Restructuring and Related Implementation Charges

In the fourth quarter of 2012, the Company commenced a restructuring program (the “Global Growth and Efficiency Program”). The program was expanded in 2014 and expanded and extended in each of 2015 and 2017. The program runs through December 31, 2019.

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 $1,820 to $1,870 ($1,350 to $1,380 aftertax). The Company anticipates that pretax charges for 2019 will approximate $100 to $150 ($70 to $100 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 (45%); asset-related costs, primarily Incremental Depreciation and Asset Impairments (5%); and Other charges, which include contract termination costs, consisting primarily of related implementation charges resulting directly from exit activities (30%) 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%), Europe (20%), Latin America (5%), 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 4,000 to 4,400 positions from the Company’s global employee workforce.

For the years ended December 31, 2018, 2017 and 2016, restructuring and related implementation charges are reflected in the Consolidated Statements of Income as follows:



	2018		2017		2016
Cost of sales	$	31	$	75	$	46
Selling, general and administrative expenses	33		86		77
Other (income) expense, net	88		152		93
Non-service related postretirement costs	9		20		12
Total Global Growth and Efficiency Program charges, pretax	$	161	$	333	$	228

Total Global Growth and Efficiency Program charges, aftertax	$	125	$	246	$	168

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:



							Program-to-date
	2018		2017		2016		Accumulated Charges
North America	18	%	23	%	35	%	18	%
Latin America	10	%	2	%	5	%	4	%
Europe	(2	)%	21	%	12	%	20	%
Asia Pacific	13	%	5	%	4	%	4	%
Africa/Eurasia	5	%	3	%	14	%	6	%
Hill’s Pet Nutrition	19	%	6	%	7	%	8	%
Corporate	37	%	40	%	23	%	40	%
Total	100	%	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 $1,722 ($1,278 aftertax) in connection with the implementation of various projects as follows:



	Cumulative Charges
	as of December 31, 2018
Employee-Related Costs	$	681
Incremental Depreciation	92
Asset Impairments	52
Other	897
Total	$	1,722

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, in the respective periods, discussed above and the related accruals:



	Employee-Related Costs			Incremental Depreciation			Asset Impairments			Other			Total
Balance at January 1, 2016	$	84		$	—		$	—		$	131		$	215
Charges	61			9			20			138			228
Cash payments	(84		)	—			—			(153		)	(237		)
Charges against assets	(4		)	(9		)	(20		)	—			(33		)
Foreign exchange	(1		)	—			—			—			(1		)
Other	—			—			—			9			9
Balance at December 31, 2016	$	56		$	—		$	—		$	125		$	181
Charges	163			10			9			151			333
Cash payments	(74		)	—			—			(170		)	(244		)
Charges against assets	(21		)	(10		)	(9		)	—			(40		)
Foreign exchange	3			—			—			1			4
Other	—			—			—			—			—
Balance at December 31, 2017	$	127		$	—		$	—		$	107		$	234
Charges	53			2			16			90			161
Cash payments	(107		)	—			—			(60		)	(167		)
Charges against assets	(9		)	(2		)	(16		)	—			(27		)
Foreign exchange	(4		)	—			—			—			(4		)
Other	—			—			—			5			5
Balance at December 31, 2018	$	60		$	—		$	—		$	142		$	202

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 $9, $21 and $4 for the years ended December 31, 2018, 2017 and 2016, respectively, 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 inventories and 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 years ended December 31, 2018, 2017 and 2016 include third-party incremental costs related to the development and implementation of new business and strategic initiatives of $42, $145 and $116, respectively, and contract termination costs and charges resulting directly from exit activities of $48, $6 and $21, respectively. These charges were expensed as incurred. Also included in Other charges for the years ended December 31, 2018, 2017 and 2016 are other exit costs of $0, $0 and $1, respectively, related to the consolidation of facilities.