<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, 1999
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, 1999:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common Stock 2,360,551,281
</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, 1999 AND 1998
($ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales $ 7,536.7 $ 6,058.8
--------- ---------
Costs, Expenses and Other
Materials and production 4,154.2 3,235.6
Marketing and administrative 1,154.3 995.1
Research and development 441.8 388.5
Equity income from affiliates (174.8) (226.1)
Other (income) expense, net 118.4 30.5
--------- ---------
5,693.9 4,423.6
--------- ---------
Income Before Taxes 1,842.8 1,635.2
Taxes on Income 543.2 470.8
--------- ---------
Net Income $ 1,299.6 $ 1,164.4
========= =========
Basic Earnings per Common Share $ .55 $ .49
Earnings per Common Share Assuming Dilution $ .54 $ .47
Dividends Declared per Common Share $ .27 $ .22-1/2
</TABLE>
The accompanying notes are an integral part of this
consolidated financial statement.
- 1 -
<PAGE> 3
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 AND DECEMBER 31, 1998
($ in millions)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,792.6 $ 2,606.2
Short-term investments 1,303.7 749.5
Accounts receivable 3,132.5 3,374.1
Inventories 2,485.8 2,623.9
Prepaid expenses and taxes 900.6 874.8
--------- ---------
Total current assets 9,615.2 10,228.5
--------- ---------
Investments 4,365.2 3,607.7
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$4,214.5 in 1999 and $4,042.8 in 1998 8,121.2 7,843.8
Goodwill and Other Intangibles,
net of accumulated amortization of
$1,218.1 in 1999 and $1,123.9 in 1998 8,193.3 8,287.2
Other Assets 1,994.2 1,886.2
--------- ---------
$32,289.1 $31,853.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,395.4 $ 3,682.1
Loans payable and current portion of long-term debt 630.5 624.2
Income taxes payable 1,140.9 1,125.1
Dividends payable 638.1 637.4
--------- ---------
Total current liabilities 5,804.9 6,068.8
--------- ---------
Long-Term Debt 3,217.6 3,220.8
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 6,197.5 6,057.0
--------- ---------
Minority Interests 3,726.5 3,705.0
--------- ---------
Stockholders' Equity
Common stock
Authorized - 5,400,000,000 shares
Issued - 2,967,933,536 shares -1999
- 2,967,851,980 shares -1998 29.7 29.7
Other paid-in capital 5,681.0 5,614.5
Retained earnings 20,848.2 20,186.7
Accumulated other comprehensive loss (20.0) (21.3)
--------- ---------
26,538.9 25,809.6
Less treasury stock, at cost
604,048,432 shares - 1999
607,399,428 shares - 1998 13,196.3 13,007.8
--------- ---------
Total stockholders' equity 13,342.6 12,801.8
--------- ---------
$32,289.1 $31,853.4
========= =========
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
- 2 -
<PAGE> 4
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
($ in millions)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 1,842.8 $ 1,635.2
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Depreciation and amortization 284.9 237.1
Other (39.5) 15.6
Net changes in assets and liabilities 102.4 (70.4)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 2,190.6 1,817.5
INCOME TAXES PAID (223.0) (292.7)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,967.6 1,524.8
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (476.0) (315.4)
Purchase of securities, subsidiaries and other investments (11,022.9) (6,165.9)
Proceeds from sale of securities, subsidiaries and other investments 9,661.8 5,926.5
Other (3.9) (14.2)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (1,841.0) (569.0)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 3.8 (164.5)
Proceeds from issuance of debt .2 499.1
Payments on debt (.5) (85.8)
Purchase of treasury stock (361.6) (328.9)
Dividends paid to stockholders (637.4) (537.5)
Other 128.0 143.7
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES (867.5) (473.9)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (72.7) (10.4)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (813.6) 471.5
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,606.2 1,125.1
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,792.6 $ 1,596.6
========= =========
</TABLE>
The accompanying notes are an integral part of
this consolidated financial statement.
Notes to Consolidated Financial Statements
1. The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures 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 1999; 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 Consolidated Financial Statements (continued)
2. In November 1998, the Board of Directors approved an increase in authorized
common shares from 2.7 billion with no par value to 5.4 billion with one cent
par value, effective January 1999. Additionally, the Board of Directors
approved a two-for-one stock split of the Company's common stock, effective
February 1999. All share and per share amounts for current and prior periods
presented in these financial statements reflect the stock split.
3. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
-----------------------------
March 31 December 31
1999 1998
-------- --------
<S> <C> <C>
Finished goods $1,617.4 $1,701.2
Raw materials and work in process 800.3 851.6
Supplies 68.1 71.1
-------- --------
Total (approximates current cost) 2,485.8 2,623.9
Reduction to LIFO cost -- --
-------- --------
$2,485.8 $2,623.9
======== ========
</TABLE>
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 a
number of which have been certified as state class actions. In 1996, the
Company and several other defendants finalized an agreement to settle the
federal class action alleging conspiracy, which represents the single largest
group of retail pharmacy claims, pursuant to which the Company paid $51.8
million. Since that time, the Company has entered into other settlements on
satisfactory terms. The Company has not engaged in any conspiracy, and no
admission of wrongdoing was made nor was included in the final agreements.
While it is not feasible to predict or determine the final outcome of these
proceedings, management does not believe that they should result in a
materially adverse effect on the Company's financial position, results of
operations or liquidity.
5. Sales consisted of:
<TABLE>
<CAPTION>
($ in millions)
----------------------------
Three Months
Ended March 31
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Elevated cholesterol $1,170.5 $1,049.0
Hypertension/heart failure 1,087.9 999.8
Anti-ulcerants 260.2 321.3
Osteoporosis 231.4 181.8
Antibiotics 189.8 201.5
Vaccines/biologicals 171.5 185.4
Ophthalmologicals 151.5 148.6
Human immunodeficiency virus (HIV) 149.9 151.3
Other Merck products 547.1 164.4
Merck-Medco 3,576.9 2,655.7
-------- --------
$7,536.7 $6,058.8
======== ========
</TABLE>
Other Merck products include sales of other human pharmaceuticals,
continuing sales to divested businesses and pharmaceutical and animal
health supply sales to the Company's joint ventures and, as of July 1,
1998, supply sales to Astra Pharmaceuticals, L.P.
- 4 -
<PAGE> 6
Notes to Consolidated Financial Statements (continued)
6. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
---------------------------
Three Months
Ended March 31
---------------------------
1999 1998
------- -------
<S> <C> <C>
Interest income $ (79.5) $ (61.7)
Interest expense 71.4 39.2
Exchange losses (gains) 9.4 (5.9)
Minority interests 49.5 42.5
Amortization of goodwill and other intangibles 83.3 48.3
Other, net (15.7) (31.9)
------- -------
$ 118.4 $ 30.5
======= =======
</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, 1999 and 1998 was
$46.8 million and $18.5 million, respectively.
7. Income taxes paid for the three-month periods ended March 31, 1999 and 1998
were $223.0 million and $292.7 million, respectively.
8. The net income effect of dilutive securities was not significant to the
Company's calculation of Earnings per common share assuming dilution. A
reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------------------
1999 1998
------- -------
<S> <C> <C>
Average common shares outstanding 2,361.9 2,390.1
Common shares issuable(1) 63.0 63.9
------- -------
Average common shares outstanding assuming dilution 2,424.9 2,454.0
======= =======
(1) Issuable primarily under stock option plans.
</TABLE>
9. Comprehensive income for the three months ended March 31, 1999 and 1998,
representing all changes in Stockholders' equity during the period other
than changes resulting from the Company's stock, was $1,300.9 million and
$1,166.1 million, respectively.
- 5 -
<PAGE> 7
Notes to Consolidated Financial Statements (continued)
10.The Company's operations are principally managed on a products and services
basis and are comprised of two reportable segments: Merck Pharmaceutical and
Merck-Medco. Merck Pharmaceutical products consist of therapeutic agents,
sold by prescription, for the treatment of human disorders. Merck-Medco
revenues are derived from the filling and management of prescriptions and
health management programs. All Other includes non-reportable human and
animal health segments. Revenues and profits for these segments are as
follows:
<TABLE>
<CAPTION>
($ in millions)
----------------------------
Three Months
Ended March 31
----------------------------
1999 1998
-------- --------
<S> <C> <C>
Segment revenues:
Merck Pharmaceutical $3,278.9 $2,977.9
Merck-Medco 4,294.5 3,326.0
All Other 631.0 382.1
-------- --------
$8,204.4 $6,686.0
======== ========
Segment profits:
Merck Pharmaceutical $1,994.3 $1,839.8
Merck-Medco 123.8 94.4
All Other 560.9 512.4
-------- --------
$2,679.0 $2,446.6
======== ========
</TABLE>
Segment profits are comprised of segment revenues less certain elements of
materials and production costs and operating expenses, including components
of equity income (loss) from joint ventures and depreciation and amortization
expenses. The vast majority of indirect production costs, research and
development expenses and general and administrative expenses, all
predominantly related to the Merck Pharmaceutical business, as well as the
cost of financing these activities, are not included in the marketing segment
profits. The vast majority of goodwill and other intangibles amortization, as
well as the cost of financing capital employed, are not included in
Merck-Medco segment profits.
A reconciliation of total segment profits to consolidated income before taxes
is as follows:
<TABLE>
<CAPTION>
($ in millions)
-----------------------------
Three Months
Ended March 31
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
Segment profits $2,679.0 $2,446.6
Other profits 25.6 15.3
Adjustments 39.1 35.6
Unallocated:
Interest income 79.5 61.7
Interest expense (71.4) (39.2)
Equity income (loss) from affiliates 85.8 (55.8)
Depreciation and amortization expenses (224.4) (178.5)
Research and development expenses (441.8) (388.5)
Other expenses, net (328.6) (262.0)
-------- --------
$1,842.8 $1,635.2
======== ========
</TABLE>
Other profits primarily represent operating income related to divested
products or businesses. Adjustments represent the elimination of the effect
of double counting certain items of income and expense. Equity income (loss)
from affiliates includes taxes paid at the joint venture level and a portion
of equity income that is not reported in segment profits. Other expenses,
net, include expenses from corporate and manufacturing cost centers and other
miscellaneous income (expense), net.
11.Legal proceedings to which the Company is a party are discussed in Part 1
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, 1999.
- 6 -
<PAGE> 8
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the first quarter of 1999 were $0.54, an increase of 15%
over the first quarter of 1998. First quarter net income increased 12% to
$1,299.6 million. Sales for the quarter were $7.5 billion, up 24% from the same
period last year.
Sales growth for the quarter was led by the established major products, the
newer products including those introduced in 1998, as well as growth from the
Merck-Medco Managed Care business and a 5-point benefit attributable to the
restructuring of Astra Merck, Inc. (AMI). Solid volume gains in both domestic
and international operations contributed to the results.
Foreign exchange had essentially no effect on the Company's first quarter sales
growth. Excluding exchange and including the effect of the AMI restructuring,
sales of Merck human health products increased 18% for the first quarter. Sales
of Merck human health products outside the United States accounted for 41% of
Merck human health first quarter sales.
Income growth for the quarter was driven by solid sales volume gains as well as
the effects of ongoing cost controls and productivity improvements in
manufacturing and general and administrative expenses. The savings from
productivity improvements were partially offset by increases in selling and
promotion expenses to support recent and upcoming product launches.
Results for the first quarter were paced by sales volume gains of 'Zocor',
'Fosamax', 'Cozaar'*, 'Hyzaar'*, 'Prinivil' and 'Comvax'. Also contributing to
the volume growth were 'Singulair', 'Propecia', 'Cosopt', 'Maxalt' and
'Aggrastat', all introduced in 1998. Prescription volume growth in the
Merck-Medco Managed Care business also contributed to the sales increase for the
quarter.
'Zocor' continues its solid volume growth and is now the world's second
most-prescribed medicine. It remains the leading statin medicine worldwide. Last
year, the U.S. Food and Drug Administration (FDA) approved a new 80 mg tablet of
'Zocor', which lowers LDL ("bad") cholesterol by as much as 63 percent. During
the American College of Cardiology meeting in March, data were presented that
showed 'Zocor' not only substantially lowered LDL and triglycerides but also
significantly raised HDL ("good") cholesterol, particularly in patients with low
baseline HDL levels.
In March, the FDA approved a new indication for 'Mevacor' in people with average
to slightly elevated total cholesterol, but whose HDL ("good") cholesterol is
below average. 'Mevacor' is now indicated in these patients to reduce the risk
of heart attack, unstable angina and coronary revascularizations.
Together, 'Zocor' and 'Mevacor' hold more than a 40 percent share of the growing
worldwide statin market. Even in the U.S. market only about one-third of
eligible patients are receiving treatment.
'Fosamax', Merck's medicine to treat and prevent postmenopausal osteoporosis and
reduce the risk of fractures due to osteoporosis, continues to be the only
medicine proven to reduce the incidence of hip fractures, the most serious kind
of fracture. Eight countries, including Mexico and Canada, have cleared
'Fosamax' for the prevention and treatment of steroid-induced osteoporosis. This
is a serious condition that can result in multiple fractures in patients treated
with steroids for a variety of serious illnesses, such as rheumatoid arthritis
and asthma. The U.S. New Drug Application for this use is under review by the
FDA.
Merck's angiotensin II antagonist (AIIA) 'Cozaar' and its companion agent,
'Hyzaar', are among Merck's fastest-growing products. With its August 1998
introduction in Japan, 'Cozaar' is now available in all key global markets.
'Cozaar' has been introduced in 78 other countries to date and 'Hyzaar' has been
introduced in 59, making these medicines the world's most widely prescribed in
the AIIA class. AIIAs have now been recommended for the first time as initial
and maintenance treatment for hypertension in the recently updated World Health
Organization/International Society of Hypertension Guidelines.
'Cozaar' is the only product in its class cleared for the treatment of heart
failure in any market. It has been approved for this use in 19 countries to
date, including Germany and Spain, and applications for this indication are
pending in other countries. Merck has not yet filed an application for heart
failure in the United States.
*'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours
and Company, Wilmington, DE, USA.
- 7 -
<PAGE> 9
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
Merck's angiotensin converting enzyme (ACE) inhibitors, 'Vasotec' and
'Prinivil', continue to be among the world's most widely prescribed branded
anti-hypertensives. 'Vasotec' has been prescribed for more than 27 million
patients since its launch in 1984. In the United States, 'Vasotec' is the only
ACE inhibitor indicated to treat high blood pressure, asymptomatic left
ventricular dysfunction and heart failure. 'Vasotec' is also the only ACE
inhibitor indicated to reduce deaths due to symptomatic heart failure,
regardless of the underlying cause. 'Prinivil', with its convenient, once-daily
dosing in hypertension, heart failure and acute myocardial infarction, continues
to demonstrate strong growth well above the rate of the overall ACE inhibitor
market.
'Singulair', Merck's once-a-day tablet to treat chronic asthma in adults and
children ages six and older, has become the most widely prescribed member of the
leukotriene-antagonist class in the United States in less than a year on the
market. The product has been introduced in 46 other countries, including the
United Kingdom, Spain, Germany and Canada. In clinical studies, 'Singulair' has
improved asthma control in many patients by significantly decreasing the
frequency of asthma attacks, helping to prevent day- and night-time asthma
symptoms, and reducing reliance on bronchodilators. It also has allowed many
patients to gradually reduce their use of inhaled steroids.
'Propecia', the first and only tablet for the treatment of male pattern hair
loss, has been introduced in 20 countries to date, including the United States,
Canada, Brazil, France, Germany, Italy and Australia. Launches are pending in 18
countries. Since the product's introduction last year in the United States, more
than 590,000 men have started treatment worldwide. In clinical studies, 83
percent of men maintained their current hair count and 66 percent grew visible
hair.
Sales of 'Cosopt', an eyedrop that lowers intraocular pressure in patients with
open-angle glaucoma and ocular hypertension, continue to grow. The FDA approved
'Cosopt' last year and it has been broadly adopted by ophthalmologists in the
United States. In addition, it has been cleared for marketing in 18 countries in
Europe and Latin America. Merck plans to introduce 'Cosopt' in other major
markets throughout the year.
In 1998, Merck introduced 'Maxalt' in the United States and 10 other countries.
It has become the fastest growing oral migraine medication in the U.S. and other
key markets. Early in 1999, Merck introduced 'Maxalt' in Finland and
introductions are pending in 15 other countries. 'Maxalt' is the first and only
migraine medicine available in both conventional tablets and convenient, rapidly
dissolving tablets that disintegrate within seconds on the tongue without
liquids.
The European Union's Committee on Proprietary Medicinal Products unanimously
recommended approval for Merck's "platelet blocker," 'Aggrastat', in March. This
is an important step toward making the product available throughout the European
Union. Merck introduced 'Aggrastat' in many markets in 1998, including the
United States, Switzerland, Germany, Mexico and Argentina. 'Aggrastat' treats
patients with acute coronary syndrome. This indication includes patients with
unstable angina (chest pain) and non-Q-wave myocardial infarction (often
described as a small heart attack).
The Arthritis Advisory Committee of the U.S. FDA on April 20 recommended that
the FDA approve 'Vioxx', Merck's investigational, anti-inflammatory COX-2
specific inhibitor, for the treatment of the signs and symptoms of
osteoarthritis and the relief of acute pain. Merck's first introduction of
'Vioxx' was in Mexico on March 18.
On February 23, 1999, the Board of Directors declared a quarterly dividend of 27
cents per share on the Company's common stock which was paid April 1 to
stockholders of record at the close of business on March 5. The Company's total
dividend paid to date in 1999 is 54 cents per share, a 20 percent increase over
the amount paid during the same period in 1998. The amount of dividends reflects
the Company's two-for-one stock split effective February 1999.
In early April 1999, Astra AB (Astra) merged with Zeneca Group Plc (Zeneca). As
a result of this merger, Astra was required to make one-time payments to Merck
totaling approximately $1.8 billion for the relinquishment by Merck of certain
rights, including option rights to future Astra products with no existing or
pending U.S. patents at the time of the merger. On April 21, Astra made payments
to the Company totaling approximately $1.7 billion and is disputing its
obligation to pay the remainder. Merck intends to enforce its rights under the
agreements entered into in connection with the restructuring of Astra Merck Inc.
(AMI) with respect to the disputed amount.
The Astra-Zeneca merger also triggers a partial redemption in 2008 of Merck's
limited partnership interest in Astra Pharmaceuticals, L.P., the U.S. limited
partnership formed in July 1998 as part of the restructuring of AMI (renamed
KBI). Additionally, Astra's option to buy Merck's interest in the KBI products
is now only exercisable in 2010 and the Company has obtained the right to
require Astra to purchase such interest at fair market value in 2008. Also as a
result of the merger, the $1.4 billion note issued to Astra in July 1998,
originally due in 2038, is payable in 2008.
- 8 -
<PAGE> 10
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
As disclosed in our Annual Report on Form 10-K for the year ended December 31,
1998, the Company initiated a program in 1996 to assess the risks of Year 2000
noncompliance, remediate all noncompliant systems and assess the readiness of
key third parties. The risks identified by this program remain the same and the
Company's assessment and remediation plans have not changed materially in terms
of scope, timing or estimated costs to complete. The inventory and assessment
phases are complete for critical internal information technology (IT) systems
and the Company is approximately 80% complete with the remediation phase as of
March 31, 1999. The inventory and assessment phase for non-IT systems is
substantially complete and remediation is underway. Contingency plans (including
the substitution of systems, use of manual methods and other means to prevent
the failure of critical systems from having a material effect on the Company)
are under development, particularly for high risk areas such as those involving
supplier and product management.
While some of the risks relating to third party readiness are outside of the
Company's control, the Company has instituted programs, including internal
records review and external questionnaires and supplier audits, to identify key
third parties and assess their level of Year 2000 readiness. As of March 31,
1999, key third parties have been identified and the assessment of their
readiness is underway. Third party-based contingency plans, including securing
alternate suppliers and alternate lines of communication with customers and
suppliers, as well as advance ordering and staging of materials, are being
developed to address the risks of noncompliance. Additionally, the Company is
assessing the need to maintain increased inventory levels to satisfy potential
increased customer demand at year-end.
All critical aspects of the Company's Year 2000 compliance program are expected
to be completed by the end of the third quarter 1999. Total costs to resolve the
Year 2000 issue are not expected to be material to the Company's financial
position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which requires
adoption by fiscal 2000. The Statement establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at fair value and that changes in
fair value be recognized currently in earnings, unless specific hedge accounting
criteria are met. The timing of adoption of the Statement and effect on the
Company's financial position or results of operations have not yet been
determined.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and oral statements made from time to time
by the Company 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 the Company'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
other 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 Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, as filed on
March 24, 1999, the Company discusses in more detail 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.
- 9 -
<PAGE> 11
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) Certificate of Amendment to the Certificate of Incorporated by reference to Form
Incorporation of Merck & Co., Inc. (as amended 10-K Annual Report for the fiscal
January 14, 1999, effective February 16, 1999) year ended December 31, 1998
3(c) 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
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 March 31, 1999, no current reports
on Form 8-K were filed.
- 10 -
<PAGE> 12
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: May 12, 1999 /s/ Mary M. McDonald
---------------------
MARY M. MCDONALD
Senior Vice President and General Counsel
Date: May 12, 1999 /s/ Richard C. Henriques
------------------------
RICHARD C. HENRIQUES
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) Certificate of Amendment to the Certificate of Incorporation of Merck & Co., Inc.
(as amended January 14, 1999, effective February 16, 1999)
- Incorporated by reference to Form 10-K Annual Report for the fiscal year ended
December 31, 1998
3(c) 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
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
<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 Years Ended December 31
March 31 ----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Income Before Taxes $1,842.8 $8,133.1 $6,462.3 $5,540.8 $4,797.2 $4,415.2
Add:
One-third of rents 14.4 56.0 47.0 41.0 28.1 36.0
Interest expense, net 57.0 150.6 98.2 103.2 60.3 96.0
Preferred stock dividends 29.9 62.1 49.6 70.0 2.1 --
-------- -------- -------- -------- -------- --------
Earnings $1,944.1 $8,401.8 $6,657.1 $5,755.0 $4,887.7 $4,547.2
======== ======== ======== ======== ======== ========
One-third of rents $ 14.4 $ 56.0 $ 47.0 $ 41.0 $ 28.1 $ 36.0
Interest expense 71.4 205.6 129.5 138.6 98.7 124.4
Preferred stock dividends 29.9 62.1 49.6 70.0 2.1 --
-------- -------- -------- -------- -------- --------
Fixed Charges $ 115.7 $ 323.7 $ 226.1 $ 249.6 $ 128.9 $ 160.4
======== ======== ======== ======== ======== ========
Ratio of Earnings
to Fixed Charges 17 26 29 23 38 28
======== ======== ======== ======== ======== ========
</TABLE>
For purposes of computing these ratios, "earnings" consist of income before
taxes, 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
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,793
<SECURITIES> 1,304
<RECEIVABLES> 3,133
<ALLOWANCES> 0<F1>
<INVENTORY> 2,486
<CURRENT-ASSETS> 9,615
<PP&E> 12,336
<DEPRECIATION> (4,215)
<TOTAL-ASSETS> 32,289
<CURRENT-LIABILITIES> 5,805
<BONDS> 3,218
0
0
<COMMON> 30
<OTHER-SE> 13,313
<TOTAL-LIABILITY-AND-EQUITY> 32,289
<SALES> 7,537
<TOTAL-REVENUES> 7,537
<CGS> 4,154
<TOTAL-COSTS> 4,154
<OTHER-EXPENSES> 442
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> 1,843
<INCOME-TAX> 543
<INCOME-CONTINUING> 1,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,300
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
<FN>
<F1>NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
