UNITED STATES
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, 2003
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: 22-1109110
Plan Number: 004
MERCK & CO., INC. EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
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(Full title of the plan)
MERCK & CO., INC.
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(Name of issuer of the securities held pursuant to the plan)
P.O. Box 100
Whitehouse Station, New Jersey 08889-0100
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(Address of principal executive office)
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
EMPLOYER IDENTIFICATION NUMBER: 22-1109110
PLAN NUMBER: 004
INDEX
PAGE
Report of Independent Registered Public Accounting Firm 1
Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 2003 and 2002 2
Statement of Changes in Net Assets Available for
Benefits for the Year Ended December 31, 2003 3
Notes to Financial Statements 4 - 9
Supplemental Schedule*
H - Line 4 i - Schedule of Assets (Held at End of Year) 10
Signature 11
Exhibit Index 12
Exhibit 23 - Consent of Independent Registered Public Accounting Firm 13
* Other schedules required by Section 2520.103-10 of the Department of Labor
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 are omitted because they are not
applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of the
Merck & Co., Inc. Employee Stock Purchase and Savings Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Merck & Co., Inc. Employee Stock Purchase and Savings Plan (the "Plan")
at December 31, 2003 and 2002, and the changes in net assets available for
benefits for the year ended December 31, 2003 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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) as of December 31, 2003 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. The 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.
/s/PricewaterhouseCoopers LLP
Florham Park, NJ
June 24, 2004
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
2003 2002
ASSETS
Investment in the Master Trust $296,325,275 $295,114,642
Participant loans at cost 10,826,823 10,049,597
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Total investments 307,152,098 305,164,239
RECEIVABLES
Employer contribution 152,776 146,787
Participant contributions 471,559 472,386
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Total receivables 624,335 619,173
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Net assets available for benefits $307,776,433 $305,783,412
============ ============
The accompanying notes are an integral part of these financial statements.
-2-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED
DECEMBER 31,
2003
ADDITIONS TO NET ASSETS ATTRIBUTED TO
Investment loss from the Master Trust
Net depreciation in fair value of investments $ (9,844,020)
Interest and dividends 7,622,944
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Net investment loss (2,221,076)
Contributions to the Plan
By participants 23,558,693
By employer 7,377,444
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Total contributions 30,936,137
Transfers in 358,993
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Total additions 29,074,054
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO
Benefits paid to participants (24,983,988)
Transfers out (2,097,045)
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Total deductions (27,081,033)
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Net increase 1,993,021
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 305,783,412
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End of year $ 307,776,433
=============
The accompanying notes are an integral part of these financial statements.
-3-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN
The following description of the Merck & Co., Inc. Employee Stock Purchase
and Savings 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 was designed to provide an easy, economical way for employees to
become stockholders of Merck & Co., Inc. (the "Company" or "Merck") as
well as a systematic means of saving and investing for the future.
Generally, any regular full-time, part-time, or temporary employee of the
Company who is a U.S. resident covered by a collective bargaining
agreement providing for participation in this Plan as defined by the Plan
document, are eligible to participate in the Plan on or after the first
day of the third month following commencement of employment.
The Plan is administered by a management committee appointed by the Chief
Executive Officer of the Company.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
MASTER TRUST
The assets of the Plan are maintained, for investment purposes only, on a
commingled basis with the assets of the Merck & Co., Inc. Employee Savings
& Security Plan in the Merck & Co., Inc. Employee Savings & Security Plan
and the Merck & Co., Inc. Employee Stock Purchase & Savings Plan Trust
(the "Master Trust"). The plans do not own specific Master Trust assets
but rather maintain individual beneficial interests in such assets. The
portion of fund assets allocable to each plan is based upon the
participants' account balance within each plan. Investment income for each
fund is allocated to each plan based on the relationship of each plan's
beneficial interest in the fund to the total beneficial interest of all
plans in the fund.
The assets of the Medco Health 401(k) Savings Plan were transferred out of
the Master Trust on January 1, 2003.
CONTRIBUTIONS
Depending on the terms of the applicable collective bargaining agreements,
employees earning less than $90,000 are allowed to contribute a maximum of
18% or 25% of base pay. Employees earning $90,000 or more are limited to
maximum contributions of 15% of base pay. However, pre-tax contributions
shall not exceed the 2003 IRS limit of $12,000. In addition, the Company
will match 60% or 65% of employee contributions up to 6% of base pay per
pay period as negotiated with each bargaining group. Company matching
contributions are invested according to the following age parameters:
Under age 50 -- 50% of Company matching contributions are invested in the
Merck Common Stock Fund (non-participant directed) and 50% are invested in
the funds to which the participant is currently contributing (participant
directed).
-4-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
Age 50 and above -- Participants have the option to invest all Company
matching contributions in any of the available fund options (participant
directed), except the Medco Health Common Stock Fund. Also, the Economic
Growth and Tax Relief Reconciliation Act of 2001 permits catch-up
contributions that are designed to provide individuals age 50 and above
with an additional pre-tax retirement savings opportunity. As such,
eligible participants in the Plan could contribute an additional $2,000
for 2003.
Participants direct the investment of their contributions into any mutual
fund investment option available under the Plan as well as Merck Common
Stock (participant directed). During 2003, the Plan offered 18 mutual
funds, the Medco Health Common Stock Fund and the Merck Common Stock Fund.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contribution, the Company's 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 Company
matching contributions, plus actual earnings thereon.
PARTICIPANT LOANS
Participants may borrow from their account balances with interest charged
at the prime rate plus 1%. Loan terms range from one to five years for a
short term loan 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(s) 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 and defaulted
loan amounts.
PAYMENT OF BENEFITS
In-service (which include hardship withdrawals) and termination
distributions are made throughout the year in accordance with applicable
Plan provisions.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying 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.
-5-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
INVESTMENT VALUATION AND INCOME RECOGNITION
Valuation of investments of the Plan represents the Plan's allocable
portion of the Master Trust. Quoted market prices are used to value
investments. Participant loans are valued at their outstanding balances,
which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Dividend income is recorded on the ex-dividend date.
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.
EXPENSES
The Plan's administrative expenses are paid by the Company.
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 statements of net assets available for benefits and the
statement of changes in net assets available for benefits.
3. NON-PARTICIPANT-DIRECTED INVESTMENTS
The non-participant-directed portion of the Company match is invested in
the Merck Common Stock Fund. Information about the net assets and the
significant components of the changes in net assets relating to the Merck
Common Stock Fund is as follows:
DECEMBER 31,
2003 2002
Net assets
Investment in the Master Trust $ 177,678,728 $ 219,469,019
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-6-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED
DECEMBER 31,
2003
Additions to net assets
Investment loss from the Master Trust
Net depreciation in fair value of investments $ (30,006,454)
Interest and dividends (5,906,799)
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Net investment loss (35,913,253)
Contributions
By participants 12,931,347
By employer 5,371,527
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Total contributions 18,302,874
Transfers in 15,484,433
Participant loan repayments 3,338,602
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Total additions 1,212,656
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Deductions from net assets
Benefits paid (14,877,041)
Transfers out (24,554,662)
Participant loan issuance (3,571,244)
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Total deductions (43,002,947)
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Net decrease $ (41,790,291)
==============
4. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Fidelity
Management Trust Company ("Fidelity"). Fidelity is the trustee as defined
by the Plan and, therefore, these transactions qualify as
party-in-interest transactions. As of December 31, 2003, the total market
value of investments in the mutual funds managed by Fidelity was
$48,561,193.
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. As of
December 31, 2003, the market value of investments in the Merck Common
Stock Fund was $177,294,701.
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA.
-7-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
6. TAX STATUS
The Plan obtained a tax determination letter from the Internal Revenue
Service dated August 20, 2003 indicating that it had been designed in
accordance with applicable sections of the Internal Revenue Code ("IRC").
However, the Plan has been amended since the receipt of the determination
letter. The Plan sponsor and legal counsel believe that the Plan is
designed and currently operated in compliance with the IRC. Therefore, no
provision for income taxes has been made.
7. OTHER MATTERS
Transfers in during 2003 of $358,993 consist of transfers between the
Plan and the Merck & Co., Inc. Employee Savings & Security Plan for
employees who changed their status during the year.
Transfers out consist of transfers of $2,097,045 for employees who
transferred out to the Merck & Co., Inc. Employee Savings and Security
Plan.
As a result of the Medco Health Solutions' spin-off in 2003, the Plan's
participants who were invested in the Merck Common Stock Fund on the
distribution date received a pro rata distribution of 0.1206 unit of the
Medco Health Common Stock Fund for each unit of the Merck Common Stock
Fund. The Medco Health Common Stock Fund will expire two years from the
distribution date. Participants have the option to transfer investments
out of the Medco Health Common Stock Fund at any time prior to the
expiration date. However, neither future contributions nor existing
balances in other investment options can be invested in the Fund. Any
remaining balances in this Fund will be transferred automatically to a
money market or similar investment fund.
8. MASTER TRUST
The Plan had an approximate 10% and 9% interest in the Master Trust at
December 31, 2003 and December 31, 2002 respectively. The net assets of
the Master Trust are as follows:
DECEMBER 31,
2003 2002
Mutual Funds $ 1,783,503,317 $ 1,472,422,521
Medco Health Common Stock 96,729,732 -
Merck Common Stock 1,197,321,319 1,651,008,624
Accrued interest and dividends 9,629,922 10,375,281
---------------- ----------------
$ 3,087,184,290 $ 3,133,806,426
================ ================
-8-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
Total investment income of the Master Trust for the year ended December 31, 2003
is as follows:
Investment income, net
Interest and dividends $ 60,628,357
Net appreciation in mutual funds 308,154,136
Net appreciation in Medco Health Common Stock 30,830,524
Net depreciation in Merck Common Stock (197,127,500)
---------------
Total investment income 202,485,517
===============
-9-
MERCK & CO., INC.
EMPLOYEE STOCK PURCHASE AND SAVINGS PLAN
SCHEDULE H
LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR) EIN: 22-1109110
DECEMBER 31, 2003 PLAN NO.: 004
(c) DESCRIPTION OF INVESTMENT INCLUDING
(b) IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, COLLATERAL, PAR (e) CURRENT
(a) LESSOR OR SIMILAR PARTY OR MATURITY VALUE (d) COST VALUE
* Participant Loans Interest rates ranging from 5% to 12.5% and with
maturities through 2033 - $ 10,826,823
------------
Total $ 10,826,823
============
* Denotes a party-in-interest to the Plan.
-10-
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 & Co., Inc. Employee Stock Purchase and Savings Plan by
the undersigned hereunto duly authorized.
Merck & Co., Inc. Employee Stock Purchase and
Savings Plan
By: /s/Caroline Dorsa
----------------------------------------
Caroline Dorsa
Vice President and Treasurer
June 24, 2004
-11-
EXHIBIT INDEX
Exhibit
Number Document Page
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23 Consent of Independent Registered Public Accounting Firm 13
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