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Cardinal Health Reports Record Fourth Quarter And Fiscal Year 2003 Financial Performance

DUBLIN, Ohio, July 31, 2003 — Cardinal Health, Inc. (NYSE: CAH), the leading provider of products and services supporting the health care industry, today reported record results for the fourth quarter and fiscal year ended June 30, 2003.

As reported in accordance with generally accepted accounting principles, operating revenues rose 15 percent for the fourth quarter to $13.5 billion from $11.8 billion a year ago. Earnings per diluted share from continuing operations grew 28 percent to $0.82 for the fourth quarter, up from $0.64 a year ago. Operating earnings rose 22 percent to a record $575 million for the quarter, up from $471 million a year ago. Earnings from continuing operations were up 25 percent to $371 million for the quarter, up from $296 million a year ago.

For the full fiscal year 2003, operating revenues rose 14 percent to $50.5 billion from $44.4 billion a year ago. Earnings per diluted share from continuing operations grew 27 percent to $3.12 for the year compared to $2.45 a year ago. Operating earnings rose 22 percent to $2.2 billion for the year, up from $1.8 billion in the prior year. Earnings from continuing operations, before the cumulative effect of a change in accounting, were up 25 percent to $1.4 billion for the year, up from $1.1 billion a year ago.

“We’ve completed another fiscal year with impressive financial results – results that demonstrate the benefits of a focus on the fast growing health care industry, our market leading positions, and our broad and diverse offering to our customers,” said Robert D. Walter, chairman and chief executive officer, Cardinal Health. “Acceleration in demand for our proprietary products and services in our pharmaceutical technologies, automation and medical products businesses drove the strong performance in the fourth quarter.

“Importantly, we continued to ensure future growth of our business, investing approximately $1.5 billion in 2003 in strategic growth initiatives, research and development, acquisitions, and capital expenditures,” Walter said. “Record revenues, strong gross margins and continued improvement in productivity yielded record rates of return on sales, committed capital and equity. Our balance sheet is the strongest it has ever been with $1.7 billion in cash at year end, allowing us to maximize growth opportunities to build on our leadership positions in the marketplace and giving us confidence that Cardinal Health will continue to deliver exceptional performance into fiscal 2004 and beyond.”

FINANCIAL HIGHLIGHTS

Cardinal Health incurred special items during the quarter and year consisting of merger-related costs and restructuring charges, partially offset by litigation settlement income. These items totaled $49 million ($33 million after tax) in the fourth quarter, compared to $70 million ($45 million after tax) in the same period last year, and reduced earnings per diluted share in the current quarter and comparable quarter by $0.07 and $0.10, respectively. For the year, special items totaled $40 million ($33 million after tax) in 2003, compared to $139 million ($87 million after tax) in the prior year and reduced earnings per diluted share in fiscal 2003 and 2002 by $0.07 and $0.19, respectively.

The following discussion adjusts certain amounts as reported to exclude special items incurred during the quarter and the fiscal year. Please see the attached financial table for a reconciliation of the reported amounts to the amounts excluding these items and for related definitions and components.

Fourth Quarter

Earnings per diluted share from continuing operations rose 20 percent to $0.89 versus $0.74 last year. Earnings from continuing operations rose 19 percent to an all-time record of $405 million from $341 million a year ago.

• Operating revenues rose 15 percent to an all-time high of $13.5 billion, from $11.8 billion a year ago.

• Operating earnings rose 15 percent to an all-time record of $625 million from $541 million a year ago.

• Interest expense and other declined by 11 percent, driven by strong cash flow and lower interest rates.

• Return on sales was 4.62 percent, up 2 basis points, and return on equity was 21.5 percent, both consistent with the strong performance a year ago.

• Operating cash flow of $882 million in the quarter was exceptional as a result of effective working capital management, lower inventory investments in the pharmaceutical distribution business and the cash flow benefit from the sale of $156 million of automation leases. Total company inventories grew by less than 4 percent from the prior year. Accounts receivables days outstanding remained steady at 17 days.

• The ratio of net debt-to-total capital declined to a record low of 11 percent, and the company ended the quarter with a record $1.7 billion cash on hand.

Fiscal Year 2003

Earnings per diluted share from continuing operations rose 21 percent to $3.19 from $2.64 last year. Earnings from continuing operations, before the cumulative effect of a change in accounting in the prior year, rose 19 percent to an all-time record $1.45 billion from $1.21 billion a year ago.

• Operating revenues rose 14 percent to an all-time high of $50.5 billion, from $44.4 billion a year ago.

• Operating earnings rose 16 percent to an all-time record of $2.28 billion from $1.97 billion a year ago.

• Interest expense and other declined by 13 percent, driven by strong cash flow and lower interest rates.

• Return on sales rose 8 basis points to 4.52 percent and return on equity increased 60 basis points to an all-time record of 21.1 percent, driven by strong operating earnings growth and focused asset management.

• Effective tax rate declined to 33.3 percent from 34.1 percent in fiscal 2002, reflecting the impact of international operations, driven by strong growth in proprietary self-manufactured medical and surgical products and earnings from international pharmaceutical technologies businesses.

• Operating cash flow was $1.4 billion. The sale of leases related to the automation business generated approximately $300 million of the increase. Excluding the sale of leases, the company had operating cash flow of approximately $1.1 billion, exceeding its cash flow target for the year of $900 million to $1 billion. Additionally, the company repurchased $1.2 billion of company common shares during the year.

• The integration of the leading nuclear pharmacy business in the United States, Syncor International Corp., continued on schedule. The acquisition, which was completed in January 2003, added approximately 1 percent to total revenue growth, but was neither dilutive nor accretive to earnings per share for the year.

DISCUSSION OF STRATEGIC PROGRESS AND BUSINESS RESULTS

Cardinal Health’s strong performance in the fourth quarter and fiscal year 2003 reflects its success in executing against its core strategy of investing aggressively in health care to:

• Build scale and drive competitive advantage in the marketplace;
• Expand its breadth of product offerings to deepen customer relationships, diversify earnings and deliver integrated solutions to customers;
• Utilize technological innovation to create proprietary solutions;
• Increase operational excellence to improve productivity; and
• Invest in higher growth, higher margin proprietary products and services to drive profitable growth.

During the year, the company made considerable strategic progress, including the acquisition of Syncor International to build scale in the fast growing nuclear pharmacy services business, information technology investments in state-of-the-art pharmaceutical distribution centers, and additional proprietary manufacturing capacity in its pharmaceutical technologies business. Innovative new products were introduced by all segments of the business, including new patient safety products, infection-resistant surgical drapes and gowns and pharmaceutical delivery technologies. Integrated selling results were strong during the year in both the health care provider and pharmaceutical manufacturing markets. The contribution from higher margin, high growth businesses advanced during the year and operational productivity improved.

Strategic progress was achieved in each of the company’s four reporting segments. The following provides a summary review of results for each segment for the fourth quarter and full fiscal year 2003.

	Fourth Quarter - Segment Results
($ in millions)	Revenue	Increase	Operating Earnings	Increase	Contribution to Operating Earnings
Pharmaceutical Distribution and Provider Services	$10,925	14%	$320	11%	47%
Medical Products and Services	$1,737	7%	$158	10%	23%
Pharmaceutical Technologies and Services	$650	66%	$116	51%	17%
Automation and Information Services	$202	19%	$86	21%	13%
	Fiscal Year 2003 - Segment Results
($ in millions)	Revenue	Increase	Operating Earnings	Increase	Contribution to Operating Earnings
Pharmaceutical Distribution and Provider Services	$41,195	14%	$1,220	14%	50%
Medical Products and Services	$6,616	6%	$605	12%	24%
Pharmaceutical Technologies and Services	$2,049	44%	$368	32%	15%
Automation and Information Services	$667	19%	$265	27%	11%

Pharmaceutical Distribution and Provider Services

Pharmaceutical Distribution and Provider Services produced solid results for the fourth quarter, posting record revenues of $10.9 billion, an increase of 14 percent. Strong sales increases to all customer segments were partially offset by a decline in wholesale-to-wholesale trading volume, which dampened overall growth by 1 percent. New contract volume drove the strong sales performance in the quarter, providing solid top line momentum moving into fiscal 2004.

Operating earnings rose 11 percent, up 14 percent after adjusting for a non-cash LIFO (last-in, first out) inventory charge of $5.7 million in the quarter, compared to a LIFO credit of $2.3 million a year ago. Gross margin was impacted by customer mix and competitive pricing. In addition, gross margin was reduced by lower vendor margins compared to very strong vendor margins in the prior year, which was positively offset by the absence of an inventory obsolescence charge taken in the prior year related to the closure of acquired distribution facilities. Operating expense efficiencies substantially offset gross margin declines of 38 basis points, resulting in a return on sales of 2.93 percent.

For the fiscal year, Pharmaceutical Distribution and Provider Services generated record revenues of $41.2 billion, an increase of 14 percent. Operating earnings grew to $1.2 billion, a 14 percent improvement. The strong revenue growth and continued expense improvement drove a 560 basis point improvement in return on committed capital to a record 36.8 percent, while generating strong cash flow.
Medical Products and Services

Medical Products and Services had a strong quarter, posting record revenues, operating earnings and return on sales. Revenues reached more than $1.7 billion, up 7 percent on the strength of acute care distribution sales. New distribution contracts contributed to the volume gains during the quarter and represent strong volume momentum moving into fiscal 2004. New products contributed nearly a third of the growth in the quarter, highlighted by the introduction of a new line of surgeon’s gloves, the new Tiburon™ and Astound™ fabrics in the Converters® line, and new innovations in the delivery of bone cement.

Gross margins rose 54 basis points to 22.23 percent, reflecting continued productivity improvements from investments in manufacturing technology and increased contributions from higher margin self-manufactured products. Strong sales growth, gross margin improvement and a focus on continued expense productivity produced a fourth quarter record $158 million in operating earnings, 10 percent higher than the previous year. Return on sales rose 24 basis points to a fourth quarter record of 9.09 percent.

For the fiscal year, Medical Products and Services generated a record $6.6 billion in revenue, an increase of 6 percent. Strong productivity improvements coupled with gains in gross margins in manufacturing and distribution operations drove an operating earnings increase of 12 percent to $605 million, also a record. As a result of the earnings performance and strong asset management, return on committed capital rose to an all-time high 39.5 percent, while generating strong cash flow.

Pharmaceutical Technologies and Services

Pharmaceutical Technologies and Services produced exceptional results in the fourth quarter. The segment generated record revenue of $650 million, a 66 percent increase. Revenue gains were particularly strong in oral and sterile drug manufacturing, which experienced solid growth from Lilly’s Zyprexa® Zydis®, Mylan’s Amnesteem™, and Pfizer’s Xalatan®, as well as the nuclear pharmacy services business. The increasing focus of nuclear pharmacy on therapeutic products will continue to drive strong volume growth and further increase its importance in the health care market. Demand for proprietary drug delivery technologies, nuclear pharmacy services, packaging services and sterile products represent strong sales momentum into fiscal 2004.

Operating earnings reached $116 million, an increase of 51 percent over the prior year. Primarily as a result of the inclusion of nuclear pharmacy services in the current year results, return on sales moderated to 17.88 percent compared to 19.73 percent in the prior year.

Results for the segment included Syncor International as of January 2003. Excluding Syncor, the segment experienced revenue growth in the high teens and earnings growth in excess of 20 percent, with improved gross margins and a higher return on sales, reflecting higher facility utilization and a favorable product mix. The integration of Syncor International is proceeding as planned, with the consolidation of 14 acquired nuclear pharmacy facilities during the year, which will drive further efficiency gains in fiscal 2004 and beyond.

For the full year, Pharmaceutical Technologies and Services recorded revenue of $2.0 billion, an all-time high and an increase of 44 percent. Operating earnings grew at 32 percent to $368 million, also a record. Return on committed capital rose 300 basis points to 31.4 percent, while generating record cash flow.
Automation and Information Services

Automation and Information Services recorded another robust quarter on sustained demand for the company’s automation solutions for health care providers. The segment generated $202 million in revenue, a 19 percent improvement representing an all-time quarterly record. Revenue gains were consistent across the business, with sales of MedStation® , SupplyStation® and patient safety related products all contributing to the strong performance. Pyxis PatientStation®, a new bedside patient safety and satisfaction product for patients and clinicians, is gaining market acceptance and was a main driver in several large, recently signed contracts. Contract momentum is expected to continue into fiscal 2004. Continued demand for existing products and accelerating demand for new patient safety and patient bedside technologies are expected to drive continued segment revenue momentum.

Another indication of future revenue potential is the backlog of uninstalled committed contracts, which grew by $31 million, the largest increase ever, to end the year at $233 million.

As a result of the revenue momentum and productivity improvements, return on sales improved 87 basis points to a record 42.68 percent. Operating earnings were $86 million, a 21 percent increase and an all-time record. Return on committed capital increased to a record 60.3 percent from 45.8 percent in the prior year on the strong operating earnings growth, working capital efficiencies, and lower investment in the lease portfolio.

For the full year, Automation and Information Services grew revenue a healthy 19 percent to $667 million, and operating earnings expanded by 27 percent to $265 million. Return on committed capital dramatically improved to 43.5 percent from 35.7 percent in the prior year.
Fiscal 2004 Outlook

“We have built a diverse and balanced portfolio in health care, with each of our businesses a leader in their respective markets,” Walter said. “As we move into fiscal year 2004, we expect strong overall revenue growth, with growth from each of our business segments at a pace similar to fiscal 2003. We have long term contracts in place, new products driving incremental volume, and an ability to integrate our offerings for even higher potential growth.

“In fiscal 2004, we believe that our investments in higher margin, high growth proprietary products and services will enable our medical products, pharmaceutical technologies and automation businesses grow operating earnings at a pace faster than our pharmaceutical distribution and provider services business,” Walter said. “Overall, we anticipate earnings per share growth in the mid teens or better, with record returns on sales and capital. We also expect that record cash flows and improving returns in 2004 will drive added opportunity for deployment of capital, either in acquisitions or share buybacks.”

Conference Call and Semi-annual Investor Conference

Cardinal Health has scheduled a conference call for today at 11 a.m. Eastern Daylight Time to discuss its fourth quarter and fiscal year financial performance and outlook. To access this discussion via the internet, visit www.cardinal.com and click the Investor Relations page. For those without internet access, the company has also established a telephone call-in line at 706-679-0766. An audio replay of the conference call will be available until midnight August 2, 2003 by dialing 706-645-9291, passcode 863641. A replay of the webcast will be available at the Investor Relations page on www.cardinal.com.

Cardinal Health will host its semi-annual investor conference in New York on August 12, 2003. Senior management presentations will be webcast live from 12:30 p.m. to 2:30 p.m. Eastern Daylight Time and can be accessed via www.cardinal.com at the Investor Relations page. For those without Internet access, these presentations can be listened to by calling 706-679-0766. An audio replay will be available until midnight August 15, 2003 by dialing 706-645-9291, passcode 1713491. A replay of the webcast will be available at the Investor Relations page on www.cardinal.com

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 50,000 people on five continents and produces annual revenues of more than $50 billion. Cardinal Health is ranked #19 on the current Fortune 500 list and was named one of “The World’s Best” companies by Forbes magazine in 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 or changes in the terms of those 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 Health undertakes no obligation to update or revise any forward-looking statements.