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I
tem
7
:Management’s Discussion an
d
Ana
ly
sis o
f
Financia
l
Con
d
ition an
d
Resu
l
ts o
f
O
p
eration
s
The discussion and analysis presented below refers to and should be read in conjunction with the
consolidated financial statements and related notes included in this Form 10-K. Unless otherwise indicated
,
throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we are
r
eferring to our continuing operations.
Execut
i
ve
O
verv
i
ew
We are a $98.5 billion
g
lobal compan
y
servin
g
the healthcare industr
y
with products and services that hel
p
h
osp
i
ta
l
s, p
hy
s
i
c
i
an o
ffi
ces an
d
p
h
armac
i
es re
d
uce costs,
i
mprove sa
f
et
y
an
d
pro
d
uct
i
v
i
t
y
,an
dd
e
li
ver
b
etter care
to pat
i
ents. We report our
fi
nanc
i
a
l
resu
l
ts
i
n two se
g
ments: P
h
armaceut
i
ca
l
an
d
Me
di
ca
l.
Our 2010 fiscal year was a significant transition year as we completed the spin-off of CareFusion
,
transitioned to a new management team, commenced a number of key programs to enhance and refocus our
o
perations and responded to the challenging economic environment and uncertain healthcare industry landscape
.
During fiscal 2010, our Medical segment profit grew by 11 percent, while continuing to make key strategic
investments. Our Pharmaceutical segment profit declined by 3 percent, primarily due to pricing changes o
n
r
enewed customer contracts, the negative impact of actions we took to improve our strategic positioning, the
negative impact from the year-over-year value of generic launches and a severe supply shortage in nuclea
r
p
harmacy. These items were largely offset by our execution on major programs and disciplined cost controls.
Our cash and e
q
uivalents balance was $2.8 billion at June 30, 2010, com
p
ared to $1.2 billion at June 30
,
2009. The increase was primaril
y
derived from net cash provided b
y
operatin
g
activities of $2.0 billion as a result
o
f earnin
g
s and ver
y
successful workin
g
capital mana
g
ement in fiscal 2010
.
We p
l
an to cont
i
nue to execute a
b
a
l
ance
dd
ep
l
o
y
ment o
f
ava
il
a
bl
e cap
i
ta
l
to pos
i
t
i
on ourse
l
ves
f
or
susta
i
na
bl
e compet
i
t
i
ve a
d
vanta
g
ean
d
to create s
h
are
h
o
ld
er va
l
ue. T
hi
s
i
nc
l
u
d
es re
i
nvest
i
n
gi
nt
h
e
b
us
i
ness
;
durin
g
fiscal 2010 we made capital expenditures totalin
g
$260 million, with the ma
j
orit
y
bein
g
in the area of
i
n
f
ormat
i
on tec
h
no
l
o
gy
pro
j
ects. We ma
y
see
k
to comp
l
ement our
i
nterna
l
capa
bili
t
i
es or sca
l
ew
i
t
h
acqu
i
s
i
t
i
ons,
suc
h
as t
h
e acqu
i
s
i
t
i
on o
f
Hea
l
t
h
care So
l
ut
i
ons Ho
ldi
n
g
, LLC (“P4 Hea
l
t
h
care”) t
h
at we recent
ly
comp
l
ete
d
durin
g
earl
y
fiscal 2011. Durin
g
fiscal 2010, we paid quarterl
y
dividends of $0.175 per share, or $0.70 per shar
e
o
n an annualized basis. On Ma
y
5, 2010, the board of directors approved an 11 percent increase in the quarterl
y
dividend be
g
innin
g
in Jul
y
2010. In fiscal 2010 we also repurchased $250 million of shares (of which $20 million
cas
h
sett
l
e
di
nJu
ly
2010).
T
ren
ds
A
s we enter fiscal 2011, we expect low sin
g
le-di
g
it
g
rowth in the primar
y
markets that we serve. Actual
r
evenue
g
rowth realized in our two se
g
ments ma
y
var
y
from market trends based on customer
g
ains and losses
,
p
roduct and customer sales mix shifts, and
g
rowth of the specific customers that we serve
.
Our gross marg
i
n
h
as
b
een re
l
at
i
ve
l
y
fl
at over t
h
e past t
h
ree years an
dd
ecrease
d
as a percentage o
f
revenues
p
r
i
mar
il
y as a resu
l
to
f
compet
i
t
i
ve pressures. We
b
egan a num
b
er o
fb
us
i
ness programs to
i
mprove gross marg
i
n
an
di
ncrease t
h
esa
l
es o
fhi
g
h
er marg
i
n pro
d
ucts, w
hi
c
hh
a
d
some success
i
n
fi
sca
l
2010. Go
i
ng
f
orwar
d
,ou
r
gross marg
i
n cou
ld b
e
i
n
fl
uence
db
yt
h
e rates o
f
growt
hi
n our
k
ey mar
k
ets, pro
d
uct an
d
customer sa
l
es m
i
x,
compet
i
t
i
ve pr
i
c
i
n
gi
ntens
i
t
y
, sourc
i
n
g
act
i
v
i
t
y
,t
h
e rate an
d
va
l
ue o
fg
ener
i
cp
h
armaceut
i
ca
ll
aunc
h
es, an
d
pr
i
ce
c
h
an
g
es
f
or our pro
d
ucts,
i
nc
l
u
di
n
gg
ener
i
can
db
ran
d
e
d
p
h
armaceut
i
ca
l
pr
i
ce apprec
i
at
i
on or
d
e
fl
at
i
on
.
Our Pharmaceutical segment’s nuclear pharmacy services business dispenses several products prepare
d
using a particular radioisotope. At the present time, it is difficult to acquire sufficient quantities of that
20