BUSINESS REALIGNMENT ACTIVITIES

9 Months Ended

Sep. 29, 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:



	Three Months Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Cost of sales	$	—	$	4,565	$	—	$	14,101
Selling, marketing and administrative expense	466		5,198		1,126		17,705
Business realignment costs	1,140		1,660		7,342		10,864
Costs associated with business realignment activities	$	1,606	$	11,423	$	8,468	$	42,670

Costs recorded by program during the three and nine months ended September 29, 2019 and September 30, 2018 were as follows:



	Three Months Ended					Nine Months Ended
	September 29, 2019		September 30, 2018			September 29, 2019		September 30, 2018
Margin for Growth Program:
Severance	$	—	$	5,573		$	5,823	$	12,635
Accelerated depreciation	—		4,786			—		12,030
Other program costs	1,606		6,549			2,645		21,754
Operational Optimization Program:
Gain on sale of facilities	—		(6,562		)	—		(6,562		)
Other program costs	—		1,077			—		2,813
Total	$	1,606	$	11,423		$	8,468	$	42,670

The following table presents the liability activity for costs qualifying as exit and disposal costs for the nine months ended September 29, 2019:



	Total
Liability balance at December 31, 2018	$	14,605
2019 business realignment charges (1)	8,468
Cash payments	(12,012		)
Liability balance at September 30, 2019 (reported within accrued liabilities)	$	11,061


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

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 $344,763. 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 $53,755 and other business realignment costs of $65,996. We expect the remaining spending on this program to be minimal in 2019. The cash portion of the total program charges is estimated to be $103,000. 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 three and nine months ended September 29, 2019, we recognized total costs associated with the Margin for Growth Program of $1,606 and $8,468, respectively. For the three and nine months ended September 30, 2018, we recognized total costs associated with the Margin for Growth Program of $16,908 and $46,419, 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 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.

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. For the three and nine months ended September 30, 2018, we incurred pre-tax costs totaling $1,077 and $2,813, respectively, 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 that had been taken out of service in connection with the 2016 Operational Optimization Program. The sale resulted in a gain of $6,562 for the three and nine months ended September 30, 2018. This program was completed in 2018.