MCKESSON CORP | 2013 | FY | 3


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.

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