We consider ourselves to control an entity if we are the majority owner of andor have voting control over such entity. We also assess control through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business entity is the primary beneficiary of the VIE. We consolidate VIEs when it is determined that we are the primary beneficiary of the VIE. Investments in business entities in which we do not have control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. Refer to Financial Note 2,5, “Healthcare Technology Net Asset Exchange” for further information on our equity method investment in Change Healthcare, LLC (“Change Healthcare”).

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and disclosures normally included in the annual consolidated financial statements.

To prepare the financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of these financial statements and income and expenses during the reporting period. Actual amounts may differ from these estimated amounts. In our opinion, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods presented.

The Company’s fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, all references to a particular year shall mean the Company’s fiscal year.

We recorded pre-tax restructuring and asset impairment charges of $110 million ($92 million after-tax) and $288 million ($244 million after-tax) during the third quarter and first quarternine months of 2019, and will be applied through a cumulative-effect adjustment. Early adoption is not permitted except for certain provisions.  We are currently evaluating the impact of this amended guidance on our condensed consolidated financial statements.

On April 25, 2018, the finalizationCompany announced a strategic growth initiative (the “Growth Initiative”) intended to drive long-term incremental profit growth and increase operational efficiency. The initiative consists of net working capitalmultiple growth priorities and other adjustments. Duringplans to optimize the secondCompany’s operating models and cost structures primarily through centralization and outsourcing of certain administrative functions and cost management.

As part of the preliminary phase of the Growth Initiative, we committed to implement certain actions including a reduction in workforce, facility consolidation and store closures, which will be substantially completed by 2020. In connection with this preliminary phase, we expect to record total after-tax charges of approximately $150 million to $210 million. We recorded pre-tax charges of $19 million ($14 million after-tax) during the third quarter of 2019, and $130 million ($114 million after-tax) during the first nine months of 2019. The charges primarily represent employee severance, exit-related costs and asset impairment charges. Estimated remaining charges primarily consist of exit-related costs.

On November 30, 2018, the Company announced that its corporate headquarters will be relocated from San Francisco, California to Las Colinas, Texas to improve efficiency, collaboration and cost competitiveness, effective April 1, 2019. We anticipate that the relocation will be completed by the fourth quarter of 2021. As a result, during the third quarter of 2019, we received $126recorded a pre-tax charge of $31 million in cash from Change Healthcare($23 million after-tax) primarily representing the final settlementemployee severance. We expect to record total pre-tax charges of approximately $60 million to $120 million. The estimated remaining charges primarily consists of lease exit costs and employee retention and relocation expenses.

As part of the net working capitalGrowth Initiative, we expanded the existing outsourcing arrangement with a third-party vendor in December 2018. We continue to commit to achieve operational efficiency through further centralization of certain functions and other adjustments.outsourcing.

We evaluate goodwill for impairment on certain estimates and could become payable in periods after a dispositionan annual basis as of our investment in Change Healthcare.

Prior to implementing the new segment reporting structure in the first quarter of 2019, our European operations were considered a single reporting unit. Following the change in reportable segments, our European Pharmaceutical Solutions segment was split into two distinct reporting units - retail pharmacy operations (“McKesson Europe”Consumer Solutions”) and wholesale operations (“Pharmacy Solutions”) for purposes of goodwill impairment testing. As a result, we were required to perform a goodwill impairment test for these two new reporting units upon the change in reportable segment. We recorded a non-cash goodwill impairment charge of $238 million (pre-tax and after-tax) in the first quarter of 2019 primarily because the estimated fair value of the Pharmacy Solutions reporting unit was determined to be lower than its reassigned carrying value.

The fair value of the reporting unit was determined using a combination of an income approach based on a discounted cash flow (“DCF”)DCF model and a market approach based on guideline public companies’ revenues and earnings before interest, tax, depreciation and amortization multiples. Fair value estimates result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions that have been deemed reasonable by management as of the measurement date. Any changes in key assumptions, including failure to improve operations of certain retail pharmacy stores, additional government reimbursement reductions, deterioration in the financial market, an increase in interest rates or an increase in the cost of equity financing by market participants within the industry, or other unanticipated events and circumstances, may affect such estimates. Fair value assessments of the reporting unit are considered a Level 3 measurement due to the significance of unobservable inputs developed using company specific information. The discount rate and terminal growth rate used in our 2018 second quarter impairment testing for this reporting unit were 7.5% and 1.25% compared to 7.0% and 1.5% in our 2017 annual impairment test. No additional significant indicators of goodwill impairment exist during the third quarter of 2018. At December 31, 2017, the McKesson Europe reporting unit had a remaining goodwill balance of $2,692 million.

On June 1, 2018, we performed an interim impairment testcompleted our acquisition of long-lived assets primarilyMSD for the net purchase consideration of $784 million, which was funded from cash on hand. MSD is a leading national distributor of infusion and medical-surgical supplies as well as a provider of biomedical services to alternate site and home health providers. The financial results of MSD have been included in our U.K. retail business due tocondensed consolidated statements of operations within our Medical-Surgical Solutions segment since 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 carryingacquisition date.

The adjusted provisional fair value of assets acquired and liabilities assumed as of the acquisition date, excluding goodwill and intangibles, were $245 million and $163 million. Approximately $376 million of the adjusted preliminary purchase price allocation has been assigned to goodwill, which reflects the expected future benefits from certain synergies and intangible assets (notably pharmacy licenses)that do not qualify for separate recognition. The adjusted preliminary purchase price allocation includes acquired identifiable intangibles of $326 million primarily representing customer relationships with a weighted average life of 18 years. These amounts are provisional within the measurement period and store assets (primarily fixtures) insubject to change as our fair value assessments are finalized.

The following table summarizes the second quarterpreliminary recording 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 valuethe assets acquired and liabilities assumed for this acquisition as of the intangible assets is considered a Level 3acquisition date.

During the first nine months of 2019, we also completed other smaller acquisitions in our European Pharmaceutical Solutions segment and Other. Financial results for our business acquisitions have been included in our condensed consolidated financial statements since their respective acquisition dates. Purchase prices for our business acquisitions have been allocated based on estimated fair value measurement due tovalues at the significancedate of unobservable inputs developed using company specific information.

On September 29,January 2, 2018, we completed our acquisition of RxCrossroads for the net purchase consideration of $720 million, which was funded from cash on hand. The financial results of RxCrossroads have been included in the condensed consolidated statements of operations within our U.S. Pharmaceutical and Specialty Solutions segment since the acquisition date.

Our investment in the joint venture is accounted for using the equity method of accounting with a one-month reporting lag. We recorded our proportionate share of loss from Change Healthcare of $50 million ($45and $162 million after-tax) duringfor the third quarter and first nine months of 2018 primarily representing employee severance2019, and lease exit costs.

In connection with the fourth quartertransaction, McKesson, Change Healthcare and certain shareholders of 2016, we committed toChange entered into various ancillary agreements, including transition services agreements (“TSA”), a restructuring plan to lower our operating costs (the “Cost Alignment Plan”transaction and advisory fee agreement (“Advisory Agreement”). The Cost Alignment Plan primarily consists and certain other commercial agreements. Fees incurred or earned from Advisory Agreement were not material for the third quarters and first nine months of a reduction in workforce,2019 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 distribution2018. Fees incurred or earned from TSA were $12 million 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$48 million since the inception of this plan throughfor the third quarter and first nine months of 2019 and $22 million and $69 million for the third quarter and first nine months of 2018. The remaining chargesTransition service fees are included within operating expenses in our condensed consolidated statements of operations.

Enterprise Information Solutions

Equity Investment

During the third quartersquarter and first nine months of 2019, income tax expense related to continuing operations was $123 million and $245 million and included net discrete tax benefits of $31 million and $138 million. During the third quarter and first nine months of 2018, and 2017, income tax benefit related to continuing operations was $263 million and income tax expense was $131$46 million related to continuing operations and included net discrete tax benefits of $424 million and $12 million. During the first nine months of 2018 and 2017, income tax benefit was $46 million and tax expense was $570 million related to continuing operations and included net discrete tax benefits of $420 million and $69 million.

Our discrete tax benefits for the third quarter of 2019 included $58 million of tax benefits primarily related to a change in a tax method for inventory rebates approved by the tax authorities during the quarter, partially offset by $27 million of tax expense related to the impact of the 2017 Tax Act. Our discrete tax benefits for the third quarter of 2018 included a provisional $370 million related to the impact of the 2017 Tax Act further described below, and other discrete tax benefits of $54 million primarily related to the conclusion of certain tax audits. Our discrete tax benefits for

During the first nine months of 2017 included $47 million related to2019, no tax benefit was recognized for the adoption of the amended accounting guidance on employee share-based compensation.

As of December 31, 2018, we had an unfavorable impact on our$1,010 million of unrecognized tax benefits, of which $843 million would reduce income tax expense and the effective tax rate, in 2018 given that this charge wasif recognized. During the third quarter and first nine months of 2019, we recognized a discrete tax expense of $17 million and a discrete tax benefit of $6 million for unrecognized tax benefits due to the issuance of new proposed tax regulations and the completion of our accounting for the impacts of the 2017 Tax Act. During the next twelve months, we do not tax deductible.

On December 22, 2017, the U.S. government enacted the 2017 Tax Act, which was comprehensive new tax legislation referred to aslegislation. The SEC Staff issued guidance on income tax accounting for the 2017 Tax Act. TheAct on December 22, 2017, Tax Act makes broad and complex changeswhich allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In accordance with this guidance, we recognized a tax benefit of $1,324 million in prior periods due to the U.S. tax code that affect our fiscal year 2018, including but not limitedre-measurement of certain deferred taxes to (1) reducing the lower U.S. federal corporate tax rate from 35 percentrate. During the third quarter and first nine months of 2019, we have not made any measurement period adjustments to 21 percent; and (2) requiring companies to pay athis amount. We recognized tax expense of $457 million in prior periods for the one-time transition tax on certain unrepatriatedaccumulated earnings and profits of our foreign subsidiaries resulting from the 2017 Tax Act. During the third quarter and first nine months of 2019, we recognized a discrete tax expense of $10 million and a discrete tax benefit of $5 million in measurement period adjustments to the one-time transition tax on certain accumulated earnings and profits of our foreign subsidiaries.

Our redeemable noncontrolling interests relate to our consolidated subsidiary, McKesson Europe.Europe AG (“McKesson Europe”). Under the December 2014 domination and profit and loss transfer agreement (the “Domination Agreement”), the noncontrolling shareholders of McKesson Europe are entitled to receive an annual recurring compensation amount of €0.83 per share and a one-time guaranteed dividend for calendar year 2014 of €0.83 per share reduced accordingly for any dividend paid by McKesson Europe in relation to that year. As a result, we recorded a total attribution of net income to the noncontrolling shareholders of McKesson Europe of $11 million and $34 million during the third quarter and first nine months of 2019, and $12 million and $32 million during the third quarter and first nine months of 2018. All amounts were recorded in our condensed consolidated statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the corresponding liability balance was recorded within other accrued liabilities on our condensed consolidated balance sheets.

Under the Domination Agreement, the noncontrolling shareholders of McKesson Europe have a right to put (“Put Right”) their noncontrolling shares at €22.99 per share increased annually for interest in the amount of 5 percentage points above a base rate published by the German Bundesbank semi-annually, less any compensation amount or guaranteed dividend already paid by McKesson with respect to the relevant time period (“Put Amount”). The exercise of the Put Right will reduce the balance of redeemable noncontrolling interests. During the third quarter and first nine months of 2018,2019, there were no material exercises of the Put Right. During the first nine months of 2018, we paid $50 million to purchase 1.9 million shares of McKesson Europe through the exercises of the Put Right by the noncontrolling shareholders, which decreased the carrying value of redeemable noncontrolling interests by $53 million. The balance of redeemable noncontrolling interests is reported as the greater of its carrying value or its maximum redemption value at each reporting date. The redemption value is the Put Amount adjusted each period for exchange rate fluctuations each period.fluctuations. At December 31, 20172018 and March 31, 2017,2018, the carrying value of redeemable noncontrolling interests of $1.44$1.40 billion and $1.33$1.46 billion exceeded the maximum redemption value of $1.31$1.26 billion and $1.21$1.35 billion. At December 31, 20172018 and March 31, 2017,2018, we owned approximately 77% and 76% of McKesson Europe’s outstanding common shares.

UnderSubsequent to the Domination Agreement, theAgreement’s registration, certain noncontrolling shareholders of McKesson Europe are entitledinitiated appraisal proceedings (“Appraisal Proceedings”) with the Stuttgart Regional Court (the “Court”) to receive anchallenge the adequacy of the Put Amount, annual recurring compensation amount, and/or the guaranteed dividend. During the pendency of €0.83 per share. As a result, we recorded a total attributionthe Appraisal Proceedings, such amount will be paid as specified currently in the Domination Agreement. On September 19, 2018, the Court ruled that the Put Amount shall be increased by €0.51 resulting in an adjusted Put Amount of net income to€23.50. The annual recurring compensation amount and/or the noncontrollingguaranteed dividend remain unadjusted. Noncontrolling shareholders of McKesson Europe appealed this decision. McKesson Europe also appealed the decision. If upon final resolution of $12 million and $32 million during the third quarter and first nine months of 2018 and $10 million and $33 million duringappeal an upwards adjustment is ordered, we would be required to make certain additional payments for any shortfall to all McKesson Europe noncontrolling shareholders who previously received amounts under the third quarter and first nine months of 2017. All amounts were recorded in our condensed consolidated statements of operations within the caption, “Net Income Attributable to Noncontrolling Interests,” and the corresponding liability balance was recorded within other accrued liabilities on our condensed consolidated balance sheets.Domination Agreement.

Changes in redeemable noncontrolling interests and noncontrolling interests for the first nine months of 2018 were as follows:

Our long-term debt includes both U.S. dollar and foreign currency (primarily Euro and British pound sterling) denominated borrowings. At December 31, 20172018 and March 31, 2017, $8,0452018, $8,736 million and $8,362$7,880 million of total long-term debt were outstanding, of which $531$1,120 million and $1,057$1,129 million were included under the caption “Current portion of long-term debt” within theour condensed consolidated balance sheets.

We have a syndicated $3.5 billion five-year senior unsecured revolving credit facility (the “Global Facility”), which has a $3.15 billion aggregate sublimit of availability in Canadian dollars, British pound sterling and Euros. The Global Facility matures on October 22, 2020. Borrowings under the Global Facility bear interest based upon the London Interbank Offered Rate, Canadian Dealer Offered Rate for credit extensions denominated in Canadian Dollars, a prime rate, or alternative overnight rates as applicable, plus agreed margins. The Global Facility contains a financial covenant which obligates the Company to maintain a debt to capital ratio of no greater than 65% and other customary investment grade covenants. If we do not comply with these covenants, our ability to use the Global Facility may be suspended and repayment of any outstanding balances under the Global Facility may be required. At December 31, 2017,2018, we were in compliance with all covenants. There were no borrowings under this facility during the third quarters and first nine months of 20182019 and 2017,2018, and no borrowings outstanding as of December 31, 20172018 and March 31, 2017.2018.

We also maintain bilateral credit lines primarily denominated in Euros with a total committed balance of $9 million and an uncommitted balance of $314 million.$198 million as of December 31, 2018. Borrowings and repayments were not material during the first nine months of 2019 and 2018 and 2017. As of December 31, 2017 and March 31, 2017, amounts outstanding under these credit lines were not material.material as of December 31, 2018 and March 31, 2018.

We maintain a commercial paper program to support our working capital requirements and for other general corporate purposes. Under the program, wethe Company can issue up to $3.5 billion in outstanding notes. During the first nine months of 2019 and 2018, we borrowed $12,699 million$30.4 billion and $12.7 billion and repaid $12,133 million$29.3 billion and $12.1 billion under the program. During the first nine months of 2017,At December 31, 2018, there were no material commercial paper issuances. As$1.1 billion of December 31, 2017 and March 31, 2017, we had $749 million and $183 million commercial paper notes outstanding with a weighted average interest rate of 2.07% and 1.20%3.20%. At March 31, 2018, there were no commercial paper notes outstanding.

In the normal course of business, we are exposed to interest rate and foreign currency exchange rate fluctuations. At times, we limit these risks through the use of derivatives such as interest rate swaps, cross currencycross-currency swaps and foreign currency forward contracts. In accordance with our policy, derivatives are only used for hedging purposes. We do not use derivatives for trading or speculative purposes.

We conduct our business internationallyworldwide in U.S. dollars and the functional currencies of our foreign subsidiaries, including Euro, British pound sterling and Canadian dollars. Changes in foreign currency exchange rates could have a material adverse impact on our financial results thatwhich are reported in U.S. dollars. We are also exposed to foreign currency exchange rate risk related to our foreign subsidiaries, including intercompany loans denominated in non-functional currencies. We have certain foreign currency exchange rate risk programs that use foreign currency forward contracts and cross currencycross-currency swaps. These forward contracts and cross currencycross-currency swaps are generally used to offset the potential income statement effects on the statements of operations from intercompany loansobligations denominated in non-functional currencies. These programs reduce but do not entirely eliminate foreign currency exchange rate risk.