<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 June 30, 2000
-------------
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
July 31, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 2,300,535,217
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited, $ in millions except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------- -----------------------------
2000 1999 2000 1999
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Sales $9,477.1 $8,018.2 $18,328.4 $15,554.8
---------- ---------- ------------ -------------
Costs, Expenses and Other
Materials and production 5,087.0 4,370.2 9,920.4 8,524.4
Marketing and administrative 1,463.6 1,184.4 2,880.7 2,338.6
Research and development 548.0 482.7 1,071.7 924.4
Equity income from affiliates (211.8) (179.6) (400.1) (354.4)
Other (income) expense, net 113.0 (170.1) 184.4 (51.6)
---------- ---------- ------------ -------------
6,999.8 5,687.6 13,657.1 11,381.4
---------- ---------- ------------ -------------
Income Before Taxes 2,477.3 2,330.6 4,671.3 4,173.4
Taxes on Income 755.6 852.5 1,450.0 1,395.7
---------- ---------- ----------- -----------
Net Income $1,721.7 $1,478.1 $ 3,221.3 $ 2,777.7
========== ========== =========== ===========
Basic Earnings per Common Share $.74 $.63 $1.39 $1.18
Earnings per Common Share Assuming Dilution $.73 $.61 $1.37 $1.15
Dividends Declared per Common Share $.29 $.27 $.58 $.54
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
- 1 -
<PAGE> 3
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND DECEMBER 31, 1999
(Unaudited, $ in millions)
<TABLE>
<CAPTION>
June 30 December 31
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,806.0 $ 2,021.9
Short-term investments 1,105.7 1,180.5
Accounts receivable 3,863.2 4,089.0
Inventories 2,927.9 2,846.9
Prepaid expenses and taxes 1,137.9 1,120.9
--------- ---------
Total current assets 11,840.7 11,259.2
--------- ---------
Investments 5,059.2 4,761.5
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$5,004.0 in 2000 and $4,670.3 in 1999 10,406.4 9,676.7
Goodwill and Other Intangibles,
net of accumulated amortization of
$1,668.0 in 2000 and $1,488.7 in 1999 7,549.1 7,584.2
Other Assets 2,587.9 2,353.3
--------- ---------
$37,443.3 $35,634.9
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,923.7 $ 4,158.7
Loans payable and current portion of long-term debt 3,784.3 2,859.0
Income taxes payable 673.0 1,064.1
Dividends payable 667.2 677.0
--------- ---------
Total current liabilities 9,048.2 8,758.8
--------- ---------
Long-Term Debt 3,439.1 3,143.9
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 7,226.6 7,030.1
--------- ---------
Minority Interests 5,010.4 3,460.5
--------- ---------
Stockholders' Equity
Common stock
Authorized - 5,400,000,000 shares
Issued - 2,968,195,053 shares - June 30, 2000
- 2,968,030,509 shares - December 31, 1999 29.7 29.7
Other paid-in capital 5,973.7 5,920.5
Retained earnings 25,330.2 23,447.9
Accumulated other comprehensive (loss) income (6.2) 8.1
--------- ---------
31,327.4 29,406.2
Less treasury stock, at cost
668,462,613 shares - June 30, 2000
638,953,059 shares - December 31, 1999 18,608.4 16,164.6
--------- ---------
Total stockholders' equity 12,719.0 13,241.6
--------- ---------
$37,443.3 $35,634.9
========= =========
</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
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited, $ in millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $ 4,671.3 $ 4,173.4
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Depreciation and amortization 638.8 577.2
Other (139.2) (344.5)
Net changes in assets and liabilities (74.2) (119.4)
---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 5,096.7 4,286.7
INCOME TAXES PAID (1,339.1) (1,047.2)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,757.6 3,239.5
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,198.0) (1,089.2)
Purchase of securities, subsidiaries and other investments (13,332.7) (17,686.2)
Proceeds from sale of securities, subsidiaries and other investments 12,859.0 16,333.5
Proceeds from relinquishment of certain AstraZeneca product rights 93.6 1,679.9
Other (35.1) (16.7)
---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (1,613.2) (778.7)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings 915.5 (4.1)
Proceeds from issuance of debt 300.7 11.4
Payments on debt (74.2) (15.9)
Proceeds from issuance of preferred units of subsidiary 1,500.0 -
Purchase of treasury stock (2,802.0) (1,525.1)
Dividends paid to stockholders (1,348.8) (1,275.4)
Other 186.9 99.6
---------- ----------
NET CASH USED BY FINANCING ACTIVITIES (1,321.9) (2,709.5)
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (38.4) (89.6)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 784.1 (338.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,021.9 2,606.2
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,806.0 $ 2,267.9
========== ==========
</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
accounting principles generally accepted in the United States for
complete consolidated 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 2000; 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. Inventories consisted of:
<TABLE>
<CAPTION>
($ in millions)
------------------------
June 30 December 31
2000 1999
-------- -----------
<S> <C> <C>
Finished goods $1,960.4 $1,895.6
Raw materials and work in process 890.8 869.8
Supplies 76.7 81.5
-------- --------
Total (approximates current cost) 2,927.9 2,846.9
Reduction to LIFO cost - -
-------- --------
$2,927.9 $2,846.9
======== ========
</TABLE>
3. In March 2000, a wholly-owned subsidiary of the Company issued $1.5
billion par value of variable rate preferred units. The units are
redeemable at par value plus accrued dividends at the option of the
issuer at any time. They are also redeemable at the option of the holders
in March 2010, and at the end of each five-year interval thereafter. The
preferred units are included in Minority interests in the consolidated
financial statements.
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 Six Months
Ended June 30 Ended June 30
--------------------------- ---------------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Elevated cholesterol $1,439.1 $1,239.9 $ 2,723.4 $ 2,410.4
Hypertension/heart failure 1,202.0 1,204.3 2,341.3 2,292.2
Anti-inflammatory/analgesics 497.2 122.9 888.8 149.9
Osteoporosis 323.0 243.3 599.6 474.6
Vaccines/biologicals 239.0 221.4 447.6 392.8
Anti-ulcerants 215.4 191.9 422.2 452.1
Antibiotics 208.0 187.0 397.9 376.8
Respiratory 213.1 112.5 380.1 200.7
Ophthalmologicals 165.1 162.6 321.3 314.2
Human immunodeficiency virus (HIV) 133.7 175.9 272.0 325.8
Other Merck products 402.5 399.9 859.9 831.8
Merck-Medco 4,439.0 3,756.6 8,674.3 7,333.5
-------- -------- --------- ---------
$9,477.1 $8,018.2 $18,328.4 $15,554.8
======== ======== ========= =========
</TABLE>
Other Merck products include sales of other human pharmaceuticals,
continuing sales to divested businesses and pharmaceutical and animal
health supply sales to the Company's joint ventures and AstraZeneca LP.
- 4 -
<PAGE> 6
Notes to Consolidated Financial Statements (continued)
6. Other (income) expense, net, consisted of:
<TABLE>
<CAPTION>
($ in millions)
-------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
------------------------ -------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $(107.0) $ (89.4) $(201.7) $(168.9)
Interest expense 116.0 68.9 233.3 140.3
Exchange (gains) losses (9.7) (7.3) (17.5) 2.1
Minority interests 95.8 57.3 156.0 106.7
Amortization of goodwill and other intangibles 78.6 77.8 157.4 161.1
Other, net (60.7) (277.4) (143.1) (292.9)
------- ------- ------- -------
$ 113.0 $(170.1) $ 184.4 $ (51.6)
======= ======= ======= =======
</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 six-month periods ended June 30, 2000 and 1999 was
$221.3 million and $105.0 million, respectively.
7. Income taxes paid for the six-month periods ended June 30, 2000 and 1999
were $1,339.1 million and $1,047.2 million, respectively.
8. The net income effect of dilutive securities was not significant to the
Company's calculation of Earnings per common share assuming dilution. A
reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
<TABLE>
<CAPTION>
($ in millions)
---------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
-------------------- --------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------- ------- -------
Average common shares outstanding 2,300.2 2,357.6 2,310.0 2,359.2
Common shares issuable(1) 45.5 56.0 45.5 59.4
------- ------- ------- -------
Average common shares outstanding assuming dilution 2,345.7 2,413.6 2,355.5 2,418.6
======= ======= ======= =======
-------------------------------------------------
(1) Issuable primarily under stock option plans.
</TABLE>
9. Comprehensive income for the three months ended June 30, 2000 and 1999
was $1,702.6 million and $1,474.5 million, respectively. Comprehensive
income for the six months ended June 30, 2000 and 1999 was $3,207.0
million and $2,775.4 million, respectively.
- 5 -
<PAGE> 7
Notes to Consolidated Financial Statements (continued)
10. The Company's operations are principally managed on a products and
services basis and are comprised of two reportable segments: Merck
Pharmaceutical and Merck-Medco. Merck Pharmaceutical products consist of
therapeutic agents, sold by prescription, for the treatment of human
disorders. Merck-Medco revenues are derived from the filling and
management of prescriptions and health management programs. All Other
includes non-reportable human and animal health segments. Revenues and
profits for these segments are as follows:
<TABLE>
<CAPTION>
($ in millions)
----------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
------------------------ --------------------------
2000 1999 2000 1999
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Segment revenues:
Merck Pharmaceutical $ 4,103.2 $3,606.8 $ 7,804.5 $ 6,885.7
Merck-Medco 5,188.0 4,435.2 10,137.6 8,729.7
All Other 896.4 611.5 1,769.7 1,242.5
--------- -------- --------- ---------
$10,187.6 $8,653.5 $19,711.8 $16,857.9
========= ======== ========= =========
Segment profits:
Merck Pharmaceutical $ 2,362.9 $2,200.7 $ 4,460.0 $ 4,195.1
Merck-Medco 150.2 127.7 292.4 251.4
All Other 845.4 572.5 1,645.5 1,133.4
--------- -------- --------- ---------
$ 3,358.5 $2,900.9 $ 6,397.9 $ 5,579.9
========= ======== ========= =========
</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 Company does not internally allocate 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. Separate divisions maintain responsibility
for monitoring and managing these costs, including depreciation related
to fixed assets utilized by these divisions and, therefore, they are not
included in the marketing segment profits. The vast majority of goodwill
and other intangibles amortization, predominantly related to the
Merck-Medco business, as well as the cost of financing capital employed,
also are not allocated internally and, therefore, are not included in the
marketing segment profits.
A reconciliation of total segment profits to consolidated income before
taxes is as follows:
<TABLE>
<CAPTION>
($ in millions)
----------------------------------------------------------
Three Months Six Months
Ended June 30 Ended June 30
-------------------------- ------------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Segment profits $3,358.5 $2,900.9 $6,397.9 $5,579.9
Other profits 4.6 19.8 30.3 45.4
Adjustments 128.3 49.7 249.4 88.8
Unallocated:
Interest income 107.0 89.4 201.7 168.9
Interest expense (116.0) (68.9) (233.3) (140.3)
Equity income from affiliates 70.9 59.8 149.2 145.5
Depreciation and amortization (248.9) (231.1) (498.7) (455.3)
Research and development (548.0) (482.7) (1,071.7) (924.4)
Other expenses, net (279.1) (6.3) (553.5) (335.1)
-------- -------- --------- --------
$2,477.3 $2,330.6 $4,671.3 $4,173.4
======== ======== ========= ========
</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 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 six-month period ended June 30, 2000.
- 6 -
<PAGE> 8
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the second quarter of 2000 were $0.73, an increase of 20%
over the second quarter of 1999. Second quarter net income increased 16% to
$1,721.7 million. Sales for the quarter were $9.5 billion, up 18% from the same
period last year.
For the first six months, earnings per share were $1.37, an increase of 19% from
the first six months of 1999. Net income was $3,221.3 million for the first six
months of 2000, an increase of 16% from the first six months of 1999. Sales rose
18% to $18.3 billion.
Sales growth for the quarter and the first half of 2000 was led by 'Vioxx', the
other newer and established products and growth from the Merck-Medco Managed
Care business. Strong volume gains in both the domestic and international
operations contributed to the second quarter results.
Sales of Merck human health products increased 19% and 18% for the second
quarter and six months, respectively. Sales of Merck human health products
outside of the United States accounted for 37% of Merck human health first half
2000 sales. Foreign exchange reduced the human health sales growth for both the
second quarter and first six months performance by one percentage point.
Five key products -'Vioxx', 'Zocor', 'Cozaar'/'Hyzaar'*, 'Fosamax', and
'Singulair' - led Merck's growth and account for more than 50% of Merck's
worldwide human health sales for the first six months. Supply shipments to
AstraZeneca LP also contributed to the sales volume growth.
The five products provide a strong platform for growth. Each is a successful,
high growth medicine, offering a unique competitive advantage in the market, and
Merck is conducting additional clinical studies that will potentially extend
each franchise to even more patients.
Income growth for the first six months was driven by strong sales volume gains
led by the U.S. market as well as manufacturing productivity improvements. The
savings from productivity improvements helped fund research and development and
selling and promotion programs in support of new products.
'Vioxx', Merck's newest medicine for osteoarthritis and acute pain, has been
launched in nearly 70 countries, including in the United States, the United
Kingdom, Germany, Spain, Mexico, Sweden and Denmark. It remains the world's
fastest growing prescription arthritis medicine, with more than 12 million
prescriptions written since it was first introduced last year. In addition,
'Vioxx' is the only medicine specifically inhibiting COX-2 that is indicated in
the United States both for treatment of osteoarthritis and for relief of acute
pain.
In May, Merck presented results from the 8,000-patient 'Vioxx' Gastrointestinal
Outcomes Research (VIGOR) study in which 'Vioxx' reduced the incidence of
serious gastrointestinal side effects, such as ulcers and bleeding, by more than
50 percent compared to the nonsteroidal anti-inflammatory drug naproxen. In
June, Merck submitted a Supplemental New Drug Application for 'Vioxx' to the
U.S. Food and Drug Administration (FDA) to request labeling changes based on the
study.
To expand the market for 'Vioxx', Merck continues clinical trials to determine
whether 'Vioxx' is effective in the treatment of rheumatoid arthritis and in the
prevention and treatment of Alzheimer's disease. Merck has also begun studies to
investigate whether 'Vioxx' can reduce the number of colon polyps in patients
who suffer from them - a broad population at risk of developing colon cancer.
Sales of 'Zocor', Merck's cholesterol-modifying medicine, continue to show
strong growth. The landmark 4S (Scandinavian Simvastatin Survival Study) study
has shown that 'Zocor' saves lives by preventing heart attacks and other
cardiovascular events in people with heart disease and high cholesterol. As a
result of the medicine's proven ability to not only lower levels of "bad" (LDL)
cholesterol, but also to increase levels of "good" cholesterol (HDL) in people
with high LDL levels, the FDA approved 'Zocor' as the first "statin" to raise
HDL. Low HDL has been identified as a risk factor for heart disease. The
independent effect of raising HDL on cardiovascular disease has not been
determined.
To reach even more patients, Merck is pursuing important new studies for 'Zocor'
that may provide evidence that the medicine lowers the risk of peripheral
vascular disease, especially among high-risk patients, including the elderly and
those with diabetes.
*'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)
'Cozaar' and 'Hyzaar' for high blood pressure are the world's most widely
prescribed medicines in the angiotensin II antagonist class. Strong growth
continues as physicians recognize the excellent tolerability and efficacy of
these two products. The Company has a number of trials underway to evaluate the
medicines' effectiveness in improving survival and reducing disability
associated with hypertension, diabetic kidney disease and recent heart attacks.
'Fosamax', the leading product worldwide for treatment of postmenopausal
osteoporosis, is now available in more than 100 countries. The Company has
submitted applications to regulatory agencies worldwide, including the United
States, for approval to market 'Fosamax' for the treatment of osteoporosis in
men as well as for a convenient once-weekly formulation. Mexico has approved
once-weekly use in women and men with osteoporosis.
'Fosamax' remains the only treatment for osteoporosis proven to reduce the
incidence of hip fractures, the most serious fractures related to osteoporosis.
Merck presented data this month for 'Fosamax' during the European League Against
Rheumatism Congress, demonstrating a statistically significant anti-fracture
effect within 12 months.
'Singulair', Merck's leukotriene receptor antagonist, continues to show strong
growth in all markets in which it has been introduced. Given the medicine's
convenient, once-a-day dose and its effectiveness in treating children as young
as age two, pediatricians in the United States now prescribe 'Singulair' more
than any other asthma controller therapy. To help even more patients benefit
from use of 'Singulair', Merck is studying its effectiveness for acute use in
the hospital setting and in allergic rhinitis.
In March 2000, a wholly-owned subsidiary of the Company issued $1.5 billion par
value of variable rate preferred units. The units are redeemable at par value
plus accrued dividends at the option of the issuer at any time. They are also
redeemable at the option of the holders in March 2010, and at the end of each
five-year interval thereafter. The proceeds will be used for general corporate
purposes. The preferred units are included in Minority interests in the
consolidated financial statements.
On May 22, 2000, the Board of Directors declared a quarterly dividend of 29
cents per share on the Company's common stock for the third quarter of 2000. On
July 25, 2000, the Board of Directors declared a quarterly dividend of 34 cents
per share on the Company's common stock for the fourth quarter of 2000. The
Company's total dividends paid during 2000 will be $1.21 per share, a ten
percent increase over the amount paid in 1999.
In May 2000, the Company and Schering-Plough Corporation (Schering-Plough)
created two partnerships to develop and market in the United States new
prescription medicines in the cholesterol-management and respiratory therapeutic
areas. The companies will jointly pursue the development and marketing of:
- 'Zocor' as a once-daily fixed-combination tablet with ezetimibe,
Schering-Plough's investigational cholesterol absorption inhibitor
- ezetimibe as once-daily monotherapy
- a once-daily fixed-combination tablet of 'Singulair' and
'Claritin'** for the treatment of allergic rhinitis and asthma.
'Claritin' is Schering-Plough's nonsedating antihistamine for
treatment of seasonal allergic rhinitis.
The arrangements are not expected to have a significant near-term impact on the
Company's results of operations or financial position.
Merck-Medco Managed Care, L.L.C. completed its acquisition of ProVantage Health
Services, Inc. (ProVantage) in June 2000 for an aggregate cash-purchase price of
$222.0 million. ProVantage provides pharmacy benefit services to about 5 million
people, many of whom are covered by mid-sized and small plan sponsors and
third-party administrators. The acquisition, which was accounted for by the
purchase method, did not have a material impact on the Company's results of
operations or financial position.
The Company's $1.0 billion shelf registration statement for the issuance of debt
securities became effective in August 2000, increasing available capacity under
such filings to $1.7 billion. The Company also has a $1.5 billion Euro Medium
Term Note program, under which no securities have been issued. Any proceeds from
the sale of these securities will be used for general corporate purposes.
**'Claritin' is a registered trademark of the Schering-Plough Corporation,
Madison, NJ, USA.
- 8 -
<PAGE> 10
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133).
The Statement established 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. In
June 1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133, which delayed the Company's required adoption of FAS 133 to
January 1, 2001. The Company will adopt the Statement at that time. In June
2000, the FASB issued Statement No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FAS 133, which is
effective concurrently with FAS 133. Although the Company continues to perform
extensive analysis of the Statements, the ultimate effect on the Company's
financial position or results of operations cannot yet be determined.
- 9 -
<PAGE> 11
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, 1999, as filed on
March 22, 2000, 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.
- 10 -
<PAGE> 12
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting of Stockholders held
on April 25, 2000, and received the votes set forth below:
1. All of the following persons nominated were elected to serve as directors
and received the number of votes set opposite their respective names:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Niall FitzGerald 1,859,534,763 36,000,618
Anne M. Tatlock 1,867,759,481 27,775,900
Lawrence A. Bossidy 1,868,005,605 27,529,776
Johnnetta B. Cole, Ph.D. 1,868,169,053 27,366,328
William B. Harrison, Jr. 1,868,537,915 26,997,466
William N. Kelley, M.D. 1,868,515,873 27,019,508
</TABLE>
2. A proposal to ratify the appointment of independent public accountants
received 1,884,394,956 votes FOR and 3,289,882 votes AGAINST, with
7,850,543 abstentions.
3. A proposal to adopt the 2001 Incentive Stock Plan received 1,711,501,202
votes FOR and 166,394,464 votes AGAINST, with 17,618,383 abstentions.
4. A stockholder proposal concerning appointment of directors from outside
the Company received 101,992,401 votes FOR and 1,295,635,796 votes
AGAINST, with 48,798,230 abstentions and 449,108,954 broker non-votes.
5. A stockholder proposal concerning annual election of directors received
739,240,749 votes FOR and 660,727,273 votes AGAINST, with 46,324,439
abstentions and 449,242,920 broker non-votes.
6. A stockholder proposal concerning bonuses for management received
67,588,642 votes FOR and 1,317,565,401 votes AGAINST, with 52,252,824
abstentions and 458,128,514 broker non-votes.
7. A stockholder proposal concerning pharmaceutical pricing received
80,306,979 votes FOR and 1,300,298,698 votes AGAINST, with 65,500,390
abstentions and 449,429,314 broker non-votes.
8. A stockholder proposal concerning stock ownership of director candidates
received 77,357,685 votes FOR and 1,296,660,597 votes AGAINST, with
76,022,735 abstentions and 445,494,364 broker non-votes.
- 11 -
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
--------
Number Description Method of Filing
------ ----------- -----------------
<S> <C> <C>
3(a) Restated Certificate of Incorporated by reference
Incorporation of Merck to Form 10-K Annual Report
& Co., Inc. (May 6, 1992) for the fiscal year ended
December 31, 1992
3(b) Certificate of Amendment to Incorporated by reference
the Certificate of to Form 10-K Annual Report
Incorporation of Merck & for the fiscal year ended
Co., Inc. (as amended December 31, 1998
January 14, 1999, effective
February 16, 1999)
3(c) By-Laws of Merck & Co., Inc. Incorporated by reference
(as amended effective to Form 10-Q Quarterly
February 25, 1997) Report for the period
ended March 31, 1997
10(a) 2001 Incentive Stock Plan Filed with this document
(Effective January 1, 2001)
12 Computation of Ratios of Filed with this document
Earnings to Fixed Charges
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
During the three-month period ending June 30, 2000, no current reports on
Form 8-K were filed.
- 12 -
<PAGE> 14
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: August 9, 2000 /s/ Kenneth C. Frazier
-------------------------
KENNETH C. FRAZIER
Senior Vice President and General Counsel
Date: August 9, 2000 /s/ Richard C. Henriques
-------------------------
RICHARD C. HENRIQUES
Vice President, Controller
- 13 -
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
--------
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
10(a) 2001 Incentive Stock Plan (effective January 1, 2001)
12 Computation of Ratios of Earnings to Fixed Charges
27 Financial Data Schedule
</TABLE>
