As filed with the Securities and Exchange Commission on March 22, 1995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(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, 1994
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 __________
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:
Name of Each Exchange
Title of Each Class on which Registered
--------------- -------------------
Common Stock New York and Philadelphia Stock Exchanges
(no par value)
Number of shares of Common Stock (no par value) outstanding as of
February 28, 1995: 1,240,402,835.
Aggregate market value of Common Stock (no par value) held by
non-affiliates on December 31, 1994 based on closing price on February 28,
1995: $52,862,000,000.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Documents Incorporated by Reference:
Document Part of Form 10-K
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Annual Report to stockholders for the fiscal year Parts I and II
ended December 31, 1994
Proxy Statement for the Annual Meeting of Part III
Stockholders to be held April 25, 1995
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<PAGE>
PART I
Item 1. Business.
Merck & Co., Inc. is a worldwide research-intensive health products company
that discovers, develops, produces and markets human and animal health products
and services. The Company's dominant industry segment is the Human and Animal
Health Products and Services segment, which includes Medco Containment Services,
Inc. ("Medco"), acquired in November 1993.
The following table shows the sales of various classes of the Company's
products and services:
<TABLE>
<CAPTION>
($ in millions) 1994 1993 1992
--------------- ---- ---- ----
<S> <C> <C> <C>
Cardiovasculars............................... $ 5,351.6 $ 4,820.8 $4,482.0
Anti-ulcerants................................ 1,565.7 1,324.0 1,043.9
Antibiotics................................... 827.4 868.7 942.2
Vaccines/biologicals.......................... 485.3 522.9 485.3
Ophthalmologicals............................. 482.3 454.6 457.2
Anti-inflammatories/analgesics................ 270.6 336.8 430.5
Other Merck human health...................... 433.4 446.8 373.4
Other human health............................ 4,103.9 296.6 ---
Animal health/crop protection................. 1,027.4 916.7 853.1
Specialty chemical............................ 422.2 510.3 594.9
--------- --------- --------
Total.................................... $14,969.8 $10,498.2 $9,662.5
========= ========= ========
</TABLE>
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 (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) (through
October 31, 1994) 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 Merck human health products
which include Proscar (finasteride), a treatment for symptomatic benign prostate
enlargement, antiparkinsonism products, psychotherapeutics and a muscle
relaxant. "Other human health" primarily includes Medco sales of non-Merck
products and Medco human health 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 (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.
Specialty chemical products are used in health care, food processing, oil
exploration, paper, textiles and personal care.
In 1994, the Federal Food and Drug Administration ("FDA") cleared Trusopt
(dorzolamide hydrochloride), the first topical carbonic anhydrase inhibitor for
treatment of elevated intraocular pressure in patients with ocular hypertension
or open-angle glaucoma, for marketing in the United States. The drug has also
been cleared for marketing in Sweden, the United Kingdom and New Zealand. In
addition, Fosamax (alendronate sodium), for treatment of osteoporosis in
postmenopausal women, was cleared for marketing in Italy in 1993 and in Mexico
in 1994. Regulatory filings for Fosamax have been made in 35 countries and are
planned in the United States in 1995. Fosamax is licensed to the Company by
Istituto Gentili of Italy. Also during 1994, the Company submitted licensing
applications for Vaqta, a highly purified vaccine for the prevention of
hepatitis A, in Canada, China, Germany and the United Kingdom and the Product
License Application for Vaqta was filed in the United States. On March 17, 1995,
the FDA licensed Varivax [varicella virus vaccine live (Oka/Merck)] for use
against chickenpox in healthy children, adolescents and adults.
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In June 1993, the Company sold its Calgon Water Management business for
$307.5 million to English China Clays plc. In August 1994, the Company announced
its intention to sell its remaining specialty chemical units, Kelco and Calgon
Vestal Laboratories. The decision reflects the Company's intention to focus its
resources more fully on its core human and animal health business. In January
1995, the Company sold its Calgon Vestal Laboratories business to Bristol-Myers
Squibb for $261.5 million. In February 1995, the Company sold its Kelco business
to Monsanto Company for $1.075 billion. These businesses were not significant to
the Company's financial position, liquidity or results of operations. Following
these divestitures, the Company is no longer engaged in the specialty chemical
business.
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. Medco principally
provides services designed to reduce prescription drug benefit costs through
managed prescription drug programs.
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") and
the European Free Trade Association. In November 1994, after receiving the
approval of the EU, the Company and Pasteur Merieux contributed their European
vaccine businesses for equal shares in the joint venture, known as Pasteur
Merieux MSD, S.N.C. The joint venture is subject to monitoring by the EU, to
which the partners agreed to certain undertakings in return for an exemption
from European Competition Law, effective until December 2007. The joint venture
is active through affiliates in Belgium, Denmark, Italy, Germany, Spain and the
United Kingdom, and through distributors throughout the rest of Europe.
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 enables 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.
In 1989, the Company and E. I. du Pont de Nemours and Company ("DuPont")
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 DuPont, called angiotensin II receptor antagonists.
In return, the Company provided DuPont marketing rights in the United States and
Canada to its prescription medicines, Sinemet (carbidopa-levodopa) and Sinemet
CR (sustained-release formulation).
Effective January 1991, the Company and DuPont entered into a joint venture
to form a worldwide pharmaceutical company for the research, marketing,
manufacturing and sale of pharmaceutical and imaging agent products. DuPont
contributed its entire worldwide pharmaceutical and radiopharmaceutical imaging
agents businesses to the joint venture 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 January 1995, the joint venture
began co-promotion of the Company's prescription medicines, Prinivil and
Prinzide (lisinopril and hydrochlorothiazide), in the United States.
Under separate agreements between the Company and DuPont, the Company has
an exclusive license to market 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. Commencing in 1993,
marketing applications were submitted worldwide for Cozaar and in the United
States and France for Hyzaar. In 1994, Cozaar was cleared for marketing in
Denmark, Norway, Sweden, Switzerland and the United Kingdom for the treatment of
hypertension.
In December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of
disproportionate allocations of the DuPont Merck joint venture
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<PAGE>
income and expense against the Company's right to receive a disproportionate
share of income arising from its 1989 long-term research and marketing agreement
with DuPont. Accordingly, the Company recorded a $499.6 million provision for an
obligation to the joint venture. This obligation is a function of the favorable
performance of assets contributed by DuPont to the joint venture through
December 31, 1994 and certain contractual commitments of the Company. It is
anticipated that this obligation will be discharged over a period of six years
beginning in 1995.
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
European extension currently markets and sells over-the-counter pharmaceutical
products in France, Germany, Italy, Spain and the United Kingdom. In January
1994, the Company and Johnson & Johnson acquired all 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 Pepcid AC, 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 have also been filed in 16 European countries and 6 other countries. In
1994, the marketing licenses for Pepcid AC were cleared in the United Kingdom,
New Zealand and Cyprus.
In 1982, the Company entered into an agreement with Astra AB ("Astra") to
develop and market Astra products in the United States. Under the first phase of
the agreement, the Company marketed three Astra products, Prilosec, Plendil
(felodipine) and Tonocard (tocainide hydrochloride), 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 in the United States. On November 1, 1994,
Astra paid the Company $820.0 million for an interest in a joint venture that
will be carried on in a company called Astra Merck Inc., in which the Company
and Astra each own a 50 percent share. This joint venture will develop and
market most new prescription medicines from Astra's research.
In 1994, the Company established new subsidiaries in South Korea, Cyprus,
Peru, Holland and Germany, and established new branch offices in Chile, the
Philippines and Slovenia. The Company also established new representation
offices in Latvia, Croatia, Estonia and Sri Lanka, and established a new joint
venture company in China for manufacturing, sales and promotion of certain
products of the Company.
Competition -- The markets in which the Company'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 significantly reduced
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 Dolobid. In 1993, West Point Pharma
began marketing an additional 11 off-patent Company drugs in more than 20
different packages. In December 1994, the Company entered into a distribution
agreement with Endo Laboratories, L.L.C. ("Endo"), a
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<PAGE>
wholly-owned subsidiary of The DuPont Merck Pharmaceutical Company, effectively
transferring most of its generics business to Endo.
Medco's pharmacy benefit management business is highly competitive. Medco
competes with other pharmacy benefit managers, retail prescription drug claims
processors, insurance companies 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.
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 ("CPI") plus 1 percent on an annual basis and to limit the net
weighted average price increase for the full human health pharmaceutical product
line to the general rate of inflation as measured by the CPI.
Distribution -- Promotion of the Company's human and animal health products
and services are generally made by professional representatives. Customers for
human health products include drug wholesalers and retailers, hospitals,
clinics, governmental agencies, managed health-care providers such as health
maintenance organizations and other institutions. Customers for human health
services include corporations, labor unions, insurance companies, Blue Cross and
Blue Shield organizations, Federal and state employee plans, health maintenance
and similar organizations. Customers for animal health/crop protection products
include veterinarians, distributors, wholesalers, retailers, feed
manufacturers, veterinary suppliers and laboratories.
Raw Materials -- Raw materials and supplies are normally available in
quantities adequate to meet the needs of the Company's business.
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. Although a Federal reform bill was not enacted during the last
Congress, some states have passed reform legislation and further Federal and
state developments are expected. The debate to reform the health-care system is
expected to be protracted and intense. Although the Company is positioned to
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 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
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<PAGE>
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, and will receive a minimum rebate of 15.4
percent off AMP through 1995, 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, outpatient 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 Omnibus Budget Reconciliation Act of 1993 established a new Federal
Vaccines for Children entitlement program, under which the U.S. Centers for
Disease Control and Prevention ("CDC") funds and purchases recommended pediatric
vaccines at a capped public sector price for the immunization of
Medicaid-eligible, uninsured native American and certain underinsured children.
The Company was awarded three CDC contracts in September 1994 for the supply of
its pediatric vaccines for this program, and is currently negotiating an
agreement with CDC for distribution of these vaccines to participating
physicians.
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
pharmacists.
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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 the following major
products in the United States: Chibroxin (norfloxacin), Enacard (enalapril
maleate for use in dogs), ivermectin-containing products, Mefoxin, Mevacor,
Noroxin, PedvaxHIB (the Company's pediatric vaccine for prevention of
Haemophilus influenzae type B infections), Pepcid, Primaxin, Proscar, Timoptic,
Trusopt, Vaseretic, Vasotec and Zocor. 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: Aldomet, Aldoril (methyldopa
and hydrochlorothiazide), Amprol (amprolium), Blocadren (timolol maleate),
Clinoril, Decadron (dexamethasone), Diuril (chlorothiazide), Dolobid, Flexeril
(cyclobenzaprine hydrochloride), HydroDiuril (hydrochlorothiazide), Indocin,
Moduretic (amiloride HCl-hydrochlorothiazide), Sinemet, and TBZ and Thibenzole
(thiabendazole).
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 U.S. 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 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
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law by eliminating compulsory licensing of pharmaceutical products 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.
Pursuant to the agreement, Mexico improved 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 and the U.S. implementing legislation was enacted in December 1994,
requiring certain changes in U.S. law by June 1995. 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 1994 on patent and know-how licenses and other
rights amounted to $76.0 million. The Company also paid royalties amounting to
$272.5 million in 1994 under patent and know-how licenses it holds.
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 6,300 people are employed in the Company's research
activities. Expenditures for the Company's research and development programs
were $1,230.6 million in 1994, $1,172.8 million in 1993 and $1,111.6 million in
1992 and will be close to $1.3 billion in 1995. The Company maintains its
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 1994 exceeded $9.8 billion with a compound annual growth
rate of 13 percent. Costs incurred by the joint ventures in which the Company
participates, totaling $319.4 million in 1994, 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.
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 pre-clinical 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, the 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, 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 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, a vaccine for the prevention of
chickenpox. On March 17, 1995, the FDA
7
<PAGE>
licensed Varivax for use against chickenpox. In 1993, the Company submitted an
NDA for Pepcid AC, an over-the-counter form of the Company's ulcer medication
Pepcid, to be marketed by the Johnson & Johnson--Merck Consumer Pharmaceuticals
Co.
Employees
At the end of 1994, the Company had 47,500 employees worldwide, with 30,400
employed in the United States, including Puerto Rico. Approximately 25 percent
of the Company's worldwide employees are represented by various collective
bargaining groups.
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 1994, the Company incurred capital expenditures of approximately $76.2
million for environmental control facilities. Capital expenditures for this
purpose are forecasted to exceed $300.0 million for the years 1995 through 1999.
In addition, the Company's operating and maintenance expenditures for pollution
control were approximately $64.8 million in 1994. Expenditures for this purpose
for the years 1995 through 1999 are forecasted to exceed $380.0 million. The
Company is also remediating environmental contamination resulting from past
industrial activity at certain of its sites. Remediation expenditures were $24.1
million in 1994 and are estimated at $160.0 million for the years 1995 through
1999. The Company has been accruing for these costs. Management does not believe
that these expenditures should ultimately result in 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 32
percent of sales in 1994, 44 percent of sales in 1993 and 46 percent of sales in
1992. The decline in the percentage of sales outside the United States in 1994
is due to higher domestic sales resulting from the Medco acquisition.
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, which
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 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, the Company
is actively pursuing opportunities in Latin America, Eastern Europe, Asia
Pacific and other regions where changes in government, fiscal and regulatory
policies are making it possible for the Company to earn fair economic returns.
While none of these actions individually has significantly affected operations,
the overall impact has been favorable.
Financial information about geographic areas of the Company's business is
incorporated by reference to page 48 of the Company's 1994 Annual Report to
stockholders.
8
<PAGE>
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.
Principal research facilities for human and animal health products are located
in Rahway and West Point. The Company also has production facilities for human
and animal health products at 12 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 1994 were $1,009.3 million compared with $1,012.7
million for 1993. In the United States, these amounted to $772.1 million for
1994 and $759.7 million for 1993. Abroad, such expenditures amounted to $237.2
million for 1994 and $253.0 million for 1993.
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 are suitable for their intended purposes and have
capacities adequate for current and projected needs for existing Company
products. Some capacity of the 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 40 antitrust suits,
two of which are 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.
Most of these actions, except for several actions pending in California, Alabama
and Wisconsin state courts, have been consolidated for pre-trial purposes in the
United States District Court for the Northern District of Illinois. 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 financial position, liquidity or
results of operations of the Company. In addition, prior to the Company's merger
with Medco, the Company and Medco were named in an action by a retail pharmacy
seeking to enjoin such merger. This proceeding was settled by the Company in
March 1995. The settlement includes a consent order that imposes certain
restrictions on the exchange of information between the Company and Medco and
requires that Medco offer an open formulary. In the opinion of the Company,
compliance with the consent order will not have a material adverse effect on the
financial position, liquidity or results of operations of 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 financial position, results of operations, liquidity or
capital resources of 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.
9
<PAGE>
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 Administrative
Consent Order ("ACO") settling this matter provided that improvements to the
site's wastewater and stormwater discharge systems be completed no later than
November 1, 1994. In addition to equipment improvements made to the site's
wastewater discharge system, the Company also initiated a comprehensive
stormwater investigation to determine the causes for the alleged stormwater
contamination. In response to the study's findings that some of the limits set
in the original permit were not technically achievable, DEP issued a new
discharge permit to the Rahway site on November 1, 1994, effective January 1,
1995. Issuance of the new permit satisfies the remaining requirements of the
ACO.
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 provided that Kelco pay penalties of $200,000 for alleged past
violations and that the San Diego facility continuously monitor its wastewater
discharges to the sewerage authority and demonstrate continuous compliance with
its permit pH limits for a period of one year. Kelco recently satisfied the
terms of the consent decree and the Court entered an order terminating the
consent decree on December 23, 1994.
In May 1994, Kelco received a Notice of Violation from Environmental
Protection Agency Region 9 alleging that Kelco failed to obtain agency
pre-construction approvals required by the Clean Air Act for physical and/or
process modifications made at its San Diego facility. It is likely that any
final settlement of these and other possible violations will require the
installation of additional pollution reduction equipment as well as the payment
of a fine of approximately $1.5 million.
In December 1994, the Federal Trade Commission requested the Company to
produce documents and information in connection with a non-public investigation
concerning the pharmacy benefit management business. Although it is not feasible
to predict the outcome of this proceeding, it is the opinion of management that
its outcome will not have a material adverse effect on the financial position,
liquidity or results of operations of the Company.
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 financial position, liquidity or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
-----------------
10
<PAGE>
Executive Officers of the Registrant (as of March 1, 1995)
RAYMOND V. GILMARTIN -- Age 54
November, 1994 -- Chairman of the Board, President and Chief Executive
Officer
June, 1994 -- President and Chief Executive Officer
Prior to June, 1994, Mr. Gilmartin was President and Chief Executive
Officer (1989 to 1992) and Chairman, President and Chief Executive
Officer (1992 to 1994) of Becton Dickinson and Company (medical
supplies and devices and diagnostic systems).
DAVID W. ANSTICE -- Age 46
September, 1994 -- President, Human Health-U.S./Canada--responsible for
the Company's prescription drug business in the United States and
Canada, worldwide coordination of marketing policies and medical and
scientific affairs
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
CELIA A. COLBERT -- Age 38
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
CLIFFORD S. CRAMER -- Age 43
July, 1993 -- Vice President, Planning and Development -- responsible
for strategic planning and external growth activities
April, 1990 -- Executive Director, Corporate Development
June, 1987 -- Senior Director, Corporate Development
STEVEN M. DARIEN -- Age 52
April, 1990 -- Vice President, Human Resources
May, 1989 -- Vice President, Worldwide Personnel
11
<PAGE>
CAROLINE DORSA -- Age 35
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
R. GORDON DOUGLAS JR. -- Age 60
January, 1994 -- President, Merck Vaccines--responsible for all
functional areas, including development, manufacture and marketing, of
the vaccines business
April, 1991 -- President, Merck Vaccine Division
October, 1989 -- Senior Vice President, Medical & Scientific Affairs
KENNETH C. FRAZIER -- Age 40
April, 1994 -- Vice President, Public Affairs
May, 1992 -- Vice President, General Counsel and Secretary, Astra/Merck
Group
Prior to May, 1992, Mr. Frazier was a partner at the law firm Drinker,
Biddle & Reath for more than five years.
BERNARD J. KELLEY -- Age 53
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
JUDY C. LEWENT -- Age 46
September, 1994 -- Senior Vice President and Chief Financial Officer--
responsible for financial and public affairs functions, The Merck
Company Foundation, internal auditing and the Company's joint venture
relationships
December, 1993 -- Senior Vice President and Chief Financial Officer--
responsible for financial and public affairs functions and The Merck
Company Foundation
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
12
<PAGE>
HENRI LIPMANOWICZ -- Age 56
January, 1995 -- President, Human Health-Intercontinental Region and
Japan--responsible for the Company's prescription drug operations in
the Near East, the Far East, Eastern Europe, Africa, Latin America,
Australia, New Zealand and Japan
January, 1994 -- President, Human Health-Merck 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
PER G. H. LOFBERG -- Age 47
January, 1994 -- President, Merck-Medco 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 50
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 52
September, 1993 -- Vice President, Controller
July, 1989 -- Vice President, Corporate Taxes
JOHN M. PRESTON -- Age 48
April, 1993 -- President, Merck AgVet Division
July, 1992 -- Executive Vice President, Merck AgVet Division
September, 1991 -- Vice President, Business Affairs, MSD AGVET Division
February, 1991 -- Executive Director, Technical Services, MSD AGVET
Division
September, 1987 -- Executive Director, Animal Science Research, Merck
Sharp & Dohme Research Laboratories
13
<PAGE>
EDWARD M. SCOLNICK -- Age 54
September, 1994 -- Executive Vice President, Science and Technology and
President, Merck Research Laboratories (MRL) -- responsible for
worldwide research function and activities of Merck Manufacturing
Division, computer resources and corporate licensing
December, 1993 -- Executive Vice President, Science and Technology and
President, 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
BENNETT M. SHAPIRO -- Age 55
September, 1990 -- Executive Vice President, Worldwide Basic Research,
Merck Research Laboratories
Prior to September, 1990, Dr. Shapiro was Professor, Department of
Biochemistry, University of Washington for more than five years.
PER WOLD-OLSEN -- Age 47
September, 1994 -- President, Human Health-Europe -- responsible for the
Company's European prescription drug business
January, 1994 -- Senior Vice President, Worldwide Human Health Marketing
September, 1991 -- Senior Vice President, Human Health Marketing, Merck
Human Health Division (MHHD)
June, 1991 -- Vice President, Human Health Marketing, MHHD
January, 1990 -- Regional Director-Scandinavia and Vice President, MSD
Europe
All officers listed above serve at the pleasure of the Board of Directors.
None of these officers was elected pursuant to any arrangement or understanding
between the officer and the Board. There are no family relationships among the
officers listed above.
14
<PAGE>
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 37 and 50 of the Company's 1994 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 50 of
the Company's 1994 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 29 through 37 of the Company's 1994 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, 1994 and 1993, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
December 31, 1994 and the report dated January 24, 1995 of Arthur Andersen LLP,
independent public accountants, are incorporated by reference to pages 38
through 48 and page 49 of the Company's 1994 Annual Report to stockholders.
(b) Supplementary Data
Selected quarterly financial data for 1994 and 1993 are incorporated by
reference to page 37 of the Company's 1994 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 25, 1995. 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 13-19 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held April 25, 1995.
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 25, 1995.
15
<PAGE>
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 25, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this Form 10-K
Financial Statements:
Consolidated statement of income for the years ended December 31,
1994, 1993 and 1992
Consolidated statement of retained earnings for the years ended
December 31, 1994, 1993 and 1992
Consolidated balance sheet, December 31, 1994 and 1993
Consolidated statement of cash flows for the years ended December
31, 1994, 1993 and 1992
Notes to financial statements
Report of independent public accountants
This information is incorporated by reference to the Company's 1994 Annual
Report to stockholders, as noted on page 15 of this document.
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 are omitted because they are either not required or not
applicable.
16
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
2 -- Agreement and Plan of Merger By and Incorporated by reference to Regis-
Among Merck & Co., Inc., M Acquisition tration Statement on Form S-4
Corp. and Medco Containment Services, (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 Filed with this document
effective June 9, 1994)
10(a) -- Executive Incentive Plan (as amended Filed with this document
effective February 23, 1994)
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 amended Filed with this document
effective February 23, 1994)
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 Filed with this document
effective January 1, 1995)
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 1, 1994)
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 **
dated October 14, 1992 between Medco
and Per G.H. Lofberg (together with a list
showing the number of options held)
10(m) -- Employment Agreement between Per G.H. ***
Lofberg and Medco dated April 1, 1993
10(n) -- Employment Agreement between Raymond V. Incorporated by reference to Form
Gilmartin and the Company dated 10-Q Quarterly Report for the
June 9, 1994 period ended June 30, 1994
11 -- Computation of Earnings per Common Share Filed with this document
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
13 -- 1994 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 Resolution Filed with this document
of Board of Directors
27 -- Financial Data Schedule Filed with this document
<FN>
- --------------
* 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
</FN>
</TABLE>
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 ended December 31, 1994, the Company filed
two Current Reports on Form 8-K:
(i) In a report dated November 1, 1994 and filed November 7, 1994, the
Company announced (1) Astra AB paid the Company $820 million for an
interest in a joint venture, to be carried on in Astra Merck Inc. and (2)
the signing of a definitive agreement for the sale of the Company's Calgon
Vestal Laboratories business to Bristol-Myers Squibb.
(ii) In a report dated December 20, 1994 and filed December 28, 1994,
the Company announced the signing of a definitive agreement for the sale of
its Kelco business to Monsanto Company.
18
<PAGE>
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 21, 1995
By RAYMOND V. GILMARTIN
(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 dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
RAYMOND V. GILMARTIN Chairman of the Board, March 21, 1995
President and Chief Executive
Officer; Principal Executive
Officer; Director
JUDY C. LEWENT Senior Vice President and Chief March 21, 1995
Financial Officer; Principal
Financial Officer
PETER E. NUGENT Vice President, Controller; March 21, 1995
Principal Accounting Officer
H. BREWSTER ATWATER, JR. Director March 21, 1995
DEREK BIRKIN Director March 21, 1995
LAWRENCE A. BOSSIDY Director March 21, 1995
WILLIAM G. BOWEN Director March 21, 1995
JOHNNETTA B. COLE Director March 21, 1995
CAROLYNE K. DAVIS Director March 21, 1995
LLOYD C. ELAM Director March 21, 1995
CHARLES E. EXLEY, JR. Director March 21, 1995
WILLIAM N. KELLEY Director March 21, 1995
DENNIS WEATHERSTONE Director March 21, 1995
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)
</TABLE>
19
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, 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, 33-51235 and 33-53463), on Form S-4 (No. 33-50667) and on
Form S-3 (Nos. 33-39349, 33-60322, 33-51785 and 33-57421). It should be noted
that we have not audited any financial statements of the Company subsequent to
December 31, 1994 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
New York, New York
March 21, 1995
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
2 -- Agreement and Plan of Merger By and Incorporated by reference to Regis-
Among Merck & Co., Inc., M Acquisition tration Statement on Form S-4
Corp. and Medco Containment Services, (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 Filed with this document
effective June 9, 1994)
10(a) -- Executive Incentive Plan (as amended Filed with this document
effective February 23, 1994)
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 amended Filed with this document
effective February 23, 1994)
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 Filed with this document
effective January 1, 1995)
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 1, 1994)
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 **
dated October 14, 1992 between Medco
and Per G.H. Lofberg (together with a list
showing the number of options held)
10(m) -- Employment Agreement between Per G.H. ***
Lofberg and Medco dated April 1, 1993
10(n) -- Employment Agreement between Raymond V. Incorporated by reference to Form
Gilmartin and the Company dated 10-Q Quarterly Report for the
June 9, 1994 period ended June 30, 1994
11 -- Computation of Earnings per Common Share Filed with this document
12 -- Computation of Ratios of Earnings to Fixed Filed with this document
Charges
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
13 -- 1994 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 Resolution Filed with this document
of Board of Directors
27 -- Financial Data Schedule Filed with this document
<FN>
- ---------------
* 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
</FN>
</TABLE>
2
===============================================================================
EXHIBIT 3(b)
By-Laws
OF
MERCK & CO., INC.
---------------
As Amended Effective June 9, 1994
===============================================================================
<PAGE>
MERCK & CO., INC.
BY-LAWS
------
A R T I C L E I.
STOCKHOLDERS.
SECTION 1. Annual Meeting. A meeting of the stockholders of Merck & Co.,
Inc. (hereinafter referred to as "the Company") shall be held at such places as
may from time to time be designated by the Board of Directors and stated in the
notice of the meeting, on the fourth Tuesday in April in each year (and if that
be a legal holiday, then on the next business day), for the purpose of electing
Directors and for the transaction of such other business as may properly be
brought before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may be
held at any location designated by the Board of Directors whenever and as often
as the Board of Directors shall call such meetings. Such meetings shall be
called at any time upon the written request of the holders of record of a
majority of the stock of the Company entitled to vote at any such meeting.
SECTION 3. Notice of Meetings; Waiver of Notice. At least ten days' written
or printed notice of the time and place of every meeting of the stockholders
shall be mailed or delivered personally to each stockholder of record entitled
to vote at such meeting at such holder's last address appearing on the books of
the Company which notice shall state in general terms the object of the meeting.
By unanimous written waiver of notice of the meeting signed by or on behalf of
all stockholders entitled to vote at such meeting, any meeting of the
stockholders may be held without notice.
SECTION 4. Quorum. Except as otherwise provided in the Restated Certificate
of Incorporation of the Company, the holders of a majority in interest of all
the stock of the Company, entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at all meetings of the stockholders; but, if there be less than a quorum
represented at any such meeting, a majority in interest so represented may
adjourn the meeting from time to time.
SECTION 5. Voting and Inspectors. At all meetings of the stockholders every
registered owner of shares entitled to vote may vote in person or by proxy, and
each holder of shares of Common Stock shall have one vote for every such share
standing in such holder's name on the books of the Company.
<PAGE>
At all elections of Directors, each holder of Common Stock entitled to vote
thereat shall be entitled to as many votes as shall equal the number of shares
of Common Stock held multiplied by the number of Directors to be elected by vote
of stockholders without regard to class, and such holder may cast all such votes
for a single Director or may distribute them among the number of Directors to be
voted for or any two or more of them as such holder may see fit. At such
meetings the Chairman shall appoint two Inspectors of Election, who shall first
subscribe an oath to execute faithfully the duties of Inspector at such meeting
with strict impartiality and according to the best of their ability, and who
shall take charge of the polls, and after the balloting, shall make a
certificate of the result of the vote taken; but no candidate for the office of
Director shall be appointed as such Inspector.
A R T I C L E II.
BOARD OF DIRECTORS.
SECTION 1. Number; Time of Holding Office. The business, property and
concerns of the Company shall be managed and controlled by the Board of
Directors, and each Director shall serve for the term of the class for which
elected or until such time as a successor shall have been duly chosen and shall
have qualified.
The number of Directors constituting the Board of Directors shall be the
number, not less than 10 nor more than 18, fixed from time to time by a majority
vote of the whole Board of Directors; provided, no decrease in the number of
Directors shall shorten the term of any incumbent Director.
SECTION 2. Nominations. Subject to the rights of the holders of any class
or series of Preferred Stock then outstanding, nominations for the election of
Directors may be made by the Board of Directors or by a Committee appointed by
the Board or by any stockholder entitled to vote for the election of Directors.
Any stockholder entitled to vote for the election of Directors at a meeting may
nominate persons for election as Directors only if written notice of such
stockholder's intent to make such nomination is given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Company not later than (i) with respect to an election to be held at an annual
meeting of stockholders, 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders, and (ii) with respect to
an election of directors to be held at a special meeting of stockholders, the
close of business on the seventh day following the date on which notice of such
meeting is first given to stockholders. Each such notice of nomination shall set
forth: (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate the person or persons specified in the notice; (c) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would have
been required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had each nominee been nominated,
or intended to be nominated, by the Board of Directors; and (e) the consent of
each nominee to serve as a Director of
2
<PAGE>
the Company if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person made without compliance with the foregoing
procedure.
SECTION 3. Qualifications. Every Director shall be a holder of at least one
share of the stock of the Company and shall cease to be a Director of the
Company when no longer such holder. The retirement age of and other restrictions
and qualifications for Directors shall be fixed from time to time by majority
vote of the whole Board.
SECTION 4. Vacancies. Whenever any vacancy shall occur in the Board of
Directors by death, resignation or otherwise, it shall be filled by a majority
vote of the Directors then in office, though less than a quorum, but any such
Director so elected shall hold office only until the next succeeding annual
meeting of stockholders or until his or her successor shall have been elected
and qualified in the class to which such Director is assigned and for the term
or remainder of the term of such class.
SECTION 5. Place of Meeting. The Directors may hold their meetings and have
offices and keep the books of the Company in such places within or without the
State of New Jersey as the Board may from time to time determine.
SECTION 6. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice as the Directors may from time to
time determine.
The annual meeting for the election of the officers of the Company shall,
if practicable, be held immediately after the annual meeting of the
stockholders; and no notice thereof need be given.
SECTION 7. Special Meetings. Special meetings of the Board may be held at
any time upon the call of the Chairman of the Board, the President, or a quorum
of Directors, by oral, telegraphic, telephonic or written notice, communicated
to each Director not less than one day before such meeting.
SECTION 8. Waiver of Notice of Meeting. Notice of any meeting of the Board
of Directors may be waived in writing by any Director either before or after the
time of such meeting; and at any meeting at which every Director shall be
present, even though without any notice, any business may be transacted.
SECTION 9. Quorum. A majority of the Board of Directors shall constitute a
quorum of the Board for the transaction of business; but, if there be less than
a quorum present at any meeting of the Board, the Directors present may adjourn
the meeting from time to time.
SECTION 10. Committees. The Board of Directors shall appoint from among its
members and shall designate the powers and functions of the Executive Committee
which may exercise the powers of the Directors in the management of the affairs,
business and property of the Company during the intervals between meetings of
the Board of Directors. The Chairman of the Board shall be a member of the
Executive Committee which shall consist, in addition, of such number
3
<PAGE>
of other Directors as will assure that the majority of the Executive Committee
will not be employees of the Company. Regular meetings of the Executive
Committee shall be held at such time and on such notice as the Directors may
from time to time determine. Special meetings of the Executive Committee may be
held at any time upon the call of the Chairman of the Executive Committee or
Chairman of the Board. The quorum requirements and other rules of procedure for
this Committee shall be determined by resolution of the Board of Directors.
The Board of Directors may also appoint from time to time from among its
members other committees with such powers and functions as the Board may
delegate and specify.
SECTION 11. Letters of Attorney. The Board of Directors may authorize the
Chairman of the Board or any other officer or officers of the Company to confer
all kinds of letters of attorney upon any person, persons or entities, with all
the faculties and limitations that the Chairman of the Board or they may deem
convenient and also to revoke the same in whole or in part.
A R T I C L E III.
OFFICERS.
SECTION 1. Officers. The officers of the Company shall be elected by the
Board of Directors; there shall be a Chairman of the Board, a President, a
Controller, a Secretary and a Treasurer, and such other officers as the Board of
Directors may designate. Divisional officers, who shall not be officers of the
Company, may be appointed by the Chairman of the Board to perform such duties as
may be assigned from time to time by, or under the authority of, the Chairman of
the Board.
The same person, whether an officer of the Company or a divisional officer,
may hold more than one office, so far as permitted by law, and exercise and
perform the powers and duties thereof.
SECTION 2. Agents and Employees. The Board of Directors may from time to
time appoint agents and employees of the Company and may assign to them such
powers and duties as the Board of Directors may from time to time deem proper.
SECTION 3. Powers and Duties of the Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the stockholders, the Board of
Directors and the Executive Committee of the Board; and shall have and possess
all such further powers and discharge such further duties as may be assigned
from time to time by the Board of Directors.
4
<PAGE>
SECTION 4. Powers and Duties of the President. The President shall, in the
absence of the Chairman of the Board, preside at all meetings of the
stockholders and the Board of Directors and shall perform such other duties as
may be assigned from time to time by the Chairman of the Board.
SECTION 5. Powers and Duties of the Controller. The Controller shall have
the powers and duties incident to the office, and subject to the direction of
the Chairman of the Board, shall perform such other duties as may be assigned
from time to time by the Board of Directors or under its authority. It shall be
the Controller's duty to report directly to the Board of Directors on matters in
which the Controller deems such action necessary.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall have the
powers and duties incident to such office, and subject to the direction of the
Chairman of the Board, shall perform such other duties as may be assigned from
time to time by the Board of Directors or under its authority.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall have the
powers and duties incident to such office, and subject to the direction of the
Chairman of the Board, shall perform such other duties as may be assigned from
time to time by the Board of Directors or under its authority.
SECTION 8. Powers and Duties of Other Officers. The other officers shall
have such powers and perform such duties as may be assigned to them from time to
time by the Board of Directors or under its authority.
SECTION 9. Bills of Exchange, Checks, Notes, Deeds, Contracts, etc. All
bonds, debentures, notes, acceptances or other obligations and all bills of
exchange, checks, drafts, and other instruments for the payment of money, all
deeds of real estate and all contracts, bills of lading, warehouse receipts,
insurance policies and other documents requiring signature or endorsement by or
on behalf of the Company, shall be signed or endorsed by such officer or
officers, person or persons as are designated (i) by the Board of Directors or
(ii) pursuant to authorizations duly adopted by the Board of Directors.
A R T I C L E IV.
CAPITAL STOCK: DIVIDENDS: SEAL.
SECTION 1. Certificate of Shares. Ownership or proprietary interest in the
assets of the Company shall be evidenced by certificates of shares in the
capital stock of the Company in such form as the Board may from time to time
prescribe.
All certificates shall be consecutively numbered and shall be issued in
consecutive numerical order; and the name of the person owning the shares
represented thereby, with the number of such shares and the date of issue, shall
be entered on the stub of each certificate or in some other appropriate record.
5
<PAGE>
No certificate of stock shall be valid unless: (a) signed by the Chairman
of the Board or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary or have engraved
or printed thereon their facsimile signatures; (b) countersigned by the duly
appointed Transfer Agent of the Company's stock or have engraved or printed
thereon its facsimile signature; (c) registered by the duly appointed Registrar
of the Company's stock; and (d) impressed with the Company's seal or have a
facsimile thereof engraved upon such certificate.
All certificates exchanged or surrendered to the Company shall be cancelled
by the Secretary or the Transfer Agent, upon the authority of the Secretary, and
no new certificate shall be issued until the old certificate for an equal or
greater number of shares has been so surrendered and cancelled. The cancelled
certificates, or an appropriate microfilm thereof, shall be preserved with the
records of the Company for a period of not less than seven years from the date
of cancellation thereof.
SECTION 2. Lost or Stolen Certificates. No certificates of shares in the
Capital Stock of the Company shall be issued in place of any certificate alleged
to have been lost, destroyed or stolen, unless the Board of Directors is, or
such Transfer Agent or officer or officers of the Company as may be designated
by the Board of Directors are, satisfied as to such loss, destruction or theft,
and unless a bond of indemnity against loss or damage on account of such alleged
lost, destroyed or stolen certificate has been furnished to the Transfer Agent
or the Company. Such bond shall be approved by the Board of Directors, or by
such Transfer Agent or officer or officers of the Company as may be designated
by the Board of Directors, as to its amount and sufficiency. Proper and
sufficient evidence of such loss, destruction or theft shall be produced to the
Board or such designated officer or officers if they require the same.
SECTION 3. Transfer of Shares. Shares in the Capital Stock of the Company
shall be transferred on the books of the Company only by the holder thereof in
person, or by such holder's attorney or lawful successor, upon surrender and
cancellation of certificates for a like number of shares, with duly executed
assignment thereof and power to transfer endorsed thereon or attached thereto in
form prescribed by the Company or, if authorized by the Secretary, by the duly
appointed Transfer Agent of the Company's stock and with evidence of the legal
sufficiency of such transfer satisfactory to the officers or counsel or, if so
authorized by the Secretary, to the Transfer Agent.
SECTION 4. Closing of Transfer Books and Fixing of Record Date. The Board
of Directors shall have power to close the stock transfer books of the Company
for a period not exceeding sixty days preceding the date of any meeting of
stockholders or the date for payment of any dividend or the date for the
allotment of rights or the date when any change or conversion or exchange of
Capital Stock shall go into effect. In lieu of closing the stock transfer books
as aforesaid, the Board of Directors may fix in advance a date, not exceeding
sixty days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of Capital Stock shall go into
effect, as a record date for the determination of the stockholders entitled to
notice of and to vote at any such meeting, or entitled to receive payment of any
such dividend, or such allotment of rights, or to exercise the rights in respect
of any such change, conversion or exchange of Capital Stock, and in such case
only stockholders of record on the date so fixed shall be entitled to such
notice of and to
6
<PAGE>
vote at such meeting, or to receive payment of such dividend, or allotment of
rights or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Company after any such record date
fixed as aforesaid.
SECTION 5. Dividends, etc. The Board of Directors may, in the exercise of
its discretion and in conformity with the provisions of the Restated Certificate
of Incorporation of the Company, from time to time fix and vary the amount of
the working capital of the Company and determine what, if any, dividends shall
be declared and paid to stockholders out of the surplus or net profits of the
Company.
SECTION 6. Fiscal Year. The fiscal year of the Company shall begin on the
1st day of January and shall end on the 31st day of December.
SECTION 7. Voting Stocks of Other Corporations. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board shall have full power and
authority in behalf of the Company to attend and to act and to vote at any
meeting of stockholders of any corporation in which this Company may hold stock
and at any such meeting shall possess and may exercise any and all the rights
and powers incident to the ownership of such stock. The Chairman of the Board
shall have full power and authority to delegate these powers to any other person
or persons with the right of redelegation.
SECTION 8. Corporate Seal. The Board of Directors shall provide a suitable
seal, bearing the name of the Company, which seal shall be in the charge of the
Secretary.
A R T I C L E V.
INDEMNIFICATION OF DIRECTORS AND OTHERS.
SECTION 1. Directors, Officers and Employees of Merck & Co., Inc. Any
former, present or future Director, officer or employee of the Company or the
legal representative of any such Director, officer or employee shall be
indemnified by the Company
(a) against reasonable costs, disbursements and counsel fees paid or
incurred where such person has been successful in the defense on the merits
or otherwise of any pending, threatened or completed civil, criminal,
administrative or arbitrative action, suit or proceeding, and any appeal
therein and any inquiry or investigation which could lead to such action,
suit or proceeding, or in defense of any claim, issue or matter therein,
brought by reason of such person's being or having been such Director,
officer or employee, and
(b) with respect to the defense of any such action, suit, proceeding,
inquiry or investigation for which indemnification is not made under (a)
above, against reasonable costs, disbursements (which shall include amounts
paid in satisfaction of settlements, judgments, fines and penalties,
exclusive, however, of any amount paid or payable to the Company) and
counsel fees if such person acted in good faith and in a manner such person
reasonably
7
<PAGE>
believed to be in or not opposed to the best interests of the Company,
and in connection with any criminal proceeding such person also had no
reasonable cause to believe the conduct was unlawful, with the
determination as to whether the applicable standard of conduct was met to
be made by a majority of the members of the Board of Directors (sitting as
a Committee of the Board) who were not parties to such inquiry,
investigation, action, suit or proceeding or by any one or more
disinterested counsel to whom the question may be referred by the Board of
Directors; provided, however, in connection with any proceeding by or in
the right of the Company, no indemnification shall be provided as to any
person adjudged by any court to be liable to the Company except as and to
the extent determined by such court.
The termination of any such inquiry, investigation, action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that such
person did not meet the standards of conduct set forth in subsection (b) above.
Reasonable costs, disbursements and counsel fees incurred by such person in
connection with any inquiry, investigation, action, suit or proceeding may be
paid by the Company in advance of the final disposition of such matter if
authorized by a majority of the Board of Directors (sitting as a Committee of
the Board) not parties to such matter upon receipt by the Company of an
undertaking by or on behalf of such person to repay such amount unless it is
ultimately determined that such person is entitled to be indemnified as set
forth herein.
SECTION 2. Directors, Trustees, Officers and Employees of Other Companies.
The Board of Directors may, at any regular or special meeting of the Board, by
resolution, accord similar indemnification (prospective or retroactive) to any
director, trustee, officer or employee of any other company who is serving as
such at the request of the Company and any officer, director or employee of any
constituent corporation absorbed by the Company in a consolidation or merger, or
the legal representative of any such director, trustee, officer or employee.
SECTION 3. Indemnification Not Exclusive. The indemnification and
advancement of expenses provided for in this Article V shall not exclude any
other rights to which any person contemplated by this Article V may be entitled
as a matter of law or which may be lawfully granted; provided that no
indemnification shall be made to or on behalf of such person if a judgment or
other final adjudication adverse to such person establishes that his or her acts
or omissions (a) were in breach of his or her duty of loyalty to the Company or
its stockholders, (b) were not in good faith or involved a knowing violation of
law or (c) resulted in receipt by such person of an improper personal benefit.
SECTION 4. Insurance. The Company may purchase and maintain insurance to
protect itself and any person contemplated by this Article V against any
expenses incurred in any proceeding and any liabilities asserted against him or
her by reason of his or her being or having been a director, officer or
employee, whether or not the Company would have the power to indemnify him or
her against such expenses and liabilities under the provisions of this Article
V. The Company may
8
<PAGE>
purchase such insurance from, or such insurance may be reinsured in whole or in
part by, an insurer owned by or otherwise affiliated with the Company, whether
or not such insurer does business with other insureds.
A R T I C L E VI.
AMENDMENTS TO BY-LAWS.
SECTION 1. General Procedure. The Board of Directors shall have power to
make, alter and repeal By-Laws of the Company by a vote of a majority of all of
the Directors at any regular or special meeting of the Board, provided that,
unless every Director shall be present at such meeting, the notice or waiver of
notice of such meeting shall have specified or summarized the proposed action.
The stockholders may make, alter, and repeal By-Laws of the Company by a vote of
a majority of the stockholders at any meeting, provided that the notice or
waiver of notice of such meeting shall have specified or summarized the proposed
action.
SECTION 2. Exceptions. Notwithstanding the provision of Section 1 of this
Article VI with respect to the vote required for stockholders to make, alter or
repeal By-Laws, the alteration, amendment, adoption of any provision
inconsistent with or repeal of Article II of these By-Laws, or of this Section 2
of Article VI, will require the affirmative vote of the holders of at least 80%
of the combined voting power of the then outstanding shares of the stock of the
Company entitled to vote generally in the election of directors, voting together
as a single class.
9
===============================================================================
EXHIBIT 10(a)
MERCK & CO., INC.
EXECUTIVE INCENTIVE PLAN
(As Amended Effective February 23, 1994)
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
I. PURPOSE........................................................... 1
II. DEFINITIONS....................................................... 1
III. ADMINISTRATION.................................................... 2
IV. ELIGIBILITY....................................................... 2
V. AWARD FUND........................................................ 2
VI. AWARDS............................................................ 2
VII. DEFERRAL OF AWARDS................................................ 3
VIII. LIMITATIONS....................................................... 3
IX. LIMITATION OF ACTIONS............................................. 4
X. CLAIMS PROCEDURE.................................................. 4
XI. PLAN AMENDMENT, SUSPENSION OR TERMINATION......................... 4
<PAGE>
I. PURPOSE
This Plan is designed to provide for awards to selected salaried employees
in managerial or other important positions, who, individually or as members of a
group, contribute in a substantial degree to the success of the Company, and who
are in a position to have a direct and significant impact on the growth and
success of the Company, thus affording to them a means of participating in that
success and an incentive to contribute further to that success.
II. DEFINITIONS
The following words and phrases shall have the meanings set forth below:
(1) "Administrative Regulations" shall mean the procedures and regulations
established by the Committee pursuant to Section III hereof for the purpose of
administering the Plan.
(2) "Award Fund" shall mean the aggregate amount made available in any
given year pursuant to Section V hereof from which awards determined under
Section VI hereof may be made.
(3) "Committee" shall mean the Compensation and Benefits Committee of the
Board of Directors of the Company, the membership of which shall be members of
the Board who are not Employees.
(4) "Company" shall mean Merck & Co., Inc. or any successor thereto.
(5) "Deferred Award" shall mean that portion of a Participant's award the
payment of which he/she has elected to defer in accordance with the provisions
of Section VII hereof.
(6) "Employee" shall mean any salaried employee of the Company, a
Subsidiary or an affiliate, the Merck Institute for Therapeutic Research,
whether full-time or part-time and whether or not an officer or director,
excluding, however, any temporary employee or any person serving the Company
only in the capacity of director.
(7) "Net Income" shall mean the amount reported by the Company as
consolidated income before extraordinary items and the cumulative effect of
accounting changes, adjusted, however, by adding any amount which has been
expensed (after taxes) for awards under the Plan in computing such Net Income.
(8) "Participant" shall mean an Employee who is subject to Section 16 of
the Securities Exchange Act of 1934, as amended, or who has been designated by
the Committee to participate in the Plan pursuant to Section IV hereof.
1
<PAGE>
(9) "Plan" shall mean this Merck & Co., Inc. Executive Incentive Plan as
amended from time to time.
(10) "Subsidiary" shall mean any corporation, domestic or foreign (other
than the Company), 50% or more of the total voting power of which is held by the
Company and/or a Subsidiary or Subsidiaries.
III. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee may, by
majority vote, establish Administrative Regulations as it deems necessary for
the proper administration of the Plan and make such determinations and take such
action in connection with or in relation to the Plan as it deems necessary. Each
determination made by the Committee shall be final, binding and conclusive for
all purposes and upon all persons. The Committee may rely conclusively on the
determinations made by the Company's independent public accountants.
IV. ELIGIBILITY
Those employees who are subject to Section 16 of the Securities Exchange
Act of 1934, as amended, and those employees who are key officers or management
employees of the Company, a Subsidiary or affiliate who, in the opinion of the
Committee, are in a position to have a direct and significant impact on
achievement of the Company's long term objectives are eligible to participate in
the Plan.
V. AWARD FUND
An Award Fund shall be established at 2.5% of Net Income. No amounts are
paid under the Plan for any year unless the Company has Net Income. However, the
Committee reserves the right to decrease the amount of the Award Fund.
VI. AWARDS
No Participant may receive more than 10% of the maximum Award Fund in any
given year. However, the Committee reserves the right to pay less than 10% of
the Award Fund to any individual. All such determinations, except in the case of
the award for the chief executive officer of the Company, shall be made after
considering the recommendations of the chief executive officer and such other
matters as the Committee shall deem relevant. In making such determinations, the
Committee may, in addition to achievement of short-term business objectives,
take into account achievement by key executives of long-term goals of the
Company. All awards shall be charged against the Award Fund and may be paid in
cash or stock (as the Committee may determine).
2
<PAGE>
Awards paid in stock shall be charged against the Award Fund using the
average of the high and low prices of Merck common stock on the New York Stock
Exchange composite tape on the date the Award is paid or deferred. The number of
shares authorized for distribution under this Plan each year is one-tenth of
one-percent of outstanding shares of Company Common Stock on the last business
day of the preceding calendar year plus any shares authorized under this Plan in
previous years but not used, minus any shares distributed under the Merck
Deferral Program after April 26, 1994. These shares may be delivered from
authorized but unissued shares or from the treasury. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the Committee shall make such
adjustment, if any, as it may deem appropriate in the number and kind of shares
authorized by the EIP.
VII. DEFERRAL OF AWARDS
A Participant may elect, subject to the approval of, and within limits
established by, the Committee, to designate all or any portion of an award as a
Deferred Award under the Merck & Co., Inc. Deferral Program, which is
incorporated herein by reference. Such election shall be irrevocable. Any
portion of an award which is not so deferred shall be paid as soon as
practicable after approval of such award by the Committee.
VIII. LIMITATIONS
Although this Plan sets the maximum amount which may be paid to a
participant in any given year, the Committee reserves the right to decrease the
maximum or eliminate any award to any participant. No director, officer,
employee of the Company nor any other person shall have the authority to enter
into any agreement with any person for the making or payment of an award or to
make any representation or warranty with respect thereto.
Neither the action of the Company in establishing the Plan nor any action
taken by it or by the Committee under the provisions hereof, nor any provision
of the Plan, shall be construed as giving to any Employee the right to be
retained in the employ of the Company, its Subsidiaries or affiliates.
The Company may offset against any payments to be made to a Participant or
his/her beneficiary under this Plan any amounts owing to the Company, its
Subsidiaries or affiliates from the Participant for any reason.
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<PAGE>
IX. LIMITATION OF ACTIONS
Every asserted right of action by or on behalf of the Company or by or on
behalf of any stockholder against any past, present or future member of the
Committee or director, officer or Employee of the Company or any Subsidiary or
affiliate thereof, arising out of or in connection with this Plan, shall,
irrespective of the place where such right of action may arise or be asserted
and irrespective of the place of residence of any such member director, officer
or Employee, cease and be barred upon the expiration of three years (i) from the
date of the alleged act or omission in respect of which such right of action
arises or (ii) from the date upon which the Company's Annual Report to
stockholders setting forth the aggregate amount of the awards to all or any part
of which such action may relate is made generally available to stockholders,
whichever date is later; and every asserted right of action by or on behalf of
any Employee, past, present or future, or any beneficiary, spouse, child or
legal representative thereof, against the Company or any Subsidiary or affiliate
thereof, arising out of or in connection with this Plan, shall irrespective of
the place where such right of action may arise or be asserted, cease and be
barred by the expiration of three years from the date of the alleged act or
omission in respect of which such right of action arises.
X. CLAIMS PROCEDURE
In the case of any Participant (whether active, retired or terminated) or
beneficiary whose claim for an award under this Plan has been denied, the
Company shall provide adequate notice in writing of such adverse determination
setting forth the specific reasons for such denial in a manner calculated to be
understood by the recipient thereof. Such Participant or beneficiary shall be
afforded a reasonable opportunity for a full and fair review of the decision
denying the claim by the Committee.
XI. PLAN AMENDMENT, SUSPENSION OR TERMINATION
The Board of Directors or the stockholders may discontinue the Plan at any
time and may from time to time amend or revise the terms of the Plan as
permitted by applicable statutes; provided, however, that no such
discontinuance, amendment or revision shall materially adversely affect any
right or obligation with respect to any award theretofore made. Any amendment or
revision which increases the cost of the Plan by a substantial proportion may be
made only by the stockholders. The Plan will continue in operation until
discontinued as herein provided.
4
===============================================================================
EXHIBIT 10(e)
MERCK & CO., INC.
1991 INCENTIVE STOCK PLAN
(As Amended Effective February 23, 1994)
===============================================================================
<PAGE>
1991 INCENTIVE STOCK PLAN
The 1991 Incentive Stock Plan ("ISP") is established to encourage employees
of the Company, its subsidiaries and the Merck Institute for Therapeutic
Research to acquire Common Stock in Merck & Co., Inc. (the "Company"). It is
believed that the ISP will stimulate employees' efforts on the Company's behalf,
will tend to maintain and strengthen their desire to remain with the Company,
will be in the interest of the Company and its Stockholders, and will encourage
such employees to have a greater personal financial investment in the Company
through ownership of its Common Stock.
1. Administration
The ISP shall be administered by the Compensation and Benefits Committee of
the Board of Directors of the Company (the "Committee"). The Committee is
authorized, subject to the provisions of the ISP, to establish such rules and
regulations as it deems necessary for the proper administration of the ISP, and
to make such determinations and to take such action in connection therewith or
in relation to the ISP as it deems necessary or advisable, consistent with the
ISP. The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other senior member of management as the
Committee deems appropriate; provided however, that the Committee may not
delegate its authority with regard to any matter or action affecting an officer
subject to Section 16 of the Securities Exchange Act of 1934.
For the purpose of this section and all subsequent sections, the ISP shall
be deemed to include this plan and any comparable sub-plans established by
subsidiaries which, in the aggregate, shall constitute one plan governed by the
terms set forth herein.
2. Eligibility
Regular full-time and part-time employees of the Company, its subsidiaries,
and the Merck Institute for Therapeutic Research, including officers, whether or
not directors of the Company, shall be eligible to participate in the ISP
("Eligible Employees") if designated by the Committee or its delegate. Those
directors who are not regular employees are not eligible.
3. Incentives
Incentives under the ISP may be granted in any one or a combination of (a)
Incentive Stock Options (or other statutory stock option); (b) Nonqualified
Stock Options; (c) Stock Appreciation Rights; (d) Performance Share Awards; and
(e) Restricted Stock Grants (together "Incentives"). All Incentives shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions as may be established by the Committee. Determinations by the
Committee under the ISP including without limitation, determinations of the
Eligible Employees, the form, amount and timing of Incentives, the terms and
provisions of Incentives, and the agreements evidencing Incentives, need not be
uniform and may be made selectively among Eligible Employees who receive, or are
eligible to receive, Incentives hereunder, whether or not such Eligible
Employees are similarly situated.
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<PAGE>
4. Shares Available for Incentives
(a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section (b) hereof, there is hereby reserved for issuance under the
ISP in each calendar year one percent (1%) of the outstanding shares of the
Company's Common Stock as of the first business day of each calendar year
("Common Stock"). The shares available for granting awards in any year shall be
increased by the number of shares available under the Plan in previous years but
not covered by Awards granted under the Plan in those years plus any shares as
to which options or other benefits granted under the Plan have lapsed, expired,
terminated or been canceled. In addition, any shares reserved for issuance under
the Company's 1987 Incentive Stock Plan, 1981 Incentive Stock Option Plan and
1981 Nonqualified Stock Option Plan ("Prior Plans") in excess of the number of
shares as to which options or other benefits have been awarded thereunder, plus
any such shares as to which options or other benefits granted under the Prior
Plans may lapse, expire, terminate or be cancelled, shall also be reserved and
available for issuance or reissuance under the ISP in any calendar year. No
further options or other benefits are to be granted under the Prior Plans;
provided that any outstanding options or other benefits may be exercised in
accordance with the terms thereof.
In the event of a lapse, expiration, termination or cancellation of any
Incentive granted under the ISP without the issuance of shares or payment of
cash, or if shares are issued under a Restricted Stock Grant hereunder and are
reacquired by the Company pursuant to rights reserved upon the issuance thereof,
the shares subject to or reserved for such Incentive may again be used for new
Incentives hereunder; provided that in no event may the number of shares issued
hereunder exceed the total number of shares reserved for issuance.
(b) In any given year, no eligible employee may receive Incentives covering
more than one-quarter of one-percent of the outstanding shares of the Company's
Common Stock as of the first business day of the calendar year.
(c) Recapitalization Adjustment. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the Committee shall make such adjustment, if any, as
it may deem appropriate in the number and kind of shares authorized by the ISP,
in the number and kind of shares covered by Incentives granted, in the case of
Stock Options, in the option price, and in the case of stock appreciation
rights, in the fair market value.
5. Stock Options
The Committee may grant options qualifying as Incentive Stock Options under
the Internal Revenue Code of 1986, as amended or any successor code thereto (the
"Code"), other statutory options under the Code, and Nonqualified Options
(collectively "Stock Options"), and such Stock Options shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe:
(a) Option Price. The option price per share with respect to each Stock
Option shall be determined by the Committee, but shall not be less than 100% of
the fair market value of the Common Stock on the date the Stock Option is
granted, as determined by the Committee.
(b) Period of Option. The period of each Stock Option shall be fixed by the
Committee.
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<PAGE>
(c) Payment. The option price shall be payable at the time the Stock Option
is exercised in cash or, at the discretion of the Committee, in whole or in part
in the form of shares of Common Stock already owned by the grantee (based on the
fair market value of the Common Stock on the date the option is exercised as
determined by the Committee). No shares shall be issued until full payment
therefor has been made. A grantee of a Stock Option shall have none of the
rights of a stockholder until the shares are issued.
(d) Exercise of Option. The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the Committee may
determine. Any shares not purchased on the applicable exercise date may be
purchased thereafter at any time prior to the final expiration of the Stock
Option. In no event (including those specified in paragraphs (e), (f) and (g) of
this section below) shall any Stock Option be exercisable after its specified
expiration period.
(e) Termination of Employment. Upon the termination of a Stock Option
grantee's employment (for any reason other than retirement, death or termination
for deliberate, willful or gross misconduct), Stock Option privileges shall be
limited to the shares which were immediately exercisable at the date of such
termination. The Committee, however, in its discretion may provide that any
Stock Options outstanding but not yet exercisable upon the termination of a
Stock Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such Stock Option privileges shall expire unless
exercised or surrendered under a Stock Appreciation Right within such period of
time after the date of such termination as may be established by the Committee.
If a Stock Option grantee's employment is terminated for deliberate, willful or
gross misconduct, as determined by the Company, all rights under the Stock
Option shall expire upon receipt of the notice of such termination.
(f) Retirement. Upon retirement of the Stock Option grantee, Stock Option
privileges shall apply to those shares immediately exercisable at the date of
retirement. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the retirement of the
Stock Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Stock Option privileges shall expire unless
exercised within such period of time as may be established by the Committee.
(g) Death. Upon the death of a Stock Option grantee, Stock Option
privileges shall apply to those shares which were immediately exercisable at the
time of death. The Committee, however, in its discretion, may provide that any
Stock Options outstanding but not yet exercisable upon the death of a Stock
Option grantee may become exercisable in accordance with a schedule to be
determined by the Committee. Such privileges shall expire unless exercised by
legal representatives within a period of time as determined by the Committee but
in no event later than the date of the expiration of the Stock Option.
(h) Limits on Incentive Stock Options. Except as may otherwise be permitted
by the Code, the Committee shall not, in the aggregate, grant an Eligible
Employee Incentive Stock Options that are first exercisable during any one
calendar year to the extent that the aggregate fair market value of the Common
Stock, at the time the Incentive Stock Options are granted, exceeds $100,000.
3
<PAGE>
6. Stock Appreciation Rights
The Committee may, in its discretion, grant a right to receive the
appreciation in the fair market value of shares of Common Stock ("Stock
Appreciation Right") either singly or in combination with an underlying Stock
Option granted hereunder or under the Prior Plans. Such Stock Appreciation
Rights shall be subject to the following terms and conditions and such other
terms and conditions as the Committee may prescribe:
(a) Time and Period of Grant. If a Stock Appreciation Right is granted with
respect to an underlying Stock Option, it may be granted at the time of the
Stock Option Grant or at any time thereafter but prior to the expiration of the
Stock Option Grant. If a Stock Appreciation Right is granted with respect to an
underlying Stock Option, at the time the Stock Appreciation Right is granted the
Committee may limit the exercise period for such Stock Appreciation Right,
before and after which period no Stock Appreciation Right shall attach to the
underlying Stock Option. In no event shall the exercise period for a Stock
Appreciation Right granted with respect to an underlying Stock Option exceed the
exercise period for such Stock Option. If a Stock Appreciation Right is granted
without an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee.
(b) Value of Stock Appreciation Right. If a Stock Appreciation Right is
granted with respect to an underlying Stock Option, the grantee will be entitled
to surrender the Stock Option which is then exercisable and receive in exchange
therefor an amount equal to the excess of the fair market value of the Common
Stock on the date the election to surrender is received by the Company over the
Stock Option price multiplied by the number of shares covered by the Stock
Option which are surrendered. If a Stock Appreciation Right is granted without
an underlying Stock Option, the grantee will receive upon exercise of the Stock
Appreciation Right an amount equal to the excess of the fair market value of the
Common Stock on the date the election to surrender such Stock Appreciation Right
is received by the Company over the fair market value of the Common Stock on the
date of grant multiplied by the number of shares covered by the grant of the
Stock Appreciation Right.
(c) Payment of Stock Appreciation Right. Payment of a Stock Appreciation
Right shall be in the form of shares of Common Stock, cash, or any combination
of shares and cash. The form of payment upon exercise of such a right shall be
determined by the Committee either at the time of grant of the Stock
Appreciation Right or at the time of exercise of the Stock Appreciation Right.
7. Performance Share Awards
The Committee may grant awards under which payment may be made in shares of
Common Stock, cash or any combination of shares and cash if the performance of
the Company or any subsidiary or division of the Company selected by the
Committee during the Award Period meets certain goals established by the
Committee ("Performance Share Awards"). Such Performance Share Awards shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe:
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<PAGE>
(a) Award Period and Performance Goals. The Committee shall determine and
include in a Performance Share Award grant the period of time for which a
Performance Share Award is made ("Award Period"). The Committee shall also
establish performance objectives ("Performance Goals") to be met by the Company,
subsidiary or division during the Award Period as a condition to payment of the
Performance Share Award. The Performance Goals may include earnings per share,
return on stockholders' equity, return on assets, net income, or any other
financial or other measurement established by the Committee. The Performance
Goals may include minimum and optimum objectives or a single set of objectives.
(b) Payment of Performance Share Awards. The Committee shall establish the
method of calculating the amount of payment to be made under a Performance Share
Award if the Performance Goals are met, including the fixing of a maximum
payment. The Performance Share Award shall be expressed in terms of shares of
Common Stock and referred to as "Performance Shares". After the completion of an
Award Period, the performance of the Company, subsidiary or division shall be
measured against the Performance Goals, and the Committee shall determine
whether all, none or any portion of a Performance Share Award shall be paid. The
Committee, in its discretion, may elect to make payment in shares of Common
Stock, cash or a combination of shares and cash. Any cash payment shall be based
on the fair market value of Performance Shares on, or as soon as practicable
prior to, the date of payment.
(c) Revision of Performance Goals. At any time prior to the end of an Award
Period, the Committee may revise the Performance Goals and the computation of
payment if unforeseen events occur which have a substantial effect on the
performance of the Company, subsidiary or division and which in the judgment of
the Committee make the application of the Performance Goals unfair unless a
revision is made.
(d) Requirement of Employment. A grantee of a Performance Share Award must
remain in the employment of the Company until the completion of the Award Period
in order to be entitled to payment under the Performance Share Award; provided
that the Committee may, in its sole discretion, provide for a partial payment
where such an exception is deemed equitable.
(e) Dividends. The Committee may, in its discretion, at the time of the
granting of a Performance Share Award, provide that any dividends declared on
the Common Stock during the Award Period, and which would have been paid with
respect to Performance Shares had they been owned by a grantee, be (i) paid to
the grantee, or (ii) accumulated for the benefit of the grantee and used to
increase the number of Performance Shares of the grantee.
8. Restricted Stock Grants
The Committee may issue shares of Common Stock to a grantee which shares
shall be subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe ("Restricted Stock Grant"):
(a) Requirement of Employment. A grantee of a Restricted Stock Grant must
remain in the employment of the Company during a period designated by the
Committee ("Restriction Period"). If the grantee leaves the employment of the
Company prior to the end of the Restriction Period, the Restricted Stock Grant
shall terminate and the shares of Common Stock shall be returned
5
<PAGE>
immediately to the Company; provided that the Committee may, at the time of the
grant, provide for the employment restriction to lapse with respect to a portion
or portions of the Restricted Stock Grant at different times during the
Restriction Period. The Committee may, in its discretion, also provide for such
complete or partial exceptions to the employment restriction as it deems
equitable.
(b) Restrictions on Transfer and Legend on Stock Certificates. During the
Restriction Period, the grantee may not sell, assign, transfer, pledge, or
otherwise dispose of the shares of Common Stock except to a successor under
Section 10 hereof. Each certificate for shares of Common Stock issued hereunder
shall contain a legend giving appropriate notice of the restrictions in the
grant.
(c) Escrow Agreement. The Committee may require the grantee to enter into
an escrow agreement providing that the certificates representing the Restricted
Stock Grant will remain in the physical custody of an escrow holder until all
restrictions are removed or expire.
(d) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Grant shall lapse upon the expiration of the Restriction Period if the
conditions as to employment set forth above have been met. The grantee shall
then be entitled to have the legend removed from the certificates.
(e) Dividends. The Committee shall, in its discretion, at the time of the
Restricted Stock Grant, provide that any dividends declared on the Common Stock
during the Restriction Period shall either be (i) paid to the grantee, or (ii)
accumulated for the benefit of the grantee and paid to the grantee only after
the expiration of the Restriction Period.
9. Discontinuance or Amendment of the Plan
The Board of Directors may discontinue the ISP at any time and may from
time to time amend or revise the terms of the ISP as permitted by applicable
statutes, except that it may not revoke or alter, in a manner unfavorable to the
grantees of any Incentives hereunder, any Incentives then outstanding, nor may
the board amend the ISP without stockholder approval, where the absence of such
approval would cause the Plan to fail to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, or any other requirement of applicable law or
regulation. No Incentive shall be granted under the ISP after December 31, 1995
but Incentives granted theretofore may extend beyond that date.
10. Nontransferability
Each Incentive granted under the ISP shall not be transferable other than
by will or the laws of descent and distribution, and with respect to Stock
Options, shall be exercisable, during the grantee's lifetime, only by the
grantee or the grantee's guardian or legal representative.
11. No Right of Employment
The ISP and the Incentives granted hereunder shall not confer upon any
Eligible Employee the right to continued employment with the Company or affect
in any way the right of the Company to terminate the employment of an Eligible
Employee at any time and for any reason.
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<PAGE>
12. Taxes
The Company shall be entitled to withhold the amount of any tax
attributable to any amount payable or shares deliverable under the ISP after
giving the person entitled to receive such amount or shares notice as far in
advance as practicable.
7
EXHIBIT 10(g)
MERCK & CO., INC.
SUPPLEMENTAL RETIREMENT PLAN
As amended effective January 1, 1995
<PAGE>
TABLE OF CONTENTS
Page
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Article I Purpose 1
Article II Definitions 1
Article III Benefits Payable Under This Plan 2
Article IV Payments of Benefits 5
Article V Administration of The Plan 6
Article VI Claims and Appeal Procedure 7
Article VII Amendment and Termination 8
Article VIII Miscellaneous 9
<PAGE>
MERCK & CO., INC.
SUPPLEMENTAL RETIREMENT PLAN
I. PURPOSE
This Plan is intended to provide additional benefits to executive
participants in certain Retirement Plans maintained by the Company and its
subsidiaries, as follows: (i) benefits not payable by such Retirement Plans
because of the limitations on benefits payable from such Retirement Plans set
forth in Sections 415 and/or 401(a)(17) of the Internal Revenue Code of 1954, as
amended, (ii) benefits not payable by such Retirement Plans because of the
exclusion of deferred compensation from the benefit formulas of such Retirement
Plans, (iii) a minimum aggregate benefit for the incumbents at time of actual
retirement in positions designated as bona fide executive or high policymaking
under the Company's Corporate Policy on Executive Retirement, and (iv) an
enhanced benefit for certain of such individuals who have held such positions.
II. DEFINITIONS
1. "ADEA-Exempt Employee" shall mean an Employee who occupies a position
designated as "bona fide executive" or "high policy making" under the Company's
Corporate Policy on Executive Retirement.
2. "Basic Supplemental Benefit" shall mean the benefit described in Article
III(1) and (2) hereof.
3. "Beneficiary" shall mean the individual, individuals or entity entitled
to receive a death or survivor benefit under the Retirement Plan, as hereinafter
defined, or pursuant to Article IV(2) hereof.
4. "Code" shall mean the Internal Revenue Code of 1954, as amended.
5. "Committee" shall mean the U.S. Compensation and Benefits Committee of
the Company, a management committee appointed by the Compensation and Benefits
Committee of the Board of Directors of the Company.
6. "Company" shall mean Merck & Co., Inc. or any successor thereto.
7. "Compensation" shall mean compensation as defined in the applicable
Retirement Plan; provided, however, that if an
<PAGE>
Employee defers, or if there is a mandatory deferral of, all or any portion of
an award under an Incentive Plan in any year, such deferred amount shall be
included in Compensation for such year, notwithstanding any subsequent
forfeiture.
8. "Credited Service" shall mean credited service as defined in the
applicable Retirement Plan.
9. "Employee" shall mean any employee of the Company or its subsidiaries
who is a participant in a Retirement Plan.
10. "Enhanced Credited Service" shall mean credited service as defined in
Article III(3) hereof.
11. "Enhanced Supplemental Benefit" shall mean the benefit described in
Article III(3) hereof.
12. "Incentive Plan" shall mean the Merck & Co., Inc. Annual Incentive
Plan, Executive Incentive Plan, Subsidiary Incentive Plan, Calgon Vestal Annual
Incentive Plan or Kelco Annual Incentive Plan.
13. "Plan" shall mean this Merck & Co., Inc. Supplemental Retirement Plan
as hereinafter amended from time to time.
14. "Prior Benefit" shall mean the benefit described in Article III(3).
15. "Retirement Plan" shall mean a defined benefit retirement plan
qualified under the Code and maintained by the Company, or any of its
subsidiaries whose board of directors has authorized participation in this Plan
with the approval of the Committee and the Chief Executive Officer of the
Company, or, prior to June 26, 1984, with the approval of the Board of Directors
of the Company.
16. "Supplemental Benefits" shall mean the benefits provided for pursuant
to Article III hereof.
III. BENEFITS PAYABLE UNDER THIS PLAN
l. An Employee shall be entitled to a Basic Supplemental Benefit in an
amount equal to the excess of (i) over (ii) where:
(i) is the benefit which would have been paid to such Employee (or
his/her Beneficiary) under the Retirement Plan in which he/she
participates, if the provisions of such Retirement Plan were administered
(a) without regard to the limitations set forth in Section 415 and/or
Section 401(a)(17) of the Code, and (b) as if the definition of
2
<PAGE>
Compensation set forth herein was substituted for the definition of
compensation in such Retirement Plan; and
(ii) is the benefit which is payable to such Employee (or his/her
Beneficiary) under the Retirement Plan in which he/she participates.
2. An Employee who, at time of retirement or death, (a) is an ADEA-Exempt
Employee and (b) in the case of retirement prior to normal retirement date, has
had, immediately prior to such retirement, at least ten years of Credited
Service, shall be entitled at normal retirement date to a Basic Supplemental
Benefit in an amount equal to the excess, if any, of $50,000 per year, on a life
income basis, over the benefit which is payable to such Employee (or his/her
Beneficiary) under the Retirement Plan in which he/she participates and any
other provision of this Plan. In the case of early or disability retirement or
death prior to normal retirement date, such benefit shall be reduced, prior to
any reduction set forth in Article IV (1) below, by multiplying $50,000 by a
fraction the numerator of which is such Employee's years of Credited Service as
of the date of such early or disability retirement or death and the denominator
of which shall be such Employee's years of Credited Service assuming he/she
terminated employment with the Company or an affiliate on his/her normal
retirement date.
3. ADEA-Exempt Employees who are such Employees on or after March 1, 1988
and who are mandatorily retired at normal retirement date shall be entitled to
an Enhanced Supplemental Benefit determined as follows:
(i) for each month of Credited Service earned under a Retirement Plan
by an ADEA-Exempt Employee prior to or during the period in which such
Employee is an ADEA-Exempt Employee, such Employee will be granted an
additional month of Credited Service, up to an aggregate maximum of
thirty-five years, such additional Credited Service constituting the
Enhanced Credited Service for such Employee;
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<PAGE>
(ii) such Employee's Basic Supplemental Benefit shall be determined
using the formula set forth in Article III(1) above and as if the
definition of Enhanced Credited Service set forth above were substituted
for the definition of Credited Service in the Retirement Plan in which such
Employee participates; the resulting increased benefit, less such
Employee's Basic Supplemental Benefit, and the benefit payable to such
Employee under the Retirement Plan in which he or she participates, shall
then be reduced by any other benefit paid or payable to such Employee under
any other retirement plan, except for any retirement plan sponsored in
whole or in part by the Company or any of its affiliates, in which he or
she has ever participated regardless of the nature of the sponsor
(including, without limitation, government-sponsored plans) (the "Prior
Benefit"). The resulting amount shall be such Employee's Enhanced
Supplemental Benefit. All benefit amounts used in determining the Enhanced
Supplemental Benefit shall be determined by the Company on a lump-sum basis
utilizing the actuarial and interest rate assumptions employed as of the
date of retirement by the Retirement Plan in which such Employee
participates, or, in the case of a Prior Benefit previously distributed to
an Employee, utilizing such other interest rates as the Company deems
appropriate under the circumstances;
(iii) subject to 3(iv) below, such Employee shall have a
non-forfeitable right to the Enhanced Supplemental Benefit at such time as
he or she has a non-forfeitable right to a benefit under the Retirement
Plan in which he or she participates;
(iv) at such time as any Employee becomes an ADEA-Exempt Employee, he
or she will promptly provide the Company with confirmation, in such detail
as may from time to time be required by the Company, of the nature and
amount of any Prior Benefit. The Company may establish such rules and
regulations as it deems appropriate in confirming the existence, nature and
terms of payments of any such Prior Benefit. Failure of an Employee to
comply with such rules and regulations or any other Company requests in
this regard will result in forfeiture of the Enhanced Supplemental Benefit.
The Company shall determine whether any plan in which an Employee has
participated is a plan providing a Prior Benefit and shall determine the
amount thereof and its decisions shall be final and binding in all
respects.
(v) Enhanced Credited Service shall be used only to calculate an
Employee's Enhanced Supplemental Benefit as described above and not for any
other purpose under this Plan or a Retirement Plan.
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<PAGE>
(vi) In the case of the early or disability retirement or death prior
to normal retirement date of an ADEA-Exempt Employee who would have been
eligible for an Enhanced Supplemental Benefit upon retirement on his or her
normal retirement date, an Enhanced Supplemental Benefit shall only be
payable with the consent of the Compensation and Benefits Committee of the
Board of Directors of the Company.
(vii) Effective January 1, 1995, there will be no further accruals
under the Enhanced Supplemental Benefit provisions of this Plan, except
that those individuals listed on Exhibit One hereto shall continue such
accruals under the terms and conditions set forth in this Section 3.
IV. PAYMENT OF BENEFITS
1. The payment of Supplemental Benefits hereunder shall be governed by the
terms of the applicable Retirement Plan, including but not limited to actuarial
or other reductions relative to termination or early retirement, and any
applicable elections thereunder, with respect to date of commencement, form of
benefit, payments in the event of death, vesting, and any other term, condition
or election applicable to such benefits.
2. Article IV(1) notwithstanding:
(a) An Employee electing a lump-sum payment under a Retirement Plan
may elect to receive his/her Supplemental Benefits in any other form
allowed under such Retirement Plan. Any such election must be made no later
than the end of the calendar year preceding the year in which the Employee
retires. In the event a Participant makes such an election, he/she shall
designate a Beneficiary to receive any death or survivor benefit which may
become payable hereunder.
(b) An Employee who is prohibited from electing a form of benefit
under a Retirement Plan because spousal consent has not been obtained, as
required under Section 417(a)(2)(A) of the Code, may elect to receive
his/her Supplemental Benefit in any other form allowed under such
Retirement Plan. Any such election must be made no later than the end of
the calendar year preceding the year in which the Employee retires. In the
event a Participant makes such an election, he/she shall designate a
Beneficiary to receive any death or survivor benefit which may become
payable hereunder.
(c) Any Employee eligible to make an election under paragraphs (a) or
(b) of this Section may elect a lump sum
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<PAGE>
under this Plan to be paid on the first of January following the Employee's
Normal Retirement Date regardless of whether the employee dies before that
date, and the amount of the lump sum shall be the exact amount that would
have been paid if the Employee had elected a lump sum payable on his/her
actual retirement date. Any such election must be made no later than the
end of the calendar year preceding the year in which the Employee retires.
In the event an Employee makes such an election, he/she shall designate a
Beneficiary to receive any death benefit which may become payable
hereunder.
(d) In the event payments under a Retirement Plan are required to be
made pursuant to a "Qualified Domestic Relations Order", as such term is
defined in Section 414(p) of the Code, Supplemental Benefits shall not be
paid in accordance with the Qualified Domestic Relations Order unless such
Order specifically requires the payment of Supplemental Benefits
thereunder.
3. Benefit payments shall be paid in cash from the general funds of the
Company, and no special or separate fund shall be established and no segregation
of assets shall be made to assure payment of distributions. Nothing contained in
this Plan and no action taken pursuant to its provisions shall create or be
construed to create a trust of any kind. To the extent that any person acquires
a right to receive benefits from the Company or its subsidiaries under this
Plan, such right shall be no greater than the right of an unsecured creditor of
the Company or its subsidiaries.
V. ADMINISTRATION OF THE PLAN
This Plan shall be operated under the direction of the Board of Directors
of the Company and administered by the Salaried Pension Committee in a manner
consistent with the operation and administration of the applicable Retirement
Plan. The Salaried Pension Committee's decision in any matter involving the
interpretation and application of the Plan shall be final and binding.
6
<PAGE>
VI. CLAIMS AND APPEALS PROCEDURE
1. Determination of Claim
An Employee or his/her authorized representative may present a claim for
benefits to the Executive Director--Compensation and Benefits. The Executive
Director shall make all determinations as to the Employee's claim for benefits
under the Plan. If the Executive Director grants a claim, benefits payable under
the Plan will be paid to the Employee as soon as feasible thereafter. If the
Executive Director denies in whole or part any claim for a benefit under the
Plan, he/she shall furnish the claimant with notice of the decision not later
than 90 days after receipt of the claim. If special circumstances require an
extension of time for processing the claim, the Executive Director shall provide
a written notice of the extension during the initial 90-day period, in which
case a decision shall be rendered not more than 180 days after receipt of the
claim. The written notice which the Executive Director shall provide to every
claimant who is denied a claim for benefits shall set forth in a manner
calculated to be understood by the claimant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(iv) appropriate information as to the steps to be taken if the
claimant wishes to submit his/her claim for review.
2. Appeal of Denied Claim
A claimant or his/her authorized representative may request a review of the
denied claim by the Salaried Pension Committee. Such request shall be made in
writing and shall be presented to the Salaried Pension Committee not more than
60 days after receipt by the claimant of written notification of the denial of
the claim. The Salaried Pension Committee shall render its decision on review
not later than 60 days after receipt of the claimant's request for review,
unless special circumstances require an extension of time, in which case a
decision shall be rendered as soon as possible but not later than 120 days after
receipt of the request for review. The decision on review shall be in writing
and shall include specific reasons for the decision.
7
<PAGE>
3. The Executive Director--Compensation and Benefits and the Salaried
Pension Committee, shall have the discretion to review and determine questions
regarding eligibility and to construe and interpret the terms of the Plan.
It is intended that the claims procedure of the Plan be administered in
accordance with regulations of the Department of Labor issued under ERISA
Section 503.
VII. AMENDMENT AND TERMINATION
1. The Committee, with the concurrence of the Chief Executive Officer of
the Company, shall have the right to alter or amend this Plan including the
right to merge the Plan with any other retirement plan of the Company which is
not qualified under Section 401(a) of the Code; provided that amendments which
(i) result in a significant cost increase, or (ii) would have a significant
adverse effect on rights of Employees including the termination of this Plan, or
(iii) would have a significant effect on the long-term rights or liabilities of
the Company, must be approved by the Board of Directors of the Company.
2. If this Plan should be amended, the rights of an Employee to his/her
accrued benefits under the Plan, determined as of the date of such amendment,
shall be nonforfeitable to the extent that any such amendment would reduce such
Employee's accrued benefits hereunder. If the Company should terminate this
Plan, the rights of an Employee to his/her accrued benefits shall be
nonforfeitable. If the Company should terminate a Retirement Plan with respect
to participants therein, the applicable benefits hereunder shall be payable to
affected Employees in accordance with all of the terms and conditions applicable
to such Employees' benefits under such Retirement Plan in the event of its
termination.
8
<PAGE>
VIII. MISCELLANEOUS
1. No right to payment or any other interest of an Employee or his/her
Beneficiary shall be assignable or subject to attachment, execution or levy of
any kind, except to the extent permitted by law or a court ruling.
2. Nothing in this Plan shall be construed as giving any Employee the right
to continued employment with the Company.
3. No Supplemental Benefit shall be deemed salary or other compensation to
the Employee for the purpose of computing benefits to which he/she may be
entitled under a Retirement Plan. This Plan shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Employee and
his/her Beneficiary.
4. The Company may withhold from any benefits payable under the Plan any
taxes required to be withheld pursuant to any law or governmental regulation or
ruling.
5. This Plan is not intended to be qualified under Section 401(a) of the
Code.
9
<PAGE>
EXHIBIT ONE
Charles Popper
Gerald Levey
Paul Friedman
William Powell
Bennett Shapiro
Louis Sherwood
R. Gordon Douglas
Norman Jangaard
Ronald Ahrens
10
EXHIBIT 10(i)
MERCK & CO., INC.
PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMPENSATION
(Amended effective April 1, 1994)
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
<PAGE>
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.
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 deferred
compensation 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 average of the high and low prices of 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 day
the director's services are rendered. In the case where the annual retainer
fee is deferred, a pro-rata share of that fee will be credited at the end
of each calendar quarter.
However, should it be determined under the Merck Deferral Program that a
measurement of Merck Common Stock on any given day would not constitute
fair market value, then such determination will control for that day under
this Plan also. The fair market value of Merck Common Stock will then be
determined on the substitute date used under the Merck Deferral Program.
Each director's account will be credited 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 with
the total dividends paid on shares previously credited to the account at
the closing Net Asset Value of the Fidelity Daily Income Trust shares on
the date dividends are paid.
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
- 2 -
<PAGE>
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 ernings 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 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 -
Exhibit 11
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(In millions except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net Income and Adjusted Earnings:
- --------------------------------
Income Before Cumulative Effect
of Accounting Changes ......................... $2,997.0 $2,166.2 $2,446.6
Cumulative Effect of Accounting Changes ......... -- -- (462.4)
-------- -------- --------
Net Income ...................................... $2,997.0 $2,166.2 $1,984.2
Effect on Earnings of Compensation Expense on
Stock Option and Incentive Plans .............. 5.2 1.6 4.0
Effect on Earnings of Interest on
Debentures Issued by Medco .................... .2 .2 --
-------- -------- --------
Adjusted Earnings for Fully Diluted
Earnings Per Share ............................ $3,002.4 $2,168.0 $1,988.2
======== ======== ========
Weighted Average Shares and Share
Equivalents Outstanding:
- ---------------------------------
Weighted Average Shares Outstanding
(As Reported) ................................. 1,257.2 1,156.5 1,153.5
Common Share Equivalents Issuable
Under Stock Option and Incentive Plans ........ 18.3 8.9 11.0
Common Share Equivalents Issuable on Assumed
Conversion of Debentures Issued by Medco ...... .7 .4 --
-------- -------- --------
Weighted Average Shares and
Share Equivalents Outstanding ................. 1,276.2 1,165.8 1,164.5
======== ======== ========
Earnings Per Share (As Reported):
- ---------------------------------
Before Cumulative Effect
of Accounting Changes ......................... $ 2.38 $ 1.87 $ 2.12
Cumulative Effect of Accounting Changes ......... -- -- (.40)
--------- --------- ---------
Net Income ...................................... $ 2.38 $ 1.87 $ 1.72
========= ========= =========
Fully Diluted Earnings Per Share: (a)
- -------------------------------------
Before Cumulative Effect
of Accounting Changes ......................... $ 2.35 $ 1.86 $ 2.10
Cumulative Effect of Accounting Changes ......... -- -- (.39)
--------- --------- ---------
Fully Diluted Earnings Per Share ................ $ 2.35 $ 1.86 $ 1.71
========= ========= =========
<FN>
- --------------
(a) This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No.
15 because it results in dilution of less than 3%.
</FN>
</TABLE>
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
--------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income before Taxes and
Cumulative Effect of
Accounting Charges ..... $4,415.2 $3,102.7 $3,563.6 $3,166.7 $2,698.8 $2,283.0
-------- -------- -------- -------- -------- --------
Add:
One-third of Rents ..... 36.0 35.0 34.0 31.1 26.5 20.0
Interest Expense (Net) . 96.0 48.0 23.6 26.0 51.9 45.5
-------- -------- -------- -------- -------- --------
Income as Adjusted ..... $4,547.2 $3,185.7 $3,621.2 $3,223.8 $2,777.2 $2,348.5
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of Rents ..... $ 36.0 $ 35.0 $ 34.0 $ 31.1 $ 26.5 $ 20.0
Interest Expense ....... 124.4 84.7 72.7 68.7 69.8 53.2
-------- -------- -------- -------- -------- --------
Fixed Charges .......... $ 160.4 $ 119.7 $ 106.7 $ 99.8 $ 96.3 $ 73.2
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges ....... 28 27 34 32 29 32
-- -- -- -- -- --
</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.
FINANCIAL REVIEW
Description of Merck's Business
Merck is a worldwide research-intensive health products company that
discovers, develops, produces and markets human and animal health products and
services. A dominant portion of the Company's business is conducted through the
Human and Animal Health Products and Services segment, which includes the
operations of the Merck-Medco Managed Care Division (Merck-Medco).
Sales
- ---------------
($ in millions) 1994 1993 1992
- --------------- ---- ---- ----
Cardiovasculars .................... $ 5,351.6 $ 4,820.8 $ 4,482.0
Anti-ulcerants ..................... 1,565.7 1,324.0 1,043.9
Antibiotics ........................ 827.4 868.7 942.2
Vaccines/biologicals ............... 485.3 522.9 485.3
Ophthalmologicals .................. 482.3 454.6 457.2
Anti-inflammatories/analgesics ..... 270.6 336.8 430.5
Other Merck human health ........... 433.4 446.8 373.4
Other human health ................. 4,103.9 296.6 --
Animal health/crop protection ...... 1,027.4 916.7 853.1
Specialty chemical ................. 422.2 510.3 594.9
--------- --------- --------
$14,969.8 $10,498.2 $9,662.5
========= ========= ========
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 Merck human health products, which include Proscar, a
treatment for symptomatic benign prostate enlargement, antiparkinsonism
products, psychotherapeutics and a muscle relaxant. Other human health primarily
includes Medco sales of non-Merck products and Medco human health 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 diseases, and poultry
breeding stock.
Specialty chemical products are used in health care, food processing, oil
exploration, paper, textiles and personal care.
Promotion of the Company's human and animal health products and services is
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 human health
services include corporations, labor unions, insurance companies, Blue Cross and
Blue Shield organizations, Federal and state employee plans, health maintenance
and other similar organizations. Customers for animal health/crop protection
products include veterinarians, distributors, wholesalers, retailers, feed
manufacturers, veterinary suppliers and laboratories.
The markets in which the Company'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. Global efforts toward health-care cost containment continue to exert
pressure on product pricing. In the United States, government efforts to slow
the increase of health-care costs and the demand for price discounts from
managed-care groups have limited the Company's ability to mitigate the effect of
inflation on costs and expenses through pricing. Outside of the United States,
government mandated cost containment programs have required the Company to
similarly limit selling prices. Additionally, government actions to reduce
patient reimbursement, restrict physician prescribing levels, and increase the
use of generic products have significantly reduced the sales growth of certain
products. 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.
Merck is responding to this new environment in a number of ways. In
November 1993, the Company acquired Medco Containment Services, Inc. (Medco) to
enhance its competitive position in the emerging area of managed care. The
Merck-Medco Managed Care Division provides services to managed-care
organizations designed to reduce prescription drug benefit costs through managed
prescription drug programs. Managed-care organizations are expected to deliver a
major portion of the nation's future health-care services. The Company is also
developing a series of disease management programs which use patient and
physician communication to improve drug therapy, promote better health outcomes
and lower the long-term cost of care associated with certain chronic diseases.
The Company is also responding to the new environment by developing innovative
sales, marketing and education techniques, by developing health-care alliances
with large pharmaceutical buyers and by continuing efforts to become more
productive throughout the entire organization.
29
<PAGE>
In the United States, legislative bodies are working to expand health-care
access and reduce the costs associated therewith. The debate to reform the
health-care system has been and will continue to be protracted and intense.
Although the Company is positioned to 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 and strategies
will enable it to maintain a strong position in this changing economic
environment.
In early 1990, the Company was the first pharmaceutical manufacturer to
voluntarily commit to a public policy of constraining price increases. The
Company's policy 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 extended to provide
further savings to the health-care system by limiting the price increases on
individual products to the CPI plus 1% on an annual basis. After four years,
this policy has yielded a cumulative net price increase that is significantly
below the cumulative increase in the general rate of U.S. inflation. 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.
Other principal strategies for remaining competitive in this environment
include investing in research and development (R&D) directed toward the
discovery and development of technologically innovative products and new
indications for existing products, acquisitions, joint ventures, licensing
agreements and other strategic alliances. Going forward, productivity gains will
be a permanent strategy of continuous improvement. Productivity gains this year
offset inflation at the manufacturing level, and the Company seeks to achieve
the same goal in 1995. Actions undertaken include plant optimization,
implementing lowest cost processes, improving integration and technology
transfer between research and manufacturing, and re-engineering of core
processes. The Company is also taking actions to re-engineer administrative
processes and flatten the organization. Through continuous improvements in
productivity, the Company will become not only more efficient, but also more
effective.
In 1989, Merck and E. I. du Pont de Nemours and Company (DuPont) agreed to
form a long-term research and marketing collaboration to further develop a new
class of therapeutic agents for high blood pressure and heart disease,
discovered and developed by DuPont, called angiotensin II receptor antagonists.
Cozaar, the first of these agents, has been cleared for marketing in several
European countries and is awaiting U.S. approval. In return, Merck provided
DuPont marketing rights in the United States and Canada to the Merck
prescription medicines, Sinemet and SinemetCR.
To further enhance the Company's access to research products, Merck and
DuPont created an independent, research-driven, worldwide pharmaceutical joint
venture, equally owned by each party, which began operations on January 1, 1991.
DuPont 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 joint venture's R&D effort is not expected to
produce significant commercial results in the near term. In January 1995, the
joint venture began co-promotion of Merck's prescription medicines, Prinivil and
Prinzide, in the United States.
In December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of
disproportionate allocations of the DuPont Merck joint venture income and
expense against the Company's right to receive a disproportionate share of
income arising from its 1989 long-term research and marketing agreement with
DuPont. Accordingly, the Company recorded a $499.6 million provision for an
obligation to the joint venture. This obligation is a function of the favorable
performance of assets contributed by DuPont to the joint venture through
December 31, 1994 and certain Merck contractual commitments. It is anticipated
that this obligation will be discharged over a period of six years beginning in
1995. The elimination of the offset resulting from the December 1994 agreement
will have no material effect on the Company's liquidity or future cash flows.
The anticipated favorable results from the 1989 agreement will be reported when
realized.
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 January 1993, Merck and Johnson &
Johnson extended their U.S. joint venture agreement 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 September 1993, the European joint venture established a new
company in the United Kingdom to market Merck and Johnson & Johnson OTC
medications. In January 1994, Merck and Johnson & Johnson acquired Laboratoires
J. P. Martin, a leading self-medication business in France.
30
<PAGE>
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 November 1994, Merck and Pasteur formed a joint venture to
market vaccines and to collaborate in the development of combination vaccines
for distribution in Europe. This joint venture is not expected to have a
significant impact on comparability of net income in the near term.
In 1982, the Company entered into an agreement with Astra AB (Astra) to
develop and market Astra products in the United States. Under the first phase of
the agreement, Merck marketed 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. On
November 1, 1994, Astra paid Merck $820.0 million for an interest in a joint
venture that will be carried on in a company called Astra Merck Inc., in which
Merck and Astra each own a 50% share. This joint venture will develop and market
in the United States most new prescription medicines from Astra's research. (See
Note 3 to the financial statements for further information.) The transaction is
not expected to have a material impact on comparability of net income. As of
November 1, 1994, Astra Merck product sales are no longer reported in
consolidated sales. These sales were $733.2 million prior to November 1.
In August 1994, the Company announced its intention to sell its remaining
specialty chemical units, Kelco and Calgon Vestal Laboratories. The decision
reflects the Company's intention to focus its resources more fully on its core
human and animal health business. In January 1995, the Company sold its Calgon
Vestal Laboratories business to Bristol-Myers Squibb, for $261.5 million. In
February 1995, the Company sold its Kelco business to Monsanto Company for
$1.075 billion. These businesses were not significant to the Company's financial
position, liquidity or results of operations.
Foreign Operations
The Company's operations outside the United States are conducted primarily
through subsidiaries. Sales by subsidiaries outside the United States were 32%
of sales in 1994, and 44% and 46% in 1993 and 1992, respectively. The decline in
the percentage of sales outside the United States in 1994 is due primarily to
higher domestic sales resulting from the Medco acquisition.
CONSOLIDATED SALES
($ in millions)
Domestic Total
Year Sales Sales
---- -------- -------
1985 ....................... 1,959 3,547
1986 ....................... 2,105 4,129
1987 ....................... 2,500 5,061
1988 ....................... 2,996 5,940
1989 ....................... 3,487 6,550
1990 ....................... 4,039 7,671
1991 ....................... 4,617 8,603
1992 ....................... 5,180 9,663
1993 ....................... 5,914 10,498
1994 ....................... 10,150 14,970
Consolidated amounts after 1992 include the impact of Medco from the date of
acquisition on November 18, 1993. 1994 consolidated amounts include the impact
of the formation of a jointly controlled venture with Astra on November 1, 1994.
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), 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 in Latin America, Eastern Europe, Asia Pacific
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.
Operating Results
Total sales for 1994 increased 43% from 1993. The effect of a weakening U.S.
dollar against foreign currencies increased 1994 sales growth by one percentage
point, while price changes had essentially no impact. Sales in 1994 reflect a
full year's impact of the Medco acquisition and the impact of the formation of a
jointly controlled venture with Astra on November 1, 1994. Excluding Medco sales
of non-Merck products and including Medco sales of Merck products for the full
year 1993 to achieve comparability, and adjusting for the effects of the joint
venture formation and the sale of the Calgon Water
31
<PAGE>
Management business in June 1993, 1994 sales grew 9%, with unit volume up 8%.
Total sales for 1993 increased 9%. 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 these effects, total sales grew
7% in 1993, with unit volume contributing nine percentage points. Exchange
reduced 1993 sales growth by two points while price changes had essentially no
impact. 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
TOTAL SALES SALES VOLUME NET PRICING FOREIGN
GROWTH GROWTH ACTIONS EXCHANGE RATES
---------- ------------ ----------- --------------
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
1994 ........... 8.6 8.4 -0.6 0.8
This chart illustrates the effects of price, volume and exchange on the
Company's sales. 1994 growth has been adjusted to exclude Medco sales of
non-Merck products and include Medco sales of Merck products for the full year
1993 to achieve comparability, and has been adjusted for the effect of the Astra
Merck joint venture formation. 1993 growth has been adjusted to exclude 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 a slight negative effect on sales growth in
1994, reflecting a continual decline from 2.3% in 1990, while the effect of
exchange has varied over the same period.
In 1994, sales of human and animal health products and services grew 46%.
Favorable foreign currency exchange increased sales growth by one percentage
point. Price changes had essentially no impact. Excluding Medco sales of
non-Merck products and including Medco sales of Merck products for the full year
1993 to achieve comparability, and adjusting for the effect of the Astra Merck
joint venture formation, sales grew 9% in total and on a volume basis in 1994.
Domestic sales growth was 78%, or 11% excluding the aforementioned effects.
Foreign sales grew 6%, including a two percentage point increase from the effect
of exchange. The unit volume gain from the sale of Merck's human and animal
health products was paced by Vasotec, Vaseretic, Prinivil, Zocor, Pepcid,
Prilosec, Proscar and ivermectin.
Vasotec, Merck's angiotensin converting enzyme (ACE) inhibitor for reducing
high blood pressure and treating heart failure, again established a new Merck
product sales record. During 1994, it retained its position as the leading
branded product in the worldwide cardiovascular market. Vasotec is also
indicated to decrease the rate of development of overt heart failure and to
reduce hospitalizations for heart failure in people with left ventricular
dysfunction--a weakening of the heart's main pumping chamber (as measured by an
ejection fraction of 35% or less)--but with no heart failure symptoms. New
guidelines, developed under the auspices of the U.S. Department of Health and
Human Services, for the treatment of heart failure--which are based on the
results of the latest clinical trials and outcomes research--call for wider use
of ACE inhibitors. Vaseretic, a combination of Vasotec and hydrochlorothiazide,
also prescribed for the treatment of high blood pressure, continued strong
growth. Prinivil, which also treats high blood pressure and acts as an
adjunctive therapy for treatment of heart failure, recorded strong growth in
1994 as well.
Merck's cholesterol-lowering agents continued their outstanding
performance, holding about 40% of the worldwide cholesterol-lowering market.
Zocor, Merck's second cholesterol-lowering agent, continued its strong
performance in 1994. In mid-November, the results of a landmark
placebo-controlled study of Zocor were reported at the annual meeting of the
American Heart Association. The findings showed that use of Zocor to treat
patients with coronary artery disease and elevated cholesterol reduced their
overall risk of death by 30% and their risk of coronary death by 42%. The study
- --the Scandinavian Simvastatin Survival Study--is the first and only clinical
study to conclusively demonstrate that long-term therapy with a
cholesterol-lowering medicine--Zocor--substantially improves survival rates.
Also, Zocor substantially reduced the risk of subsequent major coronary events
by 34% and frequency of invasive procedures used to reopen clogged arteries by
37%. Efforts are underway to incorporate the important findings of this landmark
study in the Company's product labeling. Unit sales of Mevacor were down in 1994
due to strong competition. Mevacor is the most widely prescribed
cholesterol-lowering agent in the treatment of patients with primary elevated
cholesterol in the United States. In early 1995, Merck received clearance from
the U.S. Food and Drug Administration to market Mevacor as the first and now the
only lipid-lowering drug to slow the progression of atherosclerosis (clogging of
the arteries) in patients with coronary artery disease and elevated cholesterol.
The indication is based on results of three clinical studies showing the drug's
positive effects in slowing the build-up of artery clogging plaque in the
arteries. Out of the 13 million people in the United States who could benefit
from treatment with cholesterol-lowering agents, only 6.8 million are being
treated. Merck continues strategic initiatives to increase appropriate usage.
Pepcid, an H2-receptor antagonist for treatment of duodenal ulcers and
short-term treatment of gastric ulcers and gastroesophageal reflux disease
(GERD), continues to grow rapidly in the United States and maintains its
position against strong competition outside the United States. Prilosec, a
proton pump inhibitor which is indicated for poorly responsive symptomatic
32
<PAGE>
GERD and as a first-line therapy for short-term treatment of active duodenal
ulcers and severe erosive esophagitis, continued its strong growth. Effective
November 1, Prilosec is marketed by Astra Merck Inc., the joint venture company.
Proscar recorded significant volume growth in 1994. It is the only drug
indicated to treat the symptoms of benign prostate enlargement that also shrinks
the prostate. Proscar, developed to treat a common condition that affects the
majority of men over the age of 50, has been introduced in over 50 countries,
representing nearly every major market including the United States. Results from
an ongoing study show that a 5mg daily dose of Proscar for 48 months reduced
median prostate volume from baseline by more than 25%, maintained increasing
urine flow rate and decreased overall symptoms of benign prostate enlargement,
suggesting an arrest in the disease process. The Company is continuing an
extensive medical and consumer education program worldwide to heighten awareness
of the disease, improve understanding of its natural history and communicate the
effects of treatment with Proscar, including new direct-to-consumer ads in the
United States. In 1993, the National Cancer Institute began a 10-year study,
involving 18,000 healthy men, to examine the possible role of Proscar in
preventing prostate cancer.
Sales of other human health products and services contributed significantly
to 1994 sales growth. Other human health principally includes sales of non-Merck
products by Merck-Medco. This division currently manages pharmaceutical benefits
for more than 40 million plan participants, up from 33 million at the time of
the merger announcement in July 1993, due to increased penetration across all
major market segments. Merck-Medco continues to expand the number of patients
participating in disease management programs. Other human health also includes
sales of non-Merck products by West Point Pharma, Merck's generic pharmaceutical
division. In December 1994, Merck reached an agreement with the DuPont Merck
joint venture to combine resources from the two companies' generic drug
businesses. Under the agreement, Endo Laboratories, L.L.C., a subsidiary of the
joint venture, will become the sole distributor of most generic products that
were previously marketed by Merck's West Point Pharma Division.
Sales of ivermectin, a broad-spectrum antiparasitic, continued strong
volume growth in 1994 despite increased competition and the continued economic
recession in Europe. A group of longer-established products, including Primaxin,
Dolobid, Aldomet, Indocin, Mefoxin, Clinoril, Moduretic and Noroxin, while still
producing strong revenues, continued to decline in unit volume due to generic
and therapeutic competition.
The decline in specialty chemical sales in 1994 and 1993 principally
reflects the sale of the Calgon Water Management business in June 1993.
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. Products contributing to the overall unit volume
gain were Vasotec, Vaseretic, Zocor, Pepcid, Prilosec, Proscar, ivermectin and
vaccine sales, led by M-M-R II and Recombivax HB.
<TABLE>
<CAPTION>
Costs, Expenses and Other
- -------------------------
($ in millions) 1994 Change 1993 Change 1992
- --------------- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Materials and
production .................... $ 5,962.7 +139% $ 2,497.6 +19% $2,096.1
Marketing and
administrative ................ 3,177.5 +9% 2,913.9 -2% 2,963.3
Research and
development ................... 1,230.6 +5% 1,172.8 +6% 1,111.6
Gain on joint
venture formation ............. (492.0) * -- * --
Provision for joint
venture obligation ............ 499.6 * -- * --
Restructuring
charge ........................ -- * 775.0 * --
Other (income)
expense, net .................. 176.2 +387% 36.2 * (72.1)
--------- ---- -------- --- --------
$10,554.6 +43% $7,395.5 +21% $6,098.9
========= ==== ======== === ========
<FN>
- ------------------
* Not applicable
</FN>
</TABLE>
In 1994, materials and production costs increased 139%, primarily due to
the inclusion of a full year's impact of the Medco acquisition. Excluding
Medco's cost of non-Merck products and including the cost of Medco sales of
Merck products for the full year 1993 to achieve comparability, and adjusting
for the effect of the 1994 Astra Merck joint venture formation, materials and
production costs increased 10%, compared to a 9% sales growth rate on the same
basis. Excluding the aforementioned effects, exchange and inflation, these costs
increased 7%, compared to an 8% unit sales volume gain in 1994, reflecting cost
controls and productivity improvements from the Company's continuing efforts to
streamline and restructure operations. In 1993, materials and production costs,
excluding the effect of the Medco acquisition, exchange and inflation, were
essentially level with 1992, compared to a 7% unit sales volume gain.
Marketing and administrative expenses increased 9% in 1994. Excluding the
effects of exchange and inflation, these expenses increased 5%, primarily due to
the inclusion of a full year's impact of the Medco acquisition. Marketing and
administrative expenses were down 6% in 1993, excluding the effects of exchange
and inflation. Marketing and administrative expenses as a percentage of sales
were 21% in 1994, 28% in 1993 and 31% in 1992. The improvement in these ratios
reflects the lower marketing and administrative costs of Merck-Medco, continuing
cost controls and the beneficial effects from the restructuring programs.
Research and development expenses increased 5% in 1994. Excluding the
effects of exchange and inflation, these expenses were essentially level with
1993. The Company maintains its
33
<PAGE>
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 totaled $319.4 million in 1994. In 1993, research and development expenses
increased 6%. Excluding the effects of exchange and inflation, 1993 expenses
increased 2%.
Research and development in the pharmaceutical industry is inherently a
long-term process. The data below shows an unbroken trend of year-to-year
increases in research and development spending. For the period 1980 to 1994, the
compounded annual growth rate in research and development was 13%.
R&D EXPENDITURES
($ in millions)
NOTE: 16 years of data should be charted
Year Total Amount % of Sales
---- ------------ ----------
1980 ........... 234 9
1981 ........... 274 9
1982 ........... 320 10
1983 ........... 356 11
1984 ........... 393 11
1985 ........... 426 12
1986 ........... 480 12
1987 ........... 566 11
1988 ........... 669 11
1989 ........... 751 11
1990 ........... 854 11
1991 ........... 988 11
1992 ........... 1,112 12
1993 ........... 1,173 11
1994 ........... 1,231 8
1995 (Est.) .... 1,300
This chart excludes research and development costs incurred by the Company's
joint ventures, which were $319.4 million in 1994.
In 1994, the Company recorded a gain of $492.0 million on the sale to Astra
of an interest in a joint venture and a provision of $499.6 million in
recognition of an obligation to the DuPont Merck joint venture. (See Note 3 to
the financial statements for further information.)
In the second quarter of 1993, the Company recorded a 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 reduced the work force by approximately 2,100
positions, a substantial number of which were permanently eliminated. Work-force
reductions were achieved through an early retirement program in the United
States and appropriate programs elsewhere at a cost of $450.0 million. This
program proceeded as planned and was completed in 1994. The longer-term
initiative involves the consolidation and rationalization of manufacturing
facilities and distribution centers, further reducing the work force, primarily
outside the United States, at a cost of an additional $325.0 million. Future
cash outlays resulting from these initiatives are not expected to have a
material impact on the Company's liquidity. These initiatives have reduced
annual employment costs by approximately $165.0 million annually and will result
in substantial additional facility-related savings.
In 1994, other expense, net, increased primarily due to a full year's
effect of amortization of goodwill and other intangibles and interest expense
resulting from the Medco acquisition as well as higher income applicable to
minority interests. This effect was partially offset by higher income generated
from the Company's proportionate share of results from its joint ventures and
lower exchange losses resulting from translation of the Company's balance sheet.
In 1993, other income, net, decreased primarily due to lower income generated
from the Company's proportionate share of results from its joint ventures,
increased amortization of goodwill and other intangibles as well as interest
expense resulting from the Medco acquisition, increased exchange losses
resulting from translation of the Company's balance sheet and higher income
applicable to minority interests. (See Note 12 to the financial statements for
further information.)
<TABLE>
<CAPTION>
Earnings
- ---------------------
($ in millions except
per share amounts) 1994 Change(1) 1993(2) Change(2) 1992(3)
- --------------------- ---- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Net income ......................... $2,997.0 +38% $2,166.2 -11% $2,446.6
As a % of sales .................. 20.0% 20.6% 25.3%
As a % of average total assets ... 14.3% 14.0% 24.1%
Earnings per common share .......... $2.38 +27% $1.87 -12% $2.12
<FN>
- ----------------
(1) Excluding the 1993 restructuring charge, net income and earnings per share
growth rates would have been 12% and 3%, respectively.
(2) 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%.
(3) Excludes the cumulative effect of the accounting changes described below.
</FN>
</TABLE>
Net income was up 38% in 1994. Excluding the 1993 restructuring charge, net
income increased 12%. In 1993, net income was down 11%, 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%. Net
income as a percentage of sales decreased in 1994 to 20.0%, compared to 20.6% in
1993 and 25.3% in 1992. The decline in 1994 is principally due to the inclusion
of a full year's impact of the Medco acquisition and reflects Medco's
historically lower margin business. The impact of the Medco acquisition on this
ratio was somewhat offset by unit sales volume growth, cost controls and
productivity improvements from the Company's continuing efforts to streamline
and reduce its cost structure, including the beneficial effects from the
restructuring programs. The decrease in the ratio in 1993 is primarily due to
the effect of the 1993 restructuring charge and the Medco acquisition. Foreign
currency exchange had a favorable impact in 1994 versus an unfavorable impact in
1993. The Company's effective income tax rate in 1994 was 32.1%, compared with
34
<PAGE>
30.5% in 1993, excluding the effects of the restructuring charge and Medco
acquisition. The higher effective rate in 1994 reflects the nondeductible
goodwill related to Medco and the relatively higher effective rate on Medco
income. The Company's tax rate in 1994 was also adversely affected by the
Omnibus Budget Reconciliation Act of 1993. The Company also expects future tax
rates to be adversely affected by this act, 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 increased in 1994 to 14.3%, compared with a ratio of 14.0% in 1993; the
1992 ratio was 24.1%. The decrease in 1993 was principally due to the
restructuring charge and goodwill recognized in connection with the Medco
acquisition. Excluding the 1993 restructuring charge, earnings per share grew 3%
in 1994 compared to 13% in 1993, excluding the effects of the Medco acquisition
and the restructuring charge as well as the cumulative effect of 1992 accounting
changes. The dilution in 1994 earnings per share growth, as compared to net
income growth, is principally due to the additional shares issued in November
1993 to complete the Medco acquisition.
DISTRIBUTION OF INCOME
($ in millions)
Taxes
+
Addition To Addition To
Addition Retained Retained
To Earnings Earnings
Retained + +
Year Earnings Dividends Dividends
---- ----------- ------------ ------------
1985 .......... 305 540 857
1986 .......... 397 676 1,073
1987 .......... 541 906 1,405
1988 .......... 660 1,207 1,871
1989 .......... 814 1,495 2,283
1990 .......... 993 1,781 2,699
1991 .......... 1,201 2,122 3,167
1992 .......... 1,340 2,447 3,564
1993 .......... 927 2,166 3,103
1994 .......... 1,534 2,997 4,415
1994 consolidated amounts include a full year's impact of the Medco acquisition
and the impact of the formation of a jointly controlled venture with Astra on
November 1, 1994. 1993 consolidated amounts include the impact of the
acquisition of Medco on November 18, 1993 and a restructuring charge. 1992
excludes the cumulative effect of accounting changes.
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 objective 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
inflation and currency fluctuations that have existed over the last decade.
During 1992, the Company adopted three new accounting standards: Statement
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions,
Statement No. 109, Accounting for Income Taxes, and Statement No. 112,
Employers' Accounting for Postemployment Benefits. The cumulative effect of
adopting these standards is included in 1992 Net income. The ongoing effects of
these standards are included in the results of operations for all years
presented. (See Notes 11 and 13 to the financial statements for further
information.)
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 year-end 1995. In 1994, the
Company incurred capital expenditures of approximately $76.2 million for
environmental protection facilities. Capital expenditures for this purpose are
forecasted to exceed $300.0 million for the years 1995 through 1999. In
addition, the Company's operating and maintenance expenditures for pollution
control were approximately $64.8 million in 1994. Expenditures for this purpose
for the years 1995 through 1999 are forecasted to exceed $380.0 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 $24.1 million in 1994, and are estimated at
$160.0 million for the years 1995 through 1999. 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
Capital expenditures were $1.0 billion in both 1994 and 1993. Expenditures in
the United States were $772.1 million in 1994 and $759.7 million in 1993.
Expenditures during 1994 included $326.7 million for production facilities,
$130.9 million for research and development facilities, $94.5 million for safety
and environmental projects and $457.2 million for administrative and general
site projects. Not included above are capital expenditures incurred by the
Company's joint ventures, which totalled $77.4 million in 1994, including $19.1
million for research and development facilities.
35
<PAGE>
Capital authorizations in 1994 were $682.6 million, a decrease of 4% from
1993's level of $710.8 million. Capital expenditures approved but not yet spent
at December 31, 1994, were $448.9 million. These commitments include investments
in production facilities ($161.1 million), research and development facilities
($61.6 million), safety and environmental projects ($61.1 million) and
administrative and general site projects ($165.1 million).
Depreciation was $475.6 million in 1994 and $348.4 million in 1993, of
which $345.7 million and $237.7 million, respectively, applied to locations in
the United States.
CAPITAL EXPENDITURES
($ in millions)
Capital
Year Expenditures
---- ------------
1985 ..................... 238
1986 ..................... 211
1987 ..................... 254
1988 ..................... 373
1989 ..................... 433
1990 ..................... 671
1991 ..................... 1,042
1992 ..................... 1,067
1993 ..................... 1,013
1994 ..................... 1,009
This chart excludes capital expenditures incurred by the Company's joint
ventures, which were $77.4 million in 1994.
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 1994, net cash
flows from operating activities were $4.1 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 $1.4 billion and to
partially fund the purchase of treasury shares. At December 31, 1994, the total
of worldwide cash and investments was $3.7 billion, including $2.3 billion in
cash, cash equivalents and short-term investments and $1.4 billion of long-term
investments. The above totals include $1.2 billion in cash and investments held
by Banyu Pharmaceutical Co., Ltd., in which the Company has a 50.87% ownership
interest.
Selected Data
- ---------------
($ in millions) 1994 1993 1992
- --------------- ---- ---- ----
Working capital ...................... $1,473.1 $(161.1) $782.4
Total debt to total
liabilities and equity ............. 5.9% 14.3% 11.9%
Cash provided by operations
to total debt ...................... 3.2:1 1.1:1 1.9:1
In 1994, improvements in working capital and the ratios of total debt to
total liabilities and equity and cash provided by operations to total debt
reflect both normal growth of the Company and the reduction in commercial paper
borrowings used to finance the Medco acquisition. The repayment of commercial
paper borrowings was funded by operating cash flows and proceeds received from
Astra on the sale of an interest in a joint venture.
The 1993 ratios were impacted by the acquisition of Medco in November 1993
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.
Working capital levels are more than adequate to meet the operating
requirements of the Company. From 1992 to 1994, the Company purchased $1.9
billion of treasury shares under two $1 billion programs authorized by the Board
of Directors in 1991 and 1993. The 1991 program was completed in 1992 and the
1993 program was completed in 1994. In November 1994, the Board of Directors
approved purchases of up to an additional $2 billion of Merck shares. Through
December 31, 1994, $75.5 million of shares had been purchased under the 1994
program. Since 1984, the Company has purchased 259.0 million shares at a total
cost of $5.0 billion.
From 1992 to 1994, 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.
A significant portion of the Company's cash flows are denominated in
foreign currencies. The Company relies on sustained cash flows generated from
foreign sources to support its long-term commitment to U.S. dollar-based
research and development. To the extent the dollar value of cash flows 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 foreign currency cash
flows, the Company has instituted balance sheet and revenue hedging programs to
partially hedge this risk.
The objective of the balance sheet hedging program is to protect the U.S.
dollar value of foreign currency denominated net monetary assets from the
effects of volatility in foreign exchange that might occur prior to their
conversion to U.S. dollars. To achieve this objective, the Company will hedge
foreign currency risk on monetary assets and liabilities where hedging is cost
beneficial. The Company seeks to fully hedge exposure denominated in developed
country currencies, such as those of Japan, Europe and Canada, and will either
partially hedge or not hedge at all, exposure in other currencies, particularly
exposure in hyperinflationary countries where hedging instruments may not be
available at any cost. The Company will minimize the effect of exchange on
unhedged exposure, principally by managing operating activities and net asset
positions at the local level. The Company manages its net asset exposure
principally with forward exchange contracts. These
36
<PAGE>
contracts enable the Company to buy and sell foreign currencies in the future at
fixed exchange rates. On net monetary assets hedged, forward contracts offset
the consequences of changes in foreign exchange on the amount of U.S. dollar
cash flows derived from the net assets. Contracts used to hedge net monetary
asset exposure have average maturities at inception of less than one year. The
cash flows generated from these forward contracts are reported as arising from
operating activities in the Statement of Cash Flows. The balance sheet hedging
program has significantly reduced the volatility of U.S. dollar cash flows
derived from foreign currency denominated net monetary assets.
The objective of the revenue hedging program is to reduce the potential for
longer-term unfavorable changes in foreign exchange to decrease the U.S. dollar
value of future cash flows derived from foreign currency denominated sales. To
achieve this objective, the Company will partially hedge forecasted sales that
are expected to occur over its planning cycle, typically no more than three
years into the future. The Company will layer in hedges over time, increasing
the portion of sales hedged as it gets closer to the expected date of the
transaction. The portion of sales hedged is based on assessments of cost-benefit
profiles that consider natural offsetting exposures, revenue and exchange rate
volatilities and correlations, and the cost of hedging instruments. The Company
manages its forecasted transaction exposure principally with purchased local
currency put options. On the forecasted transactions hedged, these option
contracts effectively reduce the potential for a strengthening U.S. dollar to
decrease the future U.S. dollar cash flows derived from foreign currency
denominated sales. Purchased local currency put options provide the Company with
a right, but not an obligation, to sell foreign currencies in the future at a
pre-determined price. If the value of the U.S. dollar weakens relative to other
major currencies when the options mature, the options would expire unexercised,
enabling the Company to benefit from favorable movements in exchange, except to
the extent of premiums paid for the contracts. Over the last three years the
program has had a minimal cumulative effect on cash flows, principally because
of the prevailing weakness in the U.S. dollar compared with other major
currencies. However, the program has prevented a loss in value of cash flows
during interim periods of relative strength in the U.S. dollar for the portion
of revenues hedged. The cash flows associated with these contracts are reported
as arising from operating activities in the Statement of Cash Flows.
The Company's strong financial position, as evidenced by its triple-A
credit ratings from Moody's and Standard & Poor's on outstanding debt issues,
provides a high degree of flexibility in obtaining funds on competitive terms.
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. In 1993, the Company initiated a medium-term note
program under this shelf and issued $80.0 million of structured floating rate
medium-term notes. The 1993 shelf registration, together with $85.0 million
unused capacity from a $500.0 million 1991 shelf registration, provided $1.0
billion of shelf capacity at December 31, 1994.
<TABLE>
<CAPTION>
Condensed Interim Financial Data
($ in millions except
per share amounts) 4th Q 3rd Q 2nd Q 1st Q
- --------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
1994
- ----
Sales ......................... $3,871.5 $3,792.0 $3,792.0 $3,514.3
Gross profit .................. 2,345.0 2,340.1 2,263.3 2,058.7
Income before taxes ........... 1,085.8 1,171.7 1,145.5 1,012.3
Net income .................... 773.0 784.8 764.1 675.2
Per share of
common stock ................ $.61 $.62 $.61 $.54
---- ---- ---- ----
1993
- ----
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
==== ==== ==== ====
</TABLE>
In the chart above, 1994 amounts reflect a full year's impact of Medco
operations, which are included in 1993's fourth quarter results only from the
date of acquisition on November 18, 1993. The resulting fourth quarter 1994
increase in sales was somewhat reduced by the formation of a jointly controlled
venture with Astra on November 1, 1994. Sales for the third and fourth quarters
of 1993 were reduced as the result of the sale of the Calgon Water Management
business. Condensed interim financial data for the second quarter of 1993
includes a pretax restructuring charge of $775.0 million.
Dividends Paid Per Share of Common Stock
Year 4th Q 3rd Q 2nd Q 1st Q
---- ----- ----- ----- -----
1994 ......... $1.14 $.30 $.28 $.28 $.28
1993 ......... 1.03 .28 .25 .25 .25
Common Stock Market Prices
1994 4th Q 3rd Q 2nd Q 1st Q
- ---- ----- ----- ----- -----
High ......... $39 1/2 $36 1/8 $32 1/4 $38
Low .......... 34 29 28 1/8 28 3/4
1993
- ----
High ......... $35 5/8 $35 3/8 $39 3/8 $44 1/8
Low .......... 29 3/4 28 5/8 33 34 1/4
The principal market for trading of the common stock is the New York Stock
Exchange under the symbol MRK.
37
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Merck & Co., Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
($ in millions except per share amounts) 1994 1993 1992
- ---------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Sales ................................................. $14,969.8 $10,498.2 $9,662.5
--------- --------- --------
Costs, Expenses and Other
Materials and production .............................. 5,962.7 2,497.6 2,096.1
Marketing and administrative .......................... 3,177.5 2,913.9 2,963.3
Research and development .............................. 1,230.6 1,172.8 1,111.6
Gain on joint venture formation ....................... (492.0) -- --
Provision for joint venture obligation ................ 499.6 -- --
Restructuring charge .................................. -- 775.0 --
Other (income) expense, net ........................... 176.2 36.2 (72.1)
----- ---- -----
10,554.6 7,395.5 6,098.9
-------- ------- -------
Income Before Taxes and Cumulative Effect of Accounting
Changes ............................................. 4,415.2 3,102.7 3,563.6
Taxes on Income ....................................... 1,418.2 936.5 1,117.0
------- ----- -------
Income Before Cumulative Effect of Accounting Changes . 2,997.0 2,166.2 2,446.6
------- ------- -------
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions ........... -- -- (370.2)
Income taxes .......................................... -- -- (62.6)
Postemployment benefits ............................... -- -- (29.6)
--------- --------- --------
Net Income ............................................ $ 2,997.0 $ 2,166.2 $1,984.2
--------- --------- --------
Earnings Per Share of Common Stock:
Before Cumulative Effect of Accounting Changes....... $ 2.38 $ 1.87 $ 2.12
Cumulative Effect of Accounting Changes:
Postretirement benefits other than pensions ......... -- -- (.32)
Income taxes ........................................ -- -- (.05)
Postemployment benefits ............................. -- -- (.03)
--------- --------- --------
Net Income ............................................ $ 2.38 $ 1.87 $ 1.72
--------- --------- --------
</TABLE>
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Merck & Co., Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
($ in millions) 1994 1993 1992
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Balance, January 1 ............... $ 9,393.2 $ 8,466.0 $ 7,588.7
--------- --------- ---------
Net Income ....................... 2,997.0 2,166.2 1,984.2
Common Stock Dividends Declared .. (1,463.1) (1,239.0) (1,106.9)
Net Unrealized Gain on Investments 14.9 -- --
--------- --------- ---------
Balance, December 31 ............. $10,942.0 $ 9,393.2 $ 8,466.0
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Merck & Co., Inc. and Subsidiaries
December 31
($ in millions) 1994 1993
- --------------- ---- ----
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents ....................................... $ 1,604.0 $ 829.4
Short-term investments .......................................... 665.7 712.9
Accounts receivable ............................................. 2,351.5 2,094.3
Inventories ..................................................... 1,660.9 1,641.7
Prepaid expenses and taxes ...................................... 639.6 456.3
------- -------
Total current assets ............................................ 6,921.7 5,734.6
======= =======
Investments ..................................................... 1,416.9 1,779.9
------- -------
Property, Plant and Equipment, at cost
Land ............................................................ 212.6 212.5
Buildings ....................................................... 2,604.5 2,386.1
Machinery, equipment and office furnishings ..................... 4,029.4 3,769.0
Construction in progress ........................................ 826.4 805.2
----- -----
7,672.9 7,172.8
Less allowance for depreciation ................................. 2,376.6 2,278.2
------- -------
5,296.3 4,894.6
------- -------
Goodwill and Other Intangibles (net of accumulated
amortization of $291.1 million in 1994 and $97.2 million in 1993) 7,212.3 6,645.5
------- -------
Other Assets .................................................... 1,009.4 872.9
------- -----
$21,856.6 $19,927.5
========= =========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
Current Liabilities
<S> <C> <C>
Accounts payable and accrued liabilities ........................ $ 2,715.4 $ 2,378.3
Loans payable ................................................... 146.7 1,736.0
Income taxes payable ............................................ 2,206.5 1,430.4
Dividends payable ............................................... 380.0 351.0
------- -------
Total current liabilities ....................................... 5,448.6 5,895.7
------- -------
Long-Term Debt .................................................. 1,145.9 1,120.8
------- -------
Deferred Income Taxes and Noncurrent Liabilities................. 2,914.3 1,744.9
------- -------
Minority Interests .............................................. 1,208.8 1,144.4
------- -------
Stockholders' Equity
Common stock
Authorized--2,700,000,000 shares
Issued--1,483,167,594 shares--1994
--1,480,611,247 shares--1993 ..................... 4,667.8 4,576.5
Retained earnings ............................................... 10,942.0 9,393.2
-------- -------
15,609.8 13,969.7
Less treasury stock, at cost
235,341,571 shares--1994
226,676,597 shares--1993 ............................... 4,470.8 3,948.0
Total stockholders' equity ...................................... 11,139.0 10,021.7
-------- --------
$21,856.6 $19,927.5
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
39
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Merck & Co., Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years Ended December 31
($ in millions) 1994 1993 1992
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income .............................................................. $ 2,997.0 $ 2,166.2 $ 1,984.2
Adjustments to reconcile net income to net cash provided from operations:
Gain on joint venture formation ....................................... (492.0) -- --
Provision for joint venture obligation ................................ 499.6 -- --
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 ......................................... 681.6 386.5 303.6
Deferred taxes ........................................................ (96.5) (167.0) (16.6)
Other ................................................................. (10.7) (62.9) (56.9)
Net changes in assets and liabilities:
Accounts receivable ................................................. (265.0) (263.1) (298.4)
Inventories ......................................................... (26.2) (46.6) (177.5)
Accounts payable and accrued liabilities ............................ 290.6 (122.9) 100.8
Income taxes payable ................................................ 688.5 372.5 212.6
Noncurrent liabilities .............................................. (123.5) 67.9 108.4
Other ............................................................... (3.5) (57.1) (118.2)
---------- --------- --------
Net Cash Provided by Operating Activities ............................... 4,139.9 3,048.5 2,504.4
---------- --------- --------
Cash Flows from Investing Activities
Capital expenditures .................................................... (1,009.3) (1,012.7) (1,066.6)
Purchase of Medco, net of cash and cash equivalents acquired ............ -- (1,869.4) --
Purchase of securities, subsidiaries and other investments .............. (14,814.5) (9,521.4) (5,255.8)
Proceeds from joint venture formation, net of cash transferred .......... 759.3 -- --
Proceeds from sale of securities, subsidiaries and other
investments ........................................................... 15,082.3 9,863.5 4,983.1
Other ................................................................... (50.2) (47.7) (12.6)
---------- --------- --------
Net Cash Used by Investing Activities ................................... (32.4) (2,587.7) (1,351.9)
---------- --------- --------
Cash Flows from Financing Activities
Net change in short-term borrowings ..................................... (1,580.2) 910.8 480.0
Proceeds from issuance of debt .......................................... 336.6 353.8 141.3
Payments on debt ........................................................ (152.4) (39.4) (121.6)
Purchase of treasury stock .............................................. (704.5) (371.0) (862.9)
Dividends paid to stockholders .......................................... (1,434.1) (1,174.4) (1,064.3)
Proceeds from exercise of stock options ................................. 138.6 83.4 52.2
Other ................................................................... (6.2) 22.6 20.0
---------- --------- --------
Net Cash Used by Financing Activities ................................... (3,402.2) (214.2) (1,355.3)
---------- --------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ............ 69.3 7.7 (20.0)
---------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents .................... 774.6 254.3 (222.8)
Cash and Cash Equivalents at Beginning of Year .......................... 829.4 575.1 797.9
---------- --------- --------
Cash and Cash Equivalents at End of Year ................................ $ 1,604.0 $ 829.4 $ 575.1
========== ========= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Merck & Co., Inc. and Subsidiaries
($ in millions except per share amounts)
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 original 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
1,257.2 million, 1,156.5 million and 1,153.5 million in 1994, 1993 and 1992,
respectively. Common stock equivalents do not have a significant dilutive
effect.
Goodwill and Other Intangibles--Goodwill of $4.1 billion in 1994 and $5.2
billion in 1993 (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 include customer relationships of $3.1 billion
in 1994 and $1.4 billion in 1993 (net of accumulated amortization) that arose in
connection with the Medco acquisition. Other acquired intangibles are recorded
at cost and are amortized on a straight-line basis over their estimated useful
lives ranging from predominantly 28 to 40 years. The increase in other acquired
intangibles and the decrease in goodwill in 1994 results from the finalization
of the purchase price allocation relating to the Medco acquisition. 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 occurred.
2. Acquisition, Divestitures, and Restructuring
On November 18, 1993, the Company acquired all the outstanding shares of Medco
Containment Services, Inc. (Medco) for approximately $6.6 billion. The
Merck-Medco Managed Care Division 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 fair value of assets acquired and liabilities
assumed totaled $5.0 billion and $2.4 billion, respectively. The excess of the
purchase price over the 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:
1993 1992
---- ----
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
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 for further information.) In January
1995, the Company sold its Calgon Vestal Laboratories business for $261.5
million to Bristol-Myers Squibb. In February 1995, the Company sold its Kelco
business to Monsanto Company for $1.075 billion. These businesses were not
significant to the Company's financial position, liquidity or results of
operations.
The Company recorded a 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.
41
<PAGE>
3. Strategic Alliances
In 1989, the Company entered into an agreement with DuPont to form a long-term
research and marketing collaboration. Effective January 1, 1991, the Company
formed a 50%-owned joint venture with DuPont, creating an independent,
research-driven, worldwide pharmaceutical firm. DuPont 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 December 1994, the Company agreed to arrangements that, among other
things, eliminated the Company's right to offset the consequences of
disproportionate allocations of the DuPont Merck joint venture income and
expense against the Company's right to receive a disproportionate share of
income arising from its 1989 long-term research and marketing agreement with
DuPont. Accordingly, the Company recorded a $499.6 million provision for an
obligation to the joint venture. This obligation is a function of the favorable
performance of assets contributed by DuPont to the joint venture through
December 31, 1994 and certain Merck contractual commitments. It is anticipated
that this obligation will be discharged over a period of six years beginning in
1995. The elimination of the offset resulting from the December 1994 agreement
will have no material effect on the Company's liquidity or future cash flows.
The anticipated favorable results from the 1989 agreement will be reported when
realized.
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 January 1994, Merck
and Johnson & Johnson acquired Laboratoires J.P. Martin, a leading
self-medication business in France.
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 November 1994, Merck and Pasteur formed a joint venture to
market vaccines and to collaborate in the development of combination vaccines
for distribution in Europe. This joint venture is not expected to have a
significant impact on comparability of net income in the near term.
In 1982, the Company entered into an agreement with Astra AB (Astra) to
develop and market Astra products in the United States. Under the first phase of
the agreement, Merck marketed 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. On
November 1, 1994, Astra paid Merck $820.0 million for an interest in a joint
venture that will be carried on in a company called Astra Merck Inc., in which
Merck and Astra each own a 50 percent share. The Company recorded a $492.0
million gain from this transaction. This joint venture will develop and market
in the United States most new prescription medicines from Astra's research. The
transaction is not expected to have a material impact on comparability of net
income. As of November 1, 1994, Astra Merck product sales are no longer reported
in consolidated sales. These sales were $733.2 million for the period prior to
November 1.
Joint venture investments are included in Other assets and were $604.5
million at December 31, 1994 and $437.1 million at December 31, 1993.
4. Financial Instruments and Related Disclosures
Summarized below are the carrying values and fair values of the Company's
financial instruments at December 31, 1994 and 1993. Fair values were estimated
based on market prices, where available, or dealer quotes.
1994 1993
------------------ ------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
Assets
- ------
Cash and cash equivalents $1,604.0 $1,604.0 $ 829.4 $ 829.4
Short-term investments ... 665.7 665.9 712.9 714.4
Long-term investments .... 1,416.9 1,405.8 1,779.9 1,908.3
Purchased currency options 97.6 42.5 132.1 136.2
Forward exchange contracts 27.2 27.2 -- --
Interest rate swaps ...... -- -- -- 2.2
Liabilities
- -----------
Loans payable ............ $ 146.7 $ 143.4 $1,736.0 $1,735.5
Long-term debt ........... 1,145.9 1,114.0 1,120.8 1,137.7
Written currency options . .5 .5 6.4 5.8
Forward exchange contracts
and currency swap ..... 45.2 45.2 25.4 25.4
Interest rate swaps ...... -- 9.4 -- --
The Company has established revenue and balance sheet hedging programs to
protect against reductions in value and volatility of future foreign currency
cash flows caused by changes in foreign exchange rates. The objectives and
strategies of these programs are described in the Analysis of Liquidity and
Capital Resources section of the Financial Review.
42
<PAGE>
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 only
by the recognition of the premium paid to acquire the options designated as
hedges of the period. Market value gains and premiums on these contracts are
recognized in Sales when the hedged transaction is recognized. The carrying
value of purchased currency options is reported in Prepaid expenses and taxes or
Other assets.
The Company continuously reviews its portfolio of purchased options and
will adjust its portfolio to accommodate changes in exposure to forecasted
revenues. The most cost-effective means of decreasing coverage provided by
purchased options is to write options with terms identical to purchased options
that are no longer necessary. Deferred gains or losses that accumulate on
purchased options prior to writing an offsetting position will remain deferred
and are recognized when the hedged transaction occurs. Subsequent changes in the
market value of the written options and related purchased options are recorded
in earnings. Because the changes in market value of the purchased and written
options equally offset, there is no net impact on earnings. The carrying value
of written currency options is reported in Accounts payable and accrued
liabilities or Deferred income taxes and noncurrent liabilities.
Deferred gains and losses on currency options used to hedge forecasted
revenues amounted to $3.2 million and $58.3 million at December 31, 1994 and
$22.9 million and $18.2 million at December 31, 1993, respectively.
The Company also hedges certain exposures to fluctuations in foreign
currency exchange rates that occur prior to conversion of foreign currency
denominated monetary assets and liabilities into U.S. dollars. Prior to
conversion to U.S. dollars, these assets and liabilities are translated at spot
rates in effect on the balance sheet date. The effects of changes in spot rates
are reported in earnings and included in Other (income) expense, net. The
Company hedges its exposure to changes in foreign exchange with forward
contracts. Because monetary assets and liabilities are marked to spot and
recorded in earnings, forward contracts designated as hedges of the monetary
assets and liabilities are also marked to spot with the resulting gains and
losses similarly recognized in earnings. Gains and losses on forward contracts
are included in Other (income) expense, net and offset losses and gains on the
net monetary assets and liabilities hedged. The carrying value of forward
exchange contracts is reported in Accounts receivable, Other assets, Accounts
payable and accrued liabilities or Deferred income taxes and noncurrent
liabilities.
At December 31, 1994 and 1993, the Company had contracts to exchange
foreign currencies, principally the Japanese yen, French franc and Deutschemark,
for U.S. dollars in the following notional amounts:
1994 1993
---- ----
Purchased currency options... $1,793.8 $1,604.5
Written currency options .... 114.6 122.0
Forward sale contracts ...... 1,463.6 1,350.7
Forward purchase contracts... 404.5 400.5
The Company uses interest rate swap contracts on certain borrowing and
investing transactions. Interest rate swap contracts are intended to be an
integral part of borrowing and investing transactions and, therefore, are not
recognized at fair value. Interest differentials paid or received under these
contracts are recognized as adjustments to the effective yield of the underlying
financial instruments hedged. Interest rate swap contracts would only be
recognized at fair value if the hedged relationship is terminated. Gains or
losses accumulated prior to termination of the relationship would be amortized
as a yield adjustment over the shorter of the remaining life of the contract or
the remaining period to maturity of the underlying instrument hedged. If the
contract remained outstanding after termination of the hedged relationship,
subsequent changes in market value of the contract would be recognized in
earnings. The Company does not use leveraged swaps and, in general, does not use
leverage in any of its investment activities that would put principal capital at
risk.
At December 31, 1994, the Company had an interest rate swap contract with a
notional amount of $82.0 million to convert a portion of its variable rate
investments to fixed rates. This contract matures in two years. The Company also
had three interest rate swap contracts outstanding with a combined notional
amount of $370.6 million to convert fixed rates on debt issues to floating rates
slightly below commercial paper rates. The maturities of these contracts
coincide with the maturities of the underlying debt instruments hedged. The debt
issues include $55 million in medium-term notes, $200 million in zero coupon
euronotes and 200 million in Swiss franc eurobonds. Concurrent with the issuance
of the Swiss franc eurobonds, the Company entered into an interest rate and
currency swap. The currency swap is accounted for similar to forward exchange
contracts. (See Note 6 for further information.)
The interest rate and currency swaps on the debt issues described above
essentially provide the Company with variable rate, U.S. dollar denominated debt
at rates of interest lower than rates the Company could otherwise obtain had it
actually issued variable rate U.S. dollar debt.
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
43
<PAGE>
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.
Effective January 1, 1994, the Company adopted the provisions of Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, which
requires certain investments to be recorded at fair value or amortized cost. In
accordance with this Statement, the Company has classified its investments as
available-for-sale and held-to-maturity. Available-for-sale investments are
carried at fair value with unrealized gains and losses recorded, net of tax and
minority interests, in Stockholders' equity. Held-to-maturity investments are
carried at amortized cost. Prior to 1994, these investments were carried at the
lower of cost or market. Adoption of this Statement did not materially impact
the Company's financial position and had no impact on operating results. At
January 1, 1994, the unrealized gain associated with available-for-sale
investments of $37.5 million, net of tax and minority interests, was included in
Retained earnings.
At December 31, 1994, available-for-sale investments include debt and
equity securities carried at their fair values of $926.3 million ($474.5 million
of which mature within one year) and $507.4 million, respectively. Gross
unrealized gains and losses amounted to $2.3 million and $22.8 million for debt
securities and $201.7 million and $65.9 million for equity securities,
respectively. Held-to-maturity investments are carried at amortized cost of
$648.9 million ($183.5 million of which mature within one year) and have a fair
value of $638.0 million.
5. Inventories
Inventories at December 31 consisted of:
1994 1993
---- ----
Finished goods ..................... $ 926.7 $1,024.4
Raw materials and work in process... 684.7 570.6
Supplies ........................... 65.6 65.8
-------- --------
Total (approximates current cost)... 1,677.0 1,660.8
Reduction to LIFO cost ............. 16.1 19.1
-------- --------
$1,660.9 $1,641.7
======== ========
Inventories valued at LIFO comprised approximately 42% and 39% of
inventories at December 31, 1994 and 1993, respectively.
6. Loans payable and Long-term Debt
Loans payable at December 31, 1994 included $76.2 million of unsecured parent
company borrowings. The remainder of the 1994 balance was principally borrowings
by foreign subsidiaries. The weighted average interest rate for these borrowings
was 5.3% and 3.4% at December 31, 1994 and 1993, respectively. Loans payable
decreased in 1994 primarily as a result of the repayment of commercial paper
borrowings funded by operating cash flows and proceeds received from Astra on
the sale of an interest in a joint venture.
Long-term debt at December 31 consisted of:
1994 1993
---- ----
5.3% euronotes due 1998 .............. $ 252.4 $ 253.0
7.8% notes due 1996 .................. 249.6 249.2
Zero coupon euronotes due 1997 ....... 170.9 --
5.4% Swiss franc eurobonds due 1997... 153.5 --
6.0%--7.7% medium term notes
due 1996--1997 ..................... 139.8 139.7
6.7% convertible subordinated
debentures due 2001 ................ 74.8 316.4
Floating rate notes due 1995 ......... -- 54.9
Other ................................ 104.9 107.6
-------- --------
$1,145.9 $1,120.8
======== ========
The face values of the convertible subordinated debentures due 2001 are
comprised of the following components: $28.7 million issued by Medco (on which
Merck has become a co-obligor); and $34.2 million issued by Medical Marketing
Group, Inc. (MMG), a subsidiary of Medco (on which Merck has also become
co-obligor). Prior to maturity, each $1,000 Medco debenture can be redeemed for
approximately 25 Merck shares and $533 in cash, and each $1,000 MMG debenture
can be redeemed for $681 in cash. $159.5 million carrying value ($118.6 million
face value) of these debentures were converted in 1994.
At December 31, 1994, the Company had an interest rate swap contract to
convert the 6.1% fixed rate on the zero coupon euronotes to a variable rate
slightly below commercial paper rates. In addition, the Company entered into an
interest rate and currency swap concurrent with the issuance of the Swiss franc
eurobonds. The contract converts the fixed rate on the eurobonds to a variable
rate slightly below commercial paper rates, payable in U.S. dollars, and enables
the Company to buy 200 million Swiss francs at maturity at a fixed exchange
rate. Accordingly, any exchange gain or loss on these bonds will be entirely
offset by the change in the carrying value of the contract.
44
<PAGE>
Other consists primarily of pollution control, industrial revenue financing
and foreign borrowings at varying rates up to 9.0%.
The aggregate maturities of long-term debt for each of the next five years
are as follows: 1995, $60.7 million; 1996, $296.6 million; 1997, $431.2 million;
1998, $264.3 million; and 1999, $7.7 million.
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. Additionally, the Company, along with numerous
other defendants, is a party in several antitrust actions brought by retail
pharmacies, alleging price-fixing and price discrimination, two of which have
been certified as federal class actions. 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 financial position,
liquidity or results of operations of the Company.
8. Stockholders' Equity
In 1994, common stock increased by $91.3 million, principally as a result of
conversions of Medco subordinated debentures into 2.6 million shares of Merck
common stock. In 1993, the increase of $4.4 billion was principally due to
shares issued and employee stock options converted to Merck options in
connection with the acquisition of Medco. In 1992, common stock increased $19.0
million as a result of issuances of treasury stock for exercises of stock
options and distributions under incentive plans.
A summary of treasury stock transactions (shares in thousands) follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ----------------- -----------------
Shares Cost Shares Cost Shares Cost
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1 ............... 226,676.6 $3,948.0 221,878.1 $3,667.8 207,043.9 $2,858.2
Purchases ................. 18,975.0 704.5 10,040.4 371.0 18,382.6 862.9
Issued primarily
under stock
option and
incentive plans.......... (10,310.0) (181.7) (5,241.9) (90.8) (3,548.4) (53.3)
--------- -------- --------- -------- --------- --------
Balance,
December 31 ............. 235,341.6 $4,470.8 226,676.6 $3,948.0 221,878.1 $3,667.8
========= ======== ========= ======== ========= ========
</TABLE>
At December 31, 1994, 1993 and 1992, 10 million shares of preferred stock,
without par value, were authorized; none were issued.
9. Stock Option and Incentive Plans
The Company has stock option plans under which 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 Company has also adopted
several of the Medco employee stock option plans. In connection with the Medco
acquisition, stock options outstanding on the date of acquisition were converted
into options to purchase shares of Company common stock with an equivalent
value. In addition, in September 1991 and October 1993, the Company made special
grants of options to substantially all employees worldwide to purchase 300
shares of stock under each grant. A total of approximately 20.6 million options
were granted.
A summary of information relative to the Company's stock option plans
follows:
Number Average
of Shares Price
--------- -------
Outstanding at January 1, 1992 .... 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
Granted ........................... 19,973,017 31.53
Exercised ......................... (9,878,486) 14.01
Forfeited ......................... (2,843,918) 34.41
---------- -----
Outstanding at December 31, 1994... 93,664,336 $ 29.05
---------- -------
Exercisable at December 31, 1994... 31,691,680 $ 23.39
========== =======
At December 31, 1994 and 1993, 11,607,626 shares and 8,585,102 shares,
respectively, were available for future grants under the terms of these plans.
The Company has incentive compensation plans that provide cash awards to
employees and may provide deferred awards to certain executives and other key
employees. For 1994, total awards under the plans were $89.6 million.
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 $301.3 million in
1994, $262.3 million in 1993 and $241.3 million in 1992. Expenses for Company
and subsidiary plans were $140.1 million in 1994, $97.0 million in 1993 and
$81.3 million in 1992.
45
<PAGE>
Net pension cost for the Company's plans includes the following components:
1994 1993 1992
---- ---- ----
Service cost--benefits
earned during the year.......... $ 109.8 $ 97.4 $ 86.4
Interest cost on projected
benefit obligation ............. 134.7 135.7 123.7
Net amortization and deferral .... (105.9) 74.4 (34.7)
Actual return on assets .......... 1.5 (210.5) (94.1)
------- ------- ------
Net pension cost ................. $ 140.1 $ 97.0 $ 81.3
======= ======= ======
The net pension cost attributable to international plans and included above
was $42.5 million in 1994, $41.8 million in 1993 and $30.0 million in 1992.
In 1993, net losses of $254.8 million were recorded 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. Company contributions in 1994 and an increase
in the discount rate, resulting from rising market interest rates, significantly
improved the funded status of the plans. The funded status in 1993 had been
adversely affected by work-force reduction programs associated with
restructuring efforts and a lower discount rate, which had been reduced because
of lower market interest rates. Company contributions over the next several
years are expected to continue to improve the funded status of the worldwide
plans. The plans' assets are diversified in stocks, bonds, real estate,
short-term and other investments.
The plans' funded status was as follows at December 31:
<TABLE>
<CAPTION>
1994 1993
------------------ -----------------
Over Under Over Under
Funded Funded Funded Funded
------ ------ ------ ------
<S> <C> <C> <C> <C>
Plan assets at market value .............. $1,328.7 $ 42.5 $757.2 $572.4
-------- ------- ------ -------
Accumulated benefit obligation
Vested ................................. 1,051.6 86.6 546.9 631.2
Nonvested .............................. 178.4 33.1 83.5 102.7
-------- ------- ------ -------
1,230.0 119.7 630.4 733.9
-------- ------- ------ -------
Plan assets in excess of (less than)
accumulated benefit obligation.......... 98.7 (77.2) 126.8 (161.5)
Projected compensation increases ......... 297.1 95.2 147.7 322.2
-------- ------- ------ -------
Projected benefit obligation in
excess of plan assets .................. (198.4) (172.4) (20.9) (483.7)
Unamortized transitional net
(asset) obligation ..................... (117.8) 9.1 (71.1) (65.4)
Unrecognized net loss .................... 216.6 24.9 84.1 234.8
Unrecognized prior service cost .......... 92.2 19.2 34.4 76.7
-------- ------- ------ -------
Net pension (liability) asset ............ $ (7.4) $(119.2) $ 26.5 $(237.6)
======== ======= ====== =======
International plan assets at market value, included in the above table,
were $544.0 million in 1994, and $490.5 million in 1993. The accumulated benefit
obligation of international plans, included in this table, was $484.0 million in
1994, and $425.6 million in 1993.
The discount rate used in determining the projected benefit obligation and
costs was 8.5% at December 31, 1994, 7.5% at December 31, 1993 and 9% at
December 31, 1992. The rate of future compensation increases used in determining
the projected benefit obligation and costs was 5% at December 31, 1994 and 1993
and 6% at December 31, 1992. The expected long-term rate of return on plan
assets was 10% at December 31, 1994, 1993 and 1992.
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 $42.1
million in 1994, $79.9 million in 1993 and $90.4 million in 1992. The cost of
health-care and life insurance benefits for active employees was $130.4 million
in 1994, $122.5 million in 1993 and $116.3 million in 1992.
Net postretirement benefit cost includes the following components:
1994 1993 1992
---- ---- ----
Service cost--benefits
earned during the year .................... $ 31.7 $ 31.0 $ 31.2
Interest cost on accumulated
postretirement benefit obligation.......... 58.4 69.2 62.9
Net amortization and deferral ............... (52.4) 2.1 (1.9)
Actual return on assets ..................... 4.4 (22.4) (1.8)
------ ------ ------
Net postretirement benefit cost ............. $ 42.1 $ 79.9 $ 90.4
====== ====== ======
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 with restructuring efforts and the sale of the Calgon Water
Management business.
46
<PAGE>
The Company funds a retiree health-care qualified trust that will be used
to partially pre-fund health-care benefits for retirees. The plans' assets are
diversified in stocks, bonds and short-term and other investments.
The plans' funded status at December 31 was as follows:
1994 1993
---- ----
Plan assets at market value ................. $ 363.6 $ 310.2
------- -------
Accumulated postretirement benefit obligation
Retirees .................................. 363.3 466.7
Other fully eligible participants ......... 90.4 116.6
Other active participants ................. 295.0 396.3
------- -------
748.7 979.6
------- -------
Accumulated postretirement benefit obligation
in excess of plan assets .................. (385.1) (669.4)
Unrecognized net loss ....................... 41.9 101.6
Unrecognized plan changes ................... (163.0) (28.0)
------- -------
Net postretirement benefit liability ........ $(506.2) $(595.8)
======= =======
In 1994, the Company changed certain cost sharing provisions and its method
of providing certain benefits. As a result, the accumulated postretirement
benefit obligation was reduced by $158.6 million. The offsetting increase in
unrecognized plan changes is being amortized as a reduction in postretirement
benefit cost.
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.5% at December 31, 1994, 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 1994, 1993 and 1992. The health-care cost trend rate was 10.8% at
December 31, 1994. The rate will gradually decline to 5.4% over a 16-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, 1994 by $91.8 million and the total service
and interest cost components of the 1994 net postretirement benefit cost by
$13.3 million.
In the fourth quarter of 1992, the Company adopted the provisions of
Statement No. 112, Employers' Accounting for Postemployment Benefits, which
requires accrual of postemployment 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
1994 1993 1992
------- ------- -------
Interest income ................. $(153.9) $(138.9) $(138.3)
Interest expense ................ 124.4 84.7 72.7
Exchange losses ................. 26.2 68.2 46.2
Minority interests .............. 93.4 50.3 32.2
Amortization of goodwill
and other intangibles.......... 193.9 28.2 8.2
Other income, net ............... (107.8) (56.3) (93.1)
------- ------ ------
$ 176.2 $ 36.2 $(72.1)
======= ====== ======
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.
1994 amortization of goodwill and other intangibles reflects a full year's
impact of the Medco acquisition.
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,
also includes the Company's proportionate share of results from its joint
venture investments. To date, joint venture results have not been material.
Interest paid was $144.0 million in 1994, $89.1 million in 1993 and $60.8
million in 1992.
13. 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 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:
Tax Rate
1994 --------------------------
Amount 1994 1993 1992
------ ---- ---- ----
U.S. statutory rate applied
to pretax income .......... $1,545.3 35.0% 35.0% 34.0%
Differential arising from:
Tax exemption for Puerto Rico
operations ................ (167.7) (3.8) (5.1) (5.1)
Foreign operations .......... (52.4) (1.2) (1.5) .9
State taxes ................. 98.4 2.2 2.8 1.7
Other, including
minority interests ........ (5.4) (.1) (1.0) (.2)
-------- ---- ---- ----
$1,418.2 32.1% 30.2% 31.3%
======== ==== ==== ====
Domestic companies contributed approximately 73% in 1994, 78% in 1993 and
73% in 1992 to consolidated pretax income.
47
<PAGE>
Taxes on income consisted of:
1994 1993 1992
---- ---- ----
Current provision
Federal ........... $1,003.1 $ 668.2 $ 615.1
Foreign ........... 359.0 311.4 411.4
State ............. 152.6 123.9 107.1
-------- -------- --------
1,514.7 1,103.5 1,133.6
-------- -------- --------
Deferred provision
Federal ........... (166.6) (84.0) 15.3
Foreign ........... 72.2 (89.7) (17.3)
State ............. (2.1) 6.7 (14.6)
-------- -------- --------
(96.5) (167.0) (16.6)
-------- -------- --------
$1,418.2 $ 936.5 $1,117.0
======== ======== ========
Deferred income taxes at December 31 consisted of:
1994 1993
------------------- ---------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Other intangibles ........... $ -- $1,305.1 $ -- $596.4
Accelerated depreciation .... -- 480.5 -- 425.6
Inventory related ........... 337.7 176.4 305.2 115.3
Other postretirement benefits 199.5 -- 199.0 --
Provision for joint venture
obligation ................ 174.9 -- -- --
Equivalent Medco options
assumed ................... 139.5 -- 189.0 --
Restructuring charge ........ 123.9 -- 161.2 --
Environmental related ....... 85.7 -- 84.8 --
Equity investments .......... -- 82.4 -- 76.9
Pension benefits ............ 68.8 52.5 111.3 41.3
Compensation related ........ 59.1 -- 48.9 --
Leasing activity ............ -- 53.1 -- 65.9
Other ....................... 574.5 412.7 481.3 236.6
-------- -------- -------- --------
1,763.6 2,562.7 1,580.7 1,558.0
Valuation allowance ......... (3.8) -- (52.1) --
-------- -------- -------- --------
$1,759.8 $2,562.7 $1,528.6 $1,558.0
======== ======== ======== ========
At December 31, 1994 and 1993, current deferred tax assets of $481.1
million and $302.6 million, respectively, were included in Prepaid expenses and
taxes and current deferred tax liabilities of $74.6 million and $12.5 million,
respectively, were included in Income taxes payable. In addition, at December
31, 1994 and 1993, noncurrent deferred tax assets of $32.2 million and $43.3
million, respectively, were included in Other assets and noncurrent deferred tax
liabilities of $1,241.6 million and $362.8 million, respectively, were included
in Deferred income taxes and noncurrent liabilities. Income taxes paid in 1994,
1993 and 1992 were $857.8 million, $859.9 million and $934.4 million,
respectively.
At December 31, 1994, foreign earnings of $4.0 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,
tax-exempt through 1990 and taxed at 10% thereafter. 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.
14. Segment Reporting
A dominant portion of the Company's business is conducted through its Human and
Animal Health Products and Services segment, which accounts for more than 90% of
the Company's consolidated sales, operating profits and identifiable assets.
Geographic Segments(1)
1994 1993 1992
---- ---- ----
Customer Sales
North America ...................... $10,561.6 $ 6,431.8 $ 5,607.1
Europe ............................. 2,552.6 2,397.8 2,699.2
Asia Pacific ....................... 1,586.7 1,425.0 1,168.0
Other Foreign ...................... 268.9 243.5 188.2
Affiliate Sales
North America ...................... 1,390.2 1,224.9 1,170.7
Europe ............................. 611.3 573.8 420.7
Asia Pacific ....................... 44.8 37.2 33.9
Other Foreign ...................... .6 .8 .6
Eliminations ....................... (2,046.9) (1,836.6) (1,625.9)
--------- --------- ---------
$14,969.8 $10,498.2 $ 9,662.5
========= ========= =========
Income Before Taxes
and Cumulative Effect
of Accounting Changes(2)
North America ...................... $ 3,182.7 $ 2,488.7 $ 2,599.7
Europe ............................. 1,021.4 379.3 754.3
Asia Pacific ....................... 277.3 241.9 119.0
Other Foreign ...................... 1.9 (34.3) 15.5
Eliminations ....................... (102.7) (23.1) (47.0)
--------- --------- ---------
4,380.6 3,052.5 3,441.5
--------- --------- ---------
Nonoperating income,
primarily interest ............... 34.6 50.2 122.1
--------- --------- ---------
$ 4,415.2 $ 3,102.7 $ 3,563.6
========= ========= =========
Assets
North America ...................... $14,538.9 $13,185.5 $ 5,274.9
Europe ............................. 2,158.2 1,956.5 1,991.0
Asia Pacific ....................... 1,310.3 1,277.6 1,008.1
Other Foreign ...................... 151.6 112.2 131.4
Cash and Investments ............... 3,686.6 3,322.2 2,509.1
Other Corporate Assets ............. 1,147.9 1,016.2 942.7
Eliminations ....................... (1,136.9) (942.7) (771.2)
--------- --------- ---------
$21,856.6 $19,927.5 $11,086.0
========= ========= =========
(1) Geographic segments have been reclassified to reflect recent worldwide
economic changes and developing similarities in business environments.
(2) 1993 amounts include a restructuring charge of $538.6 million for North
America, $222.8 million for Europe, $1.7 million for Asia Pacific and $11.9
million for Other Foreign.
Sales to affiliates by North America include products manufactured in the
United States 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.
48
<PAGE>
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. Although their audits were
not designed for the purpose of forming an opinion on internal controls, the
Company's accounting systems, procedures and internal controls were subject to
testing and other auditing procedures sufficient to enable the independent
public accountants 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, 1994, the internal control
system was strong and accomplished the objectives discussed herein.
/s/ RAYMOND V. GILMARTIN /s/ JUDY C. LEWENT
-------------------- -------------------------
Raymond V. Gilmartin Judy C. Lewent
Chairman, President and Senior Vice President and
Chief Executive Officer Chief Financial Officer
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, 1994
and 1993, and the related consolidated statements of income, retained earnings
and cash flows for each of the three years in the period ended December 31,
1994. 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, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, 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 LLP
-------------------
New York, New York Arthur Andersen LLP
January 24, 1995
49
<PAGE>
AUDIT COMMITTEE'S REPORT
The Audit Committee of the Board of Directors is comprised of six 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.; Samuel O. Thier, M.D., and Dennis Weatherstone. The Committee held three
meetings during 1994.
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 and Benefits Committee is comprised of five outside directors.
The members of the Committee are: H. Brewster Atwater Jr., Chairman; Lawrence A.
Bossidy, Vice Chairman; William G. Bowen, Ph.D.; Johnnetta B. Cole, Ph.D., and
Lloyd C. Elam, M.D. The Committee held nine meetings during 1994.
The Compensation and 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
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA(1)
Merck & Co., Inc. and Subsidiaries
($ in millions except
per share amounts) 1994 1993(2) 1992(3) 1991 1990 1989 1988 1987 1986 1985 1984
---- ------- ------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Results for Year:
Sales ..................... $14,969.8 $10,498.2 $ 9,662.5 $8,602.7 $7,671.5 $6,550.5 $5,939.5 $5,061.3 $4,128.9 $3,547.5 $3,559.7
Materials and production
costs .................... 5,962.7 2,497.6 2,096.1 1,934.9 1,778.1 1,550.3 1,526.1 1,444.3 1,338.0 1,272.4 1,424.5
Marketing/administrative
expenses ................. 3,177.5 2,913.9 2,963.3 2,570.3 2,388.0 2,013.4 1,877.8 1,682.1 1,269.9 1,009.0 945.5
Research/development
expenses ................. 1,230.6 1,172.8 1,111.6 987.8 854.0 750.5 668.8 565.7 479.8 426.3 393.1
Gain on joint venture
formation ................ (492.0) -- -- -- -- -- -- -- -- -- --
Provision for joint
venture obligation . ..... 499.6 -- -- -- -- -- -- -- -- -- --
Restructuring charge ...... -- 775.0 -- -- -- -- -- -- -- -- --
Other (income) expense,
net ...................... 176.2 36.2 (72.1) (57.0) (47.4) (46.7) (4.2) (36.0) (32.1) (17.2) 9.8
Income before taxes ....... 4,415.2 3,102.7 3,563.6 3,166.7 2,698.8 2,283.0 1,871.0 1,405.2 1,073.3 857.0 786.8
Taxes on income ........... 1,418.2 936.5 1,117.0 1,045.0 917.6 787.6 664.2 498.8 397.6 317.1 293.8
Net income ................ 2,997.0 2,166.2 2,446.6 2,121.7 1,781.2 1,495.4 1,206.8 906.4 675.7 539.9 493.0
Per share of common stock $2.38 $1.87 $2.12 $1.83 $1.52 $1.26 $1.02 $.74 $.54 $.42 $.37
Dividends on common stock:
Declared ................. 1,463.1 1,239.0 1,106.9 920.3 788.1 681.5 546.3 365.2 278.5 235.1 224.0
Paid per share ........... $1.14 $1.03 $.92 $.77 $.64 $.55 $.43 $.27 $.21 $.18 $.17
Capital expenditures ...... 1,009.3 1,012.7 1,066.6 1,041.5 670.8 433.0 372.7 253.7 210.6 237.6 274.4
Depreciation .............. 475.6 348.4 290.3 242.7 231.4 206.4 189.0 188.5 167.2 163.6 151.6
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Year-End Position:
Working capital ........... $ 1,473.1 $ (161.1) $ 782.4 $1,496.5 $ 939.2 $1,502.5 $1,480.3 $798.3 $1,094.3 $1,106.6 $1,076.5
Property, plant and
equipment (net) .......... 5,296.3 4,894.6 4,271.1 3,504.5 2,721.7 2,292.5 2,070.7 1,948.0 1,906.2 1,882.8 1,912.8
Total assets .............. 21,856.6 19,927.5 11,086.0 9,498.5 8,029.8 6,756.7 6,127.5 5,680.0 5,105.2 4,902.2 4,590.6
Long-term debt ............ 1,145.9 1,120.8 495.7 493.7 124.1 117.8 142.8 167.4 167.5 170.8 179.1
Stockholders' equity ...... 11,139.0 10,021.7 5,002.9 4,916.2 3,834.4 3,520.6 2,855.8 2,116.7 2,541.2 2,607.7 2,518.6
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Financial Ratios:
Net income as a % of:
Sales ................... 20.0% 20.6% 25.3% 24.7% 23.2% 22.8% 20.3% 17.9% 16.4% 15.2% 13.8%
Average total assets .... 14.3% 14.0% 24.1% 24.2% 24.1% 23.2% 20.4% 16.8% 13.5% 11.4% 11.2%
-------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Year-End Statistics:
Average number of shares
of common stock
outstanding (in millions) 1,257.2 1,156.5 1,153.5 1,159.9 1,172.1 1,188.3 1,186.9 1,221.2 1,253.9 1,282.7 1,322.0
Number of stockholders .... 244,700 231,300 161,200 91,100 82,300 75,600 68,500 56,900 48,300 47,000 50,200
Number of employees ....... 47,500 47,100(4) 38,400 37,700 36,900 34,400 32,000 31,100 30,700 30,900 34,800
======== ======== ======= ======= ======= ======= ======== ======= ======= ======= =======
<FN>
- -----------
(1) Amounts after 1992 include the impact of Medco from the date of
acquisition on November 18, 1993.
(2) 1993 amounts include a restructuring charge of $.45 per share.
(3) 1992 results of operations exclude the cumulative effect of the accounting
changes described on pages 46 and 47.
(4) 1993 increase is due to the inclusion of 10,300 Medco employees.
</FN>
</TABLE>
EXHIBIT 21
MERCK & CO., INC. SUBSIDIARIES
AS OF DECEMBER 31, 1994
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, 1994.
<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 Insurance Company of New York New York
Medco Containment Life Insurance Company Iowa
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
AGCA, Inc. 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
AGCA/Chubb Health, Inc. New York
AGCA/Better Health Plan, Inc. New York
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Quality Health Care Solutions, Inc. Pennsylvania
AGCA Acquisition Corporation - New York Delaware
Arizona Biodyne, Inc. Arizona
California Biodyne Health Services, Inc. California
Colorado Biodyne, Inc. Colorado
Florida Biodyne, Inc. Florida
Hawaii Biodyne, Inc. Hawaii
Indiana Biodyne, Inc. Indiana
Louisiana Biodyne, Inc. Louisiana
Maine Biodyne, Inc. Maine
Massachusetts Biodyne, Inc. Massachusetts
MBC Military Programs, Inc. Delaware
MBC Washington Systems, Inc. Washington
MBC of Iowa, Inc. Iowa
Medco Behavioral Care of Georgia, Inc. Georgia
Medco Behavioral Care of Illinois Illinois
Michigan Biodyne, Inc. Michigan
Nevada Biodyne, Inc. Nevada
New Mexico Biodyne, Inc. New Mexico
Ohio Biodyne, Inc. Ohio
Pennsylvania Biodyne, Inc. Pennsylvania
Tennessee Biodyne, Inc. Tennessee
Texas Biodyne, Inc. Texas
Vermont Biodyne, Inc. Vermont
Choate Integrated Behavioral Healthcare Corporation Massachusetts
Continuum Behavioral Healthcare Corporation Delaware
Group Plan Clinic, Inc. Texas
Benesys, Inc. Delaware
MBC of America, Inc. Delaware
MBC of Nebraska, L.L.C. Nebraska
MBC of Tennessee, Inc. Tennessee
Medco Behavioral Care Systems Corporation Ohio
MBCS of North Carolina, Inc. N. Carolina
Medco Insurance Company Illinois
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. Delaware
KSF Medical Publishing Company, Inc. New York
Medical Marketing, Inc. Delaware
MMGI Corp. New Jersey
Medco MM Corp. New Jersey
NRx Services, Inc. New York
</TABLE>
- 2 -
<PAGE>
<TABLE>
<S> <C>
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
New York Paid Independent Practice Association No. 1, Inc. New York
New York Paid Independent Practice Association No. 2, Inc. New York
New York Paid Independent Practice Association No. 3, Inc. New York
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
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(1) Japan
Banyu A.S.C. Co., Ltd.(1) Japan
Nippon Merck-Banyu Co., Limited(1) 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
<FN>
- -----------
(1) 49.13% publicly held
</FN>
</TABLE>
- 3 -
<PAGE>
<TABLE>
<S> <C>
Kelco Company Delaware
Monterey Kelp Corporation California
Kelco International Limited Great Britain
Alginate Industries (Ireland) Limited Ireland
Alginate Industries Limited Great Britain
Alginate Industries (Scotland) Limited Great Britain
Kelco Biospecialties Limited Great Britain
Kelco International GmbH Germany
Kelco International Pension Fund Trust Limited Great Britain
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
MSD Korea, Ltd. Korea
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 International Services, B.V. Holland
Merck Sharp & Dohme - Lebanon S.A.L. Lebanon
Merck Sharp & Dohme (Middle East) Limited Cyprus
Merck Sharp & Dohme Overseas Finance Luxembourg
Merck Frosst Canada, Inc. Canada
General Trade Co., S.A. Peru
Merck Sharp & Dohme (Australia) Pty. Limited Australia
Merck Sharp & Dohme B.V. Netherlands
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
</TABLE>
- 4 -
<PAGE>
<TABLE>
<S> <C>
MSD Chibropharm GmbH Germany
MSD Unterstutzungskasse GmbH Germany
Variopharm Arzneimittel 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
Merck Sharp & Dohme Finance Europe Great Britain
Merck Sharp & Dohme Limited Great Britain
699th Shelf Trading Company Great Britain
Thomas Morson & Son Limited Great Britain
Merck Sharp & Dohme Idea, Inc. Switzerland
Merck Sharp & Dohme Trading & Service Hungary
Limited Liability Company
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 Belgium S.A. Belgium
Merck Sharp & Dohme (Europe) Inc. Delaware
Merck Sharp & Dohme Industria Quimica e Veterinaria Limitada Brazil
</TABLE>
- 5 -
<PAGE>
<TABLE>
<S> <C>
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 Peru S.C. Peru
Merck Sharp & Dohme (Philippines) Inc. Philippines
Merck Sharp & Dohme Scientific and Management Corp., Inc. Delaware
MSD (Japan) Co., Limited Japan
- 6 -
</TABLE>
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, l994 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 28th
day of February, l995.
MERCK & CO., Inc.
By RAYMOND V. GILMARTIN
---------------------------------
Raymond V. Gilmartin
(Chairman of the Board, President
and Chief Executive Officer)
RAYMOND V. GILMARTIN Chairman of the Board, President
------------------------- and Chief Executive Officer
Raymond V. Gilmartin (Principal Executive Officer; Director)
JUDY C. LEWENT Senior Vice President and Chief Financial Officer
------------------------- (Principal Financial Officer)
Judy C. Lewent
PETER E. NUGENT Vice President, Controller
------------------------- (Principal Accounting Officer)
Peter E. Nugent
DIRECTORS
H. BREWSTER ATWATER, JR. CAROLYNE K. DAVIS
- --------------------------- ------------------------
H. Brewster Atwater, Jr. Carolyne K. Davis
DEREK BIRKIN LLOYD C. ELAM
--------------------------- ------------------------
Derek Birkin Lloyd C. Elam
LAWRENCE A. BOSSIDY CHARLES E. EXLEY, JR.
- --------------------------- ------------------------
Lawrence A. Bossidy Charles E. Exley, Jr.
WILLIAM G. BOWEN WILLIAM N. KELLEY
- --------------------------- ------------------------
William G. Bowen William N. Kelley
JOHNNETTA B. COLE DENNIS WEATHERSTONE
- --------------------------- ------------------------
Johnnetta B. Cole Dennis Weatherstone
<PAGE>
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 28, l995, 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. 3 - 1995
RESOLVED, that the proposed form of Form l0-K Annual Report of the
Company for the fiscal year ended December 3l, l994 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 21st day of March, l995.
[Corporate Seal] NANCY V. VAN ALLEN
-----------------------
Assistant Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,604
<SECURITIES> 666
<RECEIVABLES> 2,351
<ALLOWANCES> 0<F1>
<INVENTORY> 1,661
<CURRENT-ASSETS> 6,922
<PP&E> 7,673
<DEPRECIATION> (2,377)
<TOTAL-ASSETS> 21,857
<CURRENT-LIABILITIES> 5,449
<BONDS> 1,146
<COMMON> 4,668
0
0
<OTHER-SE> 6,471
<TOTAL-LIABILITY-AND-EQUITY> 21,857
<SALES> 14,970
<TOTAL-REVENUES> 14,970
<CGS> 5,963
<TOTAL-COSTS> 5,963
<OTHER-EXPENSES> 1,231
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 4,415
<INCOME-TAX> 1,418
<INCOME-CONTINUING> 2,997
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,997
<EPS-PRIMARY> $2.38
<EPS-DILUTED> $2.35
<FN>
<F1> Not material to the consolidated financial statements
</FN>
</TABLE>
