CAREFUSION 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34273

CareFusion Corporation

(Exact name of Registrant as specified in its charter)

Delaware	26-4123274
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)

3750 Torrey View Court

San Diego, CA 92130

Telephone: (858) 617-2000

(Address of principal executive offices, zip code and Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, as of April 25, 2012 was 221,916,131.

TABLE OF CONTENTS

IMPORTANT INFORMATION REGARDING FORWARD-LOOKING STATEMENTS	3
PART I – FINANCIAL INFORMATION	4
ITEM 1. FINANCIAL STATEMENTS	4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 4. CONTROLS AND PROCEDURES	42
PART II – OTHER INFORMATION	43
ITEM 1. LEGAL PROCEEDINGS	43
ITEM 1A. RISK FACTORS	43
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45
ITEM 6. EXHIBITS	46

2

Important Information Regarding Forward-Looking Statements

Portions of this Quarterly Report on Form 10-Q (including information incorporated by reference) include “forward-looking statements” based on our current beliefs, expectations and projections regarding our business strategies, market potential, future financial performance, industry and other matters. This includes, in particular, “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q as well as other portions of this Quarterly Report on Form 10-Q. The words “believe,” “expect,” “anticipate,” “project,” “could,” “would,” and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. The most significant of these risks, uncertainties and other factors are described in Item 1A—Risk Factors of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the Securities and Exchange Commission on August 9, 2011. Except to the limited extent required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

3

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAREFUSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Quarters Ended March 31,						Nine Months Ended March 31,
(in millions, except per share amounts)	2012			2011			2012			2011
Revenue	$	919		$	842		$	2,633		$	2,492
Cost of Products Sold		460			405			1,309			1,219
Gross Margin		459			437			1,324			1,273
Selling, General and Administrative Expenses		241			256			766			779
Research and Development Expenses		45			36			118			108
Restructuring and Acquisition Integration Charges		12			14			26			53
Gain on the Sale of Assets		—			(15	)		—			(15	)
Operating Income		161			146			414			348
Interest Expense and Other, Net		21			18			63			59
Income Before Income Tax		140			128			351			289
Provision for Income Tax		37			42			85			91
Income from Continuing Operations		103			86			266			198
Discontinued Operations:
Loss from the Disposal of Discontinued Businesses, Net of Tax		(74	)		(40	)		(74	)		(40	)
Income (Loss) from the Operations of Discontinued Businesses, Net of Tax		2			(1	)		1			1
Loss from Discontinued Operations, Net of Tax		(72	)		(41	)		(73	)		(39	)
Net Income	$	31		$	45		$	193		$	159
PER SHARE AMOUNTS:
Basic Earnings (Loss) per Common Share:
Continuing Operations	$	0.46		$	0.39		$	1.19		$	0.89
Discontinued Operations	$	(0.32	)	$	(0.18	)	$	(0.33	)	$	(0.18	)
Basic Earnings per Common Share	$	0.14		$	0.20		$	0.86		$	0.71
Diluted Earnings (Loss) per Common Share:
Continuing Operations	$	0.45		$	0.38		$	1.17		$	0.88
Discontinued Operations	$	(0.32	)	$	(0.18	)	$	(0.32	)	$	(0.17	)
Diluted Earnings per Common Share	$	0.13		$	0.20		$	0.85		$	0.71
Weighted-Average Number of Common Shares Outstanding:
Basic		224.6			223.0			224.4			222.6
Diluted		226.8			225.6			226.6			224.6

See accompanying notes to condensed consolidated financial statements

4

CAREFUSION CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions, except per share data)	March 31, 2012			June 30, 2011
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1,440		$	1,370
Trade Receivables, Net		502			528
Current Portion of Net Investment in Sales-Type Leases		382			400
Inventories, Net		417			360
Prepaid Expenses		27			27
Other Current Assets		192			143
Current Assets of Discontinued Operations		74			40
Total Current Assets		3,034			2,868
Property and Equipment, Net		429			448
Net Investment in Sales-Type Leases, Less Current Portion		987			957
Goodwill		3,017			2,938
Intangible Assets, Net		834			818
Other Assets		109			89
Non-Current Assets of Discontinued Operations		—			103
Total Assets	$	8,410		$	8,221
LIABILITIES AND EQUITY
Current Liabilities:
Current Portion of Long-Term Obligations and Other Short-Term Borrowings	$	251		$	1
Accounts Payable		182			197
Deferred Revenue		84			67
Accrued Compensation and Benefits		112			132
Other Accrued Liabilities		183			205
Current Liabilities of Discontinued Operations		26			17
Total Current Liabilities		838			619
Long-Term Obligations, Less Current Portion		1,151			1,387
Deferred Income Taxes		661			644
Other Liabilities		509			478
Total Liabilities		3,159			3,128
Commitments and Contingencies
Stockholders’ Equity:
Preferred Stock (50.0 Authorized Shares; $.01 Par Value) Issued and Outstanding – None		—			—
Common Stock (1,200.0 Authorized Shares; $.01 Par Value) Issued and Outstanding – 223.1 and 223.6 shares at March 31, 2012 and June 30, 2011, respectively		2			2
Treasury Stock, at cost, 2.2 and 0.1 shares at March 31, 2012 and June 30, 2011, respectively		(55	)		(3	)
Additional Paid-In Capital		4,772			4,740
Retained Earnings		558			365
Accumulated Other Comprehensive Loss		(26	)		(11	)
Total Stockholders’ Equity		5,251			5,093
Total Liabilities and Stockholders’ Equity	$	8,410		$	8,221

See accompanying notes to condensed consolidated financial statements

5

CAREFUSION CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended March 31,
(in millions)	2012			2011
Cash and Cash Equivalents at July 1, Attributable to Continuing Operations	$	1,370		$	982
Cash and Cash Equivalents at July 1, Attributable to Discontinued Operations	$	1		$	37
Cash Flows from Operating Activities:
Net Income		193			159
Loss from Discontinued Operations		(73	)		(39	)
Income from Continuing Operations		266			198
Adjustments to Reconcile Income from Continuing Operations to Net Cash Provided by Operating Activities:
Depreciation and Amortization		147			136
Other Non-Cash Items		70			29
Change in Operating Assets and Liabilities:
Trade Receivables		27			(51	)
Inventories		(50	)		(32	)
Net Investment in Sales-Type Leases		(11	)		(8	)
Accounts Payable		(18	)		2
Other Accrued Liabilities and Operating Items, Net		(85	)		(58	)
Net Cash Provided by Operating Activities – Continuing Operations		346			216
Net Cash (Used in) Provided by Operating Activities – Discontinued Operations		3			(4	)
Net Cash Provided by Operating Activities		349			212
Cash Flows from Investing Activities:
Cash Paid for Acquisition, Net of Cash Received		(131	)		—
Proceeds from Divestitures		—			32
Other Investing Activities, Net		(71	)		(109	)
Net Cash Used in Investing Activities – Continuing Operations		(202	)		(77	)
Net Cash Used in Investing Activities – Discontinued Operations		—			(2	)
Net Cash Used in Investing Activities		(202	)		(79	)
Cash Flows from Financing Activities:
Common Stock Repurchases		(50	)		—
Other Financing Activities		(8	)		18
Net Cash (Used in) Provided by Financing Activities – Continuing Operations		(58	)		18
Net Cash Used in Financing Activities – Discontinued Operations		(5	)		(25	)
Net Cash Used in Financing Activities		(63	)		(7	)
Effect of Exchange Rate Changes on Cash – Continuing Operations		(16	)		39
Effect of Exchange Rate Changes on Cash – Discontinued Operations		2			8
Net Effect of Exchange Rate Changes on Cash		(14	)		47
Net Increase in Cash and Cash Equivalents – Continuing Operations		70			196
Net Decrease in Cash and Cash Equivalents – Discontinued Operations		—			(23	)
Net Increase in Cash and Cash Equivalents		70			173
Cash and Cash Equivalents at March 31, Attributable to Continuing Operations	$	1,440		$	1,178
Cash and Cash Equivalents at March 31, Attributable to Discontinued Operations	$	1		$	14

See accompanying notes to condensed consolidated financial statements

6

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 1. BASIS OF PRESENTATION

Basis of Presentation.References in these notes to the unaudited condensed consolidated financial statements to “CareFusion Corporation,” “CareFusion,” “we,” “us,” “our,” “the company” and “our company” refer to CareFusion Corporation and its consolidated subsidiaries. References in the notes to the unaudited condensed consolidated financial statements to “Cardinal Health” refer to Cardinal Health, Inc., an Ohio corporation, and its consolidated subsidiaries.

The condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with the U.S. Securities and Exchange Commission (“SEC”) instructions for Quarterly Reports on Form 10-Q. Accordingly, the condensed consolidated financial statements are unaudited and do not contain all the information required by U.S. generally accepted accounting principles (“GAAP”) to be included in a full set of financial statements. The condensed consolidated balance sheet at June 30, 2011 has been derived from the audited consolidated and combined financial statements at that date but does not include all of the information and footnotes required by GAAP for a complete set of financial statements. The audited consolidated and combined financial statements for our fiscal year ended June 30, 2011, filed with the SEC on Form 10-K on August 9, 2011 include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

We have evaluated subsequent events for recognition or disclosure through the date these financial statements were issued.

On September 29, 2008, Cardinal Health announced that it intended to separate its clinical and medical products businesses from the remainder of its businesses through a pro-rata distribution of common stock of an entity holding the assets and liabilities associated with the clinical and medical products businesses. CareFusion Corporation was incorporated in Delaware on January 14, 2009 for the purpose of holding such businesses. We completed the spinoff from Cardinal Health on August 31, 2009. In connection with the spinoff, Cardinal Health contributed the majority of the businesses comprising its clinical and medical products segment to us (“the contribution”), and distributed approximately 81% of our outstanding common stock, or approximately 179.8 million shares, to its shareholders (“the distribution”), based on a distribution ratio of 0.5 shares of our common stock for each common share of Cardinal Health held on the record date of August 25, 2009. Cardinal Health retained approximately 19% of our outstanding common stock, or approximately 41.4 million shares, in connection with the spinoff. As of September 15, 2010, Cardinal Health had sold all remaining shares of our common stock retained in connection with the spinoff.

Reorganization of Segment Information.Leading up to the spinoff from Cardinal Health, we organized our businesses into two reportable segments: Critical Care Technologies and Medical Technologies and Services. In July 2011, we made a decision to realign our businesses into two new global operating segments to reduce complexity, provide clearer governance for our investments and make it easier for our customers to do business with us. As a result of this business realignment, we also made a determination to realign our reportable segments with our new operating segments. Commencing with the quarter ended September 30, 2011, we re-segmented our businesses into two new operating and reportable segments: Medical Systems and Procedural Solutions. The Medical Systems segment is organized around our medical equipment businesses. Within the Medical Systems segment, the Company operates its Dispensing Technologies, Infusion Systems and Respiratory Technologies business lines. The Dispensing Technologies business line includes equipment and related services for medication and supply dispensing. The Infusion Systems business line includes infusion pumps and dedicated disposable infusion sets and accessories. The Respiratory Technologies business line includes respiratory ventilators and dedicated disposable ventilator circuits and accessories. The Company also includes its data mining surveillance service business within the Medical Systems segment, which it reports as “Other.” The Procedural Solutions segment is organized around our disposable products businesses. Within the Procedural Solutions segment, the Company operates its Infection Prevention, Medical Specialties and Specialty Disposables business lines. The Infection Prevention business line includes single-use skin antiseptic and other patient-preparation products and non-dedicated disposable infusion administration sets and accessories. The Medical Specialties business line includes interventional specialty products

7

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

used for biopsy, drainage and other procedures, as well as reusable surgical instruments. The Specialty Disposables business line includes non-dedicated disposable ventilator circuits and oxygen masks used in respiratory therapy. The Company also includes its respiratory diagnostics business within the Procedural Solutions segment, which it reports as “Other.”

For the quarter and nine months ended March 31, 2011, certain amounts have been reclassified to conform to the current period presentation. See note 5, note 8 and note 17 to the unaudited condensed consolidated financial statements.

New Accounting Pronouncements (Adopted during Fiscal Year 2012)

ASU 2010-28.In December 2010, the Financial Accounting Standards Board (“FASB”) issued ASU 2010-28 –When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”). For reporting units with zero or negative carrying amounts, ASU 2010-28 requires that an entity perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that an impairment of goodwill exists, an entity should consider whether any adverse qualitative factors are present. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We adopted the amendment provisions of ASU 2010-28 on July 1, 2011; the adoption of this standard did not have material impact on our financial condition, results of operations or cash flows. See note 8 to the unaudited condensed consolidated financial statements.

ASU 2010-29.In December 2010, the FASB issued ASU 2010-29 –Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”). ASU 2010-29 requires that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplementary pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. We adopted the amendment provisions of ASU 2010-29 for the quarter ended September 30, 2011. As ASU 2010-29 is a disclosure standard, the adoption of this standard did not have any impact on our financial condition, results of operations or cash flows. See note 3 to the unaudited condensed consolidated financial statements.

ASU 2011-04.In May 2011, the FASB issued ASU 2011-04 –Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs(“ASU 2011-04”). ASU 2011-04 clarifies the application of existing fair value measurement guidance, amends certain fair value measurement principles, and requires additional disclosures for certain fair value measurements. We prospectively adopted the amendment provisions of ASU 2011-04 on January 1, 2012; the adoption of this standard did not have material impact on our financial condition, results of operations or cash flows.

ASU 2011-08.In September 2011, the FASB issued ASU 2011-08 –Goodwill Impairment Testing (“ASU 2011-08”). For entities testing goodwill for impairment, ASU 2011-08 allows the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step 1 of the impairment test. The two-step impairment test would be required only if the fair value of a reporting unit is qualitatively determined to be more likely than not less than the carrying amount. We early adopted the amendment provisions of ASU 2011-08 prospectively on April 1, 2012; the adoption of this standard did not have material impact on our financial condition, results of operations or cash flows.

8

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 2. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

Nicolet Business

During the quarter ended March 31, 2012, we committed to a plan to sell our Nicolet neurodiagnostic and monitoring products business, resulting in held for sale classification of the underlying assets. As a result, the assets of the Nicolet business were written down to fair value less costs to sell. In April 2012, we entered into a definitive agreement to sell the Nicolet business for approximately $58 million in cash, subject to post closing adjustment related to working capital. As a result, we recorded a pre-tax impairment charge of approximately $74 million in the quarter ended March 31, 2012. This transaction is subject to customary closing conditions and is expected to close in July 2012. The final after-tax charge may fluctuate based on adjustments to the sale price at closing, as well as any tax impact related to the sale. The Nicolet business was historically part of our Procedural Solutions segment. Our decision to sell the Nicolet business is part of our continuing strategy of assessing our portfolio of businesses with a view of divesting product lines that do not align with our objectives. See note 14.

International Surgical Products Business

During the quarter ended March 31, 2011, we entered into a definitive agreement to sell our International Surgical Products distribution business (“ISP”), resulting in held for sale classification of the underlying assets. Accordingly, the assets of the ISP business were written down to fair value less costs to sell, resulting in a pre-tax impairment charge of $40 million recorded in the quarter ended March 31, 2011. On April 1, 2011, we completed the sale of the ISP business, resulting in a total loss from discontinued operations associated with the ISP business of approximately $47 million, which includes a $5 million loss recorded in the quarter ended June 30, 2011, related to incremental costs to sell and adjustments to the estimated purchase price. At the closing of the sale, we received approximately $124 million in cash. At June 30, 2011, an additional $20 million in receivables were included within current assets in our condensed consolidated balance sheet, for total consideration of approximately $144 million, which is net of purchase price adjustments and was fully collected by September 30, 2011.

Summarized selected financial information for the ISP business and the Nicolet business for the quarters and nine months ended March 31, 2012 and 2011, is as follows:

	Quarters Ended March 31,						Nine Months Ended March 31,
(in millions)	2012			2011			2012			2011
Revenue	$	25		$	137		$	70		$	397
Operating Loss	$	(72	)	$	(35	)	$	(74	)	$	(29	)
Loss Before Income Tax	$	(72	)	$	(38	)	$	(74	)	$	(36	)
Provision (Benefit) for Income Tax	$	—		$	3		$	(1	)	$	3
Loss from Discontinued Operations, Net of Tax	$	(72	)	$	(41	)	$	(73	)	$	(39	)

9

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The assets and liabilities of discontinued operations are stated separately as of March 31, 2012 and June 30, 2011, in the condensed consolidated balance sheets and are comprised of the following items:

(in millions)	March 31, 2012		June 30, 2011
ASSETS
Current Assets:
Cash and Cash Equivalents	$	1	$	1
Trade Receivables, Net		10		12
Inventories, Net		22		22
Prepaid Expenses and Other		1		1
Other Current Assets		40		4
Current Assets of Discontinued Operations		74		40
Property and Equipment, Net		—		16
Goodwill		—		16
Intangible Assets		—		69
Other Assets		—		2
Total Assets of Discontinued Operations	$	74	$	143
LIABILITIES
Current Liabilities:
Accounts Payable	$	4	$	4
Other Accrued Liabilities		13		6
Other Current Liabilities		9		7
Current Liabilities of Discontinued Operations		26		17
Other Liabilities		—		—
Total Liabilities of Discontinued Operations	$	26	$	17

All discontinued operations businesses presented were previously included in the Procedural Solutions segment.

OnSite Services Business

During the quarter ended March 31, 2011, we entered into a definitive agreement to sell the OnSite Services instrument management and repair business, which was historically part of our Procedural Solutions segment, and met the criteria for classification as assets held for sale. The transaction closed on March 28, 2011, and a pre-tax gain related to the disposition of approximately $15 million was recorded in the quarter ended March 31, 2011. The results of this business are reported within earnings from continuing operations in the condensed consolidated statements of operations for periods up to the closing date.

NOTE 3. ACQUISITIONS

On August 1, 2011, we completed the acquisition of Rowa Automatisierungssysteme GmbH (“Rowa”), a Germany-based company specializing in robotic medication storage and retrieval systems for retail and hospital pharmacies. The purchase price of the acquisition, which was paid in cash, was approximately $150 million. The valuation of acquired assets and liabilities resulted in the recognition of goodwill of approximately $84 million, of which approximately $11 million is expected to be deductible for tax purposes; identifiable intangible assets of $81 million; deferred tax liabilities of $23 million; and the remaining amount associated with net assets acquired. Various factors contributed to the establishment of goodwill, including market penetration, an expanded global footprint, and the portfolio of future products under development. The unaudited condensed consolidated financial statements include the results of operations from this business combination from the date of acquisition, which is included in our Medical Systems reporting segment. Had the transaction occurred at the beginning of fiscal year 2012, consolidated results of operations would not have differed materially from reported results.

10

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 4. EARNINGS PER SHARE

For the quarters and nine months ended March 31, 2012 and 2011, basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated to give effect to all dilutive securities, using the treasury stock method.

The following table sets forth the reconciliation of basic and diluted earnings per share for the quarters and nine months ended March 31, 2012 and 2011:

	Quarters Ended March  31,				Nine Months Ended March  31,
(shares in millions)	2012		2011		2012		2011
Denominator for Basic Earnings per Share		224.6		223.0		224.4		222.6
Effect of Dilutive Securities:
Stock Options		0.9		1.1		0.9		0.7
Restricted Stock Awards, Restricted Stock Units and Performance Stock Units		1.3		1.5		1.3		1.3
Denominator for Diluted Earnings per Share		226.8		225.6		226.6		224.6

The table below provides a summary of the securities that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the period presented. Antidilutive securities were as follows for the quarters and nine months ended March 31, 2012 and 2011:

	Quarters Ended March 31,				Nine Months Ended March 31,
(securities in millions)	2012		2011		2012		2011
Number of Securities		9.8		7.2		9.8		9.7
Weighted Average Exercise Price	$	29.26	$	32.69	$	30.00	$	30.79

Basic and diluted earnings per share amounts are computed independently in the unaudited condensed consolidated statements of income, therefore, the sum of per share components may not equal the per share amounts presented.

In February 2012, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $500 million in shares of our common stock through open market and private transactions. The share repurchase program is expected to continue through December 2013. We repurchased 2 million shares for a total of $50 million during the quarter ended March 31, 2012. The cost of repurchased shares is included in treasury stock and reported as a reduction in total equity when a repurchase occurs.

11

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 5. RESTRUCTURING AND ACQUISITION INTEGRATION CHARGES

Restructuring liabilities and associated charges are measured at fair value as incurred. Acquisition integration charges are expensed as incurred.

The following is a summary of restructuring and acquisition integration charges for the quarters and nine months ended March 31, 2012 and 2011:

	Quarters Ended March 31,				Nine Months Ended March 31,
(in millions)	2012		2011		2012		2011
Restructuring Charges	$	12	$	13	$	26	$	50
Acquisition Integration Charges		—		1		—		3
Total Restructuring and Acquisition Integration Charges	$	12	$	14	$	26	$	53

Restructuring Charges

In fiscal year 2011, we initiated a global restructuring program (the “2011 Plan”), which was initially expected to result in a reduction of approximately 700 positions. The 2011 Plan resulted in a reduction of approximately 850 positions in fiscal year 2011. The total expected restructuring costs associated with the 2011 Plan were approximately $50 million and are recorded to the “Restructuring and Acquisition Integration Charges” line within our condensed consolidated statements of income as they were recognized. Substantially all of the costs associated with the 2011 Plan were incurred as of June 30, 2011.

In addition to the restructuring program discussed above, we periodically incur costs to implement smaller restructuring efforts for specific operations. The restructuring plans focus on various aspects of operations, including closing and consolidating certain manufacturing operations, rationalizing headcount, and aligning operations in the most strategic and cost-efficient structure.

The following table includes information regarding our current restructuring programs:

	Accrued June 30, 20111		Nine Months Ended March 31, 2012					Accrued Mar. 31, 20121		Total Costs Expensed to Date		Total Expected Program Costs
(in millions)			Accrued Costs		Cash Payments
2011 Plan2	$	7	$	2	$	(8	)	$	1	$	54	$	50
Total Other Restructuring Programs3		5		18		(15	)		8
Total Restructuring Programs	$	12	$	20	$	(23	)	$	9

¹  Included within “Other Accrued Liabilities” in the condensed consolidated balance sheets.

²  The costs associated with the 2011 Plan primarily consist of severance and outplacement services and associated payroll costs accrued upon either communication of terms to employees or over the required service period, excluding impairment charges of $6 million.

³  Total costs expensed to date and total program costs are not provided separately for other restructuring programs based on the short duration and smaller size of these programs.

As discussed in note 1 to the unaudited condensed consolidated financial statements, in order to better align our operating and reporting structures with our updated business profile, commencing with the quarter ended September 30, 2011, we re-segmented our businesses into two new segments: Medical Systems and Procedural Solutions.

12

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The following table segregates our restructuring charges into our reportable segments for the quarters and nine months ended March 31, 2012 and 2011, net of reclassification adjustments to conform to the current period presentation:

	Quarters Ended March 31,				Nine Months Ended March 31,
(in millions)	2012		2011		2012		2011
Medical Systems	$	7	$	6	$	15	$	29
Procedural Solutions		5		7		11		21
Total Restructuring Charges	$	12	$	13	$	26	$	50

Acquisition Integration Charges

Costs of integrating operations of various acquired companies are recorded as acquisition integration charges when incurred. The acquisition integration charges incurred during the quarter and nine months ended March 31, 2011 were primarily the result of the acquisition of Medegen, LLC (“Medegen”) in May 2010.

Certain restructuring and acquisition costs are based upon estimates. Actual amounts paid may ultimately differ from these estimates. If additional costs are incurred or recognized amounts exceed costs, such changes in estimates will be recognized when incurred.

NOTE 6. INVENTORIES

Inventories, accounted for at the lower of cost or market on the FIFO method, consisted of the following:

(in millions)	March 31, 2012			June 30, 2011
Finished Goods	$	287		$	249
Work-in-Process		27			25
Raw Materials		144			126
		458			400
Reserve for Excess and Obsolete Inventories		(41	)		(40	)
Inventories, Net	$	417		$	360

NOTE 7. FINANCING RECEIVABLES

Our net investment in sales-type leases are considered financing receivables. As our portfolio of financing receivables primarily arise from the leasing of our dispensing equipment, the methodology for determining our allowance for credit losses is based on the collective population and not stratified by class or portfolio segment. Reserves for bad debts on the entire portfolio are based on historical experience loss rates and the potential impact of anticipated changes in business practices, market dynamics, and economic conditions. We also reserve individual balances based on the evaluation of customers’ specific circumstances. We write off amounts that are deemed uncollectible. Financing receivables are generally considered past due 30 days after the billing date. We do not accrue interest on past due financing receivables.

13

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The change in the allowance for credit losses on financing receivables for the nine months ended March 31, 2012, consisted of the following:

(in millions)
Beginning balance of allowance for credit losses – June 30, 2011	$	9
Charge-offs		(1	)
Recoveries		—
Provisions		1
Ending balance of allowance for credit losses – March 31, 2012	$	9

The following table summarizes the credit losses and recorded investment in sales-type leases as of March 31, 2012:

(in millions)
Allowance for credit losses:
Ending Balance at March 31, 2012	$	9
Ending Balance: individually evaluated for impairment	$	2
Ending Balance: collectively evaluated for impairment	$	7
Sales-Type Leases:
Ending Balance at March 31, 2012	$	1,369
Ending Balance: individually evaluated for impairment	$	12
Ending Balance: collectively evaluated for impairment	$	1,357

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The following table summarizes the changes in the carrying amount of goodwill:

(in millions)	Total
Balance at June 30, 2011	$	2,938
Goodwill Acquired, Net of Foreign Currency Translation Adjustments		79
Balance at March 31, 2012	$	3,017

As discussed in note 1 to the unaudited condensed consolidated financial statements, in order to better align our operating and reporting structures with our updated business profile, commencing with the quarter ended September 30, 2011, we re-segmented our businesses into two new segments: Medical Systems and Procedural Solutions. These segments are the Company’s reporting units, and are the level at which the Company conducts its goodwill impairment evaluations. Goodwill was reassigned to the Medical Systems and Procedural Solutions operating segments using the relative fair value allocation as part of the re-segmentation in the first quarter of fiscal year 2012. Prior to re-segmentation, goodwill for the Critical Care Technologies segment and the Medical Technologies and Services segment was $2,261 million and $677 million, respectively, as of June 30, 2011. After re-segmentation, goodwill for the Medical Systems segment and the Procedural Solutions segment was $1,553 million and $1,385 million, respectively, as of June 30, 2011.

As of March 31, 2012, goodwill for the businesses comprising the Medical Systems segment and the Procedural Solutions segment was $1,632 million and $1,385 million, respectively. As of June 30, 2011, goodwill for the businesses comprising the Medical Systems segment and the Procedural Solutions segment was $1,553 million and $1,385 million, respectively, net of reclassification adjustments to conform to the current period presentation. The amount set forth above for goodwill acquired reflects the acquisition of Rowa, which we completed on August 1, 2011.

14

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

Intangible Assets

Intangible assets with definite lives are amortized over their useful lives which range from three to 20 years. The detail of other intangible assets by class is as follows:

(in millions)	Weighted Average  Life (years)	Gross Intangibles		Accumulated Amortization		Net Intangibles
March 31, 2012
Unamortized Intangibles:
In-Process Research and Development	Indefinite	$	45	$	—	$	45
Trademarks	Indefinite		307		—		307
Total Unamortized Intangibles			352		—		352
Amortized Intangibles:
Trademarks and Patents	11		93		45		48
Developed Technology	9		343		146		197
Customer Relationships	14		476		243		233
Other	10		35		31		4
Total Amortized Intangibles	12		947		465		482
Total Intangibles		$	1,299	$	465	$	834
June 30, 2011
Unamortized Intangibles:
In-Process Research and Development	Indefinite	$	45	$	—	$	45
Trademarks	Indefinite		307		—		307
Total Unamortized Intangibles			352		—		352
Amortized Intangibles:
Trademarks and Patents	12		86		39		47
Developed Technology	9		288		118		170
Customer Relationships	14		456		213		243
Other	9		36		30		6
Total Amortized Intangibles	12		866		400		466
Total Intangibles		$	1,218	$	400	$	818

Amortization expense is as follows:

	Quarters Ended March 31,				Nine Months Ended March  31,
(in millions)	2012		2011		2012		2011
Amortization Expense	$	22	$	20	$	66	$	60

Amortization expense for each of the next five fiscal years is estimated to be:

(in millions)	2012		2013		2014		2015		2016
Amortization Expense	$	88	$	69	$	66	$	52	$	50

15

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 9. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS

The computation of comprehensive income for the quarters and nine months ended March 31, 2012 and 2011 is as follows:

	Quarters Ended March  31,					Nine Months Ended March  31,
(in millions)	2012		2011			2012			2011
Net Income	$	31	$	45		$	193		$	159
Foreign Currency Translation Adjustments		16		25			(31	)		71
Net Unrealized Gain (Loss) on Derivatives		20		—			13			(1	)
Net Change in Minimum Pension Liability		—		—			—			1
Other		—		(2	)		3			(4	)
Comprehensive Income, Net of Tax	$	67	$	68		$	178		$	226

The components of accumulated other comprehensive loss, net of tax, consisted of the following:

(in millions)	March 31, 2012			June 30, 2011
Foreign Currency Translation Adjustments	$	(40	)	$	(9	)
Net Unrealized Gain on Derivative Instruments		14			1
Minimum Pension Liability		(2	)		(2	)
Other		2			(1	)
Accumulated Other Comprehensive Loss	$	(26	)	$	(11	)

NOTE 10. BORROWINGS

Borrowings consisted of the following:

(in millions)	March 31, 2012		June 30, 2011
Senior Notes due 2012, 4.125% Less Unamortized Discount of $0.2 million at March 31, 2012, Effective Rate 4.37%	$	250	$	249
Senior Notes due 2014, 5.125% Less Unamortized Discount of $2.3 million at March 31, 2012, Effective Rate 5.36%		448		447
Senior Notes due 2019, 6.375% Less Unamortized Discount of $9.1 million at March 31, 2012, Effective Rate 6.60%		691		690
Euro Denominated Debt, Interest Averaging 3.49% at March 31, 2012, Due in Varying Installments through 2020		12		—
Other Obligations; Interest Averaging 8.10% at March 31, 2012 and 7.49% at June 30, 2011, Due in Varying Installments through 2014		1		2
Total Borrowings		1,402		1,388
Less: Current Portion		251		1
Long-Term Portion	$	1,151	$	1,387

Senior Unsecured Notes.In July 2009, we sold $1.4 billion aggregate principal amount of senior unsecured notes and received net proceeds of $1.374 billion. The discount on sale of the senior unsecured notes is amortized to interest expense utilizing the effective interest method.

Euro Denominated Debt.In connection with our acquisition of Rowa on August 1, 2011, we assumed a 9 million euro debt facility comprised of four tranches with annual interest rates ranging from 2.65% to 3.75%. These loans are payable in quarterly or semi-annual installments, with the final payment due September 30, 2020. At March 31, 2012, the aggregate outstanding balance on these loans was $12 million.

16

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

Revolving Credit Facilities.In July 2011, we terminated an existing three-year senior unsecured revolving credit facility with an aggregate available principal amount of $480 million and entered into a new five-year senior unsecured revolving credit facility with an aggregate available principal amount of $550 million. During the fiscal year ended June 30, 2011, we also maintained a $240 million 364-day revolving credit facility which expired on August 30, 2010.

The new five-year credit facility matures on July 6, 2016. At our request and subject to certain conditions, the commitments under the facility may be increased by up to $200 million to the extent that existing or new lenders agree to provide such additional commitments. Borrowings under the five-year credit facility bear interest at a rate per annum based upon the British Bankers Association LIBOR Rate or the alternate base rate, in each case plus an applicable margin, which varies based upon CareFusion’s debt ratings. The five-year credit facility also requires us to pay a quarterly commitment fee to the lenders under the credit facility on the amount of the lender’s unused commitments thereunder based upon CareFusion’s debt ratings.

The five-year credit facility contains several customary covenants including, but not limited to, limitations on liens, subsidiary indebtedness, dispositions, and transactions with affiliates. In addition, the credit facility contains financial covenants requiring us to maintain a consolidated leverage ratio of no more than 3.50:1.00 as of the end of any period of four fiscal quarters, and a consolidated interest coverage ratio of at least 3.50:1.00 as of the end of any period of four fiscal quarters. The credit facility is subject to customary events of default, including, but not limited to, non-payment of principal or other amounts when due, breach of covenants, inaccuracy of representations and warranties, cross-default to other material indebtedness, certain ERISA-related events, certain voluntary and involuntary bankruptcy events, and change of control.

At March 31, 2012 and June 30, 2011, there were no amounts outstanding under our revolving credit facilities.

Other Borrowings.We maintain other borrowings that consist primarily of additional notes, loans and capital leases. These additional notes, loans and capital leases totaled $1 million at March 31, 2012 and $2 million at June 30, 2011. Obligations related to capital leases are secured by the underlying assets.

Letters of Credit and Bank Guarantees.At March 31, 2012 and June 30, 2011, we had $23 million and $19 million, respectively, of letters of credit and bank guarantees outstanding.

NOTE 11. INCOME TAX

The effective tax rate was 26.1% and 24.2%, for the quarter and nine months ended March 31, 2012, respectively, as compared to 32.6% and 31.4%, for the quarter and nine months ended March 31, 2011, respectively.

The difference between the effective tax rate for the quarter ended March 31, 2012 and the U.S. federal statutory rate of 35% is primarily attributable to the favorable impact of foreign earnings taxed at less than the U.S. statutory rate. The difference between the effective tax rate for the nine months ended March 31, 2012 and the U.S. federal statutory rate of 35% is primarily attributable to the favorable impact of foreign earnings taxed at less than the U.S. statutory rate as well as favorable discrete adjustments related to foreign tax refunds.

The difference between the effective tax rate for the quarter and for the nine months ended March 31, 2011 and the U.S. federal statutory rate of 35% is primarily attributable to the favorable impact of foreign earnings taxed at less than the U.S. statutory rate, offset by unfavorable discrete adjustments for uncertain tax positions.

During the quarter ended September 30, 2008, Cardinal Health received an IRS Revenue Agent’s Report for the fiscal years 2003 through 2005 that included Notices of Proposed Adjustments for additional taxes related to transfer pricing arrangements between foreign and domestic subsidiaries and the transfer of intellectual property among our subsidiaries. The amount of additional tax proposed by the IRS in these notices totals $462 million, excluding penalties and interest, which may be significant. In addition, during the quarter ended December 31, 2010, we received an IRS Revenue Agent’s Report for fiscal years 2006 and 2007 that included Notices of Proposed Adjustments for additional taxes related to transfer pricing arrangements between foreign and domestic subsidiaries.

17

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

We and Cardinal Health disagree with the IRS regarding its application of the United States Treasury regulations to the arrangements under review and the valuations underlying such adjustments and intend to vigorously contest them. The tax matters agreement that we entered into with Cardinal Health in connection with the spinoff generally provides that the control of audit proceedings and payment of any additional liability related to our business is our responsibility. We are currently before the IRS office of appeals for fiscal years 2003 through 2007. We continue to engage in substantive discussions with the IRS office of appeals related to our 2003 through 2005 fiscal years. It is reasonably possible that we will reach a favorable settlement with the IRS in relation to the fiscal years 2003 through 2005 within the next twelve months.

During the quarter ended September 30, 2011, we commenced the tax audit for the fiscal years 2008 and 2009 and the short period July 1, 2009 through August 31, 2009 as part of Cardinal Health’s tax audit of its federal consolidated returns for fiscal years 2008 through 2010. Furthermore, during the quarter ended December 31, 2011, we commenced the tax audit for the short period September 1, 2009 through June 30, 2010.

We believe that we have provided adequate contingent tax reserves for these matters. However, if upon the conclusion of these audits, the ultimate determination of taxes owed is for an amount that is materially different than our current reserves, our overall tax expense and effective tax rate may be materially impacted in the period of adjustment.

NOTE 12. COMMITMENTS AND CONTINGENCIES

In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, other pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. We regularly review contingencies to determine the adequacy of our accruals and related disclosures. The amount of ultimate loss may differ from these estimates. It is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Administrative Subpoenas. In April 2011, we received a federal administrative subpoena from the U.S. Department of Justice (“Department of Justice”) through the U.S. Attorney for the District of Kansas. In addition, in September 2011, we received a federal administrative subpoena from the Office of Inspector General (“OIG”) of the Department of Health and Human Services. Both subpoenas contain a request for documents and other materials that relate primarily to our sales and marketing practices for our ChloraPrep skin preparation product and information regarding our relationships with healthcare professionals. We are cooperating with the Department of Justice and the OIG to respond to these requests. We are unable to determine when these matters will be resolved, whether any additional areas of inquiry will be opened, or any outcome of these matters. We cannot estimate what, if any, impact these matters and any results from these matters could have on our business, financial position, operating results or cash flows.

FDA Consent Decree.We are operating under an amended consent decree with the FDA related to our infusion pump business in the United States. We entered into a consent decree with the FDA in February 2007 related to our Alaris SE pumps, and in February 2009, we and the FDA amended the consent decree to include all infusion pumps manufactured by or for CareFusion 303, Inc., our subsidiary that manufactures and sells infusion pumps in the United States. The amended consent decree does not apply to intravenous administration sets and accessories.

While we remain subject to the amended consent decree, which includes the requirements of the consent decree, we have made substantial progress in our compliance efforts. In accordance with the consent decree, we reconditioned Alaris SE pumps that had been seized by the FDA, remediated Alaris SE pumps in use by customers, and had an independent expert inspect the Alaris SE pump facilities and provide a certification to the FDA as to compliance. As a result of these efforts, in January 2010, we announced that the FDA had given us permission to resume the

18

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

manufacturing and marketing of our Alaris SE pumps. In accordance with the amended consent decree, and in addition to the requirements of the original consent decree, we also implemented a corrective action plan to bring the Alaris System and all other infusion pumps in use in the United States market into compliance, had our infusion pump facilities inspected by an independent expert, and had our recall procedures and all ongoing recalls involving our infusion pumps inspected by an independent recall expert. In July 2010, the FDA notified us that we can proceed to the audit inspection phase of the amended consent decree, which includes the requirement to retain an independent expert to conduct periodic audits of our infusion pump facilities. The amended consent decree authorizes the FDA, in the event of any violations in the future, to order us to cease manufacturing and distributing, recall products and take other actions. We may be required to pay damages of $15,000 per day per violation if we fail to comply with any provision of the amended consent decree, up to $15 million per year.

We cannot currently predict the outcome of this matter, whether additional amounts will be incurred to resolve this matter, if any, or the matter’s ultimate impact on our business. We may be obligated to pay more costs in the future because, among other things, the FDA may determine that we are not fully compliant with the amended consent decree and therefore impose penalties under the amended consent decree, and/or we may be subject to future proceedings and litigation relating to the matters addressed in the amended consent decree. As of March 31, 2012, we do not believe that a loss is probable in connection with the amended consent decree, and accordingly, we have no reserves to cover any possible future costs and expenses of compliance with the amended consent decree.

Other Matters.In addition to the matters described above, we also become involved in other litigation and regulatory matters incidental to our business, including, but not limited to, product liability claims, employment matters, commercial disputes, intellectual property matters, inclusion as a potentially responsible party for environmental clean-up costs, and litigation in connection with acquisitions and divestitures. We intend to defend ourselves in any such matters and do not currently believe that the outcome of any such matters will have a material adverse effect on our financial condition, results of operations and cash flows.

We may also determine that products manufactured or marketed by us, or our sales and marketing practices for such products, do not meet our specifications, published standards or regulatory requirements. When a quality or regulatory issue is identified, we investigate the issue and take appropriate corrective action. We may be required to report such issues to regulatory authorities, which could result in fines, sanctions or other penalties. In some cases, we may also withdraw a product from the market, correct a product at the customer location, notify the customer of revised labeling and take other actions. We have recalled, and/or conducted field alerts relating to, certain of our products from time to time. These activities can lead to costs to repair or replace affected products, temporary interruptions in product sales and action by regulators, and can impact reported results of operations. We currently do not believe that these activities (other than those specifically disclosed herein) have had or will have a material adverse effect on our business or results of operations.

NOTE 13. FINANCIAL INSTRUMENTS

We use derivative instruments to partially mitigate our business exposure to foreign currency exchange and interest rate risk. We may enter into foreign currency forward contracts to offset some of the foreign exchange risk of expected future cash flows on certain forecasted revenue and expenses, and on certain assets and liabilities. We hedge foreign currency exposure up to a maximum period of twelve months. We may also enter into interest rate swap agreements to manage variability of expected future cash flows and interest expense related to our existing debt, or future debt issuances.

19

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The following table summarizes the fair value of our assets and liabilities related to derivative instruments as of March 31, 2012 and June 30, 2011:

(in millions)	March 31, 2012		June 30, 2011
Assets:
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts1	$	3	$	1
Forward Interest Rate Swap Agreements2		23		—
Total Assets	$	26	$	1
Liabilities:
Derivatives Designated as Hedging Instruments:
Foreign Currency Forward Contracts3	$	2	$	1
Total Liabilities	$	2	$	1

¹  All foreign currency forward contracts classified as derivative assets are recorded as “Other Current Assets” in the condensed consolidated balance sheets.

²  All forward interest rate swap agreements classified as derivative assets are recorded as “Other Assets” in the condensed consolidated balance sheets.

³  All foreign currency forward contracts classified as derivative liabilities are recorded as “Other Accrued Liabilities” in the condensed consolidated balance sheets.

Cash Flow Hedges.We enter into foreign currency forward contracts to protect the value of anticipated foreign currency revenues and expenses associated with certain forecasted transactions. We also enter into interest rate swap contracts to manage variability of expected future cash flows from changing interest rates related to probable future debt issuances. These derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain (loss) on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain (loss) on the derivative instrument is recognized in earnings immediately. The impact of foreign currency forward contract cash flow hedges is included in the condensed consolidated statements of cash flows in “Other Accrued Liabilities and Operating Items, Net”.

At March 31, 2012 and June 30, 2011, we held foreign currency forward contracts to hedge probable, but not firmly committed, revenue, inventory purchases and expenses. At March 31, 2012, we also held forward interest rate swap contracts to hedge probable, but not firmly committed, future transactions associated with our debt.

The following table shows the notional amount of the outstanding cash flow hedges as of March 31, 2012 and June 30, 2011:

	March 31, 2012		June 30, 2011
(in millions)	Notional Amount		Notional Amount
Foreign Currency Forward Contracts	$	81	$	91
Interest Rate Swap Agreements		450		—
Total	$	531	$	91

As of March 31, 2012, the foreign currency forward contracts are expected to mature through March 2013.

During the quarter ended December 31, 2011, we entered into forward interest rate swap agreements related to forecasted debt issuances with a notional amount totaling $450 million. These agreements hedge the variability in

20

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

future probable interest payments due to changes in the benchmark interest rate between the date the swap agreements were entered into and the expected date of future debt issuances in 2014, at which time these agreements are intended to be settled.

Credit risk of these contracts was not material as of March 31, 2012 and June 30, 2011. The unrealized net gain included in OCI on the condensed consolidated balance sheet was $24 million at March 31, 2012, with no net gain or loss at June 30, 2011. The amounts reclassified from OCI to the condensed consolidated statements of income for the quarters and nine months ended March 31, 2012 and 2011 was not material.

The amount of ineffectiveness associated with these derivative instruments was not material.

Fair Value (Non-Designated) Hedges.We enter into foreign currency forward contracts to manage foreign exchange exposure related to intercompany financing transactions and other balance sheet items subject to revaluation that do not meet the requirements for hedge accounting treatment. Accordingly, these derivative instruments are adjusted to current market value at the end of each period. The gain (loss) recorded on these instruments is substantially offset by the remeasurement adjustment on the foreign currency denominated asset or liability. The settlement of the derivative instrument and the remeasurement adjustment on the foreign currency denominated asset or liability are both recorded in the condensed consolidated statements of income in “Interest Expense and Other, Net”. The maximum period of time that we hedge exposure for foreign currency fair value hedges is 31 days.

The following table summarizes the notional amount of the fair value hedges outstanding as of March 31, 2012 and June 30, 2011:

	March 31, 2012		June 30, 2011
(in millions)	Notional Amount		Notional Amount
Foreign Currency Forward Contracts	$	64	$	222

During the quarter ended March 31, 2012 we recognized a loss of $2 million within “Interest Expense and Other, Net,” for foreign currency forward contracts. A net loss of $2 million was recognized related to foreign currency forward contracts during the nine months ended March 31, 2012. During the quarter and nine months ended March 31, 2011 we recognized losses of $9 million and $7 million, respectively, within “Interest Expense and Other, Net,” for foreign currency forward contracts.

The following is a summary of all unsettled derivative instruments and the associated amount we would have paid or received to terminate these contracts based on market prices for the same or similar instruments, as of March 31, 2012 and June 30, 2011:

	March 31, 2012				June 30, 2011
(in millions)	Notional Amount		Fair Value Gain/(Loss)		Notional Amount		Fair Value Gain/(Loss)
Foreign Currency Forward Contracts	$	145	$	1	$	313	$	—
Interest Rate Swap Agreements		450		23		—		—
Total	$	595	$	24	$	313	$	—

21

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

NOTE 14. FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis.The following table presents information about our financial assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilize to determine such fair value at March 31, 2012:

(in millions)	Total		Level 1		Level 2		Level 3
Financial Assets:
Cash Equivalents	$	1,238	$	1,238	$	—	$	—
Other Investments		16		16		—		—
Assets-Foreign Currency Forward Contracts		3		—		3		—
Interest Rate Swap Agreements		23		—		23		—
Total Financial Assets	$	1,280	$	1,254	$	26	$	—
Financial Liabilities:
Liabilities-Foreign Currency Forward Contracts	$	2	$	—	$	2	$	—
Total Financial Liabilities	$	2	$	—	$	2	$	—

The cash equivalents balance is comprised of highly liquid investments purchased with an original maturity of three months or less from the original purchase date. The other investments balance includes investments in mutual funds classified as “Other Assets” in the condensed consolidated balance sheets, all related to our deferred compensation plan. Both the cash equivalents and other investments were valued based on quoted market prices for identical instruments. Assets and liabilities classified as Level 2 relate to foreign currency forward contracts and interest rate swap agreements. The fair value of foreign currency forward contracts is determined by using observable market spot rates and forward points adjusted by risk-adjusted discount rates. The fair value of interest rate swap agreements is determined by using methodologies similar in nature to those of our foreign currency forward contracts. The value of our derivatives represents the present value of amounts estimated to be received for the assets or paid to transfer the liabilities at the measurement date from a marketplace participant in settlement of these instruments. See note 13 to the unaudited condensed consolidated financial statements. We had no Level 3 assets or liabilities measured on a recurring basis at March 31, 2012.

Assets Measured at Fair Value on a Nonrecurring Basis.The following table presents our assets measured at fair value on a nonrecurring basis based upon the level within the fair value hierarchy in which the fair value measurements fall:

(in millions)	Balance at March 31, 2012		Level 1		Level 2		Level 3		Total Losses Recognized
Assets held for sale	$	45	$	—	$	—	$	45	$	74

During the quarter ended March 31, 2012, we wrote down the value of assets held for sale from discontinued operations, comprised of our Nicolet business. These assets, with a carrying amount of $119 million, were written-down to their fair value of $58 million, based on the sale price for the assets. The resulting total impairment charge of $74 million, which includes $11 million of cash expenditures associated with costs to sell, is reported in results of discontinued operations. See note 2. The fair value measurement used to determine this impairment was based on the market approach and reflects the anticipated sale proceeds, net of selling costs and working capital adjustments associated with these assets.

Other Instruments. The estimated fair value of our long-term obligations and other short-term borrowings was $1,563 million and $1,549 million as of March 31, 2012 and June 30, 2011, respectively, as compared to the net carrying amounts of $1,402 million and $1,388 million at March 31, 2012 and June 30, 2011, respectively. The fair value of our senior notes at March 31, 2012 and June 30, 2011 was based on quoted market prices, which involved the use of Level 1 inputs. The fair value of the other obligations at March 31, 2012 and June 30, 2011, was based on

22

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

either the quoted market prices for the same or similar debt, which involved the use of observable Level 2 inputs. The fair value of the Rowa debt facility at March 31, 2012 and August 1, 2011, the date of acquisition, was determined using a discounted cash flow analysis, which approximated its carrying value. We considered the interest rates of European instruments with similar maturity dates, which involved the use of significant unobservable Level 3 inputs. See note 10 to the unaudited condensed consolidated financial statements.

NOTE 15. RELATED PARTY TRANSACTIONS

Upon our spinoff from Cardinal Health on August 31, 2009, Cardinal Health retained approximately 19% of our outstanding common stock and was considered a related party until September 15, 2010, at which time Cardinal Health sold the remaining shares of our common stock that it retained in connection with the spinoff (see note 1). In connection with the spinoff, we entered into several commercial agreements with Cardinal Health. The following paragraphs discuss related party transactions with Cardinal Health prior to September 15, 2010 and how they were accounted for in our consolidated and combined financial statements.

Pursuant to our transition services agreement, we incurred charges of $16 million for the period July 1, 2010 to September 15, 2010.

Pursuant to a distribution agreement, Cardinal Health continued to distribute certain of our products and supplies through its medical distribution business on our behalf. Pursuant to an accounts receivable factoring agreement, we sold certain of our accounts receivable associated with this distribution agreement to Cardinal Health. Under these arrangements, title to the products and supplies did not transfer to Cardinal Health and inventory related to these products was retained by CareFusion. Service fees related to this agreement were $8 million for the period July 1, 2010 to September 15, 2010. We ceased operating under substantially all of these agreements on April 1, 2011, at which point in time Cardinal Health began purchasing these products and supplies and taking title upon receipt as a reseller of CareFusion products.

In addition to the distribution agreement noted above, upon the spinoff, we entered into other agreements with Cardinal Health in which we buy from Cardinal Health and sell to Cardinal Health certain products and services. The product sales and purchases associated with these agreements are utilized for resale by each respective company to their end customers. The service fees and revenues related to these agreements are for a variety of services including the use of the sales force, marketing, sterilization and warehousing services.

Total product revenue related to these agreements was $61 million for the period July 1, 2010 to September 15, 2010. Total product purchases from Cardinal Health were $21 million for the period July 1, 2010 to September 15, 2010. Service fees paid to Cardinal Health were $5 million for the period July 1, 2010 to September 15, 2010. Service fee revenue from Cardinal Health was immaterial for the period July 1, 2010 to September 15, 2010.

For further information regarding these agreements see our Form 10-K, filed with the SEC on August 9, 2011.

NOTE 16. PRODUCT WARRANTIES

We offer warranties on certain products for various periods of time. We accrue for the estimated cost of product warranties at the time revenue is recognized. Our product warranty liability reflects management’s best estimate of probable liability based on current and historical product sales data and warranty costs incurred.

23

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The table below summarizes the changes in the carrying amount of the liability for product warranties for the nine months ended March 31, 2012:

(in millions)
Balance at June 30, 2011	$	21
Warranty Accrual		15
Warranty Claims Paid		(10	)
Adjustments to Preexisting Accruals		(4	)
Balance at March 31, 2012	$	22

As of March 31, 2012 and June 30, 2011, approximately $8 million of the ending liability balances related to accruals for product recalls.

NOTE 17. SEGMENT INFORMATION

As discussed in note 1 to the unaudited condensed consolidated financial statements, in order to better align our operating and reportable segments with the manner in which we organize our businesses, commencing in the quarter ended September 30, 2011, we re-segmented our businesses into two new segments: Medical Systems and Procedural Solutions. Our operations are principally managed on a products and services basis, and the Medical Systems and Procedural Solutions segments focus primarily on our medical equipment businesses and disposable products businesses, respectively.

We report segment information based on the management approach. The management approach designates the internal reporting used by the Chief Operating Decision Maker (“CODM”), for making decisions and assessing performance as the source of our reportable segments. The CODM is our Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using information about its revenues and operating income (loss) before interest and taxes. We have determined our reportable segments as follows based on the information used by the CODM.

Medical Systems. The Medical Systems segment is organized around our medical equipment businesses. Within the Medical Systems segment, the Company operates its Dispensing Technologies, Infusion Systems and Respiratory Technologies business lines. The Dispensing Technologies business line includes equipment and related services for medication and supply dispensing. The Infusion Systems business line includes infusion pumps and dedicated disposable infusion sets and accessories. The Respiratory Technologies business line includes respiratory ventilators and dedicated disposable ventilator circuits and accessories. The Company also includes its data mining surveillance service business within the Medical Systems segment, which it reports as “Other.”

Procedural Solutions. The Procedural Solutions segment is organized around our disposable products businesses. Within the Procedural Solutions segment, the Company operates its Infection Prevention, Medical Specialties and Specialty Disposables business lines. The Infection Prevention business line includes single-use skin antiseptic and other patient-preparation products and non-dedicated disposable infusion administration sets and accessories. The Medical Specialties business line includes interventional specialty products used for biopsy, drainage and other procedures, as well as reusable surgical instruments. The Specialty Disposables business line includes non-dedicated disposable ventilator circuits and oxygen masks used in respiratory therapy. The Company also includes its respiratory diagnostics business within the Procedural Solutions segment, which it reports as “Other.”

We evaluate the performance of our operating segments based upon, among other things, segment profit. Segment profit is segment revenue less segment cost of products sold, SG&A expenses, research and development expenses and restructuring and acquisition integration charges. With the exception of goodwill, we do not identify or allocate assets by operating segment; accordingly, segment related disclosures with respect to assets have been omitted. See note 8 to the unaudited condensed consolidated financial statements.

24

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The following table presents information about our reportable segments for the quarters ended March 31, 2012 and 2011, net of reclassification adjustments to conform to the current period presentation:

(in millions)	Medical Systems		Procedural Solutions 1		Total
March 31, 2012:
External Revenues	$	591	$	328	$	919
Depreciation and Amortization		35		15		50
Segment Profit		125		36		161
Capital Expenditures		20		6		26
March 31, 2011:
External Revenues	$	498	$	344	$	842
Depreciation and Amortization		29		17		46
Segment Profit2		97		34		131
Capital Expenditures		30		11		41

¹  Segment results have been adjusted for discontinued operations. See note 2.

²  The $15 million gain on the sale of assets associated with the March 28, 2011 divestiture of the OnSite Services business has not been allocated to segment results for the quarter ended March 31, 2011. See note 2.

The following table presents information about our reportable segments for the nine months ended March 31, 2012 and 2011, net of reclassification adjustments to conform to the current period presentation:

(in millions)	Medical Systems		Procedural Solutions 1		Total
March 31, 2012:
External Revenues	$	1,672	$	961	$	2,633
Depreciation and Amortization		102		45		147
Segment Profit		334		80		414
Capital Expenditures		57		15		72
March 31, 2011:
External Revenues	$	1,489	$	1,003	$	2,492
Depreciation and Amortization		86		50		136
Segment Profit2		260		73		333
Capital Expenditures		78		31		109

¹  Segment results have been adjusted for discontinued operations. See note 2.

²  The $15 million gain on the sale of assets associated with the March 28, 2011 divestiture of the OnSite Services business has not been allocated to segment results for the nine months ended March 31, 2011. See note 2.

A reconciliation of total segment profit to consolidated income before income tax is presented below for the quarters and nine months ended March 31, 2012 and 2011:

	Quarters Ended March 31,				Nine Months Ended March 31,
(in millions)	2012		2011		2012		2011
Total Segment Profit	$	161	$	131	$	414	$	333
Gain on the Sale of Assets		—		15		—		15
Operating Income		161		146		414		348
Interest Expense and Other, Net		21		18		63		59
Income Before Income Tax	$	140	$	128	$	351	$	289

25

CAREFUSION CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS–(Continued)

(Unaudited)

The following table presents revenue and net property and equipment by geographic area:

	Revenue								Property and Equipment, Net
	Quarters Ended March 31,				Nine Months Ended March 31,				March 31,		June 30,
(in millions)	2012		2011		2012		2011		2012		2011
United States	$	715	$	675	$	2,052	$	2,018	$	320	$	346
International		204		167		581		474		109		102
Total	$	919	$	842	$	2,633	$	2,492	$	429	$	448

The following table presents the revenue information for select business lines within each of the segments for the quarters and nine months ended March 31, 2012 and 2011:

	Quarter Ended					Nine Months Ended
	March 31,					March 31,
(in millions)	2012			2011		2012		2011
Medical Systems
Dispensing Technologies	$	261		$	210	$	756	$	644
Infusion Systems		245			213		690		628
Respiratory Technologies		78			69		207		199
Other		7			6		19		18
Total Medical Systems	$	591		$	498	$	1,672	$	1,489
Procedural Solutions1
Infection Prevention	$	150		$	144	$	430	$	421
Medical Specialties		80			82		237		238
Specialty Disposables		70			78		201		221
Other		28			40		93		123
Total Procedural Solutions	$	328		$	344	$	961	$	1,003
Total CareFusion	$	919	��	$	842	$	2,633	$	2,492

¹  Reflects the impact of businesses reclassified to discontinued operations. See note 2.

NOTE 18. SUBSEQUENT EVENTS

On April 2, 2012, we completed the acquisition of PHACTS, LLC (“PHACTS”), a technology and consulting company that helps hospital pharmacies better manage inventory, reduce pharmaceutical costs, and streamline operations. The acquisition of PHACTS was not material to our condensed consolidated financial statements.

During April 2012, we purchased an additional 1.9 million shares for $50 million under our share repurchase program.

26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis of financial condition and results of operations (“MD&A”), contains forward-looking statements that involve risks and uncertainties. Please see “Important Information Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated and combined financial statements and related notes thereto for the fiscal year ended June 30, 2011, which were included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on August 9, 2011.

The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods.

Basis of Presentation

References in this MD&A to “CareFusion Corporation,” “CareFusion,” “we,” “us,” “our,” “the company” and “our company” refer to CareFusion Corporation and its consolidated subsidiaries. References in this MD&A to “Cardinal Health” refer to Cardinal Health, Inc., an Ohio corporation, and its consolidated subsidiaries.

We were incorporated in Delaware on January 14, 2009 for the purpose of holding the clinical and medical products businesses of Cardinal Health in anticipation of spinning off from Cardinal Health. We completed the spinoff from Cardinal Health on August 31, 2009. In connection with the spinoff, Cardinal Health contributed the majority of the businesses comprising its clinical and medical products segment to us (“the contribution”) and distributed approximately 81% of our outstanding common stock, or approximately 179.8 million shares, to its shareholders (“the distribution”). Cardinal Health retained approximately 19% of our outstanding common stock, or approximately 41.4 million shares, in connection with the spinoff. As of September 15, 2010, Cardinal Health had sold all remaining shares of our common stock retained in connection with the spinoff.

The condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with the SEC instructions to Quarterly Reports on Form 10-Q. Accordingly, the condensed consolidated financial statements presented elsewhere in this Form 10-Q and discussed below are unaudited and do not contain all the information required by U.S. generally accepted accounting principles (“GAAP”) to be included in a full set of financial statements. The audited consolidated and combined financial statements for our fiscal year ended June 30, 2011, filed with the SEC on Form 10-K on August 9, 2011 include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year.

Leading up to the spinoff from Cardinal Health, we organized our businesses into two reportable segments: Critical Care Technologies and Medical Technologies and Services. In July 2011, we made a decision to realign our businesses into two new global operating segments to reduce complexity, provide clearer governance for our investments and make it easier for our customers to do business with us. As a result of this business realignment, we also made a determination to realign our reportable segments with our new operating segments. Commencing with the quarter ended September 30, 2011, we re-segmented our businesses into two new operating and reportable segments: Medical Systems and Procedural Solutions. The Medical Systems segment is organized around our medical equipment businesses. Within the Medical Systems segment, the Company operates its Dispensing Technologies, Infusion Systems and Respiratory Technologies business lines. The Dispensing Technologies business line includes equipment and related services for medication and supply dispensing. The Infusion Systems business line includes infusion pumps and dedicated disposable infusion sets and accessories. The Respiratory Technologies business line includes respiratory ventilators and dedicated disposable ventilator circuits and accessories. The Company also includes its data mining surveillance service business within the Medical Systems segment, which it reports as “Other.” The Procedural Solutions segment is organized around our disposable products businesses. Within the Procedural Solutions segment, the Company operates its Infection Prevention, Medical

27

Specialties and Specialty Disposables business lines. The Infection Prevention business line includes single-use skin antiseptic and other patient-preparation products and non-dedicated disposable infusion administration sets and accessories. The Medical Specialties business line includes interventional specialty products used for biopsy, drainage and other procedures, as well as reusable surgical instruments. The Specialty Disposables business line includes non-dedicated disposable ventilator circuits and oxygen masks used in respiratory therapy. The Company also includes its respiratory diagnostics business within the Procedural Solutions segment, which it reports as “Other.”

For the quarter and nine months ended March 31, 2011, certain amounts have been reclassified to conform to the current period presentation. See note 5, note 8 and note 17 to the unaudited condensed consolidated financial statements.

Overview

We are a leading global medical technology company with proven and industry-leading products and services designed to measurably improve the safety and quality of healthcare. We offer comprehensive product lines in the areas of IV infusion, medication and supply dispensing, respiratory care, infection prevention and surgical instruments to customers in the United States and over 130 countries throughout the world. Our strategy is to enhance growth by focusing on healthcare safety and productivity, driving innovation and clinical differentiation, accelerating our global growth and pursing strategic opportunities. In furtherance of our strategy, we may seek to acquire entities that meet our objectives of driving innovation and global growth, as well as assessing our portfolio of businesses with a view of divesting non-core businesses that do not align with our objectives.

Since the beginning of fiscal year 2009, challenges have existed in the capital equipment market from delays in hospital capital spending, as well as prioritization of capital spending. Despite seeing small signs of improvement in overall hospital capital spending, we continue to anticipate it will take some time before significant market improvements are realized and prioritization will continue to be a significant factor as hospitals focus on attaining meaningful use capabilities within their information technology systems. We continue to believe that our Medical Systems business lines are well positioned to benefit from increases in hospital capital equipment spending as the market recovers over time.

Since 2010, procedure volumes in acute care facilities have decreased; although procedural volumes have been relatively stable during fiscal year 2012. Procedural volumes in acute care facilities represent one indicator for the demand of the disposable products sold within our Procedural Solutions operating segment. In addition to procedural volumes, demand for many of our Procedural Solutions products is created when physicians convert their existing practices away from legacy methods and adopt our clinically differentiated products. As a result, we believe our clinically differentiated product revenue has consistently outperformed trends in acute care facility procedural volumes.

Year over year, we generated revenues and income from continuing operations of $919 million and $103 million, respectively, compared to revenues and income from continuing operations of $842 million and $86 million, respectively, for the quarter ended March 31, 2011. For the nine months ended March 31, 2012, we generated revenues and income from continuing operations of $2,633 million and $266 million, respectively, compared to revenues and income from continuing operations of $2,492 million and $198 million, respectively, for the nine months ended March 31, 2011.

During the quarter ended March 31, 2012, our quarterly revenues increased $77 million to $919 million as a result of strong performance from our Medical Systems segment, partially offset by a revenue decrease in our Procedural Solutions segment. The increase in Medical Systems revenue includes the impact of Rowa, which was acquired in August 2011. The decrease in Procedural Solutions revenue includes the effect of our divestiture of Onsite Services during fiscal year 2011, which earned revenue of $10 million during the quarter ended March 31, 2011.

Our financial results for the nine months ended March 31, 2012 were negatively impacted by an increase in recall reserves in our Medical Systems segment. During the three months ended September 30, 2011, we recorded charges primarily related to expenses incurred and future expected costs associated with voluntary field corrections for a portion of our installed base of AVEA ventilators. During the nine months ended March 31, 2012, the net impact of these charges was $9 million. While we are in the process of remediating the affected ventilators, we continue to manufacture and sell our AVEA ventilator products.

28

During fiscal year 2011 our operations were impacted by our global restructuring program. This program, announced in August 2010 (“the 2011 Plan”), was designed to reduce our cost structure and streamline operations, and was initially expected to result in a reduction of approximately 700 positions. The 2011 Plan resulted in a reduction of approximately 850 positions in fiscal year 2011. This program provided operating expense savings of approximately $103 million in fiscal year 2011, primarily as a result of reducing headcount and eliminating unfilled positions. Of the $103 million of savings, approximately $65 million was a result of year over year savings in selling, general and administrative expense (“SG&A”) and lower cost of sales expense, and $38 million was a result of not filling open positions. The total expected restructuring costs associated with the 2011 Plan were approximately $50 million. Substantially all of the costs associated with the 2011 Plan were incurred as of June 30, 2011.

In fiscal year 2011, we also incurred additional one-time expenditures associated with the separation from Cardinal Health (capital and expense), the total of which was approximately $80 million. All substantive expenditures associated with standing up operations from the spinoff were substantially complete as of the end of fiscal year 2011. We have funded these costs through cash from operations and cash on hand. The capital portion of these expenditures are being amortized over their useful lives and the other expenditures were expensed as incurred, depending on their nature. During the quarter and nine months ended March 31, 2012, we incurred no charges and $3 million, respectively, of these one-time expenditures. During the quarter and nine months ended March 31, 2011, we incurred $22 million and $59 million, respectively, of these one-time expenditures.

Our capital equipment revenues are generally subject to a certain degree of seasonality that aligns to our customer capital equipment purchasing cycles. Historically, this seasonality would manifest itself with higher sales in our second and fourth quarters and lower sales in our first and third quarters of our fiscal year.

In February 2012, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $500 million in shares of our common stock through open market and private transactions. The share repurchase program is expected to continue through December 2013. We repurchased 2 million shares for a total of $50 million during the quarter ended March 31, 2012. During April 2012, we purchased an additional 1.9 million shares for $50 million under our share repurchase program.

29

Consolidated Results of Operations

Quarter Ended March 31, 2012 Compared to the Quarter Ended March 31, 2011

Below is a summary of comparative results of operations and a more detailed discussion of results for the quarters ended March 31, 2012 and 2011:

	Quarters Ended March 31,
(in millions)	2012			2011			Change
Revenue	$	919		$	842		$	77
Cost of Products Sold		460			405			55
Gross Margin		459			437			22
Selling, General and Administrative Expenses		241			256			(15	)
Research and Development Expenses		45			36			9
Restructuring and Acquisition Integration Charges		12			14			(2	)
Gain on the Sale of Assets		—			(15	)		15
Operating Income		161			146			15
Interest Expense and Other, Net		21			18			3
Income Before Income Tax		140			128			12
Provision for Income Tax		37			42			(5	)
Income from Continuing Operations		103			86			17
Discontinued Operations:
Loss from the Disposal of Discontinued Businesses, Net of Tax		(74	)		(40	)		(34	)
Income (Loss) from the Operations of Discontinued Businesses, Net of Tax		2			(1	)		3
Loss from Discontinued Operations, Net of Tax		(72	)		(41	)		(31	)
Net Income	$	31		$	45		$	(14	)

30

Revenue

The following table presents the revenue information for select business lines within each of the segments for the quarters ended March 31, 2012 and 2011:

	Quarters Ended March  31,
(in millions)	2012		2011		Change
Medical Systems
Dispensing Technologies	$	261	$	210	$	51
Infusion Systems		245		213		32
Respiratory Technologies		78		69		9
Other		7		6		1
Total Medical Systems	$	591	$	498	$	93
Procedural Solutions1
Infection Prevention	$	150	$	144	$	6
Medical Specialties		80		82		(2	)
Specialty Disposables		70		78		(8	)
Other		28		40		(12	)
Total Procedural Solutions	$	328	$	344	$	(16	)
Total CareFusion	$	919		842	$	77

¹  Reflects the impact of businesses reclassified to discontinued operations. See note 2.

Revenue in our Medical Systems segment increased $93 million to $591 million for the quarter ended March 31, 2012 compared to the prior year.

Dispensing Technologies revenue increased by $51 million primarily as a result of our acquisition of Rowa ($19 million) and organic business growth ($32 million). Respiratory Technologies revenue increased $9 million, primarily due to increased sales of ventilators under a significant government contract lasting through March 2013. Infusion Systems sales increased $32 million, primarily due to continued competitive wins.

Revenue in our Procedural Solutions segment decreased $16 million to $328 million for the quarter ended March 31, 2012 compared to the prior year. The revenue decrease was primarily attributable to a decrease in sales of Specialty Disposables products ($8 million) and the impact of the sale of the OnSite Services business in March 2011 which had $10 million in sales during the quarter ended March 31, 2011.

31

Gross Margin and Cost of Products Sold

Gross margin increased $22 million to $459 million during the quarter ended March 31, 2012 compared to the prior year. As a percentage of revenue, gross margin was 49.9% for the quarter ended March 31, 2012 compared to 51.9% in the prior year.

The decrease in gross margin as a percentage of revenue during the quarter ended March 31, 2012, was primarily due to lower pricing on our infusion pumps. During fiscal 2012, a large infusion pump manufacturer was required to remove one of its product lines from the market in connection with a FDA recall. In order to successfully compete in this business environment, we temporarily discounted the pricing on our infusion pumps, in some cases up to 30% or more. As sales related to this opportunity are substantially complete, we are now seeing a shift back to normalized pricing.

Selling, General and Administrative and Research and Development Expenses

SG&A and Research and Development expenses decreased $6 million to $286 million during the quarter ended March 31, 2012 compared to the prior year. The decrease was primarily due to a decrease in SG&A expenses ($15 million) primarily related to lower one-time costs associated with our spinoff from Cardinal Health incurred in the quarter ended March 31, 2012 compared to the prior year ($10 million), and partially offset by an increase in Research and Development expenses ($9 million).

Restructuring and Acquisition Integration Charges

Restructuring and acquisition integration charges decreased $2 million to $12 million during the quarter ended March 31, 2012 compared to the prior year.

We periodically incur costs to implement smaller restructuring efforts for specific operations. These restructuring plans focus on various aspects of operations, including closing and consolidating certain manufacturing operations, rationalizing headcount and aligning operations in the most strategic and cost-efficient structure.

Operating Income

Operating income increased $15 million to $161 million for the quarter ended March 31, 2012, compared to the prior year. Operating income as a percentage of revenue was 18% for the quarter ended March 31, 2012, compared to 17% in the prior year.

Segment profit in our Medical Systems reportable segment increased $28 million to $125 million during the quarter ended March 31, 2012 compared to the prior year. The 29% increase in segment profit was primarily driven by increased revenues in our Dispensing Technologies, Infusion Systems, and Respiratory Technologies business lines, and lower one-time costs associated with our spinoff from Cardinal Health in the quarter ended March 31, 2012 ($6 million) compared to the prior year.

Segment profit in our Procedural Solutions reportable segment increased $2 million to $36 million during the quarter ended March 31, 2012 compared to the prior year, primarily due to a decrease in restructuring and acquisition charges ($3 million), and lower one-time costs associated with our spinoff from Cardinal Health in the quarter ended March 31, 2012 ($4 million) compared to the prior year.

Interest Expense and Other, Net

Interest expense and other, net increased by $3 million to $21 million during the quarter ended March 31, 2012 compared to the prior year, primarily related to the impact of foreign currency exchange.

32

Provision for Income Tax

Income tax expense decreased $5 million to $37 million for the quarter ended March 31, 2012 compared to the prior year. The effective tax rate for the quarter ended March 31, 2012 was 26.1% compared to 32.6% for the quarter ended March 31, 2011. The decrease in the effective tax rate was primarily due to the favorable impact of a year over year shift in earnings of the foreign jurisdictions taxed at less than the U.S. statutory rate.

Generally, fluctuations in our effective tax rate are primarily due to changes within international and state effective tax rates resulting from our business mix and changes in the tax impact of restructuring and acquisition integration charges and other discrete items, which may have unique tax implications depending on the nature of the item.

We are currently before the IRS office of appeals for fiscal years 2003 through 2007. We continue to engage in substantive discussions with the IRS office of appeals related to our 2003 through 2005 fiscal years. It is reasonably possible that we will reach a favorable settlement with the IRS in relation to the fiscal years 2003 through 2005 within the next twelve months.

During the quarter ended September 30, 2011, we commenced the tax audit for the fiscal years 2008 and 2009 and the short period July 1, 2009 through August 31, 2009 as part of Cardinal Health’s tax audit of its federal consolidated returns for fiscal years 2008 through 2010. During the quarter ended December 31, 2011, we commenced the tax audit for the short period September 1, 2009 through June 30, 2010.

We believe that we have provided adequate contingent tax reserves for these matters. However, if upon the conclusion of these audits, the ultimate determination of taxes owed is for an amount that is materially different than our current reserves, our overall tax expense and effective tax rate may be materially impacted in the period of adjustment.

For additional detail regarding the provision for income taxes, see note 11 to the unaudited condensed consolidated financial statements.

Loss from Discontinued Operations, Net of Tax

During the quarter ended March 31, 2012, loss from discontinued operations totaled $72 million, compared to loss from discontinued operations of $41 million for the quarter ended March 31, 2011. The difference is a result of the impairment charge recorded in the quarter ended March 31, 2012 due to the write down of assets related to the Nicolet business to fair value less costs to sell.

For additional detail regarding discontinued operations, see note 2 to the unaudited condensed consolidated financial statements.

33

Nine Months Ended March 31, 2012 Compared to the Nine Months Ended March 31, 2011

Below is a summary of comparative results of operations and a more detailed discussion of results for the nine months ended March 31, 2012 and 2011:

	Nine Months Ended March 31,
(in millions)	2012			2011			Change
Revenue	$	2,633		$	2,492		$	141
Cost of Products Sold		1,309			1,219			90
Gross Margin		1,324			1,273			51
Selling, General and Administrative Expenses		766			779			(13	)
Research and Development Expenses		118			108			10
Restructuring and Acquisition Integration Charges		26			53			(27	)
Gain on the Sale of Assets		—			(15	)		15
Operating Income		414			348			66
Interest Expense and Other, Net		63			59			4
Income Before Income Tax		351			289			62
Provision for Income Tax		85			91			(6	)
Income from Continuing Operations		266			198			68
Discontinued Operations:
Loss from the Disposal of Discontinued Businesses, Net of Tax		(74	)		(40	)		(34	)
Income from the Operations of Discontinued Businesses, Net of Tax		1			1			—
Loss from Discontinued Operations, Net of Tax		(73	)		(39	)		(34	)
Net Income	$	193		$	159		$	34

34

Revenue

The following table presents the revenue information for select business lines within each of the segments for the nine months ended March 31, 2012 and 2011:

	Nine Months Ended March 31,
(in millions)	2012		2011		Change
Medical Systems
Dispensing Technologies	$	756	$	644	$	112
Infusion Systems		690		628		62
Respiratory Technologies		207		199		8
Other		19		18		1
Total Medical Systems	$	1,672	$	1,489	$	183
Procedural Solutions1
Infection Prevention	$	430	$	421	$	9
Medical Specialties		237		238		(1	)
Specialty Disposables		201		221		(20	)
Other		93		123		(30	)
Total Procedural Solutions	$	961	$	1,003	$	(42	)
Total CareFusion	$	2,633	$	2,492	$	141

¹  Reflects the impact of businesses reclassified to discontinued operations. See note 2.

Revenue in our Medical Systems segment increased $183 million to $1,672 million for the nine months ended March 31, 2012 compared to the prior year. The revenue increase was a result of sales increases of $112 million and $62 million for our Dispensing Technologies and Infusion Systems business lines, respectively.

Dispensing Technologies revenues increased primarily as a result of non-organic growth from the acquisition of Rowa in fiscal year 2012 ($59 million). Respiratory Technologies revenue increased $8 million, primarily due to increased sales of ventilators under a significant government contract lasting through March 2013. Infusion Systems sales increased $62 million, primarily due to continued competitive wins.

Revenue in our Procedural Solutions segment decreased $42 million to $961 million for the nine months ended March 31, 2012 compared to the prior year. The revenue decrease was primarily attributable to a decrease in sales of Specialty Disposables ($20 million) and the impact of the sale of the Onsite Services business in March 2011 which had $32 million in sales in the nine months ended March 31, 2011.

Gross Margin and Cost of Products Sold

Gross margin increased $51 million to $1,324 million during the nine months ended March 31, 2012 compared to the prior year. As a percentage of revenue, gross margin was 50.3% for the nine months ended March 31, 2011 compared to 51.1% in the prior year.

The decrease in gross margin as a percentage of revenue during the nine months ended March 31, 2012, was primarily due to lower pricing on our infusion pumps. During fiscal 2012, a large infusion pump manufacturer was required to remove one of its product lines from the market in connection with a FDA recall. In order to successfully compete in this business environment, we temporarily discounted the pricing on our infusion pumps, in some cases up to 30% or more. As sales related to this opportunity are substantially complete, we are now seeing a shift back to normalized pricing.

35

Selling, General and Administrative and Research and Development Expenses

SG&A and Research and Development expenses decreased $3 million to $884 million during the nine months ended March 31, 2012 compared to the prior year. SG&A expenses as a percentage of revenue was 29% and 31% for the nine months ended March 31, 2012 and March 31, 2011, respectively. The decrease was primarily due to a $34 million decrease in one-time costs associated with our spinoff from Cardinal Health compared to the prior year, partially offset by increases in Research and Development expenses ($10 million) and Rowa SG&A expenses ($18 million).

Restructuring and Acquisition Integration Charges

Restructuring and acquisition integration charges decreased $27 million to $26 million during the nine months ended March 31, 2012 compared to the prior year, primarily as a result of charges associated with the 2011 Plan specific to the prior year.

Operating Income

Operating income increased $66 million to $414 million for the nine months ended March 31, 2012, compared to the prior year. Operating income as a percentage of revenue increased to 16% for the nine months ended March 31, 2012, compared to 14% in the prior year.

Segment profit in our Medical Systems reportable segment increased $74 million to $334 million during the nine months ended March 31, 2012 compared to the prior year. The increase in segment profit was primarily driven by increased revenues, reductions in restructuring charges ($14 million), and a decrease in one-time costs associated with our spinoff from Cardinal Health compared to the prior year ($18 million). Partially offsetting this increase were $9 million of recall charges incurred during the nine months ended March 31, 2012.

Segment profit in our Procedural Solutions reportable segment increased $7 million to $80 million during the nine months ended March 31, 2012 compared to the prior year. The 10% increase in segment profit was primarily attributable to lower restructuring charges ($13 million) and a decrease in one-time costs associated with our spinoff from Cardinal Health compared to the prior year ($16 million), partially offset by lower revenues for the nine months ended March 31, 2012.

Interest Expense and Other, Net

Interest expense and other, net increased $4 million to $63 million during the nine months ended March 31, 2012 compared to the prior year. This increase was primarily due to gains of $3 million from investing activities during the nine months ended March 31, 2012.

Provision for Income Tax

Income tax expense decreased $6 million to $85 million for the nine months ended March 31, 2012 compared to the prior year. The effective tax rate for the nine months ended March 31, 2012 was 24.2% compared to 31.4% for the nine months ended March 31, 2011. The decrease in the effective tax rate was primarily due to a decrease in discrete tax expense of $8 million as well as the favorable impact of a year over year shift in earnings of the foreign jurisdictions taxed at less than the U.S. statutory rate.

For additional detail regarding the provision for income tax, see note 11 to the unaudited condensed consolidated financial statements.

Loss from Discontinued Operations, Net of Tax

During the nine months ended March 31, 2012, loss from discontinued operations totaled $73 million, compared to loss from discontinued operations of $39 million for the nine months ended March 31, 2011. The difference is a result of the impairment charge recorded in the nine months ended March 31, 2012 due to the write down of assets related to the Nicolet business to fair value less costs to sell.

36

For additional detail regarding discontinued operations, see note 2 to the unaudited condensed consolidated financial statements.

Liquidity and Capital Resources

Overview

Historically, we have generated, and expect to continue to generate, positive cash flow from operations. Cash flow from operations primarily represents inflows from net income (adjusted for depreciation and other non-cash items) and outflows from investment in sales-type leases entered into, as we sell and install dispensing equipment, and other increases in working capital needed to grow the business. Cash flows from investing activities represent our investment in intellectual property and capital equipment required to grow our business, as well as acquisitions. Our cash balance at March 31, 2012 was $1,440 million. Of this balance, $1,146 million is held outside of the United States and is denominated in United States dollars as well as other currencies. We believe that our current domestic cash flow from operations and domestic cash balances are sufficient to meet domestic operating needs. It is our intention to indefinitely reinvest all current and future foreign earnings in order to ensure sufficient working capital and expand existing operations outside the United States. Additionally, we intend to fund foreign acquisitions primarily through the use of unrepatriated cash held by foreign subsidiaries. However, should our domestic cash needs exceed our current or future domestic cash flows, we could repatriate foreign cash or utilize our senior unsecured revolving credit facility, both of which would result in increased expense.

We believe that our future cash from operations together with our access to funds available under our senior unsecured revolving credit facility and the capital markets will provide adequate resources to fund both short-term and long-term operating requirements, capital expenditures, acquisitions and new business development activities.

In February 2012, our Board of Directors approved a share repurchase program authorizing the repurchase of up to $500 million in shares of our common stock through open market and private transactions. The share repurchase program is expected to continue through December 2013. We repurchased 2 million shares for a total of $50 million during the quarter ended March 31, 2012. During April 2012, we purchased an additional 1.9 million shares for $50 million. We anticipate funding the remainder of the stock repurchase program from domestic cash flow from operations.

We are currently before the IRS office of appeals for fiscal years 2003 through 2007. In addition, we have commenced federal income tax audits for fiscal years 2008 through 2010. We believe that we have provided adequate reserves for these matters. However, even if we are adequately reserved, final settlement of these matters may require us to make cash payments to the IRS which could be material. In addition, these payments may result in increased costs if we need to utilize our revolving credit facility or repatriate foreign cash to fund these payments. See note 11 to the unaudited condensed consolidated financial statements for further information.

Sources and Uses of Cash

The following table summarizes our condensed consolidated statements of cash flows from continuing operations:

	Nine Months Ended March 31,
(in millions)	2012			2011			Change
Cash Flow (Used in) Provided by:
Operating Activities	$	346		$	216		$	130
Investing Activities	$	(202	)	$	(77	)	$	(125	)
Financing Activities	$	(58	)	$	18		$	(76	)

Nine Months Ended March 31, 2012 and 2011

Net operating cash flow provided by continuing operations was $346 million for the nine months ended March 31, 2012 compared to $216 million for the nine months ended March 31, 2011. The increase in cash flow provided by continuing operations was due to higher net income, adjusted for the impact of non-cash items ($120 million) and an

37

increase in cash flow associated with accounts receivable ($78 million), partially offset by a decrease in cash flow associated with inventories as a result of increased build ($18 million), a decrease in cash flow associated with accounts payable ($20 million), and a decrease in cash flow associated with other accrued liabilities and operating items ($27 million).

Net cash used in continuing operations from investing activities increased $125 million for the nine months ended March 31, 2012 compared to the prior year due to the acquisition of Rowa ($131 million, net of cash received) and offset by a net decrease in capital expenditures and intangible asset additions ($38 million), and proceeds from the sale of the OnSite Services business ($32 million).

Net cash used in continuing operations from financing activities increased $76 million for the nine months ended March 31, 2012 compared to the prior year. This increase was primarily due to the share repurchase program under which we repurchased 2 million shares of our common stock for a total of $50 million during the quarter ended March 31, 2012.

Capital Resources

Revolving Credit Facilities.In July 2011, we terminated an existing three-year senior unsecured revolving credit facility with an aggregate available principal amount of $480 million and entered into a new five-year senior unsecured revolving credit facility with an aggregate available principal amount of $550 million, which matures in July 2016.

At March 31, 2012, there were no amounts outstanding under our senior unsecured revolving credit facility.

For additional detail regarding the five-year senior unsecured revolving credit facility, see note 10 to the unaudited condensed consolidated financial statements.

Dividends

We currently intend to retain any earnings to finance research and development, acquisitions and the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of any dividends in the future by us will be subject to the sole discretion of our board of directors and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt obligations, legal requirements, regulatory constraints and other factors deemed relevant by our board of directors. Moreover, should we pay any dividend in the future, there can be no assurance that we will continue to pay such dividends.

Off-Balance Sheet Arrangements, Contractual Obligations, Contingent Liabilities and Commitments

At March 31, 2012, we did not have any off-balance sheet arrangements. We have had no material changes related to contractual obligations since June 30, 2011. For information on contractual obligations, see the table of Contractual Obligations in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2011 Annual Report on Form 10-K, filed with the SEC on August 9, 2011.

38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our operations are exposed to risks associated with changes in interest rates and foreign exchange rates. We seek to manage these risks using hedging strategies that involve the use of derivative instruments. We do not enter into any derivative agreements for trading or speculative purposes.

While we believe we have designed an effective risk management program, there are inherent limitations in our ability to forecast our exposures, and therefore, we cannot guarantee that our programs will completely mitigate all risks associated with unfavorable movement in either foreign exchange rates or interest rates.

Additionally, the timing of the recognition of gains and losses related to derivative instruments can be different from the recognition of the underlying economic exposure. This may impact our consolidated operating results and financial position.

Interest Rate Risk

Interest income and expense on variable-rate instruments are sensitive to fluctuations in interest rates across the world. Changes in interest rates primarily affect the interest earned on our cash and equivalents and to a significantly lesser extent the interest expense on our debt. We seek to manage our interest rate risk by using derivative contracts such as swaps with financial institutions to hedge our risks on a portion of our probable future debt issuances. In general, we may hedge material interest rate exposures up to several years before the forecasted transaction; however, we may choose not to hedge some exposures for a variety of reasons including prohibitive economic costs.

To the extent that forward interest rate swap agreements qualify for hedge accounting, the gain (loss) will be recorded to OCI and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period during which the hedged transaction affects earnings. The ineffective portion of the gain (loss) on the derivative instrument is recognized in earnings immediately.

As of March 31, 2012, the notional amount of forward interest rate swap derivative instruments outstanding was $450 million with an estimated fair value of approximately $23 million. The agreements require us to make payments based on fixed interest rates and receive payments based on variable benchmark LIBOR interest rates. There were no interest rate swap derivative instruments outstanding as of June 30, 2011.

As of March 31, 2012, substantially all of our outstanding debt balances are fixed rate debt. While changes in interest rates will have no impact on the interest we pay on this debt, interest on any borrowings under our revolving credit facility will be exposed to interest rate fluctuations as the rate on this facility is variable. In July 2011, we terminated our three-year, $480 million senior unsecured revolving credit facility and replaced it with a five-year, $550 million senior unsecured revolving credit facility. At March 31, 2012, there were no outstanding amounts under our five-year senior unsecured revolving credit facility.

39

The tables below present information about our investment portfolio and debt obligations:

	March 31, 2012
	Maturing in Fiscal Year																					Fair Market Value
(in millions)	2012			2013			2014			2015			2016			Thereafter			Total
ASSETS
Cash and Cash Equivalents
Cash	$	202		$	—		$	—		$	—		$	—		$	—		$	202		$	202
Cash Equivalents	$	1,238		$	—		$	—		$	—		$	—		$	—		$	1,238		$	1,238
Weighted Average Interest Rate1		0.09	%		—			—			—			—			—			0.09	%		—
LIABILITIES
Debt Obligations2
Fixed Rate Debt3	$	—		$	251		$	2		$	452		$	2		$	705		$	1,412		$	1,562
Weighted Average Coupon Rate		3.75	%		4.12	%		3.47	%		5.12	%		3.47	%		6.35	%		5.55	%		—
Other Obligations	$	—		$	1		$	—		$	—		$	—		$	—		$	1		$	1
Weighted Average Interest Rate		6.87	%		7.21	%		12.43	%		—			—			—			8.10	%		—

	June 30, 2011
	Maturing in Fiscal Year																			Fair Market Value
(in millions)	2012			2013			2014		2015			2016		Thereafter			Total
ASSETS
Cash and Cash Equivalents
Cash	$	138		$	—		$	—	$	—		$	—	$	—		$	138		$	138
Cash Equivalents	$	1,232		$	—		$	—	$	—		$	—	$	—		$	1,232		$	1,232
Weighted Average Interest Rate1		0.21	%		—			—		—			—		—			0.21	%		—
LIABILITIES
Debt Obligations2
Fixed Rate Debt3	$	—		$	250		$	—	$	450		$	—	$	700		$	1,400		$	1,547
Weighted Average Coupon Rate		—			4.13	%		—		5.13	%		—		6.38	%		5.57	%		—
Other Obligations	$	1		$	1		$	—	$	—		$	—	$	—		$	2		$	2
Weighted Average Interest Rate		6.70	%		7.15	%		—		—			—		—			7.49	%		—

¹  Represents weighted average interest rate for cash equivalents only; cash balances generally earn no interest.

²  The estimated fair value of our long-term obligations and other short-term borrowings was $1,563 million and $1,549 million at March 31, 2012 and June 30, 2011, respectively. The fair value of our senior notes at March 31, 2012 and June 30, 2011 was based on quoted market prices, which involved the use of Level 1 inputs. The fair value of the other obligations at March 31, 2012 and June 30, 2011 was based on either the quoted market prices for the same or similar debt, which involved the use of observable Level 2 inputs. The fair value of the Rowa debt facility at March 31, 2012 and August 1, 2011, the date of acquisition, was determined using a discounted cash flow analysis, and approximated its carrying value. We considered the interest rates of European instruments with similar maturity dates, which involved the use of significant unobservable Level 3 inputs.

³  Fixed rate notes are presented gross of an $11 million and $14 million purchase discount at March 31, 2012 and June 30, 2011, respectively.

Foreign Currency Risk

We are a global company with operations in multiple countries and are a net recipient of currencies other than the United States dollar (“USD”). Accordingly, a strengthening of the USD will negatively impact revenues and gross margins expressed in consolidated USD terms.

40

Currently, we have foreign exchange risk associated with currency exposure associated with existing assets and liabilities, committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. We seek to manage our foreign exchange risk by using derivative contracts such as forwards, swaps and options with financial institutions to hedge our risks. In general, we will hedge material foreign exchange exposures up to twelve months in advance; however, we may choose not to hedge some exposures for a variety of reasons including prohibitive economic costs.

The realized and unrealized gains and losses of foreign currency forward contracts and the re-measurement of foreign denominated receivables, payables and loans are recorded in the condensed consolidated statement of income. To the extent that cash flow hedges qualify for hedge accounting, the gain (loss) on the forward contract will be recorded to OCI. As the forecasted exposures affect earnings, the realized gain (loss) on the forward contract will be moved from OCI to the condensed consolidated statements of income.

The following table provides information about our foreign currency derivative instruments outstanding as of March 31, 2012 and June 30, 2011:

	March 31, 2012				June 30, 2011
(in millions)	Notional Amount		Average Contract Rate		Notional Amount		Average Contract Rate
Foreign Currency Forward Contracts:
(Receive USD/pay foreign currency)
Euro	$	—		—	$	153		1.4
Australian Dollar		30		1.0		36		1.0
New Zealand Dollar		4		0.8		9		0.8
South African Rand		4		7.8		2		7.2
Japanese Yen		2		82.8		—		—
Mexico Peso		—		—		7		12.0
Canadian Dollar		14		1.0		1		1.0
Swiss Franc		2		0.9		3		0.9
British Pound		8		1.6		47		1.6
Total	$	64			$	258
Estimated Fair Value	$	—			$	—
Foreign Currency Forward Contracts:
(Pay USD/receive foreign currency)
Mexican Peso	$	42		12.7	$	33		12.0
Swiss Franc		18		0.9		14		0.9
Euro		10		1.3		—		—
British Pound		—		—		1		1.6
Total	$	70			$	48
Estimated Fair Value	$	1			$	1
Foreign Currency Forward Contracts:
(Pay foreign currency/receive Euros)
British Pound	$	11		0.8	$	7		0.9
Total	$	11			$	7
Estimated Fair Value	$	—			$	—

41

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, has concluded that our disclosure controls and procedures were effective as of the end of such period.

Changes in Internal Control Over Financial Reporting

In connection with the evaluation required by Exchange Act Rule 13a-15(d), our management, including our

Chief Executive Officer and our Chief Financial Officer, concluded that no changes in our internal control over

financial reporting occurred during the period covered by this report that have materially affected, or are

reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

42

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See note 12 to the unaudited condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011. Except as set forth below, there have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011. Any of the risks discussed in this Quarterly Report on Form 10-Q or any of the risks disclosed in Item 1A. to Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition.

We are subject to complex and costly regulation.

Our products are subject to regulation by the FDA and other national, supranational, federal and state governmental authorities. It can be costly and time-consuming to obtain regulatory clearance and/or approval to market a medical device or other product. Clearance and/or approval might not be granted for a new or modified device or other product on a timely basis, if at all. Regulations are subject to change as a result of legislative, administrative or judicial action, which may further increase our costs or reduce sales. Unless an exception applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other significant change in, an existing medical device obtain either 510(k) pre-market notification clearance or pre-market approval before those products can be marketed or sold in the United States. Modifications or enhancements to a product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, labeling, packaging, or manufacturing process may also require a new 510(k) clearance. Most recently, the FDA has proposed changes to its 510(k) pre-market clearance process and although we cannot predict with certainty the future impact of these initiatives, it appears that the time and cost to get many of our medical devices to market could increase significantly.

In addition, we are subject to regulations covering manufacturing practices, product labeling and advertising, and adverse-event reporting that apply after we have obtained clearance or approval to sell a product. Our failure to maintain clearances or approvals for existing products, to obtain clearance or approval for new or modified products, or to adhere to regulations for manufacturing, labeling, advertising or adverse event reporting could adversely affect our results of operations and financial condition. Further, if we determine a product manufactured or marketed by us does not meet our specifications, published standards or regulatory requirements, we may seek to correct the product or withdraw the product from the market, which could have an adverse effect on our business. Many of our facilities and procedures and those of our suppliers are subject to ongoing oversight, including periodic inspection by governmental authorities. Compliance with production, safety, quality control and quality assurance regulations can be costly and time-consuming.

The sales and marketing of medical devices is under increased scrutiny by the FDA and other enforcement bodies. If our sales and marketing activities fail to comply with FDA regulations or guidelines, or other applicable laws, we may be subject to warnings or enforcement actions from the FDA or other enforcement bodies. A number of companies in the healthcare industry have been the subject of enforcement actions related to their sales and marketing practices, including their relationships with doctors and off-label promotion of products. In April 2011, we received a federal administrative subpoena from the Department of Justice. In addition, in September 2011, we received a federal administrative subpoena from the Office of Inspector General (“OIG”) of the Department of Health and Human Services. Both subpoenas contain a request for documents and other materials that relate primarily to our sales and marketing practices for our ChloraPrep skin preparation product and information regarding our relationships with healthcare professionals. See note 12 to the unaudited condensed consolidated financial statements included in this Form 10-Q for more information. We cannot control the pace or scope of any

43

investigation, and responding to the subpoena requests and any investigation will require the allocation of resources, including management time and attention. If we were to become the subject of an enforcement action, including any action resulting from the investigation by the Department of Justice or OIG, it could result in negative publicity, penalties, fines, the exclusion of our products from reimbursement under federally-funded programs and/or prohibitions on our ability to sell our products, which could have an adverse effect on our results of operations and financial condition.

44

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains information about our company’s purchases of equity securities during the quarter ended March 31, 2012:

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of  Publicly Announced Program2		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Publically Announced Program3
January 1 – 31, 2012		—	$	—		—	$	—
February 1 – 29, 20121		45		25.86		—		500
March 1 – 31, 20122		1,960,659		25.50		1,960,659		450
Total		1,960,704	$	25.50		1,960,659		450

¹  Represents restricted stock awards surrendered by employees upon vesting to meet tax withholding obligations.

²  In February 2012, we announced that our Board of Directors had approved a share repurchase program authorizing the repurchase of up to $500 million of our common stock through open market and private transactions. The share repurchase program is expected to continue through December 2013.

³  Dollars in millions.

45

ITEM 6. EXHIBITS

Exhibit Number	Description of Exhibits
12.1	Computation of Ratio of Earnings to Fixed Charges.*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certifications pursuant to 18 U.S.C. Section 1350.*
101.INS	XBRL Instance Document†
101.SCH	XBRL Taxonomy Extension Schema Document†
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document†
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document†
101.LAB	XBRL Taxonomy Extension Label Linkbase Document†
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document†

* Filed herewith.

† XBRL (Extensible Business Reporting Language) information included herewith is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

46

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CAREFUSION CORPORATION
Date: May 4, 2012	By:	/s/ James F. Hinrichs
		James F. Hinrichs, Chief Financial Officer (Principal financial officer and duly authorized signatory)

47