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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2007
 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 IdentificationNo. 22-1109110
  Class
    
    Number of Shares OutstandingCommon Stock
    
    2,167,273,357
  þ o
  þ o o
  o 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 EndedMarch 31,2007
    
    2006Sales
    
    $
    5,769.4
    
    
    $
    5,409.8Costs, Expenses and OtherMaterials and production
    
    
    1,525.8
    
    
    
    1,342.7Marketing and administrative
    
    
    1,802.0
    
    
    
    1,715.0Research and development
    
    
    1,030.0
    
    
    
    942.0Restructuring costs
    
    
    65.8
    
    
    
    43.7Equity income from affiliates
    
    
    (652.6
    )
    
    
    (503.4
    )Other (income) expense, net
    
    
    (256.0
    )
    
    
    (100.6
    )3,515.0
    
    
    
    3,439.4Income Before Taxes
    
    
    2,254.4
    
    
    
    1,970.4Taxes on Income
    
    
    550.1
    
    
    
    450.4Net Income
    
    $
    1,704.3
    
    
    $
    1,520.0Basic Earnings per Common Share
    
    $
    0.79
    
    
    $
    0.70Earnings per Common Share Assuming Dilution
    
    $
    0.78
    
    
    $
    0.69Dividends Declared per Common Share
    
    $
    0.38
    
    
    $
    0.38
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March 31,
    
    December 31,2007
    
    2006AssetsCurrent AssetsCash and cash equivalents
    
    $
    2,101.9
    
    
    $
    5,914.7Short-term investments
    
    
    1,954.3
    
    
    
    2,798.3Accounts receivable
    
    
    4,016.2
    
    
    
    3,314.8Inventories (excludes inventories of $413.7 in 2007 and $416.1
in 2006 classified in Other assets  see Note 3)
    
    
    1,726.8
    
    
    
    1,769.4Prepaid expenses and taxes
    
    
    1,942.5
    
    
    
    1,433.0Total current assets
    
    
    11,741.7
    
    
    
    15,230.2Investments
    
    
    7,839.1
    
    
    
    7,788.2Property, Plant and Equipment, at cost, net of allowance for
depreciation of $11,426.2 in 2007 and $11,015.4 in 2006
    
    
    12,939.8
    
    
    
    13,194.1Goodwill
    
    
    1,431.6
    
    
    
    1,431.6Other Intangibles, Net
    
    
    887.1
    
    
    
    943.9Other Assets
    
    
    8,153.2
    
    
    
    5,981.8$
    42,992.5
    
    
    $
    44,569.8Liabilities and Stockholders EquityCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    930.7
    
    
    $
    1,285.1Trade accounts payable
    
    
    430.3
    
    
    
    496.6Accrued and other current liabilities
    
    
    5,229.7
    
    
    
    6,653.3Income taxes payable
    
    
    444.5
    
    
    
    3,460.8Dividends payable
    
    
    826.1
    
    
    
    826.9Total current liabilities
    
    
    7,861.3
    
    
    
    12,722.7Long-Term Debt
    
    
    5,545.3
    
    
    
    5,551.0Deferred Income Taxes and Noncurrent Liabilities
    
    
    8,671.4
    
    
    
    6,330.3Minority Interests
    
    
    2,435.2
    
    
    
    2,406.1Stockholders EquityCommon stock, one cent par value 

Authorized  5,400,000,000 shares 
Issued  2,976,223,337 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    7,221.3
    
    
    
    7,166.5Retained earnings
    
    
    40,054.8
    
    
    
    39,095.1Accumulated other comprehensive loss
    
    
    (1,092.6
    )
    
    
    (1,164.3
    )46,213.3
    
    
    
    45,127.1Less treasury stock, at cost 
811,668,416 shares  March 31, 2007
808,437,892 shares  December 31, 2006
    
    
    27,734.0
    
    
    
    27,567.4Total stockholders equity
    
    
    18,479.3
    
    
    
    17,559.7$
    42,992.5
    
    
    $
    44,569.8
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Three Months EndedMarch 31,2007
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    1,704.3
    
    
    $
    1,520.0Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    500.4
    
    
    
    623.4Deferred income taxes
    
    
    40.9
    
    
    
    (200.2
    )Equity income from affiliates
    
    
    (652.6
    )
    
    
    (503.4
    )Dividends and distributions from equity affiliates
    
    
    440.3
    
    
    
    473.5Share-based compensation
    
    
    97.0
    
    
    
    121.3Other
    
    
    (28.3
    )
    
    
    29.6Taxes paid for IRS settlement
    
    
    (2,788.1
    )
    
    
    Net changes in assets and liabilities
    
    
    (642.8
    )
    
    
    (757.4
    )Net Cash (Used by) Provided by Operating Activities
    
    
    (1,328.9
    )
    
    
    1,306.8Cash Flows from Investing ActivitiesCapital expenditures
    
    
    (200.7
    )
    
    
    (197.6
    )Purchases of securities, subsidiaries and other investments
    
    
    (3,825.1
    )
    
    
    (5,808.2
    )Acquisition
of Sirna Therapeutics, Inc.
    
    
    (1,134.0
    )
    
    
    Proceeds from sales of securities, subsidiaries and other investments
    
    
    3,880.9
    
    
    
    7,511.1Other
    
    
    (2.5
    )
    
    
    (0.4
    )Net Cash (Used by) Provided by Investing Activities
    
    
    (1,281.4
    )
    
    
    1,504.9Cash Flows from Financing ActivitiesNet change in short-term borrowings
    
    
    497.2
    
    
    
    (1,348.5
    )Payments on debt
    
    
    (854.8
    )
    
    
    (0.8
    )Purchases of treasury stock
    
    
    (244.4
    )
    
    
    (247.2
    )Dividends paid to stockholders
    
    
    (826.6
    )
    
    
    (829.8
    )Proceeds from exercise of stock options
    
    
    44.9
    
    
    
    301.2Other
    
    
    167.4
    
    
    
    (96.6
    )Net Cash Used by Financing Activities
    
    
    (1,216.3
    )
    
    
    (2,221.7
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    13.8
    
    
    
    11.9Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (3,812.8
    )
    
    
    601.9Cash and Cash Equivalents at Beginning of Year
    
    
    5,914.7
    
    
    
    9,585.3Cash and Cash Equivalents at End of Period
    
    $
    2,101.9
    
    
    $
    10,187.2
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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.In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157,
Fair Value Measurements(FAS 157), which will be effective January 1, 2008. FAS 157
clarifies the definition of fair value, establishes a framework for measuring fair value, and
expands the disclosures on fair value measurements. The effect of adoption of FAS 157 on the
Companys financial position and results of operations is not expected to be material.2.
    
    RestructuringIn November 2005, the Company announced 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 announced 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. Through the end of the first quarter of 2007, three of the
manufacturing facilities had been closed, sold or had ceased operations and the two
preclinical sites were closed. The Company has also sold or closed 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 of the program are expected to range from $1.9 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 March 31, 2007, the Company
has recorded total pre-tax accumulated costs of $1.5 billion and eliminated approximately
5,100 positions which are comprised of employee separations and the elimination of contractors
and vacant positions. However, the Company continues to hire new employees as the Companys
business requires it. For segment reporting purposes, restructuring charges are unallocated
expenses.The following table summarizes the charges related to restructuring activities by type of cost
for the three months ended March 31, 2007 and 2006:
 2007
    
    2006Separation
    
    Accelerated
    
    
    
    
    
    
    
    
    
    Separation
    
    Accelerated($ in millions)
    
    Costs
    
    Depreciation
    
    Other
    
    Total
    
    Costs
    
    Depreciation
    
    Other
    
    TotalMaterials and
production
    
    $
    
    
    
    $
    118.1
    
    
    $
    
    
    
    $
    118.1
    
    
    $
    
    
    
    $
    198.6
    
    
    $
    6.4
    
    
    $
    205.0Research and
development
    
    
    
    
    
    
    2.3
    
    
    
    (0.1
    )
    
    
    2.2
    
    
    
    
    
    
    
    55.4
    
    
    
    
    
    
    
    55.4Restructuring
costs
    
    
    46.9
    
    
    
    
    
    
    
    18.9
    
    
    
    65.8
    
    
    
    27.8
    
    
    
    
    
    
    
    15.9
    
    
    
    43.7$
    46.9
    
    
    $
    120.4
    
    
    $
    18.8
    
    
    $
    186.1
    
    
    $
    27.8
    
    
    $
    254.0
    
    
    $
    22.3
    
    
    $
    304.1
 Separation costs are associated with actual headcount reductions, as well as those headcount
reductions which were probable and could be reasonably estimated. In the first quarter of
2007, approximately 230 positions were eliminated and in the first quarter of 2006
approximately 1,800 positions were eliminated.
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Notes to Consolidated Financial Statements
 Accelerated depreciation costs primarily relate to the manufacturing and preclinical
facilities expected to be sold or closed by the end of 2008.Other activity primarily relates to termination charges on the Companys pension and other
postretirement benefit plans (see Note 8), as well as asset impairments.The following table summarizes the charges and spending relating to restructuring activities
for the three months ended March 31, 2007:
 Separation
    
    Accelerated($ in millions)
    
    Costs
    
    Depreciation
    
    Other
    
    TotalRestructuring reserves as of January 1, 2007
    
    $
    177.7
    
    
    $
    
    
    
    $
    
    
    
    $
    177.7Expense
    
    
    46.9
    
    
    
    120.4
    
    
    
    18.8
    
    
    
    186.1(Payments) receipts, net
    
    
    (51.7
    )
    
    
    
    
    
    
    (16.9
    )
    
    
    (68.6
    )Non-cash activity
    
    
    
    
    
    
    (120.4
    )
    
    
    (1.9
    )
    
    
    (122.3
    )Restructuring reserves as of March 31, 2007
    
    $
    172.9
    
    
    $
    
    
    
    $
    
    
    
    $
    172.9
 3.
    
    InventoriesInventories consisted of:
 March 31,
    
    December 31,($ in millions)
    
    2007
    
    2006Finished goods
    
    $
    436.3
    
    
    $
    403.8Raw materials and work in process
    
    
    1,615.7
    
    
    
    1,688.9Supplies
    
    
    88.5
    
    
    
    92.8Total (approximates current cost)
    
    
    2,140.5
    
    
    
    2,185.5Reduction to LIFO cost for domestic inventories
    
    
    
    
    
    
    $
    2,140.5
    
    
    $
    2,185.5Recognized as:Inventories
    
    $
    1,726.8
    
    
    $
    1,769.4Other assets
    
    $
    413.7
    
    
    $
    416.1
 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.4.
    
    Joint Ventures and Other Equity Method AffiliatesEquity income from affiliates reflects the performance of the Companys joint ventures and other
equity method affiliates and was comprised of the following:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Merck/Schering-Plough
    
    $
    (347.2
    )
    
    $
    (188.0
    )AstraZeneca LP
    
    
    (211.9
    )
    
    
    (213.5
    )Other (1)
    
    
    (93.5
    )
    
    
    (101.9
    )$
    (652.6
    )
    
    $
    (503.4
    )
 (1)
    
    Primarily reflects results from Merial Limited, and joint ventures with
Sanofi Pasteur and Johnson & Johnson.
 5.
    
    Debt and Financial InstrumentsIn February 2007, the Company redeemed $500 million of notes that were subject to annual
interest rate resets upon notification from the remarketing agent that, due to an overall rise
in interest rates, it would not exercise its annual option to remarket the notes.
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Notes to Consolidated Financial Statements
 In March 2007, $350 million of 2.5% notes, along with an associated pay-floating,
receive-fixed interest rate swap, matured and were retired.6.
    
    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, individual and putative class actions have been filed against the
Company in state and federal courts alleging personal injury and/or economic loss with respect
to the purchase or use of Vioxx. All such actions filed in federal court are coordinated in a
multidistrict litigation in the U.S. District Court for the Eastern District of Louisiana (the
MDL) before District Judge Eldon E. Fallon. A number of such actions filed in state court are
coordinated in separate coordinated proceedings in state courts in New Jersey, California and
Texas, and the counties of Philadelphia, Pennsylvania and Clark County, Nevada. As of March 31,
2007, the Company had been served or was aware that it had been named as a defendant in
approximately 27,250 lawsuits, which include approximately 45,700 plaintiff groups, alleging
personal injuries resulting from the use of Vioxx, and in approximately 266 putative class
actions alleging personal injuries and/or economic loss. (All of the actions discussed in this
paragraph are collectively referred to as the VioxxProduct Liability Lawsuits.) Of these
lawsuits, approximately 8,400 lawsuits representing approximately 23,450 plaintiff groups are or
are slated to be in the federal MDL and approximately 16,550 lawsuits representing approximately
16,550 plaintiff groups are included in a coordinated proceeding in New Jersey Superior Court
before Judge Carol E. Higbee.In addition to the VioxxProduct Liability Lawsuits discussed above, the claims of over 4,600
plaintiffs had been dismissed as of March 31, 2007. Of these, there have been over 1,050
plaintiffs whose claims were dismissed with prejudice (i.e., they cannot be brought again)
either by plaintiffs themselves or by the courts. Over 3,550 additional plaintiffs have had
their claims dismissed without prejudice (i.e., they can be brought again).In the MDL, Judge Fallon scheduled a series of trials concluding in December 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. The
next scheduled trial in the MDL is a re-trial in Barnett v. Merck. Judge Fallon had originally
ruled that the re-trial would be on the issue of damages only, but Merck has moved to re-try all
issues including liability. That motion was argued on March 28, 2007 and a decision is pending.On March 22, 2007, Judge Fallon denied Mercks motion for summary judgment on statute of
limitations grounds in three individual cases (Edmonds v. Merck, Stinson v. Merck, and Watson v.
Merck),concluding that there were factual issues precluding summary judgment.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 Vioxx
by 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 March 31, 2007, approximately 13,700 claimants had entered into Tolling
Agreements. The parties have agreed that April 9, 2007 was the deadline for filing Tolling
Agreements and no additional Tolling Agreements will be accepted.The following sets forth the results of trials and certain significant rulings that occurred in
the first quarter with respect to the VioxxProduct Liability Lawsuits.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. On
December 21, 2006, the court entered judgment for plaintiff in the amount of $7.75 million, plus
interest, reduced from the original award of $32 million because of the Texas state cap on
punitive
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Notes to Consolidated Financial Statements
 damages. The Company filed a motion for new trial on January 22, 2007, which was heard
on February 12, 2007. Judge Gabert took the matter under advisement but did not rule within the
statutory deadline. As a result, Mercks motion was denied by operation of law. The Company
has appealed.On January 18, 2007, Judge Victoria Chaney declared a mistrial in a consolidated trial of two
cases, Appell v. Merck and Arrigale v. Merck, which had commenced on October 31, 2006 in
California state court in Los Angeles, after the jury indicated that it could not reach a
verdict.A consolidated trial, Hermans v. Merck and Humeston v. Merck, began on January 17, 2007, in the
coordinated proceeding in New Jersey Superior Court before Judge Higbee. Humeston v. Merck was
first tried in 2005, but Judge Higbee set aside the November 2005 jury verdict in favor of Merck
and ordered a new trial on the grounds of newly discovered evidence. The Hermans/Humeston trial
was separated into two phases: a general phase regarding Mercks conduct and a
plaintiff-specific phase. The jury found for Merck in phase I on the Hermans failure to warn
claim, and the consumer fraud claim is being submitted to Judge Higbee for decision later this
month. The jury found for plaintiff in the Humeston case, awarding compensatory damages to Mr.
Humeston in the amount of $18 million and to Mrs. Humeston in the amount of $2 million. The
jury also awarded $27.5 million in punitive damages. Merck has moved for a judgment
notwithstanding the verdict, a new trial, or reduction of the award.On March 27, 2007, a jury found for Merck on all counts in Schwaller v. Merck, which was tried
in state court in Madison County, Illinois.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
January 16, 2007, the Appellate Division reversed the decision and remanded the case back to
Judge Higbee for further factual inquiry. On April 4, 2007, the New Jersey Supreme Court
granted the Companys petition for review of the Appellate Divisions decision.On April 19, 2007, Judge Randy Wilson, who presides over the Texas Vioxxcoordinated proceeding,
dismissed the failure to warn claim of plaintiff Ruby Ledbetter, whose case was scheduled to be
tried on May 14. Judge Wilson relied on a Texas statute enacted in 2003 that provides that
there can be no failure to warn regarding a prescription medicine if the medicine is distributed
with U.S. Food and Drug Administration (FDA)-approved labeling. There is an exception in the statute if
required, material, and relevant information was withheld from the FDA that would have led to a
different decision regarding the approved labeling, but Judge Wilson found that the
exception is preempted by federal law unless the FDA finds that such
information was withheld. Judge Wilson is currently presiding over 1,300 Vioxx
suits in Texas in which a principal allegation is failure to warn. Judge Wilson certified the
decision for an expedited appeal to the Texas Court of Civil Appeals.Juries have now found in favor of Merck 10 times and in favor of plaintiffs five times. There
are two unresolved mistrials as a result of hung juries after plaintiffs failed to prove their
claims. In addition, another 15 cases scheduled for trial were either dismissed or withdrawn
from the trial calendar by plaintiffs before a jury could be selected.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. Oral argument before the
New Jersey Supreme Court took place in March 2007.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 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
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Notes to Consolidated Financial Statements
 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 Judicial Panel on Multidistrict Litigation (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. On
April 12, 2007, Judge Chesler granted defendants motion to dismiss, and dismissed the complaint
with prejudice. Plaintiffs counsel has stated that plaintiffs plan to appeal the dismissal of
the complaint.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 filed a motion to require
plaintiffs to make the complaint more definite and certain, which was denied by the Court.
Merck filed an answer to the complaint in January 2007.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 VioxxDerivative
Lawsuits, 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 appeal of the District
Courts decision refusing them leave to amend the complaint is currently pending before the
United States Court of Appeals for the Third Circuit and was argued on April 12, 2007.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 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 Vioxx
Securities 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 Vioxx
Foreign Lawsuits) in Europe, as well as Canada, Brazil, Argentina, Australia, Turkey, and
Israel.
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Notes to Consolidated Financial Statements
 Additional LawsuitsBased on media reports and other sources, the Company anticipates that additional VioxxProduct
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 had 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 VioxxProduct
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. The Companys 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. 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. Pursuant to negotiated agreements, two of the
Companys insurers, which represent approximately 23% of the product liability insurance, have committed to pay
approximately $100 million with respect to such insurance. Most of
the funds have been received. The amounts recovered from the two
insurers substantially offset previously established receivables and
therefore have not and will not impact Net Income in periods
received. Remaining receivables for product liability
insurance, including amounts subject to the arbitration, are immaterial.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.In addition, the Company received a subpoena in September 2006 from the State of California
Attorney General seeking documents and information related to the placement of Vioxxon
Californias Medi-Cal formulary. The Company is cooperating with the Attorney General in
responding to the subpoena.ReservesThe Company currently anticipates that a number of VioxxProduct Liability Lawsuits will be
tried throughout 2007. A trial in the Oregon securities case is scheduled for 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 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
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Notes to Consolidated Financial Statements
 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, 2006, the Company had a reserve of
$858 million solely for its future legal defense costs related to the VioxxLitigation. During
the first quarter of 2007, the Company spent approximately $121 million in the aggregate in
legal defense costs worldwide related to (i) the VioxxProduct Liability Lawsuits, (ii) the
VioxxShareholder Lawsuits, (iii) the VioxxForeign Lawsuits, and (iv) the VioxxInvestigations
(collectively, the VioxxLitigation). As a result, as of March 31, 2007, the Company had a
reserve of $737 million solely for its future legal defense costs related to the Vioxx
Litigation.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 most current information regarding 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.Other Product Liability LitigationAs previously disclosed, the Company is a defendant in product liability lawsuits in the United
States involving Fosamax(the FosamaxLitigation). As of March 31, 2007, 156 cases had been
filed against Merck in either federal or state court, including 4 cases which seek class action
certification, as well as damages and medical monitoring. In these actions, plaintiffs allege,
among other things, that they have suffered osteonecrosis of the jaw, generally subsequent to
invasive dental procedures such as tooth extraction or dental implants, and/or delayed healing,
in association with the use of Fosamax. On August 16, 2006, the JPML ordered that the Fosamax
product liability cases pending in federal courts nationwide should be transferred and
consolidated into one multidistrict litigation (the FosamaxMDL) for coordinated pre-trial
proceedings. The FosamaxMDL has been transferred to Judge John Keenan in the United States
District Court for the Southern District of New York. As a result of the JPML order, over 130
cases (which are included in the 156 cased noted above) are now before Judge Keenan. Judge
Keenan has issued a Case Management Order setting forth a schedule governing the proceedings
which focuses primarily upon resolving the class action certification motions in 2007 and the
start of substantive fact discovery relating to the class action motions and to the factual
merits of the cases. The Company intends to defend against these lawsuits.As of December 31, 2006, the Company established a reserve of approximately $48 million solely
for its future legal defense costs for the FosamaxLitigation through 2008. Spending in the
first quarter of 2007 was not significant. Some of the significant factors considered in the
establishment of the reserve for the FosamaxLitigation legal defense costs were as follows: the
actual costs incurred by the Company thus far; the development of the Companys legal defense
strategy and structure in light of the creation of the FosamaxMDL; the number of cases being
brought against the Company; and the anticipated timing, progression, and related costs of
pre-trial activities in the FosamaxLitigation. 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. Due to the uncertain nature of litigation,
the Company is unable to estimate its costs beyond the end of 2008. The Company has not
established any reserves for any potential liability relating to the FosamaxLitigation.
Unfavorable outcomes in the FosamaxLitigation could have a material adverse effect on the
Companys financial position, liquidity and results of operations.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 also reported that it has received a CID from the
Attorney General of Texas regarding the Companys marketing and selling activities relating to
Texas. As previously disclosed, the Company received another CID from the Attorney General of
Texas asking for additional information regarding the Companys marketing and selling activities
related to Texas, including with respect to certain of its nominal pricing programs and samples.
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
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Notes to Consolidated Financial Statements
 November 2004, the Company received a letter request from the DOJ in connection with its
investigation of the Companys pricing of Pepcid.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 note. It is not
feasible to predict the outcome of any such inquiries.As previously disclosed, on February 23, 2004, the Italian Antitrust Authority (ICA) adopted a
measure commencing a formal investigation of Merck Sharp & Dohme (Italia) S.p.A. (MSD Italy)
and the Company under Article 14 of the Italian Competition Law and Article 82 EC to ascertain
whether the Company and MSD Italy committed an abuse of a dominant position by refusing to grant
to ACS Dobfar S.p.A. (Dobfar), an Italian company, a voluntary license under the Companys
Italian Supplementary Protection Certificate (SPC), pursuant to domestic legislation passed in
2002, to permit Dobfar to manufacture imipenem and cilastatin (I&C), the active ingredients in
Tienam, in Italy for sale outside Italy in countries where patent protection had expired or
never existed. On March 21, 2007, the ICA adopted a Commitment Decision in which it accepted
the Companys commitment to grant non-exclusive licenses under
its Italian SPC for finasteride with respect to finasteride 5 mg for
the treatment of benign prostate hyperplasia and closed the case without a finding of infringement.7.
    
    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. The Company recognizes the fair value of
share-based compensation in net income on a straight-line basis over the requisite service
period.The following table provides amounts of share-based compensation cost recorded in the
Consolidated Statement of Income:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Pre-tax share-based compensation expense
    
    $
    97.0
    
    
    $
    121.3Income tax benefits
    
    
    (30.4
    )
    
    
    (37.3
    )Total share-based compensation expense, net of tax
    
    $
    66.6
    
    
    $
    84.0
 During the first three months of 2007 and 2006, the Company granted 31.1 million options and
27.8 million options, respectively, related to its annual grant and other grants. The weighted
average fair value of options granted for the first three months of 2007 and 2006 was $9.04 and
$6.90 per option, respectively, and was determined using the following assumptions:
 Three Months EndedMarch 31,2007
    
    2006Expected dividend yield
    
    
    3.4
    %
    
    
    4.3
    %Risk-free interest rate
    
    
    4.4
    %
    
    
    4.6
    %Expected volatility
    
    
    24.3
    %
    
    
    26.4
    %Expected life (years)
    
    
    6
    
    
    
    6
 At March 31, 2007, there was $541.4 million of total pre-tax unrecognized compensation
expense related to nonvested stock options, RSU and PSU awards which will be recognized over a
weighted average period of 2.5 years. For segment reporting, share-based compensation costs are
unallocated expenses.
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Notes to Consolidated Financial Statements
 8.
    
    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:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Service cost
    
    $
    92.1
    
    
    $
    90.0Interest cost
    
    
    92.0
    
    
    
    84.8Expected return on plan assets
    
    
    (121.4
    )
    
    
    (108.0
    )Net amortization
    
    
    34.2
    
    
    
    42.4Termination benefits
    
    
    7.1
    
    
    
    13.5Curtailments
    
    
    
    
    
    
    0.2$
    104.0
    
    
    $
    122.9
 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
benefit plans. The net cost of such plans consisted of the following components:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Service cost
    
    $
    21.1
    
    
    $
    21.2Interest cost
    
    
    25.9
    
    
    
    25.4Expected return on plan assets
    
    
    (30.3
    )
    
    
    (28.2
    )Net amortization
    
    
    (2.5
    )
    
    
    1.0Termination benefits
    
    
    0.9
    
    
    
    1.4$
    15.1
    
    
    $
    20.8
 In connection with restructuring actions (see Note 2), the Company recorded termination
charges for the three months ended March 31, 2007 and 2006 on its pension and 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 three months ended March 31, 2006 on its pension plans.
 9.
    
    Other (Income) Expense, Net
 Other (income) expense, net, consisted of:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Interest income
    
    $
    (181.7
    )
    
    $
    (181.7
    )Interest expense
    
    
    102.4
    
    
    
    98.2Exchange gains
    
    
    (19.6
    )
    
    
    (0.4
    )Minority interests
    
    
    30.6
    
    
    
    29.9Other, net
    
    
    (187.7
    )
    
    
    (46.6
    )$
    (256.0
    )
    
    $
    (100.6
    )
 The increase in Other, net primarily reflects the favorable impact of gains on sales of assets
and product divestitures. Interest paid for the three months ended March 31, 2007 and 2006
was $101.7 million and $147.1 million, respectively.
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Notes to Consolidated Financial Statements
 10.
    
    Taxes on IncomeOn January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109,(FIN 48). FIN
48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 requires that the Company 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 more likely than not of being sustained 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. As a result of the implementation of FIN 48, the Company recognized an $81 million
decrease in its existing liability for unrecognized tax benefits, with a corresponding increase
to the January 1, 2007 Retained earnings balance.As of January 1, 2007, after the implementation of FIN 48, the Companys liability for
unrecognized tax benefits was $5.01 billion, excluding liabilities for interest and penalties.
If the Company were to recognize these benefits, the effective tax rate would reflect a
favorable net impact of $3.95 billion. In addition, at January 1, 2007, liabilities for accrued
interest and penalties relating to the unrecognized tax benefits totaled $2.40 billion. As of
March 31, 2007, the Companys Consolidated Balance Sheet reflects a liability for unrecognized
tax benefits of $3.44 billion. If the Company were to recognize these benefits, the effective
tax rate would reflect a favorable net impact of $2.38 billion. Accrued interest and penalties
included in the Consolidated Balance Sheet were $1.50 billion as of March 31, 2007. The
declines from January 1, 2007 were primarily due to the settlement with the Internal Revenue
Service (IRS) discussed below.The Company recognizes interest and penalties associated with uncertain tax positions as a
component of Taxes on Income in the Consolidated Statement of Income.As previously disclosed, the IRS has examined the Companys tax returns for the years 1993 to
2001 and issued notices of deficiency with respect to a partnership transaction entered into in
1993, and two minority interest equity financings entered into in 1995 and 2000, respectively.
On February 13, 2007, the Company entered into closing agreements with the IRS covering several
specific items, including the 1993 partnership transaction and the minority interest financings.
The closing agreements effectively closed the examination of the Companys tax returns for the
period 1993 through 2001 resulting in a settlement of all open tax matters for these years.
Under the terms of the settlement, the Company made an aggregate payment of $2.79 billion in
February 2007. This payment will be offset during 2007 by (i) a tax refund of $165 million for
amounts previously paid for these matters and (ii) a federal tax benefit of approximately $360
million related to interest included in the payment, resulting in a net cash cost to the Company
of approximately $2.3 billion. The impact for years subsequent to 2001 of the partnership
transaction and the minority interest equity financings was included in the settlement although
those years remain open in all other respects. The settlement with the IRS did not have a
material impact on the Companys results of operations for the first quarter as these amounts
had been previously provided for.The Company must report the results of the IRS adjustments for the years 1993 through 2001 to
various state tax authorities. It is estimated that this will result in additional tax and
interest payments of $80 million and $120 million in the second and third quarters of 2007,
respectively, and an equivalent reduction in the balances of unrecognized tax benefits and
accrued interest reflected in the Consolidated Balance Sheet at March 31, 2007.It is anticipated that the amount of unrecognized tax benefits will change in the next 12 months
for items in addition to the state reporting of the IRS settlement; however these changes are
not expected to have a significant impact on the results of operations, cash flows or the
financial position of the Company.As previously disclosed, Mercks Canadian tax returns for the year 1998 through 2004 are being
examined by the Canada Revenue Agency (CRA). On October 10, 2006, the CRA issued the Company
a notice of reassessment containing adjustments related to certain intercompany pricing matters,
which result in additional Canadian and provincial tax due of approximately $1.4 billion (U.S.
dollars) plus interest of approximately $470 million (U.S. dollars). The Company disagrees with
the positions taken by the CRA and believes they are without merit. The Company intends to
contest the assessment through the CRA appeals process and the courts if necessary. In
connection with the appeals process, the Company was required to post a deposit of a portion of
the tax and interest assessed. During January 2007, the Company pledged collateral consisting of
cash and cash equivalents valued at $811 million (U.S. dollars) at March 31 to a financial
institution which provided a Letter of Guarantee to the CRA. The collateral is included in
Other Assets in the Consolidated Balance Sheet. The Company anticipates making a similar pledge
in
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Notes to Consolidated Financial Statements
 connection with the same matters of approximately $288 million (U.S. dollars) in May 2007 to a
financial institution to provide a Letter of Guarantee to the Quebec Ministry of Revenue. The
Company has previously established reserves for these matters. While the resolution of these
matters may result in liabilities higher or lower than the reserves, management believes that
resolution of these matters will not have a material effect on the Companys financial position
or liquidity. However, an unfavorable resolution could have a material effect on the Companys
results of operations or cash flows in the quarter in which an adjustment is recorded or tax is
due.The IRS will begin its examination of the Companys 2002 to 2004 federal income tax returns
shortly. In addition, various state and foreign tax examinations are in progress. Tax years
that remain subject to examination by major tax jurisdictions include Germany from 1999, Italy
and Japan from 2000 and the United Kingdom from 2002.11.
    
    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 EndedMarch 31,2007
    
    2006Average common shares outstanding
    
    
    2,166.1
    
    
    
    2,184.3Common shares issuable(1)
    
    
    13.9
    
    
    
    6.2Average common shares outstanding assuming dilution
    
    
    2,180.0
    
    
    
    2,190.5
 (1)
    
    Issuable primarily under share-based compensation plans.
 For the three months ended March 31, 2007 and 2006, 207.0 million and 230.5 million,
respectively, of 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 was $1,776.0 million and $1,515.4 million for the three months ended
March 31, 2007 and 2006, respectively.13.
    
    Segment ReportingThe Companys operations are principally managed on a products basis and are comprised of two
reportable segments: the Pharmaceutical segment and the Vaccines segment.The Pharmaceutical segment includes human health pharmaceutical 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. Merck 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
and other institutions. The Vaccines segment includes human health vaccine products marketed
either directly or through a joint venture. These products consist of preventative pediatric,
adolescent and adult vaccines, primarily administered at physician offices. Merck sells these
human health vaccines primarily to physicians, wholesalers, physician distributors and
government entities. The Vaccines segment includes the vast majority of the Companys vaccine
sales, but excludes certain sales of vaccines by non-U.S. subsidiaries managed by and included
in the Pharmaceutical segment. A large component of the pediatric and adolescent vaccines is
funded by the U.S. government through the U.S. Centers for Disease Control and Prevention
Vaccines for Children program.Other segments include other non-reportable human and animal health segments.
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Notes to Consolidated Financial Statements
 Revenues and profits for these segments are as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Segment revenues:Pharmaceutical segment
    
    $
    4,901.6
    
    
    $
    5,071.2Vaccines segment(1)
    
    
    804.0
    
    
    
    230.6Other segment revenues
    
    
    36.7
    
    
    
    34.0$
    5,742.3
    
    
    $
    5,335.8Segment profits:(2)Pharmaceutical segment
    
    $
    3,418.4
    
    
    $
    3,497.7Vaccines segment
    
    
    491.6
    
    
    
    115.6Other segment profits
    
    
    154.1
    
    
    
    133.3$
    4,064.1
    
    
    $
    3,746.6
 (1)
    
    In accordance with segment reporting requirements, Vaccines segment
revenues exclude $98.8 million and $40.9 million for the first quarter of 2007 and
2006, respectively, of vaccines sales by certain non-U.S. subsidiaries managed by and
included in the Pharmaceutical segment.(2)
    
    Includes the majority of equity income from affiliates.
 A reconciliation of total segment revenues to consolidated sales is as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Segment revenues
    
    $
    5,742.3
    
    
    $
    5,335.8Other revenues
    
    
    27.1
    
    
    
    74.0$
    5,769.4
    
    
    $
    5,409.8
 Other revenues are primarily comprised of miscellaneous corporate revenues, sales related to
divested products or businesses and other supply sales not included in segment results.
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Notes to Consolidated Financial Statements
 Sales (1) of the Companys products were as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Pharmaceutical:Singulair
    
    $
    1,002.0
    
    
    $
    801.4Cozaar/Hyzaar
    
    
    798.0
    
    
    
    701.1Fosamax
    
    
    742.2
    
    
    
    753.6Zocor
    
    
    258.4
    
    
    
    1,063.5Primaxin
    
    
    197.0
    
    
    
    169.6Cosopt/Trusopt
    
    
    186.1
    
    
    
    151.6Cancidas
    
    
    134.1
    
    
    
    146.3Proscar
    
    
    125.3
    
    
    
    188.2Vasotec/Vaseretic
    
    
    121.6
    
    
    
    136.1Maxalt
    
    
    107.4
    
    
    
    92.9Propecia
    
    
    95.3
    
    
    
    75.3Januvia
    
    
    87.0
    
    
    
    Crixivan/Stocrin
    
    
    82.3
    
    
    
    81.6Arcoxia
    
    
    80.4
    
    
    
    59.4Other pharmaceutical(2)
    
    
    785.7
    
    
    
    609.74,802.8
    
    
    
    5,030.3Vaccines:(3)Gardasil
    
    
    365.4
    
    
    
    RotaTeq
    
    
    85.0
    
    
    
    2.2Zostavax
    
    
    42.7
    
    
    
    ProQuad/M-M-R II/Varivax
    
    
    246.1
    
    
    
    159.2Hepatitis vaccines
    
    
    71.5
    
    
    
    53.5Other vaccines
    
    
    92.1
    
    
    
    56.6902.8
    
    
    
    271.5Other (4)
    
    
    63.8
    
    
    
    108.0$
    5,769.4
    
    
    $
    5,409.8
 (1)
    
    Presented net of discounts and returns.(2)
    
    Other pharmaceutical primarily includes sales of other human
pharmaceutical products and revenue from the Companys relationship with AstraZeneca LP
primarily relating to sales ofNexium andPrilosec. Revenue from AstraZeneca LP was
$497.6 million for the first quarter of 2007 and $380.1 million for the first quarter of
2006.(3)
    
    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. However, these
amounts do reflect supply sales to Sanofi Pasteur MSD.(4)
    
    Other primarily includes other pharmaceutical and animal health
joint venture supply sales and other miscellaneous revenues.
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##### Table of Contents



Notes to Consolidated Financial Statements
 A reconciliation of segment profits to Income Before Taxes is as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Segment profits
    
    $
    4,064.1
    
    
    $
    3,746.6Other profits
    
    
    0.2
    
    
    
    58.2Adjustments
    
    
    82.9
    
    
    
    156.0Unallocated:Interest income
    
    
    181.7
    
    
    
    181.7Interest expense
    
    
    (102.4
    )
    
    
    (98.2
    )Equity income from affiliates
    
    
    47.7
    
    
    
    69.5Depreciation and amortization
    
    
    (466.4
    )
    
    
    (582.8
    )Research and development
    
    
    (1,030.0
    )
    
    
    (942.0
    )Other expenses, net
    
    
    (523.4
    )
    
    
    (618.6
    )$
    2,254.4
    
    
    $
    1,970.4
 Segment profits are comprised of segment revenues less certain elements of materials and
production costs and operating expenses, including the majority of equity income from
affiliates and components of depreciation and amortization expenses. For internal management
reporting presented to the chief operating decision maker, the Company does not allocate the
vast majority of indirect production costs, research and development expenses and general and
administrative expenses, as well as 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.Other profits are primarily comprised of miscellaneous corporate profits as well as operating
profits related to divested products or businesses and other supply sales. Adjustments
represent the elimination of the effect of double counting certain items of income and
expense. Equity income from affiliates includes taxes paid at the joint venture level and a
portion of equity income that is not reported in segment profits. Other expenses, net,
includes expenses from corporate and manufacturing cost centers and other miscellaneous income
(expense), net.
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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Operating Results
 Sales
 Singulair Gardasil RotaTeq ProQuad Varivax Nexium Cozaar/Hyzaar* Januvia Zocor Proscar Zocor Proscar
 
 *
    
    Cozaarand Hyzaarare registered trademarks of E.I. DuPont de Nemours & Company,
Wilmington, Delaware.
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##### Table of Contents



Sales of the Companys products were as follows:
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Pharmaceutical:Singulair
    
    $
    1,002.0
    
    
    $
    801.4Cozaar/Hyzaar
    
    
    798.0
    
    
    
    701.1Fosamax
    
    
    742.2
    
    
    
    753.6Zocor
    
    
    258.4
    
    
    
    1,063.5Primaxin
    
    
    197.0
    
    
    
    169.6Cosopt/Trusopt
    
    
    186.1
    
    
    
    151.6Cancidas
    
    
    134.1
    
    
    
    146.3Proscar
    
    
    125.3
    
    
    
    188.2Vasotec/Vaseretic
    
    
    121.6
    
    
    
    136.1Maxalt
    
    
    107.4
    
    
    
    92.9Propecia
    
    
    95.3
    
    
    
    75.3Januvia
    
    
    87.0
    
    
    
    Crixivan/Stocrin
    
    
    82.3
    
    
    
    81.6Arcoxia
    
    
    80.4
    
    
    
    59.4Other pharmaceutical(1)
    
    
    785.7
    
    
    
    609.74,802.8
    
    
    
    5,030.3Vaccines:(2)Gardasil
    
    
    365.4
    
    
    
    RotaTeq
    
    
    85.0
    
    
    
    2.2Zostavax
    
    
    42.7
    
    
    
    ProQuad/M-M-R II/Varivax
    
    
    246.1
    
    
    
    159.2Hepatitis
    
    
    71.5
    
    
    
    53.5Other vaccines
    
    
    92.1
    
    
    
    56.6902.8
    
    
    
    271.5Other (3)
    
    
    63.8
    
    
    
    108.0$
    5,769.4
    
    
    $
    5,409.8
 (1)
    
    Other pharmaceutical primarily includes sales of other human pharmaceutical
products, and revenue from the Companys relationship with AZLP primarily relating to sales
ofNexium andPrilosec. Revenue from AZLP was $497.6 million for the first quarter of 2007
and $380.1 million for the first quarter of 2006.(2)
    
    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. However, these
amounts do reflect supply sales to Sanofi Pasteur MSD.(3)
    
    Other primarily includes other pharmaceutical and animal health joint
venture supply sales and other miscellaneous revenues.
 Zocor
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Segment Revenues
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Pharmaceutical segment
    
    $
    4,901.6
    
    
    $
    5,071.2Vaccines segment (1)
    
    
    804.0
    
    
    
    230.6Other segment (2)
    
    
    36.7
    
    
    
    34.0Other (3)
    
    
    27.1
    
    
    
    74.0Total revenues
    
    $
    5,769.4
    
    
    $
    5,409.8
 (1)
    
    In accordance with segment reporting requirements, Vaccines segment
revenues exclude $98.8 million and $40.9 million for the first quarter of 2007 and 2006,
respectively, of vaccines sales by certain non-U.S. subsidiaries managed by and included
in the Pharmaceutical segment.(2)
    
    Includes other non-reportable human and animal health segments.(3)
    
    Other revenues are primarily comprised of miscellaneous corporate revenues, sales
related to divested products or businesses and other supply sales not included in segment
results.
 Pharmaceutical Segment Revenues
 Zocor Proscar Singulair Cozaar/Hyzaar, Januvia Nexium .
 Singulair Singulair Singulair
 Cozaar Hyzaar Cozaar Hyzaar
 Fosamax Fosamax Plus D Fosavance Fosamac Fosamax Fosamax Plus D Fosamax Fosamax Plus D Fosamax Fosamax Plus D Fosamax Fosamax Plus D
 Zocor Zocor
 Januvia Januvia Januvia Januvia
 Janumet Janumet
 - 21 -




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##### Table of Contents



Cosopt Arcoxia Propecia Maxalt
 Arcoxia Arcoxia Arcoxia Arcoxia Arcoxia
 Vaccines Segment Revenues
   Gardasil, RotaTeq ProQuad Varivax
 Gardasil Gardasil Gardasil Gardasil Morbidity and
Mortality Weekly Report,
 Gardasil Gardasil Gardasil
 RotaTeq RotaTeq RotaTeq
 ProQuad Varivax M-M-R II
 - 22 -




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##### Table of Contents



Costs, Expenses and Other
    Zocor
 Gardasil Januvia
   Isentress th Isentress Isentress Isentress Isentress Isentress
  - 23 -




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##### Table of Contents



Zetia Vytorin Selected Joint Venture and Affiliate Information
  Segment Profits
 Three Months EndedMarch 31,($ in millions)
    
    2007
    
    2006Pharmaceutical segment
    
    $
    3,418.4
    
    
    $
    3,497.7Vaccines segment
    
    
    491.6
    
    
    
    115.6Other segment
    
    
    154.1
    
    
    
    133.3Other
    
    
    (1,809.7
    )
    
    
    (1,776.2
    )Income before income taxes
    
    $
    2,254.4
    
    
    $
    1,970.4
  Zocor Proscar,
    - 24 -




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##### Table of Contents



Selected Joint Venture and Affiliate Information
 Zetia Vytorin Zetia Ezetrol Vytorin Inegy
 Gardasil
  Liquidity and Capital Resources
 March 31,
    
    December 31,($ in millions)
    
    2007
    
    2006Cash and investments
    
    $
    11,895.3
    
    
    $
    16,501.2Working capital
    
    $
    3,880.4
    
    
    $
    2,507.5Total debt to total liabilities and equity
    
    
    15.1
    %
    
    
    15.3
    %
   Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109
   - 25 -




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##### Table of Contents



Critical Accounting Policies
  Recently Issued Accounting Standards
 Fair Value Measurements
 - 26 -




---



##### Table of Contents



Legal Proceedings
  Vioxx Litigation
 Product Liability Lawsuits
 Vioxx Vioxx Vioxx
 Vioxx
 Vioxx
 ),
 Vioxx www.merck.com
 Vioxx
 Vioxx
  - 27 -




---



##### Table of Contents



Viox Vioxx
  Other Lawsuits
 Vioxx Vioxx Vioxx
 Vioxx Vioxx
 - 28 -




---



##### Table of Contents



Vioxx
 Shareholder Lawsuits
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Vioxx Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx
 International Lawsuits
 Vioxx Vioxx
 - 29 -




---



##### Table of Contents



Additional Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 Insurance
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx
 Investigations
 Vioxx. Vioxx Vioxx Vioxx
 Vioxx
 Vioxx
 Reserves
 Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 - 30 -




---



##### Table of Contents



Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx Vioxx
 Other Product Liability Litigation
 Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 Fosamax Fosamax Fosamax Fosamax Fosamax Fosamax
 Governmental Proceedings
 Pepcid.
  - 31 -




---



##### Table of Contents



Tienam
 Patent Litigation
 Fosamax, Prilosec, Nexium, Propecia,
Zetia, Singulair, Trusopt Cosopt Zetia Prilosec Nexium Prilosec. Fosamax Propecia Trusopt Cosopt Prilosec Nexium
 Zetia Zetia Zetia
 Singulair
    - 32 -




---



##### Table of Contents



Trusopt Cosopt Trusopt Cosopt Cosopt Trusopt Cosopt
 Other Litigation
  Environmental Matters
  - 33 -




---



##### Table of Contents



Item 4. Controls and Procedures
  CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
   - 34 -




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##### 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)January 1  January 31, 2007
    
    
    1,782,000
    
    
    $
    45.05
    
    
    $
    6,447.1February 1  February 28, 2007
    
    
    1,728,500
    
    
    $
    44.14
    
    
    $
    6,370.8March 1  March 31, 2007
    
    
    1,997,600
    
    
    $
    43.94
    
    
    $
    6,283.1Total
    
    
    5,508,100
    
    
    $
    44.36
    
    
    $
    6,283.1
 
 (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, 200512
    
    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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##### Table of Contents



Signatures
  MERCK & CO., INC.Date: May 8, 2007
    /s/ Kenneth C. FrazierKENNETH C. FRAZIERExecutive Vice President and General CounselDate: May 8, 2007
    /s/ John CananJOHN CANANVice President, Controller - 36 -




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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, 200512
    
    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 -