<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File No. 1-3305
MERCK & CO., INC.
P. O. Box 100
One Merck Drive
Whitehouse Station, N.J. 08889-0100
(908) 423-1000
Incorporated in New Jersey I.R.S. Employer Identification
No. 22-1109110
The number of shares of common stock outstanding as of the close of business on
October 31, 1996.
Class Number of Shares Outstanding
Common Stock 1,205,439,615
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 2
Part I - Financial Information
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
--------------------------- ----------------------------
1996 1995 1996 1995
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 4,983.4 $ 4,171.1 $ 14,422.6 $ 12,124.1
----------- ------------ ------------ ------------
Costs, Expenses and Other
Materials and production 2,328.4 1,858.2 6,845.3 5,330.4
Marketing and administrative 941.8 767.2 2,702.3 2,386.8
Research and development 366.8 332.5 1,064.0 950.4
Gains on sales of specialty chemical businesses -- -- -- (682.9)
Restructuring charge -- -- -- 175.0
Other (income) expense, net (91.0) (33.8) (259.8) 380.1
----------- ------------ ------------ ------------
3,546.0 2,924.1 10,351.8 8,539.8
----------- ------------ ------------ ------------
Income Before Taxes 1,437.4 1,247.0 4,070.8 3,584.3
Taxes on Income 435.5 385.1 1,233.0 1,106.9
----------- ------------ ------------ ------------
Net Income $ 1,001.9 $ 861.9 $ 2,837.8 $ 2,477.4
=========== ============ ============ ============
Per Share of Common Stock:
Net Income $ .83 $ .70 $ 2.33 $ 2.00
Dividends Declared $ .40 $ .34 $ 1.08 $ .94
Average Number of Common
Shares Outstanding (millions) 1,205.6 1,234.2 1,215.8 1,238.0
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 1 -
<PAGE> 3
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
($ in millions)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,344.2 $ 1,847.4
Short-term investments 1,007.5 1,502.4
Accounts receivable 2,723.3 2,495.7
Inventories 1,921.1 1,872.5
Prepaid expenses and taxes 784.4 899.5
----------- -----------
Total current assets 7,780.5 8,617.5
----------- -----------
Investments 2,534.0 1,969.6
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$2,747.1 in 1996 and $2,439.9 in 1995 5,666.7 5,269.1
Goodwill and Other Intangibles,
net of accumulated amortization of
$554.5 in 1996 and $411.5 in 1995 6,792.7 6,826.3
Other Assets 1,207.6 1,149.3
----------- -----------
$ 23,981.5 $ 23,831.8
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 2,831.2 $ 3,105.2
Loans payable and current portion of long-term debt 851.5 423.1
Income taxes payable 839.8 800.8
Dividends payable 481.7 418.2
----------- -----------
Total current liabilities 5,004.2 4,747.3
----------- -----------
Long-Term Debt 1,328.0 1,372.8
----------- -----------
Deferred Income Taxes and Noncurrent Liabilities 3,933.4 3,689.7
----------- -----------
Minority Interests 2,319.4 2,286.3
----------- -----------
Stockholders' Equity
Common stock
Authorized - 2,700,000,000 shares
Issued - 1,483,619,311 shares - 1996
- 1,483,463,327 shares - 1995 4,844.1 4,742.5
Retained earnings 14,262.1 12,740.6
----------- -----------
19,106.2 17,483.1
Less treasury stock, at cost
279,257,530 shares - 1996
254,614,794 shares - 1995 7,709.7 5,747.4
----------- -----------
Total stockholders' equity 11,396.5 11,735.7
----------- -----------
$ 23,981.5 $ 23,831.8
=========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 2 -
<PAGE> 4
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
($ in millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 4,070.8 $ 3,584.3
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Gains on sales of specialty chemical businesses -- (682.9)
Restructuring charge -- 175.0
Other 371.0 761.1
Net changes in assets and liabilities (136.4) (370.6)
----------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 4,305.4 3,466.9
INCOME TAXES PAID (772.9) (1,675.0)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,532.5 1,791.9
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (839.5) (664.4)
Purchase of securities, subsidiaries and other investments (10,355.7) (8,503.7)
Proceeds from sale of securities, subsidiaries and other investments 10,112.4 8,120.4
Proceeds from sales of specialty chemical businesses, net of cash transferred -- 1,321.1
Other (56.0) (105.5)
----------- ----------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (1,138.8) 167.9
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 402.2 (43.1)
Proceeds from issuance of debt 320.2 512.2
Payments on debt (336.5) (50.8)
Purchase of treasury stock (2,228.8) (1,205.9)
Dividends paid to stockholders (1,247.3) (1,120.4)
Other 247.7 217.0
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES (2,842.5) (1,691.0)
----------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (54.4) 33.3
----------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (503.2) 302.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,847.4 1,604.0
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,344.2 $ 1,906.1
=========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Notes to Financial Statements
1. The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and notes required by generally
accepted accounting principles for complete financial statements are not
included herein. The interim statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year 1996;
in the Company's opinion, all adjustments necessary for a fair
presentation of these interim statements have been included and are of a
normal and recurring nature.
Certain reclassifications have been made to prior year amounts to
conform with current year presentation.
- 3 -
<PAGE> 5
Notes to Financial Statements (continued)
2. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------
September 30 December 31
1996 1995
------------ -----------
<S> <C> <C>
Finished goods $1,067.9 $1,078.3
Raw materials and work in process 776.8 716.2
Supplies 76.7 78.0
-------- --------
Total (approximates current cost) 1,921.4 1,872.5
Reduction to LIFO cost .3 -
-------- --------
$1,921.1 $1,872.5
======== ========
</TABLE>
3. In January 1996, the Company issued $250.0 million of 30-year debentures,
under its existing $1.0 billion shelf registration, bearing a coupon of
6.3% payable semi-annually. Loans payable at September 30, 1996 included
$388.0 million of commercial paper borrowings with average maturities of
one month and interest rates ranging from 5.3% to 5.9%.
4. The Company, along with numerous other defendants is a party in several
antitrust actions brought by retail pharmacies and consumers, alleging
conspiracies in restraint of trade and challenging pricing and/or
purchasing practices, one of which has been certified as a Federal class
action and three of which have been certified as state class actions. In
January 1996, the Company and several other defendants entered into an
agreement, subject to court approval, to settle the Federal class action
alleging conspiracy, which represents the single largest group of retail
pharmacy claims, pursuant to which the Company would pay $51.8 million,
payable in four equal annual installments. In April 1996, the Court
declined to approve the settlement. Subsequently, the Company and several
other defendants entered into an amended settlement agreement, which
provides for the same monetary payment and addresses the Court's concerns
as expressed in its April 1996 opinion. In June 1996, the Court granted
approval of the amended settlement agreement, to which objecting retail
class members filed appeals in July 1996. The Company has not engaged in
any conspiracy and no admission of wrongdoing has been made or is included
in the amended agreement, which was entered into in order to avoid the cost
of litigation and the risk of an inaccurate adverse verdict by a jury
presented by a case of this size and complexity. While it is not feasible
to predict or determine the final outcome of these proceedings, management
does not believe that they should result in a material adverse effect on
the Company's financial position, results of operations or liquidity.
5. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
---------------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
---------------------- ------------------------
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Cardiovasculars $1,868.5 $1,512.0 $ 5,444.6 $ 4,464.6
Anti-ulcerants 293.7 273.5 829.5 748.7
Antibiotics 199.0 210.6 612.3 643.4
Ophthalmologicals 176.5 148.9 498.0 399.9
Vaccines/biologicals 188.3 162.0 438.0 405.4
Benign prostate hypertrophy 109.1 101.3 339.3 299.0
Other Merck human health 116.0 62.5 254.8 211.5
Other human health 1,742.3 1,421.0 5,243.5 4,147.8
Animal health/crop protection 290.0 279.3 762.6 764.6
Specialty chemical - - - 39.2
-------- -------- --------- ---------
$4,983.4 $4,171.1 $14,422.6 $12,124.1
======== ======== ========= =========
</TABLE>
Sales by therapeutic class include Medco sales of Merck products. Other
human health primarily includes Medco sales of non-Merck products and
Medco human health services, principally managed prescription drug
programs.
- 4 -
<PAGE> 6
Notes to Financial Statements (continued)
6. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
--------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income $ (47.5) $ (44.4) $(156.9) $ (141.0)
Interest expense 36.2 22.8 103.5 67.9
Exchange gains (7.1) (2.0) (20.2) (4.0)
Minority interests 35.0 25.7 106.9 78.6
Equity income from affiliates (146.2) (75.3) (440.0) (238.8)
Amortization of goodwill and other
intangibles 50.0 47.6 144.2 142.9
Other, net (11.4) (8.2) 2.7 474.5
------- ------- ------- -------
$ (91.0) $ (33.8) $(259.8) $ 380.1
======= ======= ======= =======
</TABLE>
Minority interests include third parties' share of exchange gains and
losses arising from translation of the financial statements into U.S.
dollars.
Interest paid for the nine-month periods ended September 30, 1996 and 1995
was $98.6 million and $51.6 million, respectively.
7. Income taxes paid for the nine-month periods ended September 30, 1996 and
1995 were $772.9 million and $1.675 billion, respectively. The decrease in
1996 primarily reflects increased taxes paid in 1995 on the 1994 gain
resulting from the sale to Astra AB of an interest in a joint venture, the
1995 gains on sales of subsidiaries and a change in law affecting the
calculation of Federal estimated payments.
8. Legal proceedings to which the Company is a party are discussed in Part I
Item 3, Legal Proceedings, in the Annual Report on Form 10-K. Current
developments are discussed in Part II of this filing.
- 5 -
<PAGE> 7
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the third quarter of 1996 were $0.83, an increase of 19%
over the third quarter of 1995. Third quarter net income increased 16% to
$1,001.9 million. Sales for the quarter were $5.0 billion, up 19% from the same
period last year.
For the first nine months, earnings per share were $2.33, an increase of 17%
from the first nine months of 1995. Net income was $2,837.8 million for the
first nine months of 1996, an increase of 15% from the first nine months of
1995. Sales rose 19% to $14.4 billion.
Sales growth for the quarter and first nine months was affected by the
divestiture of Medco Behavioral Care Corp. in the fourth quarter of 1995. Sales
growth for the first nine months was also affected by the divestiture of Kelco
in the first quarter of 1995. Adjusting for these effects, sales for the third
quarter and first nine months increased 22%.
Sales growth for the quarter and the first nine months of 1996 was led by
established major products, 1995 and 1996 product introductions and growth from
the Merck-Medco Managed Care business. Both domestic and international
operations reported strong unit volume gains.
Foreign exchange reduced the third quarter sales growth by two percentage
points, the same effect as reported in the second quarter. Excluding exchange,
sales of Merck human and animal health products increased 20% and 17% for the
third quarter and nine months, respectively. Sales outside the United States
accounted for 30% of the first nine months of 1996 sales, compared with 33% for
the same period last year.
Income growth for the first nine months was driven by strong unit volume gains.
The unfavorable effects of inflation, net of price, and exchange, were partially
offset by cost controls and productivity improvements in manufacturing and
selling, general and administrative expenses.
The growth in pretax income for the third quarter and first nine months was
reduced by the Company's share of the increase in taxes related to the Astra
Merck joint venture and the European vaccine joint venture with Pasteur Merieux
Serums et Vaccins. The reduction in pretax income growth, however, was offset by
a corresponding reduction in the Company's tax rate in 1996, resulting in no
effect on net income growth.
Results for the first nine months were paced by sales gains for 'Zocor',
'Mevacor', 'Vasotec', 'Vaseretic', 'Prinivil', 'Proscar' and 'Pepcid'. Also
contributing to the first nine months sales gains were the 1995 introductions of
'Cozaar'*, 'Hyzaar'*, 'Fosamax' and 'Trusopt' in the U.S. and many major
European markets, the 1995 launch of 'Varivax' in the U.S. and the 1996
introductions of 'Crixivan' and 'Vaqta'. Significant prescription volume growth
in the Merck-Medco Managed Care business also contributed to the sales increase
for the first nine months.
Together, Merck's cholesterol-lowering agents, 'Zocor' and 'Mevacor', hold about
40% of the worldwide cholesterol-lowering market, and combined sales showed
significant growth in the first nine months of this year.
Results from the landmark Scandinavian Simvastatin Survival Study (4S) continue
to drive the growth in sales of 'Zocor' because of its ability to save lives and
prevent heart attacks in people with heart disease and high cholesterol. There
is strong potential for the continued growth of 'Zocor' because fewer than
one-third of patients who have coronary disease are currently receiving
cholesterol-lowering therapy.
'Mevacor' is the first cholesterol-lowering drug demonstrated in a study to
regress atherosclerotic plaques in the carotid arteries of patients without
coronary artery disease. The Asymptomatic Carotid Artery Progression Study
(ACAPS) demonstrated that patients taking 'Mevacor' experienced significantly
fewer major cardiac events than patients treated with a placebo. Those results
have been added to the clinical labeling for 'Mevacor' in the United States and
Canada.
'Vasotec', Merck's angiotensin converting enzyme (ACE) inhibitor for reducing
high blood pressure and treating heart failure, continued to grow. It is the
leading branded ACE inhibitor product in the worldwide cardiovascular market.
*'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and
Company, Wilmington, DE, USA.
- 6 -
<PAGE> 8
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
The strong volume growth of 'Proscar' is attributable to increasing acceptance
by urologists and the results of key studies -- including the Scandinavian
Reduction of the Prostate Study (SCARP) and the 'Proscar' Safety Plus Efficacy
Canadian Two-Year Study (PROSPECT) -- that show treatment with 'Proscar' not
only provides symptomatic relief, but can also halt and even reverse the
progression of benign prostate enlargement. All these studies continue to
support the long-term safety and effectiveness of the medicine in improving
urinary symptoms, urinary flow and quality of life in patients taking 'Proscar'.
Prescription sales remain strong for 'Pepcid', an H(2)-receptor antagonist for
the treatment of duodenal ulcers and the short-term treatment of gastric ulcers
and gastroesophageal reflux disease (GERD). It continues to perform well despite
competition from generic cimetidine, newer antisecretory agents and the
introduction of over-the-counter (OTC) H(2) antagonists.
In the U.S. OTC market, Pepcid AC Acid Controller(TM), sold by Johnson & Johnson
- - Merck Consumer Pharmaceuticals Co., leads the high-growth acid indigestion
remedy market, even in the face of expanded competition.
Since 'Cozaar' was first launched two years ago, it has sustained strong growth.
It has been approved in 61 countries, including the United States. 'Cozaar' and
'Hyzaar' (a combination of 'Cozaar' and the diuretic hydrochlorothiazide), the
first in a new class of antihypertensive drugs called angiotensin-II (A-II)
receptor antagonists, demonstrate exceptional tolerability. More than one
million patients worldwide are now taking 'Cozaar'. 'Cozaar' and 'Hyzaar' were
developed in collaboration with the DuPont Merck Pharmaceutical Company.
Sales of 'Trusopt', the first carbonic anhydrase inhibitor made in a topical
(eyedrop) formulation, have proceeded at a strong pace since it was first
introduced in the United States in May 1995. 'Trusopt' is now the most widely
prescribed anti-glaucoma medicine in the United States. It also has been
introduced in several other countries, including key markets in Europe. The
product is indicated for the treatment of elevated intraocular pressure in
patients with ocular hypertension or open-angle glaucoma.
'Fosamax', Merck's breakthrough nonhormonal medicine for the treatment of
osteoporosis in postmenopausal women, has been introduced in 47 countries,
including the United States. More than one million patients worldwide are now
taking 'Fosamax' and prescription trends remain strong. Merck continues to
educate women about osteoporosis and the benefits of treatment with 'Fosamax'
through major consumer campaigns.
Major studies presented this year demonstrated the power of 'Fosamax' to prevent
osteoporotic fractures and prevent the bone loss that increases the risk of
fractures. Recent research showed that 'Fosamax' reduced by about one-half the
risk of hip and vertebral fractures in postmenopausal women with osteoporosis
who had a previous vertebral fracture. New data presented in September confirmed
that 'Fosamax' prevents bone loss and restores bone mass in postmenopausal women
- -- with a tolerability profile similar to that of placebo -- which shows that
'Fosamax' is a promising alternative to hormone replacement therapy for
preventing osteoporosis. In April, Merck filed a supplement with the U.S. FDA
for a new indication for 'Fosamax' for the prevention of osteoporosis in
postmenopausal women.
After unusually fast regulatory reviews, 'Crixivan', Merck's new protease
inhibitor for the treatment of HIV-1 infection in adults, was cleared for
marketing by the U.S. FDA in March, by the Canadian authorities in September and
by the European Commission for all 15 countries in the European Union in
October. In addition, 'Crixivan' is available in more than 20 other countries.
Studies showed that 'Crixivan' decreased HIV in the bloodstream to undetectable
levels in almost 90 percent of patients on triple combination therapy
('Crixivan', AZT and 3TC) for as long as 48 weeks, the duration of the studies.
Overall, clinical trials for 24 weeks and longer have shown that about 40
percent of patients taking 'Crixivan' alone had virus levels below the limit of
detection.
'Varivax', the first and only chickenpox vaccine in the United States,
contributed to the strong volume growth for the first nine months of 1996. In
June, Merck began to supply 'Varivax' for use in children served by the
federally-funded Vaccines for Children program through an agreement with the
U.S. Centers for Disease Control and Prevention (CDC).
- 7 -
<PAGE> 9
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
Merck has now launched 'Vaqta', a vaccine to prevent hepatitis A, in the United
States and Germany. The CDC recommends vaccination of high-risk individuals
because there is no treatment for hepatitis A, the medical and economic
consequences of which can be substantial.
The U.S. FDA licensed Merck's pediatric combination vaccine 'Comvax' in early
October. It is the first combination product indicated for vaccination of
infants beginning at two months of age against both invasive Haemophilus
influenzae type b diseases (Hib) and hepatitis B virus. It will be available in
January 1997.
In September, the Company joined with Chugai Pharmaceutical Co., Ltd., to form a
joint venture to develop and market OTC pharmaceutical medicines in Japan. The
initiative now gives Merck representation in all the world's largest OTC
markets.
Merck-Medco Managed Care, Inc. continues to expand its business. The volume of
prescriptions managed by Merck-Medco increased by 30 percent to 55 million
compared to the third quarter of last year.
In March 1996, the Company received a notice from the Federal Trade Commission
(FTC) that it intended to institute an investigation into whether pharmaceutical
companies may have violated Federal antitrust laws in connection with pricing.
The Company has cooperated fully with the FTC in this investigation and believes
that it is currently operating in all material respects in accordance with
applicable standards. While it is not feasible to predict or determine the
outcome of this investigation, management does not believe that it should result
in a materially adverse effect on the Company's financial position, results of
operations or liquidity.
On July 23, 1996, the Board of Directors declared a quarterly dividend of 40
cents a share on the Company's common stock for the fourth quarter of 1996
versus the 34 cents a share dividend paid in the third quarter of 1996. The 40
cent dividend was paid October 1, 1996 to stockholders of record at the close of
business on September 6, 1996. The Company's total dividend paid during 1996 is
$1.42 per share, a 15 percent increase over the amount in 1995.
- 8 -
<PAGE> 10
Part II - Other Information
Item 1. Legal Proceedings
The Company, including Medco, is party to a number of antitrust suits, four of
which have been certified as class actions (one at the Federal level and three
at the state level), instituted by most of the nation's retail pharmacies and
consumers in several states, alleging conspiracies in restraint of trade and
challenging the pricing and/or purchasing practices of the Company and Medco,
respectively. A significant number of other pharmaceutical companies and
wholesalers have also been sued in the same or similar litigation. These
actions, except for several actions pending in state courts, have been
consolidated for pre-trial purposes in the United States District Court for the
Northern District of Illinois. Effective January 31, 1996, the Company and
several other defendants entered into an agreement, subject to Court approval,
to settle the Federal class action alleging conspiracy, which represents the
single largest group of retail pharmacy claims, pursuant to which the Company
would pay $51.8 million, payable in four equal annual installments. On April 4,
1996, the Court declined to approve the settlement. Subsequently, the Company
and several other defendants entered into an amended settlement agreement, which
provides for the same monetary payment (the first annual installment of which
has already been paid into escrow) and addresses the Court's concerns as
expressed in its April 4, 1996 opinion. On June 21, 1996, the Court granted
approval of the amended settlement agreement. Objecting retail class members
filed appeals of the Court's approval of the amended settlement on July 23, July
30 and July 31, 1996. The Company has not engaged in any conspiracy and no
admission of wrongdoing has been made or is included in the amended agreement,
which was entered into in order to avoid the cost of litigation and the risk of
an inaccurate adverse verdict by a jury presented by a case of this size and
complexity. While it is not feasible to predict the final outcome of these
proceedings, in the opinion of management, such proceedings should not
ultimately result in any liability which would have a material adverse effect on
the financial position, results of operations or liquidity of the Company.
In May 1994, Kelco received a Notice of Violation from the Environmental
Protection Agency ("EPA") 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. A consent decree was
recently entered by the United States District Court for the Southern District
of California settling this matter. The settlement includes (i) a $1.85 million
civil penalty and (ii) capital improvements to be made at the facility in the
amount of approximately $5 million to establish satisfactory environmental
controls. Under the terms of the Kelco Sale Agreement by which the Kelco
division was sold, the Company retained responsibility for the cost of the
settlement.
Reference may be made to Part II, Item 1 ("Legal Proceedings") of the Company's
previously filed Form 10-Qs for the quarterly periods ended March 31, 1996 and
June 30, 1996.
- 9 -
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- -----------------
<S> <C> <C>
3(a) Restated Certificate of Incorporation of Incorporated by reference to Form
Merck & Co., Inc. (May 6, 1992) 10-K Annual Report for the fiscal
year ended December 31, 1992
3(b) By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form
effective June 9, 1994) 10-K Annual Report for the fiscal
year ended December 31, 1994
11 Computation of Earnings Per Common Share Filed with this document
12 Computation of Ratios of Earnings to Filed with this document
Fixed Charges
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
During the three-month period ending September 30, 1996, no current
reports on Form 8-K were filed.
- 10 -
<PAGE> 12
Signatures
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCK & CO., INC.
/s/ Mary M. McDonald
Date: November 11, 1996 -----------------------------------------
MARY M. MCDONALD
Senior Vice President and General Counsel
/s/ Peter E. Nugent
Date: November 11, 1996 -----------------------------------------
PETER E. NUGENT
Vice President, Controller
- 11 -
<PAGE> 13
EXHIBIT INDEX
Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) Restated Certificate of Incorporation of Merck & Co., Inc. (May 6, 1992)
- Incorporated by reference to Form 10-K Annual Report for the fiscal year ended
December 31, 1992
3(b) By-Laws of Merck & Co., Inc. (as amended effective June 9, 1994)
- Incorporated by reference to Form 10-K Annual Report for the fiscal year ended
December 31, 1994
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 11
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
(In millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income and Adjusted Earnings:
Net Income .............................................. $ 1,001.9 $ 861.9 $ 2,837.8 $ 2,477.4
Effect on Earnings of Compensation Expense Relating to
Stock Option and Incentive Plans ...................... 5.4 3.7 9.6 10.8
--------- --------- --------- ---------
Adjusted Earnings for Fully Diluted Earnings Per Share $ 1,007.3 $ 865.6 $ 2,847.4 $ 2,488.2
========= ========= ========= =========
Weighted Average Shares and Share Equivalents Outstanding:
Weighted Average Shares Outstanding (As Reported) ....... 1,205.6 1,234.2 1,215.8 1,238.0
Common Share Equivalents Issuable Under Stock Option and
Incentive Plans ....................................... 29.7 28.0 29.7 28.0
Common Share Equivalents Issuable on Assumed Conversion of
Debentures ............................................ .3 .4 .3 .4
--------- --------- --------- ---------
Weighted Average Shares and Share Equivalents Outstanding .. 1,235.6 1,262.6 1,245.8 1,266.4
========= ========= ========= =========
Earnings Per Share (As Reported) ........................... $ .83 $ .70 $ 2.33 $ 2.00
========= ========= ========= =========
Fully Diluted Earnings Per Share (a) ....................... $ .82 $ .69 $ 2.29 $ 1.96
========= ========= ========= =========
</TABLE>
(a) This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion No.
15 because it results in dilution of less than 3%.
<PAGE> 1
Exhibit 12
MERCK & CO., INC. AND SUBSIDIARIES
Computation of Ratios of Earnings to Fixed Charges
(In millions except ratio data)
<TABLE>
<CAPTION>
Nine Months
Ended
September 30 Years Ended December 31
--------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes
and Cumulative Effect
of Accounting Changes $4,070.8 $4,797.2 $4,415.2 $3,102.7 $3,563.6 $3,166.7
Add:
One-third of rents 22.2 28.1 36.0 35.0 34.0 31.1
Interest expense, net 78.6 60.3 96.0 48.0 23.6 26.0
Preferred stock dividends 52.4 2.1 -- -- -- --
-------- -------- -------- -------- -------- --------
Earnings $4,224.0 $4,887.7 $4,547.2 $3,185.7 $3,621.2 $3,223.8
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of rents $ 22.2 $ 28.1 $ 36.0 $ 35.0 $ 34.0 $ 31.1
Interest expense 103.5 98.7 124.4 84.7 72.7 68.7
Preferred stock dividends 52.4 2.1 -- -- -- --
-------- -------- -------- -------- -------- --------
Fixed Charges $ 178.1 $ 128.9 $ 160.4 $ 119.7 $ 106.7 $ 99.8
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges 24 38 28 27 34 32
======== ======== ======== ======== ======== ========
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
taxes, cumulative effect of accounting changes, one-third of rents (deemed by
the Company to be representative of the interest factor inherent in rent),
interest expense, net of amounts capitalized, and dividends on preferred stock
of subsidiary companies. "Fixed charges" consist of one-third of rents, interest
expense as reported in the Company's consolidated financial statements and
dividends on preferred stock of subsidiary companies.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,344
<SECURITIES> 1,008
<RECEIVABLES> 2,723
<ALLOWANCES> 0<F1>
<INVENTORY> 1,921
<CURRENT-ASSETS> 7,781
<PP&E> 8,414
<DEPRECIATION> (2,747)
<TOTAL-ASSETS> 23,982
<CURRENT-LIABILITIES> 5,004
<BONDS> 1,328
0
0
<COMMON> 4,844
<OTHER-SE> 6,552
<TOTAL-LIABILITY-AND-EQUITY> 23,982
<SALES> 14,423
<TOTAL-REVENUES> 14,423
<CGS> 6,845
<TOTAL-COSTS> 6,845
<OTHER-EXPENSES> 1,064
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 4,071
<INCOME-TAX> 1,233
<INCOME-CONTINUING> 2,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,838
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.29
<FN>
<F1>NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
