##### Table of Contents



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 June 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 IdentificationNo. 22-1109110
  Class
    
    Number of Shares OutstandingCommon Stock
    
    2,176,128,392
  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 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Sales
    
    $
    5,771.7
    
    
    $
    5,467.5
    
    
    $
    11,181.5
    
    
    $
    10,829.8Costs, Expenses and OtherMaterials and production
    
    
    1,445.2
    
    
    
    1,160.6
    
    
    
    2,787.9
    
    
    
    2,432.0Marketing and administrative
    
    
    1,734.0
    
    
    
    1,749.5
    
    
    
    3,449.0
    
    
    
    3,355.0Research and development
    
    
    1,172.5
    
    
    
    946.8
    
    
    
    2,114.5
    
    
    
    1,793.4Restructuring costs
    
    
    (6.9
    )
    
    
    5.8
    
    
    
    36.8
    
    
    
    13.6Equity income from affiliates
    
    
    (611.3
    )
    
    
    (334.1
    )
    
    
    (1,114.7
    )
    
    
    (650.4
    )Other (income) expense, net
    
    
    (70.1
    )
    
    
    14.0
    
    
    
    (170.7
    )
    
    
    40.63,663.4
    
    
    
    3,542.6
    
    
    
    7,102.8
    
    
    
    6,984.2Income Before Taxes
    
    
    2,108.3
    
    
    
    1,924.9
    
    
    
    4,078.7
    
    
    
    3,845.6Taxes on Income
    
    
    609.0
    
    
    
    1,204.3
    
    
    
    1,059.4
    
    
    
    1,754.9Net Income
    
    $
    1,499.3
    
    
    $
    720.6
    
    
    $
    3,019.3
    
    
    $
    2,090.7Basic Earnings per Common Share
    
    $
    .69
    
    
    $
    .33
    
    
    $
    1.38
    
    
    $
    .95Earnings per Common Share Assuming Dilution
    
    $
    .69
    
    
    $
    .33
    
    
    $
    1.38
    
    
    $
    .95Dividends Declared per Common Share
    
    $
    .38
    
    
    $
    .38
    
    
    $
    .76
    
    
    $
    .76
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JUNE 30, 2006 AND DECEMBER 31, 2005
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent AssetsCash and cash equivalents
    
    $
    8,213.3
    
    
    $
    9,585.3Short-term investments
    
    
    2,251.1
    
    
    
    6,052.3Accounts receivable
    
    
    3,084.7
    
    
    
    2,927.3Inventories (excludes inventories of $684.5 in 2006 and
$753.8 in 2005 classified in Other assets  see Note 5)
    
    
    1,640.5
    
    
    
    1,658.1Prepaid expenses and taxes
    
    
    700.5
    
    
    
    826.3Total current assets
    
    
    15,890.1
    
    
    
    21,049.3Investments
    
    
    5,265.5
    
    
    
    1,107.9Property, Plant and Equipment, at cost, net of allowance for
depreciation of $10,210.1 in 2006 and $9,315.1 in 2005
    
    
    13,728.1
    
    
    
    14,398.2Goodwill
    
    
    1,085.7
    
    
    
    1,085.7Other Intangibles, net
    
    
    678.3
    
    
    
    518.7Other Assets
    
    
    6,831.0
    
    
    
    6,686.0$
    43,478.7
    
    
    $
    44,845.8LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    1,703.0
    
    
    $
    2,972.0Trade accounts payable
    
    
    363.7
    
    
    
    471.1Accrued and other current liabilities
    
    
    4,966.3
    
    
    
    5,277.8Income taxes payable
    
    
    2,638.3
    
    
    
    3,691.5Dividends payable
    
    
    831.0
    
    
    
    830.0Total current liabilities
    
    
    10,502.3
    
    
    
    13,242.4Long-Term Debt
    
    
    4,758.7
    
    
    
    5,125.6Deferred Income Taxes and Noncurrent Liabilities
    
    
    6,511.2
    
    
    
    6,092.9Minority Interests
    
    
    2,407.7
    
    
    
    2,407.2Stockholders EquityCommon StockAuthorized  5,400,000,000 sharesIssued  2,976,223,337 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    7,045.2
    
    
    
    6,900.0Retained earnings
    
    
    39,335.4
    
    
    
    37,980.0Accumulated other comprehensive income
    
    
    19.3
    
    
    
    52.346,429.7
    
    
    
    44,962.1Less treasury stock, at cost798,372,855 shares  June 30, 2006794,299,347 shares  December 31, 2005
    
    
    27,130.9
    
    
    
    26,984.4Total stockholders equity
    
    
    19,298.8
    
    
    
    17,977.7$
    43,478.7
    
    
    $
    44,845.8
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SIX MONTHS ENDED JUNE 30, 2006 AND 2005
 Six Months EndedJune 30,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    3,019.3
    
    
    $
    2,090.7Adjustments to reconcile net income to cash provided from operations:Depreciation and amortization
    
    
    1,162.1
    
    
    
    779.1Deferred income taxes
    
    
    203.7
    
    
    
    (26.1
    )Equity income from affiliates
    
    
    (1,114.7
    )
    
    
    (650.4
    )Dividends and distributions from equity affiliates
    
    
    997.1
    
    
    
    443.0Share-based compensation
    
    
    182.3
    
    
    
    21.7Acquired research
    
    
    296.3
    
    
    
    Other
    
    
    (1.4
    )
    
    
    286.1Net changes in assets and liabilities
    
    
    (1,236.7
    )
    
    
    172.0NET CASH PROVIDED BY OPERATING ACTIVITIES
    
    
    3,508.0
    
    
    
    3,116.1CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (460.7
    )
    
    
    (662.4
    )Purchase of securities, subsidiaries and other investments
    
    
    (11,905.3
    )
    
    
    (59,787.2
    )Proceeds from sale of securities, subsidiaries and other investments
    
    
    11,145.6
    
    
    
    58,221.1Other
    
    
    (0.8
    )
    
    
    (0.8
    )NET CASH USED BY INVESTING ACTIVITIES
    
    
    (1,221.2
    )
    
    
    (2,229.3
    )CASH FLOWS FROM FINANCING ACTIVITIESNet change in short-term borrowings
    
    
    (1,606.6
    )
    
    
    (169.2
    )Proceeds from issuance of debt
    
    
    5.1
    
    
    
    1,000.0Payments on debt
    
    
    (0.8
    )
    
    
    (508.1
    )Purchase of treasury stock
    
    
    (500.0
    )
    
    
    (508.7
    )Dividends paid to stockholders
    
    
    (1,663.1
    )
    
    
    (1,680.2
    )Proceeds from exercise of stock options
    
    
    311.9
    
    
    
    110.5Other
    
    
    (227.0
    )
    
    
    32.1NET CASH USED BY FINANCING ACTIVITIES
    
    
    (3,680.5
    )
    
    
    (1,723.6
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    
    
    21.7
    
    
    
    (124.4
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (1,372.0
    )
    
    
    (961.2
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    9,585.3
    
    
    
    2,878.8CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    8,213.3
    
    
    $
    1,917.6
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Notes to Consolidated Financial Statements
 1.
    
    The 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 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 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 six month periods ending June 30, 2006
and 2005, respectively.2.
    
    In 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. 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 June 30, 2006, the Company has recorded total pre-tax accumulated costs of
$845.9 million and eliminated approximately 3,400 positions
which are comprised of employee separations and the elimination of contractors and vacant positions.The following table summarizes the charges related to restructuring activities by type of cost
for the three and six months ended June 30, 2006.
 ($ in millions)Three Months Ended June 30, 2006
    
    
    Six Months Ended June 30, 2006Separation
    
    
    Accelerated
    
    
    
    
    
    
    
    
    
    
    Separation
    
    
    AcceleratedCosts
    
    
    Depreciation
    
    
    Other
    
    
    Total
    
    
    Costs
    
    
    Depreciation
    
    
    Other
    
    
    TotalMaterials and
production
    
    $
    
    
    
    $
    163.0
    
    
    $
    4.5
    
    
    $
    167.5
    
    
    $
    
    
    
    $
    361.6
    
    
    $
    10.9
    
    
    $
    372.5Research and
development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55.4
    
    
    
    
    
    
    
    55.4Restructuring
costs
    
    
    21.9
    
    
    
    
    
    
    
    (28.8
    )
    
    
    (6.9
    )
    
    
    49.7
    
    
    
    
    
    
    
    (12.9
    )
    
    
    36.8$
    21.9
    
    
    $
    163.0
    
    
    $
    (24.3
    )
    
    $
    160.6
    
    
    $
    49.7
    
    
    $
    417.0
    
    
    $
    (2.0
    )
    
    $
    464.7
  (1)
    
    Separation costs related to Company-wide position eliminations,(2)
    
    Accelerated depreciation related to the five Merck owned manufacturing facilities
worldwide and two preclinical sites expected to be sold or closed by the end of 2008,
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Notes to Consolidated Financial Statements
 (3)
    
    Other costs which include pre-tax gains of $39.5 million resulting from the second
quarter sales of facilities in connection with the global restructuring program, partially
offset by expenses of $15.2 million and $37.5 million for the three and six months ended
June 30, 2006, respectively, related to the Companys pension and other postretirement
plans, asset impairments, and other exit costs.
  ($ in millions)Separation
    
    
    AcceleratedCosts
    
    
    Depreciation
    
    
    Other
    
    
    TotalRestructuring accrual as of January 1, 2006 *
    
    $
    240.3
    
    
    $
    
    
    
    $
    
    
    
    $
    240.3Expense
    
    
    49.7
    
    
    
    417.0
    
    
    
    (2.0
    )
    
    
    464.7(Payments)/receipts,
net
    
    
    (121.9
    )
    
    
    
    
    
    
    17.1
    **
    
    
    (104.8
    )Non-cash activity
    
    
    
    
    
    
    (417.0
    )
    
    
    (15.1
    )
    
    
    (432.1
    )Restructuring accrual as of June 30, 2006
    
    $
    168.1
    
    
    $
    
    
    
    $
    
    
    
    $
    168.1
 *
    
    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.**
    
    Includes proceeds from the second quarter sales of facilities
in connection with the global restructuring program.The Company recorded Restructuring costs for the three and six months ended June 30, 2005 of
$5.8 million and $13.6 million, respectively, associated with earlier restructuring programs.3.
    
    The 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 June 30, 2006, 183.9 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.Generally, 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 will recognize 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
shall be 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.The following table provides amounts of share-based compensation cost recorded in the
Consolidated Statement of Income (substantially all of the 2005 amount was related to RSUs):
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Notes to Consolidated Financial Statements
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Pre-tax share-based compensation expense
    
    $
    61.0
    
    
    $
    12.0
    
    
    $
    182.3
    
    
    $
    21.7Income tax benefits
    
    
    (19.0
    )
    
    
    (4.2
    )
    
    
    (56.3
    )
    
    
    (7.6
    )Total share-based compensation expense
    
    $
    42.0
    
    
    $
    7.8
    
    
    $
    126.0
    
    
    $
    14.1
  ($ in millions)Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    2006Income Before Taxes
    
    $
    41.9
    
    
    $
    140.5Net Income
    
    
    29.2
    
    
    
    98.1Earnings per Common Share Assuming Dilution
    
    
    $.01
    
    
    
    $.04
  ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2005
    
    
    2005Net income, as reported
    
    $
    720.6
    
    
    $
    2,090.7Compensation expense, net of tax:Reported
    
    
    7.8
    
    
    
    14.1Fair value method
    
    
    (80.4
    )
    
    
    (188.8
    )Pro forma net income
    
    $
    648.0
    
    
    $
    1,916.0Earnings per common share:Basic  as reported
    
    
    $.33
    
    
    
    $.95Basic  pro forma
    
    
    $.29
    
    
    
    $.87Assuming dilution  as reported
    
    
    $.33
    
    
    
    $.95Assuming dilution  pro forma
    
    
    $.29
    
    
    
    $.87
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Notes to Consolidated Financial Statements
   Expected dividend yield
    
    
    4.52
    %Risk-free interest rate
    
    
    5.01
    %Expected volatility
    
    
    27.12
    %Expected life (years)
    
    
    5.9
  WeightedAverage
    
    
    AggregateRemaining
    
    
    IntrinsicNumber
    
    
    Average
    
    
    Contractual
    
    
    Valueof Options
    
    
    Price(1)
    
    
    Term
    
    
    ($000s)Balance at December 31, 2005
    
    
    250,088.0
    
    
    $
    54.52Granted
    
    
    29,601.6
    
    
    
    35.01Exercised
    
    
    (10,362.7
    )
    
    
    30.10Forfeited
    
    
    (9,215.2
    )
    
    
    57.02Outstanding at June 30, 2006
    
    
    260,111.7
    
    
    $
    53.18
    
    
    
    5.53
    
    
    $
    244,518.3Exercisable at June 30, 2006
    
    
    196,050.3
    
    
    $
    58.47
    
    
    
    4.45
    
    
    $
    89,479.8
 
 (1) Weighted average exercise price
  ($ in millions)Three Months
    
    Six MonthsEnded June 30,
    
    Ended June 30,2006
    
    2005
    
    2006
    
    2005Total intrinsic value of stock options exercised
    
    $
    6.6
    
    
    $
    2.5
    
    
    $
    45.0
    
    
    $
    53.2Fair value of stock options vested
    
    
    18.3
    
    
    
    15.9
    
    
    
    819.3
    
    
    
    893.2Cash received from the exercise
of stock options
    
    $
    10.7
    
    
    $
    11.1
    
    
    $
    311.9
    
    
    $
    110.5
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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
    
    
    1,496.9
    
    
    
    34.98
    
    
    
    520.7
    
    
    
    35.09Vested
    
    
    (27.2
    )
    
    
    36.18
    
    
    
    
    
    
    
    Forfeited
    
    
    (132.4
    )
    
    
    36.04
    
    
    
    (93.6
    )
    
    
    34.56Nonvested at June 30, 2006
    
    
    6,102.4
    
    
    $
    35.69
    
    
    
    1,449.3
    
    
    $
    38.39
 At June 30, 2006, there was $385.9 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 2.4 years.4.
    
    Merck 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 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 is a leader in the field of yeast glycoengineering, that
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 5 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.In May 2006, the Company acquired all of the equity of Abmaxis, Inc. (Abmaxis) for
approximately $80 million in cash. Abmaxis was a privately-held biopharmaceutical company
dedicated to the discovery and optimization of monoclonal antibody (MAb) products for human
therapeutics and diagnostics. Abmaxis developed and validated a breakthrough antibody
engineering technology platform, Abmaxis in-silicoImmunization, which has alternative future
uses to the Company with no significant technological or engineering risks at the date of
acquisition. In connection with the acquisition, the Company allocated substantially all of
the purchase price to Abmaxis technology platform and recorded an intangible asset of $135.3
million ($78.5 million net of deferred taxes). This intangible asset will be amortized to
Research and development expense on a straight-line basis over a 5 year useful life. The
remaining net assets acquired in this transaction were not material. Because Abmaxis 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. Abmaxis 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 March 2006, Merck and Paratek Pharmaceuticals, Inc. (Paratek) announced they entered into
an exclusive, worldwide collaborative development and license agreement for PTK 0796, a novel,
broad-spectrum aminomethylcycline (AMC) antibiotic with oral and intravenous (IV) formulations
currently in Phase I clinical testing. Under the terms of the agreement, Merck provided
upfront funding, will assume primary responsibility for clinical development of the IV and
oral formulations of PTK 0796 and has the right to market such products worldwide. Paratek
will participate in clinical development and be eligible to receive payments upon achievement
of certain milestones; these payments could total as much as $127 million once PTK 0796 is
approved for marketing. Paratek will also receive royalties on net sales and have the
opportunity to co-promote the IV formulation of PTK 0796 in the United States.In March 2006, Neuromed Pharmaceuticals Ltd. (Neuromed) and Merck signed a research
collaboration and license agreement to research, develop and commercialize novel compounds for
the treatment of pain and other neurological disorders, including Neuromeds lead compound,
NMED-160, which is currently in Phase II development for the treatment of pain. Under the
terms of the agreement, Neuromed received an upfront payment of $25 million which the Company
recorded as Research and development expense. The successful development and launch of
NMED-160 for an initial single indication on a worldwide basis would trigger milestone
payments totaling $202 million. Milestones could increase to approximately $450 million if a
further indication for NMED-160 is developed and approved and an additional compound is
developed and approved for two indications. Neuromed would also receive royalties on worldwide
sales of NMED-160 and any additional compounds developed under this agreement.Also in March 2006, Merck signed an agreement with NicOx S.A. (NicOx) to collaborate on the
development of new antihypertensive drugs using NicOxs proprietary nitric oxide-donating
technology. Under the terms of the agreement, NicOx received an upfront payment of
approximately $11.2 million, which the Company recorded as Research and development expense,
and is eligible for potential further milestone payments of approximately $340.2 million.
Merck will also pay NicOx royalties on the sales of all products resulting from the
collaboration.5.
    
    Inventories consisted of:
 ($ in millions)June
    
    
    December30, 2006
    
    
    31, 2005Finished goods
    
    $
    398.6
    
    
    $
    400.0Raw materials and work in process
    
    
    1,837.1
    
    
    
    1,929.8Supplies
    
    
    89.3
    
    
    
    82.1Total (approximates current cost)
    
    
    2,325.0
    
    
    
    2,411.9Reduction to LIFO cost for domestic inventories
    
    
    
    
    
    
    $
    2,325.0
    
    
    $
    2,411.9Recognized as:Inventories
    
    $
    1,640.5
    
    
    $
    1,658.1Other assets
    
    
    684.5
    
    
    
    753.8
 Amounts recognized as Other assets are comprised entirely of raw materials and work in
process inventories, which include inventories produced in preparation for product launches,
principally Januvia,and inventories for other products, principally vaccines and Arcoxia, not
expected to be sold within one year.6.
    
    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.
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Notes to Consolidated Financial Statements
 7.
    
    The Company is involved in various claims and legal proceedings of a nature considered
normal to its business, including product liability, intellectual property, and commercial
litigation, as well as additional matters such as antitrust actions.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 June 30, 2006, the Company has been served or is aware that it has been named as
a defendant in approximately 14,200 lawsuits, which include approximately 27,100 plaintiff
groups, alleging personal injuries resulting from the use of Vioxx. Of these lawsuits,
approximately 5,700 lawsuits representing approximately 16,100 plaintiff groups are or are
slated to be in the federal MDL (discussed below) and approximately 7,100 lawsuits
representing approximately 7,100 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 190 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, New Jersey, and Philadelphia,
Pennsylvania, respectively, have been transferred to a single judge in each state for
coordinated proceedings.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.Judge Fallon has indicated that he intends to try 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.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 June 30, 2006, approximately 5,800 claimants had
entered into Tolling Agreements.The Company has previously disclosed the outcomes of several VioxxProduct Liability Lawsuits
that were tried prior to March 31, 2006. In April 2006, in a trial involving two plaintiffs,
Thomas Cona and John McDarby, in Superior Court of New Jersey, Law Division, Atlantic County,
the jury returned a split verdict. The jury determined that Vioxxdid not substantially
contribute to the heart attack of Mr. Cona, but did substantially contribute to the heart
attack of Mr. McDarby. In addition, the jury concluded that, in each case, Merck violated New
Jerseys consumer fraud statute, which allows plaintiffs to receive their expenses for
purchasing the drug, trebled, as well as reasonable attorneys fees. The jury awarded $4.5
million in compensatory damages to Mr. McDarby and his wife, who also was a plaintiff in that
case, as well as punitive damages of $9 million. The Company intends to appeal this verdict
after the completion of post-trial proceedings in the trial court.Also in April 2006, in Garza v. Merck, a jury in state court in Rio Grande City, Texas
returned a verdict in favor of the family of decedent Leonel Garza. The jury awarded a total
of $7 million in compensatory damages to Mr. Garzas widow and three sons. The jury also
purported to award $25 million in punitive damages. Under Texas law, in this case the
punitive damages are capped at $750,000. The Company intends to appeal this verdict after
completion of post-trial proceedings in the trial court.
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Notes to Consolidated Financial Statements
 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 returned a
verdict for Merck on all counts.In addition to these trials, there is a  VioxxProduct Liability trial currently ongoing in Barnett v. Merck in
federal court in New Orleans, Louisiana. In New Jersey, Judge Higbee has cancelled the trial
previously set for September 2006 in Atlantic City, New Jersey. The next trial in New Jersey
is currently scheduled to start on January 16, 2007, and the Court has stated that it will
involve multiple plaintiffs. The specific plaintiffs cases to be tried have not yet been
selected. The Company expects a number of additional VioxxProduct Liability lawsuits to be
tried in 2006.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 June 30, 2006, Merck has also entered
into agreements with approximately 5,800 plaintiffs 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 state Superior Court, Appellate Division, affirmed the class certification order.
Recently, the New Jersey Supreme Court has decided to exercise its discretion to hear the
Companys appeal of the appellate court decision affirming the trial courts ruling which
certified the class of third-party payors seeking reimbursement of amounts they paid for Vioxx
prescriptions. The trial in this case is currently scheduled to be held in March 2007 and it
is not known at this time whether the New Jersey Supreme Courts decision will affect the
trial date.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, and Texas. The
Attorney General of Utah has also recently filed a lawsuit. These actions allege that the
Company misrepresented the safety of Vioxxand seek (i) recovery of the cost of Vioxx
purchased 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 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 (the VioxxSecurities
Lawsuits), all of which 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.
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Notes to Consolidated Financial Statements
 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. On July 19, 2006, the Court denied the Companys motion to dismiss
the complaint. The current and former officers and directors have entered into a tolling
agreement in exchange for plaintiffs dismissal, without prejudice, of the claims against
them.As previously disclosed, various shareholder derivative actions filed in federal court have
been transferred to the Shareholder MDL and consolidated for all purposes by Judge Chesler
(the VioxxDerivative Lawsuits). The consolidated complaint arises out of substantially the
same factual allegations that are made in the VioxxSecurities Lawsuits. The derivative
suits, which are 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 have appealed 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 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 response to that demand letter, the
Board of Directors determined at its November 23, 2004 meeting that the Board would take the
shareholders request under consideration and it remains under consideration. The Board has
recently 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.In addition, as previously disclosed, various putative class actions filed in federal court
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 under the Employee Retirement Income Security
Act (ERISA). 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. The Court dismissed plaintiffs claim of breach of fiduciary duty based on
continued investment in Merck stock as to all defendants except the five individuals who were
members of Mercks Management Pension Investment Committee (MPIC) during the purported class
period. The Court dismissed plaintiffs claim for breach of fiduciary duty based on alleged
failure to provide complete or accurate information to participants to the extent it related
to specific communications cited in the complaint, but declined to dismiss the claim before
discovery to the extent plaintiffs allege that adverse information was withheld from
participants. The Court dismissed plaintiffs claim for failure to monitor as to all
defendants except the members of the Compensation and Benefits Committee of Mercks Board of
Directors who had supervisory responsibility for the MPIC. The Court declined to dismiss
plaintiffs claim for co-fiduciary liability, absent factual development, but dismissed as
duplicative plaintiffs claim for knowing participation in breach of fiduciary duty.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
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Notes to Consolidated Financial Statements
 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. As previously
disclosed, the Companys United Kingdom subsidiary has been notified by the Medicines and
Healthcare Products Regulatory Agency in the United Kingdom (the MHRA) of an investigation
by the MHRA of compliance by the Company with European Union (EU) adverse experience
reporting requirements in connection with Vioxx. In April 2006, the MHRA advised the Company that
its investigation has been completed and no enforcement action will be taken with respect to
the matter. 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 2006. The Company cannot predict the timing of any trials with respect to the Vioxx
Shareholder Lawsuits. The Company believes that it has meritorious defenses to the Vioxx
Lawsuits 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 a verdict or judgment has 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.Legal defense costs expected to be incurred in connection with a loss contingency are accrued
when probable and reasonably estimable. As of December 31, 2004, the Company had established
a reserve of $675 million solely for its future legal defense costs related to the Vioxx
Litigation.During 2005, the Company spent $285 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 Vioxx
Litigation). In the fourth quarter, the Company recorded a charge of $295 million to
increase the reserve solely for its future legal defense costs related to the VioxxLitigation
to $685 million at December 31, 2005. This reserve is based on certain assumptions and is the
best estimate of the amount that the Company believes, at this time, it can reasonably
estimate will be spent through 2007. Some of the significant factors considered in the
establishment and ongoing review of the reserve for the Vioxxlegal defense
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Notes to Consolidated Financial Statements
 costs were as
follows: the actual costs incurred by the Company up to that time; 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 2006 and into 2007, 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 2007. 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 above, it believes it would be
appropriate to do so. Unfavorable outcomes in the Vioxx Litigation 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 been advised that the activities being investigated by
the DOJ are also the subject of a qui tamcomplaint. 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; the second CID includes requests
with respect to 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 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. The
subpoena seeks 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 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.8.
    
    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 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.
    
    The Companys federal income tax returns have been audited through 1992. As previously
disclosed, the Internal Revenue Service (IRS) has substantially completed its examination of
the Companys tax returns for the years 1993 to 1996 and on April 28, 2004, in connection
with its examination, the IRS issued a preliminary notice of deficiency with respect to a
partnership transaction entered into in 1993. On December 13, 2005, the Company received a
final notice of deficiency with respect to the transaction with regard to the 1993 tax
return. Specifically, the IRS disallowed certain royalty and other expenses claimed as
deductions on the 1993 tax return. The preliminary notice proposed disallowing similar type
expenses on the 1994-1996 tax returns. The Company anticipates receiving a similar notice
of deficiency for 1997-1999. 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
1994-1999, the tax would increase by approximately $910 million plus interest of
approximately $630 million. The IRS will likely make similar claims for years subsequent to
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Notes to Consolidated Financial Statements
 1999 with respect to this transaction. The potential disallowance for these later years,
computed on a similar basis to the 1993-1999 disallowances, would be approximately $540
million plus interest of approximately $100 million. The IRS has proposed penalties on the
Company with respect to all periods that were the subject of the preliminary notice of
adjustment and the Company anticipates the IRS would seek to impose penalties on all other
periods.The Company vigorously disagrees with the proposed adjustments and intends to aggressively
contest this matter through applicable IRS and judicial procedures, as appropriate. Although
the final resolution of the proposed adjustments is uncertain and involves unsettled areas of
the law, based on currently available information, the
Company has provided for the best estimate of the probable tax liability for this matter.
While the resolution of the issue 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 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 the tax is due
or paid.As previously disclosed, in January 2006, the IRS issued a summons requesting certain information in connection with a
minority interest equity financing transaction entered into in 1995. Merck has cooperated
with the terms of the summons. In April 2006, certain current executives received summonses
and have appeared before the IRS in connection with this matter.Merck Canadas tax returns for the years 1998 through 2004 are being examined by the Canada
Revenue Agency (CRA). CRA has provided the Company with preliminary proposed adjustments
related to certain intercompany pricing matters. The Company disagrees with the positions
taken by CRA and believes they are without merit. The examination may be concluded as early
as September 2006 and a formal assessment notice may be issued at that time. The Company could
be required to post a deposit of half the tax and interest assessed. The Company intends to
vigorously contest it through the CRA appeals process and the courts if necessary.10.
    
    The 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
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    90.3
    
    
    $
    79.1
    
    
    $
    180.3
    
    
    $
    161.1Interest Cost
    
    
    85.3
    
    
    
    78.3
    
    
    
    170.1
    
    
    
    157.3Expected return on plan assets
    
    
    (109.3
    )
    
    
    (100.0
    )
    
    
    (217.3
    )
    
    
    (201.2
    )Net amortization
    
    
    42.5
    
    
    
    38.1
    
    
    
    84.9
    
    
    
    76.6Termination Benefits
    
    
    2.7
    
    
    
    1.6
    
    
    
    16.2
    
    
    
    4.5Curtailments
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    $
    111.5
    
    
    $
    97.1
    
    
    $
    234.4
    
    
    $
    198.3
 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:
 - 16 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service Cost
    
    $
    20.7
    
    
    $
    21.2
    
    
    $
    41.9
    
    
    $
    44.1Interest Cost
    
    
    24.8
    
    
    
    26.1
    
    
    
    50.2
    
    
    
    52.8Expected return on plan assets
    
    
    (28.2
    )
    
    
    (25.8
    )
    
    
    (56.4
    )
    
    
    (51.7
    )Net amortization
    
    
    0.8
    
    
    
    5.2
    
    
    
    1.8
    
    
    
    10.8Termination Benefits
    
    
    0.8
    
    
    
    0.4
    
    
    
    2.2
    
    
    
    0.8$
    18.9
    
    
    $
    27.1
    
    
    $
    39.7
    
    
    $
    56.8
 In connection with restructuring actions (see Note 2), the Company recorded termination
charges for the three and six months ended June 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 six months ended June 30, 2006 on its pension plans.11.
    
    Other (income) expense, net, consisted of:
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income
    
    $
    (187.9
    )
    
    $
    (98.7
    )
    
    $
    (369.6
    )
    
    $
    (192.5
    )Interest expense
    
    
    91.9
    
    
    
    93.1
    
    
    
    190.1
    
    
    
    177.6Exchange losses/(gains)
    
    
    7.4
    
    
    
    (8.4
    )
    
    
    7.0
    
    
    
    (9.1
    )Minority interests
    
    
    30.0
    
    
    
    30.3
    
    
    
    59.9
    
    
    
    60.7Other, net
    
    
    (11.5
    )
    
    
    (2.3
    )
    
    
    (58.1
    )
    
    
    3.9$
    (70.1
    )
    
    $
    14.0
    
    
    $
    (170.7
    )
    
    $
    40.6
 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 six months ended June 30, 2006 and 2005 was $220.3 million and $151.6
million, respectively.12.
    
    The 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
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Average common shares outstanding
    
    
    2,181.3
    
    
    
    2,201.8
    
    
    
    2,182.5
    
    
    
    2,204.4Common shares issuable(1)
    
    
    6.4
    
    
    
    4.3
    
    
    
    6.7
    
    
    
    3.8Average common shares outstanding
assuming dilution
    
    
    2,187.7
    
    
    
    2,206.1
    
    
    
    2,189.2
    
    
    
    2,208.2
 
 (1)
    
    Issuable primarily under share-based compensation plans. For the three and six months ended June 30, 2006, 227.6 million, and for the three and
six months ended June 30, 2005, 215.3 million and 212.1 million, respectively, 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.
 - 17 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 13.
    
    Comprehensive income for the three months ended June 30, 2006 and 2005, representing all
changes in stockholders equity during the period other than changes resulting from the
Companys stock, was $1,470.9 million
and $798.8 million, respectively. Comprehensive income for the six months ended June 30, 2006
and 2005 was $2,986.3 million and $2,141.9 million, respectively.14.
    
    The 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.Revenues and profits for these segments are as follows:
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment revenues:Merck Pharmaceutical
    
    $
    5,338.3
    
    
    $
    5,166.2
    
    
    $
    10,409.5
    
    
    $
    10,238.5Other segment revenues
    
    
    361.9
    
    
    
    260.7
    
    
    
    626.5
    
    
    
    493.6$
    5,700.2
    
    
    $
    5,426.9
    
    
    $
    11,036.0
    
    
    $
    10,732.1Segment profits:Merck Pharmaceutical
    
    $
    3,759.9
    
    
    $
    3,234.9
    
    
    $
    7,257.6
    
    
    $
    6,397.4Other segment profits
    
    
    256.6
    
    
    
    264.2
    
    
    
    505.5
    
    
    
    504.6$
    4,016.5
    
    
    $
    3,499.1
    
    
    $
    7,763.1
    
    
    $
    6,902.0
 A reconciliation of total segment revenues to consolidated sales is as follows:
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment revenues
    
    $
    5,700.2
    
    
    $
    5,426.9
    
    
    $
    11,036.0
    
    
    $
    10,732.1Other revenues
    
    
    71.5
    
    
    
    40.6
    
    
    
    145.5
    
    
    
    97.7$
    5,771.7
    
    
    $
    5,467.5
    
    
    $
    11,181.5
    
    
    $
    10,829.8
 Other revenues are primarily comprised of miscellaneous corporate revenues, sales related
to divested products or businesses and other supply sales.
 - 18 -




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##### Table of Contents



Notes to Consolidated Financial Statements
 Sales (1) of the Companys products were as follows:
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Zocor
    
    $
    989.6
    
    
    $
    1,151.5
    
    
    $
    2,053.1
    
    
    $
    2,257.5Singulair
    
    
    949.8
    
    
    
    729.6
    
    
    
    1,751.2
    
    
    
    1,464.6Fosamax
    
    
    820.9
    
    
    
    852.7
    
    
    
    1,574.4
    
    
    
    1,624.6Cozaar/Hyzaar
    
    
    783.7
    
    
    
    784.7
    
    
    
    1,484.8
    
    
    
    1,503.7Proscar
    
    
    183.0
    
    
    
    188.1
    
    
    
    371.2
    
    
    
    363.2Primaxin
    
    
    172.1
    
    
    
    181.4
    
    
    
    341.7
    
    
    
    366.2Cosopt/Trusopt
    
    
    175.4
    
    
    
    153.3
    
    
    
    327.0
    
    
    
    293.5Vasotec/Vaseretic
    
    
    140.2
    
    
    
    163.9
    
    
    
    276.3
    
    
    
    322.1Cancidas
    
    
    123.8
    
    
    
    140.0
    
    
    
    270.0
    
    
    
    270.3Maxalt
    
    
    97.2
    
    
    
    84.2
    
    
    
    190.1
    
    
    
    161.9Propecia
    
    
    84.8
    
    
    
    68.8
    
    
    
    160.1
    
    
    
    138.9Vaccines/Biologicals
    
    
    349.1
    
    
    
    247.3
    
    
    
    620.6
    
    
    
    471.1Other
    
    
    902.1
    
    
    
    722.0
    
    
    
    1,761.0
    
    
    
    1,592.2$
    5,771.7
    
    
    $
    5,467.5
    
    
    $
    11,181.5
    
    
    $
    10,829.8
 
 (1)
    
    Presented net of discounts and returns Other primarily includes sales of other human pharmaceuticals, pharmaceutical and animal
health supply sales to the Companys joint ventures and revenue from the Companys
relationship with AstraZeneca LP primarily relating to sales of Nexiumand Prilosec.Segment profits are comprised of segment revenues less certain elements of materials and
production costs and operating expenses, including components of equity income from affiliates
and 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.A reconciliation of segment profits to Income Before Taxes is as follows:
 ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment profits
    
    $
    4,016.5
    
    
    $
    3,499.1
    
    
    $
    7,763.1
    
    
    $
    6,902.0Other profits
    
    
    47.9
    
    
    
    46.6
    
    
    
    106.1
    
    
    
    112.0Adjustments
    
    
    109.2
    
    
    
    129.4
    
    
    
    265.2
    
    
    
    249.8Unallocated:Interest income
    
    
    187.9
    
    
    
    98.7
    
    
    
    369.6
    
    
    
    192.5Interest expense
    
    
    (91.9
    )
    
    
    (93.1
    )
    
    
    (190.1
    )
    
    
    (177.6
    )Equity income from affiliates
    
    
    68.4
    
    
    
    11.0
    
    
    
    137.9
    
    
    
    73.8Depreciation and amortization
    
    
    (495.6
    )
    
    
    (359.8
    )
    
    
    (1,078.4
    )
    
    
    (700.0
    )Research and development
    
    
    (1,172.5
    )
    
    
    (946.8
    )
    
    
    (2,114.5
    )
    
    
    (1,793.4
    )Other expenses, net
    
    
    (561.6
    )
    
    
    (460.2
    )
    
    
    (1,180.2
    )
    
    
    (1,013.5
    )$
    2,108.3
    
    
    $
    1,924.9
    
    
    $
    4,078.7
    
    
    $
    3,845.6
 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
 - 19 -




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##### Table of Contents



Notes to Consolidated Financial Statements
  - 20 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Management
  Acquisitions
  Global Restructuring Program
  Share-Based Compensation
 Share-Based Payments
  American Jobs Creation Act of 2004  Repatriation
  - 21 -




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##### Table of Contents



Operating Results
 Summary
     Zocor
   Zetia Vytorin
   - 22 -




---



##### Table of Contents



Sales
  ($ in millions)Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Zocor
    
    $
    989.6
    
    
    $
    1,151.5
    
    
    $
    2,053.1
    
    
    $
    2,257.5Singulair
    
    
    949.8
    
    
    
    729.6
    
    
    
    1,751.2
    
    
    
    1,464.6Fosamax
    
    
    820.9
    
    
    
    852.7
    
    
    
    1,574.4
    
    
    
    1,624.6Cozaar/Hyzaar
    
    
    783.7
    
    
    
    784.7
    
    
    
    1,484.8
    
    
    
    1,503.7Proscar
    
    
    183.0
    
    
    
    188.1
    
    
    
    371.2
    
    
    
    363.2Primaxin
    
    
    172.1
    
    
    
    181.4
    
    
    
    341.7
    
    
    
    366.2Cosopt/Trusopt
    
    
    175.4
    
    
    
    153.3
    
    
    
    327.0
    
    
    
    293.5Vasotec/Vaseretic
    
    
    140.2
    
    
    
    163.9
    
    
    
    276.3
    
    
    
    322.1Cancidas
    
    
    123.8
    
    
    
    140.0
    
    
    
    270.0
    
    
    
    270.3Maxalt
    
    
    97.2
    
    
    
    84.2
    
    
    
    190.1
    
    
    
    161.9Propecia
    
    
    84.8
    
    
    
    68.8
    
    
    
    160.1
    
    
    
    138.9Vaccines/Biologicals
    
    
    349.1
    
    
    
    247.3
    
    
    
    620.6
    
    
    
    471.1Other
    
    
    902.1
    
    
    
    722.0
    
    
    
    1,761.0
    
    
    
    1,592.2$
    5,771.7
    
    
    $
    5,467.5
    
    
    $
    11,181.5
    
    
    $
    10,829.8
  Singulair Singulair
 Zocor Zocor Zocor Zocor Zocor Vytorin
 Cozaar Hyzaar Cozaar/Hyzaar
 
 *
    
    COZAAR and HYZAAR are registered trademarks of E.I. DuPont de Nemours & Company, Wilmington, Delaware. - 23 -




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##### Table of Contents



Fosamax Fosamax Fosavance Fosamax Fosamax
   RotaTeq RotaTeq
 RotaTeq RotaTeq
 Zostavax, Zostavax
 Gardasil Gardasil Gardasil
 Gardasil Gardasil Gardasil
 Gardasil Gardasil Gardasil Gardasil Gardasil Gardasil Gardasil
 - 24 -




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##### Table of Contents



Varivax ProQuad
 Emend Emend
 Proscar Proscar Proscar Proscar
 Zetia Vytorin,
 Zetia Ezetrol Zetia
 Vytorin Vytorin Inegy
 Vytorin Vytorin Vytorin
  Research and Development
 Zolinza
 rd Zolinza
 Emend
 Januvia
 - 25 -




---



##### Table of Contents



Januvia Januvia
 Januvia Januvia
 Januvia
   Phase IAlzheimers Dis., MK-0952Arthritis, MK-0822Atherosclerosis, MK-0633Cancer, MK-0429Cancer, MK-0752Cancer, MK-4721*Cancer, MK-0731Cancer, MK-0646*Cancer, MK-0822Cancer, V930Cardiovascular, MK-0448Cardiovascular, MK-8141*Diabetes, MK-0941Diabetes, MK-0893Diabetes, MK-3887Endocrine, MK-0867Endocrine, MK-0974Glaucoma, MK-0994Infect. Dis. (Flu), V512Infect.
Dis. (S. aureus), V710Infect. Dis., MK-2764*Insomnia, MK-0454Obesity, MK-0249Osteoporosis, MK-0773Pain, MK-2295*Parkinsons Dis.,MK-0657Psychiatric Dis., MK-0249Respiratory Dis., MK-0633
 Phase IIAtherosclerosis, MK-0859Atherosclerosis, MK-0354*Cancer, MK-0457*Diabetes, MK-0533Endocrine, MK-0677HIV, V526HPV, V502**Hypertension, MK-0736Infect. Dis. (Pediatric), V419*Obesity, MK-0364Osteoporosis, MK-0822Pain, MK-0759Pain, MK-0974Pain, MK-6721*Psychiatric Dis., MK-3756*Stroke, MK-0724*Urinary Incont., MK-0634Urinary-Incont., MK-0594
 Phase IIIAthero., MK-0524BAthero., MK-0524AInsomniaGaboxadol*HIV, MK-0518
 Under Review by FDADiabetes, MK-0431ACINV, MK-0517Cancer (CTCL)ZOLINZA*DiabetesJANUVIA
  ApprovableArthritis/PainARCOXIA
  2006 ApprovalsRotavirusGastroenteritisROTATEQShinglesZOSTAVAXHPV and relatedcervical cancer andgenital wartsGARDASIL**
   
 *
    
    Licensed, alliance, or acquisition**
    
    Multiple Licenses, including CSL, Ltd. - 26 -




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##### Table of Contents



Liquidity
and Capital Resources
 ($ in millions)
    
    June 30, 2006
    
    December 31, 2005Cash and Investments
    
    $
    15,729.9
    
    
    $
    16,745.5Working Capital
    
    $
    5,387.8
    
    
    $
    7,806.9Total debt to total liabilities and equity
    
    
    14.9
    %
    
    
    18.1
    %
        Critical Accounting Policies
  Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
 Determining the Variability to
Be Considered in Applying FASB Interpretation No. 46R Consolidation of Variable
Interest Entities
 - 27 -




---



##### Table of Contents



Legal Proceedings
  Vioxx Litigation
 Product Liability Lawsuits
 Vioxx Vioxx Vioxx Vioxx Vioxx
 Vioxx
 Vioxx
 Vioxx www.Merck.com
 Vioxx
 Vioxx Vioxx
 - 28 -




---



##### Table of Contents



Vioxx
  Vioxx Vioxx
 Vioxx Vioxx
 Other Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 Vioxx Vioxx Vioxx
 Shareholder Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 - 29 -




---



##### Table of Contents



Vioxx
 Vioxx Vioxx
 Vioxx Vioxx
 Vioxx Vioxx Vioxx Vioxx Vioxx
 International Lawsuits
 Vioxx Vioxx
 Additional Lawsuits
 Vioxx Vioxx Vioxx Vioxx
 - 30 -




---



##### Table of Contents



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
 Vioxx Vioxx Vioxx Vioxx Vioxx
 - 31 -




---



##### Table of Contents



Vioxx Vioxx Vioxx Vioxx Vioxx L
 Other Product Liability Litigation
 Fosamax Fosamax
 Commercial Litigation
 qui tam
 Governmental Proceedings
 qui tam Pepcid
 qui tam
  Patent Litigation
  - 32 -




---



##### Table of Contents



Fosamax Prilosec, Nexium Propecia, Trusopt Cosopt Prilosec Nexium Prilosec Fosamax Propecia Trusopt Cosopt Prilosec Nexium
   Fosamax Fosamax
 Trusopt Cosopt Trusopt Cosopt Cosopt Trusopt Cosopt
  Nexium Nexium
 - 33 -




---



##### Table of Contents



Propecia Propecia
 Cozaar
 Other Litigation
  Environmental Matters
  
 Item 4. Controls and Procedures
  CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
   - 34 -




---



##### Table of Contents



PART II   Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  The Company faces pricing pressure with respect to its products.
   
 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)April 1 - April 30, 2006
    
    
    2,213,400
    
    
    $
    34.56
    
    
    $
    7,206.1May 1 - May 31, 2006
    
    
    2,560,800
    
    
    $
    34.46
    
    
    $
    7,117.8June 1 - June 30, 2006
    
    
    2,551,000
    
    
    $
    34.50
    
    
    $
    7,029.8Total
    
    
    7,325,200
    
    
    $
    34.51
    
    
    $
    7,029.8
 
 (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 4. Submission of Matters to a Vote of Security Holders
  1.
    
    All of the following persons nominated were elected to serve as directors and received the
number of votes set forth opposite their respective names:
 - 35 -




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##### Table of Contents



Names
    
    For
    
    WithheldLawrence A. Bossidy
    
    
    1,710,560,020
    
    
    
    135,606,286William G. Bowen
    
    
    1,714,541,949
    
    
    
    131,624,357Richard T. Clark
    
    
    1,791,797,705
    
    
    
    54,368,601Johnnetta B. Cole
    
    
    1,620,151,690
    
    
    
    226,014,616William B. Harrison, Jr.
    
    
    1,798,757,360
    
    
    
    47,408,946William N. Kelley
    
    
    1,715,612,623
    
    
    
    130,553,683Rochelle B. Lazarus
    
    
    1,654,348,579
    
    
    
    191,817,727Thomas E. Shenk
    
    
    1,808,797,244
    
    
    
    37,369,062Anne M. Tatlock
    
    
    1,807,781,674
    
    
    
    38,384,632Samuel O. Thier
    
    
    1,790,380,187
    
    
    
    55,786,119Wendell P. Weeks
    
    
    1,791,586,942
    
    
    
    54,579,364Peter C. Wendell
    
    
    1,808,764,954
    
    
    
    37,401,352
 2.
    
    A proposal to ratify the appointment of an independent registered public accounting firm
for 2006 received 1,815,924,066 votes FOR and 11,553,064 votes AGAINST, with 18,689,176
abstentions.3.
    
    A proposal to adopt the 2007 Incentive Stock Plan received 1,227,108,455 votes FOR and
223,767,347 votes AGAINST, with 22,998,309 abstentions.4.
    
    A proposal to adopt the 2006 Non-Employee Directors Stock Option Plan received
1,244,044,876 votes FOR and 206,047,818 votes AGAINST, with 23,780,402 abstentions.5.
    
    A stockholder proposal concerning stock option awards received 64,018,568 votes FOR and
1,380,408,691 votes AGAINST, with 29,445,652 abstentions and 372,293,395 broker non-votes.6.
    
    A stockholder proposal concerning non-director shareholder votes received 1,139,195,525
votes FOR and 307,172,872 votes AGAINST, with 27,502,445 abstentions and 372,295,464 broker
non-votes.7.
    
    A stockholder proposal concerning animal welfare policy report received 66,202,589 votes
FOR and 1,261,402,974 votes AGAINST, with 146,268,534 abstentions and 372,292,209 broker
non-votes.
 
 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
    
    2007 Incentive Stock Plan  Incorporated by reference to Current Report on Form 8-K dated April 25, 200610.2
    
    2006 Non-Employee Directors Stock Option Plan  Incorporated by reference to Current Report on Form 8-K dated April 25, 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 Officer
 - 36 -




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##### Table of Contents



Number
    
    Description32.1
    
    Section 1350 Certification of Chief Executive Officer32.2
    
    Section 1350 Certification of Chief Financial Officer
 - 37 -




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##### Table of Contents



Signatures
  MERCK & CO., INC.Date: August 7, 2006
    /s/ Kenneth C. FrazierKENNETH C. FRAZIERSenior Vice President and General Counsel Date: August 7, 2006
    /s/ Richard C. HenriquesRICHARD C. HENRIQUESVice 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
    
    2007 Incentive Stock Plan  Incorporated by reference to Current Report on Form 8-K dated April 25, 200610.2
    
    2006 Non-Employee Directors Stock
Option Plan  Incorporated by reference to Current Report on Form 8-K dated April 25, 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
 - 39 -