BUSINESS REALIGNMENT ACTIVITIES

12 Months Ended

Dec. 31, 2019

Restructuring and Related Activities [Abstract]

BUSINESS REALIGNMENT ACTIVITIES

We periodically undertake business realignment activities designed to increase our efficiency and focus our business in support of our key growth strategies. Costs associated with business realignment activities are classified in our Consolidated Statements of Income as follows:



For the years ended December 31,	2019		2018		2017
Cost of sales	$	—	$	11,323	$	5,147
Selling, marketing and administrative expense	1,126		21,401		16,449
Business realignment costs	8,112		19,103		47,763
Costs associated with business realignment activities	$	9,238	$	51,827	$	69,359

Costs recorded by program in 2019, 2018 and 2017 related to these activities were as follows:



For the years ended December 31,	2019		2018			2017
Margin for Growth Program:
Severance	$	5,178	$	15,378		$	32,554
Accelerated depreciation	—		9,131			6,873
Other program costs	4,060		30,940			16,407
Operational Optimization Program:
Severance	—		—			13,828
Gain on sale of facilities	—		(6,562		)	—
Other program costs	—		2,940			(303		)
Total	$	9,238	$	51,827		$	69,359

The following table presents the liability activity for costs qualifying as exit and disposal costs for the year ended December 31, 2019:



	Total
Liability balance at December 31, 2018	$	14,605
2019 business realignment charges (1)	9,239
Cash payments	(14,726		)
Liability balance at December 31, 2019 (reported within accrued liabilities)	$	9,118


(1)	The costs reflected in the liability roll-forward represent employee-related and certain third-party service provider charges.

The costs and related benefits of the Margin for Growth Program relate approximately 63% to the North America segment and 37% to the International and Other segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs.

Margin for Growth Program

In the first quarter 2017, the Company's Board of Directors ("Board") unanimously approved several initiatives under a single program designed to drive continued net sales, operating income and earnings per-share diluted growth over the next several years. This program is focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings.

We originally estimated that the Margin for Growth Program would result in total pre-tax charges of $375,000 to $425,000, to be incurred from 2017 to 2019. The majority of the initiatives relating to the program have been executed, with the final initiatives to be completed over the next several months. To date, we have incurred pre-tax charges to execute the program totaling $345,534. This includes long-lived asset impairment charges of $208,712 related to the operations supporting our China business in 2017, as well as the $16,300 incremental impairment charge resulting from the sale of SGM. In addition to the impairment charges, we have incurred employee separation costs of $53,110 and other business realignment costs of $67,412. We expect the remaining spending on this program to be minimal and completed in the first half of 2020. The cash portion of the total program charges is estimated to be $106,000. The Company reduced its global workforce by approximately 15% as a result of this program, with a majority of the reductions coming from hourly headcount positions outside of the United States.

For the years end ended December 31, 2019, 2018 and 2017, we recognized total costs associated with the Margin for Growth Program of $9,238, $55,449, and $55,834 respectively. These charges include employee severance, largely relating to initiatives to improve the cost structure of our China business and to further streamline our corporate operating model, as well as non-cash, asset-related incremental depreciation expense as part of optimizing the global

supply chain. In addition, we incurred other program costs, which relate primarily to third-party charges in support of our initiative to improve global efficiency and effectiveness.

The program included an initiative to optimize the manufacturing operations supporting our China business. When the program was approved in 2017, we deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded impairment charges totaling $208,712, with $105,992 representing the portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition and $102,720 representing the portion of the impairment loss that was allocated to property, plant and equipment. These impairment charges are recorded in the long-lived asset impairment charges caption within the Consolidated Statements of Income.

2016 Operational Optimization Program

In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our production and supply chain network, which included select facility consolidations. The program encompassed the transition of our China chocolate and SGM operations into a united Golden Hershey platform, including the integration of the China sales force, as well as workforce planning efforts and the consolidation of production within certain facilities in China and North America.

During 2018, we incurred pre-tax costs totaling $2,940, relating primarily to third-party charges in support of our initiative to optimize our production and supply chain network. In addition, we completed the sale of select China facilities in 2018 that had been taken out of service in connection with the Operational Optimization Program resulting in a gain of $6,562. During 2017 we incurred pre-tax costs totaling $13,525 relating primarily to employee related costs, costs to consolidate and relocate production, and third party costs incurred to execute these activities. This program was completed in 2018.