##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 1-3305
 MERCK & CO., INC.
 
 Incorporated in New Jersey
    
    I.R.S. Employer Identification
No. 22-1109110
  Class
    
    Number of Shares OutstandingCommon Stock
    
    2,171,002,669
  Yes þ
    
    No o
  þ o o
  Yes o
    
    No þ




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TABLE OF CONTENTS  Part I  Financial InformationItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 4. Controls and ProceduresPART II   Other InformationItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 6.ExhibitsSignaturesEXHIBIT INDEXEX-12: COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 Part I  Financial Information
 
 Item 1. Financial Statements
 THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Sales
    
    $
    5,410.4
    
    
    $
    5,416.2
    
    
    $
    16,591.9
    
    
    $
    16,246.0Costs, Expenses and OtherMaterials and production
    
    
    1,544.1
    
    
    
    1,238.8
    
    
    
    4,332.0
    
    
    
    3,670.9Marketing and administrative
    
    
    2,370.6
    
    
    
    1,661.4
    
    
    
    5,819.6
    
    
    
    5,016.4Research and development
    
    
    945.4
    
    
    
    942.6
    
    
    
    3,059.9
    
    
    
    2,736.0Restructuring costs
    
    
    49.6
    
    
    
    79.8
    
    
    
    86.5
    
    
    
    93.4Equity income from affiliates
    
    
    (595.4
    )
    
    
    (480.1
    )
    
    
    (1,710.2
    )
    
    
    (1,130.5
    )Other (income) expense, net
    
    
    (134.7
    )
    
    
    (24.7
    )
    
    
    (305.4
    )
    
    
    15.84,179.6
    
    
    
    3,417.8
    
    
    
    11,282.4
    
    
    
    10,402.0Income Before Taxes
    
    
    1,230.8
    
    
    
    1,998.4
    
    
    
    5,309.5
    
    
    
    5,844.0Taxes on Income
    
    
    290.2
    
    
    
    577.5
    
    
    
    1,349.6
    
    
    
    2,332.4Net Income
    
    $
    940.6
    
    
    $
    1,420.9
    
    
    $
    3,959.9
    
    
    $
    3,511.6Basic Earnings per Common Share
    
    $
    0.43
    
    
    $
    0.65
    
    
    $
    1.82
    
    
    $
    1.60Earnings per Common Share Assuming Dilution
    
    $
    0.43
    
    
    $
    0.65
    
    
    $
    1.81
    
    
    $
    1.59Dividends Declared per Common Share
    
    $
    0.38
    
    
    $
    0.38
    
    
    $
    1.14
    
    
    $
    1.14
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SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
 September 30,
    
    
    December 31,2006
    
    
    2005AssetsCurrent AssetsCash and cash equivalents
    
    $
    6,222.1
    
    
    $
    9,585.3Short-term investments
    
    
    2,864.9
    
    
    
    6,052.3Accounts receivable
    
    
    3,081.4
    
    
    
    2,927.3Inventories (excludes inventories of $447.8 in 2006 and
$753.8 in 2005 classified in Other assets  see Note 5)
    
    
    1,870.7
    
    
    
    1,658.1Prepaid expenses and taxes
    
    
    1,185.1
    
    
    
    826.3Total Current Assets
    
    
    15,224.2
    
    
    
    21,049.3Investments
    
    
    6,443.7
    
    
    
    1,107.9Property, Plant and Equipment, at cost, net of allowance for
depreciation of $10,731.0 in 2006 and $9,315.1 in 2005
    
    
    13,412.8
    
    
    
    14,398.2Goodwill
    
    
    1,085.7
    
    
    
    1,085.7Other Intangibles, net
    
    
    631.8
    
    
    
    518.7Other Assets
    
    
    6,920.9
    
    
    
    6,686.0$
    43,719.1
    
    
    $
    44,845.8Liabilities and Stockholders EquityCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    1,195.8
    
    
    $
    2,972.0Trade accounts payable
    
    
    362.6
    
    
    
    471.1Accrued and other current liabilities
    
    
    5,504.9
    
    
    
    5,277.8Income taxes payable
    
    
    3,255.6
    
    
    
    3,691.5Dividends payable
    
    
    828.8
    
    
    
    830.0Total Current Liabilities
    
    
    11,147.7
    
    
    
    13,242.4Long-Term Debt
    
    
    4,789.5
    
    
    
    5,125.6Deferred Income Taxes and Noncurrent Liabilities
    
    
    6,059.6
    
    
    
    6,092.9Minority Interests
    
    
    2,437.0
    
    
    
    2,407.2Stockholders EquityCommon StockAuthorized - 5,400,000,000 sharesIssued         - 2,976,223,337 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    7,105.9
    
    
    
    6,900.0Retained earnings
    
    
    39,447.6
    
    
    
    37,980.0Accumulated other comprehensive income
    
    
    50.1
    
    
    
    52.346,633.4
    
    
    
    44,962.1Less treasury stock, at cost803,664,097 shares  September 30, 2006794,299,347 shares  December 31, 2005
    
    
    27,348.1
    
    
    
    26,984.4Total Stockholders Equity
    
    
    19,285.3
    
    
    
    17,977.7$
    43,719.1
    
    
    $
    44,845.8
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NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
 Nine
Months EndedSeptember 30,2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    $
    3,959.9
    
    
    $
    3,511.6Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization
    
    
    1,725.4
    
    
    
    1,202.2Deferred income taxes
    
    
    (226.1
    )
    
    
    183.6Equity income from affiliates
    
    
    (1,710.2
    )
    
    
    (1,130.5
    )Dividends and distributions from equity affiliates
    
    
    1,372.5
    
    
    
    752.0Share-based compensation
    
    
    246.0
    
    
    
    33.5Acquired research
    
    
    296.3
    
    
    
    Other
    
    
    34.5
    
    
    
    391.3Net changes in assets and liabilities
    
    
    (709.2
    )
    
    
    400.0Net Cash Provided by Operating Activities
    
    
    4,989.1
    
    
    
    5,343.7Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (684.7
    )
    
    
    (996.1
    )Purchase of securities, subsidiaries and other investments
    
    
    (15,983.2
    )
    
    
    (88,103.8
    )Proceeds from sale of securities, subsidiaries and other investments
    
    
    13,480.0
    
    
    
    86,616.0Other
    
    
    (1.5
    )
    
    
    (2.1
    )Net Cash Used by Investing Activities
    
    
    (3,189.4
    )
    
    
    (2,486.0
    )Cash Flows from Financing ActivitiesNet change in short-term borrowings
    
    
    (1,606.6
    )
    
    
    523.1Proceeds from issuance of debt
    
    
    5.1
    
    
    
    1,000.0Payments on debt
    
    
    (505.6
    )
    
    
    (1,014.2
    )Purchase of treasury stock
    
    
    (751.0
    )
    
    
    (764.0
    )Dividends paid to stockholders
    
    
    (2,494.0
    )
    
    
    (2,516.5
    )Proceeds from exercise of stock options
    
    
    340.8
    
    
    
    114.6Other
    
    
    (172.5
    )
    
    
    (33.4
    )Net Cash Used by Financing Activities
    
    
    (5,183.8
    )
    
    
    (2,690.4
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    20.9
    
    
    
    (128.1
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (3,363.2
    )
    
    
    39.2Cash and Cash Equivalents at Beginning of Year
    
    
    9,585.3
    
    
    
    2,878.8Cash and Cash Equivalents at End of Period
    
    $
    6,222.1
    
    
    $
    2,918.0
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Notes to Consolidated Financial Statements
 1.
    
    Basis of PresentationThe accompanying unaudited interim consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain
information and disclosures required by accounting principles generally accepted in the United
States for complete consolidated financial statements are not included herein. The interim
statements should be read in conjunction with the financial statements and notes thereto
included in the Companys latest Annual Report on Form 10-K.The results of operations of any interim period are not necessarily indicative of the results
of operations for the full year. In the Companys opinion, all adjustments necessary for a
fair presentation of these interim statements have been included and are of a normal and
recurring nature.Certain reclassifications have been made to prior year amounts to conform with the current
year presentation.Effective January 1, 2006, the Company began recognizing revenue from the sale of vaccines to
the Federal government for placement into stockpiles related to the Pediatric Vaccine
Stockpile 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.The Company retrospectively applied the impacts of adopting the
Interpretation to the Companys consolidated financial statements by reducing Accrued and
other current liabilities by $103.4 million and increasing Income taxes payable by $42.3
million and Retained earnings by $61.1 million, respectively, in its December 31, 2005
consolidated balance sheet. There was no impact to the Companys results of operations for the
nine months ended September 30, 2006 and 2005, respectively.2.
    
    RestructuringIn November 2005, the Company commenced the initial phase of its global restructuring program
designed to reduce the Companys cost structure, increase efficiency and enhance
competitiveness. As part of this program, the Company plans to sell or close five
manufacturing sites and two preclinical sites by the end of 2008 and eliminate approximately
7,000 positions company-wide. To date, manufacturing operations have ceased at one site, one
other site has been sold, and the two preclinical sites have been closed. The Company has
also sold certain other facilities and related assets in connection with the restructuring
program. Through the end of 2008, when the initial phase of the global restructuring program
is expected to be substantially complete, the cumulative pre-tax costs are expected to range
from $1.8 billion to $2.2 billion. Approximately 70% of the cumulative pre-tax costs are
estimated as non-cash, relating primarily to accelerated depreciation for those facilities
scheduled for closure. Since the inception of the global restructuring program through
September 30, 2006, the Company has recorded total pre-tax accumulated costs of $1.1 billion
and eliminated approximately 3,900 positions which are comprised of employee separations and
the elimination of contractors and vacant positions.The following table summarizes the charges related to restructuring activities by type of cost
for the three and nine months ended September 30, 2006:
 ($ in millions)Three Months Ended September 30, 2006
    
    
    Nine Months Ended September 30, 2006Separation
    
    
    Accelerated
    
    
    
    
    
    
    
    
    
    
    Separation
    
    
    AcceleratedCosts
    
    
    Depreciation
    
    
    Other
    
    
    Total
    
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    TotalMaterials and
production
    
    $
    
    
    
    $
    187.4
    
    
    $
    12.2
    
    
    $
    199.6
    
    
    $
    
    
    
    $
    549.0
    
    
    $
    23.1
    
    
    $
    572.1Research and
development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.4
    
    
    
    
    
    
    
    55.4Restructuring
costs
    
    
    37.8
    
    
    
    
    
    
    
    11.8
    
    
    
    49.6
    
    
    
    87.4
    
    
    
    
    
    
    
    (0.9
    )
    
    
    86.5$
    37.8
    
    
    $
    187.4
    
    
    $
    24.0
    
    
    $
    249.2
    
    
    $
    87.4
    
    
    $
    604.4
    
    
    $
    22.2
    
    
    $
    714.0
  (1)
    
    Separation costs related to Company-wide position eliminations,
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Notes to Consolidated Financial Statements
 (2)
    
    Accelerated depreciation related to manufacturing and preclinical facilities expected
to be sold or closed by the end of 2008,(3)
    
    Other activity related to the Companys pension and other postretirement plans, asset
impairments, and other exit costs as well as pre-tax gains of $39.5 million for the nine
months ended September 30, 2006 resulting from the sales of facilities in the second
quarter in connection with the global restructuring program.
  ($ in millions)Separation
    
    
    AcceleratedCosts
    
    
    Depreciation
    
    
    Other
    
    
    TotalRestructuring accrual as of January 1, 2006 (1)
    
    $
    240.3
    
    
    $
    
    
    
    $
    
    
    
    $
    240.3Expense
    
    
    87.4
    
    
    
    604.4
    
    
    
    22.2
    
    
    
    714.0(Payments) receipts, net
    
    
    (154.1
    )
    
    
    
    
    
    
    7.0
    (2)
    
    
    (147.1
    )Non-cash activity
    
    
    
    
    
    
    (604.4
    )
    
    
    (29.2
    )
    
    
    (633.6
    )Restructuring accrual as of September 30, 2006
    
    $
    173.6
    
    
    $
    
    
    
    $
    
    
    
    $
    173.6
 
 (1)
    
    The restructuring accrual at January 1, 2006 includes separation costs associated
with the global restructuring program as well as amounts from previously announced
restructuring programs. The previously announced restructuring programs were substantially
complete as of the end of the first quarter.(2)
    
    Includes proceeds from the sales of facilities in the second quarter in connection with
the global restructuring program.
  3.
    
    Share-Based CompensationThe Company has share-based compensation plans under which 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. In
addition to stock options, the Company grants performance share units (PSUs) and restricted
stock units (RSUs) to certain management level employees. These plans were approved by the
Companys shareholders. At September 30, 2006, 187.3 million shares were authorized for future
grants under the Companys share-based compensation plans. The Company settles employee
share-based compensation awards 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 10 years. RSUs are stock awards that are granted to
employees and entitle the holder to shares of common stock as the awards vest, as well as
non-forfeitable dividend equivalents. The fair value of the 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. Over the 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. Both PSU and RSU payouts will be in shares of Company stock after the
end of a three-year period, subject to the terms applicable to such awards.Effective January 1, 2006, the Company adopted Financial Accounting Standards No. 123R,
Share-Based Payments(FAS 123R). Employee share-based compensation expense was previously
recognized using the intrinsic value method which measures share-based compensation expense as
the amount at which the market price of the stock at the date of grant exceeds the exercise
price. FAS 123R requires the recognition of the fair value of share-based compensation in net
income, which the Company recognizes on a straight-line basis over the requisite service
period. Additionally, the Company elected the modified prospective transition method for
adopting FAS 123R, and therefore, prior periods were not restated. Under this method, the
provisions for FAS 123R apply to all awards granted or modified after January 1, 2006. In
addition, the unrecognized expense of awards that have not yet vested at the date of adoption
are recognized in net income in the relevant period after the date of adoption. Also effective
January 1, 2006, the Company adopted Financial Accounting Standards Board Staff Position
123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards, which provides the Company an optional short cut method for calculating the historical
pool of windfall tax benefits upon adopting FAS 123R.
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Notes to Consolidated Financial Statements
  ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Pre-tax share-based compensation expense
    
    $
    63.7
    
    
    $
    11.8
    
    
    $
    246.0
    
    
    $
    33.5Income tax benefits
    
    
    (20.0
    )
    
    
    (4.1
    )
    
    
    (76.3
    )
    
    
    (11.7
    )Total share-based compensation expense
    
    $
    43.7
    
    
    $
    7.7
    
    
    $
    169.7
    
    
    $
    21.8
  ($ in millions)Three Months
    
    Nine MonthsEnded September 30,2006
    
    2006Income Before Taxes
    
    $
    42.3
    
    
    $
    182.8Net Income
    
    
    29.5
    
    
    
    127.6Earnings per Common Share Assuming Dilution
    
    $
    0.01
    
    
    $
    0.06
  ($ in millions)Three Months
    
    
    Nine MonthsEnded September 30,2005
    
    
    2005Net income, as reported
    
    $
    1,420.9
    
    
    $
    3,511.6Compensation expense, net of tax:Reported
    
    
    7.7
    
    
    
    21.8Fair value method
    
    
    (83.8
    )
    
    
    (272.6
    )Pro forma net income
    
    $
    1,344.8
    
    
    $
    3,260.8Earnings per common share:Basic  as reported
    
    $
    0.65
    
    
    $
    1.60Basic  pro forma
    
    $
    0.61
    
    
    $
    1.48Assuming dilution  as reported
    
    $
    0.65
    
    
    $
    1.59Assuming dilution  pro forma
    
    $
    0.61
    
    
    $
    1.48
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Notes to Consolidated Financial Statements
    Expected dividend yield
    
    
    3.84
    %Risk-free interest rate
    
    
    4.58
    %Expected volatility
    
    
    31.13
    %Expected life (years)
    
    
    5.8
  WeightedAverage
    
    
    AggregateRemaining
    
    
    IntrinsicNumber
    
    
    Average
    
    
    Contractual
    
    
    Valueof Options
    
    
    Price(1)
    
    
    Term
    
    
    ($000s)Balance at December 31, 2005
    
    
    250,088.0
    
    
    $
    54.52Granted
    
    
    30,704.3
    
    
    
    35.21Exercised
    
    
    (11,340.1
    )
    
    
    30.05Forfeited
    
    
    (13,170.1
    )
    
    
    57.32Outstanding at September 30, 2006
    
    
    256,282.1
    
    
    $
    53.14
    
    
    
    5.31
    
    
    $
    575,804.9Exercisable at September 30, 2006
    
    
    194,375.0
    
    
    $
    58.48
    
    
    
    4.21
    
    
    $
    149,722.3
 
 (1)
  ($ in millions)Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Total intrinsic value of stock options exercised
    
    $
    10.6
    
    
    $
    2.2
    
    
    $
    55.6
    
    
    $
    55.4Fair value of stock options vested
    
    $
    21.1
    
    
    $
    24.6
    
    
    $
    840.4
    
    
    $
    917.8Cash received from the exercise
of stock options
    
    $
    28.9
    
    
    $
    4.1
    
    
    $
    340.8
    
    
    $
    114.6
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Notes to Consolidated Financial Statements
  RSUs
    
    
    PSUsWeighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageNumber
    
    
    Grant Date
    
    
    Number
    
    
    Grant Dateof Shares
    
    
    Fair Value
    
    
    of Shares
    
    
    Fair ValueNonvested at December 31, 2005
    
    
    4,765.1
    
    
    $
    35.93
    
    
    
    1,022.2
    
    
    $
    39.73Granted
    
    
    1,541.4
    
    
    
    35.15
    
    
    
    520.7
    
    
    
    35.09Vested
    
    
    (49.7
    )
    
    
    36.40
    
    
    
    
    
    
    
    Forfeited
    
    
    (205.2
    )
    
    
    35.21
    
    
    
    (113.7
    )
    
    
    34.70Nonvested at September 30, 2006
    
    
    6,051.6
    
    
    $
    35.75
    
    
    
    1,429.2
    
    
    $
    38.44
  4.
    
    Research Collaborations, Acquisitions and License AgreementsMerck continues its strategy of establishing strong external alliances to complement its
substantial internal research capabilities, including targeted acquisitions, research
collaborations, licensing pre-clinical and clinical compounds and technology transfers to
drive both near- and long-term growth.In September 2006, the Company announced that it will expand the scope of its existing
strategic collaboration with FoxHollow Technologies, Inc. (FoxHollow) for atherosclerotic
plaque analysis and that Merck will acquire a stake in FoxHollow with the purchase of $95
million in common stock, subject to customary closing conditions and clearance under the
Hart-Scott-Rodino Antitrust Improvements Act. Merck will acquire newly-issued shares of
FoxHollow common stock at $29.629 per share, representing approximately an 11% stake. Under
the terms of the expanded collaboration agreement, Merck will pay $40 million to FoxHollow
over four years in exchange for FoxHollows agreement to collaborate exclusively with Merck in
specified disease areas. Merck will also provide a minimum of $60 million in funding to
FoxHollow over the first three years of the four year collaboration program term, for research
activities to be conducted by FoxHollow under Mercks direction. FoxHollow will receive
milestone payments on successful development of drug products or diagnostic tests utilizing
results from the collaboration, as well as royalties. This transaction is expected to close in
the fourth quarter of 2006.In June 2006, the Company acquired all of the outstanding equity of GlycoFi, Inc. (GlycoFi)
for approximately $373 million in cash ($400 million purchase price net of $25 million in
shares already owned and net transaction costs). GlycoFi was a privately-held biotechnology
company that was a leader in the field of yeast glycoengineering, which is the addition of
specific carbohydrate modifications to the proteins in yeast, and optimization of biologic
drug molecules. GlycoFis technology platform is used in the development of glycoprotein, as
well as the optimization of a glycoprotein target. In connection with the acquisition, the
Company recorded a charge of $296.3 million for acquired research associated with GlycoFis
technology platform to be used in the research and development process, for which, at the
acquisition date, technological feasibility had not been established and no alternative future
use existed. This charge is not deductible for tax purposes. The Company expects this
technology to be fully developed over the next one to two years. The charge was recorded in
Research and development expense in the second quarter and was determined based upon the
present value of expected future cash flows of new product candidates resulting from this
technology adjusted for the probability of its technical and marketing success utilizing an
income approach reflecting the appropriate risk-adjusted discount rate. The Company also
recorded a $99.4 million intangible asset ($57.6 million net of deferred taxes) in the second
quarter related to GlycoFis developed technology that can be used immediately in the research
and development process and has alternative future uses. This intangible asset will be
amortized to Research and development expense on a straight-line basis over a five year useful
life. The remaining net assets acquired in this transaction were not material. Because
GlycoFi was a development stage company that had not commenced its planned principal
operations, the transaction was accounted for as an acquisition of assets rather than as a
business combination and, therefore, goodwill was not recorded. GlycoFis results of
operations have been included with the Companys consolidated financial results since the
acquisition date.
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Notes to Consolidated Financial Statements
 in-silico
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Notes to Consolidated Financial Statements
 5.
    
    InventoriesInventories consisted of:
 ($ in millions)September 30,
    
    
    December 31,2006
    
    
    2005Finished goods
    
    $
    448.8
    
    
    $
    400.0Raw materials and work in process
    
    
    1,780.0
    
    
    
    1,929.8Supplies
    
    
    89.7
    
    
    
    82.1Total (approximates current cost)
    
    
    2,318.5
    
    
    
    2,411.9Reduction to LIFO cost for domestic inventories
    
    
    
    
    
    
    $
    2,318.5
    
    
    $
    2,411.9Recognized as:Inventories
    
    $
    1,870.7
    
    
    $
    1,658.1Other assets
    
    $
    447.8
    
    
    $
    753.8
 Amounts recognized as Other assets are comprised entirely of raw materials and work in process
inventories, which include inventories for products not expected to be sold within one year,
principally vaccines and Arcoxia, and, as of December 31, 2005, inventories produced in
preparation for product launches.6.
    
    Debt and Financial InstrumentsIn July 2006, $500 million of 5.25% notes, along with an associated pay-floating,
receive-fixed interest rate swap, matured and were retired.In April and May 2006, respectively, the Company entered into pay-floating, receive-fixed
interest rate swap contracts each effectively converting $250 million of its $1.0 billion,
4.75% fixed-rate notes to floating rate instruments. The interest rate swaps are designated
as hedges of the fair value changes in the notes attributable to changes in the benchmark
London Interbank Offered Rate (LIBOR) swap rate and will mature in 2015. The fair value
changes in the notes are fully offset in interest expense by the fair value changes in the
swap contract.In April 2006, the Company extended the maturity date of its $1.5 billion, 5-year revolving
credit facility from 2010 to 2011. 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.7.
    
    ContingenciesThe 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.VioxxLitigationProduct Liability LawsuitsAs previously disclosed, federal and state product liability lawsuits involving individual
claims, as well as putative class actions, have been filed against the Company with respect to
Vioxx. As of October 9, 2006, the Company had been served or was aware that it had been named
as a defendant in approximately 23,800 lawsuits filed on or before September 30, which include
approximately 41,750 plaintiff groups, alleging personal injuries resulting from the use of
Vioxx. Of these lawsuits, approximately 7,450 lawsuits representing approximately 21,950
plaintiff groups are or are slated to be in the federal MDL (discussed below) and
approximately 13,850 lawsuits
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Notes to Consolidated Financial Statements
 representing approximately 13,850 plaintiff groups are included
in a coordinated proceeding in New Jersey Superior Court before Judge Carol E. Higbee.
Certain of these lawsuits include allegations regarding gastrointestinal bleeding,
cardiovascular events, thrombotic events or kidney damage. The Company has also been named as
a defendant in approximately 275 putative class actions alleging personal injuries or seeking
(i) medical monitoring as a result of the putative class members use of Vioxx, (ii)
disgorgement of certain profits under common law unjust enrichment theories, and/or (iii)
various remedies under state consumer fraud and fair business practice statutes, including
recovering the cost of Vioxxpurchased by individuals and third-party payors such as union
health plans (all of the actions discussed in this paragraph are collectively referred to as
the VioxxProduct Liability Lawsuits). The actions filed in the state courts of California,
Texas, and New Jersey, and in the counties of Philadelphia, Pennsylvania, and Clark County,
Nevada have been transferred to a single state court in each location for
coordinated proceedings.In addition to the VioxxProduct Liability Lawsuits discussed above, the claims of over 3,000
plaintiff groups have been dismissed to date. Of these, there have been over 1,100 plaintiff
groups whose claims were dismissed with prejudice (i.e., they can not be brought again) either
by plaintiffs themselves or by the courts. Over 2,000 additional plaintiff groups have had
their claims dismissed without prejudice (i.e., they can be brought again).On February 16, 2005, the Judicial Panel on Multidistrict Litigation (the JPML) transferred
all VioxxProduct Liability Lawsuits pending in federal courts nationwide into one
Multidistrict Litigation (MDL) for coordinated pre-trial proceedings. The MDL has been
transferred to the United States District Court for the Eastern District of Louisiana before
District Judge Eldon E. Fallon.In July 2005, Judge Fallon indicated that he would schedule for trial a series of cases during
the period November 2005 through 2006, in the following categories: (i) heart attack with
short term use; (ii) heart attack with long term use; (iii) stroke; and (iv) cardiovascular
injury involving a prescription written after April 2002 when the labeling for Vioxxwas
revised to include the results of the VIGOR trial. These trials began in November 2005 and
the trials that took place since June 30, 2006 are described in further detail below.Merck has entered into a tolling agreement (the Tolling Agreement) with the MDL Plaintiffs
Steering Committee that establishes a procedure to halt the running of the statute of
limitations (tolling) as to certain categories of claims allegedly arising from the use of
Vioxxby non-New Jersey citizens. The Tolling Agreement applies to individuals who have not
filed lawsuits and may or may not eventually file lawsuits and only to those claimants who
seek to toll claims alleging injuries resulting from a thrombotic cardiovascular event that
results in a myocardial infarction or ischemic stroke. The Tolling Agreement provides counsel
additional time to evaluate potential claims. The Tolling Agreement requires any tolled
claims to be filed in federal court. As of October 9, 2006, approximately 15,000 claimants
had entered into Tolling Agreements on or before September 30, 2006.The Company has previously disclosed the outcomes of several VioxxProduct Liability Lawsuits
that were tried prior to June 30, 2006.In July 2006, in Doherty v. Merck, in Superior Court of New Jersey, Law Division, Atlantic
County, a jury returned a verdict in favor of the Company on all counts. The jury rejected a
claim by the plaintiff that her nearly three years of Vioxxuse caused her heart attack. The
jury also found in Mercks favor on the plaintiffs consumer fraud claim.In August 2006, in the first case to go to trial in the California coordinated proceeding,
Grossberg v. Merck, the jury in Los Angeles, California returned a verdict for Merck on all
counts.In August 2006, in Barnett v. Merck, a case before Judge Fallon in the MDL, a jury in New
Orleans, Louisiana returned a plaintiff verdict in the second federal
Vioxxcase to go to trial.
The jury awarded $50 million in compensatory damages and $1 million in punitive damages. On
August 30, 2006, Judge Fallon overturned as excessive the damages portion of the verdict and
ordered a new trial on damages. The Company is seeking a new trial on all issues.On September 26, 2006, in Smith v. Merck, the third case to go to trial in the federal MDL, a
jury returned a verdict in favor of Merck on all counts.The Company previously disclosed that in April 2006, in Garza v. Merck, a jury in Rio Grande
City, Texas returned a verdict in favor of the plaintiff. In September 2006, the Texas state
court granted the Companys request to investigate possible jury bias because a juror admitted
that he had, prior to the trial, on several occasions borrowed money from the plaintiff.
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Notes to Consolidated Financial Statements
 In August 2006, Judge Fallon granted the Companys motion to dismiss two Vioxxclass action
claims previously filed in the federal court; one claim filed by plaintiffs from France and
the other claim by plaintiffs from Italy.In August 2006, Judge Higbee set aside the November 2005 jury verdict in favor of Merck in
Humeston v. Merck and ordered a new trial on the grounds of newly discovered evidence. The
Company has filed a motion for reconsideration of Judge Higbees decision to re-try the case.On September 19, 2006, Merck filed a notice of appeal of the previously disclosed August 2005
jury verdict in favor of the plaintiff in the Texas state court case, Ernst v. Merck. Among
several independent grounds for reversal, the Company will argue that there was insufficient
evidence that Mr. Ernst suffered an injury due to Vioxxand that it was improper to allow
testimony by a previously undisclosed witness midway through the trial. In the interim, as
required under Texas law, the Company has posted an appeal bond.On September 28, 2006, the New Jersey Superior Court, Appellate Division, heard argument on
plaintiffs appeal of Judge Higbees dismissal of the Sinclair v. Merck case. This putative
class action was originally filed in December 2004 and sought the creation of a medical
monitoring fund. Judge Higbee had granted the Companys motion to dismiss in May 2005.On October 5, 2006, Judge Higbee dismissed the United Kingdom plaintiffs from the New Jersey
Coordinated Proceeding.The first case scheduled for trial in the Texas coordinated proceeding, Rigby v. Merck, was
scheduled to begin trial on November 7, 2006. The Rigby case was voluntarily dismissed on
October 23, 2006 when the plaintiff filed a non-suit with the Court.The trial in Mason v. Merck, a case in federal court in Louisiana, started on October 30,
2006. On October 31, 2006 in California Superior Court in Los Angeles, a consolidated trial
began in the cases Appell v. Merck and Arrigale v. Merck.The next trial in New Jersey is currently scheduled to start on January 16, 2007, and the
Court has stated that it will be a consolidated trial including multiple plaintiffs.
Plaintiffs proposed eight cases to be joined together for a consolidated trial. Merck filed
motions opposing the concept of a consolidated trial proceeding and challenging the propriety
of plaintiffs proposed cases.Merck voluntarily withdrew Vioxxfrom the market on September 30, 2004. Many states have a
two-year statute of limitations for product liability claims, requiring that claims must be
filed within two years after the plaintiffs learned or could have learned of their potential
cause of action. As a result, some may view September 30, 2006 as a deadline for filing Vioxx
cases. It is important to note, however, that the law regarding statutes of limitations can
be complex, varies from state to state, can be fact-specific, and in some cases, might be
affected by the existence of pending class actions. For example, some states have three year
statutes of limitations and, in some instances, the statute of limitations is even longer.
Merck expects that there will be legal arguments concerning the proper application of these
statutes, and the decisions will be up to the judges presiding in individual cases in state
and federal proceedings. As referred to above, as of September 30, 2006, Merck has also
entered into agreements with approximately 15,000 claimants to toll the statute of
limitations, so the September 30, 2006 date would not apply in those instances.Other LawsuitsAs previously disclosed, on July 29, 2005, a New Jersey state trial court certified a
nationwide class of third-party payors (such as unions and health insurance plans) that paid
in whole or in part for the Vioxxused by their plan members or insureds. The named plaintiff
in that case seeks recovery of certain Vioxxpurchase costs (plus penalties) based on
allegations that the purported class members paid more for Vioxxthan they would have had they
known of the products alleged risks. Merck believes that the class was improperly certified.
The trial courts ruling is procedural only; it does not address the merits of plaintiffs
allegations, which the Company intends to defend vigorously. On March 31, 2006, the New
Jersey Superior Court, Appellate Division, affirmed the class certification order. On July
19, 2006, the New Jersey Supreme Court decided to exercise its discretion to hear the
Companys appeal of the Appellate Divisions decision. On August 24, 2006, the Appellate
Division ordered a stay of the proceedings in Superior Court pending a ruling by the Supreme
Court.As previously reported, the Company has also been named as a defendant in separate lawsuits
brought by the Attorneys General of Alaska, Louisiana, Mississippi, Montana, Texas and Utah.
These actions allege that the Company misrepresented the safety of Vioxxand seek (i) recovery
of the cost of Vioxxpurchased or reimbursed by
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Notes to Consolidated Financial Statements
 the state and its agencies; (ii) reimbursement
of all sums paid by the state and its agencies for medical services for the treatment of
persons injured by Vioxx; (iii) damages under various common law theories; and/or (iv)
remedies under various state statutory theories, including state consumer fraud and/or fair
business practices or Medicaid fraud statutes, including civil penalties.Shareholder LawsuitsAs previously disclosed, in addition to the VioxxProduct Liability Lawsuits, the Company and
various current and former officers and directors are defendants in various putative class
actions and individual lawsuits under the federal securities laws and state securities laws
(the VioxxSecurities Lawsuits). All of the VioxxSecurities Lawsuits pending in federal
court have been transferred by the JPML to the United States District Court for the District
of New Jersey before District Judge Stanley R. Chesler for inclusion in a nationwide MDL (the
Shareholder MDL). Judge Chesler has consolidated the VioxxSecurities Lawsuits for all
purposes. Plaintiffs request certification of a class of purchasers of Company stock between
May 21, 1999 and October 29, 2004. The complaint alleges that the defendants made false and
misleading statements regarding Vioxxin violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and seeks unspecified compensatory damages and the costs of
suit, including attorneys fees. The complaint also asserts a claim under Section 20A of the
Securities and Exchange Act against certain defendants relating to their sales of Merck stock.
In addition, the complaint includes allegations under Sections 11, 12 and 15 of the
Securities Act of 1933 that certain defendants made incomplete and misleading statements in a
registration statement and certain prospectuses filed in connection with the Merck Stock
Investment Plan, a dividend reinvestment plan. Defendants have filed a motion to dismiss the
complaint, which is pending.As previously disclosed, on August 15, 2005, a complaint was filed in Oregon state court by
the State of Oregon through the Oregon state treasurer on behalf of the Oregon Public Employee
Retirement Fund against the Company and certain current and former officers and directors.
The complaint, which was brought under Oregon securities law, alleges that plaintiff has
suffered damages in connection with its purchases of Merck common stock at artificially
inflated prices due to the Companys alleged violations of law related to disclosures about
Vioxx. The current and former officers and directors have entered into a tolling agreement
and, on June 30, 2006, were dismissed without prejudice from the case. On July 19, 2006, the
Court denied the Companys motion to dismiss the complaint, but required plaintiff to amend
the complaint. Plaintiff filed an amended complaint on September 21, 2006. Merck intends to
file a motion to dismiss the amended complaint.As previously disclosed, various shareholder derivative actions filed in federal court were
transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler (the
VioxxDerivative Lawsuits). The consolidated complaint arose out of substantially the same
factual allegations that are made in the VioxxSecurities Lawsuits. The derivative suits,
which were purportedly brought to assert rights of the Company, assert claims against certain
members of the Board past and present and certain executive officers for breach of fiduciary
duty, waste of corporate assets, unjust enrichment, abuse of control and gross mismanagement.
On May 5, 2006, Judge Chesler granted defendants motion to dismiss and denied plaintiffs
request for leave to amend their complaint. Plaintiffs appealed the District Courts decision
refusing them leave to amend to the United States Court of Appeals for the Third Circuit.As previously disclosed, on October 29, 2004, two individual shareholders made a demand on the
Board of Directors of the Company to take legal action against Mr. Raymond Gilmartin, former
Chairman, President and Chief Executive Officer and other individuals for allegedly causing
damage to the Company with respect to the allegedly improper marketing of Vioxx. In July
2006, the Board received another shareholder letter demanding that the Board take legal action
against the Board and management of Merck for allegedly causing damage to the Company relating
to the Companys allegedly improper marketing of Vioxx. These requests remain under
consideration.As previously announced, the Board of Directors appointed a Special Committee to review the
Companys actions prior to its voluntary withdrawal of Vioxx, to act for the Board in
responding to shareholder litigation matters related to the withdrawal of Vioxx, and to advise
the Board with respect to any action that should be taken as a result of the review. In
December 2004, the Special Committee retained the Honorable John S. Martin, Jr. of Debevoise &
Plimpton LLP to conduct an independent investigation of senior managements conduct with
respect to the cardiovascular safety profile of Vioxxduring the period Vioxxwas developed
and marketed. The review was completed in the third quarter of 2006 and the full report
(including appendices) was made public in September 2006.In addition, as previously disclosed, various putative class actions filed in federal court
under the Employee Retirement Income Security Act (ERISA) against the Company and certain
current and former officers and
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Notes to Consolidated Financial Statements
 directors (the VioxxERISA Lawsuits and, together with the
VioxxSecurities Lawsuits and the VioxxDerivative Lawsuits, the VioxxShareholder Lawsuits)
have been transferred to the Shareholder MDL and consolidated for all purposes. The
consolidated complaint asserts claims on behalf of certain of the Companys current and former
employees who are participants in certain of the Companys retirement plans for breach of
fiduciary duty. The lawsuits make similar allegations to the allegations contained in the
VioxxSecurities Lawsuits. On October 7, 2005,
defendants moved to dismiss the ERISA complaint. On July 11, 2006, Judge Chesler granted in
part and denied in part defendants motion to dismiss.International LawsuitsAs previously disclosed, in addition to the lawsuits discussed above, the Company has been
named as a defendant in litigation relating to Vioxxin various countries (collectively, the
VioxxForeign Lawsuits) in Europe as well as Canada, Brazil, Australia, Turkey, and Israel.Additional LawsuitsBased on media reports and other sources, the Company anticipates that additional Vioxx
Product Liability Lawsuits, VioxxShareholder Lawsuits and VioxxForeign Lawsuits
(collectively, the VioxxLawsuits) will be filed against it and/or certain of its current
and former officers and directors in the future.InsuranceAs previously disclosed, the Company has product liability insurance for claims brought in the
VioxxProduct Liability Lawsuits with stated upper limits of approximately $630 million after
deductibles and co-insurance. This insurance provides coverage for legal defense costs and
potential damage amounts that have been or will be incurred in connection with the Vioxx
Product Liability Lawsuits. The Company believes that this insurance coverage extends to
additional VioxxProduct Liability Lawsuits that may be filed in the future. The Company has
Directors and Officers insurance coverage applicable to the VioxxSecurities Lawsuits and
VioxxDerivative Lawsuits with stated upper limits of approximately $190 million. The Company
has fiduciary and other insurance for the VioxxERISA Lawsuits with stated upper limits of
approximately $275 million. Additional insurance coverage for these claims may also be
available under upper-level excess policies that provide coverage for a variety of risks.
There are disputes with certain insurers about the availability of some or all of this
insurance coverage and there are likely to be additional disputes. At this time, the Company
believes that its insurance coverage with respect to the VioxxLawsuits will not be adequate
to cover its defense costs and any losses.As previously disclosed, the Companys upper level excess insurers (which provide excess
insurance potentially applicable to all of the VioxxLawsuits) have commenced an arbitration
seeking, among other things, to cancel those policies, to void all of their obligations under
those policies and to raise other coverage issues with respect to the VioxxLawsuits. A
second arbitration against one of the Companys upper level excess insurers has also been
commenced. Merck intends to contest vigorously the insurers claims and will attempt to
enforce its rights under applicable insurance policies. The amounts actually recovered under
the policies discussed in this section may be less than the amounts specified in the preceding
paragraph.InvestigationsAs previously disclosed, in November 2004, the Company was advised by the staff of the SEC
that it was commencing an informal inquiry concerning Vioxx. On January 28, 2005, the Company
announced that it received notice that the SEC issued a formal notice of investigation. Also,
the Company has received subpoenas from the U.S. Department of Justice (the DOJ) requesting
information related to the Companys research, marketing and selling activities with respect
to Vioxxin a federal health care investigation under criminal statutes. In addition, as
previously disclosed, investigations are being conducted by local authorities in certain
cities in Europe in order to determine whether any criminal charges should be brought
concerning Vioxx. The Company is cooperating with these governmental entities in their
respective investigations (the VioxxInvestigations). The Company cannot predict the
outcome of these inquiries; however, they could result in potential civil and/or criminal
dispositions.As previously disclosed, the Company has received a number of Civil Investigative Demands
(CID) from a group of Attorneys General from 31 states and the District of Columbia who are
investigating whether the Company violated state consumer protection laws when marketing
Vioxx. The Company is cooperating with the Attorneys General in responding to the CIDs.ReservesThe Company currently anticipates that a number of VioxxProduct Liability Lawsuits will be
tried in the last quarter of 2006 and throughout 2007. The Company
anticipates that the trial in the Oregon securities case will be held in 2007, but the Company cannot predict whether this trial
will proceed on schedule or the timing of any of the other VioxxShareholder Lawsuit trials.
The Company believes that it has meritorious defenses to the VioxxLawsuits and will
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Notes to Consolidated Financial Statements
 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
VioxxLawsuits. The Company has not established any reserves for any potential liability
relating to the VioxxLawsuits or the VioxxInvestigations, including for those cases in which
verdicts or judgments have been entered against the Company, and are now in post-verdict
proceedings or on appeal. In each of those cases the
Company believes it has strong points to raise on appeal and therefore that unfavorable
outcomes in such cases are not probable. Unfavorable outcomes in the VioxxLitigation (as
defined below) could have a material adverse effect on the Companys financial position,
liquidity and results of operations.Legal defense costs expected to be incurred in connection with a loss contingency are accrued
when probable and reasonably estimable. As of December 31, 2005, the Company had established
a reserve of $685 million solely for its future legal defense costs related to the Vioxx
Litigation.During the first nine months of 2006, the Company spent $325 million in the aggregate in legal
defense costs worldwide related to (i) the VioxxProduct Liability Lawsuits, (ii) the Vioxx
Shareholder Lawsuits, (iii) the VioxxForeign Lawsuits, and (iv) the VioxxInvestigations
(collectively, the VioxxLitigation). In the third quarter, the Company recorded a charge
of $598 million to increase the reserve solely for its future legal defense costs related to
the VioxxLitigation to $958 million at September 30, 2006. In increasing the reserve, the
Company considered the same factors that it considered when it previously established reserves
for the VioxxLitigation. Management now believes it has a better estimate of the Companys
expenses and can reasonably estimate such costs through 2008. Some of the significant factors
considered in the establishment and ongoing review of the reserve for the Vioxxlegal defense
costs were 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 the VioxxLitigation;
the number of cases being brought against the Company; the costs and outcomes of completed
trials and the anticipated timing, progression, and related costs of pre-trial activities and
trials in the VioxxProduct Liability Lawsuits. Events such as scheduled trials, that are
expected to occur throughout 2007 and into 2008, and the inherent inability to predict the
ultimate outcomes of such trials, limit the Companys ability to reasonably estimate its legal
costs beyond the end of 2008. The Company will continue to monitor its legal defense costs
and review the adequacy of the associated reserves and may determine to increase its reserves
for legal defense costs at any time in the future if, based upon the factors set forth, it
believes it would be appropriate to do so.Governmental ProceedingsAs previously disclosed, the Company has received a subpoena from the DOJ in connection with
its investigation of the Companys marketing and selling activities, including nominal pricing
programs and samples. The Company has been advised that the activities being investigated by
the DOJ are also the subject of a qui tamcomplaint. As previously disclosed, the Company has
received CIDs from the Attorney General of Texas regarding the Companys marketing and selling
activities relating to Texas. In April 2004, the Company received a subpoena from the office
of the Inspector General for the District of Columbia in connection with an investigation of
the Companys interactions with physicians in the District of Columbia, Maryland, and
Virginia. In November 2004, the Company received a letter request from the DOJ in connection
with its investigation of the Companys pricing of Pepcid. In September 2005, the Company
received a subpoena from the Illinois Attorney General seeking information related to
repackaging of prescription drugs.As previously disclosed, the Company has received a letter from the DOJ advising it of the
existence of a qui tamcomplaint alleging that the Company violated certain rules related to
its calculations of best price and other federal pricing benchmark calculations, certain of
which may affect the Companys Medicaid rebate obligation. The DOJ has informed the Company
that it does not intend to intervene in this action and has closed its investigation. The
lawsuit continues, however.The Company is cooperating with all of these investigations. The Company cannot predict the
outcome of these investigations; however, it is possible that unfavorable outcomes could have
a material adverse effect on the Companys financial position, liquidity and results of
operations. In addition, from time to time, other federal, state or foreign regulators or
authorities may seek information about practices in the pharmaceutical industry or the
Companys business practices in inquiries other than the investigations discussed in this
section. It is not feasible to predict the outcome of any such inquiries.
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Notes to Consolidated Financial Statements
 8.
    
    Taxes on IncomeAs previously disclosed, the Internal Revenue Service (IRS) has substantially completed its
examination of the Companys tax returns for the years 1993 to 1996. The IRS is now in the
process of concluding its examination for years 1996 through 2001. The Company and the IRS
anticipate that the examination will be completed by the end of the year. The following
significant open items have yet to be resolved; however the Company is attempting to resolve
the items through the IRS administrative processes.On September 26, 2006, in connection with its examination, the IRS issued a notice of proposed
adjustment (the 2006 Notice) for the years 1994-2001 with respect to a partnership
transaction entered into in 1993. As previously reported, the Company had previously received
a final notice of deficiency with respect to the transaction for the 1993 tax return. The
2006 Notice disallowed certain royalty and other expenses claimed as deductions on the tax
returns for 1994 through 2001. If the IRS ultimately prevails in its positions, the Companys
income tax due for year 1993 would increase by approximately $60 million plus interest of
approximately $70 million and penalties of approximately $12 million. For the years
1994-2001, the tax would increase by approximately $1,150 million plus interest of
approximately $700 million. The IRS will likely make similar claims for years subsequent to
2001 with respect to this transaction. The potential disallowance for these later years,
computed on a similar basis to the 1993-2001 disallowances, would be approximately $300
million plus interest of approximately $30 million. The IRS has proposed penalties on the
Company with respect to 1993 through 2001 and the Company anticipates the IRS would seek to
impose penalties on years subsequent to 2001.On September 25, 2006, the Company received a notice of proposed adjustment relating to a 1995
minority interest equity financing. The notice proposes a disallowance of a capital loss
which would increase the tax due for 1995 to 1998 by approximately $330 million plus interest
of $150 million. In addition, the IRS proposes recharacterizing a loan from a foreign
subsidiary to the Company as a taxable distribution resulting in an additional $330 million of
tax due plus interest of $210 million.In addition, on September 25, 2006, the Company received a notice of proposed adjustment
relating to a minority interest equity financing entered into in 2000. The IRS proposes to
include as income certain loans made by a foreign subsidiary to the Company. Such an
adjustment would increase the tax due for 2000 and 2001 by approximately $160 million plus
interest of $40 million. Similarly, the Company anticipates that the IRS position would
increase the Companys US income for 2002-2004 resulting in additional tax due for 2002
through 2004 by approximately $250 million plus interest of $30 million. The IRS has proposed
penalties on the Company with respect to all periods that were the subject of the preliminary
notice of adjustment with respect to this transaction and the Company anticipates the IRS
would seek to impose penalties on all other periods.The Company disagrees with the proposed adjustments and intends to pursue these matters
through applicable IRS and judicial procedures, as appropriate. The Company has provided for
the best estimate of the probable tax liability for these matters. While the resolution of
these issues may result in tax liabilities which are significantly higher or lower than the
reserves established for this matter, management currently believes that the resolution will
not have a material adverse effect on the Companys financial position or liquidity. However,
an unfavorable resolution could have a material adverse effect on the Companys results of
operations in the quarter in which an adjustment is recorded and any settlement is likely to
have a material adverse effect on the Companys cash flows in the quarter that such payment is
made.As previously disclosed, Mercks Canadian tax returns for the years 1998 through 2004 are
being examined by the Canada Revenue Agency (CRA). On October 10, 2006, CRA issued the
Company a notice of reassessment containing adjustments related to certain intercompany
pricing matters which result in additional tax due of approximately $ 1.4 billion (US dollars)
plus interest of $360 million (US dollars). The Company disagrees with the positions taken by
CRA and believes they are without merit. The Company may be required to post a deposit of up
to one half the tax and interest assessed which could have a material adverse effect on the
Companys cash flows in the quarter in which the deposit is made. The Company intends to
contest the assessment through the CRA appeals process and the courts if necessary.
Management believes that resolution of these matters will not have a material adverse effect
on the Companys financial position or liquidity. However, an unfavorable resolution could
have a material adverse effect on the Companys results of operations or cash flows in the
quarter in which an adjustment is recorded or the tax is due.As previously disclosed, in October 2004, the American Jobs Creation Act of 2004 (the AJCA)
was signed into law. The AJCA created temporary incentives for U.S. multinationals to
repatriate accumulated income earned outside the United States as of December 31, 2002. In
accordance with the AJCA, the Company recorded an income tax charge of $740 million in Taxes
on Income in the second quarter of 2005 related to the $15.9 billion repatriated
 - 17 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 during 2005.
This charge was partially offset by a $100 million benefit with a decision to implement
certain tax
planning strategies. The Company has not changed its intention to indefinitely reinvest
accumulated earnings earned subsequent to December 31, 2002. No provision will be made for
income taxes that would be payable upon the distributions of such earnings and it is not
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 expire in 2015 and 2026, respectively.9.
    
    Pension and Other Postretirement Benefit PlansThe Company has defined benefit pension plans covering eligible employees in the United States
and in certain of its international subsidiaries. The net cost of such plans consisted of the
following components:
 ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    89.2
    
    
    $
    81.0
    
    
    $
    269.5
    
    
    $
    242.1Interest cost
    
    
    85.5
    
    
    
    77.6
    
    
    
    255.6
    
    
    
    234.8Expected return on plan assets
    
    
    (110.3
    )
    
    
    (99.2
    )
    
    
    (327.6
    )
    
    
    (300.4
    )Net amortization
    
    
    42.0
    
    
    
    37.9
    
    
    
    126.9
    
    
    
    114.5Termination benefits
    
    
    2.1
    
    
    
    5.6
    
    
    
    18.3
    
    
    
    10.2Curtailments
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    Settlements
    
    
    15.0
    
    
    
    
    
    
    
    15.0
    
    
    
    $
    123.5
    
    
    $
    102.9
    
    
    $
    357.9
    
    
    $
    301.2
 The Company provides medical, dental and life insurance benefits, principally to its eligible
U.S. retirees and similar benefits to their dependents, through its other postretirement
benefits plans. The net cost of such plans consisted of the following components:
 ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    24.6
    
    
    $
    22.1
    
    
    $
    66.5
    
    
    $
    66.2Interest cost
    
    
    26.9
    
    
    
    26.3
    
    
    
    77.1
    
    
    
    79.1Expected return on plan assets
    
    
    (30.6
    )
    
    
    (25.8
    )
    
    
    (87.0
    )
    
    
    (77.5
    )Net amortization
    
    
    0.6
    
    
    
    5.4
    
    
    
    2.4
    
    
    
    16.2Termination benefits
    
    
    0.4
    
    
    
    0.8
    
    
    
    2.6
    
    
    
    1.6$
    21.9
    
    
    $
    28.8
    
    
    $
    61.6
    
    
    $
    85.6
 In connection with restructuring actions (see Note 2), the Company recorded termination
charges for the three and nine months ended September 30, 2006 and 2005, on its pension plans
and its other postretirement benefit plans related to expanded eligibility for certain
employees exiting the Company. Also, in connection with these restructuring actions, the
Company recorded curtailment losses for the nine months ended September 30, 2006 on its
pension plans.The Company also recorded settlement losses on certain of its domestic pension plans primarily
resulting from employees electing to receive their pension benefits as lump sum payments.The Company expects contributions to its defined benefit pension plans will total
approximately $430 million during 2006.
 - 18 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 10.
    
    Other (Income) Expense, NetOther (income) expense, net, consisted of:
 ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income
    
    $
    (195.0
    )
    
    $
    (122.3
    )
    
    $
    (564.6
    )
    
    $
    (314.8
    )Interest expense
    
    
    87.7
    
    
    
    99.6
    
    
    
    277.8
    
    
    
    277.2Exchange gains
    
    
    (11.5
    )
    
    
    (7.4
    )
    
    
    (4.5
    )
    
    
    (16.5
    )Minority interests
    
    
    30.7
    
    
    
    30.9
    
    
    
    90.7
    
    
    
    91.6Other, net
    
    
    (46.6
    )
    
    
    (25.5
    )
    
    
    (104.8
    )
    
    
    (21.7
    )$
    (134.7
    )
    
    $
    (24.7
    )
    
    $
    (305.4
    )
    
    $
    15.8
 The increase in interest income reflects interest income generated from the Companys
investment portfolio derived from higher interest rates and higher average investment
portfolio balances.Interest paid for the nine months ended September 30, 2006 and 2005, was $317.8 million and
$288.2 million, respectively.11.
    
    Earnings Per ShareThe weighted average common shares used in the computations of basic earnings per common share
and earnings per common share assuming dilution (shares in millions) are as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Average common shares outstanding
    
    
    2,175.2
    
    
    
    2,194.0
    
    
    
    2,180.1
    
    
    
    2,200.9Common shares issuable(1)
    
    
    10.5
    
    
    
    3.0
    
    
    
    8.4
    
    
    
    3.4Average common shares outstanding
assuming dilution
    
    
    2,185.7
    
    
    
    2,197.0
    
    
    
    2,188.5
    
    
    
    2,204.3
 
 (1)
    
    Issuable primarily under share-based compensation plans. For the three and nine months ended September 30, 2006, 194.7 million and 222.8 million,
respectively, and for the three and nine months ended September 30, 2005, 247.5 million common
shares issuable under the Companys share-based compensation plans were excluded from the
computation of earnings per common share assuming dilution because the effect would have been
antidilutive.12.
    
    Comprehensive IncomeComprehensive income representing all changes in stockholders equity during the period other
than changes resulting from the Companys stock for the three months ended September 30, 2006
and 2005, was $971.4 million and $1,466.0 million, respectively. Comprehensive income for the
nine months ended September 30, 2006 and 2005 was $3,957.7 million and $3,607.9 million,
respectively.13.
    
    Segment ReportingThe Companys operations are principally managed on a products basis. The Merck Pharmaceutical
segment includes products marketed either directly or through joint ventures. These products
consist of therapeutic and preventive agents, sold by prescription, for the treatment of human
disorders. Other segment revenues include non-reportable human and animal health segments.
 - 19 -




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##### Table of Contents



Notes to Consolidated Financial Statements
  ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment revenues:Merck Pharmaceutical
    
    $
    4,764.3
    
    
    $
    5,054.6
    
    
    $
    15,173.8
    
    
    $
    15,293.1Other segment revenues
    
    
    562.9
    
    
    
    351.8
    
    
    
    1,189.4
    
    
    
    845.4$
    5,327.2
    
    
    $
    5,406.4
    
    
    $
    16,363.2
    
    
    $
    16,138.5Segment profits:Merck Pharmaceutical
    
    $
    3,222.3
    
    
    $
    3,266.1
    
    
    $
    10,479.9
    
    
    $
    9,663.4Other segment profits
    
    
    381.6
    
    
    
    378.9
    
    
    
    887.1
    
    
    
    883.5$
    3,603.9
    
    
    $
    3,645.0
    
    
    $
    11,367.0
    
    
    $
    10,546.9
  ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment revenues
    
    $
    5,327.2
    
    
    $
    5,406.4
    
    
    $
    16,363.2
    
    
    $
    16,138.5Other revenues
    
    
    83.2
    
    
    
    9.8
    
    
    
    228.7
    
    
    
    107.5$
    5,410.4
    
    
    $
    5,416.2
    
    
    $
    16,591.9
    
    
    $
    16,246.0
  (1)
 ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Singulair
    
    $
    868.0
    
    
    $
    692.5
    
    
    $
    2,619.1
    
    
    $
    2,157.0Zocor
    
    
    371.0
    
    
    
    1,049.9
    
    
    
    2,424.1
    
    
    
    3,307.4Fosamax
    
    
    770.5
    
    
    
    777.3
    
    
    
    2,345.0
    
    
    
    2,401.9Cozaar/Hyzaar
    
    
    813.3
    
    
    
    751.4
    
    
    
    2,298.1
    
    
    
    2,255.1Primaxin
    
    
    181.8
    
    
    
    181.9
    
    
    
    523.6
    
    
    
    548.1Cosopt/Trusopt
    
    
    190.9
    
    
    
    156.3
    
    
    
    517.8
    
    
    
    449.7Proscar
    
    
    127.3
    
    
    
    185.9
    
    
    
    498.5
    
    
    
    549.1Vasotec/Vaseretic
    
    
    134.5
    
    
    
    149.2
    
    
    
    410.8
    
    
    
    471.3Cancidas
    
    
    127.1
    
    
    
    142.3
    
    
    
    397.1
    
    
    
    412.5Maxalt
    
    
    105.1
    
    
    
    92.3
    
    
    
    295.2
    
    
    
    254.2Propecia
    
    
    88.9
    
    
    
    66.9
    
    
    
    249.0
    
    
    
    205.8Vaccines/Biologicals
    
    
    555.4
    
    
    
    338.4
    
    
    
    1,176.1
    
    
    
    809.5Other
    
    
    1,076.6
    
    
    
    831.9
    
    
    
    2,837.5
    
    
    
    2,424.4$
    5,410.4
    
    
    $
    5,416.2
    
    
    $
    16,591.9
    
    
    $
    16,246.0
 (1)
    
    Presented net of discounts and returns. - 20 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 Nexium Prilosec
  ($ in millions)Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment profits
    
    $
    3,603.9
    
    
    $
    3,645.0
    
    
    $
    11,367.0
    
    
    $
    10,546.9Other profits
    
    
    56.9
    
    
    
    17.3
    
    
    
    163.0
    
    
    
    129.4Adjustments
    
    
    110.4
    
    
    
    170.1
    
    
    
    375.6
    
    
    
    419.9Unallocated:Interest income
    
    
    195.0
    
    
    
    122.3
    
    
    
    564.6
    
    
    
    314.8Interest expense
    
    
    (87.7
    )
    
    
    (99.6
    )
    
    
    (277.8
    )
    
    
    (277.2
    )Equity income from affiliates
    
    
    37.7
    
    
    
    68.0
    
    
    
    175.6
    
    
    
    141.7Depreciation and amortization
    
    
    (521.5
    )
    
    
    (386.3
    )
    
    
    (1,599.9
    )
    
    
    (1,086.3
    )Research and development
    
    
    (945.4
    )
    
    
    (942.6
    )
    
    
    (3,059.9
    )
    
    
    (2,736.0
    )Other expenses, net
    
    
    (1,218.5
    )
    
    
    (595.8
    )
    
    
    (2,398.7
    )
    
    
    (1,609.2
    )$
    1,230.8
    
    
    $
    1,998.4
    
    
    $
    5,309.5
    
    
    $
    5,844.0
   - 21 -




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Acquisitions
   Global Restructuring Program
  Share-Based Compensation
 Share-Based Payments
  - 22 -




---



##### Table of Contents



American Jobs Creation Act of 2004  Repatriation
  Operating Results
 Summary
  Vioxx
    Vioxx Vioxx Januvia
  - 23 -




---



##### Table of Contents



Zetia Vytorin
  Vioxx
 Sales
  ($ in millions)Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Singulair
    
    $
    868.0
    
    
    $
    692.5
    
    
    $
    2,619.1
    
    
    $
    2,157.0Zocor
    
    
    371.0
    
    
    
    1,049.9
    
    
    
    2,424.1
    
    
    
    3,307.4Fosamax
    
    
    770.5
    
    
    
    777.3
    
    
    
    2,345.0
    
    
    
    2,401.9Cozaar/Hyzaar
    
    
    813.3
    
    
    
    751.4
    
    
    
    2,298.1
    
    
    
    2,255.1Primaxin
    
    
    181.8
    
    
    
    181.9
    
    
    
    523.6
    
    
    
    548.1Cosopt/Trusopt
    
    
    190.9
    
    
    
    156.3
    
    
    
    517.8
    
    
    
    449.7Proscar
    
    
    127.3
    
    
    
    185.9
    
    
    
    498.5
    
    
    
    549.1Vasotec/Vaseretic
    
    
    134.5
    
    
    
    149.2
    
    
    
    410.8
    
    
    
    471.3Cancidas
    
    
    127.1
    
    
    
    142.3
    
    
    
    397.1
    
    
    
    412.5Maxalt
    
    
    105.1
    
    
    
    92.3
    
    
    
    295.2
    
    
    
    254.2Propecia
    
    
    88.9
    
    
    
    66.9
    
    
    
    249.0
    
    
    
    205.8Vaccines/Biologicals
    
    
    555.4
    
    
    
    338.4
    
    
    
    1,176.1
    
    
    
    809.5Other
    
    
    1,076.6
    
    
    
    831.9
    
    
    
    2,837.5
    
    
    
    2,424.4$
    5,410.4
    
    
    $
    5,416.2
    
    
    $
    16,591.9
    
    
    $
    16,246.0
  Singulair Singulair
 - 24 -




---



##### Table of Contents



Cozaar Hyzaar
 Fosamax Fosamax Plus D Fosavance Fosamax Fosamax Plus D
 Fosamax Fosamac
 Fosamax
 Zocor Zoco
 Zocor Zocor Zocor Vytorin
  RotaTeq Zostavax Gardasil ProQuad
 Gardasil Gardasil Gardasil
 
 *
    
    COZAAR and HYZAAR are registered trademarks of E.I. DuPont de Nemours & Company,
Wilmington, Delaware. - 25 -




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##### Table of Contents



Gardasil Gardasil Gardasil Gardasil Silgard
 Gardasil
 RotaTeq RotaTeq RotaTeq RotaTeq
 Zostavax Zostavax Zostavax
  Zetia Vytorin
 Zetia Ezetrol
 Vytorin Inegy Vytorin, Vytorin Vytorin Vytorin Zocor
  Research and Development
 Januvia Januvia
 Januvia Januvia
 - 26 -




---



##### Table of Contents



Januvia Januvia
 Januvia
 Zolinza Zolinza
         - 27 -




---



##### Table of Contents



Stocrin
  Liquidity and Capital Resources($ in millions)
    
    September 30, 2006
    
    December 31, 2005Cash and investments
    
    $
    15,530.7
    
    
    $
    16,745.5Working capital
    
    $
    4,076.5
    
    
    $
    7,806.9Total debt to total liabilities and equity
    
    
    13.7
    %
    
    
    18.1
    %
        - 28 -




---



##### Table of Contents



Critical Accounting Policies
  Recently Issued Accounting Standards
 Employers Accounting for Defined Benefit Pension and Other Postretirement Plans an amendment of
FASB Statements No. 87, 106 and 132R
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 Fair Value Measurements
 Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109
 Legal Proceedings
  - 29 -




---



##### Table of Contents



Vioxx Litigation
 Product Liability Lawsuits
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Vioxx
 Vioxx
 Vioxx www.merck.com
 Vioxx
 Vioxx
 Vioxx
  - 30 -




---



##### Table of Contents



Vioxx
   Viox
  Vioxx
      Vioxx Vioxx
 Other Lawsuits
 Vioxx Vioxx
 - 31 -




---



##### Table of Contents



Vioxx
 Vioxx Vioxx Vioxx
 Shareholder Lawsuits
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Vioxx Vioxx
 Vioxx Vioxx
 Vioxx Vioxx
 - 32 -




---



##### Table of Contents



Vioxx Vioxx www.merck.com/newsroom/vioxx/martin_report.html
 Vioxx Vioxx Vioxx Vioxx Vioxx
 International Lawsuits
 Vioxx Vioxx
 Additional Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 Insurance
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx
 Investigations
 Vioxx Vioxx Vioxx Vioxx
 - 33 -




---



##### Table of Contents



Vioxx
 Reserves
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Other Product Liability Litigation
 Fosamax Fosamax Fosamax Fosamax Fosamax
 Governmental Proceedings
 qui tam
 - 34 -




---



##### Table of Contents



Pepcid
 qui tam
  Patent Litigation
 Fosamax Prilosec, Nexium Propecia,
Trusopt Cosopt Prilosec Nexium Prilosec Fosamax Propecia Trusopt Cosopt Prilosec Nexium
   Other Litigation
  Environmental Matters
  - 35 -




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##### Table of Contents



Item 4. Controls and Procedures
   CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
   - 36 -




---



##### Table of Contents



PART II   Other Information
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   ($ in millions)Total Number
    
    Average Price
    
    Approximate Dollar Value of Sharesof Shares
    
    Paid Per
    
    That May Yet Be PurchasedPeriod
    
    Purchased(1)
    
    Share
    
    Under the Plans or Programs(1)July 1 - July 31, 2006
    
    
    2,115,300
    
    
    $
    37.73
    
    
    $
    6,950.0August 1 - August 31, 2006
    
    
    2,252,200
    
    
    $
    40.73
    
    
    $
    6,858.0September 1 - September 30, 2006
    
    
    1,917,500
    
    
    $
    41.44
    
    
    $
    6,779.0Total
    
    
    6,285,000
    
    
    $
    39.94
    
    
    $
    6,779.0
 
 (1)
    
    All shares purchased during the period were made as part of a plan
announced in July 2002 to purchase $10 billion in Merck shares. 
 Item 6.
Exhibits
 Number
    
    Description3.1
    
    Restated Certificate of Incorporation of Merck & Co., Inc. (October 1, 2004) 
Incorporated by reference to Form 10-Q Quarterly Report for the period ended September
30, 20043.2
    
    By-Laws of Merck & Co., Inc. (as amended effective May 24, 2005)  Incorporated
by reference to Current Report on Form 8-K dated May 24, 200510.1
    
    Merck & Co., Inc. Separation Benefits Plan for Nonunion Employees (amended and
restated effective as of July 11, 2006)  Incorporated by reference to Current Report on
Form 8-K dated July 11, 200610.2
    
    Letter Agreement between Merck & Co., Inc. and Per Wold-Olsen, dated July 19,
2006  Incorporated by reference to Current Report on Form 8-K dated July 28, 200610.3
    
    Merck & Co., Inc. Deferral Program (amended and restated as of September 28,
2006)  Incorporated by reference to Current Report on Form 8-K dated September 28, 200612
    
    Computation of Ratios of Earnings to Fixed Charges31.1
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 - 37 -




---



##### Table of Contents



Signatures
  MERCK & CO., INC.Date: November 7, 2006
    /s/ Kenneth C. FrazierKENNETH C. FRAZIERExecutive Vice President and General CounselDate: November 7, 2006
    /s/ John CananJOHN CANANVice President, Controller -38-




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description3.1
    
    Restated Certificate of Incorporation of Merck & Co., Inc. (October 1, 2004) 
Incorporated by reference to Form 10-Q Quarterly Report for the period ended September
30, 20043.2
    
    By-Laws of Merck & Co., Inc. (as amended effective May 24, 2005)  Incorporated
by reference to Current Report on Form 8-K dated May 24, 200510.1
    
    Merck & Co., Inc. Separation Benefits Plan for Nonunion Employees (amended and
restated effective as of July 11, 2006)  Incorporated by reference to Current Report on
Form 8-K dated July 11, 200610.2
    
    Letter Agreement between Merck & Co., Inc. and Per Wold-Olsen, dated July 19,
2006  Incorporated by reference to Current Report on Form 8-K dated July 28, 200610.3
    
    Merck & Co., Inc. Deferral Program (amended and restated as of September 28,
2006)  Incorporated by reference to Current Report on Form 8-K dated September 28, 200612
    
    Computation of Ratios of Earnings to Fixed Charges31.1
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a  14(a)/15d  14(a) Certification of Chief Financial Officer32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
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