McKesson 2013 Annual Report Download - page 35

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McKESSON CORPORATION
FINANCIAL REVIEW (Continued)
Net income was $1,338 million, $1,403 million and $1,202 million in 2013, 2012 and 2011, and diluted earnings per
common share were $5.59, $5.59 and $4.57. Net income for 2011 includes a $72 million after-tax gain ($0.28 per diluted
share) on the sale of a wholly-owned subsidiary, McKesson Asia Pacific Pty Limited (“MAP”). Historical financial results for
this subsidiary were not material.
Diluted earnings per common share were favorably affected by decreases in our weighted average shares outstanding
primarily due to the cumulative effect of share repurchases over the past three years. In 2013, 2012 and 2011, we repurchased
13 million, 20 million and 29 million of our common shares.
Revenues:
Years Ended March 31, Change
(Dollars in millions) 2013 2012 2011 2013 2012
Distribution Solutions
Direct distribution & services $ 86,816 $ 85,523 $ 77,554 2 % 10 %
Sales to customers’ warehouses 18,646 20,453 18,631 (9) 10
Total U.S. pharmaceutical distribution & services 105,462 105,976 96,185
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10
Canada pharmaceutical distribution & services 9,981 10,303 9,784 (3) 5
Medical-Surgical distribution & services 3,611 3,145 2,920 15 8
Total Distribution Solutions 119,054 119,424 108,889
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10
Technology Solutions
Services 2,724 2,594 2,483 5 4
Software & software systems 576 596 590 (3) 1
Hardware 101 120 122 (16) (2)
Total Technology Solutions 3,401 3,310 3,195 3 4
Total Revenues $122,455 $122,734 $112,084
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10
Revenues for 2013 approximated the prior year and increased 10% to $122.7 billion in 2012. Changes in our revenues
were primarily impacted by our Distribution Solutions segment, which accounted for approximately 97% of our consolidated
revenues. The increase in revenues in 2012 includes our December 2010 acquisition of US Oncology Holdings, Inc. ("US
Oncology").
Direct distribution and services revenues increased in 2013 compared to 2012 primarily due to market growth, which
includes growing drug utilization and price increases, expanded volume with existing customers and new customers, partially
offset by price deflation associated with brand to generic drug conversions, the loss of customers and two less sales days.
Direct distribution and services revenues increased in 2012 compared to 2011 primarily due to market growth and from our
acquisition of US Oncology. These increases were partially offset by price deflation associated with brand to generic drug
conversions.
Sales to customers' warehouses for 2013 decreased compared to 2012 primarily due to price deflation associated with
brand to generic drugs conversions, net of brand price inflation and two less sales days. 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 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.