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 March 31, 2002
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
April 30, 2002:
Class Number of Shares Outstanding
Common Stock 2,265,172,007
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 [ ]
Part I - Financial Information
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(Unaudited, $ in millions except per share amounts)
Three Months
Ended March 31
---------------------------
2002 2001
---------- ----------
Sales $ 12,169.3 $ 11,345.1
---------- ----------
Costs, Expenses and Other
Materials and production 7,980.7 7,046.5
Marketing and administrative 1,464.8 1,506.2
Research and development 530.3 547.4
Equity income from affiliates (171.8) (178.6)
Other (income) expense, net 43.8 56.1
---------- ----------
9,847.8 8,977.6
---------- ----------
Income Before Taxes 2,321.5 2,367.5
Taxes on Income 696.5 710.2
---------- ----------
Net Income $ 1,625.0 $ 1,657.3
========== ==========
Basic Earnings per Common Share $ .72 $ .72
Earnings per Common Share Assuming Dilution $ .71 $ .71
Dividends Declared per Common Share $ .35 $ .34
The accompanying notes are an integral part of this
consolidated financial statement.
-1-
MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002 AND DECEMBER 31, 2001
------------------------------------
(Unaudited, $ in millions)
March 31 December 31
2002 2001
--------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 2,943.1 $ 2,144.0
Short-term investments 1,563.0 1,142.6
Accounts receivable 5,565.4 5,215.4
Inventories 3,116.4 3,579.3
Prepaid expenses and taxes 836.1 880.3
--------- ---------
Total current assets 14,024.0 12,961.6
--------- ---------
Investments 7,075.8 6,983.5
Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$6,063.5 in 2002 and $5,853.1 in 2001 13,249.7 13,103.4
Goodwill 4,127.0 4,127.0
Other Intangibles, net 3,301.6 3,364.0
Other Assets 3,696.6 3,481.7
--------- ---------
$45,474.7 $44,021.2
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 4,908.4 $ 5,108.4
Loans payable and current portion of long-term debt 5,145.5 4,066.7
Income taxes payable 1,778.5 1,573.3
Dividends payable 795.0 795.8
--------- ---------
Total current liabilities 12,627.4 11,544.2
--------- ---------
Long-Term Debt 4,790.1 4,798.6
--------- ---------
Deferred Income Taxes and Noncurrent Liabilities 6,760.2 6,790.8
--------- ---------
Minority Interests 4,851.0 4,837.5
--------- ---------
Stockholders' Equity
Common stock
Authorized - 5,400,000,000 shares
Issued - 2,976,155,713 shares - March 31, 2002
- 2,976,129,820 shares - December 31, 2001 29.8 29.8
Other paid-in capital 6,898.9 6,907.2
Retained earnings 32,319.7 31,489.6
Accumulated other comprehensive (loss) income (54.9) 10.6
--------- ---------
39,193.5 38,437.2
Less treasury stock, at cost
707,543,357 shares - March 31, 2002
703,400,499 shares - December 31, 2001 22,747.5 22,387.1
--------- ---------
Total stockholders' equity 16,446.0 16,050.1
--------- ---------
$45,474.7 $44,021.2
========= =========
The accompanying notes are an integral part of this
consolidated financial statement.
-2-
MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
------------------------------------------
(Unaudited, $ in millions)
Three Months
Ended March 31
-----------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income before taxes $2,321.5 $2,367.5
Adjustments to reconcile income before taxes to cash provided from
operations before taxes:
Depreciation and amortization 362.1 360.2
Other (121.8) (170.8)
Net changes in assets and liabilities (299.9) 118.6
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES BEFORE TAXES 2,261.9 2,675.5
INCOME TAXES PAID (291.3) (502.3)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,970.6 2,173.2
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (461.8) (632.8)
Purchase of securities, subsidiaries and other investments (5,637.2) (8,227.2)
Proceeds from sale of securities, subsidiaries and other investments 5,040.6 7,732.5
Other 1.1 (30.6)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (1,057.3) (1,158.1)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in short-term borrowings (1,421.5) (22.7)
Proceeds from issuance of debt 2,500.0 526.0
Payments on debt (1.5) (4.0)
Purchase of treasury stock (489.2) (1,018.7)
Dividends paid to stockholders (795.7) (784.7)
Other 95.0 (28.0)
-------- --------
NET CASH USED BY FINANCING ACTIVITIES (112.9) (1,332.1)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (1.3) (61.3)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 799.1 (378.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,144.0 2,536.8
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,943.1 $2,158.5
======== ========
The accompanying notes are an integral part of this
consolidated financial statement.
Notes to Consolidated Financial Statements
1. The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and disclosures required by
accounting principles generally accepted in the United States for complete
consolidated financial statements are not included herein. The interim
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K.
The results of operations of any interim period are not necessarily
indicative of the results of operations for the full year. In the Company's
opinion, all adjustments necessary for a fair presentation of these interim
statements have been included and are of a normal and recurring nature.
Certain reclassifications have been made to prior year amounts to
conform with current year presentation.
-3-
Notes to Consolidated Financial Statements (continued)
2. Inventories consisted of:
($ in millions)
------------------------
March 31 December 31
2002 2001
-------- -----------
Finished goods $1,884.5 $2,155.7
Raw materials and work in process 1,163.3 1,340.7
Supplies 68.6 82.9
-------- --------
Total (approximates current cost) 3,116.4 3,579.3
Reduction to LIFO cost -- --
-------- --------
$3,116.4 $3,579.3
======== ========
3. Effective January 1, 2002, the Company adopted the provisions of Statement
No. 142, Goodwill and Other Intangible Assets (SFAS 142), which addresses
the recognition and measurement of goodwill and other intangible assets
subsequent to a business combination.
Goodwill
In accordance with SFAS 142, goodwill associated with acquisitions
subsequent to June 30, 2001 was not amortized. Effective January 1, 2002,
goodwill existing at June 30, 2001 was not amortized, but rather assigned
to reporting units within the Company's segments and evaluated for
impairment on at least an annual basis using a fair value based test. Had
amortization expense for goodwill not been recorded for the three months
ended March 31, 2001, reported net income would have increased $33.2
million ($.01 for both basic earnings per common share and earnings per
common share assuming dilution). For transition purposes, the Company has
identified the appropriate reporting units as defined by the new guidance
and is currently assessing their fair value.
Other Intangibles
Aggregate amortization expense for the three months ended March 31, 2002
and 2001 totaled $62.4 million and $58.3 million, respectively. The
estimated aggregate annual amortization expense for each of the next five
years is as follows: 2002, $248.0 million; 2003, $245.0 million; 2004,
$240.0 million; 2005, $211.0 million; and 2006, $190.0 million. Other
intangibles consisted of:
($ in millions)
---------------------------
March 31 December 31
2002 2001
---------- -----------
Customer relationships $ 3,172.2 $ 3,172.2
Patents and product rights 1,355.2 1,355.2
Other 122.9 122.9
---------- -----------
Total acquired cost $ 4,650.3 $ 4,650.3
========== ===========
Customer relationships $ 693.7 $ 672.5
Patents and product rights 583.0 545.8
Other 72.0 68.0
---------- -----------
Total accumulated amortization $ 1,348.7 $ 1,286.3
========== ===========
4. The Company, along with numerous other defendants, is a party in several
antitrust actions brought by retail pharmacies and consumers, alleging
conspiracies in restraint of trade and challenging pricing and/or
purchasing practices, one of which has been certified as a federal class
action and a number of which have been certified as state class actions. In
1996, the Company and several other defendants finalized an agreement to
settle the federal class action alleging conspiracy, which represents the
single largest group of retail pharmacy claims. Since that time, the
Company has entered into other settlements on satisfactory terms. In
October 2001, the Judicial Panel on Multi-District Litigation (Panel)
determined that consolidated pretrial proceedings in federal district court
in Chicago were substantially completed. The Panel ordered that all of the
federal antitrust conspiracy cases, several of which have not been settled
by the Company, be returned to the federal district courts in which each
case was originally filed. The cases have now been returned to those courts
for further proceedings. The Company has not engaged in any conspiracy, and
no admission of wrongdoing was made nor was included in any settlement
agreements. While it is not feasible to predict or determine the final
outcome of the remaining 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.
-4-
Notes to Consolidated Financial Statements (continued)
5. Sales consisted of:
($ in millions)
-------------------------
Three Months
Ended March 31
-------------------------
2002 2001
--------- ---------
Atherosclerosis $ 1,670.6 $ 1,662.7
Hypertension/heart failure 985.4 1,017.5
Anti-inflammatory/analgesics 667.3 506.6
Osteoporosis 560.9 349.2
Respiratory 468.1 297.7
Anti-bacterial/anti-fungal 174.9 193.3
Vaccines/biologicals 156.9 238.7
Ophthalmologicals 137.8 162.9
Human immunodeficiency virus (HIV) 71.7 123.7
Anti-ulcerants 16.8 186.9
Other (46.6) 223.5
Merck-Medco 7,305.5 6,382.4
--------- ---------
$12,169.3 $11,345.1
========= =========
Other includes rebates and discounts on Merck pharmaceutical products,
sales of other human pharmaceuticals, continuing sales to divested
businesses and pharmaceutical and animal health supply sales to the
Company's joint ventures and AstraZeneca LP.
6. Other (income) expense, net, consisted of:
($ in millions)
---------------------
Three Months
Ended March 31
---------------------
2002 2001
------- -------
Interest income $ (98.4) $(136.1)
Interest expense 95.3 110.7
Exchange gains (2.7) (12.6)
Minority interests 50.7 85.2
Amortization of goodwill and other intangibles 51.4 80.6
Other, net (52.5) (71.7)
------- -------
$ 43.8 $ 56.1
======= =======
Minority interests include third parties' share of exchange gains and
losses arising from translation of the financial statements into U.S.
dollars.
Decreased amortization of goodwill and other intangibles for the period
ended March 31, 2002 reflects the adoption of SFAS 142. (See Note 3 for
further information.)
Interest paid for the three-month periods ended March 31, 2002 and 2001 was
$101.7 million and $128.9 million, respectively.
7. Income taxes paid for the three-month periods ended March 31, 2002 and 2001
were $291.3 million and $502.3 million, respectively.
8. The weighted average common shares used in the computations of basic
earnings per common share and earnings per common share assuming dilution
(shares in millions) are as follows:
Three Months
Ended March 31
-------------------
2002 2001
-------- --------
Average common shares outstanding 2,271.3 2,303.7
Common shares issuable(1) 23.5 42.2
-------- --------
Average common shares outstanding assuming dilution 2,294.8 2,345.9
======== ========
(1) Issuable primarily under stock option plans.
-5-
Notes to Consolidated Financial Statements (continued)
9. Comprehensive income for the three months ended March 31, 2002 and 2001,
representing all changes in stockholders' equity during the period other
than changes resulting from the Company's stock, was $1,559.5 million and
$1,733.5 million, respectively.
10. The Company's operations are principally managed on a products and services
basis and are comprised of two reportable segments: Merck Pharmaceutical,
which includes products marketed either directly or through joint ventures,
and Merck-Medco. Merck Pharmaceutical products consist of therapeutic and
preventive agents, sold by prescription, for the treatment of human
disorders. Merck-Medco revenues are derived from the filling and management
of prescriptions and health management programs. All Other includes
non-reportable human and animal health segments. Revenues and profits for
these segments are as follows:
($ in millions)
--------------------------
Three Months
Ended March 31
--------------------------
2002 2001
---------- ----------
Segment revenues:
Merck Pharmaceutical $ 4,608.1 $ 4,560.1
Merck-Medco 8,189.0 7,212.1
All Other 211.8 302.3
---------- ----------
$ 13,008.9 $ 12,074.5
========== ==========
Segment profits:
Merck Pharmaceutical $ 2,969.1 $ 2,854.5
Merck-Medco 132.7 142.0
All Other 178.2 228.4
---------- ----------
$ 3,280.0 $ 3,224.9
========== ==========
Segment profits are comprised of segment revenues less certain elements of
materials and production costs and operating expenses, including components
of equity income (loss) from affiliates and depreciation and amortization
expenses. The Company does not internally allocate the vast majority of
indirect production costs, research and development expenses and general
and administrative expenses, all predominantly related to the Merck
pharmaceutical business, as well as the cost of financing these activities.
Separate divisions maintain responsibility for monitoring and managing
these costs, including depreciation related to fixed assets utilized by
these divisions and, therefore, they are not included in segment profits.
The vast majority of goodwill amortization in 2001, as well as other
intangibles amortization, predominantly related to the Merck-Medco
business, as well as the cost of financing capital employed, also are not
allocated internally and, therefore, are not included in segment profits.
A reconciliation of total segment profits to consolidated income before
taxes is as follows:
($ in millions)
-----------------------
Three Months
Ended March 31
-----------------------
2002 2001
-------- --------
Segment profits $3,280.0 $3,224.9
Other profits 27.5 72.3
Adjustments 80.4 73.0
Unallocated:
Interest income 98.4 136.1
Interest expense (95.3) (110.7)
Equity income (loss) from affiliates 70.2 68.3
Depreciation and amortization (285.5) (285.4)
Research and development (530.3) (547.4)
Other expenses, net (323.9) (263.6)
-------- --------
$2,321.5 $2,367.5
======== ========
-6-
Notes to Consolidated Financial Statements (continued)
Other profits are primarily comprised of miscellaneous corporate profits as
well as operating profits related to divested products or businesses and
other supply sales. Adjustments represent the elimination of the effect of
double counting certain items of income and expense. Equity income (loss)
from affiliates includes taxes paid at the joint venture level and a
portion of equity income that is not reported in segment profits. Other
expenses, net, include expenses from corporate and manufacturing cost
centers and other miscellaneous income (expense), net.
11. Legal proceedings to which the Company is a party are discussed in Part I
Item 3, Legal Proceedings, in the 2001 Annual Report on Form 10-K. There
were no material developments in the three month period ended March 31,
2002.
-7-
MANAGEMENT`S ANALYSIS OF INTERIM FINANCIAL INFORMATION
Earnings per share for the first quarter of 2002 were $0.71, in line with the
first quarter of 2001. Net income was $1,625.0 million, compared to $1,657.3
million in the first quarter of last year. Sales were $12.2 billion for the
quarter, an increase of 7% compared to the same period last year.
Merck's five key growth drivers - 'Zocor', 'Vioxx', 'Cozaar' and 'Hyzaar'*,
'Fosamax' and 'Singulair' - collectively had increased sales of 23% for the
quarter and drove Merck's human health sales performance. Overall, Merck's human
health sales decreased 2% for the first quarter of 2002. Excluding the
unfavorable effect from foreign exchange, the Company's human health sales grew
by 2% for the first quarter. Sales outside of the United States accounted for
36% of the Company's first-quarter human health sales. The Company's overall
sales growth also benefited from the Merck-Medco business, which increased 14%
for the quarter.
Marketing and administrative expenses for the first-quarter 2002 decreased 3%
compared to the first quarter of 2001. Marketing and administrative expenses
reflect continued investment behind the growth drivers, support for new product
introductions and the success of Merck's accelerated operational-efficiency
initiatives focused on the fundamental redesign of work processes to permanently
reduce the Company's overall cost structure.
'Zocor', Merck's cholesterol-modifying medicine, had another strong quarter with
worldwide sales reaching $1.6 billion. 'Zocor' remains a therapy of choice for
many physicians as additional studies have confirmed the ability of 'Zocor' to
act favorably on all three key lipid parameters - low density lipoprotein (LDL),
so-called "bad" cholesterol; high-density lipoprotein (HDL), so-called "good"
cholesterol; and triglycerides. Consequently, 'Zocor' is the fastest-growing
cholesterol-modifying medicine in the United States and remains Merck's
largest-selling medicine. Results from the Heart Protection Study (HPS),
presented at the American College of Cardiology meeting in March, showed that
'Zocor' 40mg was proven to save lives by reducing the risk of heart attack and
stroke for patients with or at risk of heart disease. This HPS finding also was
seen in several distinct subgroups with or at high risk of heart disease and
with and without elevated cholesterol, including diabetes patients, stroke
victims, the elderly and women. The Company plans to file the results of the HPS
with the U.S. Food and Drug Administration (FDA) this year. The FDA also
recently granted the medicine six additional months of marketing exclusivity
based on the completion of studies designed to assess the efficacy of 'Zocor' in
children.
'Vioxx', the Company's second-largest selling medicine, continues to gain
acceptance among physicians and patients worldwide. Global sales for the quarter
were $650 million. In April 2002, Merck announced that the FDA has approved
changes to the prescribing information for 'Vioxx', under the gastrointestinal
(GI) warning section, to include results from the landmark 'Vioxx'
Gastrointestinal Outcomes Research (VIGOR) study. The FDA also approved 'Vioxx'
25 mg for the relief of the signs and symptoms of rheumatoid arthritis in
adults. 'Vioxx' is now the first and only medicine that selectively inhibits the
COX-2 enzyme that is proven to reduce the risk of developing clinically
important GI side effects in patients with or without risk factors for such GI
side effects compared to the non-steroidal anti-inflammatory drug (NSAID)
naproxen. In this study, the number of patients with serious cardiovascular
thrombotic events in the group treated with 'Vioxx' 50 mg was higher than in the
group taking naproxen. In a placebo-controlled database derived from two other
studies, the number of patients with serious cardiovascular thrombotic events
among those receiving 'Vioxx' 25 mg was 21 compared to 35 for patients taking
placebo. In these same two placebo-controlled studies, mortality due to
cardiovascular thrombotic events was eight versus three for 'Vioxx' versus
placebo, respectively. These data also are reflected in the prescribing
information. The significance of the cardiovascular findings from these three
studies (VIGOR and the placebo-controlled studies) is unknown.
In addition, new data presented at the American Academy of Pain Management
meeting in the first quarter showed a single dose of 'Vioxx' 50 mg provided
superior pain relief over six hours compared to the narcotic oxycodone
5mg/acetaminophen 325 mg in patients with moderate to severe pain following
dental surgery. 'Vioxx' remains the only medicine that selectively inhibits
COX-2 to offer once-daily 24-hour relief for osteoarthritis, rheumatoid
arthritis and acute pain.
'Cozaar' and 'Hyzaar', Merck's high-blood pressure medicines, together are the
No. 1 angiotensin II antagonists (AIIAs) worldwide. For the quarter, sales for
the two products reached $460 million. In the Losartan Intervention for Endpoint
Reduction in Hypertension (LIFE) study, presented at the American College of
Cardiology meeting in March 2002, 'Cozaar' significantly reduced the combined
risk of cardiovascular death, heart attack and stroke as compared to atenolol, a
beta blocker, in the treatment of hypertensive patients with left ventricular
hypertrophy, a common side effect of hypertension. In the diabetes subgroup
analysis of LIFE, 'Cozaar' significantly reduced the combined risk of
cardiovascular morbidity and mortality versus atenolol. A sub-analysis of the
treatment effect by ethnicity suggested that black patients treated with
atenolol were at lower risk of experiencing the combined endpoint of
cardiovascular death, heart attack and stroke compared to patients treated with
'Cozaar', even though both drugs lowered blood pressure to a similar degree.
*'Cozaar' and 'Hyzaar' are registered trademarks of E.I. du Pont de Nemours and
Company, Wilmington, DE, USA.
-8-
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
On April 12, 2002, the Cardio-Renal Advisory Committee of the FDA recommended
that the FDA approve 'Cozaar' to delay the progression of renal disease in
patients with Type 2 diabetes with proteinuria. The Advisory Committee's
recommendation, which is not binding on the FDA, was based largely on a review
of data from the Reduction of Endpoints in Non-Insulin Dependent Diabetes
Mellitus (RENAAL) study. The Advisory Committee also considered, in support of
its recommendation, data from a study conducted by another company of its
angiotensin II antagonists in patients with Type 2 diabetes and nephropathy. The
FDA also recently granted the medicine six additional months of marketing
exclusivity based on the completion of studies designed to assess the efficacy
of 'Cozaar' in children.
Global sales of 'Fosamax', the leading product worldwide for the treatment of
postmenopausal, male and glucocorticoid-induced osteoporosis, were $560 million
the first quarter of 2002. Significant market potential remains for this
medicine. Of the more than 50 million postmenopausal women with osteoporosis
worldwide, less than 25% are currently diagnosed and treated. 'Fosamax' Once
Weekly, the first and only oral once-weekly treatment for osteoporosis, has been
launched in more than 40 markets worldwide.
'Singulair', Merck's once-a-day leukotriene antagonist, remains the No. 1
prescribed asthma controller in the United States. Merck has submitted an
application for FDA approval for use of 'Singulair' in allergic rhinitis, which
affects more than 60 million people in the United States alone each year. Global
sales for 'Singulair' this quarter were $470 million. The FDA also recently
granted the medicine six additional months of marketing exclusivity based on the
completion of studies designed to assess the efficacy of 'Singulair' in
children.
In addition to the fact that each of these medicines compete in large,
under-served markets, the recent results of outcomes studies, such as HPS, LIFE,
RENAAL and VIGOR, demonstrate the value of the Company's medicines in the
marketplace and provide a powerful incentive for acceptance by healthcare
providers.
Another of Merck's products, 'Cancidas', received an approvable letter last
month from the FDA to treat esophageal candidiasis, an oral-fungal infection.
'Cancidas', the first in a new class of antifungals called echinocandins, was
approved in January 2001 for the treatment of invasive aspergillosis, a
life-threatening fungal infection.
In March 2002, Merck announced plans to submit an expanded New Drug Application
(NDA) for 'Arcoxia' (etoricoxib) to the FDA to include new efficacy data for
ankylosing spondylitis that will better position the product to compete
successfully in the coxib class, where there already are three entrants.
Accordingly, Merck announced the withdrawal of the original U.S. NDA for the
investigational medicine. Merck believes the new data, along with the data
previously submitted, will provide a fuller picture of the product's efficacy
and safety and will position it more favorably for approval in the United
States.
The worldwide regulatory process for 'Arcoxia' continues uninterrupted.
'Arcoxia' has received approval in the United Kingdom with once-daily dosing for
a range of conditions, including osteoarthritis, rheumatoid arthritis, acute
gouty arthritis, acute pain associated with dental surgery, primary dysmenorrhea
and chronic musculoskeletal pain, including chronic low back pain. The United
Kingdom is the first country in Europe to approve 'Arcoxia', which has been
launched to the United Kingdom medical community. 'Arcoxia' also has been
approved with similar indications in Mexico, Brazil and Peru.
On February 26, 2002, the Board of Directors declared a quarterly dividend of 35
cents per share on the Company's common stock, which was paid April 1 to
stockholders of record at the close of business on March 8. The Company's total
dividend paid to date in 2002 is 70 cents per share, a three percent increase
over the amount paid during the same period in 2001.
In March 2002, the Company issued $2.5 billion of commercial paper (CP). The
proceeds from these borrowings were used to repay maturing shorter-dated CP and
for other corporate purposes.
-9-
MANAGEMENT'S ANALYSIS OF INTERIM FINANCIAL INFORMATION (continued)
On April 17, 2002, Merck announced the filing of a registration statement with
the Securities and Exchange Commission for an initial public offering of a
portion of the common stock shares of its wholly owned subsidiary, Merck-Medco.
Upon completion of the offering, Merck will continue to own at least 80.1% of
MedcoHealth Solutions' common stock. Merck subsequently intends to divest itself
of the remaining equity interest in MedcoHealth Solutions in a transaction
intended to be tax-free to Merck and Merck's U.S. shareholders. The distribution
is expected to occur within 12 months of the initial public offering, subject to
Merck's receipt of a favorable tax ruling from the Internal Revenue Service that
its distribution of its shares of MedcoHealth Solutions common stock to Merck
shareholders qualifies as a tax-free distribution under the Internal Revenue
Code and will be tax-free to Merck and its U.S. shareholders. The distribution
will also be subject to other closing conditions. The following supplemental
information for the Merck pharmaceutical business includes the necessary
adjustments relating to transactions between Merck and Merck-Medco to put Merck
on a stand-alone basis. Accordingly, the stand-alone financial results of Merck
(excluding Merck-Medco) and Merck-Medco, when combined, are not reflective of
Merck's consolidated financial results.
($ in millions)
--------------------------
Three Months
Ended March 31
--------------------------
2002 2001
---------- -----------
Sales $ 4,802.4 $ 4,895.9
Income Before Taxes 2,213.1 2,279.7
Net Income 1,558.0 1,616.3
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and oral statements made from time to time
by the Company may contain so-called "forward-looking statements," all of which
are subject to risks and uncertainties. One can identify these forward-looking
statements by their use of words such as "expects," "plans," "will,"
"estimates," "forecasts," "projects" and other words of similar meaning. One can
identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address the Company's growth
strategy, financial results, product approvals and development programs. One
must carefully consider any such statement and should understand that many
factors could cause actual results to differ from the Company's forward-looking
statements. These factors include inaccurate assumptions and a broad variety of
other risks and uncertainties, including some that are known and some that are
not. No forward-looking statement can be guaranteed and actual future results
may vary materially.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, as filed on
March 21, 2002, the Company discusses in more detail various important factors
that could cause actual results to differ from expected or historic results. The
Company notes these factors for investors as permitted by the Private Securities
Litigation Reform Act of 1995. One should understand that it is not possible to
predict or identify all such factors. Consequently, the reader should not
consider any such list to be a complete statement of all potential risks or
uncertainties.
-10-
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 Incorporated by reference
Incorporation of Merck & Co., Inc. to Form 10-Q Quarterly
(September 1, 2000) Report for the period ended
September 30, 2000
3(b) By-Laws of Merck & Co., Inc. Incorporated by reference
(as amended effective to Form 10-Q Quarterly
February 25, 1997) Report for the period ended
March 31, 1997
12 Computation of Ratios of Filed with this document
Earnings to Fixed Charges
(b) Reports on Form 8-K
During the three-month period ending March 31, 2002, the Company filed or
furnished:
(1) two Current Reports on Form 8-K under Item 9 - Regulation FD
Disclosure:
(i) Report dated and furnished January 22, 2002, regarding
earnings for fourth quarter and certain supplemental
information;
(ii) Report dated and furnished March 15, 2002, regarding
`Arcoxia' New Drug Application, and updated financial
guidance for 2002;
(2) one Current Report on Form 8-K under Item 5 - Other Events:
Report dated January 29, 2002 and filed January 30, 2002,
regarding plans to establish Merck-Medco, the Company's
pharmacy benefits management (PBM) subsidiary, as a separate,
publicly traded company;
(3) one Current Report on Form 8-K under Item 4 - Changes in
Registrant's Certifying Accountant, dated February 26, 2002 and
filed March 5, 2002; and
(4) one Current Report on Form 8-K/A under Item 4 - Changes in
Registrant's Certifying Accountant, dated and filed March 21,
2002.
-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: May 9, 2002 /s/ Kenneth C. Frazier
----------------------
KENNETH C. FRAZIER
Senior Vice President and General Counsel
Date: May 9, 2002 /s/ Richard C. Henriques
------------------------
RICHARD C. HENRIQUES
Vice President, Controller
-12-
EXHIBIT INDEX
Exhibits
Number Description
3(a) Restated Certificate of Incorporation of Merck & Co., Inc.
(September 1, 2000)
- Incorporated by reference to Form 10-Q Quarterly Report for the
period ended September 30, 2000
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
12 Computation of Ratios of Earnings to Fixed Charges