SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______to ____________.
Commission File Number: 1-3305
Employer Identification Number: 66-0288298
Plan Number: 061
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
(Full title of the plan)
MERCK & CO., INC.
(Name of issuer of the securities held pursuant to the plan)
P.O. Box 100
Whitehouse Station, New Jersey 08889-0100
(Address of principal executive office)
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
PAGE
----
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Benefits
at December 31, 2002 and 2001 2
Statement of Changes in Net Assets Available for Benefits
for the year ended December 31, 2002 3
Notes to Financial Statements 4 - 7
Supplemental Schedule*:
H - Line 4i - Schedule of Assets (Held at End of Year) 8
Signature 9
Exhibit Index 10
Exhibit 23 - Consent of Independent Accountants 11
Exhibit 99.1 - Certification by the Chief Executive Officer of the
Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 12
Exhibit 99.2 - Certification by the Chief Financial Officer of the
Merck Puerto Rico Employee Savings and Security Plan Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13
* Other schedules required by Section 2520.103-10 of the Department of Labor
Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable.
[PRICEWATERHOUSECOOPERS LOGO]
PRICEWATERHOUSECOOPERS LLP
254 Munoz Rivera Avenue
BBV Tower, 9th Floor
Hato Rey PR 00918
Telephone (787) 754-9090
Facsimile (787) 766-1094
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Plan Administrator of the
Merck Puerto Rico Employee Savings and Security Plan
In our opinion, the accompanying statements of assets available for benefits and
the related statement of changes in assets available for benefits present
fairly, in all material respects, the assets available for benefits of Merck
Puerto Rico Employee Savings and Security Plan (the "Plan") at December 31, 2002
and 2001, and the changes in assets available for benefits for the year ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) is presented for the purpose of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. This
supplemental schedule is the responsibility of the Plan's management. The
supplemental schedule has been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
The Schedule of Assets (Held at End of Year) that accompanies the Plan's
financial statements does not disclose the historical cost of certain
nonparticipant directed plan assets held by the Plan's trustee. Disclosure of
this information is required by the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Securities Act
of 1974.
/s/ PRICEWATERHOUSECOOPERS LLP
May 2, 2003
CERTIFIED PUBLIC ACCOUNTANTS
(OF PUERTO RICO)
License No. 216 Expires Dec. 1, 2004
Stamp 1862757 of the P.R. Society of
Certified Public Accountants has been
affixed to the file copy of the report
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
ASSETS
Investments, at market value $31,257,692 $29,831,972
Participant Loans, at contract value 2,135,301 2,103,597
----------- -----------
Total investments 33,392,993 31,935,569
----------- -----------
Receivables:
Employer's contribution 44,076 40,915
Participants' contributions 188,942 144,925
Accrued interest and dividends 167,959 159,598
----------- -----------
Total receivables 400,977 345,438
----------- -----------
Net assets available for benefits $33,793,970 $32,281,007
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
Additions to net assets attributed to:
Investment income:
Net depreciation in market value of investments $ (1,555,934)
Interest and dividends 839,322
------------
Net investment loss (716,612)
------------
Contributions to the Plan:
By participants 4,636,974
By employer 1,322,204
------------
Total contributions 5,959,178
------------
Total additions 5,242,566
Deductions from assets attributed to:
Benefits paid to participants (3,729,603)
------------
Net increase in assets available for benefits 1,512,963
Net assets available for benefits, beginning of the year 32,281,007
------------
Net assets available for benefits, end of the year $ 33,793,970
============
The accompanying notes are an integral part of these financial statements.
3
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
1. DESCRIPTION OF THE PLAN
The following description of the Merck Puerto Rico Employee Savings and
Security Plan (the "Plan") provides only general information.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
General
The Plan is a profit sharing plan designed to provide an opportunity
for employees of Merck Sharp & Dohme Quimica de Puerto Rico, Inc. and
Merck Sharp & Dohme (I.A.) Corp. (the "Companies") to become
stockholders of Merck & Co., Inc. ("Merck") and to encourage them to
save on a regular basis by setting aside part of their earnings.
Regular full-time and part-time employees of the Companies, as defined
in the Plan document, who have completed at least one year of
employment and are not covered by a collective bargaining agreement,
are eligible to enroll in the Plan.
The Plan is administered by the Employee Benefits Committee appointed
by the President of the Companies. All costs of administering the Plan
are borne by the Companies.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
Contributions
Participants may contribute from 2% up to 15% of their base pay,
provided that pre-tax contributions shall not exceed 10% of base
compensation or $8,000. In addition, the Companies match 50% of pre-tax
and after-tax employee contributions up to 2.5% of each participant's
base compensation applicable to the pay period in which the
contribution is being made. The Companies' matching contributions are
invested entirely in Merck common stock (non-participant directed) and
may not be reallocated into any other investment option.
Participants direct the investment of their contributions into any
investment option including the Merck Common Stock Fund (participant
directed). During 2002, the Plan offered 21 investment options: 20
mutual funds and the Merck Common Stock Fund.
Participant Accounts
Each participant account is credited with the participant's
contribution, the Companies' matching contribution, and allocation of
Plan earnings. The allocation is based on participants' account
balances, as defined in the Plan document.
Vesting
Participants are immediately vested in their contributions, all
Companies' matching contributions, plus actual earnings thereon.
Participant Loans
Participants may borrow from their account balances with interest
charged at prime rate plus 1%. Loan terms range from one to five years
or up to thirty years for the purchase of a primary residence. The
minimum loan is $500 and the maximum loan is the lesser of $50,000 less
the highest outstanding loan balance during the one year period prior
to the new loan application date, or 50% of the participant's account
balance less any current outstanding loan balance.
4
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
Payment of Benefits
Participants are entitled to receive automatic, voluntary, in-service
(which include hardship withdrawals), or mandatory distributions as
provided in the applicable Plan provisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements are prepared on the accrual basis of
accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Management believes that these estimates are adequate. Actual results
could differ from those estimates.
Investment Valuation and Income Recognition
The investments of the Plan are stated at quoted market prices in an
active market (except for participant loans which are presented at the
outstanding balance). Shares of mutual funds are presented at quoted
market prices which represent the net asset value of the shares held by
the Plan at the reporting date.
Purchases and sales of securities are recorded on a trade-date basis.
Dividend income is recorded on the ex-dividend date. The Plan presents
in the statement of changes in net assets available for benefits the
net appreciation (depreciation) in the fair value of its investments
which consists of the realized gains or losses and the unrealized
appreciation (depreciation) on them. Interest income on participant
loans is recorded on accrual basis.
Contributions
Employee and Company matching contributions are recorded in the period
in which the Company makes the payroll deductions from the
participants' earnings.
Payment of Benefits
Benefits are recorded when paid.
Transfer of Assets to Other Plans
Company employees or retirees may elect to transfer their savings to
other plans qualified by the Puerto Rico Department of Treasury or by
the U.S. Internal Revenue Service (the "IRS").
5
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
Risks and Uncertainties
The Plan provides for various investment options in investment
securities. Investment securities, in general, are exposed to various
risks, such as interest rate, credit and overall market volatility. Due
to the level of risk associated with certain investment securities, it
is reasonably possible that changes in the values of investment
securities will occur in the near term and that such changes could
materially affect the amounts reported in the statement of net assets
available for benefits.
Reclassifications
Certain reclassifications have been made to prior year financial
statements to conform with current year presentation.
3. INVESTMENTS
The following presents investments that represent 5% or more of the
Plan's net assets as of year-end.
2002 2001
Shares of Merck Common Stock Fund $ 27,280,847 * $ 26,241,792 *
Participants loans 2,135,301 2,103,597
* Includes non-participant directed portion
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year)
depreciated in value by $1,555,934 as follows:
2002
Mutual Funds $ 751,050
Merck Common Stock Fund 804,884
----------
$1,555,934
==========
4. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and the significant components of the
changes in net assets relating to non-participant directed investments
is as follows:
2002 2001
---------- ----------
Assets -
Merck Common Stock Fund $8,755,749 $8,399,740
========== ==========
6
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
YEAR ENDED
DECEMBER 31,
2002
-----------
Changes in net assets:
Contributions $ 1,254,938
Dividends and interest 256,872
Net depreciation (262,782)
Benefits paid to participants (706,564)
Transfers to participants loan accounts and other plans (186,455)
-----------
$ 356,009
===========
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Fidelity
Management Trust Company ("Fidelity"). Fidelity is the record keeper as
defined by the Plan and, therefore, these transactions qualify as
party-in-interest transactions.
Merck & Co., Inc. also is a party-in-interest to the Plan under the
definition provided in Section 3(14) of ERISA. Therefore, Merck Common
Stock Fund transactions qualify as party-in-interest transactions.
6. PLAN TERMINATION
Although they have not expressed any intent to do so, the Companies
have the right under the Plan to discontinue its contributions at any
time and to terminate the Plan subject to the provisions of ERISA.
7. TAX STATUS
The Plan obtained a tax determination letter from the Puerto Rico
Department of Treasury dated February 18, 1998 indicating that it had
been designed in accordance with applicable sections of the Puerto Rico
Internal Revenue Code of 1994 ("PRIRC") and is, therefore, exempt from
Puerto Rico income taxes. Therefore, no provision for income taxes has
been included in the Plan's financial statements.
* * * * *
7
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS
(HELD AT END OF YEAR)
IDENTITY OF ISSUE, BORROWER, SHARE CURRENT
LESSOR OR SIMILAR PARTY DESCRIPTION OF INVESTMENT BALANCE COST VALUE
* Merck & Co., Inc Merck Common Stock 1,396,153.873 ** $ 27,280,847
* Fidelity Investments Fidelity Equity-Income Fund 3,663.216 *** 145,320
Fidelity Retirement Money Market Fund 732,453.710 *** 732,454
Spartan U.S. Equity Index Fund 4,251.886 *** 132,446
Spartan Government Income Fund 2,513.187 *** 28,324
Fidelity Low-Priced Stock Fund 12,335.918 *** 310,495
Fidelity Dividend Growth Fund 19,373.789 *** 432,423
Putnam Investments Putnam Vista A Fund 32,716.789 *** 195,974
Putnam International Voyager Fund 1,213.401 *** 16,842
Putnam Global Equity Fund A 435.243 *** 2,572
T. Rowe Price T. Rowe Price Blue Chip Growth Fund 32,839.173 *** 720,820
The Vanguard Group Vanguard Assets Allocation Fund 10,228.941 *** 184,837
The Capital Group Company American Funds Europacific A 9,283.349 *** 213,239
American Century Investment American Century Emerging Markets
Services, Inc. Investment Fund 14,899.927 *** 52,001
Franklin Templeton Franklin Small-Mid Cap Growth Fund A 7,852.960 *** 172,372
Liberty Wagner Asset Liberty Acorn Fund - Class Z 2,261.306 *** 35,050
Management, L.P.
Janus Janus Enterprises 304.708 *** 6,993
Janus Growth & Income 18,564.916 *** 433,305
PIMCO PIMCO Total Return Fund - Institutional Class 7,806.195 *** 83,292
PIMCO Long-Term Government Fund -
Institutional Class 6,629.135 *** 73,318
PIMCO Foreign Bond Institution Fund -
Institutional Class 450.638 *** 4,768
* Participants' Loan Interest rates ranging from 6.0% to 10.5%
and with maturities through 2012 *** 2,135,301
Total $ 33,392,993
* Denotes a party-in-interest to the Plan
** Historical cost is not available from the Trustee
*** Cost is not required for participant directed investment
8
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned plan administrator has duly caused this annual report to be signed
on behalf of the Merck Puerto Rico Employee Savings and Security Plan by the
undersigned hereunto duly authorized.
Merck & Co., Inc., as plan administrator
By: /s/ Caroline Dorsa
-----------------------------------
Caroline Dorsa
Vice President & Treasurer
June 27, 2003
9
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
23 Consent of Independent Accountants 11
99.1 Certification by the Chief Executive Officer of the
Merck Puerto Rico Employee Savings and Security Plan
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 12
99.2 Certification by the Chief Financial Officer of the
Merck Puerto Rico Employee Savings and Security Plan
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 13
10