<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
<TABLE>
<S> <C>
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1993
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
</TABLE>
COMMISSION FILE NO. 1-3305
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MERCK & CO., INC.
P.O. Box 100
Whitehouse Station, N. J. 08889-0100
(908) 423-1000
Incorporated in New Jersey
I.R.S. Employer
Identification No. 22-1109110
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on which Registered
<S> <C> <C>
Common Stock New York and Philadelphia Stock Exchanges
(no par value)
</TABLE>
Number of shares of Common Stock (no par value) outstanding as of February 28,
1994: 1,255,550,712.
Aggregate market value of Common Stock (no par value) held by
non-affiliates on December 31, 1993 based on closing price on February 28,
1994: $40,484,000,000.
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 ........
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
Document Part of Form 10-K
<S> <C>
Annual Report to stockholders for the fiscal Parts I and II
year ended December 31, 1993
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 26, 1994
</TABLE>
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
Merck & Co., Inc. is a worldwide organization engaged primarily in the
business of discovering, developing, producing and marketing products and
services for the maintenance or restoration of health. The Company's business is
divided into two industry segments: Human and Animal Health Products and
Services and Specialty Chemical Products. The Human and Animal Health Products
and Services segment includes Medco Containment Services, Inc. ("Medco"), which
was acquired in November 1993. Medco principally provides services designed to
reduce prescription drug benefit costs through managed prescription drug
programs and managed mental health-care services for health benefit plans.
Financial information about industry segments of the Company's business is
incorporated by reference to page 50 of the Company's 1993 Annual Report to
stockholders.
HUMAN AND ANIMAL HEALTH PRODUCTS AND SERVICES SEGMENT
Human and animal health products include therapeutic and preventive agents
for the treatment of human disorders, which are generally sold by prescription,
and for the control and alleviation of disease in livestock, small animals and
poultry. Human and animal health products also include poultry breeding stock
and crop protection products. This segment contributed $9,987.9 million,
$9,067.6 million and $8,019.5 million to Company sales in 1993, 1992 and 1991,
respectively.
Human health products include cardiovascular products, of which Vasotec
(enalapril maleate), Mevacor (lovastatin), Zocor (simvastatin), Prinivil
(lisinopril) and Vaseretic (enalapril maleate-hydrochlorothiazide) are the
largest-selling; anti-ulcerants, of which Pepcid (famotidine) and Prilosec
(omeprazole) are the largest-selling; antibiotics, of which Primaxin
(imipenem-cilastatin sodium), Noroxin (norfloxacin) and Mefoxin (cefoxitin
sodium) are the largest-selling; vaccines/biologicals, of which M-M-R II
(measles, mumps and rubella virus vaccine live) and Recombivax HB (hepatitis B
vaccine recombinant) are the largest-selling; ophthalmologicals, of which
Timoptic (timolol maleate) is the largest-selling; anti-inflammatory/analgesic
products, of which Indocin (indomethacin), Clinoril (sulindac) and Dolobid
(diflunisal) are the largest-selling; and other human health products which
include antiparkinsonism products, psychotherapeutics, a muscle relaxant and
Proscar (finasteride), a treatment for symptomatic benign prostate enlargement.
Human health services include health-care cost containment services, principally
managed prescription drug programs.
Animal health/crop protection products include antiparasitics, of which
Ivomec (ivermectin) for the control of internal and external parasites in
livestock and Heartgard-30 (ivermectin) for the prevention of canine heartworm
disease are the largest-selling; crop protection products, of which
abamectin-based miticides/insecticides are the largest-selling; coccidiostats
for the treatment of poultry disease; and poultry breeding stock.
The following table shows the sales of various classes of the Company's
human and animal health products and services:
<TABLE>
<CAPTION>
($ IN MILLIONS) 1993* 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cardiovasculars........................................ $4,820.8 $4,482.0 $3,804.2
Anti-ulcerants......................................... 1,324.0 1,043.9 820.6
Antibiotics............................................ 868.7 942.2 917.7
Vaccines/biologicals................................... 522.9 485.3 375.1
Ophthalmologicals...................................... 454.6 457.2 425.2
Anti-inflammatories/analgesics......................... 336.8 430.5 500.4
Other human health..................................... 446.8 373.4 381.9
Other Medco sales...................................... 296.6 -- --
Animal health/crop protection.......................... 916.7 853.1 794.4
-------- -------- --------
Total........................................... $9,987.9 $9,067.6 $8,019.5
-------- -------- --------
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</TABLE>
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* Sales by therapeutic class include Medco sales of Merck products. Medco
sales of non-Merck products and Medco services are included in Other Medco
sales.
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In November 1993, the Company acquired all of the outstanding shares of
Medco for approximately $6.6 billion. The purchase price consisted of $2.4
billion in cash, 114.0 million common shares with a market value of $3.8 billion
and 36.1 million options valued at $387.1 million, net of tax. Martin J. Wygod,
Chairman of the Board of Directors of Medco and a stockholder of Medco prior to
the merger, was elected to the Board of Directors of the Company effective
November 1993. Medco principally provides services designed to reduce
prescription drug benefit costs through managed prescription drug programs, and
also provides managed mental health-care services. Medco provides these services
to corporations, labor unions, insurance companies, Blue Cross and Blue Shield
organizations, Federal and state employee plans, and health maintenance and
other similar organizations.
A new human health product cleared for marketing in the United States by
the Federal Food and Drug Administration ("FDA") in November 1993 is Timoptic-XE
(timolol maleate ophthalmic gel-forming solution), a once-a-day treatment to
reduce intraocular pressure in certain glaucoma patients, and sales of the
product began in the United States in January 1994. Also in 1993, the FDA
cleared for marketing the use of Vasotec to reduce the rate of development of
symptomatic heart failure and decrease the need for related hospitalization in
asymptomatic patients with left ventricular dysfunction.
In May 1993, the Company and Pasteur Merieux Serums & Vaccins ("Pasteur
Merieux"), which is part of the Rhone-Poulenc group, signed an agreement to form
a joint venture to market human vaccines and to collaborate in the development
of new combination vaccines for distribution in the European Union ("EU")
(formerly referred to as the European Community) and the European Free Trade
Association. The establishment of this joint venture, which would be equally
owned by the Company and Pasteur Merieux, is subject to various approvals,
including that of the European Commission.
Effective April 1992, the Company, through the Merck Vaccine Division, and
Connaught Laboratories, Inc. ("Connaught"), an affiliate of Pasteur Merieux,
agreed to collaborate on the development and marketing of combination pediatric
vaccines and to promote selected vaccines in the United States. The research and
marketing collaboration will enable the companies to pool their resources to
expedite the development of vaccines combining several different antigens to
protect children against a variety of diseases, including Haemophilus influenzae
type b, hepatitis B, diphtheria, tetanus, pertussis and poliomyelitis. In
addition, the Company and Connaught have agreed to promote a number of each
other's vaccine products.
Effective January 1991, the Company and E. I. du Pont de Nemours and
Company ("Du Pont") entered into a joint venture to form a worldwide
pharmaceutical company for the research, marketing, manufacturing and sale of
pharmaceutical and imaging agent products. Du Pont contributed its entire
worldwide pharmaceutical and radiopharmaceutical imaging agents businesses to
the joint venture and is providing administrative services. The Company's
contribution includes rights to Sinemet (carbidopa-levodopa), Sinemet CR
(sustained-release formulation), Moduretic (amiloride HCl-hydrochlorothiazide),
Prinivil and Prinzide (lisinopril and hydrochlorothiazide) in the United
Kingdom, France, Germany, Italy and Spain, research and development expertise,
development funds, international industry expertise and cash. The joint venture
co-promotes Vasotec in the United States.
Under separate agreements between the Company and Du Pont for which the
joint venture carries out Du Pont's obligations, commencing in 1993 marketing
applications were submitted worldwide for Cozaar (losartan potassium) and Hyzaar
(losartan potassium and hydrochlorothiazide), the first of a new class of drugs
for treatment of high blood pressure and heart failure. The joint venture has
rights under these agreements to Sinemet and Sinemet CR in North America and
Vaseretic in the United States and Canada.
In January 1993, the Company and Johnson & Johnson finalized an agreement
to extend into Europe the U.S. joint venture that was formed in 1989. This new
European extension is intended to market and sell over-the-counter
pharmaceutical products in Europe. In October 1991, as a first step toward the
establishment of the European business, the two companies acquired certain
assets of Woelm Pharma G.m.b.H., a leading German self-medication business owned
by Rhone-Poulenc Rorer, including a topical cough/cold product, two laxatives
and a line of vitamins. In January 1993, the Company contributed its existing
over-the-counter medication business in Spain to a new joint venture company. In
September 1993, Johnson & Johnson and the Company established a new company in
the United Kingdom to market the Company's and Johnson & Johnson's
over-the-counter medications. In January 1994, the Company and Johnson & Johnson
acquired all
2
<PAGE> 4
of the stock of Laboratoires J.P. Martin, a leading self-medication business in
France. In January 1993, the Company submitted a New Drug Application ("NDA") to
the FDA for an over-the-counter form of the Company's ulcer medication Pepcid,
to be marketed in the United States by the joint venture. Beginning January
1993, marketing approval applications for over-the-counter Pepcid were filed in
15 European countries and 3 other countries, in addition to the U.S. filing. In
February 1994, the marketing license for an over-the-counter formulation of
Pepcid was cleared in the United Kingdom.
In 1982, the Company entered into an agreement with AB Astra ("Astra") to
develop and market Astra products in the United States. Currently, under the
first phase of the agreement, the Company markets three Astra products,
Prilosec, Plendil (felodipine) and Tonocard (tocainide hydrochloride), in
exchange for a royalty. An NDA which had been submitted to the FDA in January
1993 for Roxiam (remoxipride), an Astra product being developed for the
treatment of acute and chronic schizophrenia, was withdrawn in January 1994.
In July 1993, the Company's total sales of Astra products reached the level
that triggered the first step in the establishment of a separate entity to
market Astra products under the Company's agreement with Astra. The Company is
now building the infrastructure and developing various capabilities to develop
and market Astra products within a separate company. The Company expects to
fully transfer its Astra-related business and assets to the joint venture
company owned by the Company and Astra by early 1995. Astra has the right to
obtain a 50 percent ownership of the business and assets transferred by
compensating the Company with a payment roughly equivalent to U.S. sales of
Astra products over a 12-month period beginning September 1, 1993. The result of
these actions is not expected to have a significant impact on financial results
in the near term.
In 1992, the Company entered into agreements to (i) establish a new
manufacturing, sales and promotion entity in Turkey; (ii) restructure Merck
Human Health Division operations in Taiwan; (iii) acquire a 100 percent interest
in its Mexican subsidiary, Laboratorios Prosalud, which engages in the
manufacture, marketing, promotion and sale of the Company's human
pharmaceutical, animal health and crop protection products in Mexico; and (iv)
develop and market with CSL Limited of Australia combination pediatric vaccines
in Australia, New Zealand and major markets in the Far East. In 1992, the
Company entered into agreements to acquire certain assets of TTV Limited and
Mervest Limited, the entities formerly used to market the Company's product line
in the People's Republic of China. In 1992, a new entity was established in Hong
Kong for the purpose of carrying on the Company's business in China via
representative offices in Beijing, Shanghai and Guangzhou. In 1993, 1992 and
1991, the Company established local organizations for sales and promotion in the
Russian Federation, the Ukraine, the Czech and Slovak republics, Slovenia,
Bulgaria, Romania, Poland and Hungary.
Competition -- The markets in which this segment's business is conducted
are highly competitive. Such competition involves an intensive search for
technological innovations and the ability to market these innovations
effectively. With its long-standing emphasis on research and development, the
Company is well prepared to compete in the search for technological innovations.
Additional resources to meet competition include quality control, flexibility to
meet exact customer specifications, an efficient distribution system and a
strong technical information service. The Company is active in acquiring and
marketing products through joint ventures and licenses and has been expanding
its sales and marketing efforts to further address changing industry conditions.
However, the introduction of new products and processes by competitors may
result in price reductions and product replacements, even for products protected
by patents. For example, the number of compounds available to treat each disease
entity has increased during the past several years and has resulted in slowing
the growth in sales of certain of the Company's products.
In addition, particularly in the area of human pharmaceutical products,
legislation enacted in all states allows, encourages or, in a few instances, in
the absence of specific instructions from the prescribing physician, mandates
the use of "generic" products (those containing the same active chemical as an
innovator's product) rather than "brand-name" products. Governmental and other
pressures toward the dispensing of generic products have reduced significantly
the sales of certain of the Company's products no longer protected by patents,
such as Clinoril and Aldomet (methyldopa), and slowed the growth of certain
other products. In 1992, the Company formed a new division, West Point Pharma,
to market the generic form of its product
3
<PAGE> 5
Dolobid. In 1993, West Point Pharma began marketing an additional 11 off-patent
Company drugs in more than 20 different packages. See also the description of
the effect upon competition of the Drug Price Competition and Patent Term
Restoration Act of 1984 ("PTRA") on page 6. It is generally the Company's
position to limit individual product price increases of its pharmaceutical
products in the United States to the Consumer Price Index plus 1 percent on an
annual basis.
Medco's pharmacy benefit management business is highly competitive. Medco
competes with other pharmacy benefit managers, retail prescription drug claims
processors, other mail service pharmacies, insurance companies, chain pharmacies
and other providers of health-care and/or administrators of health-care
programs. Medco competes primarily on the basis of its ability to design and
administer innovative programs which contain a plan sponsor's overall
prescription drug costs, its flexibility in handling integrated prescription
drug programs resulting from its ability to dispense drugs through mail service
and act as retail prescription drug manager, and the sophistication and quality
of its systems, procedures and services.
Distribution -- Human health products are sold primarily to drug
wholesalers and retailers, hospitals, clinics, governmental agencies, managed
health-care providers such as health maintenance organizations and other
institutions. Customers for animal health/crop protection products include
veterinarians, distributors, wholesalers, retailers, feed manufacturers,
veterinary suppliers and laboratories. Marketing support is provided by
professional representatives who call on physicians, hospitals, veterinarians
and others throughout the world. This promotional activity is supplemented by
direct mail and journal advertising. Medco markets its health-care cost
containment services to plan sponsors principally through internal marketing and
sales personnel.
Raw Materials -- Raw materials and supplies are normally available in
quantities adequate to meet the needs of this segment.
Government Regulation and Investigation -- The pharmaceutical industry is
subject to global regulation by country, state and local agencies. Of particular
importance is the FDA in the United States, which administers requirements
covering the testing, approval, safety, effectiveness, manufacturing, labeling
and marketing of prescription pharmaceuticals. In many cases, the FDA
requirements have increased the amount of time and money necessary to develop
new products and bring them to market in the United States, although revised
regulations are designed to reduce somewhat the time for approval of new
products. In 1992, the Prescription Drug User Fee Act was passed, under which
the FDA will collect revenues through user fees. The FDA has pledged to devote
these revenues to its process for reviewing and approving applications for new
drugs, antibiotics and biological products.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health-care system, either nationally or at the
state level. In November 1993, President Clinton's Health Security Act was
introduced into Congress with moderate Democratic sponsorship. The Clinton plan
would guarantee to all Americans health insurance coverage for a
Federally-determined set of benefits, which includes pharmaceuticals. The plan
is highly regulatory and mandates that employers offer and fund health insurance
coverage for their employees. Among other things, the plan also provides for (1)
the Secretary of Health and Human Services to establish an Advisory Council on
Breakthrough Drugs to make recommendations to the Secretary as to the
reasonableness of new drug prices and (2) a mandatory 17 percent rebate on
outpatient pharmaceuticals reimbursed by Medicare. Also pending in Congress is
the Cooper/Grandy Managed Competition Act of 1993, a bipartisan health-care
reform bill, which relies primarily on market-based competition and insurance
reform to reduce health-care costs. The debate to reform the health-care system
is expected to be protracted and intense. Although the Company is positioned to
do business in a managed competition environment and respond to evolving market
forces, it cannot predict the outcome or effect of legislation resulting from
the reform process.
For some years the pharmaceutical industry has been under Federal and state
oversight with the new drug approval system, drug safety, advertising and
promotion, drug purchasing and reimbursement programs and formularies variously
under review. The Company believes that it will continue to be able to bring new
drugs to market in this regulatory environment. One Federal initiative to
contain costs is the prospective payment
4
<PAGE> 6
system, established under the Social Security Amendments of 1983 to hold down
the growth of Medicare payments to hospitals, which provides a flat rate for
reimbursement to hospitals in advance of the care for patients. The system
establishes a number of patient classifications -- Diagnosis Related Groups
("DRG's"). A hospital receives the flat rate as full payment for each Medicare
patient treated within a given DRG regardless of whether the hospital's actual
costs are higher or lower than the flat rate. This system and other cost-cutting
programs have caused hospitals and other customers of the Company to be more
cost conscious in their treatment programs and to implement cost-containment
measures, including cost containment for the drugs they administer.
Additionally, Congress and the regulatory agencies have sought to reduce
the cost of drugs paid for with Federal funds. In 1990, the Company initiated
its Equal Access to Medicines Program ("EAMP") on its single source products,
under which it generally offered its "best price" discount to state Medicaid
programs that grant open access to the Company's products. The Omnibus Budget
Reconciliation Act of 1990 ("OBRA") largely reflects the Company's best price
approach. As a result of a national agreement, effective January 1, 1991, signed
by the Company with the Secretary of Health and Human Services and administered
by the Health Care Financing Administration ("HCFA") pursuant to OBRA, Medicaid
received a minimum rebate of 12.5 percent off average manufacturer's price
("AMP") through September 30, 1992, received a minimum rebate of 15.7 percent
off AMP through 1993, and will receive a minimum rebate of 15.4 percent off AMP
through 1994, on the Company's outpatient drugs reimbursed under Medicaid. In
conjunction with implementation of the Federal program under OBRA, the Company's
separate EAMP agreements with individual states have been permitted to lapse or
have been terminated. Effective in 1992, the terms of the Federal HCFA rebate
agreement were generally substituted for the EAMP agreements.
In January 1992, the Company announced that it would provide discounts on
its single-source prescription medicines to non-profit health centers for the
poor that are Federally funded under sections 329-330 of the Public Health
Service Act that qualify for the Company's program and agree to assure access to
the Company's drugs. The discounts were largely based on those that the Company
provided Medicaid under the Federal "best price" legislation. The discounts were
ultimately provided to such centers for single-source, out-patient prescription
drugs (not reimbursed by Medicaid) purchased directly from the Company by the
centers for their patients.
The Federal Veterans Health Care Act of 1992 was enacted on November 4,
1992, superceding the Company's Public Health Service initiative and mandating
Medicaid rebate-equivalent discounts on covered outpatient drugs purchased by
certain Public Health Service entities and "disproportionate share hospitals"
(hospitals meeting certain qualification criteria). The Act further mandates
minimum discounts of 24 percent off non-Federal AMP to the Veterans
Administration, Federal Supply Schedule and certain other Federal sector
purchasers on their pharmaceutical drug purchases.
The Company encounters similar regulatory and legislative issues in most of
the foreign countries where it does business. There, too, the primary thrust of
governmental inquiry and action is toward determining drug safety and
effectiveness, often with mechanisms for controlling the prices of prescription
drugs and the profits of prescription drug companies. The EU has adopted
directives concerning the classification, labeling, advertising and wholesale
distribution of medicinal products for human use. The Company's policies and
procedures are already consistent with the substance of these directives;
consequently, it is believed that they will not have any material effect on the
Company's business.
The Company is subject to the jurisdiction of various regulatory agencies
and is, therefore, subject to potential administrative action. Such actions may
include product recalls, seizures of products and other civil and criminal
sanctions. Under certain circumstances, the Company may deem it advisable to
initiate product recalls voluntarily. Although it is difficult to predict the
ultimate effect of these activities and legislative, administrative and
regulatory requirements and proposals, the Company believes that its development
of new and improved products should enable it to compete effectively within this
environment.
There are extensive Federal and state regulations applicable to the
practice of pharmacy and the administration of managed health-care programs.
Each state in which Medco operates a pharmacy has laws and regulations governing
its operation and the licensing of and standards of professional practice by its
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<PAGE> 7
pharmacists. These regulations are issued by an administrative body in each
state (typically, a pharmacy board), which is empowered to impose sanctions for
non-compliance.
Patents, Trademarks and Licenses -- Patent protection is considered, in the
aggregate, to be of material importance in the Company's marketing of human and
animal health products in the United States and in most major foreign markets.
Patents may cover products per se, pharmaceutical formulations, processes for or
intermediates useful in the manufacture of products or the uses of products.
Protection for individual products extends for varying periods in accordance
with the date of grant and the legal life of patents in the various countries.
The protection afforded, which may also vary from country to country, depends
upon the type of patent and its scope of coverage.
Patent portfolios developed for products introduced by the Company normally
provide marketing exclusivity. This is the case with products in the United
States such as Timoptic, Mefoxin, Timolide (timolol
maleate-hydrochlorothiazide), Ivomec, Tonocard in its oral form, Mevacor,
Vasotec, Primaxin, Noroxin, Prilosec in its oral form, Vaseretic, PedvaxHIB (the
Company's pediatric vaccine for prevention of Haemophilus influenzae type b
infections), Pepcid, Zocor, Plendil, Chibroxin (norfloxacin) and Proscar.
Prinivil is subject to a license to a third party and is not marketed
exclusively by the Company.
Product patent protection in the United States has expired for the
following human and animal pharmaceutical products: Diuril (chlorothiazide),
Aldomet, Aldoril (methyldopa and hydrochlorothiazide), TBZ and Thibenzole
(thiabendazole), Amprol (amprolium), Blocadren (timolol maleate), Flexeril
(cyclobenzaprine hydrochloride), Moduretic, Decadron (dexamethasone), Indocin,
Clinoril, Dolobid, HydroDiuril (hydrochlorothiazide), Triavil (amitriptyline
hydrochloride-perphenazine) and Sinemet.
While the expiration of a product patent normally results in the loss of
marketing exclusivity for the covered product, commercial benefits may continue
to be derived from: (i) later-granted patents on processes and intermediates
related to the most economical method of manufacture of the active ingredient of
such product; (ii) patents relating to the use of such product; (iii) patents
relating to special compositions and formulations; and (iv) marketing
exclusivity that may be available under the PTRA. The effect of product patent
expiration also depends upon many other factors such as the nature of the market
and the position of the product in it, the growth of the market, the
complexities and economics of the process for manufacture of the active
ingredient of the product and the requirements of new drug provisions of the
Federal Food, Drug and Cosmetic Act or similar laws and regulations in other
countries.
The PTRA in the United States permits restoration of up to five years of
the patent term for new products to compensate for patent term lost during the
regulatory review process. Additionally, under the PTRA new chemical entities
approved after September 24, 1984 receive a period of five years' exclusivity
from the date of NDA approval, during which time an "abbreviated NDA" or "paper
NDA" may not be submitted to the FDA. Similarly, in the case of non-new chemical
entities approved after September 24, 1984, the applications for which include
the new data of clinical investigations conducted or sponsored by the applicant
essential to approval, no abbreviated NDA or paper NDA may become effective
before three years from NDA approval. However, the PTRA has also resulted in a
general increase in the number and use of generic products marketed in the
United States because the regulatory requirements for approval of generic
versions of off-patent pioneer drugs have significantly lessened. Additionally,
the PTRA has increased the incentive for abbreviated NDA applicants to challenge
the validity of the United States patents claiming pioneer drugs because such a
challenge could result in an earlier effective approval date for the generic
version of the pioneer drug and a six-month period during which other generic
versions of the pioneer drug could not be marketed.
In Japan, a patent term restoration law, which was enacted in 1988,
provides, under specific conditions, up to five years of additional patent life
for pharmaceuticals. In 1992, the Council of the European Communities published
a regulation which created supplementary protection certificates for medicinal
products. Thus, as of January 1993, certain medicinal products sold in the EU
became eligible for up to five years of market exclusivity after patent
expiration. However, this market exclusivity will expire throughout the EU 15
years after the first product approval in the EU. In February 1993, Canada
enacted Bill C91 which significantly modified Canadian patent law by eliminating
compulsory licensing of pharmaceutical products
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<PAGE> 8
after December 20, 1991. Thus, patented pharmaceutical products will have market
exclusivity for the full 20-year patent life in Canada.
The North American Free Trade Agreement was passed in November 1993. This
agreement requires Mexico to improve its patent law to meet international
standards and to provide full patent protection to pharmaceutical products. The
General Agreement on Tariff and Trade negotiations were concluded in December
1993. This agreement requires developing countries to upgrade their intellectual
property laws to meet minimum international standards and to provide full patent
protection for pharmaceutical products not later than the end of a ten-year
transition period.
The Generic Animal Drug and Patent Term Restoration Act, enacted in
November 1988, provides for the extension of term of patents claiming new animal
drugs approved after enactment. This legislation also establishes a process by
which generic versions of new animal drugs can be approved via an Abbreviated
New Animal Drug Application procedure. The provisions of this legislation, in
general, are parallel to those found in the PTRA covering human health products.
Worldwide, all of the Company's important products are sold under
trademarks that are considered in the aggregate to be of material importance.
Trademark protection continues in some countries as long as used; in other
countries, as long as registered. Registration is for fixed terms and can be
renewed indefinitely.
Royalties received during 1993 on patent and know-how licenses and other
rights amounted to $63.2 million. The Company also paid royalties amounting to
$230.7 million in 1993 under patent and know-how licenses it holds.
SPECIALTY CHEMICAL PRODUCTS SEGMENT
The Company's specialty chemical products have a wide variety of
applications such as use in health care, food processing, oil exploration,
paper, textiles and personal care. This segment contributed $510.3 million,
$594.9 million and $583.2 million to Company sales in 1993, 1992, and 1991,
respectively. The decrease in 1993 sales in this segment is attributable to the
Company's sale in June 1993 of the Calgon Water Management business for $307.5
million to English China Clays plc.
Competition -- The markets in which this segment's business is conducted
are highly competitive. An important factor in such competition is the degree of
success in the search for technological innovations. The introduction of new
products and processes by competitors may render the Company's products obsolete
and may result in price reductions and product replacements. With its
long-standing emphasis on research and development, the Company is well prepared
to compete in the search for technological innovations and in the conception of
expanded applications for existing products. Additional resources utilized by
the Company to meet competition include quality control, flexibility to meet
exact customer specifications, an efficient distribution system and a strong
technical information service.
Distribution -- Sales of products and related services are made to
industrial users, health-care providers and distributors.
Raw Materials -- Raw materials and supplies are normally available in
quantities sufficient to meet the needs of this segment.
Patents and Trademarks -- Although the Company has United States and
foreign patents on apparatus, products, uses and processes relating to specialty
chemical products, the patent protection afforded is not considered material in
the aggregate. Worldwide, all of the Company's important products are sold under
trademarks. Trademark protection continues in some countries as long as used; in
other countries, as long as registered. Registration is for fixed terms and can
be renewed indefinitely. Trademarks are considered in the aggregate to be of
material importance.
RESEARCH AND DEVELOPMENT
The Company's business is characterized by the introduction of new products
or new uses for existing products through a strong research and development
program. Approximately 6,400 people are employed in the Company's research
activities. Expenditures for the Company's research and development programs
were
7
<PAGE> 9
$1,172.8 million in 1993, $1,111.6 million in 1992 and $987.8 million in 1991
and are expected to exceed $1.3 billion in 1994, an increase of 12 percent over
1993. These increases reflect the Company's ongoing commitment to research over
a broad range of therapeutic areas and clinical development in support of new
products. Total expenditures for the period 1980 through 1993 exceeded $8.5
billion with a compound annual growth rate of 14 percent. Costs incurred by the
joint ventures in which the Company participates, totalling $311.3 million in
1993, are not included in the Company's consolidated research and development
expenses.
The Company maintains a number of long-term exploratory and fundamental
research programs in biology and chemistry as well as research programs directed
toward product development. Projects related to human and animal health are
being carried on in various fields such as bacterial and viral infections,
cardiovascular functions, cancer, diabetes, inflammation, ulcer therapy, kidney
function, mental health, the nervous system, ophthalmic research, prostate
therapy, the respiratory system, bone diseases, animal nutrition and production
improvement, endoparasitic and ectoparasitic diseases and poultry genetics.
Other programs are in the areas of food additives and wound dressings.
In the development of human and animal health products, industry practice
and government regulations in the United States and most foreign countries
provide for the determination of effectiveness and safety of new chemical
compounds through animal tests and controlled clinical evaluation. Before a new
drug may be marketed in the United States, recorded data on the experience so
gained are included in the NDA, biological Product License Application or the
New Animal Drug Application to the FDA for the approval required. The
development of certain other products, such as insecticides and food additives,
is also subject to government regulations covering safety and efficacy in the
United States and many foreign countries. There can be no assurance that a
compound that is the result of any particular program will obtain the regulatory
approvals necessary for it to be marketed.
A potential new product for the Human and Animal Health segment resulting
from this research and development program for which a Product License
Application was submitted to the FDA in 1992 is Varivax (live attenuated
chickenpox vaccine), a vaccine for the prevention of chickenpox. In January
1994, the FDA's External Advisory Committee on Biologics favorably reviewed
Varivax. In 1993, the Company submitted NDAs for an over-the-counter form of the
Company's ulcer medication Pepcid, to be marketed by the Johnson & Johnson -
Merck Consumer Pharmaceuticals Co., and for Trusopt (dorzolamide hydrochloride),
a treatment to reduce intraocular pressure associated with glaucoma, Cozaar and
Hyzaar.
EMPLOYEES
At the end of 1993, the Company had 47,100 employees worldwide, with 30,200
employed in the United States, including Puerto Rico. Approximately 26 percent
of the Company's worldwide employees are represented by various collective
bargaining groups. In 1993, the Company offered a voluntary retirement program
in areas of the Company where it was determined that a reduction in workforce
was appropriate.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects with
applicable environmental laws and regulations. The Company has maintained a
leadership role in supporting environmental initiatives and fostering pollution
prevention by actions including the elimination of, or application of best
available technology to, air emissions of carcinogens or suspect carcinogens by
the Company, which was accomplished in 1993. Projects are currently underway to
reduce all environmental releases of toxic chemicals by 90 percent by the end of
1995. In 1993, the Company incurred capital expenditures of approximately $122.4
million for environmental control facilities. Capital expenditures for this
purpose are forecasted to exceed $400.0 million for the years 1994 through 1998.
In addition, the Company's operating and maintenance expenditures for pollution
control were approximately $40.0 million in 1993. Expenditures for this purpose
for the years 1994 through 1998 are forecasted to exceed $200.0 million. The
Company is also remediating environmental contamination resulting from past
industrial activity at certain of its sites. Remediation expenditures were $26.3
million in 1993 and are estimated at $170.0 million for the years 1994 through
1998. The Company has been accruing for these costs. Management does not believe
that these expenditures should ultimately result in
8
<PAGE> 10
a material adverse effect on the Company's financial position, results of
operations, liquidity or capital resources.
GEOGRAPHIC AREA INFORMATION
The Company's operations outside the United States are conducted primarily
through subsidiaries. Sales by subsidiaries outside the United States were 44
percent of sales in 1993 and 46 percent of sales in 1992 and 1991.
The Company's worldwide business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings abroad.
The Company does not regard these risks as a deterrent to further expansion of
its operations abroad. However, the Company closely reviews its methods of
operations, particularly in less developed countries, and adopts strategies
responsive to changing economic and political conditions.
The ongoing integration of the European market is impacting businesses
operating within the EU, particularly on businesses such as the Company's that
maintain research facilities, manufacturing plants and marketing and sales
organizations in several different countries in the EU. The Company is in the
process of rationalizing its operations within the EU so as to continue to meet
the needs of its customers in the most efficient manner possible. The Company
believes it will continue to be well positioned to compete successfully in this
market, although it is not now possible to predict the extent to which the
Company might be affected in the future by this development.
Financial information about geographic areas of the Company's business is
incorporated by reference to page 50 of the Company's 1993 Annual Report to
stockholders.
ITEM 2. PROPERTIES.
The Company's corporate headquarters is located in Whitehouse Station, New
Jersey. The human and animal health business is conducted through divisional or
subsidiary headquarters located in Montvale, New Jersey; Rahway, New Jersey;
Walpole, New Hampshire; West Point, Pennsylvania; and Woodbridge, New Jersey.
Divisional or subsidiary headquarters in San Diego, California and St. Louis,
Missouri are used in the Specialty Chemical Products segment. Principal research
facilities for human and animal health products are located in Rahway and West
Point and for specialty chemical products in San Diego and St. Louis. The
Company also has production facilities for human and animal health products at
12 locations in the United States and for specialty chemical products at 4
locations in the United States. Branch warehouses are conveniently located to
serve markets throughout the country. Medco operates its primary businesses
through owned or leased facilities in various locations throughout the United
States. Outside the United States, through subsidiaries, the Company owns or has
an interest in manufacturing plants or other properties in most major countries
of the free world.
Capital expenditures for 1993 were $1,012.7 million compared with $1,066.6
million for 1992. In the United States, these amounted to $759.7 million for
1993 and $784.0 million for 1992. Abroad, such expenditures amounted to $253.0
million for 1993 and $282.6 million for 1992.
The Company and its subsidiaries own their principal facilities and the
manufacturing plants under titles which they consider to be satisfactory. The
Company considers that its properties are in good operating condition and that
its machinery and equipment have been well maintained. Plants for the
manufacture of products for both segments are suitable for their intended
purposes and have capacities adequate for current and projected needs for
existing Company products. Some capacity of the human and animal health products
plants is being converted, with any needed modification, to the requirements of
newly introduced and future products.
ITEM 3. LEGAL PROCEEDINGS.
The Company, including Medco, is party to in excess of 20 antitrust suits
(some of which purport to be class actions) instituted by retail pharmacies,
alleging conspiracies in restraint of trade and challenging the pricing and
purchasing practices of the Company and Medco, respectively. A significant
number of other pharmaceutical companies have also been sued in the same or
similar litigation. The Company, including
9
<PAGE> 11
Medco, was also sued prior to the Company's merger with Medco by a retail
pharmacy, which sought and continues to seek an injunction of the merger (the
"merger case"). Most of these actions, except for the merger case and several
actions pending in California state court, have been consolidated for pretrial
purposes in the United States District Court for the Northern District of
Illinois ("Illinois Federal Court"). A number of similar antitrust complaints
were filed subsequent to the consolidation, and the Company will request
consolidation and transfer of these actions to Illinois Federal Court. While it
is not feasible to predict the outcome of these proceedings, in the opinion of
the Company, such proceedings should not ultimately result in any liability
which would have a material adverse effect on the Company.
The Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund. These proceedings seek to require the operators of hazardous
waste disposal facilities, transporters of waste to the sites and generators of
hazardous waste disposed of at the sites to clean up the sites or to reimburse
the Government for cleanup costs. The Company has been made a party to these
proceedings as an alleged generator of waste disposed of at the sites. In each
case, the Government alleges that the defendants are jointly and severally
liable for the cleanup costs. Although joint and several liability is alleged,
these proceedings are frequently resolved so that the allocation of cleanup
costs among the parties more nearly reflects the relative contributions of the
parties to the site situation. The Company's potential liability varies greatly
from site to site. For some sites the potential liability is de minimis and for
others the costs of cleanup have not yet been determined. While it is not
feasible to predict the outcome of many of these proceedings brought by state
agencies or private litigants, in the opinion of the Company, such proceedings
should not ultimately result in any liability which would have a material
adverse effect on the Company. The Company has accrued for these costs and such
accruals do not include any reduction for anticipated recoveries of cleanup
costs from former site owners or operators or other recalcitrant potentially
responsible parties.
In March 1991, the Company reached agreement with the New Jersey Department
of Environmental Protection ("DEP") to settle a proceeding, commenced in
September 1989, regarding alleged violations by the Company of discharge
limitations in two permits for its Rahway, New Jersey site. The agreement
provided for the Company to pay a fine of $575,188 for alleged past violations
and enter into a consent order under which it will undertake specific
operational and equipment improvements to its Rahway facility's discharges of
waste water and storm water. The consent order also provided for payment to DEP
of stipulated penalties for discharge permit violations occurring after June
1990 until the improvements to the site's discharge system are complete,
scheduled in the consent order to be no later than November 1, 1994. The Company
has paid approximately $420,000 in additional stipulated penalties for discharge
violations occurring after June 30, 1990.
A consent decree was entered into in July 1993 between Kelco Division and
the State of California in settlement of allegations by the State that Kelco's
San Diego facility had violated its wastewater discharge permit pH limits. The
consent decree provides that Kelco will pay penalties of $200,000 for alleged
past violations and that the San Diego facility will continuously monitor its
wastewater discharges to the sewerage authority and will demonstrate continuous
compliance with its permit pH limits for a period of one year. The consent
decree also provides that the definition of "continuous compliance" will not
include exceedences whose monthly total does not exceed 1 percent of the
operating time of the system. The facility has already undertaken improvements
to its wastewater discharge system that will improve the quality and control of
the discharges.
There are various other legal proceedings, principally product liability
and intellectual property suits, which are pending against the Company. While it
is not feasible to predict the outcome of these proceedings, in the opinion of
the Company, all such proceedings are either adequately covered by insurance or,
if not so covered, should not ultimately result in any liability which would
have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
---------------------
10
<PAGE> 12
EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1994)
P. ROY VAGELOS -- Age 64
July, 1993 -- Chairman of the Board, President and Chief Executive Officer
January, 1993 -- Chairman of the Board and Chief Executive Officer
April, 1986 -- Chairman of the Board, President and Chief Executive Officer
DAVID W. ANSTICE -- Age 45
January, 1994 -- President, Human Health-Europe
January, 1993 -- Senior Vice President, Merck Human Health Division
(MHHD)-Europe
April, 1991 -- Senior Vice President, MHHD and President, U.S. Human Health
July, 1989 -- Vice President, Marketing, Merck Sharp & Dohme Division
August, 1988 -- Vice President, International Human Health Marketing, Merck
Sharp & Dohme International Division
MICHAEL G. ATIEH -- Age 40
January, 1994 -- Vice President, Public Affairs
April, 1990 -- Treasurer
August, 1988 -- Vice President, Government Relations
CELIA A. COLBERT -- Age 37
November, 1993 -- Secretary and Assistant General Counsel
September, 1993 -- Secretary
February, 1993 -- Secretary, New Products Committee
October, 1992 -- Counsel, Corporate Staff
May, 1991 -- Associate Counsel, Corporate Staff
November, 1988 -- Senior Attorney, Corporate Staff
STEVEN M. DARIEN -- Age 51
April, 1990 -- Vice President, Human Resources
May, 1989 -- Vice President, Worldwide Personnel
February, 1985 -- Vice President, Employee Relations
CAROLINE DORSA -- Age 34
January, 1994 -- Treasurer
July, 1993 -- Executive Director, Customer Marketing, U. S. Human Health
(USHH)
June, 1992 -- Executive Director, Pricing and Strategic Planning, USHH
April, 1990 -- Executive Director, Financial Evaluation and Analysis
June, 1989 -- Director, Pension and Benefits Investment
January, 1989 -- Manager, Pension and Benefits Investment
11
<PAGE> 13
JERRY T. JACKSON -- Age 52
January, 1994 -- Executive Vice President -- responsible for marketing and
sales operations outside of the United States and Canada and the
activities of Merck AgVet and Merck Vaccine Divisions and the Astra/Merck
Group
January, 1993 -- Executive Vice President and President, Merck Human Health
Division -- responsible for worldwide human health business
April, 1991 -- Senior Vice President -- responsible for activities of Merck
AgVet and Merck Vaccine Divisions, Merck Specialty Chemicals and Merck
Consumer Healthcare Groups and liaison with AB Astra and The Du Pont Merck
Pharmaceutical Company
August, 1988 -- President, Merck Sharp & Dohme International Division
BERNARD J. KELLEY -- Age 52
December, 1993 -- President, Merck Manufacturing Division (MMD)
August, 1993 -- Senior Vice President, Operations, MMD
September, 1991 -- Senior Vice President, Administration, Planning and
Quality, MMD
September, 1989 -- Vice President, Business Affairs, Merck AgVet Division
July, 1986 -- President, Hubbard Farms, Inc.
RICHARD J. LANE -- Age 42
January, 1994 -- President, Human Health-North America
January, 1993 -- Senior Vice President, Merck Human Health Division (MHHD)
and President, U.S. Human Health
April, 1991 -- Senior Vice President, MHHD-Europe
October, 1990 -- Vice President, Merck Sharp & Dohme (Europe) Inc. and
Managing Director, Merck Sharp & Dohme Limited
January, 1990 -- Executive Director, Marketing, Merck Sharp & Dohme Limited
January, 1987 -- Executive Director, Marketing Planning, Merck Sharp &
Dohme Division
JUDY C. LEWENT -- Age 45
December, 1993 -- Senior Vice President and Chief Financial Officer --
responsible for financial and public affairs functions and philanthropic
activities
June, 1993 -- Senior Vice President, Chief Financial Officer and Controller
January, 1993 -- Senior Vice President and Chief Financial Officer
April, 1990 -- Vice President, Finance and Chief Financial Officer
October, 1987 -- Vice President and Treasurer
HENRI LIPMANOWICZ -- Age 55
January, 1994 -- President, Human Health-Mid-Intercontinental Region
(MIR)/Japan
June, 1991 -- Senior Vice President, MIR, Merck Human Health Division
April, 1989 -- Vice President, Mid-Europe, Merck Sharp & Dohme
International Division (MSDI)
October, 1981 -- Vice President, Economic and Strategic Planning, MSDI
12
<PAGE> 14
PER G. H. LOFBERG -- Age 46
January, 1994 -- President, Merck-Medco U.S. Managed Care Division
April, 1991 -- Senior Executive Vice President, Strategic Planning and
Marketing, Medco Containment Services, Inc. (Medco)
Prior to April, 1991, Mr. Lofberg was an executive officer of Medco for
more than five years.
MARY M. MCDONALD -- Age 49
January, 1993 -- Senior Vice President and General Counsel
April, 1991 -- Vice President and General Counsel
May, 1990 -- Assistant General Counsel and Counsel, Merck Sharp & Dohme
International Division
November, 1986 -- Assistant General Counsel, Corporate Staff
PETER E. NUGENT -- Age 51
September, 1993 -- Vice President, Controller
July, 1989 -- Vice President, Corporate Taxes
December, 1987 -- Director -- Senior Tax Counsel
EDWARD M. SCOLNICK -- Age 53
December, 1993 -- Executive Vice President, Science and Technology and
President, Merck Research Laboratories (MRL) -- responsible for worldwide
research function and activities of Merck Manufacturing Division and
computer resources
January, 1993 -- Executive Vice President and President, MRL -- responsible
for worldwide research function and activities of Merck AgVet Division and
computer resources
April, 1991 -- Senior Vice President and President, MRL -- responsible for
worldwide research function and activities of Merck Frosst Canada, Inc.
May, 1985 -- President, Merck Sharp & Dohme Research Laboratories Division
FRANCIS H. SPIEGEL, JR. -- Age 58
December, 1993 -- Executive Vice President -- responsible for human
resources, internal auditing and corporate planning, development and
licensing functions, activities of the Merck Consumer Healthcare Group,
Kelco Division and liaison with The Du Pont Merck Pharmaceutical Company
January, 1993 -- Executive Vice President -- responsible for human
resources, internal auditing and corporate planning, development and
licensing functions, activities of the Merck Consumer Healthcare Group and
liaison with The Du Pont Merck Pharmaceutical Company
April, 1991 -- Senior Vice President -- responsible for financial, human
resources, internal auditing and corporate planning, development and
licensing functions
October, 1987 -- Senior Vice President -- responsible for financial,
internal auditing and corporate planning, development and licensing
functions
13
<PAGE> 15
PAUL C. SUTHERN -- Age 42
November, 1992 -- President and Chief Operating Officer, Medco Containment
Services, Inc. (Medco)
December, 1991 -- Assistant to the Chairman, Medco
Prior to December 1991, Mr. Suthern was Vice President -- Operations of
Medco for more than five years
MARTIN J. WYGOD -- Age 54
January, 1993 -- Chairman of the Board, Medco Containment Services, Inc.
(Medco)
Mr. Wygod has been Chairman of the Board of Medco for more than five years.
Mr. Wygod also has been Chief Executive Officer of Medco for more than
five years, other than January 1993 through October 1993.
All officers listed above serve at the pleasure of the Board of Directors.
None of these officers was selected pursuant to any arrangement or understanding
between the officer and the Board. There are no family relationships among the
officers listed above except that Martin J. Wygod and Paul C. Suthern are
brothers-in-law.
14
<PAGE> 16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information required for this item is incorporated by reference to
pages 39 and 52 of the Company's 1993 Annual Report to stockholders.
ITEM 6. SELECTED FINANCIAL DATA.
The information required for this item is incorporated by reference to the
data for the last five fiscal years of the Company included under Results for
Year and Year-End Position in the Selected Financial Data included on page 52 of
the Company's 1993 Annual Report to stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required for this item is incorporated by reference to
pages 32 through 39 of the Company's 1993 Annual Report to stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(A) FINANCIAL STATEMENTS
The consolidated balance sheet of Merck & Co., Inc. and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1993 and the report dated January 25, 1994 of Arthur Andersen &
Co., independent public accountants, are incorporated by reference to pages 40
through 50 and page 51 of the Company's 1993 Annual Report to stockholders.
(B) SUPPLEMENTARY DATA
Selected quarterly financial data for 1993 and 1992 are incorporated by
reference to page 39 of the Company's 1993 Annual Report to stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The required information on directors and nominees is incorporated by
reference to pages 2 (beginning with the caption "Election of Directors")-5 of
the Company's Proxy Statement for the Annual Meeting of Stockholders to be held
April 26, 1994. Information on executive officers is set forth in Part I of this
document on pages 11-14.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item is incorporated by reference to
pages 7 and 13-18 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 26, 1994.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item is incorporated by reference to
pages 8-9 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 26, 1994.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item is incorporated by reference to page
7 (under the caption "Relationships with Outside Firms") of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held April 26, 1994.
15
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) DOCUMENTS FILED AS PART OF THIS FORM 10-K
(i) Financial Statements:
Consolidated statement of income for the years ended
December 31, 1993, 1992 and 1991
Consolidated statement of retained earnings for the years
ended December 31, 1993, 1992 and 1991
Consolidated balance sheet, December 31, 1993 and 1992
Consolidated statement of cash flows for the years ended
December 31, 1993, 1992 and 1991
Notes to financial statements
Report of independent public accountants
This information is incorporated by reference to the Company's 1993 Annual
Report to stockholders, as noted on page 15 of this document.
(ii) Financial Statement Schedules:
Report of independent public accountants on schedules
II -- Amounts receivable from related parties and underwriters,
promoters and employees other than related parties for the
years ended December 31, 1993, 1992 and 1991
V -- Property, plant and equipment for the years ended December
31, 1993, 1992 and 1991
VI -- Accumulated depreciation of property, plant and equipment
for the years ended December 31, 1993, 1992 and 1991
IX -- Short-term borrowings for the years ended December 31,
1993, 1992 and 1991
The registrant is primarily an operating company and all of the
subsidiaries included in the consolidated financial statements filed are wholly
owned except for minority interests in six consolidated subsidiaries.
Schedules other than those listed above are omitted because they are either
not required, not applicable or the information is included in the consolidated
financial statements or notes thereto.
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<PAGE> 18
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
<C> <S> <C>
2 -- Agreement and Plan of Merger By and Incorporated by reference to
Among Merck & Co., Inc., M Acquisition Registration Statement on Form
Corp. and Medco Containment Services, S-4 (No. 33-50667)
Inc., as amended
3(a) -- Restated Certificate of Incorporation of *
Merck & Co., Inc. (May 6, 1992)
3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form
November 22, 1988) 10-K Annual Report for the
fiscal year ended December 31,
1988
10(a) -- Executive Incentive Plan (as amended *
effective May 6, 1992)
10(b) -- 1981 Incentive Stock Option Plan *
(as amended effective May 6, 1992)
10(c) -- 1981 Nonqualified Stock Option Plan (as *
amended effective May 6, 1992)
10(d) -- 1987 Incentive Stock Plan (as amended *
effective May 6, 1992)
10(e) -- 1991 Incentive Stock Plan (as adopted on Incorporated by reference to Form
April 23, 1991) 10-K Annual Report for the
fiscal year ended December 31,
1991
10(f) -- Non-Employee Directors Stock Option Plan *
(as adopted on April 28, 1992 and
restated May 6, 1992)
10(g) -- Supplemental Retirement Plan (as amended Incorporated by reference to Form
effective December 1, 1991) 10-K Annual Report for the
fiscal year ended December 31,
1991
10(h) -- Retirement Plan for the Directors of *
Merck & Co., Inc. (as adopted on
September 22, 1987, effective April
29, 1987)
10(i) -- Plan for Deferred Payment of Directors' Filed with this document
Compensation (as amended effective
April 27, 1993)
10(j) -- Medco 1991 Class B Stock Option Plan, as **
amended
10(k) -- Medco Class A 1983 Non-Qualified Stock **
Option Plan
10(l) -- Form of Stock Option Agreement each **
dated October 14, 1992 between Medco
and Per G.H. Lofberg and Paul C.
Suthern (together with a list showing
the number of options held by each)
10(m)-- Stock Option Agreement made as of **
October 14, 1992 between Medco and
Martin J. Wygod
10(n) -- Second Amended and Restated Employment ***
Agreement between Martin J. Wygod and
Medco dated December 8, 1992
10(o) -- Employment Agreement between Per G.H. ***
Lofberg and Medco dated April 1, 1993
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
<C> <S> <C>
10(p) -- Employment Agreement between Paul C. ***
Suthern and Medco dated January 1,
1993
10(q) -- Letter Agreement between Medco and ***
Martin J. Wygod dated July 27, 1993
10(r) -- Letter Agreement between Medco and Per ***
G.H. Lofberg dated July 27, 1993
10(s) -- Letter Agreement between Medco and Paul C. ***
Suthern dated July 27, 1993
11 -- Computation of Earnings per common share Filed with this document
12 -- Computation of Ratios of Earnings to Filed with this document
Fixed Charges
13 -- 1993 Annual Report to stockholders (only Filed with this document
those portions incorporated by
reference in this document are deemed
"filed")
21 -- List of subsidiaries Filed with this document
24 -- Power of Attorney and Certified Filed with this document
Resolution of Board of Directors
</TABLE>
- ---------------
* Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1992.
** Incorporated by reference to Post Effective Amendment No. 1 to Registration
Statement on Form S-8 to Form S-4 Registration Statement (No. 33-50667).
*** Incorporated by reference to Form 10-K Annual Report of Medco Containment
Services, Inc. for the fiscal year ended June 30, 1993.
None of the instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries (Exhibit Number 4) are being filed since the
total amount of securities authorized under any of such instruments taken
individually does not exceed 10 percent of the total assets of the Company and
its subsidiaries on a consolidated basis. The Company agrees to furnish a copy
of such instruments to the Commission upon request.
Copies of the exhibits may be obtained by stockholders upon written request
directed to the Stockholder Services Department, Merck & Co., Inc., P.O. Box
100--WS 3AB-40, Whitehouse Station, New Jersey 08889-0100 accompanied by check
in the amount of $5.00 payable to Merck & Co., Inc. to cover processing and
mailing costs.
(C) REPORTS ON FORM 8-K
During the three-month period ending December 31, 1993, one report was
filed on Form 8-K, under Item 2 - Acquisition or Disposition of Assets, relative
to the acquisition of Medco Containment Services, Inc. This report was dated
November 18, 1993 and filed December 3, 1993, and amended February 1, 1994.
18
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Merck & Co., Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Merck & Co., Inc.'s 1993
Annual Report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 25, 1994. Our audits were made for
the purpose of forming an opinion on those basic financial statements taken as a
whole. The schedules listed in Item 14 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
New York, New York
January 25, 1994
19
<PAGE> 21
SCHEDULE II
MERCK & CO., INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
($ IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT
DEDUCTIONS END
BALANCE AT ----------------------------- OF PERIOD(2)
BEGINNING OF AMOUNTS AMOUNTS ------------
NAME OF DEBTOR PERIOD ADDITIONS(1) COLLECTED WRITTEN-OFF CURRENT
--------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993:
J. Valesio (a)......................... -- $ .5 -- -- --
R. Vanderveer (b)...................... -- .5 -- -- --
R. Frankel (c)......................... -- .4 -- -- --
C. Tisone (d).......................... -- .2 -- -- --
M. Horst (e)........................... -- .2 -- -- --
R. Jones (f)........................... -- .2 -- -- $ .2
R. Pepper (g).......................... -- .2 -- -- .2
R. Holland (h)......................... -- .2 -- -- --
D. Kline (i)........................... -- .1 $ .1 -- --
W. Vellon (j).......................... -- .1 -- -- --
-- --- -- -- --
-- $2.6 $ .1 -- $ .4
-- -- -- -- --
-- -- -- -- --
Year Ended
December 31, 1992:
A. Butler (k).......................... $ .1 -- $ .1 -- --
-- -- -- -- --
-- -- -- -- --
Year Ended
December 31, 1991:
J. Mukamal (l)......................... $ .2 -- $ .2 -- --
A. Butler (k).......................... -- $ .1 -- -- $ .1
-- -- -- -- --
$ .2 $ .1 $ .2 -- $ .1
-- -- -- -- --
-- -- -- -- --
<CAPTION>
NAME OF DEBTOR NONCURRENT
--------------- ----------
<S> <C>
Year Ended
December 31, 1993:
J. Valesio (a)......................... $ .5
R. Vanderveer (b)...................... .5
R. Frankel (c)......................... .4
C. Tisone (d).......................... .2
M. Horst (e)........................... .2
R. Jones (f)........................... --
R. Pepper (g).......................... --
R. Holland (h)......................... .2
D. Kline (i)........................... --
W. Vellon (j).......................... .1
---
$2.1
---
---
Year Ended
December 31, 1992:
A. Butler (k).......................... --
---
---
Year Ended
December 31, 1991:
J. Mukamal (l)......................... --
A. Butler (k).......................... --
---
--
---
---
</TABLE>
- ---------------
(1) 1993 additions are a result of the Medco acquisition on November 18, 1993.
(2) Does not include applicable accrued interest.
(a) Represents a loan to an officer collateralized by his principal residence
with interest at 6%, payable no later than July 13, 1997.
(b) Represents a loan to an officer collateralized by stock options with
interest at 6%. Payable with the proceeds on the date or dates on which the
officer sells all or part of Medical Marketing Group common stock or the
exercise of Medical Marketing Group stock options.
(c) Represents a loan to an officer which is collateralized by his principal
residence with interest at 10%, payable no later than May 4, 2005.
(d) Represents loans to an officer collateralized by shares of the Company's
common stock, payable on April 30, 1996.
(e) Represents a loan to an officer collateralized by his principal residence
with interest at 6.5%, payable no later than September 4, 1997.
(f) Represents a loan to an officer which is collateralized by stock options
with interest at 6% and payable on demand.
(g) Represents a loan to an officer collateralized by stock options with
interest at 6% and payable on demand.
(h) Represents a loan to an officer collateralized by stock options with
interest at 6%, payable no later than May 11, 1998.
(i) Represents a loan to an officer collateralized by stock options with
interest at 6%, repaid on December 27, 1993.
(j) Represents a loan to an employee which is collateralized by his principal
residence with interest at 7% and payable over 30 years ending December 1,
2022.
(k) Represents a loan to purchase stock which was payable in February 1992 with
interest at 8%. The loan was fully repaid in February 1992.
(l) Represents a loan to purchase stock which was payable in March 1991 with
interest at 10%. The loan was fully repaid in January 1991.
20
<PAGE> 22
SCHEDULE V
MERCK & CO., INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
($ IN MILLIONS)
<TABLE>
<CAPTION>
RETIRE-
BALANCE AT ADDITIONS MENTS OTHER BALANCE
BEGINNING AT COST OR SALES CHANGES AT END
CLASSIFICATION OF PERIOD (a) (b) (c) OF PERIOD
-------------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Land.................................. $ 210.3 $ 7.3 $ 7.9 $ 2.8 $ 212.5
Buildings............................. 2,122.1 363.2 124.3 25.1 2,386.1
Machinery, Equipment and Office
Furnishings......................... 3,435.0 581.7 338.8 91.1 3,769.0
Construction in Progress.............. 763.5 60.5 24.0 5.2 805.2
------------- ------------- ------ ----------- -------------
Total......................... $6,530.9 $1,012.7 $ 495.0 $ 124.2 $7,172.8
------------- ------------- ------ ----------- -------------
------------- ------------- ------ ----------- -------------
Year ended December 31, 1992:
Land.................................. $ 195.7 $ 12.1 $ -- $ 2.5 $ 210.3
Buildings............................. 1,483.3 647.7 11.0 2.1 2,122.1
Machinery, Equipment and Office
Furnishings......................... 3,002.2 569.1 141.7 5.4 3,435.0
Construction in Progress.............. 925.6 (162.3) -- .2 763.5
------------- ------------- ------ ----------- -------------
Total......................... $5,606.8 $1,066.6 $ 152.7 $ 10.2 $6,530.9
------------- ------------- ------ ----------- -------------
------------- ------------- ------ ----------- -------------
Year ended December 31, 1991:
Land.................................. $ 169.5 $ 29.2 $ 3.0 -- $ 195.7
Buildings............................. 1,258.4 229.0 4.1 -- 1,483.3
Machinery, Equipment and Office
Furnishings......................... 2,660.6 393.6 52.0 -- 3,002.2
Construction in Progress.............. 542.0 389.7 6.1 -- 925.6
------------- ------------- ------ ----------- -------------
Total......................... $4,630.5 $1,041.5 $ 65.2 -- $5,606.8
------------- ------------- ------ ----------- -------------
------------- ------------- ------ ----------- -------------
</TABLE>
- ---------------
(a) Additions, at cost, to construction in progress are net of transfers to
other plant and equipment classifications for those construction
projects completed during the year.
(b) 1993 and 1992 include sales of assets related to divestitures and 1993
includes dispositions associated with restructurings.
(c) Represents balances at date of acquisition for assets acquired and
accounted for as a purchase transaction.
21
<PAGE> 23
SCHEDULE VI
MERCK & CO., INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
($ IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND RETIREMENTS AT END
CLASSIFICATION OF PERIOD EXPENSES OR SALES(a) OF PERIOD
-------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993:
Buildings.............................................. $ 556.7 $ 84.8 $ 104.8 $ 536.7
Machinery, Equipment and Office Furnishings............ 1,703.1 263.6 225.2 1,741.5
------------ ----------- ----------- ------------
Total.......................................... $2,259.8 $ 348.4 $ 330.0 $2,278.2
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Year ended December 31, 1992:
Buildings.............................................. $ 501.7 $ 71.4 $ 16.4 $ 556.7
Machinery, Equipment and Office Furnishings............ 1,600.6 218.9 116.4 1,703.1
------------ ----------- ----------- ------------
Total.......................................... $2,102.3 $ 290.3 $ 132.8 $2,259.8
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Year ended December 31, 1991:
Buildings.............................................. $ 447.7 $ 55.6 $ 1.6 $ 501.7
Machinery, Equipment and Office Furnishings............ 1,461.1 187.1 47.6 1,600.6
------------ ----------- ----------- ------------
Total.......................................... $1,908.8 $ 242.7 $ 49.2 $2,102.3
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
- ---------------
(a) 1993 and 1992 include sales of assets related to divestitures and 1993
includes dispositions associated with restructurings.
NOTE: Depreciation is provided over the estimated lives of the assets,
principally using the straight-line method. The estimated useful lives are
10 to 50 years for Buildings, and 3 to 20 years for Machinery, Equipment
and Office Furnishings.
22
<PAGE> 24
SCHEDULE IX
MERCK & CO., INC. AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
($ IN MILLIONS)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE MAXIMUM AVERAGE WEIGHTED
INTEREST MONTH-END MONTH-END AVERAGE
BALANCE RATE BALANCE BALANCE INTEREST
AT AT OUTSTANDING OUTSTANDING RATE
END OF END OF DURING DURING DURING
CLASSIFICATION PERIOD PERIOD THE YEAR THE YEAR THE YEAR(a)
- -------------------------------------------- -------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Commercial Paper and Medium-Term
Notes................................. $1,596.8 3.0% $ 2,137.2 $ 998.7 3.2%
Bank Borrowings in foreign
currencies(b)......................... 73.4 10.3% $ 118.4 85.2 9.3%
Other(c)................................ 34.1 4.9% $ 36.6 34.2 4.3%
-------- ----------
$1,704.3 3.4% $1,118.1 3.7%
-------- ----------
-------- ----------
Year ended December 31, 1992:
Commercial Paper and Medium-Term
Notes................................. $ 609.3 3.4% $ 810.2 $ 394.8 3.5%
Bank Borrowings in foreign
currencies(b)......................... 76.3 10.8% $ 159.9 105.1 10.7%
Other(c)................................ 42.4 4.4% $ 42.4 30.4 4.7%
-------- ----------
$ 728.0 4.2% $ 530.3 5.0%
-------- ----------
-------- ----------
Year ended December 31, 1991:
Notes with Bank Trust Departments and
Commercial Paper...................... $ 65.0 4.9% $ 883.6 $ 428.2 6.2%
Bank Borrowings in foreign
currencies(b)......................... 123.8 8.3% $ 123.8 62.5 9.7%
Other(b)(c)............................. 29.2 5.2% $ 29.5 28.7 6.9%
-------- ----------
$ 218.0 6.9% $ 519.4 6.7%
-------- ----------
-------- ----------
</TABLE>
- ---------------
(a) The weighted average interest rates were calculated on the basis of
month-end borrowings.
(b) Amounts exclude the current portion of long-term debt.
(c) Principally short-term tax-exempt borrowings and U.S. dollar
denominated borrowings.
23
<PAGE> 25
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MERCK & CO., INC.
Dated: March 22, 1994
By P. ROY VAGELOS
(CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER)
By /s/ CELIA A. COLBERT
CELIA A. COLBERT
(ATTORNEY-IN-FACT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<C> <S> <C>
P. ROY VAGELOS Chairman of the Board,
President and Chief Executive
Officer; Principal Executive
Officer; Director
JUDY C. LEWENT Senior Vice President and Chief
Financial Officer; Principal
Financial Officer
PETER E. NUGENT Vice President, Controller;
Principal Accounting Officer
H. BREWSTER ATWATER, JR. March 22, 1994
DEREK BIRKIN
LAWRENCE A. BOSSIDY
WILLIAM G. BOWEN
CAROLYNE K. DAVIS
LLOYD C. ELAM Directors
CHARLES E. EXLEY, JR.
WILLIAM N. KELLEY
RUBEN F. METTLER
RICHARD S. ROSS
DENNIS WEATHERSTONE
MARTIN J. WYGOD
</TABLE>
CELIA A. COLBERT, BY SIGNING HER NAME HERETO, DOES HEREBY SIGN THIS
DOCUMENT PURSUANT TO POWERS OF ATTORNEY DULY EXECUTED BY THE PERSONS NAMED,
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS AN EXHIBIT TO THIS
DOCUMENT, ON BEHALF OF SUCH PERSONS, ALL IN THE CAPACITIES AND ON THE DATE
STATED, SUCH PERSONS INCLUDING A MAJORITY OF THE DIRECTORS OF THE COMPANY.
By /s/ CELIA A. COLBERT
CELIA A. COLBERT
(ATTORNEY-IN-FACT)
24
<PAGE> 26
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in or incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements on Form S-8 (Nos.
33-21087, 33-21088, 33-36101, 33-40177 and 33-51235), on Form S-4 (No. 33-50667)
and on Form S-3 (Nos. 33-39349, 33-60322 and 33-51785). It should be noted that
we have not audited any financial statements of the Company subsequent to
December 31, 1993 or performed any audit procedures subsequent to the date of
our reports.
ARTHUR ANDERSEN & CO.
New York, New York
March 22, 1994
25
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
<C> <S> <C>
2 -- Agreement and Plan of Merger By and Incorporated by reference to
Among Merck & Co., Inc., M Acquisition Registration Statement on Form
Corp. and Medco Containment Services, S-4 (No. 33-50667)
Inc., as amended
3(a) -- Restated Certificate of Incorporation of *
Merck & Co., Inc. (May 6, 1992)
3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form
November 22, 1988) 10-K Annual Report for the
fiscal year ended December 31,
1988
10(a) -- Executive Incentive Plan (as amended *
effective May 6, 1992)
10(b) -- 1981 Incentive Stock Option Plan *
(as amended effective May 6, 1992)
10(c) -- 1981 Nonqualified Stock Option Plan (as *
amended effective May 6, 1992)
10(d) -- 1987 Incentive Stock Plan (as amended *
effective May 6, 1992)
10(e) -- 1991 Incentive Stock Plan (as adopted on Incorporated by reference to Form
April 23, 1991) 10-K Annual Report for the
fiscal year ended December 31,
1991
10(f) -- Non-Employee Directors Stock Option Plan *
(as adopted on April 28, 1992 and
restated May 6, 1992)
10(g) -- Supplemental Retirement Plan (as amended Incorporated by reference to Form
effective December 1, 1991) 10-K Annual Report for the
fiscal year ended December 31,
1991
10(h) -- Retirement Plan for the Directors of *
Merck & Co., Inc. (as adopted on
September 22, 1987, effective April
29, 1987)
10(i) -- Plan for Deferred Payment of Directors' Filed with this document
Compensation (as amended effective
April 27, 1993)
10(j) -- Medco 1991 Class B Stock Option Plan, as **
amended
10(k) -- Medco Class A 1983 Non-Qualified Stock **
Option Plan
10(l) -- Form of Stock Option Agreement each **
dated October 14, 1992 between Medco
and Per G.H. Lofberg and Paul C.
Suthern (together with a list showing
the number of options held by each)
10(m)-- Stock Option Agreement made as of **
October 14, 1992 between Medco and
Martin J. Wygod
10(n) -- Second Amended and Restated Employment ***
Agreement between Martin J. Wygod and
Medco dated December 8, 1992
10(o) -- Employment Agreement between Per G.H. ***
Lofberg and Medco dated April 1, 1993
</TABLE>
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION METHOD OF FILING
<C> <S> <C>
10(p) -- Employment Agreement between Paul C. ***
Suthern and Medco dated January 1,
1993
10(q) -- Letter Agreement between Medco and ***
Martin J. Wygod dated July 27, 1993
10(r) -- Letter Agreement between Medco and Per ***
G.H. Lofberg dated July 27, 1993
10(s) -- Letter Agreement between Medco and Paul C. ***
Suthern dated July 27, 1993
11 -- Computation of Earnings per common share Filed with this document
12 -- Computation of Ratios of Earnings to Filed with this document
Fixed Charges
13 -- 1993 Annual Report to stockholders (only Filed with this document
those portions incorporated by
reference in this document are deemed
"filed")
21 -- List of subsidiaries Filed with this document
24 -- Power of Attorney and Certified Filed with this document
Resolution of Board of Directors
</TABLE>
- ---------------
* Incorporated by reference to Form 10-K Annual Report for the fiscal year
ended December 31, 1992.
** Incorporated by reference to Post Effective Amendment No. 1 to Registration
Statement on Form S-8 to Form S-4 Registration Statement (No. 33-50667).
*** Incorporated by reference to Form 10-K Annual Report of Medco Containment
Services, Inc. for the fiscal year ended June 30, 1993.
<PAGE> 1
EXHIBIT 10(i)
MERCK & CO., INC.
PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMPENSATION
(Amended effective April 27, 1993)
I. PURPOSE
To provide an arrangement under which directors of Merck & Co.,
Inc. may defer payment of the annual retainer, and meeting and
committee fees until after termination of their service as a
director.
II. EFFECTIVE DATE
March 24, 1981
III. ELECTION OF DEFERRAL
A. Prior to December 28 of each year, each director, is
entitled to make an irrevocable election to defer until
termination of service as a director receipt of payment of
(a) 50% or 100% of the retainer for the 12 months beginning
April 1 of the next calendar year, and (b) 50% or 100% of
the meeting and committee fees for the 12 months beginning
April 1 of the next calendar year. With respect to the year
1981 only, directors may make this initial election, at
their discretion, after April 1, but before July 1, in
which case such initial election shall apply to directors'
compensation for the nine months commencing July 1, 1981
and ending March 31, 1982. In the case of new nominees for
election to director or in the event the director is
appointed at a time other than the Annual Meeting of
Stockholders, the election under the deferral plan must be
made prior to commencement of duties as a director. Each
such annual election shall include an election as to the
method by which the value of amounts deferred will be
measured in accordance with Section IV, below.
B. Each such annual election shall include an election to
receive payment following termination of service as a
director of all amounts deferred in a lump sum, or in
annual or quarterly installments over one, five, ten or
fifteen years; provided, however, that for Plan years
commencing prior to April 1, 1985, the election as to
payment period and frequency made in the first Plan year of
participation shall govern all deferrals elected in such
Plan years. The first such payment shall be made as soon as
practicable following termination of service, provided that
no amount valued under the Merck Common Stock Method shall
be distributed until six months have elapsed since such
valuation.
C. Upon the request of a director made at any time during the
calendar year immediately preceding the calendar year in
which service as a director terminates, the Executive
Committee of the Board of Directors, in its sole
discretion, may authorize: (a) an extension of a payment
period beyond that originally elected by the director not
to exceed that otherwise allowable under the Plan, and/or
(b) a payment frequency different from that originally
elected by the director. Such request may not be made with
regard to amounts deferred subsequent to May 1, 1991 using
the Merck Common Stock Method and to any earnings
attributable to such deferrals. Any retired director who is
not subject to U.S. income tax may petition the Executive
Committee to change payment frequency including a lump sum
distribution, and the Executive Committee may grant such
petition if, in its discretion, it considers there to be
reasonable justification therefor. Deferrals made
subsequent to May 1, 1991 and any earnings thereon may only
be distributed in accordance with the schedule elected
under Article III, Section B or Article V.
<PAGE> 2
D. Following termination of service as a director, each
director may make one request for a further extension of
the period for distribution of his/her deferred
compensation which may not exceed the deferral period
otherwise allowable under the Plan. This request may be
granted and a new payment schedule determined in the sole
discretion of the Executive Committee of the Board of
Directors. Such request may not be made with regard to
amounts deferred subsequent to May 1, 1991 using the Merck
Common Stock Method and to any earnings attributable to
such deferrals. Deferrals made subsequent to May 1, 1991
and any earnings thereon may only be distributed in
accordance with the schedule elected under Article III,
Section B or Article V.
IV. VALUATION, CONVERSION AND PAYMENT OF DEFERRED AMOUNTS
A. VALUATION. The value of amounts deferred under each year's
election shall be measured in accordance with each
director's election in one of two ways: The Merck Common
Stock Method or the Fidelity Daily Income Trust Method.
Under both methods the total amount of each director's
compensation deferred each calendar quarter is used to
determine the number of full and partial shares of Merck
Common Stock or shares of the Fidelity Daily Income Trust
which such amount would purchase at the closing price for
Merck Common Stock on the New York Stock Exchange composite
tape or the offering price (Net Asset Value) for Fidelity
Daily Income Trust shares on the eighth Tuesday in such
quarter, or if such quotations are not available on such
eighth Tuesday, then on the first preceding day on which
such quotations were available. The Company shall credit
the director's account with the number of shares so
determined on the last day of the quarter.
Each director's account will be credited once each calendar
quarter, or at the date of any measurement method
conversion, with the additional number of full and partial
shares of Merck Common Stock which would have been
purchasable with the dividends on shares previously
credited to the account at the closing price on the New
York Stock Exchange composite tape on the date each
dividend was paid or with the additional number of full and
partial Fidelity Daily Income Trust shares which would have
been purchasable each calendar quarter at the average
offering price during such quarter with the total dividends
paid during such quarter on shares previously credited to
the account.
B. CONVERSION OF MEASUREMENT METHOD APPLICABLE TO AMOUNTS
DEFERRED PRIOR TO MAY 1, 1991 AND TO ALL EARNINGS ON SUCH
DEFERRED AMOUNTS. Upon request to the Company, a director
may request that the method by which the value of all or a
portion of the account is measured following the date of
receipt of such request by the Company be converted as
provided below. The portion of the director's account to be
converted will be valued at its cash equivalent and such
cash equivalent will be converted into shares of the other
measurement method. For purposes of such conversions, the
cash equivalent of Merck Common Stock or shares of the
Fidelity Daily Income Trust shall be the closing price on
the New York Stock Exchange composite tape or the offering
price of Fidelity Daily Income Trust shares on the date the
request is received by the Company. This Section B is not
applicable to any amounts deferred after May 1, 1991 or to
any earnings attributable to deferrals made subsequent to
May 1, 1991. Amounts deferred subsequent to May 1, 1991
and any earnings thereon will remain invested in the medium
chosen at the time of the deferral election.
1. During Active Service. A director may make one
measurement conversion request out of the Merck
Common Stock Method anytime during each calendar
year, except thirty (30) days prior to a
distribution under Section IV.C.; provided,
however, that each such
- 2 -
<PAGE> 3
request is irrevocable and made in whole
percentages. An account, or portion of an account,
that is converted out of the Merck Common Stock
Method may not subsequently be reconverted to the
Merck Common Stock Method of measurement under
this subsection.
2. At Retirement. One additional irrevocable request
may be made by a director at any time during the
last plan year of service to convert fully or
partially from the Merck Common Stock Method to
the Fidelity Daily Income Trust Method.
3. After Death. Following the death of a director,
the legal representative or beneficiary of such
director may make one irrevocable request to
convert fully or partially from the Merck Common
Stock Method to the Fidelity Daily Income Trust
Method.
Provided, however, that should the Securities and
Exchange Commission indicate to Merck's Corporate
Counsel that conversions from the Fidelity Daily
Income Trust Method to the Merck Common Stock
Method will not cause loss of the exemption from
the definition of derivative security under
Section 16 then this amendment of Article IV,
Section B, paragraphs 2 and 3 shall be considered
null and void as of that date, and the language
used prior to this amendment shall be reinstated.
C. PAYMENT OF DEFERRED AMOUNTS. All payments to directors of
amounts deferred will be in cash. At no time during the
deferral period will any shares of Merck Common Stock or
Fidelity Daily Income Trust shares be purchased or
earmarked for such deferred amounts nor will any rights of
a shareholder exist with respect to such amounts.
V. DESIGNATION OF BENEFICIARY
In the event of death of a director, the deferred amount at the
date of death shall be paid to the last named beneficiary or
beneficiaries designated by the director, or if no beneficiary has
been designated, then to the director's legal representative, in
one or more installments as the Executive Committee of the Board in
its sole discretion may determine.
- 3 -
<PAGE> 1
Exhibit 11
MERCK & CO., INC. AND SUBSIDIARIES
Computations of Earnings Per Common Share (a)
---------------------------------------------
(In millions except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net Income and Adjusted Earnings:
- ---------------------------------
Income Before Cumulative Effect
of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,166.2 $2,446.6 $2,121.7
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . - (462.4) -
-------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166.2 1,984.2 2,121.7
Effect on Earnings of Compensation Expense on
Stock Option and Executive Incentive Plans . . . . . . . . . . . . . . . . 1.6 4.0 11.9
Effect on Earnings of Interest on
Debentures Issued by Medco . . . . . . . . . . . . . . . . . . . . . . . . .2 - -
Adjusted Earnings for Fully Diluted -------- -------- --------
Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,168.0 $1,988.2 $2,133.6
======== ======== ========
Weighted Average Shares and Share
Equivalents Outstanding:
- ---------------------------------
Weighted Average Shares Outstanding (As Reported) . . . . . . . . . . . . . . 1,156.5 1,153.5 1,159.9
Common Share Equivalents Issuable
Under Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 8.8 12.0
Common Share Equivalents Issuable Under
Executive Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.2 2.4
Common Share Equivalents Issuable on Assumed
Conversion of Debentures Issued by Medco . . . . . . . . . . . . . . . . . .4 - -
-------- -------- --------
Weighted Average Shares and
Share Equivalents Outstanding . . . . . . . . . . . . . . . . . . . . . . . 1,165.8 1,164.5 1,174.3
======== ======== ========
Earnings Per Share (As Reported):
- ---------------------------------
Before Cumulative Effect
of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $2.12 $1.83
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . - (.40) -
----- ----- -----
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $1.72 $1.83
===== ===== =====
Fully Diluted Earnings Per Share: (b)
- ---------------------------------
Before Cumulative Effect
of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.86 $2.10 $1.82
Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . - (.39) -
----- ----- -----
Fully Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . $1.86 $1.71 $1.82
===== ===== =====
</TABLE>
(a) All per share amounts for the current and prior periods presented in this
exhibit reflect the three-for-one split of the Company's common stock
effective May 6, 1992.
(b) 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
Exhibit 12
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges
--------------------------------------------------
(In millions except ratio data)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income before Taxes and
Cumulative Effect of
Accounting Charges $3,102.7 $3,563.6 $3,166.7 $2,698.8 $2,283.0 $1,871.0
-------- -------- -------- -------- -------- --------
Add:
One-third of Rents 35.0 34.0 31.1 26.5 20.0 19.3
Interest Expense (Net) 48.0 23.6 26.0 51.9 45.5 71.0
-------- -------- -------- -------- -------- --------
Income as Adjusted $3,185.7 $3,621.2 $3,223.8 $2,777.2 $2,348.5 $1,961.3
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of Rents $ 35.0 $ 34.0 $31.1 $26.5 $20.0 $19.3
Interest Expense 84.7 72.7 68.7 69.8 53.2 76.5
------ ------ ----- ----- ----- -----
Fixed Charges $119.7 $106.7 $99.8 $96.3 $73.2 $95.8
====== ====== ===== ===== ===== =====
Ratio of Earnings
to Fixed Charges 27 34 32 29 32 20
-- -- -- -- -- --
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
income taxes, one-third of rents (deemed by the Company to be representative of
the interest factor), 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.
<PAGE> 1
Exhibit 13
FINANCIAL REVIEW
DESCRIPTION OF MERCK'S BUSINESS
Merck is a worldwide organization engaged primarily in the business of
discovering, developing, producing and marketing products and services for the
maintenance or restoration of health. The Company's business is divided into
two industry segments: Human and Animal Health Products and Services and
Specialty Chemical Products. In 1993, the Human and Animal Health segment
includes Medco Containment Services, Inc. (Medco), acquired in November 1993.
HUMAN AND ANIMAL HEALTH PRODUCTS
AND SERVICES
Human health products include therapeutic and preventive agents, generally sold
by prescription, for the treatment of human disorders. Among these are
cardiovascular products, of which Vasotec, Mevacor, Zocor, Prinivil and
Vaseretic are the largest-selling; anti-ulcerants, of which Pepcid and Prilosec
are the largest; antibiotics, of which Primaxin, Noroxin and Mefoxin are the
largest; vaccines/biologicals, of which M-M-R II, a pediatric vaccine for
measles, mumps and rubella, and Recombivax HB (hepatitis B vaccine recombinant)
are the largest-selling; ophthalmologicals, of which Timoptic is the largest;
anti-inflammatory/analgesic products, of which Indocin, Clinoril and Dolobid
are the largest; and other human health products, which include
antiparkinsonism products, psychotherapeutics, a muscle relaxant and Proscar, a
treatment for symptomatic benign prostate enlargement. Human health services
include health-care cost containment services, principally managed prescription
drug programs.
Animal health/crop protection products include animal medicinals used for
control and alleviation of disease in livestock, small animals and poultry.
These products are primarily antiparasitics, of which Ivomec, for the control
of internal and external parasites in livestock, and Heartgard-30, for the
prevention of canine heartworm disease, are the largest-selling; crop
protection products; coccidiostats for the treatment of poultry disease; and
poultry breeding stock.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
SALES OF HUMAN AND ANIMAL HEALTH PRODUCTS AND SERVICES
- ---------------------------------------------------------------------
($ in millions) 1993* 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Cardiovasculars . . . . . $4,820.8 $4,482.0 $3,804.2
Anti-ulcerants . . . . . 1,324.0 1,043.9 820.6
Antibiotics . . . . . . . 868.7 942.2 917.7
Vaccines/biologicals . . 522.9 485.3 375.1
Ophthalmologicals . . . . 454.6 457.2 425.2
Anti-inflammatories/analgesics 336.8 430.5 500.4
Other human health . . . 446.8 373.4 381.9
Other Medco sales . . . . 296.6 - -
Animal health/crop protection 916.7 853.1 794.4
- ---------------------------------------------------------------------
$9,987.9 $9,067.6 $8,019.5
=====================================================================
</TABLE>
* Sales by therapeutic class include Medco sales of Merck products.
Medco sales of non-Merck products and Medco services are included in Other
Medco sales.
Sales of the Company's human and animal health products are generally made by
professional representatives. Customers for human health products include drug
wholesalers and retailers, hospitals, clinics, governmental agencies and
managed health-care providers such as health maintenance organizations and
other institutions. Customers for animal health/crop protection products
include veterinarians, distributors, wholesalers, retailers, feed
manufacturers, veterinary suppliers and laboratories.
The markets in which this segment's business is conducted are highly
competitive and, in many cases, highly regulated. The introduction of new,
technologically innovative products and processes by competitors may result in
price reductions and product substitutions, even for products protected by
patents. Government efforts to slow the increase of health-care costs and the
demand for price discounts from managed care groups have made it increasingly
difficult for the Company to cover the effect of inflation on costs and
expenses through price increases. It is anticipated that the worldwide trend
for cost containment and competitive pricing will continue for the balance of
the 1990's, and result in continued pricing pressures.
Outside of the United States, governments are also taking actions which are
forcing the Company to significantly limit selling prices to remain
competitive. Governments' actions to increase the use of generic products have
significantly reduced the sales of certain of the Company's products no longer
protected by patents and have slowed the sales growth of certain other
products. These governmental efforts and competitive pressures are limiting
the Company's ability to mitigate the effect of inflation on costs and expenses
through price increases. Merck is responding to this new environment
32
<PAGE> 2
in a number of ways including the development of innovative sales, marketing
and education techniques, by developing health-care alliances with large
pharmaceutical buyers, and by efforts to become more productive throughout our
entire organization.
In the United States, legislative bodies are working toward a solution to
expand health-care access and reduce the costs associated therewith. The
debate to reform the health-care system is expected to be protracted and
intense. Although the Company is positioned to do business in a managed
competition environment and respond to evolving market forces, it cannot
predict the outcome or effect of legislation resulting from the reform process.
However, the Company believes that its current policies will enable it to
maintain a strong position in this changing economic environment.
In early 1990, Merck voluntarily adopted a pricing policy that limits the
weighted average price increases for human health pharmaceutical products to
the general rate of inflation, as measured by the U.S. Consumer Price Index
(CPI). In early 1993, the policy was amended to limit individual product price
increases to the CPI plus 1% on an annual basis. This policy is supported by
our strategy to grow through volume and not price, given stable market
conditions and government policies that foster innovation. Also in 1990, Merck
introduced its Equal Access to Medicines Program in a number of states. Under
this program, Merck voluntarily granted its best price discounts to state
Medicaid programs in exchange for full patient access to our products. This
innovative program served as a model for national legislation applicable to all
prescription drug manufacturers. These actions and other voluntary efforts
demonstrate our corporate responsibility and have provided a voice for
health-care reform.
Other principal strategies for remaining competitive in this environment
include investing in research and development (R&D) directed toward the
discovery and development of new, technologically innovative products, through
acquisitions, joint ventures, licensing agreements and other strategic
alliances, the acquiring and marketing of products, and discovery and
development of new products and streamlining and restructuring of operations
worldwide.
To further enhance the Company's competitive position in the emerging area of
managed care, Medco was acquired in November 1993. Medco principally provides
services designed to reduce prescription drug benefit costs through managed
prescription drug programs, and also provides managed mental health-care
services. Medco provides these services to corporations, labor unions,
insurance companies, Blue Cross and Blue Shield organizations, Federal and
state employee plans, health maintenance and other similar organizations.
Merck acquired all the outstanding shares of Medco for approximately $6.6
billion. The purchase price consisted of $2.4 billion in cash, 114.0 million
common shares with a market value of $3.8 billion and 36.1 million options
valued at $387.1 million, net of tax. The acquisition was accounted for by the
purchase method and, accordingly, Medco's results of operations have been
included with the Company's since acquisition. The inclusion of Medco did not
have a significant impact on the Company's results of operations.
The allocation of the purchase price to assets acquired and liabilities
assumed is based on preliminary assumptions and is subject to revision. The
effect of any revision is not expected to have a significant impact on the
Company's financial position or results of operations.
In 1989, Merck and E. I. du Pont de Nemours and Company (Du Pont) agreed to
form a long-term research and marketing collaboration to develop a new class of
therapeutic agents for high blood pressure and heart disease, discovered and
developed by Du Pont. In return, Merck provided Du Pont marketing rights in
the United States and Canada to two Merck prescription medicines, Sinemet and
Vaseretic.
To further enhance the Company's access to research products, Merck and Du
Pont created an independent, research-driven, worldwide pharmaceutical joint
venture, equally owned by each party, which began operations on January 1,
1991. Du Pont contributed its entire pharmaceutical and radiopharmaceutical
imaging agents businesses and is providing administrative services. Merck is
providing research and development expertise, development funds, certain
European marketing rights to several of its prescription medicines,
international industry expertise and cash. The partnership represents a
long-term investment by both companies, as the joint venture's R&D effort is
not expected to produce significant commercial results until the late 1990's.
In September 1992, the joint venture began co-promotion of Merck's prescription
medicine, Vasotec, for the treatment of hypertension. The joint venture is not
expected to have a significant impact on the Company's financial operations in
the near term.
In 1989, Merck and Johnson & Johnson formed a joint venture that will develop
and market a broad range of non-prescription medicines for U.S. consumers. In
January 1990, the joint venture acquired the U.S. self-medication business of
ICI Americas, Inc. (ICI), with ICI obtaining the U.S. rights to Elavil, one of
the Company's products. In May 1991, Merck and Johnson & Johnson signed an
agreement in principle, which was finalized in January 1993, to extend their
U.S. joint venture agreement to include Europe. This new European joint
venture is intended to market and sell over-the-counter (OTC) pharmaceutical
products in Europe. Also in January 1993, Merck contributed its existing OTC
medications business in Spain to a new joint venture company. In
33
<PAGE> 3
September 1993, the European joint venture established a new company in the
United Kingdom to market Merck and Johnson & Johnson OTC medications. In
December 1993, Merck and Johnson & Johnson signed an agreement to acquire
Laboratoires J. P. Martin, a leading self-medication business in France. This
transaction was completed in January 1994.
In 1991, Merck formed a separate vaccine division to enhance its existing
vaccine business and also to expand its presence through acquisitions,
licensing agreements and outside research collaborations. In 1992, Merck and
Connaught Laboratories, Inc., an affiliate of Pasteur Merieux Serums & Vaccins
(Pasteur), finalized an agreement to collaborate on the development and
marketing of combination pediatric vaccines and to promote selected vaccine
products in the United States. In May 1993, Merck and Pasteur signed an
agreement to form a joint venture to market vaccines and to collaborate in the
development of combination vaccines for distribution in Europe. This agreement
is under review by the European Commission.
In 1982, the Company entered into an agreement with AB Astra (Astra) to
develop and market Astra products in the United States. Currently, Merck
markets three Astra products, Prilosec, Plendil and Tonocard, in exchange for a
royalty. In July 1993, the Company's total sales of Astra products reached the
level that triggered the first step in the establishment of a separate entity
for operations related to Astra products. Astra will have the right to acquire
a 50% share of this new entity, at which time the Company's royalty obligation
would cease. The Company is now building the infrastructure and business
capabilities to develop and market Astra products within the separate entity,
which already has in place a 500-person sales force marketing Prilosec and
Plendil. The result of these actions is not expected to have a significant
impact on financial results in the near term.
The Company has initiated a major effort to streamline and restructure its
operations worldwide. These actions are designed to reduce costs, increase
productivity, improve margins and better position the Company to respond to the
changing health-care environment. In connection with this effort, the Company
recorded a nonrecurring pretax restructuring charge of $775.0 million, or $.45
per share (after-tax), in the second quarter of 1993.
SPECIALTY CHEMICAL PRODUCTS
This segment contributed $510.3 million, $594.9 million and $583.2 million to
Company sales in 1993, 1992 and 1991, respectively. The decrease in 1993 sales
is attributable to the Company's sale of its Calgon Water Management business
to English China Clays plc, in June 1993. See Note 2 to the financial
statements for further information. The Company's specialty chemical products
have a wide variety of applications, such as use in health care, food
processing, oil exploration, paper, textiles and personal care. Sales of
products and services in this segment are made to channels of trade including
industrial users, health-care providers and distributors.
FOREIGN OPERATIONS
The Company's operations outside the United States are conducted primarily
through subsidiaries. Sales by subsidiaries outside the United States were 44%
of sales in 1993, and 46% in 1992 and 1991.
The Company's worldwide business is subject to risks of currency
fluctuations, governmental actions and other governmental proceedings abroad.
The Company does not regard these risks as a deterrent to further expansion of
its operations abroad. However, the Company closely reviews its methods of
operations, particularly in less developed countries, and adopts strategies
responsive to changing economic and political conditions.
The ongoing integration of the European market is impacting businesses
operating within the European Union (EU) (formerly the European Community),
particularly companies such as Merck that maintain research facilities,
manufacturing plants and marketing and sales organizations in several
countries. Merck is in the process of rationalizing its EU operations.
Over the years, the Company has divested and restructured to reduce its
operational exposure in countries where economic conditions or government
policies make it difficult to earn fair returns. At the same time, Merck is
actively pursuing opportunities to expand its presence in Eastern Europe,
Russia, the Pacific Rim, including China, and other countries where changes in
government, fiscal and regulatory policies are making it possible for Merck to
earn fair, economic returns. While none of these actions individually has
significantly affected operations, the overall impact has been favorable.
<TABLE>
<CAPTION>
OPERATING RESULTS
- ------------------------------------------------------------------------------
Sales
- ------------------------------------------------------------------------------
($ in millions) 1993 Change 1992 Change 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Human and
Animal Health . . . . $ 9,987.9 +10% $9,067.6 +13% $8,019.5
Specialty
Chemical . . . . . . 510.3 -14% 594.9 +2% 583.2
- ------------------------------------------------------------------------------
$ 10,498.2 +9% $9,662.5 +12% $8,602.7
==============================================================================
</TABLE>
Total sales for 1993 increased 9% from 1992. Sales growth in 1993 was
affected by the divestiture of the Calgon Water Management business in June
1993 and the acquisition of Medco in November 1993. Excluding the effects of
the divestiture and the acquisition, total sales grew 7% in 1993,
34
<PAGE> 4
with unit volume up 9%. The effect of the strengthening of the U.S. dollar
against foreign currencies reduced 1993 sales growth by two percentage points,
while price changes had essentially no impact. Total sales for 1992 increased
12% over 1991 with price changes and exchange each adding one percentage point
and volume contributing 10 points. The effects of changes in the value of
foreign currencies are measured net of price increases in hyperinflationary
countries, principally in Latin America.
COMPONENTS OF SALES GROWTH
<TABLE>
<CAPTION>
TOTAL SALES SALES VOLUME NET PRICING FOREIGN
GROWTH GROWTH ACTIONS EXCHANGE RATES
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
1989 10.3% 10.3% 2.6% -2.6%
1990 17.1 12.2 2.3 2.6
1991 12.1 9.8 2.2 0.1
1992 12.3 10.3 1.2 0.8
1993 6.8 8.6 0.1 -1.9
</TABLE>
This table illustrates the effects of price, volume and exchange on the
Company's sales, excluding the effects of the divestiture of the Calgon Water
Management business and the acquisition of Medco. The Company has grown
predominantly through sales volume over the last five years. Price had
essentially no effect on sales growth in 1993, reflecting a continual decline
from 2.6% in 1989, while the effect of exchange has varied over the same period.
In 1993, sales of Human and Animal Health products and services grew 10%.
Excluding the effects of the Medco acquisition, sales of Human and Animal
Health products grew 7%, with unit volume up 9%. Unfavorable foreign currency
exchange reduced sales growth by two percentage points. Price changes had
essentially no impact. Domestic sales growth was 17%, or 11% excluding the
effect of the acquisition. Foreign sales grew 3%, including a four percentage
point reduction from the effect of exchange. The unit volume gain from the
sale of Merck's Human and Animal Health products reflects strong performance of
Vasotec, Vaseretic, Zocor, Pepcid, Prilosec, ivermectin and vaccine sales, led
by M-M-R II for the prevention of measles, mumps and rubella and Recombivax HB
for the prevention of hepatitis B. Proscar, which was introduced in 1992, also
contributed to the sales increase.
Vasotec, Merck's angiotensin converting enzyme (ACE) inhibitor for
reducing high blood pressure and treating symptomatic heart failure, again
established a new Merck product sales record. During 1993, it retained its
position as the largest-selling branded product in the antihypertensive market
in purchases and has been cleared for marketing by the Food and Drug
Administration for a new and expanded use. Vasotec may now be recommended to
decrease the rate of development of overt heart failure and to reduce
hospitalizations in people with left ventricular dysfunction -- a weakening of
the heart's main pumping chamber -- but with no heart failure symptoms.
Vaseretic, a combination of Vasotec and hydrochlorothiazide, also prescribed
for the treatment of high blood pressure, continued to grow. Merck's
cholesterol-lowering agents continued their outstanding performance, holding
over 40 percent of the cholesterol-lowering market. Zocor, Merck's second
cholesterol-lowering agent continued its strong performance in 1993. Mevacor,
which accounts for a significant portion of the cholesterol-lowering sales, was
up slightly in 1993. Performance of Mevacor in 1993 was impacted by government
cost control actions in Germany, strong competition in the United States and
the slowing of growth in the cholesterol-lowering market, particularly in the
United States, where nearly half of the people who have cholesterol levels in
the recommended treatment range are untreated. Merck is undertaking strategic
initiatives to increase the appropriate usage of Mevacor and Zocor. Pepcid,
which is used for the treatment of duodenal and gastric ulcers and
gastroesophageal reflux disease (GERD), continues to grow rapidly in the United
States. Prilosec, a proton pump inhibitor which is indicated as a first-line
therapy for short-term treatment of active duodenal ulcers, severe erosive
esophagitis and poorly responsive symptomatic GERD, continued its exceptional
growth. It is licensed to Merck for the U.S. market by AB Astra, the
research-based Swedish firm.
Also contributing to the unit volume growth in this segment was
Proscar, which was introduced in the United States late in the second quarter
of 1992. Proscar is a significant medical advance in the treatment of
symptomatic benign prostate enlargement, a common condition which affects the
majority of men over the age of 50. Proscar has been introduced in 50
countries, representing nearly every major market. The Company is continuing
an extensive medical and consumer education program to heighten awareness of
the disease, improve understanding of its natural history and communicate the
benefits of treatment with Proscar. In support of these efforts, the Company
launched a direct-to-consumer advertising campaign, identifying Proscar by name
and urging readers to see their doctors about urinary symptoms and a prostate
evaluation. In October 1993, the National Cancer Institute launched a 10-year
study, which will involve 18,000 patients, to examine the possible role of
Proscar in preventing prostate cancer.
35
<PAGE> 5
In 1993, sales growth in this segment also benefited from Medco sales of
non-Merck products and Medco services. Medco services include health-care cost
containment services, principally managed prescription drug programs.
Sales of ivermectin, a broad-spectrum antiparasitic, continued to grow
despite increased competition and the continued economic recession in Europe.
A group of longer-established products, including Dolobid, Primaxin, Indocin,
Aldomet, Mefoxin, Moduretic and Clinoril, while still producing strong
revenues, continued to decline in unit volume due to generic and therapeutic
competition.
In 1992, sales of Human and Animal Health products grew 13%. Domestic and
foreign sales each grew 13%. Price and exchange each added one percentage
point to the increase. Products contributing to the overall unit volume gain
were Vasotec, Vaseretic, Prinivil, Mevacor, Zocor, Pepcid, Prilosec, Primaxin
and vaccine sales led by Recombivax HB for the prevention of hepatitis B.
Sales of the Specialty Chemical Products segment decreased 14% in 1993, due
to the sale of the Calgon Water Management business in June 1993. Excluding
the effect of the divestiture, sales increased 6% over 1992. Exchange reduced
1993 sales growth by one percentage point. Sales in 1992 increased 2% over
1991, while exchange had essentially no effect.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
COSTS AND EXPENSES (1)
- -----------------------------------------------------------------------------
($ in millions) 1993 Change 1992 Change 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Materials and
production . . $2,497.6 +19% $2,096.1 +8% $1,934.9
Marketing and
administrative 2,913.9 -2% 2,963.3 +15% 2,570.3
Research and
development . 1,172.8 +6% 1,111.6 +13% 987.8
Restructuring
charge . . . . 775.0 * -- -- --
Other (income)
expense, net . 36.2 * (72.1) -26% (57.0)
- -----------------------------------------------------------------------------
$7,395.5 +21% $6,098.9 +12% $5,436.0
=============================================================================
</TABLE>
* over 100%
(1) 1993 and 1992 amounts include the ongoing effects of accounting
changes for postretirement and postemployment benefits described on
pages 37 and 38.
In 1993, materials and production costs increased 19%. Excluding the effect
of the Medco acquisition, materials and production costs increased 6%, equal to
the sales growth rate. Excluding the effects of the acquisition, exchange and
inflation, these costs were essentially level with 1992, compared to a 7% unit
sales volume gain in 1993, reflecting improved product mix, cost controls and
productivity improvements. In 1992, materials and production costs, excluding
the ongoing effect of accounting changes, exchange and inflation, increased 3%
on a 10% unit sales volume gain. Materials and production costs for 1992 also
included a $91.4 million provision for environmental costs, which was
substantially offset by the effect of refinements in product costing to reflect
ongoing technological improvements.
Marketing and administrative expenses were down 2% in 1993. Excluding the
effects of the Medco acquisition, exchange and inflation, these expenses
decreased 6% in 1993. Marketing and administrative expenses increased 7% in
1992, excluding the ongoing effect of accounting changes, exchange and
inflation. A major factor contributing to the decrease in 1993 was continuing
cost controls and the beneficial effects from the restructuring programs. In
1992, the increase was primarily due to the effect of support initiatives
related to new products, partially offset by continuing cost controls.
Research and development expenses increased 6% in 1993. Excluding the
effects of exchange and inflation, these expenses increased 2% in 1993. The
increase reflects the ongoing commitment to research over a broad range of
therapeutic areas and clinical development in support of newer products. Not
included in consolidated research and development expenses are costs incurred
by the Company's joint ventures, which totalled $311.3 million in 1993. In
1992, research and development expenses increased 5%, excluding the ongoing
effects of accounting changes, exchange and inflation.
Research and development in the pharmaceutical industry is inherently a
long-term process. The data shown on page 11 shows an unbroken trend of
year-to-year increases in research and development spending(2). For the period
1980 to 1993, the compounded annual growth rate in research and development was
14%.
In the second quarter of 1993, the Company recorded a nonrecurring pretax
restructuring charge of $775.0 million, or $.45 per share (after-tax). The
restructuring charge is the sum of two distinct programs -- one near term and
the other longer term. The near-term initiative will reduce the work force by
approximately 2,100 positions, a substantial number of which will be
permanently eliminated. Work-force reductions will be achieved through an
early retirement program in the United States and appropriate programs
elsewhere at a cost of $450.0 million. This program is substantially complete.
The longer-term initiative will consolidate and rationalize manufacturing
facilities and distribution centers and will further reduce the work force,
primarily outside the United States, at a cost of an additional $325.0 million.
These initiatives are expected to reduce employment costs by more than $140.0
million annually and result in additional facility-related savings.
In 1993, other income, net, decreased primarily due to lower income generated
from the Company's proportionate share of results from its joint ventures,
increased amortization of goodwill and other intangibles as well as interest
expense
(2) The data is contained in a bar chart which has been provided in tabular
form in the Appendix to this Exhibit 13.
36
<PAGE> 6
resulting from the Medco acquisition, increased exchange losses resulting from
translation of the Company's balance sheet and higher income applicable to
minority interests. In 1992, other income, net, increased primarily due to
income generated from the Company's proportionate share of results from its
joint venture investments. See Note 12 to the financial statements for further
detail of Other (income) expense, net.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
EARNINGS
- -----------------------------------------------------------------------------------
($ in millions except
per share amounts) 1993(1) CHANGE(1) 1992(2) Change(2) 1991
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income . . . . . . . $2,166.2 -11% $2,446.6 +15% $2,121.7
As a % of sales . . . 20.6% 25.3% 24.7%
As a % of average
total assets . . . . . 14.0% 24.1% 24.2%
Earnings per
common share . . . . . . $1.87 -12% $2.12 +16% $1.83
===================================================================================
</TABLE>
(1) Excluding the effects of the Medco acquisition and the restructuring
charge, net income growth would have been 11%, net income as a
percentage of average total assets would have been 22.8% and earnings
per share growth would have been 13%.
(2) Excludes the cumulative effect of the accounting changes described
below.
Net income was down 11% in 1993, excluding the cumulative effect of 1992
accounting changes. Net income in 1993 includes the effects of the Medco
acquisition and the restructuring charge. Excluding these effects and the
cumulative effect of 1992 accounting changes, net income increased 11%, five
percentage points more than 1993's sales growth on the same basis. In 1992,
net income grew 15%, excluding the cumulative effect of accounting changes.
Excluding both the cumulative and ongoing effect of accounting changes, 1992
net income grew 17%. Net income as a percentage of sales decreased to 20.6% in
1993, primarily due to the effect of the restructuring charge and the
acquisition of Medco. Excluding these effects, net income as a percentage of
sales increased to 26.6% compared to 25.3% in 1992 and 24.7% in 1991. Factors
contributing to this improving ratio include unit sales volume growth, improved
product mix, cost controls and productivity improvements including the
beneficial effects from the restructuring programs. Foreign currency exchange
had a negative impact in 1993, versus a small beneficial impact in 1992. A
lower effective tax rate, excluding the effect of the restructuring charge and
Medco acquisition in 1993, also contributed to the improved ratio in all three
years. The Company's effective tax rate in 1993 was 30.2%. Excluding the
effects of the restructuring charge and Medco acquisition, the 1993 effective
rate was 30.5%, compared with 31.3% in 1992 and 33.0% in 1991. The Company's
future effective tax rates will be adversely affected by the Omnibus Budget
Reconciliation Act of 1993 which increased the Federal corporate income tax
rate to 35% and curtailed tax benefits from Puerto Rico operations. Management
expects these adverse effects to be partially offset by other tax planning
initiatives. Net income as a percentage of average total assets decreased to
14.0% in 1993, compared with ratios of 24.1% in 1992 and 24.2% in 1991. The
decrease is principally due to the restructuring charge and goodwill recognized
in connection with the Medco acquisition. Excluding these effects, the 1993
ratio was 22.8%, consistent with prior year ratios. Excluding the cumulative
effect of 1992 accounting changes, earnings per common share decreased 12% in
1993, primarily due to the effects of the restructuring charge and the Medco
acquisition. Excluding these effects, earnings per share grew 13%. In 1993
and 1992, earnings per share increased at a faster rate than net income as a
result of treasury stock purchases.
Pricing pressures have made it increasingly difficult for the Company to
recover the effect of inflation on costs and expenses. To the extent possible,
the Company's position is to try to offset the impact of inflation through
productivity and technological improvements, business restructurings, cost
containment programs and price increases. The Company believes that sound
monetary and fiscal policies, worldwide, would be a major step in avoiding the
currency fluctuations that have existed over the last decade.
In December 1990, the Financial Accounting Standards Board issued Statement
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
This Statement requires accrual of the present value of expected costs of these
benefits over the employee service period. In 1988, the Company changed from a
pay-as-you-go basis to an accrual basis for recognizing the cost of these
benefits upon employee retirement. In the fourth quarter of 1992, the Company
began accruing for these benefits over the active employees' working lives, by
adopting the provisions of Statement No. 106, effective January 1, 1992, which
reduced Net income by $370.2 million on an after-tax basis. This change also
reduced 1992 Income before cumulative effect of accounting changes by $38.9
million on an after-tax basis. In 1990, the Company began funding a retiree
health-care account that will be used to partially pre-fund health-care
benefits for retirees. Funding levels were increased in 1993 with the creation
and funding of a qualified trust.
In February 1992, Statement No. 109, Accounting for Income Taxes was issued.
This Statement requires changes in accounting for income taxes and will
increase variability in the Company's provision for income taxes. In the
fourth quarter of 1992, the Company adopted the provisions of Statement No.
109, effective January 1, 1992, which reduced Net income by $62.6 million. The
effect of this change on 1992 Income before cumulative effect of accounting
changes was not material.
In November 1992, Statement No. 112, Employers' Accounting for Postemployment
Benefits was issued. This Statement requires an accrual method of recognizing
postemployment benefits such as disability-related benefits. In the fourth
quarter of 1992, the Company adopted the provisions of Statement No. 112,
effective January 1, 1992,
37
<PAGE> 7
which reduced Net income by $29.6 million on an after-tax basis. The effect of
this change on 1992 Income before cumulative effect of accounting changes was
not material.
In May 1993, Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities, was issued which requires adoption in 1994. This
Statement requires certain investments in debt and equity securities to be
reported at fair value. The effects on the Company's results are not expected
to be material.
The Company believes that it is in compliance in all material respects with
applicable environmental laws and regulations. The Company has maintained a
leadership role in supporting environmental initiatives and fostering pollution
prevention by actions including the elimination of, or the application of best
available technology to, air emissions of known or suspect carcinogens at its
facilities worldwide and a project currently underway to reduce all
environmental releases of toxic chemicals by 90% by 1995. In 1993, the Company
incurred capital expenditures of approximately $122.4 million for environmental
control facilities. Capital expenditures for this purpose are forecasted to
exceed $400.0 million for the years 1994 through 1998. In addition, the
Company's operating and maintenance expenditures for pollution control were
approximately $40.0 million in 1993. Expenditures for this purpose for the
years 1994 through 1998 are forecasted to exceed $200.0 million. The Company
is a party to a number of proceedings brought under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as
Superfund, as well as under other Federal and state statutes. While it is not
feasible to predict or determine the outcome of these proceedings, management
does not believe that they should ultimately result in a materially adverse
effect on the Company's financial position, results of operations, liquidity or
capital resources. The Company is also remediating environmental contamination
resulting from past industrial activity at certain of its sites. Expenditures
for environmental purposes were $26.3 million in 1993, and are estimated at
$170.0 million for the years 1994 through 1998. The Company has taken an
active role in identifying and providing for these costs; and, therefore,
management does not believe that these expenditures should ultimately result in
a materially adverse effect on the Company's financial position, results of
operations, liquidity or capital resources.
CAPITAL EXPENDITURES
In 1993, capital expenditures were $1.0 billion compared to $1.1 billion in
1992. Expenditures in the United States were $759.7 million in 1993 and $784.0
million in 1992. Expenditures during 1993 included $260.1 million for research
and development facilities, $218.5 million for production facilities, $136.5
million for safety and environmental projects and $397.6 million for
administrative and general site projects. Not included above are capital
expenditures incurred by the Company's joint ventures, which totalled $79.3
million in 1993, including $14.9 million for research and development
facilities.
Capital authorizations in 1993 were $710.8 million, a decrease of 32% from
1992's level of $1.0 billion. Capital expenditures approved but not yet spent
at December 31, 1993, were $640.5 million. These commitments include
investments in research and development facilities ($124.0 million), production
facilities ($105.8 million), safety and environmental projects ($82.1 million)
and administrative and general site projects ($328.6 million).
Depreciation was $348.4 million in 1993 and $290.3 million in 1992, of which
$237.7 million and $201.4 million, respectively, applied to locations in the
United States.
ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. In 1993, net cash
flows from operating activities were $3.0 billion, reflecting the continued
growth of the Company's after-tax earnings. This cash was used to fund capital
expenditures of $1.0 billion, to pay Company dividends of $1.2 billion and to
partially fund the purchase of treasury shares. At December 31, 1993, the
total of worldwide cash and investments was $3.3 billion, including $1.5
billion in cash, cash equivalents and short-term investments and $1.8 billion
of long-term investments. The above totals include $895.8 million in cash and
investments held by Banyu Pharmaceutical Co., Ltd., in which the Company has a
50.87% ownership interest.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
SELECTED DATA
- --------------------------------------------------------------------
($ in millions ) 1993 1992 1991
- --------------------------------------------------------------------
<S> <C> <C> <C>
Working capital . . . . . . . . $(161.1) $782.4 $1,496.5
Total debt to total
liabilities and equity . . . 14.3% 11.9% 8.8%
Cash provided by operations
to total debt . . . . . . . . 1.1:1 1.9:1 2.9:1
====================================================================
</TABLE>
In 1993, working capital and the ratios of total debt to total liabilities
and equity and cash provided by operations to total debt were impacted by the
acquisition of Medco. In November 1993, the Company acquired all the
outstanding shares of Medco for approximately $6.6 billion. The Company issued
$4.2 billion of equity securities and paid $2.4 billion in cash, of which $1.8
billion was financed with commercial paper and $250.0 million was financed with
long-term debt.
38
<PAGE> 8
Working capital levels are more than adequate to meet the operating
requirements of the Company. From 1991 to 1993, the Company purchased $1.4
billion of treasury shares under three $1 billion programs authorized by the
Board of Directors in 1989, 1991 and 1993. The 1989 and 1991 programs were
completed in 1991 and 1992, respectively. Through December 31, 1993, $371.0
million of shares had been purchased under the 1993 program, which was
suspended indefinitely in July as a result of the Medco acquisition. Since
1984, the Company has purchased 240.0 million shares at a total cost of $4.3
billion.
From 1991 to 1993, short-term borrowings were affected by purchases of
treasury shares resulting in periodic reductions in working capital and
increases in the ratio of total debt to total liabilities and equity. The
favorable ratio of cash provided by operations to total debt is an indication
of the ability of the Company to cover its debt obligations.
The Company's strong financial position will not be significantly affected by
the restructuring program or debt issued to finance the Medco acquisition. In
view of the triple-A credit ratings from Moody's and Standard & Poor's on the
Company's outstanding debt issues and its consistent ability to generate cash
flows from operating activities, the Company foresees no difficulty in managing
future cash requirements. The ability to finance ongoing operations primarily
from internally generated funds is desirable because of the high risks inherent
in research and development required to develop and market innovative new
products and the highly competitive nature of the pharmaceutical industry.
In 1993, Merck filed a shelf registration with the Securities and Exchange
Commission under which the Company could issue up to $1.0 billion of debt
securities. Proceeds from the sale of these securities are to be used for
general corporate purposes. The 1993 shelf registration, together with $85.0
million unused capacity from a $500.0 million 1991 shelf registration, provided
$1.1 billion of shelf capacity. In 1993, the Company initiated a medium-term
note program under the 1993 shelf and issued $80.0 million of structured
floating rate medium-term notes. In 1992, $100.0 million of five-year
noncallable medium-term notes and $25.0 million of one-year noncallable notes
which matured during 1993, were issued under the 1991 shelf registration. In
1991, $250.0 million of five-year noncallable notes and $40.0 million of
five-year noncallable medium-term notes were issued under the 1991 shelf.
<TABLE>
<CAPTION>
CONDENSED INTERIM FINANCIAL DATA
- -----------------------------------------------------------------------------
($ in millions except
per share amounts) 4th Q 3rd Q 2nd Q 1st Q
- -----------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales . . . . . . . . $ 3,000.8 $ 2,544.1 $ 2,573.6 $ 2,379.6
Gross profit . . . . 2,162.1 2,005.5 1,990.1 1,842.9
Income before taxes . 960.3 1,006.1 223.0 913.4
Net income . . . . . 674.2 705.7 172.6 613.8
Per share of
common stock . . . $.56 $.62 $.15 $.54
- -----------------------------------------------------------------------------
1992
- -----------------------------------------------------------------------------
Sales . . . . . . . . $ 2,601.1 $ 2,464.3 $ 2,373.7 $ 2,223.4
Gross profit . . . . 2,027.2 1,944.1 1,842.3 1,752.8
Income before taxes
and cumulative effect
of accounting changes 879.8 910.7 933.0 840.1
Income before
cumulative effect
of accounting
changes . . . . . 609.1 634.8 643.7 559.0
Net income . . . . . 609.1 634.8 643.7 96.6
Per share of
common stock:
Before cumulative
effect of accounting
changes . . . $.53 $.55 $.56 $.48
Net income . . . . .53 .55 .56 .08
==============================================================================
</TABLE>
Condensed Interim Financial Data for the second quarter of 1993 includes a
nonrecurring pretax restructuring charge of $775.0 million. Sales for the
third and fourth quarters of 1993 were adversely impacted by the divestiture of
the Calgon Water Management business. The fourth quarter of 1993 includes the
effects of the acquisition of Medco.
<TABLE>
<CAPTION>
DIVIDENDS PAID PER SHARE OF COMMON STOCK
- ------------------------------------------------------------
Year 4th Q 3rd Q 2nd Q 1st Q
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993 . . . . . . $1.03 $.28 $.25 $.25 $.25
1992 . . . . . . .92 .25 .23 .23 .21
============================================================
</TABLE>
<TABLE>
COMMON STOCK MARKET PRICES
- ------------------------------------------------------------
1993 4th Q 3rd Q 2nd Q 1st Q
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
High . . . . . . . . . . $35-5/8 $35-3/8 $39-3/8 $44-1/8
Low . . . . . . . . . . . 29-3/4 28-5/8 33 34-1/4
- ------------------------------------------------------------
1992
- ------------------------------------------------------------
High . . . . . . . . . . $47-3/4 $53-3/8 $51-7/8 $56-5/8
Low . . . . . . . . . . . 40-1/2 42-1/4 45-5/8 47-7/8
============================================================
</TABLE>
The principal market for trading of the common stock is the New York Stock
Exchange under the symbol MRK.
39
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME Merck & Co., Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
($ in millions except per share amounts) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,498.2 $9,662.5 $8,602.7
- -------------------------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Materials and production . . . . . . . . . . . . . . . . . . . . . . . . . . 2,497.6 2,096.1 1,934.9
Marketing and administrative . . . . . . . . . . . . . . . . . . . . . . . . 2,913.9 2,963.3 2,570.3
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172.8 1,111.6 987.8
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775.0 -- --
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 (72.1) (57.0)
- -------------------------------------------------------------------------------------------------------------------------------
7,395.5 6,098.9 5,436.0
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 3,102.7 3,563.6 3,166.7
TAXES ON INCOME 936.5 1,117.0 1,045.0
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . . . . . . . 2,166.2 2,446.6 2,121.7
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . -- (370.2) --
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (62.6) --
Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (29.6) --
- --------------------------------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,166.2 $1,984.2 $2,121.7
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON STOCK:
BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . . . . . . . . $1.87 $2.12 $1.83
CUMULATIVE EFFECT OF ACCOUNTING CHANGES:
Postretirement benefits other than pensions . . . . . . . . . . . . . . . -- (.32) --
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.05) --
Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . -- (.03) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $1.72 $1.83
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS Merck & Co., Inc. and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
($ in millions) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, JANUARY 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,466.0 $7,588.7 $6,387.3
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166.2 1,984.2 2,121.7
COMMON STOCK DIVIDENDS DECLARED . . . . . . . . . . . . . . . . . . . . . . . . (1,239.0) (1,106.9) (920.3)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,393.2 $8,466.0 $7,588.7
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET Merck & Co., Inc. and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------
December 31
($ in millions) 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 829.4 $ 575.1
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712.9 518.4
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,094.3 1,736.9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,641.7 1,182.6
Prepaid expenses and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456.3 386.7
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,734.6 4,399.7
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,779.9 1,415.6
- ----------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.5 210.3
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,386.1 2,122.1
Machinery, equipment and office furnishings . . . . . . . . . . . . . . . . . . . . . 3,769.0 3,435.0
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805.2 763.5
- ----------------------------------------------------------------------------------------------------------------------------
7,172.8 6,530.9
Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,278.2 2,259.8
- ----------------------------------------------------------------------------------------------------------------------------
4,894.6 4,271.1
- ----------------------------------------------------------------------------------------------------------------------------
GOODWILL AND OTHER INTANGIBLES (net of accumulated
amortization of $97.2 million in 1993 and $69.0 million in 1992) . . . . . . . . . . 6,645.5 153.5
- ----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872.9 846.1
- ----------------------------------------------------------------------------------------------------------------------------
$ 19,927.5 $11,086.0
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . $ 2,378.3 $ 1,461.9
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,736.0 825.2
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430.4 1,043.8
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.0 286.4
- -----------------------------------------------------------------------------------------------------------------------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,895.7 3,617.3
- -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120.8 495.7
- -----------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES AND NONCURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 1,744.9 1,343.0
- -----------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,144.4 627.1
- -----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock
Authorized -- 2,700,000,000 shares
Issued -- 1,480,611,247 shares - 1993
-- 1,366,572,924 shares - 1992 . . . . . . . . . . . . . . . . . . . . . . 4,576.5 204.7
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,393.2 8,466.0
- -------------------------------------------------------------------------------------------------------------------------------
13,969.7 8,670.7
Less treasury stock, at cost
226,676,597 shares -- 1993
221,878,127 shares -- 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,948.0 3,667.8
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,021.7 5,002.9
- -------------------------------------------------------------------------------------------------------------------------------
$ 19,927.5 $11,086.0
===============================================================================================================================
</TABLE>
The accompanying notes are an integral part of this financial statement.
41
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS Merck & Co., Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31
($ in millions) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,166.2 $ 1,984.2 $ 2,121.7
Adjustments to reconcile net income to net cash provided from operations:
Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 775.0 -- --
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions . . . . . . . . . . . . . . . -- 370.2 --
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 62.6 --
Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . -- 29.6 --
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 386.5 303.6 254.0
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167.0) (16.6) 1.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62.9) (56.9) (3.2)
Net changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (263.1) (298.4) (194.7)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46.6) (177.5) (98.7)
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . (122.9) 100.8 226.2
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 372.5 212.6 157.8
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 67.9 108.4 (49.5)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57.1) (118.2) 19.2
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . 3,048.5 2,504.4 2,434.0
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,012.7) (1,066.6) (1,041.5)
Purchase of Medco, net of cash and cash equivalents acquired . . . . . . . . . (1,869.4) -- --
Purchase of securities, subsidiaries and other investments . . . . . . . . . . (9,521.4) (5,255.8) (8,800.6)
Proceeds from sale of securities, subsidiaries and other investments . . . . . 9,863.5 4,983.1 8,518.9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47.7) (12.6) 22.6
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (2,587.7) (1,351.9) (1,300.6)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 910.8 480.0 (590.6)
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . 353.8 141.3 559.8
Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39.4) (121.6) (94.1)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (371.0) (862.9) (184.1)
Dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . (1,174.4) (1,064.3) (893.2)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . 83.4 52.2 48.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 20.0 15.8
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (214.2) (1,355.3) (1,138.1)
- -----------------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS . . . . . . . . . 7.7 (20.0) (3.8)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 254.3 (222.8) (8.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 575.1 797.9 806.4
- -----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . $ 829.4 $ 575.1 $ 797.9
===================================================================================================================================
The accompanying notes are an integral part of this financial statement.
</TABLE>
42
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
($ in millions except per share amounts)
Merck & Co., Inc. and Subsidiaries
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company and all of its subsidiaries. For those
consolidated subsidiaries where Company ownership is less than 100%, the
outside stockholders' interest in each of the Company's accounts is shown as
Minority interests in the consolidated financial statements. The Company
follows the equity method for 20% or more owned affiliates as well as for
investments in joint ventures.
FOREIGN CURRENCY TRANSLATION -- The U.S. dollar is the functional currency for
the Company's foreign subsidiaries.
CASH AND CASH EQUIVALENTS -- Cash equivalents are comprised of certain highly
liquid investments with maturities of less than three months.
INVENTORIES -- The majority of domestic inventories are valued at the lower of
last-in, first-out (LIFO) cost or market. Remaining inventories are valued at
the lower of first-in, first-out (FIFO) cost or market.
DEPRECIATION -- Depreciation is provided over the estimated useful lives of the
assets, principally using the straight-line method. For tax purposes,
accelerated methods are used.
EARNINGS PER SHARE -- Earnings per share of common stock are based on the
weighted average number of shares outstanding. These weighted averages were
1,156.5 million, 1,153.5 million and 1,159.9 million in 1993, 1992 and 1991,
respectively. Common stock equivalents do not have a significant dilutive
effect.
GOODWILL AND OTHER INTANGIBLES -- Goodwill of $5.2 billion in 1993 and $120.0
million in 1992 (net of accumulated amortization) represents the excess of
acquisition costs over the fair value of net assets of businesses purchased and
is amortized on a straight-line basis over periods up to 40 years. Other
acquired intangibles, principally customer relationships that arose in
connection with the Medco acquisition, are recorded at cost and are amortized
over their estimated useful lives. The Company continually reviews goodwill
and other intangibles to assess recoverability from future operations using
undiscounted cash flows. Impairments would be recognized in operating results
if a permanent diminution in value occurs.
RECLASSIFICATIONS -- Certain reclassifications have been
made to prior year amounts to conform with current year presentation.
2. ACQUISITION, DIVESTITURE, RESTRUCTURING AND STRATEGIC ALLIANCES
On November 18, 1993, the Company acquired all the outstanding shares of Medco
Containment Services, Inc. (Medco) for approximately $6.6 billion. Medco
principally provides services designed to reduce prescription drug benefit
costs through managed prescription drug programs, and also provides managed
mental health-care services. The purchase price consisted of $2.4 billion in
cash, 114.0 million common shares with a market value of $3.8 billion, and 36.1
million options valued at $387.1 million, net of tax. The acquisition was
accounted for by the purchase method and, accordingly, Medco's results of
operations have been included with the Company's since the acquisition date.
The estimated fair value of assets acquired and liabilities assumed totaled
$3.0 billion and $1.5 billion, respectively. The allocation of the purchase
price is based on preliminary assumptions and is subject to revision. The
excess of the purchase price over the estimated fair value of net assets
acquired is being amortized on a straight-line basis over 40 years.
Summarized below are unaudited pro forma combined results of operations for
the years ended December 31, 1993 and 1992 assuming the acquisition occurred at
the beginning of 1992:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales . . . . . . . . . . . . . . . $ 13,047.1 $ 11,662.6
Income before cumulative effect of
accounting changes . . . . . . . 2,170.9 2,357.9
Earnings per share of common stock
before cumulative effect of
accounting changes . . . . . . . . 1.73 1.86
===========================================================================
</TABLE>
The unaudited pro forma combined results of operations are not necessarily
indicative of the results of operations that would have occurred had the two
companies actually combined during the periods presented or of future results
of operations of the combined companies.
In June 1993, the Company sold its Calgon Water Management business for
$307.5 million to English China Clays plc. The gain from the sale is included
in Other (income) expense, net (see Note 12).
43
<PAGE> 13
The Company recorded a nonrecurring pretax restructuring charge of $775.0
million in 1993 in connection with an initiative to streamline and restructure
worldwide operations through staff reductions and consolidation of
manufacturing and distribution facilities.
In 1989, the Company entered into an agreement with Du Pont to form a
long-term research and marketing collaboration. Effective January 1, 1991, the
Company formed a 50%-owned joint venture with Du Pont, creating an independent,
research-driven, worldwide pharmaceutical firm. Du Pont contributed its entire
pharmaceutical and radiopharmaceutical imaging agents businesses and is
providing administrative services. The Company is providing research and
development expertise, development funds, certain European marketing rights to
several of its prescription medicines, international industry expertise and
cash.
In 1989, the Company formed a joint venture with Johnson & Johnson to develop
and market a broad range of non-prescription medicines for U.S. consumers. In
January 1990, the joint venture acquired the U.S. self-medication business of
ICI Americas Inc., and ICI acquired the U.S. rights to the Company's
antidepressant Elavil, along with other considerations. In January 1993, Merck
and Johnson & Johnson extended their U.S. joint venture agreement to include
Europe. Also in January 1993, Merck contributed its existing over-the-counter
(OTC) medications business in Spain to a new joint venture company. In
September 1993, the European joint venture established a new company in the
United Kingdom to market Merck and Johnson & Johnson OTC medications. In
December 1993, Merck and Johnson & Johnson signed an agreement to acquire
Laboratoires J. P. Martin, a leading self-medication business in France. This
transaction was completed in January 1994.
In 1982, the Company entered into an agreement with Astra to develop and
market Astra products in the United States, in exchange for a royalty. In July
1993, the Company's total sales of Astra products reached the level that
triggered the first step in the establishment of a separate entity for
operations related to Astra products. Astra will have the right to acquire a
50% share of this new entity, at which time the Company's royalty obligation
would cease. The Company is building the infrastructure and business
capabilities to develop and market Astra products within the separate entity,
which already has in place a 500-person sales force marketing Prilosec and
Plendil. The result of these actions is not expected to have a significant
impact on financial results in the near term.
3. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
Summarized below are the carrying values and fair values of the Company's
financial instruments at December 31, 1993 and 1992. Fair values were
estimated based on market prices, where available, or dealer quotes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1993 1992
---------------------- ---------------------
Carrying Fair Carrying Fair
Value Value Value Value
- -------------------------------------------------------------------------------------------
Assets
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . $ 829.4 $ 829.4 $ 575.1 $ 575.1
Short-term investments . . . . . 712.9 714.4 518.4 519.9
Long-term investments . . . . . . 1,779.9 1,908.3 1,415.6 1,512.8
Purchased currency options . . . 132.1 136.2 120.2 132.1
Interest rate swaps . . . . . . . -- 2.2 -- --
- -------------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------------
Loans payable . . . . . . . . . . 1,736.0 1,735.5 825.2 825.2
Long-term debt . . . . . . . . . 1,120.8 1,137.7 495.7 518.8
Written currency options . . . . 6.4 5.8 3.4 3.4
Forward exchange contracts . . . 25.4 25.4 19.6 19.6
===========================================================================================
</TABLE>
The Company derives a significant portion of its cash flows from revenues
denominated in foreign currencies. The Company relies on sustained cash flows
generated from these revenues to support its long-term commitment to U.S.
dollar based research and development. To the extent the dollar value of
foreign denominated revenues is diminished as a result of a strengthening
dollar, the Company's ability to fund research and other dollar based strategic
initiatives at a consistent level may be impaired.
To protect against the reduction in value of forecasted foreign currency cash
flows over the Company's planning cycle, the Company has instituted a
multi-year revenue hedging program to partially hedge this risk. The Company
hedges forecasted revenues denominated in foreign currencies with purchased
currency options. When the dollar strengthens against foreign currencies, the
decline in the value of future foreign currency cash flows is partially offset
by the recognition of gains in the value of purchased currency options
designated as hedges of the period. Conversely, when the dollar weakens, the
increase in the value of future foreign currency cash flows is reduced by the
recognition of the premium paid to acquire the options designated as hedges of
the period. Purchased currency options used to hedge forecasted revenues
currently have maturities of up to three years. The fair values of these
options at December 31, 1993 and 1992 were $127.6 million and $124.2 million,
respectively, which includes deferred gains of $4.7 million in 1993 and $11.9
million in 1992.
In addition to hedging forecasted revenues, the Company hedges certain
exposures to foreign currency fluctuations in net monetary assets and
liabilities denominated in foreign currencies. Forward exchange contracts and
currency options used to hedge net monetary assets and liabilities also have
maturities of up to three years.
44
<PAGE> 14
At December 31, 1993 and 1992, the Company had contracts to exchange foreign
currencies, principally the Japanese yen, French franc and Deutschemark, for
U.S. dollars as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1993 1992
- --------------------------------------------------------------
<S> <C> <C>
Purchased currency options . . . . $1,604.5 $1,619.9
Written currency options . . . . . 122.0 100.0
Forward exchange contracts . . . . 1,751.2 1,897.6
==============================================================
</TABLE>
The Company also hedges exposure to changes in interest rates on certain of
its financial instruments. At December 31, 1993, the Company had $255.0
million of interest rate swap contracts to convert a portion of its interest
obligations to floating rates. These contracts have maturities of up to three
years. The Company also had an $82.0 million contract to convert variable
rates of return on certain investments to fixed rates. This contract matures
in three years.
Gains and losses arising from the use of hedging instruments are recorded in
the income statement concurrently with losses and gains arising from the
underlying hedged item. Interest differentials paid or received under interest
rate swap contracts are recognized over the life of the contracts as
adjustments to the effective yield of the underlying financial instruments.
As part of its ongoing control procedures, the Company monitors
concentrations of credit risk associated with financial institutions with which
it conducts business. Credit risk is minimal as credit exposure limits are
established to avoid a concentration with any single financial institution.
The Company also monitors the credit worthiness of its customers to which it
grants credit terms in the normal course of business. Customers for human
health products and services include drug wholesalers and retailers, hospitals,
clinics, governmental agencies, corporations, labor unions, retirement systems,
insurance carriers, managed health-care providers such as health maintenance
organizations and other institutions. Customers for the Company's animal
health/crop protection products include veterinarians, distributors,
wholesalers, retailers, feed manufacturers, veterinary suppliers and
laboratories. Concentrations of credit risk associated with these trade
receivables are considered minimal due to the Company's diverse customer base.
Bad debts have been minimal. The Company does not normally require collateral
or other security to support credit sales.
4. INVENTORIES
Inventories at December 31 consisted of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992
- ------------------------------------------------------------
<S> <C> <C>
Finished goods . . . . . . . . . . $1,024.4 $ 573.0
Raw materials and work in process . 570.6 565.4
Supplies . . . . . . . . . . . . . 65.8 64.8
- ------------------------------------------------------------
Total (approximates current cost) . 1,660.8 1,203.2
Reduction to LIFO cost . . . . . . 19.1 20.6
- ------------------------------------------------------------
$1,641.7 $1,182.6
============================================================
</TABLE>
Inventories valued at LIFO comprised approximately 39% and 52% of inventories
at December 31, 1993 and 1992, respectively. The increase in finished goods
inventories and the decrease in the percentage of inventories valued at LIFO
are principally due to the acquisition of Medco (See Note 2).
5. OTHER ASSETS
Other assets at December 31 consisted of:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1993 1992
- -------------------------------------------------------------------
<S> <C> <C>
Joint ventures and other
investments . . . . . . . . . . $ 644.7 $ 628.9
Other . . . . . . . . . . . . . . . 228.2 217.2
- -------------------------------------------------------------------
$ 872.9 $ 846.1
===================================================================
</TABLE>
6. LOANS PAYABLE AND LONG-TERM DEBT
Loans payable at December 31, 1993 included $1.6 billion of unsecured Company
borrowings, substantially all of which is commercial paper. The remainder of
the 1993 balance was principally borrowings by foreign subsidiaries. Loans
payable increased in 1993 primarily as a result of the borrowings undertaken to
finance the Medco acquisition.
Long-term debt at December 31, 1993 consisted of $388.9 million in five-year
notes issued under a 1991 $500.0 million shelf registration bearing an average
coupon of 7.3% payable semi-annually, $253.0 million in five-year notes bearing
a coupon of 5.3% payable annually, $54.9 million in structured floating rate
notes, due in 1995, issued under a 1993 $1.0 billion shelf registration bearing
an average year-end coupon of 3.1% payable at various intervals, and $107.1
million primarily consisting of pollution control, industrial revenue financing
and foreign borrowings at varying rates of up to 9.8%. Of this latter amount,
$35.5 million is due in varying installments through 1998. Additionally, as a
result of the Medco acquisition, long-term debt includes $316.4 million of
convertible, subordinated debentures due 2001 at a face value of $261.9 million
bearing an average stated rate of 6.5% payable semi-annually and $.5 million in
other debt. The debentures' face values are comprised of the following
components: $131.4 million issued by Medco and convertible into Merck stock
(on which Merck has become a co-obligor); $80.5 million issued by Synetic, Inc.
and convertible into Synetic stock; and $50.0 million issued by Medical
Marketing Group, Inc. (MMG) and convertible into MMG stock. Synetic and MMG
are subsidiaries of Medco.
7. CONTINGENT LIABILITIES
The Company is involved in various claims and legal proceedings of a nature
considered normal to its business, principally product liability and
intellectual property cases. While it is not feasible to predict or determine
the outcome of these proceedings, it is the opinion of management that their
outcome will have no materially adverse effect on the Company.
45
<PAGE> 15
8. STOCKHOLDERS' EQUITY
In 1993, common stock increased by $4.4 billion, principally as a result of
shares issued and employee stock options converted to Merck options in
connection with the acquisition of Medco. In 1992 and 1991 common stock
increased $19.0 million and $19.3 million, respectively, as a result of
issuances of treasury stock for exercises of stock options and distributions
under executive incentive plans.
A summary of treasury stock transactions (shares in thousands) follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1993 1992 1991
------------------ ------------------ -------------------
Shares Cost Shares Cost Shares Cost
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1 . . . . . 221,878.1 $ 3,667.8 207,043.9 $ 2,858.2 205,599.3 $ 2,719.3
Purchases . . . . . . 10,040.4 371.0 18,382.6 862.9 4,913.4 184.1
Issued under
stock option
and executive
incentive plans . (5,241.9) (90.8) (3,548.4) (53.3) (3,468.8) (45.2)
- --------------------------------------------------------------------------------------------------
Balance,
December 31 . . . 226,676.6 $ 3,948.0 221,878.1 $ 3,667.8 207,043.9 $ 2,858.2
==================================================================================================
</TABLE>
At December 31, 1993, 1992 and 1991, 10 million shares of preferred stock,
without par value, were authorized; none were issued.
9. STOCK OPTION AND EXECUTIVE INCENTIVE PLANS
The Company has stock option plans under which key employees and non-employee
directors may be granted options to purchase shares of Company common stock at
the fair market value at the time of the grant. The stock option program also
includes provisions for employees whose contributions are believed critical to
the innovation and development of new chemical compounds. These options vest
over time, dependent on the accomplishment of specific milestones such as
clinical trials or regulatory approval.
In connection with the Medco acquisition, employee stock options outstanding
on the date of acquisition were converted into options to purchase shares of
Company common stock with an equivalent value. The granting of options was an
integral part of Medco's employment practices. The Company has adopted several
of the Medco employee stock option plans under which options are granted at the
fair market value of common stock on the date of grant. The level of future
grants under these plans may change.
In October 1993, the Company made a special grant of options to substantially
all employees to purchase 300 shares of stock. A total of approximately 10.1
million options were granted with an exercise price of $32.50, the fair market
value at the date of the grant. The options are exercisable during the sixth
through tenth year after grant for individuals still employed by, or retired
from, the Company.
In September 1991, during the Company's Centennial year, the Company made a
special grant of options to essentially all employees worldwide to purchase 300
shares of stock. A total of approximately 10.5 million options were granted
with an exercise price of $42.42, the fair market value at the date of grant.
The options are exercisable during the sixth through tenth year after grant for
individuals still employed by, or retired from, the Company.
A summary of information relative to the Company's stock option plans follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Number Average
of Shares Price
- ------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1991 . 27,058,449 $19.51
Granted . . . . . . . . . . . . . 15,929,667 42.88
Exercised . . . . . . . . . . . . (3,349,122) 15.28
Forfeited . . . . . . . . . . . . (269,670) 29.67
- ------------------------------------------------------------
Outstanding at December 31, 1991 39,369,324 29.27
Granted . . . . . . . . . . . . . 5,207,761 46.54
Exercised . . . . . . . . . . . . (3,402,430) 15.80
Forfeited . . . . . . . . . . . . (790,120) 41.25
- ------------------------------------------------------------
Outstanding at December 31, 1992 40,384,535 32.40
Equivalent options assumed . . . 36,108,076 16.51
Granted . . . . . . . . . . . . . 15,854,640 34.25
Exercised . . . . . . . . . . . . (4,985,266) 16.73
Forfeited . . . . . . . . . . . . (948,262) 38.89
- ------------------------------------------------------------
Outstanding at December 31, 1993 86,413,723 $26.93
- ------------------------------------------------------------
Exercisable at December 31, 1993 32,338,548 $22.96
============================================================
</TABLE>
At December 31, 1993 and 1992, 8,585,102 shares and 11,643,476 shares,
respectively, were available for future grants under the terms of these plans.
The Executive Incentive Plan provides for awards to executives and other key
employees of cash and deferred awards payable in shares of the Company's common
stock and cash. The Plan has a strategic performance feature that provides for
awards to key officers and managers who have a direct impact on achieving the
Company's long-term objectives. For 1993, total awards under the Plan were
$35.6 million. Awards were $37.5 million in 1992 and $38.9 million in 1991.
At December 31, 1993, there were 2,780,069 shares available for future awards.
10. RETIREMENT PLANS
In addition to required governmental retirement plans, the Company and certain
of its subsidiaries have retirement plans for eligible employees that provide
benefits based upon age, years of service and compensation. Certain plans also
consider primary social security payments in calculating benefits. The
expenses for these governmental, Company and subsidiary plans were $262.3
million in 1993, $241.3 million in 1992 and $214.3 million in 1991.
Expenses for Company and subsidiary plans were $97.0 million in 1993, $81.3
million in 1992 and $64.3 million in 1991.
46
<PAGE> 16
Net pension cost for the Company's plans includes the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during the year . . . $ 97.4 $ 86.4 $ 74.5
Interest cost on projected
benefit obligation . . . . . 135.7 123.7 110.4
Net amortization and deferral . 74.4 (34.7) 111.2
Actual return on assets . . . . (210.5) (94.1) (231.8)
- ------------------------------------------------------------
Net pension cost . . . . . . . $ 97.0 $ 81.3 $ 64.3
============================================================
</TABLE>
The net pension cost attributable to international plans and included above
was $41.8 million in 1993, $30.0 million in 1992 and $22.0 million in 1991.
In addition to net pension cost, net losses of $254.8 million were recorded
in 1993 pursuant to Statement No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, due
to work-force reduction programs associated with the restructuring efforts and
the sale of the Calgon Water Management business. Payment of lump-sum benefits
to employees retiring under certain of the work-force reduction programs
resulted in a $279.4 million liquidation of plan assets.
The Company's funding policy for Employee Retirement Income Security Act of
1974 and foreign plans is to contribute amounts to maintain assets in excess of
the projected benefit obligations. However, the work-force reduction programs
and a lower discount rate have decreased the plans' funded status in 1993.
Company contributions over the next several years are expected to improve the
funded status of the worldwide plans. The plans' assets are diversified in
stocks, bonds, real estate and short-term and other investments.
The plans' funded status at December 31 was as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1993 1992
---------------- --------
Over Under
Funded Funded
- -----------------------------------------------------------
<S> <C> <C> <C>
Plan assets at market value $757.2 $ 572.4 $1,411.8
- -----------------------------------------------------------
Accumulated benefit obligation
Vested . . . . . . . . . 546.9 631.2 1,048.0
Nonvested . . . . . . . . 83.5 102.7 145.9
- -----------------------------------------------------------
630.4 733.9 1,193.9
- -----------------------------------------------------------
Plan assets in excess of
(less than) accumulated
benefit obligation . . . 126.8 (161.5) 217.9
Projected compensation
increases . . . . . . . . 147.7 322.2 379.3
- -----------------------------------------------------------
Plan assets less than
projected benefit
obligation . . . . . . . (20.9) (483.7) (161.4)
Unamortized transitional
net asset . . . . . . . . (71.1) (65.4) (188.6)
Unrecognized net loss . . . 84.1 234.8 221.5
Unrecognized prior
service cost . . . . . . 34.4 76.7 130.5
- -----------------------------------------------------------
Net pension asset
(liability) . . . . . . . $ 26.5 $(237.6) $ 2.0
===========================================================
</TABLE>
International plan assets at market value, included in the above table, were
$490.5 million in 1993, $411.5 million in 1992 and $394.6 million in 1991. The
accumulated benefit obligation of international plans, included in this table,
was $425.6 million in 1993, $356.3 million in 1992 and $291.7 million in 1991.
The discount rate used in determining the projected benefit obligation and
costs was 7.5% at December 31, 1993 and 9% at December 31, 1992 and 1991. The
rate of future compensation increases used in determining the projected benefit
obligation and costs was 5% at December 31, 1993 and 6%, at December 31, 1992
and 1991. The expected long-term rate of return on plan assets was 10% at
December 31, 1993, 1992 and 1991.
In the aggregate, average international plan assumptions do not vary
significantly from U.S. rates.
11. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides health-care (in excess of Medicare) and life insurance
benefits for eligible active and retired employees, principally in the United
States. Prior to 1992, the Company recognized the present value of such
health-care costs at the employees' retirement and recognized and funded the
cost of life insurance benefits over employees' working lives.
In the fourth quarter of 1992, the Company adopted the provisions of
Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, effective January 1, 1992. This Statement requires accrual over the
employee service period of the expected costs of providing postretirement
health-care and life insurance benefits.
The cumulative effect at January 1, 1992 of adopting Statement No. 106
reduced Net income by $370.2 million, net of $255.2 million of income tax
benefits. The effect of this change reduced 1992 Income before cumulative
effect of accounting changes by $38.9 million, net of $26.7 million of income
tax benefits. The cost of postretirement benefits other than pensions was
$79.9 million in 1993, $90.4 million in 1992 and $24.7 million in 1991. The
cost of health-care and life insurance benefits for active employees was $122.5
million in 1993, $116.3 million in 1992 and $102.9 million in 1991.
Net postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992
- ------------------------------------------------------------
<S> <C> <C>
Service cost -- benefits
earned during the year . . . . . . . $31.0 $31.2
Interest cost on accumulated
postretirement benefit obligation . . 69.2 62.9
Net amortization and deferral . . . . . 2.1 (1.9)
Actual return on assets . . . . . . . . (22.4) (1.8)
- ------------------------------------------------------------
Net postretirement benefit cost . . . . $79.9 $90.4
============================================================
</TABLE>
In addition to net postretirement benefit cost, net losses of $71.7 million
were recorded in 1993 pursuant to Statement No. 106 due to work-force reduction
programs associated
47
<PAGE> 17
with the restructuring efforts and the sale of the Calgon Water Management
business.
In 1990, the Company began funding a retiree health-care account
that will be used to partially pre-fund health-care benefits for
retirees. Funding levels were increased in 1993 with the creation and funding
of a qualified trust. The plans' assets are diversified in stocks, bonds and
short-term and other investments. The plans' funded status at December 31 was
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992
- ------------------------------------------------------------
<S> <C> <C>
Plan assets at market value . . . . . $ 310.2 $ 30.4
- ------------------------------------------------------------
Accumulated postretirement benefit
obligation
Retirees . . . . . . . . . . . . 466.7 278.0
Other fully eligible participants 116.6 145.8
Other active participants . . . . 396.3 334.6
- ------------------------------------------------------------
979.6 758.4
- ------------------------------------------------------------
Plan assets less than accumulated
postretirement
benefit obligation . . . . . . . (669.4) (728.0)
Unrecognized net loss/(gain) . . . . 101.6 (1.7)
Unrecognized plan changes . . . . . (28.0) (32.1)
- ------------------------------------------------------------
Net postretirement benefit
liability . . . . . . . . . . . $(595.8) $(761.8)
============================================================
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% at December 31, 1993 and 9% at December 31, 1992. The
expected long-term rate of return on plan assets was 10% in 1993 and 1992. The
health-care cost trend rate was 12% at December 31, 1993 and 13% at December
31, 1992. This rate will gradually decline to 5.6% over a 17 year period. The
effect of increasing the health-care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation at
December 31, 1993 by $150.0 million and the total service and interest cost
components of the 1993 net postretirement benefit cost by $19.0 million.
Also, in the fourth quarter of 1992, the Company adopted the provisions of
Statement No. 112, Employers' Accounting for Postemployment Benefits. This
Statement requires an accrual method of recognizing postemployment benefits
such as disability-related benefits.
The cumulative effect at January 1, 1992 of adopting Statement No. 112
reduced Net income by $29.6 million, net of $20.4 million of income tax
benefits. The effect of this change on 1992 Income before cumulative effect of
accounting changes was not material.
12. OTHER (INCOME) EXPENSE, NET
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Interest income . . . . . . . $(138.9) $(138.3) $(162.5)
Interest expense . . . . . . 84.7 72.7 68.7
Exchange losses . . . . . . . 68.2 46.2 31.6
Minority interests . . . . . 50.3 32.2 25.2
Amortization of goodwill and
other intangibles . . . . . 28.2 8.2 8.1
Other income, net . . . . . . (56.3) (93.1) (28.1)
- ------------------------------------------------------------
$ 36.2 $ (72.1) $ (57.0)
============================================================
</TABLE>
The most significant component of exchange losses is from Brazilian
operations. Such losses have been largely offset by local pricing actions.
Minority interests include third parties' share of exchange gains and losses
arising from translation of the financial statements into U.S. dollars.
In 1993, amortization of goodwill and other intangibles reflects increased
amortization resulting from the Company's acquisition of Medco.
In 1993, other income, net, includes a gain of $148.8 million from the
Company's sale of its Calgon Water Management business. This gain was largely
offset by a $78.8 million provision for environmental costs and a $60.0 million
provision for the funding of The Merck Company Foundation. Other income, net,
includes the Company's proportionate share of results from its joint venture
investments. To date, such results have not been material.
Interest paid was $89.1 million in 1993, $60.8 million in 1992 and $71.4
million in 1991.
13. SUPPLEMENTARY INCOME STATEMENT
INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Advertising, including
medical and pharmaceutical
drug education . . . . . . $235.0 $277.8 $250.4
Taxes, other than income,
principally payroll taxes 307.9 290.5 262.3
Repairs, alterations and
maintenance . . . . . . . 177.8 178.5 167.7
Royalty expenses . . . . . . 230.7 176.6 124.9
============================================================
</TABLE>
14. TAXES ON INCOME
In the fourth quarter of 1992, the Company adopted the provisions of Statement
No. 109, Accounting for Income Taxes, effective January 1, 1992. The Statement
requires that deferred income taxes reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts. The cumulative effect of this change to January
1, 1992, reduced
48
<PAGE> 18
Net income by $62.6 million. The effect of this change on 1992 Income before
cumulative effect of accounting changes was not material. Prior to 1992,
provisions were made for deferred income taxes where differences existed
between the time that transactions affected taxable income and the time that
these transactions entered into the determination of income for financial
statement purposes.
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Tax Rate
1993 -------------------
Amount 1993 1992 1991
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. statutory rate applied
to pretax income . . . 1,086.0 35.0% 34.0% 34.0%
Differential arising from:
Tax exemption for Puerto Rico
operations . . . . . . (158.7) (5.1) (5.1) (5.1)
Foreign operations . . . (44.4) (1.5) .9 2.6
State taxes . . . . . . . 86.0 2.8 1.7 2.2
Other, including
minority interests . . (32.4) (1.0) (.2) (.7)
- ----------------------------------------------------------
$ 936.5 30.2% 31.3% 33.0%
==========================================================
</TABLE>
Domestic companies contributed approximately 78% in 1993, 73% in 1992 and 71%
in 1991 to consolidated pretax income.
Taxes on income consisted of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Current provision
Federal . . . . . . . . . $ 668.2 $ 615.1 $ 507.8
Foreign . . . . . . . . . 311.4 411.4 429.9
State . . . . . . . . . . 123.9 107.1 106.1
- ------------------------------------------------------------
1,103.5 1,133.6 1,043.8
- ------------------------------------------------------------
Deferred provision
Federal . . . . . . . . . (84.0) 15.3 6.4
Foreign . . . . . . . . . (89.7) (17.3) (6.2)
State . . . . . . . . . . 6.7 (14.6) 1.0
- ------------------------------------------------------------
(167.0) (16.6) 1.2
- ------------------------------------------------------------
$ 936.5 $1,117.0 $1,045.0
============================================================
</TABLE>
The components of the deferred provision were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Other postretirement
benefits . . . . . . . . . $ 96.9 $ (26.9) $ 3.2
Accelerated depreciation . 57.4 37.6 17.1
Inventory related . . . . . (18.5) 8.5 (17.8)
Pension benefits . . . . . (96.6) 10.1 13.2
Restructuring charge . . . (161.2) -- --
Other, net . . . . . . . . (45.0) (45.9) (14.5)
- ------------------------------------------------------------
$(167.0) $ (16.6) $ 1.2
============================================================
</TABLE>
Deferred income taxes at December 31 consisted of:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1993 1992
--------------------- --------------------
Assets Liabilities Assets Liabilities
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Other intangibles . $ -- $ 596.4 $ -- $ --
Accelerated
depreciation . . . -- 425.6 -- 365.2
Inventory related . 305.2 115.3 274.6 103.2
Other postretirement
benefits . . . . . 199.0 -- 296.0 --
Equivalent Medco
options assumed . 189.0 -- -- --
Restructuring charge 161.2 -- -- --
Pension benefits . 111.3 41.3 4.1 30.6
Environmental
related . . . . . 84.8 -- 64.9 --
Equity investments -- 76.9 -- 70.0
Leasing activity . -- 65.9 -- 82.0
Compensation related 48.9 -- 52.1 --
Other . . . . . . . 481.3 236.6 345.9 183.3
- -----------------------------------------------------------------------
1,580.7 1,558.0 1,037.6 834.3
Valuation allowance (52.1) -- (16.6) --
- -----------------------------------------------------------------------
$1,528.6 $1,558.0 $1,021.0 $834.3
=======================================================================
</TABLE>
At December 31, 1993 and 1992, current deferred tax assets of $302.6 million
and $235.6 million, respectively, were included in Prepaid expenses and taxes
and current deferred tax liabilities of $12.5 million and $3.3 million,
respectively, were included in Income taxes payable. In addition, at December
31, 1993 and 1992, noncurrent deferred tax assets of $43.3 million and $43.8
million, respectively, were included in Other assets and noncurrent deferred
tax liabilities of $362.8 million and $89.4 million, respectively, were
included in Deferred income taxes and noncurrent liabilities. Income taxes
paid in 1993, 1992 and 1991 were $859.9 million, $934.4 million and $879.8
million, respectively.
At December 31, 1993, foreign earnings of $3.3 billion and domestic earnings
of $880.9 million have been retained indefinitely by subsidiary companies for
reinvestment. No provision is made for income taxes that would be payable upon
the distribution of such earnings and it is not practicable to determine the
amount of the related unrecognized deferred income tax liability. These
earnings include income from manufacturing operations in Ireland, exempt from
Irish taxes through 1990. Subsequent Irish earnings are taxed at an incentive
rate of 10%. In addition, the Company has domestic subsidiaries operating in
Puerto Rico under a tax incentive grant that expires in 2008.
The Company's Federal income tax returns have been audited through 1986.
49
<PAGE> 19
15. SEGMENT REPORTING
<TABLE>
<CAPTION>
- ------------------------------------------------------------
INDUSTRY SEGMENTS
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
SALES
Human/Animal Health . . . $9,987.9 $9,067.6 $8,019.5
Specialty Chemical . . . 510.3 594.9 583.2
- ------------------------------------------------------------
$10,498.2 $9,662.5 $8,602.7
============================================================
INCOME BEFORE TAXES
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES(1)
Human/Animal Health . . . $2,867.9 $3,361.0 $2,996.0
Specialty Chemical . . . 184.6 80.5 78.4
- ------------------------------------------------------------
3,052.5 3,441.5 3,074.4
Nonoperating income,
primarily interest . . 50.2 122.1 92.3
- ------------------------------------------------------------
$3,102.7 $3,563.6 $3,166.7
============================================================
ASSETS
Human/Animal Health . . . $15,141.6 $7,053.9 $5,849.8
Specialty Chemical . . . 447.5 580.3 548.1
- ------------------------------------------------------------
15,589.1 7,634.2 6,397.9
Cash and investments . . 3,322.2 2,509.1 2,455.5
Other corporate assets . 1,016.2 942.7 645.1
- ------------------------------------------------------------
$19,927.5 $11,086.0 $9,498.5
============================================================
CAPITAL EXPENDITURES
Human/Animal Health . . . $ 980.8 $1,017.6 $ 965.8
Specialty Chemical . . . 31.9 49.0 75.7
- ------------------------------------------------------------
$1,012.7 $1,066.6 $1,041.5
============================================================
DEPRECIATION AND AMORTIZATION
Human/Animal Health . . . $ 360.9 $ 276.9 $ 226.3
Specialty Chemical . . . 25.6 26.7 27.7
- ------------------------------------------------------------
$ 386.5 $ 303.6 $ 254.0
============================================================
</TABLE>
(1) 1993 amounts include a nonrecurring pretax restructuring charge of
$775.0 million primarily related to Human/Animal Health.
There were no intersegment sales. Income before taxes and cumulative effect
of accounting changes and assets include both direct and allocated amounts.
Common costs and expenses and common assets are allocated in proportion to
sales.
Pages 32 through 34 contain a description of the Company's business.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
GEOGRAPHIC SEGMENTS
- ------------------------------------------------------------
1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
CUSTOMER SALES
Domestic . . . . . . . . $5,914.3 $ 5,180.1 $ 4,616.4
Foreign -- Western Europe,
Canada,
Australia,
New Zealand
and Japan . 4,201.1 4,262.4 3,812.1
-- Other . . . 382.8 220.0 174.2
AFFILIATE SALES
Domestic . . . . . . . . 1,263.6 1,215.9 1,093.9
Foreign -- Western Europe,
Canada,
Australia,
New Zealand
and Japan . 185.7 117.5 132.1
-- Other . . . 103.6 68.0 38.9
Eliminations . . . . . . (1,552.9) (1,401.4) (1,264.9)
- ------------------------------------------------------------
$10,498.2 $ 9,662.5 $ 8,602.7
============================================================
INCOME BEFORE TAXES
AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGES(1)
Domestic . . . . . . . . $2,377.6 $ 2,552.4 $ 2,252.2
Foreign -- Western Europe,
Canada,
Australia,
New Zealand
and Japan . 669.8 920.4 832.5
-- Other . . . 37.6 7.2 (4.4)
Eliminations . . . . . . (32.5) (38.5) (5.9)
- ------------------------------------------------------------
3,052.5 3,441.5 3,074.4
Nonoperating income,
primarily interest . . 50.2 122.1 92.3
- ------------------------------------------------------------
$3,102.7 $ 3,563.6 $ 3,166.7
============================================================
ASSETS
Domestic . . . . . . . . $12,881.7 $ 4,976.9 $ 4,187.3
Foreign -- Western Europe,
Canada,
Australia,
New Zealand
and Japan . 3,236.9 3,124.3 2,770.5
-- Other . . . 307.8 208.2 132.6
Cash and investments . . 3,322.2 2,509.1 2,455.5
Other corporate assets . 1,016.2 942.7 645.1
Eliminations . . . . . . (837.3) (675.2) (692.5)
- ------------------------------------------------------------
$19,927.5 $11,086.0 $ 9,498.5
============================================================
</TABLE>
(1) 1993 amounts include a nonrecurring pretax restructuring charge of
$535.2 million for Domestic and $239.8 million for Foreign.
Sales to affiliates by the domestic geographic area include products
manufactured in the United States and Puerto Rico that are shipped to
facilities in foreign countries for manufacture into finished products. Sales
to affiliates are at negotiated prices based on specific market conditions.
Profits are shown within the geographic areas at the time of sale; such
profits, however, are included in consolidated income when a sale is made to a
customer. Research and development expenses are included in the geographic
area in which the expenses were incurred.
50
<PAGE> 20
MANAGEMENT'S REPORT
Primary responsibility for the integrity and objectivity of the Company's
financial statements rests with management. The financial statements report on
management's stewardship of Company assets. These statements are prepared in
conformity with generally accepted accounting principles and, accordingly,
include amounts that are based on management's best estimates and judgments.
Nonfinancial information included in the Annual Report has also been prepared
by management and is consistent with the financial statements.
To assure that financial information is reliable and assets are safeguarded,
management maintains an effective system of internal controls and procedures,
important elements of which include: careful selection, training and
development of operating and financial managers; an organization that provides
appropriate division of responsibility; and communications aimed at assuring
that Company policies and procedures are understood throughout the
organization. In establishing internal controls, management weighs the costs
of such systems against the benefits it believes such systems will provide. A
staff of internal auditors regularly monitors the adequacy and application of
internal controls on a worldwide basis.
To insure that personnel continue to understand the system of internal
controls and procedures, and policies concerning good and prudent business
practices, the Company periodically conducts the Management's Stewardship
Program for key management and financial personnel. This program reinforces
the importance and understanding of internal controls by reviewing key
corporate policies, procedures and systems. In addition, an ethical business
practices program has been implemented to reinforce the Company's long-standing
commitment to high ethical standards in the conduct of its business.
The independent public accountants have audited the Company's consolidated
financial statements as described in their report. Their audits included a
review of the Company's accounting systems, procedures and internal controls,
and tests and other auditing procedures sufficient to enable them to render
their opinion on the Company's financial statements.
The recommendations of the internal auditors and independent public
accountants are reviewed by management. Control procedures have been
implemented or revised as appropriate to respond to these recommendations. No
material control weaknesses have been brought to the attention of management.
In management's opinion, for the year ended December 31, 1993, the internal
control system was strong and accomplished the objectives discussed herein.
<TABLE>
<S> <C>
/s/ P. ROY VAGELOS, M.D. /s/ JUDY C. LEWENT
- ------------------------ ------------------
P. Roy Vagelos, M.D. Judy C. Lewent
Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer
</TABLE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of Merck & Co., Inc.:
We have audited the accompanying consolidated balance sheets of Merck & Co.,
Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Merck & Co., Inc. and
subsidiaries as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in the accompanying notes to financial statements, effective
January 1, 1992, the Company adopted three new accounting standards promulgated
by the Financial Accounting Standards Board, changing its methods of accounting
for postretirement benefits other than pensions, income taxes and
postemployment benefits.
/s/ ARTHUR ANDERSEN & CO.
-------------------------
New York, New York ARTHUR ANDERSEN & CO.
January 25, 1994
51
<PAGE> 21
AUDIT COMMITTEE'S REPORT
The Audit Committee of the Board of Directors is comprised of five outside
directors. The members of the Committee are: Charles E. Exley Jr., Chairman;
Carolyne K. Davis, Ph.D., Vice Chairman; Sir Derek Birkin; William N. Kelley,
M.D.; and Dennis Weatherstone. The Committee held three meetings during 1993.
The Audit Committee meets with the independent public accountants, management
and internal auditors to assure that all are carrying out their respective
responsibilities. The Audit Committee reviews the performance and fees of the
independent public accountants prior to recommending their appointment, and
meets with them, without management present, to discuss the scope and results
of their audit work, including the adequacy of internal controls and the
quality of financial reporting. Both the independent public accountants and
the internal auditors have full access to the Audit Committee.
/s/ CHARLES E. EXLEY JR.
------------------------
Charles E. Exley Jr.
Chairman, Audit Committee
COMPENSATION AND BENEFITS
COMMITTEE'S REPORT
The Compensation & Benefits Committee is comprised of five outside directors.
The members of the Committee are: H. Brewster Atwater Jr., Chairman; Richard
S. Ross, M.D., Vice Chairman; Lawrence A. Bossidy; William G. Bowen, Ph.D.; and
Ruben F. Mettler, Ph.D. The Committee held five meetings during 1993.
The Compensation & Benefits Committee's major responsibilities include
providing for senior management succession and overseeing the Company's
compensation and benefit programs. The Committee seeks to provide rewards
which are highly leveraged to performance and clearly linked to Company and
individual results. The objective is to ensure that compensation and benefits
are at levels which enable Merck to attract and retain high quality employees.
The Committee views stock ownership as a vehicle to align the interests of
employees with those of the stockholders. A long-term focus is essential for
success in the pharmaceutical industry and is encouraged by making a high
proportion of executive officer compensation dependent on long-term performance
and on enhancing stockholder value.
/s/ H. BREWSTER ATWATER JR.
---------------------------
H. Brewster Atwater Jr.
Chairman, Compensation and Benefits Committee
SELECTED FINANCIAL DATA Merck & Co., Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
($ in millions
except per share amounts) 1993(1) 1992(2) 1991 1990 1989
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS FOR YEAR:
Sales . . . . . . . . . . $10,498.2 $9,662.5 $8,602.7 $7,671.5 $6,550.5
Materials and production
costs. . . . . . . . . . 2,497.6 2,096.1 1,934.9 1,778.1 1,550.3
Marketing/administrative
expenses . . . . . . . . 2,913.9 2,963.3 2,570.3 2,388.0 2,013.4
Research/development
expenses . . . . . . . . 1,172.8 1,111.6 987.8 854.0 750.5
Restructuring charge . . 775.0 -- -- -- --
Other (income) expense, net 36.2 (72.1) (57.0) (47.4) (46.7)
Income before taxes . . . 3,102.7 3,563.6 3,166.7 2,698.8 2,283.0
Taxes on income . . . . . 936.5 1,117.0 1,045.0 917.6 787.6
Net income . . . . . . . 2,166.2 2,446.6 2,121.7 1,781.2 1,495.4
Per share of common stock $1.87 $2.12 $1.83 $1.52 $1.26
Dividends on common stock:
Declared . . . . . . . 1,239.0 1,106.9 920.3 788.1 681.5
Paid per share . . . . $1.03 $.92 $.77 $.64 $.55
Capital expenditures . . 1,012.7 1,066.6 1,041.5 670.8 433.0
Depreciation . . . . . . 348.4 290.3 242.7 231.4 206.4
- --------------------------------------------------------------------------
YEAR-END POSITION:
Working capital . . . . . (161.1) 782.4 1,496.5 939.2 1,502.5
Property, plant and
equipment (net) . . . . 4,894.6 4,271.1 3,504.5 2,721.7 2,292.5
Total assets . . . . . . 19,927.5 11,086.0 9,498.5 8,029.8 6,756.7
Long-term debt . . . . . 1,120.8 495.7 493.7 124.1 117.8
Stockholders' equity . . 10,021.7 5,002.9 4,916.2 3,834.4 3,520.6
- --------------------------------------------------------------------------
FINANCIAL RATIOS:
Net income as a % of:
Sales . . . . . . . . . 20.6% 25.3% 24.7% 23.2% 22.8%
Average total assets . 14.0% 24.1% 24.2% 24.1% 23.2%
- --------------------------------------------------------------------------
YEAR-END STATISTICS:
Average number
of shares
of common stock
outstanding
(in millions) . . . . . 1,156.5 1,153.5 1,159.9 1,172.1 1,188.3
Number of stockholders . 231,300 161,200 91,100 82,300 75,600
Number of employees . . . 47,100(3) 38,400 37,700 36,900 34,400
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
($ in millions
except per share amounts) 1988 1987 1986 1985 1984 1983
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RESULTS FOR YEAR:
Sales . . . . . . . . . . $5,939.5 $5,061.3 $4,128.9 $3,547.5 $3,559.7 $3,246.1
Materials and production
costs . . . . . . . . . 1,526.1 1,444.3 1,338.0 1,272.4 1,424.5 1,263.4
Marketing/administrative
expenses . . . . . . . . 1,877.8 1,682.1 1,269.9 1,009.0 945.5 905.1
Research/development
expenses . . . . . . . . 668.8 565.7 479.8 426.3 393.1 356.0
Restructuring charge . . -- -- -- -- -- --
Other (income) expense, net (4.2) (36.0) (32.1) (17.2) 9.8 25.6
Income before taxes . . . 1,871.0 1,405.2 1,073.3 857.0 786.8 696.0
Taxes on income . . . . . 664.2 498.8 397.6 317.1 293.8 245.1
Net income . . . . . . . 1,206.8 906.4 675.7 539.9 493.0 450.9
Per share of common stock $1.02 $.74 $.54 $.42 $.37 $.34
Dividends on common stock:
Declared . . . . . . . 546.3 365.2 278.5 235.1 224.0 210.8
Paid per share . . . . $.43 $.27 $.21 $.18 $.17 $.16
Capital expenditures . . 372.7 253.7 210.6 237.6 274.4 272.8
Depreciation . . . . . . 189.0 188.5 167.2 163.6 151.6 135.2
- ----------------------------------------------------------------------------------
YEAR-END POSITION:
Working capital . . . . . 1,480.3 798.3 1,094.3 1,106.6 1,076.5 734.9
Property, plant and
equipment (net) . . . . 2,070.7 1,948.0 1,906.2 1,882.8 1,912.8 1,715.2
Total assets . . . . . . 6,127.5 5,680.0 5,105.2 4,902.2 4,590.6 4,214.7
Long-term debt . . . . . 142.8 167.4 167.5 170.8 179.1 385.5
Stockholders' equity . . 2,855.8 2,116.7 2,541.2 2,607.7 2,518.6 2,409.9
- ----------------------------------------------------------------------------------
FINANCIAL RATIOS:
Net income as a % of:
Sales . . . . . . . . . 20.3% 17.9% 16.4% 15.2% 13.8% 13.9%
Average total assets . 20.4% 16.8% 13.5% 11.4% 11.2% 11.5%
- ----------------------------------------------------------------------------------
YEAR-END STATISTICS:
Average number
of shares
of common stock
outstanding
(in millions) . . . . . 1,186.9 1,221.2 1,253.9 1,282.7 1,322.0 1,331.0
Number of stockholders . 68,500 56,900 48,300 47,000 50,200 51,800
Number of employees . . . 32,000 31,100 30,700 30,900 34,800 32,600
==================================================================================
</TABLE>
(1) 1993 amounts include Medco Containment Services, Inc. from the date of
acquisition (November 18, 1993). Excluding the effect of the
acquisition, earnings per share would have been $1.94, and the ratio
of net income to average total assets would have been 18.5%. 1993
amounts also include a nonrecurring restructuring charge of $.45 per
share.
(2) 1992 results of operations exclude the cumulative effect of the
accounting changes described on pages 37 and 38.
(3) Includes 10,300 Medco employees.
52
<PAGE> 22
APPENDIX
Page of
Exhibit 13
35 There is a table in place of the bar chart/line graph which
appears in the Financial Review section of the 1993 Annual
Report to stockholders describing the components of sales
growth.
36 There is a reference to a graph on page 11 of the 1993 Annual
Report to stockholders which is provided below in tabular form:
R&D EXPENDITURES
($ in millions and as a % of sales)
Total % of
Year Amount Sales
------ -------- -------
1980 $ 233.9 9 %
1981 274.2 9
1982 320.2 10
1983 356.0 11
1984 393.1 11
1985 426.3 12
1986 479.8 12
1987 565.7 11
1988 668.8 11
1989 750.5 11
1990 854.0 11
1991 987.8 11
1992 1,111.6 12
1993 1,172.8 11
1994 over 1.3 billion *
* planned expenditures
This chart excludes R&D costs incurred by the Company's joint
ventures, which in 1993 were in excess of $300 million.
<PAGE> 1
EXHIBIT 21
MERCK & CO., INC. SUBSIDIARIES
AS OF DECEMBER 31, 1993
Each of the subsidiaries below does business under the name in which
listed. A subsidiary of a subsidiary is indicated by indentation under the
immediate parent. All voting securities of the subsidiaries named are owned
directly or indirectly by the Company, except where otherwise indicated.
Certain other subsidiaries, principally overseas companies that are less than
wholly owned, have been omitted since, considered in the aggregate as a single
subsidiary, they would not constitute a significant subsidiary as of December
31, 1993.
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Chibret A/S Denmark
International Indemnity Limited Bermuda
Kelco Specialty Colloids, Limited Canada
Laboratorios Prosalud S.A. Peru
Medco Containment Services, Inc. Delaware
Apartment Lease Corporation New York
CM Delaware Corporation Delaware
Flex Rx of Pennsylvania, Inc. Pennsylvania
Managed Care, Inc. Nevada
MCCO Corp. New Jersey
MCSI Corp. New Jersey
Medco Containment Services Foundation, Inc. New Jersey
Medco Containment Services, Inc. Political Action Committee Corp. New Jersey
Medco Holdings Corp. Delaware
Medco Behavioral Care Corporation Delaware
American Biodyne, Inc. Delaware
Achievement and Guidance Centers of America, Inc. Pennsylvania
AGCA Headquarters Limited Partnership Pennsylvania
AGCA New York, Inc. New York
Achievement and Guidance Centers - U.S., Inc. New York
Achievement and Guidance Centers of New York, Inc. New York
AGCA/SANUS New York, Inc. New York
Quality Health Care Solutions, Inc. Pennsylvania
Companion Benefit Alternatives, Inc. S. Carolina
AGCA/Net Recovery Systems Pennsylvania
AGCA Acquisition Corporation - New York Delaware
</TABLE>
<PAGE> 2
Page 2
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Alliance Health Systems, Inc. Indiana
American Biodyne Military Health Plan, Inc. Delaware
Arizona Biodyne, Inc. Arizona
California Biodyne Health Services, Inc. California
Colorado Biodyne, Inc. Colorado
Florida Biodyne, Inc. Florida
Hawaii Biodyne, Inc. Hawaii
Illinois Biodyne, Inc. Illinois
Indiana Biodyne, Inc. Indiana
Louisiana Biodyne, Inc. Louisiana
Maine Biodyne, Inc. Maine
Massachusetts Biodyne, Inc. Massachusetts
Michigan Biodyne, Inc. Michigan
Nevada Biodyne, Inc. Nevada
New Mexico Biodyne, Inc. New Mexico
North Carolina Biodyne, Inc. N. Carolina
Ohio Biodyne, Inc. Ohio
Pennsylvania Biodyne, Inc. Pennsylvania
Tennessee Biodyne, Inc. Tennessee
Texas Biodyne, Inc. Texas
Vermont Biodyne, Inc. Vermont
American Biodyne Insurance Company Illinois
Medco Behavioral Care Systems Corporation Ohio
PPC Group, Inc. Delaware
Medco Behavioral Care of California, Inc. Missouri
P.P.C. Inc. Missouri
Personal Performance Consultants of New York, Inc. New York
Medical Marketing Group, Inc.(1) Delaware
KSF Medical Publishing Company, Inc. New York
Medical Marketing, Inc. Delaware
MMGI Corp. New Jersey
PPI Holding, Inc. Delaware
Payer Prescribing Information, Inc. Pennsylvania
TELERx Marketing, Inc. Pennsylvania
MMGI Corp. New Jersey
MMG Acquisition Corp. Delaware
Synetic, Inc.(2) Delaware
Alliance Health Services, Inc. Delaware
</TABLE>
(1) 54.2% publicly owned
(2) 58.7% publicly held
<PAGE> 3
Page 3
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Brownstone Pharmacy, Inc. Connecticut
Omni Med B, Inc. Connecticut
Alliance Home Health Care, Inc. Connecticut
Dunnington Drug, Inc. Delaware
Dunnington Rx Services of Massachusetts, Inc. Massachusetts
DD Wholesale, Inc. Massachusetts
Dunnington Rx Services of Rhode Island, Inc. Rhode Island
Healthcare Prescription Services, Inc. Indiana
Porex Technologies Corp. Delaware
Porex International, Inc. Barbados
Porex Scientific Inc. Delaware
Porex Surgical, Inc. Delaware
POREX Technologies GmbH Germany
Sync Corp. New Jersey
Medco MM Corp. New Jersey
NRX Services, Inc. New York
NRx Federal Corp. Delaware
National Administrative Services, Inc. Delaware
National Pharmacies, Inc. New Jersey
National Rx Services No. 2, Inc. Florida
National Rx Services No. 2, Inc. of Ohio Ohio
National Rx Services No. 3, Inc. of Ohio Ohio
National Rx Services, Inc. (Ohio I) Ohio
National Rx Services, Inc. of Mass. Massachusetts
National Rx Services, Inc. of Missouri Missouri
National Rx Services, Inc. of Nevada Nevada
National Rx Services, Inc. of Pennsylvania Pennsylvania
National Rx Services, Inc. of Texas Texas
National Rx Services, Inc. of Washington Washington
National Rx Services, Inc. (Florida I) Florida
National Rx Services, Inc. (California) California
Paid Direct, Inc. Delaware
Paid Prescriptions, Inc. Nevada
Physician Marketing Services, Inc. Delaware
Replacement Distribution Center, Inc. Ohio
Merck and Company, Incorporated Delaware
Merck Capital Resources, Inc. Delaware
</TABLE>
<PAGE> 4
Page 4
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Merck Foreign Sales Corporation Guam
Merck Foreign Sales Corporation Ltd. Bermuda
Merck Holdings, Inc. Delaware
Calgon Vestal Laboratories, Inc. Delaware
Kelco International S.A. France
Merck de Puerto Rico, Inc. Delaware
MSD International Holdings, Inc. Delaware
Banyu Pharmaceutical Company, Limited(3) Japan
A.S.C. Service Co., Ltd.(3) Japan
Nippon Merck-Banyu Co., Limited(3) Japan
Frosst Laboratories, Inc. Delaware
Frosst Portuguesa - Productos Farmaceuticos, Lda. Portugal
Hubbard Farms, Inc. Delaware
Hubbard Foods, Inc. New Hampshire
Hubbard France S.A.R.L. France
Hubbard Laboratories, Inc. Delaware
Kelco Company Delaware
Monterey Kelp Corporation California
Kelco Oil Field Group, Inc. Delaware
Kelco Specialty Colloids (S) Pte. Ltd. Singapore
Merck Sharp & Dohme de Venezuela C.A. Venezuela
Merck Sharp & Dohme Holdings de Mexico, S.A. de C.V. Mexico
Merck Sharp & Dohme de Mexico, S.A. de C.V. Mexico
Merck Sharp & Dohme (I.A.) Corp. Delaware
Merck Sharp & Dohme (Argentina) Inc. Delaware
Merck Sharp & Dohme Industrial e Exportadora Limitada Brazil
Merck Sharp & Dohme Farmaceutica e Veterinaria Ltda. Brazil
Merck Sharp & Dohme (International) Limited Bermuda
Merck Sharp & Dohme (Asia) Limited Hong Kong
Merck Sharp & Dohme (China) Limited Hong Kong
Merck Sharp & Dohme S.A. France
Merck Sharp & Dohme - Lebanon S.A.L. Lebanon
Merck Sharp & Dohme Overseas Finance Luxembourg
Merck Frosst Canada, Inc. Canada
General Trade Co., S.A. Peru
</TABLE>
(3) 49.13% publicly held
<PAGE> 5
Page 5
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Merck Sharp & Dohme (Australia) Pty. Ltd. Australia
Merck Sharp & Dohme B.V. Netherlands
Compagnie Chimique Merck Sharp & Dohme S.A. France
Hubbard Europa B.V. Netherlands
Hubbard Belgium International N.V. Belgium
Hubbard Deutschland GmbH Germany
Hubbard Italia SRL Italy
Hubbard Nederland B.V. Netherlands
Hubbard Poultry U.K. Limited Great Britain
Laboratoires Merck Sharp & Dohme-Chibret S.A. France
Chibret International France
Chibret Pharmazeutische GmbH Germany
Merck Sharp & Dohme GmbH Austria
Merck Sharp & Dohme (Italia) S.p.A. Italy
MSD Sharp & Dohme GmbH Germany
Dieckmann Arzneimittel GmbH Germany
Frosst Pharma GmbH Germany
MSD Chibropharm GmbH Germany
MSD Unterstutzungskasse GmbH Germany
Merck Sharp & Dohme-Chibret AG Switzerland
MSD Technology L.P. Delaware
Merck Finance Co., Inc. Delaware
Merck Sharp & Dohme (Holdings) Limited Great Britain
British United Turkeys Limited Great Britain
Turkey Research & Development Limited Great Britain
Charles E. Frosst (U.K.) Limited Great Britain
C V Laboratories Limited Great Britain
Kelco International Limited Great Britain
Alginate Industries (Ireland) Limited Ireland
Alginate Industries Limited Great Britain
Alginate Industries (Scotland) Limited Great Britain
Kelco International GmbH Germany
Kelco International Pension Fund Trust Limited Great Britain
Kelco Biospecialties Limited Great Britain
Merck Sharp & Dohme Finance Europe Great Britain
Merck Sharp & Dohme Limited Great Britain
Thomas Morson & Son Limited Great Britain
Merck Sharp & Dohme Idea, Inc. Switzerland
Merck Sharp & Dohme Trading & Service Hungary
Limited Liability Company
</TABLE>
<PAGE> 6
Page 6
<TABLE>
<CAPTION>
Country or State
Name of Incorporation
---- -----------------
<S> <C>
Merck Sharp & Dohme (Sweden) A.B. Sweden
MSD Ireland (Holdings) S.A. Luxembourg
Fabrica de Productos Quimicos y Farmaceuticos ABELLO, S.A. Spain
Fregenal Holdings S.A. Panama
Frosst Iberica, S.A. Spain
Laboratorios Quimico-Farmaceuticos Chibret, Ltda. Portugal
Merck Sharp & Dohme de Espana, S.A. Spain
Merck Sharp & Dohme (Ireland) Bermuda
MSD Finance, B.V. Netherlands
Neopharmed S.p.A. Italy
MSD (Norge) A/S Norway
Suomen MSD Oy Finland
Merck Sharp & Dohme of Pakistan Limited Pakistan
Merck Sharp & Dohme Quimica de Puerto Rico, Inc. Delaware
Merck Sharp ve Dohme Ilaclari A.S. Turkey
MSD Chimie S.A. France
MSD Lakemedel (Scandinavia) A.B. Sweden
Prosalud Peruana S.A. Peru
Merck Investment Co., Inc. Delaware
Merck Sharp & Dohme (Europe) Inc. Delaware
Merck Sharp & Dohme Industria Quimica e Veterinaria Limitada Brazil
Merck Sharp & Dohme, Limitada Portugal
Merck Sharp & Dohme (New Zealand) Limited New Zealand
Charles E. Frosst (New Zealand) Limited New Zealand
Merck Sharp & Dohme Overseas Finance N.V. Neth. Antilles
Merck Sharp & Dohme (Panama) S.A. Panama
Merck Sharp & Dohme (Philippines) Inc. Philippines
Merck Sharp & Dohme Scientific and Management Corp., Inc. Delaware
Merck Sharp & Dohme (Zimbabwe) (Private) Limited Zimbabwe
MSD AGVET AG Switzerland
MSD (Japan) Co., Limited Japan
</TABLE>
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned does hereby appoint CELIA A.
COLBERT, MARY M. McDONALD and BERT I. WEINSTEIN and each of them, severally,
his/her true and lawful attorney or attorneys to execute on behalf of the
undersigned (whether on behalf of the Company, or as an officer or director
thereof, or by attesting the seal of the Company, or otherwise) the Form l0-K
Annual Report of Merck & Co., Inc. for the fiscal year ended December 3l, l993
under the Securities Exchange Act of l934, including amendments thereto and all
exhibits and other documents in connection therewith.
IN WITNESS WHEREOF, this instrument has been duly executed
as of the 22nd day of February, l994.
MERCK & CO., Inc.
By /s/ P. Roy Vagelos
----------------------------------
P. Roy Vagelos
(Chairman of the Board, President
and Chief Executive Officer)
<TABLE>
<S> <C>
/s/ P. Roy Vagelos Chairman of the Board, President
- ----------------------------------and Chief Executive Officer
P. Roy Vagelos (Principal Executive Officer; Director)
/s/ Judy C. Lewent Senior Vice President and Chief Financial Officer
- ----------------------------------(Principal Financial Officer)
Judy C. Lewent
/s/ Peter E. Nugent Vice President, Controller
- ---------------------------- (Principal Accounting Officer)
Peter E. Nugent
</TABLE>
DIRECTORS
<TABLE>
<S> <C>
/s/ H. Brewster Atwater, Jr. /s/ Charles E. Exley, Jr.
- -------------------------------- -----------------------------------
H. Brewster Atwater, Jr. Charles E. Exley, Jr.
/s/ Derek Birkin /s/ William N. Kelley
- -------------------------------- -----------------------------------
Derek Birkin William N. Kelley
/s/ Lawrence A. Bossidy /s/ Ruben F. Mettler
- -------------------------------- -----------------------------------
Lawrence A. Bossidy Ruben F. Mettler
/s/ William G. Bowen /s/ Richard S. Ross
- -------------------------------- --------------------------------
William G. Bowen Richard S. Ross
/s/ Carolyne K. Davis /s/ Dennis Weatherstone
- ---------------------------------- -----------------------------------
Carolyne K. Davis Dennis Weatherstone
/s/ Lloyd C. Elam /s/ Martin J. Wygod
- -------------------------------- -----------------------------------
Lloyd C. Elam Martin J. Wygod
</TABLE>
<PAGE> 2
EXHIBIT 24
I, Nancy V. Van Allen, Assistant Secretary of MERCK & CO.,
Inc., a Corporation duly organized and existing under the laws of the State of
New Jersey, do hereby certify that the following is a true copy of a resolution
adopted at a meeting of the Directors of said Corporation held in Whitehouse
Station, New Jersey, on February 22, l994, duly called in accordance with the
provisions of the By-Laws of said Corporation, and at which a quorum of
Directors was present:
"Special Resolution No. 10 - 1994
RESOLVED, that the proposed form of Form l0-K Annual Report
of the Company for the fiscal year ended December 3l, l993
presented to this meeting is hereby approved with such changes as
the proper officers of the Company, with the advice of counsel,
deem appropriate; and
RESOLVED, that each officer and director who may be
required to execute the aforesaid Form l0-K Annual Report or any
amendments thereto (whether on behalf of the Company or as an
officer or director thereof, or by attesting the seal of the
Company, or otherwise) is hereby authorized to execute a power of
attorney appointing Celia A. Colbert, Mary M. McDonald and Bert I.
Weinstein and each of them, severally, his/her true and lawful
attorney or attorneys to execute in his/her name, place and stead
(in any such capacity) such Form l0-K Annual Report and any and all
amendments thereto and any and all exhibits and other documents
necessary or incidental in connection therewith and to file the
same with the Securities and Exchange Commission, each of said
attorneys to have power to act with or without the others, and to
have full power and authority to do and perform in the name and on
behalf of each of said officers and directors, or both, as the case
may be, every act whatsoever necessary or advisable to be done in
the premises as fully and to all intents and purposes as any such
officer or director might or could do in person."
IN WITNESS WHEREOF, I have hereunto subscribed my signature
and affixed the seal of the Corporation this 22nd day of March, l994.
[Corporate Seal] /s/ Nancy V. Van Allen
----------------------------
Assistant Secretary
