11-K 1 y87702e11vk.txt PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to ____________. Commission File Number: 1-3305 Employer Identification Number: 66-0288298 Plan Number: 061 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY 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 08889-0100 (Address of principal executive office) MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
PAGE ---- Report of Independent Accountants 1 Financial Statements: Statements of Net Assets Available for Benefits at December 31, 2002 and 2001 2 Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2002 3 Notes to Financial Statements 4 - 7 Supplemental Schedule*: H - Line 4i - Schedule of Assets (Held at End of Year) 8 Signature 9 Exhibit Index 10 Exhibit 23 - Consent of Independent Accountants 11 Exhibit 99.1 - Certification by the Chief Executive Officer of the Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 12 Exhibit 99.2 - Certification by the Chief Financial Officer of the Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13
* Other schedules required by Section 2520.103-10 of the Department of Labor Rules and Regulations for Reporting and Disclosure under ERISA have been omitted because they are not applicable. [PRICEWATERHOUSECOOPERS LOGO] PRICEWATERHOUSECOOPERS LLP 254 Munoz Rivera Avenue BBV Tower, 9th Floor Hato Rey PR 00918 Telephone (787) 754-9090 Facsimile (787) 766-1094 REPORT OF INDEPENDENT ACCOUNTANTS To the Participants and Plan Administrator of the Merck Puerto Rico Employee Savings and Security Plan In our opinion, the accompanying statements of assets available for benefits and the related statement of changes in assets available for benefits present fairly, in all material respects, the assets available for benefits of Merck Puerto Rico Employee Savings and Security Plan (the "Plan") at December 31, 2002 and 2001, and the changes in assets available for benefits for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental Schedule of Assets (Held at End of Year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is 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. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. The Schedule of Assets (Held at End of Year) that accompanies the Plan's financial statements does not disclose the historical cost of certain nonparticipant directed plan assets held by the Plan's trustee. Disclosure of this information is required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Securities Act of 1974. /s/ PRICEWATERHOUSECOOPERS LLP May 2, 2003 CERTIFIED PUBLIC ACCOUNTANTS (OF PUERTO RICO) License No. 216 Expires Dec. 1, 2004 Stamp 1862757 of the P.R. Society of Certified Public Accountants has been affixed to the file copy of the report MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 2002 AND 2001
2002 2001 ----------- ----------- ASSETS Investments, at market value $31,257,692 $29,831,972 Participant Loans, at contract value 2,135,301 2,103,597 ----------- ----------- Total investments 33,392,993 31,935,569 ----------- ----------- Receivables: Employer's contribution 44,076 40,915 Participants' contributions 188,942 144,925 Accrued interest and dividends 167,959 159,598 ----------- ----------- Total receivables 400,977 345,438 ----------- ----------- Net assets available for benefits $33,793,970 $32,281,007 =========== ===========
The accompanying notes are an integral part of these financial statements. 2 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 2002 Additions to net assets attributed to: Investment income: Net depreciation in market value of investments $ (1,555,934) Interest and dividends 839,322 ------------ Net investment loss (716,612) ------------ Contributions to the Plan: By participants 4,636,974 By employer 1,322,204 ------------ Total contributions 5,959,178 ------------ Total additions 5,242,566 Deductions from assets attributed to: Benefits paid to participants (3,729,603) ------------ Net increase in assets available for benefits 1,512,963 Net assets available for benefits, beginning of the year 32,281,007 ------------ Net assets available for benefits, end of the year $ 33,793,970 ============ The accompanying notes are an integral part of these financial statements.
3 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001 1. DESCRIPTION OF THE PLAN The following description of the Merck Puerto Rico Employee Savings and Security Plan (the "Plan") provides only general information. Participants should refer to the Plan document for a more complete description of the Plan's provisions. General The Plan is a profit sharing plan designed to provide an opportunity for employees of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. and Merck Sharp & Dohme (I.A.) Corp. (the "Companies") to become stockholders of Merck & Co., Inc. ("Merck") and to encourage them to save on a regular basis by setting aside part of their earnings. Regular full-time and part-time employees of the Companies, as defined in the Plan document, who have completed at least one year of employment and are not covered by a collective bargaining agreement, are eligible to enroll in the Plan. The Plan is administered by the Employee Benefits Committee appointed by the President of the Companies. All costs of administering the Plan are borne by the Companies. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Contributions Participants may contribute from 2% up to 15% of their base pay, provided that pre-tax contributions shall not exceed 10% of base compensation or $8,000. In addition, the Companies match 50% of pre-tax and after-tax employee contributions up to 2.5% of each participant's base compensation applicable to the pay period in which the contribution is being made. The Companies' matching contributions are invested entirely in Merck common stock (non-participant directed) and may not be reallocated into any other investment option. Participants direct the investment of their contributions into any investment option including the Merck Common Stock Fund (participant directed). During 2002, the Plan offered 21 investment options: 20 mutual funds and the Merck Common Stock Fund. Participant Accounts Each participant account is credited with the participant's contribution, the Companies' matching contribution, and allocation of Plan earnings. The allocation is based on participants' account balances, as defined in the Plan document. Vesting Participants are immediately vested in their contributions, all Companies' matching contributions, plus actual earnings thereon. Participant Loans Participants may borrow from their account balances with interest charged at prime rate plus 1%. Loan terms range from one to five years or up to thirty years for the purchase of a primary residence. The minimum loan is $500 and the maximum loan is the lesser of $50,000 less the highest outstanding loan balance during the one year period prior to the new loan application date, or 50% of the participant's account balance less any current outstanding loan balance. 4 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001 Payment of Benefits Participants are entitled to receive automatic, voluntary, in-service (which include hardship withdrawals), or mandatory distributions as provided in the applicable Plan provisions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The financial statements are prepared on the accrual basis of accounting. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are adequate. Actual results could differ from those estimates. Investment Valuation and Income Recognition The investments of the Plan are stated at quoted market prices in an active market (except for participant loans which are presented at the outstanding balance). Shares of mutual funds are presented at quoted market prices which represent the net asset value of the shares held by the Plan at the reporting date. Purchases and sales of securities are recorded on a trade-date basis. Dividend income is recorded on the ex-dividend date. The Plan presents in the statement of changes in net assets available for benefits the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains or losses and the unrealized appreciation (depreciation) on them. Interest income on participant loans is recorded on accrual basis. Contributions Employee and Company matching contributions are recorded in the period in which the Company makes the payroll deductions from the participants' earnings. Payment of Benefits Benefits are recorded when paid. Transfer of Assets to Other Plans Company employees or retirees may elect to transfer their savings to other plans qualified by the Puerto Rico Department of Treasury or by the U.S. Internal Revenue Service (the "IRS"). 5 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001 Risks and Uncertainties The Plan provides for various investment options in investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits. Reclassifications Certain reclassifications have been made to prior year financial statements to conform with current year presentation. 3. INVESTMENTS The following presents investments that represent 5% or more of the Plan's net assets as of year-end.
2002 2001 Shares of Merck Common Stock Fund $ 27,280,847 * $ 26,241,792 * Participants loans 2,135,301 2,103,597
* Includes non-participant directed portion During 2002, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value by $1,555,934 as follows:
2002 Mutual Funds $ 751,050 Merck Common Stock Fund 804,884 ---------- $1,555,934 ==========
4. NON-PARTICIPANT DIRECTED INVESTMENTS Information about the net assets and the significant components of the changes in net assets relating to non-participant directed investments is as follows:
2002 2001 ---------- ---------- Assets - Merck Common Stock Fund $8,755,749 $8,399,740 ========== ==========
6 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001
YEAR ENDED DECEMBER 31, 2002 ----------- Changes in net assets: Contributions $ 1,254,938 Dividends and interest 256,872 Net depreciation (262,782) Benefits paid to participants (706,564) Transfers to participants loan accounts and other plans (186,455) ----------- $ 356,009 ===========
5. RELATED PARTY TRANSACTIONS Certain Plan investments are shares of mutual funds managed by Fidelity Management Trust Company ("Fidelity"). Fidelity is the record keeper as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. Merck & Co., Inc. also is a party-in-interest to the Plan under the definition provided in Section 3(14) of ERISA. Therefore, Merck Common Stock Fund transactions qualify as party-in-interest transactions. 6. PLAN TERMINATION Although they have not expressed any intent to do so, the Companies have the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. 7. TAX STATUS The Plan obtained a tax determination letter from the Puerto Rico Department of Treasury dated February 18, 1998 indicating that it had been designed in accordance with applicable sections of the Puerto Rico Internal Revenue Code of 1994 ("PRIRC") and is, therefore, exempt from Puerto Rico income taxes. Therefore, no provision for income taxes has been included in the Plan's financial statements. * * * * * 7 MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
IDENTITY OF ISSUE, BORROWER, SHARE CURRENT LESSOR OR SIMILAR PARTY DESCRIPTION OF INVESTMENT BALANCE COST VALUE * Merck & Co., Inc Merck Common Stock 1,396,153.873 ** $ 27,280,847 * Fidelity Investments Fidelity Equity-Income Fund 3,663.216 *** 145,320 Fidelity Retirement Money Market Fund 732,453.710 *** 732,454 Spartan U.S. Equity Index Fund 4,251.886 *** 132,446 Spartan Government Income Fund 2,513.187 *** 28,324 Fidelity Low-Priced Stock Fund 12,335.918 *** 310,495 Fidelity Dividend Growth Fund 19,373.789 *** 432,423 Putnam Investments Putnam Vista A Fund 32,716.789 *** 195,974 Putnam International Voyager Fund 1,213.401 *** 16,842 Putnam Global Equity Fund A 435.243 *** 2,572 T. Rowe Price T. Rowe Price Blue Chip Growth Fund 32,839.173 *** 720,820 The Vanguard Group Vanguard Assets Allocation Fund 10,228.941 *** 184,837 The Capital Group Company American Funds Europacific A 9,283.349 *** 213,239 American Century Investment American Century Emerging Markets Services, Inc. Investment Fund 14,899.927 *** 52,001 Franklin Templeton Franklin Small-Mid Cap Growth Fund A 7,852.960 *** 172,372 Liberty Wagner Asset Liberty Acorn Fund - Class Z 2,261.306 *** 35,050 Management, L.P. Janus Janus Enterprises 304.708 *** 6,993 Janus Growth & Income 18,564.916 *** 433,305 PIMCO PIMCO Total Return Fund - Institutional Class 7,806.195 *** 83,292 PIMCO Long-Term Government Fund - Institutional Class 6,629.135 *** 73,318 PIMCO Foreign Bond Institution Fund - Institutional Class 450.638 *** 4,768 * Participants' Loan Interest rates ranging from 6.0% to 10.5% and with maturities through 2012 *** 2,135,301 Total $ 33,392,993
* Denotes a party-in-interest to the Plan ** Historical cost is not available from the Trustee *** Cost is not required for participant directed investment 8 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the undersigned plan administrator has duly caused this annual report to be signed on behalf of the Merck Puerto Rico Employee Savings and Security Plan by the undersigned hereunto duly authorized. Merck & Co., Inc., as plan administrator By: /s/ Caroline Dorsa ----------------------------------- Caroline Dorsa Vice President & Treasurer June 27, 2003 9 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE ------- ----------- ---- 23 Consent of Independent Accountants 11 99.1 Certification by the Chief Executive Officer of the Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 12 99.2 Certification by the Chief Financial Officer of the Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13
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