As	filed	with	the	Securities	and	Exchange	Commission	on	February	27,	2014

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# (MARK	ONE)

# Annual	Report	Pursuant	to	Section	13	or	15(d)

of	the	Securities	Exchange	Act	of	1934

For	the	Fiscal	Year	Ended	December	31,	2013

# Transition	Report	Pursuant	to	Section	13	or	15(d)

Incorporated	in	New	Jersey

Title	of	Each	Class

I.R.S.	Employer

# Securities	Registered	pursuant	to	Section	12(b)	of	the	Act:

Name	of	Each	Exchange

on	which	Registered

New	York	Stock	Exchange

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.				Yes		ý						No		o Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.				Yes		o						No		ý

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		ý						No		o

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File	required	to	be submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	(§	232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to submit	and	post	such	files).				Yes		ý						No		o

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§	229.405)	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.				o Indicate	by	check	mark	whether	 the	registrant	 is	a	 large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	or	a	smaller	reporting	company.	See the definitions	of	"large	accelerated	filer,"	"accelerated	filer"	and	"smaller	reporting	company"	in	Rule	12b-2	of	the	Exchange	Act.	(Check	One):

Large	accelerated	filer ý 								Accelerated	filer o

Non-accelerated	filer o Smaller	reporting	company o (Do	not	check	if	a	smaller	reporting	company)

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).				Yes		o						No		ý

# Documents	Incorporated	by	Reference:

# Document

Proxy	Statement	for	the	Annual	Meeting	of Shareholders	to	be	held	May	27,	2014,	to	be	filed	with	the Securities	and	Exchange	Commission	within	120	days	after	the	close	of	the	fiscal	year covered	by	this	report

Part	III

# Table	of	Contents

# Part	I

# Item	1. Business.

Merck	&	Co.,	Inc.	("Merck"	or	the	"Company")	is	a	global	health	care	company	that	delivers	innovative	health	solutions	through	its	prescription	medicines, vaccines,	biologic	 therapies,	animal	health,	and	consumer	care	products,	which	 it	markets	directly	and	 through	 its	 joint	ventures.	The	Company's	operations	are principally	managed	on	a	products	basis	and	are	comprised	of	four	operating	segments,	which	are	the	Pharmaceutical,	Animal	Health,	Consumer	Care	and	Alliances segments,	and	one	reportable	segment,	which	is	the	Pharmaceutical	segment.	The	Pharmaceutical	segment	includes	human	health	pharmaceutical	and	vaccine	products marketed	either	directly	by	the	Company	or	through	joint	ventures.	Human	health	pharmaceutical	products	consist	of	therapeutic	and	preventive	agents,	generally	sold by	prescription,	for	the	treatment	of	human	disorders.	The	Company	sells	these	human	health	pharmaceutical	products	primarily	to	drug	wholesalers	and	retailers, hospitals,	government	agencies	and	managed	health	care	providers	such	as	health	maintenance	organizations,	pharmacy	benefit	managers	and	other	institutions.	Vaccine products	consist	of	preventive	pediatric,	adolescent	and	adult	vaccines,	primarily	administered	at	physician	offices.	The	Company	sells	these	human	health	vaccines primarily	to	physicians,	wholesalers,	physician	distributors	and	government	entities.	The	Company	also	has	animal	health	operations	that	discover,	develop,	manufacture and	market	animal	health	products,	including	vaccines,	which	the	Company	sells	to	veterinarians,	distributors	and	animal	producers.	Additionally,	the	Company	has consumer	care	operations	that	develop,	manufacture	and	market	over-the-counter,	foot	care	and	sun	care	products,	which	are	sold	through	wholesale	and	retail	drug, food	chain	and	mass	merchandiser	outlets,	as	well	as	club	stores	and	specialty	channels.	The	Company	was	incorporated	in	New	Jersey	in	1970.

For	financial	information	and	other	information	about	the	Company's	segments,	see	Item	7.	"Management's	Discussion	and	Analysis	of	Financial	Condition and	Results	of	Operations"	and	Item	8.	"Financial	Statements	and	Supplementary	Data"	below.

All	product	or	service	marks	appearing	in	type	form	different	from	that	of	the	surrounding	text	are	trademarks	or	service	marks	owned,	licensed	to,	promoted or	distributed	by	Merck,	its	subsidiaries	or	affiliates,	except	as	noted.	All	other	trademarks	or	services	marks	are	those	of	their	respective	owners.

# Product	Sales

Sales	of	the	Company's	top	pharmaceutical	products,	as	well	as	total	sales	of	animal	health	and	consumer	care	products,	were	as	follows:

| ($	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Total\tSales | $44,033 | $47,267 | $48,047 |
| Pharmaceutical | 37,437 | 40,601 | 41,289 |
| Januvia | 4,004 | 4,086 | 3,324 |
| Zetia | 2,658 | 2,567 | 2,428 |
| Remicade | 2,271 | 2,076 | 2,667 |
| Gardasil | 1,831 | 1,631 | 1,209 |
| Janumet | 1,829 | 1,659 | 1,363 |
| Isentress | 1,643 | 1,515 | 1,359 |
| Vytorin | 1,643 | 1,747 | 1,882 |
| Nasonex | 1,335 | 1,268 | 1,286 |
| ProQuad/M-M-R\tII/Varivax | 1,306 | 1,273 | 1,202 |
| Singulair | 1,196 | 3,853 | 5,479 |
| Animal\tHealth | 3,362 | 3,399 | 3,253 |
| Consumer\tCare | 1,894 | 1,952 | 1,840 |
| Other\tRevenues(1) | 1,340 | 1,315 | 1,665 |

(1)	Other	revenues	are	primarily	comprised	of	alliance	revenue,	miscellaneous	corporate	revenues	and	third-party	manufacturing	sales.	On	October	1,	2013,	the	Company	divested	a	substantial portion	of	its	third-party	manufacturing	sales.

# Pharmaceutical

The	Company's	pharmaceutical	products	include	therapeutic	and	preventive	agents,	generally	sold	by	prescription,	for	the	treatment	of	human	disorders.

Certain	of	the	products	within	the	Company's	franchises	are	as	follows:

# Primary	Care	and	Women's	Health

Cardiovascular:	Zetia	(ezetimibe)	(marketed	as	Ezetrol	outside	the	United	States);	and	Vytorin	(ezetimibe/simvastatin)	(marketed	as	Inegy	outside	the	United States),	cholesterol	modifying	medicines.

Diabetes	and	Obesity:	Januvia	(sitagliptin)	and	Janumet	(sitagliptin/metformin	HCl)	for	the	treatment	of	type	2	diabetes.

Respiratory:	Nasonex	 (mometasone	 furoate	 monohydrate),	 an	 inhaled	 nasal	 corticosteroid	 for	 the	 treatment	 of	 nasal	 allergy	 symptoms;	Singulair (montelukast),	a	medicine	 indicated	for	 the	chronic	 treatment	of	asthma	and	 the	relief	of	symptoms	of	allergic	rhinitis;	Dulera	 Inhalation	Aerosol	 (mometasone furoate/formoterol	fumarate	dihydrate),	a	combination	medicine	for	the	treatment	of	asthma;	and	Asmanex	Twisthaler	(mometasone	furoate	inhalation	powder),	an inhaled	corticosteroid	for	first-line	maintenance	treatment	of	asthma	in	patients	4	years	of	age	and	older.

Women's	Health	and	Endocrine:	NuvaRing	(etonogestrel/ethinyl	estradiol	vaginal	ring),	a	vaginal	contraceptive	ring;	Fosamax	(alendronate	sodium)	for	the treatment	and	prevention	of	osteoporosis;	Follistim	AQ	 (follitropin	 beta	 injection),	 a	 fertility	 treatment;	Implanon	 (etonogestrel	 implant),	 a	 single-rod	 subdermal contraceptive	implant;	and	Cerazette	(desogestrel),	a	progestin	only	oral	contraceptive.

Other:	Arcoxia	(etoricoxib)	for	the	treatment	of	arthritis	and	pain,	which	the	Company	markets	outside	the	United	States;	and	Avelox	(moxifloxacin),	a	broad- spectrum	fluoroquinolone	antibiotic	for	the	treatment	of	certain	respiratory	and	skin	infections,	which	the	Company	only	markets	in	the	United	States.

# Hospital	and	Specialty

Immunology:	Remicade	(infliximab)	and	Simponi	(golimumab)	for	the	treatment	of	inflammatory	diseases,	which	the	Company	markets	in	Europe,	Russia

# and	Turkey.

Infectious	 Disease:	 Isentress	 (raltegravir),	 an	 antiretroviral	 therapy	 for	 use	 in	 combination	 therapy	 for	 the	 treatment	 of	 HIV-1	 infection;	Cancidas (caspofungin	acetate),	an	anti-fungal	product;	PegIntron	(peginterferon	alpha-2b),	a	treatment	for	chronic	hepatitis	C;	Invanz	(ertapenem	sodium)	for	the	treatment	of certain	infections;	Victrelis	(boceprevir),	a	treatment	for	chronic	hepatitis	C;	and	Noxafil	(posaconazole)	for	the	prevention	of	invasive	fungal	infections.

Oncology:	Temodar	(temozolomide)	(marketed	as	Temodal	outside	the	United	States),	a	treatment	for	certain	types	of	brain	tumors;	and	Emend	(aprepitant) for	the	prevention	of	chemotherapy-induced	and	post-operative	nausea	and	vomiting.

Other:	Cosopt	 (dorzolamide	 hydrochloride-timolol	 maleate	 ophthalmic	 solution),	 which	 the	 Company	 markets	 outside	 the	 United	 States,	 and	Trusopt (dorzolamide	 hydrochloride	 ophthalmic	 solution),	 ophthalmic	 products;	Bridion	 (sugammadex	 sodium	 injection),	 a	 medication	 for	 the	 reversal	 of	 certain	 muscle relaxants	used	during	surgery;	and	Integrilin	(eptifibatide),	a	treatment	for	patients	with	acute	coronary	syndrome.

# Diversified	Brands

Cozaar (losartan	 potassium)	 and	Hyzaar	 (losartan	 potassium	 and	 hydrochlorothiazide),	 treatments	 for	 hypertension;	Primaxin	 (imipenem	 and	 cilastatin sodium),	an	anti-bacterial	product;	Zocor	(simvastatin),	a	statin	for	modifying	cholesterol;	Propecia	(finasteride),	a	product	for	the	treatment	of	male	pattern	hair	loss; Clarinex	(desloratadine),	a	non-sedating	antihistamine;	Remeron	(mirtazapine),	an	antidepressant;	Claritin	Rx	(loratadine)	for	treatment	of	seasonal	outdoor	allergies	and year-round	indoor	allergies;	Proscar	(finasteride),	a	urology	product	for	the	treatment	of	symptomatic	benign	prostate	enlargement;	and	Maxalt	(rizatriptan	benzoate),	a product	for	acute	treatment	of	migraine.

# Vaccines

Gardasil	(Human	Papillomavirus	Quadrivalent	[Types	6,	11,	16	and	18]	Vaccine,	Recombinant),	a	vaccine	to	help	prevent	certain	diseases	caused	by	four types	of	human	papillomavirus	("HPV");	ProQuad	(Measles,	Mumps,	Rubella	and	Varicella	Virus	Vaccine	Live),	a	pediatric	combination	vaccine	to	help	protect against	measles,	mumps,

rubella	and	varicella;	M-M-R	II	(Measles,	Mumps	and	Rubella	Virus	Vaccine	Live),	a	vaccine	to	help	prevent	measles,	mumps	and	rubella;	Varivax	(Varicella	Virus Vaccine	Live),	a	vaccine	to	help	prevent	chickenpox	(varicella);	Zostavax	(Zoster	Vaccine	Live),	a	vaccine	to	help	prevent	shingles	(herpes	zoster);	Pneumovax	23 (pneumococcal	vaccine	polyvalent),	a	vaccine	to	help	prevent	pneumococcal	disease;	and	RotaTeq	(Rotavirus	Vaccine,	Live	Oral,	Pentavalent),	a	vaccine	to	help	protect against	rotavirus	gastroenteritis	in	infants	and	children.

# Animal	Health

The	Animal	Health	segment	discovers,	develops,	manufactures	and	markets	animal	health	products,	including	vaccines.	Principal	products	in	this	segment include:

Livestock	Products:	Nuflor	antibiotic	range	for	use	in	cattle	and	swine;	Bovilis/Vista	vaccine	lines	for	infectious	diseases	in	cattle;	Banamine	bovine	and swine	anti-inflammatory;	Estrumate	for	the	treatment	of	fertility	disorders	in	cattle;	Regumate/Matrix	fertility	management	for	swine	and	horses;	Resflor	combination broad-spectrum	antibiotic	and	non-steroidal	anti-inflammatory	drug	for	bovine	respiratory	disease;	Zuprevo	 for	 bovine	 respiratory	 disease;	Zilmax and	Revalor to improve	production	efficiencies	in	beef	cattle;	M+Pac	swine	pneumonia	vaccine;	and	Porcilis	vaccine	line	for	infectious	diseases	in	swine.

Poultry	Products:	Nobilis/Innovax,	vaccine	lines	for	poultry;	and	Paracox	and	Coccivac	coccidiosis	vaccines.

Companion	Animal	Products:	Nobivac	vaccine	lines	for	flexible	dog	and	cat	vaccination;	Otomax/Mometamax/Posatex	ear	ointments	for	acute	and	chronic otitis;	Caninsulin/Vetsulin	diabetes	mellitus	treatment	for	dogs	and	cats;	Panacur/Safeguard	broad-spectrum	anthelmintic	(de-wormer)	for	use	in	many	animals;	and Activyl/Scalibor/Exspot	for	protecting	against	bites	from	fleas,	ticks,	mosquitoes	and	sandflies.

Aquaculture	Products:	Slice	parasiticide	for	sea	lice	in	salmon;	Aquavac/Norvax	vaccines	against	bacterial	and	viral	disease	in	fish;	Compact	PD	vaccine	for salmon;	and	Aquaflor	antibiotic	for	farm-raised	fish.

# Consumer	Care

The	Consumer	Care	segment	develops,	manufactures	and	markets	over-the-counter,	foot	care	and	sun	care	products.	Principal	products	in	this	segment include:

Over-the-Counter	Products:	Claritin	non-drowsy	antihistamines;	MiraLAX	for	relief	of	occasional	constipation;	Coricidin	HBP	decongestant-free	cold/flu medicine	for	people	with	high	blood	pressure;	Afrin	nasal	decongestant	spray;	Zegerid	OTC	treatment	for	frequent	heartburn;	and	Oxytrol	For	Women,	a	treatment	for overactive	bladder	in	women.

Foot	Care:	Dr.	Scholl's	foot	care	products;	Lotrimin	topical	antifungal	products;	and	Tinactin	topical	antifungal	products	and	foot	and	sneaker	odor/wetness

# products.

Sun	Care:	Coppertone	sun	care	lotions,	sprays	and	dry	oils.

For	a	further	discussion	of	sales	of	the	Company's	products,	see	Item	7.	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations"	below.

# Joint	Ventures

# AstraZeneca	LP

In	1982,	Merck	entered	into	an	agreement	with	Astra	AB	("Astra")	to	develop	and	market	Astra	products	in	the	United	States.	In	1994,	Merck	and	Astra formed	an	equally	owned	joint	venture	that	developed	and	marketed	most	of	Astra's	new	prescription	medicines	in	the	United	States	including	Prilosec	(omeprazole), the	first	in	a	class	of	medications	known	as	proton	pump	inhibitors,	which	slows	the	production	of	acid	from	the	cells	of	the	stomach	lining.

In	1998,	Merck	and	Astra	restructured	the	joint	venture	whereby	Merck	acquired	Astra's	interest	in	the	joint	venture,	renamed	KBI	Inc.	("KBI"),	and contributed	KBI's	operating	assets	to	a	new	U.S.	limited	partnership	named	Astra	Pharmaceuticals,	L.P.	(the	"Partnership"),	in	exchange	for	a	1%	limited	partner interest.	Astra	contributed	the	net	assets	of	its	wholly	owned	subsidiary,	Astra	USA,	Inc.,	to	the	Partnership	in	exchange	for	a	99%	general	partner	interest.	The Partnership,	renamed	AstraZeneca	LP	("AZLP")	upon	Astra's	1999	merger	with	Zeneca	Group	Plc,	became	the	exclusive	distributor	of	the	products	for	which	KBI retained	rights.

The	Company	earns	certain	Partnership	returns	as	well	as	ongoing	revenue	based	on	sales	of	KBI	products.	The	Partnership	returns	include	a	priority	return provided	for	in	the	Partnership	Agreement,	a	preferential	return	representing	the	Company's	share	of	undistributed	Partnership	AZLP	generally	accepted	accounting principles	("GAAP")	earnings,	and	a	variable	return	related	to	the	Company's	1%	limited	partner	interest.

In	 2014,	AstraZeneca	 has	 the	 option	 to	 purchase	 Merck's	 interest	 in	 KBI	 based	 in	 part	 on	 the	 value	 of	 Merck's	 interest	 in	 Nexium	 and	 Prilosec. AstraZeneca's	option	is	exercisable	between	March	1,	2014	and	April	30,	2014.	If	AstraZeneca	chooses	to	exercise	this	option,	the	closing	date	is	expected	to	be June	30,	2014.	Under	the	amended	agreement,	AstraZeneca	will	make	a	payment	to	Merck	upon	closing	of	$327	million,	reflecting	an	estimate	of	the	fair	value	of Merck's	interest	in	Nexium	and	Prilosec.	This	portion	of	the	exercise	price	is	subject	to	a	true-up	in	2018	based	on	actual	sales	from	closing	in	2014	to	June	2018.	The exercise	price	will	also	include	an	additional	amount	equal	to	a	multiple	of	ten	times	Merck's	average	1%	annual	profit	allocation	in	the	partnership	for	the	three	years prior	to	exercise.	The	Company	believes	that	it	is	likely	that	AstraZeneca	will	exercise	its	option	in	2014.	If	AstraZeneca	exercises	its	option,	the	Company	will	no longer	record	equity	income	from	AZLP	and	supply	sales	to	AZLP	will	terminate.	In	addition,	the	Company	will	recognize	a	non-cash	pretax	gain	of	approximately $700	million.

# Sanofi	Pasteur	MSD

In	1994,	Merck	and	Pasteur	Mérieux	Connaught	(now	Sanofi	Pasteur	S.A.)	formed	a	joint	venture	to	market	human	vaccines	in	Europe	and	to	collaborate	in the	development	of	combination	vaccines	for	distribution	in	the	then-existing	European	Union	("EU")	and	the	European	Free	Trade	Association.	Merck	and	Sanofi Pasteur	contributed,	among	other	things,	their	European	vaccine	businesses	for	equal	shares	in	the	joint	venture,	known	as	Pasteur	Mérieux	MSD,	S.N.C.	(now	Sanofi Pasteur	MSD,	S.N.C.).	The	joint	venture	maintains	a	presence,	directly	or	through	affiliates	or	branches,	in	Belgium,	Italy,	Germany,	Spain,	France,	Austria,	Ireland, Sweden,	Portugal,	the	Netherlands,	Switzerland	and	the	United	Kingdom	and	through	distributors	in	the	rest	of	its	territory.

# Licenses

In	 1998,	 a	 subsidiary	 of	 Schering-Plough	 Corporation	 ("Schering-Plough")	 entered	 into	 a	 licensing	 agreement	 with	 Centocor	 Ortho	 Biotech	 Inc. ("Centocor"),	a	Johnson	&	Johnson	("J&J")	company,	to	market	Remicade,	which	is	prescribed	for	the	treatment	of	inflammatory	diseases.	In	2005,	Schering-Plough's subsidiary	exercised	an	option	under	its	contract	with	Centocor	for	license	rights	to	develop	and	commercialize	Simponi,	a	fully	human	monoclonal	antibody.	The Company	has	exclusive	marketing	rights	to	both	products	throughout	Europe,	Russia	and	Turkey.	In	December	2007,	Schering-Plough	and	Centocor	revised	their distribution	agreement	regarding	the	development,	commercialization	and	distribution	of	both	Remicade	and	Simponi,	extending	the	Company's	rights	to	exclusively market	Remicade	to	match	the	duration	of	the	Company's	exclusive	marketing	rights	for	Simponi.	In	addition,	Schering-Plough	and	Centocor	agreed	to	share	certain development	costs	relating	to	Simponi's	auto-injector	delivery	system.	On	October	6,	2009,	the	European	Commission	("EC")	approved	Simponi	as	a	treatment	for rheumatoid	arthritis	and	other	immune	system	disorders	in	two	presentations	—	a	novel	auto-injector	and	a	prefilled	syringe.	As	a	result,	the	Company's	marketing rights	for	both	products	extend	for	15	years	from	the	first	commercial	sale	of	Simponi	in	the	EU	following	the	receipt	of	pricing	and	reimbursement	approval	within	the EU.	All	profits	derived	from	Merck's	exclusive	distribution	of	the	two	products	in	these	countries	are	equally	divided	between	Merck	and	J&J.

# Competition	and	the	Health	Care	Environment

# Competition

The	markets	in	which	the	Company	conducts	its	business	and	the	pharmaceutical	industry	are	highly	competitive	and	highly	regulated.	The	Company's competitors	include	other	worldwide	research-based	pharmaceutical	companies,	smaller	research	companies	with	more	limited	therapeutic	focus,	and	generic	drug	and consumer	and	animal	health	care	manufacturers.	The	Company's	operations	may	be	adversely	affected	by	generic	and	biosimilar	competition	as	the	Company's	products mature,	as	well	as	technological	advances	of	competitors,	industry	consolidation,	patents	granted	to	competitors,	competitive	combination	products,	new	products	of competitors,	the	generic	availability	of	competitors'	branded	products,	and	new	information	from	clinical	trials	of	marketed	products	or	post-marketing	surveillance.	In addition,	patent	positions	are	increasingly	being	challenged	by	competitors,	and	the	outcome	can	be	highly	uncertain.	An	adverse	result	in	a	patent	dispute	can	preclude commercialization	of	products	or	negatively	affect	sales	of	existing	products	and	could	result	in	the	recognition	of	an	impairment	charge	with	respect	to	intangible	assets

associated	with	certain	products.	Competitive	pressures	have	intensified	as	pressures	in	the	industry	have	grown.	The	effect	on	operations	of	competitive	factors	and patent	disputes	cannot	be	predicted.

Pharmaceutical	competition	involves	a	rigorous	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	positioned	to	compete	in	the	search	for	technological	innovations.	Additional	resources	required	to meet	market	challenges	include	quality	control,	flexibility	to	meet	customer	specifications,	an	efficient	distribution	system	and	a	strong	technical	information	service. The	Company	is	active	in	acquiring	and	marketing	products	through	external	alliances,	such	as	joint	ventures	and	licenses,	and	has	been	refining	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	displacements,	even	for	products	protected	by	patents.	For	example,	the	number	of	compounds	available	to	treat	a	particular	disease	typically	increases	over	time and	can	result	in	slowed	sales	growth	or	reduced	sales	for	the	Company's	products	in	that	therapeutic	category.

The	highly	competitive	animal	health	business	is	affected	by	several	factors	including	regulatory	and	legislative	issues,	scientific	and	technological	advances, product	innovation,	the	quality	and	price	of	the	Company's	products,	effective	promotional	efforts	and	the	frequent	introduction	of	generic	products	by	competitors.

The	Company's	consumer	care	operations	face	competition	from	other	consumer	health	care	businesses	as	well	as	retailers	who	carry	their	own	private	label brands.	The	Company's	competitive	position	is	affected	by	several	factors,	including	regulatory	and	legislative	issues,	scientific	and	technological	advances,	the	quality and	price	of	the	Company's	products,	promotional	efforts	and	the	growth	of	lower	cost	private	label	brands.

# Health	Care	Environment

Global	efforts	toward	health	care	cost	containment	continue	to	exert	pressure	on	product	pricing	and	market	access.	In	the	United	States,	federal	and	state governments	for	many	years	also	have	pursued	methods	to	reduce	the	cost	of	drugs	and	vaccines	for	which	they	pay.	For	example,	federal	laws	require	the	Company	to pay	specified	rebates	for	medicines	reimbursed	by	Medicaid	and	to	provide	discounts	for	outpatient	medicines	purchased	by	certain	Public	Health	Service	entities	and hospitals	serving	a	disproportionate	share	of	low	income	or	uninsured	patients.

Against	this	backdrop,	the	United	States	enacted	major	health	care	reform	legislation	in	2010,	which	began	to	be	implemented	in	2010.	Various	insurance market	reforms	have	advanced	and	will	continue	through	full	implementation	in	2014.	The	law	is	expected	to	expand	access	to	health	care	to	about	32	million	Americans by	the	end	of	the	decade	who	did	not	previously	have	insurance	coverage.	With	respect	to	the	effect	of	the	law	on	the	pharmaceutical	industry,	the	law	increased	the mandated	Medicaid	rebate	from	15.1%	to	23.1%,	expanded	the	rebate	to	Medicaid	managed	care	utilization,	and	increased	the	types	of	entities	eligible	for	the	federal 340B	drug	discount	program.	The	law	also	requires	pharmaceutical	manufacturers	to	pay	a	50%	point	of	service	discount	to	Medicare	Part	D	beneficiaries	when	they	are in	the	Medicare	Part	D	coverage	gap	(i.e.,	the	so-called	"donut	hole").	Approximately	$280	million,	$210	million	and	$150	million	was	recorded	by	Merck	as	a reduction	to	revenue	in	2013,	2012	and	2011,	respectively,	related	to	the	donut	hole	provision.	Also,	pharmaceutical	manufacturers	are	now	required	to	pay	an	annual health	care	reform	fee.	The	total	annual	industry	fee	was	$2.8	billion	in	2013	and	will	be	$3.0	billion	in	2014.	The	fee	is	assessed	on	each	company	in	proportion	to	its share	of	sales	to	certain	government	programs,	such	as	Medicare	and	Medicaid.	The	Company	recorded	$151	million,	$190	million	and	$162	million	of	costs	within Marketing	and	administrative	expenses	in	2013,	2012	and	2011,	respectively,	for	the	annual	health	care	reform	fee.	The	full	impact	of	U.S.	health	care	reform	cannot	be predicted	at	this	time.

The	Company	also	faces	increasing	pricing	pressure	globally	from	managed	care	organizations,	government	agencies	and	programs	that	could	negatively affect	the	Company's	sales	and	profit	margins.	In	the	United	States,	these	include	(i)	practices	of	managed	care	groups,	federal	and	state	exchanges,	and	institutional	and governmental	purchasers,	and	(ii)	U.S.	federal	laws	and	regulations	related	to	Medicare	and	Medicaid,	including	the	Medicare	Prescription	Drug	Improvement	and Modernization	Act	of	2003	and	the	Patient	Protection	and	Affordable	Care	Act	of	2010.	Changes	to	the	health	care	system	enacted	as	part	of	health	care	reform	in	the United	States,	as	well	as	increased	purchasing	power	of	entities	that	negotiate	on	behalf	of	Medicare,	Medicaid,	and	private	sector	beneficiaries,	could	result	in	further pricing	pressures.

In	addition,	in	the	effort	to	contain	the	U.S.	federal	deficit,	the	pharmaceutical	industry	could	be	considered	a	potential	source	of	savings	via	legislative proposals	that	have	been	debated	but	not	enacted.	These	types	of	revenue

generating	or	cost	saving	proposals	include	additional	direct	price	controls	in	the	Medicare	prescription	drug	program	(Part	D).	In	addition,	Congress	may	again	consider proposals	to	allow,	under	certain	conditions,	the	importation	of	medicines	from	other	countries.	It	remains	very	uncertain	as	to	what	proposals,	if	any,	may	be	included as	part	of	future	federal	budget	deficit	reduction	proposals	that	would	directly	or	indirectly	affect	the	Company.

Efforts	toward	health	care	cost	containment	remain	intense	in	several	European	countries.	Many	countries	have	continued	to	announce	and	execute	austerity measures,	which	include	the	implementation	of	pricing	actions	to	reduce	prices	of	generic	and	patented	drugs	and	mandatory	switches	to	generic	drugs.	While	the Company	is	taking	steps	to	mitigate	the	impact	in	these	countries,	the	austerity	measures	continued	to	negatively	affect	the	Company's	revenue	performance	in	2013	and the	Company	anticipates	the	austerity	measures	will	continue	to	negatively	affect	revenue	performance	in	2014.	In	addition,	a	majority	of	countries	attempt	to	contain drug	costs	by	engaging	in	reference	pricing	in	which	authorities	examine	pre-determined	markets	for	published	prices	of	drugs	by	brand.	The	authorities	then	use	price data	from	those	markets	to	set	new	local	prices	for	brand-name	drugs,	including	the	Company's.	Guidelines	for	examining	reference	pricing	are	usually	set	in	local markets	and	can	be	changed	pursuant	to	local	regulations.

In	addition,	in	Japan,	the	pharmaceutical	industry	is	subject	to	government-mandated	biennial	price	reductions	of	pharmaceutical	products	and	certain vaccines.	Furthermore,	the	government	can	order	repricings	for	classes	of	drugs	if	it	determines	that	it	is	appropriate	under	applicable	rules.

Certain	markets	outside	of	the	United	States	have	also	implemented	cost	management	strategies,	such	as	health	technology	assessments,	which	require additional	data,	reviews	and	administrative	processes,	all	of	which	increase	the	complexity,	timing	and	costs	of	obtaining	product	reimbursement	and	exert	downward pressure	on	available	reimbursement.

The	 Company's	 focus	 on	 and	 share	 of	 revenue	 from	 emerging	 markets	 has	 increased.	 Governments	 in	 many	 emerging	 markets	 are	 also	 focused	 on constraining	 health	 care	 costs	 and	 have	 enacted	 price	 controls	 and	 related	 measures,	 such	 as	 compulsory	 licenses,	 that	 aim	 to	 put	 pressure	 on	 the	 price	 of pharmaceuticals	and	constrain	market	access.	The	Company	anticipates	that	pricing	pressures	and	market	access	challenges	will	continue	in	2014	to	varying	degrees	in the	emerging	markets.

Beyond	pricing	and	market	access	challenges,	other	conditions	in	emerging	market	countries	can	affect	the	Company's	efforts	to	continue	to	grow	in	these markets,	including	potential	political	instability,	significant	currency	fluctuation	and	controls,	financial	crises,	limited	or	changing	availability	of	funding	for	health	care, and	other	developments	that	may	adversely	impact	the	business	environment	for	the	Company.	Further,	the	Company	may	engage	third-party	agents	to	assist	in operating	in	emerging	market	countries,	which	may	affect	its	ability	to	realize	continued	growth	and	may	also	increase	the	Company's	risk	exposure.

In	addressing	cost	containment	pressures,	the	Company	engages	in	public	policy	advocacy	with	policymakers	and	continues	to	work	to	demonstrate	that	its medicines	provide	value	to	patients	and	to	those	who	pay	for	health	care.	The	Company	advocates	with	government	policymakers	to	encourage	a	long-term	approach	to sustainable	health	care	financing	that	ensures	access	to	innovative	medicines	and	does	not	disproportionately	target	pharmaceuticals	as	a	source	of	budget	savings.	In markets	with	historically	low	rates	of	health	care	spending,	the	Company	encourages	those	governments	to	increase	their	investments	and	adopt	market	reforms	in	order to	improve	their	citizens'	access	to	appropriate	health	care,	including	medicines.

Operating	conditions	have	become	more	challenging	under	the	global	pressures	of	competition,	industry	regulation	and	cost	containment	efforts.	Although no	one	can	predict	the	effect	of	these	and	other	factors	on	the	Company's	business,	the	Company	continually	takes	measures	to	evaluate,	adapt	and	improve	the organization	and	its	business	practices	to	better	meet	customer	needs	and	believes	that	it	is	well	positioned	to	respond	to	the	evolving	health	care	environment	and market	forces.

# Government	Regulation

The	pharmaceutical	industry	is	subject	to	regulation	by	regional,	country,	state	and	local	agencies	around	the	world.	Governmental	regulation	and	legislation tend	to	focus	on	standards	and	processes	for	determining	drug	safety	and	effectiveness,	as	well	as	conditions	for	sale	or	reimbursement,	especially	related	to	the	pricing	of products.

Of	particular	importance	is	the	U.S.	Food	and	Drug	Administration	(the	"FDA"),	which	administers	requirements	covering	the	testing,	approval,	safety, effectiveness,	manufacturing,	labeling,	and	marketing	of	prescription

pharmaceuticals.	In	many	cases,	the	FDA	requirements	and	practices	have	increased	the	amount	of	time	and	resources	necessary	to	develop	new	products	and	bring	them to	market	in	the	United	States.

The	EU	has	adopted	directives	and	other	legislation	concerning	the	classification,	labeling,	advertising,	wholesale	distribution,	integrity	of	the	supply	chain, enhanced	pharmacovigilance	monitoring	and	approval	for	marketing	of	medicinal	products	for	human	use.	These	provide	mandatory	standards	throughout	the	EU,	which may	be	supplemented	or	implemented	with	additional	regulations	by	the	EU	member	states.	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	believes	that	it	will	continue	to	be	able	to	conduct	its	operations,	including	launching	new	drugs,	in	this	regulatory	environment.	(See "Research	and	Development"	below	for	a	discussion	of	the	regulatory	approval	process.)

# Access	to	Medicines

As	a	global	health	care	company,	Merck's	primary	role	is	to	discover	and	develop	innovative	medicines	and	vaccines.	The	Company	also	recognizes	that	it has	an	important	role	to	play	in	helping	to	improve	access	to	its	products	around	the	world.	The	Company's	efforts	in	this	regard	are	wide-ranging	and	include	a	set	of principles	that	the	Company	strives	to	embed	into	its	operations	and	business	strategies	to	guide	the	Company's	worldwide	approach	to	expanding	access	to	health	care. In	addition,	the	Company	has	many	far-reaching	philanthropic	programs.	The	Merck	Patient	Assistance	Program	provides	medicines	and	adult	vaccines	for	free	to people	in	the	United	States	who	do	not	have	prescription	drug	or	health	insurance	coverage	and	who,	without	the	Company's	assistance,	cannot	afford	their	Merck medicine	and	vaccines.	In	2011,	Merck	announced	that	it	would	launch	"Merck	for	Mothers,"	a	long-term	effort	with	global	health	partners	to	end	preventable	deaths from	complications	of	pregnancy	and	childbirth.	Through	this	initiative,	Merck	is	leveraging	its	scientific	and	business	expertise	to	help	make	proven	solutions	more widely	available,	develop	new	technologies	and	improve	public	and	policymaker	awareness	of	these	issues.

Merck	has	also	in	the	past	provided	funds	to	the	Merck	Foundation,	an	independent	organization,	which	has	partnered	with	a	variety	of	organizations dedicated	to	improving	global	health.	One	of	these	partnerships	is	the	African	Comprehensive	HIV/AIDS	Partnership	in	Botswana,	a	collaboration	with	the	government of	Botswana	that	was	renewed	in	2010	and	supports	Botswana's	response	to	HIV/AIDS	through	a	comprehensive	and	sustainable	approach	to	HIV	prevention,	care, treatment,	and	support.

# Privacy	and	Data	Protection

The	Company	is	subject	to	a	number	of	privacy	and	data	protection	laws	and	regulations	globally.	The	legislative	and	regulatory	landscape	for	privacy	and data	protection	continues	to	evolve.	There	has	been	increased	attention	to	privacy	and	data	protection	issues	in	both	developed	and	emerging	markets	with	the	potential to	affect	directly	 the	Company's	business,	 including	recently	enacted	 laws	and	regulations	 in	 the	United	States,	Europe,	Asia	and	Latin	America,	and	 increased enforcement	and	litigation	activity	in	the	United	States	and	other	developed	markets.

# Distribution

The	Company	sells	its	human	health	pharmaceutical	products	primarily	to	drug	wholesalers	and	retailers,	hospitals,	government	agencies	and	managed health	care	providers,	such	as	health	maintenance	organizations,	pharmacy	benefit	managers	and	other	 institutions.	Human	health	vaccines	are	sold	primarily	 to physicians,	wholesalers,	physician	distributors	and	government	entities.	The	Company's	professional	representatives	communicate	the	effectiveness,	safety	and	value	of the	Company's	pharmaceutical	and	vaccine	products	to	health	care	professionals	in	private	practice,	group	practices,	hospitals	and	managed	care	organizations.	The Company	sells	its	animal	health	products	to	veterinarians,	distributors	and	animal	producers.	The	Company's	over-the-counter,	foot	care	and	sun	care	products	are	sold through	wholesale	and	retail	drug,	food	chain	and	mass	merchandiser	outlets,	as	well	as	club	stores	and	specialty	channels.

# Raw	Materials

Raw	materials	and	supplies,	which	are	generally	available	from	multiple	sources,	are	purchased	worldwide	and	are	normally	available	in	quantities	adequate to	meet	the	needs	of	the	Company's	business.

# Patents,	Trademarks	and	Licenses

Patent	protection	is	considered,	in	the	aggregate,	to	be	of	material	importance	in	the	Company's	marketing	of	its	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	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.

The	Food	and	Drug	Administration	Modernization	Act	includes	a	Pediatric	Exclusivity	Provision	that	may	provide	an	additional	six	months	of	market exclusivity	in	the	United	States	for	indications	of	new	or	currently	marketed	drugs	if	certain	agreed	upon	pediatric	studies	are	completed	by	the	applicant.	Current	U.S. patent	law	provides	additional	patent	term	under	Patent	Term	Restoration	for	periods	when	the	patented	product	was	under	regulatory	review	by	the	FDA.

Patent	portfolios	developed	for	products	introduced	by	the	Company	normally	provide	market	exclusivity.	The	Company	has	the	following	key	U.S.	patent protection	(including	Patent	Term	Restoration	and	Pediatric	Exclusivity)	for	major	marketed	products:

(1) Compound	 patent	 unless	 otherwise	 noted.	 Certain	 of the	 products listed	 may	 be the	 subject	 of	 patent litigation.	 See	 Item	 8.	 "Financial	 Statements	 and	 Supplementary	 Data,"	 Note	 10. "Contingencies	and	Environmental	Liabilities"	below.

(2) By	agreement,	Apotex,	a	generic	manufacturer,	has	been	granted	rights	under	Merck's	 Nasonex	use	patent	in	the	United	States.	In	addition,	a	district	court	decision	(upheld	on	appeal	to	the	Court of	Appeals	for	the	Federal	Circuit)	found	that	Apotex's	proposed	generic	product	would	not	infringe	on	Merck's	 Nasonex	formulation	patent.	Thus,	if	Apotex's	application	is	approved	by	the FDA,	it	can	enter	the	market	in	the	United	States	with	a	generic	version	of	Nasonex.

(3) By	agreement,	a	generic	manufacturer	may	launch	a	generic	version	of 	Zetia	in	the	United	States	in	December	2016.

While	the	expiration	of	a	product	patent	normally	results	in	a	loss	of	market	exclusivity	for	the	covered	pharmaceutical	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	novel	compositions	and	formulations;	and	(iv)	in	the	United	States	and	certain	other countries,	market	exclusivity	that	may	be	available	under	relevant	law.	The	effect	of	product	patent	expiration	on	pharmaceutical	products	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.

By	agreement,	Apotex	Inc.	and	Apotex	Corp.	(collectively,	"Apotex")	has	been	granted	rights	under	Merck's	Nasonex	use	patent	in	the	United	States.	In addition,	a	district	court	decision	(upheld	on	appeal	to	the	Court	of	Appeals	for	the	Federal	Circuit)	found	that	Apotex's	proposed	generic	product	would	not	infringe Merck's	Nasonex	formulation	patent.	Thus,	if	Apotex's	application	is	approved	by	the	FDA,	it	can	enter	the	market	in	the	United	States	with	a	generic	version	of Nasonex.	The	Company	anticipates	that	sales	of	Nasonex	in	the	United	States	will	decline	significantly	after	these	patent	expiries	and	generic	entry.

Additions	to	market	exclusivity	are	sought	in	the	United	States	and	other	countries	through	all	relevant	laws,	including	laws	increasing	patent	life.	Some	of the	benefits	of	increases	in	patent	life	have	been	partially	offset	by	an	increase	in	the	number	of	incentives	for	and	use	of	generic	products.	Additionally,	improvements in	intellectual	property	laws	are	sought	in	the	United	States	and	other	countries	through	reform	of	patent	and	other	relevant	laws	and	implementation	of	international treaties.

The	Company	has	the	following	key	U.S.	patent	protection	for	drug	candidates	under	review	in	the	United	States	by	the	FDA.	Additional	patent	term	may	be provided	for	these	pipeline	candidates	based	on	Patent	Term	Restoration	and	Pediatric	Exclusivity.

(1)	In	September	2013,	Merck	received	a	Complete	Response	Letter	("CRL")	from	the	FDA	for	the	resubmission	of	the	New	Drug	Application	for	sugammadex	sodium	injection	(MK-8616).	To address	the	CRL,	the	Company	is	conducting	a	hypersensitivity	study	and	anticipates	filing	a	New	Drug	Application	resubmission	with	the	FDA	in	2014.

(2)	In	June	2013,	Merck	received	a	CRL	from	the	FDA	for	suvorexant	(MK-4305).	In	February	2014,	the	Company	resubmitted	its	New	Drug	Application	to	the	FDA.

The	Company	also	has	the	following	key	U.S.	patent	protection	for	drug	candidates	in	Phase	3	development:

Unless	otherwise	noted,	the	patents	in	the	above	charts	are	compound	patents.	Each	patent	is	subject	to	any	future	patent	term	restoration	of	up	to	five	years and	six	month	pediatric	market	exclusivity,	either	or	both	of	which	may	be	available.	In	addition,	depending	on	the	circumstances	surrounding	any	final	regulatory approval	of	the	compound,	there	may	be	other	listed	patents	or	patent	applications	pending	that	could	have	relevance	to	the	product	as	finally	approved;	the	relevance	of any	such	application	would	depend	upon	the	claims	that	ultimately	may	be	granted	and	the	nature	of	the	final	regulatory	approval	of	the	product.	Also,	regulatory exclusivity	tied	to	the	protection	of	clinical	data	is	complementary	to	patent	protection	and,	in	some	cases,	may	provide	more	effective	or	longer	lasting	marketing exclusivity	than	a	compound's	patent	estate.	In	the	United	States,	the	data	protection	generally	runs	five

years	from	first	marketing	approval	of	a	new	chemical	entity,	extended	to	seven	years	for	an	orphan	drug	indication	and	12	years	from	first	marketing	approval	of	a biological	product.

For	further	information	with	respect	to	the	Company's	patents,	see	Item	1A.	"Risk	Factors"	and	Item	8.	"Financial	Statements	and	Supplementary	Data," Note	10.	"Contingencies	and	Environmental	Liabilities"	below.

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.

Royalty	income	in	2013	on	patent	and	know-how	licenses	and	other	rights	amounted	to	$339	million.	Merck	also	incurred	royalty	expenses	amounting	to $1.3	billion	in	2013	under	patent	and	know-how	licenses	it	holds.

# 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	12,300	people	are	employed	in	the	Company's	research	activities.	Research	and	development	expenses	were	$7.5	billion	in	2013,	$8.2	billion in	2012,	and	$8.5	billion	in	2011	(which	included	restructuring	costs	in	all	years,	as	well	as	$279	million,	$200	million	and	$587	million	of	in-process	research	and development	impairment	charges	in	2013,	2012	and	2011,	respectively).	The	Company	prioritizes	its	research	and	development	efforts	and	focus	on	candidates	that	it believes	represent	breakthrough	science	that	will	make	a	difference	for	patients	and	payers,	with	an	increased	emphasis	on	externally	sourced	programs.

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.	The	Company's	research	and	development	model	is	designed	to	increase	productivity	and	improve	the	probability	of	success	by prioritizing	the	Company's	research	and	development	resources	on	candidates	the	Company	believes	are	capable	of	providing	unambiguous,	promotable	advantages	to patients	and	payers	and	delivering	the	maximum	value	of	its	approved	medicines	and	vaccines	through	new	indications	and	new	formulations.	Merck	is	pursuing emerging	product	opportunities	independent	of	therapeutic	area	or	modality	(small	molecule,	biologics	and	vaccines)	and	is	building	its	biologics	capabilities.	Further, Merck	has	moved	to	diversify	its	portfolio	through	a	collaboration	on	the	development	of	biosimilars,	which	have	the	potential	to	harness	the	market	opportunity presented	by	biological	medicine	patent	expiries	by	delivering	high	quality	biosimilars	to	enhance	access	for	patients	worldwide.	The	Company	is	committed	to	making externally	sourced	programs	a	greater	component	of	its	pipeline	strategy,	with	a	renewed	focus	on	supplementing	its	internal	research	with	a	licensing	and	external alliance	strategy	focused	on	the	entire	spectrum	of	collaborations	from	early	research	to	late-stage	compounds,	as	well	as	access	to	new	technologies.

The	Company	also	reviews	its	pipeline	to	examine	candidates	which	may	provide	more	value	through	out-licensing.	The	Company	is	evaluating	certain	late- stage	clinical	development	and	platform	technology	assets	to	determine	their	out-licensing	or	sale	potential.	In	January	2014,	the	Company	entered	into	an	agreement	to divest	its	Sirna	Therapeutics,	Inc.	subsidiary	and	related	RNAi	technology	assets.

The	Company's	clinical	pipeline	includes	candidates	in	multiple	disease	areas,	including	atherosclerosis,	cancer,	cardiovascular	diseases,	diabetes,	infectious diseases,	inflammatory/autoimmune	diseases,	insomnia,	neurodegenerative	diseases,	osteoporosis,	respiratory	diseases	and	women's	health.

In	the	development	of	human	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	preclinical	tests	and	controlled	clinical	evaluation.	Before	a	new	drug	or	vaccine	may	be marketed	in	the	United	States,	recorded	data	on	preclinical	and	clinical	experience	are	included	in	the	New	Drug	Application	("NDA")	for	a	drug	or	the	Biologics License	Application	("BLA")	for	a	vaccine	or	biologic	submitted	to	the	FDA	for	the	required	approval.

Once	the	Company's	scientists	discover	a	new	small	molecule	compound	or	biologics	molecule	that	they	believe	has	promise	to	treat	a	medical	condition,	the Company	commences	preclinical	testing	with	that	compound.	Preclinical	testing	includes	laboratory	testing	and	animal	safety	studies	to	gather	data	on	chemistry, pharmacology,	immunogenicity	and	toxicology.	Pending	acceptable	preclinical	data,	the	Company	will	initiate	clinical	testing	in	accordance	with	established	regulatory requirements.	The	clinical	testing	begins	with	Phase	1	studies,	which	are	designed	to	assess	safety,	tolerability,	pharmacokinetics,	and	preliminary	pharmacodynamic activity	of	the	compound	in	humans.

If	favorable,	additional,	larger	Phase	2	studies	are	initiated	to	determine	the	efficacy	of	the	compound	in	the	affected	population,	define	appropriate	dosing	for	the compound,	as	well	as	identify	any	adverse	effects	that	could	limit	the	compound's	usefulness.	In	some	situations,	the	clinical	program	incorporates	adaptive	design methodology	to	use	accumulating	data	to	decide	how	to	modify	aspects	of	the	ongoing	clinical	study	as	it	continues,	without	undermining	the	validity	and	integrity	of	the trial.	One	type	of	adaptive	clinical	trial	is	an	adaptive	Phase	2a/2b	trial	design,	a	two-stage	trial	design	consisting	of	a	Phase	2a	proof-of-concept	stage	and	a	Phase	2b dose-optimization	finding	stage.	If	data	from	the	Phase	2	trials	are	satisfactory,	the	Company	commences	large-scale	Phase	3	trials	to	confirm	the	compound's	efficacy and	safety.	Another	type	of	adaptive	clinical	trial	is	an	adaptive	Phase	2/3	trial	design,	a	study	that	includes	an	interim	analysis	and	an	adaptation	that	changes	the	trial from	having	features	common	in	a	Phase	2	study	(e.g.	multiple	dose	groups)	to	a	design	similar	to	a	Phase	3	trial.	An	adaptive	Phase	2/3	trial	design	reduces	timelines	by eliminating	activities	which	would	be	required	to	start	a	separate	study.	Upon	completion	of	Phase	3	trials,	if	satisfactory,	the	Company	submits	regulatory	filings	with the	appropriate	regulatory	agencies	around	the	world	to	have	the	product	candidate	approved	for	marketing.	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.

Vaccine	development	follows	the	same	general	pathway	as	for	drugs.	Preclinical	testing	focuses	on	the	vaccine's	safety	and	ability	to	elicit	a	protective immune	response	(immunogenicity).	Pre-marketing	vaccine	clinical	trials	are	typically	done	in	three	phases.	Initial	Phase	1	clinical	studies	are	conducted	in	normal subjects	to	evaluate	the	safety,	tolerability	and	immunogenicity	of	the	vaccine	candidate.	Phase	2	studies	are	dose-ranging	studies.	Finally,	Phase	3	trials	provide	the necessary	data	on	effectiveness	and	safety.	If	successful,	the	Company	submits	regulatory	filings	with	the	appropriate	regulatory	agencies.	Also	during	this	stage,	the proposed	manufacturing	facility	undergoes	a	pre-approval	inspection	during	which	production	of	the	vaccine	as	it	is	in	progress	is	examined	in	detail.

In	the	United	States,	the	FDA	review	process	begins	once	a	complete	NDA	or	BLA	is	submitted,	received	and	accepted	for	review	by	the	agency.	Within	60 days	after	receipt,	the	FDA	determines	if	the	application	is	sufficiently	complete	to	permit	a	substantive	review.	The	FDA	also	assesses,	at	that	time,	whether	the application	will	be	granted	a	priority	review	or	standard	review.	Pursuant	to	the	Prescription	Drug	User	Fee	Act	V,	the	FDA	review	period	target	for	NDAs	or	original BLAs	is	either	six	months,	for	priority	review,	or	ten	months,	for	a	standard	review,	from	the	time	the	application	is	deemed	sufficiently	complete.	Once	the	review timelines	 are	 determined,	 the	 FDA	 will	 generally	 act	 upon	 the	 application	 within	 those	 timelines,	 unless	 a	 major	 amendment	 has	 been	 submitted	 (either	 at	 the Company's	own	initiative	or	the	FDA's	request)	to	the	pending	application.	If	this	occurs,	the	FDA	may	extend	the	review	period	to	allow	for	review	of	the	new information,	but	by	no	more	than	three	months.	Extensions	to	the	review	period	are	communicated	to	the	Company.	The	FDA	can	act	on	an	application	either	by	issuing an	approval	letter	or	by	issuing	a	CRL	stating	that	the	application	will	not	be	approved	in	its	present	form	and	describing	all	deficiencies	that	the	FDA	has	identified. Should	the	Company	wish	to	pursue	an	application	after	receiving	a	CRL,	it	can	resubmit	the	application	with	information	that	addresses	the	questions	or	issues identified	by	the	FDA	in	order	to	support	approval.	Resubmissions	are	subject	to	review	period	targets,	which	vary	depending	on	the	underlying	submission	type	and	the content	of	the	resubmission.

The	FDA	has	four	program	designations	—	Fast	Track,	Breakthrough	Therapy,	Accelerated	Approval,	and	Priority	Review	—	to	facilitate	and	expedite development	and	review	of	new	drugs	to	address	unmet	medical	needs	in	the	treatment	of	serious	or	life-threatening	conditions.	The	Fast	Track	designation	provides pharmaceutical	manufacturers	with	opportunities	for	frequent	interactions	with	FDA	reviewers	during	the	product's	development	and	the	ability	for	the	manufacturer	to do	a	rolling	submission	of	the	NDA/BLA.	A	rolling	submission	allows	completed	portions	of	the	application	to	be	submitted	and	reviewed	by	the	FDA	on	an	ongoing basis.	 The	 Breakthrough	 Therapy	 designation	 provides	 manufacturers	 with	 all	 of	 the	 features	 of	 the	 Fast	 Track	 designation	 as	 well	 as	 intensive	 guidance	 on implementing	an	efficient	development	program	for	the	product	and	a	commitment	by	the	FDA	to	involve	senior	managers	and	experienced	review	staff	in	the	review. The	Accelerated	Approval	designation	allows	the	FDA	to	approve	a	product	based	on	an	effect	on	a	surrogate	or	intermediate	endpoint	that	is	reasonably	likely	to predict	a	product's	clinical	benefit	and	generally	requires	the	manufacturer	to	conduct	required	post-approval	confirmatory	trials	to	verify	the	clinical	benefit.	The Priority	Review	designation	means	that	the	FDA's	goal	is	to	take	action	on	the	NDA/BLA	within	six	months,	compared	to	ten	months	under	standard	review.

The	primary	method	the	Company	uses	to	obtain	marketing	authorization	of	pharmaceutical	products	in	the	EU	is	through	the	"centralized	procedure."	This procedure	is	compulsory	for	certain	pharmaceutical	products,	in	particular	those	using	biotechnological	processes,	and	is	also	available	for	certain	new	chemical compounds	and

products.	A	company	seeking	to	market	an	innovative	pharmaceutical	product	through	the	centralized	procedure	must	file	a	complete	set	of	safety	data	and	efficacy	data as	 part	 of	 a	 Marketing	Authorization	Application	 ("MAA")	 with	 the	 European	 Medicines	Agency	 ("EMA").	After	 the	 EMA	 evaluates	 the	 MAA,	 it	 provides	 a recommendation	to	the	EC	and	the	EC	then	approves	or	denies	the	MAA.	It	is	also	possible	for	new	chemical	products	to	obtain	marketing	authorization	in	the	EU through	a	"mutual	recognition	procedure"	in	which	an	application	is	made	to	a	single	member	state	and,	if	the	member	state	approves	the	pharmaceutical	product	under	a national	procedure,	the	applicant	may	submit	that	approval	to	the	mutual	recognition	procedure	of	some	or	all	other	member	states.

Outside	 of	 the	 United	 States	 and	 the	 EU,	 the	 Company	 submits	 marketing	 applications	 to	 national	 regulatory	 authorities.	Examples	 of	 such	 are	 the Pharmaceutical	Medical	Devices	Agency	in	Japan,	Health	Canada,	Agencia	Nacional	de	Vigilancia	in	Brazil,	Korea	Food	and	Drug	Administration	in	South	Korea,	and Therapeutic	Goods	Administration	in	Australia.	Each	country	has	a	separate	and	independent	review	process	and	timeline.	In	many	markets,	approval	times	can	be longer	as	the	regulatory	authority	requires	approval	in	a	major	market,	such	as	the	United	States	or	the	EU,	and	issuance	of	a	Certificate	of	Pharmaceutical	Product	from that	market	before	initiating	their	local	review	process.

# Research	and	Development	Update

The	Company	currently	has	several	candidates	under	regulatory	review	in	the	United	States	or	internationally.

MK-5348,	vorapaxar,	is	an	investigational	anti-thrombotic	medicine	under	review	by	the	FDA	and	EMA.	Merck	is	seeking	approval	of	vorapaxar	for	the reduction	of	atherothrombotic	events,	when	added	to	standard	of	care,	in	patients	with	a	history	of	heart	attack	and	no	history	of	stroke	or	transient	ischemic	attack.	In January	2014,	the	FDA's	Cardiovascular	and	Renal	Drugs	Advisory	Committee	recommended	approval	of	vorapaxar.	The	FDA	is	not	bound	by	the	committee's guidance,	but	takes	its	advice	into	consideration	when	reviewing	investigational	medicines.

V503,	the	Company's	nine-valent	HPV	vaccine	in	development	to	help	protect	against	certain	HPV-related	diseases,	is	under	review	by	the	FDA.	V503 incorporates	antigens	against	five	additional	cancer-causing	HPV	types	as	compared	with	Gardasil.	The	Company	anticipates	submitting	an	MAA	to	the	EMA	in	the first	half	of	2014.

MK-8962,	corifollitropin	alfa	 injection,	 is	an	 investigational	fertility	 treatment	under	review	by	 the	FDA	for	controlled	ovarian	stimulation	 in	women participating	in	assisted	reproductive	technology.	If	approved,	corifollitropin	alfa	would	be	the	first	sustained	follicular	stimulant	for	use	in	a	fertility	treatment	regimen in	the	United	States.	Merck's	corifollitropin	alfa	is	currently	approved	in	more	than	50	markets	outside	the	United	States,	including	the	EU.

MK-7243,	Grastek	(Timothy	Grass	Pollen	Allergen	Extract),	an	investigational	Timothy	grass	pollen	allergy	immunotherapy	tablet	("AIT"),	and	MK-3641, Ragwitek	(Short	Ragweed	Pollen	Allergen	Extract),	an	investigational	ragweed	pollen	AIT,	are	both	under	review	by	the	FDA.	Grastek	is	the	proposed	trade	name	for MK-7243	and	Ragwitek	is	the	proposed	trade	name	for	MK-3641.	MK-7243	and	MK-3641	are	investigational	sublingual	tablets	designed	to	help	treat	the	underlying cause	of	allergic	rhinitis	by	generating	an	immune	response	to	help	protect	allergic	patients	against	effects	triggered	by	the	targeted	allergen.	Merck	has	partnered	with ALK-Abello	to	develop	its	investigational	sublingual	allergy	immunotherapy	tablets	for	Timothy	grass	pollen,	ragweed	pollen	and	house	dust	mites	in	North	America.	In December	2013,	the	FDA's	Allergenic	Products	Advisory	Committee	had	a	positive	discussion	of	MK-7243.	In	January	2014,	the	same	Advisory	Committee	had	a positive	discussion	of	MK-3641.	The	FDA	is	not	bound	by	the	committee's	guidance,	but	takes	its	advice	into	consideration	when	reviewing	investigational	medicines. Merck	expects	the	FDA's	review	for	both	MK-7243	and	MK-3641	to	be	completed	in	the	first	half	of	2014.	In	February	2014,	the	Company	announced	that	Grastek received	regulatory	approval	in	Canada.

MK-4305,	suvorexant,	is	an	investigational	insomnia	medicine	in	a	new	class	of	medicines	called	orexin	receptor	antagonists	for	use	in	patients	with difficulty	falling	or	staying	asleep.	In	July	2013,	the	Company	announced	that	it	had	received	a	CRL	from	the	FDA	regarding	the	NDA	for	suvorexant.	In	the	CRL,	the FDA	advised	Merck	that:	(1)	the	efficacy	of	suvorexant	has	been	established	at	doses	of	10	mg	to	40	mg	in	elderly	and	non-elderly	adult	patients;	(2)	10	mg	should	be the	starting	dose	for	most	patients	and	must	be	available	before	suvorexant	can	be	approved;	(3)	15	mg	and	20	mg	doses	would	be	appropriate	in	patients	in	whom	the 10	mg	dose	is	well-tolerated	but	not	effective;	and	(4),	for	patients	taking	concomitant	moderate	CYP3A4	inhibitors,	a	5	mg	dose	would	be	necessary.	In	addition,	the FDA	determined	that	the	safety	data	do	not	support	the	approval	of	suvorexant	30	mg	and	40	mg.	In	February	2014,	the	Company	resubmitted	its	NDA	to	the	FDA.	As previously	disclosed,	both	FDA	approval	and	a	separate	scheduling

determination	 by	 the	 U.S.	 Drug	 Enforcement	Administration	 are	 required	 before	 Merck	 can	 introduce	 suvorexant	 in	 the	 United	 States.	 Insomnia	 is	 a	 condition characterized	by	difficulty	falling	asleep	and/or	staying	asleep.	The	Company	has	submitted	a	new	drug	application	for	suvorexant	to	the	health	authorities	in	Japan	and is	continuing	with	plans	to	seek	approval	for	suvorexant	in	other	countries	around	the	world.

MK-8616,	sugammadex	sodium	injection,	is	an	investigational	agent	for	the	reversal	of	neuromuscular	blockade	induced	by	rocuronium	or	vecuronium (neuromuscular	blocking	agents).	Neuromuscular	blockade	is	used	in	anesthesiology	to	induce	muscle	relaxation	during	surgery.	In	September	2013,	Merck	announced that	it	had	received	a	CRL	from	the	FDA	for	the	resubmission	of	the	NDA	for	sugammadex	sodium	injection.	The	FDA's	letter	raised	concerns	about	operational	aspects of	a	hypersensitivity	study	that	the	agency	had	requested	in	2008.	To	address	the	CRL,	the	Company	is	conducting	a	hypersensitivity	study	and	anticipates	filing	an NDA	resubmission	with	the	FDA	in	2014.	Sugammadex	sodium	injection	is	approved	and	has	been	launched	in	many	countries	outside	of	the	United	States	where	it	is marketed	as	Bridion.

MK-8109,	vintafolide,	is	an	investigational	cancer	candidate	under	review	by	the	EMA.	As	part	of	an	exclusive	license	agreement	with	Endocyte,	Inc. ("Endocyte"),	 Merck	 is	 responsible	 for	 the	 development	 and	 worldwide	 commercialization	 of	 vintafolide	 in	 oncology.	The	 EMA	 accepted	 the	 MAA	 filings	 for vintafolide	 and	 Endocyte's	 investigational	 companion	 diagnostic	 imaging	 agent,	 etarfolatide,	 for	 the	 targeted	 treatment	 of	 patients	 with	 folate-receptor	 positive platinum-resistant	ovarian	cancer	in	combination	with	pegylated	liposomal	doxorubicin.	Both	vintafolide	and	etarfolatide	have	been	granted	orphan	drug	status	by	the EC.	Vintafolide	is	in	Phase	3	development	in	the	United	States.

MK-7009,	vaniprevir,	is	an	investigational,	oral	twice-daily	protease	inhibitor	for	the	treatment	of	chronic	hepatitis	C	virus	("HCV")	infection	under	review in	Japan.

In	addition	to	the	candidates	under	regulatory	review,	the	Company	has	12	drug	candidates	in	Phase	3	development	targeting	a	broad	range	of	diseases.	The Company	anticipates	filing	an	NDA	or	a	BLA,	as	applicable,	with	the	FDA	with	respect	to	several	of	these	candidates	in	2014.

MK-3475,	an	investigational	anti-PD-1	immunotherapy,	is	currently	being	evaluated	for	the	treatment	of	patients	with	advanced	melanoma	and	other	tumor types.	In	January	2014,	the	Company	announced	it	has	started	a	rolling	submission	to	the	FDA	of	a	BLA	for	MK-3475	for	patients	with	advanced	melanoma	who	have previously	been	treated	with	ipilimumab.	A	rolling	submission	allows	completed	portions	of	the	application	to	be	submitted	and	reviewed	by	the	FDA	on	an	ongoing basis.	The	Company	expects	to	complete	the	application	in	the	first	half	of	2014.	In	April	2013,	Merck	announced	that	MK-3475	received	a	Breakthrough	Therapy designation	for	advanced	melanoma	from	the	FDA.	As	noted	above,	the	designation	of	an	investigational	drug	as	a	Breakthrough	Therapy	is	intended	to	expedite	the development	and	review	of	a	candidate	that	is	planned	for	use,	alone	or	in	combination,	to	treat	a	serious	or	life-threatening	disease	or	condition	when	preliminary clinical	evidence	indicates	that	the	drug	may	demonstrate	substantial	improvement	over	existing	therapies	on	one	or	more	clinically	significant	endpoints.

The	MK-3475	clinical	development	program	also	includes	studies	across	a	broad	range	of	cancer	types	including:	bladder,	colorectal,	gastric,	head	and	neck, melanoma,	non-small	cell	lung,	renal,	triple	negative	breast	and	hematological	malignancies.	In	addition,	the	Company	has	announced	four	collaborations	with	other pharmaceutical	companies	to	evaluate	novel	combination	regimens	with	MK-3475.

MK-0822,	odanacatib,	is	an	oral,	once-weekly	investigational	treatment	for	patients	with	osteoporosis.	Osteoporosis	is	a	disease	that	reduces	bone	density and	strength	and	results	in	an	increased	risk	of	bone	fractures.	Odanacatib	is	a	cathepsin	K	inhibitor	that	selectively	inhibits	the	cathepsin	K	enzyme.	Cathepsin	K	is known	to	play	a	central	role	in	the	function	of	osteoclasts,	which	are	cells	that	break	down	existing	bone	tissue,	particularly	the	protein	components	of	bone.	Inhibition of	cathepsin	K	is	a	novel	approach	to	the	treatment	of	osteoporosis.	In	July	2012,	Merck	announced	an	update	on	the	Phase	3	trial	assessing	fracture	risk	reduction	with odanacatib.	The	independent	Data	Monitoring	Committee	(the	"DMC")	for	the	study	completed	its	first	planned	interim	analysis	for	efficacy	and	recommended	that	the study	 be	 closed	 early	 due	 to	 robust	 efficacy	 and	 a	 favorable	 benefit-risk	 profile.	The	 DMC	 noted	 that	 safety	 issues	 remain	 in	 certain	 selected	 areas	 and	 made recommendations	with	respect	to	following	up	on	them.	On	February	1,	2013,	Merck	announced	that	it	had	recently	received	and	was	reviewing	safety	and	efficacy	data from	the	Phase	3	trial.	As	a	result	of	its	review	of	this	data,	the	Company	concluded	that	review	of	additional	data	from	the	previously	planned,	ongoing	extension	study was	warranted	and	that	filing	an	application	for	approval	with	the	FDA

should	be	delayed.	As	previously	announced,	the	Company	is	conducting	a	blinded	extension	of	the	trial	in	approximately	8,200	women,	which	will	provide	additional safety	and	efficacy	data.	Merck	continues	to	anticipate	that	it	will	file	applications	for	approval	of	odanacatib	in	2014	with	additional	data	from	the	extension	trial.	The Company	continues	to	believe	that	odanacatib	will	have	the	potential	to	address	unmet	medical	needs	in	patients	with	osteoporosis.

V419	is	an	investigational	hexavalent	pediatric	combination	vaccine,	which	contains	components	of	current	vaccines,	designed	to	help	protect	against	six potentially	serious	diseases	—	diphtheria,	tetanus,	whooping	cough	(Bordetella	pertussis),	polio	(poliovirus	types	1,	2,	and	3),	invasive	disease	caused	by	Haemophilus influenzae	type	b,	and	hepatitis	B	—	that	is	being	developed	in	collaboration	with	Sanofi-Pasteur.	The	Company	continues	to	anticipate	filing	a	BLA	for	V419	with	the FDA	in	2014.

MK-0859,	anacetrapib,	is	an	investigational	inhibitor	of	the	cholesteryl	ester	transfer	protein	("CETP")	that	is	being	investigated	in	lipid	management	to	raise HDL-C	and	reduce	LDL-C.	Anacetrapib	is	being	evaluated	in	a	large,	event-driven	cardiovascular	clinical	outcomes	trial	REVEAL	(Randomized	EValuation	of	the Effects	of	Anacetrapib	Through	Lipid-modification)	involving	patients	with	preexisting	vascular	disease	that	is	predicted	to	be	completed	in	2017.

MK-8931	is	Merck's	novel	investigational	oral	ß-amyloid	precursor	protein	site-cleaving	enzyme	("BACE")	inhibitor	for	the	treatment	of	Alzheimer's disease	being	evaluated	in	a	Phase	2/3	clinical	trial	(EPOCH)	designed	to	evaluate	the	safety	and	efficacy	of	MK-8931	versus	placebo	in	patients	with	mild-to-moderate Alzheimer's	disease.	Based	on	a	positive	DMC	recommendation	made	following	a	planned	analysis	of	interim	safety	data	that	included	a	safety	cohort	of	200	patients treated	with	MK-8931	for	at	least	three	months,	the	Company	recently	began	enrolling	patients	in	the	Phase	3	portion	of	the	trial,	as	well	as	a	new	Phase	3	trial	(APECS) designed	to	evaluate	the	safety	and	efficacy	of	MK-8931	versus	placebo	in	patients	with	amnestic	mild	cognitive	impairment	due	to	Alzheimer's	disease,	also	known	as prodromal	Alzheimer's	disease.

MK-3415A,	actoxumab/bezlotoxumab,	an	investigational	candidate	for	the	prevention	of	Clostridium	difficile	infection	recurrence,	is	a	combination	of	two monoclonal	antibodies	used	to	treat	patients	with	a	single	infusion.

MK-3102,	omarigliptin,	is	an	investigational	once-weekly	dipeptidyl	peptidase-4	("DPP-4")	inhibitor	in	development	for	the	treatment	of	type	2	diabetes.

MK-8835,	ertugliflozin,	is	an	investigational	oral	sodium	glucose	cotransporter	("SGLT2")	inhibitor	being	evaluated	for	the	treatment	of	type	2	diabetes. During	2013,	the	Company	entered	into	a	worldwide	(except	Japan)	collaboration	agreement	with	Pfizer	Inc.	for	the	development	and	commercialization	of	ertugliflozin.

MK-1293	is	an	insulin	glargine	candidate	for	the	treatment	of	patients	with	type	1	and	type	2	diabetes.	In	February	2014,	the	Company	announced	that	it	had expanded	 its	 collaboration	 with	 Samsung	 Bioepis	 to	 develop,	 manufacture	 and	 commercialize	 MK-1293.	 Under	 the	 terms	 of	 the	 agreement,	 the	 companies	 will collaborate	on	clinical	development,	regulatory	filings	and	manufacturing.	If	approved,	Merck	will	commercialize	this	candidate.

V212	is	an	inactivated	VZV	vaccine	in	development	for	the	prevention	of	herpes	zoster.	The	Company	is	conducting	two	Phase	3	trials,	one	in	autologous hematopoietic	cell	transplant	patients	and	the	other	in	patients	with	solid	tumor	malignancies	undergoing	chemotherapy	and	hematological	malignancies.

MK-3222,	tildrakizumab,	is	an	anti-interleukin-23	monoclonal	antibody	candidate	being	investigated	for	the	treatment	of	psoriasis.

MK-5172/MK-8742,	an	all-oral	combination	regimen	in	Phase	2	development	consisting	of	MK-5172,	an	investigational	HCV	NS3/4A	protease	inhibitor, and	MK-8742,	an	investigational	HCV	NS5A	replication	complex	inhibitor,	was	granted	a	Breakthrough	Therapy	designation	in	October	2013	by	the	FDA	for	treatment of	chronic	HCV	infection.	MK-5172	and	MK-8742	are	being	investigated	in	a	broad	clinical	program	that	includes	studies	in	patients	with	multiple	HCV	genotypes who	are	treatment-naïve,	treatment	failures	as	well	as	other	important	HCV	subpopulations	such	as	patients	with	cirrhosis	and	those	co-infected	with	HIV.

MK-8175A,	NOMAC/E2,	which	is	being	marketed	as	Zoely	in	the	EU,	is	an	investigational	oral	contraceptive	for	use	by	women	to	prevent	pregnancy.	In November	2011,	Merck	received	a	CRL	from	the	FDA	for	NOMAC/E2.	Merck	has	made	the	decision	to	discontinue	the	Phase	3	clinical	trial	for	NOMAC/E2	being conducted	in	the	United	States.	This	decision	is	not	based	on	any	new	safety	or	efficacy	findings.

In	May	2013,	the	Company	provided	an	update	on	the	clinical	program	for	preladenant,	Merck's	investigational	adenosine	A2A	receptor	antagonist	for	the treatment	of	Parkinson's	disease.	An	initial	review	of	data	from	three	separate	Phase	3	trials	did	not	provide	evidence	of	efficacy	for	preladenant	compared	with	placebo. Based	on	these	results,	Merck	has	taken	steps	to	discontinue	the	extension	phases	of	these	studies	and	no	longer	plans	to	pursue	regulatory	filings	for	preladenant.	The decision	 to	discontinue	 these	studies	was	not	based	on	any	safety	finding.	The	Company	recorded	an	 impairment	charge	of	$181	million	 in	2013	related	 to	 the discontinuation	of	the	clinical	development	program	for	preladenant.

The	chart	below	reflects	the	Company's	research	pipeline	as	of	February	21,	2014.	Candidates	shown	in	Phase	3	include	specific	products	and	the	date	such candidate	entered	into	Phase	3	development.	Candidates	shown	in	Phase	2	include	the	most	advanced	compound	with	a	specific	mechanism	or,	if	listed	compounds	have the	 same	 mechanism,	 they	 are	 each	 currently	 intended	 for	 commercialization	 in	 a	 given	 therapeutic	 area.	 Small	 molecules	 and	 biologics	 are	 given	 MK-number designations	and	vaccine	candidates	are	given	V-number	designations.	Except	as	otherwise	noted,	candidates	in	Phase	1,	additional	indications	in	the	same	therapeutic area	and	additional	claims,	line	extensions	or	formulations	for	in-line	products	are	not	shown.

# Alzheimer's	Disease

# Asthma

# Bacterial	Infection

# Cancer

CMV	Prophylaxis	in	Transplant	Patients

# Contraception,	Medicated	IUS

Contraception,	Next	Generation	Ring

Hepatitis	C

# Non-Small	Cell	Lung	Cancer

Pneumoconjugate	Vaccine

Rheumatoid	Arthritis

# Clostridium	difficile	Infection

MK-3415A	(actoxumab/bezlotoxumab)

# Diabetes	Mellitus

# Herpes	Zoster

V212	(inactivated	VZV	vaccine)	(December	2010)

# Melanoma

# Osteoporosis

Pediatric	Hexavalent	Combination	Vaccine

Platinum-Resistant	Ovarian	Cancer

# Psoriasis

# Fertility

MK-8962	(corifollitropin	alfa	injection)	(U.S.)

# HPV-Related	Cancers

# Insomnia

# Neuromuscular	Blockade	Reversal

MK-8616	(sugammadex	sodium	injection)

# Thrombosis

# Footnotes:

(1)	North	American	rights	only.

(4)		In	January	2014,	the	Company	announced	it	has	started	a	rolling submission	to	the	FDA	of	a	BLA	for	MK-3475	for	patients	with advanced	melanoma	who	have	previously	been	treated	with	ipilimumab. (5)		In	June	2013,	Merck	received	a	CRL	from	the	FDA	for	suvorexant (MK-4305).	In	February	2014,	the	Company	resubmitted	its	NDA	to	the FDA.

(6)		In	September	2013,	Merck	received	a	CRL	from	the	FDA	for	the resubmission	of	the	NDA	for	sugammadex	sodium	injection	(MK-

8616).	To	address	the	CRL,	the	Company	is	conducting	a

hypersensitivity	study	and	anticipates	filing	an	NDA	resubmission	with the	FDA	in	2014.

# Employees

As	of	December	31,	2013,	the	Company	had	approximately	76,000	employees	worldwide,	with	approximately	29,100	employed	in	the	United	States, including	Puerto	Rico.	Approximately	32%	of	worldwide

employees	of	the	Company	are	represented	by	various	collective	bargaining	groups.	In	addition,	the	Company's	joint	ventures	in	China	and	Brazil,	which	are	included	in the	consolidated	results	of	Merck,	had	about	1,300	employees.

# 2013	Restructuring	Program

In	October	2013,	the	Company	announced	a	new	global	restructuring	program	(the	"2013	Restructuring	Program")	as	part	of	a	global	initiative	to	sharpen	its commercial	and	research	and	development	focus.	As	part	of	the	new	program,	the	Company	expects	to	reduce	its	total	workforce	by	approximately	8,500	positions. These	workforce	reductions	will	primarily	come	from	the	elimination	of	positions	in	sales,	administrative	and	headquarters	organizations,	as	well	as	research	and development.	The	Company	will	also	reduce	its	global	real	estate	footprint	and	continue	to	improve	the	efficiency	of	its	manufacturing	and	supply	network.	The Company	will	continue	to	hire	employees	in	strategic	growth	areas	of	the	business	as	necessary.

# Merger	Restructuring	Program

In	2010,	subsequent	to	the	Merck	and	Schering-Plough	merger	(the	"Merger"),	the	Company	commenced	actions	under	a	global	restructuring	program	(the "Merger	Restructuring	Program")	designed	to	streamline	the	cost	structure	of	the	combined	company.	Further	actions	under	this	program	were	initiated	in	2011.	The actions	under	this	program	primarily	reflect	the	elimination	of	positions	in	sales,	administrative	and	headquarters	organizations,	as	well	as	from	the	sale	or	closure	of certain	manufacturing	and	research	and	development	sites	and	the	consolidation	of	office	facilities.	Since	inception	of	the	Merger	Restructuring	Program	through December	31,	2013,	Merck	has	eliminated	approximately	26,880	positions	comprised	of	employee	separations,	as	well	as	the	elimination	of	contractors	and	vacant positions.	Approximately	6,300	position	eliminations	remain	pending	under	this	program	and	an	older	program	as	of	December	31,	2013.	The	restructuring	actions under	the	Merger	Restructuring	Program	were	substantially	completed	by	the	end	of	2013,	with	the	exception	of	certain	actions,	principally	manufacturing-related. Subsequent	to	the	Merger,	the	Company	has	rationalized	a	number	of	manufacturing	sites	worldwide.	The	remaining	actions	under	this	program	will	result	in	additional manufacturing	facility	rationalizations,	which	are	expected	to	be	substantially	completed	by	2016.

# Environmental	Matters

The	Company	believes	that	there	are	no	compliance	issues	associated	with	applicable	environmental	laws	and	regulations	that	would	have	a	material adverse	effect	on	the	Company.	The	Company	is	also	remediating	environmental	contamination	resulting	from	past	industrial	activity	at	certain	of	its	sites.	Expenditures for	remediation	and	environmental	liabilities	were	$20	million	in	2013,	$14	million	in	2012	and	$25	million	in	2011,	and	are	estimated	at	$117	million	in	the	aggregate for	the	years	2014	through	2018.	These	amounts	do	not	consider	potential	recoveries	from	other	parties.	The	Company	has	taken	an	active	role	in	identifying	and providing	for	these	costs	and,	in	management's	opinion,	the	liabilities	for	all	environmental	matters,	which	are	probable	and	reasonably	estimable,	have	been	accrued and	totaled	$213	million	at	December	31,	2013.	Although	it	is	not	possible	to	predict	with	certainty	the	outcome	of	these	environmental	matters,	or	the	ultimate	costs	of remediation,	management	does	not	believe	that	any	reasonably	possible	expenditures	that	may	be	incurred	in	excess	of	the	liabilities	accrued	should	exceed	$84	million in	the	aggregate.	Management	also	does	not	believe	that	these	expenditures	should	have	a	material	adverse	effect	on	the	Company's	financial	position,	results	of operations,	liquidity	or	capital	resources	for	any	year.

Merck	believes	that	climate	change	could	present	risks	to	its	business.	Some	of	the	potential	impacts	of	climate	change	to	its	business	include	increased operating	costs	due	to	additional	regulatory	requirements,	physical	risks	to	the	Company's	facilities,	water	limitations	and	disruptions	to	its	supply	chain.	These	potential risks	are	integrated	into	the	Company's	business	planning	including	investment	in	reducing	energy,	water	use	and	greenhouse	gas	emissions.	The	Company	does	not believe	these	risks	are	material	to	its	business	at	this	time.

# Geographic	Area	Information

The	Company's	operations	outside	the	United	States	are	conducted	primarily	through	subsidiaries.	Sales	worldwide	by	subsidiaries	outside	the	United	States were	59%	of	sales	in	2013,	57%	of	sales	in	2012	and	57%	of	sales	in	2011.

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	and	adopts	strategies	responsive to	changing	economic	and	political conditions.

Merck	has	expanded	its	operations	in	countries	located	in	Latin	America,	the	Middle	East,	Africa,	Eastern	Europe	and	Asia	Pacific.	Business	in	these developing	areas,	while	sometimes	less	stable,	offers	important	opportunities	for	growth	over	time.

Financial	information	about	geographic	areas	of	the	Company's	business	is	provided	in	Item	8.	"Financial	Statements	and	Supplementary	Data"	below.

# Available	Information

The	Company's	Internet	website	address	is	www.merck.com.	The	Company	will	make	available,	free	of	charge	at	the	"Investors"	portion	of	its	website,	its Annual	Report	on	Form	10-K,	Quarterly	Reports	on	Form	10-Q,	Current	Reports	on	Form	8-K,	and	all	amendments	to	those	reports	filed	or	furnished	pursuant	to Section	13(a)	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	as	amended,	as	soon	as	reasonably	practicable	after	such	reports	are	electronically	filed	with,	or	furnished to,	the	Securities	and	Exchange	Commission	("SEC").

The	Company's	corporate	governance	guidelines	and	the	charters	of	the	Board	of	Directors'	four	standing	committees	are	available	on	the	Company's website	at	www.merck.com/about/leadership	and	all	such	information	is	available	in	print	to	any	stockholder	who	requests	it	from	the	Company.

# Item	1A. Risk	Factors.

Investors	should	carefully	consider	all	of	the	information	set	forth	in	this	Form	10-K,	including	the	following	risk	factors,	before	deciding	to	invest	in	any	of the	Company's	securities.	The	risks	below	are	not	the	only	ones	the	Company	faces.	Additional	risks	not	currently	known	to	the	Company	or	that	the	Company presently	deems	immaterial	may	also	impair	its	business	operations.	The	Company's	business,	financial	condition,	results	of	operations	or	prospects	could	be	materially adversely	affected	by	any	of	these	risks.	This	Form	10-K	also	contains	forward-looking	statements	that	involve	risks	and	uncertainties.	The	Company's	results	could materially	differ	from	those	anticipated	in	these	forward-looking	statements	as	a	result	of	certain	factors,	including	the	risks	it	faces	described	below	and	elsewhere.	See "Cautionary	Factors	that	May	Affect	Future	Results"	below.

# The	Company	is	dependent	on	its	patent	rights,	and	if	its	patent	rights	are	invalidated	or	circumvented,	its	business	would	be	adversely	affected.

Patent	protection	is	considered,	in	the	aggregate,	to	be	of	material	importance	in	the	Company's	marketing	of	human	health	products	in	the	United	States	and in	most	major	foreign	markets.	Patents	covering	products	that	it	has	introduced	normally	provide	market	exclusivity,	which	is	important	for	the	successful	marketing and	sale	of	its	products.	The	Company	seeks	patents	covering	each	of	its	products	in	each	of	the	markets	where	it	intends	to	sell	the	products	and	where	meaningful patent	protection	is	available.

Even	if	the	Company	succeeds	in	obtaining	patents	covering	its	products,	third	parties	or	government	authorities	may	challenge	or	seek	to	invalidate	or circumvent	its	patents	and	patent	applications.	It	is	important	for	the	Company's	business	to	defend	successfully	the	patent	rights	that	provide	market	exclusivity	for	its products.	The	Company	is	often	involved	in	patent	disputes	relating	to	challenges	to	its	patents	or	infringement	and	similar	claims	against	the	Company.	The	Company aggressively	defends	its	important	patents	both	within	and	outside	the	United	States,	including	by	filing	claims	of	infringement	against	other	parties.	See	Item	8. "Financial	Statements	and	Supplementary	Data,"	Note	10.	"Contingencies	and	Environmental	Liabilities"	below.	In	particular,	manufacturers	of	generic	pharmaceutical products	from	time	to	time	file	Abbreviated	New	Drug	Applications	with	the	FDA	seeking	to	market	generic	forms	of	the	Company's	products	prior	to	the	expiration	of relevant	patents	owned	by	the	Company.	The	Company	normally	responds	by	vigorously	defending	its	patent,	including	by	filing	lawsuits	alleging	patent	infringement. Patent	litigation	and	other	challenges	to	the	Company's	patents	are	costly	and	unpredictable	and	may	deprive	the	Company	of	market	exclusivity	for	a	patented	product or,	in	some	cases,	third-party	patents	may	prevent	the	Company	from	marketing	and	selling	a	product	in	a	particular	geographic	area.

Additionally,	certain	foreign	governments	have	indicated	that	compulsory	licenses	to	patents	may	be	granted	in	the	case	of	national	emergencies	or	in	other circumstances,	which	could	diminish	or	eliminate	sales	and	profits	from	 those	regions	and	negatively	affect	 the	Company's	results	of	operations.	Further,	court decisions	relating	to	other

companies'	U.S.	patents,	potential	U.S.	legislation	relating	to	patent	reform,	as	well	as	regulatory	initiatives	may	result	in	further	erosion	of	intellectual	property protection.

If	one	or	more	important	products	lose	patent	protection	in	profitable	markets,	sales	of	those	products	are	likely	to	decline	significantly	as	a	result	of	generic versions	of	those	products	becoming	available	and,	in	the	case	of	certain	products,	such	a	loss	could	result	in	a	material	non-cash	impairment	charge.	The	Company's results	of	operations	may	be	adversely	affected	by	the	lost	sales	unless	and	until	the	Company	has	successfully	launched	commercially	successful	replacement	products.

A	chart	listing	the	U.S.	patent	protection	for	the	Company's	major	marketed	products	is	set	forth	above	in	Item	1.	"Business	—	Patents,	Trademarks	and

# As	the	Company's	products	lose	market	exclusivity,	the	Company	generally	experiences	a	significant	and	rapid	loss	of	sales	from	those	products.

The	Company	depends	upon	patents	to	provide	it	with	exclusive	marketing	rights	for	its	products	for	some	period	of	time.	Loss	of	patent	protection	for	one	of the	Company's	products	typically	leads	to	a	significant	and	rapid	loss	of	sales	for	that	product,	as	lower	priced	generic	versions	of	that	drug	become	available.	In	the case	of	products	that	contribute	significantly	to	the	Company's	sales,	the	loss	of	patent	protection	can	have	a	material	adverse	effect	on	the	Company's	business,	cash flow,	results	of	operations,	financial	position	and	prospects.	The	patent	that	provides	market	exclusivity	in	the	EU	for	Nasonex	expired	on	January	1,	2014	and	the Company	anticipates	that	sales	will	decline	significantly.	Also,	a	court	has	ruled	that	a	proposed	generic	form	of	Nasonex,	made	by	Apotex,	a	generic	manufacturer,	does not	 infringe	 the	 Company's	 U.S.	 patent	 for	Nasonex.	If	Apotex	receives	approval	 to	market	 in	 the	United	States	 its	generic	form	of	Nasonex,	 the	Company	will experience	a	loss	of	Nasonex	sales.

In	addition,	in	September	2013,	the	EC	approved	a	biosimilar	for	Remicade.	While	the	Company	is	experiencing	generic	competition	in	certain	smaller European	markets,	the	Company	anticipates	a	more	substantial	decline	in	Remicade	sales	following	loss	of	market	exclusivity	in	major	European	markets	in	February 2015.

Key	Company	products	generate	a	significant	amount	of	the	Company's	profits	and	cash	flows,	and	any	events	that	adversely	affect	the	markets	for its	leading	products	could	have	a	material	and	negative	impact	on	results	of	operations	and	cash	flows.

The	Company's	ability	to	generate	profits	and	operating	cash	flow	depends	largely	upon	the	continued	profitability	of	the	Company's	key	products,	such	as Januvia,	Zetia,	Remicade,	Gardasil,	Janumet,	Isentress,	Vytorin,	and	Nasonex.	As	a	result	of	the	Company's	dependence	on	key	products,	any	event	that	adversely affects	any	of	these	products	or	the	markets	for	any	of	these	products	could	have	a	significant	impact	on	results	of	operations	and	cash	flows.	These	events	could	include loss	of	patent	protection,	increased	costs	associated	with	manufacturing,	generic	or	over-the-counter	availability	of	the	Company's	product	or	a	competitive	product,	the discovery	 of	 previously	 unknown	 side	 effects,	 results	 of	 post-market	 trials,	 increased	 competition	 from	 the	 introduction	 of	 new,	 more	 effective	 treatments	 and discontinuation	or	removal	from	the	market	of	the	product	for	any	reason.	If	any	of	these	events	had	a	material	adverse	effect	on	the	sales	of	certain	products,	such	an event	could	result	in	a	material	non-cash	impairment	charge.

The	Company's	research	and	development	efforts	may	not	succeed	in	developing	commercially	successful	products	and	the	Company	may	not	be able	to	acquire	commercially	successful	products	in	other	ways;	in	consequence,	the	Company	may	not	be	able	to	replace	sales	of	successful	products	that	have lost	patent	protection.

Like	other	major	pharmaceutical	companies,	in	order	to	remain	competitive,	the	Company	must	continue	to	launch	new	products	each	year.	Expected declines	in	sales	of	products	after	the	loss	of	market	exclusivity	mean	that	the	Company's	future	success	is	dependent	on	its	pipeline	of	new	products,	including	new products	which	it	may	develop	through	joint	ventures	and	products	which	it	is	able	to	obtain	through	license	or	acquisition.	To	accomplish	this,	the	Company	commits substantial	effort,	funds	and	other	resources	to	research	and	development,	both	through	its	own	dedicated	resources	and	through	various	collaborations	with	third	parties. There	is	a	high	rate	of	failure	inherent	in	the	research	and	development	process	for	new	drugs.	As	a	result,	there	is	a	high	risk	that	funds	invested	by	the	Company	in research	 programs	 will	 not	 generate	 financial	 returns.	 This	 risk	 profile	 is	 compounded	 by	 the	 fact	 that	 this	 research	 has	 a	 long	 investment	 cycle.	 To	 bring	 a pharmaceutical	compound	from	the	discovery	phase	to	market	may

take	a	decade	or	more	and	failure	can	occur	at	any	point	in	the	process,	including	later	in	the	process	after	significant	funds	have	been	invested.

For	a	description	of	the	research	and	development	process,	see	Item	1.	"Business	—	Research	and	Development"	above.	Each	phase	of	testing	is	highly regulated	and	during	each	phase	there	is	a	substantial	risk	that	the	Company	will	encounter	serious	obstacles	or	will	not	achieve	its	goals,	therefore,	the	Company	may abandon	a	product	in	which	it	has	invested	substantial	amounts	of	time	and	resources.	Some	of	the	risks	encountered	in	the	research	and	development	process	include the	following:	pre-clinical	testing	of	a	new	compound	may	yield	disappointing	results;	clinical	trials	of	a	new	drug	may	not	be	successful;	a	new	drug	may	not	be effective	or	may	have	harmful	side	effects;	a	new	drug	may	not	be	approved	by	the	FDA	for	its	intended	use;	it	may	not	be	possible	to	obtain	a	patent	for	a	new	drug; payers	may	refuse	to	cover	or	reimburse	the	new	product;	or	sales	of	a	new	product	may	be	disappointing.

The	Company	cannot	state	with	certainty	when	or	whether	any	of	its	products	now	under	development	will	be	approved	or	launched;	whether	it	will	be	able to	develop,	license	or	otherwise	acquire	compounds,	product	candidates	or	products;	or	whether	any	products,	once	launched,	will	be	commercially	successful.	The Company	must	maintain	a	continuous	flow	of	successful	new	products	and	successful	new	indications	or	brand	extensions	for	existing	products	sufficient	both	to	cover its	substantial	research	and	development	costs	and	to	replace	sales	that	are	lost	as	profitable	products	lose	market	exclusivity	or	are	displaced	by	competing	products	or therapies.	Failure	to	do	so	in	the	short	term	or	long	term	would	have	a	material	adverse	effect	on	the	Company's	business,	results	of	operations,	cash	flow,	financial position	and	prospects.

# The	Company's	success	is	dependent	on	the	successful	development	and	marketing	of	new	products,	which	are	subject	to	substantial	risks.

Products	that	appear	promising	in	development	may	fail	to	reach	the	market	or	fail	to	succeed	for	numerous	reasons,	including	the	following:

•findings	of	ineffectiveness,	superior	safety	or	efficacy	of	competing	products,	or	harmful	side	effects	in	clinical	or	pre-clinical testing;

•failure	to	receive	the	necessary	regulatory	approvals,	including	delays	in	the	approval	of	new	products	and	new	indications,	and	increasing	uncertainties about	the	time	required	to	obtain	regulatory	approvals	and	the	benefit/risk	standards	applied	by	regulatory	agencies	in	determining	whether	to	grant approvals;

•failure	in	certain	markets	to	obtain	reimbursement	commensurate	with	the	level	of	innovation	and	clinical	benefit	presented	by	the product;

•lack	of	economic	feasibility	due	to	manufacturing	costs	or	other	factors;	and

•preclusion from commercialization by the proprietary rights of others.

In	the	future,	if	certain	pipeline	programs	are	cancelled	or	if	the	Company	believes	that	their	commercial	prospects	have	been	reduced,	the	Company	may recognize	material	non-cash	impairment	charges	for	those	programs	that	were	measured	at	fair	value	and	capitalized	in	connection	with	mergers	and	acquisitions.

# The	Company	is	devoting	substantial	resources	to	the	development	of	MK-3475,	Merck's	anti-PD-1	immunotherapy,	and	there	can	be	no	assurance that	it	will	be	approved	for	marketing	by	the	FDA.

On	January	13,	2014,	the	Company	announced	that	it	had	initiated	a	rolling	submission	to	the	FDA	of	a	BLA	for	MK-3475,	the	Company's	anti-PD-1 immunotherapy,	for	patients	with	advanced	melanoma	who	have	been	previously	treated	with	ipilimumab.	The	Company	also	stated	that	it	expected	to	complete	the submission	in	the	first	half	of	2014.	There	can	be	no	assurance	that	the	Company	will	complete	the	submission,	or	that	the	FDA	will	approve	MK-3475	for	marketing and	sale	in	the	United	States	for	the	initial	indication	or	for	additional	indications.	In	addition,	if	approved,	there	can	be	no	assurance	that	MK-3475	will	succeed	in	the marketplace.

# The	Company's	products,	including	products	in	development,	can	not	be	marketed	unless	the	Company	obtains	and	maintains	regulatory	approval.

The	Company's	activities,	including	research,	preclinical	testing,	clinical	trials	and	manufacturing	and	marketing	its	products,	are	subject	to	extensive regulation	by	numerous	federal,	state	and	local	governmental	authorities

in	the	United	States,	including	the	FDA,	and	by	foreign	regulatory	authorities,	including	in	the	EU.	In	the	United	States,	the	FDA	is	of	particular	importance	to	the Company,	as	it	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. Regulation	outside	the	United	States	also	is	primarily	focused	on	drug	safety	and	effectiveness	and,	in	many	cases,	cost	reduction.	The	FDA	and	foreign	regulatory authorities	have	substantial	discretion	to	require	additional	testing,	to	delay	or	withhold	registration	and	marketing	approval	and	to	otherwise	preclude	distribution	and sale	of	a	product.

Even	if	the	Company	is	successful	in	developing	new	products,	it	will	not	be	able	to	market	any	of	those	products	unless	and	until	it	has	obtained	all	required regulatory	approvals	in	each	jurisdiction	where	it	proposes	to	market	the	new	products.	Once	obtained,	the	Company	must	maintain	approval	as	long	as	it	plans	to	market its	new	products	in	each	jurisdiction	where	approval	is	required.	The	Company's	failure	to	obtain	approval,	significant	delays	in	the	approval	process,	or	its	failure	to maintain	approval	in	any	jurisdiction	will	prevent	it	from	selling	the	new	products	in	that	jurisdiction	until	approval	is	obtained,	if	ever.	The	Company	would	not	be	able to	realize	revenues	for	those	new	products	in	any	jurisdiction	where	it	does	not	have	approval.

# Developments	following	regulatory	approval	may	adversely	affect	sales	of	the	Company's	products.

Even	after	a	product	reaches	market,	certain	developments	following	regulatory	approval,	including	results	in	post-marketing	Phase	4	trials	or	other	studies, may	decrease	demand	for	the	Company's	products,	including	the	following:

•the	 re-review of products that are already marketed;

•new	 scientific information and evolution of scientific theories;

•the	 recall or loss of	 marketing approval of products that are already marketed;

•changing	government	standards	or	public	expectations	regarding	safety,	efficacy	or	labeling	changes; and

•greater scrutiny in advertising and promotion.

In	the	past	several	years,	clinical	trials	and	post-marketing	surveillance	of	certain	marketed	drugs	of	the	Company	and	of	competitors	within	the	industry have	raised	concerns	that	have	led	to	recalls,	withdrawals	or	adverse	labeling	of	marketed	products.	Clinical	trials	and	post-marketing	surveillance	of	certain	marketed drugs	also	have	raised	concerns	among	some	prescribers	and	patients	relating	to	the	safety	or	efficacy	of	pharmaceutical	products	in	general	that	have	negatively	affected the	sales	of	such	products.	In	addition,	increased	scrutiny	of	the	outcomes	of	clinical	trials	has	led	to	increased	volatility	in	market	reaction.	Further,	these	matters	often attract	litigation	and,	even	where	the	basis	for	the	litigation	is	groundless,	considerable	resources	may	be	needed	to	respond.

In	addition,	following	the	wake	of	product	withdrawals	and	other	significant	safety	issues,	health	authorities	such	as	the	FDA,	the	EMA	and	Japan's Pharmaceutical	and	Medical	Device	Agency	have	increased	their	focus	on	safety	when	assessing	the	benefit/risk	balance	of	drugs.	Some	health	authorities	appear	to have	become	more	cautious	when	making	decisions	about	approvability	of	new	products	or	indications	and	are	re-reviewing	select	products	that	are	already	marketed, adding	further	to	the	uncertainties	in	the	regulatory	processes.	There	is	also	greater	regulatory	scrutiny,	especially	in	the	United	States,	on	advertising	and	promotion	and, in	particular,	direct-to-consumer	advertising.

If	previously	unknown	side	effects	are	discovered	or	if	there	is	an	increase	in	negative	publicity	regarding	known	side	effects	of	any	of	the	Company's products,	it	could	significantly	reduce	demand	for	the	product	or	require	the	Company	to	take	actions	that	could	negatively	affect	sales,	including	removing	the	product from	the	market,	restricting	its	distribution	or	applying	for	labeling	changes.	Further,	in	the	current	environment	in	which	all	pharmaceutical	companies	operate,	the Company	is	at	risk	for	product	liability	and	consumer	protection	claims	and	civil	and	criminal	governmental	actions	related	to	its	products,	research	and/or	marketing activities.

# The	Company	faces	intense	competition	from	lower	cost-generic	products.

In	general,	the	Company	faces	increasing	competition	from	lower-cost	generic	products.	The	patent	rights	that	protect	its	products	are	of	varying	strengths and	durations.	In	addition,	in	some	countries,	patent	protection	is

significantly	weaker	than	in	the	United	States	or	in	the	EU.	In	the	United	States	and	the	EU,	political	pressure	to	reduce	spending	on	prescription	drugs	has	led	to legislation	and	other	measures	which	encourages	the	use	of	generic	products.	Although	it	is	the	Company's	policy	to	actively	protect	its	patent	rights,	generic	challenges to	the	Company's	products	can	arise	at	any	time,	and	the	Company's	patents	may	not	prevent	the	emergence	of	generic	competition	for	its	products.

Loss	of	patent	protection	for	a	product	typically	is	followed	promptly	by	generic	substitutes,	reducing	the	Company's	sales	of	that	product.	Availability	of generic	substitutes	for	the	Company's	drugs	may	adversely	affect	its	results	of	operations	and	cash	flow.	In	addition,	proposals	emerge	from	time	to	time	in	the	United States	and	other	countries	for	legislation	to	further	encourage	the	early	and	rapid	approval	of	generic	drugs.	Any	such	proposal	that	is	enacted	into	law	could	worsen	this substantial	negative	effect	on	the	Company's	sales	and,	potentially,	its	business,	cash	flow,	results	of	operations,	financial	position	and	prospects.

# The	Company	faces	intense	competition	from	competitors'	products	which,	in	addition	to	other	factors,	could	in	certain	circumstances	lead	to	non- cash	impairment	charges.

The	Company's	products	face	intense	competition	from	competitors'	products.	This	competition	may	increase	as	new	products	enter	the	market.	In	such	an event,	 the	 competitors'	 products	 may	 be	 safer	 or	 more	 effective,	 more	 convenient	 to	 use	 or	 more	 effectively	 marketed	 and	 sold	 than	 the	 Company's	 products. Alternatively,	in	the	case	of	generic	competition,	including	the	generic	availability	of	competitors'	branded	products,	they	may	be	equally	safe	and	effective	products that	are	sold	at	a	substantially	lower	price	than	the	Company's	products.	As	a	result,	if	the	Company	fails	to	maintain	its	competitive	position,	this	could	have	a	material adverse	effect	on	its	business,	cash	flow,	results	of	operations,	financial	position	and	prospects.	In	addition,	if	products	that	were	measured	at	fair	value	and	capitalized in	connection	with	mergers	and	acquisitions,	such	as	the	Company's	portfolio	products	marketed	for	the	treatment	of	chronic	hepatitis	C	or	Vytorin	or	Zetia,	experience difficulties	in	the	market	that	negatively	impact	product	cash	flows,	the	Company	may	recognize	material	non-cash	impairment	charges	with	respect	to	the	value	of	those products.

# The	Company	faces	pricing	pressure	with	respect	to	its	products.

The	Company	faces	increasing	pricing	pressure	globally	and,	particularly	in	mature	markets,	from	managed	care	organizations,	government	agencies	and programs	that	could	negatively	affect	the	Company's	sales	and	profit	margins.	In	the	United	States,	these	include	(i)	practices	of	managed	care	groups	and	institutional and	governmental	purchasers,	and	(ii)	U.S.	federal	laws	and	regulations	related	to	Medicare	and	Medicaid,	including	the	Medicare	Prescription	Drug	Improvement	and Modernization	Act	of	2003	and	the	Patient	Protection	and	Affordable	Care	Act	of	2010.	Changes	to	the	health	care	system	enacted	as	part	of	health	care	reform	in	the United	States,	as	well	as	increased	purchasing	power	of	entities	that	negotiate	on	behalf	of	Medicare,	Medicaid,	and	private	sector	beneficiaries,	could	result	in	further pricing	pressures.	In	addition,	the	Company	faces	the	risk	of	litigation	with	the	government	over	its	pricing	calculations.

Outside	the	United	States,	numerous	major	markets,	including	the	EU	and	Japan,	have	pervasive	government	involvement	in	funding	health	care	and,	in	that regard,	fix	the	pricing	and	reimbursement	of	pharmaceutical	and	vaccine	products.	Consequently,	in	those	markets,	the	Company	is	subject	to	government	decision making	and	budgetary	actions	with	respect	to	its	products.

The	Company	expects	pricing	pressures	to	increase	in	the	future.

# The	health	care	industry	in	the	United	States	will	continue	to	be	subject	to	increasing	regulation	and	political	action.

The	Company	believes	that	the	health	care	industry	will	continue	to	be	subject	to	increasing	regulation	as	well	as	political	and	legal	action,	as	future proposals	to	reform	the	health	care	system	are	considered	by	Congress	and	state	legislatures.

In	2010,	major	health	care	reform	was	adopted	into	law	and	important	market	reforms	have	begun	and	will	continue	through	full	implementation	in	2014. The	new	law	is	expected	to	expand	access	to	health	care	to	about	32	million	Americans	by	the	end	of	the	decade.	In	2010,	the	minimum	rebate	to	states	participating	in the	Medicaid	program	increased	from	15.1%	to	23.1%	on	the	Company's	branded	prescription	drugs;	the	Medicaid	rebate	was	extended	to	Medicaid	Managed	Care Organizations;	and	eligibility	for	the	federal	340B	drug	discount	program	was

extended	to	rural	referral	centers,	sole	community	hospitals,	critical	access	hospitals,	certain	free	standing	cancer	hospitals,	and	certain	additional	children's	hospitals.

In	addition,	the	law	requires	pharmaceutical	manufacturers	to	pay	a	50%	point	of	service	discount	to	Medicare	Part	D	beneficiaries	when	they	are	in	the Medicare	Part	D	coverage	gap	(i.e.,	the	so-called	"donut	hole").	Also,	the	Company	is	required	to	pay	an	annual	health	care	reform	fee,	which	is	assessed	on	all	branded prescription	drug	manufacturers	and	importers.	The	fee	is	calculated	based	on	the	industry's	total	sales	of	branded	prescription	drugs	to	specified	government	programs. The	percentage	of	a	manufacturer's	sales	that	are	included	is	determined	by	a	tiered	scale	based	on	the	manufacturer's	individual	revenues.	Each	manufacturer's	portion of	the	total	annual	fee	is	based	on	the	manufacturer's	proportion	of	the	total	includable	sales	in	the	prior	year.	The	annual	industry	fee	for	2013	was	$2.8	billion	and	will be	$3.0	billion	in	2014.

The	Company	cannot	predict	the	likelihood	of	future	changes	in	the	health	care	industry	in	general,	or	the	pharmaceutical	industry	in	particular,	or	what impact	they	may	have	on	the	Company's	results	of	operations,	financial	condition	or	business.

# The	uncertainty	in	global	economic	conditions	together	with	austerity	measures	being	taken	by	certain	governments	could	negatively	affect	the Company's	operating	results.

The	uncertainty	in	global	economic	conditions	may	result	in	a	further	slowdown	to	the	global	economy	that	could	affect	the	Company's	business	by	reducing the	prices	that	drug	wholesalers	and	retailers,	hospitals,	government	agencies	and	managed	health	care	providers	may	be	able	or	willing	to	pay	for	the	Company's products	or	by	reducing	the	demand	for	the	Company's	products,	which	could	in	turn	negatively	impact	the	Company's	sales	and	result	in	a	material	adverse	effect	on the	Company's	business,	cash	flow,	results	of	operations,	financial	position	and	prospects.

Global	 efforts	 toward	 health	 care	 cost	 containment	 continue	 to	 exert	 pressure	 on	 product	 pricing	 and	 market	 access.	 In	 many	 international	 markets, government-mandated	pricing	actions	have	reduced	prices	of	generic	and	patented	drugs.	In	addition,	other	austerity	measures	negatively	affected	the	Company's revenue	performance	in	2013.	The	Company	anticipates	these	pricing	actions,	including	the	biennial	price	reductions	in	Japan,	and	other	austerity	measures	will	continue to	negatively	affect	revenue	performance	in	2014.

The	Company	continues	to	monitor	the	credit	and	economic	conditions	within	Greece,	Spain,	Italy	and	Portugal,	among	other	members	of	the	EU.	These economic	conditions,	as	well	as	inherent	variability	of	timing	of	cash	receipts,	have	resulted	in,	and	may	continue	to	result	in,	an	increase	in	the	average	length	of	time that	 it	 takes	 to	collect	on	 the	accounts	receivable	outstanding	 in	 these	countries	and	may	also	 impact	 the	 likelihood	of	collecting	100%	of	outstanding	accounts receivable.	As	of	December	31,	2013,	the	Company's	accounts	receivable	in	Greece,	Italy,	Spain	and	Portugal	totaled	approximately	$900	million.	Of	this	amount, hospital	and	public	sector	receivables	were	approximately	$600	million	in	the	aggregate,	of	which	approximately	9%,	41%,	40%	and	10%	related	to	Greece,	Italy,	Spain and	Portugal,	respectively.	As	of	December	31,	2013,	the	Company's	total	accounts	receivable	outstanding	for	more	than	one	year	were	approximately	$200	million,	of which	approximately	50%	related	to	accounts	receivable	in	Greece,	Italy,	Spain	and	Portugal,	mostly	comprised	of	hospital	and	public	sector	receivables.

If	credit	and	economic	conditions	in	Europe	worsen,	the	resulting	economic	and	currency	impacts	in	the	affected	markets	and	globally	could	have	a	material adverse	effect	on	the	Company's	results.

# The	Company	has	significant	global	operations,	which	expose	it	to	additional	risks,	and	any	adverse	event	could	have	a	material	negative	impact	on the	Company's	results	of	operations.

The	extent	of	the	Company's	operations	outside	the	United	States	is	significant.	Risks	inherent	in	conducting	a	global	business	include:

•changes in	 medical reimbursement policies and programs and pricing restrictions in key markets;

•multiple	 regulatory	 requirements that	 could	 restrict the	 Company's	 ability to	 manufacture	 and	 sell its	 products in	 key markets;

•trade protection measures and import or export licensing requirements;

•foreign	exchange	fluctuations;

•diminished	 protection	 of intellectual	 property in	 some	 countries; and

•possible nationalization and expropriation.

In	addition,	there	may	be	changes	to	the	Company's	business	and	political	position	if	there	is	instability,	disruption	or	destruction	in	a	significant	geographic region,	regardless	of	cause,	including	war,	terrorism,	riot,	civil	insurrection	or	social	unrest;	and	natural	or	man-made	disasters,	including	famine,	flood,	fire,	earthquake, storm	or	disease.

# The	Company	is	evaluating	the	strategic	options	for	its	Merck	Consumer	Care	and	Animal	Health	businesses,	however,	there	can	be	no	assurance that	any	transactions	will	occur.

On	January	13,	2014,	the	Company	announced	that	it	was	evaluating	the	respective	roles	of	Merck's	Animal	Health	and	Consumer	Care	businesses	in	the Company's	strategy	for	long-term	value	creation.	Furthermore,	the	Company	stated	that	it	expects	to	complete	the	evaluation	process	and	take	action,	if	any,	in	2014. The	Company	could	reach	different	decisions	about	the	two	businesses.	There	can	be	no	assurance	that	the	Company	will	determine	to	take	action	with	respect	to	either business	or	that	it	will	be	able	to	effectuate	any	action	it	determines	to	take.

# The	Company	has	experienced	difficulties	and	delays	in	manufacturing	of	certain	of	its	products.

As	previously	disclosed,	Merck	has,	in	the	past,	experienced	difficulties	in	manufacturing	certain	of	its	vaccines	and	other	products.	The	Company	may,	in the	future,	experience	difficulties	and	delays	inherent	in	manufacturing	its	products,	such	as	(i)	failure	of	the	Company	or	any	of	its	vendors	or	suppliers	to	comply	with Current	Good	Manufacturing	Practices	and	other	applicable	regulations	and	quality	assurance	guidelines	that	could	lead	to	manufacturing	shutdowns,	product	shortages and	delays	in	product	manufacturing;	(ii)	construction	delays	related	to	the	construction	of	new	facilities	or	the	expansion	of	existing	facilities,	including	those	intended to	support	future	demand	for	the	Company's	products;	and	(iii)	other	manufacturing	or	distribution	problems	including	changes	in	manufacturing	production	sites	and limits	to	manufacturing	capacity	due	to	regulatory	requirements,	changes	in	types	of	products	produced,	or	physical	limitations	that	could	impact	continuous	supply. Manufacturing	difficulties	can	result	in	product	shortages,	leading	to	lost	sales.

# The	Company	faces	significant	litigation	related	to	Vioxx.

On	September	30,	2004,	Merck	voluntarily	withdrew	Vioxx,	its	arthritis	and	acute	pain	medication,	from	the	market	worldwide.	Although	Merck	has	settled the	major	portion	of	the	U.S.	Product	Liability	litigation,	the	Company	still	faces	material	litigation	arising	from	the	voluntary	withdrawal	of	Vioxx.

In	addition	to	the	Vioxx	Product	Liability	Lawsuits	and	lawsuits	from	certain	states	that	did	not	participate	in	a	previously-disclosed	settlement,	various purported	class	actions	and	individual	lawsuits	have	been	brought	against	Merck	and	several	current	and	former	officers	and	directors	of	Merck	alleging	that	Merck made	false	and	misleading	statements	regarding	Vioxx	in	violation	of	the	federal	securities	laws	and	state	laws	(all	of	these	suits	are	referred	to	as	the	"Vioxx	Securities Lawsuits").	The	Vioxx	Securities	Lawsuits	have	been	transferred	by	the	Judicial	Panel	on	Multidistrict	Litigation	to	the	U.S.	District	Court	for	the	District	of	New	Jersey before	District	Judge	Stanley	R.	Chesler	for	inclusion	in	a	nationwide	multidistrict	litigation,	and	have	been	consolidated	for	all	purposes.	Merck	has	also	been	named	as a	defendant	in	actions	in	various	countries	outside	the	United	States.	(All	of	these	suits	are	referred	to	as	the	"Vioxx	International	Lawsuits".)

The	Vioxx	 litigation	 is	 discussed	 more	 fully	 in	 Item	 8.	 "Financial	 Statements	 and	 Supplementary	 Data,"	 Note	 10.	 "Contingencies	 and	 Environmental Liabilities"	below.	The	Company	believes	that	it	has	meritorious	defenses	to	the	Vioxx	Product	Liability	Lawsuits,	Vioxx	Securities	Lawsuits	and	Vioxx	International Lawsuits	(collectively,	the	"Vioxx	Litigation")	and	will	vigorously	defend	against	them.	The	Company's	insurance	coverage	with	respect	to	the	Vioxx	Litigation	will	not be	adequate	to	cover	its	defense	costs	and	any	losses.

The	 Company	 is	 not	 currently	 able	 to	 estimate	 any	 additional	 amounts	 that	 it	 may	 be	 required	 to	 pay	 in	 connection	 with	 the	Vioxx	Litigation.	These proceedings	are	still	expected	to	continue	for	years	and	the	Company	cannot	predict	the	course	the	proceedings	will	take.	In	view	of	the	inherent	difficulty	of	predicting the	outcome	of	litigation,	the	Company	is	unable	to	predict	the	outcome	of	these	matters,	and	at	this	time	cannot	reasonably	estimate	the	possible	loss	or	range	of	loss with	respect	 to	 the	remaining	Vioxx	Litigation.	The	Company	has	not	established	any	material	reserves	for	any	potential	 liability	relating	 to	 the	remaining	Vioxx Litigation	although	it	has	established	reserves	related

to	 the	settlement	of	certain	Vioxx	International	Lawsuits	and	with	respect	 to	certain	other	Vioxx	Product	Liability	Lawsuits,	all	of	which	are	discussed	in	Item	8. "Financial	Statements	and	Supplementary	Data,"	Note	10.	"Contingencies	and	Environmental	Liabilities"	below.

Unfavorable	 outcomes	 in	 the	Vioxx	Litigation	resulting	in	the	payment	of	substantial	damages	could	have	a	material	adverse	effect	on	the	Company's business,	cash	flow,	results	of	operations,	financial	position	and	prospects.

# Issues	concerning	Vytorin	and	the	ENHANCE	clinical	trial	have	had	an	adverse	effect	on	sales	of	Vytorin	and	Zetia	in	the	United	States	and	results from	the	IMPROVE-IT	trial	could	have	a	material	adverse	effect	on	such	sales.

The	Company	sells	Vytorin	and	Zetia.	As	previously	disclosed,	in	January	2008,	the	Company	announced	the	results	of	the	ENHANCE	clinical	trial,	an imaging	trial	in	720	patients	with	heterozygous	familial	hypercholesterolemia,	a	rare	genetic	condition	that	causes	very	high	levels	of	LDL	"bad"	cholesterol	and	greatly increases	the	risk	for	premature	coronary	artery	disease.	As	previously	reported,	despite	the	fact	that	ezetimibe/simvastatin	10/80	mg	(Vytorin)	significantly	lowered LDL	"bad"	cholesterol	more	than	simvastatin	80	mg	alone,	there	was	no	significant	difference	between	treatment	with	ezetimibe/simvastatin	and	simvastatin	alone	on the	pre-specified	primary	endpoint,	a	change	in	the	thickness	of	carotid	artery	walls	over	two	years	as	measured	by	ultrasound.	In	January	2009,	the	FDA	announced	that it	had	completed	its	review	of	the	final	clinical	study	report	of	ENHANCE.	The	FDA	stated	that	the	results	from	ENHANCE	did	not	change	its	position	that	elevated LDL	cholesterol	is	a	risk	factor	for	cardiovascular	disease	and	that	lowering	LDL	cholesterol	reduces	the	risk	for	cardiovascular	disease.

The	 IMPROVE-IT	 trial,	 which	 is	 currently	 underway	 and	 is	 designed	 to	 provide	 cardiovascular	 outcomes	 data	 for	 ezetimibe/simvastatin	 in	 patients presenting	with	acute	coronary	syndrome,	is	scheduled	for	completion	later	in	2014.	No	incremental	benefit	of	ezetimibe/simvastatin	on	cardiovascular	morbidity	and mortality	over	and	above	that	demonstrated	for	simvastatin	has	been	established.	In	the	IMPROVE-IT	trial,	blinded	interim	efficacy	analyses	were	conducted	by	the	Data Safety	Monitoring	Board	("DSMB")	for	the	trial	when	approximately	50%	and	75%	of	the	endpoints	were	accrued,	respectively.	In	each	case,	the	DSMB	recommended continuing	the	trial	without	change	in	design.	The	DSMB	completed	another	planned	interim	review	of	the	study	data	in	March	2013	and	again	recommended	that	the study	continue.

The	issues	concerning	the	ENHANCE	clinical	trial	have	had	an	adverse	effect	on	sales	of	Vytorin	and	Zetia	and	could	continue	to	have	an	adverse	effect	on such	sales.	If	the	results	of	the	IMPROVE-IT	trial	fail	to	demonstrate	an	incremental	benefit	of	ezetimibe/simvastatin	on	cardiovascular	morbidity	and	mortality	over and	above	that	demonstrated	for	simvastatin,	sales	of	Zetia	and	Vytorin	could	be	materially	adversely	affected.	If	sales	of	such	products	are	materially	adversely	affected, the	Company's	business,	cash	flow,	results	of	operations,	financial	position	and	prospects	could	also	be	materially	adversely	affected	and	the	Company	could	be required	to	record	a	material	non-cash	impairment	charge.

# The	Company	may	not	be	able	to	realize	the	expected	benefits	of	its	investments	in	emerging	markets.

The	Company	has	been	taking	steps	to	increase	its	presence	in	emerging	markets.	However,	there	is	no	guarantee	that	the	Company's	efforts	to	expand	sales in	emerging	markets	will	succeed.	Some	countries	within	emerging	markets	may	be	especially	vulnerable	to	periods	of	global	financial	instability	or	may	have	very limited	resources	to	spend	on	health	care.	In	order	for	the	Company	to	successfully	implement	its	emerging	markets	strategy,	it	must	attract	and	retain	qualified personnel.	The	Company	may	also	be	required	to	increase	its	reliance	on	third-party	agents	within	less	developed	markets.	In	addition,	many	of	these	countries	have currencies	that	fluctuate	substantially	and	if	such	currencies	devalue	and	the	Company	cannot	offset	the	devaluations,	the	Company's	financial	performance	within	such countries	could	be	adversely	affected.

For	instance,	in	February	2013,	the	Venezuelan	government	devalued	its	currency.	As	a	result	of	that	devaluation,	the	Company	recognized	losses	due	to exchange.	If	the	Venezuelan	government	were	to	devalue	its	currency	again	in	2014,	the	Company	would	recognize	additional	losses	due	to	exchange	and	the	Company expects	that	the	impact	would	be	greater	than	in	2013.

In	addition,	in	2013	in	China,	governmental	investigations	involving	other	multinational	pharmaceutical	companies	and	domestic	health	care	companies	and medical	institutes	adversely	affected	the	Company's	near	term	growth	prospects	in	that	market.	While	the	Company	continues	to	believe	that	China	represents	an important	growth

opportunity,	these	events,	coupled	with	heightened	scrutiny	of	the	health	care	industry,	may	continue	to	have	an	impact	on	product	pricing	and	market	access	generally. The	 Company	 anticipates	 that	 the	 reported	 inquiries	 made	 by	 various	 governmental	 authorities	 involving	 multinational	 pharmaceutical	 companies	 in	 China	 may continue.

For	all	these	reasons,	sales	within	emerging	markets	carry	significant	risks.	However,	a	failure	to	continue	to	expand	the	Company's	business	in	emerging markets	could	have	a	material	adverse	effect	on	the	business,	financial	condition	or	results	of	the	Company's	operations.

# The	Company	is	exposed	to	market	risk	from	fluctuations	in	currency	exchange	rates	and	interest	rates.

The	Company	operates	in	multiple	jurisdictions	and,	as	such,	virtually	all	sales	are	denominated	in	currencies	of	the	local	jurisdiction.	Additionally,	the Company	has	entered	and	will	enter	into	acquisition,	licensing,	borrowings	or	other	financial	transactions	that	may	give	rise	to	currency	and	interest	rate	exposure.

Since	the	Company	cannot,	with	certainty,	foresee	and	mitigate	against	such	adverse	fluctuations,	fluctuations	in	currency	exchange	rates	and	interest	rates could	negatively	affect	the	Company's	results	of	operations,	financial	position	and	cash	flows	as	occurred	in	Venezuela	in	2013.

In	order	to	mitigate	against	the	adverse	impact	of	these	market	fluctuations,	the	Company	will	from	time	to	time	enter	into	hedging	agreements.	While hedging	agreements,	such	as	currency	options	and	interest	rate	swaps,	may	limit	some	of	the	exposure	to	exchange	rate	and	interest	rate	fluctuations,	such	attempts	to mitigate	these	risks	may	be	costly	and	not	always	successful.

# The	Company	is	subject	to	evolving	and	complex	tax	laws,	which	may	result	in	additional	liabilities	that	may	affect	results	of	operations.

The	Company	is	subject	to	evolving	and	complex	tax	laws	in	the	jurisdictions	in	which	it	operates.	Significant	judgment	is	required	for	determining	the Company's	 tax	 liabilities,	 and	 the	 Company's	 tax	 returns	 are	 periodically	 examined	 by	 various	 tax	 authorities.	 The	 Company	 believes	 that	 its	 accrual	 for	 tax contingencies	is	adequate	for	all	open	years	based	on	past	experience,	interpretations	of	tax	law,	and	judgments	about	potential	actions	by	tax	authorities;	however,	due to	the	complexity	of	tax	contingencies,	the	ultimate	resolution	of	any	tax	matters	may	result	in	payments	greater	or	less	than	amounts	accrued.

In	April	2013,	President	Obama's	administration	re-proposed	significant	changes	 to	 the	U.S.	 international	 tax	 laws,	 including	changes	 that	would	 tax companies	on	"excess	returns"	attributable	to	certain	offshore	intangible	assets,	limit	U.S.	tax	deductions	for	expenses	related	to	un-repatriated	foreign-source	income and	modify	the	U.S.	foreign	tax	credit	rules.	Other	potentially	significant	changes	to	the	U.S.	international	laws,	including	a	move	toward	a	territorial	tax	system	and taxing	 currently	 the	 accumulated	 unrepatriated	 foreign	 earnings	 of	 controlled	 foreign	 corporations,	 have	 been	 set	 out	 by	 various	 Congressional	 committees.	The Company	cannot	determine	whether	these	proposals	will	be	enacted	into	law	or	what,	if	any,	changes	may	be	made	to	such	proposals	prior	to	their	being	enacted	into law.	If	these	or	other	changes	to	the	U.S.	international	tax	laws	are	enacted,	they	could	have	a	significant	impact	on	the	financial	results	of	the	Company.

In	addition,	the	Company	may	be	affected	by	changes	in	tax	laws,	including	tax	rate	changes,	changes	to	the	laws	related	to	the	remittance	of	foreign	earnings (deferral),	 or	 other	 limitations	 impacting	 the	 U.S.	 tax	 treatment	 of	 foreign	 earnings,	 new	 tax	 laws,	 and	 revised	 tax	 law	 interpretations	 in	 domestic	 and	 foreign jurisdictions.

# Pharmaceutical	products	can	develop	unexpected	safety	or	efficacy	concerns.

Unexpected	safety	or	efficacy	concerns	can	arise	with	respect	 to	marketed	products,	whether	or	not	scientifically	 justified,	 leading	 to	product	recalls, withdrawals,	or	declining	sales,	as	well	as	product	liability,	consumer	fraud	and/or	other	claims,	including	potential	civil	or	criminal	governmental	actions.

# Changes	in	laws	and	regulations	could	adversely	affect	the	Company's	business.

All	aspects	of	the	Company's	business,	including	research	and	development,	manufacturing,	marketing,	pricing,	sales,	litigation	and	intellectual	property rights,	are	subject	to	extensive	legislation	and	regulation.	Changes	in	applicable	federal	and	state	laws	and	agency	regulations	could	have	a	material	adverse	effect	on	the Company's	business.

# Reliance	on	third	party	relationships	and	outsourcing	arrangements	could	adversely	affect	the	Company's	business.

The	Company	depends	on	third	parties,	including	suppliers,	alliances	with	other	pharmaceutical	and	biotechnology	companies,	and	third	party	service providers,	for	key	aspects	of	its	business	including	development,	manufacture	and	commercialization	of	its	products	and	support	for	its	information	technology	systems. Failure	of	these	third	parties	to	meet	their	contractual,	regulatory	and	other	obligations	to	the	Company	or	the	development	of	factors	that	materially	disrupt	the relationships	between	the	Company	and	these	third	parties	could	have	a	material	adverse	effect	on	the	Company's	business.

# The	Company	is	increasingly	dependent	on	sophisticated	information	technology	and	infrastructure.

The	Company	is	increasingly	dependent	on	sophisticated	information	technology	and	infrastructure.	The	size	and	complexity	of	the	Company's	computer systems	makes	them	potentially	vulnerable	to	service	interruption,	malicious	intrusion	and	random	attacks.	In	addition,	data	privacy	or	security	breaches	by	employees or	others	may	pose	a	risk	that	data,	including	intellectual	property	or	personal	information,	may	be	exposed	to	unauthorized	individuals	or	to	the	public.	There	can	be	no assurance	that	the	Company's	efforts	to	protect	its	data	and	systems	will	prevent	service	interruption	or	the	loss	of	critical	or	sensitive	information	which	could	result	in financial,	legal,	business	or	reputational	harm	to	the	Company.

# Negative	events	in	the	animal	health	industry	could	have	a	negative	impact	on	future	results	of	operations.

Future	sales	of	key	animal	health	products	could	be	adversely	affected	by	a	number	of	risk	factors	including	certain	risks	that	are	specific	to	the	animal health	 business.	 For	 example,	 the	 outbreak	 of	 disease	 carried	 by	 animals,	 such	 as	 Bovine	 Spongiform	 Encephalopathy	 or	 mad	 cow	 disease,	 could	 lead	 to	 their widespread	death	and	precautionary	destruction	as	well	as	the	reduced	consumption	and	demand	for	animals,	which	could	adversely	impact	the	Company's	results	of operations.	Also,	the	outbreak	of	any	highly	contagious	diseases	near	the	Company's	main	production	sites	could	require	the	Company	to	immediately	halt	production	of vaccines	at	such	sites	or	force	the	Company	to	incur	substantial	expenses	in	procuring	raw	materials	or	vaccines	elsewhere.	Other	risks	specific	to	animal	health	include epidemics	and	pandemics,	government	procurement	and	pricing	practices,	weather	and	global	agribusiness	economic	events.	As	the	Animal	Health	segment	of	the Company's	business	becomes	more	significant,	the	impact	of	any	such	events	on	future	results	of	operations	would	also	become	more	significant.

In	2013,	the	Company	voluntarily	suspended	sales	of	Zilmax,	an	animal	feed	supplement,	in	the	United	States	and	Canada	after	concerns	were	raised	about cattle	that	had	been	fed	Zilmax.	The	suspension	materially	reduced	the	sales	of	Zilmax.	The	Company	can	give	no	assurances	as	to	when	sales	of	Zilmax	in	the	United States	and	Canada	will	resume.

# Biologics	carry	unique	risks	and	uncertainties,	which	could	have	a	negative	impact	on	future	results	of	operations.

The	successful	development,	testing,	manufacturing	and	commercialization	of	biologics,	particularly	human	and	animal	health	vaccines,	is	a	long,	expensive and	uncertain	process.	There	are	unique	risks	and	uncertainties	with	biologics,	including:

•There	may	be	limited	access	to	and	supply	of	normal	and	diseased	tissue	samples,	cell	lines,	pathogens,	bacteria,	viral	strains	and	other	biological materials.	In	addition,	government	regulations	in	multiple	jurisdictions,	such	as	the	United	States	and	the	EU,	could	result	in	restricted	access	to,	or transport	or	use	of,	such	materials.	If	the	Company	loses	access	to	sufficient	sources	of	such	materials,	or	if	tighter	restrictions	are	imposed	on	the	use	of such	materials,	the	Company	may	not	be	able	to	conduct	research	activities	as	planned	and	may	incur	additional	development	costs.

•The	development,	manufacturing	and	marketing	of	biologics	are	subject	 to	regulation	by	 the	FDA,	 the	EMA	and	other	regulatory	bodies.	These regulations	are	often	more	complex	and	extensive	than	the	regulations	applicable	to	other	pharmaceutical	products.	For	example,	in	the	United	States,	a BLA,	including	both	preclinical	and	clinical	trial	data	and	extensive	data	regarding	the	manufacturing

procedures,	is	required	for	human	vaccine	candidates	and	FDA	approval	is	required	for	the	release	of	each	manufactured	commercial	lot.

•Manufacturing	biologics,	especially	in	large	quantities,	is	often	complex	and	may	require	the	use	of	innovative	technologies	to	handle	living	micro- organisms.	Each	lot	of	an	approved	biologic	must	undergo	thorough	testing	for	identity,	strength,	quality,	purity	and	potency.	Manufacturing	biologics requires	 facilities	 specifically	 designed	 for	 and	 validated	 for	 this	 purpose,	 and	 sophisticated	 quality	 assurance	 and	 quality	 control	 procedures	 are necessary.	Slight	deviations	anywhere	in	the	manufacturing	process,	including	filling,	labeling,	packaging,	storage	and	shipping	and	quality	control	and testing,	may	result	in	lot	failures,	product	recalls	or	spoilage.	When	changes	are	made	to	the	manufacturing	process,	the	Company	may	be	required	to provide	pre-clinical	and	clinical	data	showing	the	comparable	identity,	strength,	quality,	purity	or	potency	of	the	products	before	and	after	such	changes.

•Biologics	are	frequently	costly	to	manufacture	because	production	ingredients	are	derived	from	living	animal	or	plant	material,	and	most	biologics cannot	be	made	synthetically.	In	particular,	keeping	up	with	the	demand	for	vaccines	may	be	difficult	due	to	the	complexity	of	producing	vaccines.

•The	use	of	biologically	derived	ingredients	can	lead	to	allegations	of	harm,	including	infections	or	allergic	reactions,	or	closure	of	product	facilities	due to	possible	contamination.	Any	of	these	events	could	result	in	substantial	costs.

# Product	liability	insurance	for	products	may	be	limited,	cost	prohibitive	or	unavailable.

As	a	result	of	a	number	of	factors,	product	liability	insurance	has	become	less	available	while	the	cost	has	increased	significantly.	With	respect	to	product liability,	the	Company	self-insures	substantially	all	of	its	risk,	as	the	availability	of	commercial	insurance	has	become	more	restrictive.	The	Company	has	evaluated	its risks	and	has	determined	that	the	cost	of	obtaining	product	liability	insurance	outweighs	the	likely	benefits	of	the	coverage	that	is	available	and,	as	such,	has	no insurance	for	certain	product	liabilities	effective	August	1,	2004,	including	liability	for	legacy	Merck	products	first	sold	after	that	date.	The	Company	will	continually assess	the	most	efficient	means	to	address	its	risk;	however,	there	can	be	no	guarantee	that	insurance	coverage	will	be	obtained	or,	if	obtained,	will	be	sufficient	to	fully cover	product	liabilities	that	may	arise.

# Cautionary	Factors	that	May	Affect	Future	Results

(Cautionary	Statements	Under	the	Private	Securities	Litigation	Reform	Act	of	1995)

This	report	and	other	written	reports	and	oral	statements	made	from	time	to	time	by	the	Company	may	contain	so-called	"forward-looking	statements,"	all	of which	are	based	on	management's	current	expectations	and	are	subject	to	risks	and	uncertainties	which	may	cause	results	to	differ	materially	from	those	set	forth	in	the statements.	One	can	identify	these	forward-looking	statements	by	their	use	of	words	such	as	"anticipates,"	"expects,"	"plans,"	"will,"	"estimates,"	"forecasts,"	"projects" and	other	words	of	similar	meaning.	One	can	also	identify	them	by	the	fact	that	they	do	not	relate	strictly	to	historical	or	current	facts.	These	statements	are	likely	to address	the	Company's	growth	strategy,	financial	results,	product	development,	product	approvals,	product	potential,	and	development	programs.	One	must	carefully consider	any	such	statement	and	should	understand	that	many	factors	could	cause	actual	results	to	differ	materially	from	the	Company's	forward-looking	statements. These	factors	include	inaccurate	assumptions	and	a	broad	variety	of	other	risks	and	uncertainties,	including	some	that	are	known	and	some	that	are	not.	No	forward- looking	statement	can	be	guaranteed	and	actual	future	results	may	vary	materially.	The	Company	does	not	assume	the	obligation	to	update	any	forward-looking statement.	The	Company	cautions	you	not	to	place	undue	reliance	on	these	forward-looking	statements.	Although	it	is	not	possible	to	predict	or	identify	all	such	factors, they	may	include	the	following:

•Competition	from	generic	products	as	the	Company's	products	lose	patent	protection.

•Increased	"brand"	competition	in	therapeutic	areas	important	to	the	Company's	long-term	business	performance.

•The	difficulties	and	uncertainties	inherent	in	new	product	development.	The	outcome	of	the	lengthy	and	complex	process	of	new	product	development is	inherently	uncertain.	A	drug	candidate	can	fail	at	any	stage	of	the	process	and	one	or	more	late-stage	product	candidates	could	fail	to	receive	regulatory	approval. New	product	candidates	may	appear	promising	in	development	but	fail	to	reach	the	market	because	of	efficacy	or	safety	concerns,	the	inability

to	obtain	necessary	regulatory	approvals,	the	difficulty	or	excessive	cost	to	manufacture	and/or	the	infringement	of	patents	or	intellectual	property	rights	of	others. Furthermore,	the	sales	of	new	products	may	prove	to	be	disappointing	and	fail	to	reach	anticipated	levels.

•Pricing	pressures,	both	in	the	United	States	and	abroad,	including	rules	and	practices	of	managed	care	groups,	judicial	decisions	and	governmental	laws and	regulations	related	to	Medicare,	Medicaid	and	health	care	reform,	pharmaceutical	reimbursement	and	pricing	in	general.

•Changes	in	government	laws	and	regulations,	including	laws	governing	intellectual	property,	and	the	enforcement	thereof	affecting	the	Company's business.

•Efficacy	 or	 safety	 concerns	 with	 respect to	 marketed	 products,	 whether	 or	 not	 scientifically justified, leading to	 product	 recalls,	 withdrawals	 or declining	sales.

•Significant	litigation	related	to	Vioxx	and	Fosamax.

•Legal	factors,	including	product	liability	claims,	antitrust	litigation	and	governmental	investigations,	including	tax	disputes,	environmental	concerns and	patent	disputes	with	branded	and	generic	competitors,	any	of	which	could	preclude	commercialization	of	products	or	negatively	affect	the	profitability	of	existing products.

•Lost	market	opportunity	resulting	from	delays	and	uncertainties	in	the	approval	process	of	the	FDA	and	foreign	regulatory	authorities.

•Increased	focus	on	privacy	issues	in	countries	around	the	world,	including	the	United	States	and	the	EU.	The	legislative	and	regulatory	landscape	for privacy	and	data	protection	continues	to	evolve,	and	there	has	been	an	increasing	amount	of	focus	on	privacy	and	data	protection	issues	with	the	potential	to	affect directly	the	Company's	business,	including	recently	enacted	laws	in	a	majority	of	states	in	the	United	States	requiring	security	breach	notification.

•Changes	in	tax	laws	including	changes	related	to	the	taxation	of	foreign	earnings.

•Changes	in	accounting	pronouncements	promulgated	by	standard-setting	or	regulatory	bodies,	including	the	Financial	Accounting	Standards	Board	and the	SEC,	that	are	adverse	to	the	Company.

•Economic	factors	over	which	the	Company	has	no	control,	including	changes	in	inflation,	interest	rates	and	foreign	currency	exchange	rates.

This	list	should	not	be	considered	an	exhaustive	statement	of	all	potential	risks	and	uncertainties.	See	"Risk	Factors"	above.

# Item	1B. Unresolved	Staff	Comments.

None.

# Item	2. Properties.

The	Company's	corporate	headquarters	is	currently	located	in	Whitehouse	Station,	New	Jersey,	although	the	Company	has	announced	that	it	intends	to	move its	headquarters	to	Kenilworth,	New	Jersey	in	2015.	The	Company's	U.S.	commercial	operations	are	headquartered	in	Upper	Gwynedd,	Pennsylvania.	The	Company's U.S.	pharmaceutical	business	is	conducted	through	divisional	headquarters	located	in	Upper	Gwynedd	and	Whitehouse	Station.	The	Company's	vaccines	business	is conducted	through	divisional	headquarters	located	in	West	Point,	Pennsylvania.	Merck's	Animal	Health	and	Consumer	Care	global	headquarters	functions	are	located in	Summit,	New	Jersey,	although	the	Company	has	announced	it	will	vacate	its	Summit	property.	Principal	U.S.	research	facilities	are	located	in	Rahway,	Kenilworth and	Summit,	New	Jersey,	West	Point,	Pennsylvania,	Palo	Alto,	California,	Boston,	Massachusetts,	and	Elkhorn,	Nebraska	(Animal	Health).	Principal	research	facilities outside	the	United	States	are	located	in	the	Netherlands,	Switzerland	and	China.	The	Company	also	has	production	facilities	for	human	health	products	at	12	locations	in the	United	States	and	Puerto	Rico.	Outside	the	United	States,	through	subsidiaries,	the	Company	owns	or	has	an	interest	in	manufacturing	plants	or	other	properties	in Australia,	Canada,	Japan,	Singapore,	South	Africa,	and	other	countries	in	Western	Europe,	Central	and	South	America,	and	Asia.

The	Company	and	its	subsidiaries	own	their	principal	facilities	and	manufacturing	plants	under	titles	that	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	are suitable	for	their	intended	purposes	and	have	capacities	and	projected	capacities	adequate	for	current	and	projected	needs	for	existing	Company	products.	Some	capacity of	the	plants	is	being	converted,	with	any	needed	modification,	to	the	requirements	of	newly	introduced	and	future	products.

# Item	3. Legal

# Proceedings.

The	 information	 called	 for	 by	 this Item is incorporated	 herein	 by reference to Item	 8.	 "Financial	 Statements	 and	 Supplementary	 Data,"	 Note	 10. "Contingencies	and	Environmental	Liabilities".

# Item	4. Mine	Safety	Disclosures.

Not	Applicable

# Executive	Officers	of	the	Registrant	(ages	as	of	February	1,	2014)

At	the	time	of	the	Merger,	November	3,	2009,	certain	executive	officers	assumed	their	position	in	the	newly	merged	company	as	noted	below.

# KENNETH	C.	FRAZIER	—	Age	59

December	2011	—	Chairman,	President	and	Chief	Executive	Officer,	Merck	&	Co.,	Inc.

January	2011	—	President	and	Chief	Executive	Officer,	Merck	&	Co.,	Inc.

May	 2010	 —	 President,	 Merck	 &	 Co.,	 Inc.	 —	 responsible for the	 Company's three largest	 worldwide	 divisions	 —	 Global	 Human	 Health,	 Merck Manufacturing	Division	and	Merck	Research	Laboratories

Prior	to	May	2010,	Mr.	Frazier	was	Executive	Vice	President	and	President,	Global	Human	Health,	Merck	&	Co.,	Inc.	from	2007	to	2010.

November	2009	—	Senior	Vice	President	and	Chief	Communications	Officer,	Merck	&	Co.,	Inc.	—	responsible	for	the	Global	Communications	organization December	2007	—	Vice	President	and	Chief	Communications	Officer,	Merck	&	Co.,	Inc.	—	responsible	for	the	Global	Communications	organization

November	2009	—	Senior	Vice	President	Finance-Global	Controller,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	global	controller's	organization including	all	accounting,	controls,	external	reporting	and	financial	standards	and	policies

January	2008	—	Senior	Vice	President	and	Controller,	Merck	&	Co.,	Inc.	—	responsible	for	the	Corporate	Controller's	Group

November	2009	—	Executive	Vice	President	and	President,	Merck	Manufacturing	Division,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	global manufacturing,	procurement,	and	distribution	and	logistics	functions

January	2008	—	Executive	Vice	President	and	President,	Merck	Manufacturing	Division,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	global manufacturing,	procurement,	and	distribution	and	logistics	functions

September	 2011	 —	 Executive	Vice	 President	 and	 President,	 Merck	Animal	 Health,	 Merck	 &	 Co.,	 Inc.	 —	 responsible	 for the	 Merck	Animal	 Health organization

Prior	to	September	2011,	Mr.	DeLuca	was	Chief	Financial	Officer,	Becton	Dickinson	Biosciences	(a	medical	technology	company)	since	2010	and	President, Wyeth's	Fort	Dodge	Animal	Health	division	from	2007	to	2010.	He	also	served	as	Chief	Operating	Officer,	Fort	Dodge	from	2006	to	2007	and	Executive Vice	President	and	Chief	Financial	Officer	from	2002	to	2006.

October	2011	—	Executive	Vice	President	and	Chief	Strategy	Officer,	Merck	&	Co.,	Inc.	—	responsible	for	leading	the	formulation	and	execution	of	the Company's	long	term	strategic	plan

Prior	to	October	2011,	Mr.	Do	was	Senior	Vice	President,	Corporate	Strategy	and	Business	Development,	TE	Connectivity	(a	global	company	that	designs, manufactures	and	markets	products	for	customers	in	a	variety	of	industries)	from	2009	to	2011	and	Senior	Vice	President	and	Chief	Strategy	Officer, Lenovo	(a	personal	technology	company)	from	2006	to	2009.

# CLARK	GOLESTANI	—	Age	47

December	2012	—	Executive	Vice	President	and	Chief	Information	Officer,	Merck	&	Co.,	Inc.	—	responsible	for	Merck's	global	information	technology (IT)

August	 2008	 —	Vice	 President,	 Merck	 Research	 Laboratories	 Information	Technology,	 Merck	 &	 Co.,	 Inc.	 —	 responsible	 for	 global	 IT	 for	 Merck's

Research	&	Development	division,	including	Basic	Research,	PreClinical,	Clinical	and	Regulatory

# MIRIAN	M.	GRADDICK-WEIR	—	Age	59

November	2009	—	Executive	Vice	President,	Human	Resources,	Merck	&	Co.,	Inc.	—	responsible	for	the	Global	Human	Resources	organization

January	2008	—	Executive	Vice	President,	Human	Resources,	Merck	&	Co.,	Inc.	—	responsible	for	the	Global	Human	Resources	organization

BRIDGETTE	P.	HELLER	—	Age	52

March	2010	—	Executive	Vice	President	and	President,	Merck	Consumer	Care,	Merck	&	Co.,	Inc.	—	responsible	for	the	Merck	Consumer	Care	organization Prior	to	March	2010,	Ms.	Heller	was	President,	Johnson	&	Johnson's	Global	Baby	Business	Unit	from	2007	to	2010.

# MICHAEL	J.	HOLSTON	—	Age	51

June	2012	—	Executive	Vice	President	and	Chief	Ethics	and	Compliance	Officer,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	compliance	function, including	Global	Safety	&	Environment,	Systems	Assurance,	Ethics	and	Privacy

Prior	to	June	2012,	Mr.	Holston	was	Executive	Vice	President,	General	Counsel	and	Board	Secretary	for	Hewlett-Packard	Company	(a	technology	company) since	2007,	where	he	oversaw	the	legal,	compliance,	government	affairs,	privacy	and	ethics	operations.

November	2009	—	Executive	Vice	President	and	Chief	Financial	Officer,	Merck	&	Co.,	Inc.	—	responsible	for the	Company's	worldwide	financial organization,	investor	relations,	corporate	development,	global	facilities,	and	the	Company's	joint	venture	relationships

August	 2007	 —	 Executive	 Vice	 President	 and	 Chief	 Financial	 Officer,	 Merck	 &	 Co.,	 Inc.	 —	 responsible	 for the	 Company's	 worldwide financial organization,	investor	relations,	corporate	development	and	licensing,	and	the	Company's	joint	venture	relationships

November	2009	—	Executive	Vice	President	and	General	Counsel,	Merck	&	Co.,	Inc.	—	responsible	for	legal,	communications,	and	public	policy	functions January	2008	—	Executive	Vice	President	and	General	Counsel,	Merck	&	Co.,	Inc.	—	responsible	for	legal,	communications,	and	public	policy	functions

ROGER	M.	PERLMUTTER	—	Age	61

April	2013	—	Executive	Vice	President	and	President,	Merck	Research	Laboratories,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	research	and development	efforts	worldwide

Prior	to	April	2013,	Dr.	Perlmutter	was	Executive	Vice	President	of	Research	and	Development,	Amgen	Inc.	from	2001	to	2012.

# MICHAEL	ROSENBLATT,	M.D.	—	Age	66

December	 2009	 —	 Executive	Vice	 President	 and	 Chief	 Medical	 Officer,	 Merck	 &	 Co.,	 Inc.	 —	 the	 Company's	 primary	 voice to the	 global	 medical community	on	critical	issues	such	as	patient	safety	and	oversight	for	the	Company's	Global	Center	for	Scientific	Affairs

Prior	to	December	2009,	Dr.	Rosenblatt	was	the	Dean	of	Tufts	University	School	of	Medicine	since	2003.

# ADAM	H.	SCHECHTER	—	Age	49

May	2010	—	Executive	Vice	President	and	President,	Global	Human	Health,	Merck	&	Co.,	Inc.	—	responsible	for	the	Company's	pharmaceutical	and vaccine	worldwide	business

November	2009	—	President,	Global	Human	Health,	U.S.	Market-Integration	Leader,	Merck	&	Co.,	Inc.	—	commercial	responsibility	in	the	United	States for	the	Company's	portfolio	of	prescription	medicines.	Leader	for	the	integration	efforts	for	the	Merck/Schering-Plough	merger	across	all	divisions	and functions.

August	 2007	 —	 President,	 Global	 Pharmaceuticals,	 Global	 Human	 Health,	 Merck	 &	 Co.,	 Inc.	 —	 global	 responsibilities	 for	 the	 Company's atherosclerosis/cardiovascular,	 diabetes/obesity,	 oncology,	 specialty/neuroscience,	 respiratory,	 bone,	 arthritis	 and	 analgesia	 franchises	 as	 well	 as commercial	responsibility	in	the	United	States	for	the	Company's	portfolio	of	prescription	medicines

On	February	3,	2014,	the	Board	accepted	the	resignation	of	John	Canan,	who	will	retire	from	the	Company	on	March	1,	and	elected	Rita	Karachun	as	Senior Vice	President	Finance	-	Global	Controller,	effective	March	1,	2014,	making	her	the	Company's	principal	accounting	officer.	Ms.	Karachun,	age	50,	has	served	as Assistant	Controller	of	the	Company	since	November	2009.	Prior	to	her	appointment	as	Assistant	Controller	of	the	Company,	Ms.	Karachun	served	as	the	Assistant Controller	of	Schering-Plough	Corporation	since	February	2007,	responsible	for	preparing	financial	statements	and	for	the	worldwide	consolidation	of	international entities.

All	officers	listed	above	serve	at	the	pleasure	of	the	Board	of	Directors.	None	of	these	officers	was	elected	pursuant	to	any	arrangement	or	understanding between	the	officer	and	the	Board.

# PART	II

# Item	5. Market for	 Registrant's	 Common	 Equity,	 Related Stockholder	 Matters and Issuer	 Purchases of	 Equity Securities.

The	principal	market	for	trading	of	the	Company's	Common	Stock	is	the	New	York	Stock	Exchange	("NYSE")	under	the	symbol	MRK.	The	Common	Stock market	price	information	set	forth	in	the	table	below	is	based	on	historical	NYSE	market	prices.

The	following	table	also	sets	forth,	for	the	calendar	periods	indicated,	the	dividend	per	share	information.

# Cash	Dividends	Paid	per	Common	Share

|  | Year | 4th	Q | 3rd	Q | 2nd	Q | 1st	Q |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2013 | $1.72 | $0.43 | $0.43 | $0.43 | $0.43 |
| 2012 | $1.68 | $0.42 | $0.42 | $0.42 | $0.42 |

| 2013 | 4th	Q | 3rd	Q | 2nd	Q | 1st	Q |
| :--- | :--- | :--- | :--- | :--- |
| High | $50.42 | $49.08 | $50.16 | $45.42 |
| Low | $44.62 | $46.03 | $43.77 | $40.83 |
| 2012 |  |  |  |  |
| High | $48.00 | $45.70 | $41.75 | $39.43 |
| Low | $40.02 | $41.06 | $37.02 | $36.91 |

As	of	January	31,	2014,	there	were	approximately	148,780	shareholders	of	record.

Issuer	purchases	of	equity	securities	for	the	three	months	ended	December	31,	2013	were	as	follows:

# Issuer	Purchases	of	Equity	Securities

|  |  |  | ($	in	millions) |
| :--- | :--- | :--- | :--- |
| Period | Total\tNumber\nof\tShares\nPurchased(1) | Average\tPrice\nPaid\tPer\nShare | Approximate\tDollar\tValue\tof\tShares\nThat\tMay\tYet\tBe\tPurchased\nUnder\tthe\tPlans\tor\tPrograms(1) |
| October\t1\t—\tOctober\t31 | 6,879,788(2) | $47.55 | $10,506 |
| November\t1\t—\tNovember\t30 | 1,411,050 | $46.69 | $10,440 |
| December\t1\t—\tDecember\t31 | 1,265,007 | $49.13 | $10,378 |
| Total | 9,555,845 | $47.63 | $10,378 |

(1)	All	shares	purchased	during	the	period	were	made	as	part	of	a	plan	approved	by	the	Board	of	Directors	in	May	2013	to	purchase	up	to	$15	billion	in	Merck	shares.

(2)	Includes	5.5	million	shares	received	in	October	upon	settlement	of	an	accelerated	share	repurchase	agreement	for	which	no	cash	was	paid	during	the	period.

# Performance	Graph

The	following	graph	assumes	a	$100	investment	on	December	31,	2008,	and	reinvestment	of	all	dividends,	in	each	of	the	Company's	Common	Shares,	the S&P	500	Index,	and	a	composite	peer	group	of	the	major	U.S.-based	pharmaceutical	companies,	which	are:	Abbott	Laboratories,	Bristol-Myers	Squibb	Company, Johnson	&	Johnson,	Eli	Lilly	and	Company,	and	Pfizer	Inc.

# Comparison	of	Five-Year	Cumulative	Total	Return*

# Merck	&	Co.,	Inc.,	Composite	Peer	Group	and	S&P	500	Index

|  | End	of<br>Period	Value | 2013/2008<br>CAGR** |
| :--- | :--- | :--- |
| MERCK | $320 | 26% |
| PEER\tGRP.*** | 196 | 14 |
| S&amp;P\t500 | 228 | 18 |

|  | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| MERCK | 100.00 | 199.24 | 204.95 | 224.50 | 252.10 | 319.67 |
| PEER\tGRP. | 100.00 | 107.89 | 107.41 | 130.56 | 150.00 | 196.15 |
| S&amp;P\t500 | 100.00 | 126.47 | 145.55 | 148.59 | 172.34 | 228.11 |

* The	Performance	Graph	reflects	Schering-Plough's	stock	performance	from	December	31,	2008	through	the	close	of	the	Merger	and	Merck's	stock	performance	from	November	3,	2009	through December	31,	2013.	Assumes	the	cash	component	of	the	merger	consideration	was	reinvested	in	Merck	stock	at	the	closing	price	on	November	3,	2009.

** Compound	Annual	Growth	Rate *** As	discussed	above,	on	November	3,	2009,	Merck	and	Schering-Plough	completed	the	Merger	in	which	Merck	(subsequently	renamed	Merck	Sharp	&	Dohme	Corp.	("MSD"))	became	a	wholly- owned	subsidiary	of	Schering-Plough	(subsequently	renamed	Merck	&	Co.,	Inc.).	As	a	result	of	the	Merger,	MSD	no	longer	exists	as	a	publicly	traded	entity	and	ceased	all	trading	of	its	common stock	as	of	the	close	of	business	on	the	Merger	date.	MSD	has	been	permanently	removed	from	the	peer	group	index.	In	addition,	Abbott	Laboratories	("Abbott")	is	currently	included	in	the	peer group;	however,	in	2013,	Abbott	spun	off	its	pharmaceutical	business	into	AbbVie	Inc.	In	the	future,	the	Company	intends	to	remove	Abbott	from	the	peer	group	calculation.

This	Performance	Graph	will	not	be	deemed	to	be	incorporated	by	reference	into	any	filing	under	the	Securities	Act	of	1933	or	the	Securities	and	Exchange Act	of	1934,	except	to	the	extent	that	the	Company	specifically	incorporates	it	by	reference.		In	addition,	the	Performance	Graph	will	not	be	deemed	to	be	"soliciting material"	or	to	be	"filed"	with	the	Securities	and	Exchange	Commission	or	subject	to	Regulation	14A	or	14C,	other	than	as	provided	in	Regulation	S-K,	or	to	the liabilities	of	section	18	of	the	Securities	Exchange	Act	of	1934,	except	to	the	extent	that	the	Company	specifically	requests	that	such	information	be	treated	as	soliciting material	or	specifically	incorporates	it	by	reference	into	a	filing	under	the	Securities	Act	or	the	Exchange	Act.

# Item	6. Selected	Financial	Data.

The	following	selected	financial	data	should	be	read	in	conjunction	with	Item	7.	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results of	Operations"	and	consolidated	financial	statements	and	notes	thereto	contained	in	Item	8.	"Financial	Statements	and	Supplementary	Data"	of	this	report.

# Merck	&	Co.,	Inc.	and	Subsidiaries

($	in	millions	except	per	share	amounts)

|  | 2013(1) | 2012(2) | 2011(3) | 2010(4) | 2009(5) |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Results\tfor\tYear: |  |  |  |  |  |
| Sales | $44,033 | $47,267 | $48,047 | $45,987 | $27,428 |
| Materials\tand\tproduction | 16,954 | 16,446 | 16,871 | 18,396 | 9,019 |
| Marketing\tand\tadministrative | 11,911 | 12,776 | 13,733 | 13,125 | 8,543 |
| Research\tand\tdevelopment | 7,503 | 8,168 | 8,467 | 11,111 | 5,845 |
| Restructuring\tcosts | 1,709 | 664 | 1,306 | 985 | 1,634 |
| Equity\tincome\tfrom\taffiliates | (404) | (642) | (610) | (587) | (2,235) |
| Other\t(income)\texpense,\tnet | 815 | 1,116 | 946 | 1,304 | (10,668) |
| Income\tbefore\ttaxes | 5,545 | 8,739 | 7,334 | 1,653 | 15,290 |
| Taxes\ton\tincome | 1,028 | 2,440 | 942 | 671 | 2,268 |
| Net\tincome | 4,517 | 6,299 | 6,392 | 982 | 13,022 |
| Less:\tNet\tincome\tattributable\tto\tnoncontrolling\tinterests | 113 | 131 | 120 | 121 | 123 |
| Net\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | 4,404 | 6,168 | 6,272 | 861 | 12,899 |
|  | $1.49 | $2.03 | $2.04 | $0.28 | $5.67 |
| shareholders | $1.47 | $2.00 | $2.02 | $0.28 | $5.65 |
| Cash\tdividends\tdeclared | 5,132 | 5,173 | 4,818 | 4,730 | 3,598 |
| Cash\tdividends\tdeclared\tper\tcommon\tshare | $1.73 | $1.69 | $1.56 | $1.52 | $1.52 |
| Capital\texpenditures | 1,548 | 1,954 | 1,723 | 1,678 | 1,461 |
| Depreciation | 2,225 | 1,999 | 2,351 | 2,638 | 1,654 |
| Average\tcommon\tshares\toutstanding\t(millions) | 2,963 | 3,041 | 3,071 | 3,095 | 2,268 |
| Average\tcommon\tshares\toutstanding\tassuming\tdilution\t(millions) | 2,996 | 3,076 | 3,094 | 3,120 | 2,273 |
| Year-End\tPosition: |  |  |  |  |  |
| Working\tcapital | $17,817 | $16,509 | $16,936 | $13,423 | $12,791 |
| Property,\tplant\tand\tequipment,\tnet | 14,973 | 16,030 | 16,297 | 17,082 | 18,279 |
| Total\tassets | 105,645 | 106,132 | 105,128 | 105,781 | 112,314 |
| Long-term\tdebt | 20,539 | 16,254 | 15,525 | 15,482 | 16,095 |
| Total\tequity | 52,326 | 55,463 | 56,943 | 56,805 | 61,485 |
| Year-End\tStatistics: |  |  |  |  |  |
| Number\tof\tstockholders\tof\trecord | 149,400 | 157,400 | 166,100 | 171,000 | 175,600 |
| Number\tof\temployees\t(7) | 76,000 | 83,000 | 86,000 | 94,000 | 100,000 |

(1)	Amounts	for	2013	include	the	amortization	of	purchase	accounting	adjustments,	the	impact	of	restructuring	actions,	intangible	asset	impairment	charges,	including	in-process	research	and	development	impairment charges	reflected	in	research	and	development	expenses,	and	the	favorable	impact	of	certain	tax	items.

(2)	Amounts	for	2012	include	the	amortization	of	purchase	accounting	adjustments,	a	net	charge	recorded	in	connection	with	the	settlement	of	certain	shareholder	litigation,	in-process	research	and	development impairment	charges	reflected	in	research	and	development	expenses,	the	impact	of	restructuring	actions	and	the	favorable	impact	of	certain	tax	items.

(3)	Amounts	for	2011	include	the	amortization	of	purchase	accounting	adjustments,	in-process	research	and	development	impairment	charges	reflected	in	research	and	development	expenses,	the	impact	of	restructuring actions,	an	arbitration	settlement	charge,	and	the	favorable	impact	of	certain	tax	items,	including	a	net	favorable	impact	of	approximately	$700	million	relating	to	the	settlement	of	a	federal	income	tax	audit.

(4)	Amounts	for	2010	include	the	amortization	of	purchase	accounting	adjustments,	in-process	research	and	development	impairment	charges	of	$2.4	billion	reflected	in	research	and	development	expenses,	the	impact	of restructuring	actions,	a	reserve	related	to	Vioxx	litigation,	a	gain	recognized	on	AstraZeneca	LP's	exercise	of	its	option	to	acquire	certain	assets	from	the	Company	and	the	favorable	impact	of	certain	tax	items.

(5)	Amounts	for	2009	include	the	impact	of	the	merger	with	Schering-Plough	Corporation	on	November	3,	2009,	including	the	recognition	of	a	gain	representing	the	fair	value	step-up	of	Merck's	previously	held	interest in	the	Merck/Schering-Plough	partnership	as	a	result	of	obtaining	a	controlling	interest	and	the	amortization	of	purchase	accounting	adjustments	recorded	in	the	post-merger	period.	Also	included	in	2009,	is	a	gain on	the	sale	of	Merck's	interest	in	Merial	Limited,	the	favorable	impact	of	certain	tax	items	and	the	impact	of	restructuring	actions.

(6)	Amount	reflects	dividends	declared	on	Merck	common	stock.	In	addition,	approximately	$144	million	of	dividends	were	paid	subsequent	to	the	merger	with	Schering-Plough,	and	$431	million	were	paid	prior	to	the merger,	relating	to	common	stock	and	preferred	stock	dividends	declared	by	Schering-Plough	in	2009.

(7)	Number	of	employees	at	December	31,	2013,	does	not	reflect	1,300	employees	of	the	Company's	joint	ventures	in	China	and	Brazil,	which	are	included	in	the	consolidated	results	of	Merck.

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of

# Operations.

# Description	of	Merck's	Business

Merck	&	Co.,	Inc.	("Merck"	or	the	"Company")	is	a	global	health	care	company	that	delivers	innovative	health	solutions	through	its	prescription	medicines, vaccines,	biologic	 therapies,	animal	health,	and	consumer	care	products,	which	 it	markets	directly	and	 through	 its	 joint	ventures.	The	Company's	operations	are principally	managed	on	a	products	basis	and	are	comprised	of	four	operating	segments,	which	are	the	Pharmaceutical,	Animal	Health,	Consumer	Care	and	Alliances segments,	and	one	reportable	segment,	which	is	the	Pharmaceutical	segment.	The	Pharmaceutical	segment	includes	human	health	pharmaceutical	and	vaccine	products marketed	either	directly	by	the	Company	or	through	joint	ventures.	Human	health	pharmaceutical	products	consist	of	therapeutic	and	preventive	agents,	generally	sold by	prescription,	for	the	treatment	of	human	disorders.	The	Company	sells	these	human	health	pharmaceutical	products	primarily	to	drug	wholesalers	and	retailers, hospitals,	government	agencies	and	managed	health	care	providers	such	as	health	maintenance	organizations,	pharmacy	benefit	managers	and	other	institutions.	Vaccine products	consist	of	preventive	pediatric,	adolescent	and	adult	vaccines,	primarily	administered	at	physician	offices.	The	Company	sells	these	human	health	vaccines primarily	to	physicians,	wholesalers,	physician	distributors	and	government	entities.	The	Company	also	has	animal	health	operations	that	discover,	develop,	manufacture and	market	animal	health	products,	including	vaccines,	which	the	Company	sells	to	veterinarians,	distributors	and	animal	producers.	Additionally,	the	Company	has consumer	care	operations	that	develop,	manufacture	and	market	over-the-counter,	foot	care	and	sun	care	products,	which	are	sold	through	wholesale	and	retail	drug, food	chain	and	mass	merchandiser	outlets,	as	well	as	club	stores	and	specialty	channels.

# Overview

The	Company's	revenue	performance	in	2013	was	tempered	by	ongoing	business	challenges,	including	recent	product	patent	expiries	and	ongoing	global efforts	toward	health	care	cost	containment	that	continue	to	exert	pressure	on	product	pricing	and	market	access.	Worldwide	sales	were	$44.0	billion	in	2013,	a	decline of	7%	compared	with	2012,	including	a	2%	unfavorable	effect	from	foreign	exchange.	The	decline	was	driven	primarily	by	the	recent	loss	of	market	exclusivity	for several	products,	particularly	Singulair,	a	medicine	indicated	for	the	chronic	treatment	of	asthma	and	the	relief	of	symptoms	of	allergic	rhinitis,	as	well	as	Maxalt,	a product	for	acute	treatment	of	migraine,	Propecia,	a	product	for	the	treatment	of	male	pattern	hair	loss,	and	Temodar,	a	treatment	for	certain	types	of	brain	tumors.	The Company	experienced	a	significant	and	rapid	decline	in	sales	of	these	products	following	loss	of	market	exclusivity.	These	declines	were	partially	offset	by	higher	sales of	vaccines,	immunology,	diabetes	and	HIV	products.

The	 Company	 continued	 to	 successfully	 execute	 on	 its	 cost	 reduction	 initiatives in	 2013.	Marketing	 and	 administrative expenses and	Research	 and development	costs	were	down	over	$1.5	billion	on	a	combined	basis	in	2013	as	compared	with	2012	reflecting	targeted	reductions	in	promotional	spending	and	lower costs	as	a	result	of	portfolio	prioritization.

In	an	effort	to	drive	further	company-wide	efficiencies,	Merck	is	taking	several	strategic	and	operating	actions	in	response	to	its	business	challenges	and	the rapidly	changing	external	environment	it	is	facing	that	are	designed	to	drive	short-	and	long-term	growth.	In	October	2013,	the	Company	announced	a	multi-year	global initiative	to	sharpen	its	commercial	and	research	and	development	focus	designed	to	enable	Merck	to	better	allocate	its	resources	on	candidates	that	it	believes	are capable	of	providing	unambiguous,	promotable	advantages	to	patients	and	payers.	This	includes	bolstering	its	pipeline	and	implementing	a	more	agile	operating	model, with	a	significantly	reduced,	more	flexible	cost	structure	while	still	maintaining	a	high	level	of	cash	returned	to	shareholders.

Geographically,	the	Company	will	increase	its	focus	on	ten	prioritized	markets,	which	account	for	the	majority	of	revenue	in	its	pharmaceutical	and	vaccine business.	These	markets	are	the	United	States,	Japan,	France,	Germany,	Canada,	United	Kingdom,	China,	Brazil,	Russia	and	Korea.	The	Company	will	continue	to invest	in	high-growth	and	key	emerging	markets.

Within	the	core	human	pharmaceutical	and	vaccine	business,	Merck	will	continue	to	support	its	in-line	portfolio	and	prepare	for	promising	launches	in	the pipeline.	The	Company	will	increase	its	focus	on	the	key	therapeutic	areas	that	meet	unmet	medical	needs,	provide	the	best	opportunities	for	the	business	and	deliver	the greatest	value	for	customers	–	diabetes,	acute	hospital	care,	vaccines	and	oncology.	As	part	of	its	intensified	portfolio	assessment	process,	the	Company	has	divested	a portion	of	its	U.S.	ophthalmics	business	and	sold	the	U.S.	marketing	rights	for	Saphris,

an	antipsychotic	indicated	for	the	treatment	of	schizophrenia	and	bipolar	I	disorder	in	adults.	The	Company's	portfolio	assessment	process	is	ongoing	and	future	product divestitures	may	occur.

In	addition,	in	January	2014,	the	Company	announced	that	it	was	evaluating	the	respective	roles	of	Merck's	Animal	Health	and	Consumer	Care	businesses	in the	Company's	strategy	for	long-term	value	creation.	The	Company	expects	to	complete	the	evaluation	process	and	take	action,	if	any,	in	2014.	The	Company	could reach	different	decisions	about	the	two	businesses.

The	Company's	re-focused	research	and	development	efforts	include	programs	such	as	the	Company's	anti-PD-1	immunotherapy	(MK-3475)	in	oncology, which	has	received	a	Breakthrough	Therapy	designation	from	the	U.S.	Food	and	Drug	Administration	(the	"FDA")	for	advanced	melanoma,	Merck's	BACE	inhibitor for	Alzheimer's	disease	(MK-8931),	the	Company's	all	oral	combination	regimen	for	the	treatment	of	chronic	hepatitis	C	virus	infection	(MK-5172/MK-8742),	and V503,	a	nine-valent	human	papillomavirus	("HPV")	vaccine.	In	January	2014,	the	Company	announced	it	has	initiated	the	rolling	submission	of	a	Biologics	License Application	("BLA")	to	the	FDA	for	MK-3475	in	patients	with	advanced	melanoma	who	have	previously	been	treated	with	ipilimumab.	During	2013,	the	Company received	a	Breakthrough	Therapy	designation	for	MK-5172/MK-8742	and	has	advanced	the	combination	into	Phase	2B	in	a	diverse	range	of	chronic	hepatitis	C	patients. The	Company	has	initiated	Phase	3	trials	for	its	BACE	inhibitor	(MK-8931)	and	filed	a	BLA	with	the	FDA	for	V503.

Merck	is	pursuing	emerging	product	opportunities	independent	of	therapeutic	area	or	modality	and	is	building	its	biologics	capabilities.	The	Company expects	to	make	externally	sourced	programs	a	greater	component	of	its	pipeline	strategy.	During	2013,	the	Company	entered	into	a	collaboration	agreement	for	the development	and	commercialization	of	ertugliflozin,	an	investigational	oral	sodium	glucose	cotransporter	("SGLT2")	inhibitor	being	evaluated	for	the	treatment	of	type 2	diabetes	in	Phase	3	clinical	development.

The	Company	is	out-licensing	or	discontinuing	selected	late-stage	clinical	development	assets	and	reducing	its	focus	on	platform	technologies.	During	2013, the	Company	out-licensed	MK-1775,	an	investigational	treatment	for	certain	types	of	ovarian	cancer,	and	in	January	2014	entered	into	an	agreement	to	divest	its	Sirna Therapeutics,	Inc.	subsidiary	and	related	RNAi	technology	assets.

The	Company	currently	has	several	candidates	under	review	with	the	FDA:	MK-5348,	vorapaxar,	an	investigational	anti-thrombotic	medicine	(also	under review	in	the	European	Union	(the	"EU"));	V503,	a	nine-valent	HPV	vaccine;	MK-8962,	corifollitropin	alfa	injection,	an	investigational	fertility	treatment;	MK-7243, Grastek,	an	investigational	Timothy	grass	pollen	allergy	immunotherapy	tablet	("AIT")	and	MK-3641,	Ragwitek,	an	investigational	ragweed	pollen	AIT.	Also,	MK- 8109,	vintafolide,	an	investigational	cancer	candidate,	is	under	review	in	the	EU	and	MK-7009,	vaniprevir,	an	investigational,	oral	twice-daily	protease	inhibitor	for	the treatment	of	chronic	hepatitis	C	virus	infection	is	under	review	in	Japan.	In	February	2014,	the	Company	resubmitted	its	New	Drug	Application	("NDA")	to	the	FDA	for MK-4305,	suvorexant,	responding	to	the	agency's	Complete	Response	Letter	("CRL")	received	in	2013.	In	addition,	the	Company	anticipates	resubmitting	its	NDA application	in	2014	to	the	FDA	for	MK-8616,	sugammadex	sodium	injection,	a	medication	for	the	reversal	of	certain	muscle	relaxants	used	during	surgery	for	which	the Company	received	a	CRL	in	2013	(see	"Research	and	Development"	below).	The	Company	also	has	12	candidates	in	Phase	3	development	and	anticipates	filing	a	New Drug	Application	("NDA")	or	a	BLA,	as	applicable,	with	the	FDA	with	respect	to	several	of	these	candidates	in	2014,	including	the	completion	of	the	rolling	submission of	the	BLA	for	MK-3475	for	patients	with	advanced	melanoma	who	have	previously	been	treated	with	ipilimumab.

In	October	2013,	in	connection	with	the	implementation	of	Company's	new	global	initiative,	the	Company	announced	a	global	restructuring	program	(the "2013	 Restructuring	 Program").	As	 part	 of	 the	 program,	 the	 Company	 expects	 to	 reduce	 its	 total	 workforce	 by	 approximately	8,500	 positions.	These	 workforce reductions	will	primarily	come	from	the	elimination	of	positions	in	sales,	administrative	and	headquarters	organizations,	as	well	as	research	and	development.	The Company	will	also	reduce	its	global	real	estate	footprint	and	continue	to	improve	the	efficiency	of	its	manufacturing	and	supply	network.	The	Company	recorded	total pretax	costs	of	$1.2	billion	in	2013	related	to	this	restructuring	program.	The	actions	under	the	2013	Restructuring	Program	are	expected	to	be	substantially	completed	by the	 end	 of	 2015	 with	 the	 cumulative	 pretax	 costs	 estimated	 to	 be	 approximately	$2.5	billion	 to	$3.0	billion.	 The	 Company	 expects	 the	 actions	 under	 the	 2013 Restructuring	Program	to	result	in	annual	net	cost	savings	of	approximately	$2.0	billion	by	the	end	of	2015.	The	Company	anticipates	that	the	actions	under	the	2013 Restructuring	Program,	combined	with	remaining	actions	under	the	Merger	Restructuring	Program	(discussed	below),	will	result	in	annual	net	cost	savings	of	$2.5 billion	by	the	end	of	2015	compared	with	full-year	2012	expense	levels.

The	global	restructuring	program	(the	"Merger	Restructuring	Program")	that	was	initiated	in	2010	subsequent	to	the	Merck	and	Schering-Plough	Corporation ("Schering-Plough")	merger	(the	"Merger")	is	intended	to	streamline	the	cost	structure	of	the	combined	company.	The	workforce	reductions	associated	with	this	plan relate	to	the	elimination	of	positions	in	sales,	administrative	and	headquarters	organizations,	as	well	as	from	the	sale	or	closure	of	certain	manufacturing	and	research and	development	sites	and	the	consolidation	of	office	facilities.	The	Company	recorded	total	pretax	costs	of	$1.1	billion	in	2013,	$951	million	in	2012	and	$1.8	billion	in 2011	related	to	this	restructuring	program.	The	restructuring	actions	under	the	Merger	Restructuring	Program	were	substantially	completed	by	the	end	of	2013,	with	the exception	of	certain	actions,	principally	manufacturing-related.	Subsequent	to	the	Merger,	the	Company	has	rationalized	a	number	of	manufacturing	sites	worldwide. The	remaining	actions	under	this	program	will	result	in	additional	manufacturing	facility	rationalizations,	which	are	expected	to	be	substantially	completed	by	2016.	The Company	expects	 the	estimated	 total	cumulative	pretax	costs	for	 this	program	 to	be	approximately	$7.4	billion	 to	$7.7	billion	and	 to	yield	annual	savings	upon completion	of	the	program	of	approximately	$4.0	billion	to	$4.6	billion.

Costs	associated	with	the	Company's	restructuring	actions	are	included	in	Materials	and	production	costs,	Marketing	and	administrative	expenses,	Research and	development	expenses	and	Restructuring	costs.	The	Company	estimates	that	of	the	projected	costs	associated	with	the	above	mentioned	restructuring	programs, approximately	two-thirds	of	the	cumulative	pretax	costs	relate	to	cash	outlays,	primarily	related	to	employee	separation	expense.	Approximately	one-third	of	the cumulative	pretax	costs	are	non-cash,	relating	primarily	to	the	accelerated	depreciation	of	facilities	to	be	closed	or	divested.

During	2013,	the	Company	returned	$11.7	billion	of	cash	to	shareholders	through	stock	buy-back	activity	and	dividend	payments.	Pursuant	to	a	$15	billion share	repurchase	program	approved	in	May	2013	by	Merck's	Board	of	Directors,	Merck	entered	into	an	accelerated	share	repurchase	("ASR")	agreement	with	Goldman, Sachs	&	Co.	("Goldman	Sachs").	Under	the	ASR,	Merck	repurchased	105	million	shares	of	common	stock	for	$5	billion	utilizing	funding	from	an	underwritten	public debt	offering.	Also,	in	November	2013,	Merck's	Board	of	Directors	raised	the	Company's	quarterly	dividend	to	$0.44	per	share	from	$0.43	per	share.

Earnings	per	common	share	assuming	dilution	attributable	to	common	shareholders	("EPS")	for	2013	were	$1.47	compared	with	$2.00	in	2012.	EPS	in	both years	reflect	a	net	unfavorable	impact	resulting	from	acquisition-related	costs	and	restructuring	costs,	and	certain	other	items.	Non-GAAP	EPS,	which	excludes	these items,	were	$3.49	in	2013	compared	with	$3.82	in	2012	(see	"Non-GAAP	Income	and	Non-GAAP	EPS"	below).	The	decline	in	Non-GAAP	EPS	in	2013	as	compared with	2012	was	due	primarily	to	lower	sales	reflecting	the	loss	of	market	exclusivity	for	certain	products,	particularly	Singulair,	lower	equity	income	and	higher	foreign exchange	losses,	partially	offset	by	lower	operating	expenses.	EPS	in	2013	benefited	from	lower	average	shares	outstanding	due	to	the	ASR	program	discussed	above.

The	markets	in	which	the	Company	conducts	its	business	and	the	pharmaceutical	industry	are	highly	competitive	and	highly	regulated.	The	Company's competitors	include	other	worldwide	research-based	pharmaceutical	companies,	smaller	research	companies	with	more	limited	therapeutic	focus,	and	generic	drug	and consumer	and	animal	health	care	manufacturers.	The	Company's	operations	may	be	adversely	affected	by	generic	and	biosimilar	competition	as	the	Company's	products mature,	as	well	as	technological	advances	of	competitors,	industry	consolidation,	patents	granted	to	competitors,	competitive	combination	products,	new	products	of competitors,	the	generic	availability	of	competitors'	branded	products,	and	new	information	from	clinical	trials	of	marketed	products	or	post-marketing	surveillance.	In addition,	patent	positions	are	increasingly	being	challenged	by	competitors,	and	the	outcome	can	be	highly	uncertain.	An	adverse	result	in	a	patent	dispute	can	preclude commercialization	of	products	or	negatively	affect	sales	of	existing	products	and	could	result	in	the	recognition	of	an	impairment	charge	with	respect	to	intangible	assets associated	with	certain	products.	Competitive	pressures	have	intensified	as	pressures	in	the	industry	have	grown.	The	effect	on	operations	of	competitive	factors	and patent	disputes	cannot	be	predicted.

Pharmaceutical	competition	involves	a	rigorous	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	positioned	to	compete	in	the	search	for	technological	innovations.	Additional	resources	required	to meet	market	challenges	include	quality	control,	flexibility	to	meet	customer	specifications,	an	efficient	distribution	system	and	a

strong	technical	information	service.	The	Company	is	active	in	acquiring	and	marketing	products	through	external	alliances,	such	as	joint	ventures	and	licenses,	and	has been	refining	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	displacements,	even	for	products	protected	by	patents.	For	example,	the	number	of	compounds	available	to	treat	a	particular disease	typically	increases	over	time	and	can	result	in	slowed	sales	growth	or	reduced	sales	for	the	Company's	products	in	that	therapeutic	category.

In	addition,	in	the	effort	to	contain	the	U.S.	federal	deficit,	the	pharmaceutical	industry	could	be	considered	a	potential	source	of	savings	via	legislative proposals	that	have	been	debated	but	not	enacted.	These	types	of	revenue	generating	or	cost	saving	proposals	include	additional	direct	price	controls	in	the	Medicare prescription	drug	program	(Part	D).	In	addition,	Congress	may	again	consider	proposals	to	allow,	under	certain	conditions,	the	importation	of	medicines	from	other countries.	It	remains	very	uncertain	as	to	what	proposals,	if	any,	may	be	included	as	part	of	future	federal	budget	deficit	reduction	proposals	that	would	directly	or indirectly	affect	the	Company.

Efforts	toward	health	care	cost	containment	remain	intense	in	several	European	countries.	Many	countries	have	continued	to	announce	and	execute	austerity measures,	which	include	the	implementation	of	pricing	actions	to

reduce	prices	of	generic	and	patented	drugs	and	mandatory	switches	to	generic	drugs.	While	the	Company	is	taking	steps	to	mitigate	the	impact	in	these	countries,	the austerity	measures	continued	to	negatively	affect	the	Company's	revenue	performance	in	2013	and	the	Company	anticipates	the	austerity	measures	will	continue	to negatively	affect	revenue	performance	in	2014.	In	addition,	a	majority	of	countries	attempt	to	contain	drug	costs	by	engaging	in	reference	pricing	in	which	authorities examine	pre-determined	markets	for	published	prices	of	drugs	by	brand.	The	authorities	then	use	price	data	from	those	markets	to	set	new	local	prices	for	brand-name drugs,	including	the	Company's.	Guidelines	for	examining	reference	pricing	are	usually	set	in	local	markets	and	can	be	changed	pursuant	to	local	regulations.

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	and	practices	have	increased	the	amount	of	time	and resources	necessary	to	develop	new	products	and	bring	them	to	market	in	the	United	States.

The	EU	has	adopted	directives	and	other	legislation	concerning	the	classification,	labeling,	advertising,	wholesale	distribution,	integrity	of	the	supply	chain, enhanced	pharmacovigilance	monitoring	and	approval	for	marketing	of	medicinal	products	for	human	use.	These	provide	mandatory	standards	throughout	the	EU,	which may	be	supplemented	or	implemented	with	additional	regulations	by	the	EU	member	states.	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	believes	that	it	will	continue	to	be	able	to	conduct	its	operations,	including	launching	new	drugs,	in	this	regulatory	environment.

# Operating	Results

# Sales

Worldwide	sales	totaled	$44.0	billion	in	2013,	a	decline	of	7%	compared	with	$47.3	billion	in	2012.	The	sales	decline	was	driven	primarily	by	lower	sales	of Singulair.	The	patents	that	provided	U.S.	market	exclusivity	and	market	exclusivity	in	a	number	of	major	European	markets	for	Singulair	expired	in	August	2012	and February	2013,	respectively,	and	the	Company	experienced	a	significant	and	rapid	decline	in	Singulair	sales	in	those	markets	thereafter.	Foreign	exchange	unfavorably affected	global	sales	performance	by	2%	in	2013.	The	revenue	decline	in	2013	also	reflects	lower	sales	of	Maxalt,	Cozaar	and	Hyzaar,	treatments	for	hypertension, Temodar,	Clarinex,	 a	 non-sedating	 antihistamine,	PegIntron,	a	 treatment	for	chronic	hepatitis	C,	Propecia,	Fosamax,	 a	 treatment	 for	 osteoporosis,	 and	Vytorin,	 a cholesterol	modifying	medicine.	These	declines	were	partially	offset	by	growth	in	Gardasil,	a	vaccine	to	help	prevent	certain	diseases	caused	by	four	types	of	HPV, Remicade	and	Simponi,	treatments	for	inflammatory	diseases,	Janumet,	a	treatment	for	type	2	diabetes,	Isentress,	a	treatment	for	HIV-1	infection,	Dulera	Inhalation Aerosol,	a	combination	medicine	for	the	treatment	of	asthma,	and	Zostavax,	a	vaccine	to	help	prevent	shingles	(herpes	zoster).

Sales	in	the	United	States	were	$18.2	billion	in	2013,	a	decline	of	11%	compared	with	$20.4	billion	in	2012.	The	sales	decrease	was	driven	primarily	by lower	sales	of	Singulair,	as	well	as	Maxalt,	Temodar,	Victrelis,	an	oral	medicine	for	the	treatment	of	chronic	hepatitis	C	virus,	and	Clarinex,	partially	offset	by	higher sales	of	Gardasil,	Zetia,	a	cholesterol	absorption	inhibitor,	and	Dulera	Inhalation	Aerosol.

International	sales	were	$25.8	billion	in	2013,	a	decline	of	4%	compared	with	$26.9	billion	in	2012.	Foreign	exchange	unfavorably	affected	international sales	performance	by	4%	in	2013.	The	decline	was	driven	primarily	by	lower	sales	in	the	Pharmaceutical	segment,	reflecting	declines	in	Japan,	largely	attributable	to	the unfavorable	effect	of	foreign	exchange,	and	Europe	that	were	partially	offset	by	growth	in	the	emerging	markets.	Sales	in	Japan	declined	21%	in	2013,	to	$3.9	billion,	of which	17%	was	due	to	the	unfavorable	effect	of	foreign	exchange.	The	sales	decline

reflects	the	ongoing	impacts	of	the	loss	of	the	market	exclusivity	for	several	products,	including	Cozaar	and	Hyzaar,	as	well	as	lower	sales	of	Gardasil,	reflecting	the Japanese	government's	decision	to	suspend	proactive	recommendation	of	HPV	vaccines,	and	declines	in	PegIntron	and	Rebetol,	products	for	the	treatment	of	chronic hepatitis	C.	These	declines	were	partially	offset	by	volume	growth	in	Januvia,	a	treatment	for	type	2	diabetes,	Nasonex,	an	inhaled	nasal	corticosteroid	for	the	treatment of	nasal	allergy	symptoms,	Zetia,	and	RotaTeq,	a	vaccine	to	help	protect	against	rotavirus	gastroenteritis	in	infants	and	children.	Sales	in	Europe	declined	1%	in	2013,	to $9.6	billion,	including	a	2%	favorable	effect	from	foreign	exchange	driven	by	ongoing	generic	erosion	and	fiscal	austerity	measures	in	this	region,	partially	offset	by growth	in	Remicade,	Simponi,	Janumet,	Januvia	and	Isentress.	Sales	in	the	emerging	markets	grew	3%	in	2013,	to	$7.8	billion,	including	a	4%	unfavorable	effect	from foreign	exchange	reflecting	higher	sales	of	vaccine,	hospital,	hepatitis	and	immunology	products,	partially	offset	by	lower	sales	of	Singulair	and	diversified	brands.	Total international	sales	represented	59%	and	57%	of	total	sales	in	2013	and	2012,	respectively.

Global	efforts	toward	health	care	cost	containment	continue	to	exert	pressure	on	product	pricing	and	market	access	worldwide.	In	many	international	markets, government-mandated	pricing	actions	have	reduced	prices	of	generic	and	patented	drugs.	In	addition,	other	austerity	measures	negatively	affected	the	Company's revenue	performance	in	2013.	The	Company	anticipates	these	pricing	actions,	including	the	biennial	price	reductions	in	Japan,	and	other	austerity	measures	will	continue to	negatively	affect	revenue	performance	in	2014.

In	October	2013,	the	Company	sold	its	active	pharmaceutical	ingredient	("API")	manufacturing	business	and,	effective	December	31,	2013,	certain	related products	within	Diversified	Brands.	In	November	2013,	Merck	sold	the	U.S.	rights	to	certain	ophthalmic	products	and	in	January	2014	sold	the	U.S.	rights	to	Saphris. The	aggregate	annual	sales	associated	with	 these	divested	assets	were	approximately	$625	million.	The	annual	sales	associated	with	 the	divested	products	were approximately	$425	million	of	which	approximately	$385	million	related	to	the	Pharmaceutical	segment	and	$40	million	related	to	the	Consumer	Care	segment.	The annual	sales	associated	with	the	divested	API	manufacturing	business	were	approximately	$200	million	and	related	to	non-segment	revenues.

Worldwide	sales	were	$47.3	billion	in	2012,	a	decline	of	2%	compared	with	$48.0	billion	in	2011.	Foreign	exchange	unfavorably	affected	global	sales performance	by	3%.	The	sales	decrease	was	driven	primarily	by	Singulair,	which	lost	market	exclusivity	in	the	United	States	in	August	2012	resulting	in	a	significant and	rapid	decline	in	U.S.	Singulair	sales.	The	sales	decline	was	also	driven	by	lower	sales	of	Remicade,	largely	as	a	result	of	the	arbitration	settlement	agreement	reached in	2011	as	discussed	below.	In	addition,	lower	sales	of	Cozaar	and	Hyzaar,	Clarinex,	Fosamax,	Vytorin,	Primaxin,	an	anti-bacterial	product,	and	Avelox,	a	broad- spectrum	fluoroquinolone	antibiotic	for	 the	 treatment	of	certain	respiratory	and	 skin	 infections,	 as	 well	 as	 lower	 revenue	 from	 the	 Company's	 relationship	 with AstraZeneca	LP	("AZLP")	also	contributed	to	the	sales	decline	in	2012.	These	declines	were	largely	offset	by	higher	sales	of	Januvia,	Gardasil,	Victrelis,	Zostavax, Janumet,	Isentress,	Zetia,	and	Dulera	Inhalation	Aerosol,	as	well	as	by	higher	sales	of	the	Company's	animal	health	and	consumer	care	products.

# Sales	of	the	Company's	products	were	as	follows:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Primary\tCare\tand\tWomen's\tHealth |  |  |  |
| Cardiovascular |  |  |  |
| Zetia | $2,658 | $2,567 | $2,428 |
| Vytorin | 1,643 | 1,747 | 1,882 |
| Diabetes\tand\tObesity |  |  |  |
| Januvia | 4,004 | 4,086 | 3,324 |
| Janumet | 1,829 | 1,659 | 1,363 |
| Respiratory |  |  |  |
| Nasonex | 1,335 | 1,268 | 1,286 |
| Singulair | 1,196 | 3,853 | 5,479 |
| Dulera | 324 | 207 | 96 |
| Asmanex | 184 | 185 | 206 |
| Women's\tHealth\tand\tEndocrine |  |  |  |
| NuvaRing | 686 | 623 | 623 |
| Fosamax | 560 | 676 | 855 |
| Follistim\tAQ | 481 | 468 | 530 |
| Implanon | 403 | 348 | 294 |
| Cerazette | 208 | 271 | 268 |
| Other |  |  |  |
| Arcoxia | 484 | 453 | 431 |
| Avelox | 140 | 201 | 322 |
| Hospital\tand\tSpecialty |  |  |  |
| Immunology |  |  |  |
| Remicade | 2,271 | 2,076 | 2,667 |
| Simponi | 500 | 331 | 264 |
| Infectious\tDisease |  |  |  |
| Isentress | 1,643 | 1,515 | 1,359 |
| Cancidas | 660 | 619 | 640 |
| PegIntron | 496 | 653 | 657 |
| Invanz | 488 | 445 | 406 |
| Victrelis | 428 | 502 | 140 |
| Noxafil | 309 | 258 | 230 |
| Oncology |  |  |  |
| Temodar | 708 | 917 | 935 |
| Emend | 507 | 489 | 419 |
| Other |  |  |  |
| Cosopt/Trusopt | 416 | 444 | 477 |
| Bridion | 288 | 261 | 201 |
| Integrilin | 186 | 211 | 230 |
| Diversified\tBrands |  |  |  |
| Cozaar/Hyzaar | 1,006 | 1,284 | 1,663 |
| Primaxin | 335 | 384 | 515 |
| Zocor | 301 | 383 | 456 |
| Propecia | 283 | 424 | 447 |
| Clarinex | 235 | 393 | 621 |
| Remeron | 206 | 232 | 241 |
| Claritin\tRx | 204 | 244 | 314 |
| Proscar | 183 | 217 | 223 |
| Maxalt | 149 | 638 | 639 |
| Vaccines\t(1) |  |  |  |
| Gardasil | 1,831 | 1,631 | 1,209 |
| ProQuad/M-M-R\tII/Varivax | 1,306 | 1,273 | 1,202 |
| Zostavax | 758 | 651 | 332 |
| Pneumovax\t23 | 653 | 580 | 498 |
| RotaTeq | 636 | 601 | 651 |
| Other\tpharmaceutical\t(2) | 4,316 | 4,333 | 4,266 |
| Total\tPharmaceutical\tsegment\tsales | 37,437 | 40,601 | 41,289 |
| Other\tsegment\tsales\t(3) | 6,325 | 6,412 | 6,428 |
| Total\tsegment\tsales | 43,762 | 47,013 | 47,717 |
| Other\t(4) | 271 | 254 | 330 |
|  | $44,033 | $47,267 | $48,047 |

(1)	These	amounts	do	not	reflect	sales	of	vaccines	sold	in	most	major	European	markets	through	the	Company's	joint	venture,	Sanofi	Pasteur	MSD,	the	results	of	which	are	reflected	in Equity	income from	affiliates.	These	amounts	do,	however,	reflect	supply	sales	to	Sanofi	Pasteur	MSD.

(2)	Other	pharmaceutical	primarily	reflects	sales	of	other	human	health	pharmaceutical	products,	including	products	within	the	franchises	not	listed	separately.

(3)		Represents	the	non-reportable	segments	of	Animal	Health,	Consumer	Care	and	Alliances.	The	Alliances	segment	includes	revenue	from	the	Company's	relationship	with	AZLP.

(4)	Other	revenues	are	primarily	comprised	of	miscellaneous	corporate	revenues,	third-party	manufacturing	sales,	sales	related	to	divested	products	or	businesses	and	other	supply	sales	not	included in	segment	results.	As	discussed	above,	on	October	1,	2013,	the	Company	divested	a	substantial	portion	of	its	third-party	manufacturing	sales.	In	addition,	other	revenues	in	2013	reflect	$50 million	of	revenue	for	the	out-license	of	a	pipeline	compound.

# Pharmaceutical	Segment

# Cardiovascular

Worldwide	sales	of	Zetia	(also	marketed	as	Ezetrol	outside	the	United	States),	a	cholesterol	absorption	inhibitor,	were	$2.7	billion	in	2013,	an	increase	of	4% compared	with	2012	including	a	2%	unfavorable	effect	from	foreign	exchange.	The	sales	increase	primarily	reflects	favorable	pricing	in	the	United	States	and	volume growth	in	Japan,	partially	offset	by	the	unfavorable	effect	of	foreign	exchange	particularly	in	Japan.	Sales	of	Zetia	increased	6%	in	2012	to	$2.6	billion,	including	a	2% unfavorable	effect	from	foreign	exchange.	The	sales	increase	reflects	positive	performance	in	the	United	States	due	to	pricing,	as	well	as	volume	growth	in	Japan, partially	offset	by	volume	declines	in	the	United	States.

Global	sales	of	Vytorin	(marketed	outside	the	United	States	as	Inegy),	a	combination	product	containing	the	active	ingredients	of	both	Zetia	and	Zocor,	a statin	for	modifying	cholesterol,	were	$1.6	billion	in	2013,	a	decline	of	6%	compared	with	2012,	driven	primarily	by	lower	volumes	in	the	United	States	and	Latin America,	partially	offset	by	volume	growth	in	the	Asia	Pacific	region.	Worldwide	sales	of	Vytorin	declined	7%	in	2012	to	$1.7	billion,	including	a	3%	unfavorable	effect from	foreign	exchange.	The	sales	decline	reflects	volume	declines	in	the	United	States,	partially	offset	by	pricing	in	the	United	States	and	volume	growth	in	certain international	markets.

In	 March	 2013,	 the	 Data	 Safety	 Monitoring	 Board	 (the	 "DSMB")	 of	 the	 IMPROVE-IT	 trial,	 a	 large	 cardiovascular	 outcomes	 study	 evaluating ezetimibe/simvastatin	against	simvastatin	alone	in	patients	presenting	with	acute	coronary	syndrome,	completed	its	planned	review	of	study	data	and	recommended	that the	study	continue.	Merck	remains	blinded	to	the	actual	results	of	this	analysis	and	to	other	IMPROVE-IT	safety	and	efficacy	data.	IMPROVE-IT	is	an	18,000	patient event-driven	trial	and,	based	on	the	targeted	number	of	5,250	clinical	endpoints	and	the	rate	at	which	events	are	being	reported,	the	trial	is	projected	to	conclude	later	in 2014.	If	the	results	of	the	IMPROVE-IT	trial	fail	to	demonstrate	an	incremental	benefit	of	ezetimibe/simvastatin	on	cardiovascular	morbidity	and	mortality	over	and above	that	demonstrated	for	simvastatin,	sales	of	Zetia	 and	Vytorin	could	be	materially	adversely	affected	and,	if	so,	the	Company	may	take	non-cash	impairment charges	with	respect	to	the	carrying	values	of	the	Zetia	and	Vytorin	intangible	assets,	which	were	$4.7	billion	and	$2.6	billion,	respectively,	at	December	31,	2013	and such	charges	could	be	material.

# Diabetes	and	Obesity

Global	sales	of	Januvia,	Merck's	dipeptidyl	peptidase-4	("DPP-4")	inhibitor	for	the	treatment	of	type	2	diabetes,	were	$4.0	billion	in	2013,	a	decline	of	2% compared	with	2012	including	a	5%	unfavorable	effect	from	foreign	exchange.	Excluding	the	negative	effect	from	foreign	exchange,	sales	performance	in	2013 compared	with	2012	reflects	volume	growth	in	Japan,	positive	performance	in	Europe	and	the	emerging	markets,	partially	offset	by	declines	in	the	United	States reflecting	lowering	demand.	Worldwide	sales	of	Januvia	rose	23%	to	$4.1	billion	in	2012	compared	with	2011	reflecting	volume	growth	in	the	United	States,	as	well	as in	international	markets,	particularly	in	Japan.	Foreign	exchange	unfavorably	affected	sales	performance	by	2%	in	2012.	In	2014,	the	Company	anticipates	that	all	DPP- 4	inhibitors,	including	Januvia,	will	be	subject	to	repricing	in	Japan.

The	Trial	Evaluating	Cardiovascular	Outcomes	after	treatment	with	Sitagliptin	("TECOS"),	an	event-driven,	cardiovascular	outcomes	study	for	sitagliptin, began	in	2008	and	has	over	14,000	patients	enrolled.	TECOS	will	evaluate	the	impact	of	sitagliptin	when	added	to	usual	care	compared	to	usual	care	without	sitagliptin in	a	large,	high-risk	type	2	diabetes	population	across	multiple	countries.	TECOS	is	expected	to	be	completed	later	in	2014.

Worldwide	sales	of	Janumet,	Merck's	oral	antihyperglycemic	agent	that	combines	sitagliptin	(Januvia)	with	metformin	in	a	single	tablet,	were	$1.8	billion	in 2013,	an	increase	of	10%	compared	with	2012,	driven	primarily	by	volume	growth	outside	the	United	States.	Global	sales	of	Janumet	were	$1.7	billion	in	2012,	an increase	of	22%	compared	with	2011,	reflecting	volume	growth	in	the	United	States,	the	emerging	markets	and	Europe.	Foreign	exchange	unfavorably	affected	sales performance	by	4%	in	2012.

Global	sales	of	the	combined	diabetes	franchise	of	Januvia/Janumet	were	$5.8	billion	in	2013,	an	increase	of	2%	compared	with	2012	including	a	3% unfavorable	effect	from	foreign	exchange,	and	were	$5.7	billion	in	2012,	an	increase	of	23%	compared	with	2011	including	a	2%	unfavorable	effect	from	foreign exchange.

# Respiratory

Global	sales	of	Nasonex,	an	inhaled	nasal	corticosteroid	for	the	treatment	of	nasal	allergy	symptoms,	increased	5%	to	$1.3	billion	in	2013	compared	with 2012	driven	primarily	by	increases	in	the	United	States,	reflecting	net	favorable	adjustments	to	indirect	customer	discounts,	as	well	as	by	volume	growth	in	Japan, partially	offset	by	declines	in	Latin	America,	Canada	and	Europe.	Foreign	exchange	unfavorably	affected	global	sales	performance	by	3%	in	2013.	By	agreement, generic	manufacturers	were	able	to	launch	a	generic	version	of	Nasonex	in	most	European	markets	on	January	1,	2014	and	generic	versions	of	Nasonex	have	since launched	in	several	of	these	markets.	Accordingly,	the	Company	anticipates	a	rapid	decline	in	Nasonex	sales	in	Europe	in	2014.	Sales	of	Nasonex	in	Europe	were	$207 million	in	2013.	In	2009,	Apotex	Inc.	and	Apotex	Corp.	(collectively,	"Apotex")	filed	an	application	with	the	FDA	seeking	approval	to	sell	its	generic	version	of Nasonex.	In	June	2012,	the	U.S.	District	Court	for	the	District	of	New	Jersey	ruled	against	the	Company	in	a	patent	infringement	suit	against	Apotex	holding	that Apotex's	generic	version	of	Nasonex	does	not	infringe	on	the	Company's	formulation	patent.	In	June	2013,	the	Court	of	Appeals	for	the	Federal	Circuit	issued	a decision	affirming	the	U.S.	District	Court	decision	and	the	Company	has	exhausted	all	of	its	appeal	options.	If	Apotex's	generic	version	becomes	available,	significant losses	of	U.S.	Nasonex	sales	could	occur	and	the	Company	may	take	a	non-cash	impairment	charge	with	respect	to	the	carrying	value	of	the	Nasonex	intangible	asset, which	was	$1.3	billion	 at	December	31,	2013.	If	the	Nasonex	intangible	asset	is	determined	to	be	impaired,	the	impairment	charge	could	be	material.	U.S.	sales	of Nasonex	were	$681	million	in	2013.	Worldwide	sales	of	Nasonex	declined	1%	in	2012	to	$1.3	billion,	including	a	1%	unfavorable	impact	from	foreign	exchange.	Sales performance	in	2012	compared	with	2011	reflects	price	declines	in	Europe	and	lower	volumes	in	the	United	States,	largely	offset	by	higher	prices	in	the	United	States.

Worldwide	sales	of	Singulair,	a	once-a-day	oral	medicine	for	the	chronic	treatment	of	asthma	and	for	the	relief	of	symptoms	of	allergic	rhinitis,	fell	69%	to $1.2	billion	in	2013	compared	with	2012	driven	primarily	by	lower	sales	in	the	United	States	and	Europe	as	a	result	of	generic	competition.	The	patent	that	provided U.S.	market	exclusivity	for	Singulair	expired	in	August	2012	and	the	Company	has	lost	nearly	all	sales	of	Singulair	in	the	United	States.	In	addition,	the	patents	that provided	market	exclusivity	for	Singulair	expired	in	a	number	of	major	European	markets	in	February	2013	and	the	Company	experienced	a	significant	and	rapid reduction	in	sales	of	Singulair	in	those	markets	following	the	patent	expiries	and	expects	the	decline	to	continue.	The	patent	that	provides	market	exclusivity	for	Singulair in	Japan	will	expire	in	2016.	Singulair	sales	in	Japan	were	$523	million	in	2013.	Global	sales	of	Singulair	declined	30%	to	$3.9	billion	in	2012	compared	with	2011 driven	primarily	by	lower	sales	in	the	United	States.	Revenue	declines	in	Europe,	Canada	and	Latin	America	also	contributed	to	the	Singulair	sales	decline	in	2012.

Global	sales	of	Dulera	Inhalation	Aerosol,	a	combination	medicine	for	the	treatment	of	asthma,	were	$324	million	in	2013,	$207	million	in	2012	and	$96 million	in	2011	reflecting	higher	demand	in	the	United	States.	Dulera	Inhalation	Aerosol	was	approved	by	the	FDA	in	June	2010.	In	January	2012,	Merck	received	a CRL	from	the	FDA	on	the	Company's	supplemental	New	Drug	Application	for	Dulera	Inhalation	Aerosol	for	the	treatment	of	chronic	obstructive	pulmonary	disease. The	Company	has	determined	not	to	conduct	an	additional	clinical	study	and	will	no	longer	pursue	an	update	to	the	application.

# Women's	Health	and	Endocrine

Worldwide	sales	of	NuvaRing,	a	vaginal	contraceptive	product,	were	$686	million	in	2013,	an	increase	of	10%	compared	with	2012,	primarily	reflecting volume	growth	and	favorable	pricing	in	the	United	States.	Global	sales	of	NuvaRing	were	$623	million	in	2012,	comparable	with	sales	in	2011.	Foreign	exchange unfavorably	affected	sales	performance	by	3%	in	2012.	Excluding	the	unfavorable	impact	of	foreign	exchange,	sales	performance	in	2012	reflects	volume	growth	in	the emerging	markets	and	positive	performance	in	Europe.

Worldwide	sales	of	Fosamax	(marketed	as	Fosamac	in	Japan)	and	Fosamax	Plus	D	(marketed	as	Fosavance	throughout	the	EU)	for	the	treatment	and,	in	the case	of	Fosamax,	prevention	of	osteoporosis,	declined	17%	in	2013	to	$560	million	and	decreased	21%	in	2012	to	$676	million	driven	by	declines	in	most	regions.	These medicines	have	lost	market	exclusivity	in	the	United	States	and	in	most	major	international	markets.	The	Company	expects	the	sales	declines	within	the	Fosamax product	franchise	to	continue.

Global	sales	of	Follistim	AQ	(marketed	in	most	countries	outside	the	United	States	as	Puregon),	a	fertility	treatment,	grew	3%	to	$481	million	in	2013 compared	with	2012	driven	 largely	by	positive	performance	 in	 the	United	States.	Sales	of	Follistim	AQ	declined	12%	 in	2012	 to	$468	million,	 including	a	3% unfavorable	effect	from	foreign

exchange,	driven	largely	by	declines	in	Europe	resulting	from	supply	issues	and	pricing.	Puregon	lost	market	exclusivity	in	the	EU	in	August	2009.

Worldwide	sales	of	Implanon,	a	single-rod	subdermal	contraceptive	implant,	grew	16%	to	$403	million	in	2013	compared	with	2012	driven	primarily	by volume	growth	in	the	United	States	that	was	partially	offset	by	declines	in	the	emerging	markets	from	pricing	pressures.	Implanon	sales	increased	18%	in	2012	to	$348 million,	including	a	2%	unfavorable	effect	from	foreign	exchange,	reflecting	volume	growth	in	the	emerging	markets	and	in	the	United	States.

In	recent	years,	the	Company	experienced	difficulties	manufacturing	certain	women's	health	products.	The	Company	has	resolved	these	issues,	which	were not	material	to	the	Company's	results	of	operations.

# Other

Other	products	included	in	Primary	Care	and	Women's	Health	include	among	others,	Asmanex	Twisthaler,	an	inhaled	corticosteroid	for	asthma;	Cerazette,	a progestin	only	oral	contraceptive;	Arcoxia,	for	the	treatment	of	arthritis	and	pain	and	Avelox,	a	broad-spectrum	fluroquinolone	antibiotic	for	the	treatment	of	certain respiratory	and	skin	infections	marketed	by	the	Company	in	the	United	States.	The	patent	that	provides	U.S.	market	exclusivity	for	Avelox	expires	in	March	2014.

# Immunology

Sales	of	Remicade,	a	treatment	for	inflammatory	diseases	(marketed	by	the	Company	in	Europe,	Russia	and	Turkey),	were	$2.3	billion	in	2013,	an	increase	of 9%	compared	with	2012	including	a	2%	favorable	effect	from	foreign	exchange.	Sales	growth	reflects	volume	growth	in	Europe,	as	well	as	Russia.	In	September	2013, the	EC	approved	an	infliximab	biosimilar.	While	the	Company	is	experiencing	generic	competition	in	certain	smaller	European	markets,	the	Company	anticipates	a more	substantial	decline	in	Remicade	sales	following	loss	of	market	exclusivity	in	major	European	markets	in	February	2015.	Sales	of	Remicade	were	$2.1	billion	in 2012,	a	decline	of	22%	compared	with	2011	including	a	6%	unfavorable	effect	from	foreign	exchange.	Prior	to	July	1,	2011,	Remicade	was	marketed	by	the	Company outside	of	the	United	States	(except	in	Japan	and	certain	other	Asian	markets).	As	a	result	of	the	agreement	reached	in	April	2011	to	amend	the	agreement	governing	the distribution	rights	 to	Remicade	 and	Simponi,	effective	July	1,	2011,	Merck	relinquished	marketing	rights	for	these	products	in	certain	territories	including	Canada, Central	and	South	America,	the	Middle	East,	Africa	and	Asia	Pacific.	Merck	retained	exclusive	marketing	rights	throughout	Europe,	Russia	and	Turkey	(the	"Retained Territories").	In	the	Retained	Territories,	Remicade	sales	declined	2%	in	2012,	which	reflects	an	8%	unfavorable	effect	from	foreign	exchange	and	volume	growth	in Europe.

Sales	of	Simponi,	a	once-monthly	subcutaneous	treatment	for	certain	inflammatory	diseases	(marketed	by	the	Company	in	Europe,	Russia	and	Turkey),	were $500	million	in	2013,	$331	million	in	2012	and	$264	million	in	2011	driven	by	continued	launch	activities.	Simponi	was	approved	by	the	European	Commission	(the "EC")	in	October	2009.	In	September	2013,	the	EC	approved	Simponi	for	the	treatment	of	adult	patients	with	moderately	to	severely	active	ulcerative	colitis	who	have had	an	inadequate	response	to	conventional	therapy	or	who	are	intolerant	to	or	have	medical	contraindications	for	such	therapies.

# Infectious	Disease

Worldwide	sales	of	Isentress,	an	HIV	integrase	inhibitor	for	use	in	combination	with	other	antiretroviral	agents	for	the	treatment	of	HIV-1	infection,	grew	8% to	$1.6	billion	in	2013	compared	with	2012	driven	primarily	by	volume	growth	in	the	United	States	and	Europe.	Global	sales	of	Isentress	grew	11%	in	2012	to	$1.5 billion	compared	with	2011	driven	primarily	by	volume	growth	in	the	United	States,	Latin	America	and	the	Asia	Pacific	region.	Foreign	exchange	unfavorably	affected global	sales	performance	by	1%	in	2013	and	4%	in	2012.

Global	sales	of	Cancidas,	an	anti-fungal	product,	increased	7%	to	$660	million	in	2013	compared	with	2012	reflecting	growth	in	most	emerging	markets,	as well	as	in	Europe	and	Japan.	Sales	of	Cancidas	declined	3%	in	2012	to	$619	million,	which	reflects	a	5%	unfavorable	effect	from	foreign	exchange	and	growth	in	the emerging	markets.

Worldwide	sales	of	PegIntron,	a	treatment	for	chronic	hepatitis	C,	declined	24%	to	$496	million	in	2013	compared	with	2012	reflecting	declines	in	all regions.	The	Company	believes	the	sales	declines	are	attributable	in	part	to	patient	treatment	being	delayed	by	health	care	providers	in	anticipation	of	new	therapeutic options	becoming	available.

Foreign	 exchange	 unfavorably	 affected	 global	 sales	 performance	 by	 3%	 in	 2013.	 Global	 sales	 of	PegIntron	declined	 1%	 in	 2012	 to	 $653	 million,	 including	 an unfavorable	effect	from	foreign	exchange	of	4%.	Excluding	the	unfavorable	impact	of	foreign	exchange,	sales	performance	reflects	volume	growth	and	favorable	pricing in	the	United	States	and	volume	growth	in	certain	emerging	markets.

Global	sales	of	Victrelis,	an	oral	medicine	for	the	treatment	of	chronic	hepatitis	C,	were	$428	million	in	2013,	a	decline	of	15%	compared	with	2012	including a	1%	unfavorable	effect	from	foreign	exchange.	Sales	declines	in	the	United	States,	Europe	and	Canada	were	partially	offset	by	growth	across	the	emerging	markets. The	Company	believes	the	sales	declines	in	the	United	States,	Europe	and	Canada	are	attributable	in	part	to	patient	treatment	being	delayed	by	health	care	providers	in anticipation	of	new	therapeutic	options	becoming	available.	Sales	of	Victrelis	were	$502	million	in	2012	compared	with	$140	million	in	2011,	driven	by	post-launch growth	in	the	United	States	and	internationally,	particularly	in	Europe.	Victrelis	was	approved	by	the	FDA	in	May	2011	and	by	the	EC	in	July	2011.

Sales	of	 the	Company's	products	 indicated	for	 treatment	of	chronic	hepatitis	C	 including	Victrelis	and	PegIntron	discussed	 above,	 as	 well	 as	Rebetol, continued	to	be	adversely	affected	in	2013	by	patient	treatment	being	delayed	by	health	care	providers	in	anticipation	of	new	therapeutic	options	becoming	available. Sales	of	Rebetol,	a	product	sold	almost	entirely	in	international	markets,	were	particularly	adversely	affected	by	this	trend	given	the	markets	where	Rebetol	is	sold,	as well	as	from	generic	competition.	Worldwide	sales	of	Rebetol	declined	43%	in	2013	to	$74	million	driven	by	declines	in	Japan	and	Europe.	Cash	flow	revisions	in	the fourth	 quarter	 of	 2013	 indicated	 that the	Rebetol intangible	 asset	 value	 was	 not	 recoverable	 on	 an	 undiscounted	 cash	 flows	 basis.	 Utilizing	 market	 participant assumptions,	the	Company	concluded	that	its	best	estimate	of	the	fair	value	of	the	intangible	asset	related	to	Rebetol	was	$94	million	at	December	31	2013,	which resulted	in	an	impairment	charge	of	$156	million	recorded	within	Materials	and	production	costs.	In	the	event	that	the	availability	of	new	treatment	options	adversely affects	sales	of	products	currently	marketed	by	the	Company	for	the	treatment	of	chronic	hepatitis	C	to	a	greater	extent	than	anticipated	by	the	Company,	or	in	the	event other	circumstances	arise	that	significantly	reduce	cash	flow	projections	for	these	products,	the	Company	may	record	additional	intangible	asset	impairment	charges	in the	future	and	such	charges	could	be	material.	The	carrying	value	of	the	intangible	assets	related	to	these	products	was	$1.3	billion	in	the	aggregate	at	December	31, 2013.

# Oncology

Sales	of	Temodar	(marketed	as	Temodal	outside	the	United	States),	a	treatment	for	certain	types	of	brain	tumors,	declined	23%	to	$708	million	in	2013 compared	with	2012.	Foreign	exchange	unfavorably	affected	global	sales	performance	by	3%	in	2013.	The	sales	decline	was	driven	primarily	by	generic	competition	in the	United	States	and	Europe.	As	previously	disclosed,	by	agreement,	a	generic	manufacturer	launched	a	generic	version	of	Temodar	in	the	United	States	in	August 2013.	The	U.S.	patent	and	exclusivity	periods	otherwise	expired	in	February	2014.	Temodar	lost	patent	exclusivity	in	the	EU	in	2009.	Accordingly,	the	Company	is experiencing	sales	declines	due	to	the	loss	of	exclusivity	in	these	markets	and	the	Company	expects	these	declines	to	continue.	Sales	of	Temodar	decreased	2%	in	2012 to	$917	million,	including	a	2%	unfavorable	effect	from	foreign	exchange.	Sales	declines	in	Europe	from	generic	competition	were	offset	by	price	increases	in	the United	States.

Global	sales	of	Emend,	for	the	prevention	of	chemotherapy-induced	and	post-operative	nausea	and	vomiting,	were	$507	million	in	2013,	an	increase	of	4% compared	with	2012	including	a	1%	unfavorable	effect	from	foreign	exchange,	largely	reflecting	volume	growth	in	the	United	States	and	the	emerging	markets,	partially offset	by	a	decline	in	Japan.	Sales	of	Emend	were	$489	million	in	2012,	an	increase	of	17%	compared	with	2011	including	a	2%	unfavorable	effect	from	foreign exchange,	reflecting	volume	growth	in	the	United	States	and	Japan.

Worldwide	sales	of	ophthalmic	products	Cosopt	and	Trusopt	were	$416	million	in	2013,	a	decline	of	6%	compared	with	2012,	reflecting	a	7%	unfavorable effect	from	foreign	exchange	and	lower	sales	in	Europe	and	Canada	due	to	generic	competition,	partially	offset	by	volume	growth	in	Japan.	The	patent	for	Cosopt expired	in	a	number	of	major	European	markets	in	March	2013	and	the	Company	is	experiencing	sales	declines	in	those	markets.	The	patents	that	provided	market exclusivity	for	Cosopt	and	Trusopt	in	the	United	States	and	for	Trusopt	in	a	number	of	major	European	markets	had	previously	expired.	Sales	of	Cosopt	 and	Trusopt were	$444	million	in	2012,	a	decline	of	7%	compared	with	2011	including	a	4%	unfavorable	effect	from	foreign	exchange.	The	sales	decline	primarily	reflects	lower sales	in	Europe	due	to	generic	erosion	and	price	reductions,	mitigated	in	part	by	higher	Cosopt	sales	in	Japan.

In	November	2013,	Merck	sold	the	U.S.	rights	to	ophthalmic	products	Cosopt,	Cosopt	PF	and	AzaSite	to	Akorn,	Inc.	The	annual	U.S.	sales	associated	with these	ophthalmic	products	were	approximately	$45	million.

Bridion	(sugammadex	sodium	injection),	for	the	reversal	of	certain	muscle	relaxants	used	during	surgery,	is	approved	and	has	been	launched	in	many countries	outside	of	the	United	States.	Sales	of	Bridion	were	$288	million	in	2013,	an	increase	of	10%	compared	with	2012.	The	sales	growth	was	driven	by	volume growth	in	Europe,	the	emerging	markets	and	Japan,	partially	offset	by	a	13%	unfavorable	effect	of	foreign	exchange	primarily	on	sales	in	Japan.	Sales	of	Bridion	grew 30%	in	2012	to	$261	million	driven	primarily	by	higher	sales	in	Japan	and	the	emerging	markets.	In	September	2013,	the	Company	received	a	CRL	from	the	FDA	for the	resubmission	of	the	NDA	for	sugammadex	sodium	injection	(see	"Research	and	Development"	below).

Saphris	(asenapine),	an	antipsychotic	indicated	for	the	treatment	of	schizophrenia	and	bipolar	I	disorder	in	adults,	was	previously	marketed	by	the	Company in	the	United	States.	Merck's	sales	of	Saphris	were	$158	million	in	2013,	$166	million	in	2012	and	$120	million	in	2011.	Asenapine,	sold	under	the	brand	name	Sycrest, is	also	approved	in	the	EU	for	the	treatment	of	bipolar	I	disorder	in	adults.	Under	a	commercialization	agreement	for	Sycrest	sublingual	tablets	(5	mg,	10	mg),	H. Lundbeck	A/S	("Lundbeck")	makes	product	supply	payments	in	exchange	for	exclusive	commercial	rights	to	Sycrest	in	all	markets	outside	the	United	States,	China	and Japan.	During	the	second	quarter	of	2013,	the	Company	reduced	cash	flow	projections	for	Saphris/Sycrest	as	a	result	of	reduced	expectations	in	international	markets	and in	the	United	States.	These	revisions	to	cash	flows	indicated	that	the	Saphris/Sycrest	intangible	asset	value	was	not	recoverable	on	an	undiscounted	cash	flows	basis.	The Company	utilized	market	participant	assumptions	and	considered	several	different	scenarios	to	determine	its	best	estimate	of	the	fair	value	of	the	intangible	asset	related to	Saphris/Sycrest	that,	when	compared	with	its	related	carrying	value,	resulted	in	an	impairment	charge	of	$330	million	reflected	in	Materials	and	production	costs.	In January	2014,	Merck	sold	the	U.S.	rights	to	Saphris	to	Forest	Laboratories,	Inc.	("Forest").	Under	the	terms	of	the	agreement,	Forest	will	make	upfront	payments	of approximately	$230	million	and	will	make	additional	payments	to	Merck	based	on	defined	sales	milestones.

Other	products	contained	in	Hospital	and	Specialty	include	among	others,	Invanz,	for	the	treatment	of	certain	infections;	Noxafil,	for	the	prevention	of	certain invasive	fungal	infections;	and	Integrilin,	a	treatment	for	patients	with	acute	coronary	syndrome,	which	is	sold	by	the	Company	in	the	United	States	and	Canada.

Merck's	diversified	brands	include	human	health	pharmaceutical	products	that	are	approaching	the	expiration	of	their	marketing	exclusivity	or	are	no	longer protected	by	patents	in	developed	markets,	but	continue	to	be	a	core	part	of	the	Company's	offering	in	other	markets	around	the	world.

Global	sales	of	Cozaar	and	its	companion	agent	Hyzaar	(a	combination	of	Cozaar	and	hydrochlorothiazide),	treatments	for	hypertension,	were	$1.0	billion	in 2013,	a	decline	of	22%	compared	with	2012	including	an	8%	unfavorable	effect	from	foreign	exchange.	The	decline	was	driven	largely	by	lower	sales	in	Japan,	Europe and	Canada	due	to	generic	competition	and	the	unfavorable	effect	of	foreign	exchange,	particularly	on	sales	in	Japan.	Sales	of	Cozaar/Hyzaar	decreased	23%	in	2012	to $1.3	billion	driven	by	declines	in	most	regions.	The	patents	that	provided	market	exclusivity	for	Cozaar	and	Hyzaar	in	the	United	States	and	in	a	number	of	major international	markets	have	expired.	Accordingly,	the	Company	is	experiencing	significant	declines	in	Cozaar	and	Hyzaar	sales	and	the	Company	expects	the	declines	to continue.

Worldwide	sales	of	Propecia,	a	product	for	the	treatment	of	male	pattern	hair	loss,	were	$283	million	in	2013,	a	decline	of	33%	compared	with	2012 including	a	6%	unfavorable	impact	from	foreign	exchange.	The	decline	was	driven	primarily	by	generic	competition	in	the	United	States,	as	well	as	by	lower	sales	in Japan	due	largely	to	the	unfavorable	effect	of	foreign	exchange.	The	Company	lost	U.S.	market	exclusivity	for	Propecia	in	2013	and	multiple	generics	have	entered	the market.	Accordingly,	the	Company	is	experiencing	a	significant	decline	in	U.S.	sales	of	Propecia	and	expects	the	decline	to	continue.	Sales	of	Propecia	declined	5%	in 2012	to	$424	million	compared	with	2011	driven	by	declines	in	Europe	and	the	United	States,	partially	offset	by	increases	in	the	Asia	Pacific	region.

Global	sales	of	Clarinex	(marketed	as	Aerius	in	many	countries	outside	the	United	States),	a	non-sedating	antihistamine,	declined	40%	in	2013	to	$235 million	and	decreased	37%	in	2012	to	$393	million	driven	by	lower	volumes	in	the	United	States	and	Europe	as	a	result	of	generic	competition.	The	Company anticipates	that	sales	of	Clarinex	will	continue	to	decline.

Global	sales	of	Maxalt,	a	product	for	the	acute	treatment	of	migraine,	fell	77%	in	2013	to	$149	million	as	compared	with	2012	driven	primarily	by	lower volumes	in	the	United	States	due	to	generic	competition.	The	patent	that	provided	U.S.	market	exclusivity	for	Maxalt	expired	in	December	2012	and	the	Company experienced	a	significant	and	rapid	decline	in	U.S.	Maxalt	sales	thereafter.	In	addition,	the	patents	that	provided	market	exclusivity	for	Maxalt	expired	in	a	number	of major	European	markets	 in	August	2013	and	 the	Company	 is	experiencing	sales	declines	 in	 those	markets	as	well.	Sales	of	Maxalt	were	$638	million	 in	2012, comparable	with	sales	in	2011,	reflecting	higher	sales	in	the	United	States	driven	by	favorable	pricing,	offset	by	volume	declines	in	Europe	and	Canada	due	to	generic erosion.

Other	 products	 contained	 in	 Diversified	 Brands	 include	 among	 others,	Primaxin,	 an	 anti-bacterial	 product;	Zocor,	 a	 statin	 for	 modifying	 cholesterol; prescription	Claritin,	a	treatment	for	seasonal	outdoor	allergies	and	year-round	indoor	allergies;	Remeron,	an	antidepressant;	and	Proscar,	a	urology	product	for	the treatment	of	symptomatic	benign	prostate	enlargement.

The	following	discussion	of	vaccines	does	not	include	sales	of	vaccines	sold	in	most	major	European	markets	through	Sanofi	Pasteur	MSD	("SPMSD"),	the Company's	joint	venture	with	Sanofi	Pasteur,	the	results	of	which	are	reflected	in	Equity	income	from	affiliates	(see	"Selected	Joint	Venture	and	Affiliate	Information" below).	Supply	sales	to	SPMSD,	however,	are	included.

Merck's	sales	of	Gardasil,	a	vaccine	to	help	prevent	certain	diseases	caused	by	four	types	of	HPV,	grew	12%	to	$1.8	billion	in	2013	compared	with	2012 driven	primarily	by	volume	growth	in	the	United	States,	reflecting	continued	uptake	in	both	males	and	females,	and	volume	growth	in	Latin	America,	partially	offset	by lower	volumes	in	Japan.	Sales	in	2013	and	2012	included	$37	million	and	$44	million,	respectively,	of	purchases	for	the	U.S.	Centers	for	Disease	Control	and Prevention	("CDC")	Pediatric	Vaccine	Stockpile.	On	June	14,	2013,	the	Japanese	Health	Ministry	issued	an	advisory	to	suspend	active	promotion	of	HPV	vaccines. Accordingly,	the	Company	recorded	almost	no	sales	of	Gardasil	in	Japan	in	the	second	half	of	2013.	Merck's	sales	of	Gardasil	rose	35%	in	2012	to	$1.6	billion compared	with	2011	driven	primarily	by	growth	in	the	United	States,	reflecting	continued	uptake	in	males	and	higher	government	purchases	for	the	CDC	Pediatric Vaccine	Stockpile,	as	well	as	growth	in	the	emerging	markets,	particularly	in	Latin	America	and	the	Asia	Pacific	region,	and	in	Japan.	The	Company	is	a	party	to	certain third-party	license	agreements	with	respect	to	Gardasil	(including	a	cross-license	and	settlement	agreement	with	GlaxoSmithKline).	As	a	result	of	these	agreements,	the Company	pays	royalties	on	worldwide	Gardasil	sales	of	21%	to	27%	which	vary	by	country	and	are	included	in	Materials	and	production	costs.

Merck's	sales	of	ProQuad,	a	pediatric	combination	vaccine	to	help	protect	against	measles,	mumps,	rubella	and	varicella,	were	$314	million	in	2013,	$61 million	in	2012	and	$34	million	in	2011.	Sales	of	ProQuad	in	2012	and	2011	were	affected	by	supply	constraints.	ProQuad	became	available	again	in	the	United	States for	ordering	in	October	2012.

Merck's	sales	of	Varivax,	a	vaccine	to	help	prevent	chickenpox	(varicella),	were	$684	million	in	2013,	$846	million	in	2012	and	$831	million	in	2011. Merck's	sales	of	M-M-R	II,	a	vaccine	to	help	protect	against	measles,	mumps	and	rubella,	were	$307	million	in	2013,	$365	million	in	2012	and	$337	million	in	2011. Sales	of	Varivax	and	M-M-R	II	declined	in	2013	due	to	the	availability	of	ProQuad	discussed	above.

Merck's	sales	of	Zostavax,	a	vaccine	to	help	prevent	shingles	(herpes	zoster)	in	adults	50	years	of	age	and	older,	were	$758	million	in	2013,	$651	million	in 2012	and	$332	million	in	2011.	Sales	growth	in	2013	as	compared	with	2012	was	driven	by	higher	demand	in	the	United	States	and	Canada,	as	well	as	by	launches within	the	Asia	Pacific	region.	The	Company	is	continuing	to	launch	Zostavax	outside	of	the	United	States.	Sales	of	Zostavax	in	2011	were	affected	by	supply	issues.

Merck's	sales	of	Pneumovax	23,	a	vaccine	to	help	prevent	pneumococcal	disease,	grew	13%	in	2013	to	$653	million	compared	with	2012	driven	primarily	by volume	growth	in	the	emerging	markets,	as	well	as	volume	and	price	increases	in	the	United	States.	Merck's	sales	of	Pneumovax	23	increased	17%	in	2012	to	$580 million	due	primarily	to	growth	in	the	United	States	as	a	result	of	price	increases	and	higher	volumes,	partially	offset	by	declines	in	Japan.

Merck's	sales	of	RotaTeq,	a	vaccine	to	help	protect	against	rotavirus	gastroenteritis	in	infants	and	children,	grew	6%	in	2013	to	$636	million	compared	with 2012	reflecting	higher	pricing	in	the	United	States	and	volume	growth

in	Japan.	Merck's	sales	of	RotaTeq	declined	8%	in	2012	to	$601	million	reflecting	favorable	public	sector	inventory	fluctuations	in	2011,	partially	offset	by	volume growth	in	the	emerging	markets	and	Japan	in	2012.

# Other	Segments

The	Company's	other	segments	are	the	Animal	Health,	Consumer	Care	and	Alliances	segments,	which	are	not	material	for	separate	reporting.	In	January 2014,	the	Company	announced	that	it	was	evaluating	the	respective	roles	of	Merck's	Animal	Health	and	Consumer	Care	businesses	in	the	Company's	strategy	for	long- term	value	creation.	The	Company	expects	to	complete	the	evaluation	process	and	take	action,	if	any,	in	2014.	The	Company	could	reach	different	decisions	about	the two	businesses.

Animal	Health	includes	pharmaceutical	and	vaccine	products	for	the	prevention,	treatment	and	control	of	disease	in	all	major	farm	and	companion	animal species.	Animal	Health	sales	are	affected	by	competition	and	the	frequent	introduction	of	generic	products.	Global	sales	of	Animal	Health	products	were	$3.4	billion	in 2013,	a	decline	of	1%	compared	with	2012	including	a	2%	unfavorable	effect	from	foreign	exchange.	The	sales	decline	reflects	lower	sales	of	ruminant	products, primarily	Zilmax,	partially	offset	by	growth	in	companion	animal	and	poultry	products.	In	August	2013,	Merck	Animal	Health	voluntarily	suspended	sales	of	Zilmax,	a feed	supplement	for	beef	cattle,	in	the	United	States	and	Canada.	The	suspension	of	Zilmax	unfavorably	affected	Animal	Health	sales	by	2%	in	2013.	Sales	of	Animal Health	products	were	$3.4	billion	in	2012,	an	increase	of	4%	compared	with	2011	including	a	5%	unfavorable	effect	from	foreign	exchange,	driven	by	positive performance	among	ruminant,	poultry,	companion	animal	and	swine	products.

Consumer	Care	products	include	over-the-counter,	foot	care	and	sun	care	products	such	as	Claritin	non-drowsy	antihistamines;	MiraLAX,	for	the	relief	of occasional	constipation;	Dr.	Scholl's 	foot	care	products;	and	Coppertone	sun	care	products.	Consumer	Care	product	sales	are	affected	by	competition	and	consumer spending	patterns.	Global	sales	of	Consumer	Care	products	were	$1.9	billion	in	2013,	a	decline	of	3%	compared	with	2012	including	a	1%	unfavorable	effect	from foreign	exchange.	The	sales	decline	in	2013	resulted	from	the	termination	in	China	of	certain	Consumer	Care	distribution	arrangements	and	a	reversal	of	sales	previously made	 to	 these	distributors,	 together	with	associated	 termination	costs.	Excluding	 these	 items,	Consumer	Care	global	sales	would	have	 increased	by	1%	 in	2013 compared	with	2012,	including	a	1%	unfavorable	effect	from	foreign	exchange,	reflecting	higher	sales	of	women's	health	products,	partially	offset	by	lower	sales	of	foot care	products.	In	2013,	the	Company	launched	Oxytrol	for	Women,	the	first	and	only	over-the-counter	treatment	for	overactive	bladder	in	women.	Consumer	care product	sales	grew	6%	in	2012,	including	a	1%	unfavorable	effect	from	foreign	exchange,	to	$2.0	billion	reflecting	higher	sales	of	Dr.	Scholl's,	Coppertone,	MiraLAX and	Claritin,	partially	offset	by	lower	sales	of	Marvelon,	an	oral	contraceptive,	which	is	an	over-the-counter	product	in	China.

As	discussed	above,	on	December	31,	2013,	the	Company	divested	certain	products	to	Aspen.	Annual	sales	of	these	products	reflected	within	Consumer	Care were	approximately	$40	million.

# Alliances

The	alliances	segment	includes	results	from	the	Company's	relationship	with	AZLP.	Revenue	from	AZLP,	primarily	relating	to	sales	of	Nexium	and	Prilosec, was	$920	million	in	2013,	$915	million	in	2012	and	$1.2	billion	in	2011.	AstraZeneca	has	an	option	to	buy	Merck's	interest	in	a	subsidiary,	and	through	it,	Merck's interest	in	Nexium	and	Prilosec,	exercisable	in	2014,	and	the	Company	believes	that	it	is	likely	that	AstraZeneca	will	exercise	that	option	(see	"Selected	Joint	Venture and	Affiliate	Information"	below).	If	AstraZeneca	exercises	its	option,	the	Company	will	no	longer	record	equity	income	from	AZLP	and	supply	sales	to	AZLP	will terminate.	In	addition,	the	Company	will	recognize	a	non-cash	pretax	gain	of	approximately	$700	million.

# Costs,	Expenses	and	Other

| ($	in	millions) | 2013 | Change | 2012 | Change | 2011 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Materials\tand\tproduction | $16,954 | 3\t% | $16,446 | -3\t% | $16,871 |
| Marketing\tand\tadministrative | 11,911 | -7\t% | 12,776 | -7\t% | 13,733 |
| Research\tand\tdevelopment\t(1) | 7,503 | -8\t% | 8,168 | -4\t% | 8,467 |
| Restructuring\tcosts | 1,709 | * | 664 | -49\t% | 1,306 |
| Equity\tincome\tfrom\taffiliates | (404) | -37\t% | (642) | 5\t% | (610) |
| Other\t(income)\texpense,\tnet | 815 | -27\t% | 1,116 | 18\t% | 946 |
|  | $38,488 | —\t% | $38,528 | -5\t% | $40,713 |

# Materials	and	Production

Materials	and	production	costs	were	$17.0	billion	in	2013,	$16.4	billion	in	2012	and	$16.9	billion	in	2011.	Costs	include	expenses	for	the	amortization	of intangible	assets	recorded	in	connection	with	mergers	and	acquisitions	which	totaled	$4.7	billion	in	2013	and	$4.9	billion	in	each	of	2012	and	2011.	Additionally, expenses	in	2011	include	$89	million	of	amortization	of	purchase	accounting	adjustments	to	Schering-Plough's	inventories	recognized	as	a	result	of	the	Merger.	Costs	in 2013	and	2011	include	intangible	asset	impairment	charges	of	$486	million	and	$118	million,	respectively.	The	impairment	charges	in	2013	related	to	changes	in	cash flow	assumptions	for	currently	marked	products	Saphris/Sycrest	and	Rebetol	(see	"Pharmaceutical	Segment"	above).	The	Company	may	recognize	additional	non-cash impairment	charges	in	the	future	related	to	product	intangibles	that	were	measured	at	fair	value	and	capitalized	in	connection	with	mergers	and	acquisitions	and	such charges	could	be	material.	Additionally,	costs	in	2013	include	a	$41	million	intangible	asset	impairment	charge	related	to	a	licensing	agreement.	Also	included	in materials	and	production	were	costs	associated	with	restructuring	activities	which	amounted	to	$446	million,	$188	million	and	$348	million	in	2013,	2012	 and	2011, respectively,	including	accelerated	depreciation	and	asset	write-offs	related	to	the	planned	sale	or	closure	of	manufacturing	facilities.	Separation	costs	associated	with manufacturing-related	headcount	reductions	have	been	incurred	and	are	reflected	in	Restructuring	costs	as	discussed	below.

Gross	 margin	 was	 61.5%	 in	2013	 compared	 with	 65.2%	 in	2012	 and	 64.9%	 in	2011.	The	 amortization	 of	 intangible	 assets	 and	 purchase	 accounting adjustments	to	inventories,	as	well	as	the	restructuring	and	impairment	charges	noted	above	reduced	gross	margin	by	12.8	percentage	points	in	2013,	10.7	percentage points	in	2012	and	11.4	percentage	points	in	2011.	Excluding	these	impacts,	the	gross	margin	decline	in	2013	as	compared	with	2012	was	driven	in	part	by	the	loss	of Singulair	sales	as	result	of	patent	expiries	in	the	United	States	in	August	2012	and	in	major	European	markets	in	February	2013.	In	addition,	generic	competition	in	the United	States	for	Maxalt,	Temodar,	Clarinex	 and	Propecia	coupled	with	changes	in	product	mix	and	continued	pricing	pressures	in	mature	markets	also	negatively affected	gross	margin	in	2013.	The	gross	margin	decline	in	2012	as	compared	with	2011	reflects	the	significant	decline	in	Singulair	sales	as	a	result	of	the	loss	of	U.S. market	exclusivity,	partially	offset	by	improvements	resulting	from	other	changes	in	product	mix.	The	Company	anticipates	that	gross	margin	will	continue	to	be negatively	affected	by	the	ongoing	impacts	of	recent	patent	expiries	and	additional	patent	expiries	that	will	occur	in	2014.

# Marketing	and	Administrative

Marketing	and	administrative	expenses	declined	7%	in	2013	to	$11.9	billion	and	decreased	7%	in	2012	to	$12.8	billion	largely	due	to	lower	promotional spending	and	selling	costs	resulting	from	restructuring	activities,	and	also	reflecting	the	favorable	effect	of	foreign	exchange.	Expenses	for	2013,	2012	and	2011	include restructuring	costs	of	$145	million,	$90	million	 and	$119	million,	respectively,	related	primarily	to	accelerated	depreciation	for	facilities	to	be	closed	or	divested. Separation	costs	associated	with	sales	force	reductions	have	been	incurred	and	are	reflected	in	Restructuring	costs	as	discussed	below.	Expenses	also	include	$94 million,	$272	million	and	$278	million	of	acquisition-related	costs	in	2013,	2012	and	2011,	respectively,	consisting	of	incremental,	third-party	integration	costs	related to	the	Merger,	including	costs	related	to	legal	entity	and	system	integration.	Acquisition-related	costs	for	2011	also	consist	of	severance	costs	associated	with	the acquisition	of	Inspire	Pharmaceuticals,	Inc.,	which	are	not	part	of	the	Company's	formal	restructuring	programs.

Research	and	development	expenses	were	$7.5	billion	 in	2013,	$8.2	billion	 in	2012	 and	$8.5	billion	 in	2011.	Research	and	development	expenses	are comprised	of	the	costs	directly	incurred	by	Merck	Research	Laboratories	("MRL"),	the	Company's	research	and	development	division	that	focuses	on	human	health- related	activities,	which	were	approximately	$4.2	billion	in	2013	and	$4.5	billion	in	each	of	2012	and	2011.	Also	included	in	research	and	development	expenses	are costs	incurred	by	other	divisions	in	support	of	research	and	development	activities,	including	depreciation,	production	and	general	and	administrative,	as	well	as licensing	activity,	certain	costs	from	operating	segments,	including	the	Pharmaceutical,	Animal	Health	and	Consumer	Care	segments,	which	in	the	aggregate	were	$2.9 billion,	$3.4	billion	and	$3.2	billion	for	2013,	2012	and	2011,	respectively.	The	decline	in	research	and	development	costs	in	2013	as	compared	with	2012	was	due	to targeted	 reductions	 and	 lower	 clinical	 development	 spend	 as	 a	 result	 of	 portfolio	 prioritization,	 as	 well	 as	 lower	 payments	 for	 licensing	 activity.	 Research	 and development	expenses	in	2013,	2012	and	2011	were	favorably	affected	by	cost	savings	resulting	from	restructuring	activities.

Research	and	development	expenses	also	include	in-process	research	and	development	("IPR&D")	impairment	charges	of	$279	million,	$200	million	and $587	million	in	2013,	2012	and	2011,	respectively	(see	"Research	and	Development"	below).	The	Company	may	recognize	additional	non-cash	impairment	charges	in the	future	for	the	cancellation	or	delay	of	other	pipeline	programs	that	were	measured	at	fair	value	and	capitalized	in	connection	with	mergers	and	acquisitions	and	such charges	could	be	material.	Research	and	development	expenses	in	2013,	2012	and	2011	reflect	$101	million,	$57	million	and	$138	million,	respectively,	of	accelerated depreciation	and	asset	abandonment	costs	associated	with	restructuring	activities.	In	2012,	the	Company	recorded	an	adjustment	to	accelerated	depreciation	costs included	in	research	and	development	expenses	revising	previously	recorded	amounts	for	certain	facilities.

# Restructuring	Costs

Restructuring	costs,	primarily	representing	separation	and	other	related	costs	associated	with	restructuring	activities,	were	$1.7	billion,	$664	million	and	$1.3 billion	in	2013,	2012	and	2011,	respectively.	Costs	in	2013	include	$898	million	of	costs	related	to	the	2013	Restructuring	Program.	Nearly	all	of	the	remaining	costs recorded	in	2013	and	the	costs	recorded	in	2012	and	2011	related	to	the	Merger	Restructuring	Program.	In	2013,	2012	and	2011,	separation	costs	of	$1.4	billion,	$489 million	and	$1.1	billion,	respectively,	were	incurred	associated	with	actual	headcount	reductions,	as	well	as	estimated	expenses	under	existing	severance	programs	for headcount	reductions	that	were	probable	and	could	be	reasonably	estimated.	Merck	eliminated	approximately	6,070	positions	in	2013	(of	which	1,540	related	to	the	2013 Restructuring	Program,	4,475	related	to	the	Merger	Restructuring	Program	and	55	related	to	the	2008	Restructuring	Program),	approximately	4,255	positions	in	2012	(of which	3,975	related	to	the	Merger	Restructuring	Program,	155	related	to	the	2008	Restructuring	Program	and	125	related	to	the	legacy	Schering-Plough	program),	and approximately	7,590	positions	in	2011	(of	which	6,880	related	to	the	Merger	Restructuring	Program,	450	related	to	the	2008	Restructuring	Program	and	260	related	to the	legacy	Schering-Plough	program).	These	position	eliminations	are	comprised	of	actual	headcount	reductions,	and	the	elimination	of	contractors	and	vacant	positions. Also	included	in	restructuring	costs	are	curtailment,	settlement	and	termination	charges	associated	with	pension	and	other	postretirement	benefit	plans,	share-based compensation	plan	costs,	as	well	as	contract	termination	and	shutdown	costs.	For	segment	reporting,	restructuring	costs	are	unallocated	expenses.	Additional	costs associated	with	the	Company's	restructuring	activities	are	included	in	Materials	and	production,	Marketing	and	administrative and	Research	and	development	 as discussed	above.

# Equity	Income	from	Affiliates

Equity	income	from	affiliates,	which	reflects	the	performance	of	the	Company's	joint	ventures	and	other	equity	method	affiliates,	declined	37%	in	2013	to $404	million	compared	with	2012	driven	primarily	by	lower	equity	income	from	AZLP,	partially	offset	by	higher	equity	income	from	SPMSD.	Equity	income	from affiliates	increased	5%	in	2012	to	$642	million	due	primarily	to	higher	equity	income	from	AZLP.	During	2011,	the	Company	divested	its	interest	in	the	Johnson	& Johnson°Merck	Consumer	Pharmaceuticals	Company	("JJMCP")	joint	venture.	(See	"Selected	Joint	Venture	and	Affiliate	Information"	below.)

# Other	(Income)	Expense,	Net

Other	(income)	expense,	net	was	$815	million	of	expense	in	2013	compared	with	$1.1	billion	of	expense	in	2012	reflecting	a	$493	million	net	charge	in	2012 relating	to	the	settlement	of	certain	shareholder	litigation	(the	ENHANCE	Litigation")	(see	Note	10	to	the	consolidated	financial	statements),	partially	offset	by	higher exchange	losses	in	2013	driven	by	$140	million	of	exchange	losses	related	to	a	Venezuelan	currency	devaluation	(see	Note	14	to	the	consolidated	financial	statements), as	well	as	higher	interest	expense	in	2013	resulting	in	part	from	issuances	of	debt	in	September	2012	and	May	2013.	Other	(income)	expense,	net	was	$1.1	billion	of expense	in	2012	compared	with	$946	million	of	expense	in	2011	reflecting	the	$493	million	net	charge	in	2012	relating	to	the	settlement	of	the	ENHANCE	Litigation and	gains	recognized	in	2011	of	$136	million	on	the	disposition	of	the	Company's	interest	in	the	JJMCP	joint	venture	(see	Note	8	to	the	consolidated	financial statements)	and	$127	million	on	the	sale	of	certain	manufacturing	facilities	and	related	assets	(see	Note	4	to	the	consolidated	financial	statements),	partially	offset	by	a $500	million	charge	in	2011	related	to	the	resolution	of	the	arbitration	proceeding	involving	the	Company's	rights	to	market	Remicade	and	Simponi	and	higher	interest income	in	2012.

| ($	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Pharmaceutical\tsegment\tprofits | $22,983 | $25,852 | $25,617 |
| Other\tnon-reportable\tsegment\tprofits | 3,094 | 3,163 | 2,995 |
| Other | (20,532) | (20,276) | (21,278) |
| Income\tbefore\tincome\ttaxes | $5,545 | $8,739 | $7,334 |

Segment	profits	are	comprised	of	segment	sales	less	standard	costs,	certain	operating	expenses	directly	incurred	by	the	segment,	components	of	equity income	or	loss	from	affiliates	and	depreciation	and	amortization	expenses.	For	internal	management	reporting	presented	to	the	chief	operating	decision	maker,	Merck does	not	allocate	materials	and	production	costs,	other	than	standard	costs,	the	majority	of	research	and	development	expenses	or	general	and	administrative	expenses, nor	the	cost	of	financing	these	activities.	Separate	divisions	maintain	responsibility	for	monitoring	and	managing	these	costs,	including	depreciation	related	to	fixed assets	utilized	by	these	divisions	and,	therefore,	they	are	not	included	in	segment	profits.	Also	excluded	from	the	determination	of	segment	profits	are	the	amortization	of purchase	accounting	adjustments	and	other	acquisition-related	costs,	intangible	asset	impairment	charges,	restructuring	costs,	taxes	paid	at	the	joint	venture	level,	a portion	of	equity	income,	other	expenses	from	corporate	and	manufacturing	cost	centers	and	other	miscellaneous	income	or	expense.	Additionally,	segment	profits	do not	reflect	the	charge	related	to	the	settlement	of	the	ENHANCE	Litigation	recorded	in	2012,	the	arbitration	settlement	charge,	the	gain	on	the	divestiture	of	the Company's	interest	in	the	JJMCP	joint	venture	and	a	gain	on	the	sale	of	certain	manufacturing	facilities	and	related	assets	recorded	in	2011.	All	of	these	unallocated items	are	reflected	in	"Other"	in	the	above	table.	Also	included	in	"Other"	are	miscellaneous	corporate	profits	(losses),	as	well	as	operating	profits	(losses)	related	to third-party	manufacturing	sales,	divested	products	or	businesses,	and	other	supply	sales.

Pharmaceutical	segment	profits	declined	11%	in	2013	driven	primarily	by	the	effects	of	the	loss	of	market	exclusivity	for	certain	products,	particularly Singulair.	Pharmaceutical	segment	profits	increased	1%	in	2012	driven	primarily	by	lower	operating	expenses	mostly	offset	by	the	effects	of	the	loss	of	U.S.	market exclusivity	for	Singulair.

# Taxes	on	Income

The	effective	income	tax	rates	of	18.5%	in	2013,	27.9%	in	2012	and	12.8%	in	2011	reflect	the	impacts	of	acquisition-related	costs	and	restructuring	costs, partially	offset	by	the	beneficial	impact	of	foreign	earnings.	The	effective	tax	rate	in	2013	reflects	a	net	benefit	of	$165	million	from	the	settlements	of	certain	federal income	tax	issues,	net	benefits	from	reductions	in	tax	reserves	upon	expiration	of	applicable	statutes	of	limitations,	the	favorable	impact	of	tax	legislation	enacted	in	the first	quarter	of	2013	that	extended	the	R&D	tax	credit	for	both	2012	and	2013,	as	well	as	an	out-of-period	net	tax	benefit	of	approximately	$160	million	associated	with the	resolution	of	a	previously	disclosed	legacy	Schering-Plough	federal	income	tax	issue	(see	Note	15	to	the	consolidated	financial	statements).	The	effective	tax	rate	for 2012	also	reflects	the	favorable	impacts	of	a	tax	settlement	with	the	Canada	Revenue	Agency	(the	"CRA"),	the	realization	of	foreign	tax	credits	and	the	impact	of	a favorable	ruling	on	a	state	tax	matter.	In	addition,	the	2012	effective	tax	rate	reflects	the	unfavorable	impact	of	the	net	charge	recorded	in	connection	with	the	settlement of	the	ENHANCE	Litigation	for	which	no	tax	benefit	was	recorded	and	does	not	reflect	any	impacts	for	the	R&D	tax	credit,	which	expired	on	December	31,	2011.	As	a result	of	legislation	passed	in	2013	that	extended	the	R&D	tax	credit,	both	the	2012	and	2013	R&D	tax	credits	were	recognized	in	2013	as	noted	above.	The	effective	tax rate	for	2011	reflects	a	net	favorable	impact	of	approximately	$700	million	relating	to	the	settlement	of	Merck's	2002-2005	federal	income	tax	audit,	the	favorable impact	of	certain	foreign	and	state	tax	rate	changes	that	resulted	in	a	net	$270	million	reduction	of	deferred	tax	liabilities	on	intangibles	established	in	purchase accounting,	and	the	unfavorable	impact	of	a	$500	million	charge	related	to	the	resolution	of	the	arbitration	proceeding	involving	the	Company's	rights	to	market Remicade	and	Simponi.

# Net	Income	and	Earnings	per	Common	Share

Net	income	attributable	to	Merck	&	Co.,	Inc.	was	$4.4	billion	in	2013,	$6.2	billion	in	2012	and	$6.3	billion	in	2011.	EPS	was	$1.47	in	2013,	$2.00	in	2012 and	$2.02	in	2011.	The	declines	in	net	income	and	EPS	in	2013	as	compared	with	2012	were	due	primarily	to	lower	sales	reflecting	the	loss	of	market	exclusivity	for certain	products,	particularly	Singulair,	as	well	as	higher	restructuring	costs,	intangible	asset	impairment	charges	and	exchange	losses,	partially	offset	by	the	favorable impact	of	certain	tax	items	and	lower	operating	expenses.	EPS	in	2013	benefited	from	lower	average	shares	outstanding	due	to	the	ASR	program	(see	Note	11	to	the consolidated	financial	statements).	The	decreases	in	net	income	and	EPS	in	2012	as	compared	with	2011	were	due	primarily	to	the	net	charge	recorded	in	connection with	the	settlement	of	the	ENHANCE	Litigation,	the	effects	of	the	loss	of	U.S.	market	exclusivity	for	Singulair	in	2012	and	the	favorable	impact	of	tax	items	in	2011, partially	offset	by	lower	marketing	and	administrative	expenses,	lower	restructuring	costs	and	lower	intangible	asset	impairment	charges	in	2012	and	the	arbitration settlement	charge	recorded	in	2011.

# Non-GAAP	Income	and	Non-GAAP	EPS

Non-GAAP	 income	and	non-GAAP	EPS	are	alternative	views	of	 the	Company's	performance	used	by	management	 that	Merck	 is	providing	because management	believes	this	information	enhances	investors'	understanding	of	the	Company's	results.	Non-GAAP	income	and	non-GAAP	EPS	exclude	certain	items because	of	the	nature	of	these	items	and	the	impact	that	they	have	on	the	analysis	of	underlying	business	performance	and	trends.	The	excluded	items	consist	of acquisition-related	 costs,	 restructuring	 costs	 and	 certain	 other	 items.	 These	 excluded	 items	 are	 significant	 components	 in	 understanding	 and	 assessing	 financial performance.	Therefore,	the	information	on	non-GAAP	income	and	non-GAAP	EPS	should	be	considered	in	addition	to,	but	not	in	lieu	of,	net	income	and	EPS prepared	in	accordance	with	generally	accepted	accounting	principles	in	the	United	States	("GAAP").	Additionally,	since	non-GAAP	income	and	non-GAAP	EPS	are not	measures	determined	in	accordance	with	GAAP,	they	have	no	standardized	meaning	prescribed	by	GAAP	and,	therefore,	may	not	be	comparable	to	the	calculation of	similar	measures	of	other	companies.

Non-GAAP	income	and	non-GAAP	EPS	are	important	internal	measures	for	the	Company.	Senior	management	receives	a	monthly	analysis	of	operating results	that	includes	non-GAAP	income	and	non-GAAP	EPS	and	the	performance	of	the	Company	is	measured	on	this	basis	along	with	other	performance	metrics. Senior	management's	annual	compensation	is	derived	in	part	using	non-GAAP	income	and	non-GAAP	EPS.

A	reconciliation	between	GAAP	financial	measures	and	non-GAAP	financial	measures	is	as	follows:

| ($	in	millions	except	per	share	amounts) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Pretax\tincome\tas\treported\tunder\tGAAP | $5,545 | $8,739 | $7,334 |
| Increase\t(decrease)\tfor\texcluded\titems: |  |  |  |
| Acquisition-related\tcosts | 5,549 | 5,344 | 5,939 |
| Restructuring\tcosts | 2,401 | 999 | 1,911 |
| Other\titems: |  |  |  |
| Net\tcharge\trelated\tto\tsettlement\tof\tENHANCE\tLitigation | — | 493 | — |
| Arbitration\tsettlement\tcharge | — | — | 500 |
| Gain\ton\tdisposition\tof\tinterest\tin\tJJMCP\tjoint\tventure | — | — | (136) |
| Gain\ton\tsale\tof\tmanufacturing\tfacilities\tand\trelated\tassets | — | — | (127) |
| Other | (13) | — | 5 |
|  | 13,482 | 15,575 | 15,426 |
| Taxes\ton\tincome\tas\treported\tunder\tGAAP | 1,028 | 2,440 | 942 |
| Estimated\ttax\tbenefit\ton\texcluded\titems | 1,573 | 1,261 | 1,697 |
| Net\ttax\tbenefits\tfrom\tsettlements\tof\tfederal\tincome\ttax\tissues | 325 | — | 700 |
| Tax\tbenefit\tfrom\tforeign\tand\tstate\ttax\trate\tchanges | — | — | 270 |
|  | 2,926 | 3,701 | 3,609 |
| Non-GAAP\tnet\tincome | 10,556 | 11,874 | 11,817 |
| Less:\tNet\tincome\tattributable\tto\tnoncontrolling\tinterests | 113 | 131 | 120 |
| Non-GAAP\tnet\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | $10,443 | $11,743 | $11,697 |
| EPS\tassuming\tdilution\tas\treported\tunder\tGAAP | $1.47 | $2.00 | $2.02 |
| EPS\tdifference\t(1) | 2.02 | 1.82 | 1.75 |
| Non-GAAP\tEPS\tassuming\tdilution | $3.49 | $3.82 | $3.77 |

(1)	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	for	the	applicable	year.

# Acquisition-Related	Costs

Non-GAAP	income	and	non-GAAP	EPS	exclude	the	impact	of	certain	amounts	recorded	in	connection	with	mergers	and	acquisitions.	These	amounts include	the	amortization	of	intangible	assets	and	inventory	step-up,	as	well	as	intangible	asset	impairment	charges.	Also	excluded	are	incremental,	third-party	integration costs	associated	with	the	Merger,	such	as	costs	related	to	legal	entity	and	system	integration,	as	well	as	other	costs	associated	with	mergers	and	acquisitions,	such	as severance	costs	which	are	not	part	of	the	Company's	formal	restructuring	programs.	These	costs	are	excluded	because	management	believes	that	these	costs	are	not representative	of	ongoing	normal	business	activities.

Non-GAAP	income	and	non-GAAP	EPS	exclude	costs	related	to	restructuring	actions	(see	Note	3	to	the	consolidated	financial	statements).	These	amounts include	employee	separation	costs	and	accelerated	depreciation	associated	with	facilities	to	be	closed	or	divested.	Accelerated	depreciation	costs	represent	the	difference between	the	depreciation	expense	to	be	recognized	over	the	revised	useful	life	of	the	site,	based	upon	the	anticipated	date	the	site	will	be	closed	or	divested,	and depreciation	expense	as	determined	utilizing	the	useful	life	prior	to	the	restructuring	actions.	Restructuring	costs	also	include	asset	abandonment,	shut-down	and	other related	costs,	as	well	as	employee-related	costs	such	as	curtailment,	settlement	and	termination	charges	associated	with	pension	and	other	postretirement	benefit	plans and	share-based	compensation	costs.	The	Company	has	undertaken	restructurings	of	different	types	during	the	covered	periods	and,	therefore,	these	charges	should	not be	 considered	 non-recurring;	 however,	 management	 excludes	 these	 amounts	 from	 non-GAAP	 income	 and	 non-GAAP	 EPS	 because	 it	 believes	 it	 is	 helpful	 for understanding	the	performance	of	the	continuing	business.

# Certain	Other	Items

Non-GAAP	income	and	non-GAAP	EPS	exclude	certain	other	items.	These	items	represent	substantive,	unusual	items	that	are	evaluated	on	an	individual basis.	Such	evaluation	considers	both	the	quantitative	and	the	qualitative	aspect	of	their	unusual	nature	and	generally	represent	items	that,	either	as	a	result	of	their	nature or	magnitude,	management	would	not	anticipate	that	they	would	occur	as	part	of	the	Company's	normal	business	on	a	regular	basis.

Certain	other	items	are	comprised	of	the	net	charge	recorded	in	connection	with	the	settlement	of	the	ENHANCE	Litigation,	the	arbitration	settlement	charge,	the	gain	on the	disposition	of	the	Company's	interest	in	the	JJMCP	joint	venture	and	the	gain	associated	with	the	sale	of	certain	manufacturing	facilities	and	related	assets.	Also excluded	from	non-GAAP	income	and	non-GAAP	EPS	are	tax	benefits	from	the	resolution	of	certain	federal	income	tax	issues.

A	chart	reflecting	the	Company's	current	research	pipeline	as	of	February	21,	2014	is	set	forth	in	Item	1.	"Business	—	Research	and	Development"	above.

MK-5348,	vorapaxar,	is	an	investigational	anti-thrombotic	medicine	under	review	by	the	FDA	and	the	European	Medicines	Agency	(the	"EMA").	Merck	is seeking	approval	of	vorapaxar	for	the	reduction	of	atherothrombotic	events,	when	added	to	standard	of	care,	in	patients	with	a	history	of	heart	attack	and	no	history	of stroke	or	transient	ischemic	attack.	In	January	2014,	the	FDA's	Cardiovascular	and	Renal	Drugs	Advisory	Committee	recommended	approval	of	vorapaxar.	The	FDA	is not	bound	by	the	committee's	guidance,	but	takes	its	advice	into	consideration	when	reviewing	investigational	medicines.

V503,	the	Company's	nine-valent	HPV	vaccine	in	development	to	help	protect	against	certain	HPV-related	diseases,	is	under	review	by	the	FDA.	V503 incorporates	antigens	against	five	additional	cancer-causing	HPV	types	as	compared	with	Gardasil.	The	Company	anticipates	submitting	a	Marketing	Authorization Application	("MAA")	to	the	EMA	in	the	first	half	of	2014.

MK-7243,	Grastek,	an	investigational	Timothy	grass	pollen	allergy	immunotherapy	tablet	("AIT"),	and	MK-3641,	Ragwitek,	an	investigational	ragweed pollen	AIT,	are	both	under	review	by	the	FDA.	MK-7243	and	MK-3641	are	investigational	sublingual	tablets	designed	to	help	treat	the	underlying	cause	of	allergic rhinitis	by	generating	an	immune	response	to	help	protect	allergic	patients	against	effects	triggered	by	the	targeted	allergen.	Merck	has	partnered	with	ALK-Abello	to develop	its	investigational	sublingual	allergy	immunotherapy	tablets	for	Timothy	grass	pollen,	ragweed	pollen	and	house	dust	mites	in	North	America.	In	December 2013,	the	FDA's	Allergenic	Products	Advisory	Committee	had	a	positive	discussion	of	MK-7243.	In	January	2014,	the	same	Advisory	Committee	had	a	positive discussion	of	MK-3641.	The	FDA	is	not	bound	by	the	committee's	guidance,	but	takes	its	advice	into	consideration	when	reviewing	investigational	medicines.	Merck expects	the	FDA's	review	for	both	MK-7243	and	MK-3641	to	be	completed	in	the	first	half	of	2014.	In	February	2014,	the	Company	announced	that	Grastek	received regulatory	approval	in	Canada.

MK-4305,	suvorexant,	is	an	investigational	insomnia	medicine	in	a	new	class	of	medicines	called	orexin	receptor	antagonists	for	use	in	patients	with difficulty	falling	or	staying	asleep.	In	July	2013,	the	Company	announced	that	it	had	received	a	CRL	from	the	FDA	regarding	the	NDA	for	suvorexant.	In	the	CRL,	the FDA	advised	Merck	that:	(1)	the	efficacy	of	suvorexant	has	been	established	at	doses	of	10	mg	to	40	mg	in	elderly	and	non-elderly	adult	patients;	(2)	10	mg	should	be the	starting	dose	for	most	patients	and	must	be	available	before	suvorexant	can	be	approved;	(3)	15	mg	and	20	mg	doses	would	be	appropriate	in	patients	in	whom	the	10 mg	dose	is	well-tolerated	but	not	effective;	and	(4),	for	patients	taking	concomitant	moderate	CYP3A4	inhibitors,	a	5	mg	dose	would	be	necessary.	In	addition,	the	FDA determined	that	the	safety	data	do	not	support	the	approval	of	suvorexant	30	mg	and	40	mg.	In	February,	2014,	the	Company	resubmitted	its	NDA	to	the	FDA.	As previously	disclosed,	both	FDA	approval	and	a	separate	scheduling	determination	by	 the	U.S.	Drug	Enforcement	Administration	are	required	before	Merck	can introduce	suvorexant	in	the	United	States.	Insomnia	is	a	condition	characterized	by	difficulty	falling	asleep	and/or	staying	asleep.	The	Company	has	submitted	a	new drug	application	for	suvorexant	to	the	health	authorities	in	Japan	and	is	continuing	with	plans	to	seek	approval	for	suvorexant	in	other	countries	around	the	world.

MK-7009,	vaniprevir,	is	an	investigational,	oral	twice-daily	protease	inhibitor	for	the	treatment	of	chronic	hepatitis	C	virus	infection	under	review	in	Japan.

MK-3475,	an	investigational	anti-PD-1	immunotherapy,	is	currently	being	evaluated	for	the	treatment	of	patients	with	advanced	melanoma	and	other	tumor types.	In	January	2014,	the	Company	announced	it	has	started	a	rolling	submission	to	the	FDA	of	a	BLA	for	MK-3475	for	patients	with	advanced	melanoma	who	have previously	been	treated	with	ipilimumab.	A	rolling	submission	allows	completed	portions	of	the	application	to	be	submitted	and	reviewed	by	the	FDA	on	an	ongoing basis.	The	Company	expects	to	complete	the	application	in	the	first	half	of	2014.	In	April	2013,	Merck	announced	that	MK-3475	received	a	Breakthrough	Therapy designation	for	advanced	melanoma	from	the	FDA.	The	designation	of	an	investigational	drug	as	a	Breakthrough	Therapy	is	intended	to	expedite	the	development	and review	of	a	candidate	that	is	planned	for	use,	alone	or	in	combination,	to	treat	a	serious	or	life-threatening	disease	or	condition	when	preliminary	clinical	evidence indicates	that	the	drug	may	demonstrate	substantial	improvement	over	existing	therapies	on	one	or	more	clinically	significant	endpoints.

MK-0822,	odanacatib,	is	an	oral,	once-weekly	investigational	treatment	for	patients	with	osteoporosis.	Osteoporosis	is	a	disease	that	reduces	bone	density and	strength	and	results	in	an	increased	risk	of	bone	fractures.	Odanacatib	is	a	cathepsin	K	inhibitor	that	selectively	inhibits	the	cathepsin	K	enzyme.	Cathepsin	K	is known	to	play	a	central	role	in	the	function	of	osteoclasts,	which	are	cells	that	break	down	existing	bone	tissue,	particularly	the	protein	components	of	bone.	Inhibition of	cathepsin	K	is	a	novel	approach	to	the	treatment	of	osteoporosis.	In	July	2012,	Merck	announced	an	update	on	the	Phase	3	trial	assessing	fracture	risk	reduction	with odanacatib.	The	independent	Data	Monitoring	Committee	(the	"DMC")	for	the	study	completed	its	first	planned	interim	analysis	for	efficacy	and	recommended	that	the study	 be	 closed	 early	 due	 to	 robust	 efficacy	 and	 a	 favorable	 benefit-risk	 profile.	The	 DMC	 noted	 that	 safety	 issues	 remain	 in	 certain	 selected	 areas	 and	 made recommendations	with	respect	to	following	up	on	them.	On	February	1,	2013,	Merck	announced	that	it	had	recently	received	and	was	reviewing	safety	and	efficacy	data from	the	Phase	3	trial.	As	a	result	of	its	review	of	this	data,	the	Company	concluded	that	review	of	additional	data	from	the	previously	planned,	ongoing	extension	study was	warranted	and	that	filing	an	application	for	approval	with	the	FDA	should	be	delayed.	As	previously	announced,	the	Company	is	conducting	a	blinded	extension	of the	trial	in	approximately	8,200	women,	which	will	provide	additional	safety	and	efficacy	data.	Merck	continues	to	anticipate	that	it	will	file	applications	for	approval	of odanacatib	in	2014	with	additional	data	from	the	extension	trial.	The	Company	continues	to	believe	that	odanacatib	will	have	the	potential	to	address	unmet	medical needs	in	patients	with	osteoporosis.

MK-3102,	omarigliptin,	is	an	investigational	once-weekly	DPP-4	inhibitor	in	development	for	the	treatment	of	type	2	diabetes.

MK-8835,	ertugliflozin,	is	an	investigational	oral	sodium	glucose	cotransporter	("SGLT2")	inhibitor	being	evaluated	for	the	treatment	of	type	2	diabetes. During	2013,	the	Company	entered	into	a	worldwide	(except	Japan)	collaboration	agreement	with	Pfizer	Inc.	("Pfizer")	for	the	development	and	commercialization	of ertugliflozin	as	discussed	below.

V212	is	an	inactivated	varicella	zoster	virus	vaccine	in	development	for	the	prevention	of	herpes	zoster.	The	Company	is	conducting	two	Phase	3	trials,	one in	autologous	hematopoietic	cell	transplant	patients	and	the	other	in	patients	with	solid	tumor	malignancies	undergoing	chemotherapy	and	hematological	malignancies.

MK-5172/MK-8742,	an	all-oral	combination	regimen	in	Phase	2	development	consisting	of	MK-5172,	an	investigational	hepatitis	C	virus	NS3/4A	protease inhibitor,	and	MK-8742,	an	investigational	hepatitis	C	virus	NS5A	replication	complex	inhibitor,	was	granted	a	Breakthrough	Therapy	designation	in	October	2013	by the	FDA	for	treatment	of	chronic	hepatitis	C	virus	infection.	MK-5172	and	MK-8742	are	being	investigated	in	a	broad	clinical	program	that	includes	studies	in	patients with	multiple	hepatitis	C	virus	genotypes	who	are	treatment-naïve,	treatment	failures	as	well	as	other	important	hepatitis	C	virus	subpopulations	such	as	patients	with cirrhosis	and	those	co-infected	with	HIV.

In	May	2013,	the	Company	provided	an	update	on	the	clinical	program	for	preladenant,	Merck's	investigational	adenosine	A2A	receptor	antagonist	for	the treatment	of	Parkinson's	disease.	An	initial	review	of	data

from	three	separate	Phase	3	trials	did	not	provide	evidence	of	efficacy	for	preladenant	compared	with	placebo.	Based	on	these	results,	Merck	has	taken	steps	to discontinue	the	extension	phases	of	these	studies	and	no	longer	plans	to	pursue	regulatory	filings	for	preladenant.	The	decision	to	discontinue	these	studies	was	not	based on	any	safety	finding.	The	Company	recorded	an	impairment	charge	of	$181	million	in	2013	related	to	the	discontinuation	of	the	clinical	development	program	for preladenant.

The	Company	also	reviews	its	pipeline	to	examine	candidates	which	may	provide	more	value	through	out-licensing.	The	Company	is	evaluating	certain	late- stage	clinical	development	and	platform	technology	assets	to	determine	their	out-licensing	or	sale	potential.

# In-Process	Research	and	Development

In	connection	with	mergers	and	acquisitions,	the	Company	has	recorded	the	fair	value	of	incomplete	research	projects	which,	at	the	time	of	acquisition,	had not	yet	reached	technological	feasibility.	At	December	31,	2013,	the	balance	of	IPR&D	was	$1.9	billion.	Some	of	the	more	significant	projects	in	late-stage	development include	vorapaxar,	the	Company's	BACE	inhibitor,	sugammadex	sodium	injection	and	the	AIT	programs	discussed	above.

During	2013,	2012	and	2011,	approximately	$346	million,	$78	million	and	$666	million,	respectively,	of	IPR&D	projects	received	marketing	approval	in	a major	market	and	the	Company	began	amortizing	these	assets	based	on	their	estimated	useful	lives.

All	of	the	IPR&D	projects	that	remain	in	development	are	subject	to	the	inherent	risks	and	uncertainties	in	drug	development	and	it	is	possible	that	the Company	will	not	be	able	to	successfully	develop	and	complete	the	IPR&D	programs	and	profitably	commercialize	the	underlying	product	candidates.	The	time	periods to	receive	approvals	from	the	FDA	and	other	regulatory	agencies	are	subject	to	uncertainty.	Significant	delays	in	the	approval	process,	or	the	Company's	failure	to	obtain approval	at	all,	would	delay	or	prevent	the	Company	from	realizing	revenues	from	these	products.	Additionally,	if	certain	of	the	IPR&D	programs	fail	or	are	abandoned during	development,	then	the	Company	will	not	realize	the	future	cash	flows	it	has	estimated	and	recorded	as	IPR&D	as	of	the	acquisition	date,	and	the	Company	may also	not	recover	the	research	and	development	expenditures	made	since	the	acquisition	to	further	develop	such	program.	If	such	circumstances	were	to	occur,	the Company's	future	operating	results	could	be	adversely	affected	and	the	Company	may	recognize	impairment	charges	and	such	charges	could	be	material.

During	2013,	the	Company	recorded	$279	million	of	IPR&D	impairment	charges	within	Research	and	development	expenses.	Of	this	amount,	$181	million related	to	the	write-off	of	the	intangible	asset	associated	with	preladenant	as	a	result	of	the	discontinuation	of	the	clinical	development	program	for	this	compound.	In addition,	the	Company	recorded	impairment	charges	resulting	from	changes	in	cash	flow	assumptions	for	certain	compounds,	as	well	as	for	pipeline	programs	that	had previously	been	deprioritized	and	were	subsequently	deemed	to	have	no	alternative	use	in	the	period.	During	2012,	the	Company	recorded	$200	million	of	IPR&D impairment	charges	primarily	for	pipeline	programs	that	had	previously	been	deprioritized	and	were	subsequently	deemed	to	have	no	alternative	use	during	the	period. During	2011,	the	Company	recorded	$587	million	of	IPR&D	impairment	charges	primarily	for

pipeline	programs	that	were	abandoned	and	determined	to	have	no	alternative	use,	as	well	as	for	expected	delays	in	the	launch	timing	or	changes	in	the	cash	flow assumptions	for	certain	compounds.	In	addition,	the	impairment	charges	in	2011	related	to	pipeline	programs	that	had	previously	been	deprioritized	and	were	either deemed	to	have	no	alternative	use	during	the	period	or	were	out-licensed	to	a	third	party	for	consideration	that	was	less	than	the	related	asset's	carrying	value.

Additional	research	and	development	will	be	required	before	any	of	the	remaining	programs	reach	technological	feasibility.	The	costs	to	complete	the research	projects	will	depend	on	whether	the	projects	are	brought	to	their	final	stages	of	development	and	are	ultimately	submitted	to	the	FDA	or	other	regulatory agencies	for	approval.	As	of	December	31,	2013,	the	estimated	costs	to	complete	projects	acquired	in	connection	with	mergers	and	acquisitions	in	Phase	3	development for	human	health	and	the	analogous	stage	of	development	for	animal	health	were	approximately	$1.2	billion.

# Acquisitions,	Divestitures,	Research	Collaborations	and	License	Agreements

Merck	continues	to	remain	focused	on	pursuing	opportunities	that	have	the	potential	to	drive	both	near-	and	long-term	growth.	During	2013,	the	Company completed	transactions	across	a	broad	range	of	therapeutic	categories.	Merck	is	actively	monitoring	the	landscape	for	growth	opportunities	that	meet	the	Company's strategic	criteria.

In	April	2013,	Merck	and	Pfizer	announced	 that	 they	had	entered	 into	a	worldwide	(except	Japan)	collaboration	agreement	for	 the	development	and commercialization	of	Pfizer's	ertugliflozin,	an	 investigational	oral	sodium	glucose	cotransporter	("SGLT2")	 inhibitor	being	evaluated	for	 the	 treatment	of	 type	2 diabetes.	The	Company	has	initiated	Phase	3	clinical	trials	for	ertugliflozin	with	Pfizer.	Under	the	terms	of	the	agreement,	Merck	and	Pfizer	will	collaborate	on	the clinical	development	and	commercialization	of	ertugliflozin	and	ertugliflozin-containing	fixed-dose	combinations	with	metformin	and	with	Januvia	(sitagliptin)	tablets. Merck	will	continue	to	retain	the	rights	to	its	existing	portfolio	of	sitagliptin-containing	products.	Through	the	end	of	2013,	Merck	recorded	research	and	development expenses	of	$125	million	for	upfront	and	milestone	payments	made	to	Pfizer.	Pfizer	will	be	eligible	for	additional	payments	associated	with	the	achievement	of	pre- specified	future	clinical,	regulatory	and	commercial	milestones.	The	companies	will	share	potential	revenues	and	certain	costs	60%	to	Merck	and	40%	to	Pfizer.	Each party	will	have	certain	manufacturing	and	supply	obligations.	The	Company	and	Pfizer	each	have	the	right	to	terminate	the	agreement	due	to	a	material,	uncured	breach by,	or	insolvency	of,	the	other	party,	or	in	the	event	of	a	safety	issue.	Pfizer	has	the	right	to	terminate	the	agreement	upon	12	months	notice	at	any	time	following	the	first anniversary	of	the	first	commercial	sale	of	a	collaboration	product,	but	must	assign	all	rights	to	ertugliflozin	to	Merck.	Upon	termination	of	the	agreement,	depending upon	the	circumstances,	the	parties	have	varying	rights	and	obligations	with	respect	to	the	continued	development	and	commercialization	of	ertugliflozin	and	certain payment	obligations.

In	September	2013,	Merck	and	AstraZeneca	announced	a	worldwide	out-licensing	agreement	for	Merck's	oral	small	molecule	inhibitor	of	WEE1	kinase (MK-1775).	MK-1775	is	currently	being	evaluated	in	Phase	2a	clinical	studies	in	combination	with	standard-of-care	therapies	for	the	treatment	of	patients	with	certain types	of	ovarian	cancer.	Under	the	terms	of	the	agreement,	AstraZeneca	paid	Merck	a	$50	million	upfront	fee,	which	the	Company	recorded	as	revenue.	In	addition, Merck	will	be	eligible	to	receive	future	payments	tied	to	development	and	regulatory	milestones,	plus	sales-related	payments	and	tiered	royalties.	AstraZeneca	will	be responsible	for	all	future	clinical	development,	manufacturing	and	marketing.

In	January	2014,	the	Company	entered	into	an	agreement	to	divest	its	Sirna	Therapeutics,	Inc.	subsidiary	and	related	RNAi	technology	assets	to	Alnylam Pharmaceuticals,	Inc.	("Alnylam").	Under	the	terms	of	the	agreement,	the	consideration	to	be	paid	by	Alnylam	to	Merck	will	consist	of	$25	million	in	cash	and 2,520,044	shares	of	Alnylam	common	stock	(valued	at	approximately	$165	million	at	the	time	of	the	agreement).	In	addition,	Merck	is	eligible	to	receive	up	to	$115 million	in	developmental	and	sales	milestone	payments,	as	well	as	single-digit	royalties	associated	with	certain	preclinical	candidates.	The	transaction	is	subject	to customary	closing	conditions	and	is	expected	to	close	during	the	first	quarter	of	2014.

# Selected	Joint	Venture	and	Affiliate	Information

To	expand	its	research	base	and	realize	synergies	from	combining	capabilities,	opportunities	and	assets,	in	previous	years	Merck	has	formed	a	number	of

In	1982,	Merck	entered	into	an	agreement	with	Astra	AB	("Astra")	to	develop	and	market	Astra	products	under	a	royalty-bearing	license.	In	1993,	Merck's total	sales	of	Astra	products	reached	a	level	that	triggered	the	first	step	in	the	establishment	of	a	joint	venture	business	carried	on	by	Astra	Merck	Inc.	("AMI"),	in	which Merck	and	Astra	each	owned	a	50%	share.	This	joint	venture,	formed	in	1994,	developed	and	marketed	most	of	Astra's	new	prescription	medicines	in	the	United	States including	Prilosec,	the	first	of	a	class	of	medications	known	as	proton	pump	inhibitors,	which	slows	the	production	of	acid	from	the	cells	of	the	stomach	lining.

In	1998,	Merck	and	Astra	completed	the	restructuring	of	the	ownership	and	operations	of	the	joint	venture	whereby	Merck	acquired	Astra's	interest	in	AMI, renamed	KBI	Inc.	("KBI"),	and	contributed	KBI's	operating	assets	to	a	new	U.S.	limited	partnership,	Astra	Pharmaceuticals	L.P.	(the	"Partnership"),	in	exchange	for	a 1%	limited	partner	interest.	Astra	contributed	the	net	assets	of	its	wholly	owned	subsidiary,	Astra	USA,	Inc.,	to	the	Partnership	in	exchange	for	a	99%	general	partner interest.	The	Partnership,	renamed	AstraZeneca	LP	("AZLP")	upon	Astra's	1999	merger	with	Zeneca	Group	Plc,	became	the	exclusive	distributor	of	the	products	for which	KBI	retained	rights.

While	maintaining	a	1%	limited	partner	interest	in	AZLP,	Merck	has	consent	and	protective	rights	intended	to	preserve	its	business	and	economic	interests, including	restrictions	on	the	power	of	the	general	partner	to	make	certain	distributions	or	dispositions.	Furthermore,	in	limited	events	of	default,	additional	rights	will	be granted	to	the	Company,	including	powers	to	direct	the	actions	of,	or	remove	and	replace,	the	Partnership's	chief	executive	officer	and	chief	financial	officer.	Merck earns	ongoing	revenue	based	on	sales	of	KBI	products	and	such	revenue	was	$920	million,	$915	million	and	1.2	billion	in	2013,	2012	and	2011,	respectively,	primarily relating	to	sales	of	Nexium,	as	well	as	Prilosec.	In	addition,	Merck	earns	certain	Partnership	returns	which	are	recorded	in	Equity	income	from	affiliates.	Such	returns include	a	priority	return	provided	for	in	the	Partnership	Agreement,	a	preferential	return	representing	Merck's	share	of	undistributed	AZLP	GAAP	earnings,	and	a variable	return	related	to	the	Company's	1%	limited	partner	interest.	These	returns	aggregated	$352	million,	$621	million	and	$574	million	in	2013,	2012	 and	2011, respectively.

In	1994,	Merck	and	Pasteur	Mérieux	Connaught	(now	Sanofi	Pasteur	S.A.)	established	an	equally-owned	joint	venture	to	market	vaccines	in	Europe	and	to collaborate	in	the	development	of	combination	vaccines	for	distribution	in	Europe.

# Sales	of	joint	venture	products	were	as	follows:

| ($	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Gardasil | $291 | $264 | $253 |
| Influenza\tvaccines | 162 | 161 | 183 |
| Other\tviral\tvaccines | 104 | 107 | 105 |
| Zostavax | 68 | — | — |
| RotaTeq | 55 | 47 | 44 |
| Hepatitis\tvaccines | 31 | 31 | 39 |
| Other\tvaccines | 453 | 474 | 486 |
|  | $1,164 | $1,084 | $1,110 |

# Johnson	&	Johnson°Merck	Consumer	Pharmaceuticals	Company

In	2011,	Merck	sold	its	50%	interest	in	the	JJMCP	joint	venture	to	J&J.	The	venture	between	Merck	and	J&J	was	formed	in	1989	to	develop,	manufacture, market	and	distribute	certain	over-the-counter	consumer	products	in	the	United	States	and	Canada.	Merck	received	a	one-time	payment	of	$175	million	and	recognized	a pretax	gain	of	$136	million	in	2011	reflected	in	Other	(income)	expense,	net.	The	partnership	assets	also	included	a	manufacturing	facility.	Sales	of	products	marketed by	the	joint	venture	were	$62	million	for	the	period	from	January	1,	2011	until	the	September	29,	2011	divestiture	date.

# Capital	Expenditures

Depreciation	expense	was	$2.2	billion	in	2013,	$2.0	billion	in	2012	and	$2.4	billion	in	2011	of	which	$1.5	billion,	$1.3	billion	and	$1.4	billion,	respectively, applied	to	locations	in	the	United	States.	Total	depreciation	expense	in	2013,	2012	and	2011	included	accelerated	depreciation	of	$577	million,	$235	million	and	$589 million,	respectively,	associated	with	restructuring	activities	(see	Note	3	to	the	consolidated	financial	statements).

# Analysis	of	Liquidity	and	Capital	Resources

Merck's	strong	financial	profile	enables	it	to	fully	fund	research	and	development,	focus	on	external	alliances,	support	in-line	products	and	maximize upcoming	launches	while	providing	significant	cash	returns	to	shareholders.

| ($	in	millions) | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Working\tcapital | $17,817 | $16,509 | $16,936 |
| Total\tdebt\tto\ttotal\tliabilities\tand\tequity | 23.7% | 19.4% | 16.7% |
| Cash\tprovided\tby\toperations\tto\ttotal\tdebt | 0.5:1 | 0.5:1 | 0.7:1 |

Cash	provided	by	operating	activities	was	$11.7	billion	in	2013,	$10.0	billion	in	2012	and	$12.4	billion	in	2011.	Cash	provided	by	operating	activities	in	2013 includes	a	payment	made	by	the	Company	of	$480	million	in	connection	with	the	previously	disclosed	settlement	of	the	ENHANCE	Litigation	(see	Note	10	to	the consolidated	financial	statements).	Cash	provided	by	operating	activities	in	2012	reflects	higher	contributions	to	its	defined	benefit	plans	as	compared	with	2013	and 2011.	Cash	provided	by	operating	activities	in	2012	also	includes	a	payment	of	$960	million	related	to	the	resolution	of	certain	litigation	related	to	Vioxx.	Cash	provided by	operating	activities	in	2011	includes	a	$500	million	payment	made	to	J&J	as	a	result	of	the	arbitration	settlement,	as	well	as	net	payments	of	approximately	$465 million	to	the	Internal	Revenue	Service	as	a	result	of	the	conclusion	of	its	examination	of	certain	of	Merck's	federal	income	tax	returns.	Cash	provided	by	operating activities	continues	to	be	the	Company's	primary	source	of	funds	to	finance	operating	needs,	capital	expenditures,	treasury	stock	purchases	and	dividends	paid	to shareholders.	Global	economic	conditions	and	ongoing	sovereign	debt	issues,	among	other	factors,	have	adversely	affected	foreign	receivables	in	certain	European countries	(see	Note	5	 to	 the	consolidated	financial	statements).	The	Company	received	significant	collections	during	2013	and	2012,	and	has	been	successful	 in completing	factoring	arrangements	for	a	portion	of	these	receivables.	Additionally,	the	Company	continues	to	expand	in	the	emerging	markets	where	payment	terms	tend to	be	longer.	The	conditions	in	the	EU	and	the	emerging	markets	have	resulted	in	an	increase

in	the	average	length	of	time	it	takes	to	collect	accounts	receivable	outstanding	thereby	adversely	affecting	cash	provided	by	operating	activities.

Cash	used	in	investing	activities	was	$3.1	billion	in	2013	compared	with	$6.8	billion	in	2012	primarily	reflecting	higher	proceeds	from	the	sales	of	securities and	other	investments	and	lower	capital	expenditures,	partially	offset	by	higher	purchases	of	securities	and	other	investments.	Cash	used	in	investing	activities	was	$6.8 billion	in	2012	compared	with	$2.9	billion	in	2011	primarily	reflecting	higher	purchases	of	securities	and	other	investments,	partially	offset	by	higher	proceeds	from	the sales	of	securities	and	other	investments.

Cash	used	in	financing	activities	was	$6.0	billion	in	2013	compared	with	$3.3	billion	in	2012.	The	higher	use	of	cash	in	financing	activities	was	driven primarily	by	higher	purchases	of	treasury	stock	(largely	under	an	ASR	agreement	as	discussed	below),	as	well	as	higher	payments	on	debt	and	a	decrease	in	short-term borrowings,	partially	offset	by	higher	proceeds	from	the	issuance	of	debt.	Cash	used	in	financing	activities	in	2012	was	$3.3	billion	compared	with	$6.9	billion	in	2011. The	lower	use	of	cash	in	financing	activities	was	primarily	driven	by	proceeds	from	the	issuance	of	debt,	lower	payments	on	debt	and	higher	proceeds	from	the	exercise of	stock	options,	partially	offset	by	increased	purchases	of	treasury	stock,	a	decrease	in	short-term	borrowings	and	higher	dividends	paid	to	stockholders.

At	December	31,	2013,	the	total	of	worldwide	cash	and	investments	was	$27.3	billion,	 including	$17.5	billion	of	cash,	cash	equivalents	and	short-term investments,	and	$9.8	billion	of	long-term	investments.	Generally	80%-90%	of	these	cash	and	investments	are	held	by	foreign	subsidiaries	and	would	be	subject	to significant	tax	payments	if	such	cash	and	investments	were	repatriated	in	the	form	of	dividends.	The	Company	records	U.S.	deferred	tax	liabilities	for	certain	unremitted earnings,	but	when	amounts	earned	overseas	are	expected	to	be	indefinitely	reinvested	outside	of	the	United	States,	no	accrual	for	U.S.	taxes	is	provided.	The	amount	of cash	and	investments	held	by	U.S.	and	foreign	subsidiaries	fluctuates	due	to	a	variety	of	factors	including	the	timing	and	receipt	of	payments	in	the	normal	course	of business.	Cash	provided	by	operating	activities	in	the	United	States	continues	to	be	the	Company's	primary	source	of	funds	to	finance	domestic	operating	needs,	capital expenditures,	a	portion	of	treasury	stock	purchases	and	dividends	paid	to	shareholders.

The	Company's	contractual	obligations	as	of	December	31,	2013	are	as	follows:

# Payments	Due	by	Period

| ($	in	millions) | Total | 2014 | 2015—2016 | 2017—2018 | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Purchase\tobligations\t(1) | $2,948 | $762 | $791 | $462 | $933 |
| Loans\tpayable\tand\tcurrent\tportion\tof\tlong-term\tdebt | 4,492 | 4,492 | — | — | — |
| Long-term\tdebt | 20,086 | — | 4,374 | 4,043 | 11,669 |
| Interest\trelated\tto\tdebt\tobligations | 10,052 | 841 | 1,342 | 1,179 | 6,690 |
| Unrecognized\ttax\tbenefits\t(2) | 59 | 59 | — | — | — |
| Operating\tleases | 898 | 259 | 340 | 155 | 144 |
|  | $38,535 | $6,413 | $6,847 | $5,839 | $19,436 |

(1)		Includes	future	bulk	supply	purchases	the	Company	has	committed	to	in	connection	with	certain	divestitures,	including	the	disposition	of	its	API	manufacturing	business	in	2013	discussed	above.

(2) As	of	December	31,	2013,	the	Company's	Consolidated	Balance	Sheet	reflects	liabilities	for	unrecognized	tax	benefits,	interest	and	penalties	of	$4.2	billion,	including	 $59	million	reflected	as	a current	liability.	Due	to	the	high	degree	of	uncertainty	regarding	the	timing	of	future	cash	outflows	of	liabilities	for	unrecognized	tax	benefits	beyond	one	year,	a	reasonable	estimate	of	the	period	of cash	settlement	for	years	beyond	2014	cannot	be	made.

Purchase	obligations	are	enforceable	and	legally	binding	obligations	for	purchases	of	goods	and	services	including	minimum	inventory	contracts,	research and	development	and	advertising.	Amounts	reflected	for	research	and	development	obligations	do	not	include	contingent	milestone	payments.	Also	excluded	from research	and	development	obligations	are	potential	future	funding	commitments	of	up	to	approximately	$100	million	for	investments	in	research	venture	capital	funds. Loans	payable	and	current	portion	of	long-term	debt	reflects	$370	million	of	long-dated	notes	that	are	subject	to	repayment	at	the	option	of	the	holders.	Required funding	obligations	for	2014	relating	to	the	Company's	pension	and	other	postretirement	benefit	plans	are	not	expected	to	be	material.	However,	the	Company	currently anticipates	contributing	approximately	$250	million	and	$75	million,	respectively,	to	its	pension	plans	and	other	postretirement	benefit	plans	during	2014.

The	Company	has	a	$4.0	billion,	five-year	credit	facility	maturing	in	May	2017.	The	facility	provides	backup	liquidity	for	the	Company's	commercial	paper borrowing	facility	and	is	to	be	used	for	general	corporate	purposes.	The	Company	has	not	drawn	funding	from	this	facility.

In	May	2013,	the	Company	completed	an	underwritten	public	offering	of	$6.5	billion	senior	unsecured	notes	consisting	of	$1.0	billion	aggregate	principal amount	of	0.70%	notes	due	in	2016,	$500	million	aggregate	principal	amount	of	floating	rate	notes	due	in	2016,	$1.0	billion	aggregate	principal	amount	of	1.30%	notes due	in	2018,	$1.0	billion	aggregate	principal	amount	of	floating	rate	notes	due	in	2018,	$1.75	billion	aggregate	principal	amount	of	2.80%	notes	due	in	2023	and	$1.25 billion	aggregate	principal	amount	of	4.15%	notes	due	in	2043.	Interest	on	the	notes	is	payable	semi-annually.	The	notes	of	each	series	are	redeemable	in	whole	or	in part	at	any	time	at	the	Company's	option	at	varying	redemption	prices.	A	substantial	portion	of	the	net	proceeds	from	the	notes	were	used	to	repurchase	the	Company's common	stock	pursuant	to	an	accelerated	share	repurchase	agreement	in	May	2013	as	discussed	below.

In	December	2012,	the	Company	filed	a	securities	registration	statement	with	the	Securities	and	Exchange	Commission	("SEC")	under	the	automatic	shelf registration	process	available	to	"well-known	seasoned	issuers"	which	is	effective	for	three	years.

Effective	as	of	November	3,	2009,	the	Company	executed	a	full	and	unconditional	guarantee	of	the	then	existing	debt	of	its	subsidiary	Merck	Sharp	& Dohme	Corp.	("MSD")	and	MSD	executed	a	full	and	unconditional	guarantee	of	the	then	existing	debt	of	the	Company	(excluding	commercial	paper),	including	for payments	of	principal	and	interest.	These	guarantees	do	not	extend	to	debt	issued	subsequent	to	that	date.

The	Company's	long-term	credit	ratings	assigned	by	Moody's	Investors	Service	and	Standard	&	Poor's	are	A1	with	a	stable	outlook	and	AA	with	a	stable outlook,	respectively.	These	ratings	continue	to	allow	access	to	the	capital	markets	and	flexibility	in	obtaining	funds	on	competitive	terms.	The	Company	continues	to maintain	a	conservative	financial	profile.	The	Company	places	its	cash	and	investments	in	instruments	that	meet	high	credit	quality	standards,	as	specified	in	its investment	policy	guidelines.	These	guidelines	also	limit	the	amount	of	credit	exposure	to	any	one	issuer.	Despite	this	strong	financial	profile,	certain	contingent	events, if	realized,	which	are	discussed	in	Note	10	to	the	consolidated	financial	statements,	could	have	a	material	adverse	impact	on	the	Company's	liquidity	and	capital resources.	The	Company	does	not	participate	in	any	off-balance	sheet	arrangements	involving	unconsolidated	subsidiaries	that	provide	financing	or	potentially	expose the	Company	to	unrecorded	financial	obligations.

In	November	2013,	the	Board	of	Directors	declared	a	quarterly	dividend	of	$0.44	per	share	on	the	Company's	common	stock	payable	in	January	2014.

On	May	1,	2013,	the	Company	announced	that	its	board	of	directors	authorized	additional	purchases	of	up	to	$15	billion	of	Merck's	common	stock	for	its treasury.	The	Company	expects	to	repurchase	approximately	$7.5	billion	of	common	stock	within	12	months	following	the	date	of	the	announcement,	financed	through	a combination	of	debt	issuance	and	operating	cash	flows,	with	the	remainder	to	be	repurchased	over	time	with	no	time	limit.	Purchases	may	be	made	in	open-market transactions,	block	transactions,	on	or	off	an	exchange,	or	in	privately	negotiated	transactions.	The	Company	purchased	$6.5	billion	of	its	common	stock	(139	million shares)	for	its	treasury	during	2013,	which	includes	shares	under	an	ASR	agreement	discussed	below.	The	Company	has	approximately	$10.4	billion	remaining	under the	May	share	repurchase	program.	The	Company	purchased	$2.6	billion	and	$1.9	billion	of	its	common	stock	during	2012	and	2011,	respectively,	under	previously authorized	share	repurchase	programs.

On	May	20,	2013,	Merck	entered	into	an	ASR	agreement	with	Goldman	Sachs.	Under	the	ASR,	Merck	agreed	to	purchase	$5.0	billion	of	Merck's	common stock,	in	total,	with	an	initial	delivery	of	approximately	99.5	million	shares	of	Merck's	common	stock,	based	on	current	market	price,	made	by	Goldman	Sachs	to Merck,	and	payment	of	$5.0	billion	made	by	Merck	to	Goldman	Sachs,	on	May	21,	2013.	Upon	settlement	of	the	ASR	on	October	31,	2013,	Merck	received	an additional	5.5	million	shares	as	determined	by	the	average	daily	volume	weighted-average	price	of	Merck's	common	stock	during	the	term	of	the	ASR	program	bringing the	total	shares	received	by	Merck	under	this	program	to	105	million.	The	ASR	was	entered	into	pursuant	to	the	share	repurchase	program	announced	on	May	1,	2013.

# Financial	Instruments	Market	Risk	Disclosures

The	Company	manages	the	impact	of	foreign	exchange	rate	movements	and	interest	rate	movements	on	its	earnings,	cash	flows	and	fair	values	of	assets	and liabilities	through	operational	means	and	through	the	use	of	various	financial	instruments,	including	derivative	instruments.

A	significant	portion	of	the	Company's	revenues	and	earnings	in	foreign	affiliates	is	exposed	to	changes	in	foreign	exchange	rates.	The	objectives	and accounting	related	to	the	Company's	foreign	currency	risk	management	program,	as	well	as	its	interest	rate	risk	management	activities	are	discussed	below.

# Foreign	Currency	Risk	Management

The	Company	has	established	revenue	hedging,	balance	sheet	risk	management,	and	net	investment	hedging	programs	to	protect	against	volatility	of	future foreign	currency	cash	flows	and	changes	in	fair	value	caused	by	volatility	in	foreign	exchange	rates.

The	objective	of	the	revenue	hedging	program	is	to	reduce	the	potential	for	longer-term	unfavorable	changes	in	foreign	exchange	rates	to	decrease	the U.S.	dollar	value	of	future	cash	flows	derived	from	foreign	currency	denominated	sales,	primarily	the	euro	and	Japanese	yen.	To	achieve	this	objective,	the	Company will	hedge	a	portion	of	its	forecasted	foreign	currency	denominated	third-party	and	intercompany	distributor	entity	sales	that	are	expected	to	occur	over	its	planning cycle,	typically	no	more	than	three	years	into	the	future.	The	Company	will	layer	in	hedges	over	time,	increasing	the	portion	of	third-party	and	intercompany	distributor entity	sales	hedged	as	it	gets	closer	to	the	expected	date	of	the	forecasted	foreign	currency	denominated	sales.	The	portion	of	sales	hedged	is	based	on	assessments	of cost-benefit	profiles	that	consider	natural	offsetting	exposures,	revenue	and	exchange	rate	volatilities	and	correlations,	and	the	cost	of	hedging	instruments.	The	hedged anticipated	sales	are	a	specified	component	of	a	portfolio	of	similarly	denominated	foreign	currency-based	sales	transactions,	each	of	which	responds	to	the	hedged currency	risk	in	the	same	manner.	The	Company	manages	its	anticipated	transaction	exposure	principally	with	purchased	local	currency	put	options,	which	provide	the Company	with	a	right,	but	not	an	obligation,	to	sell	foreign	currencies	in	the	future	at	a	predetermined	price.	If	the	U.S.	dollar	strengthens	relative	to	the	currency	of	the hedged	anticipated	sales,	total	changes	in	the	options'	cash	flows	offset	the	decline	in	the	expected	future	U.S.	dollar	equivalent	cash	flows	of	the	hedged	foreign currency	sales.	Conversely,	if	the	U.S.	dollar	weakens,	the	options'	value	reduces	to	zero,	but	the	Company	benefits	from	the	increase	in	the	U.S.	dollar	equivalent	value of	the	anticipated	foreign	currency	cash	flows.

In	connection	with	the	Company's	revenue	hedging	program,	a	purchased	collar	option	strategy	may	be	utilized.	With	a	purchased	collar	option	strategy,	the Company	writes	a	local	currency	call	option	and	purchases	a	local	currency	put	option.	As	compared	to	a	purchased	put	option	strategy	alone,	a	purchased	collar strategy	reduces	the	upfront	costs	associated	with	purchasing	puts	through	the	collection	of	premium	by	writing	call	options.	If	the	U.S.	dollar	weakens	relative	to	the currency	of	the	hedged	anticipated	sales,	the	purchased	put	option	value	of	the	collar	strategy	reduces	to	zero	and	the	Company	benefits	from	the	increase	in	the	U.S. dollar	equivalent	value	of	its	anticipated	foreign	currency	cash	flows,	however	this	benefit	would	be	capped	at	the	strike	level	of	the	written	call.	If	the	U.S.	dollar strengthens	relative	to	the	currency	of	the	hedged	anticipated	sales,	the	written	call	option	value	of	the	collar	strategy	reduces	to	zero	and	the	changes	in	the	purchased put	cash	flows	of	the	collar	strategy	would	offset	the	decline	in	the	expected	future	U.S.	dollar	equivalent	cash	flows	of	the	hedged	foreign	currency	sales.

The	Company	may	also	utilize	forward	contracts	in	its	revenue	hedging	program.	If	the	U.S.	dollar	strengthens	relative	to	the	currency	of	the	hedged anticipated	sales,	the	increase	in	the	fair	value	of	the	forward	contracts	offsets	the	decrease	in	the	expected	future	U.S.	dollar	cash	flows	of	the	hedged	foreign	currency sales.	Conversely,	if	the	U.S.	dollar	weakens,	the	decrease	in	the	fair	value	of	the	forward	contracts	offsets	the	increase	in	the	value	of	the	anticipated	foreign	currency cash	flows.	While	a	weaker	U.S.	dollar	would	result	in	a	net	benefit,	the	market	value	of	Merck's	hedges	would	have	declined	by	an	estimated	$547	million	and	$453 million	at	December	31,	2013	and	2012,	respectively,	from	a	uniform	10%	weakening	of	the	U.S.	dollar.	The	market	value	was	determined	using	a	foreign	exchange option	pricing	model	and	holding	all	factors	except	exchange	rates	constant.	Because	Merck	principally	uses	purchased	local	currency	put	options,	a	uniform	weakening of	the	U.S.	dollar	would	yield	the	largest	overall	potential	loss	in	the	market	value	of	these	options.	The	sensitivity	measurement	assumes	that	a	change	in	one	foreign currency	relative	to	the	U.S.	dollar	would	not	affect	other	foreign	currencies	relative	to	the	U.S.	dollar.	Although	not	predictive	in	nature,	the	Company	believes	that	a 10%	threshold	reflects	reasonably	possible	near-term	changes	in	Merck's	major	foreign	currency	exposures	relative	to	the	U.S.	dollar.	The	cash	flows	from	these contracts	are	reported	as	operating	activities	in	the	Consolidated	Statement	of	Cash	Flows.

The	primary	objective	of	the	balance	sheet	risk	management	program	is	to	mitigate	the	exposure	of	foreign	currency	denominated	net	monetary	assets	of foreign	subsidiaries	where	the	U.S.	dollar	is	the	functional	currency	from	the	effects	of	volatility	in	foreign	exchange.	In	these	instances,	Merck	principally	utilizes forward	exchange	contracts,	which	enable	the	Company	to	buy	and	sell	foreign	currencies	in	the	future	at	fixed	exchange	rates	and	economically	offset	the	consequences of	changes	in	foreign	exchange	from	the	monetary	assets.	Merck	routinely	enters	into	contracts	to	offset	the	effects	of	exchange	on	exposures	denominated	in	developed country	currencies,	primarily	the	euro	and	Japanese	yen.	For	exposures	in	developing	country	currencies,	the	Company	will	enter	into	forward	contracts	to	partially offset	the	effects	of	exchange	on	exposures	when	it	is	deemed	economical	to	do	so	based	on	a	cost-benefit	analysis	that	considers	the	magnitude	of	the	exposure,	the volatility	of	the	exchange	rate	and	the	cost	of	the	hedging	instrument.	The	Company	will	also	minimize	the	effect	of	exchange	on	monetary	assets	and	liabilities	by managing	operating	activities	and	net	asset	positions	at	the	local	level.

A	sensitivity	analysis	to	changes	in	the	value	of	the	U.S.	dollar	on	foreign	currency	denominated	derivatives,	investments	and	monetary	assets	and	liabilities indicated	that	if	the	U.S.	dollar	uniformly	strengthened	by	10%	against	all	currency	exposures	of	the	Company	at	December	31,	2013,	Income	before	taxes	would	have declined	by	approximately	$109	million	in	2013.	Because	the	Company	was	in	a	net	long	position	relative	to	its	major	foreign	currencies	after	consideration	of	forward contracts,	a	uniform	strengthening	of	the	U.S.	dollar	will	yield	the	largest	overall	potential	net	loss	in	earnings	due	to	exchange.	At	December	31,	2012,	the	Company was	in	a	net	short	position	relative	to	its	major	foreign	currencies	after	consideration	of	forward	contracts,	therefore	a	uniform	10%	weakening	of	the	U.S.	dollar	would have	reduced	Income	before	taxes	by	approximately	$20	million.	This	measurement	assumes	that	a	change	in	one	foreign	currency	relative	to	the	U.S.	dollar	would	not affect	other	foreign	currencies	relative	to	the	U.S.	dollar.	Although	not	predictive	in	nature,	the	Company	believes	that	a	10%	threshold	reflects	reasonably	possible near-term	changes	in	Merck's	major	foreign	currency	exposures	relative	to	the	U.S.	dollar.	The	cash	flows	from	these	contracts	are	reported	as	operating	activities	in	the Consolidated	Statement	of	Cash	Flows.

In	February	2013,	the	Venezuelan	government	devalued	its	currency	(Bolívar	Fuertes)	from	4.30	VEF	per	U.S.	dollar	to	6.30	VEF	per	U.S.	dollar.	The Company	recognized	losses	due	to	exchange	of	approximately	$140	million	in	2013	resulting	from	the	remeasurement	of	the	local	monetary	assets	and	liabilities	at	the new	rate.	Since	January	2010,	Venezuela	has	been	designated	hyperinflationary	and,	as	a	result,	local	foreign	operations	are	remeasured	in	U.S.	dollars	with	the	impact recorded	in	results	of	operations.

In	March	2013,	the	Venezuelan	government	announced	the	creation	of	a	new	foreign	exchange	mechanism	called	the	"Complimentary	System	of	Foreign Currency	Acquirement"	(known	as	SICAD)	that	operates	similar	to	an	auction	system	and	allows	entities	in	specific	sectors	to	bid	for	U.S.	dollars	to	be	used	for specified	import	transactions.	In	December	2013,	the	regulation	that	created	the	SICAD	auction	mechanism	was	amended	to	require	the	Central	Bank	of	Venezuela	to include	on	its	website	the	weekly	average	exchange	rate	implied	by	transactions	settled	via	the	SICAD	auction	mechanism,	which	for	the	week	of	December	30,	2013, was	11.3	BsF	per	U.S.	dollar.	The	Company	has	not	used	the	SICAD	auction	mechanism	to	settle	any	transactions.	While	the	SICAD	mechanism	is	described	as	an auction,	it	has	several	attributes	that	are	inconsistent	with	a	free	market	auction.	Accordingly,	the	Company	does	not	believe	it	is	appropriate	to	use	the	SICAD	rate	for remeasurement	under	U.S.	GAAP.	The	Company	will	continue	to	monitor	the	SICAD	auction	mechanism.	It	is	possible	that	circumstances	may	change	such	that	the SICAD	mechanism	takes	on	the	attributes	of	a	true	free	market	auction	and	the	SICAD	rate	can	be	utilized	for	remeasurement	purposes.	If	this	occurs,	or	if	a	devaluation of	the	official	rate	occurs,	it	could	result	in	a	material	charge	to	the	Company's	future	results	of	operations.

The	Company	also	uses	forward	exchange	contracts	to	hedge	its	net	investment	in	foreign	operations	against	movements	in	exchange	rates.	The	forward contracts	are	designated	as	hedges	of	the	net	investment	in	a	foreign	operation.	The	Company	hedges	a	portion	of	the	net	investment	in	certain	of	its	foreign	operations and	measures	ineffectiveness	based	upon	changes	in	spot	foreign	exchange	rates.	The	effective	portion	of	the	unrealized	gains	or	losses	on	these	contracts	is	recorded	in foreign	currency	translation	adjustment	within	Other	Comprehensive	Income	("OCI"),	and	remains	in	Accumulated	Other	Comprehensive	Income	("AOCI")	until	either the	sale	or	complete	or	substantially	complete	liquidation	of	the	subsidiary.	The	cash	flows	from	these	contracts	are	reported	as	investing	activities	in	the	Consolidated Statement	of	Cash	Flows.

Foreign	exchange	risk	is	also	managed	through	the	use	of	foreign	currency	debt.	The	Company's	senior	unsecured	euro-denominated	notes	have	been designated	as,	and	are	effective	as,	economic	hedges	of	the	net	investment

in	a	foreign	operation.	Accordingly,	foreign	currency	transaction	gains	or	losses	due	to	spot	rate	fluctuations	on	the	euro-denominated	debt	instruments	are	included	in foreign	currency	translation	adjustment	within	OCI.

# Interest	Rate	Risk	Management

The	Company	may	use	interest	rate	swap	contracts	on	certain	investing	and	borrowing	transactions	to	manage	its	net	exposure	to	interest	rate	changes	and	to reduce	its	overall	cost	of	borrowing.	The	Company	does	not	use	leveraged	swaps	and,	in	general,	does	not	leverage	any	of	its	investment	activities	that	would	put principal	capital	at	risk.

During	2013,	the	Company	entered	into	15	pay-floating,	received-fixed	interest	rate	swap	contracts	designated	as	fair	value	hedges	of	fixed-rate	notes	in which	the	notional	amounts	match	the	amount	of	the	hedged	fixed-rate	notes.	There	are	four	swaps	maturing	in	2016	with	notional	amounts	of	$250	million	each	that effectively	convert	the	Company's	0.70%	fixed-rate	notes	due	in	2016	to	floating-rate	instruments;	four	swaps	maturing	in	2018	with	notional	amounts	of	$250	million each	that	effectively	convert	the	Company's	1.30%	fixed-rate	notes	due	in	2018	to	floating-rate	instruments;	four	swaps	maturing	in	2017,	one	with	a	notional	amount	of $200	million,	two	with	notional	amounts	of	$250	million	each,	and	one	with	a	notional	amount	of	$300	million,	that	effectively	convert	the	Company's	6.00%	fixed-rate notes	due	in	2017	to	floating-rate	instruments;	and	three	swaps	maturing	in	2019,	two	with	notional	amounts	of	$200	million	each,	and	one	with	a	notional	amount	of $150	million,	that	effectively	convert	a	portion	of	the	Company's	5.00%	notes	due	in	2019	to	floating	rate	instruments.	The	interest	rate	swap	contracts	are	designated hedges	of	the	fair	value	changes	in	the	notes	attributable	to	changes	in	the	benchmark	London	Interbank	Offered	Rate	("LIBOR")	swap	rate.	The	fair	value	changes	in	the notes	attributable	to	changes	in	the	LIBOR	are	recorded	in	interest	expense	and	offset	by	the	fair	value	changes	in	the	swap	contracts.	The	cash	flows	from	these	contracts are	reported	as	operating	activities	in	the	Consolidated	Statement	of	Cash	Flows.

There	were	no	interest	rate	swaps	outstanding	as	of	December	31,	2012.	During	2011,	the	Company	terminated	pay-floating,	receive-fixed	interest	rate	swap contracts	designated	as	fair	value	hedges	of	fixed-rate	notes	in	which	the	notional	amounts	match	the	amount	of	the	hedged	fixed-rate	notes.	These	swaps	effectively converted	certain	of	its	fixed-rate	notes	to	floating-rate	instruments.	The	interest	rate	swap	contracts	were	designated	hedges	of	the	fair	value	changes	in	the	notes attributable	to	changes	in	the	benchmark	LIBOR	swap	rate.	As	a	result	of	the	swap	terminations,	the	Company	received	$288	million	in	cash,	which	included	$43 million	in	accrued	interest.	The	corresponding	$245	million	basis	adjustment	of	the	debt	associated	with	the	terminated	interest	rate	swap	contracts	was	deferred	and	is being	amortized	as	a	reduction	of	interest	expense	over	the	respective	term	of	the	notes.	The	cash	flows	from	these	contracts	are	reported	as	operating	activities	in	the Consolidated	Statement	of	Cash	Flows.

The	Company's	investment	portfolio	includes	cash	equivalents	and	short-term	investments,	the	market	values	of	which	are	not	significantly	affected	by changes	in	interest	rates.	The	market	value	of	the	Company's	medium-	to	long-term	fixed-rate	investments	is	modestly	affected	by	changes	in	U.S.	interest	rates. Changes	in	medium-	to	long-term	U.S.	interest	rates	have	a	more	significant	impact	on	the	market	value	of	the	Company's	fixed-rate	borrowings,	which	generally	have longer	maturities.	A	sensitivity	analysis	to	measure	potential	changes	in	the	market	value	of	Merck's	investments	and	debt	from	a	change	in	interest	rates	indicated	that	a one	percentage	point	increase	in	interest	rates	at	December	31,	2013	and	2012	would	have	positively	affected	the	net	aggregate	market	value	of	these	instruments	by $1.1	billion	and	$1.2	billion,	respectively.	A	one	percentage	point	decrease	at	 December	31,	2013	and	2012	would	have	negatively	affected	the	net	aggregate	market value	by	$1.3	billion	and	$1.4	billion,	respectively.	The	fair	value	of	Merck's	debt	was	determined	using	pricing	models	reflecting	one	percentage	point	shifts	in	the appropriate	yield	curves.	The	fair	values	of	Merck's	investments	were	determined	using	a	combination	of	pricing	and	duration	models.

# Critical	Accounting	Policies

The	Company's	consolidated	financial	statements	are	prepared	in	conformity	with	GAAP	and,	accordingly,	include	certain	amounts	that	are	based	on management's	best	estimates	and	judgments.	Estimates	are	used	when	accounting	for	amounts	recorded	in	connection	with	mergers	and	acquisitions,	including	initial fair	value	determinations	of	assets	and	liabilities,	primarily	IPR&D	and	other	intangible	assets,	as	well	as	subsequent	fair	value	measurement.	Additionally,	estimates	are used	in	determining	such	items	as	provisions	for	sales	discounts	and	returns,	depreciable	and	amortizable	lives,	recoverability	of	inventories,	including	those	produced	in preparation	for	product	 launches,	amounts	recorded	for	contingencies,	environmental	 liabilities	and	other	reserves,	pension	and	other	postretirement	benefit	plan assumptions,	share-based	compensation	assumptions,	restructuring	costs,	impairments	of	long-lived	assets	(including	intangible	assets	and	goodwill)	and	investments, and	taxes	on	income.	Because	of	the	uncertainty	inherent

in	such	estimates,	actual	results	may	differ	from	these	estimates.	Application	of	the	following	accounting	policies	result	in	accounting	estimates	having	the	potential	for the	most	significant	impact	on	the	financial	statements.

# Mergers	and	Acquisitions

In	a	business	combination,	the	acquisition	method	of	accounting	requires	that	the	assets	acquired	and	liabilities	assumed	be	recorded	as	of	the	date	of	the merger	 or	 acquisition	 at	 their	 respective	 fair	 values	 with	 limited	 exceptions.	Assets	 acquired	 and	 liabilities	 assumed	 in	 a	 business	 combination	 that	 arise	 from contingencies	are	recognized	at	fair	value	if	fair	value	can	reasonably	be	estimated.	If	the	acquisition	date	fair	value	of	an	asset	acquired	or	liability	assumed	that	arises from	a	contingency	cannot	be	determined,	the	asset	or	liability	is	recognized	if	probable	and	reasonably	estimable;	if	these	criteria	are	not	met,	no	asset	or	liability	is recognized.	Fair	value	is	defined	as	the	exchange	price	that	would	be	received	for	an	asset	or	paid	to	transfer	a	liability	(an	exit	price)	in	the	principal	or	most advantageous	market	for	the	asset	or	liability	in	an	orderly	transaction	between	market	participants	on	the	measurement	date.	Accordingly,	the	Company	may	be required	 to	value	assets	at	fair	value	measures	 that	do	not	reflect	 the	Company's	 intended	use	of	 those	assets.	Any	excess	of	 the	purchase	price	(consideration transferred)	over	the	estimated	fair	values	of	net	assets	acquired	is	recorded	as	goodwill.	Transaction	costs	and	costs	to	restructure	the	acquired	company	are	expensed	as incurred.	The	operating	results	of	the	acquired	business	are	reflected	in	the	Company's	consolidated	financial	statements	after	the	date	of	the	merger	or	acquisition.	If	the Company	determines	the	assets	acquired	do	not	meet	the	definition	of	a	business	under	the	acquisition	method	of	accounting,	the	transaction	will	be	accounted	for	as	an acquisition	of	assets	rather	than	a	business	combination	and,	therefore,	no	goodwill	will	be	recorded.	The	fair	values	of	intangible	assets,	including	acquired	IPR&D,	are determined	utilizing	information	available	near	the	merger	or	acquisition	date	based	on	expectations	and	assumptions	that	are	deemed	reasonable	by	management.	Given the	considerable	judgment	involved	in	determining	fair	values,	the	Company	typically	obtains	assistance	from	third-party	valuation	specialists	for	significant	items. Amounts	 allocated	 to	 acquired	 IPR&D	 are	 capitalized	 and	 accounted	 for	 as	 indefinite-lived	 intangible	 assets,	 subject	 to	 impairment	 testing	 until	 completion	 or abandonment	of	the	projects.	Upon	successful	completion	of	each	project,	Merck	will	make	a	separate	determination	as	to	the	then	useful	life	of	the	asset	and	begin amortization.	The	judgments	made	in	determining	estimated	fair	values	assigned	to	assets	acquired	and	liabilities	assumed	in	a	business	combination,	as	well	as	asset lives,	can	materially	affect	the	Company's	results	of	operations.

The	fair	values	of	identifiable	intangible	assets	related	to	currently	marketed	products	and	product	rights	are	primarily	determined	by	using	an	"income approach"	through	which	fair	value	is	estimated	based	on	each	asset's	discounted	projected	net	cash	flows.	The	Company's	estimates	of	market	participant	net	cash flows	consider	historical	and	projected	pricing,	margins	and	expense	levels;	the	performance	of	competing	products	where	applicable;	relevant	industry	and	therapeutic area	growth	drivers	and	factors;	current	and	expected	trends	in	technology	and	product	life	cycles;	the	time	and	investment	that	will	be	required	to	develop	products	and technologies;	the	ability	to	obtain	marketing	and	regulatory	approvals;	the	ability	to	manufacture	and	commercialize	the	products;	the	extent	and	timing	of	potential	new product	introductions	by	the	Company's	competitors;	and	the	life	of	each	asset's	underlying	patent,	if	any.	The	net	cash	flows	are	then	probability-adjusted	where appropriate	to	consider	the	uncertainties	associated	with	the	underlying	assumptions,	as	well	as	the	risk	profile	of	the	net	cash	flows	utilized	in	the	valuation.	The probability-adjusted	future	net	cash	flows	of	each	product	are	then	discounted	to	present	value	utilizing	an	appropriate	discount	rate.

The	fair	values	of	identifiable	intangible	assets	related	to	IPR&D	are	determined	using	an	income	approach,	through	which	fair	value	is	estimated	based	on each	asset's	probability-adjusted	future	net	cash	flows,	which	reflect	the	different	stages	of	development	of	each	product	and	the	associated	probability	of	successful completion.	The	net	cash	flows	are	then	discounted	to	present	value	using	an	appropriate	discount	rate.

# Revenue	Recognition

Revenues	from	sales	of	products	are	recognized	at	the	time	of	delivery	when	title	and	risk	of	loss	passes	to	the	customer.	Recognition	of	revenue	also	requires reasonable	assurance	of	collection	of	sales	proceeds	and	completion	of	all	performance	obligations.	Domestically,	sales	discounts	are	issued	to	customers	as	direct discounts	at	the	point-of-sale	or	indirectly	through	an	intermediary	wholesaler,	known	as	chargebacks,	or	indirectly	in	the	form	of	rebates.	Additionally,	sales	are generally	made	with	a	limited	right	of	return	under	certain	conditions.	Revenues	are	recorded	net	of	provisions	for	sales	discounts	and	returns,	which	are	established	at the	time	of	sale.	In	addition,	revenues	are

recorded	net	of	time	value	of	money	discounts	for	customers	for	which	collection	of	accounts	receivable	is	expected	to	be	in	excess	of	one	year.

The	provision	for	aggregate	indirect	customer	discounts	covers	chargebacks	and	rebates.	Chargebacks	are	discounts	that	occur	when	a	contracted	customer purchases	directly	through	an	intermediary	wholesaler.	The	contracted	customer	generally	purchases	product	at	its	contracted	price	plus	a	mark-up	from	the	wholesaler. The	wholesaler,	in	turn,	charges	the	Company	back	for	the	difference	between	the	price	initially	paid	by	the	wholesaler	and	the	contract	price	paid	to	the	wholesaler	by the	customer.	The	provision	for	chargebacks	is	based	on	expected	sell-through	levels	by	the	Company's	wholesale	customers	to	contracted	customers,	as	well	as estimated	wholesaler	inventory	levels.	Rebates	are	amounts	owed	based	upon	definitive	contractual	agreements	or	legal	requirements	with	private	sector	and	public sector	(Medicaid	and	Medicare	Part	D)	benefit	providers,	after	the	final	dispensing	of	the	product	by	a	pharmacy	to	a	benefit	plan	participant.	The	provision	is	based	on expected	payments,	which	are	driven	by	patient	usage	and	contract	performance	by	the	benefit	provider	customers.

The	Company	uses	historical	customer	segment	mix,	adjusted	for	other	known	events,	in	order	to	estimate	the	expected	provision.	Amounts	accrued	for aggregate	 indirect	 customer	 discounts	 are	 evaluated	 on	 a	 quarterly	 basis	 through	 comparison	 of	 information	 provided	 by	 the	 wholesalers,	 health	 maintenance organizations,	pharmacy	benefit	managers	and	other	customers	to	the	amounts	accrued.	Adjustments	are	recorded	when	trends	or	significant	events	indicate	that	a	change in	the	estimated	provision	is	appropriate.

The	Company	continually	monitors	its	provision	for	aggregate	indirect	customer	discounts.	There	were	no	material	adjustments	to	estimates	associated	with the	aggregate	indirect	customer	discount	provision	in	2013,	2012	or	2011.

Summarized	information	about	changes	in	the	aggregate	indirect	customer	discount	accrual	is	as	follows:

| ($	in	millions) | 2013 | 2012 |
| :--- | :--- | :--- |
| Balance\tJanuary\t1 | $1,873 | $1,824 |
| Current\tprovision | 5,451 | 5,694 |
| Adjustments\tto\tprior\tyears | (70) | 89 |
| Payments | (5,566) | (5,734) |
| Balance\tDecember\t31 | $1,688 | $1,873 |

Accruals	for	chargebacks	are	reflected	as	a	direct	reduction	to	accounts	receivable	and	accruals	for	rebates	as	current	liabilities.	The	accrued	balances	relative to	these	provisions	included	in	Accounts	receivable	and	Accrued	and	other	current	liabilities	were	$87	million	and	$1.6	billion,	respectively,	at	December	31,	2013	and were	$120	million	and	$1.8	billion,	respectively,	at	December	31,	2012.

The	Company	maintains	a	returns	policy	that	allows	its	U.S.	pharmaceutical	customers	to	return	product	within	a	specified	period	prior	to	and	subsequent	to the	expiration	date	(generally,	three	to	six	months	before	and	12	months	after	product	expiration).	The	estimate	of	the	provision	for	returns	is	based	upon	historical experience	with	actual	returns.	Additionally,	the	Company	considers	factors	such	as	levels	of	inventory	in	the	distribution	channel,	product	dating	and	expiration	period, whether	products	have	been	discontinued,	entrance	in	the	market	of	additional	generic	competition,	changes	in	formularies	or	launch	of	over-the-counter	products, among	others.	The	product	returns	provision	for	U.S.	pharmaceutical	sales	as	a	percentage	of	U.S.	net	pharmaceutical	sales	was	1.5%	in	2013,	1.4%	in	2012	and	1.3%	in 2011.

Through	its	distribution	programs	with	U.S.	wholesalers,	the	Company	encourages	wholesalers	to	align	purchases	with	underlying	demand	and	maintain inventories	below	specified	levels.	The	terms	of	the	programs	allow	the	wholesalers	to	earn	fees	upon	providing	visibility	into	their	inventory	levels,	as	well	as	by achieving	certain	performance	parameters	such	as	inventory	management,	customer	service	levels,	reducing	shortage	claims	and	reducing	product	returns.	Information provided	through	the	wholesaler	distribution	programs	includes	items	such	as	sales	trends,	inventory	on-hand,	on-order	quantity	and	product	returns.

Wholesalers	generally	provide	only	the	above	mentioned	data	to	the	Company,	as	there	is	no	regulatory	requirement	to	report	lot	level	information	to manufacturers,	which	is	the	level	of	information	needed	to	determine	the	remaining	shelf	life	and	original	sale	date	of	inventory.	Given	current	wholesaler	inventory levels,	which	are	generally	less	than	a	month,	the	Company	believes	that	collection	of	order	lot	information	across	all	wholesale	customers	would	have	limited	use	in estimating	sales	discounts	and	returns.

# Inventories	Produced	in	Preparation	for	Product	Launches

The	 Company	 capitalizes	 inventories	 produced	 in	 preparation	 for	 product	 launches	 sufficient	 to	 support	 estimated	 initial	 market	 demand.	 Typically, capitalization	of	such	inventory	does	not	begin	until	the	related	product	candidates	are	in	Phase	3	clinical	trials	and	are	considered	to	have	a	high	probability	of regulatory	approval.	The	Company	monitors	the	status	of	each	respective	product	within	the	regulatory	approval	process;	however,	the	Company	generally	does	not disclose	specific	timing	for	regulatory	approval.	If	the	Company	is	aware	of	any	specific	risks	or	contingencies	other	than	the	normal	regulatory	approval	process	or	if there	are	any	specific	issues	identified	during	the	research	process	relating	to	safety,	efficacy,	manufacturing,	marketing	or	labeling,	the	related	inventory	would generally	not	be	capitalized.	Expiry	dates	of	the	inventory	are	affected	by	the	stage	of	completion.	The	Company	manages	the	levels	of	inventory	at	each	stage	to optimize	the	shelf	life	of	the	inventory	in	relation	to	anticipated	market	demand	in	order	to	avoid	product	expiry	issues.	For	inventories	that	are	capitalized,	anticipated future	sales	and	shelf	lives	support	the	realization	of	the	inventory	value	as	the	inventory	shelf	life	is	sufficient	to	meet	initial	product	launch	requirements.	Inventories produced	in	preparation	for	product	launches	capitalized	at	December	31,	2013	and	2012	were	$177	million	and	$196	million,	respectively.

# Contingencies	and	Environmental	Liabilities

The	Company	is	involved	in	various	claims	and	legal	proceedings	of	a	nature	considered	normal	to	its	business,	including	product	liability,	intellectual property	and	commercial	litigation,	as	well	as	additional	matters	such	as	antitrust	actions	(see	Note	10	to	the	consolidated	financial	statements.)	The	Company	records accruals	for	contingencies	when	it	is	probable	that	a	liability	has	been	incurred	and	the	amount	can	be	reasonably	estimated.	These	accruals	are	adjusted	periodically	as assessments	change	or	additional	information	becomes	available.	For	product	liability	claims,	a	portion	of	the	overall	accrual	is	actuarially	determined	and	considers such	factors	as	past	experience,	number	of	claims	reported	and	estimates	of	claims	incurred	but	not	yet	reported.	Individually	significant	contingent	losses	are	accrued when	probable	and	reasonably	estimable.

Legal	defense	costs	expected	to	be	incurred	in	connection	with	a	loss	contingency	are	accrued	when	probable	and	reasonably	estimable.	Some	of	the significant	factors	considered	in	the	review	of	these	legal	defense	reserves	are	as	follows:	the	actual	costs	incurred	by	the	Company;	the	development	of	the	Company's legal	defense	strategy	and	structure	in	light	of	the	scope	of	its	litigation;	the	number	of	cases	being	brought	against	the	Company;	the	costs	and	outcomes	of	completed trials	and	the	most	current	information	regarding	anticipated	timing,	progression,	and	related	costs	of	pre-trial	activities	and	trials	in	the	associated	litigation.	The	amount of	legal	defense	reserves	as	of	December	31,	2013	and	2012	of	approximately	$160	million	and	$260	million,	respectively,	represents	the	Company's	best	estimate	of the	minimum	amount	of	defense	costs	to	be	incurred	in	connection	with	its	outstanding	litigation;	however,	events	such	as	additional	trials	and	other	events	that	could arise	in	the	course	of	its	litigation	could	affect	the	ultimate	amount	of	legal	defense	costs	to	be	incurred	by	the	Company.	The	Company	will	continue	to	monitor	its	legal defense	costs	and	review	the	adequacy	of	the	associated	reserves	and	may	determine	to	increase	the	reserves	at	any	time	in	the	future	if,	based	upon	the	factors	set	forth, it	believes	it	would	be	appropriate	to	do	so.

The	Company	and	its	subsidiaries	are	parties	to	a	number	of	proceedings	brought	under	the	Comprehensive	Environmental	Response,	Compensation	and Liability	Act,	commonly	known	as	Superfund,	and	other	federal	and	state	equivalents.	When	a	legitimate	claim	for	contribution	is	asserted,	a	liability	is	initially	accrued based	upon	the	estimated	transaction	costs	to	manage	the	site.	Accruals	are	adjusted	as	site	investigations,	feasibility	studies	and	related	cost	assessments	of	remedial techniques	are	completed,	and	as	the	extent	to	which	other	potentially	responsible	parties	who	may	be	jointly	and	severally	liable	can	be	expected	to	contribute	is determined.

The	Company	is	also	remediating	environmental	contamination	resulting	from	past	industrial	activity	at	certain	of	its	sites	and	takes	an	active	role	in identifying	and	providing	for	these	costs.	In	the	past,	Merck	performed	a	worldwide	survey	to	assess	all	sites	for	potential	contamination	resulting	from	past	industrial activities.	Where	assessment	indicated	that	physical	investigation	was	warranted,	such	investigation	was	performed,	providing	a	better	evaluation	of	the	need	for remedial	action.	Where	such	need	was	identified,	remedial	action	was	then	initiated.	As	definitive	information	became	available	during	the	course	of	investigations and/or	remedial	efforts	at	each	site,	estimates	were	refined	and	accruals	were	established	or	adjusted	accordingly.	These	estimates	and	related	accruals	continue	to	be refined	annually.

The	Company	believes	that	there	are	no	compliance	issues	associated	with	applicable	environmental	laws	and	regulations	that	would	have	a	material	adverse effect	on	the	Company.	Expenditures	for	remediation	and

environmental	liabilities	were	$20	million	in	2013,	and	are	estimated	at	$117	million	in	the	aggregate	for	the	years	2014	through	2018.	In	management's	opinion,	the liabilities	for	all	environmental	matters	that	are	probable	and	reasonably	estimable	have	been	accrued	and	totaled	$213	million	and	$145	million	at	December	31,	2013 and	2012,	respectively.	These	liabilities	are	undiscounted,	do	not	consider	potential	recoveries	from	other	parties	and	will	be	paid	out	over	the	periods	of	remediation	for the	applicable	sites,	which	are	expected	to	occur	primarily	over	the	next	15	years.	Although	it	is	not	possible	to	predict	with	certainty	the	outcome	of	these	matters,	or	the ultimate	costs	of	remediation,	management	does	not	believe	that	any	reasonably	possible	expenditures	that	may	be	incurred	in	excess	of	the	liabilities	accrued	should exceed	$84	million	in	the	aggregate.	Management	also	does	not	believe	that	these	expenditures	should	result	in	a	material	adverse	effect	on	the	Company's	financial position,	results	of	operations,	liquidity	or	capital	resources	for	any	year.

# Share-Based	Compensation

The	Company	expenses	all	share-based	payment	awards	to	employees,	including	grants	of	stock	options,	over	the	requisite	service	period	based	on	the	grant date	fair	value	of	the	awards.	The	Company	determines	the	fair	value	of	certain	share-based	awards	using	the	Black-Scholes	option-pricing	model	which	uses	both historical	and	current	market	data	to	estimate	the	fair	value.	This	method	incorporates	various	assumptions	such	as	the	risk-free	interest	rate,	expected	volatility,	expected dividend	yield	and	expected	life	of	the	options.	Total	pretax	share-based	compensation	expense	was	$276	million	in	2013,	$335	million	in	2012	 and	$369	million	in 2011.	At	December	31,	2013,	there	was	$374	million	of	total	pretax	unrecognized	compensation	expense	related	to	nonvested	stock	option,	restricted	stock	unit	and performance	share	unit	awards	which	will	be	recognized	over	a	weighted	average	period	of	1.9	years.	For	segment	reporting,	share-based	compensation	costs	are unallocated	expenses.

# Pensions	and	Other	Postretirement	Benefit	Plans

Net	periodic	benefit	cost	for	pension	and	other	postretirement	benefit	plans	totaled	$716	million	in	2013,	$509	million	in	2012	 and	$665	million	 in	2011. Pension	and	other	postretirement	benefit	plan	information	for	financial	reporting	purposes	is	calculated	using	actuarial	assumptions	including	a	discount	rate	for	plan benefit	obligations	and	an	expected	rate	of	return	on	plan	assets.

The	Company	reassesses	its	benefit	plan	assumptions	on	a	regular	basis.	For	both	the	pension	and	other	postretirement	benefit	plans,	the	discount	rate	is evaluated	on	measurement	dates	and	modified	to	reflect	the	prevailing	market	rate	of	a	portfolio	of	high-quality	fixed-income	debt	instruments	that	would	provide	the future	cash	flows	needed	 to	pay	 the	benefits	 included	 in	 the	benefit	obligation	as	 they	come	due.	At	December	31,	2013,	 the	discount	rates	for	 the	Company's U.S.	pension	and	other	postretirement	benefit	plans	ranged	from	3.60%	to	5.20%	compared	with	a	range	of	3.00%	to	4.20%	at	December	31,	2012.

The	expected	rate	of	return	for	both	the	pension	and	other	postretirement	benefit	plans	represents	the	average	rate	of	return	to	be	earned	on	plan	assets	over the	period	 the	benefits	 included	 in	 the	benefit	obligation	are	 to	be	paid.	In	developing	 the	expected	rate	of	return,	 the	Company	considers	 long-term	compound annualized	returns	of	historical	market	data	as	well	as	actual	returns	on	the	Company's	plan	assets.	Using	this	reference	information,	the	Company	develops	forward- looking	return	expectations	for	each	asset	category	and	a	weighted-average	expected	long-term	rate	of	return	for	a	target	portfolio	allocated	across	these	investment categories.	The	expected	portfolio	performance	reflects	the	contribution	of	active	management	as	appropriate.	As	a	result	of	this	analysis,	for	2014,	the	Company's expected	rate	of	return	will	range	from	7.30%	to	8.75%	compared	to	a	range	of	6.00%	to	8.75%	in	2013	for	its	U.S.	pension	and	other	postretirement	benefit	plans.

The	Company	has	established	investment	guidelines	for	its	U.S.	pension	and	other	postretirement	plans	to	create	an	asset	allocation	that	is	expected	to	deliver a	rate	of	return	sufficient	to	meet	the	long-term	obligation	of	each	plan,	given	an	acceptable	level	of	risk.	The	target	investment	portfolio	of	the	Company's	U.S.	pension and	other	postretirement	benefit	plans	is	allocated	40%	to	60%	in	U.S.	equities,	20%	to	40%	in	international	equities,	15%	to	25%	in	fixed-income	investments,	and	up	to 5%	in	cash	and	other	investments.	The	portfolio's	equity	weighting	is	consistent	with	the	long-term	nature	of	the	plans'	benefit	obligations.	The	expected	annual	standard deviation	of	returns	of	the	target	portfolio,	which	approximates	13%,	reflects	both	the	equity	allocation	and	the	diversification	benefits	among	the	asset	classes	in	which the	portfolio	invests.	For	non-U.S.	pension	plans,	the	targeted	investment	portfolio	varies	based	on	the	duration	of	pension	liabilities	and	local	government	rules	and regulations.	Although	a	significant	percentage	of	plan	assets	are	invested	in	U.S.	equities,	concentration	risk	is	mitigated	through	the	use	of	strategies	that	are	diversified within	management	guidelines.

Actuarial	assumptions	are	based	upon	management's	best	estimates	and	judgment.	A	reasonably	possible	change	of	plus	(minus)	25	basis	points	in	the discount	rate	assumption,	with	other	assumptions	held	constant,	would	have	an	estimated	$87	million	favorable	(unfavorable)	impact	on	its	net	periodic	benefit	cost.	A reasonably	possible	change	of	plus	(minus)	25	basis	points	in	the	expected	rate	of	return	assumption,	with	other	assumptions	held	constant,	would	have	an	estimated $39	million	favorable	(unfavorable)	 impact	on	 its	 net	 periodic	 benefit	 cost.	 Required	 funding	 obligations	 for	2014	relating	 to	 the	 Company's	 pension	 and	 other postretirement	benefit	plans	are	not	expected	to	be	material.	The	preceding	hypothetical	changes	in	the	discount	rate	and	expected	rate	of	return	assumptions	would	not impact	the	Company's	funding	requirements.

Net	loss	amounts,	which	reflect	experience	differentials	primarily	relating	to	differences	between	expected	and	actual	returns	on	plan	assets	as	well	as	the effects	of	changes	in	actuarial	assumptions,	are	recorded	as	a	component	of	AOCI.	Expected	returns	for	pension	plans	are	based	on	a	calculated	market-related	value	of assets.	Under	this	methodology,	asset	gains/losses	resulting	from	actual	returns	that	differ	from	the	Company's	expected	returns	are	recognized	in	the	market-related value	of	assets	ratably	over	a	five-year	period.	Also,	net	loss	amounts	in	AOCI	in	excess	of	certain	thresholds	are	amortized	into	net	periodic	benefit	cost	over	the	average remaining	service	life	of	employees.

Restructuring	costs	have	been	recorded	in	connection	with	restructuring	programs	designed	to	reduce	the	cost	structure,	increase	efficiency	and	enhance competitiveness.	As	a	result,	the	Company	has	made	estimates	and	judgments	regarding	its	future	plans,	including	future	termination	benefits	and	other	exit	costs	to	be incurred	when	the	restructuring	actions	take	place.	When	accruing	these	costs,	the	Company	will	recognize	the	amount	within	a	range	of	costs	that	is	the	best	estimate within	the	range.	When	no	amount	within	the	range	is	a	better	estimate	than	any	other	amount,	the	Company	recognizes	the	minimum	amount	within	the	range.	In connection	with	these	actions,	management	also	assesses	the	recoverability	of	long-lived	assets	employed	in	the	business.	In	certain	instances,	asset	lives	have	been shortened	based	on	changes	in	the	expected	useful	lives	of	the	affected	assets.	Severance	and	other	related	costs	are	reflected	within	Restructuring	costs.	Asset-related charges	are	reflected	within	Materials	and	production	costs,	Marketing	and	administrative	expenses	and	Research	and	development	expenses	depending	upon	the	nature of	the	asset.

# Impairments	of	Long-Lived	Assets

The	Company	assesses	changes	in	economic,	regulatory	and	legal	conditions	and	makes	assumptions	regarding	estimated	future	cash	flows	in	evaluating	the value	of	the	Company's	property,	plant	and	equipment,	goodwill	and	other	intangible	assets.

The	Company	periodically	evaluates	whether	current	facts	or	circumstances	indicate	that	the	carrying	values	of	its	long-lived	assets	to	be	held	and	used	may not	be	recoverable.	If	such	circumstances	are	determined	to	exist,	an	estimate	of	the	undiscounted	future	cash	flows	of	these	assets,	or	appropriate	asset	groupings,	is compared	to	the	carrying	value	to	determine	whether	an	impairment	exists.	If	the	asset	is	determined	to	be	impaired,	the	loss	is	measured	based	on	the	difference between	the	asset's	fair	value	and	its	carrying	value.	If	quoted	market	prices	are	not	available,	the	Company	will	estimate	fair	value	using	a	discounted	value	of estimated	future	cash	flows	approach.

Goodwill	represents	the	excess	of	the	consideration	transferred	over	the	fair	value	of	net	assets	of	businesses	purchased	and	is	assigned	to	reporting	units.	The Company	tests	its	goodwill	for	impairment	on	at	least	an	annual	basis,	or	more	frequently	if	impairment	indicators	exist,	by	first	assessing	qualitative	factors	to determine	whether	it	is	more	likely	than	not	that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount.	Some	of	the	factors	considered	in	the	assessment include	general	macro	economic	conditions,	conditions	specific	to	the	industry	and	market,	cost	factors	which	could	have	a	significant	effect	on	earnings	or	cash	flows, the	overall	financial	performance	of	the	reporting	unit,	and	whether	there	have	been	sustained	declines	in	the	Company's	share	price.	Additionally,	the	Company evaluates	the	extent	to	which	the	fair	value	exceeded	the	carrying	value	of	the	reporting	unit	at	the	last	date	a	valuation	was	performed.	If	the	Company	concludes	it	is more	likely	than	not	that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount,	a	quantitative	fair	value	test	is	performed.

Other	acquired	intangibles	(excluding	IPR&D)	are	recorded	at	fair	value,	assigned	an	estimated	useful	life,	and	are	amortized	primarily	on	a	straight-line basis	over	their	estimated	useful	lives.	When	events	or	circumstances	warrant	a	review,	the	Company	will	assess	recoverability	from	future	operations	using	pretax undiscounted	cash	flows	derived	from	the	lowest	appropriate	asset	groupings.	Impairments	are	recognized	in	operating	results	to	the	extent	that

the	carrying	value	of	the	intangible	asset	exceeds	its	fair	value,	which	is	determined	based	on	the	net	present	value	of	estimated	future	cash	flows.

IPR&D	represents	the	fair	value	assigned	to	incomplete	research	projects	that	the	Company	acquires	through	business	combinations	which,	at	the	time	of acquisition,	have	not	reached	technological	feasibility.	The	amounts	are	capitalized	and	accounted	for	as	indefinite-lived	intangible	assets,	subject	to	impairment	testing until	completion	or	abandonment	of	the	project.	The	Company	tests	IPR&D	for	impairment	at	least	annually,	or	more	frequently	if	impairment	indicators	exist,	by	first assessing	qualitative	factors	to	determine	whether	it	is	more	likely	than	not	that	the	fair	value	of	the	IPR&D	intangible	asset	is	less	than	its	carrying	amount.	If	the Company	concludes	it	is	more	likely	than	not	that	the	fair	value	is	less	than	the	carrying	amount,	a	quantitative	test	that	compares	the	fair	value	of	the	IPR&D	intangible asset	with	its	carrying	value	is	performed.	For	impairment	testing	purposes,	the	Company	may	combine	separately	recorded	IPR&D	intangible	assets	into	one	unit	of account	based	on	the	relevant	facts	and	circumstances.	Generally,	the	Company	will	combine	IPR&D	intangible	assets	for	testing	purposes	if	they	operate	as	a	single asset	and	are	essentially	inseparable.	If	the	fair	value	is	less	than	the	carrying	amount,	an	impairment	loss	is	recognized	within	the	Company's	operating	results.

# Impairments	of	Investments

The	Company	reviews	its	investments	for	impairments	based	on	the	determination	of	whether	the	decline	in	market	value	of	the	investment	below	the carrying	value	is	other-than-temporary.	The	Company	considers	available	evidence	in	evaluating	potential	impairments	of	its	investments,	including	the	duration	and extent	to	which	fair	value	is	less	than	cost	and,	for	equity	securities,	the	Company's	ability	and	intent	to	hold	the	investments.	For	debt	securities,	an	other-than- temporary	impairment	has	occurred	if	the	Company	does	not	expect	to	recover	the	entire	amortized	cost	basis	of	the	debt	security.	If	the	Company	does	not	intend	to	sell the	impaired	debt	security,	and	it	is	not	more	likely	than	not	it	will	be	required	to	sell	the	debt	security	before	the	recovery	of	its	amortized	cost	basis,	the	amount	of	the other-than-temporary	impairment	recognized	in	earnings	is	limited	to	the	portion	attributed	to	credit	loss.	The	remaining	portion	of	the	other-than-temporary	impairment related	to	other	factors	is	recognized	in	OCI.

The	Company's	effective	tax	rate	is	based	on	pretax	income,	statutory	tax	rates	and	tax	planning	opportunities	available	in	the	various	jurisdictions	in	which the	Company	operates.	An	estimated	effective	tax	rate	for	a	year	is	applied	to	the	Company's	quarterly	operating	results.	In	the	event	that	there	is	a	significant	unusual	or one-time	item	recognized,	or	expected	to	be	recognized,	in	the	Company's	quarterly	operating	results,	the	tax	attributable	to	that	item	would	be	separately	calculated	and recorded	at	the	same	time	as	the	unusual	or	one-time	item.	The	Company	considers	the	resolution	of	prior	year	tax	matters	to	be	such	items.	Significant	judgment	is required	in	determining	the	Company's	tax	provision	and	in	evaluating	its	tax	positions.	The	recognition	and	measurement	of	a	tax	position	is	based	on	management's best	judgment	given	the	facts,	circumstances	and	information	available	at	the	reporting	date.	The	Company	evaluates	tax	positions	to	determine	whether	the	benefits	of tax	positions	are	more	likely	than	not	of	being	sustained	upon	audit	based	on	the	technical	merits	of	the	tax	position.	For	tax	positions	that	are	more	likely	than	not	of being	sustained	upon	audit,	the	Company	recognizes	the	largest	amount	of	the	benefit	that	is	greater	than	50%	likely	of	being	realized	upon	ultimate	settlement	in	the financial	statements.	For	tax	positions	that	are	not	more	likely	than	not	of	being	sustained	upon	audit,	the	Company	does	not	recognize	any	portion	of	the	benefit	in	the financial	statements.	If	the	more	likely	than	not	threshold	is	not	met	in	the	period	for	which	a	tax	position	is	taken,	the	Company	may	subsequently	recognize	the	benefit of	that	tax	position	if	the	tax	matter	is	effectively	settled,	the	statute	of	limitations	expires,	or	if	the	more	likely	than	not	threshold	is	met	in	a	subsequent	period	(see Note	15	to	the	consolidated	financial	statements.)

Tax	regulations	require	items	to	be	included	in	the	tax	return	at	different	times	than	the	items	are	reflected	in	the	financial	statements.	Timing	differences create	deferred	tax	assets	and	liabilities.	Deferred	tax	assets	generally	represent	items	that	can	be	used	as	a	tax	deduction	or	credit	in	the	tax	return	in	future	years	for which	the	Company	has	already	recorded	the	tax	benefit	in	the	financial	statements.	The	Company	establishes	valuation	allowances	for	its	deferred	tax	assets	when	the amount	of	expected	future	taxable	income	is	not	likely	to	support	the	use	of	the	deduction	or	credit.	Deferred	tax	liabilities	generally	represent	tax	expense	recognized	in the	financial	statements	for	which	payment	has	been	deferred	or	expense	for	which	the	Company	has	already	taken	a	deduction	on	the	tax	return,	but	has	not	yet recognized	as	expense	in	the	financial	statements.	At	December	31,	2013,	foreign	earnings	of	$57.1	billion	have	been	retained	indefinitely	by	subsidiary	companies	for reinvestment;	therefore,	no	provision	has	been	made	for	income

taxes	that	would	be	payable	upon	the	distribution	of	such	earnings	and	it	would	not	be	practicable	to	determine	the	amount	of	the	related	unrecognized	deferred	income tax	liability.

This	report	and	other	written	reports	and	oral	statements	made	from	time	to	time	by	the	Company	may	contain	so-called	"forward-looking	statements,"	all	of which	are	based	on	management's	current	expectations	and	are	subject	to	risks	and	uncertainties	which	may	cause	results	to	differ	materially	from	those	set	forth	in	the statements.	One	can	identify	these	forward-looking	statements	by	their	use	of	words	such	as	"anticipates,"	"expects,"	"plans,"	"will,"	"estimates,"	"forecasts,"	"projects" and	other	words	of	similar	meaning.	One	can	also	identify	them	by	the	fact	that	they	do	not	relate	strictly	to	historical	or	current	facts.	These	statements	are	likely	to address	the	Company's	growth	strategy,	financial	results,	product	development,	product	approvals,	product	potential	and	development	programs.	One	must	carefully consider	any	such	statement	and	should	understand	that	many	factors	could	cause	actual	results	to	differ	materially	from	the	Company's	forward-looking	statements. These	factors	include	inaccurate	assumptions	and	a	broad	variety	of	other	risks	and	uncertainties,	including	some	that	are	known	and	some	that	are	not.	No	forward- looking	statement	can	be	guaranteed	and	actual	future	results	may	vary	materially.

The	Company	does	not	assume	the	obligation	to	update	any	forward-looking	statement.	One	should	carefully	evaluate	such	statements	in	light	of	factors, including	risk	factors,	described	in	the	Company's	filings	with	the	Securities	and	Exchange	Commission,	especially	on	this	Form	10-K	and	Forms	10-Q	and	8-K.	In Item	1A.	"Risk	Factors"	of	this	annual	report	on	Form	10-K	the	Company	discusses	in	more	detail	various	important	risk	factors	that	could	cause	actual	results	to	differ from	expected	or	historic	results.	The	Company	notes	these	factors	for	investors	as	permitted	by	the	Private	Securities	Litigation	Reform	Act	of	1995.	One	should understand	that	it	is	not	possible	to	predict	or	identify	all	such	factors.	Consequently,	the	reader	should	not	consider	any	such	list	to	be	a	complete	statement	of	all potential	risks	or	uncertainties.

# Item	7a. Quantitative	and	Qualitative	Disclosures	about	Market	Risk.

The	information	required	by	this	Item	is	incorporated	by	reference	to	the	discussion	under	"Financial	Instruments	Market	Risk	Disclosures"	in	Item	7. "Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations."

# Item	8. Financial	Statements	and	Supplementary

# Data.

# (a) Financial

# Statements

The	consolidated	balance	sheet	of	Merck	&	Co.,	Inc.	and	subsidiaries	as	of	December	31,	2013	and	2012,	and	the	related	consolidated	statements	of	income,	of comprehensive	income,	of	equity	and	of	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2013,	the	notes	to	consolidated	financial	statements,	and the	report	dated	February	27,	2014	of	PricewaterhouseCoopers	LLP,	independent	registered	public	accounting	firm,	are	as	follows:

# Consolidated	Statement	of	Income

The	accompanying	notes	are	an	integral	part	of	these	consolidated	financial	statements.

# Consolidated	Balance	Sheet

# December	31

|  | 2013 | 2012 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tAssets |  |  |
| Cash\tand\tcash\tequivalents | $15,621 | $13,451 |
| Short-term\tinvestments | 1,865 | 2,690 |
| Accounts\treceivable\t(net\tof\tallowance\tfor\tdoubtful\taccounts\tof\t$146\tin\t2013 |  |  |
| and\t$163\tin\t2012)\t(excludes\taccounts\treceivable\tof\t$275\tin\t2013\tand\t$473 |  |  |
| in\t2012\tclassified\tin\tOther\tassets\t-\tsee\tNote\t5) | 7,184 | 7,672 |
| Inventories\t(excludes\tinventories\tof\t$1,704\tin\t2013\tand\t$1,606\nin\t2012\tclassified\tin\tOther\tassets\t-\tsee\tNote\t6) | 6,226 | 6,535 |
| Deferred\tincome\ttaxes\tand\tother\tcurrent\tassets | 4,789 | 4,509 |
| Total\tcurrent\tassets | 35,685 | 34,857 |
| Investments | 9,770 | 7,305 |
| Property,\tPlant\tand\tEquipment\t(at\tcost) |  |  |
| Land | 550 | 591 |
| Buildings | 13,627 | 13,196 |
| Machinery,\tequipment\tand\toffice\tfurnishings | 17,106 | 17,188 |
| Construction\tin\tprogress | 1,811 | 2,440 |
|  | 33,094 | 33,415 |
| Less:\taccumulated\tdepreciation | 18,121 | 17,385 |
|  | 14,973 | 16,030 |
| Goodwill | 12,301 | 12,134 |
| Other\tIntangibles,\tNet | 23,801 | 29,083 |
| Other\tAssets | 9,115 | 6,723 |
|  | $105,645 | $106,132 |
| Liabilities\tand\tEquity |  |  |
| Current\tLiabilities |  |  |
| Loans\tpayable\tand\tcurrent\tportion\tof\tlong-term\tdebt | $4,521 | $4,315 |
| Trade\taccounts\tpayable | 2,274 | 1,753 |
| Accrued\tand\tother\tcurrent\tliabilities | 9,501 | 9,737 |
| Income\ttaxes\tpayable | 251 | 1,200 |
| Dividends\tpayable | 1,321 | 1,343 |
| Total\tcurrent\tliabilities | 17,868 | 18,348 |
| Long-Term\tDebt | 20,539 | 16,254 |
| Deferred\tIncome\tTaxes | 6,776 | 5,740 |
| Other\tNoncurrent\tLiabilities | 8,136 | 10,327 |
| Merck\t&amp;\tCo.,\tInc.\tStockholders'\tEquity |  |  |
| Common\tstock,\t$0.50\tpar\tvalue |  |  |
| Authorized\t-\t6,500,000,000\tshares |  |  |
| Issued\t-\t3,577,103,522\tshares\tin\t2013\tand\t2012 | 1,788 | 1,788 |
| Other\tpaid-in\tcapital | 40,508 | 40,646 |
| Retained\tearnings | 39,257 | 39,985 |
| Accumulated\tother\tcomprehensive\tloss | (2,197) | (4,682) |
|  | 79,356 | 77,737 |
| Less\ttreasury\tstock,\tat\tcost:\n649,576,808\tshares\tin\t2013\tand\t550,468,221\tshares\tin\t2012 | 29,591 | 24,717 |
| Total\tMerck\t&amp;\tCo.,\tInc.\tstockholders'\tequity | 49,765 | 53,020 |
| Noncontrolling\tInterests | 2,561 | 2,443 |
| Total\tequity | 52,326 | 55,463 |
|  | $105,645 | $106,132 |

The	accompanying	notes	are	an	integral	part	of	this	consolidated	financial	statement.

# Consolidated	Statement	of	Equity

# Years	Ended	December	31

| Common<br>Stock | Other<br>Paid-In<br>Capital | Retained<br>Earnings | Accumulated<br>Other<br>Comprehensive<br>Loss | Treasury<br>Stock | Non-<br>controlling<br>Interests | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| $1,788 | $40,701 | $37,536 | $(3,216) | $(22,433) | $2,429 | $56,805 |
| — | — | 6,272 | — | — | — | 6,272 |
| — | — | — | 84 | — | — | 84 |
| — | — | (4,818) | — | — | — | (4,818) |
| — | — | — | — | (1,921) |  | (1,921) |
| — | — | — | — | — | 120 | 120 |
| — | — | — | — |  | (120) | (120) |
| — | (38) | — | — | 562 | (3) | 521 |
| 1,788 | 40,663 | 38,990 | (3,132) | (23,792) | 2,426 | 56,943 |
| — | — | 6,168 | — | — | — | 6,168 |
| — | — | — | (1,550) | — | — | (1,550) |
| — | — | (5,173) | — | — | — | (5,173) |
| — | — | — | — | (2,591) | — | (2,591) |
| — | — | — | — | — | 131 | 131 |
| — | — | — | — | — | (120) | (120) |
| — | (17) | — | — | 1,666 | 6 | 1,655 |
| 1,788 | 40,646 | 39,985 | (4,682) | (24,717) | 2,443 | 55,463 |
| — | — | 4,404 | — | — | — | 4,404 |
| — | — | — | 2,485 | — | — | 2,485 |
| — | — | (5,132) | — | — | — | (5,132) |
| — | — | — | — | (6,516) | — | (6,516) |
| — | 116 | — | — | — | 112 | 228 |
| — | — | — | — | — | 113 | 113 |
| — | — | — | — | — | (120) | (120) |
| — | (254) | — | — | 1,642 | 13 | 1,401 |
| $1,788 | $40,508 | $39,257 | $(2,197) | $(29,591) | $2,561 | $52,326 |

# Consolidated	Statement	of	Cash	Flows

# ($	in	millions)

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Cash\tFlows\tfrom\tOperating\tActivities |  |  |  |
| Net\tincome | $4,517 | $6,299 | $6,392 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 6,988 | 6,978 | 7,427 |
| Intangible\tasset\timpairment\tcharges | 765 | 200 | 705 |
| Gain\ton\tdisposition\tof\tinterest\tin\tequity\tmethod\tinvestment | — | — | (136) |
| Equity\tincome\tfrom\taffiliates | (404) | (642) | (610) |
| Dividends\tand\tdistributions\tfrom\tequity\taffiliates | 237 | 291 | 216 |
| Deferred\tincome\ttaxes | (330) | 669 | (1,537) |
| Share-based\tcompensation | 276 | 335 | 369 |
| Other | 399 | 28 | 323 |
| Net\tchanges\tin\tassets\tand\tliabilities: |  |  |  |
| Accounts\treceivable | 436 | 349 | (1,168) |
| Inventories | (365) | (482) | (678) |
| Trade\taccounts\tpayable | 522 | (302) | 182 |
| Accrued\tand\tother\tcurrent\tliabilities | (397) | (717) | 1,444 |
| Income\ttaxes\tpayable | (1,421) | (34) | (277) |
| Noncurrent\tliabilities | (132) | (1,747) | (7) |
| Other | 563 | (1,203) | (262) |
| Net\tCash\tProvided\tby\tOperating\tActivities | 11,654 | 10,022 | 12,383 |
| Cash\tFlows\tfrom\tInvesting\tActivities |  |  |  |
| Capital\texpenditures | (1,548) | (1,954) | (1,723) |
| Purchases\tof\tsecurities\tand\tother\tinvestments | (17,991) | (12,841) | (7,325) |
| Proceeds\tfrom\tsales\tof\tsecurities\tand\tother\tinvestments | 16,298 | 7,783 | 6,149 |
| Proceeds\tfrom\tsale\tof\tinterest\tin\tequity\tmethod\tinvestment | — | — | 175 |
| Acquisitions\tof\tbusinesses,\tnet\tof\tcash\tacquired | (246) | — | (373) |
| Dispositions\tof\tbusinesses,\tnet\tof\tcash\tdivested | 46 | — | 323 |
| Cash\tinflows\t(outflows)\tfrom\tnet\tinvestment\thedges | 350 | 39 | (86) |
| Other | (57) | 168 | (30) |
| Net\tCash\tUsed\tin\tInvesting\tActivities | (3,148) | (6,805) | (2,890) |
| Cash\tFlows\tfrom\tFinancing\tActivities |  |  |  |
| Net\tchange\tin\tshort-term\tborrowings | (159) | 624 | 1,076 |
| Payments\ton\tdebt | (1,775) | (22) | (1,547) |
| Proceeds\tfrom\tissuance\tof\tdebt | 6,467 | 2,562 | — |
| Purchases\tof\ttreasury\tstock | (6,516) | (2,591) | (1,921) |
| Dividends\tpaid\tto\tstockholders | (5,157) | (5,116) | (4,691) |
| Other\tdividends\tpaid | (120) | (120) | (120) |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 1,210 | 1,310 | 321 |
| Other | 60 | 86 | (22) |
| Net\tCash\tUsed\tin\tFinancing\tActivities | (5,990) | (3,267) | (6,904) |
| Effect\tof\tExchange\tRate\tChanges\ton\tCash\tand\tCash\tEquivalents | (346) | (30) | 42 |
| Net\tIncrease\t(Decrease)\tin\tCash\tand\tCash\tEquivalents | 2,170 | (80) | 2,631 |
| Cash\tand\tCash\tEquivalents\tat\tBeginning\tof\tYear | 13,451 | 13,531 | 10,900 |
| Cash\tand\tCash\tEquivalents\tat\tEnd\tof\tYear | $15,621 | $13,451 | $13,531 |

# Notes	to	Consolidated	Financial	Statements

# 1.				Nature	of	Operations

# 2.				Summary	of	Accounting	Policies

Principles	of	Consolidation	—	The	consolidated	financial	statements	include	the	accounts	of	the	Company	and	all	of	its	subsidiaries	in	which	a	controlling interest	is	maintained.	Intercompany	balances	and	transactions	are	eliminated.	Controlling	interest	is	determined	by	majority	ownership	interest	and	the	absence	of substantive	third-party	participating	rights	or,	in	the	case	of	variable	interest	entities,	by	majority	exposure	to	expected	losses,	residual	returns	or	both.	For	those consolidated	subsidiaries	where	Merck	ownership	is	less	than	100%,	the	outside	shareholders'	interests	are	shown	as	Noncontrolling	interests	in	equity.	Investments	in affiliates	over	which	the	Company	has	significant	influence	but	not	a	controlling	interest,	such	as	interests	in	entities	owned	equally	by	the	Company	and	a	third	party that	are	under	shared	control,	are	carried	on	the	equity	basis.

Mergers	and	Acquisitions	—	In	a	business	combination,	the	acquisition	method	of	accounting	requires	that	the	assets	acquired	and	liabilities	assumed	be recorded	as	of	the	date	of	the	merger	or	acquisition	at	their	respective	fair	values	with	limited	exceptions.	Assets	acquired	and	liabilities	assumed	in	a	business combination	that	arise	from	contingencies	are	recognized	at	fair	value	if	fair	value	can	reasonably	be	estimated.	If	the	acquisition	date	fair	value	of	an	asset	acquired	or liability	assumed	that	arises	from	a	contingency	cannot	be	determined,	the	asset	or	liability	is	recognized	if	probable	and	reasonably	estimable;	if	these	criteria	are	not met,	no	asset	or	liability	is	recognized.	Fair	value	is	defined	as	the	exchange	price	that	would	be	received	for	an	asset	or	paid	to	transfer	a	liability	(an	exit	price)	in	the principal	or	most	advantageous	market	for	the	asset	or	liability	in	an	orderly	transaction	between	market	participants	on	the	measurement	date.	Accordingly,	the Company	may	be	required	to	value	assets	at	fair	value	measures	that	do	not	reflect	the	Company's	intended	use	of	those	assets.	Any	excess	of	the	purchase	price (consideration	transferred)	over	the	estimated	fair	values	of	net	assets	acquired	is	recorded	as	goodwill.	Transaction	costs	and	costs	to	restructure	the	acquired	company are	expensed	as	incurred.	The	operating	results	of	the	acquired	business	are	reflected	in	the	Company's	consolidated	financial	statements	after	the	date	of	the	merger	or acquisition.	If	the	Company	determines	the	assets	acquired	do	not	meet	the	definition	of	a	business	under	the	acquisition	method	of	accounting,	the	transaction	will	be accounted	for	as	an	acquisition	of	assets	rather	than	a	business	combination	and,	therefore,	no	goodwill	will	be	recorded.

Foreign	Currency	Translation	—	The	net	assets	of	international	subsidiaries	where	the	local	currencies	have	been	determined	to	be	the	functional	currencies are	translated	into	U.S.	dollars	using	current	exchange	rates.	The	U.S.	dollar	effects	that	arise	from	translating	the	net	assets	of	these	subsidiaries	at	changing	rates	are recorded	in	the

foreign	currency	translation	account,	which	is	included	in	Accumulated	other	comprehensive	income	(loss)	("AOCI")	and	reflected	as	a	separate	component	of	equity. For	those	subsidiaries	that	operate	in	highly	inflationary	economies	and	for	those	subsidiaries	where	the	U.S.	dollar	has	been	determined	to	be	the	functional	currency, non-monetary	foreign	currency	assets	and	liabilities	are	translated	using	historical	rates,	while	monetary	assets	and	liabilities	are	translated	at	current	rates,	with	the U.S.	dollar	effects	of	rate	changes	included	in	Other	(income)	expense,	net.

Cash	Equivalents	—	Cash	equivalents	are	comprised	of	certain	highly	liquid	investments	with	original	maturities	of	less	than	three	months.

Inventories	—	Inventories	are	valued	at	the	lower	of	cost	or	market.	The	cost	of	a	substantial	majority	of	domestic	pharmaceutical	and	vaccine	inventories	is determined	using	the	last-in,	first-out	("LIFO")	method	for	both	financial	reporting	and	tax	purposes.	The	cost	of	all	other	inventories	is	determined	using	the	first-in, first-out	("FIFO")	method.	Inventories	consist	of	currently	marketed	products	and	certain	products	awaiting	regulatory	approval.	In	evaluating	the	recoverability	of inventories	produced	in	preparation	for	product	launches,	the	Company	considers	the	likelihood	that	revenue	will	be	obtained	from	the	future	sale	of	the	related inventory	together	with	the	status	of	the	product	within	the	regulatory	approval	process.

Investments	—	Investments	in	marketable	debt	and	equity	securities	classified	as	available-for-sale	are	reported	at	fair	value.	Fair	values	of	the	Company's investments	are	determined	using	quoted	market	prices	in	active	markets	for	identical	assets	or	liabilities	or	quoted	prices	for	similar	assets	or	liabilities	or	other	inputs that	are	observable	or	can	be	corroborated	by	observable	market	data	for	substantially	the	full	term	of	the	assets	or	liabilities.	Changes	in	fair	value	that	are	considered temporary	are	reported	net	of	tax	in	Other	Comprehensive	Income	("OCI").	For	declines	in	the	fair	value	of	equity	securities	that	are	considered	other-than-temporary, impairment	 losses	are	charged	 to	Other	(income)	expense,	net.	The	Company	considers	available	evidence	in	evaluating	potential	impairments	of	its	investments, including	the	duration	and	extent	to	which	fair	value	is	less	than	cost	and,	for	equity	securities,	the	Company's	ability	and	intent	to	hold	the	investments.	For	debt securities,	an	other-than-temporary	impairment	has	occurred	if	the	Company	does	not	expect	to	recover	the	entire	amortized	cost	basis	of	the	debt	security.	If	the Company	does	not	intend	to	sell	the	impaired	debt	security,	and	it	is	not	more	likely	than	not	it	will	be	required	to	sell	the	debt	security	before	the	recovery	of	its amortized	cost	basis,	the	amount	of	the	other-than-temporary	impairment	recognized	in	earnings,	recorded	in	Other	(income)	expense,	net,	is	limited	to	the	portion attributed	to	credit	loss.	The	remaining	portion	of	the	other-than-temporary	impairment	related	to	other	factors	is	recognized	in	OCI.	Realized	gains	and	losses	for	both debt	and	equity	securities	are	included	in	Other	(income)	expense,	net.

Revenue	Recognition	—	Revenues	from	sales	of	products	are	recognized	at	the	time	of	delivery	when	title	and	risk	of	loss	passes	to	the	customer.	Recognition of	revenue	also	requires	reasonable	assurance	of	collection	of	sales	proceeds	and	completion	of	all	performance	obligations.	Domestically,	sales	discounts	are	issued	to customers	 as	 direct	 discounts	 at	 the	 point-of-sale	 or	 indirectly	 through	 an	 intermediary	 wholesaler,	 known	 as	 chargebacks,	 or	 indirectly	 in	 the	 form	 of	 rebates. Additionally,	sales	are	generally	made	with	a	limited	right	of	return	under	certain	conditions.	Revenues	are	recorded	net	of	provisions	for	sales	discounts	and	returns, which	are	established	at	the	time	of	sale.	In	addition,	revenues	are	recorded	net	of	time	value	of	money	discounts	if	collection	of	accounts	receivable	is	expected	to	be	in excess	of	one	year.	Accruals	for	chargebacks	are	reflected	as	a	direct	reduction	to	accounts	receivable	and	accruals	for	rebates	are	recorded	as	current	liabilities.	The accrued	balances	relative	to	the	provisions	for	chargebacks	and	rebates	included	in	Accounts	receivable	and	Accrued	and	other	current	liabilities	were	$87	million	and $1.6	billion,	respectively,	at	December	31,	2013	and	$120	million	and	$1.8	billion,	respectively,	at	December	31,	2012.

The	Company	recognizes	revenue	from	the	sales	of	vaccines	to	the	Federal	government	for	placement	into	vaccine	stockpiles	in	accordance	with	Securities and	Exchange	Commission	("SEC")	Interpretation,	Commission	Guidance	Regarding	Accounting	for	Sales	of	Vaccines	and	BioTerror	Countermeasures	to	the	Federal Government	for	Placement	into	the	Pediatric	Vaccine	Stockpile	or	the	Strategic	National	Stockpile.

Depreciation	 —	Depreciation is	 provided	 over	 the	 estimated	 useful	 lives	 of	 the	 assets,	 principally	 using	 the	 straight-line	 method.	 For	 tax	 purposes, accelerated	tax	methods	are	used.	The	estimated	useful	lives	primarily	range	from	10	to	50	years	for	Buildings,	and	from	3	to	15	years	for	Machinery,	equipment	and office	furnishings.	Depreciation	expense	was	$2.2	billion	in	2013,	$2.0	billion	in	2012	and	$2.4	billion	in	2011.

Advertising	and	Promotion	Costs	—	Advertising	and	promotion	costs	are	expensed	as	incurred.	The	Company	recorded	advertising	and	promotion	expenses of	$2.5	billion,	$2.8	billion	and	$3.1	billion	in	2013,	2012	and	2011,	respectively.

Software	 Capitalization	 —	The	Company	capitalizes	certain	costs	 incurred	 in	connection	with	obtaining	or	developing	 internal-use	software	 including external	direct	costs	of	material	and	services,	and	payroll	costs	for	employees	directly	involved	with	the	software	development.	Capitalized	software	costs	are	included	in Property,	plant	and	equipment	and	amortized	beginning	when	the	software	project	is	substantially	complete	and	the	asset	is	ready	for	its	intended	use.	Capitalized software	costs	associated	with	projects	that	are	being	amortized	over	6	to	10	years	(including	the	Company's	on-going	multi-year	implementation	of	an	enterprise-wide resource	planning	system)	were	$529	million	and	$428	million,	at	December	31,	2013	and	2012,	respectively.	All	other	capitalized	software	costs	are	being	amortized over	periods	ranging	from	3	to	5	years.	Costs	incurred	during	the	preliminary	project	stage	and	post-implementation	stage,	as	well	as	maintenance	and	training	costs,	are expensed	as	incurred.

Goodwill	—	Goodwill	represents	the	excess	of	the	consideration	transferred	over	the	fair	value	of	net	assets	of	businesses	purchased.	Goodwill	is	assigned	to reporting	units	and	evaluated	for	impairment	on	at	least	an	annual	basis,	or	more	frequently	if	impairment	indicators	exist,	by	first	assessing	qualitative	factors	to determine	whether	it	is	more	likely	than	not	that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount.	If	the	Company	concludes	it	is	more	likely	than	not that	the	fair	value	of	a	reporting	unit	is	less	than	its	carrying	amount,	a	quantitative	fair	value	test	is	performed.	Based	upon	the	Company's	most	recent	annual impairment	test	completed	as	of	October	1,	2013,	the	Company	concluded	goodwill	was	not	impaired.

Acquired	Intangibles	—	Acquired	intangibles	include	products	and	product	rights,	tradenames	and	patents,	which	are	recorded	at	fair	value,	assigned	an estimated	useful	life,	and	are	amortized	primarily	on	a	straight-line	basis	over	their	estimated	useful	lives	ranging	from	3	 to	40	years	(see	Note	7).	The	Company periodically	evaluates	whether	current	facts	or	circumstances	indicate	that	the	carrying	values	of	its	acquired	intangibles	may	not	be	recoverable.	If	such	circumstances are	determined	to	exist,	an	estimate	of	the	undiscounted	future	cash	flows	of	these	assets,	or	appropriate	asset	groupings,	is	compared	to	the	carrying	value	to	determine whether	an	impairment	exists.	If	the	asset	is	determined	to	be	impaired,	the	loss	is	measured	based	on	the	difference	between	the	carrying	value	of	the	intangible	asset and	its	fair	value,	which	is	determined	based	on	the	net	present	value	of	estimated	future	cash	flows.

In-Process	Research	and	Development	—	In-process	research	and	development	("IPR&D")	represents	the	fair	value	assigned	to	incomplete	research	projects that	the	Company	acquires	through	business	combinations	which,	at	the	time	of	acquisition,	have	not	reached	technological	feasibility.	The	amounts	are	capitalized	and are	accounted	for	as	indefinite-lived	intangible	assets,	subject	to	impairment	testing	until	completion	or	abandonment	of	the	projects.	Upon	successful	completion	of each	project,	Merck	will	make	a	determination	as	to	the	then	useful	life	of	the	intangible	asset,	generally	determined	by	the	period	in	which	the	substantial	majority	of the	cash	flows	are	expected	to	be	generated,	and	begin	amortization.	The	Company	tests	IPR&D	for	impairment	at	least	annually,	or	more	frequently	if	impairment indicators	exist,	by	first	assessing	qualitative	factors	to	determine	whether	it	is	more	likely	than	not	that	the	fair	value	of	the	IPR&D	intangible	asset	is	less	than	its carrying	amount.	If	the	Company	concludes	it	is	more	likely	than	not	that	the	fair	value	is	less	than	the	carrying	amount,	a	quantitative	test	that	compares	the	fair	value of	the	IPR&D	intangible	asset	with	its	carrying	value	is	performed.	If	the	fair	value	is	less	than	the	carrying	amount,	an	impairment	loss	is	recognized	in	operating results.

Research	and	Development	—	Research	and	development	is	expensed	as	incurred.	Upfront	and	milestone	payments	due	to	third	parties	in	connection	with research	and	development	collaborations	prior	to	regulatory	approval	are	expensed	as	incurred.	Payments	due	to	third	parties	upon	or	subsequent	to	regulatory	approval are	capitalized	and	amortized	over	the	shorter	of	the	remaining	license	or	product	patent	life.	Amounts	due	from	collaborative	partners	related	to	development	activities are	generally	reflected	as	a	reduction	of	research	and	development	expenses	when	the	specific	milestone	has	been	achieved.	Nonrefundable	advance	payments	for	goods and	services	that	will	be	used	in	future	research	and	development	activities	are	expensed	when	the	activity	has	been	performed	or	when	the	goods	have	been	received rather	than	when	the	payment	is	made.	Research	and	development	expenses	include	restructuring	costs	and	IPR&D	impairment	charges	in	all	periods.

Share-Based	Compensation	—	The	Company	expenses	all	share-based	payments	to	employees	over	the	requisite	service	period	based	on	the	grant-date	fair value	of	the	awards.

Restructuring	Costs	—	The	Company	records	liabilities	for	costs	associated	with	exit	or	disposal	activities	in	the	period	in	which	the	liability	is	incurred.	In accordance	with	existing	benefit	arrangements,	employee	termination	costs	are	accrued	when	the	restructuring	actions	are	probable	and	estimable.	When	accruing	these costs,	the	Company	will	recognize	the	amount	within	a	range	of	costs	that	is	the	best	estimate	within	the	range.	When	no	amount	within	the	range	is	a	better	estimate than	any	other	amount,	the	Company	recognizes	the	minimum	amount	within	the	range.	Costs	for	one-time	termination	benefits	in	which	the	employee	is	required	to render	service	until	termination	in	order	to	receive	the	benefits	are	recognized	ratably	over	the	future	service	period.

Contingencies	and	Legal	Defense	Costs	—	The	Company	records	accruals	for	contingencies	and	legal	defense	costs	expected	to	be	incurred	in	connection with	a	loss	contingency	when	it	is	probable	that	a	liability	has	been	incurred	and	the	amount	can	be	reasonably	estimated.

Taxes	on	Income	—	Deferred	taxes	are	recognized	for	the	future	tax	effects	of	temporary	differences	between	financial	and	income	tax	reporting	based	on enacted	tax	laws	and	rates.	The	Company	evaluates	tax	positions	to	determine	whether	the	benefits	of	tax	positions	are	more	likely	than	not	of	being	sustained	upon	audit based	on	the	technical	merits	of	the	tax	position.	For	tax	positions	that	are	more	likely	than	not	of	being	sustained	upon	audit,	the	Company	recognizes	the	largest amount	of	the	benefit	that	is	greater	than	50%	likely	of	being	realized	upon	ultimate	settlement	in	the	financial	statements.	For	tax	positions	that	are	not	more	likely	than not	of	being	sustained	upon	audit,	the	Company	does	not	recognize	any	portion	of	the	benefit	in	the	financial	statements.	The	Company	recognizes	interest	and	penalties associated	with	uncertain	tax	positions	as	a	component	of	Taxes	on	income	in	the	Consolidated	Statement	of	Income.

Use	of	Estimates	—	The	consolidated	financial	statements	are	prepared	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States ("GAAP")	and,	accordingly,	include	certain	amounts	that	are	based	on	management's	best	estimates	and	judgments.	Estimates	are	used	when	accounting	for	amounts recorded	in	connection	with	mergers	and	acquisitions,	including	initial	fair	value	determinations	of	assets	and	liabilities,	primarily	IPR&D	and	other	intangible	assets,	as well	as	subsequent	fair	value	measurements.	Additionally,	estimates	are	used	in	determining	such	items	as	provisions	for	sales	discounts	and	returns,	depreciable	and amortizable	 lives,	recoverability	of	 inventories,	 including	 those	produced	 in	preparation	for	product	 launches,	amounts	recorded	for	contingencies,	environmental liabilities	and	other	reserves,	pension	and	other	postretirement	benefit	plan	assumptions,	share-based	compensation	assumptions,	restructuring	costs,	impairments	of long-lived	assets	(including	intangible	assets	and	goodwill)	and	investments,	and	taxes	on	income.	Because	of	the	uncertainty	inherent	in	such	estimates,	actual	results may	differ	from	these	estimates.

Reclassifications	—	Certain	reclassifications	have	been	made	to	prior	year	amounts	to	conform	to	the	current	year	presentation.

Recently	Adopted	Accounting	Standards	—	In	the	first	quarter	of	2013,	the	Company	adopted	guidance	issued	by	the	Financial	Accounting	Standards	Board (the	"FASB")	that	simplifies	how	an	entity	tests	indefinite-lived	intangibles	for	impairment.	The	amended	guidance	allows	companies	to	first	assess	qualitative	factors	to determine	whether	it	is	more-likely-than-not	that	an	indefinite-lived	intangible	asset	is	impaired	as	a	basis	for	determining	whether	it	is	necessary	to	perform	the quantitative	impairment	test.	The	adoption	of	this	guidance	had	no	impact	on	the	Company's	financial	position	and	results	of	operations.

# 3.				Restructuring

The	Company	recorded	total	pretax	costs	of	$1.2	billion	in	2013	related	to	this	restructuring	program.	The	actions	under	the	2013	Restructuring	Program	are expected	to	be	substantially	completed	by	the	end	of	2015	with	the	cumulative	pretax	costs	estimated	to	be	approximately	$2.5	billion	to	$3.0	billion.	The	Company estimates	that	approximately	two-thirds	of	the	cumulative	pretax	costs	will	result	in	cash	outlays,	primarily	related	to	employee	separation	expense.	Approximately	one- third	of	the	cumulative	pretax	costs	are	non-cash,	relating	primarily	to	the	accelerated	depreciation	of	facilities	to	be	closed	or	divested.

In	2010,	subsequent	to	the	Merck	and	Schering-Plough	Corporation	("Schering-Plough")	merger	(the	"Merger"),	the	Company	commenced	actions	under	a global	restructuring	program	(the	"Merger	Restructuring	Program")	designed	to	streamline	the	cost	structure	of	the	combined	company.	Further	actions	under	this program	were	initiated	in	2011.	The	actions	under	this	program	primarily	reflect	the	elimination	of	positions	in	sales,	administrative	and	headquarters	organizations,	as well	as	from	the	sale	or	closure	of	certain	manufacturing	and	research	and	development	sites	and	the	consolidation	of	office	facilities.

On	October	1,	2013,	the	Company	sold	its	active	pharmaceutical	ingredient	("API")	manufacturing	business,	including	the	related	manufacturing	facility,	in the	Netherlands	to	Aspen	Holdings	("Aspen")	as	part	of	planned	manufacturing	facility	rationalizations	under	the	Merger	Restructuring	Program.	In	conjunction	with	the sale,	the	parties	entered	into	a	strategic	long-term	supply	agreement	whereby	Aspen	will	supply	API	to	the	Company	and	approximately	960	employees	who	support	the API	business	were	transferred	from	Merck	to	Aspen.	Also	in	connection	with	the	sale,	Aspen	acquired	certain	branded	products	from	Merck,	which	transferred	to	Aspen effective	December	31,	2013.	Consideration	for	the	transaction	included	cash	of	$705	million	and	notes	receivable	with	a	present	value	of	$198	million	at	the	time	of disposition.	The	notes	receivable	consist	of	a	$261	million	note	with	a	present	value	of	$138	million	due	in	2023	and	a	$67.5	million	note	with	a	present	value	of	$60 million	that	is	payable	over	five	years	beginning	on	December	31,	2014.	Of	the	cash	portion	of	the	consideration,	the	Company	received	$172	million	in	the	fourth quarter	of	2013.	The	remaining	$533	million	was	received	by	the	Company	in	January	2014;	therefore,	at	December	31,	2013,	this	amount	was	recorded	as	a	receivable within	Deferred	income	taxes	and	other	current	assets	on	the	Consolidated	Balance	Sheet.	In	conjunction	with	this	transaction,	the	Company	transferred	inventory	of $420	million,	property,	plant	and	equipment	of	$220	million	and	cash	of	$125	million	to	Aspen,	reduced	goodwill	by	$45	million,	other	intangible	assets	by	$45	million and	other	assets	by	$23	million	and	recorded	$90	million	of	transaction-related	liabilities.	This	transaction	resulted	in	a	loss	of	$65	million	that	was	recorded	within Restructuring	costs	in	2013.

The	Company	recorded	total	pretax	costs	of	$1.1	billion	in	2013,	$951	million	in	2012	and	$1.8	billion	in	2011	related	to	this	restructuring	program.	Since inception	of	 the	Merger	Restructuring	Program	 through	December	31,	2013,	Merck	has	recorded	total	pretax	accumulated	costs	of	approximately	$7.2	billion	and eliminated	 approximately	26,880	positions	comprised	of	employee	separations,	as	well	as	the	elimination	of	contractors	and	vacant	positions.	Approximately	6,300 position	eliminations	remain	pending	under	this	program	as	of	December	31,	2013,	which	include	the	remaining	actions	under	the	2008	Restructuring	Program	that	are now	 being	 reported	 as	 part	 of	 the	 Merger	 Restructuring	 Program	 as	 discussed	 below.	 The	 restructuring	 actions	 under	 the	 Merger	 Restructuring	 Program	 were substantially	completed	by	the	end	of	2013,	with	the	exception	of	certain	actions,	principally	manufacturing-related.	Subsequent	to	the	Merger,	the	Company	has rationalized	a	number	of	manufacturing	sites	worldwide.	The	remaining	actions	under	this	program	will	result	in	additional	manufacturing	facility	rationalizations,	which are	expected	to	be	substantially	completed	by	2016.	The	Company	expects	the	estimated	total	cumulative	pretax	costs	for	this	program	to	be	approximately	$7.4	billion to	$7.7	billion.	The	Company	estimates	that	approximately	two-thirds	of	the	cumulative	pretax	costs	relate	to	cash	outlays,	primarily	related	to	employee	separation expense.	Approximately	one-third	of	the	cumulative	pretax	costs	are	non-cash,	relating	primarily	to	the	accelerated	depreciation	of	facilities	to	be	closed	or	divested.

# 2008	Restructuring	Program

In	October	2008,	Merck	announced	a	global	restructuring	program	(the	"2008	Restructuring	Program")	to	reduce	its	cost	structure,	increase	efficiency,	and enhance	competitiveness.	Pretax	costs	of	$54	million,	$48	million	and	$45	million	were	recorded	in	2013,	2012	and	2011,	respectively,	related	to	the	2008	Restructuring Program.	Since	inception	of	the	2008	Restructuring	Program	through	June	30,	2013,	Merck	has	recorded	total	pretax	accumulated	costs	of	$1.7	billion	and	eliminated approximately	6,460	positions	comprised	of	employee	separations	and	 the	elimination	of	contractors	and	vacant	positions.	The	2008	Restructuring	Program	was substantially	completed	in	2011,	with	the	exception	of	certain	manufacturing-related	actions,	which	are	expected	to	be	completed	by	2015.	As	of	July	1,	2013,	the remaining	accrued	liability	for	future	separations	under	the	2008	Restructuring	Program	was	transferred	to	the	Merger	Restructuring	Program	and	any	remaining activities	under	the	2008	Restructuring	Program	are	now	being	accounted	for	as	part	of	the	Merger	Restructuring	Program.

For	segment	reporting,	restructuring	charges	are	unallocated	expenses.

The	following	table	summarizes	the	charges	related	to	restructuring	program	activities	by	type	of	cost:

| Year	Ended	December	31,	2013 | Separation<br>Costs | Accelerated<br>Depreciation | Other | Total |
| :--- | :--- | :--- | :--- | :--- |
| 2013\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | $— | $186 | $7 | $193 |
| Marketing\tand\tadministrative | — | 72 | 3 | 75 |
| Research\tand\tdevelopment | — | 76 | (1) | 75 |
| Restructuring\tcosts | 866 | — | 32 | 898 |
|  | 866 | 334 | 41 | 1,241 |
| Merger\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | — | 151 | 98 | 249 |
| Marketing\tand\tadministrative | — | 63 | 3 | 66 |
| Research\tand\tdevelopment | — | 27 | (1) | 26 |
| Restructuring\tcosts | 481 | — | 284 | 765 |
|  | 481 | 241 | 384 | 1,106 |
| 2008\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | — | (2) | 6 | 4 |
| Marketing\tand\tadministrative | — | 4 | — | 4 |
| Restructuring\tcosts | 34 | — | 12 | 46 |
|  | 34 | 2 | 18 | 54 |
|  | $1,381 | $577 | $443 | $2,401 |
| Year\tEnded\tDecember\t31,\t2012 |  |  |  |  |
| Merger\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | $— | $92 | $70 | $162 |
| Marketing\tand\tadministrative | — | 75 | 6 | 81 |
| Research\tand\tdevelopment | — | 53 | 4 | 57 |
| Restructuring\tcosts | 497 | — | 154 | 651 |
|  | 497 | 220 | 234 | 951 |
| 2008\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | — | 7 | 19 | 26 |
| Marketing\tand\tadministrative | — | 8 | 1 | 9 |
| Restructuring\tcosts | (8) | — | 21 | 13 |
|  | (8) | 15 | 41 | 48 |
|  | $489 | $235 | $275 | $999 |
| Year\tEnded\tDecember\t31,\t2011 |  |  |  |  |
| Merger\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | $— | $282 | $17 | $299 |
| Marketing\tand\tadministrative | — | 108 | 11 | 119 |
| Research\tand\tdevelopment | — | 151 | (17) | 134 |
| Restructuring\tcosts | 1,117 | — | 177 | 1,294 |
|  | 1,117 | 541 | 188 | 1,846 |
| 2008\tRestructuring\tProgram |  |  |  |  |
| Materials\tand\tproduction | — | 24 | 5 | 29 |
| Research\tand\tdevelopment | — | 4 | — | 4 |
| Restructuring\tcosts | (6) | — | 18 | 12 |
|  | (6) | 28 | 23 | 45 |
|  | $1,111 | $569 | $211 | $1,891 |

Separation	costs	are	associated	with	actual	headcount	reductions,	as	well	as	those	headcount	reductions	which	were	probable	and	could	be	reasonably estimated.	In	2013,	approximately	1,540	positions	were	eliminated	under	the	2013	Restructuring	Program.	Positions	eliminated	under	the	Merger	Restructuring	Program were	approximately	4,475	in	2013,	3,975	in	2012	and	6,880	in	2011	and	positions	eliminated	under	the	2008	Restructuring	Program	were	approximately	55	in	2013,	155 in	2012	and	450	in	2011.	These	position	eliminations	were	comprised	of	actual	headcount	reductions	and	the	elimination	of	contractors	and	vacant	positions.

Accelerated	depreciation	costs	primarily	relate	to	manufacturing,	research	and	administrative	facilities	and	equipment	to	be	sold	or	closed	as	part	of	the programs.	Accelerated	depreciation	costs	represent	the	difference	between	the	depreciation	expense	to	be	recognized	over	the	revised	useful	life	of	the	site,	based	upon the	anticipated	date	the

site	will	be	closed	or	divested,	and	depreciation	expense	as	determined	utilizing	the	useful	life	prior	to	the	restructuring	actions.	All	of	the	sites	have	and	will	continue	to operate	up	through	the	respective	closure	dates	and,	since	future	undiscounted	cash	flows	were	sufficient	to	recover	the	respective	book	values,	Merck	was	required	to accelerate	depreciation	of	the	site	assets	rather	than	record	an	impairment	charge.	Anticipated	site	closure	dates,	particularly	related	to	manufacturing	locations,	have been	and	may	continue	to	be	adjusted	to	reflect	changes	resulting	from	regulatory	or	other	factors.

Other	activity	in	2013,	2012	and	2011	includes	$259	million,	$155	million	and	$72	million,	respectively,	of	asset	abandonment,	shut-down	and	other	related costs.	Additionally,	other	activity	includes	certain	employee-related	costs	associated	with	pension	and	other	postretirement	benefit	plans	(see	Note	13)	and	share-based compensation.	Other	activity	also	reflects	net	pretax	(losses)	gains	resulting	from	sales	of	facilities	and	related	assets	of	$(64)	million	in	2013	(primarily	reflecting	the loss	on	the	transaction	with	Aspen	discussed	above),	$28	million	in	2012	and	$10	million	in	2011.

Adjustments	to	the	recorded	amounts	were	not	material	in	any	period.

The	following	table	summarizes	the	charges	and	spending	relating	to	restructuring	activities	by	program:

|  | Separation<br>Costs | Accelerated<br>Depreciation | Other | Total |
| :--- | :--- | :--- | :--- | :--- |
| 2013\tRestructuring\tProgram |  |  |  |  |
| Restructuring\treserves\tJanuary\t1,\t2013 | $— | $— | $— | $— |
| Expenses | 866 | 334 | 41 | 1,241 |
| (Payments)\treceipts,\tnet | (121) | — | 9 | (112) |
| Non-cash\tactivity | — | (334) | (27) | (361) |
| Restructuring\treserves\tDecember\t31,\t2013\t(1) | $745 | $— | $23 | $768 |
| Merger\tRestructuring\tProgram |  |  |  |  |
| Restructuring\treserves\tJanuary\t1,\t2012 | $1,144 | $— | $51 | $1,195 |
| Expenses | 497 | 220 | 234 | 951 |
| (Payments)\treceipts,\tnet | (942) | — | (170) | (1,112) |
| Non-cash\tactivity | — | (220) | (96) | (316) |
| Restructuring\treserves\tDecember\t31,\t2012 | 699 | — | 19 | 718 |
| Expenses | 481 | 241 | 384 | 1,106 |
| (Payments)\treceipts,\tnet | (517) | — | (258) | (775) |
| Non-cash\tactivity | 62 | (241) | (133) | (312) |
| Restructuring\treserves\tDecember\t31,\t2013\t(1) | $725 | $— | $12 | $737 |
| 2008\tRestructuring\tProgram |  |  |  |  |
| Restructuring\treserves\tJanuary\t1,\t2012 | $126 | $— | $— | $126 |
| Expenses | (8) | 15 | 41 | 48 |
| (Payments)\treceipts,\tnet | (41) | — | (21) | (62) |
| Non-cash\tactivity | — | (15) | (20) | (35) |
| Restructuring\treserves\tDecember\t31,\t2012 | 77 | — | — | 77 |
| Expenses | 34 | 2 | 18 | 54 |
| (Payments)\treceipts,\tnet | (49) | — | (11) | (60) |
| Non-cash\tactivity | (62) | (2) | (7) | (71) |
| Restructuring\treserves\tDecember\t31,\t2013 | $— | $— | $— | $— |

(1)	The	cash	outlays	associated	with	the	2013	Restructuring	Program	are	expected	to	be	substantially	completed	by	the	end	of	2015.	The	cash	outlays	associated	with	the	Merger	Restructuring Program	were	substantially	completed	by	the	end	of	2013	with	the	exception	of	certain	actions,	principally	manufacturing-related,	which	are	expected	to	be	substantially	completed	by	2016.

# Legacy	Schering-Plough	Program

Prior	to	the	Merger,	Schering-Plough	commenced	a	Productivity	Transformation	Program	which	was	designed	to	reduce	and	avoid	costs	and	increase productivity.	During	2011,	the	Company	recorded	$20	million	of	accelerated	depreciation	costs	included	in	Materials	and	production	costs	for	this	program	which	was substantially	complete	at	the	end	of	2011.

The	 Company	 continues	 its	 strategy	 of	 establishing	 external	 alliances	 to	 complement	 its	 substantial	 internal	 research	 capabilities,	 including	 research collaborations,	licensing	preclinical	and	clinical	compounds	and	technology	platforms	to	drive	both	near-	and	long-term	growth.	The	Company	supplements	its	internal research	 with	 a	 licensing	 and	 external	 alliance	 strategy	 focused	 on	 the	 entire	 spectrum	 of	 collaborations	 from	 early	 research	 to	 late-stage	 compounds.	 These arrangements	often	include	upfront	payments	and	royalty	or	profit	share	payments,	contingent	upon	the	occurrence	of	certain	future	events	linked	to	the	success	of	the asset	in	development,	as	well	as	expense	reimbursements	or	payments	to	the	third	party.

In	April	 2013,	 Merck	 and	 Pfizer	 Inc.	 ("Pfizer")	 announced	 that	 they	 had	 entered	 into	 a	 worldwide	 (except	 Japan)	 collaboration	 agreement	 for	 the development	and	commercialization	of	Pfizer's	ertugliflozin,	an	investigational	oral	sodium	glucose	cotransporter	("SGLT2")	inhibitor	being	evaluated	for	the	treatment of	type	2	diabetes.	The	Company	has	initiated	Phase	3	clinical	trials	for	ertugliflozin	with	Pfizer.	Under	the	terms	of	the	agreement,	Merck	and	Pfizer	will	collaborate	on the	clinical	development	and	commercialization	of	ertugliflozin	and	ertugliflozin-containing	fixed-dose	combinations	with	metformin	and	with	Januvia	(sitagliptin) tablets.	Merck	will	continue	to	retain	the	rights	to	its	existing	portfolio	of	sitagliptin-containing	products.	Through	the	end	of	2013,	Merck	recorded	research	and development	 expenses	 of	$125	million	 for	 upfront	 and	 milestone	 payments	 made	 to	 Pfizer.	 Pfizer	 will	 be	 eligible	 for	 additional	 payments	 associated	 with	 the achievement	of	pre-specified	future	clinical,	regulatory	and	commercial	milestones.	The	companies	will	share	potential	revenues	and	certain	costs	60%	to	Merck	and 40%	to	Pfizer.	Each	party	will	have	certain	manufacturing	and	supply	obligations.	The	Company	and	Pfizer	each	have	the	right	to	terminate	the	agreement	due	to	a material,	uncured	breach	by,	or	insolvency	of,	the	other	party,	or	in	the	event	of	a	safety	issue.	Pfizer	has	the	right	to	terminate	the	agreement	upon	12	months	notice	at any	time	following	the	first	anniversary	of	the	first	commercial	sale	of	a	collaboration	product,	but	must	assign	all	rights	to	ertugliflozin	to	Merck.	Upon	termination	of the	agreement,	depending	upon	the	circumstances,	the	parties	have	varying	rights	and	obligations	with	respect	to	the	continued	development	and	commercialization	of ertugliflozin	and	certain	payment	obligations.

In	February	2013,	Merck	and	Supera	Farma	Laboratorios	S.A.	("Supera"),	a	Brazilian	pharmaceutical	company	co-owned	by	Cristália	and	Eurofarma, established	the	previously	announced	joint	venture	that	markets,	distributes	and	sells	a	portfolio	of	pharmaceutical	and	branded	generic	products	from	Merck,	Cristália and	Eurofarma	in	Brazil.	Merck	owns	51%	of	the	joint	venture,	and	Cristália	and	Eurofarma	collectively	own	49%.	The	transaction	was	accounted	for	as	an	acquisition of	a	business;	accordingly,	the	assets	acquired	and	liabilities	assumed	were	recorded	at	their	respective	fair	values.	This	resulted	in	Merck	recognizing	intangible	assets for	currently	marketed	products	of	$89	million,	 IPR&D	 of	$100	million,	 goodwill	 of	$103	million,	and	deferred	 tax	 liabilities	of	$64	million.	The	Company	also recorded	 increases to	Noncontrolling	interests	 and	Other	paid-in	capital in	 the	amounts	of	$112	million	 and	$116	million,	respectively.	This	transaction	closed	on February	1,	2013,	and	accordingly,	the	results	of	operations	of	the	acquired	business	have	been	included	in	the	Company's	results	of	operations	beginning	after	that	date. During	the	fourth	quarter	of	2013,	as	a	result	of	changes	in	cash	flows	assumptions	for	certain	compounds,	the	Company	recorded	$15	million	of	impairment	charges related	to	the	IPR&D	recorded	in	the	Supera	transaction.

In	 October	 2012,	 Merck	 and	 AiCuris	 entered	 into	 an	 exclusive	 licensing	 agreement	 which	 provides	 Merck	 with	 worldwide	 rights	 to	 develop	 and commercialize	candidates	in	AiCuris'	novel	portfolio	of	investigational	medicines	targeting	human	cytomegalovirus	("HCMV"),	including	letermovir	(MK-8228),	an oral,	late-stage	antiviral	candidate	being	investigated	for	the	treatment	and	prevention	of	HCMV	infection	in	transplant	recipients.	AiCuris	received	an	upfront	payment of	€110	million	 (approximately	$140	million),	which	the	Company	recorded	as	research	and	development	expense,	and	is	eligible	for	milestone	payments	of	up	to €332.5	million	based	on	successful	achievement	of	development,	regulatory	and	commercialization	goals	for	HCMV	candidates,	including	letermovir,	an	additional

back-up	candidate	as	well	as	other	Phase	1	candidates	designed	to	act	via	an	alternate	mechanism.	In	addition,	AiCuris	will	be	entitled	to	receive	royalty	payments reflecting	the	advanced	stage	of	the	clinical	program	on	any	potential	products	that	result	from	the	agreement.	Merck	will	be	responsible	for	all	development	activities and	costs.	The	agreement	may	be	terminated	by	either	party	in	the	event	of	a	material	uncured	breach	or	insolvency.	The	agreement	may	be	terminated	by	Merck	at	any time	in	the	event	that	any	of	the	compounds	licensed	from	AiCuris	develop	an	adverse	safety	profile	or	any	material	adverse	issue	arises	related	to	the	development, efficacy	or	dosing	regimen	of	any	of	the	compounds,	and/or	in	the	event	that	certain	patents	are	invalid	and/or	unenforceable	in	certain	jurisdictions.	Merck	(i)	may terminate	the	agreement	with	respect	to	certain	compounds	after	successful	completion	of	the	first	proof	of	concept	clinical	trial	or	(ii)	must	terminate	the	agreement	with respect	to	certain	compounds	if	Merck	fails	to	minimally	invest	in	such	compounds.	In	addition,	Merck	may	terminate	the	agreement	as	a	whole	at	any	time	upon	six months	prior	written	notice	at	any	time	after	completion	of	the	first	Phase	3	clinical	trial	for	a	compound.	AiCuris	may	terminate	the	agreement	in	the	event	that	Merck challenges	any	AiCuris	patent	covering	the	compounds	licensed	from	AiCuris.	Upon	termination	of	the	agreement,	depending	upon	the	circumstances,	the	parties	have varying	rights	and	obligations	with	respect	to	the	continued	development	and	commercialization	of	compounds	and,	in	the	case	of	termination	for	cause	by	Merck, certain	royalty	obligations.

In	April	2012,	the	Company	entered	into	an	agreement	with	Endocyte,	Inc.	("Endocyte")	to	develop	and	commercialize	Endocyte's	novel	investigational therapeutic	candidate	vintafolide	(MK-8109).	Vintafolide	is	currently	being	evaluated	in	a	Phase	3	clinical	trial	for	folate-receptor	positive	platinum-resistant	ovarian cancer	(PROCEED)	and	a	Phase	2	trial	for	non-small	cell	lung	cancer.	Under	the	agreement,	Merck	gained	worldwide	rights	to	develop	and	commercialize	vintafolide. Endocyte	received	a	$120	million	upfront	payment,	which	the	Company	recorded	as	research	and	development	expense,	and	is	eligible	for	milestone	payments	of	up	to $880	million	based	on	the	successful	achievement	of	development,	regulatory	and	commercialization	goals	for	vintafolide	for	a	total	of	six	cancer	indications.	In addition,	if	vintafolide	receives	regulatory	approval,	Merck	and	Endocyte	will	share	equally	profits	and	losses	in	the	United	States.	Endocyte	will	receive	a	royalty	on sales	of	the	product	in	the	rest	of	the	world.	Endocyte	has	retained	the	right	to	co-promote	vintafolide	with	Merck	in	the	United	States	and	Merck	has	the	exclusive	right to	promote	vintafolide	in	the	rest	of	world.	Endocyte	will	be	responsible	for	the	majority	of	funding	and	completion	of	the	PROCEED	trial.	Merck	will	be	responsible	for all	other	development	activities	and	development	costs	and	have	all	decision	rights	for	vintafolide.	Merck	has	the	right	to	terminate	the	agreement	on	90	days	notice. Merck	and	Endocyte	both	have	the	right	to	terminate	the	agreement	due	to	the	material	breach	or	insolvency	of	the	other	party.	Endocyte	has	the	right	to	terminate	the agreement	in	the	event	that	Merck	challenges	an	Endocyte	patent	right	relating	to	vintafolide.	Upon	termination	of	the	agreement,	depending	upon	the	circumstances,	the parties	have	varying	rights	and	obligations	with	respect	to	the	continued	development	and	commercialization	of	vintafolide	and,	in	the	case	of	termination	for	cause	by Merck,	certain	royalty	obligations	and	U.S.	profit	and	loss	sharing.

In	May	2011,	Merck	completed	the	acquisition	of	Inspire	Pharmaceuticals,	Inc.	("Inspire"),	a	specialty	pharmaceutical	company	focused	on	developing	and commercializing	ophthalmic	products.	Under	the	terms	of	the	merger	agreement,	Merck	acquired	all	outstanding	shares	of	common	stock	of	Inspire	at	a	price	of	$5.00 per	share	in	cash	for	a	total	of	approximately	$420	million.	The	transaction	was	accounted	for	as	an	acquisition	of	a	business;	accordingly,	the	assets	acquired	and liabilities	assumed	were	recorded	at	their	respective	fair	values	as	of	the	acquisition	date.	The	determination	of	fair	value	requires	management	to	make	significant estimates	and	assumptions.	In	connection	with	the	acquisition,	substantially	all	of	the	purchase	price	was	allocated	to	Inspire's	product	and	product	right	intangible	assets and	related	deferred	tax	liabilities,	a	deferred	tax	asset	relating	to	Inspire's	net	operating	loss	carryforwards,	and	goodwill.	In	November	2013,	Merck	sold	the	U.S.	rights to	certain	ophthalmic	products	to	Akorn,	Inc.,	including	AzaSite	which	was	acquired	from	Inspire	in	this	transaction.

In	 March	 2011,	 the	 Company	 sold	 the	 Merck	 BioManufacturing	 Network,	 a	 provider	 of	 contract	 manufacturing	 and	 development	 services	 for	 the biopharmaceutical	industry	and	wholly	owned	by	Merck,	to	Fujifilm	Corporation	("Fujifilm").	Under	the	terms	of	the	agreement,	Fujifilm	purchased	all	of	the	equity interests	in	two	Merck	subsidiaries	which	together	owned	all	of	the	assets	of	the	Merck	BioManufacturing	Network	comprising	facilities	located	in	Research	Triangle Park,	North	Carolina	and	Billingham,	United	Kingdom.	As	part	of	the	agreement	with	Fujifilm,	Merck	committed	to	purchase	certain	development	and	manufacturing services	at	fair	value	from	Fujifilm	over	a	three-year	period	following	the	closing	of	the	transaction.	The	transaction	resulted	in	a	gain	of	$127	million	in	2011	reflected in	Other	(income)	expense,	net.

# Remicade/Simponi

In	1998,	a	subsidiary	of	Schering-Plough	entered	into	a	licensing	agreement	with	Centocor	Ortho	Biotech	Inc.	("Centocor"),	a	Johnson	&	Johnson	("J&J") company,	to	market	Remicade,	which	is	prescribed	for	the	treatment	of	inflammatory	diseases.	In	2005,	Schering-Plough's	subsidiary	exercised	an	option	under	its contract	with	Centocor	for	license	rights	to	develop	and	commercialize	Simponi,	a	fully	human	monoclonal	antibody.	The	Company	has	exclusive	marketing	rights	to both	 products	 throughout	 Europe,	 Russia	 and	 Turkey.	 In	 December	 2007,	 Schering-Plough	 and	 Centocor	 revised	 their	 distribution	 agreement	 regarding	 the development,	commercialization	and	distribution	of	both	Remicade	and	Simponi,	extending	the	Company's	rights	to	exclusively	market	Remicade	to	match	the	duration of	the	Company's	exclusive	marketing	rights	for	Simponi.	In	addition,	Schering-Plough	and	Centocor	agreed	to	share	certain	development	costs	relating	to	Simponi's auto-injector	delivery	system.	On	October	6,	2009,	the	European	Commission	approved	Simponi	as	a	treatment	for	rheumatoid	arthritis	and	other	immune	system disorders	in	two	presentations	—	a	novel	auto-injector	and	a	prefilled	syringe.	As	a	result,	the	Company's	marketing	rights	for	both	products	extend	for	15	years	from the	first	commercial	sale	of	Simponi	in	the	European	Union	(the	"EU")	following	the	receipt	of	pricing	and	reimbursement	approval	within	the	EU.	All	profits	derived from	Merck's	exclusive	distribution	of	the	two	products	are	equally	divided	between	Merck	and	J&J.	In	April	2011,	in	connection	with	an	agreement	between	Merck and	J&J	to	amend	the	agreement	governing	the	distribution	rights	to	Remicade	and	Simponi,	J&J	received	a	one-time	payment	from	Merck	of	$500	million,	which	the Company	recorded	as	a	charge	to	Other	(income)	expense,	net	in	2011.

# 5.				Financial	Instruments

# Derivative	Instruments	and	Hedging	Activities

The	Company	may	also	utilize	forward	contracts	in	its	revenue	hedging	program.	If	the	U.S.	dollar	strengthens	relative	to	the	currency	of	the	hedged anticipated	sales,	the	increase	in	the	fair	value	of	the	forward	contracts	offsets	the	decrease	in	the	expected	future	U.S.	dollar	cash	flows	of	the	hedged	foreign	currency sales.	Conversely,	if	the	U.S.	dollar	weakens,	the	decrease	in	the	fair	value	of	the	forward	contracts	offsets	the	increase	in	the	value	of	the	anticipated	foreign	currency cash	flows.

The	fair	values	of	these	derivative	contracts	are	recorded	as	either	assets	(gain	positions)	or	liabilities	(loss	positions)	in	the	Consolidated	Balance	Sheet. Changes	in	the	fair	value	of	derivative	contracts	are	recorded	each	period	in	either	current	earnings	or	OCI,	depending	on	whether	the	derivative	is	designated	as	part	of	a hedge	transaction	and,	if	so,	the	type	of	hedge	transaction.	For	derivatives	that	are	designated	as	cash	flow	hedges,	the	effective	portion	of	the	unrealized	gains	or	losses on	these	contracts	is	recorded	in	AOCI	and	reclassified	into	Sales	when	the	hedged	anticipated	revenue	is	recognized.	The	hedge	relationship	is	highly	effective	and hedge	 ineffectiveness	has	been	de	minimis.	For	those	derivatives	which	are	not	designated	as	cash	flow	hedges,	but	serve	as	economic	hedges	of	forecasted	sales, unrealized	gains	or	losses	are	recorded	in	Sales	each	period.	The	cash	flows	from	both	designated	and	non-designated	contracts	are	reported	as	operating	activities	in	the Consolidated	Statement	of	Cash	Flows.	The	Company	does	not	enter	into	derivatives	for	trading	or	speculative	purposes.

Monetary	assets	and	liabilities	denominated	in	a	currency	other	than	the	functional	currency	of	a	given	subsidiary	are	remeasured	at	spot	rates	in	effect	on the	balance	sheet	date	with	the	effects	of	changes	in	spot	rates	reported	in	Other	(income)	expense,	net.	The	forward	contracts	are	not	designated	as	hedges	and	are marked	to	market	through	Other	(income)	expense,	net.	Accordingly,	fair	value	changes	in	the	forward	contracts	help	mitigate	the	changes	in	the	value	of	the	remeasured assets	and	liabilities	attributable	to	changes	in	foreign	currency	exchange	rates,	except	to	the	extent	of	the	spot-forward	differences.	These	differences	are	not	significant due	to	the	short-term	nature	of	the	contracts,	which	typically	have	average	maturities	at	inception	of	less	than	one	year.

The	Company	also	uses	forward	exchange	contracts	to	hedge	its	net	investment	in	foreign	operations	against	movements	in	exchange	rates.	The	forward contracts	are	designated	as	hedges	of	the	net	investment	in	a	foreign	operation.	The	Company	hedges	a	portion	of	the	net	investment	in	certain	of	its	foreign	operations and	measures	ineffectiveness	based	upon	changes	in	spot	foreign	exchange	rates.	The	effective	portion	of	the	unrealized	gains	or	losses	on	these	contracts	is	recorded	in foreign	currency	translation	adjustment	within	OCI,	and	remains	in	AOCI	until	either	the	sale	or	complete	or	substantially	complete	liquidation	of	the	subsidiary.	The cash	flows	from	these	contracts	are	reported	as	investing	activities	in	the	Consolidated	Statement	of	Cash	Flows.

Foreign	exchange	risk	is	also	managed	through	the	use	of	foreign	currency	debt.	The	Company's	senior	unsecured	euro-denominated	notes	have	been designated	as,	and	are	effective	as,	economic	hedges	of	the	net	investment	in	a	foreign	operation.	Accordingly,	foreign	currency	transaction	gains	or	losses	due	to	spot rate	fluctuations	on	the	euro-denominated	debt	instruments	are	included	in	foreign	currency	translation	adjustment	within	OCI.	Included	in	the	cumulative	translation adjustment	are	pretax	losses	of	$84	million	in	2013	and	$31	million	in	2012	and	pretax	gains	of	$6	million	in	2011	from	the	euro-denominated	notes.

During	2013,	the	Company	entered	into	15	pay-floating,	receive-fixed	interest	rate	swap	contracts	designated	as	fair	value	hedges	of	fixed-rate	notes	in	which the	notional	amounts	match	 the	amount	of	 the	hedged	fixed-rate	notes.	There	are	four	swaps	maturing	 in	2016	with	notional	amounts	of	$250	million	each	 that effectively	convert	the	Company's	0.70%	fixed-rate	notes	due	in	2016	to	floating-rate	instruments;	four	swaps	maturing	in	2018	with	notional	amounts	of	$250	million each	that	effectively	convert	the	Company's	1.30%	fixed-rate	notes	due	in	2018	to	floating-rate	instruments;	four	swaps	maturing	in	2017,	one	with	a	notional	amount	of $200	million,	two	with	notional	amounts	of	$250	million	each,	and	one	with	a	notional	amount	of	$300	million,	that	effectively	convert	the	Company's	6.00%	fixed-rate notes	due	in	2017	to	floating-rate	instruments;	and	three	swaps	maturing	in	2019,	two	with	notional	amounts	of	$200	million	each,	and	one	with	a	notional	amount	of $150	million,	that	effectively	convert	a	portion	of	the	Company's	5.00%	notes	due	in	2019	to	floating	rate	instruments.	The	interest	rate	swap	contracts	are	designated hedges	of	the	fair	value	changes	in	the	notes	attributable	to	changes	in	the	benchmark	London	Interbank	Offered	Rate	("LIBOR")	swap	rate.	The	fair	value	changes	in	the notes	attributable	to	changes	in	the	LIBOR	are	recorded	in	interest	expense	and	offset	by	the	fair	value	changes	in	the	swap	contracts.	The	cash	flows	from	these	contracts are	reported	as	operating	activities	in	the	Consolidated	Statement	of	Cash	Flows.

Presented	in	the	table	below	is	the	fair	value	of	derivatives	on	a	gross	basis	segregated	between	those	derivatives	that	are	designated	as	hedging	instruments and	those	that	are	not	designated	as	hedging	instruments	as	of	December	31:

|  | 2013 | 2013 |  | 2012 | 2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tSheet\tCaption | Fair\tValue\tof\nDerivative\nAsset | Liability | U.S.\tDollar\nNotional | Fair\tValue\tof\nDerivative\nAsset | Liability | U.S.\tDollar\nNotional |
| Other\tassets | $13 | $— | $1,550 | $— | $— | $— |
| Other\tnoncurrent\tliabilities | — | 25 | 2,000 | — | — | — |
| Deferred\tincome\ttaxes\tand\tother\ncurrent\tassets | 493 | — | 4,427 | 281 | — | 6,646 |
| Other\tassets | 515 | — | 6,676 | 387 | — | 5,989 |
| Accrued\tand\tother\tcurrent\nliabilities | — | 19 | 1,659 | — | 13 | 938 |
|  | $1,021 | $44 | $16,312 | $668 | $13 | $13,573 |
| Deferred\tincome\ttaxes\tand\tother\ncurrent\tassets | $69 | $— | $5,705 | $55 | $— | $4,548 |
| Other\tassets | — | — | — | 8 | — | 232 |
| Accrued\tand\tother\tcurrent\nliabilities | — | 140 | 7,892 | — | 216 | 8,203 |
|  | $69 | $140 | $13,597 | $63 | $216 | $12,983 |
|  | $1,090 | $184 | $29,909 | $731 | $229 | $26,556 |

As	noted	above,	the	Company	records	its	derivatives	on	a	gross	basis	in	the	Consolidated	Balance	Sheet.	The	Company	has	master	netting	agreements	with several	of	its	financial	institution	counterparties	(see	Concentrations	of	Credit	Risk	below).	The	following	table	provides	information	on	the	Company's	derivative positions	subject	to	these	master	netting	arrangements	as	if	they	were	presented	on	a	net	basis,	allowing	for	the	right	of	offset	by	counterparty	and	cash	collateral exchanged	per	the	master	agreements	and	related	credit	support	annexes	at	December	31:

|  | Asset | Liability | Asset | Liability |
| :--- | :--- | :--- | :--- | :--- |
| Gross\tamounts\trecognized\tin\tthe\tconsolidated\tbalance\tsheet | $1,090 | $184 | $731 | $229 |
| Gross\tamount\tsubject\tto\toffset\tin\tmaster\tnetting\tarrangements\tnot\toffset\tin\tthe\tconsolidated\tbalance\tsheet | (147) | (147) | (195) | (195) |
| Cash\tcollateral\t(received)\tposted | (652) | — | (305) | — |
| Net\tamounts | $291 | $37 | $231 | $34 |

The	 table	below	provides	 information	on	 the	 location	and	pretax	gain	or	 loss	amounts	for	derivatives	 that	are:	(i)	designated	 in	a	fair	value	hedging relationship,	(ii)	designated	in	a	foreign	currency	cash	flow	hedging	relationship,	(iii)	designated	in	a	foreign	currency	net	investment	hedging	relationship	and	(iv)	not designated	in	a	hedging	relationship:

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Derivatives\tdesignated\tin\ta\tfair\tvalue\thedging\trelationship |  |  |  |
| Interest\trate\tswap\tcontracts |  |  |  |
| Amount\tof\tloss\t(gain)\trecognized\tin\tOther\t(income)\texpense,\tnet\ton\tderivatives\t(1) | $12 | $— | $(196) |
| Amount\tof\t(gain)\tloss\trecognized\tin\tOther\t(income)\texpense,\tnet\ton\thedged\titem\t(1) | (14) | — | 196 |
| Derivatives\tdesignated\tin\tforeign\tcurrency\tcash\tflow\thedging\trelationships |  |  |  |
| Foreign\texchange\tcontracts |  |  |  |
| Amount\tof\tloss\treclassified\tfrom\tAOCI\tto\tSales | 45 | 50 | 85 |
| Amount\tof\t(gain)\tloss\trecognized\tin\tOCI\ton\tderivatives | (306) | 204 | 143 |
| \tDerivatives\tdesignated\tin\tforeign\tcurrency\tnet\tinvestment\thedging\trelationships |  |  |  |
| Foreign\texchange\tcontracts |  |  |  |
| Amount\tof\tgain\trecognized\tin\tOther\t(income)\texpense,\tnet\ton\tderivatives\t(2) | (10) | (20) | (10) |
| Amount\tof\t(gain)\tloss\trecognized\tin\tOCI\ton\tderivatives | (363) | (208) | 122 |
| Derivatives\tnot\tdesignated\tin\ta\thedging\trelationship |  |  |  |
| Foreign\texchange\tcontracts |  |  |  |
| Amount\tof\tloss\t(gain)\trecognized\tin\tOther\t(income)\texpense,\tnet\ton\tderivatives\t(3) | 183 | 382 | (113) |
| Amount\tof\tloss\trecognized\tin\tSales | 8 | 30 | — |

(1)	There	was	$2	million	of	ineffectiveness	on	the	hedge	during	2013.

(2)	There	was	no	ineffectiveness	on	the	hedge.	Represents	the	amount	excluded	from	hedge	effectiveness	testing.

(3)	These	derivative	contracts	mitigate	changes	in	the	value	of	remeasured	foreign	currency	denominated	monetary	assets	and	liabilities	attributable	to	changes	in	foreign	currency	exchange	rates.

At	December	31,	2013,	the	Company	estimates	$66	million	of	pretax	net	unrealized	gains	on	derivatives	maturing	within	the	next	12	months	that	hedge foreign	currency	denominated	sales	over	that	same	period	will	be	reclassified	from	AOCI	to	Sales.	The	amount	ultimately	reclassified	to	Sales	may	differ	as	foreign exchange	rates	change.	Realized	gains	and	losses	are	ultimately	determined	by	actual	exchange	rates	at	maturity.

# Investments	in	Debt	and	Equity	Securities

Information	on	available-for-sale	investments	at	December	31	is	as	follows:

|  | Fair | Amortized | Gross	Unrealized |  | Fair | Amortized | Gross	Unrealized |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Value | Cost | Gains | Losses | Value | Cost | Gains | Losses |
| Corporate\tnotes\tand\tbonds | $7,054 | $7,037 | $32 | $(15) | $5,063 | $5,013 | $52 | $(2) |
| Asset-backed\tsecurities | 1,300 | 1,303 | 1 | (4) | 837 | 835 | 3 | (1) |
| U.S.\tgovernment\tand\tagency\tsecurities | 1,236 | 1,239 | 1 | (4) | 1,206 | 1,204 | 2 | — |
| Commercial\tpaper | 1,206 | 1,206 | — | — | 2,150 | 2,150 | — | — |
| Mortgage-backed\tsecurities | 476 | 479 | 2 | (5) | 435 | 436 | 2 | (3) |
| Foreign\tgovernment\tbonds | 125 | 126 | — | (1) | 108 | 107 | 1 | — |
| Equity\tsecurities | 471 | 397 | 74 | — | 403 | 370 | 33 | — |
|  | $11,868 | $11,787 | $110 | $(29) | $10,202 | $10,115 | $93 | $(6) |

Available-for-sale	debt	securities	included	in	Short-term	investments	totaled	$1.9	billion	at	December	31,	2013.	Of	the	remaining	debt	securities,	$8.8	billion mature	within	five	years.	At	December	31,	2013	and	2012,	there	were	no	debt	securities	pledged	as	collateral.

# Fair	Value	Measurements

Fair	value	 is	defined	as	 the	exchange	price	 that	would	be	received	for	an	asset	or	paid	 to	 transfer	a	 liability	(an	exit	price)	 in	 the	principal	or	most advantageous	market	for	the	asset	or	liability	in	an	orderly	transaction	between	market	participants	on	the	measurement	date.	The	Company	uses	a	fair	value	hierarchy which	maximizes	the	use	of	observable	inputs	and	minimizes	the	use	of	unobservable	inputs	when	measuring	fair	value.	There	are	three	levels	of	inputs	used	to	measure fair	value	with	Level	1	having	the	highest	priority	and	Level	3	having	the	lowest:

Level	1	—	Quoted	prices	(unadjusted)	in	active	markets	for	identical	assets	or	liabilities.

Level	2	—	Observable	inputs	other	than	Level	1	prices,	such	as	quoted	prices	for	similar	assets	or	liabilities,	or	other	inputs	that	are	observable	or	can	be corroborated	by	observable	market	data	for	substantially	the	full	term	of	the	assets	or	liabilities.

Level	3	—	Unobservable	inputs	that	are	supported	by	little	or	no	market	activity.	Level	3	assets	are	those	whose	values	are	determined	using	pricing	models, discounted	cash	flow	methodologies,	or	similar	techniques	with	significant	unobservable	inputs,	as	well	as	instruments	for	which	the	determination	of	fair	value requires	significant	judgment	or	estimation.

If	the	inputs	used	to	measure	the	financial	assets	and	liabilities	fall	within	more	than	one	level	described	above,	the	categorization	is	based	on	the	lowest level	input	that	is	significant	to	the	fair	value	measurement	of	the	instrument.

# Financial	Assets	and	Liabilities	Measured	at	Fair	Value	on	a	Recurring	Basis

Financial	assets	and	liabilities	measured	at	fair	value	on	a	recurring	basis	at	December	31	are	summarized	below:

|  |  | Fair	Value	Measurements	Using |  |  |  | Fair	Value	Measurements	Using |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total |
|  |  | 2013 |  |  |  | 2012 |  |  |
| Assets |  |  |  |  |  |  |  |  |
| Investments |  |  |  |  |  |  |  |  |
| Corporate\tnotes\tand\tbonds | $— | $7,054 | $— | $7,054 | $— | $5,063 | $— | $5,063 |
| Asset-backed\tsecurities\t(1) | — | 1,300 | — | 1,300 | — | 837 | — | 837 |
| U.S.\tgovernment\tand\tagency\tsecurities | — | 1,236 | — | 1,236 | — | 1,206 | — | 1,206 |
| Commercial\tpaper | — | 1,206 | — | 1,206 | — | 2,150 | — | 2,150 |
| Mortgage-backed\tsecurities\t(1) | — | 476 | — | 476 | — | 435 | — | 435 |
| Foreign\tgovernment\tbonds | — | 125 | — | 125 | — | 108 | — | 108 |
| Equity\tsecurities | 238 | — | — | 238 | 196 | — | — | 196 |
|  | 238 | 11,397 | — | 11,635 | 196 | 9,799 | — | 9,995 |
| Other\tassets |  |  |  |  |  |  |  |  |
| Securities\theld\tfor\temployee\ncompensation | 186 | 47 | — | 233 | 169 | 38 | — | 207 |
| Derivative\tassets\t(2) |  |  |  |  |  |  |  |  |
| Purchased\tcurrency\toptions | — | 868 | — | 868 | — | 546 | — | 546 |
| Forward\texchange\tcontracts | — | 209 | — | 209 | — | 185 | — | 185 |
| Interest\trate\tswaps | — | 13 | — | 13 | — | — | — | — |
|  | — | 1,090 | — | 1,090 | — | 731 | — | 731 |
| Total\tassets | $424 | $12,534 | $— | $12,958 | $365 | $10,568 | $— | $10,933 |
| Liabilities |  |  |  |  |  |  |  |  |
| Derivative\tliabilities\t(2) |  |  |  |  |  |  |  |  |
| Forward\texchange\tcontracts | $— | $134 | $— | $134 | $— | $216 | $— | $216 |
| Written\tcurrency\toptions | — | 25 | — | 25 | — | 13 | — | 13 |
| Interest\trate\tswaps | — | 25 | — | 25 | — | — | — | — |
| Total\tliabilities | $— | $184 | $— | $184 | $— | $229 | $— | $229 |

(1)	Primarily	all	of	the	asset-backed	securities	are	highly-rated	(Standard	&	Poor's	rating	of	AAA	and	Moody's	Investors	Service	rating	of	Aaa),	secured	primarily	by	credit	card,	auto	loan,	and	home equity	receivables,	with	weighted-average	lives	of	primarily	5	years	or	less.	Mortgage-backed	securities	represent	AAA-rated	securities	issued	or	unconditionally	guaranteed	as	to	payment	of principal	and	interest	by	U.S.	government	agencies.

(2)	The	fair	value	determination	of	derivatives	includes	the	impact	of	the	credit	risk	of	counterparties	to	the	derivatives	and	the	Company's	own	credit	risk,	the	effects	of	which	were	not	significant.

There	were	no	transfers	between	Level	1	and	Level	2	during	2013.	As	of	December	31,	2013,	Cash	and	cash	equivalents	 of	$15.6	billion	 included	$14.7 billion	of	cash	equivalents	(considered	Level	2	in	the	fair	value	hierarchy).	The	Company	has	liabilities	related	to	contingent	consideration	(considered	Level	3	in	the	fair value	hierarchy)	associated	with	business	combinations,	the	fair	values	of	which	were	$69	million	and	$49	million	at	December	31,	2013	and	2012,	respectively.

# Other	Fair	Value	Measurements

Some	of	the	Company's	financial	instruments,	such	as	cash	and	cash	equivalents,	receivables	and	payables,	are	reflected	in	the	balance	sheet	at	carrying value,	which	approximates	fair	value	due	to	their	short-term	nature.

The	estimated	fair	value	of	loans	payable	and	long-term	debt	(including	current	portion)	at	December	31,	2013,	was	$25.5	billion	compared	with	a	carrying value	of	$25.1	billion	and	at	December	31,	2012,	was	$22.8	billion	compared	with	a	carrying	value	of	$20.6	billion.	Fair	value	was	estimated	using	recent	observable market	prices	and	would	be	considered	Level	2	in	the	fair	value	hierarchy.

# Concentrations	of	Credit	Risk

On	an	ongoing	basis,	the	Company	monitors	concentrations	of	credit	risk	associated	with	corporate	and	government	issuers	of	securities	and	financial institutions	with	which	it	conducts	business.	Credit	exposure	limits	are	established	to	limit	a	concentration	with	any	single	issuer	or	institution.	Cash	and	investments	are placed	in	instruments	that	meet	high	credit	quality	standards,	as	specified	in	the	Company's	investment	policy	guidelines.	Approximately	one-third	of	the	Company's cash	and	cash	equivalents	are	invested	in	five	highly	rated	money	market	funds.

The	majority	of	the	Company's	accounts	receivable	arise	from	product	sales	in	the	United	States	and	Europe	and	are	primarily	due	from	drug	wholesalers and	retailers,	hospitals,	government	agencies,	managed	health	care	providers	and	pharmacy	benefit	managers.	The	Company	monitors	the	financial	performance	and creditworthiness	of	its	customers	so	that	it	can	properly	assess	and	respond	to	changes	in	their	credit	profile.	The	Company	also	continues	to	monitor	economic conditions,	including	the	volatility	associated	with	international	sovereign	economies,	and	associated	impacts	on	the	financial	markets	and	its	business,	taking	into consideration	global	economic	conditions	and	the	ongoing	sovereign	debt	issues	in	certain	European	countries.	The	Company	continues	to	monitor	the	credit	and economic	conditions	within	Greece,	Italy,	Spain	and	Portugal,	among	other	members	of	the	EU.	These	economic	conditions,	as	well	as	inherent	variability	of	timing	of cash	receipts,	have	resulted	in,	and	may	continue	to	result	in,	an	increase	in	the	average	length	of	time	that	it	takes	to	collect	accounts	receivable	outstanding.	As	such, time	value	of	money	discounts	have	been	recorded	for	 those	customers	for	which	collection	of	accounts	receivable	 is	expected	 to	be	 in	excess	of	one	year.	At December	31,	2013	and	2012,	Other	assets	included	$275	million	and	$473	million,	respectively,	of	accounts	receivable	not	expected	to	be	collected	within	one	year. The	Company	does	not	expect	to	have	write-offs	or	adjustments	to	accounts	receivable	which	would	have	a	material	adverse	effect	on	its	financial	position,	liquidity	or results	of	operations.

As	 of	December	31,	2013,	the	Company's	accounts	receivable	in	Greece,	Italy,	Spain	and	Portugal	totaled	approximately	$900	million.	Of	this	amount, hospital	and	public	sector	receivables	were	approximately	$600	million	in	the	aggregate,	of	which	approximately	9%,	41%,	40%	and	10%	related	to	Greece,	Italy,	Spain and	Portugal,	respectively.	As	of	December	31,	2013,	the	Company's	total	accounts	receivable	outstanding	for	more	than	one	year	were	approximately	$200	million,	of which	approximately	50%	related	to	accounts	receivable	in	Greece,	Italy,	Spain	and	Portugal,	mostly	comprised	of	hospital	and	public	sector	receivables.

During	2013,	the	Company	completed	non-recourse	factorings	of	approximately	$210	million	of	hospital	and	public	sector	receivables	in	Spain.	During 2012,	 the	Company	collected	approximately	$500	million	of	accounts	receivable	in	connection	with	the	Spanish	government's	debt	stabilization/stimulus	plan.	In addition,	the	Company	completed	non-recourse	factorings	of	approximately	$230	million	in	2012	of	hospital	and	public	sector	accounts	receivable	in	Italy.

Additionally,	the	Company	continues	to	expand	in	the	emerging	markets.	Payment	terms	in	these	markets	tend	to	be	longer,	resulting	in	an	increase	in accounts	receivable	balances	in	certain	of	these	markets.

The	Company's	customers	with	the	largest	accounts	receivable	balances	are:	AmerisourceBergen	Corporation,	Cardinal	Health,	Inc.,	McKesson	Corporation, Zuellig	Pharma	Ltd.	(Asia	Pacific)	and	Alliance	Healthcare,	which	represented,	in	aggregate,	approximately	one-fourth	of	total	accounts	receivable	at	December	31, 2013.	The	Company	monitors	the	creditworthiness	of	its	customers	to	which	it	grants	credit	terms	in	the	normal	course	of	business.	Bad	debts	have	been	minimal.	The Company	does	not	normally	require	collateral	or	other	security	to	support	credit	sales.

Derivative	financial	instruments	are	executed	under	International	Swaps	and	Derivatives	Association	master	agreements.	The	master	agreements	with	several of	the	Company's	financial	institution	counterparties	also	include	credit	support	annexes.	These	annexes	contain	provisions	that	require	collateral	to	be	exchanged depending	on	the	value	of	the	derivative	assets	and	liabilities,	the	Company's	credit	rating,	and	the	credit	rating	of	the	counterparty.	As	of	 December	31,	2013	and	2012, the	Company	had	received	cash	collateral	of	$652	million	and	$305	million,	respectively,	from	various	counterparties	and	the	obligation	to	return	such	collateral	is recorded	in	Accrued	and	other	current	liabilities.	The	Company	had	not	advanced	any	cash	collateral	to	counterparties	as	of	December	31,	2013	or	2012.

Inventories	at	December	31	consisted	of:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
| Finished\tgoods | $1,738 | $1,924 |
| Raw\tmaterials\tand\twork\tin\tprocess | 5,894 | 5,921 |
| Supplies | 225 | 244 |
| Total\t(approximates\tcurrent\tcost) | 7,857 | 8,089 |
| Increase\tto\tLIFO\tcosts | 73 | 52 |
|  | $7,930 | $8,141 |
| Recognized\tas: |  |  |
| Inventories | $6,226 | $6,535 |
| Other\tassets | 1,704 | 1,606 |

Inventories	 valued	 under	 the	 LIFO	 method	 comprised	 approximately	$2.3	 billion	 and	$2.1	 billion	 of	 inventories	 at	December	 31,	 2013	 and	2012, respectively.	Amounts	recognized	as	Other	assets	are	comprised	almost	entirely	of	raw	materials	and	work	in	process	inventories.	At	December	31,	2013	and	2012,	these amounts	included	$1.5	billion	and	$1.4	billion,	respectively,	of	inventories	not	expected	to	be	sold	within	one	year.	In	addition,	these	amounts	included	$177	million	and $196	million	at	December	31,	2013	and	2012,	respectively,	of	inventories	produced	in	preparation	for	product	launches.

# 7.				Goodwill	and	Other	Intangibles

The	following	table	summarizes	goodwill	activity	by	segment:

|  | Pharmaceutical | All	Other | Total |
| :--- | :--- | :--- | :--- |
| Goodwill\tbalance\tJanuary\t1,\t2012 | $10,107 | $2,048 | $12,155 |
| Other\t(1) | (21) | — | (21) |
| Goodwill\tbalance\tDecember\t31,\t2012 | 10,086 | 2,048 | 12,134 |
| Acquisitions | 103 | 188 | 291 |
| Divestitures | (45) | — | (45) |
| Other\t(1) | (79) | — | (79) |
| Goodwill\tbalance\tDecember\t31,\t2013 | $10,065 | $2,236 | $12,301 |

(1)	Other	includes	cumulative	translation	adjustments	on	goodwill	balances	and	certain	other	adjustments.

The	additions	to	Pharmaceutical	segment	goodwill	in	2013	resulted	from	the	formation	of	the	Supera	joint	venture	(see	Note	4)	and	the	reductions	resulted from	the	divestiture	of	the	Company's	API	manufacturing	business	and	related	branded	products	(see	Note	3).

In	July	2013,	the	Company	acquired	the	remaining	shares	of	Physicians	Interactive,	a	provider	of	on-line	and	mobile	clinical	resources	and	solutions	for health	care	professionals	in	which	Merck	had	an	existing	24%	ownership	interest,	for	$97	million.	In	November	2013,	Merck	acquired	Health	Management	Resources Corporation,	a	leader	in	medical	weight	management,	for	$87	million.	These	transactions	collectively	resulted	in	the	addition	of	approximately	$175	million	of	goodwill during	2013	included	in	other	segments.	Pro	forma	financial	information	has	not	been	included	for	these	transactions	because	the	historical	financial	results	are	not significant	when	compared	with	the	Company's	financial	results.

# Other	intangibles	at	December	31	consisted	of:

|  |  | 2013 |  |  | 2012 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross\nCarrying\nAmount | Accumulated\nAmortization | Net | Gross\nCarrying\nAmount | Accumulated\nAmortization | Net |
| Products\tand\tproduct\trights | $41,691 | $21,216 | $20,475 | $41,932 | $16,678 | $25,254 |
| In-process\tresearch\tand\tdevelopment | 1,856 | — | 1,856 | 2,393 | — | 2,393 |
| Tradenames | 1,632 | 310 | 1,322 | 1,521 | 236 | 1,285 |
| Other | 958 | 810 | 148 | 896 | 745 | 151 |
|  | $46,137 | $22,336 | $23,801 | $46,742 | $17,659 | $29,083 |

Acquired	intangibles	include	products	and	product	rights,	tradenames	and	patents,	which	are	recorded	at	fair	value,	assigned	an	estimated	useful	life,	and	are amortized	primarily	on	a	straight-line	basis	over	their	estimated	useful	lives.	Some	of	the	Company's	more	significant	acquired	intangibles	related	to	marketed	products at	December	31,	2013	include	Zetia,	$4.7	billion;	Vytorin,	$2.6	billion;	Nasonex,	$1.3	billion,	Claritin,	$1.5	billion,	NuvaRing,	$867	million,	as	well	as	$1.3	billion	in	the aggregate	related	to	several	products	marketed	for	the	treatment	of	chronic	hepatitis	C	(Victrelis,	PegIntron	and	Rebetol).

During	2013	and	2011,	the	Company	recorded	impairment	charges	related	to	marketed	products	of	$486	million	 and	$118	million,	respectively,	within Material	and	production	costs.	Of	the	amount	recorded	in	2013,	$330	million	resulted	from	lower	cash	flow	projections	for	Saphris/Sycrest,	due	to	reduced	expectations in	international	markets	and	in	the	United	States.	These	revisions	to	cash	flows	indicated	that	the	Saphris/Sycrest	intangible	asset	value	was	not	recoverable	on	an undiscounted	cash	flows	basis.	The	Company	utilized	market	participant	assumptions	and	considered	several	different	scenarios	to	determine	its	best	estimate	of	the	fair value	of	the	intangible	asset	related	to	Saphris/Sycrest	that,	when	compared	with	its	related	carrying	value,	resulted	in	the	impairment	charge	noted	above.	The	remaining $156	million	of	impairment	charges	in	2013	resulted	from	lower	cash	flow	projections	for	Rebetol	due	to	reduced	expectations	in	Japan	and	Europe.	These	revisions	to cash	 flows	 indicated	 that the	Rebetol intangible	asset	value	was	not	recoverable	on	an	undiscounted	cash	flows	basis.	The	Company	utilized	market	participant assumptions	to	determine	its	best	estimate	of	the	fair	value	of	the	intangible	asset	related	to	Rebetol	that,	when	compared	with	its	related	carrying	value,	resulted	in	the impairment	charge	noted	above.

IPR&D	represents	the	fair	value	assigned	to	incomplete	research	projects	that	the	Company	acquires	through	business	combinations	which,	at	the	time	of acquisition,	have	not	reached	technological	feasibility.	Amounts	capitalized	as	IPR&D	are	accounted	for	as	indefinite-lived	intangible	assets,	subject	to	impairment testing	until	completion	or	abandonment	of	the	projects.	Upon	successful	completion	of	each	project,	the	Company	will	make	a	separate	determination	as	to	the	then useful	life	of	the	assets	and	begin	amortization.	During	2013,	2012	and	2011,	$346	million,	$78	million	and	$666	million,	respectively,	of	IPR&D	was	reclassified	to products	and	product	rights	upon	receipt	of	marketing	approval	in	a	major	market.

During	2013,	the	Company	recorded	$279	million	of	IPR&D	impairment	charges	within	Research	and	development	expenses.	Of	this	amount,	$181	million related	to	the	write-off	of	the	intangible	asset	associated	with	preladenant	as	a	result	of	the	discontinuation	of	the	clinical	development	program	for	this	compound.	In addition,	the	Company	recorded	impairment	charges	resulting	from	changes	in	cash	flow	assumptions	for	certain	compounds,	as	well	as	for	pipeline	programs	that	had previously	been	deprioritized	and	were	subsequently	deemed	to	have	no	alternative	use	in	the	period.	During	2012,	the	Company	recorded	$200	million	of	IPR&D impairment	charges	primarily	for	pipeline	programs	that	had	previously	been	deprioritized	and	were	subsequently	deemed	to	have	no	alternative	use	during	the	period. During	2011,	the	Company	recorded	$587	million	of	IPR&D	impairment	charges	primarily	for	pipeline	programs	that	were	abandoned	and	determined	to	have	no alternative	use,	as	well	as	for	expected	delays	in	the	launch	timing	or	changes	in	the	cash	flow	assumptions	for	certain	compounds.	In	addition,	the	impairment	charges	in 2011	related	to	pipeline	programs	that	had	previously	been	deprioritized	and	were	either	deemed	to	have	no	alternative	use	during	the	period	or	were	out-licensed	to	a third	party	for	consideration	that	was	less	than	the	related	asset's	carrying	value.

All	of	the	IPR&D	projects	that	remain	in	development	are	subject	to	the	inherent	risks	and	uncertainties	in	drug	development	and	it	is	possible	that	the Company	will	not	be	able	to	successfully	develop	and	complete	the	IPR&D	programs	and	profitably	commercialize	the	underlying	product	candidates.

The	Company	may	recognize	additional	non-cash	impairment	charges	in	the	future	related	to	other	marketed	products	or	pipeline	programs	and	such	charges could	be	material.

# 8.				Joint	Ventures	and	Other	Equity	Method	Affiliates

Equity income	from	affiliates	reflects the	performance	of the	Company's joint	ventures	and	other	equity	method	affiliates	and	was	comprised	of the following:

(1)	Primarily	reflects	results	from	Sanofi	Pasteur	MSD	and	Johnson	&	Johnson°Merck	Consumer	Pharmaceuticals	Company	(which	was	disposed	of	on	September	29,	2011).

While	maintaining	a	1%	limited	partner	interest	in	AZLP,	Merck	has	consent	and	protective	rights	intended	to	preserve	its	business	and	economic	interests, including	restrictions	on	the	power	of	the	general	partner	to	make	certain	distributions	or	dispositions.	Furthermore,	in	limited	events	of	default,	additional	rights	will	be granted	to	the	Company,	including	powers	to	direct	the	actions	of,	or	remove	and	replace,	the	Partnership's	chief	executive	officer	and	chief	financial	officer.	Merck earns	ongoing	revenue	based	on	sales	of	KBI	products	and	such	revenue	was	$920	million,	$915	million	and	$1.2	billion	in	2013,	2012	and	2011,	respectively,	primarily relating	to	sales	of	Nexium,	as	well	as	Prilosec.	In	addition,	Merck	earns	certain	Partnership	returns,	which	are	recorded	in	Equity	income	from	affiliates,	as	reflected	in the	table	above.	Such	returns	include	a	priority	return	provided	for	in	the	Partnership	Agreement,	a	preferential	return	representing	Merck's	share	of	undistributed	AZLP GAAP	earnings,	and	a	variable	return	related	to	the	Company's	1%	limited	partner	interest.

In	 2014,	 AstraZeneca	 has	 the	 option	 to	 purchase	 Merck's	 interest	 in	 KBI	 based	 in	 part	 on	 the	 value	 of	 Merck's	 interest	 in	 Nexium	 and Prilosec.	AstraZeneca's	option	is	exercisable	between	March	1,	2014	and	April	30,	2014.	If	AstraZeneca	chooses	to	exercise	this	option,	the	closing	date	is	expected	to be	June	30,	2014.	Under	the	amended	agreement,	AstraZeneca	will	make	a	payment	to	Merck	upon	closing	of	$327	million,	reflecting	an	estimate	of	the	fair	value	of Merck's	interest	in	Nexium	and	Prilosec.	This	portion	of	the	exercise	price	is	subject	to	a	true-up	in	2018	based	on	actual	sales	from	closing	in	2014	to	June	2018.	The exercise	price	will	also	include	an	additional	amount	equal	to

a	multiple	of	ten	times	Merck's	average	1%	annual	profit	allocation	in	the	partnership	for	the	three	years	prior	to	exercise.	The	Company	believes	that	it	is	likely	that AstraZeneca	will	exercise	its	option	in	2014.

Summarized	financial	information	for	AZLP	is	as	follows:

(1) Merck's	partnership	returns	from	AZLP	are	generally	contractually	determined	as	noted	above	and	are	not	based	on	a	percentage	of	income	from	AZLP,	other	than	with	respect	to	Merck's	1% limited	partnership	interest.

In	1994,	Merck	and	Pasteur	Mérieux	Connaught	(now	Sanofi	Pasteur	S.A.)	established	an	equally-owned	joint	venture	to	market	vaccines	in	Europe	and	to collaborate	in	the	development	of	combination	vaccines	for	distribution	in	Europe.	Joint	venture	vaccine	sales	were	$1.2	billion	for	2013,	$1.1	billion	for	2012	and	$1.1 billion	for	2011.

In	2011,	Merck	sold	its	50%	interest	in	the	Johnson	&	Johnson°Merck	Consumer	Pharmaceuticals	Company	("JJMCP")	joint	venture	to	J&J.	The	venture between	Merck	and	J&J	was	formed	in	1989	to	develop,	manufacture,	market	and	distribute	certain	over-the-counter	consumer	products	in	the	United	States	and	Canada. Merck	received	a	one-time	payment	of	$175	million	and	recognized	a	pretax	gain	of	$136	million	in	2011	reflected	in	Other	(income)	expense,	net.	The	partnership assets	 also	 included	 a	 manufacturing	 facility.	 Sales	 of	 products	 marketed	 by	 the	 joint	 venture	 were	$62	million	 for	 the	 period	 from	 January	 1,	 2011	 until	 the September	29,	2011	divestiture	date.

Investments	in	affiliates	accounted	for	using	the	equity	method,	including	the	above	joint	ventures,	totaled	$1.6	billion	at	December	31,	2013	and	$1.3	billion at	December	31,	2012.	These	amounts	are	reported	in	Other	assets.	Amounts	due	from	the	above	joint	ventures	included	in	Deferred	income	taxes	and	other	current assets	were	$277	million	at	December	31,	2013	and	$302	million	at	December	31,	2012.

Summarized	information	for	those	affiliates	(excluding	AZLP	disclosed	separately	above)	is	as	follows:

(1)	Includes	information	for	the	JJMCP	joint	venture	until	its	divestiture	on	September	29,	2011.

# 9.				Loans	Payable,	Long-Term	Debt	and	Other	Commitments

Loans	 payable	 at	December	31,	2013	 included	$2.1	billion	of	notes	due	 in	2014,	$1.6	billion	 of	 commercial	 paper,	$402	million	of	short-term	foreign borrowings	and	$370	million	of	long-dated	notes	that	are	subject	to	repayment	at	the	option	of	the	holder.	Loans	payable	at	December	31,	2012	included	$1.8	billion	of notes	due	in	2013,	$1.7	billion	of	commercial	paper,	$454	million	of	short-term	foreign	borrowings	and	$328	million	of	long-dated	notes	that	are	subject	to	repayment	at the	option	of	the	holders.	The	weighted-average	interest	rate	of	the	commercial	paper	borrowings	was	0.09%	and	0.15%	at	December	31,	2013	and	2012,	respectively.

Long-term	debt	at	December	31	consisted	of:

|  | 2013 | 2012 |
| :--- | :--- | :--- |
| 2.80%\tnotes\tdue\t2023 | $1,749 | $— |
| 6.50%\tnotes\tdue\t2033 | 1,306 | 1,310 |
| 5.00%\tnotes\tdue\t2019 | 1,293 | 1,294 |
| 4.15%\tnotes\tdue\t2043 | 1,246 | — |
| 3.875%\tnotes\tdue\t2021 | 1,148 | 1,147 |
| 6.55%\tnotes\tdue\t2037 | 1,143 | 1,146 |
| 6.00%\tnotes\tdue\t2017 | 1,095 | 1,112 |
| 4.00%\tnotes\tdue\t2015 | 1,029 | 1,049 |
| 4.75%\tnotes\tdue\t2015 | 1,023 | 1,044 |
| 2.40%\tnotes\tdue\t2022 | 1,000 | 1,000 |
| Floating-rate\tborrowing\tdue\t2018 | 1,000 | — |
| 1.10%\tnotes\tdue\t2018 | 998 | 998 |
| 0.70%\tnotes\tdue\t2016 | 997 | — |
| 1.30%\tnotes\tdue\t2018 | 975 | — |
| 2.25%\tnotes\tdue\t2016 | 866 | 874 |
| 5.85%\tnotes\tdue\t2039 | 749 | 749 |
| Floating-rate\tborrowing\tdue\t2016 | 500 | — |
| 6.40%\tdebentures\tdue\t2028 | 499 | 499 |
| 5.75%\tnotes\tdue\t2036 | 498 | 498 |
| 5.95%\tdebentures\tdue\t2028 | 498 | 498 |
| 3.60%\tnotes\tdue\t2042 | 492 | 492 |
| 6.30%\tdebentures\tdue\t2026 | 249 | 248 |
| 5.375%\teuro-denominated\tnotes\tdue\t2014 | — | 2,058 |
| Other | 186 | 238 |
|  | $20,539 | $16,254 |

With	the	exception	of	the	6.3%	debentures	due	2026,	the	notes	listed	in	the	table	above	are	redeemable	in	whole	or	in	part,	at	Merck's	option	at	any	time,	at varying	redemption	prices.

In	May	2013,	the	Company	completed	an	underwritten	public	offering	of	$6.5	billion	senior	unsecured	notes	consisting	of	$1.0	billion	aggregate	principal amount	of	0.70%	notes	due	in	2016,	$500	million	aggregate	principal	amount	of	floating	rate	notes	due	in	2016,	$1.0	billion	aggregate	principal	amount	of	1.30%	notes due	in	2018,	$1.0	billion	aggregate	principal	amount	of	floating	rate	notes	due	in	2018,	$1.75	billion	aggregate	principal	amount	of	2.80%	notes	due	in	2023	and	$1.25 billion	aggregate	principal	amount	of	4.15%	notes	due	in	2043.	Interest	on	the	notes	is	payable	semi-annually.	The	notes	of	each	series	are	redeemable	in	whole	or	in part	at	any	time	at	the	Company's	option	at	varying	redemption	prices.	A	substantial	portion	of	the	net	proceeds	from	the	notes	were	used	to	repurchase	the	Company's common	stock	pursuant	to	an	accelerated	share	repurchase	agreement	in	May	2013	(see	Note	11).

Certain	of	the	Company's	borrowings	require	that	Merck	comply	with	financial	covenants	including	a	requirement	that	the	Total	Debt	to	Capitalization	Ratio (as	defined	in	the	applicable	agreements)	not	exceed	60%.	At	December	31,	2013,	the	Company	was	in	compliance	with	these	covenants.

In	 May	 2012,	 the	 Company	 entered	 into	 a	$4.0	billion,	five-year	credit	facility	maturing	 in	May	2017.	The	facility	provides	backup liquidity	for the Company's	commercial	paper	borrowing	facility	and	is	to	be	used	for	general	corporate	purposes.	The	Company	has	not	drawn	funding	from	this	facility.

# 10.				Contingencies	and	Environmental	Liabilities

The	Company	is	involved	in	various	claims	and	legal	proceedings	of	a	nature	considered	normal	to	its	business,	including	product	liability,	intellectual property,	and	commercial	litigation,	as	well	as	additional	matters	such	as	antitrust	actions	and	environmental	matters.	Except	for	the	Vioxx	Litigation	(as	defined	below) for	which	a	separate	assessment	is	provided	in	this	Note,	in	the	opinion	of	the	Company,	it	is	unlikely	that	the	resolution	of	these	matters	will	be	material	to	the Company's	financial	position,	results	of	operations	or	cash	flows.

Given	the	nature	of	the	litigation	discussed	below,	including	the	Vioxx	Litigation,	and	the	complexities	involved	in	these	matters,	the	Company	is	unable	to reasonably	estimate	a	possible	loss	or	range	of	possible	loss	for	such	matters	until	the	Company	knows,	among	other	factors,	(i)	what	claims,	if	any,	will	survive dispositive	motion	practice,	(ii)	the	extent	of	the	claims,	including	the	size	of	any	potential	class,	particularly	when	damages	are	not	specified	or	are	indeterminate, (iii)	how	the	discovery	process	will	affect	the	litigation,	(iv)	the	settlement	posture	of	the	other	parties	to	the	litigation	and	(v)	any	other	factors	that	may	have	a	material effect	on	the	litigation.

The	Company	records	accruals	for	contingencies	when	it	is	probable	that	a	liability	has	been	incurred	and	the	amount	can	be	reasonably	estimated.	These accruals	are	adjusted	periodically	as	assessments	change	or	additional	information	becomes	available.	For	product	liability	claims,	a	portion	of	the	overall	accrual	is actuarially	determined	and	considers	such	factors	as	past	experience,	number	of	claims	reported	and	estimates	of	claims	incurred	but	not	yet	reported.	Individually significant	contingent	losses	are	accrued	when	probable	and	reasonably	estimable.	Legal	defense	costs	expected	to	be	incurred	in	connection	with	a	loss	contingency	are accrued	when	probable	and	reasonably	estimable.

The	Company's	decision	to	obtain	insurance	coverage	is	dependent	on	market	conditions,	including	cost	and	availability,	existing	at	the	time	such	decisions are	made.	The	Company	has	evaluated	its	risks	and	has	determined	that	the	cost	of	obtaining	product	liability	insurance	outweighs	the	likely	benefits	of	the	coverage that	is	available	and,	as	such,	has	no	insurance	for	certain	product	liabilities	effective	August	1,	2004.

# Vioxx	Litigation

# Product	Liability	Lawsuits

As	previously	disclosed,	Merck	is	a	defendant	in	approximately	90	federal	and	state	lawsuits	(the	"Vioxx	Product	Liability	Lawsuits")	alleging	personal	injury or	economic	loss	as	a	result	of	the	purchase	or	use	of	Vioxx.	Most	of	the	remaining	cases	are	coordinated	in	a	multidistrict	litigation	in	the	U.S.	District	Court	for	the Eastern	District	of	Louisiana	(the	"Vioxx	MDL")	before	Judge	Eldon	E.	Fallon.

Merck	has	reached	a	resolution,	approved	by	Judge	Fallon,	of	all	remaining	federal	court	putative	class	actions	that	were	brought	on	behalf	of	individual purchasers	or	users	of	Vioxx	seeking	reimbursement	for	alleged	economic	loss.	Under	the	settlement,	Merck	will	pay	up	to	$23	million	to	pay	all	properly	documented claims	submitted

by	class	members,	approved	attorneys'	fees	and	expenses,	and	approved	settlement	notice	costs	and	certain	other	administrative	expenses.	The	court	entered	an	order approving	the	settlement	on	January	6,	2014.	The	period	for	members	to	submit	claims	under	the	settlement	is	still	pending.

Merck	also	settled	a	Missouri	state	court	class	action	of	plaintiffs	who	sought	reimbursement	for	out-of-pocket	costs	relating	 to	Vioxx.	The	Company established	a	reserve	of	$39	million	in	2012	in	connection	with	that	settlement	agreement,	which	is	the	minimum	amount	that	the	Company	is	required	to	pay	under	the agreement.	The	settlement	was	approved,	and	final	judgment	in	the	action	has	been	entered.	The	court-approved	process	for	class	members	to	submit	claims	under	the settlement	closed	in	October	2013.

In	Indiana,	plaintiffs	filed	a	motion	to	certify	a	class	of	Indiana	Vioxx	purchasers	in	a	case	pending	before	the	Circuit	Court	of	Marion	County,	Indiana.	That case	has	been	dormant	for	several	years.	In	April	2010,	a	Kentucky	state	court	denied	Merck's	motion	for	summary	judgment	and	certified	a	class	of	Kentucky	plaintiffs seeking	reimbursement	for	out-of-pocket	costs	relating	to	Vioxx.	The	trial	court	subsequently	entered	an	amended	class	certification	order	in	January	2011.	The	matter was	settled	on	a	named-plaintiff-only	basis	in	December	2013.

Merck	is	also	a	defendant	in	lawsuits	brought	by	state	Attorneys	General	of	four	states	—	Alaska,	Mississippi,	Montana	and	Utah.	All	of	these	actions	are pending	in	the	Vioxx	MDL	proceeding.	These	actions	allege	that	Merck	misrepresented	the	safety	of	Vioxx.	These	suits	seek	recovery	for	expenditures	on	Vioxx	by government-funded	health	care	programs,	such	as	Medicaid,	and/or	penalties	for	alleged	Consumer	Fraud	Act	violations.	In	November	2013,	the	Circuit	Court	of Franklin	County,	Kentucky	approved	a	settlement	in	an	action	filed	by	the	Kentucky	Attorney	General,	under	which	Merck	agreed	to	pay	Kentucky	$25	million	to resolve	its	lawsuit	and	the	related	appeals.

# Shareholder	Lawsuits

As	previously	disclosed,	in	addition	to	the	Vioxx	Product	Liability	Lawsuits,	various	putative	class	actions	and	individual	lawsuits	under	federal	securities laws	and	state	laws	have	been	filed	against	Merck	and	various	current	and	former	officers	and	directors	(the	"Vioxx	Securities	Lawsuits").	The	Vioxx	Securities	Lawsuits are	coordinated	in	a	multidistrict	litigation	in	the	U.S.	District	Court	for	the	District	of	New	Jersey	before	Judge	Stanley	R.	Chesler,	and	have	been	consolidated	for	all purposes.	In	August	2011,	Judge	Chesler	granted	in	part	and	denied	in	part	Merck's	motion	to	dismiss	the	Fifth	Amended	Class	Action	Complaint	in	the	consolidated securities	action.	Among	other	things,	the	claims	based	on	statements	made	on	or	after	the	voluntary	withdrawal	of	Vioxx	on	September	30,	2004,	have	been	dismissed. In	October	2011,	defendants	answered	the	Fifth	Amended	Class	Action	Complaint.	In	April	2012,	plaintiffs	filed	a	motion	for	class	certification	and,	in	January	2013, Judge	Chesler	granted	that	motion.	In	March	2013,	plaintiffs	filed	a	motion	for	leave	to	amend	their	complaint	to	add	certain	allegations	to	expand	the	class	period.	In May	2013,	the	court	denied	plaintiffs'	motion	for	leave	to	amend	their	complaint	to	expand	the	class	period,	but	granted	plaintiffs'	leave	to	amend	their	complaint	to	add certain	allegations	within	the	existing	class	period.	In	June	2013,	plaintiffs	filed	their	Sixth	Amended	Class	Action	Complaint.	In	July	2013,	defendants	answered	the Sixth	Amended	Class	Action	Complaint.	Discovery	has	been	completed	and	is	now	closed.	Under	the	court's	scheduling	order,	dispositive	motions	were	filed	on January	17,	2014.

As	previously	disclosed,	several	individual	securities	lawsuits	filed	by	foreign	institutional	investors	also	are	consolidated	with	the	Vioxx	Securities	Lawsuits. In	October	2011,	plaintiffs	filed	amended	complaints	in	each	of	the	pending	individual	securities	lawsuits.	Also	in	October	2011,	a	new	individual	securities	lawsuit	(the "KBC	Lawsuit")	was	filed	in	the	District	of	New	Jersey	by	several	foreign	institutional	investors;	that	case	is	also	consolidated	with	the	Vioxx	Securities	Lawsuits.	In January	2012,	defendants	filed	motions	 to	dismiss	 in	one	of	 the	 individual	 lawsuits	(the	"ABP	Lawsuit").	Briefing	on	 the	motions	 to	dismiss	was	completed	 in March	 2012.	 In	August	 2012,	 Judge	 Chesler	 granted	 in	 part	 and	 denied	 in	 part	 the	 motions	 to	 dismiss	 the	ABP	 Lawsuit.	Among	 other	 things,	 certain	 alleged misstatements	and	omissions	were	dismissed	as	inactionable	and	all	state	law	claims	were	dismissed	in	full.	In	September	2012,	defendants	answered	the	complaints	in all	individual	actions	other	than	the	KBC	Lawsuit;	on	the	same	day,	defendants	moved	to	dismiss	the	complaint	in	the	KBC	Lawsuit	on	statute	of	limitations	grounds.	In December	2012,	Judge	Chesler	denied	the	motion	to	dismiss	the	KBC	Lawsuit	and,	in	January	2013,	defendants	answered	the	complaint	in	the	KBC	Lawsuit.	Discovery has	been	completed	and	is	now	closed.	Under	the	court's	scheduling	order,	dispositive	motions	were	filed	on	January	24,	2014.

# Insurance

The	Company	has	Directors	and	Officers	insurance	coverage	applicable	to	the	Vioxx	Securities	Lawsuits	with	remaining	stated	upper	limits	of	approximately $165	million,	which	is	currently	being	used	to	partially	fund	the	Company's	legal	fees.	As	a	result	of	the	previously	disclosed	insurance	arbitration,	additional	insurance coverage	for	these	claims	should	also	be	available,	if	needed,	under	upper-level	excess	policies	that	provide	coverage	for	a	variety	of	risks.	There	are	disputes	with	the insurers	about	the	availability	of	some	or	all	of	the	Company's	insurance	coverage	for	these	claims	and	there	are	likely	to	be	additional	disputes.	The	amounts	actually recovered	under	the	policies	discussed	in	this	paragraph	may	be	less	than	the	stated	upper	limits.

# International	Lawsuits

As	previously	disclosed,	in	addition	to	the	lawsuits	discussed	above,	Merck	has	been	named	as	a	defendant	in	litigation	relating	to	Vioxx	in	Brazil,	Canada, Europe	and	Israel	(collectively,	the	"Vioxx	International	Lawsuits").	As	previously	disclosed,	the	Company	has	entered	into	an	agreement	to	resolve	all	claims	related	to Vioxx	in	Canada	pursuant	to	which	the	Company	will	pay	a	minimum	of	approximately	$21	million	but	not	more	than	an	aggregate	maximum	of	approximately	$36 million.	The	agreement	has	been	approved	by	courts	in	Canada's	provinces.

# Reserves

The	Company	believes	that	it	has	meritorious	defenses	to	the	remaining	Vioxx	Product	Liability	Lawsuits,	Vioxx	Securities	Lawsuits	and	Vioxx	International Lawsuits	(collectively,	the	"Vioxx	Litigation")	and	will	vigorously	defend	against	them.	In	view	of	the	inherent	difficulty	of	predicting	the	outcome	of	litigation, particularly	where	there	are	many	claimants	and	the	claimants	seek	indeterminate	damages,	the	Company	is	unable	to	predict	the	outcome	of	these	matters	and,	at	this time,	cannot	reasonably	estimate	the	possible	loss	or	range	of	loss	with	respect	to	the	remaining	Vioxx	Litigation.	The	Company	has	established	a	reserve	with	respect	to the	Canadian	settlement,	certain	other	Vioxx	Product	Liability	Lawsuits	and	other	immaterial	settlements	related	to	certain	Vioxx	International	Lawsuits.	The	Company also	has	an	immaterial	remaining	reserve	relating	to	the	previously	disclosed	Vioxx	investigation	for	the	non-participating	states	with	which	litigation	is	continuing.	The Company	has	established	no	other	liability	reserves	with	respect	to	the	Vioxx	Litigation.	Unfavorable	outcomes	in	the	Vioxx	Litigation	could	have	a	material	adverse effect	on	the	Company's	financial	position,	liquidity	and	results	of	operations.

# Other	Product	Liability	Litigation

# Fosamax

As	previously	disclosed,	Merck	 is	a	defendant	 in	product	 liability	 lawsuits	 in	 the	United	States	 involving	Fosamax	(the	"Fosamax	 Litigation").	As	 of December	31,	2013,	approximately	5,415	cases,	which	include	approximately	5,680	plaintiff	groups,	had	been	filed	and	were	pending	against	Merck	in	either	federal	or state	court,	including	one	case	which	seeks	class	action	certification,	as	well	as	damages	and/or	medical	monitoring.	In	approximately	1,140	of	these	actions,	plaintiffs allege,	among	other	things,	that	they	have	suffered	osteonecrosis	of	the	jaw	("ONJ"),	generally	subsequent	to	invasive	dental	procedures,	such	as	tooth	extraction	or dental	implants	and/or	delayed	healing,	in	association	with	the	use	of	Fosamax.	In	addition,	plaintiffs	in	approximately	4,275	of	these	actions	generally	allege	that	they sustained	femur	fractures	and/or	other	bone	injuries	("Femur	Fractures")	in	association	with	the	use	of	Fosamax.

In	December	2013,	Merck	reached	an	agreement	in	principle	with	the	Plaintiffs'	Steering	Committee	in	the	Fosamax	ONJ	MDL	(as	defined	below)	to	resolve pending	ONJ	cases	not	on	appeal	in	the	Fosamax	ONJ	MDL	and	in	the	state	courts	for	an	aggregate	amount	of	$27.7	million,	which	the	Company	recorded	as	liability	in the	fourth	quarter	of	2013.	All	of	plaintiffs'	counsel	have	advised	the	Company	that	they	intend	to	participate	in	the	settlement	plan.	As	a	condition	to	the	settlement, 100%	of	the	state	and	federal	ONJ	plaintiffs	must	also	agree	to	participate	in	the	settlement	plan	by	March	31,	2014.	If	100%	participation	is	not	achieved,	Merck	has until	May	15,	2014,	to	determine	whether	it	will	terminate	the	agreement,	waive	the	100%	participation	requirement,	or	agree	to	a	lesser	funding	amount	for	the settlement	fund.	This	tentative	settlement	has	no	effect	on	the	cases	alleging	Femur	Fractures	discussed	below.

# Cases	Alleging	ONJ	and/or	Other	Jaw	Related	Injuries

In	August	2006,	 the	Judicial	Panel	on	Multidistrict	Litigation	("JPML")	ordered that	certain	Fosamax	product	liability	cases	pending	in	federal	courts nationwide	should	be	transferred	and	consolidated	into	one	multidistrict	litigation

(the	"Fosamax	ONJ	MDL")	for	coordinated	pre-trial	proceedings.	The	Fosamax	ONJ	MDL	has	been	transferred	to	Judge	John	Keenan	in	the	U.S.	District	Court	for	the Southern	District	of	New	York.	As	a	result	of	the	JPML	order,	approximately	 855	of	the	cases	are	before	Judge	Keenan.	In	the	first	Fosamax	ONJ	MDL	trial,	Boles	v. Merck,	the	Fosamax	ONJ	MDL	court	declared	a	mistrial	because	the	eight	person	jury	could	not	reach	a	unanimous	verdict.	The	Boles	case	was	retried	in	June	2010	and resulted	in	a	verdict	in	favor	of	the	plaintiff	in	the	amount	of	$8	million.	Merck	filed	post-trial	motions	seeking	judgment	as	a	matter	of	law	or,	in	the	alternative,	a	new trial.	In	October	2010,	the	court	denied	Merck's	post-trial	motions	but	sua	sponte	ordered	a	remittitur	reducing	the	verdict	to	$1.5	million.	Plaintiff	rejected	the	remittitur ordered	by	the	court	and	requested	a	new	trial	on	damages.	Plaintiff	and	Merck	subsequently	entered	into	a	confidential	stipulation	as	to	the	amount	of	plaintiff's damages	that	enabled	Merck	to	appeal	the	underlying	judgment,	and	Merck	filed	its	appeal	in	the	Boles	case	in	October	2012.	Prior	to	2013,	three	other	cases	were	tried to	verdict	in	the	Fosamax	ONJ	MDL.	Defense	verdicts	in	favor	of	Merck	were	returned	in	each	of	those	three	cases.	Plaintiffs	have	filed	an	appeal	in	two	of	the	cases	– Graves	v.	Merck	and	Secrest	v.	Merck.	In	January	2013,	the	U.S.	Court	of	Appeals	for	the	Second	Circuit	affirmed	the	judgment	in	Merck's	favor	in	Secrest.	Plaintiff	in the	Secrest	case	subsequently	filed	a	petition	for	a	writ	of	certiorari	with	the	U.S.	Supreme	Court,	which	was	denied	in	June	2013.

In	February	2011,	Judge	Keenan	ordered	that	two	further	bellwether	trials	be	conducted	in	the	Fosamax	ONJ	MDL.	Spano	v.	Merck	and	Jellema	v.	Merck were	selected	by	the	court	to	be	tried	in	2012,	but	each	case	was	dismissed	by	the	plaintiffs.	In	March	2012,	the	court	selected	Scheinberg	v.	Merck	as	the	next	case	to	be tried.	Trial	in	the	Scheinberg	case	began	in	January	2013	and,	in	February	2013,	the	jury	returned	a	mixed	verdict,	finding	in	favor	of	Merck	on	plaintiff's	design	defect claim	and	finding	in	favor	of	plaintiff	on	her	failure	to	warn	claim,	and	awarded	her	$285	thousand	in	compensatory	damages.	Merck's	post-trial	motion	for	judgment	as a	matter	of	law	in	the	Scheinberg	case	was	denied	in	July	2013,	and	the	Company	has	filed	an	appeal	with	the	U.S.	Court	of	Appeals	for	the	Second	Circuit.

In	November	2012,	Judge	Keenan	issued	an	order	requiring	plaintiffs	who	do	not	allege	certain	types	of	specific	injuries	to	provide	expert	reports	in	support of	their	claims.	The	deadlines	for	submission	of	these	reports	were	staggered	throughout	the	first	half	of	2013.	To	date,	the	claims	of	approximately	425	plaintiffs	subject to	the	order	have	been	dismissed	with	prejudice.	In	August	2013,	Judge	Keenan	denied	Merck's	request	to	extend	his	order	to	additional	groups	of	plaintiffs	and	also decided	to	start	winding	down	the	Fosamax	ONJ	MDL	by	the	remand/transfer	of	the	remaining	cases	back	to	their	proper	venues	at	a	rate	of	200	cases	per	month beginning	November	1,	2013.	That	date	was	subsequently	changed	at	plaintiffs'	request	to	December	1,	2013,	and	was	later	suspended	indefinitely.

In	addition,	in	July	2008,	an	application	was	made	by	the	Atlantic	County	Superior	Court	of	New	Jersey	requesting	that	all	of	the	Fosamax	cases	pending	in New	Jersey	be	considered	for	mass	tort	designation	and	centralized	management	before	one	judge	in	New	Jersey.	In	October	2008,	the	New	Jersey	Supreme	Court ordered	that	all	pending	and	future	actions	filed	in	New	Jersey	arising	out	of	the	use	of	Fosamax	and	seeking	damages	for	existing	dental	and	jaw-related	injuries, including	ONJ,	but	not	solely	seeking	medical	monitoring,	be	designated	as	a	mass	tort	for	centralized	management	purposes	before	Judge	Carol	E.	Higbee	in	Atlantic County	Superior	Court.	As	of	December	31,	2013,	approximately	280	ONJ	cases	were	pending	against	Merck	in	Atlantic	County,	New	Jersey.	In	July	2009,	Judge Higbee	entered	a	Case	Management	Order	(and	various	amendments	thereto)	setting	forth	a	schedule	that	contemplates	completing	fact	and	expert	discovery	in	an initial	group	of	cases	to	be	reviewed	for	trial.	In	February	2011,	the	jury	in	Rosenberg	v.	Merck,	the	first	trial	in	the	New	Jersey	coordinated	proceeding,	returned	a verdict	in	Merck's	favor.	In	April	2012,	the	jury	in	Sessner	v.	Merck,	the	second	case	tried	in	New	Jersey,	also	returned	a	verdict	in	Merck's	favor.	Plaintiffs	have	filed an	appeal	in	both	cases.	In	March	2013,	the	New	Jersey	Appellate	Division	affirmed	the	judgment	in	Merck's	favor	in	the	Rosenberg	case.

# Cases	Alleging	Femur	Fractures

In	March	2011,	Merck	submitted	a	Motion	to	Transfer	to	the	JPML	seeking	to	have	all	federal	cases	alleging	Femur	Fractures	consolidated	into	one multidistrict	litigation	for	coordinated	pre-trial	proceedings.	The	Motion	to	Transfer	was	granted	in	May	2011,	and	all	federal	cases	involving	allegations	of	Femur Fracture	have	been	or	will	be	transferred	to	a	multidistrict	litigation	in	the	District	of	New	Jersey	(the	"Fosamax	Femur	Fracture	MDL").	As	a	result	of	the	JPML	order, approximately	1,105	cases	were	pending	in	the	Fosamax	Femur	Fracture	MDL	as	of	December	31,	2013.	A	Case	Management	Order	was	entered	requiring	the	parties	to review	40	cases	(later	reduced	to	33	cases).	Judge	Joel	Pisano	selected	four	cases	from	that	group	to	be	tried	as	the	initial	bellwether	cases	in	the	Fosamax	Femur Fracture	MDL.	The	first	bellwether	case,	Glynn	v.	Merck,	began	on	April	8,	2013,	and	the	jury	returned	a	verdict	in	Merck's

favor	on	April	29,	2013;	in	addition,	on	June	27,	2013,	Judge	Pisano	granted	Merck's	motion	for	judgment	as	a	matter	of	law	in	the	Glynn	case	and	held	that	the plaintiff's	failure	to	warn	claim	was	preempted	by	federal	law.	Judge	Pisano	set	a	May	5,	2014,	trial	date	for	the	bellwether	trial	of	a	case	in	which	the	alleged	injury	took place	after	January	31,	2011.	Following	the	completion	of	fact	discovery,	the	court	selected	Sweet	v.	Merck	as	the	next	Fosamax	Femur	Fracture	MDL	case	to	be	tried on	May	5,	2014,	but	plaintiffs	subsequently	dismissed	that	case.	As	a	result,	the	May	2014	trial	date	was	withdrawn	and	the	court	is	expected	to	set	an	October	1,	2014 trial	date	for	the	next	bellwether	trial	in	the	Fosamax	Femur	Fracture	MDL.

In	addition,	Judge	Pisano	entered	an	order	in	August	2013	requiring	plaintiffs	in	the	Fosamax	Femur	Fracture	MDL	to	show	cause	why	those	cases	asserting claims	for	a	femur	fracture	injury	that	took	place	prior	to	September	14,	2010,	should	not	be	dismissed	based	on	the	court's	preemption	decision	in	the	Glynn	case. Plaintiffs	filed	their	responses	to	the	show	cause	order	at	the	end	of	September	2013	and	Merck	filed	its	reply	to	those	responses	at	the	end	of	October	2013.	A	hearing on	the	show	cause	order	was	held	on	January	29,	2014	and	a	final	ruling	from	the	court	is	pending.

As	 of	December	31,	2013,	 approximately	2,655	cases	alleging	Femur	Fractures	have	been	filed	in	New	Jersey	state	court	and	are	pending	before	Judge Higbee	in	Atlantic	County	Superior	Court.	The	parties	selected	an	initial	group	of	30	cases	to	be	reviewed	through	fact	discovery.	The	first	trial	of	the	New	Jersey	state Femur	Fracture	cases,	Su	v.	Merck,	began	in	early	March	2013,	but	a	mistrial	was	declared	later	in	March	2013	after	the	plaintiff	suffered	a	serious	medical	issue unrelated	to	her	use	of	Fosamax	that	prevented	her	from	proceeding	with	the	trial.	The	next	trial,	Unanski	v.	Merck,	was	set	to	be	tried	beginning	in	November	2013,	but was	continued	and	is	now	set	for	trial,	potentially	along	with	one	or	two	other	cases	(Love	v.	Merck	 and	Caravello	v.	Merck),	beginning	on	March	17,	2014.	An additional	group	of	50	cases	to	be	reviewed	through	fact	discovery	was	selected	in	November	2013.

As	 of	December	31,	2013,	 approximately	510	cases	alleging	Femur	Fractures	have	been	filed	in	California	state	court.	A	petition	was	filed	seeking	to coordinate	all	Femur	Fracture	cases	filed	in	California	state	court	before	a	single	judge	in	Orange	County,	California.	The	petition	was	granted	and	Judge	Steven	Perk	is now	presiding	over	the	coordinated	proceedings.	In	November	2013,	the	court	ordered	that	fact	discovery	commence.	The	parties	are	expected	to	select	the	first	round	of cases	to	be	included	in	a	bellwether	discovery	pool	in	May	2014.

Additionally,	there	are	seven	Femur	Fracture	cases	pending	in	other	state	courts.

Discovery	is	ongoing	in	the	Fosamax	Femur	Fracture	MDL	and	in	state	courts	where	Femur	Fracture	cases	are	pending	and	the	Company	intends	to	defend against	these	lawsuits.

# Januvia/Janumet

As	previously	disclosed,	Merck	is	a	defendant	in	product	liability	lawsuits	in	the	United	States	involving	Januvia	and/or	Janumet.	As	of	December	31,	2013, approximately	165	cases	were	served	on,	and	are	pending	against,	Merck	alleging	generally	that	use	of	Januvia	and/or	Janumet	caused	the	development	of	pancreatic cancer.	These	complaints	were	filed	in	several	different	state	and	federal	courts.	Most	of	the	claims	are	pending	in	a	consolidated	multidistrict	litigation	proceeding	in	the U.S.	District	Court	for	the	Southern	District	of	California	called	"In	re	Incretin-Based	Therapies	Products	Liability	Litigation."	That	proceeding	includes	federal	lawsuits alleging	pancreatic	cancer	due	to	use	of	the	following	medicines:	Januvia,	Janumet,	Byetta	and	Victoza,	the	latter	two	of	which	are	products	manufactured	by	other pharmaceutical	companies.	In	addition	to	the	cases	noted	above,	the	Company	has	agreed,	as	of	December	31,	2013,	to	toll	the	statute	of	limitations	for	two	additional claims.	The	Company	intends	to	defend	against	these	lawsuits.

# NuvaRing

As	previously	disclosed,	beginning	 in	May	2007,	a	number	of	complaints	were	filed	 in	various	 jurisdictions	asserting	claims	against	 the	Company's subsidiaries	Organon	USA,	Inc.,	Organon	Pharmaceuticals	USA,	Inc.,	Organon	International	(collectively,	"Organon"),	and	the	Company	arising	from	Organon's marketing	and	sale	of	NuvaRing	(the	"NuvaRing	Litigation"),	a	combined	hormonal	contraceptive	vaginal	ring.	The	plaintiffs	contend	that	Organon	and	Schering- Plough,	 among	 other	 things,	 failed	 to	 adequately	 design	 and	 manufacture	NuvaRing	 and	 failed	 to	 adequately	 warn	 of	 the	 alleged	 increased	 risk	 of	 venous thromboembolism	("VTE")	posed	by	NuvaRing,	and/or	downplayed	the	risk	of	VTE.	The	plaintiffs	seek	damages	for	injuries	allegedly	sustained	from	their	product	use, including	some	alleged	deaths,	heart	attacks	and	strokes.	The	majority	of	the	cases	are	currently	pending	in	a	federal	multidistrict	litigation	(the	"NuvaRing	MDL") venued	in	Missouri	and	in	a	coordinated	proceeding	in	New	Jersey	state	court.

As	of	December	31,	2013,	there	were	approximately	1,880	filed	NuvaRing	cases,	and	approximately	1,405	unfiled	claims	that	were	identified	in	response	to census	orders	issued	in	the	NuvaRing	MDL	and	New	Jersey	proceedings.	Of	the	filed	cases,	approximately	1,660	are	or	will	be	pending	in	the	NuvaRing	MDL	in	the U.S.	District	Court	for	the	Eastern	District	of	Missouri	before	Judge	Rodney	Sippel,	and	approximately	210	are	pending	in	coordinated	proceedings	in	the	Bergen County	Superior	Court	of	New	Jersey	before	Judge	Brian	R.	Martinotti.	Proceedings	in	the	NuvaRing	MDL	and	New	Jersey	are	stayed	until	May	31,	2014.	Seven additional	cases	are	pending	in	various	other	state	courts,	including	cases	in	a	coordinated	state	proceeding	in	the	San	Francisco	Superior	Court	in	California	before Judge	John	E.	Munter.	Certain	state	court	cases	are	scheduled	for	trial	in	2014.

Merck	and	negotiating	plaintiffs'	counsel	have	agreed	to	a	settlement	of	the	NuvaRing	Litigation	that	is	intended	to	resolve	at	least	95%	of	cases	filed	as	of February	7,	2014,	and	unfiled	claims	under	retainer	by	counsel	prior	to	that	date.	Merck	has	agreed	to	a	lump	total	settlement	of	$100	million,	provided	there	is participation	in	the	settlement	of	at	least	95%	of	plaintiffs	and	eligible	claimants	overall	and	in	certain	categories.	The	Company	has	certain	insurance	coverage	available to	it,	which	is	currently	being	used	to	partially	fund	the	Company's	legal	fees.	This	insurance	coverage	will	also	be	used	to	fund	the	settlement.	Accordingly,	at December	31,	2013,	the	Company's	consolidated	balance	sheet	includes	a	current	liability	for	the	settlement	amount	and	a	corresponding	current	asset	reflecting anticipated	insurance	recoveries.

# Propecia/Proscar

As	previously	disclosed,	Merck	is	a	defendant	in	product	liability	lawsuits	in	the	United	States	involving	Propecia	and/or	Proscar.	As	of	December	31,	2013, approximately	1,140	lawsuits	involving	a	total	of	approximately	1,390	plaintiffs	(in	a	few	instances	spouses	are	joined	as	plaintiffs	in	the	suits)	who	allege	that	they	have experienced	persistent	sexual	side	effects	following	cessation	of	treatment	with	Propecia	 and/or	Proscar	have	been	filed	against	Merck.	Approximately	20	of	the plaintiffs	also	allege	that	Propecia	or	Proscar	has	caused	or	can	cause	prostate	cancer	or	male	breast	cancer.	The	lawsuits	have	been	filed	in	various	federal	courts	and	in state	court	in	New	Jersey.	The	federal	lawsuits	have	been	consolidated	for	pretrial	purposes	in	a	federal	multidistrict	litigation	before	Judge	John	Gleeson	of	the	Eastern District	of	New	York.	The	matters	pending	in	state	court	in	New	Jersey	have	been	consolidated	before	Judge	Jessica	Mayer	in	Middlesex	County.	In	addition,	there	is one	matter	pending	in	federal	court	in	Massachusetts	and	one	matter	pending	in	state	court	in	St.	Louis,	Missouri.	The	Company	intends	to	defend	against	these	lawsuits.

# Vytorin/Zetia	Litigation

As	previously	disclosed,	in	April	2008,	a	Merck	shareholder	filed	a	putative	class	action	lawsuit	in	federal	court	which	was	consolidated	in	the	District	of New	Jersey	under	the	caption,	In	re	Merck	&	Co.,	Inc.	Vytorin/Zetia	Securities	Litigation.	The	complaint	alleged	that	Merck	and	other	defendants	delayed	releasing unfavorable	results	of	the	ENHANCE	clinical	trial	regarding	the	efficacy	of	Vytorin	and	that	Merck	made	false	and	misleading	statements	about	expected	earnings knowing	that,	once	the	results	of	the	ENHANCE	study	were	released,	sales	of	Vytorin	would	decline	and	Merck's	earnings	would	suffer.	In	February	2013,	Merck announced	an	agreement	in	principle	with	plaintiffs	to	settle	this	matter	for	$215	million.	The	settlement	agreement	was	executed	by	the	parties	in	June	2013,	and approved	by	the	court	in	October	2013.	The	settlement	was	reflected	in	the	Company's	2012	financial	results	as	discussed	below.

There	was	a	similar	consolidated	securities	class	action	lawsuit	pending	in	the	District	of	New	Jersey	against	Schering-Plough	and	other	defendants	under	the caption,	In	re	Schering-Plough	Corporation/ENHANCE	Securities	Litigation.	In	February	2013,	Merck	announced	an	agreement	in	principle	with	plaintiffs	to	settle	this matter	 for	$473	million.	The	settlement	agreement	was	executed	 in	June	2013,	and	approved	by	 the	court	 in	October	2013.	The	settlement	was	reflected	 in	 the Company's	2012	financial	results	and,	together	with	the	settlement	described	in	the	preceding	paragraph	(collectively,	the	"ENHANCE	Litigation"),	resulted	in	an aggregate	charge	of	$493	million	after	taking	into	account	anticipated	insurance	recoveries	of	$195	million.	In	the	second	quarter	of	2013,	the	Company	paid	$480 million	into	a	settlement	fund.	The	Company's	insurers	subsequently	paid	the	remaining	$208	million,	which	reflects	an	additional	$13	million	of	insurance	recoveries not	previously	recognized.

On	November	14,	2013,	two	complaints	were	filed	in	the	District	of	New	Jersey	against	Merck	as	successor	to	Schering-Plough,	and	other	defendants,	by certain	institutional	investors	who	"opted-out"	of	the	ENHANCE	securities	class	action	against	Schering-Plough.	In	addition,	on	January	14,	2014,	two	complaints	were filed	in	the	District	of	New	Jersey	against	Merck	and	other	defendants	by	certain	institutional	investors	who	"opted-out"	of	the	Vytorin/Zetia

securities	class	action	against	Merck.	The	"opt-out"	complaints	contain	allegations	similar	to	those	made	by	plaintiffs	in	the	settled	class	actions	against	Schering-Plough and	Merck.	The	Company	intends	to	move	to	dismiss	these	complaints	and	otherwise	to	defend	itself	in	the	litigation.

# Governmental	Proceedings

As	previously	disclosed,	Merck	has	received	a	Civil	Investigative	Demand	("CID")	issued	by	the	U.S.	Department	of	Justice	(the	"DOJ")	addressed	to Inspire,	a	company	acquired	by	Merck	in	May	2011.	The	CID	advises	that	it	relates	to	a	False	Claims	Act	investigation	concerning	allegations	that	Inspire	caused	the submission	of	false	claims	to	federal	health	benefits	programs	for	the	drug	AzaSite	by	marketing	it	for	the	treatment	of	indications	not	approved	by	the	U.S.	Food	and Drug	Administration	(the	"FDA").	The	Company	is	cooperating	with	the	DOJ	in	its	investigation.

As	previously	disclosed,	 the	Company	received	a	subpoena	from	 the	U.S.	Attorney's	Office	for	 the	Eastern	District	of	California	 in	2010	requesting information	in	a	civil	federal	health	care	investigation	relating	to	the	Company's	marketing	and	selling	activities	with	respect	to	Integrilin	and	Avelox	from	January	2003 to	June	2010.	In	December	2012,	the	U.S.	District	Court	for	the	Eastern	District	of	California	unsealed	a	complaint	that	a	former	employee	of	the	Company	had	filed against	it	in	2009	under	the	federal	False	Claims	Act	and	the	False	Claims	Acts	of	various	states.	The	complaint	alleges	that	the	Company	caused	false	claims	to	be	made to	federal	and	state	health	care	programs	by	promoting	Integrilin	for	unapproved	indications	and	providing	unlawful	payments	and	benefits	to	physicians	and	others	to increase	the	utilization	of	Integrilin	and	Avelox.	The	federal	government	and	the	states	under	whose	statutes	the	suit	was	filed	each	had	the	right,	after	investigating	these allegations,	to	intervene	in	this	suit	and	assume	responsibility	for	its	direction,	but	each	of	them	has	notified	the	court	that	they	decline	to	intervene.	The	Company intends	to	defend	against	this	lawsuit.

As	previously	disclosed,	on	June	21,	2012,	the	U.S.	District	Court	for	the	Eastern	District	of	Pennsylvania	unsealed	a	complaint	that	has	been	filed	against the	Company	under	the	federal	False	Claims	Act	by	two	former	employees	alleging,	among	other	things,	that	the	Company	defrauded	the	U.S.	government	by	falsifying data	in	connection	with	a	clinical	study	conducted	on	the	mumps	component	of	the	Company's	M-M-R	II	vaccine.	The	complaint	alleges	the	fraud	took	place	between 1999	and	2001.	The	U.S.	government	had	the	right	to	participate	in	and	take	over	the	prosecution	of	this	lawsuit,	but	has	notified	the	court	that	it	declined	to	exercise	that right.	The	two	former	employees	are	pursuing	the	lawsuit	without	the	involvement	of	the	U.S.	government.	In	addition,	a	putative	class	action	lawsuit	has	been	filed against	the	Company	in	the	Eastern	District	of	Pennsylvania	on	behalf	of	direct	purchasers	of	the	M-M-R	II	vaccine	which	is	predicated	on	the	allegations	in	the	False Claims	Act	complaint	and	charges	that	the	Company	misrepresented	the	efficacy	of	the	M-M-R	II	vaccine	in	violation	of	federal	antitrust	laws	and	various	state consumer	protection	laws.	The	Company	intends	to	defend	against	these	lawsuits.

The	Company	has	received	a	subpoena	from	the	Office	of	Inspector	General	of	the	U.S.	Department	of	Health	and	Human	Services	on	behalf	of	the	U.S. Attorney's	Office	for	the	District	of	Maryland	and	the	Civil	Division	of	the	DOJ	which	requests	information	relating	to	the	Company's	marketing	of	Singulair	and Dulera	and	certain	of	its	other	marketing	activities	from	January	1,	2006	to	the	present.	The	Company	is	cooperating	with	the	government.

As	previously	disclosed,	the	Company	has	received	letters	from	the	DOJ	and	the	SEC	that	seek	information	about	activities	in	a	number	of	countries	and reference	the	Foreign	Corrupt	Practices	Act.	The	Company	has	cooperated	with	the	agencies	in	their	requests	and	believes	that	this	inquiry	is	part	of	a	broader	review	of pharmaceutical	industry	practices	in	foreign	countries.	The	Company	has	been	advised	by	the	DOJ	that,	based	on	the	information	that	it	has	received,	it	has	closed	its inquiry	into	this	matter	as	it	relates	to	the	Company.	In	the	future,	the	Company	may	receive	additional	requests	for	information	from	either	or	both	of	the	DOJ	and	the SEC.

The	Company's	subsidiaries	in	China	have	received	and	may	continue	to	receive	inquiries	regarding	their	operations	from	various	Chinese	governmental agencies.	Some	of	these	inquiries	may	be	related	to	matters	involving	other	multinational	pharmaceutical	companies,	as	well	as	Chinese	entities	doing	business	with such	companies.	The	Company's	policy	is	to	cooperate	with	these	authorities	and	to	provide	responses	as	appropriate.

# Commercial	Litigation

# AWP	Litigation

As	 previously	 disclosed,	 the	 Company	 and/or	 certain	 of	 its	 subsidiaries	 have	 been	 named	 as	 defendants	 in	 cases	 brought	 by	 various	 states	 alleging manipulation	by	pharmaceutical	manufacturers	of	Average	Wholesale	Prices	("AWP"),	which	are	sometimes	used	by	public	and	private	payors	in	calculating	provider reimbursement	 levels.	 The	 outcome	 of	 these	 lawsuits	 could	 include	 substantial	 damages,	 the	 imposition	 of	 substantial	 fines	 and	 penalties	 and	 injunctive	 or administrative	remedies.

Since	the	start	of	2012,	the	Company	has	settled	AWP	cases	brought	by	the	states	of	Alabama,	Alaska,	Kansas,	Illinois,	Kentucky,	Louisiana,	Oklahoma, Mississippi,	and	Wisconsin.	A	subsidiary	of	the	Company	continues	to	be	a	defendant	in	a	case	brought	by	one	state,	Utah.

The	Company	has	also	been	reinstated	as	a	defendant	in	a	putative	class	action	in	New	Jersey	Superior	Court	which	alleges	on	behalf	of	third-party	payers and	individuals	that	manufacturers	inflated	drug	prices	by	manipulation	of	AWPs	and	other	means.	This	case	was	originally	dismissed	against	the	Company	without prejudice	in	2007.	The	Company	intends	to	defend	against	this	lawsuit.

# K-DUR	Antitrust	Litigation

As	previously	disclosed,	 in	June	1997	and	January	1998,	Schering-Plough	settled	patent	 litigation	with	Upsher-Smith,	Inc.	("Upsher-Smith")	and	ESI Lederle,	Inc.	("Lederle"),	respectively,	relating	to	generic	versions	of	K-DUR,	Schering-Plough's	long-acting	potassium	chloride	product	supplement	used	by	cardiac patients,	 for	 which	 Lederle	 and	 Upsher-Smith	 had	 filed	 Abbreviated	 New	 Drug	 Applications	 ("ANDAs").	 Following	 the	 commencement	 of	 an	 administrative proceeding	by	the	U.S.	Federal	Trade	Commission	(the	"FTC")	in	2001	alleging	anti-competitive	effects	from	those	settlements	(which	has	been	resolved	in	Schering- Plough's	favor),	putative	class	and	non-class	action	suits	were	filed	on	behalf	of	direct	and	indirect	purchasers	of	K-DUR	against	Schering-Plough,	Upsher-Smith	and Lederle	and	were	consolidated	in	a	multi-district	litigation	in	the	U.S.	District	Court	for	the	District	of	New	Jersey.	These	suits	claimed	violations	of	federal	and	state antitrust	laws,	as	well	as	other	state	statutory	and	common	law	causes	of	action,	and	sought	unspecified	damages.	In	April	2008,	the	indirect	purchasers	voluntarily dismissed	their	case.	In	March	2010,	the	District	Court	granted	summary	judgment	to	the	defendants	on	the	remaining	lawsuits	and	dismissed	the	matter	in	its	entirety.	In July	2012,	the	Third	Circuit	Court	of	Appeals	reversed	the	District	Court's	grant	of	summary	judgment	and	remanded	the	case	for	further	proceedings.	At	the	same	time, the	Third	Circuit	upheld	a	December	2008	decision	by	the	District	Court	to	certify	certain	direct	purchaser	plaintiffs'	claims	as	a	class	action.

In	August	2012,	the	Company	filed	a	petition	for	certiorari	with	the	U.S.	Supreme	Court	seeking	review	of	the	Third	Circuit's	decision.	In	June	2013,	the Supreme	Court	granted	that	petition,	vacated	the	judgment	of	the	Third	Circuit,	and	remanded	the	case	for	further	consideration	in	light	of	its	recent	decision	in	FTC	v. Actavis,	Inc.	That	decision	held	that	whether	a	so-called	"reverse	payment"	—	i.e.,	a	payment	from	the	holder	of	a	pharmaceutical	patent	to	a	party	challenging	the patent	made	in	connection	with	a	settlement	of	their	dispute	—	violates	the	antitrust	laws	should	be	determined	on	the	basis	of	a	"rule	of	reason"	analysis.	In	September 2013,	the	Third	Circuit	returned	the	case	to	the	District	Court	for	further	proceedings	in	accordance	with	the	Actavis	standard.

# Coupon	Litigation

In	2012,	as	previously	disclosed,	a	number	of	private	health	plans	filed	separate	putative	class	action	lawsuits	against	the	Company	alleging	that	Merck's coupon	programs	injured	health	insurers	by	reducing	beneficiary	co-payment	amounts	and,	thereby,	allegedly	causing	beneficiaries	to	purchase	higher-priced	drugs	than they	otherwise	would	have	purchased	and	increasing	the	insurers'	reimbursement	costs.	The	actions,	which	were	assigned	to	a	District	Judge	in	the	U.S.	District	Court for	the	District	of	New	Jersey,	sought	damages	and	injunctive	relief	barring	the	Company	from	issuing	coupons	that	would	reduce	beneficiary	co-pays	on	behalf	of putative	 nationwide	 classes	 of	 health	 insurers.	 Similar	 actions	 relating	 to	 manufacturer	 coupon	 programs	 have	 been	 filed	 against	 several	 other	 pharmaceutical manufacturers	in	a	variety	of	federal	courts.	On	April	29,	2013,	the	District	Court	dismissed	all	the	actions	against	Merck	without	prejudice	on	the	grounds	that	plaintiffs had	failed	to	demonstrate	their	standing	to	sue.	Plaintiffs	subsequently	filed	a	consolidated	amended	complaint,	and	Merck	has	filed	a	motion	to	dismiss	that	complaint.

# Sales	Force	Litigation

On	May	9,	2013,	Ms.	Kelli	Smith	filed	a	complaint	against	the	Company	in	the	United	States	District	Court	for	the	District	of	New	Jersey	of	behalf	of	herself and	a	putative	class	of	female	sales	representatives	and	a	putative	sub-class	of	female	sales	representatives	with	children,	claiming	(a)	discriminatory	policies	and practices	in	selection,	promotion	and	advancement,	(b)	disparate	pay,	(c)	differential	treatment,	(d)	hostile	work	environment	and	(e)	retaliation	under	federal	and	state discrimination	laws.	On	November	27,	2013,	the	Company	filed	a	motion	to	dismiss	the	class	claims.	Plaintiffs	sought	and	were	granted	leave	to	file	an	amended complaint.	On	January	16,	2014,	plaintiffs	filed	an	amended	complaint	adding	four	additional	named	plaintiffs.	The	Company	intends	to	re-file	its	motion	to	dismiss	the class	allegations	and	to	otherwise	defend	itself.

# Patent	Litigation

From	time	to	time,	generic	manufacturers	of	pharmaceutical	products	file	ANDAs	with	the	FDA	seeking	to	market	generic	forms	of	the	Company's	products prior	to	the	expiration	of	relevant	patents	owned	by	the	Company.	To	protect	its	patent	rights,	the	Company	may	file	patent	infringement	lawsuits	against	such	generic companies.	Certain	products	of	the	Company	(or	products	marketed	via	agreements	with	other	companies)	currently	involved	in	such	patent	infringement	litigation	in	the United	States	include:	Emend	for	Injection,	Integrilin,	Nexium,	and	NuvaRing.	Similar	lawsuits	defending	the	Company's	patent	rights	may	exist	in	other	countries.	The Company	intends	to	vigorously	defend	its	patents,	which	it	believes	are	valid,	against	infringement	by	generic	companies	attempting	to	market	products	prior	to	the expiration	of	such	patents.	As	with	any	litigation,	there	can	be	no	assurance	of	the	outcomes,	which,	if	adverse,	could	result	in	significantly	shortened	periods	of exclusivity	for	these	products	and,	with	respect	to	products	acquired	through	mergers	and	acquisitions,	potentially	significant	intangible	asset	impairment	charges.

Emend	for	Injection	—	In	May	2012,	a	patent	infringement	lawsuit	was	filed	in	the	United	States	against	Sandoz	Inc.	("Sandoz")	in	respect	of	Sandoz's application	to	the	FDA	seeking	pre-patent	expiry	approval	to	market	a	generic	version	of	Emend	for	Injection.	The	lawsuit	automatically	stays	FDA	approval	of Sandoz's	application	until	July	2015	or	until	an	adverse	court	decision,	if	any,	whichever	may	occur	earlier.	In	June	2012,	a	patent	infringement	lawsuit	was	filed	in	the United	States	against	Accord	Healthcare,	Inc.	US,	Accord	Healthcare,	Inc.	and	Intas	Pharmaceuticals	Ltd	(collectively,	"Intas")	in	respect	of	Intas'	application	to	the FDA	seeking	pre-patent	expiry	approval	to	market	a	generic	version	of	Emend	for	Injection.	The	Company	has	agreed	with	Intas	to	stay	the	lawsuit	pending	the	outcome of	the	lawsuit	with	Sandoz.

Integrilin	—	In	February	2009,	a	patent	infringement	lawsuit	was	filed	(jointly	with	Millennium	Pharmaceuticals,	Inc.)	in	the	United	States	against	Teva Parenteral	Medicines,	Inc.	("TPM")	in	respect	of	TPM's	application	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	a	generic	version	of	Integrilin.	In	October 2011,	 the	parties	entered	 into	a	settlement	agreement	allowing	TPM	 to	sell	a	generic	version	of	Integrilin	beginning	June	2,	2015.	In	November	2012,	a	patent infringement	lawsuit	was	filed	against	APP	Pharmaceuticals,	Inc.	and	Fresenius	Kabi	USA	Inc.	(collectively,	"APP")	in	respect	of	APP's	application	to	the	FDA	seeking pre-patent	expiry	approval	to	sell	a	generic	version	of	Integrilin.	In	March	2013,	the	parties	entered	into	a	settlement	agreement	allowing	APP	to	sell	a	generic	version	of Integrilin	beginning	June	2,	2015.	In	September	2013,	a	patent	infringement	lawsuit	was	filed	against	Ben	Venue	Laboratories	d/b/a	Bedford	Laboratories	("Bedford")	in respect	of	Bedford's	application	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	a	generic	version	of	Integrilin.	The	lawsuit	automatically	stays	FDA	approval	of Bedford's	application	until	February	2016	or	until	an	adverse	court	decision,	if	any,	whichever	may	occur	earlier.

Nexium	—	Patent	infringement	lawsuits	were	brought	(jointly	with	AstraZeneca)	in	the	United	States	against	the	following	generic	companies:	Ranbaxy Laboratories	Ltd.,	IVAX	Pharmaceuticals,	Inc.	(later	acquired	by	Teva	Pharmaceuticals,	Inc.),	Dr.	Reddy's	Laboratories,	Sandoz,	Lupin	Ltd.,	Hetero	Drugs	Limited Unit	III	and	Torrent	Pharmaceuticals	Ltd.	in	response	to	each	generic	company's	application	seeking	pre-patent	expiry	approval	to	sell	a	generic	version	of	Nexium. Settlements	have	been	reached	in	each	of	these	lawsuits,	the	terms	of	which	provide	that	the	respective	generic	company	may	bring	a	generic	version	of	esomeprazole product	to	market	on	May	27,	2014.	In	addition,	a	patent	infringement	lawsuit	was	also	filed	(jointly	with	AstraZeneca)	in	February	2010	in	the	United	States	against Sun	Pharma	Global	Fze	("Sun	Pharma")	in	respect	of	its	application	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	a	generic	version	of	Nexium	IV,	which lawsuit	was	settled	with	an	agreement	which	provided	that	Sun	Pharma	was	entitled	to	bring	its	generic	esomeprazole	IV	product	to	market	in	the	United	States	on January	1,	2014.	A	patent	infringement	lawsuit	was	also	filed	(jointly	with	AstraZeneca)	in	the	United	States	against	Hanmi	USA,	Inc.	("Hanmi")	related	to	its application	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	a	different	salt	of	esomeprazole

than	is	found	in	Nexium	(the	"Hanmi	Product").	In	a	May	2013	agreement,	Hanmi	conceded	the	validity	and	enforceability	of	the	patents	in	the	lawsuit.	The	parties	also agreed	that	the	Hanmi	Product	would	not	infringe	those	patents	under	the	District	Court's	December	2012	claim	interpretation	order,	which	AstraZeneca	and	KBI appealed.	On	December	19,	2013,	the	Court	of	Appeals	for	the	Federal	Circuit	denied	the	appeal	and	affirmed	the	District	Court's	claim	interpretation	order.	Hanmi	has launched	its	esomeprazole	product	at	risk.	The	Company	continues	to	believe	the	court's	order	was	incorrect	and	is	considering	its	options	for	further	review.	Finally, additional	patent	infringement	lawsuits	have	been	filed	(jointly	with	AstraZeneca)	in	the	United	States	against	Mylan	Laboratories	Limited	("Mylan	Labs")	and	Actavis, Inc./Watson	Pharma	Company	(collectively,	"Actavis/Watson")	related	to	their	applications	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	generic	versions	of Nexium.	The	Mylan	Labs	and	Actavis/Watson	applications	to	the	FDA	remain	stayed	until	August	2014	and	October	2015,	respectively,	or	until	earlier	adverse	court decisions,	if	any,	whichever	may	occur	earlier.

NuvaRing	—	In	December	2013,	the	Company	filed	a	lawsuit	against	Warner	Chilcott	Company	LLC	("Warner	Chilcott")	in	the	United	States	in	respect	of Warner	Chilcott's	application	to	the	FDA	seeking	pre-patent	expiry	approval	to	sell	a	generic	version	of	NuvaRing.

# Patent	Oppositions

Ono	Pharmaceutical	Co.	("Ono")	has	a	European	patent	that	broadly	claims	the	use	of	an	anti-PD-1	antibody,	such	as	the	Company's	immunotherapy,	MK- 3475,	for	the	treatment	of	cancer.	Ono	has	previously	licensed	its	commercial	rights	to	an	anti-PD-1	antibody	to	Bristol-Myers	Squibb	("BMS")	in	certain	markets.	The Company	believes	that	this	patent	is	invalid	and	has	filed	an	opposition	in	the	European	Patent	Office	(the	"EPO")	seeking	its	revocation.	The	Opposition	Division	of the	EPO	has	scheduled	a	hearing	in	June	2014.	The	hearing	panel	has	issued	a	preliminary	opinion	that	the	claims	in	the	patent	are	valid.	The	hearing	panel	usually renders	a	decision,	which	is	subject	to	further	appeal,	at	the	close	of	a	hearing.	If	the	patent	survives	these	proceedings	with	similar	breadth,	Merck	can	file	actions seeking	to	revoke	the	patent	in	each	relevant	national	court	in	Europe.	Ono	could	file	patent	infringement	actions	against	the	Company	in	each	relevant	national	court	in Europe	at	or	around	the	time	the	company	launches	MK-3475	(if	approved).	If	a	national	court	determines	that	the	Company	infringed	a	valid	claim	in	Ono's	patent, Ono	may	be	entitled	to	monetary	damages,	including	royalties	on	future	sales	of	MK-3475,	and	potentially	could	seek	an	injunction	to	prevent	the	Company	from marketing	MK-3475	in	that	country.	In	addition,	Ono	and	BMS	have	similar	and	other	patents	and	applications,	which	the	Company	is	closely	monitoring,	pending	in the	United	States,	Japan	and	other	countries.	The	Company	is	confident	that	it	will	be	able	to	market	MK-3475	in	any	country	in	which	it	is	approved	and	that	it	will	not be	prevented	from	doing	so	by	the	Ono	patent	or	any	pending	patent.

# Environmental	Litigation

As	previously	disclosed,	Merck	was	involved	in	pending	litigation	against	it	related	to	alleged	injuries	caused	by	alleged	emissions	from	the	site	of	a	former Merck	subsidiary	in	Merced,	California.	Also	as	previously	disclosed,	the	parties	to	that	litigation	reached	an	agreement	in	2013	intended	to	resolve	the	litigation,	subject to	sufficient	plaintiff	participation,	which	was	obtained.	The	parties	have	now	finalized	the	settlement	and	this	litigation	was	dismissed	with	prejudice	on	January	16, 2014	as	to	all	plaintiffs.

# Other	Litigation

There	are	various	other	pending	legal	proceedings	involving	the	Company,	principally	product	liability	and	intellectual	property	lawsuits.	While	it	is	not feasible	to	predict	the	outcome	of	such	proceedings,	in	the	opinion	of	the	Company,	either	the	likelihood	of	loss	is	remote	or	any	reasonably	possible	loss	associated	with the	resolution	of	such	proceedings	is	not	expected	to	be	material	to	the	Company's	financial	position,	results	of	operations	or	cash	flows	either	individually	or	in	the aggregate.

# Legal	Defense	Reserves

Legal	defense	costs	expected	to	be	incurred	in	connection	with	a	loss	contingency	are	accrued	when	probable	and	reasonably	estimable.	Some	of	the significant	factors	considered	in	the	review	of	these	legal	defense	reserves	are	as	follows:	the	actual	costs	incurred	by	the	Company;	the	development	of	the	Company's legal	defense	strategy	and	structure	in	light	of	the	scope	of	its	litigation;	the	number	of	cases	being	brought	against	the	Company;	the	costs	and

outcomes	of	completed	 trials	and	 the	most	current	 information	regarding	anticipated	 timing,	progression,	and	related	costs	of	pre-trial	activities	and	 trials	 in	 the associated	 litigation.	The	 amount	 of	 legal	 defense	 reserves	 as	 of	December	31,	2013	 and	December	31,	2012	 of	 approximately	$160	million	 and	$260	 million, respectively,	represents	the	Company's	best	estimate	of	the	minimum	amount	of	defense	costs	to	be	incurred	in	connection	with	its	outstanding	litigation;	however, events	such	as	additional	trials	and	other	events	that	could	arise	in	the	course	of	its	litigation	could	affect	the	ultimate	amount	of	legal	defense	costs	to	be	incurred	by	the Company.	The	Company	will	continue	to	monitor	its	legal	defense	costs	and	review	the	adequacy	of	the	associated	reserves	and	may	determine	to	increase	the	reserves at	any	time	in	the	future	if,	based	upon	the	factors	set	forth,	it	believes	it	would	be	appropriate	to	do	so.

The	Company	and	its	subsidiaries	are	parties	to	a	number	of	proceedings	brought	under	the	Comprehensive	Environmental	Response,	Compensation	and Liability	Act,	commonly	known	as	Superfund,	and	other	federal	and	state	equivalents.	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	final	costs	of	cleanup	have	not	yet	been	determined.	While	it	is	not	feasible to	predict	the	outcome	of	many	of	these	proceedings	brought	by	federal	or	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	financial	position,	results	of	operations,	liquidity	or	capital	resources	of	the	Company. The	Company	has	taken	an	active	role	in	identifying	and	providing	for	these	costs	and	such	amounts	do	not	include	any	reduction	for	anticipated	recoveries	of	cleanup costs	from	former	site	owners	or	operators	or	other	recalcitrant	potentially	responsible	parties.

In	management's	opinion,	the	liabilities	for	all	environmental	matters	that	are	probable	and	reasonably	estimable	have	been	accrued	and	totaled	$213	million and	$145	million	at	December	31,	2013	and	2012,	respectively.	These	liabilities	are	undiscounted,	do	not	consider	potential	recoveries	from	other	parties	and	will	be paid	out	over	the	periods	of	remediation	for	the	applicable	sites,	which	are	expected	to	occur	primarily	over	the	next	15	years.	Although	it	is	not	possible	to	predict	with certainty	the	outcome	of	these	matters,	or	the	ultimate	costs	of	remediation,	management	does	not	believe	that	any	reasonably	possible	expenditures	that	may	be incurred	in	excess	of	the	liabilities	accrued	should	exceed	$84	million	in	the	aggregate.	Management	also	does	not	believe	that	these	expenditures	should	result	in	a material	adverse	effect	on	the	Company's	financial	position,	results	of	operations,	liquidity	or	capital	resources	for	any	year.

The	Merck	certificate	of	incorporation	authorizes	6,500,000,000	shares	of	common	stock	and	20,000,000	shares	of	preferred	stock.

# Capital	Stock

A	summary	of	common	stock	and	treasury	stock	transactions	(shares	in	millions)	is	as	follows:

|  | Common<br>Stock | Treasury<br>Stock | Common<br>Stock | Treasury<br>Stock | Common<br>Stock | Treasury<br>Stock |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tJanuary\t1 | 3,577 | 550 | 3,577 | 536 | 3,577 | 495 |
| Purchases\tof\ttreasury\tstock\t(1) | — | 139 | — | 62 | — | 58 |
| Issuances\t(2) | — | (39) | — | (48) | — | (17) |
| Balance\tDecember\t31 | 3,577 | 650 | 3,577 | 550 | 3,577 | 536 |

(1)		Purchases	of	treasury	stock	in	2013	include	 105	million	shares	purchased	pursuant	to	an	accelerated	share	repurchase	agreement	as	discussed	below.

(2)		Issuances	primarily	reflect	activity	under	share-based	compensation	plans.

On	May	20,	2013,	Merck	entered	into	an	accelerated	share	repurchase	("ASR")	agreement	with	Goldman,	Sachs	&	Co.	("Goldman	Sachs").	Under	the	ASR, Merck	agreed	to	purchase	$5.0	billion	of	Merck's	common	stock,	in	total,	with	an	initial	delivery	of	approximately	99.5	million	shares	of	Merck's	common	stock,	based on	current	market	price,	made	by	Goldman	Sachs	to	Merck,	and	payment	of	$5.0	billion	made	by	Merck	to	Goldman	Sachs,	on	May	21,	2013.	Upon	settlement	of	the ASR	on	October	31,	2013,	Merck	received	an	additional	5.5	million	shares	as	determined	by	the	average	daily	volume	weighted-average	price	of	Merck's	common stock	during	the	term	of	the	ASR	program	bringing	the	total	shares	received	by	Merck	under	this	program	to	105	million.	The	ASR	was	entered	into	pursuant	to	a	share repurchase	program	announced	on	May	1,	2013.

# Noncontrolling	Interests

In	connection	with	the	1998	restructuring	of	AMI,	Merck	assumed	$2.4	billion	par	value	preferred	stock	with	a	dividend	rate	of	5%	per	annum,	which	is carried	by	KBI	and	included	in	Noncontrolling	interests.	If	AstraZeneca	exercises	its	option	to	acquire	Merck's	interest	in	AZLP	(see	Note	8)	this	preferred	stock obligation	will	be	retired.

# 12.				Share-Based	Compensation	Plans

The	Company	has	share-based	compensation	plans	under	which	the	Company	grants	restricted	stock	units	("RSUs")	and	performance	share	units	("PSUs") to	certain	management	level	employees.	In	addition,	employees,	non-employee	directors	and	employees	of	certain	of	the	Company's	equity	method	investees	may	be granted	options	to	purchase	shares	of	Company	common	stock	at	the	fair	market	value	at	the	time	of	grant.	These	plans	were	approved	by	the	Company's	shareholders.

At	December	31,	2013,	143	million	shares	collectively	were	authorized	for	future	grants	under	the	Company's	share-based	compensation	plans.	These awards	are	settled	primarily	with	treasury	shares.

Employee	stock	options	are	granted	to	purchase	shares	of	Company	stock	at	the	fair	market	value	at	the	time	of	grant.	These	awards	generally	vest	one-third each	year	over	a	three-year	period,	with	a	contractual	term	of	7-10	years.	RSUs	are	stock	awards	that	are	granted	to	employees	and	entitle	the	holder	to	shares	of common	stock	as	the	awards	vest.	The	fair	value	of	the	stock	option	and	RSU	awards	is	determined	and	fixed	on	the	grant	date	based	on	the	Company's	stock	price. PSUs	are	stock	awards	where	the	ultimate	number	of	shares	issued	will	be	contingent	on	the	Company's	performance	against	a	pre-set	objective	or	set	of	objectives.	The fair	value	of	each	PSU	is	determined	on	the	date	of	grant	based	on	the	Company's	stock	price.	For	RSUs	and	certain	PSUs	granted	before	December	31,	2009	employees participate	in	dividends	on	the	same	basis	as	common	shares	and	such	dividends	are	nonforfeitable	by	the	holder.	For	RSUs	and	PSUs	issued	on	or	after	January	1, 2010,	dividends	declared	during	the	vesting	period	are	payable	to	the	employees	only	upon	vesting.	Over	the	PSU	performance	period,	the	number	of	shares	of	stock	that are	expected	to	be	issued	will	be	adjusted	based	on	the	probability	of	achievement	of	a	performance	target	and	final	compensation	expense	will	be	recognized	based	on the	ultimate	number	of	shares	issued.	RSU	and	PSU	distributions	will	be	in	shares	of	Company	stock	after	the	end	of	the	vesting	or	performance	period,	generally	three years,	subject	to	the	terms	applicable	to	such	awards.

Total	pretax	share-based	compensation	cost	recorded	in	2013,	2012	and	2011	was	$276	million,	$335	million	 and	$369	million,	respectively,	with	related income	tax	benefits	of	$84	million,	$105	million	and	$118	million,	respectively.

The	Company	uses	the	Black-Scholes	option	pricing	model	for	determining	the	fair	value	of	option	grants.	In	applying	this	model,	the	Company	uses	both historical	data	and	current	market	data	to	estimate	the	fair	value	of	its	options.	The	Black-Scholes	model	requires	several	assumptions	including	expected	dividend	yield, risk-free	interest	rate,	volatility,	and	term	of	the	options.	The	expected	dividend	yield	is	based	on	historical	patterns	of	dividend	payments.	The	risk-free	rate	is	based	on the	rate	at	grant	date	of	zero-coupon	U.S.	Treasury	Notes	with	a	term	equal	to	the	expected	term	of	the	option.	Expected	volatility	is	estimated	using	a	blend	of	historical and	implied	volatility.	The	historical	component	is	based	on	historical	monthly	price	changes.	The	implied	volatility	is	obtained	from	market	data	on	the	Company's traded	options.	The	expected	life	represents	the	amount	of	time	that	options	granted	are	expected	to	be	outstanding,	based	on	historical	and	forecasted	exercise	behavior.

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Expected\tdividend\tyield | 4.2% | 4.4% | 4.3% |
| Risk-free\tinterest\trate | 1.2% | 1.3% | 2.5% |
| Expected\tvolatility | 25.0% | 25.2% | 23.4% |
| Expected\tlife\t(years) | 7.0 | 7.0 | 7.0 |

Summarized	information	relative	to	stock	option	plan	activity	(options	in	thousands)	is	as	follows:

A	summary	of	nonvested	RSU	and	PSU	activity	(shares	in	thousands)	is	as	follows:

|  | Number<br>of	Shares | Weighted<br>Average<br>Grant	Date<br>Fair	Value | Number<br>of	Shares | Weighted<br>Average<br>Grant	Date<br>Fair	Value |
| :--- | :--- | :--- | :--- | :--- |
| Nonvested\tJanuary\t1,\t2013 | 22,743 | $36.38 | 1,648 | $33.78 |
| Granted | 6,394 | 45.04 | 963 | 38.25 |
| Vested | (8,705) | 34.10 | (839) | 34.17 |
| Forfeited | (1,298) | 40.02 | (99) | 36.71 |
| Nonvested\tDecember\t31,\t2013 | 19,134 | $40.07 | 1,673 | $35.98 |

At	December	31,	2013,	there	was	$374	million	of	total	pretax	unrecognized	compensation	expense	related	to	nonvested	stock	options,	RSU	and	PSU	awards which	will	be	recognized	over	a	weighted	average	period	of	1.9	years.	For	segment	reporting,	share-based	compensation	costs	are	unallocated	expenses.

# 13.				Pension	and	Other	Postretirement	Benefit	Plans

The	Company	has	defined	benefit	pension	plans	covering	eligible	employees	in	the	United	States	and	in	certain	of	its	international	subsidiaries.	As	a	result	of plan	design	changes	approved	in	2011,	beginning	on	January	1,	2013,	active	participants	in	Merck's	primary	U.S.	defined	benefit	pension	plans	are	accruing	pension benefits	using	new	cash	balance	formulas	based	on	age,	service,	pay	and	interest.	However,	during	a	transition	period	from	January	1,	2013	through	December	31,	2019, participants	will	earn	the	greater	of	the	benefit	as	calculated	under	the	employee's	legacy	final	average	pay	formula	or	their	new	cash	balance	formula.	For	all	years	of service	after	December	31,	2019,	participants	will	earn	future	benefits	under	only	the	cash	balance	formula.	In	addition,	the	Company	provides	medical	benefits, principally	 to	 its	 eligible	 U.S.	 retirees	 and	 their	 dependents,	 through	 its	 other	 postretirement	 benefit	 plans.	 The	 Company	 uses	 December	 31	 as	 the	 year-end measurement	date	for	all	of	its	pension	plans	and	other	postretirement	benefit	plans.

# Net	Periodic	Benefit	Cost

The	net	periodic	benefit	cost	for	pension	and	other	postretirement	benefit	plans	consisted	of	the	following	components:

|  |  | Pension	Benefits |  | Other	Postretirement	Benefits | Other	Postretirement	Benefits |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tEnded\tDecember\t31 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 |
| Service\tcost | $682 | $555 | $619 | $102 | $82 | $110 |
| Interest\tcost | 665 | 661 | 718 | 107 | 121 | 141 |
| Expected\treturn\ton\tplan\tassets | (1,097) | (970) | (972) | (126) | (136) | (142) |
| Net\tamortization | 336 | 185 | 201 | (50) | (35) | (17) |
| Termination\tbenefits | 58 | 27 | 59 | 50 | 18 | 29 |
| Curtailments | (23) | (10) | (86) | (11) | (7) | 1 |
| Settlements | 23 | 18 | 4 | — | — | — |
| Net\tperiodic\tbenefit\tcost | $644 | $466 | $543 | $72 | $43 | $122 |

The	increase	in	net	periodic	benefit	cost	for	pension	and	other	postretirement	benefit	plans	in	2013	as	compared	with	2012	is	largely	attributable	to	a	change in	the	discount	rate.	The	net	periodic	benefit	cost	attributable	to	U.S.	pension	plans	included	in	the	above	table	was	$348	million	in	2013,	$268	million	in	2012	and	$406 million	in	2011.

In	connection	with	restructuring	actions	(see	Note	3),	termination	charges	were	recorded	in	2013,	2012	and	2011	on	pension	and	other	postretirement	benefit plans	related	to	expanded	eligibility	for	certain	employees	exiting	Merck.	Also,	in	connection	with	these	restructuring	activities,	curtailments	were	recorded	in	2013, 2012	and	2011	on	pension	and	other	postretirement	benefit	plans.

In	addition,	settlements	were	recorded	in	2013,	2012	and	2011	on	certain	domestic	and	international	pension	plans.

# Obligations	and	Funded	Status

Summarized	information	about	the	changes	in	plan	assets	and	benefit	obligation,	the	funded	status	and	the	amounts	recorded	at	December	31	is	as	follows:

|  | Pension	Benefits |  | Other<br>Postretirement<br>Benefits |  |
| :--- | :--- | :--- | :--- | :--- |
|  | 2013 | 2012 | 2013 | 2012 |
| Fair\tvalue\tof\tplan\tassets\tJanuary\t1 | $15,349 | $12,481 | $1,760 | $1,628 |
| Actual\treturn\ton\tplan\tassets | 2,524 | 1,739 | 199 | 200 |
| Company\tcontributions | 645 | 1,853 | 73 | 48 |
| Effects\tof\texchange\trate\tchanges | (84) | 3 | — | — |
| Benefits\tpaid | (780) | (673) | (119) | (115) |
| Settlements | (236) | (75) | — | — |
| Other | 17 | 21 | — | (1) |
| Fair\tvalue\tof\tplan\tassets\tDecember\t31 | $17,435 | $15,349 | $1,913 | $1,760 |
| Benefit\tobligation\tJanuary\t1 | 17,646 | 14,416 | 2,650 | 2,529 |
| Service\tcost | 682 | 555 | 102 | 82 |
| Interest\tcost | 665 | 661 | 107 | 121 |
| Actuarial\t(gains)\tlosses | (1,689) | 2,660 | (428) | 88 |
| Benefits\tpaid | (780) | (673) | (119) | (115) |
| Effects\tof\texchange\trate\tchanges | (21) | 67 | (5) | — |
| Plan\tamendments | (225) | 2 | (38) | (86) |
| Curtailments | (61) | (17) | — | 1 |
| Termination\tbenefits | 58 | 27 | 50 | 18 |
| Settlements | (236) | (75) | — | — |
| Other | 16 | 23 | 10 | 12 |
| Benefit\tobligation\tDecember\t31 | $16,055 | $17,646 | $2,329 | $2,650 |
| Funded\tstatus\tDecember\t31 | $1,380 | $(2,297) | $(416) | $(890) |
| Recognized\tas: |  |  |  |  |
| Other\tassets | $2,811 | $355 | $— | $506 |
| Accrued\tand\tother\tcurrent\tliabilities | (53) | (50) | (8) | (9) |
| Other\tnoncurrent\tliabilities | (1,378) | (2,602) | (408) | (1,387) |

The	fair	value	of	U.S.	pension	plan	assets	included	in	the	preceding	table	was	$10.0	billion	and	$8.7	billion	at	December	31,	2013	and	2012,	respectively,	and the	projected	benefit	obligation	of	U.S.	pension	plans	was	$8.7	billion	and	$10.0	billion,	respectively.	Approximately	46%	and	44%	of	the	Company's	pension	projected benefit	obligation	at	December	31,	2013	and	2012,	respectively,	relates	to	international	defined	benefit	plans,	of	which	each	individual	plan	is	not	significant	relative	to the	total	projected	benefit	obligation.

At	December	31,	2013	and	2012,	the	accumulated	benefit	obligation	was	$14.8	billion	and	$15.9	billion,	respectively,	for	all	pension	plans,	of	which	$8.0 billion	and	$9.0	billion,	respectively,	related	to	U.S.	pension	plans.

For	pension	plans	with	projected	benefit	obligations	in	excess	of	plan	assets	at	December	31,	2013	and	2012,	the	fair	value	of	plan	assets	was	$1.5	billion	and $12.8	billion,	respectively,	and	the	benefit	obligations	were	$3.0	billion	and	$15.5	billion,	respectively.	For	those	plans	with	accumulated	benefit	obligations	in	excess	of plan	assets	at	December	31,	2013	and	2012,	the	fair	value	of	plan	assets	was	$1.4	billion	and	$6.1	billion,	respectively,	and	the	accumulated	benefit	obligations	were	$2.5 billion	and	$7.7	billion,	respectively.

# Plan	Assets

Entities	are	required	to	use	a	fair	value	hierarchy	which	maximizes	the	use	of	observable	inputs	and	minimizes	the	use	of	unobservable	inputs	when measuring	fair	value.	There	are	three	levels	of	inputs	used	to	measure	fair	value	with	Level	1	having	the	highest	priority	and	Level	3	having	the	lowest:

Level	3	—		Unobservable	inputs	that	are	supported	by	little	or	no	market	activity.	The	Level	3	assets	are	those	whose	values	are	determined	using	pricing models,	discounted	cash	flow	methodologies,	or	similar	techniques	with	significant	unobservable	inputs,	as	well	as	instruments	for	which	the	determination	of	fair value	requires	significant	judgment	or	estimation.	At	December	31,	2013	 and	2012,	$622	million	 and	$692	million,	respectively,	or	approximately	4%	 and	5%, respectively,	of	the	Company's	pension	investments	at	each	year	end,	were	categorized	as	Level	3	assets.

If	the	inputs	used	to	measure	the	financial	assets	fall	within	more	than	one	level	described	above,	the	categorization	is	based	on	the	lowest	level	input	that	is significant	to	the	fair	value	measurement	of	the	instrument.

The	fair	values	of	the	Company's	pension	plan	assets	at	December	31	by	asset	category	are	as	follows:

|  |  | Fair	Value	Measurements	Using |  |  |  | Fair	Value	Measurements	Using |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total |
|  |  | 2013 |  |  |  | 2012 |  |  |
| Assets |  |  |  |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $88 | $247 | $— | $335 | $142 | $587 | $— | $729 |
| Investment\tfunds |  |  |  |  |  |  |  |  |
| Developed\tmarkets\tequities | 808 | 7,643 | — | 8,451 | 683 | 5,986 | — | 6,669 |
| Emerging\tmarkets\tequities | 163 | 1,036 | — | 1,199 | 121 | 771 | — | 892 |
| Government\tand\tagency\nobligations | 293 | 1,180 | — | 1,473 | 279 | 720 | — | 999 |
| Corporate\tobligations | 188 | 77 | — | 265 | 166 | 94 | — | 260 |
| Fixed\tincome\tobligations | 17 | 145 | — | 162 | 14 | 206 | — | 220 |
| Real\testate\t(1) | 4 | 57 | 49 | 110 | 4 | 14 | 141 | 159 |
| Equity\tsecurities |  |  |  |  |  |  |  |  |
| Developed\tmarkets | 2,546 | — | — | 2,546 | 2,277 | — | — | 2,277 |
| Fixed\tincome\tsecurities |  |  |  |  |  |  |  |  |
| Government\tand\tagency\nobligations | 2 | 1,096 | — | 1,098 | 2 | 1,052 | — | 1,054 |
| Corporate\tobligations | — | 741 | — | 741 | — | 1,008 | — | 1,008 |
| Mortgage\tand\tasset-backed\nsecurities | — | 299 | — | 299 | — | 269 | — | 269 |
| Other\tinvestments |  |  |  |  |  |  |  |  |
| Insurance\tcontracts\t(2) | — | 128 | 540 | 668 | — | 117 | 496 | 613 |
| Derivatives | 1 | — | — | 1 | — | 162 | — | 162 |
| Other | — | 54 | 33 | 87 | — | 53 | 55 | 108 |
| Liabilities |  |  |  |  |  |  |  |  |
| Derivatives | $— | $— | $— | $— | $— | $70 | $— | $70 |
|  | $4,110 | $12,703 | $622 | $17,435 | $3,688 | $10,969 | $692 | $15,349 |

(1)	The	plans'	Level	3	investments	in	real	estate	funds	are	generally	valued	by	market	appraisals	of	the	underlying	investments	in	the	funds.

(2)	The	plans'	Level	3	investments	in	insurance	contracts	are	generally	valued	using	a	crediting	rate	that	approximates	market	returns	and	invest	in	underlying	securities	whose	market	values	are unobservable	and	determined	using	pricing	models,	discounted	cash	flow	methodologies,	or	similar	techniques.

The	table	below	provides	a	summary	of	the	changes	in	fair	value,	including	transfers	in	and/or	out,	of	all	financial	assets	measured	at	fair	value	using significant	unobservable	inputs	(Level	3)	for	the	Company's	pension	plan	assets:

|  | Insurance<br>Contracts | Real<br>Estate | Other | Total | Insurance<br>Contracts | Real<br>Estate | Other | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tJanuary\t1 | $496 | $141 | $55 | $692 | $428 | $144 | $65 | $637 |
| Actual\treturn\ton\tplan\tassets: |  |  |  |  |  |  |  |  |
| Relating\tto\tassets\tstill\theld\tat\tDecember\t31 | 30 | — | 1 | 31 | 35 | 20 | (2) | 53 |
| Relating\tto\tassets\tsold\tduring\tthe\tyear | 1 | (1) | 3 | 3 | 1 | (12) | 5 | (6) |
| Purchases | 18 | — | 3 | 21 | 21 | — | 4 | 25 |
| Sales | (2) | — | (29) | (31) | (11) | (1) | (14) | (26) |
| Transfers\t(out\tof)\tinto\tLevel\t3 | (3) | (91) | — | (94) | 22 | (10) | (3) | 9 |
| Balance\tDecember\t31 | $540 | $49 | $33 | $622 | $496 | $141 | $55 | $692 |

The	fair	values	of	the	Company's	other	postretirement	benefit	plan	assets	at	December	31	by	asset	category	are	as	follows:

|  |  | Fair	Value	Measurements	Using |  |  |  | Fair	Value	Measurements	Using |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total | Quoted\tPrices\nIn\tActive\nMarkets\tfor\nIdentical\tAssets\n(Level\t1) | Significant\nOther\nObservable\nInputs\n(Level\t2) | Significant\nUnobservable\nInputs\n(Level\t3) | Total |
|  |  | 2013 |  |  |  | 2012 |  |  |
| Assets |  |  |  |  |  |  |  |  |
| Cash\tand\tcash\tequivalents | $47 | $20 | $— | $67 | $27 | $48 | $— | $75 |
| Investment\tfunds |  |  |  |  |  |  |  |  |
| Developed\tmarkets\tequities | 54 | 667 | — | 721 | 37 | 501 | — | 538 |
| Emerging\tmarkets\tequities | 36 | 95 | — | 131 | 37 | 75 | — | 112 |
| Fixed\tincome\tobligations | 3 | 14 | — | 17 | 3 | 23 | — | 26 |
| Equity\tsecurities |  |  |  |  |  |  |  |  |
| Developed\tmarkets | 199 | — | — | 199 | 139 | — | — | 139 |
| Fixed\tincome\tsecurities |  |  |  |  |  |  |  |  |
| Government\tand\tagency\nobligations | — | 257 | — | 257 | — | 298 | — | 298 |
| Corporate\tobligations | — | 281 | — | 281 | — | 310 | — | 310 |
| Mortgage\tand\tasset-backed\nsecurities | — | 219 | — | 219 | — | 238 | — | 238 |
| Other\tfixed\tincome\tobligations | — | 21 | — | 21 | — | 24 | — | 24 |
|  | $339 | $1,574 | $— | $1,913 | $243 | $1,517 | $— | $1,760 |

# Expected	Contributions

Contributions to the	pension	plans	and	other	postretirement	benefit	plans	during	2014	 are	 expected to	 be	 approximately	$250	million and	$75	 million,

# respectively.

# Expected	Benefit	Payments

Expected	benefit	payments	are	as	follows:

|  | Pension<br>Benefits | Other<br>Postretirement<br>Benefits |
| :--- | :--- | :--- |
| 2014 | $651 | $119 |
| 2015 | 663 | 129 |
| 2016 | 675 | 134 |
| 2017 | 699 | 139 |
| 2018 | 739 | 145 |
| 2019\t—\t2023 | 4,440 | 811 |

Expected	benefit	payments	are	based	on	the	same	assumptions	used	to	measure	the	benefit	obligations	and	include	estimated	future	employee	service.

# Amounts	Recognized	in	Other	Comprehensive	Income

Net	loss	amounts	reflect	experience	differentials	primarily	relating	to	differences	between	expected	and	actual	returns	on	plan	assets	as	well	as	the	effects	of changes	in	actuarial	assumptions.	Net	loss	amounts	in	excess	of	certain	thresholds	are	amortized	into	net	pension	and	other	postretirement	benefit	cost	over	the	average remaining	service	life	of	employees.	The	following	amounts	were	reflected	as	components	of	OCI:

|  |  | Pension	Plans |  |  | Other	Postretirement<br>Benefit	Plans |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tEnded\tDecember\t31 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 |
| Net\tgain\t(loss)\tarising\tduring\tthe\tperiod | $3,189 | $(1,907) | $(1,628) | $499 | $(24) | $106 |
| Prior\tservice\tcredit\t(cost)\tarising\tduring\tthe\tperiod | 203 | (13) | 783 | 26 | 78 | 133 |
|  | $3,392 | $(1,920) | $(845) | $525 | $54 | $239 |
| Net\tloss\tamortization\tincluded\tin\tbenefit\tcost | $407 | $256 | $196 | $23 | $31 | $38 |
| Prior\tservice\t(credit)\tcost\tamortization\tincluded\tin\tbenefit\tcost | (71) | (71) | 5 | (73) | (66) | (55) |
|  | $336 | $185 | $201 | $(50) | $(35) | $(17) |

The	estimated	net	loss	(gain)	and	prior	service	cost	(credit)	amounts	that	will	be	amortized	from	AOCI	into	net	pension	and	postretirement	benefit	cost	during 2014	are	$214	million	and	$(146)	million,	respectively,	for	pension	plans	and	are	$2	million	and	$(75)	million,	respectively,	for	other	postretirement	benefit	plans.

# Actuarial	Assumptions

The	 Company	 reassesses	 its	 benefit	 plan	 assumptions	 on	 a regular	 basis.	 The	 weighted	 average	 assumptions	 used in	 determining	 pension	 plan	 and U.S.	pension	and	other	postretirement	benefit	plan	information	are	as	follows:

|  |  | Pension	Plans |  | U.S.	Pension	and	Other<br>Postretirement	Benefit	Plans | U.S.	Pension	and	Other<br>Postretirement	Benefit	Plans |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| December\t31 | 2013 | 2012 | 2011 | 2013 | 2012 | 2011 |
| Net\tperiodic\tbenefit\tcost |  |  |  |  |  |  |
| Discount\trate | 3.90% | 4.70% | 5.20% | 4.10% | 4.80% | 5.40% |
| Expected\trate\tof\treturn\ton\tplan\tassets | 7.50% | 7.50% | 7.50% | 8.50% | 8.70% | 8.70% |
| Salary\tgrowth\trate | 4.20% | 4.00% | 4.20% | 4.50% | 4.50% | 4.50% |
| Benefit\tobligation |  |  |  |  |  |  |
| Discount\trate | 4.50% | 3.90% | 4.70% | 5.10% | 4.10% | 4.80% |
| Salary\tgrowth\trate | 4.00% | 4.20% | 4.00% | 4.50% | 4.50% | 4.50% |

For	both	the	pension	and	other	postretirement	benefit	plans,	the	discount	rate	is	evaluated	on	measurement	dates	and	modified	to	reflect	the	prevailing	market rate	of	a	portfolio	of	high-quality	fixed-income	debt	instruments	that	would	provide	the	future	cash	flows	needed	to	pay	the	benefits	included	in	the	benefit	obligation	as they	come	due.	The	expected	rate	of	return	for	both	the	pension	and	other	postretirement	benefit	plans	represents	the	average	rate	of	return	to	be	earned	on	plan	assets over	the	period	the	benefits	included	in	the	benefit	obligation	are	to	be	paid	and	is	determined	on	a	plan	basis.	In	developing	the	expected	rate	of	return	within	each	plan, long-term	historical	returns	data	are	considered	as	well	as	actual	returns	on	the	plan	assets	and	other	capital	markets	experience.	Using	this	reference	information,	the long-term	return	expectations	for	each	asset	category	and	a	weighted	average	expected	return	for	each	plan's	target	portfolio	is	developed,	according	to	the	allocation among	 those	 investment	categories.	The	expected	portfolio	performance	reflects	 the	contribution	of	active	management	as	appropriate.	For	2014,	 the	Company's expected	rate	of	return	will	range	from	7.30%	to	8.75%	compared	to	a	range	of	6.00%	to	8.75%	in	2013	for	its	U.S.	pension	and	other	postretirement	benefit	plans.

The	health	care	cost	trend	rate	assumptions	for	other	postretirement	benefit	plans	are	as	follows:

A	one	percentage	point	change	in	the	health	care	cost	trend	rate	would	have	had	the	following	effects:

# Savings	Plans

The	Company	also	maintains	defined	contribution	savings	plans	in	the	United	States.	The	Company	matches	a	percentage	of	each	employee's	contributions consistent	with	the	provisions	of	the	plan	for	which	the	employee	is	eligible.	Total	employer	contributions	to	these	plans	in	2013,	2012	and	2011	were	$138	million,	$146 million	and	$166	million,	respectively.

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Interest\tincome | $(264) | $(232) | $(145) |
| Interest\texpense | 801 | 714 | 695 |
| Exchange\tlosses | 290 | 185 | 143 |
| Other,\tnet | (12) | 449 | 253 |
|  | $815 | $1,116 | $946 |

The	increase	in	interest	income	in	2012	as	compared	with	2011	reflects	the	accretion	of	time	value	of	money	discounts	related	to	certain	accounts	receivables, including	accelerated	accretion	related	to	significant	collections	of	accounts	receivable	in	Spain	(see	Note	5).	The	increase	in	interest	expense	in	2013	as	compared	with 2012	is	driven	in	part	by	the	issuances	of	debt	in	September	2012	and	May	2013.	Exchange	losses	in	2013	reflect	$140	million	of	losses	due	to	a	Venezuelan	currency devaluation.	In	February	2013,	the	Venezuelan	government	devalued	its	currency	(Bolívar	Fuertes)	from	4.30	VEF	per	U.S.	dollar	to	6.30	VEF	per	U.S.	dollar.	The Company	recognized	losses	due	to	exchange	of	approximately	$140	million	in	2013	resulting	from	the	remeasurement	of	the	local	monetary	assets	and	liabilities	at	the new	rate.	Since	January	2010,	Venezuela	has	been	designated	hyperinflationary	and,	as	a	result,	local	foreign	operations	are	remeasured	in	U.S.	dollars	with	the	impact recorded	in	results	of	operations.	Other,	net	(as	presented	in	the	table	above)	in	2012	reflects	a	$493	million	net	charge	related	to	the	settlement	of	the	ENHANCE Litigation	(see	Note	10).	Other,	net	in	2011	reflects	a	$500	million	charge	related	to	the	resolution	of	the	arbitration	proceeding	involving	the	Company's	rights	to	market Remicade	and	Simponi	(see	Note	4),	a	$136	million	gain	on	the	disposition	of	the	Company's	interest	in	the	JJMCP	joint	venture	(see	Note	8),	and	a	$127	million	gain on	the	sale	of	certain	manufacturing	facilities	and	related	assets	(see	Note	4).

Interest	paid	was	$922	million	in	2013,	$808	million	in	2012	and	$600	million	in	2011.	Interest	paid	for	2011	is	net	of	$288	million	received	by	the	Company from	the	termination	of	certain	interest	rate	swap	contracts	during	the	year	(see	Note	5).

A	reconciliation	between	the	effective	tax	rate	and	the	U.S.	statutory	rate	is	as	follows:

|  |  | 2013 |  | 2012 |  | 2011 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Amount | Tax\tRate | Amount | Tax\tRate | Amount | Tax\tRate |
| U.S.\tstatutory\trate\tapplied\tto\tincome\tbefore\ttaxes | $1,941 | 35.0\t% | $3,059 | 35.0\t% | $2,567 | 35.0\t% |
| Differential\tarising\tfrom: |  |  |  |  |  |  |
| Foreign\tearnings | (1,316) | (23.7) | (1,955) | (22.4) | (2,220) | (30.3) |
| Tax\tsettlements | (497) | (9.0) | (113) | (1.3) | (721) | (9.8) |
| The\tAmerican\tTaxpayer\tRelief\tAct\tof\t2012 | (269) | (4.8) | — | — | — | — |
| Unremitted\tforeign\tearnings | (81) | (1.5) | (11) | (0.1) | (86) | (1.2) |
| Tax\trate\tchanges | (10) | (0.2) | 57 | 0.6 | (295) | (4.0) |
| Amortization\tof\tpurchase\taccounting\tadjustments | 934 | 16.8 | 905 | 10.3 | 875 | 11.9 |
| Restructuring | 224 | 4.0 | 62 | 0.7 | 163 | 2.2 |
| U.S.\thealth\tcare\treform\tlegislation | 65 | 1.2 | 60 | 0.7 | 50 | 0.7 |
| Intangible\tasset\timpairment\tcharges | 56 | 1.0 | 40 | 0.5 | (5) | (0.1) |
| Vioxx\tand\tENHANCE\tlitigation\tsettlements | — | — | 98 | 1.2 | — | — |
| Arbitration\tsettlement\tcharge | — | — | — | — | 177 | 2.4 |
| State\ttaxes | 44 | 0.8 | 31 | 0.3 | 72 | 1.0 |
| Other\t(1) | (63) | (1.1) | 207 | 2.4 | 365 | 5.0 |
|  | $1,028 | 18.5\t% | $2,440 | 27.9\t% | $942 | 12.8\t% |

(1)	Other	includes	the	tax	effect	of	contingency	reserves,	research	credits	and	miscellaneous	items.

The	foreign	earnings	tax	rate	differentials	in	the	tax	rate	reconciliation	above	primarily	reflect	the	impacts	of	operations	in	jurisdictions	with	different	tax rates	than	the	United	States,	particularly	Singapore,	Ireland,	Switzerland	and	Puerto	Rico	(which	operates	under	a	tax	incentive	grant),	where	the	earnings	have	been indefinitely	reinvested,	thereby	yielding	a	favorable	impact	on	the	effective	tax	rate	as	compared	with	the	35.0%	U.S.	statutory	rate.	The	foreign	earnings	tax	rate differentials	do	not	include	the	impact	of	intangible	asset	impairment	charges,	amortization	of	purchase	accounting	adjustments,	restructuring	costs	and	the	arbitration settlement	charge.	These	items	are	presented	separately	as	they	each	represent	a	significant,	separately	disclosed	pretax	cost	or	charge,	and	a	substantial	portion	of	each of	these	items	relates	to	jurisdictions	with	lower	tax	rates	than	the	United	States.	Therefore,	the	impact	of	recording	these	expense	items	in	lower	tax	rate	jurisdictions	is an	unfavorable	impact	on	the	effective	tax	rate	as	compared	to	the	35.0%	U.S.	statutory	rate.

The	American	Taxpayer	Relief	Act	of	2012	was	signed	into	law	on	January	2,	2013,	extending	the	research	credit	and	the	controlled	foreign	corporation look-through	provisions	for	two	years	retroactively	from	January	1,	2012	through	December	31,	2013.	The	Company	has	recorded	the	entire	2012	benefit	of	this legislation	in	2013,	the	financial	statements	period	that	includes	the	date	of	enactment,	and	that	impact	is	reflected	in	the	reconciliation	above.

Income	before	taxes	consisted	of:

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Domestic | $3,513 | $4,500 | $2,626 |
| Foreign | 2,032 | 4,239 | 4,708 |
|  | $5,545 | $8,739 | $7,334 |

# Taxes	on	income	consisted	of:

The	Company	has	net	operating	loss	("NOL")	carryforwards	in	several	jurisdictions.	As	of	December	31,	2013,	approximately	$170	million	of	deferred	taxes on	NOL	carryforwards	relate	 to	foreign	 jurisdictions,	none	of	which	are	 individually	significant.	Approximately	$205	million	of	valuation	allowances	have	been established	on	these	foreign	NOL	carryforwards	and	other	foreign	deferred	tax	assets.	In	addition,	the	Company	has	approximately	$55	million	of	deferred	tax	assets relating	to	various	U.S.	tax	credit	carryforwards	and	NOL	carryforwards,	all	of	which	are	expected	to	be	fully	utilized	prior	to	expiry.

A	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	tax	benefits	is	as	follows:

|  | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Balance\tJanuary\t1 | $4,425 | $4,277 | $4,919 |
| Additions\trelated\tto\tcurrent\tyear\tpositions | 320 | 496 | 695 |
| Additions\trelated\tto\tprior\tyear\tpositions | 177 | 58 | 145 |
| Reductions\tfor\ttax\tpositions\tof\tprior\tyears\t(1) | (747) | (320) | (1,223) |
| Settlements | (603) | (67) | (259) |
| Lapse\tof\tstatute\tof\tlimitations | (69) | (19) | — |
| Balance\tDecember\t31 | $3,503 | $4,425 | $4,277 |

(1)	Amounts	reflect	the	settlements	with	the	IRS	and	CRA	as	discussed	below.

If	the	Company	were	to	recognize	the	unrecognized	tax	benefits	of	$3.5	billion	at	December	31,	2013,	the	income	tax	provision	would	reflect	a	favorable	net impact	of	$3.3	billion.

The	Company	is	under	examination	by	numerous	tax	authorities	in	various	jurisdictions	globally.	The	Company	believes	that	it	is	reasonably	possible	that the	total	amount	of	unrecognized	tax	benefits	as	of	December	31,	2013	could	decrease	by	up	to	$128	million	in	the	next	12	months	as	a	result	of	various	audit	closures, settlements	or	the	expiration	of	the	statute	of	limitations.	The	ultimate	finalization	of	the	Company's	examinations	with	relevant	taxing	authorities	can	include	formal administrative	and	legal	proceedings,	which	could	have	a	significant	impact	on	the	timing	of	the	reversal	of	unrecognized	tax	benefits.	The	Company	believes	that	its reserves	for	uncertain	tax	positions	are	adequate	to	cover	existing	risks	or	exposures.

Interest	and	penalties	associated	with	uncertain	tax	positions	amounted	to	a	benefit	of	$319	million	in	2013,	$88	million	in	2012	and	$95	million	 in	2011. These	amounts	reflect	the	beneficial	impacts	of	various	tax	settlements,	including	those	discussed	below.	Liabilities	for	accrued	interest	and	penalties	were	$665	million and	$1.2	billion	as	of	December	31,	2013	and	2012,	respectively.

In	2013,	 the	Internal	Revenue	Service	("IRS")	finalized	 its	examination	of	Schering-Plough's	2007-2009	 tax	years.	The	Company's	unrecognized	 tax benefits	for	the	years	under	examination	exceeded	the	adjustments	related	to	this	examination	period	and	therefore	the	Company	recorded	a	net	$165	million	tax provision	benefit	in	2013.

In	2010,	the	IRS	finalized	its	examination	of	Schering-Plough's	2003-2006	tax	years.	In	this	audit	cycle,	the	Company	reached	an	agreement	with	the	IRS	on an	adjustment	to	income	related	to	intercompany	pricing	matters.	This	income	adjustment	mostly	reduced	NOLs	and	other	tax	credit	carryforwards.	The	Company's reserves	for	uncertain	tax	positions	were	adequate	to	cover	all	adjustments	related	to	this	examination	period.	Additionally,	as	previously	disclosed,	the	Company	was seeking	resolution	of	one	issue	raised	during	this	examination	through	the	IRS	administrative	appeals	process.	In	2013,	the	Company	recorded	an	out-of-period	net	tax benefit	of	$160	million	related	to	this	issue,	which	was	settled	in	the	fourth	quarter	of	2012,	with	final	resolution	relating	to	interest	owed	being	reached	in	the	first quarter	of	2013.	The	Company's	unrecognized	tax	benefits	related	to	this	issue	exceeded	the	settlement	amount.	Management	has	concluded	that	the	exclusion	of	this benefit	is	not	material	to	current	or	prior	year	financial	statements.

As	previously	disclosed,	the	Canada	Revenue	Agency	(the	"CRA")	had	proposed	adjustments	for	1999	and	2000	relating	to	intercompany	pricing	matters and,	in	July	2011,	the	CRA	issued	assessments	for	other	miscellaneous	audit	issues	for	tax	years	2001-2004.	In	2012,	Merck	and	the	CRA	reached	a	settlement	for	these years	that	calls	for	Merck	to	pay	additional	Canadian	tax	of	approximately	$65	million.	The	Company's	unrecognized	tax	benefits	related	to	these	matters	exceeded	the settlement	amount	and	therefore	the	Company	recorded	a	net	$112	million	tax	provision	benefit	in	2012.	A	portion	of	the	taxes	paid	is	expected	to	be	creditable	for	U.S. tax	purposes.	The	Company	had	previously	established	reserves	for	these	matters.	The	resolution	of	these	matters	did	not	have	a	material	effect	on	the	Company's	results of	operations,	financial	position	or	liquidity.

In	2011,	the	IRS	concluded	its	examination	of	Merck's	2002-2005	federal	income	tax	returns	and	as	a	result	the	Company	was	required	to	make	net payments	 of	 approximately	$465	 million.	 The	 Company's	 unrecognized	 tax	 benefits	 for	 the	 years	 under	 examination	 exceeded	 the	 adjustments	 related	 to	 this examination	period	and	therefore	the	Company	recorded	a	net	$700	million	tax	provision	benefit	in	2011.	This	net	benefit	reflects	the	decrease	of	unrecognized	tax benefits	for	the	years	under	examination	partially	offset	by	increases	to	unrecognized	tax	benefits	for	years	subsequent

to	the	examination	period	as	a	result	of	this	settlement.	The	Company	disagrees	with	the	IRS	treatment	of	one	issue	raised	during	this	examination	and	is	appealing	the matter	through	the	IRS	administrative	process.

In	addition,	various	state	and	foreign	tax	examinations	are	in	progress.	For	most	of	its	other	significant	tax	jurisdictions	(both	U.S.	state	and	foreign),	the Company's	income	tax	returns	are	open	for	examination	for	the	period	2003	through	2013.

At	December	31,	2013,	foreign	earnings	of	$57.1	billion	have	been	retained	indefinitely	by	subsidiary	companies	for	reinvestment;	therefore,	no	provision has	been	made	for	income	taxes	that	would	be	payable	upon	the	distribution	of	such	earnings	and	it	would	not	be	practicable	to	determine	the	amount	of	the	related unrecognized	deferred	income	tax	liability.	In	addition,	the	Company	has	subsidiaries	operating	in	Puerto	Rico	and	Singapore	under	tax	incentive	grants	that	began	to expire	in	2013.

Prior	to	2013,	the	Company	calculated	earnings	per	share	pursuant	to	the	two-class	method	under	which	all	earnings	(distributed	and	undistributed)	are allocated	to	common	shares	and	participating	securities	based	on	their	respective	rights	to	receive	dividends.	RSUs	and	certain	PSUs	granted	before	December	31,	2009 (which	generally	have	a	three	year	vesting	period)	to	certain	management	level	employees	met	the	definition	of	participating	securities.	RSUs	and	PSUs	issued	on	or after	January	1,	2010,	do	not	meet	the	definition	of	participating	securities;	therefore,	beginning	in	2013	the	Company	no	longer	applies	the	two-class	method.

The	calculations	of	earnings	per	share	are	as	follows:

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Basic\tEarnings\tper\tCommon\tShare |  |  |  |
| Net\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | $4,404 | $6,168 | $6,272 |
| Less:\tIncome\tallocated\tto\tparticipating\tsecurities | — | 3 | 15 |
| Net\tincome\tallocated\tto\tcommon\tshareholders | $4,404 | $6,165 | $6,257 |
| Average\tcommon\tshares\toutstanding | 2,963 | 3,041 | 3,071 |
|  | $1.49 | $2.03 | $2.04 |
| Earnings\tper\tCommon\tShare\tAssuming\tDilution |  |  |  |
| Net\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | $4,404 | $6,168 | $6,272 |
| Less:\tIncome\tallocated\tto\tparticipating\tsecurities | — | 3 | 15 |
| Net\tincome\tallocated\tto\tcommon\tshareholders | $4,404 | $6,165 | $6,257 |
| Average\tcommon\tshares\toutstanding | 2,963 | 3,041 | 3,071 |
| Common\tshares\tissuable\t(1) | 33 | 35 | 23 |
| Average\tcommon\tshares\toutstanding\tassuming\tdilution | 2,996 | 3,076 | 3,094 |
|  | $1.47 | $2.00 | $2.02 |

# (1)	Issuable	primarily	under	share-based	compensation	plans.

In	2013,	2012	 and	2011,	25	million,	104	million	 and	169	million,	respectively,	of	common	shares	issuable	under	share-based	compensation	plans	were excluded	from	the	computation	of	earnings	per	common	share	assuming	dilution	because	the	effect	would	have	been	antidilutive.

# 17.			Other	Comprehensive	Income	(Loss)

In	the	first	quarter	of	2013,	the	Company	adopted	guidance	issued	by	the	FASB	that	requires	additional	disclosure	related	to	the	impact	of	reclassification adjustments	out	of	AOCI	on	net	income.	Changes	in	AOCI	by	component	are	as	follows:

|  | Derivatives |  | Investments |  | Employee<br>Benefit<br>Plans |  | Cumulative<br>Translation<br>Adjustment | Accumulated	Other<br>Comprehensive<br>Income	(Loss) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tJanuary\t1,\t2011,\tnet\tof\ttaxes | $41 |  | $31 |  | $(2,043) |  | $(1,245) | $(3,216) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification |  |  |  |  |  |  |  |  |
| adjustments,\tpretax | (143) |  | (10) |  | (573) |  | 435 | (291) |
| Tax | 56 |  | 5 |  | 187 |  | (1) | 247 |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification\tadjustments, |  |  |  |  |  |  |  |  |
| net\tof\ttaxes | (87) |  | (5) |  | (386) |  | 434 | (44) |
| Reclassification\tadjustments,\tpretax | 83 |  | (7) |  | 151 |  | — | 227 |
| Tax | (33) |  | 2 |  | (68) |  | — | (99) |
| Reclassification\tadjustments,\tnet\tof\ttaxes | 50 | (1) | (5) | (2) | 83 | (3) | — | 128 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttaxes | (37) |  | (10) |  | (303) |  | 434 | 84 |
| Balance\tDecember\t31,\t2011,\tnet\tof\ttaxes | 4 |  | 21 |  | (2,346) |  | (811) | (3,132) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification |  |  |  |  |  |  |  |  |
| adjustments,\tpretax | (198) |  | 74 |  | (1,852) |  | (99) | (2,075) |
| Tax | 77 |  | (10) |  | 450 |  | (81) | 436 |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification\tadjustments, |  |  |  |  |  |  |  |  |
| net\tof\ttaxes | (121) |  | 64 |  | (1,402) |  | (180) | (1,639) |
| Reclassification\tadjustments,\tpretax | 33 |  | (13) |  | 136 |  | — | 156 |
| Tax | (13) |  | 1 |  | (55) |  | — | (67) |
| Reclassification\tadjustments,\tnet\tof\ttaxes | 20 | (1) | (12) | (2) | 81 | (3) | — | 89 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttaxes | (101) |  | 52 |  | (1,321) |  | (180) | (1,550) |
| Balance\tDecember\t31,\t2012,\tnet\tof\ttaxes | (97) |  | 73 |  | (3,667) | (4) | (991) | (4,682) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification |  |  |  |  |  |  |  |  |
| adjustments,\tpretax | 335 |  | 33 |  | 3,917 |  | (383) | 3,902 |
| Tax | (132) |  | (23) |  | (1,365) |  | (100) | (1,620) |
| Other\tcomprehensive\tincome\t(loss)\tbefore\treclassification |  |  |  |  |  |  |  |  |
| adjustments,\tnet\tof\ttaxes | 203 |  | 10 |  | 2,552 |  | (483) | 2,282 |
| Reclassification\tadjustments,\tpretax | 42 |  | (39) |  | 286 |  | — | 289 |
| Tax | (16) |  | 10 |  | (80) |  | — | (86) |
| Reclassification\tadjustments,\tnet\tof\ttaxes | 26 | (1) | (29) | (2) | 206 | (3) | — | 203 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttaxes | 229 |  | (19) |  | 2,758 |  | (483) | 2,485 |
| Balance\tDecember\t31,\t2013,\tnet\tof\ttaxes | $132 |  | $54 |  | $(909) | (4) | $(1,474) | $(2,197) |

(1) Relates	to	foreign	currency	cash	flow	hedges	that	were	reclassified	from 	AOCI	to	Sales.

(2) Represents	net	realized	gains	on	the	sales	of	available-for-sale	investments	that	were	reclassified	from	 AOCI	to	Other	(income)	expense,	net.

(3) Includes	net	amortization	of	prior	service	cost	and	actuarial	gains	and	losses	included	in	net	periodic	benefit	cost	(see	Note	13). (4)	Includes	pension	plan	net	loss	of	$(1.7)	billion	and	$(4.1)	billion	at	December	31,	2013	and	2012,	respectively,	and	other	postretirement	benefit	plan	net	loss	of	 $(80)	million	and	$(414)	million	at December	31,	2013	and	in	2012,	respectively,	as	well	as	pension	plan	prior	service	credit	of	$559	million	and	$449	million	at	December	31,	2013	and	2012,	respectively,	and	other	postretirement benefit	plan	prior	service	credit	of	$331	million	and	$354	million	at	December	31,	2013	and	2012.

Included	in	cumulative	translation	adjustment	are	pretax	gains	of	approximately	$392	million	for	2011	relating	to	translation	impacts	of	intangible	assets recorded	in	conjunction	with	the	Merger.

# 18.				Segment	Reporting

The	Company's	operations	are	principally	managed	on	a	products	basis	and	are	comprised	of	four	operating	segments	–	Pharmaceutical,	Animal	Health, Consumer	Care	and	Alliances	(which	includes	revenue	and	equity	income	from	the	Company's	relationship	with	AZLP).	The	Animal	Health,	Consumer	Care	and Alliances	segments	are	not	material	for	separate	reporting	and	are	 included	 in	all	other	 in	 the	 table	below.	The	Pharmaceutical	segment	 includes	human	health pharmaceutical	and	vaccine	products	marketed	either	directly	by	the	Company	or	through	joint	ventures.	Human	health	pharmaceutical	products	consist	of	therapeutic and	preventive	agents,	generally	sold	by	prescription,	for	the	treatment	of	human	disorders.	The	Company	sells	these	human	health	pharmaceutical	products	primarily	to drug	wholesalers	and	retailers,	hospitals,	government	agencies	and	managed	health	care	providers	such	as	health	maintenance	organizations,	pharmacy	benefit	managers and	other	institutions.	Vaccine	products	consist	of	preventive	pediatric,	adolescent	and	adult	vaccines,	primarily	administered	at	physician	offices.	The	Company	sells these	human	health	vaccines	primarily	 to	physicians,	wholesalers,	physician	distributors	and	government	entities.	A	 large	component	of	pediatric	and	adolescent vaccines	is	sold	to	the	U.S.	Centers	for	Disease	Control	and	Prevention	Vaccines	for	Children	program,	which	is	funded	by	the	U.S.	government.	Additionally,	the Company	sells	vaccines	to	the	Federal	government	for	placement	into	vaccine	stockpiles.	The	Company	also	has	animal	health	operations	that	discover,	develop, manufacture	and	market	animal	health	products,	including	vaccines,	which	the	Company	sells	to	veterinarians,	distributors	and	animal	producers.	Additionally,	the Company	has	consumer	care	operations	that	develop,	manufacture	and	market	over-the-counter,	foot	care	and	sun	care	products,	which	are	sold	through	wholesale	and retail	drug,	food	chain	and	mass	merchandiser	outlets,	as	well	as	club	stores	and	specialty	channels.

The	accounting	policies	for	the	segments	described	above	are	the	same	as	those	described	in	Note	2.

| Years	Ended	December	31 | 2013 | 2012 | 2011 |
| :--- | :--- | :--- | :--- |
| Primary\tCare\tand\tWomen's\tHealth |  |  |  |
| Cardiovascular |  |  |  |
| Zetia | $2,658 | $2,567 | $2,428 |
| Vytorin | 1,643 | 1,747 | 1,882 |
| Diabetes\tand\tObesity |  |  |  |
| Januvia | 4,004 | 4,086 | 3,324 |
| Janumet | 1,829 | 1,659 | 1,363 |
| Respiratory |  |  |  |
| Nasonex | 1,335 | 1,268 | 1,286 |
| Singulair | 1,196 | 3,853 | 5,479 |
| Dulera | 324 | 207 | 96 |
| Asmanex | 184 | 185 | 206 |
| Women's\tHealth\tand\tEndocrine |  |  |  |
| NuvaRing | 686 | 623 | 623 |
| Fosamax | 560 | 676 | 855 |
| Follistim\tAQ | 481 | 468 | 530 |
| Implanon | 403 | 348 | 294 |
| Cerazette | 208 | 271 | 268 |
| Other |  |  |  |
| Arcoxia | 484 | 453 | 431 |
| Avelox | 140 | 201 | 322 |
| Hospital\tand\tSpecialty |  |  |  |
| Immunology |  |  |  |
| Remicade | 2,271 | 2,076 | 2,667 |
| Simponi | 500 | 331 | 264 |
| Infectious\tDisease |  |  |  |
| Isentress | 1,643 | 1,515 | 1,359 |
| Cancidas | 660 | 619 | 640 |
| PegIntron | 496 | 653 | 657 |
| Invanz | 488 | 445 | 406 |
| Victrelis | 428 | 502 | 140 |
| Noxafil | 309 | 258 | 230 |
| Oncology |  |  |  |
| Temodar | 708 | 917 | 935 |
| Emend | 507 | 489 | 419 |
| Other |  |  |  |
| Cosopt/Trusopt | 416 | 444 | 477 |
| Bridion | 288 | 261 | 201 |
| Integrilin | 186 | 211 | 230 |
| Diversified\tBrands |  |  |  |
| Cozaar/Hyzaar | 1,006 | 1,284 | 1,663 |
| Primaxin | 335 | 384 | 515 |
| Zocor | 301 | 383 | 456 |
| Propecia | 283 | 424 | 447 |
| Clarinex | 235 | 393 | 621 |
| Remeron | 206 | 232 | 241 |
| Claritin\tRx | 204 | 244 | 314 |
| Proscar | 183 | 217 | 223 |
| Maxalt | 149 | 638 | 639 |
| Vaccines\t(1) |  |  |  |
| Gardasil | 1,831 | 1,631 | 1,209 |
| ProQuad/M-M-R\tII/Varivax | 1,306 | 1,273 | 1,202 |
| Zostavax | 758 | 651 | 332 |
| Pneumovax\t23 | 653 | 580 | 498 |
| RotaTeq | 636 | 601 | 651 |
| Other\tpharmaceutical\t(2) | 4,316 | 4,333 | 4,266 |
| Total\tPharmaceutical\tsegment\tsales | 37,437 | 40,601 | 41,289 |
| Other\tsegment\tsales\t(3) | 6,325 | 6,412 | 6,428 |
| Total\tsegment\tsales | 43,762 | 47,013 | 47,717 |
| Other\t(4) | 271 | 254 | 330 |
|  | $44,033 | $47,267 | $48,047 |

(4)	Other	revenues	are	primarily	comprised	of	miscellaneous	corporate	revenues,	third-party	manufacturing	sales,	sales	related	to	divested	products	or	businesses	and	other	supply	sales	not	included in	segment	results.	On	October	1,	2013,	the	Company	divested	a	substantial	portion	of	its	third-party	manufacturing	sales	(see	Note	3).	In	addition,	other	revenues	in	2013	reflect	$50	million	of revenue	for	the	out-license	of	a	pipeline	compound.

# Consolidated	revenues	by	geographic	area	where	derived	are	as	follows:

Segment	 profits	 are	 comprised	 of	 segment	 sales	 less	 standard	 costs	 and	 certain	 operating	 expenses	 directly	 incurred	 by	 the	 segments.	 For	 internal management	reporting	presented	to	the	chief	operating	decision	maker,	Merck	does	not	allocate	materials	and	production	costs,	other	than	standard	costs,	the	majority	of research	and	development	expenses	or	general	and	administrative	expenses,	nor	the	cost	of	financing	these	activities.	Separate	divisions	maintain	responsibility	for monitoring	and	managing	these	costs,	including	depreciation	related	to	fixed	assets	utilized	by	these	divisions	and,	therefore,	they	are	not	included	in	segment	profits.	In addition,	costs	related	to	restructuring	activities,	as	well	as	the	amortization	of	purchase	accounting	adjustments	are	not	allocated	to	segments.

Other	 profits	 (losses)	 are	 primarily	 comprised	 of	 miscellaneous	 corporate	 profits (losses),	 as	 well	 as	 operating	 profits (losses) related to third-party manufacturing	sales,	divested	products	or	businesses	and	other	supply	sales.

Other	unallocated,	net	includes	expenses	from	corporate	and	manufacturing	cost	centers,	product	intangible	asset	impairment	charges,	gain	or	losses	on	sales of	businesses	and	other	miscellaneous	income	or	expense	items.

Equity	income	from	affiliates	and	depreciation	and	amortization	included	in	segment	profits	is	as	follows:

The	Company	does	not	disaggregate	assets	on	a	products	and	services	basis	for	internal	management	reporting	and,	therefore,	such	information	is	not presented.

# Report	of	Independent	Registered	Public	Accounting	Firm

To	the	Board	of	Directors	and	Shareholders	of	Merck	&	Co.,	Inc.:

In	our	opinion,	the	accompanying	consolidated	balance	sheets	and	the	related	consolidated	statements	of	income,	comprehensive	income,	equity	and	cash	flows	present fairly,	in	all	material	respects,	the	financial	position	of	Merck	&	Co.,	Inc.	and	its	subsidiaries	at	December	31,	2013	and	December	31,	2012,	and	the	results	of	their operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2013	in	conformity	with	accounting	principles	generally	accepted	in	the United	States	of	America.	Also	in	our	opinion,	the	Company	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31, 2013,	based	on	criteria	established	 in	Internal	Control	—	Integrated	Framework	issued	in	1992	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway Commission	(COSO).	The	Company's	management	is	responsible	for	these	financial	statements,	for	maintaining	effective	internal	control	over	financial	reporting	and for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	Management's	Report	under	Item	9A.	Our	responsibility	is	to	express opinions	on	these	financial	statements	and	on	the	Company's	internal	control	over	financial	reporting	based	on	our	integrated	audits.	We	conducted	our	audits	in accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain reasonable	assurance	about	whether	the	financial	statements	are	free	of	material	misstatement	and	whether	effective	internal	control	over	financial	reporting	was maintained	in	all	material	respects.	Our	audits	of	the	financial	statements	included	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. Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material weakness	exists,	and	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits	also	included	performing such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audits	provide	a	reasonable	basis	for	our	opinions.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(i)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(ii)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	 and	 directors	 of	 the	 company;	 and	 (iii)	 provide	 reasonable	 assurance	 regarding	 prevention	 or	 timely	 detection	 of	 unauthorized	 acquisition,	 use,	 or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

PricewaterhouseCoopers	LLP Florham	Park,	New	Jersey February	27,	2014

# (b) Supplementary	Data

Selected	quarterly	financial	data	for	2013	and	2012	are	contained	in	the	Condensed	Interim	Financial	Data	table	below.

# Condensed	Interim	Financial	Data	(Unaudited)

| ($	in	millions	except	per	share	amounts) | 4th	Q	(1) | 3rd	Q	(2) | 2nd	Q | 1st	Q	(2) |
| :--- | :--- | :--- | :--- | :--- |
| 2013\t(3) |  |  |  |  |
| Sales | $11,319 | $11,032 | $11,010 | $10,671 |
| Materials\tand\tproduction | 4,607 | 4,104 | 4,284 | 3,959 |
| Marketing\tand\tadministrative | 2,982 | 2,803 | 3,140 | 2,987 |
| Research\tand\tdevelopment | 1,836 | 1,660 | 2,101 | 1,907 |
| Restructuring\tcosts | 565 | 870 | 155 | 119 |
| Equity\tincome\tfrom\taffiliates | (53) | (102) | (116) | (133) |
| Other\t(income)\texpense,\tnet | 157 | 172 | 201 | 282 |
| Income\tbefore\ttaxes | 1,225 | 1,525 | 1,245 | 1,550 |
| Net\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | 781 | 1,124 | 906 | 1,593 |
|  | $0.27 | $0.38 | $0.30 | $0.53 |
| shareholders | $0.26 | $0.38 | $0.30 | $0.52 |
| 2012\t(3) |  |  |  |  |
| Sales | $11,738 | $11,488 | $12,311 | $11,731 |
| Materials\tand\tproduction | 4,160 | 4,137 | 4,112 | 4,037 |
| Marketing\tand\tadministrative | 3,390 | 3,063 | 3,249 | 3,074 |
| Research\tand\tdevelopment | 2,224 | 1,918 | 2,165 | 1,862 |
| Restructuring\tcosts | 191 | 110 | 144 | 219 |
| Equity\tincome\tfrom\taffiliates | (231) | (158) | (142) | (110) |
| Other\t(income)\texpense,\tnet | 669 | 200 | 103 | 142 |
| Income\tbefore\ttaxes | 1,335 | 2,218 | 2,680 | 2,507 |
| Net\tincome\tattributable\tto\tMerck\t&amp;\tCo.,\tInc. | 908 | 1,729 | 1,793 | 1,738 |
|  | $0.30 | $0.57 | $0.59 | $0.57 |
|  | 0.30 | $0.56 | $0.58 | $0.56 |

(1)	Amounts	for	2012	include	a	net	charge	related	to	the	settlement	of	certain	shareholder	litigation	(see	Note	10).

(2)	Amounts	for	2013	include	net	benefits	relating	to	the	settlements	of	certain	federal	income	tax	issues	(see	Note	15).

(3)	Amounts	for	2013	and	2012	reflect	acquisition-related	costs	(see	Note	7)	and	the	impact	of	restructuring	actions	(see	Note	3).

# Item	9.					Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

# Item	9A.		 Controls	and	Procedures.

Management	of	the	Company,	with	the	participation	of	its	Chief	Executive	Officer	and	Chief	Financial	Officer,	evaluated	the	effectiveness	of	the	Company's disclosure	controls	and	procedures.	Based	on	their	evaluation,	as	of	the	end	of	the	period	covered	by	this	Form	10-K,	the	Company's	Chief	Executive	Officer	and	Chief Financial	Officer	have	concluded	that	the	Company's	disclosure	controls	and	procedures	(as	defined	in	Rules	13a-15(e)	or	15d-15(e)	under	the	Securities	Exchange	Act of	1934,	as	amended	(the	"Act"))	are	effective.

Management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Rule	13a-15(f)	of the	Act.	Management	conducted	an	evaluation	of	the	effectiveness	of	internal	control	over	financial	reporting	based	on	the	framework	in	Internal	Control	—	Integrated Framework	issued	in	1992	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	this	evaluation,	management	concluded	that	internal control	over	financial	reporting	was	effective	as	of	December	31,	2013.	PricewaterhouseCoopers	LLP,	an	independent	registered	public	accounting	firm,	has	performed its	own	assessment	of	the	effectiveness	of	the	Company's	internal	control	over	financial	reporting	and	its	attestation	report	is	included	in	this	Form	10-K	filing.

# Management's	Report

# Management's	Responsibility	for	Financial	Statements

Responsibility	 for	 the	 integrity	 and	 objectivity	 of	 the	 Company's	 financial	 statements	 rests	 with	 management.	 The	 financial	 statements	 report	 on management's	stewardship	of	Company	assets.	These	statements	are	prepared	in	conformity	with	generally	accepted	accounting	principles	and,	accordingly,	include amounts	that	are	based	on	management's	best	estimates	and	judgments.	Nonfinancial	information	included	in	the	Annual	Report	on	Form	10-K	has	also	been	prepared by	management	and	is	consistent	with	the	financial	statements.

To	assure	that	financial	information	is	reliable	and	assets	are	safeguarded,	management	maintains	an	effective	system	of	internal	controls	and	procedures, important	elements	of	which	include:	careful	selection,	training	and	development	of	operating	and	financial	managers;	an	organization	that	provides	appropriate	division of	responsibility;	and	communications	aimed	at	assuring	that	Company	policies	and	procedures	are	understood	throughout	the	organization.	A	staff	of	internal	auditors regularly	monitors	the	adequacy	and	application	of	internal	controls	on	a	worldwide	basis.

To	ensure	that	personnel	continue	to	understand	the	system	of	internal	controls	and	procedures,	and	policies	concerning	good	and	prudent	business	practices, annually	 all	 employees	 of	 the	 Company	 are	 required	 to	 complete	 Code	 of	 Conduct	 training,	 which	 includes	 financial	 stewardship.	 This	 training	 reinforces	 the importance	and	understanding	of	internal	controls	by	reviewing	key	corporate	policies,	procedures	and	systems.	In	addition,	the	Company	has	compliance	programs, including	an	ethical	business	practices	program	to	reinforce	the	Company's	long-standing	commitment	to	high	ethical	standards	in	the	conduct	of	its	business.

The	financial	statements	and	other	financial	information	included	in	the	Annual	Report	on	Form	10-K	fairly	present,	in	all	material	respects,	the	Company's financial	condition,	results	of	operations	and	cash	flows.	Our	formal	certification	to	the	Securities	and	Exchange	Commission	is	included	in	this	Form	10-K	filing.

# Management's	Report	on	Internal	Control	Over	Financial	Reporting

Management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Rule	13a-15(f) under	the	Securities	Exchange	Act	of	1934.	The	Company's	internal	control	over	financial	reporting	is	designed	to	provide	reasonable	assurance	regarding	the	reliability of	financial	reporting	and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles	in	the	United	States of	 America.	 Management	 conducted	 an	 evaluation	 of	 the	 effectiveness	 of	 internal	 control	 over	 financial	 reporting	 based	 on	 the	 framework in	Internal Control	—	Integrated	Framework	issued	in	1992	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	this	evaluation,	management concluded	that	internal	control	over	financial	reporting	was	effective	as	of	December	31,	2013.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the policies	or	procedures	may	deteriorate.

The	effectiveness	of	the	Company's	internal	control	over	financial	reporting	as	of	December	31,	2013,	has	been	audited	by	PricewaterhouseCoopers	LLP,	an independent	registered	public	accounting	firm,	as	stated	in	their	report	which	appears	herein.

Kenneth	C.	Frazier

Chairman,	President

and	Chief	Executive	Officer

# Other	Information.

Peter	N.	Kellogg

Executive	Vice	President

and	Chief	Financial	Officer

# Item	10. Directors,	Executive	Officers	and	Corporate Governance.

The	 required	 information	 on	 directors	 and	 nominees	 is	 incorporated	 by	 reference	 from	 the	 discussion	 under	 Proposal	 1.	 Election	 of	 Directors	 of	 the Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.	Information	on	executive	officers	is	set	forth	in	Part	I	of	this	document on	pages	29	through	31.

The	required	information	on	compliance	with	Section	16(a)	of	the	Securities	Exchange	Act	of	1934	is	incorporated	by	reference	from	the	discussion	under the	heading	"Section	16(a)	Beneficial	Ownership	Reporting	Compliance"	of	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held May	27,	2014.

The	Company	has	a	Code	of	Conduct	—	Our	Values	and	Standards	applicable	to	all	employees,	including	the	principal	executive	officer,	principal	financial officer,	principal	accounting	officer	and	Controller.	The	Code	of	Conduct	is	available	on	the	Company's	website	at	www.merck.com/about/code_of_conduct.pdf.	Every Merck	employee	is	responsible	for	adhering	to	business	practices	that	are	in	accordance	with	the	law	and	with	ethical	principles	that	reflect	the	highest	standards	of corporate	and	individual	behavior.	A	printed	copy	will	be	sent,	without	charge,	to	any	shareholder	who	requests	it	by	writing	to	the	Chief	Ethics	and	Compliance	Officer of	Merck	&	Co.,	Inc.,	One	Merck	Drive,	Whitehouse	Station,	NJ	08889-0100.

The	required	 information	on	 the	 identification	of	 the	audit	committee	and	 the	audit	committee	financial	expert	 is	 incorporated	by	reference	from the discussion	under	the	heading	"Board	Meetings	and	Committees"	of	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

# Item	11. Executive

# Compensation.

The	information	required	on	executive	compensation	is	incorporated	by	reference	from	the	discussion	under	the	headings	"Compensation	Discussion	and Analysis",	"Summary	Compensation	Table",	"All	Other	Compensation"	table,	"Grants	of	Plan-Based	Awards"	table,	"Outstanding	Equity	Awards"	table,	"Option Exercises	and	Stock	Vested"	table,	"Pension	Benefits"	table,	"Nonqualified	Deferred	Compensation"	table,	Potential	Payments	Upon	Termination	or	a	Change	in Control,	 including	 the	discussion	under	 the	subheadings	"Separation"	and	"Change	 in	Control",	as	well	as	all	footnote	 information	 to	 the	various	 tables,	of	 the Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

The	required	information	on	director	compensation	is	incorporated	by	reference	from	the	discussion	under	the	heading	"Director	Compensation"	and	related "Director	Compensation"	table	and	"Schedule	of	Director	Fees"	table	of	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27, 2014.

The	required	information	under	the	headings	"Compensation	Committee	Interlocks	and	Insider	Participation"	and	"Compensation	and	Benefits	Committee Report"	is	incorporated	by	reference	from	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

# Item	12. Security	 Ownership of	 Certain	 Beneficial	 Owners and	 Management and	 Related Stockholder Matters.

Information	with	respect	to	security	ownership	of	certain	beneficial	owners	and	management	is	incorporated	by	reference	from	the	discussion	under	the heading	"Stock	Ownership	Information"	of	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

# Equity	Compensation	Plan	Information

The	 following	 table	 summarizes	 information	 about	 the	 options,	 warrants	 and	 rights	 and	 other	 equity	 compensation	 under	 the	 Company's	 equity compensation	plans	as	of	the	close	of	business	on	December	31,	2013.	The	table	does	not	include	information	about	tax	qualified	plans	such	as	the	MSD	Employee Savings	and	Security	Plan	and	the	Schering-Plough	Employees'	Savings	Plan.

| Plan	Category | Number	of<br>securities	to	be<br>issued	upon<br>exercise	of<br>outstanding<br>options,	warrants<br>and	rights<br>(a) | Weighted-average<br>exercise	price	of<br>outstanding<br>options,	warrants<br>and	rights<br>(b) | Number	of<br>securities	remaining<br>available	for	future<br>issuance	under	equity<br>compensation	plans<br>(excluding<br>securities<br>reflected	in	column	(a))<br>(c) |
| :--- | :--- | :--- | :--- |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity\tholders(1) | 115,805,403(2) | $38.75 | 143,391,240 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity\tholders | — | — | — |
| Total | 115,805,403 | $38.75 | 143,391,240 |

(1) Includes	options	to	purchase	shares	of	Company	Common	Stock	and	other	rights	under	the	following	shareholder-approved	plans:	the	Merck	Sharp	&	Dohme	2001,	2004,	2007	and	2010 Incentive	Stock	Plans,	the	Merck	&	Co.,	Inc.	2001,	2006	and	2010	Non-Employee	Directors	Stock	Option	Plans,	and	the	Merck	&	Co.,	Inc.	Schering-Plough	1997,	2002	and	2006	Stock	Incentive Plans.

(2) Excludes	approximately	17,569,402	shares	of	restricted	stock	units	and	2,440,235	performance	share	units	(assuming	maximum	payouts)	under	the	Merck	Sharp	&	Dohme	2004,	2007	and	2010 Incentive	Stock	Plans	and	1,564,574	shares	of	restricted	stock	units	and	107,813	performance	share	units	(excluding	accrued	dividends)	under	the	Merck	&	Co.,	Inc.	Schering-Plough	2006	Stock Incentive	Plan.	Also	excludes	390,268	shares	of	phantom	stock	deferred	under	the	MSD	Employee	Deferral	Program	and	459,241	shares	of	phantom	stock	deferred	under	the	MSD	Directors Deferral	Program.

# Item	13. Certain	Relationships	and	Related	Transactions,	and	Director Independence.

The	 required	 information	 on	 transactions	 with	 related	 persons	 is	 incorporated	 by	 reference	 from the	 discussion	 under the	 heading	 "Related	 Person Transactions"	of	the	Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

The	required	information	on	director	independence	is	incorporated	by	reference	from	the	discussion	under	the	heading	"Independence	of	Directors"	of	the Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

# Item	14. Principal	Accountant	Fees	and	Services.

The	information	required	for	this	item	is	incorporated	by	reference	from	the	discussion	under	"Audit	Committee"	beginning	with	the	caption	"Pre-Approval Policy	for	Services	of	Independent	Registered	Public	Accounting	Firm"	through	"Fees	for	Services	provided	by	Independent	Registered	Public	Accounting	Firm"	of	the Company's	Proxy	Statement	for	the	Annual	Meeting	of	Shareholders	to	be	held	May	27,	2014.

# PART	IV

# Item	15. Exhibits	and	Financial	Statement Schedules.

(a)				The	following	documents	are	filed	as	part	of	this	Form	10-K

# 1.				Financial	Statements

Consolidated	statement	of	income	for	the	years	ended	December	31,	2013,	2012	and	2011

Consolidated	statement	of	comprehensive	income	for	the	years	ended	December	31,	2013,	2012	and	2011

Consolidated	balance	sheet	as	of	December	31,	2013	and	2012

Consolidated	statement	of	equity	for	the	years	ended	December	31,	2013,	2012	and	2011 Consolidated	statement	of	cash	flows	for	the	years	ended	December	31,	2013,	2012	and	2011

Report	of	PricewaterhouseCoopers	LLP,	independent	registered	public	accounting	firm

# 2.				Financial	Statement	Schedules

Schedules	are	omitted	because	they	are	either	not	required	or	not	applicable.

Financial	statements	of	affiliates	carried	on	the	equity	basis	have	been	omitted	because,	considered	individually	or	in	the	aggregate,	such	affiliates	do	not constitute	a	significant	subsidiary.

*10.17 — Restricted	stock	unit	terms	for	2012	quarterly	and	annual	grants	under	the	Merck	&	Co.,	Inc.	2010	Incentive	Stock	Plan	—	Incorporated	by reference	to	Merck	&	Co.,	Inc.'s	Form	10-K	Annual	Report	for	the	fiscal	year	ended	December	31,	2011	(No.	1-6571)

Exhibit Number 	 Description 10.36 — KBI	Shares	Option	Agreement	dated	as	of	July	1,	1998	by	and	among	Astra	AB,	Merck	&	Co.,	Inc.	and	Merck	Holdings,	Inc.	—	Incorporated by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.37 — Amended	and	Restated	KBI	Shares	Option	Agreement	dated	as	of	June	26,	2012	by	and	among	AstraZeneca	AB,	Merck	Sharp	&	Dohme Corp.	and	Merck	Holdings	LLC	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-Q	Quarterly	Report	for	the	period	ended September	30,	2012	(No.	1-6571) 10.38 — KBI-E	Asset	Option	Agreement	dated	as	of	July	1,	1998	by	and	among	Astra	AB,	Merck	&	Co.,	Inc.,	Astra	Merck	Inc.	and	Astra	Merck Enterprises	Inc.	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.39 — KBI	Supply	Agreement	dated	as	of	July	1,	1998	between	Astra	Merck	Inc.	and	Astra	Pharmaceuticals,	L.P.	(Portions	of	this	Exhibit	are subject	to	a	request	for	confidential	treatment	filed	with	the	Commission).	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly	Report for	the	period	ended	June	30,	1998	(No.	1-3305) 10.40 — Second	Amended	and	Restated	Manufacturing	Agreement	dated	as	of	July	1,	1998	among	Merck	&	Co.,	Inc.,	Astra	AB,	Astra	Merck	Inc.	and Astra	USA,	Inc.	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.41 — Limited	Partnership	Agreement	dated	as	of	July	1,	1998	between	KB	USA,	L.P.	and	KBI	Sub	Inc.	—	Incorporated	by	reference	to	MSD's Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.42 — Distribution	Agreement	dated	as	of	July	1,	1998	between	Astra	Merck	Enterprises	Inc.	and	Astra	Pharmaceuticals,	L.P.	—	Incorporated	by reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.43 — Agreement	to	Incorporate	Defined	Terms	dated	as	of	June	19,	1998	between	Astra	AB,	Merck	&	Co.,	Inc.,	Astra	Merck	Inc.,	Astra	USA,	Inc., KB	USA,	L.P.,	Astra	Merck	Enterprises	Inc.,	KBI	Sub	Inc.,	Merck	Holdings,	Inc.	and	Astra	Pharmaceuticals,	L.P.	—	Incorporated	by reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.	1-3305) 10.44 — Form	of	Voting	Agreement	made	and	entered	 into	as	of	October	30,	2006	by	and	between	Merck	&	Co.,	Inc.	and	Sirna	Therapeutics, Inc.	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	October	30,	2006	(No.	1-3305) 10.45 — Commitment	Letter	by	and	among	Merck	&	Co.,	Inc.,	J.P.	Morgan	Securities	Inc.	and	JPMorgan	Chase	Bank,	N.A.	dated	as	of	March	8, 2009	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	March	8,	2009	(No.	1-3305) 10.46 — Incremental	Credit	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan Chase	Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.	1- 3305) 10.47 — Asset	Sale	Facility	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan Chase	Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.	1- 3305) 10.48 — Bridge	Loan	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan	Chase Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.	1-3305) 10.49 — Amendment	No.	1	to	Amended	and	Restated	Five-Year	Credit	Agreement	dated	as	of	April	20,	2009	among	Merck	&	Co.,	Inc.,	the	Lenders party	thereto	and	Citicorp	USA,	Inc.,	as	Administrative	Agent	—	Incorporated	by	reference	to	Exhibit	10.1	to	Merck	&	Co.,	Inc.'s	Current Report	on	Form	8-K	filed	November	4,	2009	(No.	1-6571) 10.50 — Guarantee	and	Joinder	Agreement	dated	as	of	November	3,	2009	by	Merck	&	Co.,	Inc.,	the	Guarantor,	for	the	benefit	of	the	Guaranteed Parties	—	Incorporated	by	reference	to	Exhibit	10.3	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4,	2009	(No.	1-6571)

10.51 — Guarantor	Joinder	Agreement	dated	as	of	November	3,	2009,	by	Merck	&	Co.,	Inc.,	the	Guarantor	and	JPMorgan	Chase	Bank,	N.A.,	as Administrative	Agent	—	Incorporated	by	reference	to	Exhibit	10.4	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4, 2009	(No.	1-6571)

# Exhibit

* Management	contract	or	compensatory	plan	or	arrangement.

† Certain	portions	of	the	exhibit	have	been	omitted	pursuant	to	a	request	for	confidential	treatment.	The	non-public	information	has	been	filed	separately	with	the	Securities	and	Exchange Commission	pursuant	to	rule	24b-2	under	the	Securities	Exchange	Act	of	1934,	as	amended.

# 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.

By: KENNETH	C.	FRAZIER

(Chairman,	President	and	Chief	Executive	Officer)

/S/	GERALYN	S.	RITTER

Geralyn	S.	Ritter

(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	dates	indicated.

| KENNETH	C.	FRAZIER | Chairman,	President	and	Chief	Executive	Officer;<br>Principal	Executive	Officer;	Director | February	27,	2014 |
| :--- | :--- | :--- |
| PETER\tN.\tKELLOGG | Executive\tVice\tPresident\tand\tChief\tFinancial\tOfficer;\nPrincipal\tFinancial\tOfficer | February\t27,\t2014 |
| JOHN\tCANAN | Senior\tVice\tPresident\tFinance-Global\tController;\nPrincipal\tAccounting\tOfficer | February\t27,\t2014 |
| LESLIE\tA.\tBRUN | \t Director | February\t27,\t2014 |
| THOMAS\tR.\tCECH | \t Director | February\t27,\t2014 |
| THOMAS\tH.\tGLOCER | \t Director | February\t27,\t2014 |
| WILLIAM\tB.\tHARRISON,\tJR. | \t Director | February\t27,\t2014 |
| C.\tROBERT\tKIDDER | \t Director | February\t27,\t2014 |
| ROCHELLE\tB.\tLAZARUS | \t Director | February\t27,\t2014 |
| CARLOS\tE.\tREPRESAS | \t Director | February\t27,\t2014 |
| PATRICIA\tF.\tRUSSO | \t Director | February\t27,\t2014 |
| CRAIG\tB.\tTHOMPSON | \t Director | February\t27,\t2014 |
| WENDELL\tP.\tWEEKS | \t Director | February\t27,\t2014 |
| PETER\tC.\tWENDELL | \t Director | February\t27,\t2014 |

Geralyn	S.	Ritter,	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.

# EXHIBIT	INDEX

Exhibit Number 	 Description *10.19 — Form	of	Stock	option	agreement	for	2013	and	later	quarterly	and	annual	non-qualified	option	grants	under	the	Merck	&	Co.,	Inc.	2010 Incentive	Stock	Plan	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-K	Annual	Report	for	the	fiscal	year	ended	December	31, 2012	(No.1-6571) *10.20 — Form	of	Restricted	stock	unit	agreement	for	2013	and	later	quarterly	and	annual	grants	under	the	Merck	&	Co.,	Inc.	2010	Incentive	Stock Plan	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-K	Annual	Report	for	the	fiscal	year	ended	December	31,	2012	(No.1-6571) *10.21 — Merck	&	Co.,	Inc.	Change	in	Control	Separation	Benefits	Plan	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8- K	dated	November	23,	2009	(No.1-6571) *10.22 — Amendment	One	to	Merck	&	Co.,	Inc.	Change	in	Control	Separation	Benefits	Plan	(effective	February	15,	2010)	—	Incorporated	by	reference to	Exhibit	10.1	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	February	18,	2010	(No.1-6571) *10.23 — Merck	&	Co.,	Inc.	Change	in	Control	Separation	Benefits	Plan	(Effective	as	Amended	and	Restated,	as	of	January	1,	2013)	—	Incorporated	by reference	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	dated	November	29,	2012	(No.1-6571) *10.24 — Merck	&	Co.,	Inc.	U.S.	Separation	Benefits	Plan	(effective	as	of	January	1,	2012)	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form 10-K	Annual	Report	for	the	fiscal	year	ended	December	31,	2011	(No.1-6571) *10.25 — Merck	 &	 Co.,	 Inc.	 U.S.	 Separation	 Benefits	 Plan	 (effective	 as	 of	 January	 1,	 2013)	 (amended	 and	 restated	 as	 of	 October	 1,	 2013) —	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-Q	Quarterly	Report	for	the	period	ended	September30,	2013	(No.1-6571) *10.26 — Merck	&	Co.,	Inc.	2001	Non-Employee	Directors	Stock	Option	Plan	(amended	and	restated	as	of	November	3,	2009)	—	Incorporated	by reference	to	Exhibit	10.11	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4,	2009	(No.1-6571) *10.27 — Merck	&	Co.,	Inc.	2006	Non-Employee	Directors	Stock	Option	Plan	(amended	and	restated	as	of	November	3,	2009)	—	Incorporated	by reference	to	Exhibit	10.5	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4,	2009	(No.1-6571) *10.28 — Merck	&	Co.,	Inc.	2010	Non-Employee	Directors	Stock	Option	Plan	(amended	and	restated	as	of	December	1,	2010)	—	Incorporated	by reference	to	Merck	&	Co.,	Inc.'s	Form	10-K	Annual	Report	for	the	fiscal	year	ended	December	31,	2010	(No.1-6571) *10.29 — Retirement	Plan	for	the	Directors	of	Merck	&	Co.,	Inc.	(amended	and	restated	June	21,	1996)	—	Incorporated	by	reference	to	MSD's	Form 10-Q	Quarterly	Report	for	the	period	ended	June	30,	1996	(No.1-3305) *10.30 — Merck	&	Co.,	Inc.	Plan	for	Deferred	Payment	of	Directors'	Compensation	(effective	as	amended	and	restated	as	of	December	1,	2010)	— Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-K	Annual	Report	for	the	fiscal	year	ended	December	31,	2010	(No.1-6571) *10.31 — Offer	Letter	between	Merck	&	Co.,	Inc.	and	Peter	S.	Kim,	dated	December	15,	2000	—	Incorporated	by	reference	to	MSD's	Form	10-K Annual	Report	for	the	fiscal	year	ended	December	31,	2003	(No.1-3305) *10.32 — Offer	Letter	between	Merck	&	Co.,	Inc.	and	Peter	N.	Kellogg,	dated	June	18,	2007	—	Incorporated	by	reference	to	MSD's	Current	Report	on Form	8-K	dated	June	28,	2007	(No.1-3305) *10.33 — Form	of	employment	agreement	effective	upon	a	change	of	control	between	Schering-Plough	and	certain	executives	for	new	agreements beginning	in	January	1,	2008	—	Incorporated	by	reference	to	Exhibit	10(e)(xv)	to	Schering-Plough's	10-K	for	the	year	ended	December	31, 2008	(No.1-6571) 10.34 — Share	Purchase	Agreement	between	Akzo	Nobel	N.V.,	Schering-Plough	International	C.V.,	and	Schering-Plough	Corporation	—	Incorporated by	reference	to	Exhibit	10.1	to	Schering-Plough's	8-K	filed	October	2,	2007	(No.1-6571) 10.35 — Amended	and	Restated	License	and	Option	Agreement	dated	as	of	July	1,	1998	between	Astra	AB	and	Astra	Merck	Inc.	—	Incorporated	by reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.36 — KBI	Shares	Option	Agreement	dated	as	of	July	1,	1998	by	and	among	Astra	AB,	Merck	&	Co.,	Inc.	and	Merck	Holdings,	Inc.	—	Incorporated by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305)

Exhibit Number 	 Description 10.37 — Amended	and	Restated	KBI	Shares	Option	Agreement	dated	as	of	June	26,	2012	by	and	among	AstraZeneca	AB,	Merck	Sharp	&	Dohme Corp.	and	Merck	Holdings	LLC	—	Incorporated	by	reference	to	Merck	&	Co.,	Inc.'s	Form	10-Q	Quarterly	Report	for	the	period	ended September	30,	2012	(No.1-6571) 10.38 — KBI-E	Asset	Option	Agreement	dated	as	of	July	1,	1998	by	and	among	Astra	AB,	Merck	&	Co.,	Inc.,	Astra	Merck	Inc.	and	Astra	Merck Enterprises	Inc.	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.39 — KBI	Supply	Agreement	dated	as	of	July	1,	1998	between	Astra	Merck	Inc.	and	Astra	Pharmaceuticals,	L.P.	(Portions	of	this	Exhibit	are subject	to	a	request	for	confidential	treatment	filed	with	the	Commission).	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.40 — Second	Amended	and	Restated	Manufacturing	Agreement	dated	as	of	July	1,	1998	among	Merck	&	Co.,	Inc.,	Astra	AB,	Astra	Merck	Inc.	and Astra	USA,	Inc.	—	Incorporated	by	reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.41 — Limited	Partnership	Agreement	dated	as	of	July	1,	1998	between	KB	USA,	L.P.	and	KBI	Sub	Inc.	—	Incorporated	by	reference	to	MSD's Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.42 — Distribution	Agreement	dated	as	of	July	1,	1998	between	Astra	Merck	Enterprises	Inc.	and	Astra	Pharmaceuticals,	L.P.	—	Incorporated	by reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.43 — Agreement	to	Incorporate	Defined	Terms	dated	as	of	June	19,	1998	between	Astra	AB,	Merck	&	Co.,	Inc.,	Astra	Merck	Inc.,	Astra	USA,	Inc., KB	USA,	L.P.,	Astra	Merck	Enterprises	Inc.,	KBI	Sub	Inc.,	Merck	Holdings,	Inc.	and	Astra	Pharmaceuticals,	L.P.	—	Incorporated	by reference	to	MSD's	Form	10-Q	Quarterly	Report	for	the	period	ended	June	30,	1998	(No.1-3305) 10.44 — Form	of	Voting	Agreement	made	and	entered	into	as	of	October	30,	2006	by	and	between	Merck	&	Co.,	Inc.	and	Sirna	Therapeutics,	Inc.	— Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	October	30,	2006	(No.1-3305) 10.45 — Commitment	Letter	by	and	among	Merck	&	Co.,	Inc.,	J.P.	Morgan	Securities	Inc.	and	JPMorgan	Chase	Bank,	N.A.	dated	as	of	March	8,	2009 —	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	March	8,	2009	(No.1-3305) 10.46 — Incremental	Credit	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan Chase	Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.1- 3305) 10.47 — Asset	Sale	Facility	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan Chase	Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.1- 3305) 10.48 — Bridge	Loan	Agreement	dated	as	of	May	6,	2009,	among	Merck	&	Co.,	Inc.,	the	Guarantors	and	Lenders	party	thereto,	and	JPMorgan	Chase Bank,	N.A.,	as	Administrative	Agent	—	Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	May	6,	2009	(No.1-3305) 10.49 — Amendment	No.	1	to	Amended	and	Restated	Five-Year	Credit	Agreement	dated	as	of	April	20,	2009	among	Merck	&	Co.,	Inc.,	the	Lenders party	thereto	and	Citicorp	USA,	Inc.,	as	Administrative	Agent	—	Incorporated	by	reference	to	Exhibit	10.1	to	Merck	&	Co.,	Inc.'s	Current Report	on	Form	8-K	filed	November	4,	2009	(No.1-6571) 10.50 — Guarantee	and	Joinder	Agreement	dated	as	of	November	3,	2009	by	Merck	&	Co.,	Inc.,	the	Guarantor,	for	the	benefit	of	the	Guaranteed	Parties —	Incorporated	by	reference	to	Exhibit	10.3	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4,	2009	(No.1-6571) 10.51 — Guarantor	Joinder	Agreement	dated	as	of	November	3,	2009,	by	Merck	&	Co.,	Inc.,	the	Guarantor	and	JPMorgan	Chase	Bank,	N.A.,	as Administrative	Agent	—	Incorporated	by	reference	to	Exhibit	10.4	to	Merck	&	Co.,	Inc.'s	Current	Report	on	Form	8-K	filed	November	4, 2009	(No.1-6571) 10.52 — Call	 Option	 Agreement,	 dated	 July	 29,	 2009,	 by	 and	 among	 Merck	 &	 Co.,	 Inc.,	 Schering-Plough	 Corporation	 and sanofi-aventis	 — Incorporated	by	reference	to	MSD's	Current	Report	on	Form	8-K	dated	July	31,	2009	(No.1-3305)



Question: based on the reconciliation what was the percent of the change in the unrecognized tax benefits from 2011 to 2012
Answer: 3.5%