Segments of Business
We report our operations in two operating segments: McKesson Distribution Solutions and McKesson Technology Solutions. The factors for determining the reportable segments included the manner in which management evaluates the performance of the Company combined with the nature of the individual business activities. We evaluate the performance of our operating segments on a number of measures, including operating profit before interest expense, income taxes and results from discontinued operations.
The Distribution Solutions segment distributes ethical and proprietary drugs, medical-surgical supplies and equipment and health and beauty care products throughout North America. This segment also provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, sells financial, operational and clinical solutions for pharmacies (retail, hospital, alternate site) and provides consulting, outsourcing and other services. This segment includes a 49% interest in Nadro, a pharmaceutical distributor in Mexico.
The Technology Solutions segment delivers enterprise-wide clinical, patient care, financial, supply chain, strategic management software solutions, pharmacy automation for hospitals, as well as connectivity, claims processing, outsourcing and other services, including remote hosting and managed services, to healthcare organizations. This segment also includes McKesson Health Solutions business, which includes our InterQual® clinical criteria solution, claims payment solutions and network performance tools. The segment's customers include hospitals, physicians, homecare providers, retail pharmacies and payers from North America, the United Kingdom, Ireland, other European countries and Israel.
Revenues for our Technology Solutions segment are classified in one of three categories: services, software and software systems and hardware. Services revenues primarily include fees associated with installing our software and software systems, as well as revenues associated with software maintenance and support, remote processing, disease and medical management, claims processing, and other outsourcing and professional services. Software and software systems revenues primarily include revenues from licensing our software and software systems, including the segment's clinical auditing and compliance and InterQual® businesses.
Corporate includes expenses associated with Corporate functions and projects and the results of certain equity investments. Corporate expenses are allocated to the operating segments to the extent that these items can be directly attributable to the segment.
Financial information relating to our reportable operating segments and reconciliations to the consolidated totals is as follows:
|
| | | | | | | | | | | |
| Years Ended March 31, |
(In millions) | 2013 | | 2012 | | 2011 |
Revenues | | | | | |
Distribution Solutions (1) | | | | | |
Direct distribution & services | $ | 86,816 |
| | $ | 85,523 |
| | $ | 77,554 |
|
Sales to customers’ warehouses | 18,646 |
| | 20,453 |
| | 18,631 |
|
Total U.S. pharmaceutical distribution & services | 105,462 |
| | 105,976 |
| | 96,185 |
|
Canada pharmaceutical distribution & services | 9,981 |
| | 10,303 |
| | 9,784 |
|
Medical-Surgical distribution & services | 3,611 |
| | 3,145 |
| | 2,920 |
|
Total Distribution Solutions | 119,054 |
| | 119,424 |
| | 108,889 |
|
Technology Solutions | | | | | |
Services | 2,724 |
| | 2,594 |
| | 2,483 |
|
Software & software systems | 576 |
| | 596 |
| | 590 |
|
Hardware | 101 |
| | 120 |
| | 122 |
|
Total Technology Solutions | 3,401 |
| | 3,310 |
| | 3,195 |
|
Total Revenues | $ | 122,455 |
| | $ | 122,734 |
| | $ | 112,084 |
|
| | | | | |
Operating profit | | | | | |
Distribution Solutions (2) | $ | 2,197 |
| | $ | 2,219 |
| | $ | 1,897 |
|
Technology Solutions | 297 |
| | 364 |
| | 301 |
|
Total | 2,494 |
| | 2,583 |
| | 2,198 |
|
Corporate Expenses, Net | (335 | ) | | (413 | ) | | (341 | ) |
Interest expense | (240 | ) | | (251 | ) | | (222 | ) |
Income From Continuing Operations Before Income Taxes | $ | 1,919 |
| | $ | 1,919 |
| | $ | 1,635 |
|
| | | | | |
Depreciation and amortization (3) | | | | | |
Distribution Solutions | $ | 265 |
| | $ | 225 |
| | $ | 167 |
|
Technology Solutions | 206 |
| | 209 |
| | 209 |
|
Corporate | 120 |
| | 117 |
| | 120 |
|
Total | $ | 591 |
| | $ | 551 |
| | $ | 496 |
|
| | | | | |
Expenditures for long-lived assets (4) | | | | | |
Distribution Solutions | $ | 163 |
| | $ | 175 |
| | $ | 158 |
|
Technology Solutions | 42 |
| | 22 |
| | 26 |
|
Corporate | 41 |
| | 28 |
| | 49 |
|
Total | $ | 246 |
| | $ | 225 |
| | $ | 233 |
|
| | | | | |
Revenues, net by geographic area (5) | | | | | |
United States | $ | 112,283 |
| | $ | 112,230 |
| | $ | 102,089 |
|
International | 10,172 |
| | 10,504 |
| | 9,995 |
|
Total | $ | 122,455 |
| | $ | 122,734 |
| | $ | 112,084 |
|
| |
(1) | Revenues derived from services represent less than 2% of this segment’s total revenues. |
| |
(2) | Operating profit for 2013 and 2011 includes the receipt of $44 million and $51 million representing our share of settlements of antitrust class action lawsuits brought against drug manufacturers, which were recorded as a reduction to cost of sales. |
| |
(3) | Amounts primarily include amortization of acquired intangible assets purchased in connection with acquisitions, capitalized software held for sale and capitalized software for internal use. |
| |
(4) | Long-lived assets consist of property, plant and equipment. |
| |
(5) | Net revenues were attributed to geographic areas based on the customers' shipment locations. |
Segment assets and property, plant and equipment, net by geographic areas were as follows:
|
| | | | | | | |
| March 31, |
(In millions) | 2013 | | 2012 |
Segment assets | | | |
Distribution Solutions | $ | 27,307 |
| | $ | 25,374 |
|
Technology Solutions | 3,829 |
| | 3,575 |
|
Total | 31,136 |
| | 28,949 |
|
Corporate | | | |
Cash and cash equivalents | 2,456 |
| | 3,149 |
|
Other | 1,194 |
| | 995 |
|
Total | $ | 34,786 |
| | $ | 33,093 |
|
| | | |
Property, plant and equipment, net |
|
| |
|
|
United States | $ | 1,205 |
| | $ | 952 |
|
International | 116 |
| | 91 |
|
Total | $ | 1,321 |
| | $ | 1,043 |
|
International operations primarily consist of our operations in Canada, the United Kingdom, Ireland, other European countries, Asia Pacific and Israel. We also have an equity-held investment (Nadro) in Mexico.
