Restructuring

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 $235 million and $210 million in the second quarter of 2018 and 2017, respectively, and $339 million and $425 million for the first six months of 2018 and 2017, respectively, related to restructuring program activities. Since inception of the programs through June 30, 2018, Merck has recorded total pretax accumulated costs of approximately $13.8 billion and eliminated approximately 44,695 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 pretax costs are expected to be incurred for the full year of 2018 relating to anticipated employee separations and remaining asset-related costs.

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, 2018								Six Months Ended June 30, 2018
($ in millions)	Separation Costs		Accelerated Depreciation		Other		Total		Separation Costs		Accelerated Depreciation			Other		Total
Materials and production	$	—	$	—	$	3	$	3	$	—	$	—		$	9	$	9
Marketing and administrative	—		—		1		1		—		1			1		2
Research and development	—		—		3		3		—		(3		)	8		5
Restructuring costs	200		—		28		228		255		—			68		323
	$	200	$	—	$	35	$	235	$	255	$	(2	)	$	86	$	339



	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

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 2018 and 2017, approximately 635 positions and 475 positions, respectively, and for the first six months of 2018 and 2017, 1,345 positions and 1,020 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 2018 and 2017 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 11) and share-based compensation.

The following table summarizes the charges and spending relating to restructuring program activities for the six months ended June 30, 2018:



($ in millions)	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2018	$	619		$	—		$	128		$	747
Expense	255			(2		)	86			339
(Payments) receipts, net	(389		)	—			(116		)	(505		)
Non-cash activity	—			2			7			9
Restructuring reserves June 30, 2018 ⁽¹⁾	$	485		$	—		$	105		$	590


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