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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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
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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
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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
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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
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Total........................................... $9,987.9 $9,067.6 $8,019.5
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* 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.
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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(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
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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 $5.00 payable to Merck & Co., Inc. to cover processing and
mailing costs.
(C) REPORTS ON FORM 8-K
During the three-month period ending December 31, 1993, one report was
filed on Form 8-K, under Item 2 - Acquisition or Disposition of Assets, relative
to the acquisition of Medco Containment Services, Inc. This report was dated
November 18, 1993 and filed December 3, 1993, and amended February 1, 1994.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Merck & Co., Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Merck & Co., Inc.'s 1993
Annual Report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 25, 1994. Our audits were made for
the purpose of forming an opinion on those basic financial statements taken as a
whole. The schedules listed in Item 14 are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly state in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
New York, New York
January 25, 1994
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SCHEDULE II
MERCK & CO., INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
($ 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.