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Merck Announces Third-Quarter 2012 Financial Results

Merck undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in Merck’s 2011 Annual Report on Form 10-K and the company’s other filings with the Securities and Exchange Commission (SEC) available at the SEC’s Internet site ( www.sec.gov).

1 Merck is providing certain 2012 and 2011 non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP. For a description of the items, see Table 2a including the related footnotes, attached to this release.

2 Net income attributable to Merck & Co., Inc.

3 Represents the difference between calculated GAAP EPS and calculated non-GAAP EPS which may be different than the amount calculated by dividing the impact of the excluded items by the weighted-average shares.

4 Includes expenses for the amortization of intangible assets and amortization of purchase accounting adjustments to inventories recognized as a result of mergers and acquisitions, as well as intangible asset impairment charges. Also includes integration and other costs associated with mergers and acquisitions.

5 Amount for 2011 includes a gain on the divestiture of the company's interest in the Johnson & Johnson°Merck Consumer Pharmaceuticals Company joint venture.

           
 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS - GAAP

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 1

       
GAAP % Change GAAP % Change
3Q12   3Q11

Sep YTD 2012

 

Sep YTD 2011

Sales

$

11,488

  $ 12,022 -4% $ 35,530 $ 35,753 -1%
 
Costs, Expenses and Other
Materials and production (1) 4,137 4,352 -5% 12,286 12,695 -3%
Marketing and administrative (1) 3,063 3,340 -8% 9,386 10,029 -6%
Research and development (1) 1,918 1,954 -2% 5,944 6,048 -2%
Restructuring costs (2) 110 119 -8% 473 773 -39%
Equity income from affiliates (3) (158 ) (161 ) -2% (410 ) (354 ) 16%
Other (income) expense, net (1)(4) 200 66 * 446 809 -45%
 
Income Before Taxes 2,218 2,352 -6% 7,405 5,753 29%
Income Tax Provision 455 628 2,055 904
Net Income 1,763 1,724 2% 5,350 4,849 10%
Less: Net Income Attributable to Noncontrolling Interests 34 32 89 89
Net Income Attributable to Merck & Co., Inc. $ 1,729 $ 1,692 2% $ 5,261 $ 4,760 11%
Earnings per Common Share Assuming Dilution (5) $ 0.56     $ 0.55   2% $ 1.71     $ 1.53   12%
           
Average Shares Outstanding Assuming Dilution 3,079 3,091 3,077 3,102
Tax Rate (6)   20.5 %     26.7 %   27.8 %     15.7 %
 
*100% or greater
(1) Amounts include the impact of acquisition-related costs and restructuring costs. See accompanying tables for details.
(2) Represents separation and other related costs associated with restructuring activities under the company's formal restructuring programs.
(3) Primarily reflects equity income from the AstraZeneca LP and Sanofi Pasteur MSD partnerships.
(4) Other (income) expense, net in the third quarter and first nine months of 2011 includes a $136 million gain on the divestiture of the company's interest in the Johnson & JohnsonºMerck Consumer Pharmaceuticals Company joint venture. In addition, other (income) expense, net in the first nine months of 2011 includes a charge of $500 million related to the resolution of the arbitration proceeding with Johnson & Johnson and a $127 million gain on the sale of certain manufacturing facilities and related assets.
(5) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate earnings per common share assuming dilution was $1,729 million and $1,689 million for the third quarter of 2012 and 2011, respectively, and was $5,257 million and $4,748 million for the first nine months of 2012 and 2011, respectively.
(6) The GAAP effective tax rates for the third quarter and first nine months of 2012 were 20.5% and 27.8%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 20.3% and 23.8% for the third quarter and first nine months of 2012, respectively. Both the GAAP and non-GAAP effective tax rates for the third quarter and first nine months of 2012 reflect the favorable impacts of a settlement with a foreign tax authority and the realization of foreign tax credits. The GAAP effective tax rates for the third quarter and first nine months of 2011 were 26.7% and 15.7%, respectively. Excluding the impact of the non-GAAP reconciling items detailed in the accompanying tables, the effective tax rates were 23.7% and 24.5% for the third quarter and first nine months of 2011, respectively.
               
 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

THIRD QUARTER 2012

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2a

 
         
GAAP

Acquisition- Related Costs (1)

Restructuring Costs (2)

Adjustment Subtotal

Non-GAAP
   
Sales $ 11,488 $ - $ 11,488
 
Costs, Expenses and Other
Materials and production 4,137 1,232 60 1,292 2,845
 
Marketing and administrative 3,063 68 25 93 2,970
 
Research and development 1,918 40 (32 ) 8 1,910
 
Restructuring costs 110 110 110 -
 
Equity income from affiliates (158 ) - (158 )
 
Other (income) expense, net 200 - 200
 
Income Before Taxes 2,218 (1,340 ) (163 ) (1,503 ) 3,721
 
Taxes on Income 455 (300 )

(3)

755
 
Net Income 1,763 (1,203 ) 2,966
 
Less: Net Income Attributable to Noncontrolling Interests 34 - 34
 
Net Income Attributable to Merck & Co., Inc. $ 1,729 $ (1,203 ) $ 2,932
 
Earnings per Common Share Assuming Dilution $ 0.56   $ 0.95  

(4)

   
Average Shares Outstanding Assuming Dilution 3,079 3,079
Tax Rate   20.5 %   20.3 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company's formal restructuring programs. In the third quarter of 2012, the company recorded an adjustment to accelerated depreciation costs included in research and development expenses revising previously recorded amounts for certain facilities.
 
(3) Represents the estimated tax impact on the reconciling items.
 
(4) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $2,932 million for the third quarter of 2012.
               
 

MERCK & CO., INC.

CONSOLIDATED STATEMENT OF OPERATIONS

GAAP TO NON-GAAP RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30, 2012

(AMOUNTS IN MILLIONS, EXCEPT PER SHARE FIGURES)

(UNAUDITED)

Table 2b

 
         
GAAP

Acquisition- Related Costs (1)

Restructuring Costs (2)

Adjustment Subtotal

Non-GAAP
   
Sales $ 35,530 $ - $ 35,530
 
Costs, Expenses and Other
Materials and production 12,286 3,687 148 3,835 8,451
 
Marketing and administrative 9,386 183 70 253 9,133
 
Research and development 5,944 176 54 230 5,714
 
Restructuring costs 473 473 473 -
 
Equity income from affiliates (410 ) - (410 )
 
Other (income) expense, net 446 - 446
 
Income Before Taxes 7,405 (4,046 ) (745 ) (4,791 ) 12,196
 
Taxes on Income 2,055 (848 )

(3)

2,903
 
Net Income 5,350 (3,943 ) 9,293
 
Less: Net Income Attributable to Noncontrolling Interests 89 - 89
 
Net Income Attributable to Merck & Co., Inc. $ 5,261 $ (3,943 ) $ 9,204
 
Earnings per Common Share Assuming Dilution $ 1.71   $ 2.99  

(4)

   
Average Shares Outstanding Assuming Dilution 3,077 3,077
Tax Rate   27.8 %   23.8 %
Merck is providing non-GAAP information that excludes certain items because of the nature of these items and the impact they have on the analysis of underlying business performance and trends. Management believes that providing this information enhances investors' understanding of the company's performance. This information should be considered in addition to, but not in lieu of, information prepared in accordance with GAAP.
 
(1) Amounts included in materials and production costs reflect expenses for the amortization of intangible assets recognized as a result of mergers and acquisitions. Amounts included in marketing and administrative expenses reflect merger integration costs. Amounts included in research and development expenses represent in-process research and development (“IPR&D”) impairment charges.
 
(2) Amounts primarily include employee separation costs and accelerated depreciation associated with facilities to be closed or divested related to actions under the company's formal restructuring programs.
 
(3) Represents the estimated tax impact on the reconciling items.
 
(4) The company calculates earnings per share pursuant to the two-class method which requires the allocation of net income between common shareholders and participating security holders. Net income attributable to Merck & Co., Inc. common shareholders used to calculate non-GAAP earnings per common share assuming dilution was $9,198 million for the first nine months of 2012.
                       
 

MERCK & CO., INC.

FRANCHISE / KEY PRODUCT SALES

(AMOUNTS IN MILLIONS)

Table 3

 
     
2012 2011

% Change 3Q

% Change Sep YTD

1Q   2Q   3Q   Sep YTD 1Q   2Q   3Q   Sep YTD   4Q   Full Year  
 
TOTAL SALES (1) $11,731   $12,311   $11,488   $35,530 $11,580   $12,151   $12,022   $35,753   $12,294   $48,047 -4   -1
PHARMACEUTICAL 10,082 10,560 9,875 30,517 9,820 10,360 10,354 30,534 10,755 41,289 -5 --
 
Primary Care and Women's Health
Cardiovascular
Zetia 614 632 645 1,891 582 592 614 1,788 640 2,428 5 6
Vytorin 444 445 423 1,312 480 459 469 1,407 475 1,882 -10 -7
 
Diabetes & Obesity
Januvia 919 1,058 975 2,952 739 779 846 2,364 960 3,324 15 25
Janumet 392 411 405 1,207 305 321 350 977 386 1,363 16 24
 
Respiratory
Singulair 1,340 1,431 602 3,373 1,328 1,354 1,336 4,018 1,461 5,479 -55 -16
Nasonex 375 293 292 960 373 323 266 962 325 1,286 10 --
Clarinex 134 140 64 337 155 209 128 492 129 621 -50 -32
Asmanex 48 51 42 141 60 47 42 149 57 206 -- -6
Dulera 39 50 52 140 13 25 22 59 37 96 * *
 
Women's Health & Endocrine
Fosamax 184 186 152 522 208 221 215 644 211 855 -29 -19
NuvaRing 146 157 156 459 142 154 159 455 168 623 -2 1
Follistim AQ 116 125 111 352 133 143 129 404 126 530 -14 -13
Implanon 76 85 93 254 60 81 80 220 74 294 16 15
Cerazette 67 72 64 202 59 66 74 199 69 268 -14 2
 
Other
Maxalt 156 154 166 476 173 131 156 460 178 639 7 3
Arcoxia 112 117 109 338 114 100 108 321 110 431 2 5
Avelox 73 44 30 146 106 61 59 227 95 322 -50 -35
 
Hospital and Specialty
 
Immunology
Remicade 519 518 490 1,527 753 842 561 2,156 511 2,667 -13 -29
Simponi 74 76 86 236 54 75 74 203 61 264 15 16
 
Infectious Disease
Isentress 337 398 399 1,133 292 337 343 972 387 1,359 16 17
PegIntron 162 183 165 510 166 154 163 482 175 657 1 6
Cancidas 145 166 163 474 158 168 150 476 164 640 8 --
Victrelis 111 126 149 387 1 21 31 53 87 140 * *
Invanz 101 110 118 329 87 103 107 296 110 406 10 11
Primaxin 88 104 109 301 136 136 124 397 119 515 -12 -24
Noxafil 59 66 66 191 55 56 61 171 59 230 9 12
 
Oncology
Temodar 237 225 227 688 248 234 223 704 230 935 2 -2
Emend 102 145 111 358 87 120 98 305 114 419 12 17
 
Other
Cosopt / Trusopt 124 105 102 331 114 122 124 360 117 477 -18 -8
Bridion 58 60 68 186 41 47 52 141 60 201 29 32
Integrilin 53 60 48 160 64 56 53 172 57 230 -9 -7
 
Diversified Brands
Cozaar / Hyzaar 336 337 295 969 426 406 404 1,236 427 1,663 -27 -22
Propecia 108 100 104 312 106 112 112 330 117 447 -7 -5
Zocor 103 96 86 285 127 107 110 345 111 456 -22 -17
Claritin Rx 87 48 47 181 120 65 55 240 74 314 -14 -25
Remeron 57 66 52 175 60 57 65 181 59 241 -19 -3
Proscar 51 55 55 160 60 53 58 171 52 223 -6 -6
Vasotec / Vaseretic 53 49 42 144 57 59 57 173 58 231 -27 -17
 
Vaccines
Gardasil 284 324 581 1,189 214 277 445 935 274 1,209 31 27
ProQuad, M-M-R II and Varivax 255 316 396 967 244 291 391 927 276 1,202 1 4
RotaTeq 142 142 150 433 125 148 184 457 195 651 -19 -5
Zostavax 76 148 202 426 24 122 108 254 78 332 87 68
Pneumovax 112 101 160 372 79 64 133 276 222 498 20 35
 
Other Pharmaceutical (2) 1,013 985 1,023 3,031 892 1,064 1,015 2,975 1,064 4,038 1 2
 
 
ANIMAL HEALTH 821 865 815 2,501 758 802 826 2,385 868 3,253 -1 5
 
CONSUMER CARE 554 552 451 1,557 517 541 421 1,479 361 1,840 7 5
Claritin OTC 169 145 118 432 167 134 118 419 92 511 -- 3
 
Other Revenues (3) 274 333 347 955 486 448 421 1,355 310 1,666 -17 -30
Astra 186 223 255 664 322 306 299 928 256 1,184 -15 -28
* 100% or greater
Sum of quarterly amounts may not equal year-to-date amounts due to rounding.
(1) Only select products are shown.
(2) Includes Pharmaceutical products not individually shown above. Other Vaccines sales included in Other Pharmaceutical were $60 million, $75 million, and $116 million for the first, second, and third quarters of 2012, respectively. Other Vaccines sales included in Other Pharmaceutical were $54 million, $67 million, $100 million and $62 million for the first, second, third and fourth quarters of 2011, respectively.
(3) Other revenues are primarily comprised of alliance revenue, miscellaneous corporate revenues and third party manufacturing sales.




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