essential to care Annual Report 2008 In today’s complex world of healthcare, safe and efficient care is not optional. It is essential. At Cardinal Health, we work with hospitals and pharmacies across the globe every day to improve the safety and productivity of the care they provide. Long before a patient arrives at a hospital for treatment or calls a pharmacy for a prescription, Cardinal Health is an essential part of delivering safe and eff icient care. We provide the medical technologies that help ensure safe doses of critical medications at the bedside. Our surgical gloves help protect both caregivers and patients from infections. We deliver medicine to pharmacies, so it is ready to be dispensed at a moment’s notice. These are just a few examples of how Cardinal Health is essential to care. But it is not enough to provide the products and services that are essential in today’s healthcare system. At Cardinal Health, essential to care means: Caring about our customers. Caring about patient outcomes. Caring about employees. Caring about shareholders. Caring about our communities. Essential to care. It is the driving force behind Cardinal Health’s mission of making healthcare safer and more productive. Chairman’s letter To our customers, employees and shareholders: In the United States and around the world, the cost of to do: help sick patients get better. That’s why we believe delivering healthcare continues to accelerate. I believe that that no company is better positioned than Cardinal Health one of the keys to driving a meaningful reduction in the cost to streamline the healthcare supply chain, help clinicians of care is improving the quality of care. reduce medical errors, prevent infections and, in turn, reduce the overall cost of care. Consider these facts. Hospital-acquired infections aff ect an estimated one in every 20 patients admitted to hospitals It is with this backdrop that I review what we achieved in in the United States. This results in signifi cant increases in fiscal 2008 and look ahead to the future. morbidity, mortality and cost. The Institute of Medicine concluded there are at least 1.5 million preventable adverse Fiscal 2008 Review drug events in the United States each year. And at $2 trillion For fiscal 2008, consolidated revenue was up 5 percent over annually, the United States leads the world in healthcare the prior year to $91 billion. Operating earnings increased expenditures, spending 50 percent more per capita than 54 percent to $2.1 billion, and non-GAAP operating any other industrialized nation. earnings* increased 3 percent. Diluted EPS from continuing operations was $3.61, 74 percent above the prior year, and At Cardinal Health, making healthcare safer and more non-GAAP diluted EPS from continuing operations* was cost-eff ective is our goal. It is an ambitious goal and an $3.80, 11 percent above the prior year. Overall, we made attainable one. We distribute one-third of all pharmaceutical steady progress in fiscal 2008 in Healthcare Supply Chain products in the United States. We provide a large range of Services, combined with very strong top and bottom line medical supplies and are an industry leader in products and growth from Clinical and Medical Products. technologies for infection prevention, infusion, medication and supply dispensing, and respiratory care. We help About two years ago, we began to focus Cardinal Health to doctors, nurses and other clinicians do what they are trained serve customers in these two distinct areas of the healthcare industry. We continued this evolution in July 2008 – at the beginning of fiscal 2009 – by organizing our core businesses as two, separate operating and reporting segments. This evolution of our structure is important, because over time, it has become clear that Healthcare Supply Chain Services and Clinical and Medical Products have very diff erent characteristics and need the fl exibility to deploy resources and manage operations that optimize their business models and deliver value to customers. R. Kerry Clark, Chairman and Chief Executive Off icer Cardinal Health 2008 Annual Report As we announced in early August, we are studying whether Our medical supply chain business made great strides in fiscal or not we should take yet another step and separate 2008, and as we expected, the second half of the year marked a Cardinal Health into two, publicly traded companies, each return to growth. We also were awarded some key contracts late focused on its distinct area of the healthcare market and its in the year that will benefi t us in the second half of fi scal 2009. We own set of business opportunities. Our goal is simple. We have good momentum in our core medical product distribution want to allow each business to become the best it can be in businesses – hospital supply, scientifi c products/laboratory and meeting the needs of our customers, our shareholders and ambulatory care – and expect that momentum to continue our employees. through fiscal 2009. And while there was some softness in our surgical kitting business, we expect a return to profitable year- A decision may have been publicly announced by the time you over-year growth in fi scal 2009. are reading this letter. Whatever the decision, we continue to see excellent long-term potential for both Healthcare Supply Chain Overall for fiscal 2008, the Healthcare Supply Chain Services – Services and Clinical and Medical Products, and we believe that Pharmaceutical and Healthcare Supply Chain Services – Medical we have been taking the necessary steps to put us on the right segments grew combined revenue* by 4 percent to $87 billion, path for the future. with combined segment profit* declining 12 percent to $1.4 billion. Our anti-diversion investments, large chain customer Healthcare Supply Chain Services contract re-pricings and a decline in overall pharmaceutical The combination of a pharmaceutical and medical product market growth contributed to the profit decline; however, supply chain business provides us the opportunity to serve we expect to return to profitable growth in the second half hospitals, clinical laboratories, ambulatory care centers and of fiscal 2009. doctors’ off ices with the industry’s most effi cient network Looking ahead, we are focused on executing the basics with of distribution centers. Our ability to improve the customer excellence and on increasing the business we have with experience and to drive additional eff iciencies, as well as an our existing customers by capturing a greater share of their increasingly aging population, will be the primary growth purchases. We are doing this by improving the quality and drivers for this business. value of our off erings, while ensuring those off erings are During fiscal 2008, Healthcare Supply Chain Services faced some profi table for Cardinal Health. And the work we are doing in challenges, particularly in pharmaceutical distribution. During category management will help us improve our customer mix. the second quarter, the Drug Enforcement Administration (DEA) Clinical and Medical Products suspended our licenses to distribute controlled substances from three of our 24 pharmaceutical distribution centers. Clinical and Medical Products had another terrifi c year and is Preventing prescription drug abuse is a public policy goal that quickly becoming one of the leading med-tech businesses in Cardinal Health fully supports. We do not want these powerful the world, with leadership positions in medication and supply drugs in the wrong hands. We have strengthened our quality and dispensing, infusion systems, respiratory care and infection regulatory aff airs team and implemented new systems to better prevention. We provide clinically diff erentiated products and report suspicious orders to state and federal regulatory agencies. services that make it easier for clinicians to follow evidence-based In August, we announced an agreement-in-principle with the DEA protocols and deliver simple and compelling economic benefits. to resolve our controlled substance license suspensions. While During the year, Clinical and Medical Products remained ahead we cannot predict the ultimate timing or terms of any settlement of schedule for the VIASYS Healthcare integration. We also made with the DEA, we expect the suspensions to be lifted by the end a significant investment to expand our infection prevention of calendar 2008. Cardinal Health 2008 Annual Report off erings through the acquisition of Enturia, the manufacturer In fiscal 2009, we are resolutely focused on putting a stronger of surgical skin preparation products marketed under the foundation for future growth under both segments. We plan to ChloraPrep® brand name. And we continue to make good invest an incremental $100 million in fiscal 2009 to ensure we progress on the remediation efforts for Alaris® infusion products. continue to strengthen our position. For Clinical and Medical Products, we are investing approximately $50 million in R&D Coming off of a breakout year in fiscal 2007, the combined to develop new products that improve patient safety. And revenue* for the Clinical Technologies and Services and Medical approximately $50 million will be invested in information Products and Technologies segments grew by 24 percent to technology for Healthcare Supply Chain Services to improve $5.6 billion, and the combined segment profit* increased how we serve our customers. These are important investments 36 percent to nearly $800 million in fiscal 2008. Under our new that I believe will increase future growth for both segments. segment reporting structure, Clinical and Medical Products would have achieved even stronger performance in fiscal 2008 In closing with a 30 percent increase in revenue to $4.6 billion, and a A look at the future of the company is not complete without 37 percent increase in profit to $735 million. While the addition reflecting on the past. We would not be in the enviable position of VIASYS fueled a portion of this growth, we continued to see to change the face of healthcare without the vision, dedication great execution for the technologies that help protect against and leadership of company founder, Robert D.