2011 PROXY STATEMENT

GENERAL INFORMATION

These proxy materials are being furnished to solicit proxies on behalf of the Board of Directors of Cardinal Health, Inc. for use at our Annual Meeting of Shareholders to be held on Wednesday, November 2, 2011, and at any adjournment or postponement thereof (the “Annual Meeting”). The meeting will take place at our principal executive office located at 7000 Cardinal Place, Dublin, Ohio 43017, at 2:00 p.m., local time.

These proxy materials include our Notice of Annual Meeting and Proxy Statement and our Annual Report to Shareholders for the fiscal year ended June 30, 2011. In addition, these proxy materials may include a proxy card for the Annual Meeting. A copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the U.S. Securities and Exchange Commission (the “SEC”), will be provided, free of charge, to any shareholder upon written request addressed to our Investor Relations department at Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. These proxy materials are first being sent or made available to our shareholders on or about September 14, 2011.

References to our fiscal years in this proxy statement mean the fiscal year ended or ending on June 30 of such year. For example, “fiscal 2011” refers to the fiscal year ended June 30, 2011.

Notice of Internet Availability of Proxy Materials

As permitted by the SEC, we are providing proxy materials to our shareholders via the Internet. On or about September 14, 2011, we mailed a Notice of Internet Availability of Proxy Materials (“Notice”) to shareholders to explain how to access our proxy materials online. You will not receive a printed copy of our proxy materials by mail unless you request one or you hold shares in an employee plan.

Voting Information

Record date.  We have fixed the close of business on September 6, 2011 as the record date for determining our shareholders entitled to notice of and to vote at the Annual Meeting. On that date, we had outstanding 344,978,992 common shares. Shareholders at the record date will have one vote per share for the election of each of our 12 director nominees, and one vote per share on each other voting matter.

Quorum.  We will have a quorum to conduct business at the Annual Meeting if the holders of a majority of our common shares are present, either in person or by proxy.

How to vote.  We encourage you to vote promptly. If you are a “registered holder” (meaning your shares are registered in your name with our transfer agent, Computershare Trust Company, N.A.), or you hold shares in an employee plan, then you may vote either in person at the Annual Meeting or by proxy. If you decide to vote by proxy, you may do so in any one of the following three ways:

If, like most shareholders, you are a beneficial owner of shares held in “street name” (meaning a broker, trustee, bank, or other nominee holds shares on your behalf), you may vote in person at the Annual Meeting only if you obtain a legal proxy from the nominee that holds your shares. Alternatively, you

may vote by completing and signing the voting instruction form that the nominee will provide to you, or by using telephone or Internet voting arrangements described on the voting instruction form, the Notice, or other materials that the nominee will provide to you.

Telephone and Internet voting are available through 2:00 a.m. Eastern time on Wednesday, November 2, 2011.

Changing or revoking your proxy.  Your presence at the Annual Meeting will not automatically revoke your proxy. If you are a registered holder, you may change or revoke your proxy at any time before a vote is taken at the meeting by gi\ving notice to us in writing or during the Annual Meeting, by executing and forwarding to us a later-dated proxy, or by voting a later proxy over the telephone or the Internet. If you are a beneficial shareholder, you should check with the broker, trustee, bank, or other nominee that holds your shares to determine how to change or revoke your vote.

Shares held under plans.  If you hold shares through our 401(k) Savings Plans or Deferred Compensation Plan, you will receive voting instructions from Computershare Trust Company, N.A. Please note that employee plan shares have an earlier voting deadline of 2:00 a.m. Eastern time on Monday, October 31, 2011.

Broker non-votes.  If you are a beneficial owner whose shares are held of record by a broker, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your broker is not permitted to vote your shares on several of the proposals described in this proxy statement. This is called a “broker non-vote.” In these cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining a quorum and may vote your shares on auditor ratification. But your broker may not vote your shares on the election of directors, our 2011 Long-Term Incentive Plan, the executive compensation matters, or the shareholder proposal without instructions from you.

Voting.  You may either vote for, against, or abstain on each of the proposals, with the exception of Proposal 5 where you may vote for one year, two years, three years, or abstain. Votes will be tabulated

by or under the direction of inspectors of election, who will certify the results at the Annual Meeting.

How shares will be voted.  The shares represented by your proxy will be voted as you direct on your proxy or voting instruction form or according to your selections on our telephone or Internet voting systems. Proxies returned without any instructions will be voted FOR the election of each of the 12 director nominees, FOR the ratification of the auditors, FOR approval of our 2011 Long-Term Incentive Plan, FOR approval of the compensation of our named executive officers, FOR conducting future advisory votes on executive compensation every year, and AGAINST the shareholder proposal. If any other matters properly come before the Annual Meeting, the individuals named in your proxy, or their substitutes, will determine how to vote on those matters in their discretion. The Board of Directors does not know of any other matters that will be presented for action at the Annual Meeting.

The Board recommends that you vote

Transfer Agent

Shareholders should direct communications regarding change of address, transfer of share ownership, lost share certificates, and other matters regarding their share ownership to: Computershare Trust Company, N.A., P.O. Box 43078, Providence, RI 02940-3078. Our transfer agent may also be contacted via the Internet at http://www.computershare.com/investor or by telephone at (877) 282-1168 or (781) 575-2879.

Attending the Annual Meeting

You will not be admitted to the Annual Meeting unless you have an admission ticket or proof of share ownership, and photo identification. If you are a registered shareholder, your admission ticket is attached to your proxy card or you may present the Notice. If your shares are not registered in your name, your proof of share ownership can be a recent bank or brokerage firm account statement. You can call our Investor Relations department at (614) 757-4757 if you need directions to the Annual Meeting.

Even if you expect to attend the Annual Meeting in person, we urge you to vote your shares in advance.

PROPOSAL 2—RATIFICATION OF THE APPOINTMENT OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as our independent registered public accounting firm for fiscal 2012. While not required by law, we are asking our shareholders to ratify this appointment at the Annual Meeting as a matter of good corporate governance. If shareholders do not ratify this appointment, the Audit Committee will consider whether it is appropriate to appoint another registered public accounting firm. Even if the appointment is ratified, the Audit Committee in its discretion may appoint a different registered public accounting firm at any time during the fiscal year if it determines that such a change would be in the best interest of Cardinal Health and

its shareholders. Our Audit Committee approved, and our shareholders ratified, the appointment of Ernst & Young as our independent registered public accounting firm for fiscal 2011.

We expect representatives of Ernst & Young to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so, and to respond to appropriate questions from shareholders.

The Board recommends that you vote FOR the proposal to ratify the appointment of Ernst & Young as our independent registered public accounting firm for fiscal 2012.

PROPOSAL 3—APPROVAL OF THE CARDINAL HEALTH, INC. 2011 LONG-TERM INCENTIVE PLAN

General

The Board of Directors considers equity-based compensation an essential tool to attract, motivate, and retain our executives and key employees and to align their interests with the interests of our shareholders. Consistent with this view, on September 6, 2011, the Board adopted, subject to the approval of our shareholders at the Annual Meeting, the Cardinal Health, Inc. 2011 Long-Term Incentive Plan (the “2011 LTIP”). The 2011 LTIP will authorize equity and performance-based compensation arrangements that we need to remain competitive with our peers, adapt compensation awards to changes in corporate objectives and the marketplace, and effectively attract, motivate, and retain the caliber of employees essential to our success.

We currently grant equity awards to employees under the Cardinal Health, Inc. 2005 Long-Term Incentive Plan (the “2005 LTIP”). We previously obtained shareholder approval relating to the 2005 LTIP in 2005 and 2008. In 2008, we indicated that the additional shares were expected to last us three years.

If approved by our shareholders, the 2011 LTIP will become effective and no further awards will be made under the 2005 LTIP. We expect the shares requested under the 2011 LTIP will enable us to make grants for about three years before seeking shareholder approval of more shares.

Additional information regarding the 2011 LTIP, including a summary of the plan’s terms, is set forth below. This information should be read with, and is subject to, the specific provisions of the 2011 LTIP, the full text of which is attached to this proxy statement as Appendix A.

Highlights of the 2011 LTIP

We have designed the 2011 LTIP to include features that we believe reinforce the alignment between the interests of officers and employees and those of shareholders. These features are highlighted below

and are more fully described under the heading “Summary of the 2011 LTIP.”

Selected Related Data, as of September 6, 2011

The table below sets forth information regarding the number of stock options and “full value” awards (i.e., restricted shares, RSUs, and PSUs) outstanding as of September 6, 2011. In addition, the table also shows the shares available for grant under existing equity compensation plans and the number of our common shares outstanding as of September 6, 2011.

The table below sets forth the number of stock options and time-based stock awards (i.e., restricted shares and RSUs) granted in fiscal 2011, 2010, and 2009. In addition, the table also shows the weighted average number of common shares outstanding in the fiscal year indicated.

We also present information relating to our equity compensation plans at June 30, 2011 under “Equity Compensation Plan Information” on page 62.

Section 162(m) of the Code

The 2011 LTIP is designed with the intention that certain awards granted under it to our executive officers can qualify for deductibility for purposes of our federal income taxes as “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”). In general, Section 162(m) limits our ability to deduct compensation in excess of $1 million paid in any one year to our chief executive officer or any of our other three most highly paid executive officers (not including the chief financial officer) unless the excess compensation qualifies under Section 162(m) as “performance-based.” We may also grant awards under the 2011 LTIP that are not designed to qualify as “performance-based” under Section 162(m), and awards intended to qualify as “performance-based” may not qualify for deductibility under Section 162(m).

One of the requirements of “performance-based” compensation under Section 162(m) is that the material terms of the performance goals be approved by shareholders. The material terms, which are addressed below, include (i) the employees eligible to receive compensation, (ii) a description of the business criteria on which the performance goal may be based, and (iii) the maximum amount of compensation that can be paid to an employee under the performance goal. Shareholder approval of the 2011 LTIP is intended to constitute approval of each

of these aspects of the 2011 LTIP for purposes of the approval requirements of Section 162(m) of the Code.

Summary of the 2011 LTIP

Administration.  The 2011 LTIP may be administered by the Board, the Human Resources and Compensation Committee (the “Compensation Committee”), or their delegates. The Board has named the Compensation Committee as the administrator of the 2011 LTIP. The administrator has the authority to make all determinations necessary or advisable for administering the 2011 LTIP and awards granted under the plan, including the authority to determine the employees to whom awards may be granted, the time or times at which such awards are granted, and the terms of such awards. The administrator has sole authority in its discretion to construe and interpret the 2011 LTIP and awards granted under the plan, and all decisions, determinations, and interpretations regarding the 2011 LTIP, the rules and regulations under the plan, and the terms and conditions of any award will be final and binding on all participants.

The administrator may, except to the extent prohibited by applicable law, delegate to one of more directors or authorized officers the power to approve awards to persons eligible to receive awards under the 2011 LTIP who are not subject to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) or, at the time of the approval, “covered employees” under Section 162(m) of the Code. The administrator also may, except to the extent prohibited by applicable law, delegate to one or more individuals the day-to-day administration of the 2011 LTIP and any of the functions assigned to it in the 2011 LTIP.

Eligibility.  Employees of Cardinal Health and its affiliates are eligible to receive awards under the 2011 LTIP, including all eight of Cardinal Health’s executive officers and approximately 1,500 other employees. Non-employee directors and consultants are not eligible for awards under the 2011 LTIP. Incentive stock options may only be granted to employees of Cardinal Health and corporations connected to it by chains of ownership of voting power representing 50% or more of the total outstanding voting power of all classes of stock of the lower-tier entity.

Share limits.  Subject to the adjustment provisions of the 2011 LTIP, the maximum aggregate number of common shares that may be issued under awards granted under the 2011 LTIP is 30,000,000, plus any shares that become available as a result of the forfeiture, expiration, or cash settlement of awards, or share withholding under certain awards, previously granted under the 2005 LTIP, the Amended and Restated Equity Incentive Plan and the Broadly-based Equity Incentive Plan (collectively, the “Prior Plans”), as discussed under the share counting provisions described below. The aggregate number of shares available for issuance under the 2011 LTIP will be reduced by (i) one share for every one share issued upon exercise of a stock option or stock appreciation right granted under the 2011 LTIP, (ii) two and one-half shares for every one share issued in connection with an award other than a stock option or stock appreciation right granted under the 2011 LTIP, (iii) one share for every one share subject to a stock option or stock appreciation right granted under the 2005 LTIP between September 6, 2011 and the effective date of the 2011 LTIP, and (iv) two and one-half shares for every one share subject to an award other than a stock option or stock appreciation right granted under the 2005 LTIP between September 6, 2011 and the effective date of the 2011 LTIP. Subject to the share counting provisions described below, shares covered by an award granted under the 2011 LTIP will not be counted as used unless and until they are actually issued. As noted above, no further awards will be made under the 2005 LTIP upon shareholder approval of the 2011 LTIP.

Subject to the adjustment provisions of the 2011 LTIP, the aggregate number of shares that may be granted subject to stock options and stock appreciation rights under the 2011 LTIP during any fiscal year to any one participant is 1,500,000. With respect to awards (other than stock options and stock appreciation rights) intended to qualify as performance-based compensation under Section 162(m) of the Code, no participant may receive in any fiscal year stock awards and other stock-based awards (as defined below) subject to more than 750,000 shares (subject to the adjustment provisions of the 2011 LTIP) and cash-based awards that have an aggregate maximum value in excess of $10,000,000. Subject to the adjustment provisions of the 2011 LTIP, no more than 20,000,000 shares may be issued under the 2011 LTIP upon the exercise of incentive stock options.

The shares issued under the 2011 LTIP may be either shares that were reacquired by us, including through purchases in the open market, or shares that are authorized, but unissued.

Share counting provisions.  If any shares issued under an award granted under the 2011 LTIP are forfeited, or an award expires or is settled for cash, the shares issued under the award will, to the extent of such forfeiture, expiration, or settlement, again be available for issuance under the 2011 LTIP. In addition, if withholding tax liabilities arising from a stock award or other stock-based award granted under the 2011 LTIP are satisfied by tendering shares to us or by us withholding shares, those shares will again be available for issuance under the 2011 LTIP.

If after September 6, 2011, any shares subject to an award granted under the Prior Plans are forfeited, or such an award expires or is settled for cash, the shares subject to the award will, to the extent of such forfeiture, expiration, or settlement, be available for issuance under the 2011 LTIP. In addition, if after September 6, 2011, withholding tax liabilities arising from an award other than a stock option or stock appreciation right granted under the Prior Plans are satisfied by tendering shares to us or by us withholding shares, those shares will be available for issuance under the 2011 LTIP.

The following shares will not be added back to the aggregate number of shares available for issuance under the 2011 LTIP: (i) shares tendered to us or withheld by us to pay the exercise price of a stock option, or to satisfy any tax withholding obligation with respect to stock options or stock appreciation rights, granted under the 2011 LTIP or the Prior Plans; (ii) shares subject to stock appreciation rights granted under the 2011 LTIP or the Prior Plans that are not issued in connection with the settlement of the stock appreciation rights in shares upon exercise; and (iii) shares reacquired by us on the open market or otherwise using cash proceeds from the exercise of stock options granted under the 2011 LTIP or the Prior Plans.

The aggregate number of shares available for issuance under the 2011 LTIP will not be reduced by shares issued with respect to awards granted upon the assumption of, or in substitution for, awards granted by a business or entity that is acquired by, or whose assets are acquired by, us. Additionally, as permitted under NYSE rules, in the event that a company that

we acquire has shares available under a pre-existing plan approved by shareholders and not adopted in contemplation of the acquisition, subject to certain limitations, the shares available for grant under the pre-existing plan may be used for awards under the 2011 LTIP and will not reduce the shares available for issuance under the 2011 LTIP.

Any shares that become available for issuance under the 2011 LTIP under the share counting provisions described above will be added back (i) as one share if such shares were subject to stock options or stock appreciation rights granted under the Prior Plans, and (ii) as two and one-half shares if such shares were issued pursuant to awards other than stock options or stock appreciation rights granted under the 2011 LTIP or were subject to such awards granted under the Prior Plans.

Stock options.  Stock options provide the recipient the right to purchase our common shares at an exercise price not less than fair market value on the date of the grant (except with respect to awards assumed or substituted for in connection with an acquisition by Cardinal Health). The 2011 LTIP permits the administrator to choose several ways for the exercise price to be paid: in cash; by check or wire transfer; by exchanging other shares that have a fair market value on the date of surrender at least equal to the exercise price of the stock option being exercised; by directing us to withhold shares that are otherwise issuable upon exercise of a stock option under a “net exercise” arrangement; by consideration received from a broker-assisted sale; or by any other legal consideration that the administrator deems appropriate.

Stock options granted under the 2011 LTIP may be stock options that are intended to qualify as incentive stock options (“ISOs”) within the meaning of Section 422 of the Code or stock options that are not intended to so qualify. ISOs may be granted only to employees of Cardinal Health or any of its subsidiaries, who, as of the grant date, own no more than 10% of the total combined voting power of Cardinal Health.

Stock options granted under the 2011 LTIP will vest or be exercisable at such time and in such installments prior to their expiration as determined by the administrator. The terms and conditions on the vesting or exercisability of the stock options will be determined by the administrator and may be based on performance criteria. No stock option may be

exercised more than 10 years from the date of grant. At any time after the grant of a stock option, the administrator may reduce or eliminate any restrictions surrounding any participant’s right to exercise all or part of the stock option.

Except in connection with a corporate transaction or event that leads to an adjustment of the number or kind of shares underlying the awards granted under the 2011 LTIP, the terms of any outstanding stock options that are “underwater” (that is, have an exercise price above the market value of our shares) may not be amended to reduce the exercise price of outstanding stock options without shareholder approval. The administrator also may not cancel any such outstanding stock options in exchange for cash, other awards, or stock options with an exercise price that is less than the exercise price of the original stock options without shareholder approval.

Stock appreciation rights.  Stock appreciation rights provide the recipient with the right to receive from us an amount (in cash or shares) equal to or based on the excess of the fair market value of our common shares on the date the rights are exercised over the aggregate base price of the stock appreciation rights. The base price of stock appreciation rights may not be less than fair market value of the shares underlying the stock appreciation rights on the date of grant (except with respect to awards assumed or substituted for in connection with an acquisition by Cardinal Health). Stock appreciation rights can be tandem (i.e., granted with a stock option) or free-standing. Free-standing stock appreciation rights must have a base price per right that equals or exceeds the fair market value of a common share on the date of grant, must specify the terms and conditions on the vesting or exercisability as determined by the administrator (which may be based on performance conditions), and may not be exercisable more than 10 years from the date of grant. Tandem appreciation rights granted in connection with previously granted stock options will have the same terms and conditions of such stock options.

Except in connection with a corporate transaction or event that leads to an adjustment of the number or kind of shares underlying the awards granted under the 2011 LTIP, the terms of outstanding stock appreciation rights that are “underwater” (that is, have a base price above the market value of our shares) may not be amended to reduce the base price

of outstanding stock appreciation rights without shareholder approval. The administrator also may not cancel any such outstanding stock appreciation rights in exchange for cash, other awards, or stock appreciation rights with a base price that is less than the base price of the original stock appreciation rights without shareholder approval.

Stock awards.  A “stock award” is an award or issuance of shares or stock units where the grant, issuance, retention, vesting, or transferability during specified periods of time is subject to conditions (such as continued employment or performance conditions) and terms set forth in the agreement or other documents evidencing the award. Stock awards include restricted shares, RSUs, performance shares, and PSUs.

The administrator may subject the grant, issuance, retention, or vesting of any stock award to such performance criteria and levels of achievement as the administrator determines, as further described below under the heading “Performance Criteria.” Unless otherwise provided for by the administrator, the participant will have the rights equivalent to those of a shareholder and will be a shareholder only after shares are issued to the participant.

Other stock-based awards.  An “other stock-based award” is any other type of equity-based or equity-related award not otherwise described by the terms of the 2011 LTIP (including the grant or offer for sale of unrestricted shares) in such amount and subject to such terms and conditions as the administrator determines. Other stock-based awards may involve the transfer of actual shares to the participant or payment in cash or other property in amounts based on the value of the shares. The administrator may establish performance criteria applicable to other stock-based awards in its discretion, and will determine the other applicable terms of the other stock-based awards.

Cash awards.  Cash awards confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a performance period. As further described under the heading “Performance Criteria,” the administrator establishes the performance criteria and level of achievement of such criteria that determine the amounts payable under a cash award. The

administrator may specify the percentage of the target cash award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code.

The administrator determines the timing of payment of any cash award. The administrator may provide for the payment of any cash award to be deferred to a specified date or event, subject to such terms and conditions as the administrator may specify. Payments for cash awards may be in either cash or other property, as determined by the administrator.

Dividends and dividend equivalents.  To the extent permitted by Section 409A of the Code, any award other than stock options or stock appreciation rights may provide the participant with the right to receive dividend payments or dividend equivalent payments on the shares subject to the award. Any dividends or dividend equivalents on awards that are subject to the achievement of performance criteria will be deferred until, and paid contingent upon, the achievement of the applicable performance criteria.

Performance criteria.  The administrator may specify performance criteria for stock options, stock appreciation rights, stock awards, other stock-based awards, and cash awards. With respect to any award that is intended to satisfy the requirements for “performance-based compensation” under Section 162(m) of the Code, the applicable performance criteria may be any one or more of the following, either individually, alternatively, or in any combination, applied to either Cardinal Health as a whole or to a business unit, affiliate, or business segment, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results (i.e., growth) or to a designated comparison group, in each case as specified by the administrator: cash flow (including operating cash flow and free cash flow); earnings (including gross margin or gross margin rate, operating earnings, earnings before interest and taxes, earnings before taxes and discontinued operations, earnings from continuing operations, and net earnings); earnings per share; growth in earnings or earnings per share; stock price; return on equity or average shareholders’ equity; total shareholder return; invested capital or return on capital or invested capital; return on assets or net assets; return

on investment; revenue; income or net income; operating income or net operating income; operating profit or net operating profit (whether before or after taxes); economic profit or profit margin; operating margin; return on operating revenue; tangible capital or return on tangible capital; market share; contract awards or backlog; distribution, selling, general, and/or administrative expenses; overhead or other expense reduction; growth in shareholder value relative to the moving average of the S&P 500 Index or a peer group index; credit rating or credit rating measures; dividend payment yield or growth or dividend payout ratio; improvement in workforce diversity; customer satisfaction, retention, or loyalty; employee satisfaction or retention; service levels; net working capital or net working capital days; days sales outstanding; days inventory on hand; days payable outstanding; capital expenditures; generics penetration; and preferred product growth. The number or amount of shares, stock options, cash, or other benefits granted, issued, retainable, payable, or vested under an award when performance criteria are satisfied may be reduced by the administrator on the basis of such further considerations, such as satisfaction of other performance goals, as it determines appropriate in its sole discretion. Certain modifications may be made by the administrator to the performance criteria except to the extent that such modifications (other than in connection with a change of control) would result in the award no longer qualifying for the “performance-based compensation” exemption under Section 162(m) of the Code.

Limited transferability.  The administrator may only provide for transferability of awards under the 2011 LTIP if the awards are not transferred in exchange for consideration. Otherwise, recipients may not transfer awards under the 2011 LTIP other than by beneficiary designation, will, or the laws of descent and distribution.

Termination of employment.  The 2011 LTIP provides that the administrator will determine at the time of grant (subject to subsequent modification) the effect that a participant’s termination of employment will have on awards granted under the 2011 LTIP.

Adjustments.  The share limits in the 2011 LTIP, as well as the number and kind of shares covered by outstanding stock options, stock appreciation rights, stock awards, and other stock-based awards, and the

prices per share applicable thereto, must be adjusted in certain situations as provided in the 2011 LTIP, including a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of Cardinal Health, or a merger, consolidation, acquisition of property or shares, separation, spin-off, reorganization, stock rights offering, liquidation, disaffiliation, or similar event affecting Cardinal Health or any of its subsidiaries.

Change of control.  Unless otherwise determined by the administrator or set forth in an award agreement or as provided for in an individual severance or employment agreement, upon a change of control under the 2011 LTIP, vesting of awards will accelerate only if (i) the surviving entity does not provide a qualifying “replacement award” to the participant to replace or adjust each outstanding award, or (ii) within two years after the change of control, the participant terminates his or her employment for “good reason,” the participant’s employment is terminated by the surviving entity other than for “cause,” or the participant dies or is disabled. If a participant’s employment is terminated under those circumstances, stock options and stock appreciation rights that he or she held at the time of the change of control that were replaced will remain exercisable for up to three years. An award qualifies as a “replacement award” if it is of the same type as the replaced award; its value is at least equal to that of the replaced award; it is based on publicly traded equity securities of the successor or an affiliate; and the U.S. tax consequences, if applicable, and the other terms and conditions of the replacement award are no less favorable to the participant when compared to the replaced award.

The 2011 LTIP includes a definition of “change of control.” In general, a change of control will be deemed to have occurred if:

Recoupment.  The administrator may require repayment to us of all or any portion of any award if the amount of the award was calculated based upon the achievement of financial results that were subsequently the subject of a restatement of our financial statements, the participant engaged in misconduct that caused or contributed to the need for the restatement of the financial statements, and the amount payable to the participant would have been lower than the amount actually paid had the financial results been properly reported. These provisions will not apply after a change of control.

Moreover, the 2011 LTIP will be administered in compliance with any rules or regulations implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act’s mandatory recoupment requirements. Under those rules and regulations, we expect to implement and disclose additional policies with respect to the recovery of incentive-based compensation paid to current or former executive officers following an accounting restatement due to material noncompliance with financial reporting requirements under the securities laws.

Tax withholding.  Each participant must pay us, or make arrangements satisfactory to us regarding the

payment of, any federal, state, local, or foreign taxes of any kind required to be withheld with respect to any award under the 2011 LTIP no later than the date when any amount under the award first becomes includible as compensation for any tax purposes for which we have a tax withholding obligation. Unless otherwise determined by the administrator, withholding obligations may be settled with shares, including shares that are part of the award giving rise to the withholding requirement, but no more than the legally required minimum withholding may be settled with shares. Our obligations under the 2011 LTIP will be conditional on such payment or arrangements, and we will, to the extent permitted by law, have the right to deduct any such taxes from any vested shares or any other payment due to the participant at that time or at any future time.

Termination and amendment.  The 2011 LTIP will become effective if and when it is approved by shareholders. It will remain in effect for 10 years unless terminated earlier under its terms. Awards granted prior to termination of the 2011 LTIP will remain outstanding in accordance with their terms. The administrator may amend, alter, or discontinue the 2011 LTIP or any award agreement, but any such amendment will be subject to approval of our shareholders in the manner and to the extent required by applicable laws, including stock exchange listing standards. In addition, unless approved by our shareholders, and subject to the adjustment provisions of the 2011 LTIP, no such amendment will be made that would increase the maximum aggregate number of shares which may be issued based on awards granted under the plan; reduce the minimum exercise price or base price, as applicable, for stock options or stock appreciation rights; or result in a repricing of outstanding stock options or stock appreciation rights as described in Sections 8(c) and 10(b) of the 2011 LTIP, respectively.

No amendment, suspension, or termination of the 2011 LTIP may impair the rights of any participant with respect to an outstanding award unless agreed to by the participant and Cardinal Health. Other than following a change of control, no such agreement will be required if the administrator determines in its sole discretion that such amendment either (i) is required or advisable in order for Cardinal Health, the 2011 LTIP, or the award to satisfy any applicable law or to meet the requirements of any accounting standard, or (ii) is not reasonably likely to

significantly diminish the benefits provided under such award, or that any such diminishment has been adequately compensated.

New Plan Benefits

The benefits that will be awarded or paid under the 2011 LTIP currently are not determinable. The awards granted under the 2011 LTIP will depend on the administrator’s actions and the fair market value of shares at various future dates, and the administrator has not determined future awards or who might receive them. As a result, it is not possible to determine the benefits that executive officers and other employees will receive if the 2011 LTIP is approved by the shareholders.

U.S. Federal Income Tax Consequences

The following is a brief summary of certain of the U.S. federal income tax consequences of certain transactions under the 2011 LTIP based on the law in effect as of the date of this proxy statement. This summary is not intended to be exhaustive and does not describe foreign, state, or local tax consequences, nor does it describe consequences based on particular circumstances. Each participant should refer to the actual text of the 2011 LTIP set forth in Appendix A and consult with a tax advisor as to specific questions relating to tax consequences of participation in the 2011 LTIP.

Federal Income Tax Consequences to Participants

Nonqualified stock options.  In general, (i) an optionee will not recognize income at the time a nonqualified stock option is granted, (ii) when a nonqualified stock option is exercised, the optionee will recognize ordinary income in an amount equal to the difference between the exercise price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise, and (iii) when shares acquired under the exercise of a nonqualified stock option are sold, appreciation (or depreciation) in the value of the shares after the exercise date will be treated as either short-term or long-term capital gain (or loss), depending on how long the shares have been held.

Incentive stock options.  An optionee generally will not recognize income when an ISO is granted or

exercised. However, the exercise of an ISO may result in alternative minimum tax liability. If shares are issued to the optionee under the exercise of an ISO, and if the optionee does not make a disqualifying disposition of such shares within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon the sale of such shares, any amount realized in excess of the exercise price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

If shares acquired upon the exercise of an ISO are disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid. Any further gain (or loss) realized by the optionee generally will be taxed as short-term or long-term capital gain (or loss), depending on the holding period.

Stock appreciation rights.  A participant will not recognize any income in connection with the grant of a tandem stock appreciation right or a free-standing stock appreciation right. When the appreciation right is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted shares received as a result of the exercise.

Stock awards—restricted shares.  The recipient of a stock award in the form of restricted shares generally will be subject to tax at ordinary income rates on the fair market value of the underlying shares (reduced by any amount paid by the participant for such shares) at such time as the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a participant may, within 30 days of the date of transfer of the shares, elect under Section 83(b) of the Code to have taxable ordinary income on the date of transfer equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted shares. If a participant does not make a Section 83(b) election, any dividends received with respect to shares that are

subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the participant.

Stock awards—restricted share units.  No income generally will be recognized upon the grant of stock awards in the form of RSUs, PSUs, or other share units. The recipient of an award of RSUs generally will be subject to tax at ordinary income rates on the fair market value of unrestricted shares on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.

Cash awards.  A recipient generally will not recognize any income upon the grant of a cash award. Upon payment in respect of the earn-out of a cash award, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the cash or other property received and the fair market value of any unrestricted shares received.

Federal Income Tax Consequences to Cardinal Health or its Subsidiary

At the time and to the extent that a recipient recognizes ordinary income in the circumstances described above, Cardinal Health or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code, and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code. As noted above, we may grant awards under the 2011 LTIP that are not designed to qualify as “performance-based” under Section 162(m), and awards intended to qualify as “performance-based” may not qualify for deductibility under Section 162(m).

The Board recommends that you vote FOR the proposal to approve the 2011 LTIP.

PROPOSAL 4—ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

Beginning this year, U.S. public companies are required under recently enacted Section 14A of the Exchange Act to hold a “say on pay” advisory vote. In accordance with this new law, we are asking our shareholders to approve, on a non-binding advisory basis, the compensation of our named executives, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table, and the related compensation tables, notes, and narrative in this proxy statement for the Annual Meeting.

As described below in the Compensation Discussion and Analysis, we have designed our executive compensation program to deliver a competitive package to attract, motivate, and retain key executives and to align their compensation with our overall business goals, core values, and shareholder interests. To that end, the Compensation Committee has established an executive compensation program with these guiding principles:

Consistent with these principles, approximately 60% of each named executive officer’s target total direct compensation during fiscal 2011 was in the form of performance-based compensation (i.e., annual cash incentive and stock options). To further enhance the link between executive pay and performance, the Compensation Committee changed our long-term incentive award mix for fiscal 2012, introducing

three-year performance share units for senior executives, as discussed on page 36 of the Compensation Discussion and Analysis.

Fiscal 2011 was an outstanding year for us. We achieved record revenue of $103 billion and increased our non-GAAP diluted earnings per share from continuing operations by 20% to $2.67² (and on a GAAP basis, by 69% to $2.74). As discussed in further detail in the Compensation Discussion and Analysis, the Compensation Committee’s decisions regarding the named executives’ compensation reflect our performance achievements during the fiscal year, including funding the fiscal 2011 annual cash incentive pool at 110% of target, driven by above-target earnings before interest and taxes and better than target tangible capital performance.

We urge shareholders to read the Compensation Discussion and Analysis beginning on page 36 of this proxy statement, which describes in more detail how our executive compensation program operates and is designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables, notes, and narrative appearing on pages 46 through 59, which provide detailed information on the compensation of our named executives. The Compensation Committee and the Board believe that the executive compensation program articulated in the Compensation Discussion and Analysis is effective in achieving our goals and that the compensation of our named executives reported in this proxy statement has supported and contributed to our success.

Although this advisory vote is not binding on the Board, the Board and the Compensation Committee will review and consider the voting results when evaluating our executive compensation program.

The Board recommends that you vote FOR the approval, on a non-binding advisory basis, of the compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table, and the related compensation tables, notes, and narrative in this proxy statement for the Annual Meeting.

PROPOSAL 5—ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

As required under recently enacted Section 14A of the Exchange Act, we also are asking shareholders to vote on whether future advisory votes on executive compensation (like Proposal 4 above) should occur once every one, two, or three years. This vote is not binding on the Board. Based on input from shareholders, the Board has determined that holding an advisory vote on executive compensation every year is most appropriate for us at this time, and recommends that shareholders vote to hold such votes every year. Given that advisory votes on executive compensation are new, holding an annual advisory vote provides us with more direct and immediate insight into our shareholders’ views on our executive compensation program.

Although this advisory vote is not binding on the Board, we will carefully review the voting results on this proposal. Notwithstanding the Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to vary its practice on the frequency of advisory votes on executive compensation based on factors such as discussions with shareholders.

You may specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. You are not voting to approve or disapprove the Board’s recommendation.

The Board recommends that you vote to conduct future advisory votes on executive compensation every ONE YEAR.

PROPOSAL 6—SHAREHOLDER PROPOSAL REGARDING AN AMENDMENT TO OUR CODE OF REGULATIONS TO REQUIRE THAT THE CHAIRMAN OF THE BOARD BE AN INDEPENDENT DIRECTOR

We received notice that a shareholder intends to present the following proposal at the Annual Meeting. The proposed resolution and its supporting statement, for which neither we nor the Board accepts responsibility, are set forth below. Michael J. Barry submitted this proposal on behalf of Norges Bank Investment Management, P.O. Box 1179 Sentrum, 0107 Oslo, Norway, a shareholder owning over $2,000 in market value of our common shares as of May 18, 2011.

The shareholder proposal and supporting statement reads as follows:

RESOLVED: Pursuant to Section 1701.11 of the Ohio Revised Code, the shareholders hereby amend the Code of Regulations to add the following text where designated:

Add a new Section 3.8:

“Notwithstanding any other provision of these regulations, the chairman of the board shall be a director who is independent from the Company. For purposes of this regulation, ‘independent’ has the meaning set forth in the New York Stock Exchange (“NYSE”) listing standards, unless the Company’s common stock ceases to be listed on the NYSE and is listed on another exchange, in which case such exchange’s definition of independence shall apply. If the board of directors determines that a chairman who was independent at the time he or she was selected is no longer independent, the board of directors shall select a new chairman who satisfies the requirements of this regulation within 60 days of such determination. Compliance with this regulation shall be excused if no director who qualifies as independent is elected by the shareholders or if no director who is independent is willing to serve as chairman of the board. This regulation shall apply prospectively, so as not to violate any contractual obligation of the Company in effect when this regulation was adopted.”

Add to the end of Section 3.1:

“except that no person shall serve concurrently as chief executive officer and chairman of the board.”

SUPPORTING STATEMENT

A goal of Norges Bank, the central bank of Norway, is to safeguard long-term financial interests through active ownership. In furtherance of that goal, Norges Bank believes that corporate boards should be structured to ensure independence and accountability to shareholders. The roles of chairman of the board and CEO are fundamentally different and should not be held by the same person. There should be a clear division of the responsibilities between these positions to ensure a balance of power and authority on the board. Approximately 43% of S&P 1500 companies have separate CEO and chairman positions.

The board should be led by an independent chairman. Such a structure will put the board in a better position to make independent evaluations and decisions, hire management, decide a remuneration policy that encourages performance, provide strategic direction, and support management in taking a long-term view in the development of business strategies. An independently led board is better able to oversee and give guidance to Company executives, help prevent conflict or the perception of conflict, and effectively strengthen the system of checks-and-balances within the corporate structure and thus protect shareholder value.

An independent chairman will be a strength to the Company when the board must make the necessary strategic decisions and prioritizations to create shareholder value over time.

We therefore urge shareholders to vote FOR this proposal.

The Board of Directors’ Statement in Opposition to Proposal 6

Your Board recommends a vote AGAINST Proposal 6, a proposed amendment to Cardinal Health’s Regulations to require that the Chairman be independent. We believe that our shareholders benefit from a governance structure that allows the Board appropriate flexibility to implement the leadership structure that best serves the interests of Cardinal Health and our shareholders at any given time. We further believe that our current board structure and governance practices, including an independent Presiding Director, provide strong leadership as well as effective, independent oversight of management at this time. Our current practice of combining the Chief Executive Officer and Chairman positions is something we evaluate as part of our review of Cardinal Health’s overall corporate governance practices.

As stated in our Corporate Governance Guidelines, the Board believes that it is in the best interests of Cardinal Health for the Board to retain the flexibility to decide who should serve as Chairman and Chief Executive Officer, and whether the offices should be combined or separate, based upon the circumstances facing us at any given time. This enables the Board to assess our opportunities and challenges and organize our leadership structure appropriately. The proposal to amend the Regulations to require an independent chairman would limit the ability of the Board to select the director the Board believes is best suited to serve as Chairman.

At the present time, especially as we address the challenges of a difficult economy and continuing changes in the healthcare markets, the Board believes that the most effective leadership structure is for our Chief Executive Officer to serve as Chairman. This structure fosters clear accountability, effective decision-making, and alignment between the Board and management, and allows one person to speak on behalf of the company to customers, vendors, regulators, and employees. Furthermore, this structure enables Mr. Barrett to ensure that the Board’s agenda responds to our strategic challenges, that the Board is presented with information required for it to fulfill its responsibilities, and that Board meetings are as productive and effective as possible.

Of the largest 100 public companies recently surveyed by Shearman & Sterling LLP (as reported

in its 2010 Corporate Governance of the Largest US Public Companies—General Governance Practices report), only 17 had an independent chairman. Furthermore, according to the 2010 Spencer Stuart Board Index (released October 2010) available at www.spencerstuart.com, only 19% of the boards of directors of S&P 500 companies had an independent chairman.

As noted above, the Board is committed to effective corporate governance and promoting a strong, independent Board. All but one of our directors are independent as defined under the NYSE regulations and the Corporate Governance Guidelines, and each of the Audit, Nominating and Governance, and Compensation Committees is comprised entirely of independent directors. In addition, the independent directors annually elect an independent director to serve as the Presiding Director. The Presiding Director presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; has the authority to call additional executive sessions of the independent directors; serves as a liaison between the Chairman and the independent directors; approves the information sent to the Board and the agenda and schedule for Board meetings; and makes himself available, as deemed appropriate by the Board, to consult and communicate directly with major shareholders.

Accordingly, the Board believes that the proposal to amend the Regulations to require that the Chairman be independent regardless of the circumstances is a rigid, one-size-fits-all approach that unnecessarily limits the flexibility of the Board to implement governance structures that best serve the interests of shareholders and Cardinal Health. The Board believes that our Corporate Governance Guidelines already provide strong corporate governance and promote independent leadership, and that the combined role of Chairman and Chief Executive Officer is in the best interests of Cardinal Health and our shareholders at this time.

The Board recommends a vote AGAINST the adoption of this shareholder proposal.

BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

Board of Directors

Our Board of Directors consists of 12 members. The Board held seven meetings during fiscal 2011. Each director attended 75% or more of the meetings of the Board and Board committees on which he or she served during fiscal 2011. All members of the Board at the time of the 2010 Annual Meeting of Shareholders attended that meeting, except Dr. Mongan, who was unable to attend due to health-related considerations. Absent unusual circumstances, each director is expected to attend the Annual Meeting.

Committees of the Board of Directors

The Board has established four committees: the Audit Committee, the Nominating and Governance

Committee, the Human Resources and Compensation Committee (the “Compensation Committee”), and the Executive Committee. The charter for each committee is available on our website, at www.cardinalhealth.com, under “Investors —Corporate Governance: Board committees/charters.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.

During fiscal 2011, each member of the Audit, Nominating and Governance, and Compensation Committees was determined by the Board to be independent as defined by the rules of the NYSE and in accordance with our Corporate Governance Guidelines, as discussed in more detail below. The table below identifies the current committee members.

The Audit Committee. The Audit Committee’s primary duties are to assist the Board in monitoring:

The Audit Committee reviews quarterly and annual financial statements before they are filed or announced. It also reviews matters such as the significant financial reporting issues and judgments made in connection with the preparation of our

financial statements, including any significant changes in our selection or application of accounting principles; the effect of regulatory and accounting initiatives; and the adequacy and effectiveness of our internal controls and disclosure controls and procedures.

The Audit Committee obtains reports from our Chief Legal and Compliance Officer regarding our ethics and compliance program, including compliance by Cardinal Health and its subsidiaries and foreign affiliates with applicable legal requirements and the Standards of Business Conduct described below. The Audit Committee discusses with management our major financial risk exposures and the steps management has taken to monitor and control such exposures, including our financial risk assessment and financial risk management policies.

The Audit Committee pre-approves all services provided by the independent auditor and appoints, compensates, and oversees the independent auditor’s work, including resolution of any disagreements with management regarding financial reporting. The Audit Committee also reviews our internal audit plan and the functions and structure of our internal audit department.

During fiscal 2011, the Audit Committee met seven times. The Board has determined that each of Messrs. Britt, Downey, and Finn is an “audit committee financial expert” for purposes of the rules of the SEC.

The Nominating and Governance Committee. The Nominating and Governance Committee’s primary duties are to:

The Nominating and Governance Committee considers and recommends criteria to the Board for identifying and evaluating potential Board candidates; reviews and considers any Board

candidates recommended by shareholders; assesses the qualification, attributes, skills, contributions, and independence of individual incumbent directors; recommends to the Board changes in the structure, composition, and function of the Board’s committees; and considers and makes recommendations to the Board regarding director resignations.

During fiscal 2011, the Nominating and Governance Committee met five times.

Human Resources and Compensation Committee. The Compensation Committee’s primary duties are to:

The Compensation Discussion and Analysis, which begins on page 36, discusses how the Compensation Committee makes compensation-related decisions regarding our executive officers. In addition, during fiscal 2011, the Compensation Committee reviewed with the Board management succession for the Chief Executive Officer and other senior executives, including emergency succession plans. The Compensation Committee acts as the administrator of our equity and non-equity incentive plans covering executive officers and other senior management. Generally, the Compensation Committee may delegate to our officers authority to administer the plans, including selecting participants and determining award levels within plan parameters, but may not delegate any such responsibility with respect to our officers subject to Section 16 of the Exchange Act.

During fiscal 2011, the Compensation Committee met six times.

The Executive Committee. In addition to the above committees, the Board also has established the Executive Committee, comprised of the Chairman and Chief Executive Officer, the chairpersons of each of the Audit, Nominating and Governance, and Compensation Committees, the Presiding Director, and Mr. Notebaert. The Executive Committee acts from time to time on behalf of the Board to perform certain duties when specific authority is delegated to it by the Board or to consider or act upon a matter promptly.

During fiscal 2011, the Executive Committee met once.

CORPORATE GOVERNANCE

Shareholder Recommendations for Director Nominees

The Nominating and Governance Committee will consider candidates recommended by shareholders for election as director. Shareholder recommendations will be evaluated against the same criteria used to evaluate other nominees, which criteria are discussed below under “Director Qualification Standards and Performance Assessment.” Shareholders who wish to recommend a candidate may do so by writing to the Nominating and Governance Committee in care of the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017. To be considered by the committee for consideration at the 2012 annual meeting of shareholders, a shareholder recommendation must be received no later than May 17, 2012, and must contain the following information:

Shareholders who wish to nominate directors directly at an annual meeting of shareholders in accordance with the procedures in our Code of Regulations should follow the instructions under “Future Shareholder Proposals” on page 63.

Communicating with the Board

Shareholders and other interested parties may communicate with the Board, any committee of the Board, any individual director, or the independent

directors as a group, by writing to the Office of the Corporate Secretary, Cardinal Health, Inc., 7000 Cardinal Place, Dublin, Ohio 43017, or sending an e-mail to bod@cardinalhealth.com. Communications from shareholders will be distributed to the entire Board unless addressed to a particular committee or director. The Corporate Secretary will not distribute communications that are unrelated to the duties of the Board, such as spam, junk mail, and mass mailings, business solicitations and advertisements.

Corporate Governance Guidelines

You can find the full text of our Corporate Governance Guidelines on our website, at www.cardinalhealth.com, under “Investors—Corporate Governance: Corporate Governance Guidelines.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.

Director Independence

The Board has established standards, embodied in our Corporate Governance Guidelines, to assist it in determining director independence. Under these standards, an “independent director” is a director who:

The Board assesses at least annually the independence of directors and, based on the recommendation of the Nominating and Governance Committee, determines which members are independent. The Board has determined that each of Messrs. Britt, Downey, Darden, Finn, Kenny, King, Notebaert, and Raisbeck, Mmes. Arnold and Cox, and Dr. Spaulding is independent under the listing standards of the NYSE and our Corporate Governance Guidelines. The Board determined that

Mr. Notebaert was independent during fiscal 2011 after his brother retired as an executive with one of our customers. The Board also had determined that Dr. Mongan was independent during his service.

In determining that Ms. Arnold, an executive officer of IBM, is independent, the Nominating and Governance Committee and the Board considered our relationship with IBM, from which we purchase equipment and services in the ordinary course of business. IBM is the major service provider on a business transformation project for our Medical segment, which includes several important information technology systems. Our aggregate payments to IBM were substantially less than 1% of IBM’s consolidated gross revenues for each of 2009, 2010, and 2011.

Director Qualification Standards and Performance Assessment

The Nominating and Governance Committee reviews with the Board the appropriate skills and characteristics required of Board members and develops criteria for identifying and evaluating qualified Board candidates. These criteria, as described in our Corporate Governance Guidelines, include business experience, qualifications, attributes, and skills; independence; judgment; integrity; ability to commit sufficient time and attention to the activities of the Board; and the absence of potential conflicts with our interests. We are particularly interested in individuals with relevant industry background (including healthcare and supply chain and logistics) and experience in operations, management, technology, accounting and finance, leadership, strategic planning, and international markets.

The Nominating and Governance Committee considers the foregoing criteria when assessing the operation and goals of the Board as a whole and seeks to achieve diversity of occupational and personal backgrounds on the Board, including race and gender diversity. The Nominating and Governance Committee assesses the effectiveness of this process by gathering data and discussing the diversity of the Board in the annual self-assessment for the Nominating and Governance Committee and the Board.

If the Nominating and Governance Committee believes that a potential candidate may be appropriate

for the Board, the committee takes time to learn more about the candidate and gives the candidate an opportunity to learn more about Cardinal Health, the Board, and its governance practices. Ultimately, the Board is responsible for selecting candidates for election as directors based on the recommendation of the Nominating and Governance Committee.

During fiscal 2011, the Nominating and Governance Committee engaged a search firm to assist with identifying and evaluating potential Board candidates. Mr. Barrett first identified Mr. King as a potential candidate for consideration by the search firm and the Nominating and Governance Committee.

The Nominating and Governance Committee assesses Board performance by overseeing an annual evaluation of the Board, the results of which are discussed with the full Board. Each of the Audit, Nominating and Governance, and Compensation Committees conducts an annual self-assessment. In addition, the Nominating and Governance Committee periodically conducts an individual evaluation of each director, the results of which are shared with each individual director.

Board Leadership Structure

Under our Corporate Governance Guidelines, the Board is responsible for selecting the Chairman of the Board and the Chief Executive Officer. The Board currently combines these roles. The independent directors annually elect another independent director to serve as Presiding Director. Especially as we continue to address the challenges of a difficult economy and changes in the healthcare markets, the Board believes this structure provides the most effective leadership model. Combining the Chairman and Chief Executive Officer roles fosters clear accountability, effective decision-making, and alignment between the Board and management, and allows one person to speak on our behalf to customers, vendors, regulators, and employees. At the same time, by appointing an independent Presiding Director, convening regular executive sessions of the independent directors, and having independent committees and all but one of our directors independent, the Board believes it maintains effective oversight of management. The Board periodically reviews and assesses its leadership structure to ensure it is appropriate for the circumstances.

Mr. Finn has been the Presiding Director since September 2009. The Presiding Director’s authority and responsibilities enhance the independent oversight of our management. The Presiding Director presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors; has the authority to call additional executive sessions of the independent directors; serves as a liaison between the Chairman and the independent directors; approves the information sent to the Board and the agenda and schedule for Board meetings; and makes himself available, as deemed appropriate by the Board, to consult and communicate directly with major shareholders.

During fiscal 2011, our non-management directors met in executive session five times. Two of these meetings occurred after the Board determined that Mr. Notebaert once again qualified as an independent director and therefore constituted executive sessions of independent directors.

Risk Oversight

The Board’s role in risk oversight. The Board is responsible for overseeing our policies and procedures for assessing and managing risk. Management is responsible for assessing and managing our exposures to risk on a day-to-day basis, including the creation of appropriate risk management policies and procedures. Management also is responsible for advising the Board about our most significant risks and our plans for managing those risks.

To assist the Board and management in exercising their respective responsibilities, we have developed an enterprise risk management program overseen by our Chief Legal and Compliance Officer. Under this program, management identifies and prioritizes enterprise risks and develops systems to assess, monitor, and mitigate those risks. Senior management and the full Board review and discuss any risk deemed significant. The Audit Committee assists the Board by monitoring our process for identifying, assessing, and managing risk and major financial and other significant risk exposures.

Risk assessment in compensation programs. Management, under the Compensation Committee’s oversight and with assistance from the Compensation

Committee’s compensation consultant, has assessed our compensation programs and concluded that our compensation policies and practices do not create risks that are reasonably likely to have a material adverse effect on Cardinal Health. This risk assessment process included reviewing the design and operation of our compensation programs, identifying and evaluating situations or compensation elements that may raise material risks, and evaluating other controls and processes designed to identify and manage risk. The risk assessment was presented to and discussed with the Compensation Committee.

Policies on Business Ethics

We maintain written Standards of Business Conduct that outline our corporate values and standards of integrity and behavior and that are designed to protect and promote the reputation of our company. The full text of the Standards of Business Conduct is posted on our website, at www.cardinalhealth.com, under “Investors—Corporate Governance: Ethics and Compliance.” This information also is available in print (free of charge) to any shareholder who requests it from our Investor Relations department.

Any waiver of the Standards of Business Conduct for directors or executive officers must be approved by the Audit Committee. We will disclose future amendments to our Standards of Business Conduct

and waivers from the Standards of Business Conduct for our principal executive officer, principal financial officer, and principal accounting officer, or persons performing similar functions, and our other executive officers and directors on our website within four business days following the date of the amendment or waiver.

Our Chief Legal and Compliance Officer has responsibility for our ethics and compliance functions and authority to implement and maintain an effective ethics and compliance program. He also has responsibility to provide reports reviewing our ethics and compliance program on a quarterly basis to the Audit Committee and at least annually to the Board.

Resignation Policy for Incumbent Directors Not Receiving Majority Votes

Our Corporate Governance Guidelines require any incumbent director who is not re-elected by shareholders in an uncontested election to promptly tender a resignation to the Chairman. Within 90 days following the certification of the shareholder vote, the Nominating and Governance Committee will recommend to the Board whether to accept the resignation. Thereafter, the Board will promptly act and publicly disclose its decision and the rationale behind the decision.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Party Transactions Policy

The Board follows a written policy that the Audit Committee must approve or ratify any transaction exceeding $120,000 in which we are a participant and any related party has a direct or indirect material interest. Related parties include our directors, nominees for election as a director, persons controlling over 5% of our common shares, executive officers, and the immediate family members of each of these individuals.

Once a transaction is identified as requiring approval, the Audit Committee will review all of the relevant facts and circumstances and determine whether to approve the transaction. The Audit Committee will take into account such factors as it considers appropriate, including the material terms of the transaction, the nature of the related party’s interest

in the transaction, the significance of the transaction to the related party and us and the nature of the related party’s relationship with us, and whether the transaction would be likely to impair the judgment of a director or executive officer to act in our best interest.

If advance approval of a transaction is not feasible, the Audit Committee will consider the transaction for ratification at its next regularly scheduled meeting. The Audit Committee Chairman may pre-approve or ratify any related party transactions in which the aggregate amount is expected to be less than $1 million.

Related Party Transactions

Since July 1, 2010, there have been no transactions, and there are no currently proposed transactions, involving an amount exceeding $120,000 in which we were or are to be a participant and in which any related person had or will have a direct or indirect material interest.

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed the audited financial statements for fiscal 2011 with management and with Ernst & Young, our independent accountants. The Audit Committee also has discussed with Ernst & Young the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee received from Ernst & Young the written disclosures and the letter required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communications with the Audit Committee concerning independence, and has discussed with

Ernst & Young its independence from Cardinal Health. The Audit Committee also has considered whether Ernst & Young could provide non-audit services to Cardinal Health and remain independent.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements for fiscal 2011 be included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the SEC.

Submitted by the Audit Committee of the Board of Directors.

Glenn A. Britt, Chairman

Carrie S. Cox

Bruce L. Downey

John F. Finn

INDEPENDENT ACCOUNTANTS

Fees Paid to Independent Accountants

The table below sets forth the fees billed to us by Ernst & Young for services in the fiscal years ended June 30, 2011 and 2010.

Audit Committee Audit and Non-Audit Services Pre-Approval Policy

The Audit Committee must pre-approve the audit and permissible non-audit services performed by our independent accountants in order to ensure that the accountants remain independent from Cardinal Health. The Audit Committee has adopted a policy governing this pre-approval process.

Under the policy, the Audit Committee annually pre-approves certain services within established dollar thresholds. If a proposed service is not included in the annual pre-approval, the Audit Committee must separately pre-approve the service before the engagement begins. The Audit Committee also must separately pre-approve any engagement to provide non-audit services related to internal control over financial reporting.

The Audit Committee has delegated pre-approval authority to the Chairman of the Audit Committee for proposed services up to $500,000. Proposed services exceeding $500,000 require full Audit Committee approval.

All audit and non-audit services provided for us by Ernst & Young for fiscal 2011 and 2010 were pre-approved by the Audit Committee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table below sets forth certain information regarding the beneficial ownership of our common shares and the percentage of our common shares outstanding represented by such ownership by:

Except as otherwise described in the notes below, all information is as of September 6, 2011, and the listed beneficial owners have sole voting and investment power.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely upon a review of Forms 3, 4, and 5 and amendments thereto furnished to us during fiscal 2011 and written representations regarding the same, we believe that all of our officers and directors and all beneficial owners of 10% or more of any class of our registered equity securities timely filed all reports required under Section 16(a) of the Exchange Act during fiscal 2011.

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

Fiscal 2011 business performance and executive pay highlights. Fiscal 2011 was an outstanding year for us. We achieved record revenue of $103 billion and increased our non-GAAP diluted earnings per share from continuing operations by 20% to $2.67³ (and on a GAAP basis, by 69% to $2.74). We also increased our cash dividends by 11% in fiscal 2011 and by another 10% so far in fiscal 2012. Our total shareholder return was 38% during fiscal 2011 and was 90% from the August 2009 spin-off of CareFusion Corporation (the “Spin-Off”) through June 30, 2011.

We acted on important strategic priorities that will strengthen our long-term position. We expanded our retail independent customer base significantly with the Kinray acquisition, created strong growth from our generic pharmaceutical programs, significantly enhanced our specialty business with the P4 Healthcare acquisition, and launched a growth platform in China with our Yong Yu acquisition.

Our Pharmaceutical segment profit increased by 26% during fiscal 2011 primarily due to strong performance in our generic pharmaceutical programs, including new generic launches; solid performance under our branded manufacturing agreements; and acquisitions. Our Medical segment profit decreased by 14% and was adversely affected by the increased cost of commodities. But the underlying performance of the Medical segment was strong, and the strategic initiatives we have implemented position us to best serve our customers’ evolving needs.

The Compensation Committee funded the fiscal 2011 annual cash incentive pool at 110% of target, driven by above-target earnings before interest and taxes (“EBIT”) and better than target tangible capital performance. The Committee then awarded payouts for the executive officers in the tables beginning on page 46 (the “named executives”) that ranged from 65% to 150% of target based on individual and applicable segment performance.

In addition, as in past years, a substantial majority of the named executives’ compensation was in the form of stock options and restricted share units (“RSUs”), providing a strong incentive to increase shareholder value, and approximately 60% of each named executive’s target total direct compensation was performance-based.

Introduction of performance share unit program for fiscal 2012. In August 2011, the Compensation Committee changed our long-term incentive award mix, introducing three-year performance share units (“PSUs”) to incent and retain our executives and further align their interests with those of our shareholders; to further align with the pay practices of our Comparator Group companies; and to respond to the views of our shareholders. As a result, the target value of fiscal 2012 long-term incentive awards (granted in August 2011) for named executives was one-third each of stock options, RSUs, and PSUs.

The PSUs pay out based on (i) the growth rate in non-GAAP earnings per share and (ii) dividend yield over the performance period. These two measures are key components of an internal operational total shareholder return formula that we believe has a strong correlation to our external total shareholder return (i.e., share price appreciation plus dividends).

Corporate governance highlights. The Compensation Committee is briefed regularly on best practices and corporate governance developments relating to executive compensation. Our executive compensation policies and practices include:

Objectives of Our Executive Compensation Program

We have designed our executive compensation program to deliver a competitive package to attract, motivate, and retain key executives and to align their compensation with our overall business goals, core values, and shareholder interests. To that end, the Compensation Committee has established an executive compensation program with these guiding principles:

The Design of Our Executive Compensation Program

Primary elements of compensation in fiscal 2011. When making compensation determinations for our named executives, our Compensation Committee

focuses on target total direct compensation (base salary, target annual cash incentive, and target long-term incentives). The table below provides an overview of these elements of compensation. We rely on these same compensation elements for all of our executive officers.

As noted above, for fiscal 2011, approximately 60% of each named executive’s target total direct compensation was performance-based (i.e., annual cash incentive and stock options). The charts below

show the percentage of target total direct compensation for fiscal 2011 that was performance-based.

The charts below show the percentage of target total direct compensation for fiscal 2011 made up of annual compensation (base salary and annual cash

incentive) and long-term incentives (stock options and RSUs).

Our Comparator Group and benchmarking. In order to be informed about and competitive with compensation practices of similarly situated public companies, the Compensation Committee has developed a “Comparator Group.” Our current Comparator Group reflects the businesses we retained following the Spin-Off and the industry in which we primarily compete for executive talent, including our significant customers and a number of direct competitors and companies in the healthcare field.

In developing the Comparator Group, the Compensation Committee considered, for each prospective constituent company, the number of employees, revenues, operating earnings, market capitalization, operating margin, and five-year total shareholder return. Taking into account the recommendation from its compensation consultant, the Compensation Committee found that the resulting Comparator Group reflects an appropriate balance between industry-focused and other factors that influence peer group selection. The Comparator Group is composed of the following 26 companies: