<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, 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
October 31, 1997:
Class Number of Shares Outstanding
Common Stock 1,198,258,221
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, 1997 AND 1996
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 5,927.7 $ 4,983.4 $ 17,404.8 $ 14,422.6
---------- ---------- ---------- ----------
Costs, Expenses and Other
Materials and production 2,991.0 2,328.4 8,721.6 6,845.3
Marketing and administrative 1,048.4 941.8 3,153.2 2,702.3
Research and development 424.7 366.8 1,189.8 1,064.0
Equity income from affiliates (262.6) (146.2) (536.4) (440.0)
Gain on sale of crop protection business (213.4) -- (213.4) --
Other (income) expense, net 244.7 55.2 299.4 180.2
---------- ---------- ---------- ----------
4,232.8 3,546.0 12,614.2 10,351.8
---------- ---------- ---------- ----------
Income Before Taxes 1,694.9 1,437.4 4,790.6 4,070.8
Taxes on Income 497.7 435.5 1,418.7 1,233.0
---------- ---------- ---------- ----------
Net Income $ 1,197.2 $ 1,001.9 $ 3,371.9 $ 2,837.8
========== ========== ========== ==========
Per Share of Common Stock:
Net Income $ .99 $ .83 $ 2.79 $ 2.33
Dividends Declared $ .45 $ .40 $ 1.29 $ 1.08
Average Number of Common
Shares Outstanding (millions) 1,205.8 1,205.6 1,207.3 1,215.8
</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, 1997 AND DECEMBER 31, 1996
($ in millions)
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,281.8 $ 1,352.4
Short-term investments 885.1 829.2
Accounts receivable 2,966.4 2,655.9
Inventories 2,226.7 2,148.8
Prepaid expenses and taxes 849.8 740.3
--------- ---------
Total current assets 8,209.8 7,726.6
--------- ---------
Investments 2,874.8 2,499.4
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$3,189.3 in 1997 and $2,799.7 in 1996 6,296.0 5,926.7
Goodwill and Other Intangibles,
net of accumulated amortization of
$752.1 in 1997 and $606.5 in 1996 6,851.5 6,736.6
Other Assets 1,665.7 1,403.8
--------- ---------
$25,897.8 $24,293.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,062.9 $ 2,937.8
Loans payable and current portion of long-term debt 586.6 606.1
Income taxes payable 1,143.3 802.6
Dividends payable 542.2 482.7
--------- ---------
Total current liabilities 5,335.0 4,829.2
--------- ---------
Long-Term Debt 1,689.8 1,155.9
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 4,803.4 4,027.3
--------- ---------
Minority Interests 1,235.4 2,310.2
--------- ---------
Stockholders' Equity
Common stock
Authorized - 2,700,000,000 shares
Issued - 1,483,836,931 shares - 1997
- 1,483,619,311 shares - 1996 5,198.6 4,967.5
Retained earnings 16,627.8 14,817.7
--------- ---------
21,826.4 19,785.2
Less treasury stock, at cost
281,498,585 shares - 1997
277,016,963 shares - 1996 8,992.2 7,814.7
--------- ---------
Total stockholders' equity 12,834.2 11,970.5
--------- ---------
$25,897.8 $24,293.1
========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
- 2 -
<PAGE> 4
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
($ in millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 4,790.6 $ 4,070.8
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Other 835.2 371.0
Net changes in assets and liabilities (399.0) (136.4)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 5,266.8 4,305.4
INCOME TAXES PAID (866.2) (772.9)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,360.6 3,532.5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (989.5) (839.5)
Purchase of securities, subsidiaries and other investments (19,003.7) (10,355.7)
Proceeds from sale of securities, subsidiaries and other investments 18,036.8 10,112.4
Proceeds from sale of crop protection business 910.0 --
Other (46.3) (56.0)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,092.7) (1,138.8)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 239.6 402.2
Proceeds from issuance of debt 646.0 320.2
Payments on debt (351.5) (336.5)
Purchase of treasury stock (1,526.6) (2,228.8)
Dividends paid to stockholders (1,497.8) (1,247.3)
Redemption of preferred stock of subsidiary (1,000.0) --
Other 203.7 247.7
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (3,286.6) (2,842.5)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (51.9) (54.4)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (70.6) (503.2)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,352.4 1,847.4
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,281.8 $ 1,344.2
========= =========
</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. In July 1997, the Company sold its crop protection business for $910.0
million to Novartis, resulting in a pretax gain of $213.4 million,
after taking into account deferred income related to long-term
contractual commitments entered into in connection with the sale of the
business. This business was not significant to the Company's financial
position or results of operations. This gain was substantially offset
by $207.3 million of nonrecurring charges included in Other (income)
expense, net. (See Note 9.)
3. In August 1997, Merck and Rhone-Poulenc combined their animal health
and poultry genetics businesses to form Merial Ltd. (Merial) a
fully-integrated, stand-alone joint venture, equally owned by each
party. Merial is the world's largest company dedicated to the
discovery, manufacture and marketing of veterinary pharmaceuticals and
vaccines. Merck contributed developmental research personnel, sales and
marketing activities, animal health products, as well as its poultry
genetics business. Rhone-Poulenc contributed research and development,
manufacturing, sales and marketing activities, animal health products,
as well as its poultry genetics business. This transaction is not
expected to have a material impact on comparability of net income.
4. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
----------------------------
September 30 December 31
1997 1996
------------ -----------
<S> <C> <C>
Finished goods $1,306.1 $1,237.3
Raw materials and work in process 860.3 841.1
Supplies 60.3 70.4
-------- --------
Total (approximates current cost) 2,226.7 2,148.8
Reduction to LIFO cost -- --
-------- --------
$2,226.7 $2,148.8
======== ========
</TABLE>
5. In May 1997, Merck issued $500 million of debt under its 1993 shelf
registration. The remaining capacity under this shelf registration
at September 30, 1997 is $170 million. The debt has a scheduled
maturity of May 3, 2037 and pays interest semi-annually at a
rate of 5.76%.
6. 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.
7. In September 1997, the $1.0 billion Preferred Equity Certificates
issued in December 1995 by the Company's wholly-owned subsidiary, Merck
Sharp & Dohme Overseas Finance S.A., were redeemed at par. The PECs
were included in Minority interests in the consolidated financial
statements prior to their redemption.
- 4 -
<PAGE> 6
Notes to Financial Statements (continued)
8. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
---------------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Elevated cholesterol $ 1,163.6 $ 1,039.6 $ 3,397.1 $ 2,856.8
Hypertension/heart failure 956.1 828.9 2,870.9 2,587.8
Anti-ulcerants 332.5 293.7 963.3 829.5
Antibiotics 188.6 199.0 578.9 612.3
Ophthalmologicals 188.3 176.5 548.6 498.0
Vaccines/biologicals 236.2 188.3 570.3 438.0
Benign prostatic hyperplasia 97.0 109.1 296.2 339.3
Osteoporosis 139.4 78.6 368.6 188.9
Animal health/crop protection 63.5 289.9 546.2 762.6
Other Merck product 170.4 37.5 318.3 65.9
Other human health 2,392.1 1,742.3 6,946.4 5,243.5
--------- --------- --------- ---------
$ 5,927.7 $ 4,983.4 $17,404.8 $14,422.6
========= ========= ========= =========
</TABLE>
Sales by therapeutic class include Merck-Medco Managed Care
(Merck-Medco) sales of Merck products. Other human health primarily
includes Merck-Medco sales of non-Merck products and Merck-Medco human
health services, principally managed prescription drug programs.
9. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
------------------------------------------------
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- --------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest income $(57.5) $(47.5) $(162.8) $(156.9)
Interest expense 33.9 36.2 89.8 103.5
Exchange gains 3.4 (7.1) (9.7) (20.2)
Minority interests 40.6 35.0 113.2 106.9
Amortization of goodwill and other intangibles 48.5 50.0 144.6 144.2
Other, net 175.8 (11.4) 124.3 2.7
------ ------ ------ ------
$244.7 $ 55.2 $299.4 $180.2
====== ====== ====== ======
</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, 1997 and
1996 was $84.5 million and $98.6 million, respectively.
Other, net includes $207.3 million of nonrecurring charges for the
three and nine-month periods ended September 30, 1997 consisting of
$127.3 million for loss on sale of assets, $50.0 million for an
endowment of The Merck Company Foundation and a $30.0 million provision
for environmental costs.
10. Income taxes paid for the nine-month periods ended September 30, 1997
and 1996 were $866.2 million and $772.9 million, respectively.
11. 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 September
30, 1997.
- 5 -
<PAGE> 7
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the third quarter of 1997 were $0.99, an increase of 19%
over the third quarter of 1996. Third quarter net income increased 19% to
$1,197.2 million. Sales for the quarter were $5.9 billion, up 19% from the same
period last year.
For the first nine months of 1997, earnings per share were $2.79, an increase of
20% over the first nine months of 1996. Net income was $3,371.9 million for the
first nine months of 1997, an increase of 19% over the first nine months of
1996. Sales rose 21% to $17.4 billion.
Sales growth for the quarter and first nine months was affected by the
divestiture of the crop protection business in July 1997 and the formation of
the Merial joint venture in August 1997. Adjusting for these effects, sales for
the third quarter and the first nine months increased 23% and 22%, respectively.
Sales growth for the quarter and the first nine months of 1997 continued to be
led by established major products, newer product introductions and 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
compared to a one percentage point reduction in the second quarter of 1997.
Excluding exchange and adjusting for the divestiture of the crop protection
business and the formation of the Merial joint venture, sales of Merck human and
animal health products increased 17% and 18% for the third quarter and the first
nine months, respectively. Sales outside the United States accounted for 28% of
the first nine months of 1997 sales, compared with 30% 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 the first nine months was
reduced by the Company's share of the increase in taxes related to the Astra
Merck joint venture, the European vaccine joint venture with Pasteur Merieux
Connaught and the newly formed Merial joint venture. The reduction in pretax
growth, however, was offset by a corresponding reduction in the Company's tax
rate in 1997, resulting in no effect on net income growth.
Results for the first nine months were paced by sales volume gains of
established major products, including 'Zocor', '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 first nine months.
'Zocor' continues its strong sales growth and maintains the leading share of new
and total prescriptions worldwide among cholesterol-lowering medicines. It has
become the world's largest-selling cholesterol-lowering medicine due to high
physician awareness of the results of the landmark Scandinavian Simvastatin
Survival Study (4S), which showed that 'Zocor' saves lives and prevents heart
attacks in people with high cholesterol and coronary heart disease. 'Zocor' is
now available on more than 90 percent of managed care formularies in the United
States, reflecting its standing as the only therapy in the "statin" class with
both the power to significantly reduce LDL cholesterol (so-called bad
cholesterol) and proof that it helps save lives in people with high cholesterol
and coronary heart disease.
'Mevacor' and 'Zocor' together hold more than a 40 percent market share
worldwide. The cholesterol-lowering market continues to grow at a rate of more
than 20 percent a year in major markets - driven primarily by growth of more
than 30 percent annually in the "statin" category. Yet, even in the key U.S.
market, only about one-third of patients with coronary heart disease and high
cholesterol currently take cholesterol-lowering medicines.
Merck's ACE inhibitors, 'Vasotec' and 'Prinivil', continue to be among the most
widely prescribed branded angiotensin converting enzyme (ACE) inhibitors.
Together they hold about 40 percent of the U.S. market for ACE inhibitors and
are widely available on managed care formularies covering approximately 90
percent of people with prescription drug coverage. New and total prescription
growth for 'Prinivil', which treats high blood pressure, heart failure and acute
myocardial infarction, continues to outpace that of the competing lisinopril
product. 'Vasotec' is the only ACE inhibitor indicated for the treatment of the
following three conditions: high blood pressure, asymptomatic left ventricular
dysfunction and heart failure.
*'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)
U.S. prescription sales remain strong for 'Pepcid', an H(2)-receptor antagonist
for the treatment of gastroesophageal reflux disease (GERD) and gastric and
duodenal ulcers.
'Pepcid AC' Acid Controller, sold by Johnson & Johnson - Merck Consumer
Pharmaceuticals Co., continues to lead the growing and highly competitive U.S.
over-the-counter acid indigestion market. It is the number one
pharmacist-recommended remedy for heartburn, according to a survey commissioned
by the American Pharmaceutical Association.
Merck vaccines continue to show strong performance, led by 'Recombivax HB' for
hepatitis B infection, the first genetically engineered vaccine, and 'Varivax',
the first and only chickenpox vaccine available in the United States.
Contributing to growth of 'Recombivax HB' are increased public awareness of
hepatitis B, legislation in some states requiring hepatitis B immunization for
school entry, and the December 1996 publication by the Centers for Disease
Control and Prevention recommending hepatitis B immunization for adolescents.
'Crixivan', Merck's protease inhibitor for the treatment of HIV infection in
adults, remains the world's most widely prescribed protease inhibitor. It has
been cleared for marketing in more than 60 countries. 'Crixivan' now holds about
one-half of the U.S. market.
Research presented in September showed that most patients taking 'Crixivan' in
triple therapy continued to have HIV suppressed to below detection for almost
two years. Preliminary results from another study showed that 'Crixivan' in
triple therapy taken in a more convenient, twice-a-day regimen produced
reductions in viral load comparable to the reductions seen with triple therapy
taken three times a day. Other studies evaluating the investigational
twice-daily regimen for 'Crixivan' (1200 mg.) are underway.
Physicians continue to adopt '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 71 countries.
'Cozaar' and 'Hyzaar', the first in a new class of antihypertensive drugs called
angiotensin-II (A-II) receptor antagonists, are highly efficacious and are
exceptionally well tolerated. 'Cozaar' and 'Hyzaar' were developed in
collaboration with the DuPont Merck Pharmaceutical Company.
New research continues to show the importance of 'Fosamax' in treating and
preventing postmenopausal osteoporosis and fractures due to the bone-thinning
disease. New information from the second arm of the Fracture Intervention Trial
(FIT) shows that 'Fosamax' 10 mg. cut by almost one-half the risk of a first
spinal fracture in women with thin bones. Women who suffer a first spinal
fracture are at double the risk for hip fracture and at quadruple the risk for
spinal fractures during their lifetimes. Results of the study are applicable to
15 to 20 million postmenopausal women in the United States alone.
Analyses released in September from the first arm of FIT show that
postmenopausal women with previous spinal fractures who are treated with
'Fosamax' 10 mg. were 20 percent less likely to be hospitalized and that the
medicine reduced by one-half the number of days spent in bed due to pain.
Data from the 34-country 'Fosamax' International Trial (FOSIT) released in
September show that the medicine reduced non-spinal fractures by one-half in a
year among women in a general community population. This is a significant
development because it means that women and physicians see the positive effects
of treatment in a relatively short time.
Sales of 'Trusopt', the first carbonic anhydrase inhibitor made in a topical
(eyedrop) formulation, continue to grow since it was first introduced. 'Trusopt'
continues to be one of the most widely prescribed anti-glaucoma medicines 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.
'Singulair', Merck's new once-a-day tablet for controlling chronic asthma in
adults and children age 6 and older, received marketing approval in Mexico and
Finland. An application for U.S. marketing clearance is under review by the U.S.
Food and Drug Administration. Other regulatory approvals are pending worldwide.
Studies show that 'Singulair' significantly improved symptoms and respiratory
function, reduced the need for other asthma medicines and lessened the frequency
of asthma attacks. Asthma affects an estimated 5 percent of the adult population
and 10 percent of children in industrialized nations.
- 7 -
<PAGE> 9
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
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 earnings per share currently reported on the face of the statement of
income and diluted earnings per share will not be materially different.
In October 1997, the Company filed a shelf registration with the Securities and
Exchange Commission under which the Company could issue up to $1.5 billion of
debt securities. Proceeds from the sale of these securities are to be used for
general corporate purposes. The remaining capacity under the current and
previous shelf registrations is $1.7 billion.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and oral statements made from
time to time by Merck may contain so-called "forward-looking statements," all
of which are subject to risks and uncertainties. One can identify these
forward-looking statements by their use of words such as "expects," "plans,"
"will," "estimates," "forecasts," "projects" and other words of similar
meaning. One can also identify them by the fact that they do not relate
strictly to historical or current facts. These statements are likely to address
Merck's growth strategy, financial results, product approvals and development
programs. One must carefully consider any such statement and should understand
that many factors could cause actual results to differ from the Company's
forward-looking statements. These include inaccurate assumptions and a broad
variety of risks and uncertainties, including some that are known and some that
are not. No forward-looking statement can be guaranteed and actual future
results may vary materially.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q and 8-K (if any). In Exhibit 99 to this Form 10-Q
filing, the Company discusses various important factors that could cause actual
results to differ from expected or historic results. The Company notes these
factors for investors as permitted by the Private Securities Litigation Reform
Act of 1995. One should understand that it is not possible to predict or
identify all such factors. Consequently, the reader should not consider any such
list to be a complete statement of all potential risks or uncertainties.
- 8 -
<PAGE> 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
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 February 25, 1997) 10-Q Quarterly Report for the
period ended March 31, 1997
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
99 Cautionary Statement under Private Securities Filed with this document
Litigation Reform Act of 1995 - "Safe Harbor"
for Forward-Looking Statements
</TABLE>
(b) Reports on Form 8-K
During the three-month period ending September 30, 1997, no current
reports on Form 8-K were filed.
- 9 -
<PAGE> 11
Signatures
Pursuant to the requirements 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.
Date: November 11, 1997 /s/ Mary M. McDonald
--------------------
MARY M. MCDONALD
Senior Vice President and General Counsel
Date: November 11, 1997 /s/ Peter E. Nugent
-------------------
PETER E. NUGENT
Vice President, Controller
- 10 -
<PAGE> 12
EXHIBIT INDEX
Exhibits
Number Description
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) -
Incorporated by reference to Form 10-Q Quarterly Report for the period
ended March 31, 1997
11 Computation of Earnings Per Common Share
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
99 Cautionary Statement under Private Securities Litigation Reform Act of
1995 - "Safe Harbor" for Forward-Looking Statements
<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
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income and Adjusted Earnings:
Net Income ............................................... $ 1,197.2 $ 1,001.9 $ 3,371.9 $ 2,837.8
Effect on Earnings of Compensation Expense Relating to
Stock Option and Incentive Plans ....................... 3.2 5.4 9.7 9.6
--------- --------- --------- ---------
Adjusted Earnings for Fully Diluted Earnings Per Share ... $ 1,200.4 $ 1,007.3 $ 3,381.6 $ 2,847.4
========= ========= ========= =========
Weighted Average Shares and Share Equivalents Outstanding:
Weighted Average Shares Outstanding (As Reported) ........ 1,205.8 1,205.6 1,207.3 1,215.8
Common Share Equivalents Issuable Under Stock Option and
Incentive Plans ........................................ 29.8 29.7 29.8 29.7
Common Share Equivalents Issuable on Assumed Conversion of
Debentures ............................................. .1 .3 .1 .3
--------- --------- --------- ---------
Weighted Average Shares and Share Equivalents
Outstanding............................................. 1,235.7 1,235.6 1,237.2 1,245.8
========= ========= ========= =========
Earnings Per Share (As Reported) ......................... $ .99 $ .83 $ 2.79 $ 2.33
========= ========= ========= =========
Fully Diluted Earnings Per Share (a) ..................... $ .97 $ .82 $ 2.73 $ 2.29
========= ========= ========= =========
</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 Years Ended December 31
September 30 --------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes
and Cumulative Effect
of Accounting Changes ... $4,790.6 $5,540.8 $4,797.2 $4,415.2 $3,102.7 $3,563.6
Add:
One-third of rents ...... 32.3 41.0 28.1 36.0 35.0 34.0
Interest expense, net ... 67.6 103.2 60.3 96.0 48.0 23.6
Preferred stock dividends 49.1 70.0 2.1 -- -- --
-------- -------- -------- -------- -------- --------
Earnings ............... $4,939.6 $5,755.0 $4,887.7 $4,547.2 $3,185.7 $3,621.2
======== ======== ======== ======== ======== ========
Fixed Charges
One-third of rents ...... $ 32.3 $ 41.0 $ 28.1 $ 36.0 $ 35.0 $ 34.0
Interest expense ........ 89.8 138.6 98.7 124.4 84.7 72.7
Preferred stock
dividends.............. 49.1 70.0 2.1 -- -- --
-------- -------- -------- -------- -------- --------
Fixed Charges .......... $ 171.2 $ 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
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 NINE MONTHS ENDED SEPTEMBER 30, 1997
AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,282
<SECURITIES> 885
<RECEIVABLES> 2,966
<ALLOWANCES> 0<F1>
<INVENTORY> 2,227
<CURRENT-ASSETS> 8,210
<PP&E> 9,485
<DEPRECIATION> (3,189)
<TOTAL-ASSETS> 25,898
<CURRENT-LIABILITIES> 5,335
<BONDS> 1,690
0
0
<COMMON> 5,199
<OTHER-SE> 7,635
<TOTAL-LIABILITY-AND-EQUITY> 25,898
<SALES> 17,405
<TOTAL-REVENUES> 17,405
<CGS> 8,722
<TOTAL-COSTS> 8,722
<OTHER-EXPENSES> 1,190
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 4,791
<INCOME-TAX> 1,419
<INCOME-CONTINUING> 3,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,372
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.73
<FN>
<F1>NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
<PAGE> 1
Exhibit 99
CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 - "SAFE HARBOR" FOR FORWARD-LOOKING
STATEMENTS
This report and other written reports and oral statements made from time to time
by Merck may contain so-called "forward-looking statements," all of which are
subject to risks and uncertainties. One can identify these forward-looking
statements by their use of words such as "expects," "plans," "will,"
"estimates," "forecasts," "projects" and other words of similar meaning. One can
also identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address Merck's growth strategy,
financial results, product approvals and development programs. One must
carefully consider any such statement and should understand that many factors
could cause actual results to differ from the Company's forward-looking
statements. These factors include inaccurate assumptions and a broad variety of
risks and uncertainties, including some that are known and some that are not. No
forward-looking statement can be guaranteed and actual future results may vary
materially. Although it is not possible to predict or identify all such factors,
they may include the following:
- - Competitive factors, including generic competition as patents on key
products such as 'Vasotec', 'Mevacor' and 'Pepcid' expire, as well as
technological advances and patents obtained by competitors.
- - Increased "brand" competition in therapeutic areas important to Merck's
long-term business performance.
- - Pricing pressures, both in the United States and abroad, including
rules and practices of managed care groups, judicial decisions and
governmental laws and regulations related to Medicare, Medicaid and
healthcare reform, pharmaceutical reimbursement and pricing in general.
- - The difficulties and uncertainties inherent in new product development.
The outcome of the lengthy and complex process of new product
development is inherently uncertain. A candidate can fail at any stage
of the process and one or more late-stage product candidates could fail
to receive regulatory approval. New product candidates may appear
promising in development but fail to reach the market because of
efficacy or safety concerns, the inability to obtain necessary
regulatory approvals, the difficulty or excessive cost to manufacture
and/or the infringement of patents or intellectual property rights of
others.
- - Efficacy or safety concerns with respect to marketed products, whether
or not scientifically justified, leading to product recalls,
withdrawals or declining sales.
- - Legal factors, including product liability claims, antitrust
litigation, environmental concerns and patent disputes with
competitors, any of which could preclude commercialization of products
or negatively affect the profitability of existing products.
- - Lost market opportunity resulting from delays and uncertainties in the
approval process of the United States Food and Drug Administration and
foreign regulatory authorities.
- - Difficulties in obtaining adequate levels of product liability
insurance.
<PAGE> 2
- - Changes in tax laws including changes related to the taxation of
foreign earnings, as well as the impact of legislation capping and
ultimately repealing Section 936 of the Internal Revenue Code (relating
to earnings from the Company's Puerto Rican operations).
- - Changes in accounting standards promulgated by the American Institute
of Certified Public Accountants, the Financial Accounting Standards
Board or the Securities and Exchange Commission that are adverse to
Merck.
- - Economic factors over which Merck has no control, including changes in
inflation, interest rates and foreign currency exchange rates.
This list should not be considered an exhaustive statement of all potential
risks, uncertainties and inaccurate assumptions.
