-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, L8+V2t0YG4+dLqrk9S9RcrcKNj7MCyImikr1qpapYarkuTaYtykqq1WE8+8pThiG L3pseagjFgh3NQ7SvK4bWQ== 0000950123-94-000559.txt : 19940324 0000950123-94-000559.hdr.sgml : 19940324 ACCESSION NUMBER: 0000950123-94-000559 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: 2834 IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-03305 FILM NUMBER: 94517325 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084231000 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 10-K 1 FORM 10-K, MERCK & CO., INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the Fiscal Year Ended December 31, 1993 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to
COMMISSION FILE NO. 1-3305 ------------------ MERCK & CO., INC. P.O. Box 100 Whitehouse Station, N. J. 08889-0100 (908) 423-1000 Incorporated in New Jersey I.R.S. Employer Identification No. 22-1109110 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange Title of Each Class on which Registered Common Stock New York and Philadelphia Stock Exchanges (no par value)
Number of shares of Common Stock (no par value) outstanding as of February 28, 1994: 1,255,550,712. Aggregate market value of Common Stock (no par value) held by non-affiliates on December 31, 1993 based on closing price on February 28, 1994: $40,484,000,000. 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 ........ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] DOCUMENTS INCORPORATED BY REFERENCE:
Document Part of Form 10-K Annual Report to stockholders for the fiscal Parts I and II year ended December 31, 1993 Proxy Statement for the Annual Meeting of Part III Stockholders to be held April 26, 1994
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS. Merck & Co., Inc. is a worldwide organization engaged primarily in the business of discovering, developing, producing and marketing products and services for the maintenance or restoration of health. The Company's business is divided into two industry segments: Human and Animal Health Products and Services and Specialty Chemical Products. The Human and Animal Health Products and Services segment includes Medco Containment Services, Inc. ("Medco"), which was acquired in November 1993. Medco principally provides services designed to reduce prescription drug benefit costs through managed prescription drug programs and managed mental health-care services for health benefit plans. Financial information about industry segments of the Company's business is incorporated by reference to page 50 of the Company's 1993 Annual Report to stockholders. HUMAN AND ANIMAL HEALTH PRODUCTS AND SERVICES SEGMENT Human and animal health products include therapeutic and preventive agents for the treatment of human disorders, which are generally sold by prescription, and for the control and alleviation of disease in livestock, small animals and poultry. Human and animal health products also include poultry breeding stock and crop protection products. This segment contributed $9,987.9 million, $9,067.6 million and $8,019.5 million to Company sales in 1993, 1992 and 1991, respectively. Human health products include cardiovascular products, of which Vasotec (enalapril maleate), Mevacor (lovastatin), Zocor (simvastatin), Prinivil (lisinopril) and Vaseretic (enalapril maleate-hydrochlorothiazide) are the largest-selling; anti-ulcerants, of which Pepcid (famotidine) and Prilosec (omeprazole) are the largest-selling; antibiotics, of which Primaxin (imipenem-cilastatin sodium), Noroxin (norfloxacin) and Mefoxin (cefoxitin sodium) are the largest-selling; vaccines/biologicals, of which M-M-R II (measles, mumps and rubella virus vaccine live) and Recombivax HB (hepatitis B vaccine recombinant) are the largest-selling; ophthalmologicals, of which Timoptic (timolol maleate) is the largest-selling; anti-inflammatory/analgesic products, of which Indocin (indomethacin), Clinoril (sulindac) and Dolobid (diflunisal) are the largest-selling; and other human health products which include antiparkinsonism products, psychotherapeutics, a muscle relaxant and Proscar (finasteride), a treatment for symptomatic benign prostate enlargement. Human health services include health-care cost containment services, principally managed prescription drug programs. Animal health/crop protection products include antiparasitics, of which Ivomec (ivermectin) for the control of internal and external parasites in livestock and Heartgard-30 (ivermectin) for the prevention of canine heartworm disease are the largest-selling; crop protection products, of which abamectin-based miticides/insecticides are the largest-selling; coccidiostats for the treatment of poultry disease; and poultry breeding stock. The following table shows the sales of various classes of the Company's human and animal health products and services:
($ IN MILLIONS) 1993* 1992 1991 -------- -------- -------- Cardiovasculars........................................ $4,820.8 $4,482.0 $3,804.2 Anti-ulcerants......................................... 1,324.0 1,043.9 820.6 Antibiotics............................................ 868.7 942.2 917.7 Vaccines/biologicals................................... 522.9 485.3 375.1 Ophthalmologicals...................................... 454.6 457.2 425.2 Anti-inflammatories/analgesics......................... 336.8 430.5 500.4 Other human health..................................... 446.8 373.4 381.9 Other Medco sales...................................... 296.6 -- -- Animal health/crop protection.......................... 916.7 853.1 794.4 -------- -------- -------- Total........................................... $9,987.9 $9,067.6 $8,019.5 -------- -------- -------- -------- -------- --------
- --------------- * Sales by therapeutic class include Medco sales of Merck products. Medco sales of non-Merck products and Medco services are included in Other Medco sales. 1 3 In November 1993, the Company acquired all of the outstanding shares of Medco for approximately $6.6 billion. The purchase price consisted of $2.4 billion in cash, 114.0 million common shares with a market value of $3.8 billion and 36.1 million options valued at $387.1 million, net of tax. Martin J. Wygod, Chairman of the Board of Directors of Medco and a stockholder of Medco prior to the merger, was elected to the Board of Directors of the Company effective November 1993. Medco principally provides services designed to reduce prescription drug benefit costs through managed prescription drug programs, and also provides managed mental health-care services. Medco provides these services to corporations, labor unions, insurance companies, Blue Cross and Blue Shield organizations, Federal and state employee plans, and health maintenance and other similar organizations. A new human health product cleared for marketing in the United States by the Federal Food and Drug Administration ("FDA") in November 1993 is Timoptic-XE (timolol maleate ophthalmic gel-forming solution), a once-a-day treatment to reduce intraocular pressure in certain glaucoma patients, and sales of the product began in the United States in January 1994. Also in 1993, the FDA cleared for marketing the use of Vasotec to reduce the rate of development of symptomatic heart failure and decrease the need for related hospitalization in asymptomatic patients with left ventricular dysfunction. In May 1993, the Company and Pasteur Merieux Serums & Vaccins ("Pasteur Merieux"), which is part of the Rhone-Poulenc group, signed an agreement to form a joint venture to market human vaccines and to collaborate in the development of new combination vaccines for distribution in the European Union ("EU") (formerly referred to as the European Community) and the European Free Trade Association. The establishment of this joint venture, which would be equally owned by the Company and Pasteur Merieux, is subject to various approvals, including that of the European Commission. Effective April 1992, the Company, through the Merck Vaccine Division, and Connaught Laboratories, Inc. ("Connaught"), an affiliate of Pasteur Merieux, agreed to collaborate on the development and marketing of combination pediatric vaccines and to promote selected vaccines in the United States. The research and marketing collaboration will enable the companies to pool their resources to expedite the development of vaccines combining several different antigens to protect children against a variety of diseases, including Haemophilus influenzae type b, hepatitis B, diphtheria, tetanus, pertussis and poliomyelitis. In addition, the Company and Connaught have agreed to promote a number of each other's vaccine products. Effective January 1991, the Company and E. I. du Pont de Nemours and Company ("Du Pont") entered into a joint venture to form a worldwide pharmaceutical company for the research, marketing, manufacturing and sale of pharmaceutical and imaging agent products. Du Pont contributed its entire worldwide pharmaceutical and radiopharmaceutical imaging agents businesses to the joint venture and is providing administrative services. The Company's contribution includes rights to Sinemet (carbidopa-levodopa), Sinemet CR (sustained-release formulation), Moduretic (amiloride HCl-hydrochlorothiazide), Prinivil and Prinzide (lisinopril and hydrochlorothiazide) in the United Kingdom, France, Germany, Italy and Spain, research and development expertise, development funds, international industry expertise and cash. The joint venture co-promotes Vasotec in the United States. Under separate agreements between the Company and Du Pont for which the joint venture carries out Du Pont's obligations, commencing in 1993 marketing applications were submitted worldwide for Cozaar (losartan potassium) and Hyzaar (losartan potassium and hydrochlorothiazide), the first of a new class of drugs for treatment of high blood pressure and heart failure. The joint venture has rights under these agreements to Sinemet and Sinemet CR in North America and Vaseretic in the United States and Canada. In January 1993, the Company and Johnson & Johnson finalized an agreement to extend into Europe the U.S. joint venture that was formed in 1989. This new European extension is intended to market and sell over-the-counter pharmaceutical products in Europe. In October 1991, as a first step toward the establishment of the European business, the two companies acquired certain assets of Woelm Pharma G.m.b.H., a leading German self-medication business owned by Rhone-Poulenc Rorer, including a topical cough/cold product, two laxatives and a line of vitamins. In January 1993, the Company contributed its existing over-the-counter medication business in Spain to a new joint venture company. In September 1993, Johnson & Johnson and the Company established a new company in the United Kingdom to market the Company's and Johnson & Johnson's over-the-counter medications. In January 1994, the Company and Johnson & Johnson acquired all 2 4 of the stock of Laboratoires J.P. Martin, a leading self-medication business in France. In January 1993, the Company submitted a New Drug Application ("NDA") to the FDA for an over-the-counter form of the Company's ulcer medication Pepcid, to be marketed in the United States by the joint venture. Beginning January 1993, marketing approval applications for over-the-counter Pepcid were filed in 15 European countries and 3 other countries, in addition to the U.S. filing. In February 1994, the marketing license for an over-the-counter formulation of Pepcid was cleared in the United Kingdom. In 1982, the Company entered into an agreement with AB Astra ("Astra") to develop and market Astra products in the United States. Currently, under the first phase of the agreement, the Company markets three Astra products, Prilosec, Plendil (felodipine) and Tonocard (tocainide hydrochloride), in exchange for a royalty. An NDA which had been submitted to the FDA in January 1993 for Roxiam (remoxipride), an Astra product being developed for the treatment of acute and chronic schizophrenia, was withdrawn in January 1994. In July 1993, the Company's total sales of Astra products reached the level that triggered the first step in the establishment of a separate entity to market Astra products under the Company's agreement with Astra. The Company is now building the infrastructure and developing various capabilities to develop and market Astra products within a separate company. The Company expects to fully transfer its Astra-related business and assets to the joint venture company owned by the Company and Astra by early 1995. Astra has the right to obtain a 50 percent ownership of the business and assets transferred by compensating the Company with a payment roughly equivalent to U.S. sales of Astra products over a 12-month period beginning September 1, 1993. The result of these actions is not expected to have a significant impact on financial results in the near term. In 1992, the Company entered into agreements to (i) establish a new manufacturing, sales and promotion entity in Turkey; (ii) restructure Merck Human Health Division operations in Taiwan; (iii) acquire a 100 percent interest in its Mexican subsidiary, Laboratorios Prosalud, which engages in the manufacture, marketing, promotion and sale of the Company's human pharmaceutical, animal health and crop protection products in Mexico; and (iv) develop and market with CSL Limited of Australia combination pediatric vaccines in Australia, New Zealand and major markets in the Far East. In 1992, the Company entered into agreements to acquire certain assets of TTV Limited and Mervest Limited, the entities formerly used to market the Company's product line in the People's Republic of China. In 1992, a new entity was established in Hong Kong for the purpose of carrying on the Company's business in China via representative offices in Beijing, Shanghai and Guangzhou. In 1993, 1992 and 1991, the Company established local organizations for sales and promotion in the Russian Federation, the Ukraine, the Czech and Slovak republics, Slovenia, Bulgaria, Romania, Poland and Hungary. Competition -- The markets in which this segment's business is conducted are highly competitive. Such competition involves an intensive search for technological innovations and the ability to market these innovations effectively. With its long-standing emphasis on research and development, the Company is well prepared to compete in the search for technological innovations. Additional resources to meet competition include quality control, flexibility to meet exact customer specifications, an efficient distribution system and a strong technical information service. The Company is active in acquiring and marketing products through joint ventures and licenses and has been expanding its sales and marketing efforts to further address changing industry conditions. However, the introduction of new products and processes by competitors may result in price reductions and product replacements, even for products protected by patents. For example, the number of compounds available to treat each disease entity has increased during the past several years and has resulted in slowing the growth in sales of certain of the Company's products. In addition, particularly in the area of human pharmaceutical products, legislation enacted in all states allows, encourages or, in a few instances, in the absence of specific instructions from the prescribing physician, mandates the use of "generic" products (those containing the same active chemical as an innovator's product) rather than "brand-name" products. Governmental and other pressures toward the dispensing of generic products have reduced significantly the sales of certain of the Company's products no longer protected by patents, such as Clinoril and Aldomet (methyldopa), and slowed the growth of certain other products. In 1992, the Company formed a new division, West Point Pharma, to market the generic form of its product 3 5 Dolobid. In 1993, West Point Pharma began marketing an additional 11 off-patent Company drugs in more than 20 different packages. See also the description of the effect upon competition of the Drug Price Competition and Patent Term Restoration Act of 1984 ("PTRA") on page 6. It is generally the Company's position to limit individual product price increases of its pharmaceutical products in the United States to the Consumer Price Index plus 1 percent on an annual basis. Medco's pharmacy benefit management business is highly competitive. Medco competes with other pharmacy benefit managers, retail prescription drug claims processors, other mail service pharmacies, insurance companies, chain pharmacies and other providers of health-care and/or administrators of health-care programs. Medco competes primarily on the basis of its ability to design and administer innovative programs which contain a plan sponsor's overall prescription drug costs, its flexibility in handling integrated prescription drug programs resulting from its ability to dispense drugs through mail service and act as retail prescription drug manager, and the sophistication and quality of its systems, procedures and services. Distribution -- Human health products are sold primarily to drug wholesalers and retailers, hospitals, clinics, governmental agencies, managed health-care providers such as health maintenance organizations and other institutions. Customers for animal health/crop protection products include veterinarians, distributors, wholesalers, retailers, feed manufacturers, veterinary suppliers and laboratories. Marketing support is provided by professional representatives who call on physicians, hospitals, veterinarians and others throughout the world. This promotional activity is supplemented by direct mail and journal advertising. Medco markets its health-care cost containment services to plan sponsors principally through internal marketing and sales personnel. Raw Materials -- Raw materials and supplies are normally available in quantities adequate to meet the needs of this segment. Government Regulation and Investigation -- The pharmaceutical industry is subject to global regulation by country, state and local agencies. Of particular importance is the FDA in the United States, which administers requirements covering the testing, approval, safety, effectiveness, manufacturing, labeling and marketing of prescription pharmaceuticals. In many cases, the FDA requirements have increased the amount of time and money necessary to develop new products and bring them to market in the United States, although revised regulations are designed to reduce somewhat the time for approval of new products. In 1992, the Prescription Drug User Fee Act was passed, under which the FDA will collect revenues through user fees. The FDA has pledged to devote these revenues to its process for reviewing and approving applications for new drugs, antibiotics and biological products. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the health-care system, either nationally or at the state level. In November 1993, President Clinton's Health Security Act was introduced into Congress with moderate Democratic sponsorship. The Clinton plan would guarantee to all Americans health insurance coverage for a Federally-determined set of benefits, which includes pharmaceuticals. The plan is highly regulatory and mandates that employers offer and fund health insurance coverage for their employees. Among other things, the plan also provides for (1) the Secretary of Health and Human Services to establish an Advisory Council on Breakthrough Drugs to make recommendations to the Secretary as to the reasonableness of new drug prices and (2) a mandatory 17 percent rebate on outpatient pharmaceuticals reimbursed by Medicare. Also pending in Congress is the Cooper/Grandy Managed Competition Act of 1993, a bipartisan health-care reform bill, which relies primarily on market-based competition and insurance reform to reduce health-care costs. The debate to reform the health-care system is expected to be protracted and intense. Although the Company is positioned to do business in a managed competition environment and respond to evolving market forces, it cannot predict the outcome or effect of legislation resulting from the reform process. For some years the pharmaceutical industry has been under Federal and state oversight with the new drug approval system, drug safety, advertising and promotion, drug purchasing and reimbursement programs and formularies variously under review. The Company believes that it will continue to be able to bring new drugs to market in this regulatory environment. One Federal initiative to contain costs is the prospective payment 4 6 system, established under the Social Security Amendments of 1983 to hold down the growth of Medicare payments to hospitals, which provides a flat rate for reimbursement to hospitals in advance of the care for patients. The system establishes a number of patient classifications -- Diagnosis Related Groups ("DRG's"). A hospital receives the flat rate as full payment for each Medicare patient treated within a given DRG regardless of whether the hospital's actual costs are higher or lower than the flat rate. This system and other cost-cutting programs have caused hospitals and other customers of the Company to be more cost conscious in their treatment programs and to implement cost-containment measures, including cost containment for the drugs they administer. Additionally, Congress and the regulatory agencies have sought to reduce the cost of drugs paid for with Federal funds. In 1990, the Company initiated its Equal Access to Medicines Program ("EAMP") on its single source products, under which it generally offered its "best price" discount to state Medicaid programs that grant open access to the Company's products. The Omnibus Budget Reconciliation Act of 1990 ("OBRA") largely reflects the Company's best price approach. As a result of a national agreement, effective January 1, 1991, signed by the Company with the Secretary of Health and Human Services and administered by the Health Care Financing Administration ("HCFA") pursuant to OBRA, Medicaid received a minimum rebate of 12.5 percent off average manufacturer's price ("AMP") through September 30, 1992, received a minimum rebate of 15.7 percent off AMP through 1993, and will receive a minimum rebate of 15.4 percent off AMP through 1994, on the Company's outpatient drugs reimbursed under Medicaid. In conjunction with implementation of the Federal program under OBRA, the Company's separate EAMP agreements with individual states have been permitted to lapse or have been terminated. Effective in 1992, the terms of the Federal HCFA rebate agreement were generally substituted for the EAMP agreements. In January 1992, the Company announced that it would provide discounts on its single-source prescription medicines to non-profit health centers for the poor that are Federally funded under sections 329-330 of the Public Health Service Act that qualify for the Company's program and agree to assure access to the Company's drugs. The discounts were largely based on those that the Company provided Medicaid under the Federal "best price" legislation. The discounts were ultimately provided to such centers for single-source, out-patient prescription drugs (not reimbursed by Medicaid) purchased directly from the Company by the centers for their patients. The Federal Veterans Health Care Act of 1992 was enacted on November 4, 1992, superceding the Company's Public Health Service initiative and mandating Medicaid rebate-equivalent discounts on covered outpatient drugs purchased by certain Public Health Service entities and "disproportionate share hospitals" (hospitals meeting certain qualification criteria). The Act further mandates minimum discounts of 24 percent off non-Federal AMP to the Veterans Administration, Federal Supply Schedule and certain other Federal sector purchasers on their pharmaceutical drug purchases. The Company encounters similar regulatory and legislative issues in most of the foreign countries where it does business. There, too, the primary thrust of governmental inquiry and action is toward determining drug safety and effectiveness, often with mechanisms for controlling the prices of prescription drugs and the profits of prescription drug companies. The EU has adopted directives concerning the classification, labeling, advertising and wholesale distribution of medicinal products for human use. The Company's policies and procedures are already consistent with the substance of these directives; consequently, it is believed that they will not have any material effect on the Company's business. The Company is subject to the jurisdiction of various regulatory agencies and is, therefore, subject to potential administrative action. Such actions may include product recalls, seizures of products and other civil and criminal sanctions. Under certain circumstances, the Company may deem it advisable to initiate product recalls voluntarily. Although it is difficult to predict the ultimate effect of these activities and legislative, administrative and regulatory requirements and proposals, the Company believes that its development of new and improved products should enable it to compete effectively within this environment. There are extensive Federal and state regulations applicable to the practice of pharmacy and the administration of managed health-care programs. Each state in which Medco operates a pharmacy has laws and regulations governing its operation and the licensing of and standards of professional practice by its 5 7 pharmacists. These regulations are issued by an administrative body in each state (typically, a pharmacy board), which is empowered to impose sanctions for non-compliance. Patents, Trademarks and Licenses -- Patent protection is considered, in the aggregate, to be of material importance in the Company's marketing of human and animal health products in the United States and in most major foreign markets. Patents may cover products per se, pharmaceutical formulations, processes for or intermediates useful in the manufacture of products or the uses of products. Protection for individual products extends for varying periods in accordance with the date of grant and the legal life of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent and its scope of coverage. Patent portfolios developed for products introduced by the Company normally provide marketing exclusivity. This is the case with products in the United States such as Timoptic, Mefoxin, Timolide (timolol maleate-hydrochlorothiazide), Ivomec, Tonocard in its oral form, Mevacor, Vasotec, Primaxin, Noroxin, Prilosec in its oral form, Vaseretic, PedvaxHIB (the Company's pediatric vaccine for prevention of Haemophilus influenzae type b infections), Pepcid, Zocor, Plendil, Chibroxin (norfloxacin) and Proscar. Prinivil is subject to a license to a third party and is not marketed exclusively by the Company. Product patent protection in the United States has expired for the following human and animal pharmaceutical products: Diuril (chlorothiazide), Aldomet, Aldoril (methyldopa and hydrochlorothiazide), TBZ and Thibenzole (thiabendazole), Amprol (amprolium), Blocadren (timolol maleate), Flexeril (cyclobenzaprine hydrochloride), Moduretic, Decadron (dexamethasone), Indocin, Clinoril, Dolobid, HydroDiuril (hydrochlorothiazide), Triavil (amitriptyline hydrochloride-perphenazine) and Sinemet. While the expiration of a product patent normally results in the loss of marketing exclusivity for the covered product, commercial benefits may continue to be derived from: (i) later-granted patents on processes and intermediates related to the most economical method of manufacture of the active ingredient of such product; (ii) patents relating to the use of such product; (iii) patents relating to special compositions and formulations; and (iv) marketing exclusivity that may be available under the PTRA. The effect of product patent expiration also depends upon many other factors such as the nature of the market and the position of the product in it, the growth of the market, the complexities and economics of the process for manufacture of the active ingredient of the product and the requirements of new drug provisions of the Federal Food, Drug and Cosmetic Act or similar laws and regulations in other countries. The PTRA in the United States permits restoration of up to five years of the patent term for new products to compensate for patent term lost during the regulatory review process. Additionally, under the PTRA new chemical entities approved after September 24, 1984 receive a period of five years' exclusivity from the date of NDA approval, during which time an "abbreviated NDA" or "paper NDA" may not be submitted to the FDA. Similarly, in the case of non-new chemical entities approved after September 24, 1984, the applications for which include the new data of clinical investigations conducted or sponsored by the applicant essential to approval, no abbreviated NDA or paper NDA may become effective before three years from NDA approval. However, the PTRA has also resulted in a general increase in the number and use of generic products marketed in the United States because the regulatory requirements for approval of generic versions of off-patent pioneer drugs have significantly lessened. Additionally, the PTRA has increased the incentive for abbreviated NDA applicants to challenge the validity of the United States patents claiming pioneer drugs because such a challenge could result in an earlier effective approval date for the generic version of the pioneer drug and a six-month period during which other generic versions of the pioneer drug could not be marketed. In Japan, a patent term restoration law, which was enacted in 1988, provides, under specific conditions, up to five years of additional patent life for pharmaceuticals. In 1992, the Council of the European Communities published a regulation which created supplementary protection certificates for medicinal products. Thus, as of January 1993, certain medicinal products sold in the EU became eligible for up to five years of market exclusivity after patent expiration. However, this market exclusivity will expire throughout the EU 15 years after the first product approval in the EU. In February 1993, Canada enacted Bill C91 which significantly modified Canadian patent law by eliminating compulsory licensing of pharmaceutical products 6 8 after December 20, 1991. Thus, patented pharmaceutical products will have market exclusivity for the full 20-year patent life in Canada. The North American Free Trade Agreement was passed in November 1993. This agreement requires Mexico to improve its patent law to meet international standards and to provide full patent protection to pharmaceutical products. The General Agreement on Tariff and Trade negotiations were concluded in December 1993. This agreement requires developing countries to upgrade their intellectual property laws to meet minimum international standards and to provide full patent protection for pharmaceutical products not later than the end of a ten-year transition period. The Generic Animal Drug and Patent Term Restoration Act, enacted in November 1988, provides for the extension of term of patents claiming new animal drugs approved after enactment. This legislation also establishes a process by which generic versions of new animal drugs can be approved via an Abbreviated New Animal Drug Application procedure. The provisions of this legislation, in general, are parallel to those found in the PTRA covering human health products. Worldwide, all of the Company's important products are sold under trademarks that are considered in the aggregate to be of material importance. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely. Royalties received during 1993 on patent and know-how licenses and other rights amounted to $63.2 million. The Company also paid royalties amounting to $230.7 million in 1993 under patent and know-how licenses it holds. SPECIALTY CHEMICAL PRODUCTS SEGMENT The Company's specialty chemical products have a wide variety of applications such as use in health care, food processing, oil exploration, paper, textiles and personal care. This segment contributed $510.3 million, $594.9 million and $583.2 million to Company sales in 1993, 1992, and 1991, respectively. The decrease in 1993 sales in this segment is attributable to the Company's sale in June 1993 of the Calgon Water Management business for $307.5 million to English China Clays plc. Competition -- The markets in which this segment's business is conducted are highly competitive. An important factor in such competition is the degree of success in the search for technological innovations. The introduction of new products and processes by competitors may render the Company's products obsolete and may result in price reductions and product replacements. With its long-standing emphasis on research and development, the Company is well prepared to compete in the search for technological innovations and in the conception of expanded applications for existing products. Additional resources utilized by the Company to meet competition include quality control, flexibility to meet exact customer specifications, an efficient distribution system and a strong technical information service. Distribution -- Sales of products and related services are made to industrial users, health-care providers and distributors. Raw Materials -- Raw materials and supplies are normally available in quantities sufficient to meet the needs of this segment. Patents and Trademarks -- Although the Company has United States and foreign patents on apparatus, products, uses and processes relating to specialty chemical products, the patent protection afforded is not considered material in the aggregate. Worldwide, all of the Company's important products are sold under trademarks. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely. Trademarks are considered in the aggregate to be of material importance. RESEARCH AND DEVELOPMENT The Company's business is characterized by the introduction of new products or new uses for existing products through a strong research and development program. Approximately 6,400 people are employed in the Company's research activities. Expenditures for the Company's research and development programs were 7 9 $1,172.8 million in 1993, $1,111.6 million in 1992 and $987.8 million in 1991 and are expected to exceed $1.3 billion in 1994, an increase of 12 percent over 1993. These increases reflect the Company's ongoing commitment to research over a broad range of therapeutic areas and clinical development in support of new products. Total expenditures for the period 1980 through 1993 exceeded $8.5 billion with a compound annual growth rate of 14 percent. Costs incurred by the joint ventures in which the Company participates, totalling $311.3 million in 1993, are not included in the Company's consolidated research and development expenses. The Company maintains a number of long-term exploratory and fundamental research programs in biology and chemistry as well as research programs directed toward product development. Projects related to human and animal health are being carried on in various fields such as bacterial and viral infections, cardiovascular functions, cancer, diabetes, inflammation, ulcer therapy, kidney function, mental health, the nervous system, ophthalmic research, prostate therapy, the respiratory system, bone diseases, animal nutrition and production improvement, endoparasitic and ectoparasitic diseases and poultry genetics. Other programs are in the areas of food additives and wound dressings. In the development of human and animal health products, industry practice and government regulations in the United States and most foreign countries provide for the determination of effectiveness and safety of new chemical compounds through animal tests and controlled clinical evaluation. Before a new drug may be marketed in the United States, recorded data on the experience so gained are included in the NDA, biological Product License Application or the New Animal Drug Application to the FDA for the approval required. The development of certain other products, such as insecticides and food additives, is also subject to government regulations covering safety and efficacy in the United States and many foreign countries. There can be no assurance that a compound that is the result of any particular program will obtain the regulatory approvals necessary for it to be marketed. A potential new product for the Human and Animal Health segment resulting from this research and development program for which a Product License Application was submitted to the FDA in 1992 is Varivax (live attenuated chickenpox vaccine), a vaccine for the prevention of chickenpox. In January 1994, the FDA's External Advisory Committee on Biologics favorably reviewed Varivax. In 1993, the Company submitted NDAs for an over-the-counter form of the Company's ulcer medication Pepcid, to be marketed by the Johnson & Johnson - Merck Consumer Pharmaceuticals Co., and for Trusopt (dorzolamide hydrochloride), a treatment to reduce intraocular pressure associated with glaucoma, Cozaar and Hyzaar. EMPLOYEES At the end of 1993, the Company had 47,100 employees worldwide, with 30,200 employed in the United States, including Puerto Rico. Approximately 26 percent of the Company's worldwide employees are represented by various collective bargaining groups. In 1993, the Company offered a voluntary retirement program in areas of the Company where it was determined that a reduction in workforce was appropriate. ENVIRONMENTAL MATTERS The Company believes that it is in compliance in all material respects with applicable environmental laws and regulations. The Company has maintained a leadership role in supporting environmental initiatives and fostering pollution prevention by actions including the elimination of, or application of best available technology to, air emissions of carcinogens or suspect carcinogens by the Company, which was accomplished in 1993. Projects are currently underway to reduce all environmental releases of toxic chemicals by 90 percent by the end of 1995. In 1993, the Company incurred capital expenditures of approximately $122.4 million for environmental control facilities. Capital expenditures for this purpose are forecasted to exceed $400.0 million for the years 1994 through 1998. In addition, the Company's operating and maintenance expenditures for pollution control were approximately $40.0 million in 1993. Expenditures for this purpose for the years 1994 through 1998 are forecasted to exceed $200.0 million. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites. Remediation expenditures were $26.3 million in 1993 and are estimated at $170.0 million for the years 1994 through 1998. The Company has been accruing for these costs. Management does not believe that these expenditures should ultimately result in 8 10 a material adverse effect on the Company's financial position, results of operations, liquidity or capital resources. GEOGRAPHIC AREA INFORMATION The Company's operations outside the United States are conducted primarily through subsidiaries. Sales by subsidiaries outside the United States were 44 percent of sales in 1993 and 46 percent of sales in 1992 and 1991. The Company's worldwide business is subject to risks of currency fluctuations, governmental actions and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further expansion of its operations abroad. However, the Company closely reviews its methods of operations, particularly in less developed countries, and adopts strategies responsive to changing economic and political conditions. The ongoing integration of the European market is impacting businesses operating within the EU, particularly on businesses such as the Company's that maintain research facilities, manufacturing plants and marketing and sales organizations in several different countries in the EU. The Company is in the process of rationalizing its operations within the EU so as to continue to meet the needs of its customers in the most efficient manner possible. The Company believes it will continue to be well positioned to compete successfully in this market, although it is not now possible to predict the extent to which the Company might be affected in the future by this development. Financial information about geographic areas of the Company's business is incorporated by reference to page 50 of the Company's 1993 Annual Report to stockholders. ITEM 2. PROPERTIES. The Company's corporate headquarters is located in Whitehouse Station, New Jersey. The human and animal health business is conducted through divisional or subsidiary headquarters located in Montvale, New Jersey; Rahway, New Jersey; Walpole, New Hampshire; West Point, Pennsylvania; and Woodbridge, New Jersey. Divisional or subsidiary headquarters in San Diego, California and St. Louis, Missouri are used in the Specialty Chemical Products segment. Principal research facilities for human and animal health products are located in Rahway and West Point and for specialty chemical products in San Diego and St. Louis. The Company also has production facilities for human and animal health products at 12 locations in the United States and for specialty chemical products at 4 locations in the United States. Branch warehouses are conveniently located to serve markets throughout the country. Medco operates its primary businesses through owned or leased facilities in various locations throughout the United States. Outside the United States, through subsidiaries, the Company owns or has an interest in manufacturing plants or other properties in most major countries of the free world. Capital expenditures for 1993 were $1,012.7 million compared with $1,066.6 million for 1992. In the United States, these amounted to $759.7 million for 1993 and $784.0 million for 1992. Abroad, such expenditures amounted to $253.0 million for 1993 and $282.6 million for 1992. The Company and its subsidiaries own their principal facilities and the manufacturing plants under titles which they consider to be satisfactory. The Company considers that its properties are in good operating condition and that its machinery and equipment have been well maintained. Plants for the manufacture of products for both segments are suitable for their intended purposes and have capacities adequate for current and projected needs for existing Company products. Some capacity of the human and animal health products plants is being converted, with any needed modification, to the requirements of newly introduced and future products. ITEM 3. LEGAL PROCEEDINGS. The Company, including Medco, is party to in excess of 20 antitrust suits (some of which purport to be class actions) instituted by retail pharmacies, alleging conspiracies in restraint of trade and challenging the pricing and purchasing practices of the Company and Medco, respectively. A significant number of other pharmaceutical companies have also been sued in the same or similar litigation. The Company, including 9 11 Medco, was also sued prior to the Company's merger with Medco by a retail pharmacy, which sought and continues to seek an injunction of the merger (the "merger case"). Most of these actions, except for the merger case and several actions pending in California state court, have been consolidated for pretrial purposes in the United States District Court for the Northern District of Illinois ("Illinois Federal Court"). A number of similar antitrust complaints were filed subsequent to the consolidation, and the Company will request consolidation and transfer of these actions to Illinois Federal Court. While it is not feasible to predict the outcome of these proceedings, in the opinion of the Company, such proceedings should not ultimately result in any liability which would have a material adverse effect on the Company. The Company is a party to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund. These proceedings seek to require the operators of hazardous waste disposal facilities, transporters of waste to the sites and generators of hazardous waste disposed of at the sites to clean up the sites or to reimburse the Government for cleanup costs. The Company has been made a party to these proceedings as an alleged generator of waste disposed of at the sites. In each case, the Government alleges that the defendants are jointly and severally liable for the cleanup costs. Although joint and several liability is alleged, these proceedings are frequently resolved so that the allocation of cleanup costs among the parties more nearly reflects the relative contributions of the parties to the site situation. The Company's potential liability varies greatly from site to site. For some sites the potential liability is de minimis and for others the costs of cleanup have not yet been determined. While it is not feasible to predict the outcome of many of these proceedings brought by state agencies or private litigants, in the opinion of the Company, such proceedings should not ultimately result in any liability which would have a material adverse effect on the Company. The Company has accrued for these costs and such accruals do not include any reduction for anticipated recoveries of cleanup costs from former site owners or operators or other recalcitrant potentially responsible parties. In March 1991, the Company reached agreement with the New Jersey Department of Environmental Protection ("DEP") to settle a proceeding, commenced in September 1989, regarding alleged violations by the Company of discharge limitations in two permits for its Rahway, New Jersey site. The agreement provided for the Company to pay a fine of $575,188 for alleged past violations and enter into a consent order under which it will undertake specific operational and equipment improvements to its Rahway facility's discharges of waste water and storm water. The consent order also provided for payment to DEP of stipulated penalties for discharge permit violations occurring after June 1990 until the improvements to the site's discharge system are complete, scheduled in the consent order to be no later than November 1, 1994. The Company has paid approximately $420,000 in additional stipulated penalties for discharge violations occurring after June 30, 1990. A consent decree was entered into in July 1993 between Kelco Division and the State of California in settlement of allegations by the State that Kelco's San Diego facility had violated its wastewater discharge permit pH limits. The consent decree provides that Kelco will pay penalties of $200,000 for alleged past violations and that the San Diego facility will continuously monitor its wastewater discharges to the sewerage authority and will demonstrate continuous compliance with its permit pH limits for a period of one year. The consent decree also provides that the definition of "continuous compliance" will not include exceedences whose monthly total does not exceed 1 percent of the operating time of the system. The facility has already undertaken improvements to its wastewater discharge system that will improve the quality and control of the discharges. There are various other legal proceedings, principally product liability and intellectual property suits, which are pending against the Company. While it is not feasible to predict the outcome of these proceedings, in the opinion of the Company, all such proceedings are either adequately covered by insurance or, if not so covered, should not ultimately result in any liability which would have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. --------------------- 10 12 EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF MARCH 1, 1994) P. ROY VAGELOS -- Age 64 July, 1993 -- Chairman of the Board, President and Chief Executive Officer January, 1993 -- Chairman of the Board and Chief Executive Officer April, 1986 -- Chairman of the Board, President and Chief Executive Officer DAVID W. ANSTICE -- Age 45 January, 1994 -- President, Human Health-Europe January, 1993 -- Senior Vice President, Merck Human Health Division (MHHD)-Europe April, 1991 -- Senior Vice President, MHHD and President, U.S. Human Health July, 1989 -- Vice President, Marketing, Merck Sharp & Dohme Division August, 1988 -- Vice President, International Human Health Marketing, Merck Sharp & Dohme International Division MICHAEL G. ATIEH -- Age 40 January, 1994 -- Vice President, Public Affairs April, 1990 -- Treasurer August, 1988 -- Vice President, Government Relations CELIA A. COLBERT -- Age 37 November, 1993 -- Secretary and Assistant General Counsel September, 1993 -- Secretary February, 1993 -- Secretary, New Products Committee October, 1992 -- Counsel, Corporate Staff May, 1991 -- Associate Counsel, Corporate Staff November, 1988 -- Senior Attorney, Corporate Staff STEVEN M. DARIEN -- Age 51 April, 1990 -- Vice President, Human Resources May, 1989 -- Vice President, Worldwide Personnel February, 1985 -- Vice President, Employee Relations CAROLINE DORSA -- Age 34 January, 1994 -- Treasurer July, 1993 -- Executive Director, Customer Marketing, U. S. Human Health (USHH) June, 1992 -- Executive Director, Pricing and Strategic Planning, USHH April, 1990 -- Executive Director, Financial Evaluation and Analysis June, 1989 -- Director, Pension and Benefits Investment January, 1989 -- Manager, Pension and Benefits Investment 11 13 JERRY T. JACKSON -- Age 52 January, 1994 -- Executive Vice President -- responsible for marketing and sales operations outside of the United States and Canada and the activities of Merck AgVet and Merck Vaccine Divisions and the Astra/Merck Group January, 1993 -- Executive Vice President and President, Merck Human Health Division -- responsible for worldwide human health business April, 1991 -- Senior Vice President -- responsible for activities of Merck AgVet and Merck Vaccine Divisions, Merck Specialty Chemicals and Merck Consumer Healthcare Groups and liaison with AB Astra and The Du Pont Merck Pharmaceutical Company August, 1988 -- President, Merck Sharp & Dohme International Division BERNARD J. KELLEY -- Age 52 December, 1993 -- President, Merck Manufacturing Division (MMD) August, 1993 -- Senior Vice President, Operations, MMD September, 1991 -- Senior Vice President, Administration, Planning and Quality, MMD September, 1989 -- Vice President, Business Affairs, Merck AgVet Division July, 1986 -- President, Hubbard Farms, Inc. RICHARD J. LANE -- Age 42 January, 1994 -- President, Human Health-North America January, 1993 -- Senior Vice President, Merck Human Health Division (MHHD) and President, U.S. Human Health April, 1991 -- Senior Vice President, MHHD-Europe October, 1990 -- Vice President, Merck Sharp & Dohme (Europe) Inc. and Managing Director, Merck Sharp & Dohme Limited January, 1990 -- Executive Director, Marketing, Merck Sharp & Dohme Limited January, 1987 -- Executive Director, Marketing Planning, Merck Sharp & Dohme Division JUDY C. LEWENT -- Age 45 December, 1993 -- Senior Vice President and Chief Financial Officer -- responsible for financial and public affairs functions and philanthropic activities June, 1993 -- Senior Vice President, Chief Financial Officer and Controller January, 1993 -- Senior Vice President and Chief Financial Officer April, 1990 -- Vice President, Finance and Chief Financial Officer October, 1987 -- Vice President and Treasurer HENRI LIPMANOWICZ -- Age 55 January, 1994 -- President, Human Health-Mid-Intercontinental Region (MIR)/Japan June, 1991 -- Senior Vice President, MIR, Merck Human Health Division April, 1989 -- Vice President, Mid-Europe, Merck Sharp & Dohme International Division (MSDI) October, 1981 -- Vice President, Economic and Strategic Planning, MSDI 12 14 PER G. H. LOFBERG -- Age 46 January, 1994 -- President, Merck-Medco U.S. Managed Care Division April, 1991 -- Senior Executive Vice President, Strategic Planning and Marketing, Medco Containment Services, Inc. (Medco) Prior to April, 1991, Mr. Lofberg was an executive officer of Medco for more than five years. MARY M. MCDONALD -- Age 49 January, 1993 -- Senior Vice President and General Counsel April, 1991 -- Vice President and General Counsel May, 1990 -- Assistant General Counsel and Counsel, Merck Sharp & Dohme International Division November, 1986 -- Assistant General Counsel, Corporate Staff PETER E. NUGENT -- Age 51 September, 1993 -- Vice President, Controller July, 1989 -- Vice President, Corporate Taxes December, 1987 -- Director -- Senior Tax Counsel EDWARD M. SCOLNICK -- Age 53 December, 1993 -- Executive Vice President, Science and Technology and President, Merck Research Laboratories (MRL) -- responsible for worldwide research function and activities of Merck Manufacturing Division and computer resources January, 1993 -- Executive Vice President and President, MRL -- responsible for worldwide research function and activities of Merck AgVet Division and computer resources April, 1991 -- Senior Vice President and President, MRL -- responsible for worldwide research function and activities of Merck Frosst Canada, Inc. May, 1985 -- President, Merck Sharp & Dohme Research Laboratories Division FRANCIS H. SPIEGEL, JR. -- Age 58 December, 1993 -- Executive Vice President -- responsible for human resources, internal auditing and corporate planning, development and licensing functions, activities of the Merck Consumer Healthcare Group, Kelco Division and liaison with The Du Pont Merck Pharmaceutical Company January, 1993 -- Executive Vice President -- responsible for human resources, internal auditing and corporate planning, development and licensing functions, activities of the Merck Consumer Healthcare Group and liaison with The Du Pont Merck Pharmaceutical Company April, 1991 -- Senior Vice President -- responsible for financial, human resources, internal auditing and corporate planning, development and licensing functions October, 1987 -- Senior Vice President -- responsible for financial, internal auditing and corporate planning, development and licensing functions 13 15 PAUL C. SUTHERN -- Age 42 November, 1992 -- President and Chief Operating Officer, Medco Containment Services, Inc. (Medco) December, 1991 -- Assistant to the Chairman, Medco Prior to December 1991, Mr. Suthern was Vice President -- Operations of Medco for more than five years MARTIN J. WYGOD -- Age 54 January, 1993 -- Chairman of the Board, Medco Containment Services, Inc. (Medco) Mr. Wygod has been Chairman of the Board of Medco for more than five years. Mr. Wygod also has been Chief Executive Officer of Medco for more than five years, other than January 1993 through October 1993. All officers listed above serve at the pleasure of the Board of Directors. None of these officers was selected pursuant to any arrangement or understanding between the officer and the Board. There are no family relationships among the officers listed above except that Martin J. Wygod and Paul C. Suthern are brothers-in-law. 14 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The information required for this item is incorporated by reference to pages 39 and 52 of the Company's 1993 Annual Report to stockholders. ITEM 6. SELECTED FINANCIAL DATA. The information required for this item is incorporated by reference to the data for the last five fiscal years of the Company included under Results for Year and Year-End Position in the Selected Financial Data included on page 52 of the Company's 1993 Annual Report to stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information required for this item is incorporated by reference to pages 32 through 39 of the Company's 1993 Annual Report to stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (A) FINANCIAL STATEMENTS The consolidated balance sheet of Merck & Co., Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993 and the report dated January 25, 1994 of Arthur Andersen & Co., independent public accountants, are incorporated by reference to pages 40 through 50 and page 51 of the Company's 1993 Annual Report to stockholders. (B) SUPPLEMENTARY DATA Selected quarterly financial data for 1993 and 1992 are incorporated by reference to page 39 of the Company's 1993 Annual Report to stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The required information on directors and nominees is incorporated by reference to pages 2 (beginning with the caption "Election of Directors")-5 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 26, 1994. Information on executive officers is set forth in Part I of this document on pages 11-14. ITEM 11. EXECUTIVE COMPENSATION. The information required for this item is incorporated by reference to pages 7 and 13-18 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 26, 1994. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required for this item is incorporated by reference to pages 8-9 of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 26, 1994. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required for this item is incorporated by reference to page 7 (under the caption "Relationships with Outside Firms") of the Company's Proxy Statement for the Annual Meeting of Stockholders to be held April 26, 1994. 15 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A) DOCUMENTS FILED AS PART OF THIS FORM 10-K (i) Financial Statements: Consolidated statement of income for the years ended December 31, 1993, 1992 and 1991 Consolidated statement of retained earnings for the years ended December 31, 1993, 1992 and 1991 Consolidated balance sheet, December 31, 1993 and 1992 Consolidated statement of cash flows for the years ended December 31, 1993, 1992 and 1991 Notes to financial statements Report of independent public accountants This information is incorporated by reference to the Company's 1993 Annual Report to stockholders, as noted on page 15 of this document. (ii) Financial Statement Schedules: Report of independent public accountants on schedules II -- Amounts receivable from related parties and underwriters, promoters and employees other than related parties for the years ended December 31, 1993, 1992 and 1991 V -- Property, plant and equipment for the years ended December 31, 1993, 1992 and 1991 VI -- Accumulated depreciation of property, plant and equipment for the years ended December 31, 1993, 1992 and 1991 IX -- Short-term borrowings for the years ended December 31, 1993, 1992 and 1991 The registrant is primarily an operating company and all of the subsidiaries included in the consolidated financial statements filed are wholly owned except for minority interests in six consolidated subsidiaries. Schedules other than those listed above are omitted because they are either not required, not applicable or the information is included in the consolidated financial statements or notes thereto. 16 18 (B) EXHIBITS
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING 2 -- Agreement and Plan of Merger By and Incorporated by reference to Among Merck & Co., Inc., M Acquisition Registration Statement on Form Corp. and Medco Containment Services, S-4 (No. 33-50667) Inc., as amended 3(a) -- Restated Certificate of Incorporation of * Merck & Co., Inc. (May 6, 1992) 3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form November 22, 1988) 10-K Annual Report for the fiscal year ended December 31, 1988 10(a) -- Executive Incentive Plan (as amended * effective May 6, 1992) 10(b) -- 1981 Incentive Stock Option Plan * (as amended effective May 6, 1992) 10(c) -- 1981 Nonqualified Stock Option Plan (as * amended effective May 6, 1992) 10(d) -- 1987 Incentive Stock Plan (as amended * effective May 6, 1992) 10(e) -- 1991 Incentive Stock Plan (as adopted on Incorporated by reference to Form April 23, 1991) 10-K Annual Report for the fiscal year ended December 31, 1991 10(f) -- Non-Employee Directors Stock Option Plan * (as adopted on April 28, 1992 and restated May 6, 1992) 10(g) -- Supplemental Retirement Plan (as amended Incorporated by reference to Form effective December 1, 1991) 10-K Annual Report for the fiscal year ended December 31, 1991 10(h) -- Retirement Plan for the Directors of * Merck & Co., Inc. (as adopted on September 22, 1987, effective April 29, 1987) 10(i) -- Plan for Deferred Payment of Directors' Filed with this document Compensation (as amended effective April 27, 1993) 10(j) -- Medco 1991 Class B Stock Option Plan, as ** amended 10(k) -- Medco Class A 1983 Non-Qualified Stock ** Option Plan 10(l) -- Form of Stock Option Agreement each ** dated October 14, 1992 between Medco and Per G.H. Lofberg and Paul C. Suthern (together with a list showing the number of options held by each) 10(m)-- Stock Option Agreement made as of ** October 14, 1992 between Medco and Martin J. Wygod 10(n) -- Second Amended and Restated Employment *** Agreement between Martin J. Wygod and Medco dated December 8, 1992 10(o) -- Employment Agreement between Per G.H. *** Lofberg and Medco dated April 1, 1993
17 19
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING 10(p) -- Employment Agreement between Paul C. *** Suthern and Medco dated January 1, 1993 10(q) -- Letter Agreement between Medco and *** Martin J. Wygod dated July 27, 1993 10(r) -- Letter Agreement between Medco and Per *** G.H. Lofberg dated July 27, 1993 10(s) -- Letter Agreement between Medco and Paul C. *** Suthern dated July 27, 1993 11 -- Computation of Earnings per common share Filed with this document 12 -- Computation of Ratios of Earnings to Filed with this document Fixed Charges 13 -- 1993 Annual Report to stockholders (only Filed with this document those portions incorporated by reference in this document are deemed "filed") 21 -- List of subsidiaries Filed with this document 24 -- Power of Attorney and Certified Filed with this document Resolution of Board of Directors
- --------------- * Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1992. ** Incorporated by reference to Post Effective Amendment No. 1 to Registration Statement on Form S-8 to Form S-4 Registration Statement (No. 33-50667). *** Incorporated by reference to Form 10-K Annual Report of Medco Containment Services, Inc. for the fiscal year ended June 30, 1993. None of the instruments defining the rights of holders of long-term debt of the Company and its subsidiaries (Exhibit Number 4) are being filed since the total amount of securities authorized under any of such instruments taken individually does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of such instruments to the Commission upon request. Copies of the exhibits may be obtained by stockholders upon written request directed to the Stockholder Services Department, Merck & Co., Inc., P.O. Box 100--WS 3AB-40, Whitehouse Station, New Jersey 08889-0100 accompanied by check in the amount of $5.00 payable to Merck & Co., Inc. to cover processing and mailing costs. (C) REPORTS ON FORM 8-K During the three-month period ending December 31, 1993, one report was filed on Form 8-K, under Item 2 - Acquisition or Disposition of Assets, relative to the acquisition of Medco Containment Services, Inc. This report was dated November 18, 1993 and filed December 3, 1993, and amended February 1, 1994. 18 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES To Merck & Co., Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Merck & Co., Inc.'s 1993 Annual Report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1994. Our audits were made for the purpose of forming an opinion on those basic financial statements taken as a whole. The schedules listed in Item 14 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. New York, New York January 25, 1994 19 21 SCHEDULE II MERCK & CO., INC. AND SUBSIDIARIES SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES ($ IN MILLIONS)
BALANCE AT DEDUCTIONS END BALANCE AT ----------------------------- OF PERIOD(2) BEGINNING OF AMOUNTS AMOUNTS ------------ NAME OF DEBTOR PERIOD ADDITIONS(1) COLLECTED WRITTEN-OFF CURRENT --------------- ------------ ------------ ------------ ------------ ------------ Year Ended December 31, 1993: J. Valesio (a)......................... -- $ .5 -- -- -- R. Vanderveer (b)...................... -- .5 -- -- -- R. Frankel (c)......................... -- .4 -- -- -- C. Tisone (d).......................... -- .2 -- -- -- M. Horst (e)........................... -- .2 -- -- -- R. Jones (f)........................... -- .2 -- -- $ .2 R. Pepper (g).......................... -- .2 -- -- .2 R. Holland (h)......................... -- .2 -- -- -- D. Kline (i)........................... -- .1 $ .1 -- -- W. Vellon (j).......................... -- .1 -- -- -- -- --- -- -- -- -- $2.6 $ .1 -- $ .4 -- -- -- -- -- -- -- -- -- -- Year Ended December 31, 1992: A. Butler (k).......................... $ .1 -- $ .1 -- -- -- -- -- -- -- -- -- -- -- -- Year Ended December 31, 1991: J. Mukamal (l)......................... $ .2 -- $ .2 -- -- A. Butler (k).......................... -- $ .1 -- -- $ .1 -- -- -- -- -- $ .2 $ .1 $ .2 -- $ .1 -- -- -- -- -- -- -- -- -- -- NAME OF DEBTOR NONCURRENT --------------- ---------- Year Ended December 31, 1993: J. Valesio (a)......................... $ .5 R. Vanderveer (b)...................... .5 R. Frankel (c)......................... .4 C. Tisone (d).......................... .2 M. Horst (e)........................... .2 R. Jones (f)........................... -- R. Pepper (g).......................... -- R. Holland (h)......................... .2 D. Kline (i)........................... -- W. Vellon (j).......................... .1 --- $2.1 --- --- Year Ended December 31, 1992: A. Butler (k).......................... -- --- --- Year Ended December 31, 1991: J. Mukamal (l)......................... -- A. Butler (k).......................... -- --- -- --- ---
- --------------- (1) 1993 additions are a result of the Medco acquisition on November 18, 1993. (2) Does not include applicable accrued interest. (a) Represents a loan to an officer collateralized by his principal residence with interest at 6%, payable no later than July 13, 1997. (b) Represents a loan to an officer collateralized by stock options with interest at 6%. Payable with the proceeds on the date or dates on which the officer sells all or part of Medical Marketing Group common stock or the exercise of Medical Marketing Group stock options. (c) Represents a loan to an officer which is collateralized by his principal residence with interest at 10%, payable no later than May 4, 2005. (d) Represents loans to an officer collateralized by shares of the Company's common stock, payable on April 30, 1996. (e) Represents a loan to an officer collateralized by his principal residence with interest at 6.5%, payable no later than September 4, 1997. (f) Represents a loan to an officer which is collateralized by stock options with interest at 6% and payable on demand. (g) Represents a loan to an officer collateralized by stock options with interest at 6% and payable on demand. (h) Represents a loan to an officer collateralized by stock options with interest at 6%, payable no later than May 11, 1998. (i) Represents a loan to an officer collateralized by stock options with interest at 6%, repaid on December 27, 1993. (j) Represents a loan to an employee which is collateralized by his principal residence with interest at 7% and payable over 30 years ending December 1, 2022. (k) Represents a loan to purchase stock which was payable in February 1992 with interest at 8%. The loan was fully repaid in February 1992. (l) Represents a loan to purchase stock which was payable in March 1991 with interest at 10%. The loan was fully repaid in January 1991. 20 22 SCHEDULE V MERCK & CO., INC. AND SUBSIDIARIES SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT ($ IN MILLIONS)
RETIRE- BALANCE AT ADDITIONS MENTS OTHER BALANCE BEGINNING AT COST OR SALES CHANGES AT END CLASSIFICATION OF PERIOD (a) (b) (c) OF PERIOD -------------- ---------- --------- -------- -------- --------- Year ended December 31, 1993: Land.................................. $ 210.3 $ 7.3 $ 7.9 $ 2.8 $ 212.5 Buildings............................. 2,122.1 363.2 124.3 25.1 2,386.1 Machinery, Equipment and Office Furnishings......................... 3,435.0 581.7 338.8 91.1 3,769.0 Construction in Progress.............. 763.5 60.5 24.0 5.2 805.2 ------------- ------------- ------ ----------- ------------- Total......................... $6,530.9 $1,012.7 $ 495.0 $ 124.2 $7,172.8 ------------- ------------- ------ ----------- ------------- ------------- ------------- ------ ----------- ------------- Year ended December 31, 1992: Land.................................. $ 195.7 $ 12.1 $ -- $ 2.5 $ 210.3 Buildings............................. 1,483.3 647.7 11.0 2.1 2,122.1 Machinery, Equipment and Office Furnishings......................... 3,002.2 569.1 141.7 5.4 3,435.0 Construction in Progress.............. 925.6 (162.3) -- .2 763.5 ------------- ------------- ------ ----------- ------------- Total......................... $5,606.8 $1,066.6 $ 152.7 $ 10.2 $6,530.9 ------------- ------------- ------ ----------- ------------- ------------- ------------- ------ ----------- ------------- Year ended December 31, 1991: Land.................................. $ 169.5 $ 29.2 $ 3.0 -- $ 195.7 Buildings............................. 1,258.4 229.0 4.1 -- 1,483.3 Machinery, Equipment and Office Furnishings......................... 2,660.6 393.6 52.0 -- 3,002.2 Construction in Progress.............. 542.0 389.7 6.1 -- 925.6 ------------- ------------- ------ ----------- ------------- Total......................... $4,630.5 $1,041.5 $ 65.2 -- $5,606.8 ------------- ------------- ------ ----------- ------------- ------------- ------------- ------ ----------- -------------
- --------------- (a) Additions, at cost, to construction in progress are net of transfers to other plant and equipment classifications for those construction projects completed during the year. (b) 1993 and 1992 include sales of assets related to divestitures and 1993 includes dispositions associated with restructurings. (c) Represents balances at date of acquisition for assets acquired and accounted for as a purchase transaction. 21 23 SCHEDULE VI MERCK & CO., INC. AND SUBSIDIARIES SCHEDULE VI -- ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT ($ IN MILLIONS)
ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND RETIREMENTS AT END CLASSIFICATION OF PERIOD EXPENSES OR SALES(a) OF PERIOD -------------- ------------ ----------- ----------- ------------ Year ended December 31, 1993: Buildings.............................................. $ 556.7 $ 84.8 $ 104.8 $ 536.7 Machinery, Equipment and Office Furnishings............ 1,703.1 263.6 225.2 1,741.5 ------------ ----------- ----------- ------------ Total.......................................... $2,259.8 $ 348.4 $ 330.0 $2,278.2 ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ Year ended December 31, 1992: Buildings.............................................. $ 501.7 $ 71.4 $ 16.4 $ 556.7 Machinery, Equipment and Office Furnishings............ 1,600.6 218.9 116.4 1,703.1 ------------ ----------- ----------- ------------ Total.......................................... $2,102.3 $ 290.3 $ 132.8 $2,259.8 ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------ Year ended December 31, 1991: Buildings.............................................. $ 447.7 $ 55.6 $ 1.6 $ 501.7 Machinery, Equipment and Office Furnishings............ 1,461.1 187.1 47.6 1,600.6 ------------ ----------- ----------- ------------ Total.......................................... $1,908.8 $ 242.7 $ 49.2 $2,102.3 ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------
- --------------- (a) 1993 and 1992 include sales of assets related to divestitures and 1993 includes dispositions associated with restructurings. NOTE: Depreciation is provided over the estimated lives of the assets, principally using the straight-line method. The estimated useful lives are 10 to 50 years for Buildings, and 3 to 20 years for Machinery, Equipment and Office Furnishings. 22 24 SCHEDULE IX MERCK & CO., INC. AND SUBSIDIARIES SCHEDULE IX -- SHORT-TERM BORROWINGS ($ IN MILLIONS)
WEIGHTED AVERAGE MAXIMUM AVERAGE WEIGHTED INTEREST MONTH-END MONTH-END AVERAGE BALANCE RATE BALANCE BALANCE INTEREST AT AT OUTSTANDING OUTSTANDING RATE END OF END OF DURING DURING DURING CLASSIFICATION PERIOD PERIOD THE YEAR THE YEAR THE YEAR(a) - -------------------------------------------- -------- -------- ----------- ---------- ----------- Year ended December 31, 1993: Commercial Paper and Medium-Term Notes................................. $1,596.8 3.0% $ 2,137.2 $ 998.7 3.2% Bank Borrowings in foreign currencies(b)......................... 73.4 10.3% $ 118.4 85.2 9.3% Other(c)................................ 34.1 4.9% $ 36.6 34.2 4.3% -------- ---------- $1,704.3 3.4% $1,118.1 3.7% -------- ---------- -------- ---------- Year ended December 31, 1992: Commercial Paper and Medium-Term Notes................................. $ 609.3 3.4% $ 810.2 $ 394.8 3.5% Bank Borrowings in foreign currencies(b)......................... 76.3 10.8% $ 159.9 105.1 10.7% Other(c)................................ 42.4 4.4% $ 42.4 30.4 4.7% -------- ---------- $ 728.0 4.2% $ 530.3 5.0% -------- ---------- -------- ---------- Year ended December 31, 1991: Notes with Bank Trust Departments and Commercial Paper...................... $ 65.0 4.9% $ 883.6 $ 428.2 6.2% Bank Borrowings in foreign currencies(b)......................... 123.8 8.3% $ 123.8 62.5 9.7% Other(b)(c)............................. 29.2 5.2% $ 29.5 28.7 6.9% -------- ---------- $ 218.0 6.9% $ 519.4 6.7% -------- ---------- -------- ----------
- --------------- (a) The weighted average interest rates were calculated on the basis of month-end borrowings. (b) Amounts exclude the current portion of long-term debt. (c) Principally short-term tax-exempt borrowings and U.S. dollar denominated borrowings. 23 25 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. Dated: March 22, 1994 By P. ROY VAGELOS (CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER) By /s/ CELIA A. COLBERT CELIA A. COLBERT (ATTORNEY-IN-FACT) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
SIGNATURES TITLE DATE P. ROY VAGELOS Chairman of the Board, President and Chief Executive Officer; Principal Executive Officer; Director JUDY C. LEWENT Senior Vice President and Chief Financial Officer; Principal Financial Officer PETER E. NUGENT Vice President, Controller; Principal Accounting Officer H. BREWSTER ATWATER, JR. March 22, 1994 DEREK BIRKIN LAWRENCE A. BOSSIDY WILLIAM G. BOWEN CAROLYNE K. DAVIS LLOYD C. ELAM Directors CHARLES E. EXLEY, JR. WILLIAM N. KELLEY RUBEN F. METTLER RICHARD S. ROSS DENNIS WEATHERSTONE MARTIN J. WYGOD
CELIA A. COLBERT, BY SIGNING HER NAME HERETO, DOES HEREBY SIGN THIS DOCUMENT PURSUANT TO POWERS OF ATTORNEY DULY EXECUTED BY THE PERSONS NAMED, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS AN EXHIBIT TO THIS DOCUMENT, ON BEHALF OF SUCH PERSONS, ALL IN THE CAPACITIES AND ON THE DATE STATED, SUCH PERSONS INCLUDING A MAJORITY OF THE DIRECTORS OF THE COMPANY. By /s/ CELIA A. COLBERT CELIA A. COLBERT (ATTORNEY-IN-FACT) 24 26 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in or incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (Nos. 33-21087, 33-21088, 33-36101, 33-40177 and 33-51235), on Form S-4 (No. 33-50667) and on Form S-3 (Nos. 33-39349, 33-60322 and 33-51785). It should be noted that we have not audited any financial statements of the Company subsequent to December 31, 1993 or performed any audit procedures subsequent to the date of our reports. ARTHUR ANDERSEN & CO. New York, New York March 22, 1994 25 27 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING 2 -- Agreement and Plan of Merger By and Incorporated by reference to Among Merck & Co., Inc., M Acquisition Registration Statement on Form Corp. and Medco Containment Services, S-4 (No. 33-50667) Inc., as amended 3(a) -- Restated Certificate of Incorporation of * Merck & Co., Inc. (May 6, 1992) 3(b) -- By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form November 22, 1988) 10-K Annual Report for the fiscal year ended December 31, 1988 10(a) -- Executive Incentive Plan (as amended * effective May 6, 1992) 10(b) -- 1981 Incentive Stock Option Plan * (as amended effective May 6, 1992) 10(c) -- 1981 Nonqualified Stock Option Plan (as * amended effective May 6, 1992) 10(d) -- 1987 Incentive Stock Plan (as amended * effective May 6, 1992) 10(e) -- 1991 Incentive Stock Plan (as adopted on Incorporated by reference to Form April 23, 1991) 10-K Annual Report for the fiscal year ended December 31, 1991 10(f) -- Non-Employee Directors Stock Option Plan * (as adopted on April 28, 1992 and restated May 6, 1992) 10(g) -- Supplemental Retirement Plan (as amended Incorporated by reference to Form effective December 1, 1991) 10-K Annual Report for the fiscal year ended December 31, 1991 10(h) -- Retirement Plan for the Directors of * Merck & Co., Inc. (as adopted on September 22, 1987, effective April 29, 1987) 10(i) -- Plan for Deferred Payment of Directors' Filed with this document Compensation (as amended effective April 27, 1993) 10(j) -- Medco 1991 Class B Stock Option Plan, as ** amended 10(k) -- Medco Class A 1983 Non-Qualified Stock ** Option Plan 10(l) -- Form of Stock Option Agreement each ** dated October 14, 1992 between Medco and Per G.H. Lofberg and Paul C. Suthern (together with a list showing the number of options held by each) 10(m)-- Stock Option Agreement made as of ** October 14, 1992 between Medco and Martin J. Wygod 10(n) -- Second Amended and Restated Employment *** Agreement between Martin J. Wygod and Medco dated December 8, 1992 10(o) -- Employment Agreement between Per G.H. *** Lofberg and Medco dated April 1, 1993
28
EXHIBIT NUMBER DESCRIPTION METHOD OF FILING 10(p) -- Employment Agreement between Paul C. *** Suthern and Medco dated January 1, 1993 10(q) -- Letter Agreement between Medco and *** Martin J. Wygod dated July 27, 1993 10(r) -- Letter Agreement between Medco and Per *** G.H. Lofberg dated July 27, 1993 10(s) -- Letter Agreement between Medco and Paul C. *** Suthern dated July 27, 1993 11 -- Computation of Earnings per common share Filed with this document 12 -- Computation of Ratios of Earnings to Filed with this document Fixed Charges 13 -- 1993 Annual Report to stockholders (only Filed with this document those portions incorporated by reference in this document are deemed "filed") 21 -- List of subsidiaries Filed with this document 24 -- Power of Attorney and Certified Filed with this document Resolution of Board of Directors
- --------------- * Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1992. ** Incorporated by reference to Post Effective Amendment No. 1 to Registration Statement on Form S-8 to Form S-4 Registration Statement (No. 33-50667). *** Incorporated by reference to Form 10-K Annual Report of Medco Containment Services, Inc. for the fiscal year ended June 30, 1993. EX-10.I 2 PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMP. 1 EXHIBIT 10(i) MERCK & CO., INC. PLAN FOR DEFERRED PAYMENT OF DIRECTORS' COMPENSATION (Amended effective April 27, 1993) I. PURPOSE To provide an arrangement under which directors of Merck & Co., Inc. may defer payment of the annual retainer, and meeting and committee fees until after termination of their service as a director. II. EFFECTIVE DATE March 24, 1981 III. ELECTION OF DEFERRAL A. Prior to December 28 of each year, each director, is entitled to make an irrevocable election to defer until termination of service as a director receipt of payment of (a) 50% or 100% of the retainer for the 12 months beginning April 1 of the next calendar year, and (b) 50% or 100% of the meeting and committee fees for the 12 months beginning April 1 of the next calendar year. With respect to the year 1981 only, directors may make this initial election, at their discretion, after April 1, but before July 1, in which case such initial election shall apply to directors' compensation for the nine months commencing July 1, 1981 and ending March 31, 1982. In the case of new nominees for election to director or in the event the director is appointed at a time other than the Annual Meeting of Stockholders, the election under the deferral plan must be made prior to commencement of duties as a director. Each such annual election shall include an election as to the method by which the value of amounts deferred will be measured in accordance with Section IV, below. B. Each such annual election shall include an election to receive payment following termination of service as a director of all amounts deferred in a lump sum, or in annual or quarterly installments over one, five, ten or fifteen years; provided, however, that for Plan years commencing prior to April 1, 1985, the election as to payment period and frequency made in the first Plan year of participation shall govern all deferrals elected in such Plan years. The first such payment shall be made as soon as practicable following termination of service, provided that no amount valued under the Merck Common Stock Method shall be distributed until six months have elapsed since such valuation. C. Upon the request of a director made at any time during the calendar year immediately preceding the calendar year in which service as a director terminates, the Executive Committee of the Board of Directors, in its sole discretion, may authorize: (a) an extension of a payment period beyond that originally elected by the director not to exceed that otherwise allowable under the Plan, and/or (b) a payment frequency different from that originally elected by the director. Such request may not be made with regard to amounts deferred subsequent to May 1, 1991 using the Merck Common Stock Method and to any earnings attributable to such deferrals. Any retired director who is not subject to U.S. income tax may petition the Executive Committee to change payment frequency including a lump sum distribution, and the Executive Committee may grant such petition if, in its discretion, it considers there to be reasonable justification therefor. Deferrals made subsequent to May 1, 1991 and any earnings thereon may only be distributed in accordance with the schedule elected under Article III, Section B or Article V. 2 D. Following termination of service as a director, each director may make one request for a further extension of the period for distribution of his/her deferred compensation which may not exceed the deferral period otherwise allowable under the Plan. This request may be granted and a new payment schedule determined in the sole discretion of the Executive Committee of the Board of Directors. Such request may not be made with regard to amounts deferred subsequent to May 1, 1991 using the Merck Common Stock Method and to any earnings attributable to such deferrals. Deferrals made subsequent to May 1, 1991 and any earnings thereon may only be distributed in accordance with the schedule elected under Article III, Section B or Article V. IV. VALUATION, CONVERSION AND PAYMENT OF DEFERRED AMOUNTS A. VALUATION. The value of amounts deferred under each year's election shall be measured in accordance with each director's election in one of two ways: The Merck Common Stock Method or the Fidelity Daily Income Trust Method. Under both methods the total amount of each director's compensation deferred each calendar quarter is used to determine the number of full and partial shares of Merck Common Stock or shares of the Fidelity Daily Income Trust which such amount would purchase at the closing price for Merck Common Stock on the New York Stock Exchange composite tape or the offering price (Net Asset Value) for Fidelity Daily Income Trust shares on the eighth Tuesday in such quarter, or if such quotations are not available on such eighth Tuesday, then on the first preceding day on which such quotations were available. The Company shall credit the director's account with the number of shares so determined on the last day of the quarter. Each director's account will be credited once each calendar quarter, or at the date of any measurement method conversion, with the additional number of full and partial shares of Merck Common Stock which would have been purchasable with the dividends on shares previously credited to the account at the closing price on the New York Stock Exchange composite tape on the date each dividend was paid or with the additional number of full and partial Fidelity Daily Income Trust shares which would have been purchasable each calendar quarter at the average offering price during such quarter with the total dividends paid during such quarter on shares previously credited to the account. B. CONVERSION OF MEASUREMENT METHOD APPLICABLE TO AMOUNTS DEFERRED PRIOR TO MAY 1, 1991 AND TO ALL EARNINGS ON SUCH DEFERRED AMOUNTS. Upon request to the Company, a director may request that the method by which the value of all or a portion of the account is measured following the date of receipt of such request by the Company be converted as provided below. The portion of the director's account to be converted will be valued at its cash equivalent and such cash equivalent will be converted into shares of the other measurement method. For purposes of such conversions, the cash equivalent of Merck Common Stock or shares of the Fidelity Daily Income Trust shall be the closing price on the New York Stock Exchange composite tape or the offering price of Fidelity Daily Income Trust shares on the date the request is received by the Company. This Section B is not applicable to any amounts deferred after May 1, 1991 or to any earnings attributable to deferrals made subsequent to May 1, 1991. Amounts deferred subsequent to May 1, 1991 and any earnings thereon will remain invested in the medium chosen at the time of the deferral election. 1. During Active Service. A director may make one measurement conversion request out of the Merck Common Stock Method anytime during each calendar year, except thirty (30) days prior to a distribution under Section IV.C.; provided, however, that each such - 2 - 3 request is irrevocable and made in whole percentages. An account, or portion of an account, that is converted out of the Merck Common Stock Method may not subsequently be reconverted to the Merck Common Stock Method of measurement under this subsection. 2. At Retirement. One additional irrevocable request may be made by a director at any time during the last plan year of service to convert fully or partially from the Merck Common Stock Method to the Fidelity Daily Income Trust Method. 3. After Death. Following the death of a director, the legal representative or beneficiary of such director may make one irrevocable request to convert fully or partially from the Merck Common Stock Method to the Fidelity Daily Income Trust Method. Provided, however, that should the Securities and Exchange Commission indicate to Merck's Corporate Counsel that conversions from the Fidelity Daily Income Trust Method to the Merck Common Stock Method will not cause loss of the exemption from the definition of derivative security under Section 16 then this amendment of Article IV, Section B, paragraphs 2 and 3 shall be considered null and void as of that date, and the language used prior to this amendment shall be reinstated. C. PAYMENT OF DEFERRED AMOUNTS. All payments to directors of amounts deferred will be in cash. At no time during the deferral period will any shares of Merck Common Stock or Fidelity Daily Income Trust shares be purchased or earmarked for such deferred amounts nor will any rights of a shareholder exist with respect to such amounts. V. DESIGNATION OF BENEFICIARY In the event of death of a director, the deferred amount at the date of death shall be paid to the last named beneficiary or beneficiaries designated by the director, or if no beneficiary has been designated, then to the director's legal representative, in one or more installments as the Executive Committee of the Board in its sole discretion may determine. - 3 - EX-11 3 COMPUTATION OF EARNINGS PER COMMON SHARE 1 Exhibit 11 MERCK & CO., INC. AND SUBSIDIARIES Computations of Earnings Per Common Share (a) --------------------------------------------- (In millions except per share amounts)
1993 1992 1991 -------- -------- -------- Net Income and Adjusted Earnings: - --------------------------------- Income Before Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,166.2 $2,446.6 $2,121.7 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . - (462.4) - -------- -------- -------- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166.2 1,984.2 2,121.7 Effect on Earnings of Compensation Expense on Stock Option and Executive Incentive Plans . . . . . . . . . . . . . . . . 1.6 4.0 11.9 Effect on Earnings of Interest on Debentures Issued by Medco . . . . . . . . . . . . . . . . . . . . . . . . .2 - - Adjusted Earnings for Fully Diluted -------- -------- -------- Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,168.0 $1,988.2 $2,133.6 ======== ======== ======== Weighted Average Shares and Share Equivalents Outstanding: - --------------------------------- Weighted Average Shares Outstanding (As Reported) . . . . . . . . . . . . . . 1,156.5 1,153.5 1,159.9 Common Share Equivalents Issuable Under Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 8.8 12.0 Common Share Equivalents Issuable Under Executive Incentive Plans . . . . . . . . . . . . . . . . . . . . . . . . . 2.0 2.2 2.4 Common Share Equivalents Issuable on Assumed Conversion of Debentures Issued by Medco . . . . . . . . . . . . . . . . . .4 - - -------- -------- -------- Weighted Average Shares and Share Equivalents Outstanding . . . . . . . . . . . . . . . . . . . . . . . 1,165.8 1,164.5 1,174.3 ======== ======== ======== Earnings Per Share (As Reported): - --------------------------------- Before Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $2.12 $1.83 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . - (.40) - ----- ----- ----- Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $1.72 $1.83 ===== ===== ===== Fully Diluted Earnings Per Share: (b) - --------------------------------- Before Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.86 $2.10 $1.82 Cumulative Effect of Accounting Changes . . . . . . . . . . . . . . . . . . . - (.39) - ----- ----- ----- Fully Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . $1.86 $1.71 $1.82 ===== ===== =====
(a) All per share amounts for the current and prior periods presented in this exhibit reflect the three-for-one split of the Company's common stock effective May 6, 1992. (b) This calculation is submitted in accordance with the regulations of the Securities and Exchange Commission although not required by APB Opinion No. 15 because it results in dilution of less than 3%. EX-12 4 COMPUTATION OF RATIOS TO FIXED CHARGES 1 Exhibit 12 MERCK & CO., INC. AND SUBSIDIARIES Computation of Ratios of Earnings to Fixed Charges -------------------------------------------------- (In millions except ratio data)
Years Ended December 31 ---------------------------------------------------------------------------------------- 1993 1992 1991 1990 1989 1988 -------- -------- -------- -------- -------- -------- Income before Taxes and Cumulative Effect of Accounting Charges $3,102.7 $3,563.6 $3,166.7 $2,698.8 $2,283.0 $1,871.0 -------- -------- -------- -------- -------- -------- Add: One-third of Rents 35.0 34.0 31.1 26.5 20.0 19.3 Interest Expense (Net) 48.0 23.6 26.0 51.9 45.5 71.0 -------- -------- -------- -------- -------- -------- Income as Adjusted $3,185.7 $3,621.2 $3,223.8 $2,777.2 $2,348.5 $1,961.3 ======== ======== ======== ======== ======== ======== Fixed Charges One-third of Rents $ 35.0 $ 34.0 $31.1 $26.5 $20.0 $19.3 Interest Expense 84.7 72.7 68.7 69.8 53.2 76.5 ------ ------ ----- ----- ----- ----- Fixed Charges $119.7 $106.7 $99.8 $96.3 $73.2 $95.8 ====== ====== ===== ===== ===== ===== Ratio of Earnings to Fixed Charges 27 34 32 29 32 20 -- -- -- -- -- --
For purposes of computing these ratios, "earnings" consist of income before income taxes, one-third of rents (deemed by the Company to be representative of the interest factor), and interest expense, net of amounts capitalized. "Fixed charges" consist of one-third of rents and interest expense as reported in the Company's consolidated financial statements. EX-13 5 1993 ANNUAL REPORT TO STOCKHOLDERS 1 Exhibit 13 FINANCIAL REVIEW DESCRIPTION OF MERCK'S BUSINESS Merck is a worldwide organization engaged primarily in the business of discovering, developing, producing and marketing products and services for the maintenance or restoration of health. The Company's business is divided into two industry segments: Human and Animal Health Products and Services and Specialty Chemical Products. In 1993, the Human and Animal Health segment includes Medco Containment Services, Inc. (Medco), acquired in November 1993. HUMAN AND ANIMAL HEALTH PRODUCTS AND SERVICES Human health products include therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. Among these are cardiovascular products, of which Vasotec, Mevacor, Zocor, Prinivil and Vaseretic are the largest-selling; anti-ulcerants, of which Pepcid and Prilosec are the largest; antibiotics, of which Primaxin, Noroxin and Mefoxin are the largest; vaccines/biologicals, of which M-M-R II, a pediatric vaccine for measles, mumps and rubella, and Recombivax HB (hepatitis B vaccine recombinant) are the largest-selling; ophthalmologicals, of which Timoptic is the largest; anti-inflammatory/analgesic products, of which Indocin, Clinoril and Dolobid are the largest; and other human health products, which include antiparkinsonism products, psychotherapeutics, a muscle relaxant and Proscar, a treatment for symptomatic benign prostate enlargement. Human health services include health-care cost containment services, principally managed prescription drug programs. Animal health/crop protection products include animal medicinals used for control and alleviation of disease in livestock, small animals and poultry. These products are primarily antiparasitics, of which Ivomec, for the control of internal and external parasites in livestock, and Heartgard-30, for the prevention of canine heartworm disease, are the largest-selling; crop protection products; coccidiostats for the treatment of poultry disease; and poultry breeding stock.
- --------------------------------------------------------------------- SALES OF HUMAN AND ANIMAL HEALTH PRODUCTS AND SERVICES - --------------------------------------------------------------------- ($ in millions) 1993* 1992 1991 - --------------------------------------------------------------------- Cardiovasculars . . . . . $4,820.8 $4,482.0 $3,804.2 Anti-ulcerants . . . . . 1,324.0 1,043.9 820.6 Antibiotics . . . . . . . 868.7 942.2 917.7 Vaccines/biologicals . . 522.9 485.3 375.1 Ophthalmologicals . . . . 454.6 457.2 425.2 Anti-inflammatories/analgesics 336.8 430.5 500.4 Other human health . . . 446.8 373.4 381.9 Other Medco sales . . . . 296.6 - - Animal health/crop protection 916.7 853.1 794.4 - --------------------------------------------------------------------- $9,987.9 $9,067.6 $8,019.5 =====================================================================
* Sales by therapeutic class include Medco sales of Merck products. Medco sales of non-Merck products and Medco services are included in Other Medco sales. Sales of the Company's human and animal health products are generally made by professional representatives. Customers for human health products include drug wholesalers and retailers, hospitals, clinics, governmental agencies and managed health-care providers such as health maintenance organizations and other institutions. Customers for animal health/crop protection products include veterinarians, distributors, wholesalers, retailers, feed manufacturers, veterinary suppliers and laboratories. The markets in which this segment's business is conducted are highly competitive and, in many cases, highly regulated. The introduction of new, technologically innovative products and processes by competitors may result in price reductions and product substitutions, even for products protected by patents. Government efforts to slow the increase of health-care costs and the demand for price discounts from managed care groups have made it increasingly difficult for the Company to cover the effect of inflation on costs and expenses through price increases. It is anticipated that the worldwide trend for cost containment and competitive pricing will continue for the balance of the 1990's, and result in continued pricing pressures. Outside of the United States, governments are also taking actions which are forcing the Company to significantly limit selling prices to remain competitive. Governments' actions to increase the use of generic products have significantly reduced the sales of certain of the Company's products no longer protected by patents and have slowed the sales growth of certain other products. These governmental efforts and competitive pressures are limiting the Company's ability to mitigate the effect of inflation on costs and expenses through price increases. Merck is responding to this new environment 32 2 in a number of ways including the development of innovative sales, marketing and education techniques, by developing health-care alliances with large pharmaceutical buyers, and by efforts to become more productive throughout our entire organization. In the United States, legislative bodies are working toward a solution to expand health-care access and reduce the costs associated therewith. The debate to reform the health-care system is expected to be protracted and intense. Although the Company is positioned to do business in a managed competition environment and respond to evolving market forces, it cannot predict the outcome or effect of legislation resulting from the reform process. However, the Company believes that its current policies will enable it to maintain a strong position in this changing economic environment. In early 1990, Merck voluntarily adopted a pricing policy that limits the weighted average price increases for human health pharmaceutical products to the general rate of inflation, as measured by the U.S. Consumer Price Index (CPI). In early 1993, the policy was amended to limit individual product price increases to the CPI plus 1% on an annual basis. This policy is supported by our strategy to grow through volume and not price, given stable market conditions and government policies that foster innovation. Also in 1990, Merck introduced its Equal Access to Medicines Program in a number of states. Under this program, Merck voluntarily granted its best price discounts to state Medicaid programs in exchange for full patient access to our products. This innovative program served as a model for national legislation applicable to all prescription drug manufacturers. These actions and other voluntary efforts demonstrate our corporate responsibility and have provided a voice for health-care reform. Other principal strategies for remaining competitive in this environment include investing in research and development (R&D) directed toward the discovery and development of new, technologically innovative products, through acquisitions, joint ventures, licensing agreements and other strategic alliances, the acquiring and marketing of products, and discovery and development of new products and streamlining and restructuring of operations worldwide. To further enhance the Company's competitive position in the emerging area of managed care, Medco was acquired in November 1993. Medco principally provides services designed to reduce prescription drug benefit costs through managed prescription drug programs, and also provides managed mental health-care services. Medco provides these services to corporations, labor unions, insurance companies, Blue Cross and Blue Shield organizations, Federal and state employee plans, health maintenance and other similar organizations. Merck acquired all the outstanding shares of Medco for approximately $6.6 billion. The purchase price consisted of $2.4 billion in cash, 114.0 million common shares with a market value of $3.8 billion and 36.1 million options valued at $387.1 million, net of tax. The acquisition was accounted for by the purchase method and, accordingly, Medco's results of operations have been included with the Company's since acquisition. The inclusion of Medco did not have a significant impact on the Company's results of operations. The allocation of the purchase price to assets acquired and liabilities assumed is based on preliminary assumptions and is subject to revision. The effect of any revision is not expected to have a significant impact on the Company's financial position or results of operations. In 1989, Merck and E. I. du Pont de Nemours and Company (Du Pont) agreed to form a long-term research and marketing collaboration to develop a new class of therapeutic agents for high blood pressure and heart disease, discovered and developed by Du Pont. In return, Merck provided Du Pont marketing rights in the United States and Canada to two Merck prescription medicines, Sinemet and Vaseretic. To further enhance the Company's access to research products, Merck and Du Pont created an independent, research-driven, worldwide pharmaceutical joint venture, equally owned by each party, which began operations on January 1, 1991. Du Pont contributed its entire pharmaceutical and radiopharmaceutical imaging agents businesses and is providing administrative services. Merck is providing research and development expertise, development funds, certain European marketing rights to several of its prescription medicines, international industry expertise and cash. The partnership represents a long-term investment by both companies, as the joint venture's R&D effort is not expected to produce significant commercial results until the late 1990's. In September 1992, the joint venture began co-promotion of Merck's prescription medicine, Vasotec, for the treatment of hypertension. The joint venture is not expected to have a significant impact on the Company's financial operations in the near term. In 1989, Merck and Johnson & Johnson formed a joint venture that will develop and market a broad range of non-prescription medicines for U.S. consumers. In January 1990, the joint venture acquired the U.S. self-medication business of ICI Americas, Inc. (ICI), with ICI obtaining the U.S. rights to Elavil, one of the Company's products. In May 1991, Merck and Johnson & Johnson signed an agreement in principle, which was finalized in January 1993, to extend their U.S. joint venture agreement to include Europe. This new European joint venture is intended to market and sell over-the-counter (OTC) pharmaceutical products in Europe. Also in January 1993, Merck contributed its existing OTC medications business in Spain to a new joint venture company. In 33 3 September 1993, the European joint venture established a new company in the United Kingdom to market Merck and Johnson & Johnson OTC medications. In December 1993, Merck and Johnson & Johnson signed an agreement to acquire Laboratoires J. P. Martin, a leading self-medication business in France. This transaction was completed in January 1994. In 1991, Merck formed a separate vaccine division to enhance its existing vaccine business and also to expand its presence through acquisitions, licensing agreements and outside research collaborations. In 1992, Merck and Connaught Laboratories, Inc., an affiliate of Pasteur Merieux Serums & Vaccins (Pasteur), finalized an agreement to collaborate on the development and marketing of combination pediatric vaccines and to promote selected vaccine products in the United States. In May 1993, Merck and Pasteur signed an agreement to form a joint venture to market vaccines and to collaborate in the development of combination vaccines for distribution in Europe. This agreement is under review by the European Commission. In 1982, the Company entered into an agreement with AB Astra (Astra) to develop and market Astra products in the United States. Currently, Merck markets three Astra products, Prilosec, Plendil and Tonocard, in exchange for a royalty. In July 1993, the Company's total sales of Astra products reached the level that triggered the first step in the establishment of a separate entity for operations related to Astra products. Astra will have the right to acquire a 50% share of this new entity, at which time the Company's royalty obligation would cease. The Company is now building the infrastructure and business capabilities to develop and market Astra products within the separate entity, which already has in place a 500-person sales force marketing Prilosec and Plendil. The result of these actions is not expected to have a significant impact on financial results in the near term. The Company has initiated a major effort to streamline and restructure its operations worldwide. These actions are designed to reduce costs, increase productivity, improve margins and better position the Company to respond to the changing health-care environment. In connection with this effort, the Company recorded a nonrecurring pretax restructuring charge of $775.0 million, or $.45 per share (after-tax), in the second quarter of 1993. SPECIALTY CHEMICAL PRODUCTS This segment contributed $510.3 million, $594.9 million and $583.2 million to Company sales in 1993, 1992 and 1991, respectively. The decrease in 1993 sales is attributable to the Company's sale of its Calgon Water Management business to English China Clays plc, in June 1993. See Note 2 to the financial statements for further information. The Company's specialty chemical products have a wide variety of applications, such as use in health care, food processing, oil exploration, paper, textiles and personal care. Sales of products and services in this segment are made to channels of trade including industrial users, health-care providers and distributors. FOREIGN OPERATIONS The Company's operations outside the United States are conducted primarily through subsidiaries. Sales by subsidiaries outside the United States were 44% of sales in 1993, and 46% in 1992 and 1991. The Company's worldwide business is subject to risks of currency fluctuations, governmental actions and other governmental proceedings abroad. The Company does not regard these risks as a deterrent to further expansion of its operations abroad. However, the Company closely reviews its methods of operations, particularly in less developed countries, and adopts strategies responsive to changing economic and political conditions. The ongoing integration of the European market is impacting businesses operating within the European Union (EU) (formerly the European Community), particularly companies such as Merck that maintain research facilities, manufacturing plants and marketing and sales organizations in several countries. Merck is in the process of rationalizing its EU operations. Over the years, the Company has divested and restructured to reduce its operational exposure in countries where economic conditions or government policies make it difficult to earn fair returns. At the same time, Merck is actively pursuing opportunities to expand its presence in Eastern Europe, Russia, the Pacific Rim, including China, and other countries where changes in government, fiscal and regulatory policies are making it possible for Merck to earn fair, economic returns. While none of these actions individually has significantly affected operations, the overall impact has been favorable.
OPERATING RESULTS - ------------------------------------------------------------------------------ Sales - ------------------------------------------------------------------------------ ($ in millions) 1993 Change 1992 Change 1991 - ------------------------------------------------------------------------------ Human and Animal Health . . . . $ 9,987.9 +10% $9,067.6 +13% $8,019.5 Specialty Chemical . . . . . . 510.3 -14% 594.9 +2% 583.2 - ------------------------------------------------------------------------------ $ 10,498.2 +9% $9,662.5 +12% $8,602.7 ==============================================================================
Total sales for 1993 increased 9% from 1992. Sales growth in 1993 was affected by the divestiture of the Calgon Water Management business in June 1993 and the acquisition of Medco in November 1993. Excluding the effects of the divestiture and the acquisition, total sales grew 7% in 1993, 34 4 with unit volume up 9%. The effect of the strengthening of the U.S. dollar against foreign currencies reduced 1993 sales growth by two percentage points, while price changes had essentially no impact. Total sales for 1992 increased 12% over 1991 with price changes and exchange each adding one percentage point and volume contributing 10 points. The effects of changes in the value of foreign currencies are measured net of price increases in hyperinflationary countries, principally in Latin America. COMPONENTS OF SALES GROWTH
TOTAL SALES SALES VOLUME NET PRICING FOREIGN GROWTH GROWTH ACTIONS EXCHANGE RATES ----------- ------------ ----------- -------------- 1989 10.3% 10.3% 2.6% -2.6% 1990 17.1 12.2 2.3 2.6 1991 12.1 9.8 2.2 0.1 1992 12.3 10.3 1.2 0.8 1993 6.8 8.6 0.1 -1.9
This table illustrates the effects of price, volume and exchange on the Company's sales, excluding the effects of the divestiture of the Calgon Water Management business and the acquisition of Medco. The Company has grown predominantly through sales volume over the last five years. Price had essentially no effect on sales growth in 1993, reflecting a continual decline from 2.6% in 1989, while the effect of exchange has varied over the same period. In 1993, sales of Human and Animal Health products and services grew 10%. Excluding the effects of the Medco acquisition, sales of Human and Animal Health products grew 7%, with unit volume up 9%. Unfavorable foreign currency exchange reduced sales growth by two percentage points. Price changes had essentially no impact. Domestic sales growth was 17%, or 11% excluding the effect of the acquisition. Foreign sales grew 3%, including a four percentage point reduction from the effect of exchange. The unit volume gain from the sale of Merck's Human and Animal Health products reflects strong performance of Vasotec, Vaseretic, Zocor, Pepcid, Prilosec, ivermectin and vaccine sales, led by M-M-R II for the prevention of measles, mumps and rubella and Recombivax HB for the prevention of hepatitis B. Proscar, which was introduced in 1992, also contributed to the sales increase. Vasotec, Merck's angiotensin converting enzyme (ACE) inhibitor for reducing high blood pressure and treating symptomatic heart failure, again established a new Merck product sales record. During 1993, it retained its position as the largest-selling branded product in the antihypertensive market in purchases and has been cleared for marketing by the Food and Drug Administration for a new and expanded use. Vasotec may now be recommended to decrease the rate of development of overt heart failure and to reduce hospitalizations in people with left ventricular dysfunction -- a weakening of the heart's main pumping chamber -- but with no heart failure symptoms. Vaseretic, a combination of Vasotec and hydrochlorothiazide, also prescribed for the treatment of high blood pressure, continued to grow. Merck's cholesterol-lowering agents continued their outstanding performance, holding over 40 percent of the cholesterol-lowering market. Zocor, Merck's second cholesterol-lowering agent continued its strong performance in 1993. Mevacor, which accounts for a significant portion of the cholesterol-lowering sales, was up slightly in 1993. Performance of Mevacor in 1993 was impacted by government cost control actions in Germany, strong competition in the United States and the slowing of growth in the cholesterol-lowering market, particularly in the United States, where nearly half of the people who have cholesterol levels in the recommended treatment range are untreated. Merck is undertaking strategic initiatives to increase the appropriate usage of Mevacor and Zocor. Pepcid, which is used for the treatment of duodenal and gastric ulcers and gastroesophageal reflux disease (GERD), continues to grow rapidly in the United States. Prilosec, a proton pump inhibitor which is indicated as a first-line therapy for short-term treatment of active duodenal ulcers, severe erosive esophagitis and poorly responsive symptomatic GERD, continued its exceptional growth. It is licensed to Merck for the U.S. market by AB Astra, the research-based Swedish firm. Also contributing to the unit volume growth in this segment was Proscar, which was introduced in the United States late in the second quarter of 1992. Proscar is a significant medical advance in the treatment of symptomatic benign prostate enlargement, a common condition which affects the majority of men over the age of 50. Proscar has been introduced in 50 countries, representing nearly every major market. The Company is continuing an extensive medical and consumer education program to heighten awareness of the disease, improve understanding of its natural history and communicate the benefits of treatment with Proscar. In support of these efforts, the Company launched a direct-to-consumer advertising campaign, identifying Proscar by name and urging readers to see their doctors about urinary symptoms and a prostate evaluation. In October 1993, the National Cancer Institute launched a 10-year study, which will involve 18,000 patients, to examine the possible role of Proscar in preventing prostate cancer. 35 5 In 1993, sales growth in this segment also benefited from Medco sales of non-Merck products and Medco services. Medco services include health-care cost containment services, principally managed prescription drug programs. Sales of ivermectin, a broad-spectrum antiparasitic, continued to grow despite increased competition and the continued economic recession in Europe. A group of longer-established products, including Dolobid, Primaxin, Indocin, Aldomet, Mefoxin, Moduretic and Clinoril, while still producing strong revenues, continued to decline in unit volume due to generic and therapeutic competition. In 1992, sales of Human and Animal Health products grew 13%. Domestic and foreign sales each grew 13%. Price and exchange each added one percentage point to the increase. Products contributing to the overall unit volume gain were Vasotec, Vaseretic, Prinivil, Mevacor, Zocor, Pepcid, Prilosec, Primaxin and vaccine sales led by Recombivax HB for the prevention of hepatitis B. Sales of the Specialty Chemical Products segment decreased 14% in 1993, due to the sale of the Calgon Water Management business in June 1993. Excluding the effect of the divestiture, sales increased 6% over 1992. Exchange reduced 1993 sales growth by one percentage point. Sales in 1992 increased 2% over 1991, while exchange had essentially no effect.
- ----------------------------------------------------------------------------- COSTS AND EXPENSES (1) - ----------------------------------------------------------------------------- ($ in millions) 1993 Change 1992 Change 1991 - ----------------------------------------------------------------------------- Materials and production . . $2,497.6 +19% $2,096.1 +8% $1,934.9 Marketing and administrative 2,913.9 -2% 2,963.3 +15% 2,570.3 Research and development . 1,172.8 +6% 1,111.6 +13% 987.8 Restructuring charge . . . . 775.0 * -- -- -- Other (income) expense, net . 36.2 * (72.1) -26% (57.0) - ----------------------------------------------------------------------------- $7,395.5 +21% $6,098.9 +12% $5,436.0 =============================================================================
* over 100% (1) 1993 and 1992 amounts include the ongoing effects of accounting changes for postretirement and postemployment benefits described on pages 37 and 38. In 1993, materials and production costs increased 19%. Excluding the effect of the Medco acquisition, materials and production costs increased 6%, equal to the sales growth rate. Excluding the effects of the acquisition, exchange and inflation, these costs were essentially level with 1992, compared to a 7% unit sales volume gain in 1993, reflecting improved product mix, cost controls and productivity improvements. In 1992, materials and production costs, excluding the ongoing effect of accounting changes, exchange and inflation, increased 3% on a 10% unit sales volume gain. Materials and production costs for 1992 also included a $91.4 million provision for environmental costs, which was substantially offset by the effect of refinements in product costing to reflect ongoing technological improvements. Marketing and administrative expenses were down 2% in 1993. Excluding the effects of the Medco acquisition, exchange and inflation, these expenses decreased 6% in 1993. Marketing and administrative expenses increased 7% in 1992, excluding the ongoing effect of accounting changes, exchange and inflation. A major factor contributing to the decrease in 1993 was continuing cost controls and the beneficial effects from the restructuring programs. In 1992, the increase was primarily due to the effect of support initiatives related to new products, partially offset by continuing cost controls. Research and development expenses increased 6% in 1993. Excluding the effects of exchange and inflation, these expenses increased 2% in 1993. The increase reflects the ongoing commitment to research over a broad range of therapeutic areas and clinical development in support of newer products. Not included in consolidated research and development expenses are costs incurred by the Company's joint ventures, which totalled $311.3 million in 1993. In 1992, research and development expenses increased 5%, excluding the ongoing effects of accounting changes, exchange and inflation. Research and development in the pharmaceutical industry is inherently a long-term process. The data shown on page 11 shows an unbroken trend of year-to-year increases in research and development spending(2). For the period 1980 to 1993, the compounded annual growth rate in research and development was 14%. In the second quarter of 1993, the Company recorded a nonrecurring pretax restructuring charge of $775.0 million, or $.45 per share (after-tax). The restructuring charge is the sum of two distinct programs -- one near term and the other longer term. The near-term initiative will reduce the work force by approximately 2,100 positions, a substantial number of which will be permanently eliminated. Work-force reductions will be achieved through an early retirement program in the United States and appropriate programs elsewhere at a cost of $450.0 million. This program is substantially complete. The longer-term initiative will consolidate and rationalize manufacturing facilities and distribution centers and will further reduce the work force, primarily outside the United States, at a cost of an additional $325.0 million. These initiatives are expected to reduce employment costs by more than $140.0 million annually and result in additional facility-related savings. In 1993, other income, net, decreased primarily due to lower income generated from the Company's proportionate share of results from its joint ventures, increased amortization of goodwill and other intangibles as well as interest expense (2) The data is contained in a bar chart which has been provided in tabular form in the Appendix to this Exhibit 13. 36 6 resulting from the Medco acquisition, increased exchange losses resulting from translation of the Company's balance sheet and higher income applicable to minority interests. In 1992, other income, net, increased primarily due to income generated from the Company's proportionate share of results from its joint venture investments. See Note 12 to the financial statements for further detail of Other (income) expense, net.
- ----------------------------------------------------------------------------------- EARNINGS - ----------------------------------------------------------------------------------- ($ in millions except per share amounts) 1993(1) CHANGE(1) 1992(2) Change(2) 1991 - ----------------------------------------------------------------------------------- Net income . . . . . . . $2,166.2 -11% $2,446.6 +15% $2,121.7 As a % of sales . . . 20.6% 25.3% 24.7% As a % of average total assets . . . . . 14.0% 24.1% 24.2% Earnings per common share . . . . . . $1.87 -12% $2.12 +16% $1.83 ===================================================================================
(1) Excluding the effects of the Medco acquisition and the restructuring charge, net income growth would have been 11%, net income as a percentage of average total assets would have been 22.8% and earnings per share growth would have been 13%. (2) Excludes the cumulative effect of the accounting changes described below. Net income was down 11% in 1993, excluding the cumulative effect of 1992 accounting changes. Net income in 1993 includes the effects of the Medco acquisition and the restructuring charge. Excluding these effects and the cumulative effect of 1992 accounting changes, net income increased 11%, five percentage points more than 1993's sales growth on the same basis. In 1992, net income grew 15%, excluding the cumulative effect of accounting changes. Excluding both the cumulative and ongoing effect of accounting changes, 1992 net income grew 17%. Net income as a percentage of sales decreased to 20.6% in 1993, primarily due to the effect of the restructuring charge and the acquisition of Medco. Excluding these effects, net income as a percentage of sales increased to 26.6% compared to 25.3% in 1992 and 24.7% in 1991. Factors contributing to this improving ratio include unit sales volume growth, improved product mix, cost controls and productivity improvements including the beneficial effects from the restructuring programs. Foreign currency exchange had a negative impact in 1993, versus a small beneficial impact in 1992. A lower effective tax rate, excluding the effect of the restructuring charge and Medco acquisition in 1993, also contributed to the improved ratio in all three years. The Company's effective tax rate in 1993 was 30.2%. Excluding the effects of the restructuring charge and Medco acquisition, the 1993 effective rate was 30.5%, compared with 31.3% in 1992 and 33.0% in 1991. The Company's future effective tax rates will be adversely affected by the Omnibus Budget Reconciliation Act of 1993 which increased the Federal corporate income tax rate to 35% and curtailed tax benefits from Puerto Rico operations. Management expects these adverse effects to be partially offset by other tax planning initiatives. Net income as a percentage of average total assets decreased to 14.0% in 1993, compared with ratios of 24.1% in 1992 and 24.2% in 1991. The decrease is principally due to the restructuring charge and goodwill recognized in connection with the Medco acquisition. Excluding these effects, the 1993 ratio was 22.8%, consistent with prior year ratios. Excluding the cumulative effect of 1992 accounting changes, earnings per common share decreased 12% in 1993, primarily due to the effects of the restructuring charge and the Medco acquisition. Excluding these effects, earnings per share grew 13%. In 1993 and 1992, earnings per share increased at a faster rate than net income as a result of treasury stock purchases. Pricing pressures have made it increasingly difficult for the Company to recover the effect of inflation on costs and expenses. To the extent possible, the Company's position is to try to offset the impact of inflation through productivity and technological improvements, business restructurings, cost containment programs and price increases. The Company believes that sound monetary and fiscal policies, worldwide, would be a major step in avoiding the currency fluctuations that have existed over the last decade. In December 1990, the Financial Accounting Standards Board issued Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This Statement requires accrual of the present value of expected costs of these benefits over the employee service period. In 1988, the Company changed from a pay-as-you-go basis to an accrual basis for recognizing the cost of these benefits upon employee retirement. In the fourth quarter of 1992, the Company began accruing for these benefits over the active employees' working lives, by adopting the provisions of Statement No. 106, effective January 1, 1992, which reduced Net income by $370.2 million on an after-tax basis. This change also reduced 1992 Income before cumulative effect of accounting changes by $38.9 million on an after-tax basis. In 1990, the Company began funding a retiree health-care account that will be used to partially pre-fund health-care benefits for retirees. Funding levels were increased in 1993 with the creation and funding of a qualified trust. In February 1992, Statement No. 109, Accounting for Income Taxes was issued. This Statement requires changes in accounting for income taxes and will increase variability in the Company's provision for income taxes. In the fourth quarter of 1992, the Company adopted the provisions of Statement No. 109, effective January 1, 1992, which reduced Net income by $62.6 million. The effect of this change on 1992 Income before cumulative effect of accounting changes was not material. In November 1992, Statement No. 112, Employers' Accounting for Postemployment Benefits was issued. This Statement requires an accrual method of recognizing postemployment benefits such as disability-related benefits. In the fourth quarter of 1992, the Company adopted the provisions of Statement No. 112, effective January 1, 1992, 37 7 which reduced Net income by $29.6 million on an after-tax basis. The effect of this change on 1992 Income before cumulative effect of accounting changes was not material. In May 1993, Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, was issued which requires adoption in 1994. This Statement requires certain investments in debt and equity securities to be reported at fair value. The effects on the Company's results are not expected to be material. The Company believes that it is in compliance in all material respects with applicable environmental laws and regulations. The Company has maintained a leadership role in supporting environmental initiatives and fostering pollution prevention by actions including the elimination of, or the application of best available technology to, air emissions of known or suspect carcinogens at its facilities worldwide and a project currently underway to reduce all environmental releases of toxic chemicals by 90% by 1995. In 1993, the Company incurred capital expenditures of approximately $122.4 million for environmental control facilities. Capital expenditures for this purpose are forecasted to exceed $400.0 million for the years 1994 through 1998. In addition, the Company's operating and maintenance expenditures for pollution control were approximately $40.0 million in 1993. Expenditures for this purpose for the years 1994 through 1998 are forecasted to exceed $200.0 million. The Company is a party to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, as well as under other Federal and state statutes. While it is not feasible to predict or determine the outcome of these proceedings, management does not believe that they should ultimately result in a materially adverse effect on the Company's financial position, results of operations, liquidity or capital resources. The Company is also remediating environmental contamination resulting from past industrial activity at certain of its sites. Expenditures for environmental purposes were $26.3 million in 1993, and are estimated at $170.0 million for the years 1994 through 1998. The Company has taken an active role in identifying and providing for these costs; and, therefore, management does not believe that these expenditures should ultimately result in a materially adverse effect on the Company's financial position, results of operations, liquidity or capital resources. CAPITAL EXPENDITURES In 1993, capital expenditures were $1.0 billion compared to $1.1 billion in 1992. Expenditures in the United States were $759.7 million in 1993 and $784.0 million in 1992. Expenditures during 1993 included $260.1 million for research and development facilities, $218.5 million for production facilities, $136.5 million for safety and environmental projects and $397.6 million for administrative and general site projects. Not included above are capital expenditures incurred by the Company's joint ventures, which totalled $79.3 million in 1993, including $14.9 million for research and development facilities. Capital authorizations in 1993 were $710.8 million, a decrease of 32% from 1992's level of $1.0 billion. Capital expenditures approved but not yet spent at December 31, 1993, were $640.5 million. These commitments include investments in research and development facilities ($124.0 million), production facilities ($105.8 million), safety and environmental projects ($82.1 million) and administrative and general site projects ($328.6 million). Depreciation was $348.4 million in 1993 and $290.3 million in 1992, of which $237.7 million and $201.4 million, respectively, applied to locations in the United States. ANALYSIS OF LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations continues to be the Company's primary source of funds to finance operating needs and capital expenditures. In 1993, net cash flows from operating activities were $3.0 billion, reflecting the continued growth of the Company's after-tax earnings. This cash was used to fund capital expenditures of $1.0 billion, to pay Company dividends of $1.2 billion and to partially fund the purchase of treasury shares. At December 31, 1993, the total of worldwide cash and investments was $3.3 billion, including $1.5 billion in cash, cash equivalents and short-term investments and $1.8 billion of long-term investments. The above totals include $895.8 million in cash and investments held by Banyu Pharmaceutical Co., Ltd., in which the Company has a 50.87% ownership interest.
- -------------------------------------------------------------------- SELECTED DATA - -------------------------------------------------------------------- ($ in millions ) 1993 1992 1991 - -------------------------------------------------------------------- Working capital . . . . . . . . $(161.1) $782.4 $1,496.5 Total debt to total liabilities and equity . . . 14.3% 11.9% 8.8% Cash provided by operations to total debt . . . . . . . . 1.1:1 1.9:1 2.9:1 ====================================================================
In 1993, working capital and the ratios of total debt to total liabilities and equity and cash provided by operations to total debt were impacted by the acquisition of Medco. In November 1993, the Company acquired all the outstanding shares of Medco for approximately $6.6 billion. The Company issued $4.2 billion of equity securities and paid $2.4 billion in cash, of which $1.8 billion was financed with commercial paper and $250.0 million was financed with long-term debt. 38 8 Working capital levels are more than adequate to meet the operating requirements of the Company. From 1991 to 1993, the Company purchased $1.4 billion of treasury shares under three $1 billion programs authorized by the Board of Directors in 1989, 1991 and 1993. The 1989 and 1991 programs were completed in 1991 and 1992, respectively. Through December 31, 1993, $371.0 million of shares had been purchased under the 1993 program, which was suspended indefinitely in July as a result of the Medco acquisition. Since 1984, the Company has purchased 240.0 million shares at a total cost of $4.3 billion. From 1991 to 1993, short-term borrowings were affected by purchases of treasury shares resulting in periodic reductions in working capital and increases in the ratio of total debt to total liabilities and equity. The favorable ratio of cash provided by operations to total debt is an indication of the ability of the Company to cover its debt obligations. The Company's strong financial position will not be significantly affected by the restructuring program or debt issued to finance the Medco acquisition. In view of the triple-A credit ratings from Moody's and Standard & Poor's on the Company's outstanding debt issues and its consistent ability to generate cash flows from operating activities, the Company foresees no difficulty in managing future cash requirements. The ability to finance ongoing operations primarily from internally generated funds is desirable because of the high risks inherent in research and development required to develop and market innovative new products and the highly competitive nature of the pharmaceutical industry. In 1993, Merck filed a shelf registration with the Securities and Exchange Commission under which the Company could issue up to $1.0 billion of debt securities. Proceeds from the sale of these securities are to be used for general corporate purposes. The 1993 shelf registration, together with $85.0 million unused capacity from a $500.0 million 1991 shelf registration, provided $1.1 billion of shelf capacity. In 1993, the Company initiated a medium-term note program under the 1993 shelf and issued $80.0 million of structured floating rate medium-term notes. In 1992, $100.0 million of five-year noncallable medium-term notes and $25.0 million of one-year noncallable notes which matured during 1993, were issued under the 1991 shelf registration. In 1991, $250.0 million of five-year noncallable notes and $40.0 million of five-year noncallable medium-term notes were issued under the 1991 shelf.
CONDENSED INTERIM FINANCIAL DATA - ----------------------------------------------------------------------------- ($ in millions except per share amounts) 4th Q 3rd Q 2nd Q 1st Q - ----------------------------------------------------------------------------- 1993 - ----------------------------------------------------------------------------- Sales . . . . . . . . $ 3,000.8 $ 2,544.1 $ 2,573.6 $ 2,379.6 Gross profit . . . . 2,162.1 2,005.5 1,990.1 1,842.9 Income before taxes . 960.3 1,006.1 223.0 913.4 Net income . . . . . 674.2 705.7 172.6 613.8 Per share of common stock . . . $.56 $.62 $.15 $.54 - ----------------------------------------------------------------------------- 1992 - ----------------------------------------------------------------------------- Sales . . . . . . . . $ 2,601.1 $ 2,464.3 $ 2,373.7 $ 2,223.4 Gross profit . . . . 2,027.2 1,944.1 1,842.3 1,752.8 Income before taxes and cumulative effect of accounting changes 879.8 910.7 933.0 840.1 Income before cumulative effect of accounting changes . . . . . 609.1 634.8 643.7 559.0 Net income . . . . . 609.1 634.8 643.7 96.6 Per share of common stock: Before cumulative effect of accounting changes . . . $.53 $.55 $.56 $.48 Net income . . . . .53 .55 .56 .08 ==============================================================================
Condensed Interim Financial Data for the second quarter of 1993 includes a nonrecurring pretax restructuring charge of $775.0 million. Sales for the third and fourth quarters of 1993 were adversely impacted by the divestiture of the Calgon Water Management business. The fourth quarter of 1993 includes the effects of the acquisition of Medco.
DIVIDENDS PAID PER SHARE OF COMMON STOCK - ------------------------------------------------------------ Year 4th Q 3rd Q 2nd Q 1st Q - ------------------------------------------------------------ 1993 . . . . . . $1.03 $.28 $.25 $.25 $.25 1992 . . . . . . .92 .25 .23 .23 .21 ============================================================
COMMON STOCK MARKET PRICES - ------------------------------------------------------------ 1993 4th Q 3rd Q 2nd Q 1st Q - ------------------------------------------------------------ High . . . . . . . . . . $35-5/8 $35-3/8 $39-3/8 $44-1/8 Low . . . . . . . . . . . 29-3/4 28-5/8 33 34-1/4 - ------------------------------------------------------------ 1992 - ------------------------------------------------------------ High . . . . . . . . . . $47-3/4 $53-3/8 $51-7/8 $56-5/8 Low . . . . . . . . . . . 40-1/2 42-1/4 45-5/8 47-7/8 ============================================================
The principal market for trading of the common stock is the New York Stock Exchange under the symbol MRK. 39 9
CONSOLIDATED STATEMENT OF INCOME Merck & Co., Inc. and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31 ($ in millions except per share amounts) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------- SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,498.2 $9,662.5 $8,602.7 - ------------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES Materials and production . . . . . . . . . . . . . . . . . . . . . . . . . . 2,497.6 2,096.1 1,934.9 Marketing and administrative . . . . . . . . . . . . . . . . . . . . . . . . 2,913.9 2,963.3 2,570.3 Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . 1,172.8 1,111.6 987.8 Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 775.0 -- -- Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . 36.2 (72.1) (57.0) - ------------------------------------------------------------------------------------------------------------------------------- 7,395.5 6,098.9 5,436.0 - ------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 3,102.7 3,563.6 3,166.7 TAXES ON INCOME 936.5 1,117.0 1,045.0 - -------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . . . . . . . 2,166.2 2,446.6 2,121.7 CUMULATIVE EFFECT OF ACCOUNTING CHANGES: Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . -- (370.2) -- Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (62.6) -- Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (29.6) -- - -------------------------------------------------------------------------------------------------------------------------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,166.2 $1,984.2 $2,121.7 - -------------------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE OF COMMON STOCK: BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES . . . . . . . . . . . . . $1.87 $2.12 $1.83 CUMULATIVE EFFECT OF ACCOUNTING CHANGES: Postretirement benefits other than pensions . . . . . . . . . . . . . . . -- (.32) -- Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (.05) -- Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . -- (.03) -- - --------------------------------------------------------------------------------------------------------------------------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.87 $1.72 $1.83 =================================================================================================================================
CONSOLIDATED STATEMENT OF RETAINED EARNINGS Merck & Co., Inc. and Subsidiaries - ---------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31 ($ in millions) 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,466.0 $7,588.7 $6,387.3 - ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,166.2 1,984.2 2,121.7 COMMON STOCK DIVIDENDS DECLARED . . . . . . . . . . . . . . . . . . . . . . . . (1,239.0) (1,106.9) (920.3) - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,393.2 $8,466.0 $7,588.7 ==================================================================================================================================
The accompanying notes are an integral part of these financial statements. 40 10
CONSOLIDATED BALANCE SHEET Merck & Co., Inc. and Subsidiaries - ---------------------------------------------------------------------------------------------------------------------------- December 31 ($ in millions) 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS - ---------------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 829.4 $ 575.1 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712.9 518.4 Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,094.3 1,736.9 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,641.7 1,182.6 Prepaid expenses and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456.3 386.7 - ---------------------------------------------------------------------------------------------------------------------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,734.6 4,399.7 - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,779.9 1,415.6 - ---------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT, at cost Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212.5 210.3 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,386.1 2,122.1 Machinery, equipment and office furnishings . . . . . . . . . . . . . . . . . . . . . 3,769.0 3,435.0 Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 805.2 763.5 - ---------------------------------------------------------------------------------------------------------------------------- 7,172.8 6,530.9 Less allowance for depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,278.2 2,259.8 - ---------------------------------------------------------------------------------------------------------------------------- 4,894.6 4,271.1 - ---------------------------------------------------------------------------------------------------------------------------- GOODWILL AND OTHER INTANGIBLES (net of accumulated amortization of $97.2 million in 1993 and $69.0 million in 1992) . . . . . . . . . . 6,645.5 153.5 - ---------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 872.9 846.1 - ---------------------------------------------------------------------------------------------------------------------------- $ 19,927.5 $11,086.0 ============================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . $ 2,378.3 $ 1,461.9 Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,736.0 825.2 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430.4 1,043.8 Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 351.0 286.4 - ----------------------------------------------------------------------------------------------------------------------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,895.7 3,617.3 - ----------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,120.8 495.7 - ----------------------------------------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES AND NONCURRENT LIABILITIES . . . . . . . . . . . . . . . . . . 1,744.9 1,343.0 - ----------------------------------------------------------------------------------------------------------------------------- MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,144.4 627.1 - ----------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY Common stock Authorized -- 2,700,000,000 shares Issued -- 1,480,611,247 shares - 1993 -- 1,366,572,924 shares - 1992 . . . . . . . . . . . . . . . . . . . . . . 4,576.5 204.7 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,393.2 8,466.0 - ------------------------------------------------------------------------------------------------------------------------------- 13,969.7 8,670.7 Less treasury stock, at cost 226,676,597 shares -- 1993 221,878,127 shares -- 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,948.0 3,667.8 - ------------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,021.7 5,002.9 - ------------------------------------------------------------------------------------------------------------------------------- $ 19,927.5 $11,086.0 ===============================================================================================================================
The accompanying notes are an integral part of this financial statement. 41 11
CONSOLIDATED STATEMENT OF CASH FLOWS Merck & Co., Inc. and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31 ($ in millions) 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,166.2 $ 1,984.2 $ 2,121.7 Adjustments to reconcile net income to net cash provided from operations: Restructuring charge . . . . . . . . . . . . . . . . . . . . . . . . . . . 775.0 -- -- Cumulative Effect of Accounting Changes: Postretirement benefits other than pensions . . . . . . . . . . . . . . . -- 370.2 -- Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 62.6 -- Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . -- 29.6 -- Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 386.5 303.6 254.0 Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167.0) (16.6) 1.2 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (62.9) (56.9) (3.2) Net changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . (263.1) (298.4) (194.7) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46.6) (177.5) (98.7) Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . (122.9) 100.8 226.2 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 372.5 212.6 157.8 Noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 67.9 108.4 (49.5) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57.1) (118.2) 19.2 - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . . . 3,048.5 2,504.4 2,434.0 - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,012.7) (1,066.6) (1,041.5) Purchase of Medco, net of cash and cash equivalents acquired . . . . . . . . . (1,869.4) -- -- Purchase of securities, subsidiaries and other investments . . . . . . . . . . (9,521.4) (5,255.8) (8,800.6) Proceeds from sale of securities, subsidiaries and other investments . . . . . 9,863.5 4,983.1 8,518.9 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47.7) (12.6) 22.6 - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (2,587.7) (1,351.9) (1,300.6) - ----------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . 910.8 480.0 (590.6) Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . . . . . 353.8 141.3 559.8 Payments on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39.4) (121.6) (94.1) Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (371.0) (862.9) (184.1) Dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . (1,174.4) (1,064.3) (893.2) Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . 83.4 52.2 48.3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.6 20.0 15.8 - ----------------------------------------------------------------------------------------------------------------------------------- NET CASH USED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . . . . . . (214.2) (1,355.3) (1,138.1) - ----------------------------------------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS . . . . . . . . . 7.7 (20.0) (3.8) - ----------------------------------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . 254.3 (222.8) (8.5) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . 575.1 797.9 806.4 - ----------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . . . . . $ 829.4 $ 575.1 $ 797.9 =================================================================================================================================== The accompanying notes are an integral part of this financial statement.
42 12 NOTES TO FINANCIAL STATEMENTS ($ in millions except per share amounts) Merck & Co., Inc. and Subsidiaries 1. SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and all of its subsidiaries. For those consolidated subsidiaries where Company ownership is less than 100%, the outside stockholders' interest in each of the Company's accounts is shown as Minority interests in the consolidated financial statements. The Company follows the equity method for 20% or more owned affiliates as well as for investments in joint ventures. FOREIGN CURRENCY TRANSLATION -- The U.S. dollar is the functional currency for the Company's foreign subsidiaries. CASH AND CASH EQUIVALENTS -- Cash equivalents are comprised of certain highly liquid investments with maturities of less than three months. INVENTORIES -- The majority of domestic inventories are valued at the lower of last-in, first-out (LIFO) cost or market. Remaining inventories are valued at the lower of first-in, first-out (FIFO) cost or market. DEPRECIATION -- Depreciation is provided over the estimated useful lives of the assets, principally using the straight-line method. For tax purposes, accelerated methods are used. EARNINGS PER SHARE -- Earnings per share of common stock are based on the weighted average number of shares outstanding. These weighted averages were 1,156.5 million, 1,153.5 million and 1,159.9 million in 1993, 1992 and 1991, respectively. Common stock equivalents do not have a significant dilutive effect. GOODWILL AND OTHER INTANGIBLES -- Goodwill of $5.2 billion in 1993 and $120.0 million in 1992 (net of accumulated amortization) represents the excess of acquisition costs over the fair value of net assets of businesses purchased and is amortized on a straight-line basis over periods up to 40 years. Other acquired intangibles, principally customer relationships that arose in connection with the Medco acquisition, are recorded at cost and are amortized over their estimated useful lives. The Company continually reviews goodwill and other intangibles to assess recoverability from future operations using undiscounted cash flows. Impairments would be recognized in operating results if a permanent diminution in value occurs. RECLASSIFICATIONS -- Certain reclassifications have been made to prior year amounts to conform with current year presentation. 2. ACQUISITION, DIVESTITURE, RESTRUCTURING AND STRATEGIC ALLIANCES On November 18, 1993, the Company acquired all the outstanding shares of Medco Containment Services, Inc. (Medco) for approximately $6.6 billion. Medco principally provides services designed to reduce prescription drug benefit costs through managed prescription drug programs, and also provides managed mental health-care services. The purchase price consisted of $2.4 billion in cash, 114.0 million common shares with a market value of $3.8 billion, and 36.1 million options valued at $387.1 million, net of tax. The acquisition was accounted for by the purchase method and, accordingly, Medco's results of operations have been included with the Company's since the acquisition date. The estimated fair value of assets acquired and liabilities assumed totaled $3.0 billion and $1.5 billion, respectively. The allocation of the purchase price is based on preliminary assumptions and is subject to revision. The excess of the purchase price over the estimated fair value of net assets acquired is being amortized on a straight-line basis over 40 years. Summarized below are unaudited pro forma combined results of operations for the years ended December 31, 1993 and 1992 assuming the acquisition occurred at the beginning of 1992:
- --------------------------------------------------------------------------- 1993 1992 - --------------------------------------------------------------------------- Sales . . . . . . . . . . . . . . . $ 13,047.1 $ 11,662.6 Income before cumulative effect of accounting changes . . . . . . . 2,170.9 2,357.9 Earnings per share of common stock before cumulative effect of accounting changes . . . . . . . . 1.73 1.86 ===========================================================================
The unaudited pro forma combined results of operations are not necessarily indicative of the results of operations that would have occurred had the two companies actually combined during the periods presented or of future results of operations of the combined companies. In June 1993, the Company sold its Calgon Water Management business for $307.5 million to English China Clays plc. The gain from the sale is included in Other (income) expense, net (see Note 12). 43 13 The Company recorded a nonrecurring pretax restructuring charge of $775.0 million in 1993 in connection with an initiative to streamline and restructure worldwide operations through staff reductions and consolidation of manufacturing and distribution facilities. In 1989, the Company entered into an agreement with Du Pont to form a long-term research and marketing collaboration. Effective January 1, 1991, the Company formed a 50%-owned joint venture with Du Pont, creating an independent, research-driven, worldwide pharmaceutical firm. Du Pont contributed its entire pharmaceutical and radiopharmaceutical imaging agents businesses and is providing administrative services. The Company is providing research and development expertise, development funds, certain European marketing rights to several of its prescription medicines, international industry expertise and cash. In 1989, the Company formed a joint venture with Johnson & Johnson to develop and market a broad range of non-prescription medicines for U.S. consumers. In January 1990, the joint venture acquired the U.S. self-medication business of ICI Americas Inc., and ICI acquired the U.S. rights to the Company's antidepressant Elavil, along with other considerations. In January 1993, Merck and Johnson & Johnson extended their U.S. joint venture agreement to include Europe. Also in January 1993, Merck contributed its existing over-the-counter (OTC) medications business in Spain to a new joint venture company. In September 1993, the European joint venture established a new company in the United Kingdom to market Merck and Johnson & Johnson OTC medications. In December 1993, Merck and Johnson & Johnson signed an agreement to acquire Laboratoires J. P. Martin, a leading self-medication business in France. This transaction was completed in January 1994. In 1982, the Company entered into an agreement with Astra to develop and market Astra products in the United States, in exchange for a royalty. In July 1993, the Company's total sales of Astra products reached the level that triggered the first step in the establishment of a separate entity for operations related to Astra products. Astra will have the right to acquire a 50% share of this new entity, at which time the Company's royalty obligation would cease. The Company is building the infrastructure and business capabilities to develop and market Astra products within the separate entity, which already has in place a 500-person sales force marketing Prilosec and Plendil. The result of these actions is not expected to have a significant impact on financial results in the near term. 3. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES Summarized below are the carrying values and fair values of the Company's financial instruments at December 31, 1993 and 1992. Fair values were estimated based on market prices, where available, or dealer quotes.
- ------------------------------------------------------------------------------------------- 1993 1992 ---------------------- --------------------- Carrying Fair Carrying Fair Value Value Value Value - ------------------------------------------------------------------------------------------- Assets - ------------------------------------------------------------------------------------------- Cash and cash equivalents . . . . $ 829.4 $ 829.4 $ 575.1 $ 575.1 Short-term investments . . . . . 712.9 714.4 518.4 519.9 Long-term investments . . . . . . 1,779.9 1,908.3 1,415.6 1,512.8 Purchased currency options . . . 132.1 136.2 120.2 132.1 Interest rate swaps . . . . . . . -- 2.2 -- -- - ------------------------------------------------------------------------------------------- Liabilities - ------------------------------------------------------------------------------------------- Loans payable . . . . . . . . . . 1,736.0 1,735.5 825.2 825.2 Long-term debt . . . . . . . . . 1,120.8 1,137.7 495.7 518.8 Written currency options . . . . 6.4 5.8 3.4 3.4 Forward exchange contracts . . . 25.4 25.4 19.6 19.6 ===========================================================================================
The Company derives a significant portion of its cash flows from revenues denominated in foreign currencies. The Company relies on sustained cash flows generated from these revenues to support its long-term commitment to U.S. dollar based research and development. To the extent the dollar value of foreign denominated revenues is diminished as a result of a strengthening dollar, the Company's ability to fund research and other dollar based strategic initiatives at a consistent level may be impaired. To protect against the reduction in value of forecasted foreign currency cash flows over the Company's planning cycle, the Company has instituted a multi-year revenue hedging program to partially hedge this risk. The Company hedges forecasted revenues denominated in foreign currencies with purchased currency options. When the dollar strengthens against foreign currencies, the decline in the value of future foreign currency cash flows is partially offset by the recognition of gains in the value of purchased currency options designated as hedges of the period. Conversely, when the dollar weakens, the increase in the value of future foreign currency cash flows is reduced by the recognition of the premium paid to acquire the options designated as hedges of the period. Purchased currency options used to hedge forecasted revenues currently have maturities of up to three years. The fair values of these options at December 31, 1993 and 1992 were $127.6 million and $124.2 million, respectively, which includes deferred gains of $4.7 million in 1993 and $11.9 million in 1992. In addition to hedging forecasted revenues, the Company hedges certain exposures to foreign currency fluctuations in net monetary assets and liabilities denominated in foreign currencies. Forward exchange contracts and currency options used to hedge net monetary assets and liabilities also have maturities of up to three years. 44 14 At December 31, 1993 and 1992, the Company had contracts to exchange foreign currencies, principally the Japanese yen, French franc and Deutschemark, for U.S. dollars as follows:
- -------------------------------------------------------------- 1993 1992 - -------------------------------------------------------------- Purchased currency options . . . . $1,604.5 $1,619.9 Written currency options . . . . . 122.0 100.0 Forward exchange contracts . . . . 1,751.2 1,897.6 ==============================================================
The Company also hedges exposure to changes in interest rates on certain of its financial instruments. At December 31, 1993, the Company had $255.0 million of interest rate swap contracts to convert a portion of its interest obligations to floating rates. These contracts have maturities of up to three years. The Company also had an $82.0 million contract to convert variable rates of return on certain investments to fixed rates. This contract matures in three years. Gains and losses arising from the use of hedging instruments are recorded in the income statement concurrently with losses and gains arising from the underlying hedged item. Interest differentials paid or received under interest rate swap contracts are recognized over the life of the contracts as adjustments to the effective yield of the underlying financial instruments. As part of its ongoing control procedures, the Company monitors concentrations of credit risk associated with financial institutions with which it conducts business. Credit risk is minimal as credit exposure limits are established to avoid a concentration with any single financial institution. The Company also monitors the credit worthiness of its customers to which it grants credit terms in the normal course of business. Customers for human health products and services include drug wholesalers and retailers, hospitals, clinics, governmental agencies, corporations, labor unions, retirement systems, insurance carriers, managed health-care providers such as health maintenance organizations and other institutions. Customers for the Company's animal health/crop protection products include veterinarians, distributors, wholesalers, retailers, feed manufacturers, veterinary suppliers and laboratories. Concentrations of credit risk associated with these trade receivables are considered minimal due to the Company's diverse customer base. Bad debts have been minimal. The Company does not normally require collateral or other security to support credit sales. 4. INVENTORIES Inventories at December 31 consisted of:
- ------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------ Finished goods . . . . . . . . . . $1,024.4 $ 573.0 Raw materials and work in process . 570.6 565.4 Supplies . . . . . . . . . . . . . 65.8 64.8 - ------------------------------------------------------------ Total (approximates current cost) . 1,660.8 1,203.2 Reduction to LIFO cost . . . . . . 19.1 20.6 - ------------------------------------------------------------ $1,641.7 $1,182.6 ============================================================
Inventories valued at LIFO comprised approximately 39% and 52% of inventories at December 31, 1993 and 1992, respectively. The increase in finished goods inventories and the decrease in the percentage of inventories valued at LIFO are principally due to the acquisition of Medco (See Note 2). 5. OTHER ASSETS Other assets at December 31 consisted of:
- ------------------------------------------------------------------- 1993 1992 - ------------------------------------------------------------------- Joint ventures and other investments . . . . . . . . . . $ 644.7 $ 628.9 Other . . . . . . . . . . . . . . . 228.2 217.2 - ------------------------------------------------------------------- $ 872.9 $ 846.1 ===================================================================
6. LOANS PAYABLE AND LONG-TERM DEBT Loans payable at December 31, 1993 included $1.6 billion of unsecured Company borrowings, substantially all of which is commercial paper. The remainder of the 1993 balance was principally borrowings by foreign subsidiaries. Loans payable increased in 1993 primarily as a result of the borrowings undertaken to finance the Medco acquisition. Long-term debt at December 31, 1993 consisted of $388.9 million in five-year notes issued under a 1991 $500.0 million shelf registration bearing an average coupon of 7.3% payable semi-annually, $253.0 million in five-year notes bearing a coupon of 5.3% payable annually, $54.9 million in structured floating rate notes, due in 1995, issued under a 1993 $1.0 billion shelf registration bearing an average year-end coupon of 3.1% payable at various intervals, and $107.1 million primarily consisting of pollution control, industrial revenue financing and foreign borrowings at varying rates of up to 9.8%. Of this latter amount, $35.5 million is due in varying installments through 1998. Additionally, as a result of the Medco acquisition, long-term debt includes $316.4 million of convertible, subordinated debentures due 2001 at a face value of $261.9 million bearing an average stated rate of 6.5% payable semi-annually and $.5 million in other debt. The debentures' face values are comprised of the following components: $131.4 million issued by Medco and convertible into Merck stock (on which Merck has become a co-obligor); $80.5 million issued by Synetic, Inc. and convertible into Synetic stock; and $50.0 million issued by Medical Marketing Group, Inc. (MMG) and convertible into MMG stock. Synetic and MMG are subsidiaries of Medco. 7. CONTINGENT LIABILITIES The Company is involved in various claims and legal proceedings of a nature considered normal to its business, principally product liability and intellectual property cases. While it is not feasible to predict or determine the outcome of these proceedings, it is the opinion of management that their outcome will have no materially adverse effect on the Company. 45 15 8. STOCKHOLDERS' EQUITY In 1993, common stock increased by $4.4 billion, principally as a result of shares issued and employee stock options converted to Merck options in connection with the acquisition of Medco. In 1992 and 1991 common stock increased $19.0 million and $19.3 million, respectively, as a result of issuances of treasury stock for exercises of stock options and distributions under executive incentive plans. A summary of treasury stock transactions (shares in thousands) follows:
- -------------------------------------------------------------------------------------------------- 1993 1992 1991 ------------------ ------------------ ------------------- Shares Cost Shares Cost Shares Cost - -------------------------------------------------------------------------------------------------- Balance, January 1 . . . . . 221,878.1 $ 3,667.8 207,043.9 $ 2,858.2 205,599.3 $ 2,719.3 Purchases . . . . . . 10,040.4 371.0 18,382.6 862.9 4,913.4 184.1 Issued under stock option and executive incentive plans . (5,241.9) (90.8) (3,548.4) (53.3) (3,468.8) (45.2) - -------------------------------------------------------------------------------------------------- Balance, December 31 . . . 226,676.6 $ 3,948.0 221,878.1 $ 3,667.8 207,043.9 $ 2,858.2 ==================================================================================================
At December 31, 1993, 1992 and 1991, 10 million shares of preferred stock, without par value, were authorized; none were issued. 9. STOCK OPTION AND EXECUTIVE INCENTIVE PLANS The Company has stock option plans under which key employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of the grant. The stock option program also includes provisions for employees whose contributions are believed critical to the innovation and development of new chemical compounds. These options vest over time, dependent on the accomplishment of specific milestones such as clinical trials or regulatory approval. In connection with the Medco acquisition, employee stock options outstanding on the date of acquisition were converted into options to purchase shares of Company common stock with an equivalent value. The granting of options was an integral part of Medco's employment practices. The Company has adopted several of the Medco employee stock option plans under which options are granted at the fair market value of common stock on the date of grant. The level of future grants under these plans may change. In October 1993, the Company made a special grant of options to substantially all employees to purchase 300 shares of stock. A total of approximately 10.1 million options were granted with an exercise price of $32.50, the fair market value at the date of the grant. The options are exercisable during the sixth through tenth year after grant for individuals still employed by, or retired from, the Company. In September 1991, during the Company's Centennial year, the Company made a special grant of options to essentially all employees worldwide to purchase 300 shares of stock. A total of approximately 10.5 million options were granted with an exercise price of $42.42, the fair market value at the date of grant. The options are exercisable during the sixth through tenth year after grant for individuals still employed by, or retired from, the Company. A summary of information relative to the Company's stock option plans follows:
- ------------------------------------------------------------ Number Average of Shares Price - ------------------------------------------------------------ Outstanding at January 1, 1991 . 27,058,449 $19.51 Granted . . . . . . . . . . . . . 15,929,667 42.88 Exercised . . . . . . . . . . . . (3,349,122) 15.28 Forfeited . . . . . . . . . . . . (269,670) 29.67 - ------------------------------------------------------------ Outstanding at December 31, 1991 39,369,324 29.27 Granted . . . . . . . . . . . . . 5,207,761 46.54 Exercised . . . . . . . . . . . . (3,402,430) 15.80 Forfeited . . . . . . . . . . . . (790,120) 41.25 - ------------------------------------------------------------ Outstanding at December 31, 1992 40,384,535 32.40 Equivalent options assumed . . . 36,108,076 16.51 Granted . . . . . . . . . . . . . 15,854,640 34.25 Exercised . . . . . . . . . . . . (4,985,266) 16.73 Forfeited . . . . . . . . . . . . (948,262) 38.89 - ------------------------------------------------------------ Outstanding at December 31, 1993 86,413,723 $26.93 - ------------------------------------------------------------ Exercisable at December 31, 1993 32,338,548 $22.96 ============================================================
At December 31, 1993 and 1992, 8,585,102 shares and 11,643,476 shares, respectively, were available for future grants under the terms of these plans. The Executive Incentive Plan provides for awards to executives and other key employees of cash and deferred awards payable in shares of the Company's common stock and cash. The Plan has a strategic performance feature that provides for awards to key officers and managers who have a direct impact on achieving the Company's long-term objectives. For 1993, total awards under the Plan were $35.6 million. Awards were $37.5 million in 1992 and $38.9 million in 1991. At December 31, 1993, there were 2,780,069 shares available for future awards. 10. RETIREMENT PLANS In addition to required governmental retirement plans, the Company and certain of its subsidiaries have retirement plans for eligible employees that provide benefits based upon age, years of service and compensation. Certain plans also consider primary social security payments in calculating benefits. The expenses for these governmental, Company and subsidiary plans were $262.3 million in 1993, $241.3 million in 1992 and $214.3 million in 1991. Expenses for Company and subsidiary plans were $97.0 million in 1993, $81.3 million in 1992 and $64.3 million in 1991. 46 16 Net pension cost for the Company's plans includes the following components:
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Service cost -- benefits earned during the year . . . $ 97.4 $ 86.4 $ 74.5 Interest cost on projected benefit obligation . . . . . 135.7 123.7 110.4 Net amortization and deferral . 74.4 (34.7) 111.2 Actual return on assets . . . . (210.5) (94.1) (231.8) - ------------------------------------------------------------ Net pension cost . . . . . . . $ 97.0 $ 81.3 $ 64.3 ============================================================
The net pension cost attributable to international plans and included above was $41.8 million in 1993, $30.0 million in 1992 and $22.0 million in 1991. In addition to net pension cost, net losses of $254.8 million were recorded in 1993 pursuant to Statement No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, due to work-force reduction programs associated with the restructuring efforts and the sale of the Calgon Water Management business. Payment of lump-sum benefits to employees retiring under certain of the work-force reduction programs resulted in a $279.4 million liquidation of plan assets. The Company's funding policy for Employee Retirement Income Security Act of 1974 and foreign plans is to contribute amounts to maintain assets in excess of the projected benefit obligations. However, the work-force reduction programs and a lower discount rate have decreased the plans' funded status in 1993. Company contributions over the next several years are expected to improve the funded status of the worldwide plans. The plans' assets are diversified in stocks, bonds, real estate and short-term and other investments. The plans' funded status at December 31 was as follows:
- ----------------------------------------------------------- 1993 1992 ---------------- -------- Over Under Funded Funded - ----------------------------------------------------------- Plan assets at market value $757.2 $ 572.4 $1,411.8 - ----------------------------------------------------------- Accumulated benefit obligation Vested . . . . . . . . . 546.9 631.2 1,048.0 Nonvested . . . . . . . . 83.5 102.7 145.9 - ----------------------------------------------------------- 630.4 733.9 1,193.9 - ----------------------------------------------------------- Plan assets in excess of (less than) accumulated benefit obligation . . . 126.8 (161.5) 217.9 Projected compensation increases . . . . . . . . 147.7 322.2 379.3 - ----------------------------------------------------------- Plan assets less than projected benefit obligation . . . . . . . (20.9) (483.7) (161.4) Unamortized transitional net asset . . . . . . . . (71.1) (65.4) (188.6) Unrecognized net loss . . . 84.1 234.8 221.5 Unrecognized prior service cost . . . . . . 34.4 76.7 130.5 - ----------------------------------------------------------- Net pension asset (liability) . . . . . . . $ 26.5 $(237.6) $ 2.0 ===========================================================
International plan assets at market value, included in the above table, were $490.5 million in 1993, $411.5 million in 1992 and $394.6 million in 1991. The accumulated benefit obligation of international plans, included in this table, was $425.6 million in 1993, $356.3 million in 1992 and $291.7 million in 1991. The discount rate used in determining the projected benefit obligation and costs was 7.5% at December 31, 1993 and 9% at December 31, 1992 and 1991. The rate of future compensation increases used in determining the projected benefit obligation and costs was 5% at December 31, 1993 and 6%, at December 31, 1992 and 1991. The expected long-term rate of return on plan assets was 10% at December 31, 1993, 1992 and 1991. In the aggregate, average international plan assumptions do not vary significantly from U.S. rates. 11. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS The Company provides health-care (in excess of Medicare) and life insurance benefits for eligible active and retired employees, principally in the United States. Prior to 1992, the Company recognized the present value of such health-care costs at the employees' retirement and recognized and funded the cost of life insurance benefits over employees' working lives. In the fourth quarter of 1992, the Company adopted the provisions of Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, effective January 1, 1992. This Statement requires accrual over the employee service period of the expected costs of providing postretirement health-care and life insurance benefits. The cumulative effect at January 1, 1992 of adopting Statement No. 106 reduced Net income by $370.2 million, net of $255.2 million of income tax benefits. The effect of this change reduced 1992 Income before cumulative effect of accounting changes by $38.9 million, net of $26.7 million of income tax benefits. The cost of postretirement benefits other than pensions was $79.9 million in 1993, $90.4 million in 1992 and $24.7 million in 1991. The cost of health-care and life insurance benefits for active employees was $122.5 million in 1993, $116.3 million in 1992 and $102.9 million in 1991. Net postretirement benefit cost includes the following components:
- ------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------ Service cost -- benefits earned during the year . . . . . . . $31.0 $31.2 Interest cost on accumulated postretirement benefit obligation . . 69.2 62.9 Net amortization and deferral . . . . . 2.1 (1.9) Actual return on assets . . . . . . . . (22.4) (1.8) - ------------------------------------------------------------ Net postretirement benefit cost . . . . $79.9 $90.4 ============================================================
In addition to net postretirement benefit cost, net losses of $71.7 million were recorded in 1993 pursuant to Statement No. 106 due to work-force reduction programs associated 47 17 with the restructuring efforts and the sale of the Calgon Water Management business. In 1990, the Company began funding a retiree health-care account that will be used to partially pre-fund health-care benefits for retirees. Funding levels were increased in 1993 with the creation and funding of a qualified trust. The plans' assets are diversified in stocks, bonds and short-term and other investments. The plans' funded status at December 31 was as follows:
- ------------------------------------------------------------ 1993 1992 - ------------------------------------------------------------ Plan assets at market value . . . . . $ 310.2 $ 30.4 - ------------------------------------------------------------ Accumulated postretirement benefit obligation Retirees . . . . . . . . . . . . 466.7 278.0 Other fully eligible participants 116.6 145.8 Other active participants . . . . 396.3 334.6 - ------------------------------------------------------------ 979.6 758.4 - ------------------------------------------------------------ Plan assets less than accumulated postretirement benefit obligation . . . . . . . (669.4) (728.0) Unrecognized net loss/(gain) . . . . 101.6 (1.7) Unrecognized plan changes . . . . . (28.0) (32.1) - ------------------------------------------------------------ Net postretirement benefit liability . . . . . . . . . . . $(595.8) $(761.8) ============================================================
The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at December 31, 1993 and 9% at December 31, 1992. The expected long-term rate of return on plan assets was 10% in 1993 and 1992. The health-care cost trend rate was 12% at December 31, 1993 and 13% at December 31, 1992. This rate will gradually decline to 5.6% over a 17 year period. The effect of increasing the health-care cost trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation at December 31, 1993 by $150.0 million and the total service and interest cost components of the 1993 net postretirement benefit cost by $19.0 million. Also, in the fourth quarter of 1992, the Company adopted the provisions of Statement No. 112, Employers' Accounting for Postemployment Benefits. This Statement requires an accrual method of recognizing postemployment benefits such as disability-related benefits. The cumulative effect at January 1, 1992 of adopting Statement No. 112 reduced Net income by $29.6 million, net of $20.4 million of income tax benefits. The effect of this change on 1992 Income before cumulative effect of accounting changes was not material. 12. OTHER (INCOME) EXPENSE, NET
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Interest income . . . . . . . $(138.9) $(138.3) $(162.5) Interest expense . . . . . . 84.7 72.7 68.7 Exchange losses . . . . . . . 68.2 46.2 31.6 Minority interests . . . . . 50.3 32.2 25.2 Amortization of goodwill and other intangibles . . . . . 28.2 8.2 8.1 Other income, net . . . . . . (56.3) (93.1) (28.1) - ------------------------------------------------------------ $ 36.2 $ (72.1) $ (57.0) ============================================================
The most significant component of exchange losses is from Brazilian operations. Such losses have been largely offset by local pricing actions. Minority interests include third parties' share of exchange gains and losses arising from translation of the financial statements into U.S. dollars. In 1993, amortization of goodwill and other intangibles reflects increased amortization resulting from the Company's acquisition of Medco. In 1993, other income, net, includes a gain of $148.8 million from the Company's sale of its Calgon Water Management business. This gain was largely offset by a $78.8 million provision for environmental costs and a $60.0 million provision for the funding of The Merck Company Foundation. Other income, net, includes the Company's proportionate share of results from its joint venture investments. To date, such results have not been material. Interest paid was $89.1 million in 1993, $60.8 million in 1992 and $71.4 million in 1991. 13. SUPPLEMENTARY INCOME STATEMENT INFORMATION
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Advertising, including medical and pharmaceutical drug education . . . . . . $235.0 $277.8 $250.4 Taxes, other than income, principally payroll taxes 307.9 290.5 262.3 Repairs, alterations and maintenance . . . . . . . 177.8 178.5 167.7 Royalty expenses . . . . . . 230.7 176.6 124.9 ============================================================
14. TAXES ON INCOME In the fourth quarter of 1992, the Company adopted the provisions of Statement No. 109, Accounting for Income Taxes, effective January 1, 1992. The Statement requires that deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. The cumulative effect of this change to January 1, 1992, reduced 48 18 Net income by $62.6 million. The effect of this change on 1992 Income before cumulative effect of accounting changes was not material. Prior to 1992, provisions were made for deferred income taxes where differences existed between the time that transactions affected taxable income and the time that these transactions entered into the determination of income for financial statement purposes. A reconciliation between the Company's effective tax rate and the U.S. statutory rate follows:
- ---------------------------------------------------------- Tax Rate 1993 ------------------- Amount 1993 1992 1991 - ---------------------------------------------------------- U.S. statutory rate applied to pretax income . . . 1,086.0 35.0% 34.0% 34.0% Differential arising from: Tax exemption for Puerto Rico operations . . . . . . (158.7) (5.1) (5.1) (5.1) Foreign operations . . . (44.4) (1.5) .9 2.6 State taxes . . . . . . . 86.0 2.8 1.7 2.2 Other, including minority interests . . (32.4) (1.0) (.2) (.7) - ---------------------------------------------------------- $ 936.5 30.2% 31.3% 33.0% ==========================================================
Domestic companies contributed approximately 78% in 1993, 73% in 1992 and 71% in 1991 to consolidated pretax income. Taxes on income consisted of:
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Current provision Federal . . . . . . . . . $ 668.2 $ 615.1 $ 507.8 Foreign . . . . . . . . . 311.4 411.4 429.9 State . . . . . . . . . . 123.9 107.1 106.1 - ------------------------------------------------------------ 1,103.5 1,133.6 1,043.8 - ------------------------------------------------------------ Deferred provision Federal . . . . . . . . . (84.0) 15.3 6.4 Foreign . . . . . . . . . (89.7) (17.3) (6.2) State . . . . . . . . . . 6.7 (14.6) 1.0 - ------------------------------------------------------------ (167.0) (16.6) 1.2 - ------------------------------------------------------------ $ 936.5 $1,117.0 $1,045.0 ============================================================
The components of the deferred provision were:
- ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ Other postretirement benefits . . . . . . . . . $ 96.9 $ (26.9) $ 3.2 Accelerated depreciation . 57.4 37.6 17.1 Inventory related . . . . . (18.5) 8.5 (17.8) Pension benefits . . . . . (96.6) 10.1 13.2 Restructuring charge . . . (161.2) -- -- Other, net . . . . . . . . (45.0) (45.9) (14.5) - ------------------------------------------------------------ $(167.0) $ (16.6) $ 1.2 ============================================================
Deferred income taxes at December 31 consisted of:
- ----------------------------------------------------------------------- 1993 1992 --------------------- -------------------- Assets Liabilities Assets Liabilities - ----------------------------------------------------------------------- Other intangibles . $ -- $ 596.4 $ -- $ -- Accelerated depreciation . . . -- 425.6 -- 365.2 Inventory related . 305.2 115.3 274.6 103.2 Other postretirement benefits . . . . . 199.0 -- 296.0 -- Equivalent Medco options assumed . 189.0 -- -- -- Restructuring charge 161.2 -- -- -- Pension benefits . 111.3 41.3 4.1 30.6 Environmental related . . . . . 84.8 -- 64.9 -- Equity investments -- 76.9 -- 70.0 Leasing activity . -- 65.9 -- 82.0 Compensation related 48.9 -- 52.1 -- Other . . . . . . . 481.3 236.6 345.9 183.3 - ----------------------------------------------------------------------- 1,580.7 1,558.0 1,037.6 834.3 Valuation allowance (52.1) -- (16.6) -- - ----------------------------------------------------------------------- $1,528.6 $1,558.0 $1,021.0 $834.3 =======================================================================
At December 31, 1993 and 1992, current deferred tax assets of $302.6 million and $235.6 million, respectively, were included in Prepaid expenses and taxes and current deferred tax liabilities of $12.5 million and $3.3 million, respectively, were included in Income taxes payable. In addition, at December 31, 1993 and 1992, noncurrent deferred tax assets of $43.3 million and $43.8 million, respectively, were included in Other assets and noncurrent deferred tax liabilities of $362.8 million and $89.4 million, respectively, were included in Deferred income taxes and noncurrent liabilities. Income taxes paid in 1993, 1992 and 1991 were $859.9 million, $934.4 million and $879.8 million, respectively. At December 31, 1993, foreign earnings of $3.3 billion and domestic earnings of $880.9 million have been retained indefinitely by subsidiary companies for reinvestment. No provision is made for income taxes that would be payable upon the distribution of such earnings and it is not practicable to determine the amount of the related unrecognized deferred income tax liability. These earnings include income from manufacturing operations in Ireland, exempt from Irish taxes through 1990. Subsequent Irish earnings are taxed at an incentive rate of 10%. In addition, the Company has domestic subsidiaries operating in Puerto Rico under a tax incentive grant that expires in 2008. The Company's Federal income tax returns have been audited through 1986. 49 19 15. SEGMENT REPORTING
- ------------------------------------------------------------ INDUSTRY SEGMENTS - ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ SALES Human/Animal Health . . . $9,987.9 $9,067.6 $8,019.5 Specialty Chemical . . . 510.3 594.9 583.2 - ------------------------------------------------------------ $10,498.2 $9,662.5 $8,602.7 ============================================================ INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES(1) Human/Animal Health . . . $2,867.9 $3,361.0 $2,996.0 Specialty Chemical . . . 184.6 80.5 78.4 - ------------------------------------------------------------ 3,052.5 3,441.5 3,074.4 Nonoperating income, primarily interest . . 50.2 122.1 92.3 - ------------------------------------------------------------ $3,102.7 $3,563.6 $3,166.7 ============================================================ ASSETS Human/Animal Health . . . $15,141.6 $7,053.9 $5,849.8 Specialty Chemical . . . 447.5 580.3 548.1 - ------------------------------------------------------------ 15,589.1 7,634.2 6,397.9 Cash and investments . . 3,322.2 2,509.1 2,455.5 Other corporate assets . 1,016.2 942.7 645.1 - ------------------------------------------------------------ $19,927.5 $11,086.0 $9,498.5 ============================================================ CAPITAL EXPENDITURES Human/Animal Health . . . $ 980.8 $1,017.6 $ 965.8 Specialty Chemical . . . 31.9 49.0 75.7 - ------------------------------------------------------------ $1,012.7 $1,066.6 $1,041.5 ============================================================ DEPRECIATION AND AMORTIZATION Human/Animal Health . . . $ 360.9 $ 276.9 $ 226.3 Specialty Chemical . . . 25.6 26.7 27.7 - ------------------------------------------------------------ $ 386.5 $ 303.6 $ 254.0 ============================================================
(1) 1993 amounts include a nonrecurring pretax restructuring charge of $775.0 million primarily related to Human/Animal Health. There were no intersegment sales. Income before taxes and cumulative effect of accounting changes and assets include both direct and allocated amounts. Common costs and expenses and common assets are allocated in proportion to sales. Pages 32 through 34 contain a description of the Company's business.
- ------------------------------------------------------------ GEOGRAPHIC SEGMENTS - ------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------ CUSTOMER SALES Domestic . . . . . . . . $5,914.3 $ 5,180.1 $ 4,616.4 Foreign -- Western Europe, Canada, Australia, New Zealand and Japan . 4,201.1 4,262.4 3,812.1 -- Other . . . 382.8 220.0 174.2 AFFILIATE SALES Domestic . . . . . . . . 1,263.6 1,215.9 1,093.9 Foreign -- Western Europe, Canada, Australia, New Zealand and Japan . 185.7 117.5 132.1 -- Other . . . 103.6 68.0 38.9 Eliminations . . . . . . (1,552.9) (1,401.4) (1,264.9) - ------------------------------------------------------------ $10,498.2 $ 9,662.5 $ 8,602.7 ============================================================ INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES(1) Domestic . . . . . . . . $2,377.6 $ 2,552.4 $ 2,252.2 Foreign -- Western Europe, Canada, Australia, New Zealand and Japan . 669.8 920.4 832.5 -- Other . . . 37.6 7.2 (4.4) Eliminations . . . . . . (32.5) (38.5) (5.9) - ------------------------------------------------------------ 3,052.5 3,441.5 3,074.4 Nonoperating income, primarily interest . . 50.2 122.1 92.3 - ------------------------------------------------------------ $3,102.7 $ 3,563.6 $ 3,166.7 ============================================================ ASSETS Domestic . . . . . . . . $12,881.7 $ 4,976.9 $ 4,187.3 Foreign -- Western Europe, Canada, Australia, New Zealand and Japan . 3,236.9 3,124.3 2,770.5 -- Other . . . 307.8 208.2 132.6 Cash and investments . . 3,322.2 2,509.1 2,455.5 Other corporate assets . 1,016.2 942.7 645.1 Eliminations . . . . . . (837.3) (675.2) (692.5) - ------------------------------------------------------------ $19,927.5 $11,086.0 $ 9,498.5 ============================================================
(1) 1993 amounts include a nonrecurring pretax restructuring charge of $535.2 million for Domestic and $239.8 million for Foreign. Sales to affiliates by the domestic geographic area include products manufactured in the United States and Puerto Rico that are shipped to facilities in foreign countries for manufacture into finished products. Sales to affiliates are at negotiated prices based on specific market conditions. Profits are shown within the geographic areas at the time of sale; such profits, however, are included in consolidated income when a sale is made to a customer. Research and development expenses are included in the geographic area in which the expenses were incurred. 50 20 MANAGEMENT'S REPORT Primary responsibility for the integrity and objectivity of the Company's financial statements rests with management. The financial statements report on management's stewardship of Company assets. These statements are prepared in conformity with generally accepted accounting principles and, accordingly, include amounts that are based on management's best estimates and judgments. Nonfinancial information included in the Annual Report has also been prepared by management and is consistent with the financial statements. To assure that financial information is reliable and assets are safeguarded, management maintains an effective system of internal controls and procedures, important elements of which include: careful selection, training and development of operating and financial managers; an organization that provides appropriate division of responsibility; and communications aimed at assuring that Company policies and procedures are understood throughout the organization. In establishing internal controls, management weighs the costs of such systems against the benefits it believes such systems will provide. A staff of internal auditors regularly monitors the adequacy and application of internal controls on a worldwide basis. To insure that personnel continue to understand the system of internal controls and procedures, and policies concerning good and prudent business practices, the Company periodically conducts the Management's Stewardship Program for key management and financial personnel. This program reinforces the importance and understanding of internal controls by reviewing key corporate policies, procedures and systems. In addition, an ethical business practices program has been implemented to reinforce the Company's long-standing commitment to high ethical standards in the conduct of its business. The independent public accountants have audited the Company's consolidated financial statements as described in their report. Their audits included a review of the Company's accounting systems, procedures and internal controls, and tests and other auditing procedures sufficient to enable them to render their opinion on the Company's financial statements. The recommendations of the internal auditors and independent public accountants are reviewed by management. Control procedures have been implemented or revised as appropriate to respond to these recommendations. No material control weaknesses have been brought to the attention of management. In management's opinion, for the year ended December 31, 1993, the internal control system was strong and accomplished the objectives discussed herein. /s/ P. ROY VAGELOS, M.D. /s/ JUDY C. LEWENT - ------------------------ ------------------ P. Roy Vagelos, M.D. Judy C. Lewent Chairman and Chief Executive Officer Senior Vice President and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Merck & Co., Inc.: We have audited the accompanying consolidated balance sheets of Merck & Co., Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial position of Merck & Co., Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in the accompanying notes to financial statements, effective January 1, 1992, the Company adopted three new accounting standards promulgated by the Financial Accounting Standards Board, changing its methods of accounting for postretirement benefits other than pensions, income taxes and postemployment benefits. /s/ ARTHUR ANDERSEN & CO. ------------------------- New York, New York ARTHUR ANDERSEN & CO. January 25, 1994 51 21 AUDIT COMMITTEE'S REPORT The Audit Committee of the Board of Directors is comprised of five outside directors. The members of the Committee are: Charles E. Exley Jr., Chairman; Carolyne K. Davis, Ph.D., Vice Chairman; Sir Derek Birkin; William N. Kelley, M.D.; and Dennis Weatherstone. The Committee held three meetings during 1993. The Audit Committee meets with the independent public accountants, management and internal auditors to assure that all are carrying out their respective responsibilities. The Audit Committee reviews the performance and fees of the independent public accountants prior to recommending their appointment, and meets with them, without management present, to discuss the scope and results of their audit work, including the adequacy of internal controls and the quality of financial reporting. Both the independent public accountants and the internal auditors have full access to the Audit Committee. /s/ CHARLES E. EXLEY JR. ------------------------ Charles E. Exley Jr. Chairman, Audit Committee COMPENSATION AND BENEFITS COMMITTEE'S REPORT The Compensation & Benefits Committee is comprised of five outside directors. The members of the Committee are: H. Brewster Atwater Jr., Chairman; Richard S. Ross, M.D., Vice Chairman; Lawrence A. Bossidy; William G. Bowen, Ph.D.; and Ruben F. Mettler, Ph.D. The Committee held five meetings during 1993. The Compensation & Benefits Committee's major responsibilities include providing for senior management succession and overseeing the Company's compensation and benefit programs. The Committee seeks to provide rewards which are highly leveraged to performance and clearly linked to Company and individual results. The objective is to ensure that compensation and benefits are at levels which enable Merck to attract and retain high quality employees. The Committee views stock ownership as a vehicle to align the interests of employees with those of the stockholders. A long-term focus is essential for success in the pharmaceutical industry and is encouraged by making a high proportion of executive officer compensation dependent on long-term performance and on enhancing stockholder value. /s/ H. BREWSTER ATWATER JR. --------------------------- H. Brewster Atwater Jr. Chairman, Compensation and Benefits Committee SELECTED FINANCIAL DATA Merck & Co., Inc. and Subsidiaries
- -------------------------------------------------------------------------- ($ in millions except per share amounts) 1993(1) 1992(2) 1991 1990 1989 - -------------------------------------------------------------------------- RESULTS FOR YEAR: Sales . . . . . . . . . . $10,498.2 $9,662.5 $8,602.7 $7,671.5 $6,550.5 Materials and production costs. . . . . . . . . . 2,497.6 2,096.1 1,934.9 1,778.1 1,550.3 Marketing/administrative expenses . . . . . . . . 2,913.9 2,963.3 2,570.3 2,388.0 2,013.4 Research/development expenses . . . . . . . . 1,172.8 1,111.6 987.8 854.0 750.5 Restructuring charge . . 775.0 -- -- -- -- Other (income) expense, net 36.2 (72.1) (57.0) (47.4) (46.7) Income before taxes . . . 3,102.7 3,563.6 3,166.7 2,698.8 2,283.0 Taxes on income . . . . . 936.5 1,117.0 1,045.0 917.6 787.6 Net income . . . . . . . 2,166.2 2,446.6 2,121.7 1,781.2 1,495.4 Per share of common stock $1.87 $2.12 $1.83 $1.52 $1.26 Dividends on common stock: Declared . . . . . . . 1,239.0 1,106.9 920.3 788.1 681.5 Paid per share . . . . $1.03 $.92 $.77 $.64 $.55 Capital expenditures . . 1,012.7 1,066.6 1,041.5 670.8 433.0 Depreciation . . . . . . 348.4 290.3 242.7 231.4 206.4 - -------------------------------------------------------------------------- YEAR-END POSITION: Working capital . . . . . (161.1) 782.4 1,496.5 939.2 1,502.5 Property, plant and equipment (net) . . . . 4,894.6 4,271.1 3,504.5 2,721.7 2,292.5 Total assets . . . . . . 19,927.5 11,086.0 9,498.5 8,029.8 6,756.7 Long-term debt . . . . . 1,120.8 495.7 493.7 124.1 117.8 Stockholders' equity . . 10,021.7 5,002.9 4,916.2 3,834.4 3,520.6 - -------------------------------------------------------------------------- FINANCIAL RATIOS: Net income as a % of: Sales . . . . . . . . . 20.6% 25.3% 24.7% 23.2% 22.8% Average total assets . 14.0% 24.1% 24.2% 24.1% 23.2% - -------------------------------------------------------------------------- YEAR-END STATISTICS: Average number of shares of common stock outstanding (in millions) . . . . . 1,156.5 1,153.5 1,159.9 1,172.1 1,188.3 Number of stockholders . 231,300 161,200 91,100 82,300 75,600 Number of employees . . . 47,100(3) 38,400 37,700 36,900 34,400 ==========================================================================
- ---------------------------------------------------------------------------------- ($ in millions except per share amounts) 1988 1987 1986 1985 1984 1983 - ---------------------------------------------------------------------------------- RESULTS FOR YEAR: Sales . . . . . . . . . . $5,939.5 $5,061.3 $4,128.9 $3,547.5 $3,559.7 $3,246.1 Materials and production costs . . . . . . . . . 1,526.1 1,444.3 1,338.0 1,272.4 1,424.5 1,263.4 Marketing/administrative expenses . . . . . . . . 1,877.8 1,682.1 1,269.9 1,009.0 945.5 905.1 Research/development expenses . . . . . . . . 668.8 565.7 479.8 426.3 393.1 356.0 Restructuring charge . . -- -- -- -- -- -- Other (income) expense, net (4.2) (36.0) (32.1) (17.2) 9.8 25.6 Income before taxes . . . 1,871.0 1,405.2 1,073.3 857.0 786.8 696.0 Taxes on income . . . . . 664.2 498.8 397.6 317.1 293.8 245.1 Net income . . . . . . . 1,206.8 906.4 675.7 539.9 493.0 450.9 Per share of common stock $1.02 $.74 $.54 $.42 $.37 $.34 Dividends on common stock: Declared . . . . . . . 546.3 365.2 278.5 235.1 224.0 210.8 Paid per share . . . . $.43 $.27 $.21 $.18 $.17 $.16 Capital expenditures . . 372.7 253.7 210.6 237.6 274.4 272.8 Depreciation . . . . . . 189.0 188.5 167.2 163.6 151.6 135.2 - ---------------------------------------------------------------------------------- YEAR-END POSITION: Working capital . . . . . 1,480.3 798.3 1,094.3 1,106.6 1,076.5 734.9 Property, plant and equipment (net) . . . . 2,070.7 1,948.0 1,906.2 1,882.8 1,912.8 1,715.2 Total assets . . . . . . 6,127.5 5,680.0 5,105.2 4,902.2 4,590.6 4,214.7 Long-term debt . . . . . 142.8 167.4 167.5 170.8 179.1 385.5 Stockholders' equity . . 2,855.8 2,116.7 2,541.2 2,607.7 2,518.6 2,409.9 - ---------------------------------------------------------------------------------- FINANCIAL RATIOS: Net income as a % of: Sales . . . . . . . . . 20.3% 17.9% 16.4% 15.2% 13.8% 13.9% Average total assets . 20.4% 16.8% 13.5% 11.4% 11.2% 11.5% - ---------------------------------------------------------------------------------- YEAR-END STATISTICS: Average number of shares of common stock outstanding (in millions) . . . . . 1,186.9 1,221.2 1,253.9 1,282.7 1,322.0 1,331.0 Number of stockholders . 68,500 56,900 48,300 47,000 50,200 51,800 Number of employees . . . 32,000 31,100 30,700 30,900 34,800 32,600 ==================================================================================
(1) 1993 amounts include Medco Containment Services, Inc. from the date of acquisition (November 18, 1993). Excluding the effect of the acquisition, earnings per share would have been $1.94, and the ratio of net income to average total assets would have been 18.5%. 1993 amounts also include a nonrecurring restructuring charge of $.45 per share. (2) 1992 results of operations exclude the cumulative effect of the accounting changes described on pages 37 and 38. (3) Includes 10,300 Medco employees. 52 22 APPENDIX Page of Exhibit 13 35 There is a table in place of the bar chart/line graph which appears in the Financial Review section of the 1993 Annual Report to stockholders describing the components of sales growth. 36 There is a reference to a graph on page 11 of the 1993 Annual Report to stockholders which is provided below in tabular form: R&D EXPENDITURES ($ in millions and as a % of sales) Total % of Year Amount Sales ------ -------- ------- 1980 $ 233.9 9 % 1981 274.2 9 1982 320.2 10 1983 356.0 11 1984 393.1 11 1985 426.3 12 1986 479.8 12 1987 565.7 11 1988 668.8 11 1989 750.5 11 1990 854.0 11 1991 987.8 11 1992 1,111.6 12 1993 1,172.8 11 1994 over 1.3 billion * * planned expenditures This chart excludes R&D costs incurred by the Company's joint ventures, which in 1993 were in excess of $300 million. EX-21 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21 MERCK & CO., INC. SUBSIDIARIES AS OF DECEMBER 31, 1993 Each of the subsidiaries below does business under the name in which listed. A subsidiary of a subsidiary is indicated by indentation under the immediate parent. All voting securities of the subsidiaries named are owned directly or indirectly by the Company, except where otherwise indicated. Certain other subsidiaries, principally overseas companies that are less than wholly owned, have been omitted since, considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as of December 31, 1993.
Country or State Name of Incorporation ---- ----------------- Chibret A/S Denmark International Indemnity Limited Bermuda Kelco Specialty Colloids, Limited Canada Laboratorios Prosalud S.A. Peru Medco Containment Services, Inc. Delaware Apartment Lease Corporation New York CM Delaware Corporation Delaware Flex Rx of Pennsylvania, Inc. Pennsylvania Managed Care, Inc. Nevada MCCO Corp. New Jersey MCSI Corp. New Jersey Medco Containment Services Foundation, Inc. New Jersey Medco Containment Services, Inc. Political Action Committee Corp. New Jersey Medco Holdings Corp. Delaware Medco Behavioral Care Corporation Delaware American Biodyne, Inc. Delaware Achievement and Guidance Centers of America, Inc. Pennsylvania AGCA Headquarters Limited Partnership Pennsylvania AGCA New York, Inc. New York Achievement and Guidance Centers - U.S., Inc. New York Achievement and Guidance Centers of New York, Inc. New York AGCA/SANUS New York, Inc. New York Quality Health Care Solutions, Inc. Pennsylvania Companion Benefit Alternatives, Inc. S. Carolina AGCA/Net Recovery Systems Pennsylvania AGCA Acquisition Corporation - New York Delaware
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Country or State Name of Incorporation ---- ----------------- Alliance Health Systems, Inc. Indiana American Biodyne Military Health Plan, Inc. Delaware Arizona Biodyne, Inc. Arizona California Biodyne Health Services, Inc. California Colorado Biodyne, Inc. Colorado Florida Biodyne, Inc. Florida Hawaii Biodyne, Inc. Hawaii Illinois Biodyne, Inc. Illinois Indiana Biodyne, Inc. Indiana Louisiana Biodyne, Inc. Louisiana Maine Biodyne, Inc. Maine Massachusetts Biodyne, Inc. Massachusetts Michigan Biodyne, Inc. Michigan Nevada Biodyne, Inc. Nevada New Mexico Biodyne, Inc. New Mexico North Carolina Biodyne, Inc. N. Carolina Ohio Biodyne, Inc. Ohio Pennsylvania Biodyne, Inc. Pennsylvania Tennessee Biodyne, Inc. Tennessee Texas Biodyne, Inc. Texas Vermont Biodyne, Inc. Vermont American Biodyne Insurance Company Illinois Medco Behavioral Care Systems Corporation Ohio PPC Group, Inc. Delaware Medco Behavioral Care of California, Inc. Missouri P.P.C. Inc. Missouri Personal Performance Consultants of New York, Inc. New York Medical Marketing Group, Inc.(1) Delaware KSF Medical Publishing Company, Inc. New York Medical Marketing, Inc. Delaware MMGI Corp. New Jersey PPI Holding, Inc. Delaware Payer Prescribing Information, Inc. Pennsylvania TELERx Marketing, Inc. Pennsylvania MMGI Corp. New Jersey MMG Acquisition Corp. Delaware Synetic, Inc.(2) Delaware Alliance Health Services, Inc. Delaware
(1) 54.2% publicly owned (2) 58.7% publicly held 3 Page 3
Country or State Name of Incorporation ---- ----------------- Brownstone Pharmacy, Inc. Connecticut Omni Med B, Inc. Connecticut Alliance Home Health Care, Inc. Connecticut Dunnington Drug, Inc. Delaware Dunnington Rx Services of Massachusetts, Inc. Massachusetts DD Wholesale, Inc. Massachusetts Dunnington Rx Services of Rhode Island, Inc. Rhode Island Healthcare Prescription Services, Inc. Indiana Porex Technologies Corp. Delaware Porex International, Inc. Barbados Porex Scientific Inc. Delaware Porex Surgical, Inc. Delaware POREX Technologies GmbH Germany Sync Corp. New Jersey Medco MM Corp. New Jersey NRX Services, Inc. New York NRx Federal Corp. Delaware National Administrative Services, Inc. Delaware National Pharmacies, Inc. New Jersey National Rx Services No. 2, Inc. Florida National Rx Services No. 2, Inc. of Ohio Ohio National Rx Services No. 3, Inc. of Ohio Ohio National Rx Services, Inc. (Ohio I) Ohio National Rx Services, Inc. of Mass. Massachusetts National Rx Services, Inc. of Missouri Missouri National Rx Services, Inc. of Nevada Nevada National Rx Services, Inc. of Pennsylvania Pennsylvania National Rx Services, Inc. of Texas Texas National Rx Services, Inc. of Washington Washington National Rx Services, Inc. (Florida I) Florida National Rx Services, Inc. (California) California Paid Direct, Inc. Delaware Paid Prescriptions, Inc. Nevada Physician Marketing Services, Inc. Delaware Replacement Distribution Center, Inc. Ohio Merck and Company, Incorporated Delaware Merck Capital Resources, Inc. Delaware
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Country or State Name of Incorporation ---- ----------------- Merck Foreign Sales Corporation Guam Merck Foreign Sales Corporation Ltd. Bermuda Merck Holdings, Inc. Delaware Calgon Vestal Laboratories, Inc. Delaware Kelco International S.A. France Merck de Puerto Rico, Inc. Delaware MSD International Holdings, Inc. Delaware Banyu Pharmaceutical Company, Limited(3) Japan A.S.C. Service Co., Ltd.(3) Japan Nippon Merck-Banyu Co., Limited(3) Japan Frosst Laboratories, Inc. Delaware Frosst Portuguesa - Productos Farmaceuticos, Lda. Portugal Hubbard Farms, Inc. Delaware Hubbard Foods, Inc. New Hampshire Hubbard France S.A.R.L. France Hubbard Laboratories, Inc. Delaware Kelco Company Delaware Monterey Kelp Corporation California Kelco Oil Field Group, Inc. Delaware Kelco Specialty Colloids (S) Pte. Ltd. Singapore Merck Sharp & Dohme de Venezuela C.A. Venezuela Merck Sharp & Dohme Holdings de Mexico, S.A. de C.V. Mexico Merck Sharp & Dohme de Mexico, S.A. de C.V. Mexico Merck Sharp & Dohme (I.A.) Corp. Delaware Merck Sharp & Dohme (Argentina) Inc. Delaware Merck Sharp & Dohme Industrial e Exportadora Limitada Brazil Merck Sharp & Dohme Farmaceutica e Veterinaria Ltda. Brazil Merck Sharp & Dohme (International) Limited Bermuda Merck Sharp & Dohme (Asia) Limited Hong Kong Merck Sharp & Dohme (China) Limited Hong Kong Merck Sharp & Dohme S.A. France Merck Sharp & Dohme - Lebanon S.A.L. Lebanon Merck Sharp & Dohme Overseas Finance Luxembourg Merck Frosst Canada, Inc. Canada General Trade Co., S.A. Peru
(3) 49.13% publicly held 5 Page 5
Country or State Name of Incorporation ---- ----------------- Merck Sharp & Dohme (Australia) Pty. Ltd. Australia Merck Sharp & Dohme B.V. Netherlands Compagnie Chimique Merck Sharp & Dohme S.A. France Hubbard Europa B.V. Netherlands Hubbard Belgium International N.V. Belgium Hubbard Deutschland GmbH Germany Hubbard Italia SRL Italy Hubbard Nederland B.V. Netherlands Hubbard Poultry U.K. Limited Great Britain Laboratoires Merck Sharp & Dohme-Chibret S.A. France Chibret International France Chibret Pharmazeutische GmbH Germany Merck Sharp & Dohme GmbH Austria Merck Sharp & Dohme (Italia) S.p.A. Italy MSD Sharp & Dohme GmbH Germany Dieckmann Arzneimittel GmbH Germany Frosst Pharma GmbH Germany MSD Chibropharm GmbH Germany MSD Unterstutzungskasse GmbH Germany Merck Sharp & Dohme-Chibret AG Switzerland MSD Technology L.P. Delaware Merck Finance Co., Inc. Delaware Merck Sharp & Dohme (Holdings) Limited Great Britain British United Turkeys Limited Great Britain Turkey Research & Development Limited Great Britain Charles E. Frosst (U.K.) Limited Great Britain C V Laboratories Limited Great Britain Kelco International Limited Great Britain Alginate Industries (Ireland) Limited Ireland Alginate Industries Limited Great Britain Alginate Industries (Scotland) Limited Great Britain Kelco International GmbH Germany Kelco International Pension Fund Trust Limited Great Britain Kelco Biospecialties Limited Great Britain Merck Sharp & Dohme Finance Europe Great Britain Merck Sharp & Dohme Limited Great Britain Thomas Morson & Son Limited Great Britain Merck Sharp & Dohme Idea, Inc. Switzerland Merck Sharp & Dohme Trading & Service Hungary Limited Liability Company
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Country or State Name of Incorporation ---- ----------------- Merck Sharp & Dohme (Sweden) A.B. Sweden MSD Ireland (Holdings) S.A. Luxembourg Fabrica de Productos Quimicos y Farmaceuticos ABELLO, S.A. Spain Fregenal Holdings S.A. Panama Frosst Iberica, S.A. Spain Laboratorios Quimico-Farmaceuticos Chibret, Ltda. Portugal Merck Sharp & Dohme de Espana, S.A. Spain Merck Sharp & Dohme (Ireland) Bermuda MSD Finance, B.V. Netherlands Neopharmed S.p.A. Italy MSD (Norge) A/S Norway Suomen MSD Oy Finland Merck Sharp & Dohme of Pakistan Limited Pakistan Merck Sharp & Dohme Quimica de Puerto Rico, Inc. Delaware Merck Sharp ve Dohme Ilaclari A.S. Turkey MSD Chimie S.A. France MSD Lakemedel (Scandinavia) A.B. Sweden Prosalud Peruana S.A. Peru Merck Investment Co., Inc. Delaware Merck Sharp & Dohme (Europe) Inc. Delaware Merck Sharp & Dohme Industria Quimica e Veterinaria Limitada Brazil Merck Sharp & Dohme, Limitada Portugal Merck Sharp & Dohme (New Zealand) Limited New Zealand Charles E. Frosst (New Zealand) Limited New Zealand Merck Sharp & Dohme Overseas Finance N.V. Neth. Antilles Merck Sharp & Dohme (Panama) S.A. Panama Merck Sharp & Dohme (Philippines) Inc. Philippines Merck Sharp & Dohme Scientific and Management Corp., Inc. Delaware Merck Sharp & Dohme (Zimbabwe) (Private) Limited Zimbabwe MSD AGVET AG Switzerland MSD (Japan) Co., Limited Japan
EX-24 7 POWER OF ATTORNEY AND RESOLUTION OF BOARD 1 EXHIBIT 24 POWER OF ATTORNEY Each of the undersigned does hereby appoint CELIA A. COLBERT, MARY M. McDONALD and BERT I. WEINSTEIN and each of them, severally, his/her true and lawful attorney or attorneys to execute on behalf of the undersigned (whether on behalf of the Company, or as an officer or director thereof, or by attesting the seal of the Company, or otherwise) the Form l0-K Annual Report of Merck & Co., Inc. for the fiscal year ended December 3l, l993 under the Securities Exchange Act of l934, including amendments thereto and all exhibits and other documents in connection therewith. IN WITNESS WHEREOF, this instrument has been duly executed as of the 22nd day of February, l994. MERCK & CO., Inc. By /s/ P. Roy Vagelos ---------------------------------- P. Roy Vagelos (Chairman of the Board, President and Chief Executive Officer) /s/ P. Roy Vagelos Chairman of the Board, President - ----------------------------------and Chief Executive Officer P. Roy Vagelos (Principal Executive Officer; Director) /s/ Judy C. Lewent Senior Vice President and Chief Financial Officer - ----------------------------------(Principal Financial Officer) Judy C. Lewent /s/ Peter E. Nugent Vice President, Controller - ---------------------------- (Principal Accounting Officer) Peter E. Nugent
DIRECTORS /s/ H. Brewster Atwater, Jr. /s/ Charles E. Exley, Jr. - -------------------------------- ----------------------------------- H. Brewster Atwater, Jr. Charles E. Exley, Jr. /s/ Derek Birkin /s/ William N. Kelley - -------------------------------- ----------------------------------- Derek Birkin William N. Kelley /s/ Lawrence A. Bossidy /s/ Ruben F. Mettler - -------------------------------- ----------------------------------- Lawrence A. Bossidy Ruben F. Mettler /s/ William G. Bowen /s/ Richard S. Ross - -------------------------------- -------------------------------- William G. Bowen Richard S. Ross /s/ Carolyne K. Davis /s/ Dennis Weatherstone - ---------------------------------- ----------------------------------- Carolyne K. Davis Dennis Weatherstone /s/ Lloyd C. Elam /s/ Martin J. Wygod - -------------------------------- ----------------------------------- Lloyd C. Elam Martin J. Wygod
2 EXHIBIT 24 I, Nancy V. Van Allen, Assistant Secretary of MERCK & CO., Inc., a Corporation duly organized and existing under the laws of the State of New Jersey, do hereby certify that the following is a true copy of a resolution adopted at a meeting of the Directors of said Corporation held in Whitehouse Station, New Jersey, on February 22, l994, duly called in accordance with the provisions of the By-Laws of said Corporation, and at which a quorum of Directors was present: "Special Resolution No. 10 - 1994 RESOLVED, that the proposed form of Form l0-K Annual Report of the Company for the fiscal year ended December 3l, l993 presented to this meeting is hereby approved with such changes as the proper officers of the Company, with the advice of counsel, deem appropriate; and RESOLVED, that each officer and director who may be required to execute the aforesaid Form l0-K Annual Report or any amendments thereto (whether on behalf of the Company or as an officer or director thereof, or by attesting the seal of the Company, or otherwise) is hereby authorized to execute a power of attorney appointing Celia A. Colbert, Mary M. McDonald and Bert I. Weinstein and each of them, severally, his/her true and lawful attorney or attorneys to execute in his/her name, place and stead (in any such capacity) such Form l0-K Annual Report and any and all amendments thereto and any and all exhibits and other documents necessary or incidental in connection therewith and to file the same with the Securities and Exchange Commission, each of said attorneys to have power to act with or without the others, and to have full power and authority to do and perform in the name and on behalf of each of said officers and directors, or both, as the case may be, every act whatsoever necessary or advisable to be done in the premises as fully and to all intents and purposes as any such officer or director might or could do in person." IN WITNESS WHEREOF, I have hereunto subscribed my signature and affixed the seal of the Corporation this 22nd day of March, l994. [Corporate Seal] /s/ Nancy V. Van Allen ---------------------------- Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----