SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from January 1, 2001 to December 31, 2001
Commission File Number: 1-3305
Employer Identification Number: 22-1109110
Plan Number: 001
MERCK & CO., INC. EMPLOYEE SAVINGS AND SECURITY PLAN
--------------------------------------------------------------------------------
(Full title of the plan)
MERCK & CO., INC.
--------------------------------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
P.O. Box 100
Whitehouse Station, New Jersey 08889-0100
--------------------------------------------------------------------------------
(Address of principal executive office)
Merck & Co., Inc. Employee Savings and Security Plan
Employer Identification Number: 22-1109110
Plan Number: 001
INDEX
Page
----
REPORT OF INDEPENDENT ACCOUNTANTS 1
REPORT OF PRIOR YEAR'S INDEPENDENT ACCOUNTANTS 2
FINANCIAL STATEMENTS
Statements of Net Assets Available for Benefits as of December 31, 2001
and 2000 3
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 2001 4
NOTES TO FINANCIAL STATEMENTS 5-8
SUPPLEMENTAL SCHEDULE*
H - Line 4i - Schedule of Assets (Held at End of Year) 9
SIGNATURE 10
CONSENT OF INDEPENDENT ACCOUNTANTS 11
*Other schedules required by Section 2520.103-8 and are omitted because they
are not required.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Merck & Co., Inc.:
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Merck & Co., Inc. Employee Savings and Security Plan (the "Plan") as of
December 31, 2001 and the changes in net assets available for benefits for the
year ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
The Schedule of Assets (Held at End of Year) that accompanies the Plan's
financial statements does not disclose the historical cost of certain
nonparticipant directed plan assets held by the Plan trustee. Disclosure of
this information is required by the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974.
PricewaterhouseCoopers LLP
Florham Park, NJ
June 14, 2002
1
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR
ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merck & Co., Inc.:
We have audited the accompanying statement of net assets available for benefits
of the Merck & Co., Inc. Employee Savings and Security Plan (the "Plan") as of
December 31, 2000 and 1999, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2000. These financial
statements and the schedule referred to below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2000 and 1999, and the changes in its net assets available for
benefits for the year ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for purposes of additional analysis and is
not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
May 18, 2001
2
MERCK & CO., INC.
EMPLOYEE SAVINGS AND SECURITY PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, DECEMBER 31,
2001 2000
-------------- --------------
Assets
Investment in the Master Trust $2,631,042,137 $3,436,344,296
Participant loans at contract value 37,605,117 38,104,067
-------------- --------------
Total investments 2,668,647,254 3,474,448,363
-------------- --------------
Receivables:
Employer's contribution 132,484 4,426,278
Participants' contributions 282,035 10,250,559
-------------- --------------
Total receivables 414,519 14,676,837
-------------- --------------
Net assets available for benefits $2,669,061,773 $3,489,125,200
============== ==============
The accompanying notes to financial statements are an integral part of these
financial statements.
3
MERCK & CO., INC.
EMPLOYEE SAVINGS AND SECURITY PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED
DECEMBER 31, 2001
-----------------
Additions to net assets attributed to
Contributions to the Plan
By participants $ 171,874,574
By employer 65,587,677
---------------
Total contributions 237,462,251
Transfers in 4,889,139
---------------
Total additions 242,351,390
---------------
Deductions from net assets attributed to
Investment loss from the Master Trust (903,112,487)
---------------
Benefits paid to participants (160,785,123)
Transfers out (247,898)
Administration fees (11,665)
---------------
Total deductions (1,064,157,173)
Net reallocations 1,742,356
---------------
Net decrease and reallocations (820,063,427)
Net assets available for benefits
Beginning of year 3,489,125,200
---------------
End of year $ 2,669,061,773
===============
The accompanying notes to financial statements are an integral part of these
financial statements.
4
MERCK & CO., INC.
EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN:
The following description of the Merck & Co., Inc. Employee Savings and
Security Plan (the "Plan") provides only general information. Participants
should refer to the Plan document for a more complete description of the Plan's
provisions.
General
The Plan was designed to provide an easy, economical way for employees to
become stockholders of Merck & Co., Inc. (the "Company" or "Merck") as well as a
systematic means of saving and investing for the future. Regular full-time,
part-time, and temporary employees of the Company and of certain wholly-owned
subsidiaries as defined by the Plan document who were not covered by a
collective bargaining agreement are eligible to enroll in the Plan as of the
first day of the third month following their date of hire.
The Plan is administered by a management committee appointed by the Chief
Executive Officer of the Company.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
Master Trust
The assets of the Plan are maintained, for investment purposes only, on a
commingled basis with the assets of the Merck & Co., Inc. Employee Stock
Purchase & Savings Plan and the Merck-Medco Managed Care 401(k) Savings Plan in
the Merck & Co., Inc. Employee Savings & Security Plan and the Merck & Co., Inc.
Employee Stock Purchase & Savings Plan Trust (the "Master Trust"). The plans do
not own specific Master Trust assets but rather maintain individual beneficial
interests in such assets. The portion of fund assets allocable to each plan is
based upon the participant's account balance within each plan. Investment income
and administrative expenses for each fund is allocated to each plan based on the
relationship of each plan's beneficial interest in the fund to the total
beneficial interest of all plans in the fund.
Contributions
Participants may contribute from 2% up to 18% of their base pay. Effective
February 1, 2001, employees earning less than $85,000 were allowed to contribute
a maximum of 18% of base pay. Employees earning $85,000 or more are limited to
maximum contributions of 15% of base pay. In addition, the Company matches 75%
of employee contributions up to 6% of base pay per pay period. Company matching
contributions are invested according to the following age parameters:
Under age 50 -- 50% of Company matching contributions is invested in the
Merck Common Stock Fund (non-participant directed) and 50% is invested in the
funds to which the participant is currently contributing (participant directed).
Age 50 and above -- Participants have the option to invest all Company
matching contributions in any of the available fund options (participant
directed).
5
Participants direct the investment of their contributions into any
investment option available under the Plan, including Merck Common Stock
(participant directed). During 2001, the Plan offered 21 mutual funds and the
Merck Common Stock Fund. Effective January 1, 2002, the Plan offers 20 mutual
funds and the Merck Common Stock Fund.
Participant Accounts
Each participant's account is credited with the participant's contribution,
the Company's matching contribution and allocation of Plan earnings. The
allocation is based on participants' account balances, as defined in the Plan
document.
Vesting
Participants are immediately vested in their contributions, all Company
matching contributions, plus actual earnings thereon.
Participant Loans
Participants may borrow from their account balances with interest charged
at the prime rate plus 1%. Loan terms range from one to five years or up to
thirty years for the purchase of a primary residence. The minimum loan is $500
and the maximum loan is the lesser of $50,000 less the highest outstanding loan
balance during the one year period prior to the new loan application date, or
50% of the participant's account balance less any current outstanding loan
balance.
Payment of Benefits
In-service (which include hardship withdrawals) and termination
distributions are made throughout the year in accordance with applicable Plan
provisions.
2. SUMMARY OF ACCOUNTING POLICIES:
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting.
Use of Estimates
The financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America and, accordingly,
include amounts that are based on management's best estimates and judgments.
Actual results could differ from these estimates.
Investment Valuation and Income Recognition
Valuation of investments of the Plan represents the Plan's allocable
portion of the Master Trust. Participant loans are valued at cost which
approximates fair value.
Investsment loss from the Master Trust includes interest, dividends and
net appreciation (depreciation) in market value of investments. Purchases and
sales of securities are recorded on a trade-date basis. Dividend income is
recorded on the ex-dividend date. The net appreciation (depreciation) in market
value of investments is based on the beginning of the year market value or
value at the time of purchase during the year and is included in the statement
of changes in net assets available for benefits.
Contributions
Employee and Company matching contributions are recorded in the period in
which the Company makes the payroll deductions from the participant earnings.
Payment of Benefits
Benefits are recorded when paid.
6
Expenses
The Plan's administrative expenses are paid by either the Plan or the
Company, as provided by the Plan document.
Risks and Uncertainties
The Plan provides for various investment options in investment securities.
Investment securities, in general, are exposed to various risks, such as
interest rate, credit and overall market volatility. Due to the level of risk
associated with certain investment securities, it is reasonably possible that
changes in the values of investment securities will occur in the near term and
that such changes could materially affect the amounts reported in the statement
of net assets available for benefits.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
with current year presentation.
3. NON-PARTICIPANT-DIRECTED INVESTMENTS:
Information about the net assets and the significant components of the
changes in net assets relating to the non-participant-directed investments is as
follows:
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
Net Assets:
Investment in Master Trust $260,129,764 $481,799,470
============ ============
YEAR ENDED
DECEMBER 31, 2001
-----------------
Changes in Net Assets
Contributions $ 26,502,597
Investment loss from Master Trust (87,013,922)
Benefits paid to participants (4,324,975)
Transfers to participant directed
investments and other Plans (156,833,406)
-------------
($221,669,706)
=============
4. RELATED-PARTY TRANSACTIONS:
Certain Plan investments are shares of mutual funds managed by Fidelity
Management Trust Company ("Fidelity"). Fidelity is the trustee as defined by the
Plan and, therefore, these transactions qualify as party-in-interest
transactions.
Merck & Co., Inc. also is a party-in-interest to the Plan under the
definition provided in Section 3(14) of ERISA. Therefore, Merck Common Stock
Fund transactions qualify as party-in-interest transactions.
5. PLAN TERMINATION:
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA.
6. TAX STATUS:
The Plan obtained a tax determination letter from the Internal Revenue
Service dated September 18, 1995 indicating that it had been designed in
accordance with applicable sections of the Internal Revenue Code ("IRC").
However, the Plan has been amended since the receipt of the determination
letter. The Plan sponsor and legal counsel believe that the Plan is designed and
currently operated in compliance with the IRC. Therefore, no provision for
income taxes has been made.
7
7. OTHER MATTERS:
Transfers in 2001 consist of transfers of $4,038,727 between the Plan and
the Merck & Co., Inc. Employee Stock Purchase and Savings Plan for Employees
who changed their union status during the year, $672,666 for employee who
transferred in from the Merck-Medco Managed Care 401(k) Savings Plan during the
year, miscellaneous net transfers out of $70,152 and $1,742,356 for employees
who transferred into the Plan from Rosetta Inpharmatics, Inc., which was
acquired by July 2001.
8. MASTER TRUST:
The Plan has an 81% and 80% interest in the Master Trust at December 31,
2001 and December 31, 2000, respectively. The net assets of the Master Trust are
as follows:
DECEMBER 31, DECEMBER 31,
2001 2000
-------------- --------------
Mutual Funds $1,546,205,918 $1,627,405,642
Merck Common Stock 1,713,814,350 2,634,410,443
Accrued interest and dividend 10,068,775 9,724,243
-------------- --------------
$3,270,089,043 $4,271,540,328
============== ==============
Changes in net assets for the year ended December 31, 2001 for the Master
Trust are as follows:
Additions to net assets
Contributions
Participant $ 244,101,401
Employer 93,834,651
---------------
Total contributions 337,936,052
---------------
Transfers in 4,942,101
Loan repayments 22,552,254
---------------
Total additions 365,430,407
---------------
Deductions from net assets
Investment income (loss)
Interest and dividends 72,082,797
Net depreciation in mutual funds (228,109,762)
Net depreciation in Merck Common Stock (984,571,805)
---------------
Total investment income (loss) (1,140,598,770)
---------------
Benefits paid (196,846,563)
Transfers out (4,942,100)
Loan issuance (26,175,550)
Administrative fees (35,784)
---------------
Total deductions (1,368,598,767)
---------------
Net reallocations 1,717,075
Net decrease and reallocations (1,001,451,285)
---------------
Net assets available for benefits
Beginning of year 4,271,540,328
---------------
End of year $ 3,270,089,043
===============
8
SCHEDULE H
EIN: 22-1109110
PLAN NO.: 001
MERCK & CO., INC.
EMPLOYEE SAVINGS AND SECURITY PLAN
LINE 4i -- SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2001
(c) DESCRIPTION OF INVESTMENT INCLUDING
(b) IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, COLLATERAL, (e) CURRENT
(a) LESSOR OR SIMILAR PARTY PAR OR MATURITY VALUE (d) COST VALUE
------------ ------------------------------------ ------------------------------------------- --------------- --------------
* Merck & Co., Inc. Employee Savings &
Security Plan and the Merck & Co.,
Inc. Employee Stock Purchase &
Savings Plan Trust Master Trust ** $2,631,042,137
* Participants' Loans Interest rates ranging from 6.5% to 10.5%
and with maturities through 2031 37,605,117
--------------
Total $2,668,647,254
==============
----------
* Denotes a party-in-interest to the Plan.
** Cost is not required for participant directed investments.
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned plan administrator has duly caused this annual report to be signed
on behalf of the Merck & Co., Inc. Employee Savings and Security Plan by the
undersigned thereunto duly authorized.
Merck & Co., Inc., as plan administrator
By: /s/ Caroline Dorsa
----------------------------------------
Caroline Dorsa
Vice President & Treasurer
June 27, 2002
10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 33-21087, 33-21088, 33-36101, 33-40177, 33-51235,
33-53463, 33-64273, 33-64665, 333-23293, 333-23295, 333-91769, 333-30526,
333-31762, 333-40282, 333-52264, 333-53246, 333-56696, 333-72206 and 333-65796),
on Forms S-4 (Nos. 33-50667 and 33-61982) and on Forms S-3 (Nos. 33-60322,
33-39349, 33-51785, 33-57421, 333-17045, 333-36383, 333-77569, and 333-72546) of
Merck & Co., Inc. of our report dated June 14, 2002 relating to the financial
statements of Merck & Co., Inc. Employee Savings and Security Plan as of
December 31, 2001 and for the year then ended, which appears in this Form 11-K.
PricewaterhouseCoopers LLP
Florham Park, NJ
June 14, 2002
11