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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One)[X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2004OR[  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to
 Commission File No. 1-3305 MERCK & CO., INC. 
 Incorporated in New Jersey
    
    I.R.S. Employer IdentificationNo. 22-1109110
 The number of shares of common stock outstanding as of the close of business on July 30, 2004: Class
    
    Number of Shares OutstandingCommon Stock
    
    
    2,218,705,689
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
        
             No
[  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X]
        
             No
[  ]




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TABLE OF CONTENTS  Part I  Financial InformationItem 1. Financial StatementsINTERIM CONSOLIDATED STATEMENT OF INCOMECONSOLIDATED BALANCE SHEETINTERIM CONSOLIDATED STATEMENT OF CASH FLOWSNotes to Consolidated 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. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 6. Exhibits and Report on Form 8-KSignaturesEXHIBIT INDEXPLAN FOR DEFERRED PAYMENT OF DIRECTORS COMPENSATIONMERCK & CO., INC. DEFERRAL PROGRAMCOMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGESCERTIFICATIONCERTIFICATIONCERTIFICATIONCERTIFICATION    Table of Contents  
 Part I - Financial Information 
 Item 1. Financial Statements 
 MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited, $ in millions except per share amounts) Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Sales
    
    $
    6,021.7
    
    
    $
    5,525.4
    
    
    $
    11,652.6
    
    
    $
    11,096.8Costs, Expenses and OtherMaterials and production
    
    
    1,131.3
    
    
    
    988.5
    
    
    
    2,247.1
    
    
    
    2,068.6Marketing and administrative
    
    
    1,616.2
    
    
    
    1,589.9
    
    
    
    3,227.6
    
    
    
    3,103.9Research and development
    
    
    986.0
    
    
    
    786.4
    
    
    
    1,982.3
    
    
    
    1,597.1Equity income from affiliates
    
    
    (220.5
    )
    
    
    (187.4
    )
    
    
    (415.2
    )
    
    
    (284.7
    )Other (income) expense, net
    
    
    69.9
    
    
    
    (121.8
    )
    
    
    (170.9
    )
    
    
    (74.0
    )3,582.9
    
    
    
    3,055.6
    
    
    
    6,870.9
    
    
    
    6,410.9Income from Continuing Operations Before Taxes
    
    
    2,438.8
    
    
    
    2,469.8
    
    
    
    4,781.7
    
    
    
    4,685.9Taxes on Income
    
    
    670.7
    
    
    
    685.3
    
    
    
    1,395.0
    
    
    
    1,356.5Income from Continuing Operations
    
    
    1,768.1
    
    
    
    1,784.5
    
    
    
    3,386.7
    
    
    
    3,329.4Income from Discontinued Operations, Net of Taxes
    
    
    
    
    
    
    82.5
    
    
    
    
    
    
    
    248.0Net Income
    
    $
    1,768.1
    
    
    $
    1,867.0
    
    
    $
    3,386.7
    
    
    $
    3,577.4Basic Earnings per Common ShareContinuing Operations
    
    $
    .80
    
    
    $
    .80
    
    
    $
    1.52
    
    
    $
    1.48Discontinued Operations
    
    
    
    
    
    
    .04
    
    
    
    
    
    
    
    .11Net Income
    
    $
    .80
    
    
    $
    .83
    *
    
    $
    1.52
    
    
    $
    1.60
    *Earnings per Common Share Assuming DilutionContinuing Operations
    
    $
    .79
    
    
    $
    .79
    
    
    $
    1.52
    
    
    $
    1.47Discontinued Operations
    
    
    
    
    
    
    .04
    
    
    
    
    
    
    
    .11Net Income
    
    $
    .79
    
    
    $
    .83
    
    
    $
    1.52
    
    
    $
    1.58Dividends Declared per Common Share
    
    $
    .37
    
    
    $
    .36
    
    
    $
    .74
    
    
    $
    .72
 *Amount does not add as a result of rounding. The accompanying notes are an integral part of this consolidated financial statement. - 1 -




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MERCK & CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2004 AND DECEMBER 31, 2003
(Unaudited, $ in millions) June 30
    
    December 312004
    
    2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,599.8
    
    
    $
    1,201.0Short-term investments
    
    
    4,577.3
    
    
    
    2,972.0Accounts receivable
    
    
    3,888.6
    
    
    
    4,023.6Inventories
    
    
    2,520.8
    
    
    
    2,554.7Prepaid expenses and taxes
    
    
    701.9
    
    
    
    775.9Total current assets
    
    
    13,288.4
    
    
    
    11,527.2Investments
    
    
    7,205.4
    
    
    
    7,941.2Property, Plant and Equipment, at cost,
net of allowance for depreciation of
$7,502.4 in 2004 and $7,124.7 in 2003
    
    
    14,299.3
    
    
    
    14,169.0Goodwill
    
    
    1,085.7
    
    
    
    1,085.4Other Intangibles, net
    
    
    769.5
    
    
    
    864.0Other Assets
    
    
    5,206.3
    
    
    
    5,000.7$
    41,854.6
    
    
    $
    40,587.5LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesLoans payable and current portion of long-term debt
    
    $
    1,710.8
    
    
    $
    1,700.0Trade accounts payable
    
    
    469.9
    
    
    
    520.5Accrued and other current liabilities
    
    
    3,759.8
    
    
    
    3,987.5Income taxes payable
    
    
    2,919.2
    
    
    
    2,538.9Dividends payable
    
    
    821.9
    
    
    
    822.7Total current liabilities
    
    
    9,681.6
    
    
    
    9,569.6Long-Term Debt
    
    
    4,894.2
    
    
    
    5,096.0Deferred Income Taxes and Noncurrent Liabilities
    
    
    6,396.5
    
    
    
    6,430.3Minority Interests
    
    
    3,914.9
    
    
    
    3,915.2Stockholders EquityCommon stockAuthorized - 5,400,000,000 sharesIssued - 2,976,230,393 shares
    
    
    29.8
    
    
    
    29.8Other paid-in capital
    
    
    6,899.0
    
    
    
    6,956.6Retained earnings
    
    
    35,883.8
    
    
    
    34,142.0Accumulated other comprehensive (loss)/income
    
    
    (49.6
    )
    
    
    65.542,763.0
    
    
    
    41,193.9Less treasury stock, at cost756,134,851 shares - June 30, 2004754,466,884 shares - December 31, 2003
    
    
    25,795.6
    
    
    
    25,617.5Total stockholders equity
    
    
    16,967.4
    
    
    
    15,576.4$
    41,854.6
    
    
    $
    40,587.5
 The accompanying notes are an integral part of this consolidated financial statement. - 2 -




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MERCK & CO., INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited, $ in millions) Six MonthsEnded June 302004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES OF
CONTINUING OPERATIONSNet Income
    
    $
    3,386.7
    
    
    $
    3,577.4Less: Income from discontinued operations, net of tax
    
    
    
    
    
    
    248.0Income from continuing operations
    
    
    3,386.7
    
    
    
    3,329.4Adjustments to reconcile income from continuing operations to
net cash provided by operating activities from continuing operations:Depreciation and amortization
    
    
    700.5
    
    
    
    666.9Deferred income taxes
    
    
    188.0
    
    
    
    229.4Other
    
    
    (67.0
    )
    
    
    (185.9
    )Net changes in assets and liabilities
    
    
    (31.9
    )
    
    
    (784.3
    )NET CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS
    
    
    4,176.3
    
    
    
    3,255.5CASH FLOWS FROM INVESTING ACTIVITIES OF
CONTINUING OPERATIONSCapital expenditures
    
    
    (762.1
    )
    
    
    (903.1
    )Purchase of securities, subsidiaries and other investments
    
    
    (26,708.0
    )
    
    
    (27,771.4
    )Proceeds from sale of securities, subsidiaries and other investments
    
    
    25,869.3
    
    
    
    26,563.0Banyu acquisition
    
    
    (10.1
    )
    
    
    (1,389.5
    )Other
    
    
    (1.5
    )
    
    
    (4.1
    )NET CASH USED BY INVESTING ACTIVITIES OF
CONTINUING OPERATIONS
    
    
    (1,612.4
    )
    
    
    (3,505.1
    )CASH FLOWS FROM FINANCING ACTIVITIES OF
CONTINUING OPERATIONSNet change in short-term borrowings
    
    
    (548.1
    )
    
    
    469.8Proceeds from issuance of debt
    
    
    405.1
    
    
    
    1,263.4Payments on debt
    
    
    (4.0
    )
    
    
    (146.3
    )Purchase of treasury stock
    
    
    (444.0
    )
    
    
    (772.5
    )Dividends paid to stockholders
    
    
    (1,645.8
    )
    
    
    (1,616.4
    )Other
    
    
    75.9
    
    
    
    180.2NET CASH USED BY FINANCING ACTIVITIES OF
CONTINUING OPERATIONS
    
    
    (2,160.9
    )
    
    
    (621.8
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS
    
    
    (4.2
    )
    
    
    101.0NET CASH PROVIDED BY DISCONTINUED OPERATIONS
    
    
    
    
    
    
    192.1NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    398.8
    
    
    
    (578.3
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    1,201.0
    
    
    
    2,243.0CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    1,599.8
    
    
    $
    1,664.7
 The accompanying notes are an integral part of this consolidated financial statement. 
 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. - 3 -




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Notes to Consolidated Financial Statements (continued) In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).
FIN 46 requires a variable interest entity (VIE) to be consolidated when a
company is subject to the majority of the risk of loss from the VIEs
activities or is entitled to receive the majority of the entitys residual
returns, or both. In December 2003, the FASB issued a revision to FIN 46
(FIN 46R) which partially delayed the effective date of the interpretation to
March 31, 2004 and added additional scope exceptions. Adoption of FIN 46R
did not have a material impact on the Companys financial position or results
of operations.  2.
    
    In 2004, as part of an ongoing compensation review, the Company made
certain changes to its stock-based compensation programs. Under the new
approach, the Company began granting performance share units (PSUs) and
restricted stock units (RSUs), in addition to stock options, to certain
management level employees. The financial value of individual stock-based
incentive grants under the new approach is designed to be equivalent to
the prior approach, only the mix of stock vehicles has changed. 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.
Additionally, PSU payouts will be contingent on the Company achieving
certain earnings per share related targets. Employee stock-based compensation is recognized using the intrinsic value
method. Generally, employee stock options are granted to purchase shares of
Company stock at the fair market value at the time of grant. Accordingly, no
compensation expense is recognized for the Companys stock-based compensation
programs other than for its employee performance-based awards (including
PSUs), RSUs and options granted to employees of certain equity method
investees. Option grants beginning in 2002 generally vest ratably over three years,
while grants prior to 2002 generally vest after five years. Prior to January
1, 2004, pro forma compensation expense for options with graded vesting terms
has been calculated using the Black-Scholes model based on a single-option
valuation approach using the straight-line method of amortization. In
January 2004, the Company revised the assumptions utilized by the
Black-Scholes model in determining pro forma compensation expense based on
historical data, such that the expense is determined using separate expected
term assumptions for each vesting tranche. As a result, beginning in January
2004, the Company has calculated pro forma compensation expense for any stock
options granted since that time using the accelerated amortization method
prescribed in FASB Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans. The effect on net income and earnings per common share if the Company had
applied the fair value method for recognizing employee stock-based
compensation is as follows: ($ in millions)Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Net income, as reported
    
    $
    1,768.1
    
    
    $
    1,867.0
    
    
    $
    3,386.7
    
    
    $
    3,577.4Compensation expense, net of tax:Reported
    
    
    5.9
    
    
    
    1.9
    
    
    
    10.3
    
    
    
    2.6Fair value method
    
    
    (122.5
    )
    
    
    (125.4
    )
    
    
    (239.5
    )
    
    
    (243.2
    )Pro forma net income
    
    $
    1,651.5
    
    
    $
    1,743.5
    
    
    $
    3,157.5
    
    
    $
    3,336.8Earnings per common share from
continuing operations:Assuming dilution  as reported
    
    $
    .79
    
    
    $
    .79
    
    
    $
    1.52
    
    
    $
    1.47Assuming dilution  pro forma
    
    $
    .74
    
    
    $
    .74
    
    
    $
    1.41
    
    
    $
    1.38Earnings per common share:Basic  as reported
    
    $
    .80
    
    
    $
    .83
    
    
    $
    1.52
    
    
    $
    1.60Basic  pro forma
    
    $
    .74
    
    
    $
    .78
    
    
    $
    1.42
    
    
    $
    1.49Assuming dilution  as reported
    
    $
    .79
    
    
    $
    .83
    
    
    $
    1.52
    
    
    $
    1.58Assuming dilution  pro forma
    
    $
    .74
    
    
    $
    .77
    
    
    $
    1.41
    
    
    $
    1.48
 - 4 -




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Notes to Consolidated Financial Statements (continued)  3.
    
    In February, Merck and H. Lundbeck A/S (Lundbeck) entered into an
agreement for the exclusive U.S. development and commercialization of
gaboxadol, a compound currently in Phase III development for the
treatment of sleep disorders. Under the terms of the agreement, Merck
made an initial payment of $70.0 million, recorded as Research and
development expense in the first quarter and may pay up to $200.0 million
in additional milestone payments in the future. Merck and Lundbeck will
jointly complete the ongoing Phase III clinical program, with Merck
funding the majority of the remaining development activities. In June,
Merck and Lundbeck announced an extension of their agreement for the
exclusive development and commercialization of gaboxadol to Japan.4.
    
    In March, the Company acquired Aton Pharma, Inc. (Aton), a privately held
biotechnology company focusing on the development of novel treatments for
cancer and other serious diseases. Atons clinical pipeline of histone
deacetylase inhibitors represents a class of anti-tumor agents with
potential for efficacy based on a novel mechanism of action. Atons lead
product candidate, suberoylanilide hydroxamic acid, known as SAHA, has
been extensively studied in Phase I clinical trials and is currently in
Phase II clinical trials for the treatment of cutaneous T-cell lymphoma.
Consideration for the acquisition consisted of an upfront payment and may
include contingent payments based upon the regulatory filing, approval and
sale of products. In connection with the transaction, the Company
recorded a charge of $125.5 million for acquired research associated with
products in development for which, at the acquisition date, technological
feasibility had not been established and no alternative future use
existed. This charge was recorded in Research and development expense in
the first quarter and was determined based upon the present value of
projected future cash flows utilizing an income approach reflecting the
appropriate risk-adjusted discount rate based on the product candidates
stage of completion and its probability of technical and marketing
success. The remaining net assets acquired in this transaction were not
material. Because Aton 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. Atons results of operations have
been included with the Companys since the acquisition date.5.
    
    In March, Merck completed the sale of its 50-percent equity stake in
Johnson & Johnson/MSD Europe, a non-prescription pharmaceuticals joint
venture, to Johnson & Johnson for $244.0 million and recorded a $176.8
million gain as Other (income) expense, net in the first quarter. In
addition to the sales proceeds, Merck will continue to benefit through
royalties on certain products. Merck has also regained the rights to
potential future products that switch from prescription to
over-the-counter status in Europe. Johnson & Johnson/Merck Consumer
Pharmaceuticals Co., a 50/50 joint venture between Johnson & Johnson and
Merck that operates in the United States and Canada, is unaffected by
this transaction.6.
    
    In April, Merck and Bristol-Myers Squibb Company entered into a global collaborative agreement for
muraglitazar, Bristol-Myers Squibbs dual PPAR (peroxisome
proliferator-activated receptor) agonist, currently in Phase III
clinical development for use in treating both blood glucose and lipid
abnormalities in patients with type 2 diabetes. Under the terms of the
agreement, Bristol-Myers Squibb received a $100.0 million upfront
payment and may receive up to $275.0 million in additional payments
based upon the achievement of certain regulatory milestones. The
Company recorded the upfront payment as Research and development expense
in the second quarter. The companies will jointly develop the clinical
and marketing strategy for muraglitazar and share equally in future
development and commercialization costs.7.
    
    In August 2003, Merck completed the spin-off of Medco Health Solutions,
Inc. (Medco Health). Following the spin-off, the Companys prior period
Consolidated Statements of Income and Cash Flows and related disclosures
have been restated to present the results of Medco Health separately as
discontinued operations. Summarized financial information for discontinued operations is as follows: ($ in millions)Three Months
    
    Six MonthsEnded June 30, 2003
    
    Ended June 30, 2003Total net revenues
    
    $
    7,755.8
    
    
    $
    15,572.9Income before taxes
    
    
    127.0
    
    
    
    374.8Taxes on income
    
    
    44.5
    
    
    
    126.8Income, net of taxes
    
    
    82.5
    
    
    
    248.0
 - 5 -




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Notes to Consolidated Financial Statements (continued)  8.
    
    In 2003, the Company announced the reduction of 4,400 positions
worldwide as part of an effort to fundamentally lower its cost structure.
Approximately 4,000 positions had been eliminated as of June 30, 2004
and the program is expected to be completed by the end of 2004. For the
three months ended June 30, 2004, the Company recorded restructuring
costs of $20.5 million, of which $18.1 million related to employee
severance benefits and $2.4 million related to termination charges on the
Companys pension and other postretirement benefit plans (see Note 13).
For the six months ended June 30, 2004, the Company recorded
restructuring costs of $54.6 million, of which $44.6 million related to
employee severance benefits, $8.6 million related to termination charges
on the Companys pension and other postretirement benefit plans (see Note
13) and $1.4 million related to a modification in the terms of certain
employees stock option grants. In the fourth quarter of 2003, the
Company recorded restructuring costs of $194.6 million, of which $101.8
million related to employee severance benefits, $86.0 million related to
curtailment, settlement and termination charges on the Companys pension
and other postretirement benefit plans and $6.8 million related to a
modification in the terms of certain employees stock option grants. All
restructuring costs were recorded in Marketing and administrative
expense. Additional costs are expected to be incurred as the program is
completed by the end of 2004. A summary of the employee severance liability is as follows: ($ in millions)2003 expense
    
    $
    101.82003 payments
    
    
    (23.5
    )Accrued balance as of December 31, 2003
    
    
    78.3Six months-to-date expense
    
    
    44.6Six months-to-date payments
    
    
    (63.1
    )Accrued balance as of June 30, 2004
    
    $
    59.8
  9.
    
    Inventories consisted of: ($ in millions)June 30
    
    December 312004
    
    2003Finished goods
    
    $
    526.7
    
    
    $
    552.5Raw materials and work in process
    
    
    2,227.6
    
    
    
    2,309.8Supplies
    
    
    94.2
    
    
    
    90.5Total (approximates current cost)
    
    
    2,848.5
    
    
    
    2,952.8Reduction to LIFO cost
    
    
    
    
    
    
    $
    2,848.5
    
    
    $
    2,952.8Recognized as:Inventories
    
    $
    2,520.8
    
    
    $
    2,554.7Other assets
    
    
    327.7
    
    
    
    398.1
 Amounts recognized as Other assets consist of inventories held in
preparation for product launches not expected to be sold within one year.  10.
    
    In the first quarter of 2004, the Company issued $350.0 million of 2.5%
three-year notes and $50.0 million of variable rate notes due in 2044
that are subject to repayment at the option of the holders on an annual
basis. The Company also entered into an interest rate swap contract
that effectively converts the 2.5% fixed rate notes to floating rate
instruments. The interest rate swap is designated as a hedge of the
fair value changes in the notes attributable to changes in the benchmark
London Interbank Offered Rate (LIBOR) swap rate. The fair value changes
in the notes are fully offset in interest expense by the fair value
changes in the swap contract.11.
    
    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. - 6 -




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Notes to Consolidated Financial Statements (continued) As previously disclosed, beginning in 1993, the Company was named in a
number of antitrust suits, certain of which were certified as class
actions, instituted by most of the nations retail pharmacies and consumers
in several states. In 1994, these actions, except for those pending in
state courts, were consolidated for pre-trial purposes in the federal court
in Chicago, Illinois. In 1996, the Company and several other defendants
settled the federal class action, which represented the single largest
group of claims. Since that time, the Company has settled substantially
all of the remaining cases on satisfactory terms. The Company has not
engaged in any conspiracy and no admission of wrongdoing was made nor was
included in any settlement agreements. While it is not feasible to predict
the final outcome of the few remaining cases, in the opinion of the
Company, these proceedings should not ultimately result in any liability
which would have a material adverse effect on the Companys financial
position, results of operations or liquidity. As previously disclosed, the Company anticipates that one or more of the
lawsuits alleging personal injuries related to Vioxxmay go to trial in the
second half of 2004. The Company believes that these lawsuits are without
merit and will vigorously defend against them. However, litigation is
inherently subject to uncertainties and no assurance can be given on the
outcome of any given trial. A series of highly unfavorable outcomes could
have a material adverse effect on the Companys financial position,
liquidity and results of operations. As previously disclosed, the Company is a party in claims brought under the
Consumer Protection Act of 1987 in the United Kingdom, which allege that
certain children suffer from a variety of conditions as a result of being
vaccinated with various bivalent vaccines for measles and rubella and/or
trivalent vaccines for measles, mumps and rubella, including the Companys
M-M-RII. In early September 2003, the Legal Services Commission announced
its decision to withdraw public funding of the litigation brought by the
claimants. This decision was confirmed on appeal by the Funding Review
Committee on September 30, 2003. The claimants application for judicial
review of the decision to withdraw public funding has been dismissed. The
lead claimants have decided not to apply to the Court of Appeal for
permission to appeal that decision. The April 2004 trial date has been
vacated and each claimant had been ordered to indicate by May 14 whether he
or she intended to discontinue or proceed with their claim. The
claimants have recently been given until October 22 to state
their intentions. The Company believes that these lawsuits are without merit
and will vigorously defend against them. As previously disclosed, the Company is also a party to individual and
class action product liability lawsuits and claims in the United States
involving pediatric vaccines (i.e., hepatitis B vaccine and haemophilus
influenzatype b vaccine) that contained thimerosal, a preservative used in
vaccines. Other defendants include vaccine manufacturers who produced
pediatric vaccines containing thimerosal as well as manufacturers of
thimerosal. In these actions, the plaintiffs allege, among other things,
that they have suffered neurological and other injuries as a result of
having thimerosal introduced into their developing bodies. The Company has
been successful in having many of these cases either dismissed or stayed on
the ground that the National Vaccine Injury Compensation Program (NVICP)
prohibits any person from filing or maintaining a civil action seeking
damages against a vaccine manufacturer for vaccine-related injuries unless
a petition is first filed in the United States Court of Federal Claims. A
number of similar cases (M-M-RII alone and/or thimerosal-containing
vaccines) have been filed in the United States Court of Federal Claims
under the NVICP for a determination first on general causation issues. The
Company believes that these lawsuits and claims are without merit and will
vigorously defend against them in the proceedings in which it is a party. As
previously disclosed, a number of purported class action lawsuits
have been filed by several individual shareholders in the United
States District Court for the Eastern District of Louisiana naming as
defendants the Company and several current or former officers of the
Company, and alleging that the defendants made false and misleading
statements regarding the Companys drug Vioxx in
violation of the federal securities laws. The plaintiffs request
certification of a class of purchasers of the Companys common
stock between May 22, 1999 and October 22, 2003, and seek
unspecified compensatory damages and the costs of suit, including
attorney fees. The Company believes that these lawsuits are without
merit and will vigorously defend against them. As previously disclosed, in March 2004, two shareholder derivative actions
were filed in federal court in New Orleans naming the Company and certain
members of the Board (past and present), together with certain executive
officers, as defendants. The complaints arise out of substantially the
same factual allegations that are made in the Vioxx-related federal
securities putative class actions filed against the Company, which
principally allege that the Company made false and misleading statements
regarding Vioxx. The derivative suits, which are purportedly brought to
assert rights of the Company, assert claims against the Board members and
officers for breach of fiduciary duty, waste of corporate assets and unjust
enrichment. The court has consolidated the shareholder derivative actions
with the securities actions. The Company believes that the lawsuits are
without merit. - 7 -




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Notes to Consolidated Financial Statements (continued) As previously disclosed, the Company has received a subpoena from the U.S.
Department of Justice in connection with its investigation of the Companys
marketing and selling activities. The Company has also reported that it
has received a Civil Investigative Demand from the Attorney General of
Texas regarding the Companys marketing and selling activities relating to
Texas. In April 2004, the Company received a subpoena from the office of
the Inspector General for the District of Columbia in connection with an
investigation of the Companys interactions with physicians in the District
of Columbia, Maryland, and Virginia. The Company is cooperating with all of
these investigations. The Company cannot predict the outcome of these
investigations, however, it is possible that highly 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 or state regulators may seek information about practices in the
pharmaceutical industry in inquiries other than the investigations
discussed in this paragraph. It is not feasible to predict the outcome of
any such inquiries. As previously disclosed, on July 6, 2004, the United States District Court
for the District of New Jersey granted a motion by the Company, Medco Health
Solutions, Inc. (Medco Health) and certain officers and directors to
dismiss a purported class action complaint involving claims related to the
Companys revenue recognition practice for retail co-payments paid by
individuals to whom Medco Health provides pharmaceutical benefits as well as
other allegations. The complaint was dismissed with prejudice. The Courts
decision is subject to appeal. The Company is awaiting a decision on a
motion before the same Court to dismiss a related shareholder derivative
action. Prior to the spin-off of Medco Health, as previously disclosed, the Company
and Medco Health agreed to settle, on a class action basis, a number of
lawsuits asserting violations of the Employee Retirement Income Security Act
(ERISA). Medco Health and the Company agreed to the settlement in order to
avoid the significant cost and distraction of protracted litigation. By
order dated May 25, 2004, the United States District Court for the Southern
District of New York certified a class action, determined that the settlement
was fair, reasonable, and adequate, and gave final approval to the settlement
agreement among the Company, Medco Health and Class Counsel. Under the
settlement, the Company and Medco Health have agreed to pay a total of $42.5
million, and Medco Health has agreed to modify certain business practices or
to continue certain specified business practices for a period of five years.
The financial compensation is intended to benefit members of the settlement
class, which includes ERISA plans for which Medco Health administered a
pharmacy benefit at any time between December 17, 1994 and the date of final
approval. The settlement becomes final only if and when all appeals have been resolved.
Two notices of appeal have been filed. Certain class member plans have
indicated that they will not participate in the settlement. Currently, cases
initiated by three such plans and two individuals remain pending in the
Southern District of New York. Plaintiffs in these cases have asserted
claims that are the same as or similar to the claims that had been asserted
by settling class members. The Company, along with Medco Health, is a named
defendant in these cases. At the time of the spin-off of Medco Health, Medco Health assumed
substantially all of the liability exposure for the matters discussed in the
foregoing two paragraphs. The Company believes that these cases, which are
being defended by Medco Health, are without merit. There are various other legal proceedings, principally product liability
and intellectual property suits involving the Company, which are pending
but not discussed in this report. While it is not feasible to predict the
outcome of these proceedings, in the opinion of the Company, such
proceedings are either adequately covered by insurance or, if not so
covered, should not ultimately result in any liability that would have a
material adverse effect on the financial position, liquidity or results of
operations of the Company.  12.
    
    As previously disclosed, the IRS has substantially completed its
examination of the Companys tax returns for the years 1993 to 1996 and
on April 28, 2004 issued a preliminary notice of deficiency with respect
to a partnership transaction entered into in 1993. Specifically, the
IRS is proposing to disallow certain royalty and other expenses claimed
as deductions on the 1993-1996 tax returns of the Company. The Company
anticipates receiving a similar notice for 1997-1999, shortly. If the
IRS ultimately prevails in its positions, the Companys income tax due
for the years 1993-1999 would increase by approximately $970 million
plus interest to date of approximately $490 million. The IRS will
likely make similar claims for years subsequent to 1999 in future audits
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 to date of
approximately $40 million. The IRS has proposed penalties on the
Company with respect to all periods that have been examined and the
Company anticipates the IRS would seek to impose penalties on all other
periods. - 8 -




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##### Table of Contents



Notes to Consolidated Financial Statements (continued) 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.  13.
    
    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 302004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    82.0
    
    
    $
    70.4
    
    
    $
    152.6
    
    
    $
    129.1Interest cost
    
    
    80.0
    
    
    
    70.6
    
    
    
    143.9
    
    
    
    129.2Expected return on plan assets
    
    
    (100.7
    )
    
    
    (93.2
    )
    
    
    (181.6
    )
    
    
    (169.5
    )Net amortization
    
    
    30.1
    
    
    
    30.5
    
    
    
    60.0
    
    
    
    57.9Termination benefits
    
    
    1.6
    
    
    
    
    
    
    
    7.1
    
    
    
    $
    93.0
    
    
    $
    78.3
    
    
    $
    182.0
    
    
    $
    146.7
 The Company provides medical, dental and life insurance benefits,
principally to its eligible U.S. retirees and similar benefits to their
dependants, through its other postretirement benefits plans. The net cost
of such plans consisted of the following components: ($ in millions)Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    14.9
    
    
    $
    17.5
    
    
    $
    40.8
    
    
    $
    34.6Interest cost
    
    
    18.3
    
    
    
    23.3
    
    
    
    50.5
    
    
    
    45.9Expected return on plan assets
    
    
    (15.3
    )
    
    
    (16.1
    )
    
    
    (38.8
    )
    
    
    (31.6
    )Net amortization
    
    
    4.6
    
    
    
    7.2
    
    
    
    14.4
    
    
    
    14.2Curtailments
    
    
    (12.3
    )
    
    
    (3.6
    )
    
    
    (12.3
    )
    
    
    (3.6
    )Termination benefits
    
    
    0.8
    
    
    
    
    
    
    
    1.5
    
    
    
    $
    11.0
    
    
    $
    28.3
    
    
    $
    56.1
    
    
    $
    59.5
 During the second quarter 2004, in accordance with FASB Staff Position No.
106-2, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act), the
Company began accounting for the effect of the federal subsidy under the
Act, which reduced the benefit obligation of certain of its other
postretirement benefit plans by $168.4 million. The service cost, interest
cost and net amortization components of net postretirement benefit cost
were reduced by $3.9 million, $5.2 million and $6.3 million, respectively,
for the three and six month periods ended June 30, 2004. While the Company
is recognizing the subsidy in accordance with current accounting
requirements, it will continue to evaluate the Act and regulations that
follow to determine the optimal approach to incorporating the impact of the
Act. The Company changed participant contributions and the service recognized
for eligibility for certain of its other postretirement benefit plans.
These amendments generated curtailment gains of $12.3 million and $3.6
million for the three and six month periods ended June 30, 2004 and 2003,
respectively. The Company recorded termination charges for the three and six month
periods ended June 30, 2004 of $1.6 million and $7.1 million, respectively,
on its pension plans and $0.8 million and $1.5 million, respectively, on
its other postretirement benefit plans related to expanded eligibility for
certain employees under the restructuring action (see Note 8). - 9 -




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##### Table of Contents



Notes to Consolidated Financial Statements (continued)  14.
    
    Other (income) expense, net, consisted of: ($ in millions)Three Month
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Interest income
    
    $
    (68.5
    )
    
    $
    (82.2
    )
    
    $
    (134.2
    )
    
    $
    (169.6
    )Interest expense
    
    
    71.6
    
    
    
    94.6
    
    
    
    144.4
    
    
    
    189.8Exchange losses/(gains)
    
    
    14.9
    
    
    
    (16.3
    )
    
    
    7.1
    
    
    
    (23.4
    )Minority interests
    
    
    36.8
    
    
    
    40.6
    
    
    
    76.4
    
    
    
    92.4Amortization of other intangibles
    
    
    37.2
    
    
    
    36.9
    
    
    
    74.5
    
    
    
    68.2Other, net
    
    
    (22.1
    )
    
    
    (195.4
    )
    
    
    (339.1
    )
    
    
    (231.4
    )$
    69.9
    
    
    $
    (121.8
    )
    
    $
    (170.9
    )
    
    $
    (74.0
    )
  Minority interests include third parties share of exchange gains and
losses arising from translation of the financial statements into U.S.
dollars.The change in Other, net for the three and six months ended June 30, 2004
reflects lower realized net gains on the Companys investment portfolios
compared with the respective periods ended June 30, 2003. In addition, the
six month period ended June 30, 2004 reflects the gain on the divestiture
of Mercks 50-percent equity stake in Johnson & Johnson/MSD Europe.Interest paid for the six month periods ended June 30, 2004 and 2003 was
$140.5 million and $175.8 million, respectively.15.
    
    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 302004
    
    2003
    
    2004
    
    2003Average common shares outstanding
    
    
    2,221.4
    
    
    
    2,241.4
    
    
    
    2,221.9
    
    
    
    2,242.8Common shares issuable(1)
    
    
    8.7
    
    
    
    19.7
    
    
    
    9.3
    
    
    
    18.8Average common shares outstanding assuming dilution
    
    
    2,230.1
    
    
    
    2,261.1
    
    
    
    2,231.2
    
    
    
    2,261.6
  (1)
    
    Issuable primarily under stock-based compensation programs,
including unvested PSUs and RSUs.16.
    
    Comprehensive income for the three months ended June 30, 2004 and 2003,
representing all changes in stockholders equity during the period other
than changes resulting from the Companys stock, was $1,638.1 million
and $1,804.6 million, respectively. Comprehensive income for the six
months ended June 30, 2004 and 2003 was $3,271.6 million and $3,504.8
million, respectively.17.
    
    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. All Other includes 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 302004
    
    2003
    
    2004
    
    2003Segment revenues:Merck Pharmaceutical
    
    $
    5,703.0
    
    
    $
    5,200.5
    
    
    $
    10,994.5
    
    
    $
    10,431.6All Other
    
    
    265.9
    
    
    
    273.1
    
    
    
    542.2
    
    
    
    558.3$
    5,968.9
    
    
    $
    5,473.6
    
    
    $
    11,536.7
    
    
    $
    10,989.9Segment profits:Merck Pharmaceutical
    
    $
    3,773.8
    
    
    $
    3,321.5
    
    
    $
    7,178.5
    
    
    $
    6,648.2All Other
    
    
    255.0
    
    
    
    262.7
    
    
    
    521.0
    
    
    
    515.8$
    4,028.8
    
    
    $
    3,584.2
    
    
    $
    7,699.5
    
    
    $
    7,164.0
 - 10 -




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##### Table of Contents



Notes to Consolidated Financial Statements (continued) 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 total income from continuing
operations before taxes is as follows: ($ in millions)Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Segment profits
    
    $
    4,028.8
    
    
    $
    3,584.2
    
    
    $
    7,699.5
    
    
    $
    7,164.0Other profits
    
    
    (14.9
    )
    
    
    26.3
    
    
    
    24.6
    
    
    
    66.1Adjustments
    
    
    117.9
    
    
    
    106.8
    
    
    
    233.7
    
    
    
    206.4Unallocated:Interest income
    
    
    68.5
    
    
    
    82.2
    
    
    
    134.2
    
    
    
    169.6Interest expense
    
    
    (71.6
    )
    
    
    (94.6
    )
    
    
    (144.4
    )
    
    
    (189.8
    )Equity income from affiliates
    
    
    17.6
    
    
    
    30.7
    
    
    
    60.0
    
    
    
    28.9Depreciation and amortization
    
    
    (314.1
    )
    
    
    (294.5
    )
    
    
    (624.0
    )
    
    
    (577.0
    )Research and development
    
    
    (986.0
    )
    
    
    (786.4
    )
    
    
    (1,982.3
    )
    
    
    (1,597.1
    )Other expenses, net
    
    
    (407.4
    )
    
    
    (184.9
    )
    
    
    (619.6
    )
    
    
    (585.2
    )$
    2,438.8
    
    
    $
    2,469.8
    
    
    $
    4,781.7
    
    
    $
    4,685.9
 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, include expenses from corporate and manufacturing cost centers and
other miscellaneous income (expense), net. - 11 -




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Operating
ResultsSummary Earnings per share for the second quarter of 2004 were $0.79, level with
earnings per share from continuing operations* during the same period in 2003.
Net income was $1,768.1 million, compared to income from continuing operations
of $1,784.5 million in the second quarter of last year. Worldwide sales grew
9% to $6.0 billion for the quarter. For the first six months of 2004, earnings per share were $1.52, compared to
earnings per share from continuing operations of $1.47 during the first six
months of 2003. Net income was $3,386.7 million, compared to income from
continuing operations of $3,329.4 million for the first six months of 2003.
Worldwide sales grew 5% for the period to $11.7 billion. Second quarter sales growth of Mercks major in-line franchises collectively
was partially offset by lower revenues from Mercks relationship with
AstraZeneca LP (AZLP), which were primarily driven by generic and
over-the-counter competition. Overall, second-quarter sales performance
included a 3-point favorable effect from foreign exchange. Sales outside of
the United States accounted for 43% of second-quarter sales, compared to 42% of
sales for the second quarter of 2003. Sales growth for the quarter includes a favorable comparison to 2003, which was
impacted by $405 million of wholesaler buy-out. Following the implementation
of the new distribution program for U.S. wholesalers in the fourth quarter of
2003, fluctuations in 2004 sales caused by wholesaler investment buying have
significantly moderated. The Companys gross margin was 81.2% in the second quarter compared to 82.1% in
the second quarter of 2003 and 80.7% compared to 81.4% for the respective
six-month period, reflecting the impact of changes in product mix. Marketing and administrative expenses increased 2% and 4%, respectively, for
the three and six month periods ended June 30, 2004 compared with the same
periods last year. Excluding the impact of $20.5 million and $54.6 million for
restructuring costs related to position eliminations for the current three and
six month periods, respectively, marketing and administrative expense for the
three months ended June 30, 2004 were at the same level as 2003 and increased
2% for the six months ended June 30, 2004 compared with the same period last
year. The Company is on track to eliminate 4,400 positions worldwide.
Approximately 4,000 positions had been eliminated as of June 30. This program,
which was announced in October 2003, will be completed by the end of 2004. Research and development expenses increased 25% and 24%, respectively, for the
three and six month periods ended June 30, 2004 compared with the same periods
last year. The increases primarily reflect the impact of Mercks external
collaborations, such as with Bristol-Myers Squibb Company, H. Lundbeck A/S and
Vertex Pharmaceuticals Incorporated as well as higher acquired research expense
related to the acquisition of Aton Pharma, Inc. in 2004 compared with the
acquired research expense related to the increase in the Companys ownership of
Banyu Pharmaceutical Co. Ltd. in 2003. The change in Other (income) expense, net for the three and six months ended
June 30, 2004 primarily reflects lower realized net gains on the Companys
investment portfolios compared with the respective periods ended June 30, 2003.
In addition, the six month period ended June 30, 2004 reflects the gain on the
divestiture of Mercks 50-percent equity stake in Johnson & Johnson/MSD Europe. Sales Sales by category of the Companys products were as follows: ($ in millions)Three Months
    
    Six MonthsEnded June 30
    
    Ended June 302004
    
    2003
    
    2004
    
    2003Atherosclerosis
    
    $
    1,376.2
    
    
    $
    1,239.3
    
    
    $
    2,680.5
    
    
    $
    2,430.9Hypertension/heart failure
    
    
    953.8
    
    
    

    794.7
    
    
    
    1,781.0
    
    
    
    1,640.7Osteoporosis
    
    
    791.9
    
    
    
    544.8
    
    
    
    1,550.9
    
    
    
    1,339.5Anti-inflammatory/analgesics
    
    
    731.4
    
    
    
    830.1
    
    
    
    1,437.0
    
    
    
    1,363.6Respiratory
    
    
    642.6
    
    
    
    422.0
    
    
    
    1,265.5
    
    
    
    886.6Anti-bacterial/anti-fungal
    
    
    286.7
    
    
    
    242.7
    
    
    
    555.0
    
    
    
    473.4Vaccines/biologicals
    
    
    223.5
    
    
    
    236.5
    
    
    
    452.5
    
    
    
    477.9Urology
    
    
    184.5
    
    
    
    180.7
    
    
    
    359.3
    
    
    
    311.4Ophthalmologicals
    
    
    175.1
    
    
    
    173.2
    
    
    
    347.0
    
    
    
    319.5Human immunodeficiency virus (HIV)
    
    
    64.3
    
    
    
    81.2
    
    
    
    128.5
    
    
    
    164.4Other
    
    
    591.7
    
    
    
    780.2
    
    
    
    1,095.4
    
    
    
    1,688.9$
    6,021.7
    
    
    $
    5,525.4
    
    
    $
    11,652.6
    
    
    $
    11,096.8
 *Continuing operations exclude only the results from Medco Health Solutions,
Inc., which was spun off on August 19, 2003. - 12 -




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##### Table of Contents



Sales by individual therapeutic class are presented net of rebates and
discounts. 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 AZLP. Each of Mercks major in-line franchises ranks either No. 1 or 2 in its class,
in terms of worldwide sales, as Merck continues to demonstrate the value of its
medicines to patients, physicians and payers through proven health outcomes. Worldwide sales of Zocor, Mercks statin for modifying cholesterol, reached
$1.4 billion in the second quarter and $2.7 billion for the first six months,
increasing 12% and 11% over the prior year respective periods. U.S.
mail-order-adjusted prescription levels for Zocorincreased by approximately 3
percent for the quarter, as compared to the second quarter of 2003. Merck
continues to communicate the results of the landmark Heart Protection Study
(HPS) to physicians and consumers. In July, the National Cholesterol Education Program (NCEP) issued a report
recommending modifications to the Adult Treatment Panel III (ATP III)
guidelines. The report, which was based on five major studies, including
HPS, was endorsed by: the American Heart Association; the American College of
Cardiology; and the National Heart, Lung, and Blood Institute. The new
report may lead to an increase in the number of people for whom
cholesterol-lowering medicines should be considered. Under the NCEP ATP III
guidelines, an estimated 36 million people would be eligible for
cholesterol-lowering medication such as Zocorfor cholesterol management.
According to the new report, in high-risk persons, the recommended LDL-C goal
is < 100 mg/dL. The report also indicates that when risk is very high,
such as for a patient with established cardiovascular disease plus multiple
major risk factors (especially diabetes), an LDL-C goal of < 70 mg/dL is a
reasonable clinical strategy for physicians. Fosamaxcontinued as the most-prescribed medicine worldwide for the treatment
of postmenopausal, male and glucocorticoid-induced osteoporosis. Global sales
were strong, reaching $791.9 million during the quarter and $1.6 billion for
the first six months, increasing 45% and 16% over the prior year, respectively.
U.S. mail-order-adjusted prescription levels for Fosamaxwere in line with
second-quarter 2003 levels. In April, the Journal of Internal Medicine published findings from the first
international head-to-head study that compared the efficacy of FosamaxOnce
Weekly (alendronate) 70 mg to Evista (raloxifene) 60 mg once daily, which
showed that Fosamaxprovided significantly greater increases in bone mineral
density at the lumbar spine and total hip. The potential for continued growth in the osteoporosis market remains strong
worldwide. Fewer than 25 percent of women with osteoporosis in seven major
markets (the United States, Canada, the United Kingdom, France, Italy, Germany
and Spain) have been diagnosed and treated. In the United States, market
research suggests that fewer than 40 percent of women who have had a bone
mineral density test - and have been told by their doctors they have
osteoporosis or osteopenia - receive treatment. Global sales of Mercks antihypertensive medicines, Cozaarand Hyzaar**, were
strong, reaching $725.1 million for the quarter and $1.4 billion for the first
six months, increasing 34% and 15% over the comparable prior year periods.
Cozaarand Hyzaarcompete in the fastest-growing class in the antihypertensive
market, angiotensin II antagonists (AIIA). Cozaaris the
second-most-frequently prescribed AIIA in the United States and the
largest-selling AIIA in Europe. U.S. mail-order-adjusted prescription levels
for Cozaarand Hyzaarincreased by 5 percent during the quarter, as compared to
the second quarter of 2003. Worldwide sales of Singulair, a once-a-day oral medicine indicated for the
treatment of chronic asthma and the relief of symptoms of seasonal allergic
rhinitis, were strong, reaching $642.6 million in the second quarter and $1.3
billion during the first six months, representing increases of 52% and 43% over
the respective prior year periods. U.S. mail-order-adjusted prescription
levels for Singulairincreased by 21 percent during the quarter, as compared to
the second quarter of 2003. Singulaircontinues to be the
second-most-prescribed product in the overall respiratory market in the United
States as patients, physicians and managed care organizations continue to
recognize the value Singulairoffers to those who suffer from asthma or
seasonal allergic rhinitis. **Cozaarand Hyzaarare registered trademarks of E.I. DuPont de Nemours &
Company, Wilmington, Del. - 13 -




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Worldwide sales of Vioxx, Mercks arthritis and pain medicine, were $653.3
million for the second quarter and $1.3 billion for the first six months,
representing an 18% decrease for the comparable quarter and an even performance
with the six month period of 2003. U.S. mail-order-adjusted prescription
levels for Vioxxdecreased by 5 percent during the quarter, as compared to the
second quarter of 2003. Following Food and Drug Administration (FDA) approval for the acute treatment
of migraine in late March, Vioxxis now approved for treating more types of
painful conditions than any other coxib in the United States and remains the
only coxib approved to relieve migraine pain and associated migraine symptoms.
Merck continues to seek new uses for Vioxxto extend the clinical benefits of
the product to new populations. A supplemental New Drug Application (NDA) for
Vioxxis under review by the FDA for the treatment of juvenile rheumatoid
arthritis. Outside of the United States, Vioxxcontinues to be the best-selling arthritis
and pain medicine. Indications for Vioxxfor migraine and juvenile rheumatoid
arthritis also are being sought outside of the United States. Global sales of Mercks newest coxib, Arcoxia, reached $62.1 million in the
second quarter and $92.4 million for the first six months. To date, Arcoxia
has been launched in 45 countries outside of the United States. Additional
launches will continue in other countries throughout the year. During the second quarter, the FDA informed Merck that there are no plans for
an Advisory Committee meeting for Arcoxiaat this time. Under PDUFA
(Prescription Drug User Fee Act), for standard NDAs filed in 2003, FDAs goal
is to review and act on 90 percent of NDAs within 10 months of filing. The
goal PDUFA date for the NDA for Arcoxiais October 30, 2004. Results from two acute dental pain studies with Arcoxiawere published during
the second quarter. The first study, published in Clinical Therapeutics,
showed that patients taking Arcoxia120 mg experienced pain relief lasting for
a full 24 hours compared with 10 hours for patients taking ibuprofen. In the
second study, published in the Clinical Journal of Pain, patients taking
Arcoxia120 mg or naproxen sodium 550 mg had significantly greater pain relief
scores over eight hours than those taking a commonly used narcotic,
acetaminophen with codeine. Sales of Mercks other promoted medicines and vaccines were $1.3 billion during
the second quarter and $2.5 billion for the first six months. Sales of these
products were $1.2 billion and $2.4 billion, respectively, during the same
periods last year. These products treat or prevent a broad range of
conditions, such as infectious disease, glaucoma, benign prostate enlargement
and migraine. Global sales of Zetia(branded Ezetroloutside of the United States), the
cholesterol absorption inhibitor developed and marketed by the Merck
/Schering-Plough partnership, reached $242.1 million in the second quarter and
$431.7 million for the first six months. More than 9.6 million prescriptions
have been written in the United States since the U.S. launch of Zetiain
mid-November 2002, according to IMS Health. Zetiacurrently accounts for 6
percent of new prescriptions in the cholesterol-lowering class and is now
reimbursed for nearly 90 percent of all patients in managed care plans across
the United States. To date, Ezetrolhas been launched in more than 40
countries outside of the United States. Additional markets are expected to
launch Ezetrolin 2004 upon completion of pricing/reimbursement national
processes. The Company records the results from its interest in the
Merck/Schering-Plough partnership in Equity income from affiliates. On July 23, the FDA approved Vytorinfor the treatment of high LDL cholesterol
(LDL-C) in patients with primary hypercholesterolemia or mixed hyperlipidemia
as adjunctive therapy to diet when diet alone is not enough. Vytorin,
developed and marketed by the Merck/Schering-Plough partnership, is the first
and only product approved to treat the two sources of cholesterol by inhibiting
the production of cholesterol in the liver and blocking the absorption of
cholesterol in the intestine, including cholesterol from food. Vytorin
(branded Inegyin many countries outside of the United States) has been
recently launched in Germany and Mexico. Additional markets are expected to
launch Vytorinin 2004 upon completion of pricing/reimbursement national
processes. Research and Development As expected, Mercks investigational compound, MK-431, a DP-IV inhibitor for
the treatment of type 2 diabetes, entered Phase III clinical trials during the
second quarter. The Company anticipates filing for regulatory approval in
2006. - 14 -




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Mercks investigational pentavalent rotavirus vaccine, RotaTeq, demonstrated
100-percent efficacy against severe rotavirus gastroenteritis and 74-percent
efficacy against rotavirus gastroenteritis of any severity in healthy infants,
according to results from a new dose-ranging study presented at the annual
meeting of the European Society for Pediatric Infectious Diseases in May.
Merck is currently conducting the large-scale Rotavirus Efficacy and Safety
Trial (REST) with more than 65,000 infants at clinical sites around the world,
which will provide additional safety and efficacy data. The Company expects to
submit a Product License Application (PLA) to the FDA for RotaTeqin the second
half of 2005. In children under 5, rotavirus causes approximately one-third of
diarrhea-associated hospitalizations in developing countries and nearly half a
million deaths worldwide every year. In a new study presented at the National Immunization Conference, a single dose
of ProQuadin 4- to 6-year-olds used in place of the routinely administered
second dose of M-M-RII was generally well-tolerated and resulted in antibody
responses similar to those developed with M-M-RII and Varivaxseparately.
ProQuadis Mercks investigational vaccine that adds the chickenpox vaccine to
Mercks existing measles, mumps and rubella vaccine. The Company expects to
submit a PLA to the FDA for ProQuadin the second half of 2004. Merck continued to augment its internal research efforts with a comprehensive
licensing and external alliance strategy across the entire spectrum of
collaborations from early research to late-stage compounds, as well as new
technologies and targeted acquisitions. In the first half of 2004, Merck
executed 26 significant transactions, including research collaborations,
pre-clinical and clinical compounds and technology transactions, and has more
than 40 opportunities currently in detailed review. Since the beginning of
2002, Merck has entered into more than 110 such transactions. In April, Merck and Bristol-Myers Squibb Company entered into a global
collaborative agreement for muraglitazar, Bristol-Myers Squibbs dual PPAR
(peroxisome proliferator-activated receptor) agonist, currently in Phase III
clinical development for use in treating both blood glucose and lipid
abnormalities in patients with type 2 diabetes. Bristol-Myers Squibb received
a $100.0 million upfront payment and may receive up to $275.0 million in
additional payments based on the achievement of certain regulatory milestones.
Merck and Bristol-Myers Squibb plan to file the U.S. NDA for muraglitazar in
the next six months. Merck and Bristol-Myers Squibb will jointly develop the
clinical and marketing strategy for muraglitazar and share equally in future
development and commercialization costs. Both companies will co-promote the
product to physicians on a global basis, and Merck will receive payments based
on net sales levels. In June, Merck and Vertex Pharmaceuticals Incorporated (Vertex) entered into a
global collaboration to develop and commercialize VX-680, Vertexs lead Aurora
kinase inhibitor that is expected to enter clinical development this year for
the treatment of cancer. Aurora kinases are implicated in the onset and
progression of many different human cancers, and novel Aurora kinase inhibitors
such as VX-680 have the potential to play an important future role in the
treatment and management of a wide range of tumor types. Vertex received a
$20.0 million upfront payment and could receive up to an additional $14.0
million in research funding over the next two years. In addition, Vertex could
receive additional milestone payments based upon the achievement of significant
development events, regulatory filings and other events and approvals. Also in June, Merck and H. Lundbeck A/S (Lundbeck) announced an extension of
their agreement for the exclusive development and commercialization of the
sleep disorder compound gaboxadol to Japan. In February, the two companies
announced their alliance for the exclusive U.S. development and
commercialization of gaboxadol. The companies anticipate that Merck will file
an NDA with the FDA between late 2006 and mid-2007. Under the terms of the
extended agreement, Merck and Lundbeck will jointly conduct the clinical
program required for filing an NDA in Japan, with Merck funding the majority of
the development activities. Following approval, the companies plan to
co-promote gaboxadol in Japan. Lundbeck will receive a share of Japanese
gaboxadol sales. The chart below reflects the Companys research pipeline as of July 30, 2004.
Candidates shown in Phase III include specific products. Candidates shown in
Phase I, II and III include the most advanced compound with a specific mechanism in
a given therapeutic area. Back-up compounds, regardless of their phase of
development, additional indications in the same therapeutic areas and
additional line extensions or formulations for in-line products are not shown.
Preclinical areas shown are those where the Company has initiated Good
Laboratory Practices (GLP) studies in compounds with mechanisms distinct from
those in Phase I, II and III. The Companys programs are generally designed to
focus on the development of novel medicines to address large, unmet medical
needs. - 15 -




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Preclinical
    
    Phase I
    
    Phase II
    
    Phase IIIDiabetes
Obesity
Alzheimers Disease
Parkinsons Disease
Sleep Disorders
Pain
Cancer
Osteoporosis
Arthritis
Immunology
Glaucoma
Urinary Incontinence
Antibacterial
Vaccines
    
    Diabetes
     c-3347Pain
     c-1246Alzheimers Disease    
c-7617    
c-9138Glaucoma    
c-3859Osteoporosis    
c-3578Multiple Sclerosis    
c-6448AIDS    
c-1605Vaccines    
HIV vaccine
    
    Alzheimers Disease    

c-9136Arthritis    

c-5997
     c-4462Respiratory Disease    

c-3193
    
c-3885Obesity    

c-5093    

c-2624    

c-2735Atherosclerosis    

c-8834Psychiatric Disease    

c-9054CINV    

c-9280Cancer    

SAHAVaccines    

Pediatric combination
    
    Vaccines   



Rotavirus          

RotaTeq      

Shingles         

Zoster vaccine      


Human Papillomavirus         

HPV vaccineDiabetes      

MK-431      

Muraglitazar*Sleep Disorders      

Gaboxadol
*in collaboration with
Bristol-Myers Squibb2003 U.S. Submissions
Arthritis/PainArcoxia2004 U.S. Submissions

Pediatric VaccineProQuad(2H04)
 Financial Guidance for 2004 Worldwide net sales will be driven by the Companys major in-line products,
including the impact of new studies and indications. Sales forecasts for those
products for 2004 are as follows: Zocor$4.9 to $5.1 billion, Fosamax$3.0 to
$3.2 billion, Cozaarand Hyzaar$2.7 to $2.9 billion, coxibs (Vioxxand
Arcoxia) $2.8 to $3.0 billion, and Singulair$2.4 to $2.7 billion. Under an agreement with AZLP, Merck receives revenue at predetermined rates on
the U.S. sales of certain products by AZLP, most notably Prilosecand Nexium.
In 2004, Merck anticipates these revenues to be approximately $1.5 to $1.7
billion. The
income contribution related to the Merck and Schering-Plough
partnership
is expected to be positive in 2004. Equity income from affiliates includes the
results of the Merck and Schering-Plough partnership combined with the
results of Mercks other joint venture relationships. Equity income from
affiliates is expected to be approximately $850 to $950 million for 2004. Merck continues to expect that manufacturing productivity will offset inflation
on product costs. Product gross margin percentage is estimated to be approximately 80% to 81% as
a result of changes to the sales mix. Research and development expense (which excludes joint ventures) is anticipated
to increase at a high-teens percentage growth rate over the full-year 2003
level. This guidance includes acquired research and development expenses in
2003 and 2004. Consolidated marketing and administrative expense is estimated to be at the
same level as the full-year 2003 expense. This guidance excludes restructuring
costs in 2003 and 2004. The consolidated 2004 tax rate is estimated to be approximately 28% to 29%. - 16 -




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Merck plans to continue its stock buyback program in 2004. As of June 30, $9.1
billion remains under the current buyback authorizations approved by Mercks
Board of Directors. The Company is on track to eliminate 4,400 positions worldwide. Approximately
4,000 positions had been eliminated as of June 30. This program, which was
announced in October 2003, will be completed by the end of 2004. Restructuring
costs for full-year 2004 are expected to be approximately $60 to $80 million.
When complete, the cost reductions are expected to generate annual savings of
payroll and benefits costs of $250 to $300 million starting in 2005. Given these guidance elements, and including the effect of the restructuring,
Merck anticipates full-year 2004 earnings per share (EPS) of $3.11 to $3.17 and
third-quarter EPS of $0.80 to $0.84. Liquidity and Capital Resources ($ in millions)
    
    June 30, 2004
    
    December 31, 2003Cash, cash equivalents and short-term
investments
    
    $
    6,177.1
    
    
    $
    4,173.0Working capital
    
    $
    3,606.8
    
    
    $
    1,957.6Total debt to total liabilities and equity
    
    
    15.8
    %
    
    
    16.7
    %
 Cash provided by operations continues to be the Companys primary source of
funds to finance operating needs and capital expenditures. Net cash provided
by operating activities totaled $4.2 billion and $3.3 billion for the six
months ended June 30, 2004 and 2003, respectively. Capital expenditures for the six months totaled $762.1 million and $903.1
million in 2004 and 2003, respectively. Capital expenditures for the full year
2004 are expected to approximate $1.7 billion. Dividends paid to stockholders were $1.6 billion for the first six months of
2004 and 2003. In May and July 2004, the Board of Directors declared quarterly
dividends of 37 and 38 cents per share on the Companys common stock for the
third and fourth quarters of 2004, respectively. The Companys total
dividends paid during 2004 will be $1.49 per share, a three percent increase
over the amount paid during the same period in 2003. The Company purchased $444.0 million of its Common Stock (9.5 million shares)
for its Treasury during the first six months of 2004. The Company has
approximately $9.1 billion remaining under the July 2002 treasury stock
purchase authorization. Other Matters In order to ensure there are no reporting relationships among members of
Mercks Board of Directors, William Daley and Heidi Miller recently resigned
from the Merck Board. Mr. Daley has assumed a position with JP Morgan Chase,
where Merck Board member William B. Harrison, Jr. is chairman and chief
executive officer. Ms. Miller, who was an employee of Bank One prior to its
merger with JP Morgan Chase, assumed a position with JP Morgan Chase after the
merger. Legal Proceedings As previously disclosed, the Company anticipates that one or more of the
lawsuits alleging personal injuries related to Vioxxmay go to trial in the
second half of 2004. The Company believes that these lawsuits are without
merit and will vigorously defend against them. However, litigation is
inherently subject to uncertainties and no assurance can be given on the
outcome of any given trial. A series of highly unfavorable outcomes could have
a material adverse effect on the Companys financial position, liquidity and
results of operations. As previously disclosed, the Company has received a subpoena from the U.S.
Department of Justice in connection with its investigation of the Companys
marketing and selling activities. The Company has also reported that it has
received a Civil Investigative Demand from the Attorney General of Texas
regarding the Companys marketing and selling activities relating to Texas. In
April, 2004, the Company received a subpoena from the office of the Inspector
General for the District of Columbia in connection with an investigation of the
Companys interactions with physicians in the District of Columbia, Maryland,
and Virginia. The Company is cooperating with all of these investigations. The
Company cannot predict the outcome of these investigations, however, it is
possible that highly 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 or state regulators may seek
information about practices in the pharmaceutical industry in inquiries other
than the investigations in this paragraph. It is not feasible to predict the
outcome of any such inquiries. - 17 -




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As previously disclosed, the trial in the United States involving the
alendronate weekly product was held in March 2003. On August 28, 2003, the
U.S. District Court in Delaware, upheld the validity of the Companys U.S.
patent covering the weekly administration of alendronate. As a result of the
courts decision, the patent is valid and infringed by Teva Pharmaceuticals
USA, Inc.s (Teva) Abbreviated New Drug Application filing. The courts
decision has been appealed by Teva, and a hearing was held on the appeal on
July 8, 2004. A decision is expected in late 2004 or early 2005. As previously announced by the Company, on July 20, 2004, the Opposition
Division (the Opposition Division) of the European Patent Office (the EPO)
rendered an oral decision to revoke the Companys patent in Europe that covers
the weekly administration of alendronate. The Opposition Division typically
provides the written reasoning within two months following an oral decision.
The Company disagrees with the decision and intends to appeal, pending the
formal written notification from the EPO. If the decision is reversed on
appeal, the Companys patent for the weekly administration of alendronate will
expire in 2018. Based on other patents, the alendronate weekly product is
protected in most major European markets until at least 2007. Generic
manufacturers have also filed challenges to the patent covering the alendronate
weekly product in a number of other countries, including Australia, Canada,
Mexico, and New Zealand. The Company intends to vigorously defend its patents,
which it believes are valid, against infringement by generic companies
attempting to market products prior to the expiration dates of such patents.
As with any litigation, including litigation concerning the alendronate weekly
product, there can be no assurance of the outcomes, which, if adverse, could
result in significantly shortened periods of exclusivity in the applicable
markets. In addition, in the United Kingdom, a previously disclosed case brought by a
generic company concerning data exclusivity and the alendronate weekly product
has recently been withdrawn. The Company believes that the Licensing Authority
in the United Kingdom is now allowing generic manufacturers to rely on the
Companys data in their product license applications. As previously disclosed, on July 6, 2004, the United States District Court for
the District of New Jersey granted a motion by the Company, Medco Health
Solutions, Inc. (Medco Health) and certain officers and directors to dismiss
a purported class action complaint involving claims related to the Companys
revenue recognition practice for retail co-payments paid by individuals to whom
Medco Health provides pharmaceutical benefits as well as other allegations.
The complaint was dismissed with prejudice. The Courts decision is subject to
appeal. The Company is awaiting a decision on a motion before the same Court
to dismiss a related shareholder derivative action. Prior to the spin-off of Medco Health, as previously disclosed, the Company and
Medco Health agreed to settle, on a class action basis, a number of lawsuits
asserting violations of the Employee Retirement Income Security Act (ERISA).
Medco Health and the Company agreed to the settlement in order to avoid the
significant cost and distraction of protracted litigation. By order dated May
25, 2004, the United States District Court for the Southern District of New
York certified a class action, determined that the settlement was fair,
reasonable, and adequate, and gave final approval to the settlement agreement
among the Company, Medco Health and Class Counsel. Under the settlement, the
Company and Medco Health have agreed to pay a total of $42.5 million, and Medco
Health has agreed to modify certain business practices or to continue certain
specified business practices for a period of five years. The financial
compensation is intended to benefit members of the settlement class, which
includes ERISA plans for which Medco Health administered a pharmacy benefit at
any time between December 17, 1994 and the date of final approval. The settlement becomes final only if and when all appeals have been resolved.
Two notices of appeal have been filed. Certain class member plans have
indicated that they will not participate in the settlement. Currently, cases
initiated by three such plans and two individuals remain pending in the
Southern District of New York. Plaintiffs in these cases have asserted claims
that are the same as or similar to the claims that had been asserted by
settling class members. The Company, along with Medco Health, is a named
defendant in these cases. At the time of the spin-off of Medco Health, Medco Health assumed substantially
all of the liability exposure for the matters discussed in the foregoing two
paragraphs. The Company believes that these cases, which are being defended by
Medco Health, are without merit. 
 Item 4. Controls and Procedures Management of the Company, with the participation of its Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Companys disclosure controls and procedures. Based on their evaluation, as of
the end of the period covered by this Form 10-Q, the Companys Chief Executive
Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) are effective. There
have been no significant changes in internal control over financial reporting,
for the period covered by this report, that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting. - 18 -




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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS This report and other written reports and oral statements made from time to
time by the Company may contain so-called forward-looking statements, all of
which are subject to risks and uncertainties. One can identify these
forward-looking statements by their use of words such as expects, plans,
will, estimates, forecasts, projects and
 other words of similar
meaning. One can identify them by the fact that they do not relate strictly to
historical or current facts. These statements are likely to address the
Companys growth strategy, financial results, product approvals and development
programs. One must carefully consider any such statement and should understand
that many factors could cause actual results to differ from the Companys
forward-looking statements. These factors include inaccurate assumptions and a
broad variety of other risks and uncertainties, including some that are known
and some that are not. No forward-looking statement can be guaranteed and
actual future results may vary materially. The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Companys filings with the Securities and Exchange Commission,
especially on Forms 10-K, 10-Q and 8-K (if any). In Item 1 of the Companys
Annual Report on Form 10-K for the year ended December 31, 2003, as filed on
March 10, 2004, the Company discusses in more detail various important factors
that could cause actual results to differ from expected or historic results.
The Company notes these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. One should understand that it is not
possible to predict or identify all such factors. Consequently, the reader
should not consider any such list to be a complete statement of all potential
risks or uncertainties. 
 PART II - Other Information 
 Item 1. Legal Proceedings Information with respect to certain legal proceedings is incorporated by
reference from Managements Discussion and Analysis of Financial Condition and
Results of Operations contained in Part 1 of this report. - 19 -




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Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities Issuer purchases of equity securities for the three month period ended June
30, 2004 is as follows: ISSUER PURCHASES OF EQUITY SECURITIES ($ in millions)Number of Shares
    
    Approximate Dollar ValueTotal Number
    
    
    
    
    
    Purchased as Part of
    
    of Shares That May Yetof Shares
    
    Average Price
    
    Publicly Announced
    
    Be Purchased Under thePeriod
    Purchased (1)
    Paid Per Share
    
    Plans or Programs(2)
    
    Plans or Programs(2)Apr 1Apr 30, 2004
    
    
    1,228,058
    
    
    $
    45.66
    
    
    
    1,227,500
    
    
    $
    9,235.7May 1 May 31, 2004
    
    
    1,617,300
    
    
    $
    46.91
    
    
    
    1,617,300
    
    
    $
    9,159.8June 1June 30, 2004
    
    
    1,758,200
    
    
    $
    47.87
    
    
    
    1,758,200
    
    
    $
    9,075.6Total
    
    
    4,603,558
    
    
    $
    46.94
    
    
    
    4,603,000
    
    
    $
    9,075.6
  (1)
    
    There were 558 shares purchased to meet the requirements of a restricted
stock program, which was not part of a publicly announced repurchase
program.  (2)
    
    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 The following matters were voted upon at the Annual Meeting of Stockholders
held on April 27, 2004, and received the votes set forth below:  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: For
    
    WithheldWilliam G. Bowen, Ph.D.
    
    
    1,829,170,376
    
    
    
    54,803,447William M. Daley
    
    
    1,828,064,855
    
    
    
    55,908,968Thomas E. Shenk, Ph.D.
    
    
    1,813,084,495
    
    
    
    70,889,328Wendell P. Weeks
    
    
    1,818,468,022
    
    
    
    65,505,801Peter C. Wendell
    
    
    1,814,148,478
    
    
    
    69,825,345
  2.
    
    A proposal to ratify the appointment of independent auditors for 2004
received 1,823,849,901 votes FOR and 42,143,814 votes AGAINST, with
18,047,632 abstentions.3.
    
    A proposal to amend the Restated Certificate of Incorporation received
1,819,528,332 votes FOR and 42,062,845 votes AGAINST, with 22,348,811
abstentions.4.
    
    A stockholder proposal concerning management compensation received
102,377,162 votes FOR and 1,319,758,711 votes AGAINST, with 33,939,601
abstentions and 427,965,873 broker non-votes.5.
    
    A stockholder proposal concerning extension of prescription drug patents
received 104,400,639 votes FOR and 1,227,982,412 votes AGAINST, with
123,711,078 abstentions and 427,947,218 broker non-votes.6.
    
    A stockholder proposal concerning ethical and social performance of the
Company received 58,360,595 votes FOR and 1,284,975,896 votes AGAINST,
with 112,742,741 abstentions and 427,962,115 broker non-votes.7.
    
    A stockholder proposal concerning use of shareholder resources for political
purposes received 135,947,894
votes FOR and 1,206,271,047 votes AGAINST, with 113,866,603 abstentions and
427,955,803 broker non-votes.8.
    
    A stockholder proposal concerning a report related to the global HIV/AIDS
pandemic received 181,807,418 votes
FOR and 1,150,837,735 votes AGAINST, with 123,457,570 abstentions and
427,938,624 broker non-votes. - 20 -




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##### Table of Contents



Item 6. Exhibits and Report on Form 8-K  (a)
    
    Exhibits Number
    
    Description3.1
    
    Restated Certificate of Incorporation of Merck & Co., Inc.
(September 1, 2000)  Incorporated by reference to Form 10-Q
Quarterly Report for the period ended September 30, 20003.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of
Merck & Co., Inc. (effective June 10, 2004)  Incorporated by reference to
Registration Statement on Form S-8 (No. 333-117737)3.3
    
    By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997)
 Incorporated by reference to Form 10-Q Quarterly Report for the period
ended March 31, 199710.1
    
    Plan for Deferred Payment of Directors Compensation (amended and
restated April 2, 2004)10.2
    
    Merck & Co., Inc. Deferral Program (amended and restated April 2, 2004)12
    
    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
  (b)
    
    Reports on Form 8-K During the three-month period ending June 30, 2004, the Company furnished
one Current Report on Form 8-K pursuant to Item 9  Regulation FD
Disclosure and Item 12  Results of Operations and Financial Condition:
Report dated and furnished April 22, 2004, regarding earnings for first
quarter 2004 and certain supplemental information. - 21 -




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##### Table of Contents



Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. MERCK & CO., INC.Date: August 6, 2004
    
    /s/ Kenneth C. FrazierKENNETH C. FRAZIERSenior Vice President and General CounselDate: August 6, 2004
    
    /s/ Richard C. HenriquesRICHARD C. HENRIQUESVice President, Controller
 - 22 -




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##### Table of Contents



EXHIBIT INDEX Number
    
    Description3.1
    
    Restated Certificate of Incorporation of Merck & Co., Inc. (September 1, 2000)
 Incorporated by reference to Form 10-Q Quarterly Report for the period
ended September 30, 20003.2
    
    Certificate of Amendment of Restated Certificate of Incorporation of
Merck & Co., Inc. (effective June 10, 2004)  Incorporated by reference to
Registration Statement on Form S-8 (No. 333-117737)3.3
    
    By-Laws of Merck & Co., Inc. (as amended effective February 25, 1997)
 Incorporated by reference to Form 10-Q Quarterly Report for the period
ended March 31, 199710.1
    
    Plan for Deferred Payment of Directors Compensation (amended and
restated April 2, 2004)10.2
    
    Merck & Co., Inc. Deferral Program (amended and restated April 2, 2004)12
    
    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
 - 23 -