<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 March 31, 1997
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
April 30, 1997:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
<S> <C>
Common Stock 1,207,113,399
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE> 2
Part I - Financial Information
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31
1997 1996
-------- --------
<S> <C> <C>
Sales $5,567.9 $4,530.4
-------- --------
Costs, Expenses and Other
Materials and production 2,786.3 2,233.1
Marketing and administrative 1,060.6 814.3
Research and development 368.7 349.5
Equity income from affiliates (151.0) (165.4)
Other (income) expense, net 39.9 59.9
-------- --------
4,104.5 3,291.4
-------- --------
Income Before Taxes 1,463.4 1,239.0
Taxes on Income 443.1 375.2
-------- --------
Net Income $1,020.3 $ 863.8
======== ========
Per Share of Common Stock:
Net Income $ .84 $ .70
Dividends Declared $ .42 $ .34
Average Number of Common
Shares Outstanding (millions) 1,208.9 1,227.0
</TABLE>
The accompanying notes are an integral part of this financial statement.
-1-
<PAGE> 3
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997 AND DECEMBER 31, 1996
($ in millions)
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,736.6 $ 1,352.4
Short-term investments 862.3 829.2
Accounts receivable 2,721.8 2,655.9
Inventories 2,088.1 2,148.8
Prepaid expenses and taxes 807.8 740.3
----------- -----------
Total current assets 8,216.6 7,726.6
----------- -----------
Investments 2,408.0 2,499.4
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$2,994.0 in 1997 and $2,799.7 in 1996 5,973.5 5,926.7
Goodwill and Other Intangibles,
net of accumulated amortization of
$654.3 in 1997 and $606.5 in 1996 6,689.6 6,736.6
Other Assets 1,444.7 1,403.8
----------- -----------
$ 24,732.4 $ 24,293.1
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 2,787.6 $ 2,937.8
Loans payable and current portion of long-term debt 477.5 606.1
Income taxes payable 1,021.3 802.6
Dividends payable 508.3 482.7
----------- -----------
Total current liabilities 4,794.7 4,829.2
----------- -----------
Long-Term Debt 1,232.3 1,155.9
----------- -----------
Deferred Income Taxes and Noncurrent Liabilities 4,056.7 4,027.3
----------- -----------
Minority Interests 2,216.5 2,310.2
----------- -----------
Stockholders' Equity
Common stock
Authorized - 2,700,000,000 shares
Issued - 1,483,721,131 shares - 1997
- 1,483,619,311 shares - 1996 5,018.5 4,967.5
Retained earnings 15,316.7 14,817.7
----------- -----------
20,335.2 19,785.2
Less treasury stock, at cost
274,186,571 shares - 1997
277,016,963 shares - 1996 7,903.0 7,814.7
----------- -----------
Total stockholders' equity 12,432.2 11,970.5
----------- -----------
$ 24,732.4 $ 24,293.1
=========== ===========
</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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
($ in millions)
<TABLE>
<CAPTION>
Three Months
Ended March 31
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 1,463.4 $ 1,239.0
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Other 299.7 111.7
Net changes in assets and liabilities (102.8) 1.3
---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 1,660.3 1,352.0
INCOME TAXES PAID (167.3) (168.4)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,493.0 1,183.6
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (261.6) (265.6)
Purchase of securities, subsidiaries and other investments (4,047.3) (1,860.0)
Proceeds from sale of securities, subsidiaries and other investments 3,980.7 1,556.5
Other (14.1) (16.4)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (342.3) (585.5)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 13.9 (.3)
Proceeds from issuance of debt 87.3 300.2
Payments on debt (134.5) (2.0)
Purchase of treasury stock (245.3) (575.3)
Dividends paid to stockholders (482.7) (438.5)
Other 75.5 50.5
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES (685.8) (665.4)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (80.7) (26.7)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 384.2 (94.0)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,352.4 1,847.4
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,736.6 $ 1,753.4
========== ==========
</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 1997; in the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
-3-
<PAGE> 5
Notes to Financial Statements (continued)
2. Inventories consisted of:
<TABLE>
($ in millions)
March 31 December 31
1997 1996
---- ----
<S> <C> <C>
Finished goods $ 1,136.7 $ 1,237.3
Raw materials and work in process 880.9 841.1
Supplies 70.5 70.4
---------- ----------
Total (approximates current cost) 2,088.1 2,148.8
Reduction to LIFO cost -- --
---------- ----------
$ 2,088.1 $ 2,148.8
========== ==========
</TABLE>
3. 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 a number 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 is obligated to pay $51.8
million, payable in four equal annual installments. In April 1996, the
court declined to approve the settlement. Subsequently, the Company and
several other defendants entered into an amended settlement agreement,
which provides for the same monetary payment and addresses the court's
concerns as expressed in its April 1996 opinion. In June 1996, the court
granted approval of the amended settlement agreement, to which objecting
retail class members filed appeals in July 1996. The Company has not
engaged in any conspiracy and no admission of wrongdoing has been made or
is included in the amended agreement, which was entered into in order to
avoid the cost of litigation and the risk of an inaccurate adverse verdict
by a jury presented with a case of this size and complexity. While it is
not feasible to predict or determine the final outcome of these
proceedings, management does not believe that they should result in a
materially adverse effect on the Company's financial position, results of
operations or liquidity.
4. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
Three Months
Ended March 31
1997 1996
---- ----
<S> <C> <C>
Elevated cholesterol $ 1,083.1 $ 808.8
Hypertension/heart failure 921.9 822.5
Anti-ulcerants 308.5 280.9
Antibiotics 206.6 215.4
Ophthalmologicals 175.6 149.8
Vaccines/biologicals 151.0 112.1
Osteoporosis 101.8 44.1
Benign prostatic hyperplasia 99.3 120.2
Other Merck human health 72.0 4.6
Other human health 2,229.4 1,751.6
Animal health/crop protection 218.7 220.4
---------- ----------
$ 5,567.9 $ 4,530.4
========== ==========
</TABLE>
Sales by therapeutic class include Merck-Medco Managed Care (Merck-Medco)
sales of Merck products. Other human health primarily includes Merck-Medco
sales of non-Merck products and Merck-Medco human health services,
principally managed prescription drug programs.
-4-
<PAGE> 6
Notes to Financial Statements (continued)
5. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
Three Months
Ended March 31
1997 1996
---- ----
<S> <C> <C>
Interest income $ (51.2) $ (60.2)
Interest expense 25.0 34.5
Exchange gains (5.5) (7.5)
Minority interests 42.6 29.4
Amortization of goodwill & other intangibles 47.8 47.0
Other, net (18.8) 16.7
------- -------
$ 39.9 $ 59.9
======= =======
</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 three-month periods ended March 31, 1997 and 1996
was $20.9 million and $10.3 million, respectively.
6. Income taxes paid for the three-month periods ended March 31, 1997 and 1996
were $167.3 million and $168.4 million, respectively.
7. 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. There were no
material developments in the three-month period ended March 31, 1997.
-5-
<PAGE> 7
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the first quarter of 1997 were $0.84, an increase of 20%
over the first quarter of 1996. First quarter net income increased 18% to
$1,020.3 million. Sales for the quarter were $5.6 billion, up 23% from the same
period last year.
Sales growth for the quarter was led by established major products, recent
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 first quarter sales growth by one percentage point.
Excluding exchange, sales of Merck human and animal health products increased
22% for the first quarter. Sales outside the United States accounted for 29% of
1997 first quarter sales, compared with 31% for the same period last year.
Income growth for the quarter 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, selling
and general and administrative expenses.
Results for the first quarter were paced by sales volume gains of established
major products, including 'Zocor', 'Mevacor', 'Vasotec', 'Vaseretic',
'Prinivil', 'Pepcid' and 'Recombivax HB', and by the newer product
introductions, 'Crixivan', 'Cozaar'*, 'Hyzaar'*, 'Fosamax', 'Trusopt' and
'Varivax'. Significant prescription volume growth in the Merck-Medco Managed
Care business also contributed to the sales increase for the quarter.
The number of patients taking 'Zocor' has nearly doubled to 6.7 million since
the results from the landmark Scandinavian Simvastatin Survival Study (4S) were
announced two years ago. This study showed that 'Zocor' saves lives and prevents
heart attacks in people with high cholesterol and coronary heart disease.
'Zocor' has a well-established, long-term safety profile. It is the only
"statin" proven to save lives in people with coronary heart disease and high
cholesterol. Despite the introduction of new competition, 'Zocor' continues to
grow and to command the leading share of total and new prescriptions among
cholesterol-lowering medicines.
'Mevacor' continues to have a strong position in the market; together, 'Mevacor'
and 'Zocor' hold more than a 40 percent share. The cholesterol-lowering market
continues to grow as doctors increasingly recognize the health benefits of
lipid-lowering therapy. Still, less than 30 percent of patients with coronary
disease and high cholesterol currently take cholesterol-lowering therapy.
'Vasotec', Merck's angiotensin converting enzyme (ACE) inhibitor for the
treatment of high blood pressure, asymptomatic left ventricular dysfunction and
heart failure, continued to grow. It is the most widely prescribed branded
cardiovascular medicine in the world.
U.S. prescription sales remain strong for 'Pepcid', an H2-receptor antagonist
for the treatment of duodenal ulcers and the short-term treatment of gastric
ulcers and gastroesophageal reflux disease (GERD). 'Pepcid' is now the second
most-prescribed prescription H2-receptor antagonist in the United States.
In the U.S. over-the-counter market, Pepcid AC Acid Controller(TM), sold by
Johnson & Johnson Merck Consumer Pharmaceuticals Co., continues to lead the
growing and highly competitive acid indigestion market.
'Crixivan', Merck's protease inhibitor for the treatment of HIV infection in
adults, has achieved broad acceptance by physicians and patients. Within a year
of its record-breaking 42-day clearance in the United States, it has been
cleared for marketing in more than 50 additional countries, including 15 member
states of the European Union. 'Crixivan' is being taken by more than 140,000
people worldwide and holds about 60 percent of the U.S. market.
Two clinical endpoint studies with 'Crixivan', announced in February and March,
demonstrated that 'Crixivan' has a positive impact on reducing mortality and the
incidence of AIDS-related conditions, including opportunistic infections and
cancers. The reduction in one study was by as much as 60 percent.
Physicians have adopted 'Cozaar' and 'Hyzaar' (a combination of 'Cozaar' and the
diuretic hydrochlorothiazide) faster than any new antihypertensive product
launched in this decade. The products are now marketed in more than 40 countries
and have been taken by more than 1.8 million patients. 'Cozaar' and 'Hyzaar',
the first in a new class of antihypertensive drugs called angiotensin-II (A-II)
receptor antagonists, are exceptionally well tolerated. 'Cozaar' and 'Hyzaar'
were developed in collaboration with the DuPont Merck Pharmaceutical Company.
*'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)
'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 1.7 million patients worldwide have
received a prescription for 'Fosamax' and prescription trends remain strong.
Merck continues to educate women about postmenopausal osteoporosis and treatment
with 'Fosamax' through major consumer campaigns.
The Vertebral Fracture Study arm of the Fracture Intervention Trial (FIT),
published in December, showed that 'Fosamax' reduced by about one-half the risk
of hip and vertebral fractures and significantly reduced hospitalizations in
postmenopausal women with osteoporosis who had a previous vertebral fracture.
The results of this study have been filed in the United States and other
worldwide markets for inclusion in the product labeling for 'Fosamax'. In April
1997, the U.S. Food and Drug Administration (FDA) cleared for marketing the new
'Fosamax' 5 mg. dose as the first nonhormonal drug to prevent osteoporosis in
postmenopausal women. In addition, the FDA cleared 'Fosamax' 10 mg. to prevent
fractures of the hip, spine and wrist in postmenopausal women who already have
osteoporosis.
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 and in several countries
in Europe. The product is indicated for the treatment of elevated intraocular
pressure in patients with ocular hypertension or open-angle glaucoma.
In its first two years on the market, 'Varivax', the first and only chickenpox
vaccine marketed in the United States, has achieved the most rapid acceptance of
any vaccine since Merck introduced the first measles vaccine in 1963.
In January, Merck launched its newest vaccine, 'Comvax', a combination of the
antigenic components of two existing Merck vaccines, 'PedvaxHIB' and 'Recombivax
HB'. 'Comvax' is the first combination product indicated for the vaccination of
infants, beginning at two months of age, against both invasive Haemophilus
influenzae type b diseases (Hib) and hepatitis B virus. The combination reduces
the number of injections required to immunize children against the two
infections.
In February, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which requires adoption in 1997. This Statement generally
requires the presentation of basic and diluted earnings per share on the face
of the statement of income. The amount of basic earnings per share will not
differ from the earnings per share currently reported on the face of the
statement of income and the diluted earnings per share will not be materially
different.
On February 25, the Board of Directors declared a quarterly dividend of 42
cents a share on the Company's common stock which was paid April 1 to
stockholders of record at the close of business on March 7. The Company's
total dividend paid to date in 1997 is 82 cents per share, a 21 percent increase
over the amount paid during the same period in 1996.
In May, Merck issued $500 million of debt under its 1993 shelf
registration. The remaining capacity under the shelf is $170 million. The debt
has a scheduled maturity of May 3, 2037 and pays interest semi-annually at a
rate of 5.76%.
Also in May, Merck announced the signing of a definitive agreement to sell its
crop protection business to Novartis for $910 million in cash. The sale is
expected to close in the second or third quarter, subject to antitrust
reviews. The crop protection business is not significant to the Company's
financial position or results of operations.
-7-
<PAGE> 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C> <C>
3(a) Restated Certificate of Incorporated by reference to Form 10-K
Incorporation of Merck & Co., Inc. Annual Report for the fiscal year ended
(May 6, 1992) December 31,1992
3(b) By-Laws of Merck & Co., Inc. Filed with this document
(as amended effective
February 25, 1997)
11 Computation of Earnings Per Filed with this document
Common Share
12 Computation of Ratios of Filed with this document
Earnings to Fixed Charges
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
During the three-month period ending March 31, 1997, no current reports on
Form 8-K were filed.
-8-
<PAGE> 10
Signatures
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCK & CO., INC.
Date: May 13, 1997 /s/ Mary M. McDonald
----------------------
MARY M. MCDONALD
Senior Vice President and General Counsel
Date: May 13, 1997 /s/ Peter E. Nugent
----------------------
PETER E. NUGENT
Vice President, Controller
-9-
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
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
February 25, 1997)
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 3(b)
By-Laws
OF
MERCK & CO., INC.
-----------
As Amended Effective February 25, 1997
<PAGE> 2
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
(or as close as practicable thereto), 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.
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
<PAGE> 3
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 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.
2
<PAGE> 4
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 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.
3
<PAGE> 5
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.
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.
4
<PAGE> 6
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.
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
5
<PAGE> 7
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 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.
6
<PAGE> 8
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 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.
7
<PAGE> 9
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 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.
8
<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
Ended March 31
1997 1996
---- ----
<S> <C> <C>
Net Income and Adjusted Earnings:
Net Income ............................................... $1,020.3 $ 863.8
Effect on Earnings of Compensation Expense Relating to
Stock Option and Incentive Plans ....................... 3.4 2.0
-------- --------
Adjusted Earnings for Fully Diluted Earnings Per Share ... $1,023.7 $ 865.8
======== ========
Weighted Average Shares and Share Equivalents Outstanding:
Weighted Average Shares Outstanding (As Reported) ........ 1,208.9 1,227.0
Common Share Equivalents Issuable Under Stock Option and
Incentive Plans ........................................ 31.8 31.5
Common Share Equivalents Issuable on Assumed Conversion of
Debentures ............................................. .2 .4
-------- --------
Weighted Average Shares and Share Equivalents Outstanding 1,240.9 1,258.9
======== ========
Earnings Per Share (As Reported) ......................... $ .84 $ .70
======== ========
Fully Diluted Earnings Per Share (a) ..................... $ .82 $ .69
======== ========
</TABLE>
(a) This calculation is submitted in accordance with the regulations of the
Securities and Exchange Commission although not required by APB Opinion
No. 15 because it results in dilution of less than 3%.
<PAGE> 1
Exhibit 12
MERCK & CO., INC. AND SUBSIDIARIES
Computation Of Ratios Of Earnings To Fixed Charges
(In millions except ratio data)
<TABLE>
<CAPTION>
Three Months
Ended
March 31 Years Ended December 31
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes
and Cumulative Effect
of Accounting Changes $1,463.4 $5,540.8 $4,797.2 $4,415.2 $3,102.7 $3,563.6
Add:
One-third of rents 10.8 41.0 28.1 36.0 35.0 34.0
Interest expense, net 21.0 103.2 60.3 96.0 48.0 23.6
Preferred stock dividends 16.7 70.0 2.1 - - -
-------- -------- -------- -------- -------- --------
Earnings $1,511.9 $5,755.0 $4,887.7 $4,547.2 $3,185.7 $3,621.2
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of rents $ 10.8 $ 41.0 $ 28.1 $ 36.0 $ 35.0 $ 34.0
Interest expense 25.0 138.6 98.7 124.4 84.7 72.7
Preferred stock dividends 16.7 70.0 2.1 - - -
-------- -------- -------- -------- -------- --------
Fixed Charges $ 52.5 $ 249.6 $ 128.9 $ 160.4 $ 119.7 $ 106.7
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges 29 23 38 28 27 34
======== ======== ======== ======== ======== ========
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
income taxes, cumulative effect of accounting changes, one-third of rents
(deemed by the Company to be representative of the interest factor inherent in
rents), 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 THREE MONTHS ENDED MARCH 31, 1997 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,737
<SECURITIES> 862
<RECEIVABLES> 2,722
<ALLOWANCES> 0<F1>
<INVENTORY> 2,088
<CURRENT-ASSETS> 8,217
<PP&E> 8,968
<DEPRECIATION> (2,994)
<TOTAL-ASSETS> 24,732
<CURRENT-LIABILITIES> 4,795
<BONDS> 1,232
0
0
<COMMON> 5,019
<OTHER-SE> 7,414
<TOTAL-LIABILITY-AND-EQUITY> 24,732
<SALES> 5,568
<TOTAL-REVENUES> 5,568
<CGS> 2,786
<TOTAL-COSTS> 2,786
<OTHER-EXPENSES> 369
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,463
<INCOME-TAX> 443
<INCOME-CONTINUING> 1,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020
<EPS-PRIMARY> .84
<EPS-DILUTED> .82
<FN>
<F1>NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
