Restructuring and Asset Impairment Charges

We recorded pre-tax restructuring and asset impairment charges of $597 million, $567 million and $18 million in 2019, 2018 and 2017. These charges are included under the caption, “Restructuring and Asset Impairment Charges” within operating expenses in the accompanying consolidated statements of operations.

Fiscal 2019 Initiatives

On April 25, 2018, the Company announced a strategic growth initiative intended to drive long-term incremental profit growth and increase operational efficiency. The initiative consists of multiple growth priorities and plans to optimize the Company’s operating models and cost structures primarily through the centralization and outsourcing of certain administrative functions and cost management.

As part of the growth initiative, we committed to implement certain actions including a reduction in workforce, facility consolidation and store closures. We expect to record total pre-tax charges of approximately $140 million to $180 million, of which we recorded pre-tax charges of $135 million ($122 million after-tax) in 2019. This set of the initiatives will be substantially completed by the end of 2020. Estimated remaining charges primarily consist of exit-related costs including contract termination costs.

As previously announced on November 30, 2018, the Company relocated its corporate headquarters from San Francisco, California to Irving, Texas to improve efficiency, collaboration and cost competitiveness, effective April 1, 2019. We anticipate that the relocation will be completed by January 2021. We expect to record total pre-tax charges of approximately $80 million to $130 million and for 2019 recorded pre-tax charges of $33 million ($24 million after-tax) primarily representing employee severance. Estimated remaining charges primarily consist of lease and other exit-related costs, employee retention and relocation expenses.

During the fourth quarter of 2019, the Company committed to additional programs to continue our operating model and cost optimization efforts. We continue to implement centralization of certain functions and outsourcing through the expanded arrangement with a third-party vendor to achieve operational efficiency. The programs also include reorganization and consolidation of our business operations and related headcount reductions as well as the further closures of retail pharmacy stores in Europe and facilities. We expect to incur total pre-tax charges of approximately $300 million to $350 million for these programs, which are expected to be completed by the end of 2021. In 2019, pre-tax charges of $163 million ($127 million after-tax) were recorded, which primarily represent employee severance and accelerated depreciation expense. Estimated remaining charges primarily consist of facility and other exit costs and employee-related costs.

Restructuring charges for the fiscal 2019 initiatives for the year ended March 31, 2019 consisted of the following:



	Year Ended March 31, 2019
(In millions)	U.S. Pharmaceutical and Specialty Solutions		European Pharmaceutical Solutions		Medical-Surgical Solutions		Other		Corporate		Total
Severance and employee-related costs, net	$	50	$	33	$	19	$	16	$	36	$	154
Exit and other-related costs ⁽¹⁾	7		3		20		57		57		144
Asset impairments and accelerated depreciation	6		5		3		18		1		33
Total	$	63	$	41	$	42	$	91	$	94	$	331

(1) Exit and other-related costs primarily include lease and other contract exit costs associated with closures of facilities and retail pharmacy stores as well as project consulting fees.

The following table summarizes the activity related to the restructuring liabilities associated with the fiscal 2019 initiatives for the year ended March 31, 2019:



(In millions)	U.S. Pharmaceutical and Specialty Solutions			European Pharmaceutical Solutions			Medical-Surgical Solutions			Other			Corporate			Total
Balance, March 31, 2018	$	—		$	—		$	—		$	—		$	—		$	—
Restructuring charges recognized	63			41			42			91			94			331
Non-cash charges	(6		)	(5		)	(3		)	(18		)	(1		)	(33		)
Cash payments	(8		)	(5		)	(23		)	(52		)	(53		)	(141		)
Other	(18		)	7			(1		)	8			(3		)	(7		)
Balance, March 31, 2019 ⁽¹⁾	$	31		$	38		$	15		$	29		$	37		$	150


(1)	As of March 31, 2019, the total reserve balance was $150 million of which $117 million was recorded in other accrued liabilities and $33 million was recorded in other noncurrent liabilities.

Fiscal 2018 McKesson Europe Plan

In the second quarter of 2018, we committed to a restructuring plan, which primarily consists of the closures of underperforming retail pharmacy stores in the U.K. and a reduction in workforce. Under this plan, we expect to record total pre-tax charges of approximately $90 million to $130 million for our European Pharmaceutical Solutions segment, of which $92 million of pre-tax charges were recorded to date. The plan will be substantially completed by 2020. In 2019 and 2018, we recorded pre-tax charges of $18 million ($16 million after-tax) and $74 million ($67 million after-tax) in operating expenses primarily representing employee severance and lease exit costs. We made cash payments of $32 million and $10 million during 2019 and 2018, primarily related to severance. The reserve balances as of March 31, 2019 and 2018 were $19 million and $42 million, recorded in other accrued liabilities in our consolidated balance sheets. Estimated remaining restructuring charges primarily consist of lease termination and other exit costs.

Fiscal 2016 Cost Alignment Plan

On March 14, 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. We expected to record total pre-tax charges of approximately $250 million to $270 million, of which $256 million of pre-tax charges were recorded to date.

There were no material restructuring charges recorded during 2019, 2018 and 2017. We made cash payments of $18 million and $45 million during 2019 and 2018, primarily related to severance. The reserve balances as of March 31, 2019 and 2018 were $9 million and $39 million, recorded in other accrued liabilities, and $25 million and $30 million recorded in other noncurrent liabilities in our consolidated balance sheets. Estimated remaining restructuring charges primarily consist of exit-related activities for our European Pharmaceutical Solutions segment.

Other plans

There were no material restructuring charges for other plans recorded during 2019, 2018 and 2017.

Long-Lived Asset Impairments

McKesson Europe

In 2019, we recorded non-cash pre-tax charges of $210 million ($172 million after-tax) to impair the carrying value of certain long-lived assets (primarily pharmacy licenses) for our U.K. retail business primarily driven by government reimbursement reductions and competitive pressures in the U.K. In 2018, we recorded non-cash pre-tax charges of $446 million ($410 million after-tax) to impair the carrying value of certain intangible assets (primarily customer relationships and pharmacy licenses), store assets and capitalized software assets due to continuing declines in estimated future cash flows in our European businesses including consideration of significant government reimbursement reductions in our U.K. retail business. In 2019 and 2018, we used an income approach (DCF method) or a combination of an income approach and a market approach to estimate the fair value of the long-lived 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.

Rexall Health

In 2019 and 2018, we recorded non-cash charges of $35 million and $33 million (pre-tax and after-tax) to impair certain intangible assets (primarily customer relationships) for our Rexall Health retail business. The impairments were primarily the results of the decline in estimated future cash flows for this business. The estimated cash flow projections were negatively affected by lower projected overall growth rate resulting from the ongoing impact of government regulations in 2019 and significant generics reimbursement reductions across Canada and minimum wage increases in multiple provinces in 2018. We utilized an income approach (DCF method) for estimating the fair value of long-lived 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.

There were no material impairments of long-lived assets in 2017.