McKesson 2012 Annual Report Download - page 35

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
31
The customer mix of revenues from our U.S. Pharmaceutical Distribution business was as follows:
Years Ended March 31,
2012
2011
2010
Direct Sales
Retail Chains 34% 33% 32%
Institutions 34 34 32
Independents 11 12 12
Subtotal 79 79 76
Sales to retail customers’ warehouses 21 21 24
Total 100% 100% 100%
As previously described, a limited number of our large retail chain customers purchase products through both
our direct and warehouse distribution methods, the latter of which generally has a significantly lower gross profit
margin due to the low cost-to-serve model. When evaluating and pricing customer contracts, we do so based on our
assessment of total customer profitability. As a result, we do not evaluate our performance or allocate resources
based on sales to customers’ warehouses or gross profit associated with such sales.
Canadian pharmaceutical distribution and services revenues increased 5% in 2012 compared to 2011. Excluding
a favorable foreign currency exchange rate fluctuation of 2% during 2012, revenues increased primarily due to
market growth, five additional sales days and a small acquisition in the second quarter of 2011, partially offset by
government-imposed price reduction for generic pharmaceuticals in certain provinces. Canadian pharmaceutical
distribution and services revenues increased 8% in 2011 compared to 2010. Excluding a favorable foreign currency
exchange rate fluctuation of 7% during 2011, revenues increased 1% in 2011. Canadian revenues for 2011
increased due to market growth, offset by a government-imposed price reduction for generic pharmaceuticals in
certain provinces and the impact of price deflation associated with brand to generic drug conversions.
Medical-Surgical distribution and services revenues increased in 2012 compared to 2011 primarily due to
market growth, new customers and five additional sales days. Medical-Surgical distribution and services revenues
increased in 2011 compared to 2010 primarily due to market growth, partially offset by a decrease in demand
associated with the flu season.
Technology Solutions revenues increased in 2012 compared to 2011 primarily due to higher revenues for claims
processing, increased revenues associated with the sale and installation of our software products, an increase in
maintenance revenues from new and existing customers and a number of small acquisitions made during 2012.
Technology Solutions revenues increased slightly in 2011 compared to 2010 primarily due to an increase in
maintenance revenues from new and existing customers, increased revenues associated with the sale and installation
of our software products and higher revenues for claims processing, partially offset by the sale of MAP in July 2010.
Gross Profit:
Years Ended March 31, Change
(Dollars in millions) 2012 2011 2010 2012 2011
Gross Profit
Distribution Solutions
(
1
)
$ 5,057 $ 4,565 $ 4,219 11% 8%
Technology Solutions
(
2
)
1,510 1,405 1,457 7 (4)
Total $ 6,567 $ 5,970 $ 5,676 10 5
Gross Profit Margin
Distribution Solutions 4.23% 4.19% 4.00% 4bp 19bp
Technology Solutions 45.62 43.97 46.64 165 (267)
Total 5.35 5.33 5.22 2 11
(1) Gross profit of our Distribution Solutions segment for 2011 includes a credit of $51 million representing our share of a
settlement of an antitrust class action lawsuit brought against a drug manufacturer, which was recorded as a reduction to cost
of sales.
(2) Gross profit of our Technology Solutions segment for 2012 and 2011 includes a $31 million product alignment charge and a
$72 million asset impairment charge for capitalized software held for sale.