-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FmpoX/tFeBK3E9pYC4GfnpqQKGHOSJYy2ilKPhwr040+y4ctb0cPMZAzoJQykbwm dVWFNQgWUo5C91yCtDBmJQ== 0000950123-97-009508.txt : 19971113 0000950123-97-009508.hdr.sgml : 19971113 ACCESSION NUMBER: 0000950123-97-009508 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCK & CO INC CENTRAL INDEX KEY: 0000064978 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 221109110 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03305 FILM NUMBER: 97716371 BUSINESS ADDRESS: STREET 1: ONE MERCK DR STREET 2: P O BOX 100 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 BUSINESS PHONE: 9084234044 MAIL ADDRESS: STREET 1: ONE MERCK DR STREET 2: PO BOX 100 WS3AB-05 CITY: WHITEHOUSE STATION STATE: NJ ZIP: 08889-0100 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ---------- Commission File No. 1-3305 MERCK & CO., INC. P. O. Box 100 One Merck Drive Whitehouse Station, N.J. 08889-0100 (908) 423-1000 Incorporated in New Jersey I.R.S. Employer Identification No. 22-1109110 The number of shares of common stock outstanding as of the close of business on October 31, 1997: Class Number of Shares Outstanding Common Stock 1,198,258,221 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 --- --- 2 Part I - Financial Information MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF INCOME THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 ($ in millions except per share amounts)
Three Months Nine Months Ended September 30 Ended September 30 ---------------------------- ---------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Sales $ 5,927.7 $ 4,983.4 $ 17,404.8 $ 14,422.6 ---------- ---------- ---------- ---------- Costs, Expenses and Other Materials and production 2,991.0 2,328.4 8,721.6 6,845.3 Marketing and administrative 1,048.4 941.8 3,153.2 2,702.3 Research and development 424.7 366.8 1,189.8 1,064.0 Equity income from affiliates (262.6) (146.2) (536.4) (440.0) Gain on sale of crop protection business (213.4) -- (213.4) -- Other (income) expense, net 244.7 55.2 299.4 180.2 ---------- ---------- ---------- ---------- 4,232.8 3,546.0 12,614.2 10,351.8 ---------- ---------- ---------- ---------- Income Before Taxes 1,694.9 1,437.4 4,790.6 4,070.8 Taxes on Income 497.7 435.5 1,418.7 1,233.0 ---------- ---------- ---------- ---------- Net Income $ 1,197.2 $ 1,001.9 $ 3,371.9 $ 2,837.8 ========== ========== ========== ========== Per Share of Common Stock: Net Income $ .99 $ .83 $ 2.79 $ 2.33 Dividends Declared $ .45 $ .40 $ 1.29 $ 1.08 Average Number of Common Shares Outstanding (millions) 1,205.8 1,205.6 1,207.3 1,215.8
The accompanying notes are an integral part of this financial statement. - 1 - 3 MERCK & CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 ($ in millions)
September 30 December 31 1997 1996 ------------ ----------- ASSETS Current Assets Cash and cash equivalents $ 1,281.8 $ 1,352.4 Short-term investments 885.1 829.2 Accounts receivable 2,966.4 2,655.9 Inventories 2,226.7 2,148.8 Prepaid expenses and taxes 849.8 740.3 --------- --------- Total current assets 8,209.8 7,726.6 --------- --------- Investments 2,874.8 2,499.4 Property, Plant and Equipment, at cost, net of allowance for depreciation of $3,189.3 in 1997 and $2,799.7 in 1996 6,296.0 5,926.7 Goodwill and Other Intangibles, net of accumulated amortization of $752.1 in 1997 and $606.5 in 1996 6,851.5 6,736.6 Other Assets 1,665.7 1,403.8 --------- --------- $25,897.8 $24,293.1 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $ 3,062.9 $ 2,937.8 Loans payable and current portion of long-term debt 586.6 606.1 Income taxes payable 1,143.3 802.6 Dividends payable 542.2 482.7 --------- --------- Total current liabilities 5,335.0 4,829.2 --------- --------- Long-Term Debt 1,689.8 1,155.9 --------- --------- Deferred Income Taxes and Noncurrent Liabilities 4,803.4 4,027.3 --------- --------- Minority Interests 1,235.4 2,310.2 --------- --------- Stockholders' Equity Common stock Authorized - 2,700,000,000 shares Issued - 1,483,836,931 shares - 1997 - 1,483,619,311 shares - 1996 5,198.6 4,967.5 Retained earnings 16,627.8 14,817.7 --------- --------- 21,826.4 19,785.2 Less treasury stock, at cost 281,498,585 shares - 1997 277,016,963 shares - 1996 8,992.2 7,814.7 --------- --------- Total stockholders' equity 12,834.2 11,970.5 --------- --------- $25,897.8 $24,293.1 ========= =========
The accompanying notes are an integral part of this financial statement. - 2 - 4 MERCK & CO., INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 ($ in millions)
Nine Months Ended September 30 -------------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Income before taxes $ 4,790.6 $ 4,070.8 Adjustments to reconcile income before taxes to cash provided from operations before taxes: Other 835.2 371.0 Net changes in assets and liabilities (399.0) (136.4) --------- --------- CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 5,266.8 4,305.4 INCOME TAXES PAID (866.2) (772.9) --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 4,360.6 3,532.5 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (989.5) (839.5) Purchase of securities, subsidiaries and other investments (19,003.7) (10,355.7) Proceeds from sale of securities, subsidiaries and other investments 18,036.8 10,112.4 Proceeds from sale of crop protection business 910.0 -- Other (46.3) (56.0) --------- --------- NET CASH USED BY INVESTING ACTIVITIES (1,092.7) (1,138.8) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net change in short-term borrowings 239.6 402.2 Proceeds from issuance of debt 646.0 320.2 Payments on debt (351.5) (336.5) Purchase of treasury stock (1,526.6) (2,228.8) Dividends paid to stockholders (1,497.8) (1,247.3) Redemption of preferred stock of subsidiary (1,000.0) -- Other 203.7 247.7 --------- --------- NET CASH USED BY FINANCING ACTIVITIES (3,286.6) (2,842.5) --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (51.9) (54.4) --------- --------- NET DECREASE IN CASH AND CASH EQUIVALENTS (70.6) (503.2) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,352.4 1,847.4 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,281.8 $ 1,344.2 ========= =========
The accompanying notes are an integral part of this financial statement. Notes to Financial Statements 1. The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company's latest Annual Report on Form 10-K. Interim statements are subject to possible adjustments in connection with the annual audit of the Company's accounts for the full year 1997; in the Company's opinion, all adjustments necessary for a fair presentation of these interim statements have been included and are of a normal and recurring nature. - 3 - 5 Notes to Financial Statements (continued) 2. In July 1997, the Company sold its crop protection business for $910.0 million to Novartis, resulting in a pretax gain of $213.4 million, after taking into account deferred income related to long-term contractual commitments entered into in connection with the sale of the business. This business was not significant to the Company's financial position or results of operations. This gain was substantially offset by $207.3 million of nonrecurring charges included in Other (income) expense, net. (See Note 9.) 3. In August 1997, Merck and Rhone-Poulenc combined their animal health and poultry genetics businesses to form Merial Ltd. (Merial) a fully-integrated, stand-alone joint venture, equally owned by each party. Merial is the world's largest company dedicated to the discovery, manufacture and marketing of veterinary pharmaceuticals and vaccines. Merck contributed developmental research personnel, sales and marketing activities, animal health products, as well as its poultry genetics business. Rhone-Poulenc contributed research and development, manufacturing, sales and marketing activities, animal health products, as well as its poultry genetics business. This transaction is not expected to have a material impact on comparability of net income. 4. Inventories consisted of:
($ in millions) ---------------------------- September 30 December 31 1997 1996 ------------ ----------- Finished goods $1,306.1 $1,237.3 Raw materials and work in process 860.3 841.1 Supplies 60.3 70.4 -------- -------- Total (approximates current cost) 2,226.7 2,148.8 Reduction to LIFO cost -- -- -------- -------- $2,226.7 $2,148.8 ======== ========
5. In May 1997, Merck issued $500 million of debt under its 1993 shelf registration. The remaining capacity under this shelf registration at September 30, 1997 is $170 million. The debt has a scheduled maturity of May 3, 2037 and pays interest semi-annually at a rate of 5.76%. 6. The Company, along with numerous other defendants, is a party in several antitrust actions brought by retail pharmacies and consumers, alleging conspiracies in restraint of trade and challenging pricing and/or purchasing practices, one of which has been certified as a Federal class action and a number of which have been certified as state class actions. In January 1996, the Company and several other defendants entered into an agreement, subject to court approval, to settle the Federal class action alleging conspiracy, which represents the single largest group of retail pharmacy claims, pursuant to which the Company is obligated to pay $51.8 million, payable in four equal annual installments. In April 1996, the court declined to approve the settlement. Subsequently, the Company and several other defendants entered into an amended settlement agreement, which provides for the same monetary payment and addresses the court's concerns as expressed in its April 1996 opinion. In June 1996, the Court granted approval of the amended settlement agreement, to which objecting retail class members filed appeals in July 1996. The Company has not engaged in any conspiracy and no admission of wrongdoing has been made or is included in the amended agreement, which was entered into in order to avoid the cost of litigation and the risk of an inaccurate adverse verdict by a jury presented with a case of this size and complexity. While it is not feasible to predict or determine the final outcome of these proceedings, management does not believe that they should result in a materially adverse effect on the Company's financial position, results of operations or liquidity. 7. In September 1997, the $1.0 billion Preferred Equity Certificates issued in December 1995 by the Company's wholly-owned subsidiary, Merck Sharp & Dohme Overseas Finance S.A., were redeemed at par. The PECs were included in Minority interests in the consolidated financial statements prior to their redemption. - 4 - 6 Notes to Financial Statements (continued) 8. Sales consisted of:
($ in millions) --------------------------------------------------------- Three Months Nine Months Ended September 30 Ended September 30 ------------------------- ------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Elevated cholesterol $ 1,163.6 $ 1,039.6 $ 3,397.1 $ 2,856.8 Hypertension/heart failure 956.1 828.9 2,870.9 2,587.8 Anti-ulcerants 332.5 293.7 963.3 829.5 Antibiotics 188.6 199.0 578.9 612.3 Ophthalmologicals 188.3 176.5 548.6 498.0 Vaccines/biologicals 236.2 188.3 570.3 438.0 Benign prostatic hyperplasia 97.0 109.1 296.2 339.3 Osteoporosis 139.4 78.6 368.6 188.9 Animal health/crop protection 63.5 289.9 546.2 762.6 Other Merck product 170.4 37.5 318.3 65.9 Other human health 2,392.1 1,742.3 6,946.4 5,243.5 --------- --------- --------- --------- $ 5,927.7 $ 4,983.4 $17,404.8 $14,422.6 ========= ========= ========= =========
Sales by therapeutic class include Merck-Medco Managed Care (Merck-Medco) sales of Merck products. Other human health primarily includes Merck-Medco sales of non-Merck products and Merck-Medco human health services, principally managed prescription drug programs. 9. Other (income) expense, net, consisted of:
($ in millions) ------------------------------------------------ Three Months Nine Months Ended September 30 Ended September 30 -------------------- -------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Interest income $(57.5) $(47.5) $(162.8) $(156.9) Interest expense 33.9 36.2 89.8 103.5 Exchange gains 3.4 (7.1) (9.7) (20.2) Minority interests 40.6 35.0 113.2 106.9 Amortization of goodwill and other intangibles 48.5 50.0 144.6 144.2 Other, net 175.8 (11.4) 124.3 2.7 ------ ------ ------ ------ $244.7 $ 55.2 $299.4 $180.2 ====== ====== ====== ======
Minority interests include third parties' share of exchange gains and losses arising from translation of the financial statements into U.S. dollars. Interest paid for the nine-month periods ended September 30, 1997 and 1996 was $84.5 million and $98.6 million, respectively. Other, net includes $207.3 million of nonrecurring charges for the three and nine-month periods ended September 30, 1997 consisting of $127.3 million for loss on sale of assets, $50.0 million for an endowment of The Merck Company Foundation and a $30.0 million provision for environmental costs. 10. Income taxes paid for the nine-month periods ended September 30, 1997 and 1996 were $866.2 million and $772.9 million, respectively. 11. Legal proceedings to which the Company is a party are discussed in Part I Item 3, Legal Proceedings, in the Annual Report on Form 10-K. There were no material developments in the three-month period ended September 30, 1997. - 5 - 7 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION Earnings per share for the third quarter of 1997 were $0.99, an increase of 19% over the third quarter of 1996. Third quarter net income increased 19% to $1,197.2 million. Sales for the quarter were $5.9 billion, up 19% from the same period last year. For the first nine months of 1997, earnings per share were $2.79, an increase of 20% over the first nine months of 1996. Net income was $3,371.9 million for the first nine months of 1997, an increase of 19% over the first nine months of 1996. Sales rose 21% to $17.4 billion. Sales growth for the quarter and first nine months was affected by the divestiture of the crop protection business in July 1997 and the formation of the Merial joint venture in August 1997. Adjusting for these effects, sales for the third quarter and the first nine months increased 23% and 22%, respectively. Sales growth for the quarter and the first nine months of 1997 continued to be led by established major products, newer product introductions and the Merck-Medco Managed Care business. Both domestic and international operations reported strong unit volume gains. Foreign exchange reduced the third quarter sales growth by two percentage points compared to a one percentage point reduction in the second quarter of 1997. Excluding exchange and adjusting for the divestiture of the crop protection business and the formation of the Merial joint venture, sales of Merck human and animal health products increased 17% and 18% for the third quarter and the first nine months, respectively. Sales outside the United States accounted for 28% of the first nine months of 1997 sales, compared with 30% for the same period last year. Income growth for the first nine months was driven by strong unit volume gains. The unfavorable effects of inflation, net of price, and exchange were partially offset by cost controls and productivity improvements in manufacturing and selling, general and administrative expenses. The growth in pretax income for the third quarter and the first nine months was reduced by the Company's share of the increase in taxes related to the Astra Merck joint venture, the European vaccine joint venture with Pasteur Merieux Connaught and the newly formed Merial joint venture. The reduction in pretax growth, however, was offset by a corresponding reduction in the Company's tax rate in 1997, resulting in no effect on net income growth. Results for the first nine months were paced by sales volume gains of established major products, including 'Zocor', 'Vasotec', 'Vaseretic', 'Prinivil', 'Pepcid' and 'Recombivax HB', and by the newer product introductions, 'Crixivan', 'Cozaar'*, 'Hyzaar'*, 'Fosamax', 'Trusopt' and 'Varivax'. Significant prescription volume growth in the Merck-Medco Managed Care business also contributed to the sales increase for the first nine months. 'Zocor' continues its strong sales growth and maintains the leading share of new and total prescriptions worldwide among cholesterol-lowering medicines. It has become the world's largest-selling cholesterol-lowering medicine due to high physician awareness of the results of the landmark Scandinavian Simvastatin Survival Study (4S), which showed that 'Zocor' saves lives and prevents heart attacks in people with high cholesterol and coronary heart disease. 'Zocor' is now available on more than 90 percent of managed care formularies in the United States, reflecting its standing as the only therapy in the "statin" class with both the power to significantly reduce LDL cholesterol (so-called bad cholesterol) and proof that it helps save lives in people with high cholesterol and coronary heart disease. 'Mevacor' and 'Zocor' together hold more than a 40 percent market share worldwide. The cholesterol-lowering market continues to grow at a rate of more than 20 percent a year in major markets - driven primarily by growth of more than 30 percent annually in the "statin" category. Yet, even in the key U.S. market, only about one-third of patients with coronary heart disease and high cholesterol currently take cholesterol-lowering medicines. Merck's ACE inhibitors, 'Vasotec' and 'Prinivil', continue to be among the most widely prescribed branded angiotensin converting enzyme (ACE) inhibitors. Together they hold about 40 percent of the U.S. market for ACE inhibitors and are widely available on managed care formularies covering approximately 90 percent of people with prescription drug coverage. New and total prescription growth for 'Prinivil', which treats high blood pressure, heart failure and acute myocardial infarction, continues to outpace that of the competing lisinopril product. 'Vasotec' is the only ACE inhibitor indicated for the treatment of the following three conditions: high blood pressure, asymptomatic left ventricular dysfunction and heart failure. *'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and Company, Wilmington, DE, USA. - 6 - 8 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) U.S. prescription sales remain strong for 'Pepcid', an H(2)-receptor antagonist for the treatment of gastroesophageal reflux disease (GERD) and gastric and duodenal ulcers. 'Pepcid AC' Acid Controller, sold by Johnson & Johnson - Merck Consumer Pharmaceuticals Co., continues to lead the growing and highly competitive U.S. over-the-counter acid indigestion market. It is the number one pharmacist-recommended remedy for heartburn, according to a survey commissioned by the American Pharmaceutical Association. Merck vaccines continue to show strong performance, led by 'Recombivax HB' for hepatitis B infection, the first genetically engineered vaccine, and 'Varivax', the first and only chickenpox vaccine available in the United States. Contributing to growth of 'Recombivax HB' are increased public awareness of hepatitis B, legislation in some states requiring hepatitis B immunization for school entry, and the December 1996 publication by the Centers for Disease Control and Prevention recommending hepatitis B immunization for adolescents. 'Crixivan', Merck's protease inhibitor for the treatment of HIV infection in adults, remains the world's most widely prescribed protease inhibitor. It has been cleared for marketing in more than 60 countries. 'Crixivan' now holds about one-half of the U.S. market. Research presented in September showed that most patients taking 'Crixivan' in triple therapy continued to have HIV suppressed to below detection for almost two years. Preliminary results from another study showed that 'Crixivan' in triple therapy taken in a more convenient, twice-a-day regimen produced reductions in viral load comparable to the reductions seen with triple therapy taken three times a day. Other studies evaluating the investigational twice-daily regimen for 'Crixivan' (1200 mg.) are underway. Physicians continue to adopt 'Cozaar' and 'Hyzaar' (a combination of 'Cozaar' and the diuretic hydrochlorothiazide) faster than any new antihypertensive product launched in this decade. The products are now marketed in 71 countries. 'Cozaar' and 'Hyzaar', the first in a new class of antihypertensive drugs called angiotensin-II (A-II) receptor antagonists, are highly efficacious and are exceptionally well tolerated. 'Cozaar' and 'Hyzaar' were developed in collaboration with the DuPont Merck Pharmaceutical Company. New research continues to show the importance of 'Fosamax' in treating and preventing postmenopausal osteoporosis and fractures due to the bone-thinning disease. New information from the second arm of the Fracture Intervention Trial (FIT) shows that 'Fosamax' 10 mg. cut by almost one-half the risk of a first spinal fracture in women with thin bones. Women who suffer a first spinal fracture are at double the risk for hip fracture and at quadruple the risk for spinal fractures during their lifetimes. Results of the study are applicable to 15 to 20 million postmenopausal women in the United States alone. Analyses released in September from the first arm of FIT show that postmenopausal women with previous spinal fractures who are treated with 'Fosamax' 10 mg. were 20 percent less likely to be hospitalized and that the medicine reduced by one-half the number of days spent in bed due to pain. Data from the 34-country 'Fosamax' International Trial (FOSIT) released in September show that the medicine reduced non-spinal fractures by one-half in a year among women in a general community population. This is a significant development because it means that women and physicians see the positive effects of treatment in a relatively short time. Sales of 'Trusopt', the first carbonic anhydrase inhibitor made in a topical (eyedrop) formulation, continue to grow since it was first introduced. 'Trusopt' continues to be one of the most widely prescribed anti-glaucoma medicines in the United States and in several countries in Europe. The product is indicated for the treatment of elevated intraocular pressure in patients with ocular hypertension or open-angle glaucoma. 'Singulair', Merck's new once-a-day tablet for controlling chronic asthma in adults and children age 6 and older, received marketing approval in Mexico and Finland. An application for U.S. marketing clearance is under review by the U.S. Food and Drug Administration. Other regulatory approvals are pending worldwide. Studies show that 'Singulair' significantly improved symptoms and respiratory function, reduced the need for other asthma medicines and lessened the frequency of asthma attacks. Asthma affects an estimated 5 percent of the adult population and 10 percent of children in industrialized nations. - 7 - 9 MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued) In February, the Financial Accounting Standards Board issued Statement No.128, Earnings per Share, which requires adoption in 1997. This Statement generally requires the presentation of basic and diluted earnings per share on the face of the statement of income. The amount of basic earnings per share will not differ from earnings per share currently reported on the face of the statement of income and diluted earnings per share will not be materially different. In October 1997, the Company filed a shelf registration with the Securities and Exchange Commission under which the Company could issue up to $1.5 billion of debt securities. Proceeds from the sale of these securities are to be used for general corporate purposes. The remaining capacity under the current and previous shelf registrations is $1.7 billion. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report and other written reports and oral statements made from time to time by Merck may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "expects," "plans," "will," "estimates," "forecasts," "projects" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address Merck's growth strategy, financial results, product approvals and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These include inaccurate assumptions and a broad variety of risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. The Company does not assume the obligation to update any forward-looking statement. One should carefully evaluate such statements in light of factors described in the Company's filings with the Securities and Exchange Commission, especially on Forms 10-K, 10-Q and 8-K (if any). In Exhibit 99 to this Form 10-Q filing, the Company discusses various important factors that could cause actual results to differ from expected or historic results. The Company notes these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. One should understand that it is not possible to predict or identify all such factors. Consequently, the reader should not consider any such list to be a complete statement of all potential risks or uncertainties. - 8 - 10 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Number Description Method of Filing ------ ----------- ---------------- 3(a) Restated Certificate of Incorporation of Incorporated by reference to Form Merck & Co., Inc. (May 6, 1992) 10-K Annual Report for the fiscal year ended December 31, 1992 3(b) By-Laws of Merck & Co., Inc. (as amended Incorporated by reference to Form effective February 25, 1997) 10-Q Quarterly Report for the period ended March 31, 1997 11 Computation of Earnings Per Common Share Filed with this document 12 Computation of Ratios of Earnings to Filed with this document Fixed Charges 27 Financial Data Schedule Filed with this document 99 Cautionary Statement under Private Securities Filed with this document Litigation Reform Act of 1995 - "Safe Harbor" for Forward-Looking Statements
(b) Reports on Form 8-K During the three-month period ending September 30, 1997, no current reports on Form 8-K were filed. - 9 - 11 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MERCK & CO., INC. Date: November 11, 1997 /s/ Mary M. McDonald -------------------- MARY M. MCDONALD Senior Vice President and General Counsel Date: November 11, 1997 /s/ Peter E. Nugent ------------------- PETER E. NUGENT Vice President, Controller - 10 - 12 EXHIBIT INDEX Exhibits Number Description 3(a) Restated Certificate of Incorporation of Merck & Co., Inc. (May 6, 1992) - Incorporated by reference to Form 10-K Annual Report for the fiscal year ended December 31, 1992 3(b) By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997) - Incorporated by reference to Form 10-Q Quarterly Report for the period ended March 31, 1997 11 Computation of Earnings Per Common Share 12 Computation of Ratios of Earnings to Fixed Charges 27 Financial Data Schedule 99 Cautionary Statement under Private Securities Litigation Reform Act of 1995 - "Safe Harbor" for Forward-Looking Statements EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE 1 Exhibit 11 MERCK & CO., INC. AND SUBSIDIARIES Computation of Earnings Per Common Share (In millions except per share amounts)
Three Months Nine Months Ended September 30 Ended September 30 ------------------------- ------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Net Income and Adjusted Earnings: Net Income ............................................... $ 1,197.2 $ 1,001.9 $ 3,371.9 $ 2,837.8 Effect on Earnings of Compensation Expense Relating to Stock Option and Incentive Plans ....................... 3.2 5.4 9.7 9.6 --------- --------- --------- --------- Adjusted Earnings for Fully Diluted Earnings Per Share ... $ 1,200.4 $ 1,007.3 $ 3,381.6 $ 2,847.4 ========= ========= ========= ========= Weighted Average Shares and Share Equivalents Outstanding: Weighted Average Shares Outstanding (As Reported) ........ 1,205.8 1,205.6 1,207.3 1,215.8 Common Share Equivalents Issuable Under Stock Option and Incentive Plans ........................................ 29.8 29.7 29.8 29.7 Common Share Equivalents Issuable on Assumed Conversion of Debentures ............................................. .1 .3 .1 .3 --------- --------- --------- --------- Weighted Average Shares and Share Equivalents Outstanding............................................. 1,235.7 1,235.6 1,237.2 1,245.8 ========= ========= ========= ========= Earnings Per Share (As Reported) ......................... $ .99 $ .83 $ 2.79 $ 2.33 ========= ========= ========= ========= Fully Diluted Earnings Per Share (a) ..................... $ .97 $ .82 $ 2.73 $ 2.29 ========= ========= ========= =========
(a) 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 3 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES 1 Exhibit 12 MERCK & CO., INC. AND SUBSIDIARIES Computation Of Ratios Of Earnings To Fixed Charges (In millions except ratio data)
Nine Months Ended Years Ended December 31 September 30 -------------------------------------------------------------------- 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- Income Before Taxes and Cumulative Effect of Accounting Changes ... $4,790.6 $5,540.8 $4,797.2 $4,415.2 $3,102.7 $3,563.6 Add: One-third of rents ...... 32.3 41.0 28.1 36.0 35.0 34.0 Interest expense, net ... 67.6 103.2 60.3 96.0 48.0 23.6 Preferred stock dividends 49.1 70.0 2.1 -- -- -- -------- -------- -------- -------- -------- -------- Earnings ............... $4,939.6 $5,755.0 $4,887.7 $4,547.2 $3,185.7 $3,621.2 ======== ======== ======== ======== ======== ======== Fixed Charges One-third of rents ...... $ 32.3 $ 41.0 $ 28.1 $ 36.0 $ 35.0 $ 34.0 Interest expense ........ 89.8 138.6 98.7 124.4 84.7 72.7 Preferred stock dividends.............. 49.1 70.0 2.1 -- -- -- -------- -------- -------- -------- -------- -------- Fixed Charges .......... $ 171.2 $ 249.6 $ 128.9 $ 160.4 $ 119.7 $ 106.7 ======== ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges ........ 29 23 38 28 27 34 ======== ======== ======== ======== ======== ========
For purposes of computing these ratios, "earnings" consist of income before taxes, cumulative effect of accounting changes, one-third of rents (deemed by the Company to be representative of the interest factor inherent in rents), interest expense, net of amounts capitalized, and dividends on preferred stock of subsidiary companies. "Fixed charges" consist of one-third of rents, interest expense as reported in the Company's consolidated financial statements and dividends on preferred stock of subsidiary companies. EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-31-1997 SEP-30-1997 1,282 885 2,966 0 2,227 8,210 9,485 (3,189) 25,898 5,335 1,690 0 0 5,199 7,635 25,898 17,405 17,405 8,722 8,722 1,190 0 90 4,791 1,419 3,372 0 0 0 3,372 2.79 2.73 NOT MATERIAL TO THE CONSOLIDATED FINANCIAL STATEMENTS
EX-99 5 CAUTIONARY STATEMENT 1 Exhibit 99 CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR FORWARD-LOOKING STATEMENTS This report and other written reports and oral statements made from time to time by Merck may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "expects," "plans," "will," "estimates," "forecasts," "projects" and other words of similar meaning. One can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address Merck's growth strategy, financial results, product approvals and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from the Company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Although it is not possible to predict or identify all such factors, they may include the following: - - Competitive factors, including generic competition as patents on key products such as 'Vasotec', 'Mevacor' and 'Pepcid' expire, as well as technological advances and patents obtained by competitors. - - Increased "brand" competition in therapeutic areas important to Merck's long-term business performance. - - Pricing pressures, both in the United States and abroad, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement and pricing in general. - - The difficulties and uncertainties inherent in new product development. The outcome of the lengthy and complex process of new product development is inherently uncertain. A candidate can fail at any stage of the process and one or more late-stage product candidates could fail to receive regulatory approval. New product candidates may appear promising in development but fail to reach the market because of efficacy or safety concerns, the inability to obtain necessary regulatory approvals, the difficulty or excessive cost to manufacture and/or the infringement of patents or intellectual property rights of others. - - Efficacy or safety concerns with respect to marketed products, whether or not scientifically justified, leading to product recalls, withdrawals or declining sales. - - Legal factors, including product liability claims, antitrust litigation, environmental concerns and patent disputes with competitors, any of which could preclude commercialization of products or negatively affect the profitability of existing products. - - Lost market opportunity resulting from delays and uncertainties in the approval process of the United States Food and Drug Administration and foreign regulatory authorities. - - Difficulties in obtaining adequate levels of product liability insurance. 2 - - Changes in tax laws including changes related to the taxation of foreign earnings, as well as the impact of legislation capping and ultimately repealing Section 936 of the Internal Revenue Code (relating to earnings from the Company's Puerto Rican operations). - - Changes in accounting standards promulgated by the American Institute of Certified Public Accountants, the Financial Accounting Standards Board or the Securities and Exchange Commission that are adverse to Merck. - - Economic factors over which Merck has no control, including changes in inflation, interest rates and foreign currency exchange rates. This list should not be considered an exhaustive statement of all potential risks, uncertainties and inaccurate assumptions. -----END PRIVACY-ENHANCED MESSAGE-----