Restructuring and Asset Impairment Charges

Fiscal 2018 McKesson Europe Plan

During the second quarter of 2018, we performed an interim impairment test of long-lived assets primarily for our U.K. retail business due to the previously discussed decline in the estimated future cash flows driven by significant government reimbursement reductions in the U.K. As a result, we recognized non-cash pre-tax charges of $189 million ($157 million after-tax) to impair the carrying value of certain intangible assets (notably pharmacy licenses) and store assets (primarily fixtures) in the second quarter of 2018. We utilized a combination of an income approach (primarily DCF model) and a market approach for estimating the fair value of intangible assets. The fair value of the intangible assets is considered a Level 3 fair value measurement due to the significance of unobservable inputs developed using company specific information.

On September 29, 2017, we committed to a restructuring plan, which primarily consists of the closures of underperforming retail stores in the U.K. and a reduction in workforce. The plan is expected to be substantially implemented prior to the first half of 2019. As part of this plan, we recorded a pre-tax charge of $6 million ($5 million after-tax) and $53 million ($45 million after-tax) during the third quarter and first nine months of 2018 primarily representing employee severance and lease exit costs.

We expect to record total pre-tax impairment and restructuring charges of approximately $650 million to $750 million during 2018 for our McKesson Europe business, of which $592 million of pre-tax charges (including the 2018 second quarter goodwill impairment charge of $350 million) were recorded during the first nine months of 2018. Estimated remaining restructuring charges primarily consist of lease termination and other exit costs.

Long-lived asset impairment and restructuring charges were recorded under the caption, “Restructuring and Asset Impairment Charges” in operating expenses in the accompanying condensed consolidated statements of operations.

Fiscal 2016 Cost Alignment Plan

In the fourth quarter of 2016, we committed to a restructuring plan to lower our operating costs (the “Cost Alignment Plan”). The Cost Alignment Plan primarily consists of a reduction in workforce, and business process initiatives that will be substantially implemented prior to the end of 2019. Business process initiatives primarily include plans to reduce operating costs of our distribution and pharmacy operations, administrative support functions, and technology platforms, as well as the disposal and abandonment of certain non-core businesses. Under the Cost Alignment Plan, we recorded total pre-tax charges of $252 million since the inception of this plan through the third quarter of 2018. The remaining charges under this program primarily consist of exit-related costs and accelerated depreciation and amortization related to our Distribution Solutions segment.

There were no material restructuring charges recorded during the third quarters and first nine months of 2018 and 2017.

The following table summarizes the activity related to the restructuring liabilities associated with the Cost Alignment Plan for the first nine months of 2018:



(In millions)	Balance March 31, 2017		Net restructuring charges recognized			Non-cash charges		Cash Payments			Other			Balance December 31, 2017 ⁽¹⁾
Cost Alignment Plan
Distribution Solutions	$	90	$	8		$	—	$	(26	)	$	3		$	75
Technology Solutions	10		(1		)	—		(4		)	(5		)	—
Corporate	6		2			—		(2		)	(1		)	5
Total	$	106	$	9		$	—	$	(32	)	$	(3	)	$	80


(1)	The reserve balances as of December 31, 2017 include $51 million recorded in other accrued liabilities and $29 million recorded in other noncurrent liabilities in our condensed consolidated balance sheet.