included an increase in the minimum Medicaid rebate rate from 15.1% to 23.1% and also extended the rebate to drugs provided through Medicaid managed care organizations. The 2010 impact was an increase in sales rebates reducing sales revenue by approxi- mately $400 million. The 2011 full year impact to sales of the legislation is estimated to be $400–$500 million. Beginning in 2011, companies that sell branded prescription drugs to specified U.S. Government programs will pay an annual non- tax deductible fee based on an allocation of the company’s market share of total branded prescription drug sales from the prior year. The estimate of the impact on the Company in 2011 is $150–$200 mil- lion. Beginning in 2013, the Company will be required to pay a tax deductible 2.3% excise tax imposed on the sale of certain medical devices. The five-year compound annual growth rates for worldwide, U.S. and international sales were 4.0%, 0.7% and 7.7%, respectively. The ten-year compound annual growth rates for worldwide, U.S. and international sales were 7.8%, 5.5% and 10.5%, respectively. U.S. and International Sales for 10 Years (in billions of dollars) U.S. International 60 70 50 40 30 20 10 0 00 01 02 03 04 05 06 07 0 0 10 Analysis of Sales by Business Segments CONSUMER SEGMENT U.S. HEALTH CARE REFORM Major Consumer Franchise Sales: Consumer segment sales in 2010 were $14.6 billion, a decrease of 7.7% from 2009, with 8.9% of this change due to an operational decline partially offset by positive currency impact of 1.2%. U.S. Con- sumer segment sales were $5.5 billion, a decrease of 19.3%. Interna- tional sales were $9.1 billion, an increase of 1.2%, with an operational decline of 1.0% offset by positive currency impact of 2.2%. The Over-the-Counter (OTC) Pharmaceuticals and Nutritionals franchise sales were $4.5 billion, a decrease of 19.2% from 2009. Sales were negatively impacted by the voluntary recalls of certain OTC products announced earlier in the year and suspension of production at McNeil Consumer Healthcare’s Fort Washington, Pennsylvania facility. McNeil’s recalls of products manufactured at both Las Piedras and Fort Washington facilities impacted the total year sales by approximately $900 million. Alternate supplies of products are planned to be available in the latter half of 2011. McNeil Consumer Healthcare submitted its Comprehensive Action Plan (CAP) to the U.S. Food and Drug Administration (FDA) on July 15, 2010, which encompasses, among other items, training, resources and capital investments in quality and manufacturing systems across the McNeil organization. The The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 were signed into law during March 2010. The newly enacted health care reform legislation 2009 results benefited from the inclusion of a 53rd week. (See Note 1 to the Consolidated Financial Statements for Annual Closing Date details). The Company estimated that the fiscal year 2009 growth rate was enhanced by approximately 0.5% due to the 53rd week. In 2010, 2009 and 2008, the Company did not have a cus- tomer that represented 10% or more of total consolidated revenues. Sales in Europe experienced a decline of 2.7% including opera- tional growth of 0.5% and a negative impact from currency of 3.2%. Sales in the Western Hemisphere (excluding the U.S.) achieved growth of 7.6% including an operational decline of 0.5% and an increase of 8.1% related to the positive impact of currency. Sales in the Asia-Pacific, Africa region achieved growth of 11.7%, including operational growth of 5.5% and an increase of 6.2% related to the positive impact of currency. % Change ______________________ (Dollars in Millions) 2010 2009 2008 ’10 vs. ’09 ’09 vs. ’08 OTC Pharmaceuticals & Nutritionals $ 4,549 5,630 5,894 (19.2)% (4.5) Skin Care 3,452 3,467 3,381 (0.4) 2.5 Baby Care 2,209 2,115 2,214 4.4 (4.5) Women’s Health 1,844 1,895 1,911 (2.7) (0.8) Oral Care 1,526 1,569 1,624 (2.7) (3.4) Wound Care/Other 1,010 1,127 1,030 (10.4) 9.4 Total $14,590 15,803 16,054 (7.7)% (1.6) 31 MANAGEMENT’S DISCUSSION AND ANALY SIS OF RESULT S OF OPERATIONS AND FINANCIAL CONDITION ’08 70 60 50 40 30 20 10 0 Sales by Segment (in billions of dollars) Consumer Pharmaceutical Medical Devices and Diagnostics ’0 ’10 60 70 50 40 30 20 10 0 Sales by Geographic Region (in billions of dollars) U.S. Europe Western Hemisphere excluding U.S. Asia Pacific, Africa 0 0 10