $3.4 million and $23.6 million, respectively, during the three and six months ended December 31, 2004 related to prior year purchase accounting adjustments from the Alaris transaction also contributed to the favorable year-over-year comparison. The $23.6 million charge during the six months ended December 31, 2004 represented 27% of the six month operating earnings increase. The purchase accounting adjustments during fiscal 2005 included an inventory valuation adjustment to “fair value,” with the adjusted, higher cost inventory being sold during the quarter.

Page 35

Impairment Charges and Other

     For the three months ended December 31, 2005 and 2004, the Company incurred impairment charges of $5.1 million and $80.9 million, respectively. During the six month period ended December 31, 2005 and 2004 the Company incurred impairment charges of $7.6 million and $84.7 million, respectively. See Note 11 of “Notes to Condensed Consolidated Financial Statements” for additional information regarding “impairment charges and other.”

Special Items

	Three Months Ended						Six Months Ended
	December 31,						December 31,
(in millions)	2005			2004			2005			2004
Restructuring costs	$	14.4		$	105.1		$	23.5		$	112.6
Merger-related costs		7.5			10.2			15.3			27.1
Litigation settlements, net		(13.5	)		(21.2	)		(13.6	)		(21.2	)
Other special items		12.6			9.0			18.5			16.5
Total special items	$	21.0		$	103.1		$	43.7		$	135.0

     See Note 5 of “Notes to Condensed Consolidated Financial Statements” for additional information regarding the Company’s special items during the three and six months ended December 31, 2005 and 2004.

Interest Expense and Other

     “Interest expense and other” increased $17.2 million and $11.5 million, respectively, during the three and six months ended December 31, 2005 compared to the same periods in the prior fiscal year. This increase is primarily due to a benefit of $19.4 million included in the prior year balances. This benefit related to a reduction in income passed to a minority shareholder as a result of a significant asset impairment recorded in the three months ended December 31, 2004. The gross impairment charges are included in the “impairment charges and other” line item on the condensed consolidated statement of earnings and relate to the Oral Technologies business within the Pharmaceutical Technologies and Services segment. See Note 11 of “Notes to Condensed Consolidated Financial Statements” for additional information regarding “impairment charges and other.” Interest expense was relatively consistent for the three and six months ended December 31, 2005 when compared to the comparable prior year periods.

Provision for Income Taxes

     The Company’s provision for income taxes relative to earnings before income taxes and discontinued operations was $146.5 million or 32.5% for the three months ended December 31, 2005, and $252.6 million or 31.9% for the six months ended December 31, 2005. The effective tax rate for the three and six months ended December 31, 2005 increased by 0.6 percentage points and 0.2 percentage points, respectively, due to the inclusion of special items which include the non-deductibility of the incremental SEC settlement reserve recorded in the second quarter of fiscal 2006. The effective tax rate during the three and six months ended December 31, 2005 decreased by 0.4 percentage points and 0.7 percentage points, respectively, due to the expected tax rate for deductions relating to equity-based compensation expenses being higher than the average tax rate.

     The Company’s provision for income taxes relative to earnings before income taxes and discontinued operations was $100.3 million or 32.4% for the three months ended December 31, 2004, and $202.9 million or 32.0% for the six months ended December 31, 2004. The effective tax rate for the three and six months ended December 31, 2004 increased by 0.3 percentage points and decreased by 0.1 percentage points, respectively, due to the inclusion of special items’ deductions. The tax rate during the three and six months ended December 31, 2004 was not significantly impacted by equity-based compensation as the Company implemented FAS No. 123(R) applying the modified prospective method in the first quarter of fiscal 2006.

     A provision of the American Jobs Creation Act of 2004 (“AJCA”) enacted in October 2004 created a temporary incentive for U.S. corporations to repatriate undistributed income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. During the fourth quarter of fiscal 2005, the Company determined that it will repatriate $500 million of accumulated foreign earnings in fiscal 2006 pursuant to the repatriation provisions of the AJCA and accordingly recorded a related tax liability of $26.3 million as of June 30, 2005. The $500 million is the maximum repatriation available to the Company under the repatriation provisions of the AJCA. The Company expects to begin executing these dividends during the third quarter of fiscal 2006, which will be completed by June 30, 2006. As of February 7, 2006, the Company had repatriated approximately $217.5 million of foreign cash. Planned uses of repatriated funds include domestic expenditures related to non-executives salaries, capital asset investments and other permitted activities.

Earning/(Loss) from Discontinued Operations

     See Note 12 in the “Notes to Condensed Consolidated Financial Statements” for information on the Company’s discontinued operations.

Page 36

Liquidity and Capital Resources

Sources and Uses of Cash

     The following table summarizes the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2005 and 2004:

	Six Months Ended
	December 31,
(in millions)	2005			2004
Cash provided by/(used in):
Operating activities	$	1,384.9		$	1,520.6
Investing activities	$	(602.1	)	$	(440.1	)
Financing activities	$	39.9		$	(897.4	)

     Operating activities. Net cash provided by operating activities during the six months ended December 31, 2005 totaled $1.4 billion, a decrease of $135.7 million when compared to the same period a year ago. The year-over-year decrease was primarily a result of the sale of $800 million of receivables during the six months ended December 31, 2004 under the Company’s committed receivables sales facility program. During the six months ended December 31, 2005, accounts payable increased $504.2 million due to the timing of inventory purchases from vendors within the Pharmaceutical Distribution and Provider Services segment

     Investing activities. Cash used in investing activities during the six months ended December 30, 2005 primarily represents the Company’s purchase of $319.2 million of short-term investments classified as available for sale and capital spending to develop and enhance the Company’s infrastructure. In addition, during the six months ended December 31, 2005, the Company used cash of approximately $72.5 million for costs primarily associated with the acquisition of the remaining minority interest of a Canadian distribution business within the Medical Products and Services segment. During the six months ended December 31, 2004, the majority of the cash used in investing activities related to costs of approximately $273.2 million associated with the acquisitions of Alaris and Geodax Technology, Inc.

     Financing activities. The Company’s financing activities provided cash of $39.9 million during the six months ended December 31, 2005 primarily due to the $500 million received from the issuance of Notes in December of 2005 (net proceeds of $496.7) and the proceeds received from the shares issued under various employee stock plans of approximately $68.5 million. These cash inflows were partially offset by approximately $412.9 million utilized to repurchase the Company’s Common Shares as authorized by its Board of Directors (see “Share Repurchase Program” below for additional information). In addition, the Company utilized cash to purchase certain buildings and equipment which were under capital lease agreements and pay dividends of approximately $51.2 million on its Common Shares. Cash used in financing activities of $897.4 million during the six months ended December 31, 2004 primarily reflected the Company’s decision to retire the Company’s commercial paper and certain debt acquired from the Alaris acquisition. These cash outflows were partially offset by net proceeds of $1.3 billion received from the Company’s bank revolving credit facilities.

International Cash

     The Company’s cash balance of approximately $2.2 billion as of December 31, 2005 includes $616.0 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 U.S. federal income tax.

     During the fourth quarter of fiscal 2005, the Company determined that it will repatriate $500 million of accumulated foreign earnings in fiscal 2006 pursuant to the repatriation provisions of the AJCA, and accordingly recorded a related tax liability of $26.3 million as of June 30, 2005. The AJCA provides a temporary incentive for U.S. corporations to repatriate undistributed income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. The $500 million is the maximum repatriation available to the Company under the repatriation provisions of the AJCA.

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Share Repurchase Program

     On June 27, 2005, the Company announced a $1 billion share repurchase program. The Company began repurchasing Common Shares under the repurchase program during the three months ended December 31, 2005, and expects to complete the repurchase program in fiscal 2006. The repurchase program will expire when the entire $1 billion in aggregate amount of Common Shares has been repurchased. During the three months ended December 31, 2005, the Company repurchased approximately $468.2 million of its Common Shares. See the table under “Part II, Item 2” for more information regarding these repurchases.

Capital Resources

     In addition to cash, the Company’s sources of liquidity include a $1 billion commercial paper program backed by a $1 billion revolving credit facility and a $150 million extendible commercial note program. As of December 31, 2005, the Company did not have any outstanding borrowings from the commercial paper program. The Company entered into a new $1 billion revolving credit agreement in November 2005, which replaced two $750 million revolving credit facilities. This new facility is available for general corporate purposes.

     On December 15, 2005, the Company issued $500 million of 5.85% Notes due 2017. The proceeds of the debt issuance are expected to be used for general corporate purposes, which may include working capital, capital expenditures, acquisitions, investments, repayment of indebtedness and repurchases of equity securities.

     The Company’s sources of liquidity also include a committed receivables sales facility program with the capacity to sell $800 million in receivables. During the first quarter of fiscal 2006, the Company renewed the receivables sales facility program for a period of one year. See “Off-Balance Sheet Arrangements” below.

     The Company’s capital resources are more fully described in “Liquidity and Capital Resources” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 6 and 10 of “Notes to Consolidated Financial Statements” in the December 6, 2005 Form 8-K.

     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 take advantage of 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 Covenants

     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 $5.0 billion at any time. As of December 31, 2005, the Company was in compliance with this covenant.

     As of December 31, 2005, the Company’s preferred debt securities contained a minimum adjusted tangible net worth covenant (adjusted tangible net worth could not fall below $3.0 billion) and certain financial ratio covenants. As of December 31, 2005, the Company was in compliance with these covenants. Subsequent to December 31, 2005, the tangible net worth covenant was changed to $2.5 billion. A breach of any of these covenants would be followed by a cure period during which the Company may discuss remedies with the security holders.

Contractual Obligations

     There have been no material changes, outside the ordinary course of business, in the Company’s outstanding contractual obligations from those disclosed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the December 6, 2005 Form 8-K.

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Off-Balance Sheet Arrangements

     During the three and six months ended December 31, 2005, the Company did not have activity under its committed receivables sales facility program. At December 31, 2005, the Company had $550 million of receivable sales outstanding. See Note 13 in “Notes to Condensed Consolidated Financial Statements” of this Form 10-Q and Note 10 of “Notes to Consolidated Financial Statements” in the December 6, 2005 Form 8-K for more information regarding the off-balance sheet arrangements.

Other

     See Note 1 in the “Notes to Condensed Consolidated Financial Statements” for a discussion of recent financial accounting standards.

Recent Developments

     Medicaid reform bill. The U.S. Congress recently passed a bill as part of the federal budget process that, among other things, changes the prescription drug reimbursement formula under Medicaid to reduce costs for that program. The President is expected to sign the bill into law shortly. The change in reimbursement formula could have an indirect adverse effect on the Company’s Pharmaceutical Distribution and Provider Services segment. Under this bill, the major changes would not become effective until January 1, 2007. The Company is continuing to work with its customers and the regulatory agencies as the specific details of the expected legislation are defined. The Company is currently developing plans to mitigate exposures from these proposed changes in reimbursement formula. However, if the Company fails to successfully implement such plans, its business and the results of operations may be adversely affected.

Item 3: Quantitative and Qualitative Disclosures About Market Risk

     There has been no material change in the quantitative and qualitative market risks from those discussed in the 2005 Form 10-K.

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Item 4: Controls and Procedures

     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-Q, 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.

     Evaluation of Disclosure Controls and Procedures. The Company carried out an evaluation, as required by Rule 13a-15(b) under the Exchange Act, 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 December 31, 2005. Based on this evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2005.

     Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

     The Company’s management, including the Company’s principal executive officer and principal financial officer, does not expect that the Company’s disclosure controls and procedures and its internal controls will prevent all errors 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 individual acts, collusion of two or more people, or management override of the controls. The design of any system of controls is also 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 on an ongoing basis 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. Notwithstanding the foregoing, and as discussed above under this Item 4, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2005.

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PART II. OTHER INFORMATION

Item 1: Legal Proceedings

     The discussion below is limited to certain of the legal proceedings in which the Company is involved, including material developments to certain of those proceedings. Additional information regarding the legal proceedings in which the Company is involved is provided in “Item 3: Legal Proceedings” of the 2005 Form 10-K, and is incorporated in this Form 10-Q by reference. To the extent any statements therein constitute “forward-looking statements,” reference is made to Exhibit 99.01 of this Form 10-Q and the section entitled “Risk Factors That May Affect Future Results” within “Item 1: Business” of the 2005 Form 10-K.

     The legal proceedings described in Note 8 of “Notes to Condensed Consolidated Financial Statements” are incorporated in this Item 1 by reference. Unless otherwise indicated, all proceedings discussed in Note 8 remain pending.

San Gabriel Environmental Claim

     On September 30, 1996, Baxter International Inc. (“Baxter”) and its subsidiaries transferred to Allegiance Corporation and its subsidiaries (“Allegiance”), 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. In connection with this spin-off, Allegiance Corporation, which later merged with a subsidiary of the Company on February 3, 1999, agreed to defend and indemnify Baxter from the following environmental claims.

     As previously disclosed, 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.

     On December 12, 2005, the United States District Court for the Central District of California entered a Consent Decree in United States of America and California Department of Toxic Substances Control v. Allegiance Healthcare Corporation, Case No. CV05-7520, which formalized the Proposed Settlement Agreement. Pursuant to Consent Decree, on or before January 12, 2006, Allegiance must pay the EPA $550,000 and the DTSC $16,050. Of this $566,050, Allegiance must pay $198,118, or 35%, with the remainder paid by Allegiance’s insurer. This matter is now concluded.

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Antitrust Litigation against Pharmaceutical Manufacturers

     As previously disclosed, during the past six 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 named 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. Total recoveries from these actions through December 31, 2005 were $111.2 million, including a $13.5 million recovery during the second quarter of fiscal 2006. The Company is unable at this time to estimate definitively future recoveries, if any, it will receive as a result of these class actions.

FTC Investigation

     As previously disclosed, in December 2004, the Company received a request for documents from the Federal Trade Commission (“FTC”) that asks the Company to voluntarily produce certain documents to the FTC. The document request, which does not allege any wrongdoing, is part of an FTC non-public investigation to determine whether the Company may be engaging in anticompetitive practices with other wholesale drug distributors in order to limit competition for provider and retail customers. The Company is in the process of responding to the FTC request. Because the investigation is ongoing, the Company cannot predict its outcome or its impact on the Company’s business.

New York Attorney General Investigation

     As previously disclosed, in April 2005, one of the Company’s subsidiaries received a subpoena from the Attorney General’s Office of the State of New York. The Company believes that the New York Attorney General is conducting a broad industry inquiry that appears to focus on, among other things, the secondary market within the wholesale pharmaceutical industry. The Company is one of multiple parties that have received such a subpoena. The Company has been producing documents and providing information and testimony to the New York Attorney General’s Office in response to the April 2005 subpoena as well as subsequent informal requests. Because the investigation is ongoing, the Company cannot predict its outcome or its impact on the Company’s business.

Illinois Attorney General Investigation

     As previously disclosed, in October 2005, the Company received a subpoena from the Attorney General’s Office of the State of Illinois. The subpoena indicated that the Illinois Attorney General’s Office is examining whether the Company presented or caused to be presented false claims for payment to the Illinois Medicaid program related to repackaged pharmaceuticals. The Company is in the process of responding to the subpoena. Because the investigation is ongoing, the Company cannot predict its outcome or its impact on the Company’s business.

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 litigation in connection with acquisitions. The Company intends to vigorously defend itself against such other litigation and does not currently believe that the outcome of any such 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.

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Item 1A: Risk Factors

     See forth below are certain changes from risk factors previously disclosed in “Part I, Item 1: Business” of the 2005 Form 10-K under the heading “Risk Factors That May Affect Future Results.” The discussion below should be read together with the risk factors included in the 2005 Form 10-K.

The ongoing SEC investigation and U.S. Attorney inquiry could adversely affect the Company’s business, financial condition or operating results. The Company is the subject of a formal SEC investigation and an inquiry by the U.S. Attorney for the Southern District of New York. 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 these inquiries 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, the U.S. Attorney inquiry and any related legal and administrative proceedings could include the institution of administrative, civil injunctive or criminal proceedings involving the Company and/or current or former Company employees, officers and/or directors, as well as the imposition of fines and other penalties, remedies and sanctions. See Note 8 of “Notes to Condensed Consolidated Financial Statements” for more information.

     As previously disclosed, the Company continues to engage in settlement discussions with the staff of the SEC and has now reached an agreement-in-principle on the basic terms of a potential settlement involving the Company that the SEC staff has indicated it is prepared to recommend to the Commission. The proposed settlement is subject to the completion of definitive documentation as well as acceptance and authorization by the Commission and would, among other things, require the Company to pay a $35 million penalty. The Company accordingly recorded a reserve of $10 million in the quarter ended December 31, 2005 in addition to the $25 million reserve recorded during the fiscal year ended June 30, 2005. There can be no assurance that the Company’s efforts to resolve the SEC’s investigation with respect to the Company will be successful, or that the amount reserved will be sufficient, and the Company cannot predict the timing or the final terms of any settlement.

Changes in the United States health care environment may adversely affect the Company’s business, financial condition or operating results. The U.S. Congress recently passed a budget reconciliation bill that, among other things, changes the prescription drug reimbursement formula under Medicaid to reduce costs for that program. The President is expected to sign the bill into law shortly. While the specific details of the expected legislation have yet to be defined, the change in reimbursement formula could have an indirect adverse effect on the Company’s Pharmaceutical Distribution and Provider Services segment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” included elsewhere in this Form 10-Q for more information on this matter. See also “Part I, Item 1: Business” of the 2005 Form 10-K under the headings “Risk Factors That May Affect Future Results—Changes in the United States health care environment may adversely affect the Company’s business, financial condition or operating results” for more information regarding the effect on the Company of other current or future changes to the healthcare environment.

     Downgrades of the Company’s credit ratings could adversely affect the Company. Moody’s and Fitch have improved the Company’s ratings outlook since the 2005 Form 10-K from “stable” and “negative,” respectively, to “positive” and “stable,” respectively. With these changes, 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,” “positive” and “stable,” 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.

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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

     The following table provides information about purchases the Company made of its Common Shares during the quarter ended December 31, 2005:

Issuer Purchases of Equity Securities

						Total Number of
						Shares Purchased		Approximate Dollar
						as Part of		Value of Shares that
	Total Number					Publicly		May Yet Be
	of Shares			Average Price		Announced		Purchased Under the
Period	Purchased			Paid per Share		Program (1)		Program
October 1-31, 2005		54,354	(2)	$	62.51		—	$	1,000,000,000
November 1-30, 2005		2,260,316	(3)		63.12		2,259,500		857,343,046
December 1-31, 2005		4,817,200			67.55		4,817,200		531,847,479
Total		7,131,870		$	66.11		7,076,700	$	531,847,479

(1)	On June 27, 2005, the Company announced a $1 billion share repurchase program. The Company began repurchasing Common Shares under the repurchase program during the three months ended December 31, 2005 and expects to complete the repurchase program in fiscal 2006. The repurchase program will expire when the entire $1 billion in aggregate amount of Common Shares has been repurchased.
(2)	Reflects Common Shares owned and tendered by an executive officer to meet the exercise price and tax withholding for an option exercise.
(3)	Reflects Common Shares purchased pursuant to the repurchase program and 816 Common Shares owned and tendered by a director to meet the exercise price for an option exercise.

Item 4: Submission of Matters to a Vote of Security Holders

     The following matters were submitted to a vote of security holders at the Company’s 2005 Annual Meeting of Shareholders held on November 2, 2005.

		Votes		Authority
		Cast For		Withheld
1.	Election of Directors:
	J. Michael Losh		380,297,629		15,299,944
	John B. McCoy		307,324,407		88,273,166
	Michael D. O’Halleran		385,196,721		10,400,852
	Jean G. Spaulding, M.D.		311,323,723		84,273,850
	Matthew D. Walter		382,584,547		13,013,026

The directors whose term of office as a director continued after the meeting are George H. Conrades, Calvin Darden, John F. Finn, Robert L. Gerbig, Richard C. Notebaert, David W. Raisbeck and Robert D. Walter.

							Broker
	For		Against		Abstentions		Non-Votes
2. Proposal to adopt the Cardinal Health, Inc. 2005 Long-Term Incentive Plan		279,235,672		77,051,913		2,434,331		36,875,702
3. Proposal to adopt amendments to the Company’s Code of Regulations to provide for the annual election of directors		391,128,082		2,059,043		2,410,448		—

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Item 6: Exhibits

Exhibit Number	Exhibit Description
10.01	Form of Nonqualified Stock Option Agreement under the 2005 Long-Term Incentive Plan
10.02	Form of Restricted Share Units Agreement under the 2005 Long-Term Incentive Plan
10.03	Form of Nonqualified Stock Option Agreement under the 2005 Long-Term Incentive Plan for residents of California
10.04	Form of Restricted Share Units Agreement under the 2005 Long-Term Incentive Plan for residents of California
12.01	Statement regarding computation of ratio of earnings to fixed charges
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	Second Amendment to the Cardinal Health 401(k) Savings Plan
99.03	Third Amendment to Syncor International Corporation Employees’ Savings and Stock Ownership Plan

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SIGNATURES

     Pursuant to the requirements 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.

	CARDINAL HEALTH, INC.
Date: February 7, 2006		/s/ Robert D. Walter
		Robert D. Walter
		Chairman and Chief Executive Officer
		/s/ Jeffrey W. Henderson
		Jeffrey W. Henderson
		Executive Vice President and Chief
		Financial Officer

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EX-10.01

Exhibit 10.01

CARDINAL HEALTH, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

     On [date of grant] (the “Grant Date”), Cardinal Health, Inc., an Ohio corporation (the “Company”), has awarded to [employee name] (“Awardee”), an option (the “Option”) to purchase [# of shares] common shares, without par value, of the Company (the “Shares”) for a price of [$X.XX] per share. The Option has been granted under the Cardinal Health, Inc. 2005 Long-Term Incentive Plan (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. This Option shall vest and become exercisable [CLIFF ALTERNATIVE: on [vesting date]] [INSTALLMENT ALTERNATIVE: in accordance with the following schedule: [vesting schedule], subject [INSTALLMENT ALTERNATIVE: in each case] to the provisions of this agreement, including those relating to the Awardee’s continued employment with the Company and its Affiliates. Notwithstanding the foregoing, in the event of a Change of Control prior to Awardee’s Termination of Employment, the Option shall vest in full. This Option shall expire on [date of expiration] (the “Grant Expiration Date”).

1. Method of Exercise and Payment of Price.

(a) Method of Exercise. At any time when all or a portion of the Option is exercisable under the Plan and this agreement, some or all of the exercisable portion of the Option may be exercised from time to time by written notice to the Company, or such other method of exercise as may be specified by the Company, including without limitation, exercise by electronic means on the web site of the Company’s third-party equity plan administrator, 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 Awardee, if not already provided, 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 portion of the Option being exercised shall be paid to the Company as provided below:

     (i) in cash;

     (ii) by check or wire transfer (denominated in U.S. Dollars);

     (iii) subject to any conditions or limitations established by the Administrator, other Shares which (A) in the case of Shares acquired from the Company (whether upon the exercise of an Option or otherwise), have been owned by the Participant for more than six months on the date of surrender (unless this condition is waived by the Administrator), and (B) have a Fair Market Value on the date of surrender equal to or greater than the aggregate exercise price of the Shares as to which said Option shall be exercised (it being agreed that the excess of the Fair Market Value over the aggregate exercise price shall be refunded to the Awardee in cash);

     (iv) consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator; or

     (v) any combination of the foregoing methods of payment.

2. Transferability. The Option shall be transferable (I) at Awardee’s death, by Awardee by will or pursuant to the laws of descent and distribution, and (II) by Awardee during Awardee’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 Awardee, or any other persons sharing Awardee’s household (other than tenants or employees) (collectively, “Family Members”), (b) a trust or trusts for the primary benefit of Awardee or such Family Members, (c) a foundation in which Awardee or such Family Members control the management of assets, or (d) a partnership in which Awardee 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 Awardee. The Administrator 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 Awardee 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, Awardee shall notify the Compensation and Benefits department 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 Awardee shall be deemed to refer to the transferee. The events of a Termination of Employment of Awardee provided in paragraph 3 hereof shall continue to be applied with respect to the original Awardee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in paragraph 3. The Company shall have no obligation to notify any transferee of Awardee’s Termination of Employment with the Company for any reason. The conduct prohibited of Awardee in paragraphs 5 and 6 hereof shall continue to be prohibited of Awardee 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 Awardee to the same extent as would have been the case of Awardee had the Option not been transferred. Awardee shall remain subject to the recoupment provisions of paragraphs 5 and 6 of this agreement and tax withholding provisions of Section 29 of the Plan following transfer of the Option.

3. Termination of Employment.

(a) Termination of Employment by Reason of Death. If a Termination of Employment occurs by reason of death prior to the vesting in full of the Option, then any unvested portion of the Option shall vest upon and become exercisable in full from and after such death. The Option may thereafter be exercised by any transferee of Awardee, if applicable, or by the legal representative of the estate or by the legatee of Awardee under the will of Awardee for a period of one year from the date of death or until the Grant Expiration Date, whichever period is shorter.

(b) Termination of Employment by Reason of Retirement or Disability. If a Termination of Employment occurs by reason of Retirement or Disability prior to the vesting in full of the

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Option, then any unexercised portion of the Option which has not vested on such date of Termination of Employment will automatically be forfeited. The Option, to the extent vested, may be exercised by Awardee (or any transferee, if applicable) until the earlier of the fifth anniversary of the date of such Retirement or Disability or the Grant Expiration Date, provided that if Awardee has at least 15 years of service with the Company and its Affiliates (collectively, the “Cardinal Group”) at the time of Retirement, the Option, to the extent vested, may be exercised by Awardee (or any transferee, if applicable) until the Grant Expiration Date. Notwithstanding the foregoing, if Awardee dies after Retirement or Disability, but before the expiration of the exercise period provided for by the preceding sentence, the Option, to the extent vested, may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of Awardee under the will of Awardee from and after such death only until the earlier of (x) the first anniversary of the date of death or (y) the date upon which such exercise period would have otherwise expired.

(c) Other Termination of Employment. If a Termination of Employment occurs by any reason other than death, Retirement or Disability, any unexercised portion of the Option which has not vested on such date of Termination of Employment will automatically be forfeited. Subject to Section 16(b)(ii) of the Plan, Awardee (or any transferee, if applicable) will have 90 days from the date of Termination of Employment or until the Grant Expiration Date, whichever period is shorter, to exercise any portion of the Option that is vested and exercisable on the date of Termination of Employment; provided, however, that if the Termination of Employment was a Termination for Cause, as determined by the Administrator, the Option may be immediately canceled by the Administrator (whether then held by Awardee or any transferee).

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 Awardee 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 Awardee’s compliance with the terms of paragraphs 5 and 6 of this agreement or any employment or severance agreement between the Cardinal Group and Awardee) reasonably requested by the Company.

5. Triggering Conduct/Competitor Triggering Conduct. As used in this agreement, “Triggering Conduct” shall include the following: 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 Awardee; 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 Awardee’s Termination of Employment; any action by Awardee 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 Awardee; 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 Awardee’s employment or within one year following Awardee’s Termination of Employment, accepting employment with, or serving as a consultant

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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 Awardee has been introduced to trade secrets, confidential information or business sensitive information during Awardee’s employment with 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 Awardee continues as an employee with the Cardinal Group and for three years following Termination of Employment regardless of the reason, Awardee agrees not to engage in Triggering Conduct. If Awardee 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) Awardee 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 Awardee 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 Awardee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Awardee’s Termination of Employment, but including any period between the time of Termination of Employment and engagement in Competitor Triggering Conduct. Awardee may be released from Awardee’s obligations under this paragraph 6 if and only if the Administrator (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 Awardee 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, Awardee’s acceptance of employment with a Competitor. Awardee 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 Awardee’s continuing obligations contained herein. No provisions of this agreement shall diminish, negate or otherwise impact any separate noncompete or other agreement to which Awardee 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 Awardee contained in this agreement, the provisions of this agreement shall take precedence and such other inconsistent provisions shall be null and void. Awardee acknowledges and agrees that the restrictions contained in this agreement are being made for the benefit of the Company in consideration of Awardee’s receipt of the Option, in consideration of employment, in consideration of exposing Awardee to the Company’s business operations and confidential information, and for other good and valuable consideration, the adequacy of which

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consideration is hereby expressly confirmed. Awardee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Awardee and that the Company is unwilling to provide the Option to Awardee without including the restrictions and covenants of Awardee 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. Right of Set-Off. By accepting this Option, Awardee consents to a deduction from, and set-off against, any amounts owed to Awardee by any member of the Cardinal Group from time to time (including, but not limited to, amounts owed to Awardee as wages, severance payments or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by Awardee under this agreement.

8. Withholding Tax.

(a) Generally. Awardee is liable and responsible for all taxes owed in connection with the exercise of the Option, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Option. The Company does not make any representation or undertaking regarding the tax treatment or the treatment of any tax withholding in connection with the exercise of the Option. The Company does not commit and is under no obligation to structure the Option or the exercise of the Option to reduce or eliminate Awardee’s tax liability.

(b) Payment of Withholding Taxes. Concurrently with the payment of the exercise price pursuant to paragraph 1 hereof, Awardee is required to arrange for the satisfaction of the minimum amount of any domestic or foreign tax withholding obligation, whether national, federal, state or local, including any employment tax obligation (the “Tax Withholding Obligation”) in a manner acceptable to the Company. Any manner provided for in subparagraph 1(b) hereof shall be deemed an acceptable manner to satisfy the Tax Withholding Obligation unless otherwise determined by the Company.

9. 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. Awardee 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 Awardee’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 Awardee 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 Awardee 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 Awardee, and Awardee hereby waives any requirement for the securing or posting of any bond in

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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, Awardee 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.

10. Action by the Administrator. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the sole discretion of the Administrator. The parties agree to be bound by the decisions of the Administrator with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Administrator may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Administrator (hereinafter the “designee”). In fulfilling its responsibilities hereunder, the Administrator or its designee may rely upon documents, written statements of the parties or such other material as the Administrator or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Administrator or its designee and that any decision of the Administrator 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.

11. Prompt Acceptance of Agreement. The Option grant evidenced by this agreement shall, at the discretion of the Administrator, be forfeited if this agreement is not manually executed and returned to the Company, or electronically executed by Awardee by indicating Awardee’s acceptance of this agreement in accordance with the acceptance procedures set forth on the Company’s third-party equity plan administrator’s web site, within 90 days of the Grant Date.

12. Electronic Delivery and Consent to Electronic Participation. 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. Awardee hereby consents to receive such documents by electronic delivery and 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, including the acceptance of option grants and the execution of option agreements through electronic signature.

13. Notices. All notices, requests, consents and other communications required or provided under this agreement to be delivered by Awardee to the Company will be in writing and will be deemed sufficient if delivered by hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Company at the address set forth below:

Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attention: Chief Legal Officer
Facsimile: (614) 757-6813

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All notices, requests, consents and other communications required or provided under this agreement to be delivered by the Company to Awardee may be delivered by e-mail or in writing and will be deemed sufficient if delivered by e-mail, hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Awardee.

CARDINAL HEALTH, INC.

By:                                                                                 

Its:                                                                                

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ACCEPTANCE OF AGREEMENT

     Awardee 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; (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, including the provisions in the agreement regarding “Triggering Conduct/Competitor Triggering Conduct” and “Special Forfeiture/
Repayment Rules” set forth in paragraphs 5 and 6 above; and (c) represents that he or she understands that the acceptance of this agreement through an on-line or electronic system, if applicable, carries the same legal significance as if he or she manually signed the agreement. Awardee further acknowledges receiving a copy of the Company’s most recent annual report to shareholders and other communications routinely distributed to the Company’s shareholders and a copy of the Plan Description dated [date of Plan Description] pertaining to the Plan.

[

Awardee’s Signature

Awardee’s Social Security Number

Date]

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EX-10.02

Exhibit 10.02

CARDINAL HEALTH, INC.
RESTRICTED SHARE UNITS AGREEMENT

     On [grant date] (the “Grant Date”), Cardinal Health, Inc, an Ohio corporation (the “Company”), has awarded to [employee name] (“Awardee”) [# of shares] Restricted Share Units (the “Restricted Share Units” or “Award”), representing an unfunded unsecured promise of the Company to deliver common shares, without par value, of the Company (the “Shares”) to Awardee as set forth herein. The Restricted Share Units have been granted pursuant to the Cardinal Health, Inc. 2005 Long-Term Incentive Plan (the “Plan”) and shall be subject to all provisions of the Plan, which are incorporated herein by reference, and shall be subject to the provisions of this Restricted Share Units Agreement (this “Agreement”). Capitalized terms used in this Agreement which are not specifically defined shall have the meanings ascribed to such terms in the Plan.

     1. Vesting. Subject to the provisions set forth elsewhere in this Agreement, the Restricted Share Units shall vest [CLIFF VESTING ALTERNATIVE: on [vesting date] (the “Vesting Date”)] [INSTALLMENT VESTING ALTERNATIVE: in accordance with the following schedule: [vesting schedule] (each such vesting date, the “Vesting Date” with respect to the Restricted Share Units scheduled to vest on such date)]. Notwithstanding the foregoing, in the event of a Change of Control prior to Awardee’s Termination of Employment, the Restricted Share Units shall vest in full.

     2. Transferability. The Restricted Share Units shall not be transferable.

     3. Termination of Employment. Except as set forth below, if a Termination of Employment occurs prior to the vesting of a Restricted Share Unit, such Restricted Share Unit shall be forfeited by Awardee. If a Termination of Employment occurs prior to the vesting in full of the Restricted Share Units by reason of Awardee’s death, then any unvested Restricted Share Units shall vest in full and shall not be forfeited.

     4. Triggering Conduct/Competitor Triggering Conduct. As used in this Agreement, “Triggering Conduct” shall include the following: disclosing or using in any capacity other than as necessary in the performance of duties assigned by the Company and its Affiliates (collectively, 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 Awardee; 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 Awardee’s Termination of Employment; any action by Awardee 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 Awardee; 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 Awardee’s employment or within one year following Termination of Employment, 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 Awardee has been introduced to trade secrets, confidential information or business sensitive information during Awardee’s employment

with 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.

     5. Special Forfeiture/Repayment Rules. For so long as Awardee continues as an Employee with the Cardinal Group and for three years following Termination of Employment regardless of the reason, Awardee agrees not to engage in Triggering Conduct. If Awardee 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 4 above, then:

     (a) any Restricted Share Units that have not yet vested or that vested within the Look-Back Period (as defined below) with respect to such Triggering Conduct or Competitor Triggering Conduct and have not yet been settled by a payment pursuant to Paragraph 6 hereof shall immediately and automatically terminate, be forfeited, and cease to exist; and

     (b) Awardee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to (x) the aggregate gross gain realized or obtained by Awardee resulting from the settlement of all Restricted Share Units pursuant to Paragraph 6 hereof (measured as of the settlement date (i.e., the market value of the Restricted Share Units on such settlement date)) that have already been settled and that had vested at any time within three years prior to the Triggering Conduct (the “Look-Back Period”), minus (y) $1.00. If Awardee engages only in Competitor Triggering Conduct, then the Look-Back Period shall be shortened to exclude any period more than one year prior to Awardee’s Termination of Employment, but including any period between the time of Termination of Employment and the time of Awardee’s engaging in Competitor Triggering Conduct.

     Awardee may be released from his or her obligations under this Paragraph 5 if and only if the Administrator (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 5 constitutes a so-called “noncompete” covenant. This Paragraph 5 does, however, prohibit certain conduct while Awardee 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, Awardee’s acceptance of employment with a Competitor. Awardee 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 5 and Awardee’s continuing obligations contained herein. No provision of this Agreement shall diminish, negate or otherwise impact any separate noncompete or other agreement to which Awardee 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 Awardee contained in this Agreement, the provisions of this Agreement shall take precedence and such other inconsistent provisions shall be null and void. Awardee acknowledges and agrees that the provisions contained in this Agreement are being made for the benefit of the Company in consideration of Awardee’s receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing Awardee 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. Awardee further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of Awardee and that the Company is unwilling to provide the Restricted Share Units to Awardee without including the restrictions and covenants of Awardee contained in this

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Agreement. Further, the parties agree and acknowledge that the provisions contained in Paragraphs 4 and 5 are ancillary to, or part of, an otherwise enforceable agreement at the time the agreement is made.

     6. Payment. Subject to the provisions of Paragraphs 4 and 5 of this Agreement, and unless Awardee makes an effective election to defer receipt of the Shares represented by the Restricted Share Units, on the date of vesting of any Restricted Share Unit, Awardee shall be entitled to receive from the Company (without any payment on behalf of Awardee other than as described in Paragraph 10) the Shares represented by such Restricted Share Unit; provided, however, that, subject to the next sentence, in the event that such Restricted Share Units vest prior to the applicable Vesting Date as a result of the death of Awardee or as a result of a Change of Control, Awardee shall be entitled to receive the corresponding Shares from the Company on the date of such vesting. Notwithstanding the proviso of the preceding sentence, if Restricted Share Units vest as a result of the occurrence of a Change of Control under circumstances where such occurrence would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Code Section 409A applies to such distribution, such proviso shall not apply and Awardee shall be entitled to receive the corresponding Shares from the Company on the date that would have applied absent such proviso. Elections to defer receipt of the Shares beyond the date of settlement provided herein may be permitted in the discretion of the Administrator pursuant to procedures established by the Administrator in compliance with the requirements of Section 409A of the Code.

     7. Dividends. Awardee shall not receive cash dividends on the Restricted Share Units but instead shall, with respect to each Restricted Share Unit, receive a cash payment from the Company on each cash dividend payment date with respect to the Shares with a record date between the Grant Date and the earlier of the forfeiture of such unit in accordance with the terms hereof or the settlement of such unit pursuant to Paragraph 6 hereof, such cash payment to be in an amount equal to the dividend that would have been paid on the Common Share represented by such unit.

     8. Right of Set-Off. By accepting these Restricted Share Units, Awardee consents to a deduction from, and set-off against, any amounts owed to Awardee by any member of the Cardinal Group from time to time (including, but not limited to, amounts owed to Awardee as wages, severance payments or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by Awardee under this Agreement.

     9. No Shareholder Rights. Awardee shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, Awardee shall not have the right to vote the Shares represented by the Restricted Share Units.

     10. Withholding Tax.

     (a) Generally. Awardee is liable and responsible for all taxes owed in connection with the Restricted Share Units (including taxes owed with respect to the cash payments described in Paragraph 7 hereof), regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Restricted Share Units. The Company does not make any representation or undertaking regarding the tax treatment or the treatment of any tax withholding in connection with the grant or vesting of the Restricted Share Units or the subsequent sale of Shares issuable pursuant to the Restricted Share Units. The Company does not commit and is under no obligation to structure the Restricted Share Units to reduce or eliminate Awardee’s tax liability.

     (b) Payment of Withholding Taxes. Prior to any event in connection with the Restricted Share Units (e.g., vesting or settlement) that the Company determines may result in any domestic or

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foreign tax withholding obligation, whether national, federal, state or local, including any employment tax obligation (the “Tax Withholding Obligation”), Awardee is required to arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company. Unless Awardee elects to satisfy the Tax Withholding Obligation by an alternative means that is then permitted by the Company, Awardee’s acceptance of this Agreement constitutes Awardee’s instruction and authorization to the Company to withhold on Awardee’s behalf the number of Shares from those Shares issuable to Awardee at the time when the Restricted Share Units become vested and payable as the Company determines to be sufficient to satisfy the Tax Withholding Obligation. In the case of any amounts withheld for taxes pursuant to this provision in the form of Shares, the amount withheld shall not exceed the minimum required by applicable law and regulations. The Company shall have the right to deduct from all cash payments paid pursuant to Paragraph 7 hereof the amount of any taxes which the Company is required to withhold with respect to such payments.

     11. Beneficiary Designation. Awardee may designate a beneficiary to receive any Shares to which Awardee is entitled with respect to the Restricted Share Units which vest as a result of Awardee’s death. Notwithstanding the foregoing, if Awardee engages in Triggering Conduct or Competitor Triggering Conduct as herein defined, the Restricted Share Units subject to such beneficiary designation shall be subject to the Special Forfeiture/Repayment Rules and the Company’s Right of Set-Off or other right of recovery set forth in this Agreement, and all rights of the beneficiary shall be subordinated to the rights of the Company pursuant to such provisions of this Agreement. Awardee acknowledges that the Company may exercise all rights under this Agreement and the Plan against Awardee and Awardee’s estate, heirs, lineal descendants and personal representatives and shall not be limited to exercising its rights against Awardee’s beneficiary.

     12. 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 Restricted Share Units 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. Awardee acknowledges that the covenants contained in Paragraphs 4 and 5 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 Awardee’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 Awardee 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 Awardee 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 Awardee, and Awardee 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, Awardee 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.

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     13. Action by the Administrator. The parties agree that the interpretation of this Agreement shall rest exclusively and completely within the sole discretion of the Administrator. The parties agree to be bound by the decisions of the Administrator with regard to the interpretation of this Agreement and with regard to any and all matters set forth in this Agreement. The Administrator may delegate its functions under this Agreement to an officer of the Cardinal Group designated by the Administrator (hereinafter the “Designee”). In fulfilling its responsibilities hereunder, the Administrator or its Designee may rely upon documents, written statements of the parties or such other material as the Administrator or its Designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Administrator or its Designee and that any decision of the Administrator 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.

     14. Prompt Acceptance of Agreement. The Restricted Share Unit grant evidenced by this Agreement shall, at the discretion of the Administrator, be forfeited if this Agreement is not manually executed and returned to the Company, or electronically executed by Awardee by indicating Awardee’s acceptance of this Agreement in accordance with the acceptance procedures set forth on the Company’s third-party equity plan administrator’s web site, within 90 days of the Grant Date.

     15. Electronic Delivery and Consent to Electronic Participation. The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Share Unit grant under and participation in the Plan or future Restricted Share Units that may be granted under the Plan by electronic means or to request Awardee’s consent to participate in the Plan by electronic means. Awardee hereby consents to receive such documents by electronic delivery and 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, including the acceptance of restricted share unit grants and the execution of restricted share unit agreements through electronic signature.

     16. Notices. All notices, requests, consents and other communications required or provided under this Agreement to be delivered by Awardee to the Company will be in writing and will be deemed sufficient if delivered by hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Company at the address set forth below:

Cardinal Health, Inc.

7000 Cardinal Place

Dublin, Ohio 43017

Attention: Chief Legal Officer

Facsimile: (614) 757-6813

All notices, requests, consents and other communications required or provided under this Agreement to be delivered by the Company to Awardee may be delivered by e-mail or in writing and will be deemed

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sufficient if delivered by e-mail, hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Awardee.

CARDINAL HEALTH, INC.

By:                                                             

Its:                                                             

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ACCEPTANCE OF AGREEMENT

Awardee hereby: (a) acknowledges that he or she has received a copy of the Plan, a copy of the Company’s most recent annual report to shareholders and other communications routinely distributed to the Company’s shareholders, and a copy of the Plan Description dated [date of Plan Description] pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him or her under this Agreement subject to all provisions of the Plan and this Agreement, including the provisions in the agreement regarding “Triggering Conduct/Competitor Triggering Conduct” and “Special Forfeiture/Repayment Rules” set forth in paragraphs 4 and 5 above; (c) represents that he or she understands that the acceptance of this Agreement through an on-line or electronic system, if applicable, carries the same legal significance as if he or she manually signed the Agreement; (d) represents and warrants to the Company that he or she is purchasing the Restricted Share Units for his or her own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (e) agrees that no transfer of the Shares delivered in respect of the Restricted Share Units shall be made unless the Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration.

[

Awardee’s Signature

Awardee’s Social Security Number

Date]

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EX-10.03

Exhibit 10.03

CARDINAL HEALTH, INC.
NONQUALIFIED STOCK OPTION AGREEMENT

     On [date of grant] (the “Grant Date”), Cardinal Health, Inc., an Ohio corporation (the “Company”), has awarded to [employee name] (“Awardee”), an option (the “Option”) to purchase [# of shares] common shares, without par value, of the Company (the “Shares”) for a price of [$X.XX] per share. The Option has been granted under the Cardinal Health, Inc. 2005 Long-Term Incentive Plan (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. This Option shall vest and become exercisable [CLIFF ALTERNATIVE: on [vesting date]] [INSTALLMENT ALTERNATIVE: in accordance with the following schedule: [vesting schedule], subject [INSTALLMENT ALTERNATIVE: in each case] to the provisions of this agreement, including those relating to the Awardee’s continued employment with the Company and its Affiliates. Notwithstanding the foregoing, in the event of a Change of Control prior to Awardee’s Termination of Employment, the Option shall vest in full. This Option shall expire on [date of expiration] (the “Grant Expiration Date”).

1. Method of Exercise and Payment of Price.

(a) Method of Exercise. At any time when all or a portion of the Option is exercisable under the Plan and this agreement, some or all of the exercisable portion of the Option may be exercised from time to time by written notice to the Company, or such other method of exercise as may be specified by the Company, including without limitation, exercise by electronic means on the web site of the Company’s third-party equity plan administrator, 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 Awardee, if not already provided, 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 portion of the Option being exercised shall be paid to the Company as provided below:

     (i) in cash;

     (ii) by check or wire transfer (denominated in U.S. Dollars);

     (iii) subject to any conditions or limitations established by the Administrator, other Shares which (A) in the case of Shares acquired from the Company (whether upon the exercise of an Option or otherwise), have been owned by the Participant for more than six months on the date of surrender (unless this condition is waived by the Administrator), and (B) have a Fair Market Value on the date of surrender equal to or greater than the aggregate exercise price of the Shares as to which said Option shall be exercised (it being agreed that the excess of the Fair Market Value over the aggregate exercise price shall be refunded to the Awardee in cash);

     (iv) consideration received by the Company under a broker-assisted sale and remittance program acceptable to the Administrator; or

     (v) any combination of the foregoing methods of payment.

2. Transferability. The Option shall be transferable (I) at Awardee’s death, by Awardee by will or pursuant to the laws of descent and distribution, and (II) by Awardee during Awardee’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 Awardee, or any other persons sharing Awardee’s household (other than tenants or employees) (collectively, “Family Members”), (b) a trust or trusts for the primary benefit of Awardee or such Family Members, (c) a foundation in which Awardee or such Family Members control the management of assets, or (d) a partnership in which Awardee 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 Awardee. The Administrator 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 Awardee 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, Awardee shall notify the Compensation and Benefits department 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 Awardee shall be deemed to refer to the transferee. The events of Termination of Employment of Awardee provided in paragraph 3 hereof shall continue to be applied with respect to the original Awardee, following which the Option shall be exercisable by the transferee only to the extent, and for the periods, specified in paragraph 3. The Company shall have no obligation to notify any transferee of Awardee’s Termination of Employment with the Company for any reason. The conduct prohibited of Awardee in paragraphs 5 through 7 and, if applicable, paragraph 11 of this agreement shall continue to be prohibited of Awardee 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 Awardee to the same extent as would have been the case of Awardee had the Option not been transferred. Awardee shall remain subject to the recoupment provisions of paragraph 13 of this agreement and tax withholding provisions of Section 29 of the Plan following transfer of the Option.

3. Termination of Employment.

(a) Termination of Employment by Reason of Death. If a Termination of Employment occurs by reason of death prior to the vesting in full of the Option, then any unvested portion of the Option shall vest upon and become exercisable in full from and after such death. The Option may thereafter be exercised by any transferee of Awardee, if applicable, or by the legal representative of the estate or by the legatee of Awardee under the will of Awardee for a period of one year from the date of death or until the Grant Expiration Date, whichever period is shorter.

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(b) Termination of Employment by Reason of Retirement or Disability. If a Termination of Employment occurs by reason of Retirement or Disability prior to the vesting in full of the Option, then any unexercised portion of the Option which has not vested on such date of Termination of Employment will automatically be forfeited. The Option, to the extent vested, may be exercised by Awardee (or any transferee, if applicable) until the earlier of the fifth anniversary of the date of such Retirement or Disability or the Grant Expiration Date, provided that if Awardee has at least 15 years of service with the Company and its Affiliates (collectively, the “Cardinal Group”) at the time of Retirement, the Option, to the extent vested, may be exercised by Awardee (or any transferee, if applicable) until the Grant Expiration Date. Notwithstanding the foregoing, if Awardee dies after Retirement or Disability, but before the expiration of the exercise period provided for by the preceding sentence, the Option, to the extent vested, may be exercised by any transferee of the Option, if applicable, or by the legal representative of the estate or by the legatee of Awardee under the will of Awardee from and after such death only until the earlier of (x) the first anniversary of the date of death or (y) the date upon which such exercise period would have otherwise expired.

(c) Other Termination of Employment. If a Termination of Employment occurs by any reason other than death, Retirement or Disability, any unexercised portion of the Option which has not vested on such date of Termination of Employment will automatically be forfeited. Subject to Section 16(b)(ii) of the Plan, Awardee (or any transferee, if applicable) will have 90 days from the date of Termination of Employment or until the Grant Expiration Date, whichever period is shorter, to exercise any portion of the Option that is vested and exercisable on the date of Termination of Employment; provided, however, that if the Termination of Employment was a Termination for Cause, as determined by the Administrator, the Option may be immediately canceled by the Administrator (whether then held by Awardee or any transferee).

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 Awardee 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 Awardee’s compliance with the terms of paragraphs 5 through 7 and, if applicable, paragraph 11 of this agreement or any employment or severance agreement between the Cardinal Group and Awardee) reasonably requested by the Company.

5. Agreement Not to Disclose or Use Confidential Information, Trade Secrets or Other Business Sensitive Information. The parties acknowledge and agree that the Cardinal Group is the sole and exclusive owner of Confidential Information, Trade Secrets or Other Business Sensitive Information and that the Cardinal Group has legitimate business interests in protecting such information. The parties further acknowledge and agree that the Cardinal Group has invested, and continues to invest, considerable amounts of time and money in obtaining, developing and preserving the confidentiality of such information. Further, the parties agree that, because of the trust and fiduciary relationship arising between Awardee and the Cardinal Group, Awardee owes the Cardinal Group a fiduciary duty to preserve and protect such information from any and all unauthorized disclosure and use. Accordingly, Awardee shall not, either directly or indirectly, disclose such information to any third party whatsoever and shall not use such information in any manner, except as authorized in the reasonable performance of Awardee’s duties while employed by the Cardinal Group. “Confidential Information, Trade Secrets or Other Business Sensitive Information” shall include any such information as defined by applicable law and any information about the business of the Cardinal Group and its customers that is not generally known to, or readily ascertainable by, the public, including, but

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not limited to, financial information and models, customer lists, business plans or strategies, marketing and sales plans or strategies, the identity, compensation and qualifications of employees of the Cardinal Group, sources of supply, pricing policies, operational methods, product specification or technical processes, new product information, formulation techniques, customer contacts, profit or cost information, research and development information or other information that the Cardinal Group has developed or compiled.

6. Delivery of Company Property. Awardee recognizes and agrees that all documents, magnetic media, computer disks, desktop and laptop computers and other tangible items that were provided by the Cardinal Group and/or that contain Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above are the sole and exclusive property of the Cardinal Group. Upon request by the Cardinal Group, Awardee shall promptly and immediately return to the Cardinal Group all such documents, media, disks, desktop and laptop computers and other tangible items. Upon the Termination of Employment with the Cardinal Group, Awardee shall promptly and immediately return to the Cardinal Group any and all such documents, media, disks, desktop and laptop computers or other tangible items, without request by the Cardinal Group. Awardee shall not take any such information or make/retain copies of such information for any purpose whatsoever except as is necessary for the reasonable performance of Awardee’s duties while employed by the Cardinal Group.

7. Other Covenants. Except as modified by paragraph 11 below, Awardee hereby covenants and agrees that, in consideration of the grant hereunder, Awardee shall not, either directly or indirectly, on Awardee’s own behalf or on any other’s behalf, engage in or assist others in any of the following activities:

(a) Awardee shall not engage in any action or conduct that is a violation of the policies of the Cardinal Group, including conduct that 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 executed by Awardee;

(b) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not, either directly or indirectly, employ, contact concerning employment, or participate in any manner 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 Employment with the Cardinal Group;

(c) Awardee shall not at any time during employment with the Cardinal Group nor at any time thereafter disparage the Cardinal Group or any of its employees, officers, representatives, services or products;

(d) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not engage in any action or conduct 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 or suppliers that were known to Awardee in the performance of Awardee’s job duties while employed with the Cardinal Group;

(e) During Awardee’s employment with the Cardinal Group and for 12 months following the

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Termination of Employment for any reason, Awardee shall not solicit or accept business of the same type as that in which Awardee was employed by the Cardinal Group from any customer, potential customer, vendor or supplier of the Cardinal Group that was known to Awardee in the performance of Awardee’s job duties while employed with the Cardinal Group, nor shall Awardee during such time period solicit or accept such business within any geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility;

(f) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not accept employment with or serve 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 within a geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility; and

(g) Awardee shall not breach or violate any provision of any employment or severance agreement that Awardee has with any member of the Cardinal Group.

8. Inevitable Disclosure. The parties specifically acknowledge and agree that the provisions of this agreement are reasonable in light of the fact that, in the event that Awardee would become employed or otherwise associated with a competitor of the Cardinal Group, it would be inevitable that Awardee would disclose Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above to such competitor. The parties acknowledge and agree that Awardee has been introduced by the Cardinal Group to such Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above and that such information would aid the competitor and that the threat of such inevitable disclosure is so great that, for purposes of this agreement, it must be assumed that such disclosure would occur.

9. Covenants Are Independent Elements. The parties acknowledge that the obligations and covenants set forth in paragraphs 5 through 8 above and, if applicable, paragraph 11 below are essential independent elements of this Option grant and that, but for Awardee agreeing to comply with them, the Cardinal Group would not have granted such Option to Awardee. The parties agree and acknowledge that the provisions contained in paragraphs 5 through 8 above and, if applicable, paragraph 11 below are ancillary to, or part of, an otherwise enforceable agreement at the time the agreement is made with regard to such paragraphs. The existence of any claim by Awardee against the Cardinal Group, whether based on this agreement or otherwise, shall not operate as a defense to the enforcement of the covenants contained in paragraphs 5 through 8 above and, if applicable, paragraph 11 below. The covenants contained in paragraphs 5 through 8 above and, if applicable, paragraph 11 below will remain in full force and effect whether Awardee is terminated by the Cardinal Group or voluntarily resigns.

10. Assignment of Covenants. The rights of the Cardinal Group under this agreement shall inure to the benefit of, and be binding upon, its successors and assigns. Any successor or assign of the Cardinal Group is authorized to enforce the covenants contained in this agreement. Any successor or assign of the Cardinal Group is authorized by the parties to enforce the covenants contained herein as if the name of such successor or assign shall replace the Cardinal Group throughout this agreement and any consent and/or notice, written or otherwise, is hereby waived and deemed unnecessary by Awardee.

11. California Specific Modifications. This paragraph 11 shall supercede and modify certain of the covenants, obligations and restrictions of Awardee set forth in paragraph 7 above in the

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event that, and only during such time that, Awardee’s principal employment with the Cardinal Group is in the State of California. In the event that any of the provisions contained in subparagraphs 7(d) through (f) above are inconsistent with the provisions of this paragraph 11 with regard to the State of California, then the provisions contained in subparagraphs 7(d) through (f) shall not apply and the following provisions shall apply instead:

(a) Within the geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility, Awardee shall not, during Awardee’s employment with the Cardinal Group and for 12 months following Termination of Employment for any reason, solicit or actually transact business with any existing customer of the Cardinal Group of which Awardee’s knowledge of the existence of that customer or of that customer’s purchasing habits, product preferences or commercial practices exists because of Awardee’s receipt of Confidential Information, Trade Secrets or Other Business Sensitive Information from the Cardinal Group; and

(b) Regardless of geographic area, Awardee shall not, during the period of Awardee’s employment with the Cardinal Group and for 12 months following Termination of Employment for any reason, solicit business from any customers of the same type as the business of the Cardinal Group at the time of the Termination of Employment with the Cardinal Group whose identities are not already within the public domain if Awardee directly serviced such customers, was assigned to such customers, was responsible for such customers or otherwise had personal contact with such customers during the 12-month period immediately preceding expiration of Awardee’s employment with the Cardinal Group.

In the event that Awardee is reassigned to any other state within the United States of America other than the State of California or to any other country, then all of the provisions of paragraph 7 above shall apply in full force and effect and the provisions of this paragraph 11 shall not apply.

12. Reasonableness of Restrictions Contained in Agreement. Awardee acknowledges that the covenants contained in this agreement are reasonable in nature, are fundamental for the protection of the legitimate business and proprietary interests of the Cardinal Group, are necessary to protect the goodwill between the Cardinal Group and its customers, and do not adversely affect Awardee’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 Awardee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law.

13. Special Forfeiture/Repayment Rules. If Awardee engages in conduct that is in violation of the covenants and restrictions contained in this agreement, then Awardee shall be subject to the following special forfeiture/repayment rules in addition to any other remedy that the Cardinal Group may have:

(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) Awardee 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 Awardee 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

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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 conduct by Awardee that is in violation of the covenants and restrictions of this agreement (the “Look-Back Period”), less $1.00.

Awardee may be released from Awardee’s obligations under this paragraph 13 if and only if the Administrator (or its duly appointed designee) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Awardee 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 agreement and Awardee’s continuing obligations contained herein. No provisions of this agreement shall diminish, negate or otherwise impact any separate noncompete or other agreement to which Awardee 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 Awardee contained in this agreement, the provisions of this agreement shall take precedence and such other inconsistent provisions shall be null and void. Awardee acknowledges and agrees that the restrictions and covenants of Awardee contained in this agreement are being made for the benefit of the Company in consideration of Awardee’s receipt of the Option, in consideration of employment, in consideration of exposing Awardee 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. Awardee further acknowledges that the receipt of the Option and execution of this agreement are voluntary actions on the part of Awardee and that the Company is unwilling to provide the Option to Awardee without including the restrictions and covenants of Awardee contained in this agreement. Further, the parties agree and acknowledge that the provisions contained in paragraph 7 and, if applicable, paragraph 11 above are ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.

14. Right of Set-Off. By accepting this Option, Awardee consents to a deduction from, and set-off against, any amounts owed to Awardee by any member of the Cardinal Group from time to time (including, but not limited to, amounts owed to Awardee as wages, severance payments or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by Awardee under this agreement.

15. Withholding Tax.

(a) Generally. Awardee is liable and responsible for all taxes owed in connection with the exercise of the Option, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Option. The Company does not make any representation or undertaking regarding the tax treatment or the treatment of any tax withholding in connection with the exercise of the Option. The Company does not commit and is under no obligation to structure the Option or the exercise of the Option to reduce or eliminate Awardee’s tax liability.

(b) Payment of Withholding Taxes. Concurrently with the payment of the exercise price pursuant to paragraph 1 hereof, Awardee is required to arrange for the satisfaction of the minimum amount of any domestic or foreign tax withholding obligation, whether national, federal, state or local, including any employment tax obligation (the “Tax Withholding Obligation”) in

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a manner acceptable to the Company. Any manner provided for in subparagraph 1(b) hereof shall be deemed an acceptable manner to satisfy the Tax Withholding Obligation unless otherwise determined by the Company.

16. 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. In the event of any violation or attempted violations of the restrictions and covenants of Awardee 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 Awardee, and Awardee 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, Awardee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings.

17. Severability. It is the desire and intent of the parties that the provisions of this agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this agreement shall be determined by a court of competent jurisdiction to be invalid or unenforceable as written, it is the intent and desire of the parties that the court shall modify the language of such provision or portion of this agreement to the extent necessary to make it valid and enforceable. If no such modification by the court is possible, this agreement shall be deemed amended to delete therefrom only the provision or portion thus determined to be invalid or unenforceable. Such modification or deletion is to apply only with respect to the operation of such provision in the particular jurisdiction in which such court determination is made.

18. Action by the Administrator. The parties agree that the interpretation of this agreement shall rest exclusively and completely within the sole discretion of the Administrator. The parties agree to be bound by the decisions of the Administrator with regard to the interpretation of this agreement and with regard to any and all matters set forth in this agreement. The Administrator may delegate its functions under this agreement to an officer of the Cardinal Group designated by the Administrator (hereinafter the “designee”). In fulfilling its responsibilities hereunder, the Administrator or its designee may rely upon documents, written statements of the parties, or such other material as the Administrator or its designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Administrator or its designee and that any decision of the Administrator or its designee relating to this agreement, including, without limitation, whether particular conduct constitutes a violation of the covenants, obligations and restrictions of Awardee set forth in paragraphs 5 through 7 and, if applicable, paragraph 11 above, shall be final and binding unless such decision is arbitrary and capricious.

19. Prompt Acceptance of Agreement. The Option grant evidenced by this agreement shall, at the discretion of the Administrator, be forfeited be forfeited if this agreement is not manually

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executed and returned to the Company, or electronically executed by Awardee by indicating Awardee’s acceptance of this agreement in accordance with the acceptance procedures set forth on the Company’s third-party equity plan administrator’s web site, within 90 days of the Grant Date.

20. Electronic Delivery and Consent to Electronic Participation. 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. Awardee hereby consents to receive such documents by electronic delivery and 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, including the acceptance of option grants and the execution of option agreements through electronic signature.

21. Notices. All notices, requests, consents and other communications required or provided under this agreement to be delivered by Awardee to the Company will be in writing and will be deemed sufficient if delivered by hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Company at the address set forth below:

Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attention: Chief Legal Officer
Facsimile: (614) 757-6813

All notices, requests, consents and other communications required or provided under this agreement to be delivered by the Company to Awardee may be delivered by e-mail or in writing and will be deemed sufficient if delivered by e-mail, hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Awardee.

CARDINAL HEALTH, INC.

By:

Its:

9

ACCEPTANCE OF AGREEMENT

Awardee 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; (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, including the obligations and covenants set forth in paragraphs 5 through 8 above and, if applicable, paragraph 11 above; and (c) represents that he or she understands that the acceptance of this agreement through an on-line or electronic system, if applicable, carries the same legal significance as if he or she manually signed the agreement. Awardee further acknowledges receiving a copy of the Company’s most recent annual report to shareholders and other communications routinely distributed to the Company’s shareholders and a copy of the Plan Description dated [date of Plan Description] pertaining to the Plan.

[

Awardee’s Signature

Awardee’s Social Security Number

Date]

10

EX-10.04

Exhibit 10.04

CARDINAL HEALTH, INC.
RESTRICTED SHARE UNITS AGREEMENT

     On [grant date] (the “Grant Date”), Cardinal Health, Inc, an Ohio corporation (the “Company”), has awarded to [employee name] (“Awardee”) [# of shares] Restricted Share Units (the “Restricted Share Units” or “Award”), representing an unfunded unsecured promise of the Company to deliver common shares, without par value, of the Company (the “Shares”) to Awardee as set forth herein. The Restricted Share Units have been granted pursuant to the Cardinal Health, Inc. 2005 Long-Term Incentive Plan (the “Plan”) and shall be subject to all provisions of the Plan, which are incorporated herein by reference, and shall be subject to the provisions of this Restricted Share Units Agreement (this “Agreement”). Capitalized terms used in this Agreement which are not specifically defined shall have the meanings ascribed to such terms in the Plan.

     1. Vesting. Subject to the provisions set forth elsewhere in this Agreement, the Restricted Share Units shall vest [CLIFF VESTING ALTERNATIVE: on [vesting date] (the “Vesting Date”)] [INSTALLMENT VESTING ALTERNATIVE: in accordance with the following schedule: [vesting schedule] (each such vesting date, the “Vesting Date” with respect to the Restricted Share Units scheduled to vest on such date)]. Notwithstanding the foregoing, in the event of a Change of Control prior to Awardee’s Termination of Employment, the Restricted Share Units shall vest in full.

     2. Transferability. The Restricted Share Units shall not be transferable.

     3. Termination of Employment. Except as set forth below, if a Termination of Employment occurs prior to the vesting of a Restricted Share Unit, such Restricted Share Unit shall be forfeited by Awardee. If a Termination of Employment occurs prior to the vesting in full of the Restricted Share Units by reason of Awardee’s death, then any unvested Restricted Share Units shall vest in full and shall not be forfeited.

     4. Agreement Not to Disclose or Use Confidential Information, Trade Secrets or Other Business Sensitive Information. The parties acknowledge and agree that the Company and its Affiliates (collectively, the “Cardinal Group”) is the sole and exclusive owner of Confidential Information, Trade Secrets or Other Business Sensitive Information (as hereinafter defined) and that the Cardinal Group has legitimate business interests in protecting such information. The parties further acknowledge and agree that the Cardinal Group has invested, and continues to invest, considerable amounts of time and money in obtaining, developing and preserving the confidentiality of such information. Further, the parties agree that, because of the trust and fiduciary relationship arising between Awardee and the Cardinal Group, Awardee owes the Cardinal Group a fiduciary duty to preserve and protect such information from any and all unauthorized disclosure and use. Accordingly, Awardee shall not, either directly or indirectly, disclose such information to any third party whatsoever and shall not use such information in any manner, except as authorized in the reasonable performance of Awardee’s duties while employed by the Cardinal Group. “Confidential Information, Trade Secrets or Other Business Sensitive Information” shall include any such information as defined by applicable law and any information about the business of the Cardinal Group and its customers that is not generally known to, or readily ascertainable by, the public, including, but not limited to, financial information and models, customer lists, business plans or strategies, marketing and sales plans or strategies, the identity, compensation and qualifications of employees of the Cardinal Group, sources of supply, pricing policies, operational methods, product specification or technical processes, new product information, formulation techniques, customer contacts, profit or cost information, research and development information or other information that the Cardinal Group has developed or compiled.

     5. Delivery of Company Property. Awardee recognizes and agrees that all documents, magnetic media, computer disks, desktop and laptop computers and other tangible items that were provided by the Cardinal Group and/or that contain Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above are the sole and exclusive property of the Cardinal Group. Upon request by the Cardinal Group, Awardee shall promptly and immediately return to the Cardinal Group all such documents, media, disks, desktop and laptop computers and other tangible items. Upon the Termination of Employment with the Cardinal Group, Awardee shall promptly and immediately return to the Cardinal Group any and all such documents, media, disks, desktop and laptop computers or other tangible items, without request by the Cardinal Group. Awardee shall not take any such information or make/retain copies of such information for any purpose whatsoever except as is necessary for the reasonable performance of Awardee’s duties while employed by the Cardinal Group.

     6. Other Covenants. Except as modified by Paragraph 10 below, Awardee hereby covenants and agrees that, in consideration of the grant hereunder, Awardee shall not, either directly or indirectly, on Awardee’s own behalf or on any other’s behalf, engage in or assist others in any of the following activities:

     (a) Awardee shall not engage in any action or conduct that is a violation of the policies of the Cardinal Group, including conduct that 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 executed by Awardee;

     (b) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not, either directly or indirectly, employ, contact concerning employment, or participate in any manner 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 Employment with the Cardinal Group;

     (c) Awardee shall not at any time during employment with the Cardinal Group nor at any time thereafter disparage the Cardinal Group or any of its employees, officers, representatives, services or products;

     (d) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not engage in any action or conduct 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 or suppliers that were known to Awardee in the performance of Awardee’s job duties while employed with the Cardinal Group;

     (e) During Awardee’s employment with the Cardinal Group and for 12 months following the Termination of Employment for any reason, Awardee shall not solicit or accept business of the same type as that in which Awardee was employed by the Cardinal Group from any customer, potential customer, vendor or supplier of the Cardinal Group that was known to Awardee in the performance of Awardee’s job duties while employed with the Cardinal Group, nor shall Awardee during such time period solicit or accept such business within any geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility;

     (f) During Awardee’s employment with the Cardinal Group and for 12 months

2

following the Termination of Employment for any reason, Awardee shall not accept employment with or serve 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 within a geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility; and

     (g) Awardee shall not breach or violate any provision of any employment or severance agreement that Awardee has with any member of the Cardinal Group.

     7. Inevitable Disclosure. The parties specifically acknowledge and agree that the provisions of this Agreement are reasonable in light of the fact that, in the event that Awardee would become employed or otherwise associated with a competitor of the Cardinal Group, it would be inevitable that Awardee would disclose Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above to such competitor. The parties acknowledge and agree that Awardee has been introduced by the Cardinal Group to such Confidential Information, Trade Secrets or Other Business Sensitive Information as defined above and that such information would aid the competitor and that the threat of such inevitable disclosure is so great that, for purposes of this Agreement, it must be assumed that such disclosure would occur.

     8. Covenants Are Independent Elements. The parties acknowledge that the obligations and covenants set forth in Paragraphs 4 through 7 above and, if applicable, Paragraph 10 below are essential independent elements of this Restricted Share grant and that, but for Awardee agreeing to comply with them, the Cardinal Group would not have granted such Restricted Share Units to Awardee. The parties agree and acknowledge that the provisions contained in Paragraphs 4 through 7 above and, if applicable, Paragraph 10 below are ancillary to, or part of, an otherwise enforceable agreement at the time the agreement is made with regard to such paragraphs. The existence of any claim by Awardee against the Cardinal Group, whether based on this Agreement or otherwise, shall not operate as a defense to the enforcement of the covenants contained in Paragraphs 4 through 7 above and, if applicable, Paragraph 10 below. The covenants contained in Paragraphs 4 through 7 above and, if applicable, Paragraph 10 below will remain in full force and effect whether Awardee is terminated by the Cardinal Group or voluntarily resigns.

     9. Assignment of Covenants. The rights of the Cardinal Group under this Agreement shall inure to the benefit of, and be binding upon, its successors and assigns. Any successor or assign of the Cardinal Group is authorized to enforce the covenants contained in this Agreement. Any successor or assign of the Cardinal Group is authorized by the parties to enforce the covenants contained herein as if the name of such successor or assign shall replace the Cardinal Group throughout this Agreement and any consent and/or notice, written or otherwise, is hereby waived and deemed unnecessary by Awardee.

     10. California Specific Modifications. This paragraph shall supercede and modify certain of the covenants, obligations and restrictions of Awardee set forth in Paragraph 6 above in the event that, and only during such time that, Awardee’s principal employment with the Cardinal Group is in the State of California. In the event that any of the provisions contained in Subparagraphs 6(d) through (f) above are inconsistent with the provisions of this Paragraph 10 with regard to the State of California, then the provisions contained in Subparagraphs 6(d) through (f) shall not apply and the following provisions shall apply instead:

     (a) Within the geographic area in which Awardee was assigned or for which Awardee had any managerial responsibility, Awardee shall not, during Awardee’s employment with the Cardinal Group and for 12 months following Termination of Employment for any reason, solicit or actually transact business with any existing customer of the Cardinal Group of

3

which Awardee’s knowledge of the existence of that customer or of that customer’s purchasing habits, product preferences or commercial practices exists because of Awardee’s receipt of Confidential Information, Trade Secrets or Other Business Sensitive Information from the Cardinal Group; and

     (b) Regardless of geographic area, Awardee shall not, during the period of Awardee’s employment with the Cardinal Group and for 12 months following Termination of Employment for any reason, solicit business from any customers of the same type as the business of the Cardinal Group at the time of the Termination of Employment with the Cardinal Group whose identities are not already within the public domain if Awardee directly serviced such customers, was assigned to such customers, was responsible for such customers or otherwise had personal contact with such customers during the 12-month period immediately preceding expiration of Awardee’s employment with the Cardinal Group.

In the event that Awardee is reassigned to any other state within the United States of America other than the State of California or to any other country, then all of the provisions of Paragraph 6 above shall apply in full force and effect and the provisions of this Paragraph 10 shall not apply.

     11. Reasonableness of Restrictions Contained in Agreement. Awardee acknowledges that the covenants contained in this Agreement are reasonable in nature, are fundamental for the protection of the legitimate business and proprietary interests of the Cardinal Group, are necessary to protect the goodwill between the Cardinal Group and its customers, and do not adversely affect Awardee’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 Awardee of any such covenants, the Company will suffer immediate and irreparable injury for which there is no adequate remedy at law.

     12. Special Forfeiture/Repayment Rules. If Awardee engages in conduct that is in violation of the covenants and restrictions contained in this Agreement, then Awardee shall be subject to the following special forfeiture/repayment rules in addition to any other remedy that the Cardinal Group may have:

     (a) any Restricted Share Units that have not yet vested or that vested within the Look-Back Period (as defined below) with respect to such conduct that is in violation of the covenants and restrictions contained in this Agreement and have not yet been settled by a payment pursuant to Paragraph 13 hereof shall immediately and automatically terminate, be forfeited, and cease to exist; and

     (b) Awardee shall, within 30 days following written notice from the Company, pay to the Company an amount equal to (x) the aggregate gross gain realized or obtained by Awardee resulting from the settlement of all Restricted Share Units pursuant to Paragraph 13 hereof (measured as of the settlement date (i.e., the market value of the Restricted Share Units on such settlement date)) that have already been settled and that had vested at any time within three years prior to the conduct by Awardee that is in violation of the covenants and restrictions contained in this Agreement (the “Look-Back Period”), minus (y) $1.00.

     Awardee may be released from Awardee’s obligations under this Paragraph 12 if and only if the Administrator (or its duly appointed designee) determines, in writing and in its sole discretion, that such action is in the best interests of the Company. Awardee 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 Agreement and Awardee’s continuing obligations

4

contained herein. No provision of this Agreement shall diminish, negate or otherwise impact any separate noncompete or other agreement to which Awardee 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 Awardee contained in this Agreement, the provisions of this Agreement shall take precedence and such other inconsistent provisions shall be null and void. Awardee acknowledges and agrees that the restrictions and covenants of Awardee contained in this Agreement are being made for the benefit of the Company in consideration of Awardee’s receipt of the Restricted Share Units, in consideration of employment, in consideration of exposing Awardee 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. Awardee further acknowledges that the receipt of the Restricted Share Units and execution of this Agreement are voluntary actions on the part of Awardee and that the Company is unwilling to provide the Restricted Share Units to Awardee without including the restrictions and covenants of Awardee contained in this Agreement. Further, the parties agree and acknowledge that the provisions contained in Paragraph 6 and, if applicable, Paragraph 10 are ancillary to, or part of, an otherwise enforceable agreement at the time the agreement is made.

     13. Payment. Subject to the provisions of Paragraphs 4 through 7 and, if applicable, Paragraph 10, and unless Awardee makes an effective election to defer receipt of the Shares represented by the Restricted Share Units, on the date of vesting of any Restricted Share Unit, Awardee shall be entitled to receive from the Company (without any payment on behalf of Awardee other than as described in Paragraph 17) the Shares represented by such Restricted Share Unit; provided, however, that, subject to the next sentence, in the event that such Restricted Share Units vest prior to the applicable Vesting Date as a result of the death of Awardee or as a result of a Change of Control, Awardee shall be entitled to receive the corresponding Shares from the Company on the date of such vesting. Notwithstanding the proviso of the preceding sentence, if Restricted Share Units vest as a result of the occurrence of a Change of Control under circumstances where such occurrence would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Code Section 409A applies to such distribution, such proviso shall not apply and Awardee shall be entitled to receive the corresponding Shares from the Company on the date that would have applied absent such proviso. Elections to defer receipt of the Shares beyond the date of settlement provided herein may be permitted in the discretion of the Administrator pursuant to procedures established by the Administrator in compliance with the requirements of Section 409A of the Code.

     14. Dividends. Awardee shall not receive cash dividends on the Restricted Share Units but instead shall, with respect to each Restricted Share Unit, receive a cash payment from the Company on each cash dividend payment date with respect to the Shares with a record date between the Grant Date and the earlier of the forfeiture of such unit in accordance with the terms hereof or the settlement of such unit pursuant to Paragraph 13 hereof, such cash payment to be in an amount equal to the dividend that would have been paid on the Common Share represented by such unit.

     15. Right of Set-Off. By accepting these Restricted Share Units, Awardee consents to a deduction from, and set-off against, any amounts owed to Awardee by any member of the Cardinal Group from time to time (including, but not limited to, amounts owed to Awardee as wages, severance payments or other fringe benefits) to the extent of the amounts owed to the Cardinal Group by Awardee under this Agreement.

5

     16. No Shareholder Rights. Awardee shall have no rights of a shareholder with respect to the Restricted Share Units, including, without limitation, Awardee shall not have the right to vote the Shares represented by the Restricted Share Units.

     17. Withholding Tax.

     (a) Generally. Awardee is liable and responsible for all taxes owed in connection with the Restricted Share Units (including taxes owed with respect to the cash payments described in Paragraph 14 hereof), regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Restricted Share Units. The Company does not make any representation or undertaking regarding the tax treatment or the treatment of any tax withholding in connection with the grant or vesting of the Restricted Share Units or the subsequent sale of Shares issuable pursuant to the Restricted Share Units. The Company does not commit and is under no obligation to structure the Restricted Share Units to reduce or eliminate Awardee’s tax liability.

     (b) Payment of Withholding Taxes. Prior to any event in connection with the Restricted Share Units (e.g., vesting or settlement) that the Company determines may result in any domestic or foreign tax withholding obligation, whether national, federal, state or local, including any employment tax obligation (the “Tax Withholding Obligation”), Awardee is required to arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company. Unless Awardee elects to satisfy the Tax Withholding Obligation by an alternative means that is then permitted by the Company, Awardee’s acceptance of this Agreement constitutes Awardee’s instruction and authorization to the Company to withhold on Awardee’s behalf the number of Shares from those Shares issuable to Awardee at the time when the Restricted Share Units become vested and payable as the Company determines to be sufficient to satisfy the Tax Withholding Obligation. In the case of any amounts withheld for taxes pursuant to this provision in the form of Shares, the amount withheld shall not exceed the minimum required by applicable law and regulations. The Company shall have the right to deduct from all cash payments paid pursuant to Paragraph 14 hereof the amount of any taxes which the Company is required to withhold with respect to such payments.

     18. Beneficiary Designation. Awardee may designate a beneficiary to receive any Shares to which Awardee is entitled with respect to the Restricted Share Units which vest as a result of Awardee’s death. Notwithstanding the foregoing, if Awardee engages in conduct that is in violation of the covenants and restrictions contained in this Agreement, the Restricted Share Units subject to such beneficiary designation shall be subject to the Special Forfeiture/Repayment Rules and the Company’s Right of Set-Off or other right of recovery set forth in this Agreement, and all rights of the beneficiary shall be subordinated to the rights of the Company pursuant to such provisions of this Agreement. Awardee acknowledges that the Company may exercise all rights under this Agreement and the Plan against Awardee and Awardee’s estate, heirs, lineal descendants and personal representatives and shall not be limited to exercising its rights against Awardee’s beneficiary.

     19. 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 superseded 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 Restricted Share Units 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. In the event of any violation or attempted violations of the restrictions and covenants of Awardee contained in this Agreement, the Cardinal Group shall be

6

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 Awardee, and Awardee 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, Awardee shall be responsible to the Company for all costs and reasonable legal fees incurred by the Company with regard to such proceedings.

     20. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be determined by a court of competent jurisdiction to be invalid or unenforceable as written, it is the intent and desire of the parties that the court shall modify the language of such provision or portion of this Agreement to the extent necessary to make it valid and enforceable. If no such modification by the court is possible, this Agreement shall be deemed amended to delete therefrom only the provision or portion thus determined to be invalid or unenforceable. Such modification or deletion is to apply only with respect to the operation of such provision in the particular jurisdiction in which such court determination is made.

     21. Action by the Administrator. The parties agree that the interpretation of this Agreement shall rest exclusively and completely within the sole discretion of the Administrator. The parties agree to be bound by the decisions of the Administrator with regard to the interpretation of this Agreement and with regard to any and all matters set forth in this Agreement. The Administrator may delegate its functions under this Agreement to an officer of the Cardinal Group designated by the Administrator (hereinafter the “Designee”). In fulfilling its responsibilities hereunder, the Administrator or its Designee may rely upon documents, written statements of the parties or such other material as the Administrator or its Designee deems appropriate. The parties agree that there is no right to be heard or to appear before the Administrator or its Designee and that any decision of the Administrator or its Designee relating to this Agreement, including, without limitation, whether particular conduct constitutes a violation of the covenants, obligations and restrictions of Awardee set forth in Paragraphs 4 through 6 and, if applicable, Paragraph 10 above, shall be final and binding unless such decision is arbitrary and capricious.

     22. Prompt Acceptance of Agreement. The Restricted Share Unit grant evidenced by this Agreement shall, at the discretion of the Administrator, be forfeited if this Agreement is not manually executed and returned to the Company, or electronically executed by Awardee by indicating Awardee’s acceptance of this Agreement in accordance with the acceptance procedures set forth on the Company’s third-party equity plan administrator’s web site, within 90 days of the Grant Date.

     23. Electronic Delivery and Consent to Electronic Participation. The Company may, in its sole discretion, decide to deliver any documents related to the Restricted Share Unit grant under and participation in the Plan or future Restricted Share Units that may be granted under the Plan by electronic means or to request Awardee’s consent to participate in the Plan by electronic means. Awardee hereby consents to receive such documents by electronic delivery and 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, including the acceptance of restricted share unit grants and the execution of restricted share unit agreements through electronic signature.

     24. Notices. All notices, requests, consents and other communications required or provided under this Agreement to be delivered by Awardee to the Company will be in writing and will be deemed

7

sufficient if delivered by hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Company at the address set forth below:

Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
Attention: Chief Legal Officer
Facsimile: (614) 757-6813

All notices, requests, consents and other communications required or provided under this Agreement to be delivered by the Company to Awardee may be delivered by e-mail or in writing and will be deemed sufficient if delivered by e-mail, hand, facsimile, nationally recognized overnight courier, or certified or registered mail, return receipt requested, postage prepaid, and will be effective upon delivery to the Awardee.

CARDINAL HEALTH, INC.

By:

Its:

8

ACCEPTANCE OF AGREEMENT

     Awardee hereby: (a) acknowledges that he or she has received a copy of the Plan, a copy of the Company’s most recent annual report to shareholders and other communications routinely distributed to the Company’s shareholders, and a copy of the Plan Description dated [date of Plan Description] pertaining to the Plan; (b) accepts this Agreement and the Restricted Share Units granted to him or her under this Agreement subject to all provisions of the Plan and this Agreement, including the obligations and covenants set forth in paragraphs 4 through 7 above and, if applicable, paragraph 10 above; (c) represents that he or she understands that the acceptance of this Agreement through an on-line or electronic system, if applicable, carries the same legal significance as if he or she manually signed the Agreement; (d) represents and warrants to the Company that he or she is purchasing the Restricted Share Units for his or her own account, for investment, and not with a view to or any present intention of selling or distributing the Restricted Share Units either now or at any specific or determinable future time or period or upon the occurrence or nonoccurrence of any predetermined or reasonably foreseeable event; and (e) agrees that no transfer of the Shares delivered in respect of the Restricted Share Units shall be made unless the Shares have been duly registered under all applicable Federal and state securities laws pursuant to a then-effective registration which contemplates the proposed transfer or unless the Company has received a written opinion of, or satisfactory to, its legal counsel that the proposed transfer is exempt from such registration.

[

Awardee’s Signature

Awardee’s Social Security Number

Date]

9

EX-12.01

Exhibit 12.01

CARDINAL HEALTH, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

																Six Months
																Ended
	Fiscal Year Ended June 30,															December 31,
(in millions, except for ratios)	2001			2002			2003			2004			2005			2005
Earnings before income taxes, discontinued operations, and cumulative effect of change in accounting	$	1,340.8		$	1,737.2		$	2,088.9		$	2,243.0		$	1,690.2		$	791.2
Plus fixed charges:
Interest expense		158.1			134.2			119.6			101.9			167.9			92.3
Capitalized interest		2.7			3.9			6.3			8.1			8.2			2.5
Amortization of debt offering costs		2.3			3.1			3.3			3.6			3.4			1.6
Interest portion of rent expense(1)		37.5			32.9			18.4			20.2			24.9			13.2
Fixed charges		200.6			174.1			147.6			133.8			204.4			109.6
Plus amortization of capitalized interest		—			—			1.1			1.6			2.1			1.8
Less capitalized interest		(2.7	)		(3.9	)		(6.3	)		(8.1	)		(8.2	)		(2.5	)
Earnings	$	1,538.7		$	1,907.4		$	2,231.3		$	2,370.3		$	1,888.5		$	900.1
Ratio of earnings to fixed charges		7.7			11.0			15.1			17.7			9.2			8.2

⁽¹⁾ Fixed charges include the interest portion of rent expense. In calculating the interest portion of rent expense in fiscal 2001 and 2002, Cardinal Health used a prior convention which assumed that one-third of rental payments represented interest. Cardinal Health refined its calculation for fiscal 2003, 2004 and 2005.

EX-31.01

Exhibit 31.01

I, Robert D. Walter, certify that:

1.	I have reviewed this Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	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
d.	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: February 7, 2006

/s/ Robert D. Walter

Robert D. Walter
Chairman and Chief Executive Officer

EX-31.02

Exhibit 31.02

I, Jeffrey W. Henderson, certify that:

1.	I have reviewed this Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	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
d.	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: February 7, 2006

/s/ Jeffrey W. Henderson Jeffrey W. Henderson

Executive Vice President and Chief Financial Officer

EX-32.01

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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2005 containing the financial statements of the Company (the “Periodic Report”), 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.

Dated: February 7, 2006

   /s/ Robert D. Walter

Robert D. Walter

Chairman and Chief Executive Officer

EX-32.02

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, Jeffrey W. Henderson, Executive Vice President and Chief Financial Officer of Cardinal Health, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350, that:

(1) the Quarterly Report on Form 10-Q for the quarter ended December 31, 2005 containing the financial statements of the Company (the “Periodic Report”), 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.

Dated: February 7, 2006

   /s/ Jeffrey W. Henderson

Jeffrey W. Henderson

Executive Vice President and Chief Financial Officer

EX-99.01

Exhibit 99.01

     The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides a “safe harbor” for “forward-looking statements” (as defined in the PSLRA). Cardinal Health’s filings with the Securities and Exchange Commission (the “SEC”), including Cardinal Health’s annual report on Form 10-K for the fiscal year ended June 30, 2005 (the “2005 Form 10-K”), Cardinal Health’s Annual Report to Shareholders, any Form 10-Q or any Form 8-K of Cardinal Health (along with any exhibits to such Forms as well as any amendments to such Forms), our press releases, or any other written or oral statements made by or on behalf of Cardinal Health, may include or incorporate by reference forward-looking statements which reflect Cardinal Health’s current view (as of the date such forward-looking statement is first made) with respect to future events, prospects, projections or financial performance. These forward-looking statements are subject to certain risks and uncertainties and other factors that could cause actual results to differ materially from those made, implied or projected in or by such statements. These uncertainties and other factors 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 or deflation;

• uncertainties related to the re-negotiation of distribution service agreements entered into in connection with our Pharmaceutical Distribution business model transition with respect to how we are compensated for the logistical, capital and administrative services that we provide to branded pharmaceutical manufacturers;

• the Pharmaceutical Distribution business’ continued dependence upon pharmaceutical price inflation, which price inflation is often unpredictable, either as a component of compensation from a distribution service agreement or as the sole form of compensation from certain branded pharmaceutical manufacturers;

• 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;

• the costs, difficulties, and uncertainties related to the integration of acquired businesses, including liabilities related to the operations or activities of such businesses prior to their acquisition;

• the costs, difficulties, and uncertainties related to the organizational changes that combine our distribution businesses into a single operating unit;

• changes to the presentation of financial results and position resulting from adoption of new accounting principles or upon the advice of our independent accountants or the staff of the SEC;

• weaknesses in internal controls and procedures;

• difficulties and costs associated with enhancing our accounting systems and internal controls and complying with financial reporting requirements;

• changes in government regulations or our failure to comply with those regulations or other applicable laws;

• the results, effects or timing of any internal or external inquiry or investigation, including those by any regulatory authority and any related legal and administrative proceedings, which may include the institution of administrative, civil injunctive or criminal proceedings against us and/or our current or former employees, officers and/or directors, as well as the imposition of fines and penalties, suspensions or debarments from government contracting, and/or other remedies and sanctions;

• the impact of previously announced restatements;

• the costs and effects of commercial disputes, shareholder claims, derivative claims or other legal proceedings or investigations;

• the costs, effects, timing or success of restructuring programs or plans, including facility rationalizations;

• downgrades of our credit ratings, and the potential that such downgrades could negatively impact our access to capital or increase our cost of capital;

• increased costs for the raw materials used by our manufacturing businesses or shortages in these raw materials, or increased fuel costs with respect to our distribution businesses;

• the risks of counterfeit products in the supply chain;

• the possible adverse effects on us of the importation of pharmaceuticals and/or other health care products;

• injury to person or property resulting from our manufacturing, compounding, packaging, repackaging, drug delivery system development and manufacturing, information systems, or pharmacy management services;

• competitive factors in our healthcare service businesses, including pricing pressures;

• unforeseen changes in our existing agency and distribution arrangements;

• the continued financial viability and success of our customers, suppliers and franchisees;

• difficulties encountered by our competitors, whether or not we face 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;

• with respect to future dividends, the decision by the board of directors to declare such dividends, which is expected to consider our surplus, earnings, cash flows, financial condition and prospects at the time any such action is considered;

• with respect to future share repurchase programs, the approval of the board of directors, which is expected to consider our then-current stock price, earnings, cash flows, financial condition and prospects as well as alternatives available to us at the time any such action is considered;

• risks associated with international operations, including fluctuations in currency exchange ratios;

• costs associated with protecting our trade secrets and enforcing our patent, copyright and trademark rights, and successful challenges to the validity of our 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 or our failure to adequately comply with applicable regulations and quality practices or standards;

• potential liabilities associated with warranties of our information systems, and the malfunction or failure of our information systems or those of third parties with whom we do business, such as malfunctions or failures associated with date-related issues, incompatible software, improper coding and disruption to internet-related operations;

• 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 section entitled “Risk Factors” in this prospectus supplement and our 2005 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. We undertake no obligation (nor do we 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.

EX-99.02

Exhibit 99.02

SECOND AMENDMENT
TO THE
CARDINAL HEALTH 401(k) SAVINGS PLAN
(As amended and restated January 1, 2005)

Background Information

A.	Cardinal Health, Inc. (“Cardinal Health”) established and maintains the Cardinal Health 401(k) Savings Plan (the “Plan”) for the benefit of participants and their beneficiaries.
B.	The Cardinal Health, Inc. Financial Benefit Plans 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 remove the last day of the fiscal year employment requirement related to the transition contribution applicable to certain participants of the R.P. Scherer Employees’ Retirement Income Plan.
D.	The Committee also desires to amend the Plan to revise the compensation allocation period used in determining the amount of the transition benefit.
E.	Section 12.02 of the Plan permits the amendment of the Plan at any time.

Amendment of the Plan

     The Plan is hereby amended as follows, effective July 1, 2005 unless another date is set forth below:

1.   Section C. of Schedule V of the Plan is amended in its entirety to read as follows:

C. Transition Contribution for Participants in the R.P. Scherer Employees’ Retirement Income Plan. The Employer shall make a Transition Contribution on behalf of an Employee of Cardinal Health 409, Inc. (f/k/a R.P. Scherer Corporation) who:

(i)	was a Participant in the R.P. Scherer Corporation Employees’ Retirement Income Plan (the “Pension Plan”) on December 31, 2002;
(ii)	completed at least five (5) Years of Service on or before December 31, 2002;
(iii)	attained at least age fifty (50) on or before December 31, 2002; and
(iv)	was employed by Cardinal Health 409, Inc. on the last day of an applicable Fiscal Year for Fiscal Years ending on or before June 30, 2005. For Fiscal Years beginning on and after July 1, 2005, this subsection (iv) shall not apply.

The amount of the Transition Benefit shall be a percentage of Compensation based on the Participant’s Years of Service in the Pension Plan as of December 31, 2002:

	Transition Benefit
Years of Service (as of 12/31/02)	Percentage
Less than five (5)		0	%
At least five (5) but less than ten (10)		1.5	%
At least ten (10) but less than fifteen (15)		3.5	%
At least fifteen (15) but less than twenty (20)		5.5	%
At least twenty (20) but less than twenty-five (25)		7.5	%
Twenty-five (25) or more		9.5	%

The Transition Benefit shall be contributed to the Participant’s Account for each Fiscal Year in which the Participant satisfies the criteria set forth in this subsection C beginning on January 1, 2003 and ending on June 30, 2005 and effective July 1, 2005, for each Plan Year (or remaining portion thereof) beginning on July 1, 2005 and ending on December 31, 2008.

Compensation used to determine the amount of the Transition Benefit for an applicable allocation period shall be based on the following:

Fiscal Year (July 1 to June 30)	Period Used to Determine Compensation
2003	January 1, 2003 to June 30, 2003
2004	July 1, 2003 to June 30, 2004
2005	July 1, 2004 to June 30, 2005

Calendar Year(eff. July 1, 2005)	Period Used to Determine Compensation
2005	July 1, 2005 to December 31, 2005
2006	January 1, 2006 to December 31, 2006
2007	January 1, 2007 to December 31, 2007
2008	January 1, 2008 to December 31, 2008

2.   All other Plan provisions shall remain in full force and effect.

CARDINAL HEALTH, INC.
By:	/s/ Susan Nelson
	Susan Nelson
Its: Senior Vice President of Total Rewards
	Date: 10/18/05

EX-99.03

Exhibit 99.03

AMENDMENT NUMBER THREE TO THE
BAKER & HOSTETLER LLP DEFINED CONTRIBUTION PLAN AND TRUST
PROTOTYPE BASIC PLAN DOCUMENT AND
NONSTANDARDIZED PROFIT SHARING ADOPTION AGREEMENT #001

          WHEREAS, the Sponsoring Employer identified below maintains the Plan identified below through the adoption of the Adoption Agreement for the Baker & Hostetler LLP Prototype Plan, Nonstandardized Profit Sharing Plan and Trust (the “Adoption Agreement”) and the Basic Plan Document #001 (“Basic Plan Document”);

          WHEREAS, effective for mandatory cash-outs, as defined by Internal Revenue Code (“Code”) Section 411(a)(11), in excess of $1,000 and that occur on and after March 28, 2005, the “automatic rollover rule” of Code Section 401(a)(31)(B), as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), shall apply to all tax-qualified plans;

          WHEREAS, Internal Revenue Service (“IRS”) Notice 2005-5 provides guidance with respect to the implementation of the automatic rollover rule and for the adoption of good faith amendments in compliance with certain provisions of EGTRRA and the EGTRRA remedial amendment period provided in IRS Notice 2001-42, as modified by IRS Notice 2001-56 and extended by Revenue Procedure 2004-25;

          WHEREAS, Section 12.1[a][1] of the Basic Plan Document permits the Sponsoring Employer, at any time, to amend the Plan with respect to the variable options set forth in the Adoption Agreement by delivering to the Trustee signed copies of an amended Adoption Agreement, and that such an amendment shall not adversely affect the prototype status of the Plan;

          WHEREAS, Section 12.1[b] of the Basic Plan Document permits Baker & Hostetler LLP (the “Prototype Sponsor”), at any time, to make general amendments to the Basic Plan Document and/or the Adoption Agreement with appropriate notice to the Sponsoring Employer;

          NOW THEREFORE, the Sponsoring Employer hereby amends the Plan by changing certain options previously selected in the Adoption Agreement effective as of the date indicated herein, and hereby accepts the Prototype Sponsor’s amendment of the Basic Plan Document. Further, the Prototype Sponsor hereby amends the Basic Plan Document by the provision provided herein, effective as of the date indicated herein, which such amendment is intended as good faith compliance with the requirements of Code Section 401(a)(31)(B), and is materially identical in substance to the model amendment provided in Notice 2005-5, and is to be construed in accordance with EGTRRA and subsequent related guidance.

IDENTIFICATION OF THE SPONSORING EMPLOYER AND THE PLAN

1.	Name of the Sponsoring Employer: Cardinal Health 414, Inc.
2.	Business address: 7000 Cardinal Place

(Street Address)

Dublin	Ohio	43017
(City)	(State)	(Zip Code)

3.	Business telephone number: (614) 757-5000
4.	Business entity: þ C. Corp. o S. Corp. o Partnership o Sole Proprietorship o Tax-Exempt Entity oLimited Liability Company o Other:
5.	Employer tax identification number (EIN): 85-0229124
6.	Plan number: 002
7.	The Plan name is : Syncor International Corporation Employees’ Savings and Stock Ownership Plan
8.	Effective Date of Amendment Number Three: The elective option amended by the Sponsoring Employer and the amendment to the Basic Plan Document in this Amendment Number Three shall be effective with respect to distributions made on or after the dates indicated herein, and shall apply to Adoption Agreement #001, adopted by the Adopting Employer effective as of August 1, 2003 [indicate the effective date of the last restatement of the entire Adoption Agreement, such as January 1, 1997].

AMENDMENT NUMBER THREE
Adoption Agreement #001 Provisions

1. Item XII.A. of the Adoption Agreement shall be revised to reflect the changes required by Code Section 401(a)(31)(B) (relating to automatic rollovers) to read as follows:

A. Post-Termination of Employment Mandatory Cash-Outs.

1. Mandatory Cash-Out Limits and Automatic Rollover Provisions. On and after March 28, 2005 [enter a date not later than March 28, 2005], the total vested Account balance shall be distributed in a lump sum or rollover to an individual retirement account, regardless of optional form of benefit selected below, subject to the mandatory cash-out limit selected herein (select one):

o Cash-Out Limit in Excess of $1,000 and Implementation of Automatic Rollover Provisions. The dollar limitation for mandatory cash-outs of Accounts shall be $                                         (not to exceed $5,000). The provisions of Section 9.1[b] of the Basic Plan Document requiring automatic rollover provisions shall be applicable

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	for all distributions in excess of $1,000. For purposes of determining whether an Account exceeds the $5,000 (or selected) limit, distributions after January 1, 2002 (indicate a date no earlier than January 1, 2002), the present value of the Account o will o will not include any rollover contributions (as defined in Section 4.4[c] of the Basic Plan Document and permitted by Item V.C. of the Adoption Agreement as modified by Amendment Number One) and earnings attributable thereto.
þ	Cash-Out Limit of $1,000 or Less. The dollar limitation for mandatory cash-outs of Accounts shall be $ 1,000 (not to exceed $1,000) for (select one):o Participants only or þ  Participants, Beneficiaries and alternate payees (as defined in Code Section 414(p)). For purposes of determining whether an Account exceeds the $1,000 limit, rollover contributions (as defined in Section 4.4[c] of the Basic Plan Document and permitted by Item V.C. of the Adoption Agreement) and earnings attributable thereto shall be taken into account.
o	No Cash-Out Limit. As of March 28, 2005, the Plan will no longer permit the distribution of an Account without Participant or Beneficiary consent.

2. Timing of Mandatory Cash-Out Distributions. Distribution of the Participant’s Account will be distributed within an administratively reasonable period of time after:
(Select all, some or none)

þ a.	the Participant’s termination of employment.
o b.	the last day of the Plan Year in which the Participant’s termination of employment occurs.
o c.	the valuation date next following the Participant’s termination of employment.
o d.	the Participant attains Normal Retirement Age (or early retirement age, if any) under the Plan.
þ e.	the Participants suffers a Total Disability.
þ f.	the death of the Participant.
o g.	the last day of the Plan Year in which the Participant incurs a _________-year Break in Service, if the Participant’s employment terminated other than by death, Total Disability or after attainment of Normal Retirement Age (or early retirement age, if any) under the Plan.
o h.

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(This election may be used to select a date or criteria necessary to preserve an optional form of benefit under Code Section 411(d)(6). Choose some other objective date or other criteria that precludes the Plan Administrator’s or Employer’s exercise of discretion as prohibited under§1.411(d)-4 of the Income Tax Regulations).

Basic Plan Document Provisions

The Prototype Sponsor hereby amends Section 9.1[b] of the Basic Plan Document by the addition of a new paragraph at the end thereof, to require automatic rollovers for certain mandatory cash-outs as defined therein that exceed $1,000, which such new paragraph shall read as follows:

     “Effective for distributions occurring on or after March 28, 2005, in the event of a mandatory cash-out (to the extent required by Section 9.1[b] of the Basic Plan Document and as elected in Item A of Article XII of the Adoption Agreement) that is greater than $1,000 (including any portion of the Account Balance that is attributable to rollover contributions (and earnings allocable thereto) as defined in Section 4.4[c] of the Basic Plan Document), if the Participant does not elect to have such distribution paid directly to an Eligible Retirement Plan specified by the Participant in a Direct Rollover, as provided by Section 9.7 of the Basic Plan Document, or to receive the distribution directly in a lump sum, then such distribution will be paid in the form of a Direct Rollover to the Individual Retirement Plan designated by the Plan Administrator in a manner consistent with Code Section 401(a)(31)(B) and related regulations or other applicable published guidance. To the extent that the election in Item A is limited to Participants, the Accounts of Beneficiaries and alternate payees (as defined in Code Section 414(p)), shall remain subject to the general cash-out provisions set forth with this Section.”

The Adoption Agreement and the Basic Plan Document remain otherwise unchanged.

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SIGNATURES

     The Sponsoring Employer and any Additional Adopting Employers, by their appropriate officers or representatives duly authorized, have caused this Amendment Number Three to be executed as of the date indicated below:

PROTOTYPE SPONSOR:		SPONSORING EMPLOYER:
Amendment Approved by:
BAKER & HOSTETLER LLP		Cardinal Health, Inc.
		(Name of Sponsoring Employer)
By	/s/ Georgeann G. Peters
Baker & Hostetler LLP
3200 National City Center		By	/s/ Susan M. Nelson
1900 E. Ninth Street
Cleveland, Ohio 44114-3485		Title	SVP Total Rewards
(216) 621-0200
		Date	12/16/05
And by
Baker & Hostetler LLP
Capitol Square, Suite 2100
65 East State Street
Columbus, Ohio 43215-4260
(614) 228-1541

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