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 Company recorded total pretax costs of $927 million in 2017, $1.1 billion in 2016 and $1.1 billion in 2015 related to restructuring program activities. Since inception of the programs through December 31, 2017, Merck has recorded total pretax accumulated costs of approximately $13.5 billion and eliminated approximately 43,350 positions comprised of employee separations, as well as the elimination of contractors and vacant positions. The Company estimates that approximately two-thirds of the cumulative pretax costs are 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. While the Company has substantially completed the actions under these programs, approximately $500 million of additional pretax costs are expected to be incurred in 2018 relating to anticipated employee separations and remaining asset-related costs.

For segment reporting, restructuring charges are unallocated expenses.

The following table summarizes the charges related to restructuring program activities by type of cost:



	Separation Costs		Accelerated Depreciation		Other		Total
Year Ended December 31, 2017
Materials and production	$	—	$	52	$	86	$	138
Marketing and administrative	—		2		—		2
Research and development	—		6		5		11
Restructuring costs	552		—		224		776
	$	552	$	60	$	315	$	927
Year Ended December 31, 2016
Materials and production	$	—	$	77	$	104	$	181
Marketing and administrative	—		8		87		95
Research and development	—		142		—		142
Restructuring costs	216		—		435		651
	$	216	$	227	$	626	$	1,069
Year Ended December 31, 2015
Materials and production	$	—	$	78	$	283	$	361
Marketing and administrative	—		59		19		78
Research and development	—		37		15		52
Restructuring costs	208		—		411		619
	$	208	$	174	$	728	$	1,110

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated. Positions eliminated under restructuring program activities were approximately 2,450 in 2017, 2,625 in 2016 and 3,770 in 2015.

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, 2016 and 2015 includes $267 million, $409 million and $550 million, respectively, of asset abandonment, shut-down and other related costs. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 14) and share-based compensation. Other activity also reflects net pretax losses resulting from sales of facilities and related assets of $6 million in 2017, $151 million in 2016 and $117 million in 2015.

The following table summarizes the charges and spending relating to restructuring program activities:



	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2016	$	592		$	—		$	53		$	645
Expenses	216			227			626			1,069
(Payments) receipts, net	(413		)	—			(347		)	(760		)
Non-cash activity	—			(227		)	(186		)	(413		)
Restructuring reserves December 31, 2016	395			—			146			541
Expenses	552			60			315			927
(Payments) receipts, net	(328		)	—			(394		)	(722		)
Non-cash activity	—			(60		)	61			1
Restructuring reserves December 31, 2017 ⁽¹⁾	$	619		$	—		$	128		$	747


⁽¹⁾	The remaining cash outlays are expected to be substantially completed by the end of 2020.