McKesson 2012 Annual Report Download - page 34

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
30
Revenues:
Years Ended March 31, Change
(Dollars in millions) 2012
2011
2010 2012 2011
Distribution Solutions
Direct distribution & services $ 85,523 $ 77,554 $ 72,210 10% 7%
Sales to customers’ warehouses 20,453 18,631 21,435 10 (13)
Total U.S. pharmaceutical distribution & services 105,976 96,185 93,645 10 3
Canada pharmaceutical distribution & services 10,303 9,784 9,072 5 8
Medical-Surgical distribution & services 3,145 2,920 2,861 8 2
Total Distribution Solutions 119,424 108,889 105,578 10 3
Technology Solutions
Services 2,594 2,483 2,439 4 2
Software & software systems 596 590 571 1 3
Hardware 120 122 114 (2) 7
Total Technology Solutions 3,310 3,195 3,124 4 2
Total Revenues $ 122,734 $ 112,084 $ 108,702 10 3
Revenues increased 10% to $122.7 billion in 2012 and 3% to $112.1 billion in 2011. The increase in revenues
in each year primarily reflects market growth in our Distribution Solutions segment, which accounted for
approximately 97% of our consolidated revenues, and our acquisition of US Oncology.
Direct distribution and services revenues increased in 2012 compared to 2011 primarily due to market growth,
which includes growing drug utilization and price increases, and from our acquisition of US Oncology. These
increases were partially offset by price deflation associated with brand to generic drug conversions. Direct
distribution and services revenues increased in 2011 compared to 2010 primarily due to market growth, the effect of
a shift of revenues from sales to customers’ warehouses to direct store delivery, the lapping of which was completed
in the third quarter of 2011, and due to our acquisition of US Oncology. These increases were partially offset by a
decline in demand associated with the flu season and the impact of price deflation associated with brand to generic
drug conversions.
Sales to customers’ warehouses for 2012 increased compared to 2011 primarily due to a new customer and new
business with existing customers. Sales to customers’ warehouses for 2011 decreased compared to 2010 primarily
reflecting reduced revenues associated with existing customers, the effect of a shift of revenues to direct store
delivery, the lapping of which was completed in the third quarter of 2011, and the impact of price deflation
associated with brand to generic drug conversions.
Sales to retail customers’ warehouses represent large volume sales of pharmaceuticals primarily to a limited
number of large self-warehousing retail chain customers whereby we order bulk product from the manufacturer,
receive and process the product through our central distribution facility and subsequently deliver the bulk product
(generally in the same form as received from the manufacturer) directly to our customers’ warehouses. This
distribution method is typically not marketed or sold by the Company as a stand-alone service; rather, it is offered as
an additional distribution method for our large retail chain customers that have an internal self-warehousing
distribution network. Sales to customers’ warehouses provide a benefit to these customers because they can utilize
the Company as one source for both their direct-to-store business and their warehouse business. We generally have
significantly lower gross profit margins on sales to customers’ warehouses as we pass much of the efficiency of this
low cost-to-serve model on to the customer. These sales do, however, contribute to our gross profit dollars.