McKesson 2010 Annual Report Download - page 36

Download and view the complete annual report

Please find page 36 of the 2010 McKesson annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
30
The customer mix of our U.S. pharmaceutical distribution revenues was as follows:
2010 2009 2008
Direct Sales
Independents 12% 13% 13%
Institutions 32 32 30
Retail Chains 32 26 24
Subtotal 76 71 67
Sales to retail customers’ warehouses 24 29 33
Total 100% 100% 100%
In 2010, the percentage of total direct and warehouse revenue attributed to the Company’s retail chain
customers compared to our other customer groups increased slightly from the same period a year ago, while it
declined in 2009. In 2009, this decline resulted in a positive impact on the Company’s gross profit margin. As
previously described, a limited number of our large retail chain customers purchase products through both the
Company’s 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 the Company’s performance or
allocate resources based on sales to customers’ warehouses or gross profit associated with such sales.
Canadian pharmaceutical distribution and services revenues for 2010 increased on a constant currency basis by
7% from prior year primarily due to market growth, which includes price increases and increased volume from new
and existing customers and a favorable foreign exchange rate of 3%. Canadian pharmaceutical distribution and
services revenues for 2009 increased slightly primarily reflecting market growth, which was almost fully offset by
9% unfavorable foreign exchange rates and the loss of a customer.
Medical-Surgical distribution and services revenues increased in 2010 compared to 2009 reflecting an increase
in demand related to the flu season, acquisitions and increased volume from new and existing customers. Medical-
Surgical distribution and services revenues increased for 2009 from prior year primarily reflecting market growth
and acquisitions. In addition, revenues in 2008 were impacted by the discontinuance of the distribution of a product
line. Revenues associated with this product line are now recorded by our U.S. pharmaceutical distribution and
services business.
Technology Solutions revenues increased in 2010 compared to prior year due to higher services revenues
primarily caused by increases in outsourcing revenues for claims processing and other services and software
maintenance reflecting the segment’s expanded customer base. These increases were partially offset by a shift to
products that have higher revenue deferral rates and lower hardware sales. Technology Solutions revenues
increased in 2009 primarily due to increased services revenues primarily reflecting the segment’s expanded
customer base and outsourcing revenues for claims processing. These increases were partially offset by unfavorable
foreign exchange rates and a decrease in software revenues, particularly in the hospital and physician office
customer channels.