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## Management’ Discussion and Analysis of Financial Condition and Results of Operations 

The majority of the Company’s overall operating revenue increase of 17% came from existing customers in the for m of increased volume and pharmaceutical price increases. The remainder of the growth came from the addition of new customers, some of which was a r esult of cross-selling opportunities amongst the various businesses. 

The Pharmaceutical Distribution and Provider Services segment’s operating revenue growth in 2000 and 1999 was primarily due to strong sales to pharmacy chain stores and through the Company’s specialty distribution busi- nesses. All operating revenue growth for this segment was internal. In addition, several new contracts involving multi - ple operating segments have boosted r evenues. Offsetting the growth in 2000 was the impact of the phar macy man- agement business continuing to exit unpr ofitable accounts, an initiative that began in late fiscal 1999. 

The increase in the Medical-Surgical Products and Services segment’s operating revenue in 2000 was due to an increase in sales across virtually all product lines. In addition, revenue growth was further enhanced by an increase in international demand over fiscal 1999. The increase in operating revenues for this segment in 1999 was due to strong sales of self-manufactured products and higher margin distributed products. 

The growth in the Pharmaceutical Technologies and Services segment in 2000 and in 1999 was primarily the result of strong sales volume in the phar maceutical- packaging and liquid fill contract manufacturing businesses within this segment. The phar maceutical packaging business’ growth was attributable to a mix of new customers and increased volume from existing customers. The liquid fill contract manufacturing busi - ness’ revenue growth was a result of increased volume. An increase in the drug delivery system business’ sales volume in North America and the health and nutrition market also contributed to the r evenue growth for fiscal 2000. In addition, cross-selling opportunities amongst the businesses within this segment has contributed to an increase in operating revenues. 

The slight decrease in the operating revenues for the Automation and Information Services segment in fiscal 2000 as compared to 1999 was primarily due to timing of customers’ purchases related to the Year 2000. Fiscal 1999 operating revenue growth was a result of general increases in customer demand as well as customers pur - chasing products early in anticipation of the Year 2000. This segment continues to have str ong demand for its new pharmacy automation products from the domestic hospital sector and non-acute care customers. 

## Bulk Deliveries to Customer Warehouses 

The Company reports as revenue bulk deliveries made to customers’ warehouses, whereby the Company acts as an intermediary in the ordering and subsequent delivery of pharmaceutical products. Fluctuations in bulk deliveries result largely from circumstances that are beyond the control of the Company, including con- solidation within the customers’ industries, decisions by customers to either begin or discontinue war ehousing activities, and changes in policies by manufactur ers related to selling directly to customers. Due to the lack of margin generated through bulk deliveries, fluctuations in their amount have no significant impact on the Com - pany’s earnings. 

## Gross Margin 

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The overall decrease in gross margin in 2000 and 1999 was due primarily to a gr eater mix of lower margin pharmaceutical distribution in 2000 and 1999 as com - pared to the prior years. The Phar maceutical Distribution and Provider Services segment represented 75% of 2000 operating revenues, up from 72% and 69% of 1999 and 1998 operating revenues, respectively. 

The decrease in the gross margin of the Pharmaceuti- cal Distribution and Provider Services segment in 2000 and 1999 was primarily due to the impact of lower selling margins, as a result of a highly competitive market and greater mix of high volume customers wher e a lower cost of distribution and better asset management enabled the Company to offer lower selling margins to its customers. Offsetting this decrease was an increase in vendor incen- tives and a positive impact r elated to the rationalization program for the pharmacy management business (see discussion in “Operating Revenues”). 

The decrease in the Medical-Surgical Products and Services segment’s gross margin in 2000 was due to increased pricing pressures in certain self-manufactured 

