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Cardinal Health Reports Record Third Quarter Revenues And Earnings

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DUBLIN, Ohio, April 23, 2002 - Cardinal Health, Inc. (NYSE: CAH) today reported record third quarter financial results reflecting exceptional profitability and productivity performance across all four of its business segments. Diluted earnings-per-share (EPS) grew 27 percent before special items. This result was driven by record revenues and improvements in gross margin, expense ratios and returns on sales and committed capital in all segments. The company generated strong operating cash flow and increased investment spending to fund future growth.

EPS before special items, which were primarily merger related, rose 27 percent to $0.71 for the third quarter versus $0.56 last year. Operating revenue grew by 12 percent to an all-time record $11.5 billion versus prior year revenue of $10.3 billion. Operating earnings rose 22 percent to an all-time record $533 million versus prior year earnings of $436 million. Operating cash flow more than doubled versus the prior year to $504 million.

"Cardinal Health continues to demonstrate that its balanced portfolio of high-growth health care businesses provides for sustained financial performance," said Robert D. Walter, chairman and chief executive officer of Cardinal Health.

"We are pleased with the profit expansion and productivity advances achieved in each of our segments. The highlights for the quarter are the rising returns in all segments, strong earnings performance in Pharmaceutical Distribution and Provider Services, and robust results in Automation and Information Services.

"With leading market positions in all our businesses, we remain highly confident in our ability to extend our competitive advantage in expanding markets. Cardinal Health is on track to deliver fourth quarter earnings growth of 20 percent or more, which will complete our 15^th consecutive year of annual EPS growth of at least 20 percent, with rising returns on sales and committed capital," concluded Walter.

For the first three quarters of fiscal year 2002, Cardinal Health generated exceptionally strong top-and bottom-line financial results. Operating revenues increased 15 percent over prior year to $32.6 billion. Before special items and the cumulative effect of the change in accounting principle related to the previously announced business model changes at Pyxis, operating earnings improved 23 percent to $1.4 billion, net earnings rose 29 percent to $873 million, and earnings per diluted share increased 27 percent to $1.90.

Third Quarter Consolidated Financial Highlights
Fiscal year 2002 results reflect the adoption of Statement of Financial Accounting Standards No. 142, which eliminated goodwill amortization beginning July 1, 2001. To facilitate comparison with the prior year period in the discussion below, a pro forma adjustment has been made eliminating goodwill amortization from the fiscal year 2001 results. The following discussion also excludes special items, which are primarily merger-related.

Net earnings rose 22 percent to an all-time record of $325 million from $266 million a year ago. This growth was based on an operating revenue increase of 12 percent to an all-time high $11.5 billion versus prior year revenue of $10.3 billion.

• Earnings per diluted share rose 22 percent to $0.71 versus $0.58 last year.
• Operating earnings rose 19 percent to an all-time record of $533 million from $449 million a year ago.
• Gross margins were up in all segments resulting in a consolidated 9.26 percent ratio to sales, an 11 basis point increase.

• Selling, general and administrative expenses (SG&A) as a percent of sales dropped to 4.64 percent, an improvement of 17 basis points, due to the company's continued focus on disciplined expense control and prior investments in operational efficiencies.


• Solid operating revenue growth along with gross margin improvements in all segments and continued expense efficiencies drove a return on sales increase of 28 basis points to 4.62 percent.


• Current earnings funded investment spending for research & development and other strategic initiatives and totaled more than $25 million, an increase over last year. The company's "follow on" investment strategy strongly positions Cardinal Health to take advantage of business opportunities that fuel future growth.

• Cardinal Health capitalized on lower interest rates and effective asset management to reduce its interest expense by 9 percent versus prior year. The company's long-term tax efficiency initiative, which includes increasing the mix of international activities, resulted in a tax rate of 34.1 percent, a decline of 20 basis points versus prior year.
• Return on committed capital increased to a third quarter record 31.7 percent versus 30.6 percent last year, a solid 110 basis point improvement, on the strong operating earnings growth and improved net asset turnover.
• Operating cash flow of $504 million in the quarter allowed the company to remain on track to meet its goal of generating between $800 million and $900 million in operating cash flow for fiscal year 2002. Inventories declined by $353 million sequentially from the second quarter reflecting standard seasonal cycles. Accounts receivable days outstanding improved to 18 days versus 21 days last year.

Business Segment Results
Cardinal Health concentrates on providing customers with broad-based solutions to their health care needs and continues to capitalize on cross selling opportunities across its business segments. During the third quarter, the company signed eight new corporate agreements with health care providers valued at $196 million in incremental annual volume across the segments.

Pharmaceutical Distribution and Provider Services (PDPS)

This segment, which represents 56 percent of third quarter operating earnings, posted record revenue. Total revenues grew 13 percent to $9.5 billion driven by solid sales increases across all customer segments, including growth in mail order and government customers, and strong results in specialty distribution. The revenue growth was affected by one less billing day in the quarter, which impacted growth by approximately 2 percent, and the challenging prior year comparison. This quarter's revenue performance follows the remarkable 39 percent revenue growth experienced in the third quarter of 2001. The third quarter revenue growth rate compounded over the past two years has been a healthy 25 percent, which compares favorably to the two-year compounded growth rate of 23 percent in the first half of this year.

Gross margin improved to 5.45 percent reflecting some abatement of sell side margin declines complemented by extension of the company's buying power and expertise to recent acquisitions and positive seasonal vendor margin opportunities. Gross margins in the third quarter are traditionally the highest for the year.

Operating expenses declined to a third quarter record low of 2.15 percent, a decrease of 20 basis points, due to leveraging costs associated with new volumes, automation, new facilities, and the integration of Bindley Western Industries (BWI). The BWI integration continues ahead of schedule and during the quarter another two BWI distribution centers were consolidated for a year-to-date total of twelve. Two additional facilities will be consolidated by fiscal year end.

Operating earnings were strong at $315 million, an increase of 22 percent. Return on sales improved 24 basis points to a record 3.30 percent. Return on committed capital improved to a third quarter record 31.4 percent, a 20 basis point increase.

Medical-Surgical Products and Services

This segment, which represents 24 percent of third quarter operating earnings, generated record revenues. Revenues reached $1.6 billion, an increase of 4 percent, despite one less billing day in the quarter. Gross margin improved to 22.39 percent for the quarter, a 42 basis point increase, on the sales strength of self-manufactured products and productivity improvements in the company's manufacturing operations. Sales were particularly positive for the higher margin surgical instruments and custom kitting products.

Continued productivity resulted in operating expenses declining to a third quarter record low of 13.51 percent, a 45 basis point decrease. This drove a return on sales increase of 87 basis points to an all-time record 8.88 percent. The shift in product mix to self-manufactured products enabled the segment to report an all-time high of $139 million in operating earnings, a 15 percent increase. Notably, return on committed capital increased to an all-time record 35.8 percent, a healthy 470 basis point improvement from the previous year as a result of strong operating earnings and higher net asset turnover. This segment also generated a record $184 million of operating cash flow.

Pharmaceutical Technologies and Services (PTS)

Representing 11 percent of third quarter operating earnings, this segment generated record third quarter revenues of $316 million, a 5 percent increase. Revenue gains in development and analytical services and contract packaging were particularly strong. Solid revenue growth also occurred in manufactured products, namely Abbott Laboratories' Kaletra^®, Wyeth's Advil^® Liqui-Gels^®, Eli Lilly and Company's Zyprexa^® Zydis^®, and Pharmacia Corporation's Detrol^®LA. This revenue momentum was partially offset by lower than expected revenue from Schering-Plough's Claritin^® Redi-Tabs^®, and changes to the anticipated market launches of domestic generic isotretinoin product and the Zydis version of Schering-Plough's Clarinex^®. These products are in the final stages of FDA approval.

Gross margin improved to 32.83 percent, an 85 basis point improvement, driven by the increasing mix of pharmaceuticals manufactured by PTS versus health and nutritional products, and cost efficiencies at manufacturing plants due to recent infrastructure investments. Operating expenses declined to 13.57 percent, a strong 112 basis point reduction. Return on sales improved to 19.26 percent, a 197 basis point improvement. Operating earnings reached $61 million, an increase of 17 percent versus prior year and a third quarter record. Return on committed capital improved to 24.4 percent, a 60 basis point improvement.

• A significant step in Cardinal Health's creation of the most comprehensive, independent pharmaceutical development services platform in the industry was the April 2002 opening of a new development facility in Somerset, New Jersey. This facility will provide a world-class solution for pharmaceutical companies looking to outsource analytical chemistry and other development projects. The capabilities of Magellan Laboratories Incorporated, a leading full-service contract pharmaceutical development organization whose previously announced acquisition was completed on April 15th, will be integrated with the New Jersey facility.

Automation and Information Services (AIS)

This segment, representing 9 percent of third quarter operating earnings, recorded exceptional performance. AIS generated $142 million in revenue, a strong 27 percent improvement and third quarter high. AIS produced gross margin improvements of 25 basis points to 69.06 percent and lowered expenses to generate a third quarter record return on sales of 37.49 percent, a 64 basis point improvement. AIS was the fastest growing segment this quarter, which is significant given its high returns on sales and capital.

Operating expenses decreased to a third quarter low of 31.57 percent, a 39 basis point improvement, based largely on the company's move to a build-to-order manufacturing process and productivity improvements instituted in calendar year 2001. As a result, operating earnings were $53 million, a 29 percent increase and third quarter record. The return on committed capital increased to an impressive 39.2 percent from 23.8 percent in prior year on the strong operating earnings growth and capital reductions from the company's process improvements.

For the quarter, Pyxis increased its backlog of committed contracts by $2 million to $183 million as contracts for future sales exceeded installations. Committed contracts are defined as signed, non-cancelable lease agreements for future installation of equipment. Pyxis signed $108 million in committed contracts in the quarter, up 30 percent versus a year ago and a significant leading indicator of future quarterly revenue.

• The revenue growth was driven by the expanding market demand for Cardinal Health's patient safety and supply management product lines. Sales of MedStation^® SN, the company's flagship patient safety product, significantly contributed to a strong sales growth rate for the entire MedStation product line. Sales of SupplyStation^® System 30, introduced in 2001, drove a substantial sales increase for the entire SupplyStation product line.

Special Items

Special items for the third quarter and fiscal year-to-date periods were primarily merger related. In the third quarter, special items totaled $39.1 million versus $86.3 million last year. For the first three quarters, special items totaled $68.2 million versus $106.6 million last year.

Outlook

"Cardinal Health is a dynamic differentiated leader in growing health care markets, a clear position of strength that we will continue to capitalize on going forward," said Walter. "Our business model is performing exceptionally well. We have a diversified portfolio of high growth health care companies that offer the broadest range of products and services to our customers. We believe the future for health care service providers who deliver real value to customers has never been better."

Conference Call Today

Cardinal Health has scheduled a conference call for today at 11 a.m. Eastern Standard Time to discuss its third quarter financial performance and outlook. To access this discussion via the internet, visit www.cardinal.com and click on Investor Relations. For those without internet access, the company has also established a telephone call-in line at 706-679-0766. A replay of the conference call will be available until April 26, 2002 on Cardinal Health's website or by dialing 706-645-9291, passcode 3446051.

About Cardinal Health

Cardinal Health, Inc. (www.cardinal.com ) is the leading provider of products and services supporting the health care industry. Cardinal Health companies develop, manufacture, package and market products for patient care; develop drug-delivery technologies; distribute pharmaceuticals, medical-surgical and laboratory supplies; and offer consulting and other services that improve quality and efficiency in health care. Headquartered in Dublin, Ohio, the company employs more than 49,000 people on five continents and produces annual revenues of more than $40 billion. Cardinal Health is ranked #23 on the current Fortune 500 list and was named one of "The World's Best" companies by Forbes magazine in April 2002.

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Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal Health's Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) the costs, difficulties, and uncertainties related to the integration of acquired businesses, the loss of one or more key customer or supplier relationships, changes in the distribution outsourcing patterns for health-care products and/or services, the costs and other effects of governmental regulation and legal and administrative proceedings, and general economic conditions. Cardinal undertakes no obligation to update or revise any forward-looking statements.