Restructuring

12 Months Ended

Dec. 31, 2019

Restructuring and Related Activities [Abstract]

In early 2019, Merck approved a new global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the Company’s manufacturing and supply network, as well as reducing its global real estate footprint. This program is a continuation of the Company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of NewCo. As the Company continues to evaluate its global footprint and overall operating model, it has subsequently identified additional actions under the Restructuring Program, and could identify further actions over time. The actions currently contemplated under the Restructuring Program are expected to be substantially completed by the end of 2023, with the cumulative pretax costs to be incurred by the Company to implement the program now estimated to be approximately $2.5 billion. The Company estimates that approximately 60% of the cumulative pretax costs will result in cash outlays, primarily related to employee separation expense and facility shut-down costs. Approximately 40% of the cumulative pretax costs will be non-cash, relating primarily to the accelerated depreciation of facilities to be closed or divested. The Company expects to record charges of approximately $800 million in 2020 related to the Restructuring Program. Actions under previous global restructuring programs have been substantially completed.

The Company recorded total pretax costs of $927 million in 2019, $658 million in 2018 and $927 million in 2017 related to restructuring program activities. 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, 2019
Cost of sales	$	—	$	198		$	53	$	251
Selling, general and administrative	—		33			1		34
Research and development	—		2			2		4
Restructuring costs	572		—			66		638
	$	572	$	233		$	122	$	927
Year Ended December 31, 2018
Cost of sales	$	—	$	10		$	11	$	21
Selling, general and administrative	—		2			1		3
Research and development	—		(13		)	15		2
Restructuring costs	473		—			159		632
	$	473	$	(1	)	$	186	$	658
Year Ended December 31, 2017
Cost of sales	$	—	$	52		$	86	$	138
Selling, general and administrative	—		2			—		2
Research and development	—		6			5		11
Restructuring costs	552		—			224		776
	$	552	$	60		$	315	$	927

Separation costs are associated with actual headcount reductions, as well as those headcount reductions which were probable and could be reasonably estimated.

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 the sites have and will continue to operate up through the respective closure dates and, since future undiscounted cash flows are 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 2019, 2018 and 2017 includes asset abandonment, facility shut-down and other related costs, as well as pretax gains and losses resulting from the sales of facilities and related assets. Additionally, other activity includes certain employee-related costs associated with pension and other postretirement benefit plans (see Note 13) and share-based compensation.

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



	Separation Costs			Accelerated Depreciation			Other			Total
Restructuring reserves January 1, 2018	$	619		$	—		$	128		$	747
Expenses	473			(1		)	186			658
(Payments) receipts, net	(649		)	—			(238		)	(887		)
Non-cash activity	—			1			15			16
Restructuring reserves December 31, 2018	443			—			91			534
Expenses	572			233			122			927
(Payments) receipts, net	(325		)	—			(136		)	(461		)
Non-cash activity	—			(233		)	(8		)	(241		)
Restructuring reserves December 31, 2019 ⁽¹⁾	$	690		$	—		$	69		$	759

⁽¹⁾

The remaining cash outlays are expected to be substantially completed by the end of 2023.