Restructuring and Related Implementation Charges

In the fourth quarter of 2012, the Company commenced a restructuring program (the “Global Growth and Efficiency Program”) for sustained growth. The program was expanded in 2014 and expanded and extended in 2015. Building on the Company’s successful implementation of the program, on October 26, 2017, the Board approved an expansion of the Global Growth and Efficiency Program and an extension of the program through December 31, 2019 to take advantage of additional opportunities to streamline the Company’s operations.

Initiatives under the Global Growth and Efficiency Program continue to fit within the program’s three focus areas of expanding commercial hubs, extending shared business services and streamlining global functions and optimizing the global supply chain and facilities.

Including the most recent expansion, cumulative pretax charges resulting from the Global Growth and Efficiency Program, once all phases are approved and implemented, are estimated to be in the range of $1,730 to $1,885 ($1,280 to $1,380 aftertax). The Company anticipates that pretax charges for 2018 will approximate $100 to $175 ($75 to $125 aftertax). It is expected that substantially all charges resulting from the Global Growth and Efficiency Program will be incurred by December 31, 2019.

The pretax charges resulting from the Global Growth and Efficiency Program are currently estimated to be comprised of the following categories: Employee-Related Costs, including severance, pension and other termination benefits (50%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (10%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (20%) and the implementation of new strategies (20%). Over the course of the Global Growth and Efficiency Program, it is currently estimated that approximately 80% of the charges will result in cash expenditures.

The Company expects that the cumulative pretax charges, once all projects are approved and implemented, will relate to initiatives undertaken in North America (15%), Latin America (5%), Europe (20%), Asia Pacific (5%), Africa/Eurasia (5%), Hill’s Pet Nutrition (10%) and Corporate (40%), which includes substantially all of the costs related to the implementation of new strategies, noted above, on a global basis. The Company expects that, when it has been fully implemented, the Global Growth and Efficiency Program will have contributed a net reduction of approximately 3,800 to 4,400 positions from the Company’s global employee workforce.

For the three months ended March 31, 2018 and 2017, restructuring and related implementation charges are reflected in the Condensed Consolidated Statements of Income as follows:



	Three Months Ended
	March 31,
	2018		2017
Cost of sales	$	6	$	14
Selling, general and administrative expenses	5		21
Other (income) expense, net	13		10
Non-service related postretirement costs	4		1
Total Global Growth and Efficiency Program charges, pretax	$	28	$	46

Total Global Growth and Efficiency Program charges, aftertax	$	20	$	31

Restructuring and related implementation charges in the preceding table are recorded in the Corporate segment as these initiatives are predominantly centrally directed and controlled and are not included in internal measures of segment operating performance.

Total charges incurred for the Global Growth and Efficiency Program relate to initiatives undertaken by the following reportable operating segments:



	Three Months Ended				Program-to-date
	March 31,				Accumulated Charges
	2018		2017
North America	37	%	37	%	19	%
Latin America	12	%	6	%	4	%
Europe	2	%	2	%	21	%
Asia Pacific	18	%	2	%	3	%
Africa/Eurasia	2	%	4	%	6	%
Hill’s Pet Nutrition	19	%	7	%	7	%
Corporate	10	%	42	%	40	%
Total	100	%	100	%	100	%

Since the inception of the Global Growth and Efficiency Program in the fourth quarter of 2012, the Company has incurred cumulative pretax charges of $1,589 ($1,173 aftertax) in connection with the implementation of various projects as follows:



	Cumulative Charges
	as of March 31, 2018
Employee-Related Costs	$	646
Incremental Depreciation	91
Asset Impairments	36
Other	816
Total	$	1,589

The majority of costs incurred since inception relate to the following projects: the implementation of the Company’s overall hubbing strategy; the extension of shared business services and streamlining of global functions; the consolidation of facilities; the closing of the Morristown, New Jersey personal care facility; the simplification and streamlining of the Company’s research and development capabilities and oral care supply chain, both in Europe; redesigning the European commercial organization; restructuring how the Company will provide future retirement benefits to substantially all of the U.S.-based employees participating in the Company’s defined benefit retirement plan by shifting them to the Company’s defined contribution plan; and the implementation of a Corporate efficiencies program.

The following table summarizes the activity for the restructuring and related implementation charges discussed above and the related accruals:



	Three Months Ended March 31, 2018
	Employee-Related Costs			Incremental Depreciation			Asset Impairments		Other			Total
Balance at December 31, 2017	$	127		$	—		$	—	$	107		$	234
Charges	18			1			—		9			28
Cash payments	(39		)	—			—		(16		)	(55		)
Charges against assets	(4		)	(1		)	—		—			(5		)
Foreign exchange	2			—			—		—			2
Balance at March 31, 2018	$	104		$	—		$	—	$	100		$	204

Employee-Related Costs primarily include severance and other termination benefits and are calculated based on long-standing benefit practices, local statutory requirements and, in certain cases, voluntary termination arrangements. Employee-Related Costs also include pension and other retiree benefit enhancements amounting to $4 for the three months ended March 31, 2018, which are reflected as Charges against assets within Employee-Related Costs in the preceding table as the corresponding balance sheet amounts are reflected as a reduction of pension assets or an increase in pension and other retiree benefit liabilities. See Note 10, Retirement Plans and Other Retiree Benefits for additional information.

Incremental Depreciation is recorded to reflect changes in useful lives and estimated residual values for long-lived assets that will be taken out of service prior to the end of their normal service period. Asset Impairments are recorded to write down assets held for sale or disposal to their fair value based on amounts expected to be realized. Charges against assets within Asset Impairments are net of cash proceeds pertaining to the sale of certain assets.

Other charges consist primarily of charges resulting directly from exit activities and the implementation of new strategies as a result of the Global Growth and Efficiency Program. These charges for the three months ended March 31, 2018 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $8 and contract termination costs and charges resulting directly from exit activities of $1. These charges were expensed as incurred.