<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 30549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission File No.: 1-08734
MEDCO 401 (k) SAVINGS PLAN
- --------------------------------------------------------------------------------
(Full title of the plan)
MERCK & CO., INC.
- --------------------------------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P.O. Box 100
Whitehouse Station, New Jersey 08889
- --------------------------------------------------------------------------------
(address of principal executive office)
<PAGE> 2
Medco 401(k) Savings Plan
Financial Statements as of December 31, 1998 and 1997
Together with
Report of Independent Public Accountants
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Retirement Committee of
Medco 401(k) Savings Plan:
We have audited the accompanying statement of net assets available for benefits
of the Medco 401 (k) Savings Plan as of December 31, 1998 and 1997, and the
related statement of changes in net assets available for benefits for the year
ended December 31, 1998. These financial statements and the schedules referred
to below are the responsibility of the Plan administrator. Our responsibility is
to express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for purposes
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The fund information in the statement of
net assets available for benefits and the statement of changes in net assets
available for benefits is presented for purposes of additional analysis rather
than to present the net assets available for plan benefits and changes in net
assets available for plan benefits of each fund. The supplemental schedules and
fund information have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
New York, New York
May 14, 1999
<PAGE> 4
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998
MERCK COMMON STOCK FUND
<TABLE>
<CAPTION>
MERCK COMMON STOCK FUND
-----------------------------------
(NON-PARTICIPANT (PARTICIPANT T. ROWE PRICE
DIRECTED; SEE DIRECTED; SEE BLUE CHIP
TOTAL NOTE 1) NOTE 1) GROWTH FUND
----- ------- ------- -----------
<S> <C> <C> <C> <C>
December 31, 1998
- -----------------
Assets
Investments, at market value $291,049,437 $ 77,619,149 $127,602,308 $ 38,847,928
------------ ------------ ------------ ------------
Receivables
Employer's contributions 589,656 -- 511,080 9,281
Participants' contributions 861,721 -- 584,596 177,938
Accrued interest and dividends 734,305 277,692 456,613 --
------------ ------------ ------------ ------------
Total receivables 2,185,682 277,692 1,552,289 187,219
------------ ------------ ------------ ------------
Net assets available for benefits $293,235,119 $ 77,896,841 $129,154,597 $ 39,035,147
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY
EQUITY-
INCOME FUND
-----------
<S> <C>
December 31, 1998
- -----------------
Assets
Investments, at market value $ 894,660
------------
Receivables
Employer's contributions 4,230
Participants' contributions 4,098
Accrued interest and dividends --
------------
Total receivables 8,328
------------
Net assets available for benefits $ 902,988
============
</TABLE>
The accompanying notes to financial statements are an integral part of
this financial statement.
<PAGE> 5
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY T. ROWE PRICE
VANGUARD GROWTH & T. ROWE PRICE MID-CAP EUROPACIFIC
U.S. GROWTH INCOME NEW INCOME GROWTH GROWTH
PORTFOLIO PORTFOLIO FUND FUND FUND
--------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
December 31, 1998 (Participant directed; see Note 1)
- -----------------
Assets
Investments, at market value $3,202,030 $2,543,500 $7,062,858 $1,343,734 $ 908,656
---------- ---------- ---------- ---------- ----------
Receivables
Employer's contributions 7,641 8,271 2,631 5,450 2,834
Participants' contributions 14,667 11,650 32,351 6,155 4,162
Accrued interest and dividends -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total receivables 22,308 19,921 34,982 11,605 6,996
---------- ---------- ---------- ---------- ----------
Net assets available for benefits $3,224,338 $2,563,421 $7,097,840 $1,355,339 $ 915,652
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
this financial statement.
<PAGE> 6
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
THE GEORGE FIDELITY SPARTAN FIDELITY
PUTNAM RETIREMENT U.S. EQUITY LOW-PRICED FRANKLIN
FUND OF MONEY INDEX STOCK SMALL CAP
BOSTON A MARKET FUND FUND GROWTH FUND I
<S> <C> <C> <C> <C> <C>
December 31, 1998
- -----------------
Assets
Investments, at market value $ 659,777 $17,130,097 $ 2,108,356 $ 1,367,419 $ 1,246,750
----------- ----------- ----------- ----------- -----------
Receivables
Employer's contributions 2,738 3,482 7,403 6,507 5,156
Participants' contributions 3,022 78,463 9,657 6,263 5,711
Accrued interest and dividends -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total receivables 5,760 81,945 17,060 12,770 10,867
----------- ----------- ----------- ----------- -----------
Net assets available for benefits $ 665,537 $17,212,042 $ 2,125,416 $ 1,380,189 $ 1,257,617
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
this financial statement.
<PAGE> 7
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
TEMPLETON
PUTNAM DEVELOPING T. ROWE PRICE
VOYAGER MARKETS DIVIDEND PARTICIPANTS'
FUND A TRUST I GROWTH FUND LOAN ACCOUNT
<S> <C> <C> <C> <C>
December 31, 1998
- -----------------
Assets
Investments, at market value $1,294,804 $375,211 $885,920 $5,956,280
---------- -------- -------- ----------
Receivables
Employer's contributions 7,077 2,752 3,123 --
Participants' contributions 5,931 1,719 4,058 (88,720)
Accrued interest and dividends -- -- -- --
---------- -------- -------- ----------
Total receivables 13,008 4,471 7,181 (88,720)
---------- -------- -------- ----------
Net assets available for benefits $1,307,812 $379,682 $893,101 $5,867,560
========== ======== ======== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
financial statement.
<PAGE> 8
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
MERCK COMMON STOCK FUND
-----------------------------------
(NON-PARTICIPANT (PARTICIPANT T. ROWE PRICE
DIRECTED; SEE DIRECTED; SEE BLUE CHIP
TOTAL NOTE 1) NOTE 1) GROWTH FUND
----- ------- ------- -----------
<S> <C> <C> <C> <C>
December 31, 1997
- -----------------
Assets
Investments, at market value $193,366,663 $56,891,975 $82,398,981 $31,077,897
------------ ----------- ----------- -----------
Receivables
Employer's contributions 1,576,870 1,576,870 - -
Participants' contributions 588,003 - 305,605 181,838
Accrued interest and dividends 584,654 238,792 345,862 -
------------ ----------- ----------- -----------
Total receivables 2,749,527 1,815,662 651,467 181,838
------------ ----------- ----------- -----------
Net assets available for benefits $196,116,190 $58,707,637 $83,050,448 $31,259,735
============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE GUARANTEED PRIME
NEW INCOME INVESTMENT RESERVE PARTICIPANTS'
FUND CONTRACT FUND LOAN ACCOUNT
---- -------- ---- ------------
<S> <C> <C> <C> <C>
December 31, 1997 Participant directed; see Note 1)
- -----------------
Assets
Investments, at market value $6,035,721 $8,625,494 $4,836,984 $3,499,611
---------- ---------- ---------- ----------
Receivables
Employer's contributions - - - -
Participants' contributions 37,128 73,290 51,132 (60,990)
Accrued interest and dividends - - - -
---------- ---------- ---------- ----------
Total receivables 37,128 73,290 51,132 (60,990)
---------- ---------- ---------- ----------
Net assets available for benefits $6,072,849 $8,698,784 $4,888,116 $3,438,621
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
this financial statement.
<PAGE> 9
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MERCK COMMON STOCK FUND
-------------------------------------
(NON-PARTICIPANT (PARTICIPANT
DIRECTED; SEE DIRECTED; SEE
YEAR ENDED DECEMBER 31, 1998 TOTAL NOTE 1) NOTE 1)
- ----------------------------
Additions to net assets attributed to:
<S> <C> <C> <C>
Investment income
Net appreciation (depreciation) in
market value of investments $ 63,426,415 $ 21,380,401 $ 33,383,891
Interest 971,912 341,060 532,540
Dividends 4,750,761 783,202 1,272,922
------------- ------------- -------------
Total investment income (loss) 69,149,088 22,504,663 35,189,353
------------- ------------- -------------
Contributions to the Plan
By participants 27,274,110 -- 12,546,668
By employer 11,208,981 -- 9,715,275
------------- ------------- -------------
Total contributions 38,483,091 -- 22,261,943
------------- ------------- -------------
Total additions 107,632,179 22,504,663 57,451,296
------------- ------------- -------------
Deductions from net assets attributed to:
Benefits paid to participants (9,847,116) (2,361,803) (3,687,777)
------------- ------------- -------------
Transfers among funds and Plans:
Net reallocations (666,134) (190,729) (6,468,119)
Loans to participants -- (1,253,637) (1,957,459)
Loan repayments by participants -- 490,710 766,208
------------- ------------- -------------
Net transfers among funds and Plans (666,134) (953,656) (7,659,370)
------------- ------------- -------------
Total deductions and net
transfers among funds & Plans (10,513,250) (3,315,459) (11,347,147)
------------- ------------- -------------
Net increase (decrease) 97,118,929 19,189,204 46,104,149
Net assets available for benefits
Beginning of year 196,116,190 58,707,637 83,050,448
------------- ------------- -------------
End of year $ 293,235,119 $ 77,896,841 $ 129,154,597
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE FIDELITY
BLUE CHIP EQUITY-
YEAR ENDED DECEMBER 31, 1998 GROWTH FUND INCOME FUND
- ----------------------------
Additions to net assets attributed to: (PARTICIPANT DIRECTED; SEE NOTE 1)
<S> <C> <C>
Investment income
Net appreciation (depreciation) in
market value of investments $ 8,202,741 $ (13,217)
Interest 46,229 852
Dividends 621,148 40,085
------------- ------------
Total investment income (loss) 8,870,118 27,720
------------- ------------
Contributions to the Plan
By participants 5,256,207 338,134
By employer 176,416 80,411
------------- ------------
Total contributions 5,432,623 418,545
------------- ------------
Total additions 14,302,741 446,265
------------- ------------
Deductions from net assets attributed to:
Benefits paid to participants (1,106,633) (4,375)
------------- ------------
Transfers among funds and Plans:
Net reallocations (5,030,770) 462,647
Loans to participants (614,190) (19,441)
Loan repayments by participants 224,264 17,892
------------- ------------
Net transfers among funds and Plans (5,420,696) 461,098
------------- ------------
Total deductions and net
transfers among funds & Plans (6,527,329) 456,723
------------- ------------
Net increase (decrease) 7,775,412 902,988
Net assets available for benefits
Beginning of year 31,259,735 --
------------- ------------
End of year $ 39,035,147 $ 902,988
============= ============
</TABLE>
The accompanying notes to financial statements are an integral part of
this financial statement.
<PAGE> 10
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FIDELITY T. ROWE PRICE
VANGUARD GROWTH & T. ROWE PRICE MID-CAP EUROPACIFIC
U.S. GROWTH INCOME NEW INCOME GROWTH GROWTH
YEAR ENDED DECEMBER 31, 1998 PORTFOLIO PORTFOLIO FUND FUND FUND
(PARTICIPANT DIRECTED; SEE NOTE 1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation (depreciation) in
market value of investments $ 273,718 $ 208,204 ($ 201,925) $ 112,108 ($ 22,411)
Interest 3,550 1,679 8,675 1,418 705
Dividends 188,646 116,923 514,775 27,315 47,417
----------- ----------- ----------- ----------- -----------
Total investment income (loss) 465,914 326,806 321,525 140,841 25,711
----------- ----------- ----------- ----------- -----------
Contributions to the Plan
By participants 812,042 1,084,778 454,489 252,372
1,083,972
By employer 145,243 50,020 103,602 53,880
----------- ----------- ----------- ----------- -----------
157,224
Total contributions 957,285 1,241,196 1,134,798 558,091 306,252
----------- ----------- ----------- ----------- -----------
Total additions 1,423,199 1,568,002 1,456,323 698,932 331,963
----------- ----------- ----------- ----------- -----------
Deductions from net assets attributed to:
Benefits paid to participants (55,705) (115,884) (324,858) (3,252) (32,710)
----------- ----------- ----------- ----------- -----------
Transfers among funds and Plans:
Net reallocations 1,875,814 1,149,131 1,305 670,109 611,014
Loans to participants (41,057) (46,246) (143,361) (22,803) (5,029)
Loan repayments by participants 22,087 8,418 35,582 12,353 10,414
----------- ----------- ----------- ----------- -----------
Net transfers among funds and Plans 1,856,844 1,111,303 (106,474) 659,659 616,399
----------- ----------- ----------- ----------- -----------
Total deductions and net
transfers among funds & Plans 1,801,139 995,419 (431,332) 656,407 583,689
----------- ----------- ----------- ----------- -----------
Net increase (decrease) 3,224,338 2,563,421 1,024,991 1,355,339 915,652
Net assets available for benefits
Beginning of year - - 6,072,849 - -
----------- ----------- ----------- ----------- -----------
End of year $ 3,224,338 $ 2,563,421 $ 7,097,840 $ 1,355,339 $ 915,652
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are
an integral part of this financial statement.
<PAGE> 11
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
THE GEORGE FIDELITY SPARTAN FIDELITY
PUTNAM RETIREMENT U.S. EQUITY LOW-PRICED FRANKLIN
FUND OF MONEY INDEX STOCK SMALL CAP
YEAR ENDED DECEMBER 31, 1998 BOSTON A MARKET FUND FUND GROWTH FUND I
(PARTICIPANT DIRECTED; SEE NOTE 1)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income
Net appreciation (depreciation) in
market value of investments ($ 27,523) $ - $ 258,295 ($ 157,111) ($ 33,659)
Interest 955 29,557 724 1,207 964
Dividends 52,390 807,621 26,656 102,035 17,181
------------ ------------ ------------ ------------ ------------
Total investment income (loss) 25,822 837,178 285,675 (53,869) (15,514)
------------ ------------ ------------ ------------ ------------
Contributions to the Plan
By participants 274,094 2,513,827 734,613 472,422 436,299
By employer 52,051 66,184 140,734 123,697 98,015
------------ ------------ ------------ ------------ ------------
Total contributions 326,145 2,580,011 875,347 596,119 534,314
------------ ------------ ------------ ------------ ------------
Total additions 351,967 3,417,189 1,161,022 542,250 518,800
------------ ------------ ------------ ------------ ------------
Deductions from net assets attributed to:
Benefits paid to participants (59,332) (1,552,514) (1,443) (7,633) (60,932)
------------ ------------ ------------ ------------ ------------
Transfers among funds and Plans:
Net reallocations 387,961 15,671,584 995,050 844,334 805,604
Loans to participants (17,061) (462,104) (36,286) (6,652) (23,695)
Loan repayments by participants 2,002 137,887 7,073 7,890 17,840
------------ ------------ ------------ ------------ ------------
Net transfers among funds and Plans 372,902 15,347,367 965,837 845,572 799,749
------------ ------------ ------------ ------------ ------------
Total deductions and net
transfers among funds & Plans 313,570 13,794,853 964,394 837,939 738,817
------------ ------------ ------------ ------------ ------------
Net increase (decrease) 665,537 17,212,042 2,125,416 1,380,189 1,257,617
Net assets available for benefits
Beginning of year - - - - -
------------ ------------ ------------ ------------ ------------
End of year $ 665,537 $ 17,212,042 $ 2,125,416 $ 1,380,189 $ 1,257,617
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are
an integral part of this financial statement.
<PAGE> 12
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
TEMPLETON
PUTNAM DEVELOPING T. ROWE PRICE GUARANTEED PRIME
VOYAGER MARKETS DIVIDEND INVESTMENT RESERVE
YEAR ENDED DECEMBER 31, 1998 FUND A TRUST I GROWTH FUND CONTRACT FUND
- ---------------------------- ------ ------- ----------- -------- ----
Additions to net assets attributed to: (Participant directed; see Note 1)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Net appreciation (depreciation) in
market value of investments $ 55,248 ($ 28,092) $ 35,747 $ 0 $ 0
Interest 890 466 441 0 0
Dividends 85,587 5,970 40,888 0 0
-------------------------------------------------------------------------------
Total investment income (loss) 141,725 (21,656) 77,076 0 0
-------------------------------------------------------------------------------
Contributions to the Plan
By participants 562,192 187,367 264,634 0 0
By employer 134,537 52,321 59,371 0 0
-------------------------------------------------------------------------------
Total contributions 696,729 239,688 324,005 0 0
-------------------------------------------------------------------------------
Total additions 838,454 218,032 401,081 0 0
-------------------------------------------------------------------------------
Deductions from net assets attributed to:
Benefits paid to participants (54,737) (13,501) (18,103) 0 0
-------------------------------------------------------------------------------
Transfers among funds and Plans:
Net reallocations 522,238 176,382 500,869 (8,698,784) (4,888,116)
Loans to participants (3,991) (6,922) (5,509) 0 0
Loan repayments by participants 5,848 5,691 14,763 0 0
-------------------------------------------------------------------------------
Net transfers among funds and Plans 524,095 175,151 510,123 (8,698,784) (4,888,116)
-------------------------------------------------------------------------------
Total deductions and net
transfers among funds & Plans 469,358 161,650 492,020 (8,698,784) (4,888,116)
-------------------------------------------------------------------------------
Net increase (decrease) 1,307,812 379,682 893,101 (8,698,784) (4,888,116)
Net assets available for benefits
Beginning of year - - - 8,698,784 4,888,116
-------------------------------------------------------------------------------
End of year $ 1,307,812 $ 379,682 $ 893,101 $ 0 $ 0
===============================================================================
</TABLE>
The accompanying notes to financial statements are an integral part of this
financial statement.
<PAGE> 13
MEDCO 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
PUTNAM
PARTICIPANTS'
YEAR ENDED DECEMBER 31, 1998 LOAN ACCOUNT
- ---------------------------- ------------
<S> <C>
Additions to net assets attributed to:
Investment income
Net appreciation (depreciation) in
market value of investments $ --
Interest --
Dividends --
-------------
Total investment income (loss) --
-------------
Contributions to the Plan
By participants --
By employer --
-------------
Total contributions --
-------------
Total additions --
-------------
Deductions from net assets attributed to:
Benefits paid to participants (385,924)
-------------
Transfers among funds and Plans:
Net reallocations (63,658)
Loans to participants 4,665,443
Loan repayments by participants (1,786,922)
-------------
Net transfers among funds and Plans 2,814,863
-------------
Total deductions and net
transfers among funds & Plans 2,428,939
-------------
Net increase (decrease) 2,428,939
Net assets available for benefits
Beginning of year 3,438,621
-------------
End of year $ 5,867,560
=============
</TABLE>
The accompanying notes to financial statements are an integral part of this
financial statement.
<PAGE> 14
MEDCO 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE PLAN:
The following description of the Medco 401(k) Savings Plan (the "Plan")
is provided for general information purposes only. More complete
information regarding the Plan's provisions may be found in the Plan
document.
GENERAL - -
Effective January 1, 1989, Medco Containment Services, Inc. (the
"Company"), which changed its name and corporate structure to
Merck-Medco Managed Care, L.L.C., effective January 1, 1997,
established the Plan under the provisions of Section 401(a) of the
Internal Revenue Code ("IRC"), which includes a qualified cash or
defined arrangement as described in Section 401(k) of the IRC, for the
benefit of eligible employees of the Company. The Plan is a defined
contribution plan covering substantially all employees of the Company
and certain subsidiaries, other than certain employees subject to
collective bargaining agreements, who have completed one year of
service and attained the age of twenty-one. Participation in the Plan
is voluntary. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
The Plan was amended as a result of the merger, effective November 18,
1993, by and between the Company and a subsidiary of Merck & Co., Inc.
("Merck"). The amendment provides participants with an option to invest
all or part of their contributions in the common stock of Merck.
CONTRIBUTIONS - -
Plan participants can contribute an amount up to 15% of base
compensation as defined by the Plan (up to 10% if a highly compensated
employee as defined by the IRC) subject to certain limitations under
the IRC.
During 1998, the Company matched 100% of employee contributions for the
first 3% of base compensation deferred and 50% of employee
contributions for the next 3% deferred. Participants had the option to
invest all Company matching contributions in any of the available fund
options (participant directed). The Company eliminated the Bonus
Matching Contribution.
During 1997, the Company matched 50% of employee contributions up to 4%
of base compensation deferred. Company contributions were invested in
Merck Common Stock (non-participant directed). In addition, the Company
provided a Bonus Matching Contribution on behalf of each participant of
100% of each participant's contribution, up to $200 per participant,
subject to certain conditions as defined in the provisions of the Plan.
The Plan is administered by the Retirement Committee which is appointed
by the Board of Directors of the Company. The expenses incurred in
connection with the operation of the Plan are expenses of
<PAGE> 15
the Plan and payable from the assets thereon. The Company has the
option to pay such expenses. For the year ended December 31, 1998, all
such expenses incurred were paid by the Company.
INVESTMENT OPTIONS - -
Upon enrollment in the Plan, each participant shall direct their
contributions to be invested in 1% increments in any of the investment
programs including Merck Common Stock (participant directed) managed by
Fidelity Institutional Retirement Services Company. If a participant
does not designate a fund, the Plan will automatically allocate a
participant contribution to the Fidelity Retirement Money Market Fund.
Such designation may be revised by participants on a daily basis.
Participants should refer to each investment fund's prospectus for a
more complete description of the risks and strategies associated with
each fund.
On December 31, 1997, all net assets, except for the Guaranteed
Investment Contract and the Prime Reserve Fund, were transferred to a
new custodian, Fidelity Institutional Retirement Services Company. As
part of this transfer, all net assets within the Growth Stock Fund were
transferred to the T. Rowe Price Blue Chip Growth Fund. There was no
effect on the remaining funds as a result of this transfer.
The investment options of the Plan, as described in the Plan document,
are as follows:
o Guaranteed Investment Contract:
The guaranteed investment contract ("GIC"), managed by the
Hartford Life Insurance Company ("Hartford"), invests
primarily in insurance sub-contracts which pay interest at a
predetermined rate for a specific period of time. As these
sub-contracts mature at various times, the actual rate of
return is a blend of the individual sub-contract rates at any
point in time. As of December 31, 1997, the GIC consisted of
six Hartford sub-contracts with an average interest rate of
6.25%.
This investment option was eliminated from the plan effective
January 2, 1998. The liquidated value was wired to the
Fidelity Retirement Money Market account.
o Prime Reserve Fund:
Invested primarily in short-term money market securities.
This investment option was eliminated from the plan effective
January 2, 1998. The liquidated value was wired to the
Fidelity Retirement Money Market account.
o Merck Common Stock Fund:
The Merck Common Stock Fund invests primarily in Merck common
stock and a small portion of money market instruments for
liquidity. This liquidity allows for daily trading in the
fund. Ownership is measured in units rather than shares. An
investment in this option allows the participant to become a
stockholder and part owner of the Company. The value of the
<PAGE> 16
investment can go up or down depending on general factors
affecting the stock market and specific factors affecting the
Company's business. This is neither a mutual fund nor a
diversified or managed investment option. Investing in a
non-diversified single stock involves more investment risk
than investing in a diversified fund.
o T. Rowe Price Blue Chip Growth Fund:
The T. Rowe Price Blue Chip Growth Fund seeks to provide
long-term growth of capital. The fund invests primarily (at
least 65% of its assets) in common stocks of large and
medium-sized blue chip companies that have the potential for
above-average earnings growth and are well established in
their respective industries. The fund may also invest in
convertible stocks and bonds, preferred stocks, bonds and
warrants. Up to 20% of assets (excluding reserves) may be
invested in foreign securities, which may be subject to
currency risks and political and sovereign risks of the home
country.
o T. Rowe Price New Income Fund:
The T. Rowe Price New Income Fund is a bond fund that seeks to
provide the highest level of income consistent with
preservation of capital by purchasing securities that have
been rated as investment-grade by Standard & Poor's, Moody's
or Fitch Investor Services. The fund invests at least 80% of
its assets in income-producing investment-grade debt
securities including U.S. government and agency securities,
corporate bonds, bank obligations and utilities. The fund's
dollar-weighted average maturity is generally expected to be
between four and fifteen years.
The following investment options were added to the Plan effective
January 1, 1998:
o Fidelity Equity-Income Fund:
Funds are invested in income-producing equity securities.
Normally, at least 65% of the fund's assets will be invested
in income producing equity securities. The fund has the
flexibility to invest the balance in all types of domestic and
foreign securities, including bonds.
o Vanguard U.S. Growth Portfolio:
The Vanguard U.S. Growth Portfolio seeks to provide long-term
capital growth by investing in equity securities of large,
established U.S. companies that have good growth records,
strong market positions and have exhibited long-term financial
strength to provide potential long-term growth.
o Fidelity Growth & Income Portfolio:
Funds are invested primarily in U.S. and foreign stocks,
focusing on those that pay current dividends and offer
potential growth of earnings such as common stocks,
convertible securities, preferred stocks and warrants.
<PAGE> 17
o T. Rowe Price Mid-Cap Growth Fund:
The T. Rowe Price Mid-Cap Growth Fund seeks to provide
long-term capital appreciation by investing primarily in the
stock of medium-sized (mid-cap) growth companies that offer
the potential for above-average earnings growth. The fund
focuses on companies that are no longer considered new or
emerging, but are well-established. It may also invest in
convertible securities, warrants and foreign securities, which
are subject to greater risks.
o Fund EuroPacific Growth:
This fund seeks long-term capital growth by investing
primarily in securities of companies outside the United
States. Normally, at least 65% of the fund's total assets will
be invested in Europe or the Pacific Basin. The Pacific Basin
is generally defined as those countries bordering the Pacific
Ocean and includes, but is not limited to Australia, Canada,
Japan, Malaysia and Singapore. The fund may also invest in
convertible securities, debt and government securities and
preferred stock. Foreign investments, especially in developing
countries, involve greater risks and may offer greater
potential.
o The George Putnam Fund of Boston A:
This fund seeks to provide a balanced investment comprised of
a well-diversified portfolio of stocks and bonds that will
produce both capital growth and current income. Normally, no
more than 75% of the fund's assets will be invested in common
stocks and convertible securities.
o Fidelity Retirement Money Market:
Funds are invested in high-quality U.S. dollar-denominated
money market instruments of U.S. and foreign issuers.
Normally, the fund intends to invest more than 25% of its
total assets in obligations of institutions in the financial
services industry.
o Spartan U.S. Equity Index Fund:
This fund seeks to provide investment results that correspond
to the total return performance of common stocks traded in the
United States. Funds are primarily invested in securities of
the companies which comprise the S&P 500 index.
o Fidelity Low-Priced Stock Fund:
This fund seeks capital appreciation by investing mainly in
low-priced domestic and foreign common stocks ($35 or less at
time of purchase). Foreign securities may involve a higher
degree of risk. This fund charges a redemption fee to
discourage short-term buying and selling of fund shares. If
fund shares are sold after being held for less than 90 days,
the fund will deduct a redemption fee from participants'
accounts equal to 1.5% of the value of the shares sold.
<PAGE> 18
o Franklin Small Cap Growth Fund I:
This fund seeks long-term capital growth by investing
primarily in stocks of companies with market capitalization of
less than $1.5 billion at the time of the investment. Although
the fund's assets are invested primarily in small companies,
it may invest up to 35% of its total assets in larger
capitalized companies with strong growth potential, in
relatively well-known larger companies in mature industries
with potential for capital appreciation, and in corporate debt
securities, including bonds, notes and debentures if deemed
appropriate. The fund may also invest up to 25% of its total
assets in foreign securities, which may involve greater risks.
Effective January 1, 1999, the Franklin Small Cap Growth Fund
I shares were changed to Class A.
o Putnam Voyager Fund A:
This fund seeks capital appreciation by investing primarily in
common stocks of companies that have potential for capital
appreciation which is significantly greater than that of the
market averages. The fund may also invest in convertible
bonds, convertible preferred stocks, warrants, preferred
stocks, money market instruments and debt securities. The fund
may invest up to 20% of its total assets in securities
principally traded in foreign markets. Foreign securities are
subject to currency, political, financial or sovereign risks
of the issuer's home country.
o Templeton Developing Markets Trust I:
This fund seeks long-term capitalization by investing in
equity securities of emerging market countries. The fund may
invest up to 35% of its total assets in debt securities,
including bonds, notes, debentures, commercial paper,
certificates of deposit, time deposits and bankers'
acceptances. Foreign investments may involve greater risks.
Effective January 1, 1999, the Templeton Developing Markets
Trust I shares were changed to Class A.
o T. Rowe Price Dividend Growth Fund:
This fund seeks to provide increasing dividend income over
time, long-term capital appreciation and reasonable current
income through investments primarily in dividend-paying
stocks. The fund may also invest in bonds and foreign
securities.
VESTING - -
Participants are immediately vested in their contributions plus actual
earnings thereon. Participants with an employment commencement date
before January 1, 1993 became 100% vested on January 1, 1998.
Participants with an employment commencement date on or after January
1, 1993 become vested in Company contributions as follows:
<PAGE> 19
Years of Service % Vested
-------------------------------------------------
Less than 2 years 0%
2 years but less than 3 25%
3 years but less than 4 50%
4 years but less than 5 75%
5 years or more 100%
At December 31, 1998, forfeited nonvested accounts totaled $798,038.
These accounts will be used to reduce future Company contributions.
PARTICIPANTS' LOAN ACCOUNT - -
Participants who are active employees may borrow up to 50% of their
total vested balance, provided such loan does not exceed $50,000. The
minimum loan amount is $1,000. All loans bear interest at a rate
similar to that charged by commercial lenders at the time of the loan
application. For the year ended December 31, 1998, the interest rate on
all participant loans was 9.5%. Loans are repaid over a period of one
to five years, or up to thirty years if the loan is used to purchase a
home to be the participant's principal residence.
BENEFITS PAID TO PARTICIPANTS - -
In-service and termination distributions are made throughout the year
in accordance with applicable Plan provisions. The Company instituted a
voice response system effective January 1, 1998, which ensures that
distributions are requested and paid on the same day. As such, at
December 31, 1998, there were no distributions in process included in
net assets available for benefits. At December 31, 1997, net assets
available for benefits included distributions in process of $76,045.
DIVIDEND RECEIVABLE - -
The Plan recorded a dividend receivable for the Merck Common Stock
Fund. Merck declared the dividend for holders on record as of December
4, 1998. The dividend was paid on January 4, 1999.
USE OF ESTIMATES - -
The financial statements are prepared in conformity with generally
accepted accounting principles and, accordingly, include amounts that
are based on management's best estimates and judgments. Actual results
could differ from these estimates.
(2) SUMMARY OF ACCOUNTING POLICIES:
The financial statements of the Plan have been prepared on the accrual
basis of accounting. The investments of the Plan are stated at quoted
market value except for the GIC which is stated at contract value.
Contract value represents contributions made under the contract, plus
earnings, less Plan withdrawals. Contract value of the GIC approximates
fair value as reported to the Plan by Hartford. Participant notes are
valued at cost which approximates fair value. Dividend income is
recorded on the ex-dividend date. The appreciation in market value of
investments is based on the
<PAGE> 20
beginning of the year market value or value at the time of purchase
during the year and is included in the statement of changes in net
assets available for benefits.
(3) PLAN TERMINATION:
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and
to terminate the Plan subject to the provisions of ERISA. In the event
of Plan termination, participants will become fully vested in their
account balances.
(4) INCOME TAX STATUS:
The trust established under the Plan is qualified under the IRC as
exempt from Federal income taxes and the Plan received a favorable
determination letter from the Internal Revenue Service ("IRS") on June
26, 1992. Prior to December 31, 1994, the Plan was amended to meet
certain requirements of the Tax Reform Act of 1986. The Plan was
restated as of January 1, 1998. The Plan administrator is of the
opinion that the Plan meets the IRS requirements and, therefore, the
trust continues to be tax exempt. As a result, no provision for income
taxes has been made.
(5) OTHER MATTERS:
For the 1998 plan year, net transfers among funds and plans equaled
$666,134. This amount primarily consists of a transfer, totaling
$662,160, between the Plan and the Merck & Co., Inc. ("Merck") Employee
Savings and Security Plan for the employees who were transferred to
Merck during 1998. The remaining amounts relate to miscellaneous
transfers.
(6) PARTY-IN-INTEREST:
All party-in-interest transactions are set forth on the attached
schedules.
(7) PROHIBITED TRANSACTIONS:
There were no prohibited transactions during 1998.
<PAGE> 21
SCHEDULE I
EIN: 22-3461740
PLAN NO.: 003
MEDCO 401(k) SAVINGS PLAN
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF
UNITS/SHARES AT
NAME OF ISSUER AND TITLE OF ISSUE CLOSE OF PERIOD COST CURRENT VALUE
- --------------------------------- --------------- ---- -------------
<S> <C> <C> <C>
Merck Common Stock Fund* 8,141,578 $ 87,458,800 $ 205,221,457
T. Rowe Price Blue Chip Growth Fund 1,269,540 31,392,294 38,847,928
Fidelity Equity-Income Fund 16,105 897,011 894,660
Vanguard U.S. Growth Portfolio 85,410 2,932,058 3,202,030
Fidelity Growth & Income Portfolio 55,486 2,336,143 2,543,500
T. Rowe Price New Income Fund 801,686 7,246,511 7,062,858
T. Rowe Price Mid-Cap Growth Fund 39,429 1,236,971 1,343,734
EuroPacific Growth Fund 31,995 907,622 908,656
The George Putnam Fund of Boston A 36,573 679,461 659,777
Fidelity Retirement Money Market 17,130,097 17,130,097 17,130,097
Spartan U.S. Equity Index Fund 47,961 1,863,533 2,108,356
Fidelity Low-Priced Stock Fund 59,843 1,508,458 1,367,419
Franklin Small Cap Growth Fund I 55,240 1,259,183 1,246,750
Putnam Voyager Fund A 59,070 1,231,080 1,294,804
Templeton Developing Markets Trust I 36,428 399,314 375,211
T. Rowe Price Dividend Growth Fund 40,251 850,690 885,920
Participants' Loan Account (with interest of 9.5%) -- 5,956,280 5,956,280
------------- -------------
Total investments $ 165,285,506 $ 291,049,437
============= =============
</TABLE>
* Denotes a party-in-interest to the Plan.
The accompanying notes to financial statements are an integral part of
this schedule.
<PAGE> 22
Schedule II
EIN: 22-3461740
Plan No.: 003
MEDCO 401(k) SAVINGS PLAN
ITEM 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS (A)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Current
Value of
Asset on
Purchase Selling Cost of Transaction Net
Description Price Price Asset Date Gain
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Merck Common Stock*
235 purchase transactions $50,918,043 $ -- $50,918,043 $50,918,043 $ --
224 sales transactions -- 39,724,101 23,169,779 39,724,101 16,554,322
Fidelity Retirement Money Market
235 purchase transactions 40,937,657 -- 40,937,657 40,937,657 --
221 sales transactions -- 23,807,560 23,807,560 23,807,560 --
T. Rowe Price Blue Chip Growth Fund
232 purchase transactions 8,783,378 -- 8,783,378 8,783,378 --
221 sales transactions -- 9,216,088 8,468,980 9,216,088 747,108
</TABLE>
* Denotes a party-in-interest to the Plan.
(A) Reportable transactions are defined as those transactions in
excess of 5% individually or in the aggregate of the Plan's net
assets available for benefit at the beginning of the Plan year.
The accompanying notes to financial statements are an integral part of
this schedule.
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned member of the Retirement Committee has duly caused this
annual report to be signed on behalf of the Medco 401(k) Savings Plan by
the undersigned thereunto duly authorized.
MEDCO 401(k) SAVINGS PLAN
By: /s/ JoAnn Reed
------------------------------------
JoAnn Reed
Member of the Retirement
Committee
Date: June 22, 1999.
<PAGE> 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated May 14, 1999 included in the financial
statements and exhibits required by Form 11K Annual Report for the Medco
401 (k) Savings Plan into the Company's previously filed Post Effective
Amendment on Form S-8 (No. 33-50667) to Registration Statement on Form
S-4. It should be noted that we have not audited any financial statements
of the plan, subsequent to December 31, 1998 or performed any audit
procedures subsequent to the date of our report.
/s/ Arthur Andersen LLP
-------------------
Arthur Andersen LLP
New York, New York
June 28, 1999.
