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: 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 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 4-8
Supplemental Schedule*:
H - Line 4i - Schedule of Assets (Held at End of Year) 9
Signature 10
Exhibit Index 11
Exhibit 23 - Consent of Independent Registered Public Accounting Firm 12
* Other schedules required by Section 2520.103-10 of the Department of Labor's
Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not required.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of the
Merck Puerto Rico Employee Savings and Security 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 Merck Puerto Rico Employee Savings and Security 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.
The Schedule of Assets (Held at End of Year) that accompanies the Plan's
financial statements does not disclose the historical cost of certain
non-participant 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 Security Act
of 1974.
/s/PricewaterhouseCoopers LLP
San Juan, Puerto Rico
June 22, 2004
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31,
2003 2002
ASSETS
Investments at market value $ 31,759,750 $ 31,257,692
Participant loans at cost 1,858,151 2,135,301
------------ ------------
Total investments 33,617,901 33,392,993
------------ ------------
RECEIVABLES
Employer contribution 44,540 44,076
Participant contributions 170,144 188,942
Accrued interest and dividends 186,713 167,959
------------ ------------
Total receivables 401,397 400,977
------------ ------------
Net assets available for benefits $ 34,019,298 $ 33,793,970
============ ============
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
YEAR ENDED
DECEMBER 31,
2003
ADDITIONS TO NET ASSETS ATTRIBUTED TO
Investment loss
Net depreciation in market value of investments $ (2,061,203)
Dividends and interest 943,004
--------------
Net investment loss (1,118,199)
Contributions to the Plan
By participants 4,558,913
By employer 1,214,313
--------------
Total contributions 5,773,226
Total additions 4,655,027
--------------
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO
Benefits paid to participants (4,387,439)
Transfers out (42,260)
--------------
Total deductions (4,429,699)
--------------
Net increase 225,328
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 33,793,970
--------------
End of year $ 34,019,298
==============
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, 2003 AND 2002
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
contributions up to 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 mutual
fund investment option as well as the Merck Common Stock Fund (participant
directed). During 2003, the Plan offered 20 investment options: 18 mutual
funds, the Medco Health Common Stock Fund, 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, 2003 AND 2002
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 Companies matching contributions are recorded in the period
in which the Companies make the payroll deductions from the participants'
earnings.
Payment of Benefits
Benefits are recorded when paid.
Transfer of Assets to Other Plans
Companies employees or retirees may elect to transfer their savings to
other plans qualified by the Puerto Rico Treasury Department (the
"PRTD") 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, 2003 AND 2002
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.
3. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets as of year-end.
2003 2002
Merck Common Stock $ 23,916,904 * $ 27,280,847 *
Medco Health Common Stock 1,864,832 -
* Includes non-participant directed portion
During 2003, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) depreciated in value by
$2,061,203 as follows:
2003
Mutual Funds $ 1,048,984
Merck Common Stock (3,681,949)
Medco Health Common Stock 571,762
-------------
$ (2,061,203)
=============
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:
DECEMBER 31,
2003 2002
Net assets -
Merck Common Stock $ 8,379,158 $ 8,755,749
============= =============
6
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
YEAR ENDED
DECEMBER 31,
2003
Changes in net assets:
Contributions $ 1,260,905
Dividends and interest 269,153
Net depreciation (977,513)
Benefits paid to participants (922,261)
Transfers to participant loan accounts or other plans (6,875)
-------------
$ (376,591)
=============
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. As of December 31, 2003, the total market
value of investments in the mutual funds managed by Fidelity was
$2,886,153.
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 total market value of investments in the Merck
Common Stock Fund was $23,916,904.
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 PRTD 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. On
August 20, 2003, the Plan obtained a tax determination letter from the
Internal Revenue Service indicating it has 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 PRIRC and IRC. Therefore, no
provision for income taxes has been made.
7
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
8. OTHER MATTERS
Transfers during 2003 consist of transfers of $42,260 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
SUPPLEMENTAL SCHEDULE
SCHEDULE H
MERCK PUERTO RICO EMPLOYEE SAVINGS AND SECURITY PLAN
SCHEDULE OF ASSETS (HELD AT END OF YEAR) AT DECEMBER 31, 2003
(SCHEDULE H, PART IV, LINE 4i ON FORM 5500)
IDENTITY OF ISSUE, BORROWER, SHARE CURRENT
LESSOR OR SIMILAR PARTY DESCRIPTION OF INVESTMENT BALANCE COST VALUE
* Merck & Co. Inc. Merck Common Stock 1,493,872.822 ** $ 23,916,904
* Fidelity Investments Fidelity Equity-Income Fund 6,361.553 *** 316,486
Fidelity Retirement Money Market Fund 794,563.64 *** 794,564
Spartan U.S. Equity Index Fund 5,105.084 *** 201,191
Spartan Government Income Fund 3,185.752 *** 35,107
Fidelity Low-Priced Stock Fund 17,930.758 *** 627,218
Fidelity Dividend Growth Fund 21,847.468 *** 596,436
Fidelity Mid-Cap Stock Fund 14,610.607 *** 315,151
Medco Health Solutions, Inc. Medco Health Common Stock 159,660.284 *** 1,864,832
T. Rowe Price T. Rowe Price Blue Chip Growth Fund 36,472.067 *** 1,037,630
The Vanguard Group Vanguard Asset Allocation Fund 11,174.494 *** 252,097
The Capital Group Company American Funds Europacific Growth Fund A 11,045.931 *** 333,698
American Century Investment American Century Emerging Markets
Services, Inc. Investment Fund - Institutional Class 22,136.91 *** 129,280
Franklin Templeton Franklin Small-Mid Cap Growth Fund A 9,834.367 *** 297,195
Columbia Columbia Acorn Fund Z 8,051.419 *** 181,640
Janus Janus Enterprises 393.407 *** 12,262
Janus Growth & Income 22,804.634 *** 659,282
PIMCO PIMCO Total Return Fund -
Institutional Class 9,178.770 *** 98,305
PIMCO Long-term Government Fund -
Institutional Class 7,715.102 *** 83,477
PIMCO Foreign Bond Fund -
Institutional Class 673.256 *** 6,995
* Participant Loans Interest rates ranging from 5% to 10.5% and
with maturities through 2033 1,858,151
--------------
Total $ 33,617,901
==============
* Denotes a party-in-interest to the Plan
** Historical cost is not available from the Trustee
*** Cost is not required for participant directed investment
9
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 and Treasurer
June 24, 2004
10
EXHIBIT INDEX
Exhibit
Number Document Page
------- -------- ----
23 Consent of Independent Registered Public Accounting Firm 12
11