<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File No. 1-3305
MERCK & CO., INC.
P. O. Box 100
One Merck Drive
Whitehouse Station, N.J. 08889-0100
(908) 423-1000
Incorporated in New Jersey I.R.S. Employer Identification
No. 22-1109110
The number of shares of common stock outstanding as of the close of business on
July 31, 1994:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common Stock 1,260,230,586
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
<PAGE> 2
Part I - Financial Information
- - ------------------------------
<TABLE>
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994 AND 1993
--------------------------------------------------------
($ in millions except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $3,792.0 $2,573.6 $7,306.3 $4,953.3
-------- -------- -------- --------
Costs and Expenses
Materials and production 1,528.7 583.5 2,984.3 1,120.2
Marketing and administrative 726.7 732.6 1,482.6 1,424.3
Research and development 290.9 270.1 557.2 531.0
Restructuring charge - 775.0 - 775.0
Other (income) expense, net 100.2 (10.6) 124.5 (33.5)
-------- -------- -------- --------
2,646.5 2,350.6 5,148.6 3,817.0
-------- -------- -------- --------
Income Before Taxes 1,145.5 223.0 2,157.7 1,136.3
Taxes on Income 381.4 50.4 718.5 350.0
-------- -------- -------- --------
Net Income $ 764.1 $ 172.6 $1,439.2 $ 786.3
======== ======== ======== ========
Per Share of Common Stock:
Net Income $.61 $.15 $1.15 $.69
Dividends Declared $.28 $.25 $.56 $.50
Average Number of Common
Shares Outstanding (millions) 1,257.6 1,138.6 1,256.4 1,140.7
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 1 -
<PAGE> 3
<TABLE>
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1994 AND DECEMBER 31, 1993
-----------------------------------
($ in millions)
<CAPTION>
June 30 December 31
1994 1993
--------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,219.7 $ 829.4
Short-term investments 953.5 712.9
Accounts receivable 2,068.6 2,094.3
Inventories 1,555.2 1,641.7
Prepaid expenses and taxes 516.4 456.3
--------- ---------
Total Current Assets 6,313.4 5,734.6
--------- ---------
Investments 1,595.5 1,779.9
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$2,405.8 in 1994 and $2,278.2 in 1993 5,081.2 4,894.6
Goodwill and Other Intangibles,
net of accumulated amortization of
$184.4 in 1994 and $97.2 in 1993 6,720.9 6,645.5
Other Assets 995.9 872.9
--------- ---------
$20,706.9 $19,927.5
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 2,237.5 $ 2,378.3
Loans payable 1,510.4 1,736.0
Income taxes payable 1,585.1 1,430.4
Dividends payable 352.5 351.0
--------- ---------
Total Current Liabilities 5,685.5 5,895.7
--------- ---------
Long-Term Debt 1,017.4 1,120.8
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 1,888.4 1,744.9
--------- ---------
Minority Interests 1,246.0 1,144.4
--------- ---------
Stockholders' Equity
Common stock
Authorized - 2,700,000,000 shares
Issued - 1,481,190,011 shares - 1994
- 1,480,611,247 shares - 1993 4,572.1 4,576.5
Retained earnings 10,160.2 9,393.2
--------- ---------
14,732.3 13,969.7
Less treasury stock, at cost
221,783,234 shares - 1994
226,676,597 shares - 1993 3,862.7 3,948.0
--------- ---------
Total Stockholders' Equity 10,869.6 10,021.7
--------- ---------
$20,706.9 $19,927.5
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 2 -
<PAGE> 4
<TABLE>
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994 AND 1993
--------------------------------------------
($ in millions)
<CAPTION>
Six Months
Ended June 30
-------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,439.2 $ 786.3
Restructuring charge - 775.0
Adjustments to net income 411.7 (218.0)
Net changes in assets and liabilities (36.1) (212.3)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,814.8 1,131.0
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (456.4) (469.0)
Purchase of securities, subsidiaries and other investments (7,504.8) (4,176.9)
Proceeds from sale of securities and other investments 7,486.0 4,021.7
Other (27.9) (2.3)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (503.1) (626.5)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings (230.8) 514.5
Proceeds from issuance of debt 10.3 99.7
Payments on debt (83.1) (12.5)
Purchase of treasury stock - (320.1)
Dividends paid to stockholders (702.6) (571.8)
Other 20.3 26.2
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (985.9) (264.0)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 64.5 32.2
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 390.3 272.7
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 829.4 575.1
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,219.7 $ 847.8
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Notes to Financial Statements
-----------------------------
1. The accompanying unaudited interim financial statements have
been prepared pursuant to the rules and regulations for
reporting on Form 10-Q. Accordingly, certain information and
footnotes required by generally accepted accounting principles
for complete financial statements are not included herein.
The interim statements should be read in conjunction with the
financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in
connection with the annual audit of the Company's accounts for
the full year 1994; in the Company's opinion, all adjustments
necessary for a fair presentation of these interim statements
have been included and are of a normal and recurring nature.
- 3 -
<PAGE> 5
Notes to Financial Statements (continued)
- - -----------------------------
2. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
-----------------------------
June 30 December 31
1994 1993
-------- -----------
<S> <C> <C>
Finished goods $ 902.5 $1,024.4
Raw materials and work in process 596.3 570.6
Supplies 74.9 65.8
-------- --------
Total (approximates current cost) 1,573.7 1,660.8
Reduction to LIFO cost 18.5 19.1
-------- --------
$1,555.2 $1,641.7
======== ========
</TABLE>
3. Effective January 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires certain investments to
be recorded at fair value or amortized cost. In
accordance with this Statement, the Company has classified
its investments as available-for-sale and
held-to-maturity. Available-for-sale investments are
carried at fair value with unrealized gains and losses
recorded, net of tax and minority interest, in Stockholders' Equity
and held-to-maturity investments are carried at amortized
cost. Prior to 1994, the Company's investments were
carried at the lower of cost or market. At January 1,
1994, the net unrealized gain associated with
available-for-sale investments of $37.5 million, net of
tax and minority interest, was included in Retained earnings. The net
unrealized gain included in Retained earnings at June 30,
1994, amounted to $31.8 million, net of tax and minority interest.
4. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
-----------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
---------------------- ----------------------
1994* 1993 1994* 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Human and Animal Health Products
and Services:
Cardiovasculars $1,301.9 $1,181.1 $2,535.6 $2,290.3
Anti-ulcerants 448.7 335.3 827.4 627.7
Antibiotics 215.5 227.4 401.3 433.4
Vaccines/biologicals 114.4 126.7 218.0 253.2
Ophthalmologicals 119.5 114.6 216.8 216.6
Anti-inflammatories/analgesics 72.3 80.9 128.6 166.9
Other Merck human health 134.5 118.9 236.7 220.5
Other human health 1,034.7 - 2,043.2 -
Animal health/crop protection 247.5 232.1 496.4 436.3
-------- -------- -------- --------
3,689.0 2,417.0 7,104.0 4,644.9
Specialty Chemical Products 103.0 156.6 202.3 308.4
-------- -------- -------- --------
$3,792.0 $2,573.6 $7,306.3 $4,953.3
======== ======== ======== ========
</TABLE>
*Sales by therapeutic class include Medco and West Point
Pharma (Merck's generic pharmaceutical division) sales of
Merck products. Medco and West Point Pharma sales of
non-Merck products and Medco services are included in
Other human health.
- 4 -
<PAGE> 6
Notes to Financial Statements (continued)
- - -----------------------------
5. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
-------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
1994 1993 1994 1993
------- ------ ------- ------
<S> <C> <C> <C> <C>
Interest income $ (38.8) $(33.5) $ (74.0) $(68.2)
Interest expense 35.0 21.8 65.9 41.3
Exchange losses 15.8 11.6 33.0 25.6
Minority interests 40.9 12.0 53.5 18.3
Amortization of goodwill
& other intangibles 43.9 2.2 87.2 5.2
Other, net 3.4 (24.7) (41.1) (55.7)
------- ------ ------- ------
$ 100.2 $(10.6) $ 124.5 $(33.5)
======= ====== ======= ======
</TABLE>
Minority interests include third parties' share of
exchange gains and losses arising from translation of the
financial statements into U.S. dollars.
Interest paid for the six-month period ended June 30, 1994
and 1993 was $57.8 million and $43.0 million,
respectively.
6. Income taxes paid for the six-month period ended June 30,
1994 and 1993 were $512.8 million and $396.8 million,
respectively.
7. As a consequence of the June 1993 sale of the Calgon Water
Management business and the November 1993 acquisition of
Medco Containment Services, Inc., the relative importance
of the Company's Specialty Chemical operations has
substantially diminished in 1994 and management
views its Human and Animal Health business as a dominant
industry segment.
8. Legal proceedings to which the Company is a party are
discussed in Part I Item 3, Legal Proceedings, in the Annual
Report on Form 10-K. Current developments are discussed
in Part II of this filing.
- 5 -
<PAGE> 7
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
------------------------------------------------------
Net income for the second quarter was $764.1 million, an increase of 10% over
the second quarter of 1993 excluding the effect of the 1993 second quarter
restructuring charge. Earnings per share for the second quarter were $0.61,
level with the second quarter of 1993, on the same basis. The dilution in the
earnings per share growth in 1994 is principally due to the additional shares
issued in November 1993 to complete the Medco acquisition. Sales for the
quarter were $3.8 billion, up 47% from the same period last year.
For the first six months, net income was $1,439.2 million, an increase of 10%
from the first six months of 1993, excluding the effect of the 1993
restructuring charge. Earnings per share on this basis were $1.15 for the
first six months, level with the first six months of 1993, which were also
impacted by the shares issued to complete the Medco acquisition. Sales rose
48% to $7.3 billion.
Sales for the quarter and the first six months were affected by the Medco
acquisition and the sale of the Calgon Water Management business in 1993.
Adjusting for these effects, sales for the second quarter and first six months
increased 18% and 19%, respectively.
The difference between the aforementioned sales and net income growth rates on
a year-to-year basis stems predominantly from the lower gross margins
historically associated with Medco's business.
Sales growth for the first half was paced by newer products and the continued
growth of the Merck-Medco Managed Care business. Both our domestic and
international operations reported solid unit volume gains. Sales of Merck
human and animal health products and services increased 10% for the second
quarter. Foreign exchange had essentially no impact on the second quarter
sales growth as compared to a one percentage point reduction in the first
quarter of 1994. Price increases had virtually no effect on sales growth.
Sales outside the United States accounted for 31% of first half 1994 sales,
compared with 44% for the same period last year. The 13 point shift is
principally due to higher domestic sales as a result of the Medco acquisition.
Income growth for the first six months resulted from strong unit volume
gains. The unfavorable effects of exchange, inflation, product mix and a
higher tax rate were offset by cost controls and productivity improvements from
our continuing efforts to streamline and restructure our operations.
In the human and animal health products segment of Merck's business, results
for the first six months reflected strong unit sales gains by 'Vasotec',
'Vaseretic', 'Prinivil', 'Zocor', 'Pepcid', 'Prilosec', 'Proscar' and
ivermectin. Significant volume growth in the Merck-Medco Managed Care business
added to the six-month sales increase.
'Vasotec', Merck's angiotensin converting enzyme (ACE) inhibitor for reducing
high blood pressure and treating heart failure, is sold in all major markets
and continues to be the leading branded product in the worldwide cardiovascular
market.
Merck's cholesterol-lowering agents, 'Mevacor' and 'Zocor', hold over 40% of
the worldwide cholesterol-lowering market and continued solid sales growth for
the first six months of 1994. Unit sales for 'Mevacor', however, were down due
to strong competition and the recent low rate of growth in the
cholesterol-lowering market in the United States. 'Mevacor' remains the most
widely prescribed cholesterol-lowering agent in the treatment of patients with
primary elevated cholesterol. Merck continues strategic initiatives to
increase appropriate usage.
- 6 -
<PAGE> 8
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
- - ------------------------------------------------------
'Pepcid', an H2-receptor antagonist for treatment of duodenal ulcers and the
short-term treatment of gastric ulcers and gastroesophageal reflux disease
(GERD), continues to grow rapidly in the United States and maintains its
position against strong competition outside the United States. A New Drug
Application was filed with the U.S. Food and Drug Administration (FDA) for an
over-the-counter version. An FDA advisory committee unanimously confirmed its
safety and concluded that resolution of discussions regarding the magnitude of
relief offered by the product should lead to the Committee's recommended
approval for treatment and prevention of heartburn, acid indigestion and sour
stomach.
'Prilosec', which is indicated for poorly responsive symptomatic GERD and as a
first-line therapy for short-term treatment of active duodenal ulcers and
severe erosive esophagitis, continues to show strong growth.
'Proscar', a significant medical advance for the treatment of symptomatic
benign prostate enlargement, a common condition that affects the majority of
men over the age of 50, has been introduced in over 50 countries, representing
nearly every major market including the United States. The Company is
continuing an extensive medical and consumer education program worldwide to
heighten awareness of the disease, improve understanding of its natural history
and communicate the effects of treatment with 'Proscar'.
Ivermectin, Merck's broad-spectrum antiparasitic and the world's leading animal
health product, continues to show strong growth.
'Fosamax', Merck's new medicine for the treatment of post-menopausal
osteoporosis, was launched in Italy in November 1993. Regulatory filings have
been made in 27 countries to date and a filing in the United States is
scheduled for early 1995.
Unit sales declined for a group of longer-established human and animal health
products due to competition.
The Merck-Medco U.S. Managed Care Division currently manages pharmaceutical
benefits for approximately 38 million plan participants, up strongly since the
time of the merger announcement. Also, the Division has contracts with
managed-care organizations covering an additional 41 million individuals.
Merck-Medco is developing a series of disease management programs which use
patient and physician communication to improve drug therapy, promote better
health outcomes and lower the long-term costs of care associated with certain
chronic diseases.
In June 1994, Raymond V. Gilmartin became President and Chief Executive Officer
of Merck and was elected Chairman, effective November 1, succeeding Merck
Chairman, P. Roy Vagelos, M.D.
In July 1994, the Board of Directors elected a new member, Johnnetta Cole,
Ph.D. Dr. Cole's term will begin in September 1994.
On July 26, 1994, the Board of Directors declared a quarterly dividend of 30
cents a share on the Company's common stock for the fourth quarter of 1994
versus the 28 cents a share dividend paid in the third quarter of 1994. The
30-cent dividend is payable October 1, 1994 to stockholders of record at the
close of business on September 9, 1994. The Company's total dividends paid
during 1994 will be $1.14 per share, an 11% increase over the amount paid in
1993.
- 7 -
<PAGE> 9
Part II - Other Information
- - ---------------------------
Item 1. Legal Proceedings
- - --------------------------
In May 1994, Kelco received a Notice of Violation (NOV) from EPA Region 9
alleging that Kelco failed to obtain agency pre-construction approvals required
by the Clean Air Act for physical modifications made at its San Diego facility.
It is likely that any final settlement of these and other possible
violations will require the installation of additional pollution reduction
equipment, as well as the payment of a fine in excess of $100,000.
Item 4. Submission of Matters to a Vote of Security-Holders
- - ------------------------------------------------------------
The following matters were voted upon at the Annual Meeting of Stockholders
held on April 26, 1994, and received the votes set forth below:
1. Each of the following persons nominated was elected to
serve as director and received the number of votes set
opposite his name:
<TABLE>
<CAPTION>
For Withheld
----------- ----------
<S> <C> <C>
Lawrence A. Bossidy 900,673,837 7,421,783
Charles E. Exley, Jr. 900,604,011 7,491,609
William N. Kelley, M.D. 900,536,637 7,558,983
Martin J. Wygod 896,295,616 11,800,004
</TABLE>
Proxies were solicited by the Sheet Metal Workers' International
Association, Local Union No. 19, for the following nominee in
opposition to the Company's nominees, and he received the number
of votes set opposite his name:
<TABLE>
<CAPTION> For Withheld
----------- ----------
<S> <C> <C>
Thomas J. Kelly 19,980,052 3,091,580
</TABLE>
Martin J. Wygod resigned as an Officer and Director of the
Company on May 24, 1994. The names of each other director of the
Company whose term of office as a director continued after the
meeting are: Derek Birkin, William G. Bowen, Carolyne K. Davis,
Lloyd C. Elam, P. Roy Vagelos, H. Brewster Atwater, Jr. and
Dennis Weatherstone.
2. A proposal to ratify the appointment of independent public
accountants received 901,325,431 votes for and 3,427,361
votes against, with 11,429,421 abstentions.
3. A proposal to amend the Executive Incentive Plan received
767,895,879 votes for and 124,289,449 votes against, with
23,996,885 abstentions.
4. A proposal to adopt the Merck Deferral Program received
671,198,477 votes for and 32,989,051 votes against, with
22,224,484 abstentions and 189,770,201 broker non-votes.
5. A proposal to amend the 1991 Incentive Stock Plan received
763,729,914 votes for and 129,826,531 votes against, with
22,625,768 abstentions.
6. A stockholder proposal concerning the annual election of
directors received 219,025,390 votes for and 470,913,955
votes against, with 15,024,978 abstentions and 211,217,890
broker non-votes.
7. A stockholder proposal concerning executive compensation
received 67,466,462 votes for and 612,993,099 votes
against, with 24,504,831 abstentions and 211,217,821
broker non-votes.
- 8 -
<PAGE> 10
Part II - Other Information
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
--------
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
10 Material Contract Filed with this document
11 Computation of Earnings Filed with this document
Per Common Share
12 Computation of Ratios of Filed with this document
Earnings to Fixed Charges
</TABLE>
(b) Reports on Form 8-K
-------------------
During the three-month period ended June 30, 1994,
no current reports on Form 8-K were filed.
- 9 -
<PAGE> 11
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCK & CO., INC.
Date: August 10, 1994 /s/ Mary M. McDonald
-----------------------------------------
MARY M. MCDONALD
Senior Vice President and General Counsel
Date: August 10, 1994 /s/ Peter E. Nugent
-----------------------------------------
PETER E. NUGENT
Vice President, Controller
- 10 -
<PAGE> 12
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<S> <C>
10 Material Contract
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges
</TABLE>
<PAGE> 1
EXHIBIT 10
AGREEMENT
---------
AGREEMENT, dated as of June 9, 1994 between Merck & Co., Inc., a New Jersey
Corporation (the "Company"), and Raymond V. Gilmartin (the "Employee").
The Company and Employee desire to enter into an arrangement under which
Employee will serve the Company in the capacities of a director, Chairman of
the Board of Directors, President and Chief Executive Officer and they agree as
follows:
Section 1. Term and Capacity of Employment
-------------------------------
(a) The Company and Employee agree that Employee shall be employed by the
Company for a period commencing on June 16, 1994 and ending October 31, 1999
(the "Employment Period"), under the terms set forth in this Agreement.
Employee shall be elected a Director, President and Chief Executive Officer of
the Company effective June 16, 1994 and Chairman of the Board of Directors of
the Company effective November 1, 1994.
(b) Employee shall have the powers, responsibilities and authorities of
President, Chief Executive Officer and Chairman of the Board of Directors of
the Company as established by custom and practice. He shall not, without the
consent of the Board of Directors, engage, directly or indirectly, in any other
business for compensation or profit except that he may, with the approval of
the Board of Directors, serve as a director of any other
<PAGE> 2
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Company which is not considered to be in competition with the Company and he
may receive compensation therefor.
Section 2. Cash Compensation
-----------------
(a) As compensation for Employee's services under this Agreement, the
Company shall pay Employee a salary, commencing on June 16, 1994, at the rate
of $1,000,000 per year (or at such higher rate as the Board of Directors may
from time-to-time determine), payable in equal monthly installments.
(b) As further compensation, Employee shall be eligible for an annual
award under the Executive Incentive Plan of the Company ("EIP") or any plan
which is a successor to EIP. The award payable to Employee on account of
service in calendar year 1994 shall be at least $1,000,000, less any annual
bonus paid by his predecessor employer for that calendar year.
Section 3. Equity Awards
-------------
(a) In recognition of the forfeiture by Employee of common stock ownership
rights provided by his predecessor employer, Employee shall be granted, on June
16, 1994, an award under the Company's Incentive Stock Plan ("ISP") of 25,000
shares of Restricted Common Stock of the Company which shall vest on the fifth
anniversary of such grant.
(b) On June 16, 1994, Employee shall be granted under ISP a non-qualified
option priced at market value on the date of grant as determined under such
Plan. Such option shall cover 500,000
<PAGE> 3
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shares of Common Stock of the Company and shall vest on the fifth anniversary
of such grant. On February 28, 1995, Employee shall be granted a non-qualified
option under ISP covering 180,000 shares of Common Stock of the Company at
market value on such date as determined under such Plan. Such option shall
vest on the fifth anniversary of such grant. In the event of Employee's death
or total disability (as defined in the Company's Long-Term Disability Plan),
the vesting of both such options shall be accelerated to the date of such death
or total disability. Such options shall be exercisable for a period of five
years following vesting (three years in the event of death).
(c) After 1995 and during the Employment Period, Employee shall be
entitled to an annual stock option grant as determined by the Board of
Directors of the Company.
Section 4. Retirement Benefits
-------------------
(a) Upon termination of Employee's employment for any reason other than as
set forth in Section 6(b) hereof, the Company shall pay a retirement benefit
(or death benefit) to Employee (or his survivor) as determined under the
Retirement Plan for Salaried Employees of Merck & Co., Inc. and the
Supplemental Retirement Plan (the "Plans") pursuant to the terms of the Plans
(net after offsetting retirement benefits payable by his predecessor employer).
The Plans are defined benefit plans based on a formula which includes the
average of the highest consecutive five years of salary and bonus during the
ten years
<PAGE> 4
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prior to retirement. In determining benefits payable under such Plans, (1)
Employee's Credited Service shall equal his Credited Service under the Plans
plus 28 years, (2) Employee's final average compensation shall include
compensation from his predecessor employer if termination occurs during the
term of this Agreement, and (3) the percentage multiple used in the formula for
benefit calculation shall be 1.6%.
(b) If Employee's employment is terminated pursuant to Section 6(b)
hereof, he shall be entitled to the greater of (i) the retirement benefit
payable under the Plans pursuant to the terms thereof or (ii) the retirement
benefit to which he would have been entitled under the retirement plan of his
predecessor employer on June 15, 1994 assuming he had reached the earliest
retirement age on such date. Such benefit shall be net after offsetting
retirement benefits payable by his predecessor employer.
Section 5. Participation in Other Benefit Plans
------------------------------------
While employed by the Company, Employee shall be entitled to participate in
each of the Company's employee benefit plans for its salaried employees on a
basis comparable to the Company's other most senior executives. It is
anticipated that Employee shall incur expenses necessary to the discharge of
his duties hereunder, and the Company shall reimburse Employee for those
expenses, in accordance with its established policies and such
<PAGE> 5
- 5 -
other arrangements as may be approved by the Company from time-to-time.
Section 6. Early Termination
-----------------
(a) Either Employee or the Company may terminate Employee's employment
hereunder prior to the end of the Employment Period.
(b) If Employee's employment is terminated by the Company for "Gross
Cause" or is terminated by Employee without "Good Cause", he shall forfeit any
of his Equity Awards granted under Section 3 hereof which is not vested on the
date of such termination and the payment of all Cash Compensation and any
benefit entitlement under Section 5 hereof shall cease on the date of such
termination. Retirement benefits shall be payable pursuant to Section 4(b)
hereof. "Gross Cause" shall mean (i) Employee's conviction of a felony or (ii)
Employee's willful gross neglect or willful gross misconduct in carrying out
Employee's duties resulting, in either case, in material economic harm to the
Company, unless Employee believed in good faith that such act or non-act was in
the best interests of the Company. "Good Cause" shall mean termination of
Employee's employment at the initiative of Employee within six months following
(i) any act or failure to act by the Board of Directors of the Company which
would cause Employee (A) to not be elected to the office of Chairman of the
Board of Directors on a date on or before November 1, 1994; (B) to be removed
from the office of President and Chief Executive Officer or the office of
Chairman of the
<PAGE> 6
- 6 -
Board of Directors on a date earlier than the end of the Employment Period, or
(C) to not be nominated for election as a director by the shareholders of the
Company at any meeting of shareholders of the Company held for that purpose on
a date earlier than the end of the Employment Period; (ii) any significant
diminution in the powers, responsibilities and authorities described in Section
1(b) of this Agreement without the consent of Employee; (iii) the failure of
the Company to obtain in writing the assumption of its obligation to perform
this Agreement by any successor, prior to or concurrent with a merger,
consolidation, sale or similar transaction; and (iv) any material breach of
this Agreement by the Company which is unremedied after notice by Employee.
(c) If Employee's employment is terminated by the Company without "Gross
Cause" or by the Employee with "Good Cause", then Employee is entitled to
receive the Cash Compensation set forth in Section 2 hereof for a period of two
years from the date of termination of employment. For such two-year period,
Credited Service for retirement purposes will continue to accrue and employee
benefits under Section 5 will continue to be payable. The restricted stock
grant and stock option grant made on June 16, 1994 shall immediately vest on
the date of such termination of employment. Such two-year period will be
considered a period of employment for purposes of determining the vesting of
any other stock option grant.
<PAGE> 7
- 7 -
Section 7. Resolution of Disputes
----------------------
Any disputes arising under or in connection with this Agreement shall be
resolved by arbitration before a panel of three arbitrators in accordance with
the rules and procedures of the American Arbitration Association. All costs,
fees and expenses of any arbitration (including reasonable fees and expenses of
Employee's counsel) in connection with this Agreement that results in any
decision requiring the Company to make any payment or provide any benefit to
Employee shall be borne by, and be the obligation of, the Company. Judgment on
an award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
Section 8. Survivorship
------------
The respective rights and obligations of the parties hereunder shall
survive any termination of Employee's employment to the extent necessary to the
intended preservation of such rights and obligations.
Section 9. Entire Agreement, Governing Law
-------------------------------
(a) This Agreement embodies the entire agreement of the parties hereto,
and it may be modified only by an agreement in writing signed by both parties.
(b) This Agreement shall be interpreted and governed by the laws of the
State of New York without reference to principles of conflict of laws.
<PAGE> 8
- 8 -
(c) This Agreement may not be amended or modified except by a written
agreement executed by Employee and the Company.
Section 10. Undertaking by Company in Case of Sale or Liquidation of Assets
---------------------------------------------------------------
The Company agrees that, in the event of the sale or liquidation of all or
substantially all of the assets of the Company, it shall take whatever action
it legally can in order to cause the assignee or transferee of such assets
expressly to assume the liabilities, obligations and duties of the Company
hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
MERCK & CO., INC.
By /s/ H. Brewster Atwater, Jr.
-----------------------------
H. BREWSTER ATWATER, JR.
Director and Chairman
of the Compensation &
Benefits Committee
EMPLOYEE
/s/ Raymond V. Gilmartin
-----------------------------
RAYMOND V. GILMARTIN
<PAGE> 1
<TABLE>
Exhibit 11
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
----------------------------------------
(In millions except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------- ----------------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income and Adjusted Earnings:
- - --------------------------------
Net Income..................................... $ 764.1 $ 172.6 $1,439.2 $ 786.3
Effect on Earnings of Compensation Expense on
Stock Option and Executive Incentive Plans... (1.5) 1.9 1.0 3.8
Effect on Earnings of Interest on
Debentures Issued by Medco................... .1 - .2 -
Adjusted Earnings for Fully Diluted -------- -------- -------- --------
Earnings Per Share........................... $ 762.7 $ 174.5 $1,440.4 $ 790.1
======== ======== ======== ========
Weighted Average Shares and Share
Equivalents Outstanding:
- - ---------------------------------
Weighted Average Shares Outstanding (As Reported) 1,257.6 1,138.6 1,256.4 1,140.7
Common Share Equivalents Issuable
Under Stock Option Plans .................... 12.0 5.3 13.7 5.8
Common Shares Issuable Under
Executive Incentive Plans.................... 1.7 2.0 1.7 2.0
Common Share Equivalents Issuable on Assumed
Conversion of Debentures Issued by Medco..... 2.7 - 2.7 -
-------- -------- -------- --------
Weighted Average Shares and
Share Equivalents Outstanding ............... 1,274.0 1,145.9 1,274.5 1,148.5
======== ======== ======== ========
Earnings Per Share (As Reported):
Net Income..................................... $ .61 $ .15 $ 1.15 $ .69
======== ======== ======== ========
Fully Diluted Earnings Per Share: (a)
- - --------------------------------
Fully Diluted Earnings Per Share: ............. $ .60 $ .15 $ 1.13 $ .69
======== ======== ======== ========
</TABLE>
(a) This calculation is submitted in accordance with the regulations
of the Securities and Exchange Commission although not required
by APB Opinion No. 15 because it results in dilution of less
than 3%.
<PAGE> 1
<TABLE>
Exhibit 12
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges
--------------------------------------------------
(In millions except ratio data)
<CAPTION>
Six Months
Ended Years Ended December 31
June 30, ----------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes
and Cumulative Effect
of Accounting Changes $2,157.7 $3,102.7 $3,563.6 $3,166.7 $2,698.8 $2,283.0
-------- -------- -------- -------- -------- --------
Add:
One-third of Rents 18.3 35.0 34.0 31.1 26.5 20.0
Interest Expense (Net) 59.8 48.0 23.6 26.0 51.9 45.5
-------- -------- -------- -------- -------- --------
Income as Adjusted $2,235.8 $3,185.7 $3,621.2 $3,223.8 $2,777.2 $2,348.5
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of Rents $18.3 $ 35.0 $ 34.0 $31.1 $26.5 $20.0
Interest Expense 65.9 84.7 72.7 68.7 69.8 53.2
----- ------ ------ ----- ----- -----
Fixed Charges $84.2 $119.7 $106.7 $99.8 $96.3 $73.2
===== ====== ====== ===== ===== =====
Ratio of Earnings
to Fixed Charges 27 27 34 32 29 32
-- -- -- -- -- --
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
taxes and cumulative effect of accounting changes, one-third of rents (deemed
by the Company to be representative of the interest factor inherent in rent),
and interest expense, net of amounts capitalized. "Fixed charges" consist of
one-third of rents and interest expense as reported in the Company's
consolidated financial statements.
