Restructuring

The Company incurs substantial costs for restructuring program activities related to Merck’s productivity and cost reduction initiatives, as well as in connection with the integration of certain acquired businesses. In 2010 and 2013, the Company commenced actions under global restructuring programs designed to streamline its cost structure. The actions under these programs include the elimination of positions in sales, administrative and headquarters organizations, as well as the sale or closure of certain manufacturing and research and development sites and the consolidation of office facilities. The Company also continues to reduce its global real estate footprint and improve the efficiency of its manufacturing and supply network. The non-facility related restructuring actions under these programs are substantially complete; the remaining activities primarily relate to ongoing facility rationalizations.

The Company recorded total pretax costs of $210 million and $351 million in the second quarter of 2017 and 2016, respectively, and $425 million and $547 million for the first six months of 2017 and 2016, respectively, related to restructuring program activities. Since inception of the programs through June 30, 2017, Merck has recorded total pretax accumulated costs of approximately $13.0 billion and eliminated approximately 41,920 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The Company expects to substantially complete the remaining actions under these programs by the end of 2017 and incur approximately $300 million of additional pretax costs. The Company estimates that approximately two-thirds of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense. Approximately one-third of the cumulative pretax costs are non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested.

For segment reporting, restructuring charges are unallocated expenses.

The following tables summarize the charges related to restructuring program activities by type of cost:



	Three Months Ended June 30, 2017									Six Months Ended June 30, 2017
($ in millions)	Separation Costs		Accelerated Depreciation			Other		Total		Separation Costs		Accelerated Depreciation		Other		Total
Materials and production	$	—	$	(4	)	$	37	$	33	$	—	$	47	$	49	$	96
Marketing and administrative	—		2			—		2		—		2		1		3
Research and development	—		8			1		9		—		6		3		9
Restructuring costs	118		—			48		166		202		—		115		317
	$	118	$	6		$	86	$	210	$	202	$	55	$	168	$	425



	Three Months Ended June 30, 2016								Six Months Ended June 30, 2016
($ in millions)	Separation Costs		Accelerated Depreciation		Other		Total		Separation Costs		Accelerated Depreciation		Other		Total
Materials and production	$	—	$	29	$	37	$	66	$	—	$	51	$	62	$	113
Marketing and administrative	—		4		83		87		—		7		83		90
Research and development	—		64		—		64		—		119		—		119
Restructuring costs	85		—		49		134		111		—		114		225
	$	85	$	97	$	169	$	351	$	111	$	177	$	259	$	547

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated. In the second quarter of 2017 and 2016, approximately 475 positions and 585 positions, respectively, and for the first six months of 2017 and 2016, approximately 1,020 positions and 1,055 positions, respectively, were eliminated under restructuring program activities.

Accelerated depreciation costs primarily relate to manufacturing, research and administrative facilities and equipment to be sold or closed as part of the programs. Accelerated depreciation costs represent the difference between the depreciation expense to be recognized over the revised useful life of the asset, based upon the anticipated date the site will be closed or divested or the equipment disposed of, and depreciation expense as determined utilizing the useful life prior to the restructuring actions. All of the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows were sufficient to recover the respective book values, Merck is recording accelerated depreciation over the revised useful life of the site assets. Anticipated site closure dates, particularly related to manufacturing locations, have been and may continue to be adjusted to reflect changes resulting from regulatory or other factors.

Other activity in 2017 and 2016 includes asset abandonment, shut-down and other related costs, as well as pretax gains and losses resulting from sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 10) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities for the six months ended June 30, 2017:



($ in millions)	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2017	$	395		$	—		$	146		$	541
Expense	202			55			168			425
(Payments) receipts, net	(167		)	—			(234		)	(401		)
Non-cash activity	—			(55		)	50			(5		)
Restructuring reserves June 30, 2017 ⁽¹⁾	$	430		$	—		$	130		$	560


⁽¹⁾	The remaining cash outlays are expected to be substantially completed by the end of 2017.