McKesson Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended March 31, 2021 (filed May 12, 2021). Although the request metadata says “2020 Q4,” this filing reports the full fiscal year 2021, with comparisons to fiscal 2020 and 2019. McKesson distributes pharmaceuticals and medical-surgical supplies and provides pharmacy, specialty-care, and healthcare technology services. Its four reportable segments are U.S. Pharmaceutical, International, Medical-Surgical Solutions, and Prescription Technology Solutions (RxTS).
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $238.2 billion | $231.1 billion |
| Gross profit / margin | $12.15 billion / 5.10% | $12.02 billion / 5.20% |
| Operating income (loss) | $(5.04) billion | $2.49 billion |
| Net income (loss) attributable to McKesson | $(4.54) billion | $900 million |
| Diluted EPS | $(28.26) | $4.95 |
| Cash from operating activities | $4.54 billion | $4.37 billion |
| Cash and cash equivalents at year-end | $6.28 billion | $4.02 billion |
| Total debt | $7.15 billion | $7.39 billion |
Gross profit rose 1% while revenue rose 3%, and gross margin declined 10 basis points. The net loss principally reflects the $8.1 billion opioid-related claims charge. The company reported an income tax benefit of $695 million. Year-end working capital was $1.28 billion, compared with negative $402 million in FY2020; the debt-to-capital ratio rose to 83.1% from 52.1%, reflecting the loss and share repurchases. McKesson had a $4.0 billion revolving credit facility with no borrowings outstanding and reported compliance with its debt covenants. Total assets were $65.0 billion; McKesson stockholders’ equity was a deficit of $21 million.
Operating cash flow increased $168 million year over year. The $8.1 billion opioid charge was noncash when recorded; working-capital movements included a $2.3 billion inventory increase, partly offset by higher payables and lower receivables. Investing activities used $415 million, including $451 million of property and equipment spending and $190 million of capitalized software expenditures. Financing activities used $1.69 billion, including $770 million of share repurchases and $276 million of dividends.
Material changes and segment performance
- U.S. Pharmaceutical: Revenue rose 4% to $189.3 billion; operating profit increased 1% to $2.76 billion. Growth in branded and specialty pharmaceuticals and vaccine distribution was partly offset by COVID-related volume effects, lower LIFO credits, and a $50 million New York opioid surcharge accrual.
- International: Revenue fell 6% to $36.0 billion; operating loss narrowed to $37 million from $161 million. Results reflected the contribution of most of the German pharmaceutical wholesale business to a Walgreens Boots Alliance joint venture, COVID-19 effects, and impairment charges. McKesson retained a 30% interest in the joint venture.
- Medical-Surgical Solutions: Revenue rose 22% to $10.1 billion and operating profit rose 42% to $707 million, supported by COVID-19 tests, PPE, and vaccine-supply kitting and distribution. Results included $136 million of inventory impairment and excess-inventory charges.
- RxTS: Revenue rose 7% to $2.89 billion; operating profit was broadly flat at $395 million as customer growth was offset by higher operating expenses.
- McKesson completed its Change Healthcare investment split-off in March 2020. FY2020 included a $1.2 billion impairment, a $246 million dilution loss, and a $414 million separation gain, complicating year-over-year comparisons.
Outlook, commentary, risks, and unusual items
Management’s FY2022 outlook is referenced in a separate Form 8-K dated May 6, 2021; specific guidance figures are not provided in the supplied filing text. Management said COVID-19’s future effect was uncertain and dependent on factors including infection trends, vaccine availability and effectiveness, government actions, and demand for related distribution and supply-kit services. COVID-19 had a net favorable effect on FY2021 pretax results, but impacts varied across businesses and periods. Management described liquidity as strong and expected operating cash flow, cash, credit facilities, and commercial paper access to support anticipated needs.
- Opioid litigation: McKesson recorded an $8.1 billion liability for a probable governmental-claims settlement framework, with more than 90% of the proposed distributor payments anticipated to fund remediation. The company remained in discussions and continued preparing for trial. Participation, final terms, timing, tax treatment, and ultimate loss remain uncertain; the company could not estimate the possible loss range for all opioid matters. The auditor’s critical audit matter describes an $8.0 billion estimate, while the company’s statements and disclosures generally report $8.1 billion.
- Other legal and regulatory matters: The company faced approximately 3,200 opioid-related cases, other litigation and government investigations, and a $50 million accrual for New York’s Opioid Stewardship Act. Additional opioid-related liabilities could materially affect cash flows, liquidity, and results.
- Impairments and restructuring: FY2021 included $69 million of goodwill impairment and $115 million of long-lived asset impairments, primarily involving International retail pharmacy operations. The company also described a U.K. restructuring expected to incur total charges of $85–$90 million, with $57 million recorded to date. A North American office-space initiative approved in FY2022 was expected to incur $180–$280 million.
- Concentration and operating risks: CVS represented approximately 21% of FY2021 revenue and 19% of year-end trade receivables; the ten largest customers represented about 51% of revenue. The filing also highlights supplier concentration, pricing and reimbursement pressure, competition, supply-chain disruption, cybersecurity and privacy risks, and foreign-exchange exposure.
- The Board raised the quarterly dividend from $0.41 to $0.42 per share in July 2020 and authorized an additional $2.0 billion for share repurchases in January 2021. Future dividends and repurchases remain subject to Board discretion and financial conditions.
Investor verification priorities
- Check subsequent filings for the opioid settlement’s final terms, participating plaintiffs, payment schedule, insurance recoveries, tax deductibility, and any change to the accrued liability; reconcile the $8.0 billion auditor reference with the $8.1 billion company disclosure.
- Review FY2022 guidance and later results, particularly how vaccine-related activity and the normalization of COVID-19 product demand affected segment margins and cash generation.
- Assess customer concentration and the status of the CVS distribution agreement, which was extended through June 2023.
- Monitor leverage, working-capital requirements, scheduled debt maturities, and cash needs, including potential McKesson Europe put-right payments of up to approximately $1.3 billion before the June 15, 2021 exercise-window expiration.
- Track International-segment restructuring and impairment risks, especially the disclosed goodwill headroom for McKesson Canada and RxCrossroads.