McKesson 2011 Annual Report Download - page 36

McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
30
Revenues:
Years Ended March 31,
(In millions)
2011
2010
2009
Distribution Solutions
Direct distribution & services
$
77,554
$
72,210
$
66,876
Sales to customers’ warehouses
18,631
21,435
25,809
Total U.S. pharmaceutical distribution & services
96,185
93,645
92,685
Canada pharmaceutical distribution & services
9,784
9,072
8,225
Medical-Surgical distribution & services
2,920
2,861
2,658
Total Distribution Solutions
108,889
105,578
103,568
Technology Solutions
Services
2,483
2,439
2,337
Software & software systems
590
571
572
Hardware
122
114
155
Total Technology Solutions
3,195
3,124
3,064
Total Revenues
$
112,084
$
108,702
$
106,632
Revenues increased 3% to $112.1 billion in 2011 and 2% to $108.7 billion in 2010. The increase in revenues
primarily reflects market growth in our Distribution Solutions segment, which accounted for approximately 97% of
our consolidated revenues.
Direct distribution and services revenues increased in 2011 compared to 2010 primarily due to market growth,
which includes price increases and increased volume from new and existing customers, the effect of a shift from
sales to customers’ warehouses to direct store delivery, the lapsing 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 price deflation associated with brand to generic drug conversions. Direct
distribution and services revenues increased in 2010 compared to 2009 primarily due to a shift of revenues from
sales to customers’ warehouses to direct store delivery and market growth, partially offset by greater sales of lower
priced generic drugs and the loss of several customers in late 2009. Revenues for 2010 benefited to a lesser extent
from an increase in demand associated with the flu season.
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 lapsing of which was
completed in the third quarter of 2011, and the impact of brand to generic conversions. Sales to customers’
warehouses for 2010 decreased compared to 2009 primarily due to a shift of revenues to direct store delivery,
reduced revenues associated with a large customer and the loss of a large customer in mid-2009, partially offset by
expanded business with existing customers.
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.